AIA Group Limited - Annual Report 2015

This announcement is for information purposes only and does not constitute an invitation or offer by any person to acquire, purchase or subscribe for securities. This announcement is not, and is not intended to be, an offer of securities of the Company for sale in the United States. The securities of the Company have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements under the U.S. Securities Act. There is not, and is not intended to be, any public offering of the securities of the Company in the United States.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

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AIA Group Limited 友邦保險控股有限公司 (Incorporated in Hong Kong with limited liability) Stock Code: 1299

ANNUAL RESULTS FOR THE YEAR ENDED 30 NOVEMBER 2015

AIA DELIVERS STRONG GROWTH IN 2015

VONB UP 26 PER CENT ON CONSTANT EXCHANGE RATES OPERATING PROFIT UP 16 PER CENT AND FINAL DIVIDEND UP 50 PER CENT

The Board of Directors of AIA Group Limited (stock code: 1299) is pleased to announce that AIA has delivered excellent results for the year ended 30 November 2015.

Strong growth in value of new business (VONB) (on a constant exchange rate basis)

26 per cent growth in VONB to US$2,198 million
Annualised new premiums (ANP) of US$3,991 million, up 14 per cent
4.6 pps increase in VONB margin to 54.0 per cent

Robust operating profit growth (on a constant exchange rate basis)

IFRS operating profit after tax (OPAT) up 16 per cent to US$3,209 million
IFRS operating earnings per share up 16 per cent to 26.81 US cents
Embedded value (EV) operating profit up 17 per cent to US$5,068 million

Strong cash flow and capital position

Underlying free surplus generation of US$3,719 million, up 10 per cent on constant exchange rates
• Net remittances up 28 per cent to US$2,195 million
EV Equity of US$39.8 billion; EV up to US$38.2 billion
Solvency ratio for AIA Co. of 428 per cent on the HKICO basis

Significant increase in recommended final dividend

50 per cent growth in final dividend to 51.00 Hong Kong cents per share
Total dividend of 69.72 Hong Kong cents per share, an increase of 39 per cent

Mark Tucker, AIA’s Group Chief Executive and President, said:

“We are delighted to have delivered another excellent performance in 2015, with VONB growth of 26 per cent on a constant exchange rate basis, which provides the clearest picture of our operating performance during periods of exchange rate volatility. Our strong results are once again the outcome of our robust and highly diversified business model with the right distribution platforms and product portfolios in the right markets, backed by our market-leading brand and financial strength.

“The Board has recommended an upward rebasing of the final dividend by 50 per cent to 51.00 Hong Kong cents per share, bringing the total dividend for 2015 to 69.72 Hong Kong cents per share. This significant dividend uplift is a direct result of the sustained success of our strategy to deliver strong profitable growth, through investing capital at attractive returns in quality new business with increased capital efficiency. It also demonstrates our tremendous confidence in AIA’s future growth prospects.

“Despite the recent volatility and uncertainty in global financial markets, Asia remains the most attractive and dynamic region for life insurance in the world. The life insurance industry continues to benefit from significant structural economic and demographic trends, rapid urbanisation and growth in disposable incomes across the region. We are confident that AIA’s leading businesses across Asia provide us with an advantaged position as we help millions of people around the region to live longer, healthier lives and plan for a brighter future.

“We enter 2016 with strong momentum and well placed to continue achieving our ambitions. The growth opportunities ahead of us are significant and our focus is on executing our proven strategy by providing quality products and services to our customers and generating sustainable value for our shareholders.”

About AIA

AIA Group Limited and its subsidiaries (collectively “AIA” or the “Group”) comprise the largest independent publicly listed pan-Asian life insurance group. It has a presence in 18 markets in Asia-Pacific – wholly-owned branches and subsidiaries in Hong Kong, Thailand, Singapore, Malaysia, China, Korea, the Philippines, Australia, Indonesia, Taiwan, Vietnam, New Zealand, Macau, Brunei, a 97 per cent subsidiary in Sri Lanka, a 26 per cent joint venture in India and a representative office in Myanmar and Cambodia.

The business that is now AIA was first established in Shanghai almost a century ago. It is a market leader in the Asia-Pacific region (ex-Japan) based on life insurance premiums and holds leading positions across the majority of its markets. It had total assets of US$168 billion as of 30 November 2015.

AIA meets the long-term savings and protection needs of individuals by offering a range of products and services including life insurance, accident and health insurance and savings plans. The Group also provides employee benefits, credit life and pension services to corporate clients. Through an extensive network of agents, partners and employees across Asia-Pacific, AIA serves the holders of more than 29 million individual policies and over 16 million participating members of group insurance schemes.

AIA Group Limited is listed on the Main Board of The Stock Exchange of Hong Kong Limited under the stock code “1299” with American Depositary Receipts (Level 1) traded on the over-the-counter market (ticker symbol: “AAGIY”).

Contacts

Investment Community		News Media
Paul Lloyd	+852 2832 6160	Stephen Thomas	+852 2832 6178
Yan Guo	+852 2832 1878	Emerald Ng	+852 2832 4720
Feon Lee	+852 2832 4704
Joel Lieginger	+852 2832 4703

FINANCIAL SUMMARY

Performance Highlights

Performance Highlights
US$ millions, unless otherwise stated	2015 2014	YoY CER YoY AER
New Business Value Value of new business (VONB) VONB margin Annualised new premiums (ANP)	2,198 1,845 54.0% 49.1% 3,991 3,700	26% 19% 4.6 pps 4.9 pps 14% 8%
Embedded Value Embedded value (EV) operating profit EV Equity Value of in-force business (VIF) Adjusted net worth (ANW) Embedded value EV operating earnings per share (US cents) EV Equity per share (US cents)	5,068 4,535 39,818 39,042 23,009 21,802 15,189 15,351 38,198 37,153 42.34 37.89 330.49 324.13	17% 12% 8% 2% 12% 6% 3% (1)% 8% 3% 17% 12% 8% 2%
IFRS Operating profit after tax (OPAT) Total weighted premium income (TWPI) Net profit Operating earnings per share (US cents) – Basic – Diluted	3,209 2,910 19,876 19,211 2,691 3,450 26.81 24.31 26.73 24.23	16% 10% 10% 3% (18)% (22)% 16% 10% 16% 10%
Dividends and Capital Dividend per share (HK cents) – Final – Total AIA Co. HKICO solvency ratio	51.00 34.00 69.72 50.00 428% 427%	n/a 50% n/a 39% n/a 1 pp

New Business Performance by Segment

US$ millions, unless otherwise stated	2015 VONB VONB Margin ANP	2014 VONB VONB Margin ANP	VONB Change YoY CER YoY AER 32% 32% 15% 9% 24% 14% 27% 7% 45% 42% (39)% (44)% 32% 18%
Hong Kong Thailand Singapore Malaysia China Korea Other Markets	820 62.0% 1,263 395 75.8% 520 341 72.4% 471 172 57.9% 292 366 83.5% 438 46 18.8% 248 250 32.9% 759	619 62.3% 952 361 63.2% 572 299 61.2% 489 161 50.1% 320 258 83.1% 311 82 21.7% 380 212 31.3% 676
Subtotal Adjustment to reflect additional Hong Kong reserving and capital requirements After-tax value of unallocated Group Office expenses	2,390 58.9% 3,991 (72) n/m n/m (120) n/m n/m	1,992 53.1% 3,700 (50) n/m n/m (97) n/m n/m	26% 20% n/m n/m n/m n/m
Total	2,198 54.0% 3,991	1,845 49.1% 3,700	26% 19%

iii

Notes:

(1) A presentation for analysts and investors, hosted by Mark Tucker, Group Chief Executive and President, is scheduled at 9:30 a.m. Hong Kong time today with attendance by pre-registration only.

An audio cast of the presentation and presentation slides will be available on AIA’s website:

http://investors.aia.com/phoenix.zhtml?c=238804&p=irol-presentations

(2) All figures are presented in actual reporting currency (US dollar) and based on actual exchange rates (AER) unless otherwise stated. Change on constant exchange rates (CER) is calculated using constant average exchange rates for 2015 and 2014.
(3) Change is shown on a year-on-year basis unless otherwise stated.
(4) VONB is calculated based on assumptions applicable at the point of sale and before deducting the amount attributable to non-controlling interests. The amounts of VONB attributable to non-controlling interests in 2015 and 2014 were US$21 million and US$13 million respectively.
(5) VONB includes pension business. ANP and VONB margin exclude pension business.
(6) ANP represents 100 per cent of annualised first year premiums and 10 per cent of single premiums, before reinsurance ceded and excluding pension business.
(7) TWPI consists of 100 per cent of renewal premiums, 100 per cent of first year premiums and 10 per cent of single premiums, before reinsurance ceded.
(8) IFRS operating profit after tax, net profit and operating earnings per share are shown after non-controlling interests unless otherwise stated.
(9) EV Equity includes goodwill and other intangible assets.
(10) Hong Kong refers to operations in Hong Kong and Macau; Singapore refers to operations in Singapore and Brunei; and Other Markets refers to operations in Australia, Indonesia, New Zealand, the Philippines, Sri Lanka, Taiwan and Vietnam.
(11) The results of our joint venture in India are accounted for using the equity method. For clarity, TWPI, ANP and VONB exclude any contribution from India.
(12) AIA’s financial information in this announcement is based on the audited consolidated financial statements and supplementary embedded value information for the year.

TABLE OF CONTENTS
	Page
Group Chief Executive and President’s Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Financial and Operating Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Business Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Regulatory Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	46
Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	47
Independent Auditor’s Report to the Shareholders of AIA Group Limited . . . . . . . . . . . . . .	47
Consolidated Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	49
Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	50
Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	51
Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
Notes to the Consolidated Financial Statements and
Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
Supplementary Embedded Value Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	186
Information for Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	211
Review of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	211
Compliance with the Corporate Governance Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	211
Purchase, Sale and Redemption of the Securities of the Company . . . . . . . . . . . . . . . . . .	211
Events after the Reporting Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	211
Publication of Certain Financial and Other Data Pursuant to
Local Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	211
Final Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	212
Closure of Register of Members and Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	212
Annual General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	212
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	213
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	214

GROUP CHIEF EXECUTIVE AND PRESIDENT’S REPORT

AIA has delivered another excellent set of results in 2015. This continues the strong growth that we have maintained since our IPO in October 2010.

Value of new business (VONB) increased to US$2,198 million, which is 26 per cent growth on a constant exchange rate basis, and we also delivered a 16 per cent growth in IFRS operating profit after tax (OPAT). This strong operating performance reflects the financially disciplined execution of our strategy. Against a backdrop of volatile global capital markets, this outstanding performance reflects a powerful combination of superior profitable growth and strong cash flow generation. This is the fifth full year in a row that we have done so, demonstrating our commitment to building a sustainable business of high quality and both the Group’s past success and our confidence in our future prospects are reflected in the Board’s decision to recommend an upward rebasing of the final dividend by 50 per cent compared with 2014.

We are still in the early stages of our exciting and long-term growth journey. AIA continues to benefit from the profound social, demographic and economic changes taking place across the region. Rapid urbanisation and industrialisation are generating and spreading new wealth, leading to significant increases in disposable incomes, particularly within an expanding middle class. Our insurance and savings products can help to mitigate some of the risks associated with the weakening of traditional family support networks and the limited state-funded welfare available in many countries. The opportunities available to us in Asia are ever-increasing and unparalleled.

AIA is exceptionally well positioned to meet the evolving needs of consumers and to benefit from the scale and resilience of these significant growth opportunities. Our unique and strong platform is based on our unrivalled access to customers through our proprietary agency and partnership distribution channels, our products tailored to local market conditions and needs, our long-established brand reputation across Asia and our financial strength. Our focus remains on generating shareholder value through continuing to increase the reach and professionalism of our distribution force, further expanding and improving our range of products and raising the quality of service and value that our customers receive, making it easier for them to do business with us.

As the leading pan-Asian life insurer, we not only benefit directly from these fundamental social and economic changes, but are also looking to harness them to help bring about long-term, sustainable economic growth to benefit our local economies and markets. By mobilising savings and pooling premiums we are able to invest billions of dollars on our policyholders’ behalf into local financial markets and infrastructure projects. Our agents are often the very first point of contact that people have with financial products and it is the scale, reach and quality of our distribution that provides the mechanism to create these long-term investments. The scale of the role AIA plays in our local markets is important, clear and unmatched.

In common with all retail financial services providers, AIA’s local businesses across the region are subject to statutory regulation. We continue to play a proactive role, especially in emerging markets, in advising and working with governments to develop effective regulatory frameworks. Since the global financial crisis of 2008, governments have focused attention on the refinement of regulatory and capital adequacy requirements that promote systematic management of risk, both within local markets and in cross-border and global operations. AIA cooperates fully and proactively in the development of these arrangements, emphasising at all times that any new measures must be specific and proportionate to the risks in question, and taking into account not only the direct impact but also any indirect effects that could lead to unintended consequences.

It is important to note that there is a fundamental difference between banking and insurance. Whereas globalisation of banking activities may on occasion give rise to systemic exposures, pure retail life insurance businesses such as AIA maintain high levels of liquidity and engage predominantly in traditional long-term life insurance product underwriting and asset-liability matched investment activity. We have minimal engagement in non-traditional, non-insurance activities. The assets supporting liabilities are effectively matched within each territory, making geographical diversification a source of financial strength.

AIA sees it as very important that due regard is paid to this fundamental distinction. Any attempt to apply a ‘one size fits all’ approach to banking and life insurance will result in increased costs to endcustomers and a potential reduction in the portfolio of products that insurers are able to offer within realistic constraints on the use of capital. This would be to the detriment of the consumer and society as a whole and the economic development of the region, especially in the region’s emerging markets where the need is most acute.

2015 PERFORMANCE HIGHLIGHTS (ON A CONSTANT EXCHANGE RATE BASIS)

The strong 26 per cent growth in VONB and 16 per cent increase in OPAT were achieved against a sometimes volatile global capital market backdrop. They demonstrate the soundness of AIA’s approach of focusing on and optimising value rather than concentrating on either market share or profit margin in isolation. Each of our geographical market segments, except for Korea, delivered double-digit VONB growth compared with 2014.

Our operations in China achieved outstanding results increasing VONB by 45 per cent, driven by a combination of growth in active agent numbers, increased agent productivity levels and a highquality product mix. Our focus on regular premium protection and long-term savings business and the consistent execution of our Premier Agency strategy differentiate the quality of AIA’s earnings, and enable us to access the substantial long-term growth opportunities available in the Chinese life insurance market.

Hong Kong and Singapore achieved very strong VONB growth of 32 per cent and 24 per cent respectively. VONB of our Thailand operation continued the positive growth momentum established in the first half of the year driven by further margin expansion. Malaysia achieved excellent VONB growth as a result of higher agent productivity based on strong ANP growth and our strategy of focusing on regular premium products with protection riders. Our Other Markets again produced a very strong performance with VONB growth of 32 per cent.

The financial position of all our businesses was robust and strong during the year, with our main operating company, AIA Co., having a solvency level of 428 per cent on the prudent HKICO basis at 30 November 2015. The financial strength ratings of AIA Co. were stable at AA- (S&P) / Aa3 (Moody’s).

The strength and diversity of our businesses across the region, and the tremendous opportunities for growth available to us, highlight the huge potential for AIA to continue future profitable expansion.

GROUP-WIDE OVERVIEW

Distribution

AIA pioneered the development of agency life insurance distribution in Asia almost a century ago and our agents continue to be at the heart of our business, accounting for 72 per cent of VONB. The disciplined execution of our Premier Agency strategy has continued to generate excellent and high-quality growth with VONB up by 25 per cent on a constant exchange rate basis compared with 2014. Other forms of distribution have a very valuable and important role to play, and partnership distribution represents a major competitive advantage for AIA. Our bancassurance, broker and direct marketing channels enhance the quality, breadth and scale of our multi-channel distribution platform by extending market reach and broadening our access to prospective customers across Asia. Our partnership distribution activity includes over 60 active and long-term bank distribution relationships across our markets. The continued nurturing of our existing partnership arrangements at both local business and Group levels resulted in a 29 per cent increase in VONB on a constant exchange rate basis compared with 2014.

Advances in technology that simplify communications between customers and our front-line staff are providing an opportunity to upgrade our service and further enhance the expertise of our agents. I have spoken in previous years about the major investment AIA is making in iPoS, our interactive point-of-sale system. The roll-out, expansion and further adaptation of iPoS and other technologies continues, including advanced immediate underwriting capabilities at time of proposal, simplifying our policy documentation and making our claims processes easier and faster for our customers.

As well as increasing our professionalism at point of sale, we have continued to invest in the training of agency management and the development of recruitment and training tools that improve agent productivity and effectiveness. The global standard for financial planners is the Million Dollar Round Table (MDRT) qualification, and AIA has the world’s largest number of registered members, with membership continuing to grow strongly across our businesses.

Marketing and Product Innovation

AIA’s The Real Life Company brand position is now well established across our markets. It reinforces our commitment to making a positive impact on our customers’ lives by supporting them through the uncertainties of life and helping them plan for the future. Alongside this, we have been developing our social media presence to gain better insights into customer needs. We have supported this by promoting our brand values through integrated television and print advertising and major outdoor events.

Major product developments in 2015 included the promotion of more flexible savings and protection products that meet changing personal needs, and a heightened emphasis across the region on the healthcare and wellness aspects of personal and family protection. AIA Vitality was launched in Hong Kong and the Philippines, joining our existing programmes in Australia and Singapore. AIA Vitality further differentiates AIA’s proposition to our customers by rewarding healthy lifestyle choices through our numerous AIA Vitality partnerships in these markets.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Our core business directly promotes the financial security of our customers and the social well-being of the communities we serve. Our CSR programme supports this proposition by ensuring that, as The Real Life Company, we are able to contribute directly to support community priorities. Healthy Living is our main theme, and our efforts focus on raising awareness of the benefits of regular exercise and good eating habits on health and on a prolonged, active life. We are also proud of the progress of our five-year deal with Tottenham Hotspur Football Club and appreciate the energy and engagement they bring to our CSR programme through team appearances and youth training events.

ENGAGEMENT WITH PEOPLE

AIA’s sustained year-on-year success would not be possible without the high levels of expertise, professionalism, commitment and care shown by employees and agents throughout the organisation. We have a distinctive culture that seeks to combine empowerment of local businesses with a shared commitment to delivering the Group’s core strategy, aligned with our purpose and consistent with our operating principles. Effective leadership and engagement are essential and in turn depend on a commitment by the Group to do everything possible to create opportunities for job satisfaction and personal development.

OUTLOOK

Asian economies continue to be resilient even as volatility returns to global capital markets as a consequence of the beginning of US monetary policy normalisation, continuing concerns about the Eurozone and China’s economic transition towards slower but higher-quality growth.

The Asia-Pacific region is the most attractive market in the world for the life insurance industry. Shortterm market volatility has little impact on our headroom for growth, particularly in emerging markets such as China, with the protection gap between the need for mortality and morbidity insurance and the levels of cover in place continuing to widen. The substantial long-term structural growth drivers of our markets remain fully intact. The consistent execution of our proven growth strategy and the resilience of AIA’s operating model will see us continue to build on our long and successful history in the region, providing high-quality products and services to our customers and generating further sustainable value for our shareholders. We remain positive and confident regarding the long-term prospects for the Group.

FINANCIAL AND OPERATING REVIEW

AIA is the largest publicly listed pan-Asian life insurance group, with a presence across 18 markets in the Asia-Pacific region. We receive the vast majority of our premiums in local currencies and we closely match our local assets and liabilities to minimise the economic effects of foreign exchange movements. When reporting the Group’s consolidated figures, there is a currency translation effect as we report in US dollars. We have provided growth rates and commentaries on our operating performance on constant exchange rates unless otherwise stated, since this provides a clearer picture of the year-on-year performance of the underlying businesses during the recent period of foreign exchange volatility.

FINANCIAL REVIEW

Summary

AIA has delivered excellent growth across all of our operating financial metrics with record new business profitability, significant growth in earnings and strong underlying free surplus generation. Our focus on achieving large-scale profitable growth, investing capital at attractive returns in quality new business and with increased capital efficiency, has once again enabled us to deliver a strong, broad-based financial performance and progressive shareholder dividends. We have delivered doubledigit growth in value of new business (VONB), embedded value (EV) operating profit as well as IFRS operating profit after tax (OPAT) on both actual and constant exchange rates.

VONB grew by 26 per cent to US$2,198 million and OPAT increased by 16 per cent to US$3,209 million. EV operating profit increased by 17 per cent driven by strong new business growth and positive operating experience from our in-force portfolio. EV Equity was US$39,818 million with a strong operating performance partly offset by investment return variances, mainly due to mark-to-market movements from our equity investment portfolio, foreign exchange translation and the payment of shareholder dividends. Underlying free surplus generation increased by 10 per cent to US$3,719 million. The solvency ratio of AIA Co. was 428 per cent and has remained robust despite interest rate, equity market and currency volatility since IPO, demonstrating the strength and resilience of our capital position. Net remittances to the Group Corporate Centre increased by 28 per cent to US$2,195 million.

Reflecting these financial results and our confidence in the future of AIA, the Board of Directors has recommended an upward rebasing of the final dividend by 50 per cent to 51.00 Hong Kong cents per share subject to shareholders’ approval, bringing the total dividend for 2015 to 69.72 Hong Kong cents per share.

Our financial results in 2015 have once again highlighted AIA’s ability to deliver a strong and resilient performance throughout market cycles and demonstrate the benefits we derive from the quality and diversity of our sources of earnings. AIA is ideally placed to continue to deliver profitable new business growth and increasing returns to our shareholders.

VALUE GROWTH

VONB increased by 26 per cent compared with 2014 to US$2,198 million.

Each of our geographical market segments, except for Korea, delivered double-digit VONB growth compared with 2014. China delivered 45 per cent growth, Hong Kong and our Other Markets achieved 32 per cent growth and Malaysia and Singapore also delivered strong VONB growth of 27 per cent and 24 per cent respectively.

ANP was higher by 14 per cent to US$3,991 million, while VONB margin increased by 4.6 pps to 54.0 per cent driven by a positive shift in product and geographical mix.

EV operating profit grew by 17 per cent to US$5,068 million, again reflecting the strong growth in VONB and overall positive operating variances of US$248 million. Operating return on EV was 14 per cent for 2015.

EV Equity was US$39,818 million and EV was US$38,198 million at 30 November 2015. The increase was mainly driven by strong EV operating profit growth of 17 per cent offset by investment return variances, mainly due to mark-to-market movements on the equity investment portfolio, foreign exchange translation and the payment of shareholder dividends.

IFRS EARNINGS

OPAT growth improved further on a strong first half performance and increased by 16 per cent to US$3,209 million compared with 2014. This excellent result was the result of strong underlying business growth and an improved overall operating margin.

AIA’s IFRS net profit definition includes mark-to-market movements from our equity portfolio. Equity markets declined significantly during the second half of 2015 compared with large gains reported previously in 2014. Consequently, IFRS net profit decreased by 18 per cent to US$2,691 million mainly due to equity market losses of US$370 million in 2015 compared with equity market gains of US$508 million in 2014.

Shareholders’ allocated equity excludes the impact of fair value movements of debt securities that are classified as available for sale as well as foreign exchange translation and provides a better reflection of the underlying movements in shareholders’ equity over the year. Shareholders’ allocated equity increased by US$1,867 million to US$26,380 million at 30 November 2015 with the increase from net profit of US$2,691 million less the payment of shareholder dividends of US$814 million.

CAPITAL AND DIVIDENDS

At 30 November 2015, the total available capital for AIA Co., our main regulated entity, was US$6,761 million as measured under the HKICO basis. The solvency ratio for AIA Co. remained stable at 428 per cent of regulatory minimum capital required compared with 427 per cent at the end of November 2014. The stable solvency ratio was the result of strong retained earnings partially offset by mark-to-market movements on the investment portfolio and dividends to AIA Group Limited.

Our local businesses remitted US$2,195 million to the Group Corporate Centre in 2015, an increase of 28 per cent compared with 2014.

The Board of Directors has recommended an upward rebasing of the final dividend by 50 per cent to 51.00 Hong Kong cents per share subject to shareholders’ approval at the Company’s forthcoming AGM. This brings the total dividend for 2015 to 69.72 Hong Kong cents per share. The Board intends to maintain AIA’s established prudent, sustainable and progressive dividend policy from this higher base.

New Business Growth

VALUE OF NEW BUSINESS (VONB), ANNUALISED NEW PREMIUMS (ANP) AND MARGIN BY SEGMENT

US$ millions, unless otherwise stated	2015(1) VONB VONB Margin ANP	2014(1) VONB VONB Margin ANP	VONB Change YOY CER YOY AER
Hong Kong Thailand Singapore Malaysia China Korea Other Markets	820 62.0% 1,263 395 75.8% 520 341 72.4% 471 172 57.9% 292 366 83.5% 438 46 18.8% 248 250 32.9% 759	619 62.3% 952 361 63.2% 572 299 61.2% 489 161 50.1% 320 258 83.1% 311 82 21.7% 380 212 31.3% 676	32% 32% 15% 9% 24% 14% 27% 7% 45% 42% (39)% (44)% 32% 18%
Subtotal Adjustment to reflect additional Hong Kong reserving and capital requirements After-tax value of unallocated Group Office expenses	2,390 58.9% 3,991 (72) n/m n/m (120) n/m n/m	1,992 53.1% 3,700 (50) n/m n/m (97) n/m n/m	26% 20% n/m n/m n/m n/m
Total	2,198 54.0% 3,991	1,845 49.1% 3,700	26% 19%

Note:

(1) VONB includes pension business. ANP and VONB margin exclude pension business.

VONB grew by 26 per cent compared with 2014 to US$2,198 million.

China and Hong Kong once again delivered excellent results with VONB up by 45 per cent and 32 per cent respectively. These strong performances reflect our differentiated strategy and our ability to generate high-quality, sustainable growth through our focus on increasing the number of active agents, achieving higher agent productivity levels and delivering a mix of high-quality protection and long-term savings products.

Malaysia and Singapore also delivered very strong results with VONB growth of 27 per cent and 24 per cent respectively. Thailand maintained its first-half momentum with 15 per cent VONB growth and a positive shift in product mix driving further margin expansion. Korea reported lower VONB from reduced volumes as we continued our strict focus on selectively writing business that meets our return requirements. Other Markets delivered excellent VONB growth of 32 per cent with strong performances across each of the markets.

We continued to achieve strong results across both agency and partnership distribution channels. Agency delivered VONB growth of 25 per cent to US$1,691 million and partnership distribution VONB grew by 29 per cent to US$658 million compared with 2014.

ANP grew by 14 per cent to US$3,991 million. New business regular premiums increased by 15 per cent and accounted for 88 per cent of overall ANP in 2015.

VONB margin increased by 4.6 pps to 54.0 per cent in 2015. The increase was the result of a positive shift in both product and geographical mix. Channel mix, economic assumption changes and other items had a combined neutral effect over the year.

VONB is reported after a US$192 million reduction for additional Hong Kong reserving and capital requirements over and above local statutory requirements and unallocated Group Office expenses, representing the expenses incurred by the Group Office which are not allocated to business units.

Embedded Value (EV) Equity

EV OPERATING PROFIT

EV operating profit increased by 17 per cent to US$5,068 million compared with 2014.

This growth reflected a combination of higher VONB of US$2,198 million and expected return of US$2,698 million. Overall operating variances were again positive at US$248 million mainly reflecting better than expected claims experience. Overall operating variances have totalled US$735 million since IPO.

EV OPERATING PROFIT PER SHARE – BASIC

	2015 2014 YOY CER YOY AER
EV Operating Profit (US$ millions) Weighted average number of ordinary shares (millions)	5,068 4,535 17% 12% 11,970 11,968 n/a n/a
Basic EV earnings per share (US cents)	42.34 37.89 17% 12%

EV OPERATING PROFIT PER SHARE – DILUTED

	2015 2014 YOY CER YOY AER
EV Operating Profit (US$ millions) Weighted average number of ordinary shares(1)(millions)	5,068 4,535 17% 12% 12,007 12,009 n/a n/a
Diluted EV earnings per share (US cents)	42.21 37.76 17% 12%

Note:

(1) Diluted EV earnings per share including the dilutive effects, if any, of the awards of share options, restricted share units, restricted stock purchase units and restricted stock subscription units granted to eligible directors, officers, employees and agents under the share-based compensation plans as described in note 39 to the financial statements.

EV NON-OPERATING MOVEMENT

Non-operating EV movements included negative investment return variances of US$1,804 million mainly from the mark-to-market movements on the equity investment portfolio. Economic assumption changes were small at US$145 million and other non-operating variances of US$369 million were mainly due to the announced change in the Thailand corporate income tax rate (see below).

Total EV movement included negative foreign exchange translation of US$1,907 million and the payment of shareholder dividends totalling US$814 million.

In January 2016, the National Legislative Assembly of Thailand announced a change in corporate income tax rate from 30 per cent to 20 per cent from assessment year 2016 onward. This change had been previously approved by the cabinet of the Government of Thailand in October 2015. The reported EV is determined using a best estimate basis and therefore includes this revised corporate income tax rate in line with market practice. However, given the legislative process was not fully completed as at 30 November 2015, it was not considered “substantively enacted” under IFRS; accordingly, the financial impact of this change in tax rate has not been reflected in the consolidated IFRS financial statements. For clarity, VONB is reported at point of sale during the 2015 financial year and it has therefore been determined assuming the higher 30 per cent corporate income tax rate from assessment year 2016 onward. The approach for VONB is consistent with the treatment in 2014.

ANALYSIS OF EV MOVEMENT

An analysis of the movement in EV is shown as follows:

		2015
US$ millions, unless otherwise stated	ANW	VIF	EV
Opening EV	15,351	21,802	37,153
Value of new business	(902)	3,100	2,198
Expected return on EV	3,364	(666)	2,698
Operating experience variances	29	245	274
Operating assumption changes	(112)	86	(26)
Finance costs	(76)	–	(76)
EV operating profit	2,303	2,765	5,068
Investment return variances	(1,494)	(310)	(1,804)
Effect of changes in economic assumptions	–	145	145
Other non-operating variances	436	(67)	369
Total EV profit	1,245	2,533	3,778
Dividends	(814)	–	(814)
Other capital movements	(12)	–	(12)
Effect of changes in exchange rates	(581)	(1,326)	(1,907)
Closing EV	15,189	23,009	38,198

		2014
US$ millions, unless otherwise stated	ANW	VIF	EV
Opening EV	13,462	20,356	33,818
Citibank Upfront Payment	(800)	–	(800)
Adjusted Opening EV	12,662	20,356	33,018
Value of new business	(995)	2,840	1,845
Expected return on EV	3,531	(896)	2,635
Operating experience variances	(126)	314	188
Operating assumption changes	(13)	(67)	(80)
Finance costs	(53)	–	(53)
EV operating profit	2,344	2,191	4,535
Investment return variances	610	110	720
Effect of changes in economic assumptions	6	116	122
Other non-operating variances	530	(507)	23
Total EV profit	3,490	1,910	5,400
Dividends	(689)	–	(689)
Other capital movements	(14)	–	(14)
Effect of changes in exchange rates	(98)	(464)	(562)
Closing EV	15,351	21,802	37,153

EV EQUITY

EV EQUITY
US$ millions, unless otherwise stated	As at 30 November 2015 As at 30 November 2014
EV Goodwill and other intangible assets(1)	38,198 37,153 1,620 1,889
EV Equity	39,818 39,042

Note:

(1) Consistent with the IFRS financial statements, net of tax, amounts attributable to participating funds and non-controlling interests.

EV Equity was US$39,818 million at 30 November 2015. The increase over the year was mainly driven by strong EV operating profit growth of 17 per cent offset by investment return variances, mainly due to mark-to-market movements on the investment portfolio, foreign exchange translation and the payment of shareholder dividends.

EV AND VONB SENSITIVITIES

Sensitivities to EV and VONB arising from changes to central assumptions from equity price and interest rate movements are shown below and are consistent with the prior year.

US$ millions, unless otherwise stated	EV as at 30 November 2015 VONB 2015 EV as at 30 November 2014 VONB 2014
Central value Equity price changes 10 per cent increase in equity prices 10 per cent decrease in equity prices Interest rate changes 50 basis points increase in interest rates 50 basis points decrease in interest rates	38,198 2,198 37,153 1,845 38,924 n/a 37,914 n/a 37,458 n/a 36,377 n/a 38,305 2,336 37,232 1,923 38,087 2,036 37,014 1,748

Please refer to Section 3 of the Supplementary Embedded Value Information for additional information.

IFRS Profit

IFRS OPERATING PROFIT AFTER TAX (OPAT)[(1)] BY SEGMENT

US$ millions, unless otherwise stated	2015 2014 YoY CER YoY AER
Hong Kong Thailand Singapore Malaysia China Korea Other Markets Group Corporate Centre	1,049 905 16% 16% 551 544 6% 1% 430 429 9% – 259 280 8% (8)% 356 283 28% 26% 179 165 15% 8% 359 314 25% 14% 26 (10) n/m n/m
Total	3,209 2,910 16% 10%

Note:

(1) Attributable to shareholders of AIA Group Limited only excluding non-controlling interests.

OPAT grew by 16 per cent compared with 2014 to US$3,209 million. This strong performance was the result of underlying business growth and an improved operating margin from higher investment income, increased initial profit from new business and a reduction in the expense ratio. Each of our market segments delivered positive OPAT growth compared with 2014.

China continued its excellent momentum with 28 per cent OPAT growth, as we continued to benefit from greater economies of scale, increased operating margin and expense efficiencies. Hong Kong reported excellent growth of 16 per cent primarily due to growth in the underlying business. In Thailand, OPAT increased by 11 per cent in the second half of 2015 and the full year increase was 6 per cent to US$551 million. Underlying growth in the business and higher investment income were partially offset by surrender claims, as previously highlighted in our interim results announcement. The Group’s persistency remained strong at 94.2 per cent in 2015.

Singapore and Malaysia delivered solid performances. Underlying business growth in Malaysia and higher investment income were partly offset by increased claims experience. Korea’s strong growth was the result of our pricing discipline and improved claims experience and Other Markets delivered 25 per cent OPAT growth with notable performances from Australia, Indonesia, the Philippines and Vietnam.

TOTAL WEIGHTED PREMIUM INCOME (TWPI) BY SEGMENT

US$ millions, unless otherwise stated	2015 2014 YoY CER YoY AER
Hong Kong Thailand Singapore Malaysia China Korea Other Markets	5,115 4,330 18% 18% 3,324 3,334 5% – 2,283 2,339 6% (2)% 1,825 2,084 3% (12)% 2,028 1,786 16% 14% 2,031 2,205 (1)% (8)% 3,270 3,133 19% 4%
Total	19,876 19,211 10% 3%

TWPI increased by 10 per cent compared with 2014 to US$19,876 million.

INVESTMENT INCOME[(1)]

INVESTMENT INCOME(1)
US$ millions, unless otherwise stated	2015 2014 YoY CER YoY AER
Interest income Dividend income Rental income	5,009 4,801 10% 4% 509 428 26% 19% 127 123 6% 3%
Total	5,645 5,352 11% 5%

Note:

(1) Excluding unit-linked contracts.

Investment income increased by 11 per cent compared with 2014 to US$5,645 million reflecting an increased level of investments over the year combined with higher dividends received.

OPERATING EXPENSES

OPERATING EXPENSES
US$ millions, unless otherwise stated	2015 2014 YoY CER YoY AER 1,658 1,636 8% 1%
Operating expenses

Operational efficiency improved in 2015 with a lower expense ratio of 8.3 per cent compared with 8.5 per cent in 2014 and operating expenses grew by 8 per cent to US$1,658 million.

NET PROFIT[(1)]

NET PROFIT(1)
US$ millions, unless otherwise stated	2015 2014 YoY CER YoY AER
OPAT Net (losses)/gains from equities, net of tax Other non-operating investment experience and other items, net of tax	3,209 2,910 16% 10% (370) 508 n/m n/m (148) 32 n/m n/m
Total	2,691 3,450 (18)% (22)%

Note: (1) Attributable to shareholders of AIA Group Limited only excluding non-controlling interests.

IFRS NON-OPERATING MOVEMENT

AIA’s IFRS net profit definition includes mark-to-market movements from our equity portfolio. Equity markets declined significantly during the second half of 2015 compared with large gains reported previously in 2014. Consequently, IFRS net profit decreased by 18 per cent compared with 2014 to US$2,691 million, reflecting strong growth in OPAT partially offset by equity market losses of US$370 million in 2015 compared with equity market gains of US$508 million in 2014, and other negative non-operating items of US$148 million.

MOVEMENT IN SHAREHOLDERS’ ALLOCATED EQUITY

MOVEMENT IN SHAREHOLDERS’ ALLOCATED EQUITY
US$ millions, unless otherwise stated	2015 2014	) )
Opening shareholders’ allocated equity Net profit Purchase of shares held by employee share-based trusts Dividends Other capital movements	24,513 21,759 2,691 3,450 (98) (91 (814) (689 88 84
Total movement in shareholders’ allocated equity	1,867 2,754
Closing shareholders’ allocated equity	26,380 24,513

Shareholders’ allocated equity, before fair value and foreign currency translation reserves, is a better reflection of the underlying movement in shareholders’ equity over the year and increased by US$1,867 million to US$26,380 million at 30 November 2015. The increase was mainly a result of net profit of US$2,691 million offset by the payment of shareholder dividends of US$814 million.

Sensitivities to IFRS profit before tax and net assets arising from foreign exchange rate, interest rate and equity price movements are included in note 37 to the financial statements.

IFRS Earnings per Share (EPS)

Basic EPS based on IFRS OPAT attributable to shareholders increased by 16 per cent to 26.81 US cents in 2015.

Basic EPS based on IFRS net profit attributable to shareholders, including mark-to-market movements from our equity portfolio, decreased by 18 per cent to 22.48 US cents in 2015.

IFRS EARNINGS PER SHARE – BASIC

IFRS EARNINGS PER SHARE – BASIC
	Net Profit(1) OPAT(1) 2015 2014 2015 2014
Profit (US$ millions) Weighted average number of ordinary shares (millions) Basic earnings per share (US cents)	2,691 3,450 3,209 2,910 11,970 11,968 11,970 11,968 22.48 28.83 26.81 24.31

IFRS EARNINGS PER SHARE – DILUTED

	Net Profit(1) OPAT(1) 2015 2014 2015 2014
Profit (US$ millions) Weighted average number of ordinary shares (millions)(2) Diluted earnings per share (US cents)(2)	2,691 3,450 3,209 2,910 12,007 12,009 12,007 12,009 22.41 28.73 26.73 24.23

Notes:

(1) Attributable to shareholders of AIA Group Limited only excluding non-controlling interests.

(2) Diluted earnings per share including the dilutive effects, if any, of the awards of share options, restricted share units, restricted stock purchase units and restricted stock subscription units granted to eligible directors, officers, employees and agents under the share-based compensation plans as described in note 39 to the financial statements.

Capital

FREE SURPLUS GENERATION

The Group’s free surplus at 30 November 2015 represented the excess of adjusted net worth over required capital calculated under Hong Kong reserving and capital regulations (HKICO basis).

Underlying free surplus generation excluding investment return variances and other items, increased by 10 per cent to US$3,719 million on constant exchange rates reflecting the increasing scale of surplus generation from our in-force business. VONB grew by 26 per cent in 2015 and investment in new business reduced by 10 per cent to US$1,488 million from US$1,655 million in 2014 mainly reflecting a positive shift in product and geographical mix as well as increased capital efficiency.

Free surplus was US$7,528 million at 30 November 2015 compared with US$7,794 million at 30 November 2014 mainly reflecting strong underlying free surplus generation during the year of US$3,719 million offset by investment in new business growth of US$1,488 million, negative mark-to-market movements on the investment portfolio of US$1,467 million and the payment of shareholder dividends of US$814 million.

The following table shows the change in free surplus:

US$ millions, unless otherwise stated	2015 2014	) ) ) ) )
Opening free surplus Citibank Upfront Payment	7,794 6,727 – (800
Adjusted opening free surplus Underlying free surplus generated Free surplus used to fund new business Investment return variances and other items Unallocated Group Office expenses Dividends Finance costs and other capital movements	7,794 5,927 3,719 3,552 (1,488) (1,655 (1,467) 845 (128) (119 (814) (689 (88) (67
Closing free surplus	7,528 7,794

NET FUNDS TO GROUP CORPORATE CENTRE

Working capital comprises debt and equity securities, deposits and cash and cash equivalents held at the Group Corporate Centre. Working capital increased by 19 per cent to US$7,843 million at 30 November 2015 compared with US$6,614 million at 30 November 2014. The increase was mainly due to a 28 per cent increase in net remittances from business units to US$2,195 million plus the issuance of a medium term note in March 2015 with net proceeds of US$745 million, less repayments of bank loans of US$490 million and the payment of shareholder dividends totalling US$814 million.

The movements in working capital are summarised as follows:

US$ millions, unless otherwise stated	2015 2014	) ) ) ) ) )
Opening working capital Group Corporate Centre results Capital flows from business units Hong Kong Thailand Singapore Malaysia China Korea Other Markets	6,614 5,556 (147) (63 850 752 708 641 329 267 188 112 1 (100 31 24 88 22
Net funds remitted to Group Corporate Centre	2,195 1,718
Citibank Upfront Payment Increase in borrowings Purchase of shares held by the employee share-based trusts Payment of dividends Change in fair value reserve and others	– (800 183 985 (98) (91 (814) (689 (90) (2
Closing working capital	7,843 6,614

IFRS Balance Sheet

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

US$ millions, unless otherwise stated	US$ millions, unless otherwise stated	As at 30 November 2015	As at 30 November 2014 Change AER
Assets Financial investments Investment property Cash and cash equivalents Deferred acquisition and origination costs Other assets		139,083 1,386 1,992 17,092 8,069	138,809 – 1,384 – 1,835 9% 16,593 3% 8,298 (3)%
Total assets Liabilities Insurance and investment contract liabilities Borrowings Other liabilities		167,622 122,986 3,195 11,901	166,919 – 121,034 2% 2,934 9% 11,996 (1)%
Less total liabilities Equity Total equity Less non-controlling interests		138,082 29,540 139	135,964 2% 30,955 (5)% 149 (7)%
Total equity attributable to shareholders of AIA Group Limited		29,401	30,806 (5)%
Shareholders’ allocated equity		26,380	24,513 8%
MOVEMENT IN SHAREHOLDERS’ EQUITY
US$ millions, unless otherwise stated			2015 2014
Opening shareholders’ equity Net profit Fair value (losses)/gains on assets Foreign currency translation adjustments Purchase of shares held by employee share-based trusts Dividends Other capital movements			30,806 24,682 2,691 3,450 (1,662) 3,807 (1,608) (430 (98) (91 (814) (689 86 77
Total movement in shareholders’ equity			(1,405) 6,124
Closing shareholders’ equity			29,401 30,806
TOTAL INVESTMENTS
US$ millions, unless otherwise stated	As at 30 November 2015 Percentage of total As at 30 November 2014 Percentage of total
Total policyholder and shareholder Total unit-linked contracts and consolidated investment funds	126,435 86% 124,801 86% 19,794 14% 20,974 14%
Total investments	146,229 100% 145,775 100%

The investment mix remained stable during the year as set out below:

UNIT-LINKED CONTRACTS AND CONSOLIDATED INVESTMENT FUNDS

US$ millions, unless otherwise stated	As at 30 November 2015 Percentage of total As at 30 November 2014 Percentage of total
Unit-linked contracts and consolidated investment funds Debt securities Loans and deposits Equities Cash and cash equivalents Derivatives	4,182 21% 4,215 20% 211 1% 185 1% 14,948 76% 16,076 77% 450 2% 496 2% 3 – 2 –
Total unit-linked contracts and consolidated investment funds	19,794 100% 20,974 100%

POLICYHOLDER AND SHAREHOLDER INVESTMENTS

US$ millions, unless otherwise stated	As at 30 November 2015 Percentage of total As at 30 November 2014 Percentage of total
Participating funds Government and government agency bonds Corporate bonds and structured securities Loans and deposits	7,866 6% 8,271 6% 11,190 9% 11,321 9% 1,917 2% 2,095 2%
Subtotal – Fixed income investments Equities Investment property and property held for own use(1) Cash and cash equivalents Derivatives	20,973 17% 21,687 17% 4,915 4% 5,044 4% 436 – 494 1% 204 – 292 – 34 – 136 –
Subtotal participating funds Other policyholder and shareholder Government and government agency bonds Corporate bonds and structured securities Loans and deposits	26,562 21% 27,653 22% 35,425 28% 35,983 29% 45,977 36% 42,273 34% 5,083 4% 5,374 4%
Subtotal – Fixed income investments Equities Investment property and property held for own use(1) Cash and cash equivalents Derivatives	86,485 68% 83,630 67% 7,296 6% 7,707 6% 4,718 4% 4,637 4% 1,338 1% 1,047 1% 36 – 127 –
Subtotal other policyholder and shareholder	99,873 79% 97,148 78%
Total policyholder and shareholder	126,435 100% 124,801 100%

Note:

(1) Amounts included at fair value.

ASSETS

Total assets of US$167,622 million at 30 November 2015 were stable compared with US$166,919 million at 30 November 2014, despite volatility in equity and foreign exchange markets over the year.

Total investments include financial investments, investment property, property held for own use, and cash and cash equivalents and remained at a similar level at US$146,229 million at 30 November 2015 compared with US$145,775 million at 30 November 2014.

Of the total US$146,229 million investments at 30 November 2015, 126,435 million are held in respect of policyholders and shareholders and the remaining US$19,794 million are backing unit-linked contracts and consolidated investment funds.

Fixed income investments, including debt securities, loans and term deposits that are held in respect of policyholders and shareholders, totalled US$107,458 million at 30 November 2015 compared with US$105,317 million at 30 November 2014. The average credit rating of the fixed income portfolio remained unchanged compared with the position at 30 November 2014.

Government and government agency bonds represented 40 per cent of fixed income investments at 30 November 2015 compared with 42 per cent at 30 November 2014. Corporate bonds and structured securities accounted for 53 per cent of fixed income investments at 30 November 2015 compared with 51 per cent at 30 November 2014.

Equity securities held in respect of policyholders and shareholders totalled US$12,211 million at 30 November 2015 compared with US$12,751 million at 30 November 2014. The 4 per cent decrease in carrying value was mainly attributable to recent equity market declines and negative foreign exchange translation. Within this figure, equity securities of US$4,915 million were held in participating funds.

Cash and cash equivalents increased by 9 per cent to US$1,992 million at 30 November 2015 compared with US$1,835 million at 30 November 2014. The increase largely reflected positive net cash inflows from operating activities and proceeds from the issuance of a US$750 million medium term note in March 2015 partly offset by repayments of bank loans of US$490 million and the payment of shareholder dividends totalling US$814 million.

Investment property and property held for own use in respect of policyholders and shareholders totalled US$5,154 million at 30 November 2015 compared with US$5,131 million at 30 November 2014.

Deferred acquisition and origination costs increased to US$17,092 million at 30 November 2015 compared with US$16,593 million at 30 November 2014 largely reflecting new business growth.

LIABILITIES

Total liabilities increased to US$138,082 million at 30 November 2015 from US$135,964 million at 30 November 2014.

Insurance and investment contract liabilities grew to US$122,986 million at 30 November 2015 compared with US$121,034 million at 30 November 2014 reflecting the underlying growth of the in-force portfolio from new business partially offset by negative market movements on equity investments backing unit-linked and participating policies and foreign exchange translation.

Borrowings increased to US$3,195 million at 30 November 2015 due to the issuance of a US$750 million medium term note in March 2015 less the repayments of bank loans.

Other liabilities remained stable with US$11,901 million at 30 November 2015 compared with US$11,996 million at 30 November 2014.

Details of commitments and contingencies are included in note 42 to the financial statements.

Regulatory Capital

The Group’s lead insurance regulator is the Hong Kong Office of the Commissioner of Insurance (HKOCI). The Group’s principal operating company is AIA Co., a Hong Kong-domiciled insurer.

At 30 November 2015, the total available capital for AIA Co. amounted to US$6,761 million as measured under the HKICO basis and AIA Co. had a solvency ratio of 428 per cent of regulatory minimum capital compared with 427 per cent at the end of November 2014. The solvency ratio remained stable and unchanged over the year as a result of strong retained earnings partially offset by mark-to-market movements on the investment portfolio and dividends to AIA Group Limited.

A summary of the total available capital and solvency ratios of AIA Co. is as follows:

US$ millions, unless otherwise stated	As at 30 November 2015 As at 30 November 2014
Total available capital Regulatory minimum capital (100%) Solvency ratio (%)	6,761 6,730 1,579 1,577 428% 427%

The Group’s individual branches and subsidiaries are also subject to supervision in the jurisdictions in which they operate. This means that local operating units, including branches and subsidiaries, must meet the regulatory capital requirements of their local prudential regulators. The various regulators overseeing the Group’s branches and subsidiaries actively monitor their capital position. The local operating units were in compliance with the capital requirements of their respective local regulators in each of our geographical markets at 30 November 2015. Additionally, AIA has given an undertaking to the HKOCI that it will maintain a solvency ratio of not less than 150 per cent in each of AIA Co. and AIA International.

Global Medium Term Note Programme

During the year, we increased the capacity of our Global Medium Term Note (GMTN) programme from US$3 billion to US$5 billion. AIA Group Limited issued a senior unsecured fixed rate note under this programme in March 2015. The note is for a term of 10 years at nominal amount of US$750 million and bears annual interest of 3.2 per cent. At 30 November 2015, the aggregate carrying amount of the debt issued under the GMTN programme was US$2,872 million.

Credit Ratings

At 30 November 2015, AIA Co. has financial strength ratings of AA- (Very Strong) and Aa3 (Very Low Credit Risk) with stable outlooks from Standard & Poor’s and Moody’s respectively. AIA Group Limited has issuer credit ratings of A (Strong) and A3 (Low Credit Risk) with stable outlooks from Standard & Poor’s and Moody’s respectively.

Dividends

BUSINESS REVIEW

Distribution

AGENCY

AIA’s proprietary agency network remains our core distribution platform. Our agents are often the first point of contact for customers looking to obtain financial advice in our markets and our commitment to building the quality of our agency distribution ensures that we develop and maintain deep and long-term relationships with our customers. These provide us with many opportunities to offer advice and support to help meet their ongoing long-term savings and protection needs as individual circumstances change. Our agents remain an important competitive advantage for AIA and provide us with the scale and reach to realise the substantial growth opportunities that exist across the region.

The disciplined execution of our Premier Agency strategy has generated excellent growth in 2015 with agency VONB up by 25 per cent to US$1,691 million. This represents 72 per cent of the Group’s total VONB. ANP grew by 15 per cent to US$2,559 million and VONB margin increased by 5.1 pps to 66.1 per cent. These excellent results were achieved by further strengthening the selection of new agents, focusing on best-in-class training and by equipping agents with industry-leading technology to ensure consistent delivery of a high-quality customer experience.

Quality recruitment and rapid activation of new recruits are important pillars of our Premier Agency strategy. We have adopted sophisticated recruitment practices through the increasing use of segmentation to target high-calibre prospective agents with the ambition to develop a long-term professional career with AIA. We have expanded our in-house onboarding programmes for new agents to ensure our growing agency force is equipped with the required skills and knowledge to provide professional advice to our customers. As a result, the number of active new agents has increased alongside improvements in agent productivity levels in 2015.

Our efforts in agency segmentation include a focus on individuals who aspire to achieve Million Dollar Round Table (MDRT) status, an important industry benchmark for our agents to strive for. In 2015, the growth in the number of our MDRT qualifiers has again been strong with our operation in China, in particular, delivering an outstanding performance with an increase of 71 per cent compared with 2014. AIA is the world’s largest insurer for MDRT membership, thanks to our strong positions in Hong Kong, Thailand, Singapore as well as China.

Alongside MDRT qualification, AIA’s extensive range of development programmes for agents continue to drive growth in activity levels and productivity across the channel. Comprehensive skill-based training, targeted sales outcomes and effective selling practices have been embedded throughout our agency platform. In addition to our in-house training programmes, we worked closely with GAMA International and LIMRA, our international training partners, to continue to enhance our leaders’ capabilities to deliver effective sales leadership and practical training in the field.

Our agency force continues to benefit from our ongoing investment in innovative point-of-sale and management support technology. Our market-leading interactive Point of Sale (iPoS) platform has improved the efficiency, productivity and professionalism of our agents since its launch in 2012. iPoS is now the primary method of new business application submission for our agency channel. In 2015, we integrated iPoS into our next generation interactive Mobile Office (iMO) platform. iMO comprises a comprehensive suite of applications that support our agents and agency leaders in managing their businesses, including daily sales activity levels, training and recruitment. This pioneering technology will help our agents continue to deliver a best-in-class experience for our customers.

PARTNERSHIPS

AIA’s partnership business is an important part of our distribution platform, extending our market reach and broadening our access to prospective customers across the region. By focusing on sustainable profitable growth through our long-term strategic relationships, our partnership business contributes an important and growing source of new business for AIA. In 2015, VONB grew by 29 per cent to US$658 million with ANP up by 13 per cent to US$1,432 million and VONB margin higher by 5.6 pps to 46.0 per cent. Partnership distribution accounted for 28 per cent of the Group’s total VONB in 2015.

Bancassurance

AIA’s bancassurance business delivered excellent results from our commitment to disciplined execution and our selective approach to the range of products we offer through this channel. We have continued to benefit from our collaborative partnerships with highly-regarded regional relationships and local domestic banks so that bancassurance now represents 38 per cent of our overall partnership distribution ANP. We have worked closely with our bank partners to improve lead generation with our proprietary iPoS platform and increase in-branch productivity through the roll-out of a broad range of sales management training programmes. At the same time as expanding our sales through branches, we have also developed new business streams with our bank partners, particularly through direct marketing opportunities to different customer segments within the bank’s existing customer base. VONB grew by 48 per cent compared with 2014 as a result.

By way of example, in the Philippines we worked closely with the Bank of Philippine Islands (BPI) to continue to grow our joint venture partnership by launching a new in-branch sales model. We continued to engage with BPI’s relationship managers to improve activity management and lead generation by increasing the penetration of in-branch insurance specialists across the network. During 2015, the average number of active BPI branches increased by 21 per cent and we more than doubled ANP production per branch leading to significant growth in VONB and making our joint venture with BPI the largest bancassurance player in the Philippines.

Our long-term strategic partnership with Citibank, N.A. (Citibank) across the region has also continued to make good progress. AIA, together with Citibank, carried out a number of initiatives during the year, including new training programmes for Citibank’s sales and distribution staff, increasing recruitment of in-branch insurance specialists and the introduction of iPoS for the bank’s in-branch specialists. This has led to average ANP per seller of more than two-and-a-half times the figure in 2014 leading to a significant uplift in VONB and the number of front-line sales staff has grown by 60 per cent since the end of 2014. We also expanded our telemarketing activities with Citibank’s customers during the year.

Direct Marketing and Other Partnership Channels

Our direct marketing channel achieved double-digit VONB growth in 2015, supported by strong growth in Malaysia and Taiwan in particular and the expansion of our direct marketing operation with Citibank during 2015. The Group’s overall performance was moderated by the changing industry environment in Korea following the stringent and wide-ranging regulatory restrictions imposed on the industry over the last 18 months. VONB from direct marketing increased by 34 per cent excluding Korea.

Our other intermediated channels, including IFAs, brokers, private banks and specialist advisers, broaden our access to a wide range of demographic and socio-economic groups across the region. Our emphasis during 2015 was on deepening relationships with these partners by providing dedicated sales and service support and offering targeted propositions to meet the distinct needs of their customers. These channels continued to grow strongly and contributed significantly to our partnership distribution business in 2015.

GROUP INSURANCE

Group insurance remains an important part of our product strategy among the 1.8 billion employee population in Asia. AIA has a market-leadership position in the Asia-Pacific region underpinned by our distribution and product capabilities serving over 16 million individual in-force employee benefits and group scheme members from our more than 120,000 corporate clients.

We offer flexible products and employee services, allowing us to support our multinational corporate and small-and-medium sized enterprise (SME) clients as they compete for the best talent. In 2015, we introduced new products in several of our key markets that enable scheme members to choose additional voluntary benefits beyond those provided by their employer representing a source of additional new business for AIA.

In addition to our existing well-established presence throughout the region, we strengthened our relationships with employee benefit consultants and brokers, working closely with them to develop tailored solutions and deepen penetration within their large corporate client base. In 2015, we enhanced our sales tools by adding new applications to iPoS specific to the group insurance market, and increased training to enable selected agents to better support the significant SME segment in Asia. Our work with our bank partners to provide solutions to their SME and corporate clients is also an important and growing source of new business.

AIA also offers multi-territory risk-pooling solutions through the AIA Asia Benefits Network which was launched in 2014 and is the first and only Asian-domiciled pooling network operated by an Asianheadquartered life insurance group. It enables AIA to address the opportunity presented by the rapid rise of Asian-headquartered multinational companies and the expansion of global corporations across the region. AIA remains well-positioned to capture the significant growth potential in group insurance as we continue to provide innovative products and enhance service levels for both employers and individual members.

Marketing

AIA’s brand positioning as “The Real Life Company” provides a powerful platform to engage with our stakeholders and help us communicate our commitment to making a real and positive impact on people’s lives. In 2015, we used the significant potential of digital channels to communicate The Real Life Company story. Digital-led campaigns that featured mini-films supported by integrated television, print, outdoor and social media elements have achieved considerable success in Hong Kong, Malaysia and Korea, generating millions of views. In Hong Kong, the mini-film “Love is in Every Moment”, inspiring people to appreciate the time they spend with their loved ones, received an exceptional response with more than 10 million views within eight days of launch.

We continued to leverage our partnership with Tottenham Hotspur Football Club (Spurs) to engage customers and highlight AIA’s commitment to promoting active participation in sport through events such as football coaching clinics, customer and employee engagement events and other media opportunities. AIA partnered with Spurs to engage young people and children from various markets including China, Malaysia, Korea and Australia, offering opportunities to take part in football tournaments with the chance to visit Spurs’ home ground in London, the White Hart Lane stadium.

CUSTOMER ENGAGEMENT

AIA has an in-force customer base of more than 29 million individual policies and over 16 million participating members of group insurance schemes. Cross-selling and upselling initiatives using customer analytics offer AIA a significant and unrivalled opportunity to generate new business by meeting customers’ evolving needs. VONB from these targeted marketing initiatives to existing customers has trebled since the inception of this programme and now provide a growing source of new business for the Group.

As part of our ongoing efforts to better understand our customers’ needs and expectations, we launched a new online customer community platform under our ongoing Customer Understanding Programme. The platform aims to capture customer insights, supporting the development of new products and improving services through timely and targeted surveys. We have over 4,000 active customer members from across our key markets currently providing us with valuable feedback and we remain committed to enhancing customer experience by focusing on the services and products that matter most to our customers.

PRODUCT DEVELOPMENT

AIA has developed a comprehensive range of products to meet changing customer needs for financial protection and efficient long-term regular savings as they go through their lives. AIA’s regular premium unit-linked products provide flexibility for our customers, allowing them to personalise the mix between wealth accumulation and protection appropriate to their different life stages. In Malaysia, the takeup of life and health protection grew significantly over the year with the launch of the “Lifestage Plan Option” increasing protection rider attachments by 24 per cent compared with 2014. In Thailand, we were the first provider to offer regular premium unit-linked products combined with protection rider policies and these products have received a very positive market response with VONB more than double the figure in 2014.

The provision of adequate critical illness cover has been one of our main areas of focus in 2015. In Thailand, our marketing campaign to raise awareness of the critical illness protection gap has continued throughout the year with the total amount of critical illness coverage on new business up by more than 60 per cent. We reinforced our protection market leadership position in China with a critical illness product enabling multiple claims, following our success with a similar design in Hong Kong. Our new participating products in Singapore with cover added for death, disability and critical illness alongside long-term savings have also contributed strongly to VONB growth during the year.

In 2015, AIA Vitality was launched in Hong Kong and the Philippines, joining our existing programmes in Australia and Singapore. This comprehensive, science-backed wellness programme is a key component of AIA’s commitment to promoting healthy living and differentiates our protection proposition to customers by rewarding healthy lifestyle choices.

Technology and Operations

We have made good progress over the year in transforming our technology systems and business processes across the Group. Our aim is to deliver operational efficiency gains, simplify customer interactions and maximise our competitive advantages through the innovative use of established and emerging technologies. The ongoing changes we are making to our operations will support AIA in sustaining its strong track record of profitable growth.

DRIVING OPERATIONAL EFFICIENCY AND PRODUCTIVITY

The modernisation of our data centre was a key focus during 2015. The programme provides costefficient infrastructure services for the Group through the reduction of data centre office space while raising service quality and enhancing information security, underpinning our commitment to protect the interests of our customers, partners, employees and stakeholders by providing a worldclass information security environment. AIA continues to increase information security awareness and provide related training for all employees. This is supplemented by continuously improving the deployment and management of technologies and tools that enhance our ability to secure critical information.

In 2015, we have also replaced the policy administration systems in a number of our key markets including Hong Kong, Singapore and Malaysia. With the successful migration of millions of in-force policies, the new systems provide a more flexible platform through which we can serve our customers, agents and distribution partners more efficiently.

SIMPLIFYING CUSTOMER INTERACTIONS

Emerging technologies offer significant business opportunities and we are building on our early adoption of digital tools across all distribution channels. In 2015, we significantly enhanced the functionality of iPoS to incorporate market-leading productivity tools and analytics capabilities as part of our new iMO platform.

In Singapore, we introduced a pioneering mobile underwriting solution to our sales force. By providing personalised application questions and automated instant decisions at the point of sale for most cases, it greatly improves the customer experience during the sales process and reduces new business processing time. The initiative earned us the “Innovator of the Year” award for the financial services industry in Singapore.

PROMOTING INNOVATION

AIA is committed to driving social and economic development across the Asia-Pacific region and, in doing so, making a positive impact on people’s lives. We launched the first-of-its-kind AIA Accelerator programme in late 2014 to support businesses in the healthcare sector with the goal of delivering innovation through the use of new technology. Seven of the eight start-ups that participated in the programme have successfully secured funding. After the success of this inaugural programme, AIA Accelerator is running again at the end of 2015.

In 2015, AIA also began a multi-year collaboration with The Institute for Infocomm Research (I[2] R). I[2] R is Singapore’s largest information and communications technology research institute and we are working with them to develop behavioural change programmes to help bridge the vast protection gap across Asia. We have also established an innovation centre with Singapore’s Nanyang Technological University with a view to helping people get the insurance cover they need to lead longer, healthier and better lives. These ventures will help AIA continue to identify new sources of competitive advantage and support further economic development in the region.

Geographical Markets

HONG KONG

HONG KONG
US$ millions, unless otherwise stated	2015 2014	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	820 619 62.0% 62.3% 1,263 952 5,115 4,330 1,049 905	32% 32% (0.3) pps (0.3) pps 33% 33% 18% 18% 16% 16%

Financial Highlights

AIA’s Hong Kong business delivered excellent results in 2015 with VONB growth of 32 per cent to US$820 million. ANP increased by 33 per cent to US$1,263 million, while VONB margin remained strong at 62.0 per cent. This outstanding performance was the result of higher agent productivity, a significant increase in agent recruitment and excellent growth in our partnership business supported by the progress of our Citibank relationship. IFRS operating profit after tax grew by 16 per cent to US$1,049 million, mainly driven by strong underlying business growth together with a sustained operating margin and higher investment income.

Business Highlights

The quality and scale of our agency force is a major competitive advantage for AIA in Hong Kong. As part of our ongoing Premier Agency strategy to improve the standards at the core of our agency distribution, we launched a new programme with over 4,000 high-potential agents selected to take part. These agents received a structured approach to training combined with new business incentives specifically designed to uplift their productivity levels towards those of our top Premier Agents. Participants delivered a significant improvement in performance, contributing to a 21 per cent overall increase in ANP per active agent compared with 2014.

The newly-launched Gen-Y club focuses on attracting top young talent to AIA. New recruits under the age of 35 now account for more than 60 per cent of the total recruits in 2015. This and other recruitment and training initiatives through the AIA Premier Academy help to sustain the growth of our agency in Hong Kong and produced a 21 per cent increase in the number of active new agents. AIA Group ranks number one in the world for registered MDRT members and AIA Hong Kong has contributed significantly to this achievement, as the fourth largest company worldwide measured on a stand-alone basis. AIA’s Premier Agency strategy will continue to provide a strong foundation for growth in activity and productivity levels across the whole of our agency force in Hong Kong.

Our partnership distribution channel also continued to deliver excellent growth in 2015. Our retail IFA business reported another solid performance and VONB growth through our strategic, longterm bancassurance partnership with Citibank continued to gain momentum. During the year, we achieved active insurance specialist coverage across all of Citibank’s branches in Hong Kong. We also launched new training programmes for Citibank’s sales and distribution staff, began a series of segmented customer campaigns, introduced iPoS for the bank’s in-branch specialists and started our telemarketing activity with Citibank’s customers. Our group insurance business performed well in the second half of 2015 following lower volumes of new schemes at the beginning of the year, and our Mandatory Provident Fund (MPF) business saw positive growth in net flows and assets under management, maintaining our top three market position.

AIA provides long-term savings and protection products to meet the needs of our customers in Hong Kong. Around 90 per cent of our new business is regular premium and with payment terms of at least five years. This contrasts with the local market average where lower margin, short-term products, often targeted at bank deposit replacement, make up more than half of regular premium business. In the second half of 2015, we launched our innovative wellness programme, AIA Vitality, to further differentiate our protection proposition within the Hong Kong market.

THAILAND

THAILAND
US$ millions, unless otherwise stated	2015 2014	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	395 361 75.8% 63.2% 520 572 3,324 3,334 551 544	15% 9% 12.6 pps 12.6 pps (4)% (9)% 5% – 6% 1%

Financial Highlights

AIA Thailand delivered a strong performance with VONB growth of 15 per cent. Our core strategy of providing long-term savings and protection products through our market-leading agency distribution differentiates AIA in the Thai market and provides the foundation of our sustainable growth. Regular premiums accounted for more than 96 per cent of new business volumes and our focus on a highquality product mix helped VONB margin increase by 12.6 pps compared with 2014.

IFRS OPAT grew by 11 per cent in the second half of 2015 and the full year increase was 6 per cent to US$551 million. Underlying growth in the business and higher investment income were partially offset by surrender claims, as previously highlighted in our 2015 interim results announcement.

In determining the results shown in the above table, we have assumed that the corporate income tax rate in Thailand will be 20 per cent for assessment year 2015 and 30 per cent from assessment year 2016 onward. This approach is consistent with the treatment in 2014.

Business Highlights

Our market-leading agency is our main distribution channel and a clear competitive advantage for AIA in Thailand, accounting for over 90 per cent of VONB in 2015. We continued to invest in our in-house training capabilities with programmes designed to improve our effectiveness in selling unit-linked savings and protection products to build on AIA’s protection market leadership in Thailand.

The number of licensed AIA agents qualified to distribute unit-linked products increased by 77 per cent compared with 2014. AIA now accounts for around 80 per cent of the total number of industry agents licensed to distribute these products in Thailand. This has resulted in a positive shift in product mix with VONB of unit-linked business more than double the figure in 2014, as we lay the foundations for future growth in this new market in Thailand.

We have also launched our new “Financial Adviser” agency recruitment programme, building on our successful experience in China. These programmes offer targeted training and mentoring opportunities to selected, high-potential recruits, expanding our future pool of full-time Premier Agents. Early results have been promising, with candidates significantly more productive than other new recruits in Thailand. We also introduced a new regional agency management structure towards the end of the year and continued to strictly enforce the validation of agency contracts as we continue our focus on quality.

The ongoing roll-out of our next generation iPoS platform in Thailand has provided our agents and agency leaders with additional support, particularly in upcountry areas. Our marketing campaigns to raise awareness of the critical illness protection gap have continued throughout the year, and the total amount of critical illness coverage on new policies has increased by more than 60 per cent.

SINGAPORE

SINGAPORE
US$ millions, unless otherwise stated	2015 2014	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	341 299 72.4% 61.2% 471 489 2,283 2,339 430 429	24% 14% 11.1 pps 11.2 pps 5% (4)% 6% (2)% 9% –

Financial Highlights

AIA Singapore delivered 24 per cent growth in VONB to US$341 million for 2015, another excellent performance. Our core strategy of growing our market-leading Premier Agency, expanding our profitable partnership distribution and maintaining our group insurance leadership position has once again allowed AIA to sustain its profitable growth. VONB margin increased to 72.4 per cent due to an improved mix of products, particularly in our partnership distribution channel. IFRS operating profit after tax increased 9 per cent compared with 2014 from strong underlying business growth and higher investment income.

Business Highlights

Our agency channel delivered solid VONB growth in 2015, with the first quarter comparison affected by the completion of the HealthShield upgrade that boosted sales in the previous year. We continued our focus on increasing the activity levels of our agents, using iPoS as the principal sales tool to drive agent productivity. iPoS is part of our next generation iMO platform which supports our agents and leaders in managing lead generation, sales productivity, recruitment activity and training, all on mobile devices. In 2015, the adoption rate increased with more than 70 per cent of new business applications from our agents submitted using iPoS. In October, we expanded the functionality of iMO by launching the industry’s first fully mobile and secure digital underwriting module that allows on-thespot underwriting. AIA’s consistent execution of our Premier Agency strategy delivered a 17 per cent increase in the number of MDRT qualifiers in Singapore compared with 2014.

Partnership distribution delivered an excellent performance, as we continued to broaden our product offerings with both IFAs and our bancassurance partners. Our market-leading IFA business experienced strong momentum and our strategic partnership with Citibank continued to deliver excellent VONB growth. The strong performance was a result of our joint sales activity management programmes, including workshops tailored for Citibank’s insurance specialists, and the launch of a dedicated protection telemarketing channel.

VONB growth from our group insurance business benefitted from a large multinational corporation scheme in the first half of 2015. We also introduced a mobile application called AIA Employee Care for our clients’ employees, enabling the submission of claims and access to policy information via mobile devices, improving our service to both our customers and distribution partners.

As the largest life insurer in Singapore in terms of weighted new business premiums and new business sum assured, we continued to expand our product range with the launch of new participating products that provide cover for death, disability and critical illness alongside long-term savings. These products provide customers with smoothed investment returns combined with protection cover and complement our leading position in the unit-linked market in Singapore. We also saw excellent VONB growth of 43 per cent from products integrated with our AIA Vitality wellness programme.

MALAYSIA

MALAYSIA
US$ millions, unless otherwise stated	2015 2014	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	172 161 57.9% 50.1% 292 320 1,825 2,084 259 280	27% 7% 8.3 pps 7.8 pps 7% (9)% 3% (12)% 8% (8)%

Financial Highlights

AIA Malaysia delivered excellent VONB growth of 27 per cent in 2015. This was the direct result of our strategy of promoting regular premium unit-linked sales combined with increasing levels of protection cover and improving productivity through the use of technology. ANP growth in the second half of 2015 was 22 per cent and VONB margin continued to improve over the year to 57.9 per cent. OPAT growth was 8 per cent with underlying growth in the business and higher investment income partially offset by increased claims experience, as previously highlighted.

Business Highlights

Agency distribution accounts for two-thirds of AIA’s VONB in Malaysia. Our agency training programmes have successfully encouraged the take-up of life and health protection products over the year, with rider attachments up by 24 per cent compared with 2014. We also launched a residential training programme for new agents to help increase activity levels and to complement our ongoing emphasis on quality recruitment. Active new agents increased by more than 20 per cent in the second half of 2015 as a result of these initiatives.

New technology is transforming the way our agents work in Malaysia with more than 90 per cent of new business applications from our agents submitted using iPoS in 2015. Productivity increased by 18 per cent in the second half of 2015 in terms of ANP per active agent. Our Takaful business also delivered excellent VONB growth as we continued to build scale. The number of active Takafulproducing agents grew by more than 40 per cent in the second half of 2015, supported by the launch of new products during the year.

Our strategic bancassurance partnership with Public Bank, one of the leading retail banking groups in Malaysia, has delivered another year of robust VONB growth. VONB margin increased by 12.4 pps as we continued to expand our product range to target the savings and protection needs of Public Bank’s more than six million customers. We launched iPoS in the first half of the year and all in-branch insurance specialists are now using this technology to submit new policies. We expect this to be an important driver of ongoing productivity improvements. Our direct marketing business delivered VONB growth of 85 per cent in 2015 as we continued to work closer with our partners to generate highquality leads.

AIA Malaysia launched a number of initiatives to improve efficiency and simplify the payment process for customers during the year, including enhanced self-service functionality at branches and targeted campaigns to encourage greater use of automatic electronic payments. Our marketing campaigns focused on encouraging Malaysians to take control of their health amid the rise of lifestyle-related diseases. The campaigns were run in conjunction with the launch of our “Lifestage Plan Option” product range on iPoS, which allows customers to choose protection riders and benefit levels appropriate to their changing needs at different life stages.

CHINA

CHINA
US$ millions, unless otherwise stated	2015 2014	YoY CER YoY AER 45% 42% 0.4 pps 0.4 pps 44% 41% 16% 14% 28% 26%
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	366 258 83.5% 83.1% 438 311 2,028 1,786 356 283

Financial Highlights

AIA’s successful execution of our differentiated strategy in China has delivered another set of excellent results in 2015. VONB grew strongly by 45 per cent to US$366 million compared with 2014. This was mainly driven by a 44 per cent increase in ANP to US$438 million as a result of the significant growth in the number of active agents and increased agent productivity. VONB margin remained strong at 83.5 per cent reflecting our mix of products that meet customers’ protection and long-term savings needs and the vast majority of our earnings in China come from insurance-based profits rather than from interest rate spread business. The quality of our earnings combined with operational efficiency improvements and the benefits of increasing scale led to a 28 per cent increase in IFRS operating profit after tax compared with 2014.

Business Highlights

Our Premier Agency strategy has continued to deliver excellent results in 2015. The importance we place on quality recruitment and ongoing professional development training for our experienced agents is fundamental to the sustainability and quality of our growth. We combined selective recruitment with strict validation standards, residential induction programmes and recruitmentfocused training for agency leaders to increase the number of new recruits by more than 50 per cent compared with 2014.

Our approach to raising activity and productivity levels supported by our iPoS technology is reflected in the 71 per cent increase in MDRT qualifiers compared with 2014. Our focus is on quality, ensuring that our agents provide our customers with professional advice tailored to their individual needs.

While agency accounts for more than 90 per cent of our VONB in China, our partnership distribution business also continued to make strong progress over the year. We concentrated on developing strategic relationships with like-minded bank partners, maintaining our disciplined approach to product pricing. Our strategic partnership with Citibank delivered a step-up in VONB, as our engagement with the bank’s sales force increased following the launch of our product workshops and training programmes, and we expanded our range of protection and long-term savings bancassurance products throughout the year.

AIA is a leader in the comprehensive protection insurance market in China, a position we reinforced with new products for young families including additional cover for childhood diseases and multiple claims for critical illnesses following our success with similar product designs in Hong Kong. We also launched our new high-net-worth offering in 2015 providing dedicated client services including tax and legal advice to meet the high-end protection cover, estate planning and long-term retirement savings needs of this significant and fast-growing customer segment.

KOREA

KOREA
US$ millions, unless otherwise stated	2015 2014	YoY CER YoY AER (39)% (44)% (2.7) pps (2.9) pps (30)% (35)% (1)% (8)% 15% 8%
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	46 82 18.8% 21.7% 248 380 2,031 2,205 179 165

Financial Highlights

AIA Korea continued to face challenging market conditions in 2015 with new business volumes affected as we continued to concentrate on selectively writing products that meet our return requirements. VONB was lower by 39 per cent to US$46 million, in line with the reduction in the first half of the year, and accounts for less than 2 per cent of Group VONB in 2015. Our pricing discipline and positive claims experience resulted in a 15 per cent increase in IFRS operating profit after tax to US$179 million.

Business Highlights

AIA’s direct marketing business has continued to be affected by the changing industry environment in Korea following the stringent and wide-ranging regulatory restrictions imposed on the industry over the last 18 months. As highlighted at our 2015 interim results announcement, new sales reduced in response to limitations on advertising and changes to marketing regulations. VONB margin increased by 6.1 pps compared with 2014 due to an improved product mix and lower expenses. We maintained a disciplined approach to the hiring of telesales representatives, introducing new long-term retention and sales incentive schemes focused on high performers. We remain committed to adapting our direct marketing business model and restoring profitable growth to this channel.

Industry new business sales for the tied agency channel continued to decline in 2015. AIA remains focused on targeted recruitment and the use of technology to grow a selective and efficient agency force to improve profitability in this channel. We are differentiating our agency business from the mass agency models that are prevalent in the Korean market through our Premier Agency strategy. We also work with some of the major general agencies in Korea using a targeted protection product strategy. We continue to participate in the bancassurance channel selectively, when profitable opportunities arise.

The elderly population (aged 65 years and older) in Korea has trebled in size over the last 30 years and has one of the lowest retirement incomes among the countries in the Organisation for Economic Co-operation and Development (OECD). Also, less than 40 per cent of Korean households have life protection cover in place. Our product development strategy is focused on meeting the growing needs for protection cover and long-term retirement savings products for the ageing population in Korea. We were the first life insurer to develop a simplified issue health product in Korea and we launched a new long-term savings product in 2015 that provided enhanced benefits for those making regular savings for retirement.

OTHER MARKETS

OTHER MARKETS
US$ millions, unless otherwise stated	2015 2014	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	250 212 32.9% 31.3% 759 676 3,270 3,133 359 314	32% 18% 2.0 pps 1.6 pps 24% 12% 19% 4% 25% 14%

Other Markets include AIA’s operations in Australia, Indonesia, New Zealand, the Philippines, Sri Lanka, Taiwan and Vietnam. The financial results from our 26 per cent shareholding in our joint venture with the Tata Group in India is included in IFRS operating profit after tax on an equity accounted basis.

Financial Highlights

Other Markets sustained its excellent performance from the first half to deliver 32 per cent growth in VONB to US$250 million in 2015. ANP increased by 24 per cent to US$759 million and VONB margin was higher by 2.0 pps to 32.9 per cent. These excellent results were driven mainly by strong performances in Australia, Indonesia, the Philippines and Vietnam. IFRS operating profit after tax grew strongly by 25 per cent to US$359 million.

Business Highlights

Australia: AIA extended its new business leadership position in the IFA channel in 2015. We delivered double-digit VONB growth due to strong new business sales from both our retail IFA and group insurance businesses and a positive shift in product mix. AIA continued to build its Premier IFA model, expanding our advisory services to help our IFA partners grow their businesses while continuing to refresh our product offerings. The development of our wellness proposition through the AIA Vitality programme has further strengthened AIA’s brand as the leading independent risk specialist in the Australian market. Our group insurance business maintained a strict focus on the retention of our major corporate clients, disciplined claims management and best-in-class rehabilitation practices enabling us to retain a leading position in the market. IFRS operating profit after tax increased significantly compared with 2014 due to underlying business growth and positive claims experience.

Indonesia: Indonesia has delivered a very strong performance with agency and partnership channels both contributing double-digit VONB growth compared with 2014. AIA continued to focus on growing a sustainable, profitable agency channel by promoting high standards of professionalism and productivity and extending our leading bancassurance business. Our Premier Agency strategy delivered year-on-year agency VONB growth of 37 per cent in the second half of the year. AIA’s Premier Bank Consultant programme launched in early 2015 has helped us deliver a significant increase in productivity and profitability supported by close to 100 per cent adoption of iPoS across our active insurance specialists. AIA continued to outperform the market in 2015 increasing profitable market share and was ranked second overall by weighted new business premiums.

New Zealand: Our New Zealand operation achieved strong VONB growth in 2015. We continued to benefit from the changes made to the service model for the IFA channel with a 27 per cent increase in average case size and more than 40 per cent increase in new policies issued compared with 2014. During the year, we also established strategic partnerships with a bank and a mortgage advisory firm to provide protection products and continue expanding our new business distribution channels.

Philippines: AIA’s operations in the Philippines delivered very strong VONB growth in 2015 driven by the ongoing execution of our Premier Agency strategy and further engagement with our exclusive bank partner, the Bank of the Philippine Islands (BPI). Our agency operation improved agent productivity through the implementation of a new activity management system and increased iPoS adoption, with over 80 per cent of new business applications submitted using iPoS. We also continued to engage BPI’s relationship managers and improve lead generation by increasing the penetration of our in-branch life insurance specialists across BPI’s extensive branch network. Our initiatives have more than doubled ANP production per branch compared with 2014, making our joint venture with BPI the largest bancassurance player in the life insurance market by new business premiums. In October 2015, we introduced Vitality to the Philippines, reinforcing our commitment to making a real difference to the lives of our customers and further differentiating our business in the Philippines.

Sri Lanka: VONB of our Sri Lankan business more than doubled following the expansion of our distribution footprint in 2014. In addition to the roll-out of new training programmes, we have also increased the adoption of iPoS by our agents to enhance the overall customer experience and improve efficiency. The deployment of new sales management tools with our bank partners has improved activity management and effective lead generation. We also strengthened the AIA brand by becoming the Official Insurance Partner of Sri Lanka Cricket, the country’s most popular sport.

Taiwan: We continued to strengthen our multi-channel distribution platform in Taiwan during the year. Our Premier Agency strategy achieved a significant improvement in agent productivity with ANP per active agent up by more than 30 per cent compared with 2014, while VONB margin remained stable. We also saw a significant increase in VONB through our direct marketing channel.

Vietnam: AIA’s business in Vietnam maintained its excellent growth momentum, once again delivering VONB more than double that of 2014 and this is the third consecutive year that our Vietnamese operation has more than doubled VONB. An innovative agency branch model aimed at attracting younger and more productive agents that we are launching in the major metropolitan hubs of Vietnam, has shown strong early results with significantly higher sales activity ratios. The number of active new agents grew by more than 30 per cent compared with 2014. Our VONB margin also increased from improved expense efficiencies as we continued to grow scale.

Notes:

Throughout the Distribution section:

VONB and VONB margin by distribution channel are based on local statutory reserving and capital requirements and exclude pension business.

Throughout the Geographical Markets section:

(1) VONB figures shown in the tables are based on local statutory reserving and capital requirements and include pension business.

(2) VONB margin excludes pension business to be consistent with the definition of ANP used within the calculation.

In the Thailand section:

In January 2016, the National Legislative Assembly of Thailand announced a change in corporate income tax rate from 30 per cent to 20 per cent from assessment year 2016 onward. This change had been previously approved by the cabinet of the Government of Thailand in October 2015. Given the legislative process was not fully completed as at 30 November 2015, it was not considered “substantively enacted” under IFRS; accordingly, the financial impact of this change in tax rate has not been reflected in the consolidated IFRS financial statements. For clarity, VONB is reported at point of sale during the 2015 financial year and it has therefore been determined assuming the higher 30 per cent corporate income tax rate from assessment year 2016 onward. The approach for VONB is consistent with the treatment in 2014.

RISK MANAGEMENT

Overview

AIA recognises the importance of sound risk management in every aspect of our business and for all our stakeholders. For policyholders it is the security of knowing that we will always be there for them, for regulators it is vital to the stability of the financial system, and for investors it is key to protecting and enhancing the long-term value of their investment.

The AIA Risk Management Framework (RMF) provides the structure for identifying, quantifying and mitigating risk across the Group.

AIA’s RMF is built around supporting our business and developing a risk culture at every level of the organisation. AIA has adopted a “Three Lines of Defence” model for risk management which is described below. Consistent with that approach our Risk & Compliance function provides our business units with appropriate tools, processes and capabilities for the identification, quantification and management of risk.

We continue to adapt and improve our risk management framework to meet the evolving needs of our business in the face of our changing business and regulatory environment. Amongst the continuing enhancements to our framework in 2015, we undertook the following:

A Group Chief Risk Officer was added to the Group Executive Committee as a direct report of the Group Chief Executive and President with responsibility for the Group Risk and Compliance function which includes direct reporting from the business units on matters of risk and compliance.
We updated our RMF to include Support, Accountability, Oversight and Assurance underpinned by four building blocks – Metrics, Risk & Compliance, Appetite and Governance.
Our performance management system has been enhanced to emphasise conduct as well as achievement consistent with our fundamental operating principles of “Doing the Right Things, in the Right Way, with the Right People... and the results will come”, with all staff now measured on ‘how’ as well as ‘what’ they deliver.

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Governance Metrics
Assurance
Support
Oversight
Accountability
Risk &
Appetite Compliance
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AIA Risk Management Framework

Three Lines of Defence

The Three Lines of Defence model is a commonly used approach for managing risk in financial institutions. The objective is to ensure that an independent system of checks and balances is in place to minimise unexpected losses and reputational damage. This is achieved by clearly defining roles and responsibilities for the management of risk between the Executive Management, Risk & Compliance and Internal Audit functions, with each of these working closely together but ultimately operating independently from each other.

The first line of defence (First Line) is made up of the business decision-makers which includes all functions other than Risk & Compliance and Internal Audit. Executive management at all levels are required to ensure that risk is being managed in a way consistent with the RMF and that effective and appropriate processes are in place at all times. In particular, the amount of risk taken at each level of the organisation must be consistent with both the Group and the business unit’s Risk Appetite.

Unless reserved to the Board, all decisions are made by identified executives operating in the First Line. These executives have full accountability for their decisions. Decisions regarding activities deemed to have significant risks attached or that are outside the pre-determined decision-making limits of a given level of management will be referred to a senior Group functional leader (like the Group Chief Financial Officer for financial matters), to the Group Chief Executive and President or, where appropriate, through him to the Board.

The second line of defence (Second Line) consists of Risk & Compliance. This function is independent of the First Line but works closely with them to ensure that they are appropriately supported in meeting their obligations in respect of risk management. The Second Line is also responsible for providing oversight of First Line activities and assurance to executive management at the Group level, the Risk Committee and the Board that risks are being managed appropriately within AIA’s Risk Appetite.

The Risk & Compliance function is responsible for the design and implementation of the RMF, working with the First Line to maintain consistent policies and processes that ensure that the Group is operating at all times within the Risk Appetite determined by the AIA Group Limited Board and is adhering to the high standards of conduct expected by our customers and regulators.

The third line of defence (Third Line) is Group Internal Audit (GIA), which reports to the Audit Committee of the AIA Group Limited Board, provides assurance about the effectiveness of key controls, and makes recommendations about control improvements, as appropriate on the effectiveness of internal controls.

The Three Lines of Defence converge at the AIA Group Limited Board who retain overall responsibility for AIA’s RMF and who determine AIA’s Risk Appetite.

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AIA Group Limited Board
Risk Committee Audit Committee
Executive Executive Risk
Committee Committees
Group Internal
Audit
Business Units Group Risk &
& Group Functions Compliance Function
Executive Management Risk & Compliance Internal Audit
First Line of Defence Second Line of Defence Third Line of Defence
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Risk Management Framework

As noted above, AIA’s RMF is defined in terms of four principles – Support, Accountability, Oversight and Assurance underpinned by four building blocks – Governance, Appetite, Metrics and Risk & Compliance.

SUPPORT

The focus of risk management is the identification, quantification, escalation and mitigation of risk. AIA believes that risk is best managed where risk is taken. Therefore Risk & Compliance’s principal focus is on ensuring that the First Line have the tools, understanding, objectivity and resources to manage risk systematically wherever it arises. To support the First Line, AIA has developed processes to identify Risk Metrics with which to quantify risk and a streamlined governance structure to escalate risk issues where appropriate and determine mitigation strategies.

Identification . Early identification of risks is essential to ensure that they are understood and either avoided or accepted where appropriate as part of the responsible operation of the business. A network of First Line Risk Owners (formally appointed First Line executive individuals with decision-making capacity) and Risk Champions (formally appointed First Line individuals to support Risk Owners in the identification, assessment and monitoring of key risks) in each business unit is tasked with identifying emerging risks in their areas of activity and, working with the business unit risk teams, performing risk assessments on any new activity to determine whether it is within both business unit and Group Risk Appetite.

Quantification . Quantification of risk is important in establishing the materiality of an issue and in determining whether, where risk is identified, it falls within the limits that support the Group’s Risk Appetite. Various metrics have been developed for this purpose by Risk & Compliance working closely with the First Line. Metrics used in the context of Risk Appetite are described in the box on page 38. Metrics used for individual risks are described under Risk Landscape on page 39.

Escalation & Mitigation . When a transaction or activity is likely to carry risk in excess of the relevant limits or is likely to exceed the limits defined the applicable policies, it is escalated for approval, if appropriate via the Group’s exception process. This process operates consistently for all affected activities. A Second Line specialist evaluates the materiality of the exception and, based on that evaluation, either passes it back to the business unit for approval, escalates it to the designated Group Executive Committee member or, in the case of significant exceptions, the Group Chief Executive. In each case Risk & Compliance is responsible for ensuring that the ultimate decision-maker is in possession of all relevant information before making a decision.

Risk & Compliance works closely with the First Line in facilitating risk assessments, reviewing the methodologies and calibrating the models that underpin the metrics used by the business unit to quantify risk as well as providing challenge on individual proposals, directing the exception process, as well as organising and preparing reports for the Group and business unit risk committees.

More generally, the Second Line are expected to broaden risk awareness and understanding in the First Line through training and working closely with First Line counterparts on specific issues.

ACCOUNTABILITY

A core principle of management in AIA is accountability. Responsibility for implementation and oversight of all risk policies and activities is assigned to First and Second Line executives respectively. While the Second Line is required to monitor and support the business in its risk management responsibilities, the First Line remains responsible for managing risk. To emphasise the importance of accountability, all First Line decision-makers (Risk Owners) are individual executives and not committees. The Second Line Committees, the Financial Risk Committee (FRC) and the Operational Risk Committee (ORC), set risk policies and limits, review significant transactions and Watch List items and oversee the operation and effectiveness of the RMF. They do not approve transactions.

To enforce accountability, business units Risk Owners are required to report incidents and concerns to their risk functions and committees, specific executives are tasked with determining whether activities are within Risk Appetite or require escalation and senior business unit and Group executives are required to approve any transaction that breaches any applicable limit.

Individual accountability is also maintained with all employees signing declarations of compliance with the Group’s Code of Conduct annually.

OVERSIGHT

The Three Lines of Defence model is designed to promote objectivity in the risk management process. As set out above, the Second Line is responsible to provide oversight and does so by the exercise of judgment as to the appropriateness, sufficiency and effectiveness of the measures taken to manage risk and reporting thereon to the executive risk committees at both the business unit and Group level.

The application of oversight includes:

Systematic Coverage . The Group Risk & Compliance function maintain a detailed risk taxonomy or “Risk Landscape” to ensure that all risks are identified and classified appropriately. All Operational Risk & Compliance Incidents, Risk Control Assessments and Scenario Analysis results are stored in a common database and organised according to the taxonomy, allowing a picture to be presented of the effectiveness of controls by risk or by business unit;
Risk Metrics . A dedicated Risk Metrics team in Group Risk & Compliance is tasked with reviewing and supporting the development of risk models and methodology in the First Line as well as calibrating all risk models used for reporting and business proposals. All such Risk Metrics are approved by the Group FRC;
Standardised Reporting . The Risk Landscape is reviewed in standardised risk reports prepared by the Second Line covering Insurance, Investment, Financial and Operational risk. These are submitted on a quarterly basis to FRC and ORC at both a business unit and a Group level;
Risk Watch Lists . These are maintained for each business unit and cover each category of risk – Investment, Financial and Operational. They are designed to highlight to management issues that require attention. A Group Watch List is reviewed at each executive risk committee meeting and items from business unit Risk Watch Lists that are considered to have a Group dimension, the potential to damage the Group financially or reputationally, may be placed on it;
Business Unit Compliance . Group Risk & Compliance conduct an ongoing programme of reviews of business unit functions, monitor advisory process through ‘Mystery Shopping’, monitor Key Risk Indicators (KRIs) such as complaints and the time taken to address them, and use the results of predictive modelling to proactively detect misconduct; and
Internal Audit . Working very closely with the Second Line, Internal Audit reviews the effectiveness of controls and highlights areas where controls require improvement.

ASSURANCE

The AIA Group Limited Board has overall responsibility for the Group’s risk management activities. In this regard the Board sets the Group’s Risk Appetite, agrees the RMF and approves major transactions. In fulfilling these responsibilities the Board is supported and advised by the Risk Committee.

It is the role of the Risk Committee supported by Risk & Compliance to provide assurance to the Board that the RMF is effective and that risk is being managed across the organisation to an acceptable standard. This is achieved through the following channels:

The Group Chief Risk Officer presents a quarterly risk report to the Risk Committee covering all major risk categories, confirming that the Company is operating within Risk Appetite, summarising the activities of the executive risk committees and highlighting any emerging risks either in the external environment or through the Risk Watch Lists. The Chairman of the Risk Committee presents a similar report to the Board;

An assurance review is presented to the Risk Committee annually. Historically this has focused on the effectiveness of the risk functions and the development of the RMF. Going forward this review will be included as part of an Own Risk and Solvency Assessment; and
Each business unit Chief Executive Officer provides annual certification that the business unit conforms with applicable Compliance policies.

AIA RISK GOVERNANCE

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AIA Group Limited
Board
Audit Risk Remuneration Nomination
Committee Committee Committee Committee
Operational Risk Financial Risk
Committee Committee
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AIA’s risk governance structure was implemented in 2012 and is designed to provide for:

Consistent application of the RMF across the Group;
Streamlined processes for the early identification and swift escalation of risk issues;
Objective analysis of risk issues enabling informed decision-making; and
Discussion and challenge in relation to risk issues at suitable forums.

THE BOARD

The Company’s Board retains overall responsibility for oversight of the Group’s risk management activities. In this regard the Board sets the Group’s Risk Appetite, agrees the RMF and monitors group-wide risks. In fulfilling these responsibilities the Board is supported and advised by the Risk Committee.

RISK COMMITTEE

The Risk Committee advises the Board on all risk-related issues requiring Board attention and supports it in its responsibility. The members of the Risk Committee are all Board directors, with the Committee Chairman required to be an Independent Non-Executive Director. The Risk Committee meets at least four times a year.

OPERATIONAL RISK (ORC) AND FINANCIAL RISK (FRC) COMMITTEES

The Risk Committee is supported by two executive committees who, between them, oversee management of all risks. The ORC is chaired by the Group Chief Financial Officer and oversees risks associated with failure in internal processes, people, and system or from external events. The FRC is chaired by the Group Chief Executive and oversees risks associated with Financial, Insurance and Investment risks including issues around capital, product and asset allocation.

Each Committee divides its agenda between reporting, governance and emerging risk. Reporting is conducted through standard reporting packs for each risk category. Governance focuses on policy, process and limit setting, approval of Risk Metrics and implementation of Risk Appetite. Emerging risk covers the regular review of the Group’s Risk Watch Lists, bespoke scenario modelling, stress tests and reviews of new activities, material transactions and emerging trends.

The ORC meets quarterly and the FRC bimonthly.

AIA RISK APPETITE

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RISK APPETITE STATEMENT
RISK TOLERANCES RISK PRINCIPLES
RISK ALLOCATIONS RISK PREFERENCES
RISK LIMITS RISK CONTROLS
QUANTITATIVE METRICS QUALITATIVE STATEMENTS
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AIA’s Risk Appetite is the foundation of its RMF. It establishes the quantum and nature of risks the Group is prepared to take to achieve its strategic objectives and helps to inform stakeholder expectations.

The Risk Appetite Statement (RAS) is an overarching comment on the enterprise’s attitude to risk;
Risk Principles are qualitative statements that expand the RAS;
Risk Tolerances are quantitative metrics that validate the Risk Principles and thus the RAS;
Risk Preferences define the enterprise’s behavioural approach to minimising risk;
Risk Allocations are the planned contribution to Risk Tolerances of individual businesses; and
Risk Limits and Controls are used to manage specific risks.

AIA has adopted the following Risk Appetite Statement:

“The amount of risk taken by AIA in the ordinary course of its business will be sufficient to meet its customers’ reasonable requirements for protection and benefits while ensuring that the level and volatility of shareholder returns are in line with a broadly-based risk profile appropriate to an AsiaPacific ex-Japan-focused life insurance company.”

The RAS is supported by four Risk Principles, each addressing one of AIA’s risk and capital priorities.

Priority	Risk Principle
Regulatory Capital	“We have no appetite for regulatory non-compliance and as such will ensure
	that we hold sufficient capital to meet our current statutory minimum solvency
	in all but the most extreme market conditions.”
Financial Strength	“We will ensure the Group’s ability to meet all future commitments to our
	customers, both financial obligations and in terms of the promises we make to
	them. We will maintain sufficient capital to support a Financial Strength Rating
	that meets our business needs.”
Liquidity	“We will maintain sufficient liquidity to meet our expected financial
	commitments as they fall due.”
Earnings Volatility	“We will seek to deliver reported operating earnings consistent with
	expectations and will implement policies, limits and controls to contain
	operational risks, risk concentrations and insurance risks within reasonable
	tolerances.”

AIA RISK METRICS

Fundamental to sound risk management is the need to quantify risks effectively. Risk & Compliance works closely with the Finance, Actuarial and Investment functions to assess the various risks reflected in the balance sheet. This assessment starts with the Group’s Risk Tolerances which are used to provide quantitative support to AIA’s Risk Appetite.

Each of AIA’s Risk Tolerance use a distinct risk metric as described below:

Risk Tolerance	Risk Metric
Regulatory Capital	AIA has developed the concept of Stress Capital, the capital required to
	maintain regulatory solvency following defined stresses. Stress Capital is also
	used to determine business unit remittances and appropriate capitalisation
	levels.
Financial Strength	AIA measures its financial strength in terms of its Economic Capital (EC);
	the capital AIA determines that it needs to meet its obligations using its own
	internally developed model which draws on global industry best practices
	and takes into account factors relevant to the environment in the Asia-Pacific
	region.
Liquidity	Liquidity risk is measured by subjecting our expected near term cash flows
	to a variety of shocks and requiring that all business units and the Group
	maintain a minimum level of liquidity following each of those shocks.
Earnings Volatility	Forecast earnings are subjected to an Earnings at Risk test to assess the
	level of potential volatility.

Stress Capital and Economic Capital are used in product evaluation, asset allocation and capital planning. Metrics have also been developed to measure the velocity of cash and capital.

Risk metrics are also used in relation to specific risks, particularly Investment and Financial Risk. Metrics that measure specific risks are described in the relevant part of the Risk Landscape section.

AIA RISK & COMPLIANCE FUNCTION

	Group Chief Executive	Group Chief Executive

	Group Chief	Risk Officer

Group Risk	Group Compliance		Business Unit
			Chief Risk Officers
Centre of Excellence	Centre of Excellence
Risk & Oversight	Compliance	& Oversight

In 2015 AIA established a reporting structure whereby the Group Chief Risk Officer has responsibility for the Group’s risk and compliance functions. Within this revised reporting structure, the Group Chief Risk Officer reports directly to the Group Chief Executive and President and is a member of the Group Executive Committee. This now represents the target operating model for each business unit.

The focus of the new Risk & Compliance function is on embedding risk culture through common systems, training and communication and through extending the “risk network” in the First Line and defining First and Second Line roles in all key processes.

Risk Landscape

As noted above AIA maintains a detailed risk taxonomy to ensure all risks are identified and systematically managed. The principal risks are summarised below:

INSURANCE	INVESTMENT	FINANCIAL	OPERATIONAL
Lapse	Credit	Interest Rate	Operational
Expense	Equity Price	FX Rate	Strategic
Morbidity	Property Price	Financial Liquidity
Mortality	Credit Spread
	Investment Liquidity

INSURANCE RISKS

Insurance risk is the potential loss resulting from mortality, morbidity, persistency, longevity and adverse expense experience. This includes the potential impacts from catastrophic events such as pandemics and natural disasters.

Note 26 to the financial statements details insurance contract liabilities, the nature of insurance products and their principal risks.

Management of Insurance Risk starts with product design. Ensuring products meet customer needs, are fairly priced and clearly understood is the best guarantee of persistency and customer satisfaction.

The Group manages product design risk through the Product Approval Process where products are reviewed against pricing, design and operational risk benchmarks agreed by the FRC. Business units work closely with a number of Group functions including Product Management, Actuarial, Legal, Risk & Compliance and Underwriting. The Group monitors the performance of new products and focuses on actively managing each part of the actuarial control cycle to manage risk in the in-force book as well as for new products.

Lapse

The risk arises from changes in the rates of policy termination or renewal.

Ensuring customers buy products that meet their needs is central to the Group’s operating philosophy. Through comprehensive sales training programmes and active monitoring and management of sales activities and persistency, the Group seeks to ensure that appropriate products are sold by qualified sales representatives and that standards of service consistently meet or exceed our customers’ reasonable expectations. This allows the Group to meet customer needs while also delivering sustainable value to shareholders.

Risk & Compliance monitor persistency closely through the Business Quality Framework, a joint endeavour of First and Second Line functions to understand and mitigate the causes of lapse and to protect the Group against potential misconduct.

Expense

The risk of the cost of selling new business and of administering the in-force book exceeding the provisions made in pricing.

The active management of expenses reduces the risk of actual experience being adverse compared with the assumptions used in the pricing of products. Daily operations follow a disciplined budgeting and control process that allows for the management of expenses within pricing estimates based on the Group’s very substantial experience within the markets in which we operate.

Morbidity and Mortality

AIA adheres to well-defined market-oriented underwriting and claims guidelines and practices that have been developed based on extensive historical experience and with the assistance of professional reinsurers.

The Group’s actuarial teams conduct regular experience studies of all the insurance risk factors in its in-force book. These internal studies together with external data are used to identify emerging trends which can then be used to inform product design, pricing, underwriting, claims management and reinsurance needs.

Through monitoring the development of both local and global trends in medical technology, health and wellness, the impact of legislation and general social, political and economic conditions the Group seeks to anticipate and respond promptly to potential adverse experience impacts on its products.

Reinsurance is used to reduce concentration and volatility risk, especially with large policies or new risks, and as protection against catastrophic events such as pandemics or natural disasters.

Recent initiatives to manage morbidity risk and improve claims management include the promotion of wellness programmes such as Vitality, the establishment of a dedicated Healthcare team to improve customer healthcare experience and support for initiatives such as Occupational Rehabilitation in Australia.

INVESTMENT RISKS

Credit

Credit risk is the risk that third parties fail to meet their obligations to the Group when they fall due. Although the primary source of credit risk is the Group’s investment portfolio, such risk can also arise through reinsurance, procurement and treasury activities.

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AIA Debt Assets Rating
US$ millions
38,102
28,169
23,139
5,082 5,911
54
AAA AA A BBB BB and Not
below rated
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Note 20 to the financial statements provides further details of the Group’s financial investments in debt instruments, the credit quality of those instruments and the basis on which they are carried in the Financial Statements.

Credit risk management starts with the assignment of an internal rating to all counterparties. The Credit Research team in the Investment Department performs a detailed analysis of each counterparty and recommends a rating. The Group Risk & Compliance function manages the Group’s internal ratings framework and reviews these recommendations and, where appropriate, makes recommendations for revisions from time to time.

Value at Risk is calculated for each obligor based on its internal ratings, expected loss and contribution to the credit portfolio: these measures are used to establish single-name concentration limits.

The resulting matrix of limits is refreshed annually and approved by the Group FRC. These limits cover individual counterparty, segmental concentration and cross-border exposures.

The Investment Department has discretion to shape the portfolio within these credit limits, seeking further Group approvals through the risk governance framework where they wish to invest outside them. If certain investments are technically within credit limits but there is a specific concern, Group Risk brings these to the attention of the FRC for possible inclusion in the Group Investment Risk Watch List.

Equity Price

Equity price risk arises from changes in the market value of equity securities and equity funds. Investment in equity assets on a long-term basis is expected to provide diversification benefits and enhance returns.

Note 20 to the financial statements provides further details of the Group’s financial investments in equity securities, including the basis on which they are carried in the Financial Statements. Note 37 to the financial statements indicates the sensitivity of profit and net assets to changes in equity prices.

The extent of exposure to equities at any time is at the discretion of the Investment Department operating within the terms of the Group’s and business units’ strategic asset allocations.

Equity price risk is managed in the first instance through the individual investment mandates which define benchmarks and any tracking error targets. Equity limits are also applied at Group, business unit and individual fund levels to contain individual exposures. Equity exposures are included in the aggregate credit exposure reports on individual counterparties to ensure concentrations are avoided.

Within this framework the Investment team uses a “Margin of Safety Investment” approach to target value in individual stock selection, and they are also permitted to vary equity allocations within a defined range around the benchmark.

Property Price

Property price risk arises from investments in real estate assets which are subject to market value changes due to general or specific factors. A number of such real estate assets are self-occupied and used for operating purposes. Real estate assets are expected to provide useful diversification benefits and a long-term return with some inflation protection.

The price risk in property can be driven by broader economic and social factors, notably tenant supply and demand, liquidity of individual assets, evolving infrastructure or government actions that may directly or indirectly influence the market. It can also be driven by the characteristics of specific holdings: their location within an area, the competitiveness of their facilities and their physical condition.

In addition to normal due diligence, any material property investment is individually reviewed by the Group to ensure it is neither an unacceptable concentration of exposure nor a compromise of the financial flexibility of the relevant business unit. An Operational Risk checklist is also prepared for each investment.

Credit Spread

Credit Spread Risk arises from changes in the market value of non-government securities as a result of a change in perception as to their likelihood of repayment. These price changes are distinct from those resulting from changes in interest rates.

AIA invests in non-government securities in a number of its portfolios. Because these securities are mostly held to maturity, Credit Spread Risk is only taken to the extent that the Group may be forced to sell those securities before they mature or because the regulatory regime includes market values in their solvency calculation.

AIA manages its Credit Spread Risk carefully, focusing on overall portfolio quality and diversification and seeking to avoid excessive volatility in the mark-to-market value of its investment portfolios.

Investment Liquidity

Investment liquidity risk occurs in relation to our ability to buy and sell investments. This is a function of the size of the Group’s holdings relative to the availability of counterparties willing to buy or sell these holdings at any given time. In times of stress, market losses will generally be compounded by forced sellers seeking unwilling buyers.

As disclosed in note 20 to the financial statements, most of AIA’s investments are in the form of marketable securities, which can typically be converted to cash should the need arise.

However, investment liquidity risk has become more significant since the Global Financial Crisis as new regulations have led banks and dealers to reduce inventory levels and market-making activity.

While life insurance companies are characterised by a relatively low need for liquidity to cover those of their liabilities which are directly linked to mortality and morbidity, this risk is nevertheless carefully managed by continuously assessing the relative liquidity of the Group’s assets and managing the size of individual holdings through limits.

FINANCIAL RISKS

Interest Rate

The Group’s exposure to interest rate risk predominantly arises from any difference between the duration of the Group’s liabilities and assets, the ALM Mismatch. Since most markets do not have assets of sufficient tenor to match life insurance liabilities, an ALM Mismatch gives rise to uncertainty around the reinvestment of maturing assets to meet the Group’s insurance liabilities.

Management of Interest Rate Risk is complicated by the context in which the relative duration calculations are made. Where local solvency regimes use market values on only one side of the balance sheet the interest rate mismatch will be very different to the economic view where market values are used for both assets and liabilities.

Moreover, since most of AIA’s savings products allow us to vary crediting rates, management actions need to be modelled to determine the extent of interest rate risk at different confidence intervals.

The impact of options and guarantees can further complicate the picture, with a need to consider the impact of both rising and falling interest rates.

AIA manages its interest rate risk by considering all these dimensions, especially during product design and asset allocation. Present Value of a Basis Point analysis is used to highlight mismatches at individual points in the yield curve and Value at Risk is used to assess the riskiness of those mismatches.

For in-force policies, policyholder bonus payout and crediting rates applicable to policyholder account balances are regularly reviewed, considering amongst other things current bond yields and policyholders’ reasonable expectations.

Exposure to interest rate risk is summarised in note 37 to the financial statements, which shows the split of financial assets and liabilities between variable, fixed and non-interest bearing investments.

Foreign Exchange Rate

At the Group level, foreign exchange rate risk arises mainly from the Group’s operations in multiple geographical markets in the Asia-Pacific region and the translation of multiple currencies to US dollars for financial reporting purposes.

Note 37 to the financial statements shows the Group’s currency exposures and the sensitivity of shareholders’ equity and profit to movements in those currencies.

Foreign exchange rate risk is managed in AIA on various levels. The balance sheet values of our operating units and subsidiaries are not hedged to the Group’s reporting currency, US dollar.

However, assets, liabilities and all regulatory and stress capital in each business unit are generally currency matched with the exception of holdings of foreign equities or any expected capital movements due within one year which may be hedged at the discretion of Group management. Foreign bond holdings are commonly hedged with cross-currency swaps or foreign exchange forward contracts.

This approach applies to the matching of US dollar and HK dollar assets and liabilities in the Hong Kong businesses.

Financial Resources held at Group are normally held in US dollars. No attempt is made to match the currency of such capital to the currency of AIA’s Required Economic Capital or Hong Kong regulatory capital.

Financial Liquidity

Financial liquidity risk is the risk that insufficient cash is available to meet payment obligations to counterparties as they fall due. While life insurance companies are generally well placed to manage financial liquidity risk on account of the tenor of their liabilities, the experience of the Global Financial Crisis shows the need to be able to withstand extreme liquidity shocks.

One area of particular focus in the management of Financial Liquidity is collateral. Again the Global Financial Crisis exposed the risk to financial institutions from their commitments to post collateral to counterparties.

AIA manages this exposure by determining limits for its activities in the derivatives and repo markets based on the collateral available within the relevant fund or subsidiary to withstand extreme market events. The available collateral is subject to haircuts and then compared to the Peak Exposure of the derivatives exposures to give a “Collateral Coverage Ratio”. For repos a further restriction is imposed based on the volume and maturity profile of repos in relation to the expected premium inflow over a given time period assuming a stress scenario, the “Liquidity Coverage Ratio”.

More broadly AIA supports its liquidity through committed bank facilities, use of the bond repurchase markets and maintaining access to debt markets via the Group’s Global Medium Term Note programme.

Note 37 to the financial statements provides a maturity analysis of the Group’s financial assets and its financial liabilities and insurance contract liabilities.

OPERATIONAL RISKS

Operational

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, personnel and systems or from external events.

Operational Risk is broken down into a common classification which is used across the Group. At the Group level, it is overseen through 13 defined risk areas or Key Operational Risks (KORs). Each KOR is monitored using Key Risk Indicators (KRIs), with a designated First Line Risk Owner for each KOR.

Beneath the 13 KORs are two further levels of risk categorisation. The Group’s Operational Risk database, “Beehive”, is structured around this taxonomy and is used by Risk & Compliance to document incidents, record a risk assessment, describe controls and store KRI data.

The key to Operational Risk management is early identification of issues. AIA has formalised the use of Operational Risk Checklists in relation to a number of activities e.g. products, project management, Business Continuity Planning etc. These ensure that the business identifies the risks before embarking on an activity and then has a clear process for ensuring those risks are managed through to its conclusion.

In the business unit’s First Line Risk Owners and Risk Champions identify emerging issues and escalate them via the business unit risk functions (including business unit risk committees) to Group. Items deemed to have the potential to be noteworthy at the Group level are placed on the Group Risk Watch List for further action and heightened monitoring.

Quantifying Operational Risk is difficult as data is scarce and loss distributions are less predictable. While AIA is developing its own “Asian events database” to support more quantitative study, the principal tools currently used are Risk and Control Assessments. This involve convening a workshop of subject matter experts to consider possible risk scenarios, the likelihood of their occurrence, their potential cost and non-financial consequences to the organisation. Controls are then devised to mitigate the risks identified to reduce the potential exposures. The results of the assessments are recorded in Beehive.

AIA protects itself against financial losses by purchasing insurance coverage against a range of operational loss events including business disruption, property damage and internal fraud. The excess amounts and extent of coverage are determined taking into consideration the results of Risk and Control Assessment.

Strategic

Strategic risk refers to adverse impacts from unexpected changes to the Group’s operating and market environment. Strategic risk is addressed as part of the business planning process and ongoing monitoring of and response to social, economic, political, regulatory, competitive and technical changes that may impact AIA’s business.

REGULATORY DEVELOPMENTS

Internationally, the regulatory environment facing life insurers has continued to evolve. In particular, the International Association of Insurance Supervisors (IAIS) continues a multi-year consultation to review certain Insurance Core Principles with the longer-term aim of developing and implementing an updated common framework (ComFrame) for the international regulation of insurance companies.

Regulators across AIA’s span of operations continued a variety of initiatives intended to align their respective regulatory frameworks with the broad principles recommended by the IAIS. AIA continues to be involved in these initiatives across the region, and is an active participant in the international industry dialogue on a host of relevant issues including formation of an international capital standard.

In Hong Kong, legislation was passed in July 2015 in support of the creation of an Independent Insurance Authority. It is anticipated that the Independent Insurance Authority will take over the responsibilities of the HKOCI and will also directly regulate intermediaries beginning in 2017. In addition, under the guidance of the HKOCI, work continues towards the development of a risk-based capital regime. As previously disclosed, AIA is closely and constructively engaged in these developments.

FINANCIAL STATEMENTS

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INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF AIA GROUP LIMITED

(incorporated in Hong Kong with limited liability)

We have audited the consolidated financial statements of AIA Group Limited (the “Company”) and its subsidiaries set out on pages 49 to 185, which comprise the consolidated statement of financial position as at 30 November 2015, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Directors’ responsibility for the consolidated financial statements

The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants (HKICPA), and with the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and its subsidiaries as at 30 November 2015 and of their financial performance and cash flows for the year then ended in accordance with both Hong Kong Financial Reporting Standards and with International Financial Reporting Standards and have been properly prepared in compliance with the Hong Kong Companies Ordinance.

PricewaterhouseCoopers Certified Public Accountants

Hong Kong

25 February 2016

CONSOLIDATED INCOME STATEMENT

US$m Notes Revenue Premiums and fee income Premiums ceded to reinsurers Net premiums and fee income Investment return 8 Other operating revenue 8 Total revenue Expenses Insurance and investment contract benefits Insurance and investment contract benefits ceded Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs Other expenses Total expenses 9 Profit before share of profit from associates and joint venture Share of profit from associates and joint venture Profit before tax Income tax expense attributable to policyholders’ returns Profit before tax attributable to shareholders’ profits Tax expense 10 Tax attributable to policyholders’ returns Tax expense attributable to shareholders’ profits Net profit Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests Earnings per share (US$) Basic 11 Diluted 11	Year ended 30 November 2015 19,781 (1,165) 18,616 4,462 196 23,274 16,134 (942) 15,192 2,468 1,658 152 454 19,924 3,350 – 3,350 (33) 3,317 (636) 33 (603) 2,714 2,691 23 0.22 0.22	Year ended 30 November 2014 18,225 (1,173) 17,052 8,204 177 25,433 17,828 (1,024) 16,804 2,139 1,636 103 420 21,102 4,331 14 4,345 (125) 4,220 (877) 125 (752) 3,468 3,450 18 0.29 0.29

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

US$m Net profit Other comprehensive income Items that may be reclassified subsequently to profit or loss: Fair value (losses)/gains on available for sale financial assets (net of tax of: 2015: US$(48)m; 2014: US$(694)m) Fair value gains on available for sale financial assets transferred to income on disposal (net of tax of: 2015: US$2m; 2014: US$3m) Foreign currency translation adjustments Cash flow hedges Share of other comprehensive income from associates and joint venture Subtotal Items that will not be reclassified subsequently to profit or loss: Effect of remeasurement of net liability of defined benefit schemes (net of tax of: 2015: US$5m; 2014: US$(1)m) Subtotal Total other comprehensive (expense)/income Total comprehensive (expense)/income Total comprehensive (expense)/income attributable to: Shareholders of AIA Group Limited Non-controlling interests	Year ended 30 November 2015 2,714 (1,639) (42) (1,607) 3 3 (3,282) (5) (5) (3,287) (573) (581) 8	Year ended 30 November 2014 3,468 3,813 (29) (433) 4 22 3,377 (10) (10) 3,367 6,835 6,821 14

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

US$m Notes Assets Intangible assets 13 Investments in associates and joint venture 14 Property, plant and equipment 15 Investment property 16,17 Reinsurance assets 18 Deferred acquisition and origination costs 19 Financial investments: 20,22 Loans and deposits Available for sale Debt securities At fair value through profit or loss Debt securities Equity securities Derivative financial instruments 21 Deferred tax assets 10 Current tax recoverable Other assets 23 Cash and cash equivalents 25 Total assets Liabilities Insurance contract liabilities 26 Investment contract liabilities 27 Borrowings 29 Obligations under securities lending and repurchase agreements 30 Derivative financial instruments 21 Provisions 32 Deferred tax liabilities 10 Current tax liabilities Other liabilities 33 Total liabilities	As at 30 November 2015 1,834 137 500 1,386 1,652 17,092 7,211 80,940 23,700 27,159 73 139,083 9 45 3,892 1,992 167,622 115,870 7,116 3,195 3,085 695 245 2,954 265 4,657 138,082	As at 30 November 2014 2,152 131 541 1,384 1,657 16,593 7,654 77,744 24,319 28,827 265
		138,809 10 54 3,753 1,835
		166,919

		113,097 7,937 2,934 3,753 211 213 3,079 198 4,542
		135,964

US$m Notes Equity Share capital 34 Employee share-based trusts 34 Other reserves 34 Retained earnings Fair value reserve 34 Foreign currency translation reserve 34 Others Amounts reflected in other comprehensive income Total equity attributable to: Shareholders of AIA Group Limited Non-controlling interests 35 Total equity Total liabilities and equity	As at 30 November 2015 13,971 (321) (11,978) 24,708 4,414 (1,381) (12) 3,021 29,401 139 29,540 167,622	As at 30 November 2014 13,962 (286) (11,994) 22,831 6,076 227 (10) 6,293 30,806 149 30,955 166,919

Approved and authorised for issue by the Board of Directors on 25 February 2016.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

US$m Note Balance at 1 December 2014 Net profit Fair value losses on available for sale financial assets Fair value gains on available for sale financial assets transferred to income on disposal Foreign currency translation adjustments Cash flow hedges Share of other comprehensive income/(expense) from associates and joint venture Effect of remeasurement of net liability of defined benefit schemes Total comprehensive income/ (expense) for the year Dividends 12 Shares issued under share option scheme and agency share purchase plan Share-based compensation Purchase of shares held by employee share-based trusts Transfer of vested shares from employee share-based trusts Balance at 30 November 2015	Share capital 13,962 – – – – – – – – – 9 – – – 13,971	Employee share- based trusts (286) – – – – – – – – – – – (98) 63 (321)	Other reserves (11,994) – – – – – – – – – – 79 – (63) (11,978)	Retained earnings 22,831 2,691 – – – – – – 2,691 (814) – – – – 24,708	Other comprehensive income Fair value reserve Foreign currency translation reserve Others Non- controlling interests 6,076 227 (10) 149 – – – 23 (1,632) – – (7) (42) – – – – (1,599) – (8) – – 3 – 12 (9) – – – – (5) – (1,662) (1,608) (2) 8 – – – (18) – – – – – – – – – – – – – – – – 4,414 (1,381) (12) 139	Total equity 30,955 2,714 (1,639) (42) (1,607) 3 3 (5)
					Fair value reserve Foreign currency translation reserve 6,076 227 – – (1,632) – (42) – – (1,599) – – 12 (9) – – (1,662) (1,608) – – – – – – – – – – 4,414 (1,381)
						(573)
						(832) 9 79 (98) –
						29,540

US$m Note Balance at 1 December 2013 Net profit Fair value gains/(losses) on available for sale financial assets Fair value gains on available for sale financial assets transferred to income on disposal Foreign currency translation adjustments Cash flow hedges Share of other comprehensive income from associates and joint venture Effect of remeasurement of net liability of defined benefit schemes Total comprehensive income/ (expense) for the year Dividends 12 Shares issued under share option scheme Acquisition of non-controlling interests Share-based compensation Purchase of shares held by employee share-based trusts Transfer of vested shares from employee share-based trusts Others Balance at 30 November 2014	Share capital and share premium 13,958 – – – – – – – – – 4 – – – – – 13,962	Employee share- based trusts (274) – – – – – – – – – – – – (91) 79 – (286)	Other reserves (11,995) – – – – – – – – – – – 83 – (79) (3) (11,994)	Retained earnings 20,070 3,450 – – – – – – 3,450 (689) – – – – – – 22,831	Other comprehensive income Fair value reserve Foreign currency translation reserve Others Non- controlling interests 2,270 657 (4) 145 – – – 18 3,814 – – (1) (29) – – – – (430) – (3) – – 4 – 22 – – – – – (10) – 3,807 (430) (6) 14 – – – (11) – – – – (1) – – 1 – – – – – – – – – – – – – – – – 6,076 227 (10) 149	Total equity 24,827 3,468 3,813 (29) (433) 4 22 (10)
					Fair value reserve Foreign currency translation reserve 2,270 657 – – 3,814 – (29) – – (430) – – 22 – – – 3,807 (430) – – – – (1) – – – – – – – – – 6,076 227
						6,835
						(700) 4 – 83 (91) – (3)
						30,955

CONSOLIDATED STATEMENT OF CASH FLOWS

US$m Notes Cash flows from operating activities Profit before tax Adjustments for: Financial investments Insurance and investment contract liabilities Obligations under securities lending and repurchase agreements 30 Other non-cash operating items, including investment income Operating cash items: Interest received Dividends received Interest paid Tax paid Net cash provided by operating activities Cash flows from investing activities Payments for intangible assets 13 Contribution to a joint venture 14 Loans to a joint venture Payments for investment property and property, plant and equipment 15,16 Proceeds from sale of investment property and property, plant and equipment Disposal of a subsidiary, net of cash disposed Net cash used in investing activities Cash flows from financing activities Issuance of medium term notes 29 Interest paid on medium term notes Proceeds from other borrowings 29 Repayment of other borrowings 29 Dividends paid during the year Purchase of shares held by employee share-based trusts Shares issued under share option scheme and agency share purchase plan Net cash (used in)/provided by financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the financial year Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of the financial year	Year ended 30 November 2015 3,350 (9,429) 8,343 (462) (5,501) 4,944 614 (76) (546) 1,237 (103) (9) – (139) – 21 (230) 745 (76) 3 (490) (832) (98) 9 (739) 268 1,631 (149) 1,750	Year ended 30 November 2014 4,345 (15,479) 10,430 1,892 (5,084) 4,678 535 (57) (516) 744 (911) – (16) (456) 35 – (1,348) 990 (49) 347 (348) (700) (91) 4 153 (451) 2,140 (58) 1,631

Cash and cash equivalents in the above consolidated statement of cash flows can be further analysed as follows:

Note Cash and cash equivalents in the consolidated statement of financial position 25 Bank overdrafts Cash and cash equivalents in the consolidated statement of cash flows	Year ended 30 November 2015 1,992 (242) 1,750	Year ended 30 November 2014 1,835 (204) 1,631

Notes to the Consolidated Financial Statements and Significant Accounting Policies

1. Corporate information

AIA Group Limited (the “Company”) was established as a company with limited liability incorporated in Hong Kong on 24 August 2009. The address of its registered office is 35/F, AIA Central, No. 1 Connaught Road Central, Hong Kong.

AIA Group Limited is listed on the Main Board of The Stock Exchange of Hong Kong Limited under the stock code “1299” with American Depositary Receipts (Level 1) being traded on the over-the-counter market (ticker symbol: “AAGIY”).

AIA Group Limited and its subsidiaries (collectively “AIA” or the “Group”) is a life insurance based financial services provider operating in 18 markets throughout the Asia-Pacific region. The Group’s principal activity is the writing of life insurance business, providing life insurance, accident and health insurance and savings plans throughout Asia, and distributing related investment and other financial services products to its customers.

2. Significant accounting policies

2.1 BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE

The consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (HKFRS), International Financial Reporting Standards (IFRS) and the Hong Kong Companies Ordinance. IFRS is substantially consistent with HKFRS and the accounting policy selections that the Group has made in preparing these consolidated financial statements are such that the Group is able to comply with both HKFRS and IFRS. References to IFRS, International Accounting Standards (IAS) and Interpretations developed by the IFRS Interpretations Committee (IFRS IC) in these consolidated financial statements should be read as referring to the equivalent HKFRS, Hong Kong Accounting Standards (HKAS) and Hong Kong (IFRIC) Interpretations (HK(IFRIC) – Int) as the case may be. Accordingly, there are not any differences of accounting practice between HKFRS and IFRS affecting these consolidated financial statements.

The consolidated financial statements have been approved for issue by the Board of Directors on 25 February 2016.

The consolidated financial statements have been prepared using the historical cost convention, as modified by the revaluation of available for sale financial assets, certain financial assets and liabilities designated at fair value through profit or loss and derivative financial instruments, all of which are carried at fair value.

Items included in the consolidated financial statements of each of the Group’s entities are measured in the currency of the primary economic environment in which that entity operates (the functional currency). The Company’s functional currency and the presentation currency of the Company and the Group is the US dollar. The consolidated financial statements are presented in millions of US dollars (US$m) unless otherwise stated.

The accounting policies adopted are consistent with those of the previous financial year, except as described below.

(a) The following relevant new interpretation, amendments to standards and implementation of new Hong Kong Companies Ordinance (Cap. 622) are mandatory for the first time for the financial year beginning 1 December 2014 and do not have material impact to the Group:
IFRIC 21, Levies;
Amendment to IAS 24, Related Parties Disclosures, Key management personnel;
Amendments to IAS 32, Financial Instruments: Presentation on offsetting financial assets and financial liabilities;
Amendment to IAS 40, Investment Property, Clarifying the interrelationship between IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property;
Amendment to IFRS 2, Share-based Payment, Definition of vesting condition;
Amendment to IFRS 3, Business Combinations, Accounting for contingent consideration in a business combination;
Amendments to IFRS 8, Operating Segments, Aggregation of operating segments and Reconciliation of the total of the reportable segments’ assets to the entity’s assets; and
The annual report requirements of Part 9 ‘Accounts and Audit’ of the new Hong Kong Companies Ordinance (Cap. 622) come into operation during the financial year beginning 1 December 2014, as a result, there are changes to presentation and disclosures of certain information in the consolidated financial statements.
(b) The following relevant new standards and amendments to standards have been issued but are not effective for the financial year ended 30 November 2015 and have not been early adopted (the financial years for which the adoption is required for the Group are stated in parentheses). The Group has assessed the full impact of these new standards on its financial position and results of operations and they are not expected to have a material impact on the financial position or results of operations of the Group but may require additional disclosures:
Amendments to IAS 1, Disclosure Initiative (2017);
Amendments to IAS 12, Recognition of Deferred Tax Assets for Unrealised Losses (2018);
Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation and Amortisation (2017);
Amendments to IAS 19, Employee Benefits, Discount rate: regional market issue (2017);
Amendments to IAS 27, Equity Method in Separate Financial Statements (2017);
Amendments to IAS 34, Interim Financial Reporting, Disclosure of information ‘elsewhere in the interim financial report’ (2017);
Amendments to IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, Changes in methods of disposal (2017);
Amendments to IFRS 7, Financial Instruments: Disclosure, Servicing contracts and applicability of the amendments to IFRS 7 to condensed interim financial statements (2017);
Amendments to IFRS 11, Acquisitions of Interests in Joint Operations (2017);
IFRS 15, Revenue from Contracts with Customers (2019); and
Amendments to IAS 7, Disclosure Initiative (2018).

(c) The following relevant new standard and requirements have been issued but are not effective for the financial year ended 30 November 2015 and have not been early adopted:
IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. In addition, a revised expected credit losses model will replace the incurred loss impairment model in IAS 39. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, part of the fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than profit or loss, unless this creates an accounting mismatch. In addition, the new standard revises the hedge accounting model to more closely align with the entity’s risk management strategies. The Group is yet to fully assess the impact of the standard on its financial position and results of operations. The standard is mandatorily effective for annual periods beginning on or after 1 January 2018.

The IASB has published an exposure draft on 9 December 2015 seeking public comment on two alternative measures to address the different effective dates of IFRS 9 and the forthcoming insurance contracts standard. These measures include a temporary option for companies predominantly issue insurance contracts to defer the effective date of IFRS 9 until the earlier of the effective date of the forthcoming insurance contracts standard and the annual reporting periods beginning on or after 1 January 2021, as well as an approach that allows an entity to remove from profit or loss the effects of certain accounting mismatches that may occur before the forthcoming insurance contracts standard is applied. The Group will monitor the development of this matter and evaluate available alternatives in determining the adoption date of the relevant standard.

IFRS 16, Leases, sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group is yet to assess the full impact of the standard on its financial position and results of operations. The standard is mandatorily effective for annual periods beginning on or after 1 January 2019.

In addition, for the periods beginning 1 December 2015, the Group revised certain accounting policies and basis of presentation and assessed the impact to the consolidated financial statements (see note 48 and note 49). The Group will report its results including these policies for the first time for the six months ending 31 May 2016.

The significant accounting policies adopted in the preparation of the Group’s consolidated financial statements are set out below. These policies have been applied consistently in all periods presented.

2.2 OPERATING PROFIT

The long-term nature of much of the Group’s operations means that, for management’s decisionmaking and internal performance management purposes, the Group evaluates its results and its operating segments using a financial performance measure referred to as “operating profit”. The Group defines operating profit before and after tax respectively as profit excluding the following non-operating items:

investment experience (which consists of realised gains and losses, foreign exchange gains and losses, impairments and unrealised gains and losses on investments held at fair value through profit or loss);
investment income related to unit-linked contracts (consisting of dividends, interest income and rental income);
investment management expenses related to unit-linked contracts;
corresponding changes in insurance and investment contract liabilities in respect of unitlinked contracts and participating funds (see note 2.4) and changes in third-party interests in consolidated investment funds;
policyholders’ share of tax relating to changes in insurance and investment contract liabilities; and
other significant items that management considers to be non-operating income and expenses.

Whilst these excluded non-operating items are significant components of the Group’s profit, the Group considers that the presentation of operating profit enhances the understanding and comparability of its performance and that of its operating segments. The Group considers that trends can be more clearly identified without the fluctuating effects of these non-operating items, many of which are largely dependent on market factors.

2.3 BASIS OF CONSOLIDATION

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only, and the relevant activities are directed by means of contractual arrangements. The Group has determined that the investment funds and structured securities, such as collateralised debt obligations, mortgage-backed securities and other asset-backed securities that the Group has interest are structured entities.

The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are excluded from consolidation from the date at which the Group no longer has control. Intercompany transactions are eliminated.

The Group utilises the acquisition method of accounting to account for the acquisition of subsidiaries, unless the acquisition forms part of the Group reorganisation of entities under common control. Under this method, the cost of an acquisition is measured as the fair value of consideration payable, shares issued or liabilities assumed at the date of acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill (see 2.10 below). The Group recognises, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the subsidiary. Any surplus of the acquirer’s interest in the subsidiary’s net assets over the cost of acquisition is credited to the consolidated income statement.

The consolidated financial statements of the Group include the assets, liabilities and results of the Company and subsidiaries in which AIA Group Limited has a controlling interest, using accounts drawn up to the reporting date.

Investment funds

Investment funds in which the Group has interests and power to direct their relevant activities that affect the return of the funds are consolidated in the financial statements. In conducting the assessment, the Group considers substantive contractual rights as well as de facto control. De facto control of an entity may arise from circumstances where the Group does not have more than 50% of the voting power but it has the practical ability to direct the relevant activities of the entity. If the Group has power to remove or control over the party having the ability to direct the relevant activities of the fund based on the facts and circumstances and that the Group has exposure to variable returns of the investment funds, they are consolidated. Variable returns include both rights to the profits or distributions as well as the obligation to absorb losses of the investees.

Employee share-based trusts

Trusts are set up to acquire shares of the Company for distribution to participants in future periods through the share-based compensation schemes. The consolidation of these trusts is evaluated in accordance with IFRS 10; where the Group is deemed to control the trusts, they are consolidated. Shares acquired by the trusts to the extent not provided to the participants upon vesting are carried at cost and reported as “employee share-based trusts” in the consolidated statement of financial position, and as a deduction from the equity in the consolidated statement of changes in equity.

Non-controlling interests

Non-controlling interests are presented within equity except when they arise through the minority’s interest in puttable liabilities such as the unit holders’ interest in consolidated investment funds, when they are recognised as a liability, reflecting the net assets of the consolidated entity.

Acquisitions and disposals of non-controlling interests, except when they arise through the minority’s interest in puttable liabilities, are treated as transactions between equity holders. As a result, any difference between the acquisition cost or sale price of the non-controlling interest and the carrying value of the non-controlling interest is recognised as an increase or decrease in equity.

Associates and joint ventures

Associates are entities over which the Group has significant influence, but which it does not control. Generally, it is presumed that the Group has significant influence if it has between 20 per cent and 50 per cent of voting rights. Joint ventures are entities whereby the Group and other parties undertake an economic activity which is subject to joint control arising from a contractual agreement.

Gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates and joint ventures. Losses are also eliminated, unless the transaction provides evidence of an impairment of an asset transferred between entities.

Investments in associates and joint ventures are accounted for using the equity method of accounting. Under this method, the cost of the investment in an associate or joint venture, together with the Group’s share of that entity’s post-acquisition changes to equity, is included as an asset in the consolidated statement of financial position. Cost includes goodwill arising on acquisition. The Group’s share of post-acquisition profits or losses is recognised in the consolidated income statement and its share of post-acquisition movement in equity is recognised in other comprehensive income. Equity accounting is discontinued when the Group no longer has significant influence over the investment. If the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the undertaking, additional losses are provided for, and a liability recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. The Group also accounts for investments in joint ventures that are subject to joint control using the equity method of accounting.

The Company’s investments

In the Company’s statement of financial position, subsidiaries, associates and joint ventures are stated at cost, unless impaired. The Company’s interests in investment funds such as mutual funds and unit trusts are designated at fair value through profit or loss.

2.4 INSURANCE AND INVESTMENT CONTRACTS

Consistent accounting policies for the measurement and recognition of insurance and investment contracts have been adopted throughout the Group to substantially all of its business.

In a limited number of cases, the Group measures insurance contract liabilities with reference to statutory requirements in the applicable jurisdiction, without deferral of acquisition costs.

Product classification

The Group classified its contracts written as either insurance contracts or investment contracts, depending on the level of insurance risk. Insurance contracts are those contracts that transfer significant insurance risk, while investment contracts are those contracts without significant insurance risk. Some insurance and investment contracts, referred to as participating business, have discretionary participation features, “DPF”, which may entitle the customer to receive, as a supplement to guaranteed benefits, additional non-guaranteed benefits, such as policyholder dividends or bonuses. The Group applies the same accounting policies for the recognition and measurement of obligations arising from investment contracts with DPF as it does for insurance contracts.

In the event that a scenario (other than those lacking commercial substance) exists in which an insured event would require the Group to pay significant additional benefits to its customers, the contract is accounted for as an insurance contract. For investment contracts that do not contain DPF, IAS 39, Financial Instruments: Measurement and Recognition , and, if the contract includes an investment management element, IAS 18, Revenue Recognition , are applied. IFRS 4 permits the continued use of previously applied accounting policies for insurance contracts and investment contracts with DPF, and this basis has been adopted by the Group in accounting for such contracts. Once a contract has been classified as an insurance or investment contract, reclassification is not subsequently performed unless the terms of the agreement are later amended.

Certain contracts with DPF supplement the amount of guaranteed benefits due to policyholders. These contracts are distinct from other insurance and investment contracts as the Group has discretion in the amount and/or timing of the benefits declared, and how such benefits are allocated between groups of policyholders. Customers may be entitled to receive, as a supplement to guaranteed benefits, additional benefits or bonuses:

that are likely to be a significant portion of the total contractual benefits;
whose amount or timing is contractually at the discretion of the Group; and
that are contractually based on:
the performance of a specified pool of contracts or a specified type of contract;
realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or
the profit or loss of the Company, fund or other entity that issues the contract.

The Group applies the same accounting policies for the recognition and measurement of obligations and the deferral of acquisition costs arising from investment contracts with DPF as it does to insurance contracts. The Group refers to such contracts as participating business. In some jurisdictions participating business is written in a participating fund which is distinct from the other assets of the Company or branch. The allocation of benefits from the assets held in such participating funds is subject to minimum policyholder participation mechanisms which are established by regulation. The extent of such policy participation may change over time. The current policyholder participation in declared dividends for locations with participating funds is set out below:

set out below:
Country	Current policyholder participation
Singapore	90%
Malaysia	90%
China	70%
Australia	80%
Brunei	80%

In some jurisdictions participating business is not written in a distinct fund and the Group refers to this as other participating business.

The Group’s products may be divided into the following main categories:

Policy type		Description of benefits payable	Basis of accounting for:
			Insurance contract	Investment contract
			liabilities	liabilities
Traditional participating	Participating funds	Participating products combine	Insurance contract liabilities make	Not applicable, as IFRS
life assurance with DPF		protection with a savings element.	provision for the present value of	4 permits contracts with
		The basic sum assured, payable on	guaranteed benefits less estimated	DPF to be accounted for
		death or maturity, may be enhanced by	future net premiums to be collected	as insurance contracts
		dividends or bonuses, the aggregate	from policyholders. In addition, an
		amount of which is determined by the	insurance liability is recorded for
		performance of a distinct fund of assets	the proportion of the net assets of
		and liabilities	the participating funds that would
			be allocated to policyholders,
		The timing of dividend and bonus	assuming all performance would
		declarations is at the discretion of the	be declared as a dividend based
		insurer. Local regulations generally	upon local regulations
		prescribe a minimum proportion of
		policyholder participation in declared
		dividends
	Other participating	Participating products combine	Insurance contract liabilities make	Not applicable, as IFRS
	business	protection with a savings element.	provision for the present value	4 permits contracts with
		The basic sum assured, payable on	of guaranteed benefits and non-	DPF to be accounted for
		death or maturity, may be enhanced	guaranteed participation less	as insurance contracts
		by dividends or bonuses, the timing or	estimated future net premiums to
		amount of which are at the discretion of	be collected from policyholders
		the insurer taking into account factors
		such as investment experience
Non-participating life		Benefits payable are not at the	Insurance contract liabilities	Investment contract
assurance, annuities and		discretion of the insurer	reflect the present value of future	liabilities are measured at
other protection products			policy benefits to be paid less the	amortised cost
			present value of estimated future
			net premiums to be collected from
			policyholders. In addition, deferred
			profit liabilities for limited payment
			contracts are recognised
Universal life		Benefits are based on an account	Insurance contract liabilities	Not applicable as such
		balance, credited with interest at a rate	reflect the accumulation value,	contracts generally
		set by the insurer, and a death benefit,	representing premiums received	contain significant
		which may be varied by the customer	and investment return credited,	insurance risk
			less deductions for front-end loads,
			mortality and morbidity costs and
			expense charges. In addition,
			liabilities for unearned revenue and
			additional insurance benefits are
			recorded
Unit-linked		These may be primarily savings	Insurance contract liabilities	Investment contract
		products or may combine savings with	reflect the accumulation value,	liabilities are measured
		an element of protection	representing premiums received	at fair value (determined
			and investment return credited,	with reference to the
			less deductions for front-end loads,	accumulation value)
			mortality and morbidity costs and
			expense charges. In addition,
			liabilities for unearned revenue and
			additional insurance benefits are
			recorded

In the notes to the financial statements, unit-linked contracts are presented together with pension contracts for disclosure purposes.

The basis of accounting for insurance and investment contracts is discussed in notes 2.4.1 and 2.4.2 below.

2.4.1 Insurance contracts and investment contracts with DPF

Premiums

Premiums from life insurance contracts, including participating policies and annuity policies with life contingencies, are recognised as revenue when due from the policyholder. Benefits and expenses are provided in respect of such revenue so as to recognise profits over the estimated life of the policies. For limited pay contracts, premiums are recognised in profit or loss when due, with any excess profit deferred and recognised in income in a constant relationship to the insurance in-force or, for annuities, the amount of expected benefit payments.

Amounts collected as premiums from insurance contracts with investment features but with sufficient insurance risk to be considered insurance contracts, such as universal life, and certain unit-linked contracts, are accumulated as deposits. Revenue from these contracts consists of policy fees for the cost of insurance, administration, and surrenders during the period.

Upfront fees are recognised over the estimated life of the contracts to which they relate. Policy benefits and claims that are charged to expenses include benefit claims incurred in the period in excess of related policyholder contract deposits and interest credited to policyholder deposits.

Unearned revenue liability

Unearned revenue liability arising from insurance contracts representing upfront fees and other non-level charges is deferred and released to the consolidated income statement over the estimated life of the business.

Deferred acquisition costs

The costs of acquiring new insurance contracts, including commissions and distribution costs, underwriting and other policy issue expenses which vary with and are primarily related to the production of new business or renewal of existing business, are deferred as an asset. Deferred acquisition costs are assessed for recoverability in the year of policy issue to ensure that these costs are recoverable out of the estimated future margins to be earned on the policy. Deferred acquisition costs are assessed for recoverability at least annually thereafter. Future investment income is also taken into account in assessing recoverability. To the extent that acquisition costs are not considered to be recoverable at inception or thereafter, these costs are expensed in the consolidated income statement.

Deferred acquisition costs for life insurance and annuity policies are amortised over the expected life of the contracts as a constant percentage of expected premiums. Expected premiums are estimated at the date of policy issue and are consistently applied throughout the life of the contract unless a deficiency occurs when performing liability adequacy testing (see below).

Deferred acquisition costs for universal life and unit-linked contracts are amortised over the expected life of the contracts based on a constant percentage of the present value of estimated gross profits expected to be realised over the life of the contract or on a straight-line basis. Estimated gross profits include expected amounts to be assessed for mortality, administration, investment and surrenders, less benefit claims in excess of policyholder balances, administrative expenses and interest credited. Estimated gross profits are revised regularly. The interest rate used to compute the present value of revised estimates of expected gross profits is the latest revised rate applied to the remaining benefit period. Deviations of actual results from estimated experience are reflected in earnings.

Deferred sales inducements

Deferred sales inducements, consisting of day one bonuses, persistency bonuses and enhanced crediting rates are deferred and amortised using the same methodology and assumptions used to amortise acquisition costs when:

the sales inducements are recognised as part of insurance contract liabilities;
they are explicitly identified in the contract on inception;
they are incremental to amounts credited on similar contracts without sales inducements; and
they are higher than the expected ongoing crediting rates for periods after the inducement.

Unbundling

The deposit component of an insurance contract is unbundled when both of the following conditions are met:

the deposit component (including any embedded surrender option) can be measured separately (i.e. without taking into account the insurance component); and
the Group’s accounting policies do not otherwise require the recognition of all obligations and rights arising from the deposit component.

Bifurcation

To the extent that certain of the Group’s insurance contracts include embedded derivatives that are not clearly and closely related to the host contract, these are bifurcated from the insurance contracts and accounted for as derivatives.

Benefits and claims

Insurance contract benefits reflect the cost of all maturities, surrenders, withdrawals and claims arising during the year, as well as policyholder dividends accrued in anticipation of dividend declarations.

Accident and health claims incurred include all losses occurring during the year, whether reported or not, related handling costs, a reduction for recoveries, and any adjustments to claims outstanding from previous years.

Claims handling costs include internal and external costs incurred in connection with the negotiation and settlement of claims, and are included in operating expenses.

Insurance contract liabilities (including liabilities in respect of investment contracts with DPF)

Insurance contract liabilities represent the estimated future policyholder benefit liability for life insurance policies.

Future policy benefits for life insurance policies are calculated using a net level premium valuation method which represents the present value of estimated future policy benefits to be paid, less the present value of estimated future net premiums to be collected from policyholders.

For contracts with an explicit account balance, such as universal life and unit-linked contracts, insurance contract liabilities are equal to the accumulation value, which represents premiums received and investment returns credited to the policy less deductions for mortality and morbidity costs and expense charges.

Settlement options are accounted for as an integral component of the underlying insurance or investment contract unless they provide annuitisation benefits, in which case an additional liability is established to the extent that the present value of expected annuitisation payments at the expected annuitisation date exceeds the expected account balance at that date. Where settlement options have been issued with guaranteed rates less than market interest rates, the insurance or investment contract liability does not reflect any provision for subsequent declines in market interest rates unless a deficiency is identified through liability adequacy testing.

The Group accounts for participating policies within participating funds by establishing a liability for the present value of guaranteed benefits less estimated future net premiums to be collected from policyholders. In addition, an insurance liability is recorded for the proportion of the net assets of the participating funds that would be allocated to policyholders assuming all performance were to be declared as a dividend based upon local regulations. The Group accounts for other participating business by establishing a liability for the present value of guaranteed benefits and non-guaranteed participation, less estimated future net premiums to be collected from policyholders.

Liability adequacy testing

The adequacy of liabilities is assessed by portfolio of contracts, in accordance with the Group’s manner of acquiring, servicing and measuring the profitability of its insurance contracts. Liability adequacy testing is performed for each geographical market.

For traditional life insurance contracts, insurance contract liabilities reduced by deferred acquisition costs and value of business acquired on acquired insurance contracts, are compared to the gross premium valuation calculated on a best estimate basis, as of the valuation date. If there is a deficiency, the unamortised balance of deferred acquisition cost and value of business acquired on acquired insurance contracts are written down to the extent of the deficiency. If, after writing down the unamortised balance for the specific portfolio of contracts to nil, a deficiency still exists, the net liability is increased by the amount of the remaining deficiency.

For universal life and investment contracts, deferred acquisition costs, net of unearned revenue liabilities, are compared to estimated gross profits. If a deficiency exists, deferred acquisition costs are written down.

Financial guarantees

Financial guarantees are regarded as insurance contracts. Liabilities in respect of such contracts are recognised as loss is incurred by a holder.

2.4.2 Investment contracts

Investment contracts do not contain sufficient insurance risk to be considered insurance contracts and are accounted for as a financial liability, other than investment contracts with DPF which are excluded from the scope of IAS 39 and are accounted for as insurance contracts.

Revenue from these contracts consists of various charges (policy fees, handling fees, management fees and surrender charges) made against the contract for the cost of insurance, expenses and early surrender. First year charges are amortised over the life of the contract as the services are provided.

Investment contract fee revenue

Customers are charged fees for policy administration, investment management, surrenders or other contract services. The fees may be fixed amounts or vary with the amounts being managed, and will generally be charged as an adjustment to the policyholder’s account balance. The fees are recognised as revenue in the period in which they are received unless they relate to services to be provided in future periods, in which case they are deferred and recognised as the service is provided.

Origination and other “upfront” fees (fees that are assessed against the account balance as consideration for origination of the contract) are charged on some non-participating investment and pension contracts. Where the investment contract is recorded at amortised cost, these fees are amortised and recognised over the expected term of the policy as an adjustment to the effective yield. Where the investment contract is measured at fair value, the front-end fees that relate to the provision of investment management services are amortised and recognised as the services are provided.

Deferred origination costs

The costs of acquiring investment contracts with investment management services, including commissions and other incremental expenses directly related to the issue of each new contract, are deferred and amortised over the period that services are provided. Deferred origination costs are tested for recoverability at each reporting date.

The costs of acquiring new investment contracts without investment management services are included as part of the effective interest rate used to calculate the amortised cost of the related investment contract liabilities.

Investment contract liabilities

Deposits received in respect of investment contracts are not accounted for through the consolidated income statement, except for the investment income and fees attributable to those contracts, but are accounted for directly through the consolidated statement of financial position as an adjustment to the investment contract liability, which reflects the account balance.

The majority of the Group’s contracts classified as investment contracts are unit-linked contracts, with measurement directly linked to the underlying investment assets. These represent investment portfolios maintained to meet specific investment objectives of policyholders who generally bear the credit and market risks on those investments. The liabilities are carried at fair value determined with reference to the accumulation value (current unit value) with changes recognised in profit or loss. The costs of policy administration, investment management, surrender charges and certain policyholder taxes assessed against customers’ account balances are included in revenue, and accounted for as described under “Investment contract fee revenue” above.

Non unit-linked investment contract liabilities are carried at amortised cost, being the fair value of consideration received at the date of initial recognition, less the net effect of principal payments such as transaction costs and front-end fees, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity value, and less any write-down for surrender payments. The effective interest rate equates the discounted cash payments to the initial amount. At each reporting date, the unearned revenue liability is determined as the value of the future best estimate cash flows discounted at the effective interest rate. Any adjustment is immediately recognised as income or expense in the consolidated income statement.

The amortised cost of the financial liability is never recorded at less than the amount payable on surrender, discounted for the time value of money where applicable, if the investment contract is subject to a surrender option.

2.4.3 Insurance and investment contracts

Reinsurance

The Group cedes reinsurance in the normal course of business, with retentions varying by line of business. The cost of reinsurance is accounted for over the life of the underlying reinsured policies, using assumptions consistent with those used to account for such policies.

Premiums ceded and claims reimbursed are presented on a gross basis in the consolidated income statement and statement of financial position.

Reinsurance assets consist of amounts receivable in respect of ceded insurance liabilities. Amounts recoverable from reinsurers are estimated in a manner consistent with the reinsured insurance or investment contract liabilities or benefits paid and in accordance with the relevant reinsurance contract.

To the extent that reinsurance contracts principally transfer financial risk (as opposed to insurance risk) they are accounted for directly through the consolidated statement of financial position and are not included in reinsurance assets or liabilities. A deposit asset or liability is recognised, based on the consideration paid or received less any explicitly identified premiums or fees to be retained by the reinsured.

If a reinsurance asset is impaired, the Group reduces the carrying amount accordingly and recognises that impairment loss in the consolidated income statement. A reinsurance asset is impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the Group may not receive all amounts due to it under the terms of the contract, and the impact on the amounts that the Group will receive from the reinsurer can be reliably measured.

Value of business acquired (VOBA)

The VOBA in respect of a portfolio of long-term insurance and investment contracts, either directly or through the purchase of a subsidiary, is recognised as an asset. If this results from the acquisition of an investment in a joint venture or an associate, the VOBA is held within the carrying amount of that investment. In all cases, the VOBA is amortised over the estimated life of the contracts in the acquired portfolio on a systematic basis. The rate of amortisation reflects the profile of the value of in-force business acquired. The carrying value of VOBA is reviewed annually for impairment and any reduction is charged to the consolidated income statement.

Shadow accounting

Shadow accounting is applied to insurance and certain investment contracts with discretionary participation feature where financial assets backing insurance and investment contract liabilities are classified as available for sale. Shadow accounting is applied to deferred acquisition costs, VOBA, deferred origination costs and the contract liabilities for investment contracts with DPF to take into account the effect of unrealised gains or losses on insurance liabilities or assets that are recognised in other comprehensive income in the same way as for a realised gain or loss recognised in the consolidated income statement. Such assets or liabilities are adjusted with corresponding charges or credits recognised directly in shareholders’ equity as a component of the related unrealised gains and losses.

Other assessments and levies

The Group is potentially subject to various periodic insurance-related assessments or guarantee fund levies. Related provisions are established where there is a present obligation (legal or constructive) as a result of a past event. Such amounts are not included in insurance or investment contract liabilities but are included under “Provisions” in the consolidated statement of financial position.

2.5 FINANCIAL INSTRUMENTS

2.5.1 Classification of and designation of financial instruments

Financial assets and liabilities at fair value through profit or loss

Financial assets and liabilities at fair value through profit or loss comprise two categories:

financial assets or liabilities designated at fair value through profit or loss upon initial recognition; and
financial assets or liabilities classified as held for trading.

Management designates financial assets and liabilities at fair value through profit or loss if this eliminates a measurement inconsistency or if the related assets and liabilities are actively managed on a fair value basis, including:

financial assets held to back unit-linked contracts and participating funds;
other financial assets managed on a fair value basis; consisting of the Group’s equity portfolio and investments held by the Group’s fully consolidated investment funds; and
compound instruments containing an embedded derivative, where the embedded derivative would otherwise require bifurcation.

Financial assets and liabilities classified as held for trading include financial assets acquired principally for the purpose of selling them in the near future and those that form part of a portfolio of financial assets in which there is evidence of short-term profit taking, as well as derivative assets and liabilities.

Dividend income from equity instruments designated at fair value through profit or loss is recognised in investment income in the consolidated income statement, generally when the security becomes ex-dividend. Interest income is recognised on an accrued basis. For all financial assets designated at fair value through profit or loss, changes in fair value are recognised in investment experience.

Transaction costs in respect of financial assets and liabilities at fair value through profit or loss are expensed as they are incurred.

Available for sale financial assets

Financial assets, other than those at fair value through profit or loss, and loans and receivables, are classified as available for sale.

The available for sale category is used where the relevant investments backing insurance and investment contract liabilities and shareholders’ equity are not managed on a fair value basis. These principally consist of the Group’s debt securities (other than those backing participating funds and unit-linked contracts). Available for sale financial assets are initially recognised at fair value plus attributable transaction costs. For available for sale debt securities, the difference between their cost and par value is amortised. Available for sale financial assets are subsequently measured at fair value. Interest income from debt securities classified as available for sale is recognised in investment income in the consolidated income statement using the effective interest method.

Unrealised gains and losses on securities classified as available for sale are analysed between differences resulting from foreign currency translation, and other fair value changes. Foreign currency translation differences on monetary available for sale investments, such as debt securities are calculated as if they were carried at amortised cost and so are recognised in the consolidated income statement as investment experience. For impairments of available for sale financial assets, reference is made to the section “Impairment of financial assets”.

Changes in the fair value of securities classified as available for sale, except for impairment losses and relevant foreign exchange gains and losses, are recognised in other comprehensive income and accumulated in a separate fair value reserve within equity. Impairment losses and relevant foreign exchange gains and losses are recognised in the income statement.

Realised gains and losses on financial assets

Realised gains and losses on available for sale financial assets are determined as the difference between the sale proceeds and amortised cost. Amortised cost is determined by specific identification.

Recognition of financial instruments

Purchases and sales of financial instruments are recognised on the trade date, which is the date at which the Group commits to purchase or sell the assets.

Derecognition and offset of financial assets

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. If the Group neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, it derecognises the financial asset if it no longer has control over the asset. In transfers where control over the asset is retained, the Group continues to recognise the asset to the extent of its continuing involvement. The extent of continuing involvement is determined by the extent to which the Group is exposed to changes in the fair value of the asset.

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs. Subsequently, they are carried at amortised cost using the effective interest method less any impairment losses. Interest income from loans and receivables is recognised in investment income in the consolidated income statement using the effective interest method.

Term deposits

Deposits include time deposits with financial institutions which do not meet the definition of cash and cash equivalents as their maturity at acquisition exceeds three months. Certain of these balances are subject to regulatory or other restriction as disclosed in note 20 Loans and deposits. Deposits are stated at amortised cost using the effective interest method.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with maturities at acquisition of three months or less, which are held for cash management purposes. Cash and cash equivalents also include cash received as collateral for derivative transactions, securities lending transactions, and repo and reverse repo transactions, as well as cash and cash equivalents held for the benefit of policyholders in connection with unit-linked products. Cash and cash equivalents are measured at amortised cost using the effective interest method.

2.5.2 Fair values of non-derivative financial instruments

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, having regard to the specific characteristics of the asset or liability concerned, assuming that the transfer takes place in the most advantageous market to which the Group has access. The fair values of financial instruments traded in active markets (such as financial instruments at fair value through profit or loss and available for sale securities) are based on quoted market prices at the date of the consolidated statement of financial position. The quoted market price used for financial assets held by the Group is the current bid price, which is considered to be the price within the bid-ask spread that is most representative of the fair value in the circumstances. The fair values of financial instruments that are not traded in active markets are determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions at the date of each consolidated statement of financial position. The objective of using a valuation technique is to estimate the price at which an orderly transaction would take place between market participants at the date of the consolidated statement of financial position.

Financial instruments carried at fair value are measured using a fair value hierarchy described in note 22.

2.5.3 Impairment of financial assets

General

Financial assets are assessed for impairment on a regular basis. The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset, or group of financial assets, is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

For loans and receivables, the Group first assesses whether objective evidence of impairment exists for financial assets that are individually significant. If the Group determines that objective evidence of impairment does not exist for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

Available for sale financial instruments

When a decline in the fair value of an available for sale asset has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss already recognised directly in other comprehensive income is recognised in current period profit or loss.

If the fair value of a debt instrument classified as available for sale increases in a subsequent period, and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss. Where, following the recognition of an impairment loss in respect of an available for sale debt security, the asset suffers further falls in value, such further falls are recognised as an impairment only in the case when objective evidence exists of a further impairment event to which the losses can be attributed.

Loans and receivables

For loans and receivables, impairment is considered to have taken place if it is probable that the Group will not be able to collect principal and/or interest due according to the contractual terms of the instrument. When impairment is determined to have occurred, the carrying amount is decreased through a charge to profit or loss. The carrying amount of mortgage loans or receivables is reduced through the use of an allowance account, and the amount of any allowance is recognised as an impairment loss in profit or loss.

2.5.4 Derivative financial instruments

Derivative financial instruments primarily include foreign exchange contracts and interest rate swaps that derive their value mainly from underlying foreign exchange rates and interest rates. All derivatives are initially recognised in the consolidated statement of financial position at their fair value, which represents their cost excluding transaction costs, which are expensed, giving rise to a day one loss. They are subsequently remeasured at their fair value, with movements in this value recognised in profit or loss. Fair values are obtained from quoted market prices or, if these are not available, by using valuation techniques such as discounted cash flow models or option pricing models. All derivatives are carried as assets when the fair values are positive and as liabilities when the fair values are negative.

Derivative instruments for economic hedging

Whilst the Group enters into derivative transactions to provide economic hedges under the Group’s risk management framework, it adopts hedge accounting to these transactions only in limited circumstances. This is either because the transactions would not meet the specific IFRS rules to be eligible for hedge accounting or the documentation requirements to meet hedge accounting criteria would be unduly onerous. Where hedge accounting does not apply, these transactions are treated as held for trading and fair value movements are recognised immediately in investment experience.

Embedded derivatives

Embedded derivatives are derivatives embedded within other non-derivative host financial instruments to create hybrid instruments. Where the economic characteristics and risks of the embedded derivatives are not closely related to the economic characteristics and risks of the host instrument, and where the hybrid instrument is not measured at fair value with changes in fair value recognised in profit or loss, the embedded derivative is bifurcated and carried at fair value as a derivative in accordance with IAS 39.

2.6 SEGMENT REPORTING

An operating segment is a component of the Group that engages in business activity from which it earns revenues and incurs expenses and, for which, discrete financial information is available, and whose operating results are regularly reviewed by the Group’s chief operating decisionmaker, considered to be the Executive Committee of the Group (ExCo).

2.7 FOREIGN CURRENCY TRANSLATION

Income statements and cash flows of foreign entities are translated into the Group’s presentation currency at average exchange rates for the year as this approximates to the exchange rates prevailing at the transaction date. Their statements of financial position are translated at year or period end exchange rates. Exchange differences arising from the translation of the net investment in foreign operations, are taken to the currency translation reserve within equity. On disposal of a foreign operation, such exchange differences are transferred out of this reserve and are recognised in the consolidated income statement as part of the gain or loss on sale.

Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies into functional currency, are recognised in the consolidated income statement.

Translation differences on financial assets designated at fair value through profit or loss are included in investment experience. For monetary financial assets classified as available for sale, translation differences are calculated as if they were carried at amortised cost and so are recognised in the consolidated income statement. Foreign exchange movements on nonmonetary equities that are accounted for as available for sale are included in the fair value reserve.

2.8 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated using the straight-line method to allocate cost less any residual value over the estimated useful life, generally:

Furniture, fixtures and office equipment	5 years
Buildings	20-40 years
Other assets	3-5 years
Freehold land	Not depreciated

Subsequent costs are included in the carrying amount or recognised as a separate asset, as appropriate, when it is probable that future economic benefits will flow to the Group. Repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred.

Residual values and useful lives are reviewed and adjusted, if applicable, at each reporting date. An asset is written down to its recoverable amount if the carrying value is greater than the estimated recoverable amount.

Any gain and loss arising on disposal of property, plant and equipment is measured as the difference between the net sale proceeds and the carrying amount of the relevant asset, and is recognised in the consolidated income statement.

Where the cost of the Group’s leasehold land is known, or can be reliably determined at the inception of the lease, the Group records its interest in leasehold land and land use rights separately as operating leases or finance leases depending on whether substantially all the risks and rewards incidental to ownership of the land are transferred to the Group. These leases are recorded at original cost and amortised over the term of the lease (see 2.19).

2.9 INVESTMENT PROPERTY

Property held for long-term rental that is not occupied by the Group is classified as investment property, and is carried at cost less accumulated depreciation and any accumulated impairment losses.

Investment property comprises freehold or leasehold land and buildings. Buildings located on leasehold land are classified as investment property if held for long-term rental and not occupied by the Group. Where the cost of the land is known, or can be reliably determined at the inception of the lease, the Group records its interest in leasehold land and land use rights separately as operating leases or finance leases depending on whether substantially all the risks and rewards incidental to ownership of the land are transferred to the Group (see 2.19). These leases are recorded at original cost and amortised over the term of the lease. Buildings that are held as investment properties are amortised on a straight-line basis over their estimated useful lives of 20 to 40 years.

If an investment property becomes held for own use, it is reclassified as property, plant and equipment. Where a property is partly used as an investment property and partly for the use of the Group, these elements are recorded separately within investment property and property, plant and equipment respectively, where the component used as investment property would be capable of separate sale or finance lease.

The fair value of investment property and property held for own use is disclosed under note 17. It is the Group’s policy to obtain external property valuations annually except in the case of a discrete event occurring in the interim that has a significant impact on the fair value of the properties.

2.10 GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary, associate or joint venture at the date of acquisition. Goodwill on acquisitions prior to 1 December 2006 (the date of transition to IFRS) is carried at book value (original cost less cumulative amortisation) on that date, less any impairment subsequently incurred. Goodwill arising on the Group’s investment in subsidiaries since that date is shown as a separate asset and is carried at cost less any accumulated impairment losses, whilst that on associates and joint ventures is included within the carrying value of those investments. All acquisition-related costs are expensed as incurred.

Other intangible assets

Other intangible assets consist primarily of acquired computer software and contractual relationships, such as access to distribution networks, and are amortised over their estimated useful lives. The amortisation charge for rights to access distribution networks is included in the consolidated income statement under “Commission and other acquisition expenses”.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs directly associated with the internal production of identifiable and unique software by the Group that will generate economic benefits exceeding those costs over a period greater than a year, are recognised as intangible assets. All other costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs of acquiring computer software licences and incurred in the internal production of computer software are amortised using the straight-line method over the estimated useful life of the software, which does not generally exceed a period of 3 to 15 years. The amortisation charge for the year is included in the consolidated income statement under “Operating expenses”.

2.11 IMPAIRMENT OF NON-FINANCIAL ASSETS

Property, plant and equipment, goodwill and other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised to the extent that the carrying amount of the asset exceeds its recoverable amount, which is the higher of the fair value of the asset less cost to sell and value in use. For the purposes of assessing impairment, assets are grouped into cash-generating units at the level of the Group’s operating segments, the lowest level for which separately identifiable cash flows are reported. The carrying values of goodwill and intangible assets with indefinite useful lives are reviewed at least annually or when circumstances or events indicate that there may be uncertainty over this value.

The Group assesses at the end of each reporting period whether there is any objective evidence that its investments in associates and joint ventures are impaired. Such objective evidence includes whether there has been any significant adverse changes in the technological, market, economic or legal environment in which the associates and joint ventures operate or whether there has been a significant or prolonged decline in value below their cost. If there is an indication that an interest in an associate or a joint venture is impaired, the Group assesses whether the entire carrying amount of the investment (including goodwill) is recoverable. An impairment loss is recognised in profit or loss for the amount by which the carrying amount is lower than the higher of the investment’s fair value less costs to sell or value in use. Any reversal of such impairment loss in subsequent periods is reversed through profit or loss.

In the statement of financial position of the Company, impairment testing of the investments in subsidiaries, associates and joint ventures is required upon receiving dividends from these investments if the dividend exceeds the total comprehensive income of the subsidiaries, associates or joint ventures in the period the dividend is declared or if the carrying amount of the relevant investment in the Company’s statement of financial position exceeds its carrying amount in the consolidated financial statements of the investees’ net assets including goodwill.

2.12 SECURITIES LENDING INCLUDING REPURCHASE AGREEMENTS

The Group has been a party to various securities lending agreements under which securities are loaned to third parties on a short-term basis. The loaned securities are not derecognised and so they continue to be recognised within the appropriate investment classification.

Assets sold under repurchase agreements (repos)

Assets sold under repurchase agreements continue to be recognised and a liability is established for the consideration received. The Group may be required to provide additional collateral based on the fair value of the underlying assets, and such collateral assets remain on the consolidated statement of financial position.

Assets purchased under agreements to resell (reverse repos)

The Group enters into purchases of assets under agreements to resell (reverse repos). Reverse repos are initially recorded at the cost of the loan or collateral advanced within the caption “Loans and deposits” in the consolidated statement of financial position. In the event of failure by the counterparty to repay the loan, the Group has the right to the underlying assets.

2.13 COLLATERAL

The Group receives and pledges collateral in the form of cash or non-cash assets in respect of derivative transactions, securities lending transactions, and repo and reverse repo transactions, in order to reduce the credit risk of these transactions. The amount and type of collateral depends on an assessment of the credit risk of the counterparty. Collateral received in the form of cash, which is not legally segregated from the Group, is recognised as an asset in the consolidated statement of financial position with a corresponding liability for the repayment. Non-cash collateral received is not recognised on the consolidated statement of financial position unless the Group either sells or repledges these assets in the absence of default, at which point the obligation to return this collateral is recognised as a liability. To further minimise credit risk, the financial condition of counterparties is monitored on a regular basis.

Collateral pledged in the form of cash which is legally segregated from the Group is derecognised from the consolidated statement of financial position and a corresponding receivable established for its return. Non-cash collateral pledged is not derecognised (except in the event of default) and therefore continues to be recognised in the consolidated statement of financial position within the appropriate financial instrument classification.

2.14 BORROWINGS

Borrowings are recognised initially at their issue proceeds less transaction costs incurred. Subsequently, borrowings are stated at amortised cost, and any difference between net proceeds and redemption value is recognised in the consolidated income statement over the period of the borrowings using the effective interest method. All borrowing costs are expensed as they are incurred, except for borrowing costs directly attributable to the development of investment properties and other qualifying assets, which are capitalised as part of the cost of the asset.

2.15 INCOME TAXES

The current tax expense is based on the taxable profits for the year, including any adjustments in respect of prior years. Tax is allocated to profit or loss before taxation and amounts charged or credited to equity as appropriate.

Deferred tax is recognised in respect of temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements, except as described below.

The principal temporary differences arise from the basis of recognition of insurance and investment contract liabilities, revaluation of certain financial assets and liabilities including derivative contracts, deferred acquisition costs and the future taxes arising on the surplus in life funds where the relevant local tax regime is distributions-based. The rates enacted or substantively enacted at the date of the consolidated statement of financial position are used to determine deferred tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. In countries where there is a history of tax losses, deferred tax assets are only recognised in excess of deferred tax liabilities if there is evidence that future profits will be available.

Deferred taxes are not provided in respect of temporary differences arising from the initial recognition of goodwill or from goodwill for which amortisation is not deductible for tax purposes, or from the initial recognition of an asset or liability in a transaction which is not a business combination and which affects neither accounting nor taxable profit or loss at the time of the transaction.

Deferred tax related to fair value remeasurement of available for sale investments and other amounts taken directly to equity, is recognised initially within the applicable component of equity. It is subsequently recognised in the consolidated income statement, together with the gain or loss arising on the underlying item.

In addition to paying tax on shareholders’ profits, certain of the Group’s life insurance businesses pay tax on policyholders’ investment returns (policyholder tax) at policyholder tax rates. Policyholder tax is accounted for as an income tax and is included in the total tax expense and disclosed separately.

2.16 REVENUE

Investment return

Investment income consists of dividends, interest and rents receivable for the reporting period. Investment experience comprises realised gains and losses, impairments and unrealised gains and losses on investments held at fair value through profit or loss. Interest income is recognised as it accrues, taking into account the effective yield on the investment. Rental income on investment property is recognised on an accrual basis. Investment return consists of investment income and investment experience.

The realised gain or loss on disposal of an investment is the difference between the proceeds received, net of transaction costs, and its original cost or amortised cost as appropriate. Unrealised gains and losses represent the difference between the carrying value at the year end and the carrying value at the previous year end or purchase price if purchased during the year, less the reversal of previously recognised unrealised gains and losses in respect of disposals made during the year.

Other fee and commission income

Other fee and commission income consists primarily of fund management fees, income from any incidental non-insurance activities, distribution fees from mutual funds, commissions on reinsurance ceded and commission revenue from the sale of mutual fund shares. Reinsurance commissions receivable are deferred in the same way as acquisition costs. All other fee and commission income is recognised as the services are provided.

2.17 EMPLOYEE BENEFITS

Annual leave and long service leave

Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the reporting date.

Post-retirement benefit obligations

The Group operates a number of funded and unfunded post-retirement employee benefit schemes, whose members receive benefits on either a defined benefit basis (generally related to salary and length of service) or a defined contribution basis (generally related to the amount invested, investment return and annuity rates), the assets of which are generally held in separate trustee-administered funds. The defined benefit plans provide life and medical benefits for employees after retirement and a lump sum benefit on cessation of employment, and the defined contribution plans provide post-retirement pension benefits.

For defined benefit plans, the costs are assessed using the projected unit credit method. Under this method, the cost of providing benefits is charged to the consolidated income statement so as to spread the regular cost over the service lives of employees, in accordance with the advice of qualified actuaries. The obligation is measured as the present value of the estimated future cash outflows, using a discount rate based on market yields for high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related liability. The resulting scheme surplus or deficit appears as an asset or liability in the consolidated statement of financial position.

Remeasurements arising from defined benefit plans comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest). The Group recognises them immediately in other comprehensive income and all other expenses related to defined benefit plans in staff costs in the consolidated income statement.

When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised immediately in consolidated income statement when the plan amendment or curtailment occurs.

For defined contribution plans, the Group pays contributions to publicly or privately administered pension plans. Once the contributions have been paid, the Group, as employer, does not have any further payment obligations. The Group’s contributions are charged to the consolidated income statement in the reporting period to which they relate and are included in staff costs.

Share-based compensation and cash incentive plans

The Group launched a number of share-based compensation plans, under which the Group receives services from the employees, directors, officers and agents as consideration for the shares and/or share options of the Company. These share-based compensation plans comprise the Share Option Scheme (SO Scheme), the Restricted Share Unit Scheme (RSU Scheme), the Employee Share Purchase Plan (ESPP) and the Agency Share Purchase Plan (ASPP).

The Group’s share-based compensation plans are predominantly equity-settled plans. Under equity-settled share-based compensation plan, the fair value of the employee services received in exchange for the award of shares and/or share options is recognised as an expense in profit or loss over the vesting period with a corresponding amount recorded in equity.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the share and/or share options awarded. Non-market vesting conditions are included in assumptions about the number of shares and/or share options that are expected to be vested. At each period end, the Group revises its estimates of the number of shares and/or share options that are expected to be vested. Any impact of the revision to original estimates is recognised in profit or loss with a corresponding adjustment to equity. Where awards of sharebased payment arrangements have graded vesting terms, each tranche is recognised as a separate award, and therefore the fair value of each tranche is recognised over the applicable vesting period.

The Group estimates the fair value of share options using a binomial lattice model. This model requires inputs such as share price, implied volatility, risk-free interest rate, expected dividend rate and the expected life of the share option.

Where modification or cancellation of an equity-settled share-based compensation plan occurs, the grant date fair value continues to be recognised, together with any incremental value arising on the date of modification if non-market conditions are met.

For cash-settled share-based compensation plans, the fair value of the employee services in exchange for the award of cash-settled award is recognised as an expense in profit or loss, with a corresponding amount recognised in liability. At the end of each reporting period, any unsettled award is remeasured based on the change in fair value of the underlying asset and the liability and expense are adjusted accordingly.

2.18 PROVISIONS AND CONTINGENCIES

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of economic resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract held, the reimbursement is recognised as a separate asset only when the reimbursement is virtually certain.

The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract.

Contingencies are disclosed if material and if there is a possible future obligation as a result of a past event, or if there is a present obligation as a result of a past event, but either a payment is not probable or the amount cannot be reliably estimated.

2.19 LEASES

Leases, where a significant portion of the risks and rewards of ownership is retained by the Group as a lessor, are classified as operating leases. Assets subject to such leases are included in property, plant and equipment or investment property, and are depreciated to their residual values over their estimated useful lives. Rentals from such leases are credited to the consolidated income statement on a straight-line basis over the period of the relevant lease. Payments made by the Group as lessee under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of the relevant lease. The Group classifies amounts paid to acquire leasehold land either as an operating lease prepayment or as a component of property, plant and equipment or investment property depending on whether substantially all the risks and rewards incidental to the ownership of the land are transferred to the Group.

There are not any freehold land interests in Hong Kong. The Group classifies the amounts paid to acquire leasehold land under operating leases and finance leases as operating lease prepayments and property, plant and equipment or investment property respectively. Operating lease prepayments are included within “Other assets”. Amortisation is calculated to write off the cost of the land on a straight-line basis over the terms of the lease.

2.20 SHARE CAPITAL

Ordinary shares are classified in equity when there is not any obligation to transfer cash or other assets to the holders.

Share issue costs

Incremental external costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds of the issue.

Dividends

Interim dividends on ordinary shares are recognised when they have been paid. Final dividends on ordinary shares are recognised when they have been approved by shareholders.

2.21 PRESENTATION OF THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The Group’s insurance and investment contract liabilities and related assets are realised and settled over periods of several years, reflecting the long-term nature of the Group’s products. Accordingly, the Group presents the assets and liabilities in its consolidated statement of financial position in approximate order of liquidity, rather than distinguishing current and noncurrent assets and liabilities. The Group regards its intangible assets, investments in associates and joint ventures, property, plant and equipment, investment property and deferred acquisition and origination costs as non-current assets as these are held for the longer-term use of the Group.

2.22 EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net profit available to ordinary shareholders by the weighted average number of ordinary shares in issue during the year.

Earnings per share has also been calculated on the operating profit before adjusting items, attributable to ordinary shareholders, as the Directors believe this figure provides a better indication of operating performance.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares, such as share options awarded to employees.

Potential or contingent share issuances are treated as dilutive when their conversion to shares would decrease net earnings per share.

2.23 FIDUCIARY ACTIVITIES

Assets and income arising from fiduciary activities, together with related undertakings to return such assets to customers, are excluded from these consolidated financial statements where the Group does not have contractual rights to the assets and acts in a fiduciary capacity such as nominee, trustee or agent.

2.24 CONSOLIDATED STATEMENT OF CASH FLOW

The consolidated statement of cash flow presents movements in cash and cash equivalents and bank overdrafts as shown in the consolidated statement of financial position.

Purchases and sales of financial investments are included in operating cash flows as the purchases are funded from cash flows associated with the origination of insurance and investment contracts, net of payments of related benefits and claims. Purchases and sales of investment property are included within cash flows from investing activities.

2.25 RELATED PARTY TRANSACTIONS

Transactions with related parties are recorded at amounts mutually agreed and transacted between the parties to the arrangement.

3. Critical accounting estimates and judgements

The Group makes estimates and assumptions that affect the reported amounts of assets, liabilities, and revenue and expenses. All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that knowledge and predictions of future events and actions. Actual results can always differ from those estimates, possibly significantly.

Items that are considered particularly sensitive to changes in estimates and assumptions, and the relevant accounting policies are those which relate to product classification, insurance contract liabilities (including liabilities in respect of investment contracts with DPF), deferred acquisition and origination costs, liability adequacy testing, fair value of financial assets, impairment of financial assets and impairment of goodwill and other intangible assets.

3.1 PRODUCT CLASSIFICATION

The Group issues contracts that transfer insurance risk or financial risk or both. Insurance contracts are those contracts that transfer significant insurance risk, while investment contracts are those contracts without significant insurance risk. The Group exercises significant judgement to determine whether there is a scenario (other than those lacking commercial substance) in which an insured event would require the Group to pay significant additional benefits to its customers. In the event the Group has to pay significant additional benefits to its customers, the contract is accounted for as an insurance contract. The judgements exercised in determining the level of insurance risk in product classification affect the amounts recognised in the consolidated financial statements as insurance and investment contract liabilities and deferred acquisition and origination costs. The accounting policy on product classification is described in note 2.4.

3.2 INSURANCE CONTRACT LIABILITIES (INCLUDING LIABILITIES IN RESPECT OF INVESTMENT CONTRACTS WITH DPF)

The Group calculates the insurance contract liabilities for traditional life insurance using a net level premium valuation method, whereby the liability represents the present value of estimated future policy benefits to be paid, less the present value of estimated future net premiums to be collected from policyholders. This method uses best estimate assumptions at inception adjusted for a provision for the risk of adverse deviation for mortality, morbidity, expected investment yields, policyholder dividends (for other participating business), surrenders and expenses set at the policy inception date. These assumptions remain locked in thereafter, unless a deficiency arises on liability adequacy testing. Interest rate assumptions can vary by geographical market, year of issuance and product. Mortality, surrender and expense assumptions are based on actual experience by each geographical market, modified to allow for variations in policy form. The Group exercises significant judgement in making appropriate assumptions.

For contracts with an explicit account balance, such as universal life and unit-linked contracts, insurance contract liabilities represent the accumulation value, which represents premiums received and investment returns credited to the policy less deductions for mortality and morbidity costs and expense charges. Significant judgement is exercised in making appropriate estimates of gross profits which are based on historical and anticipated future experiences, these estimates are regularly reviewed by the Group.

The Group accounts for insurance contract liabilities for participating business written in participating funds by establishing a liability for the present value of guaranteed benefits less estimated future net premiums to be collected from policyholders. In addition, an insurance liability is recorded for the proportion of the net assets of the participating funds that would be allocated to policyholders assuming all relevant surplus at the date of the consolidated statement of financial position were to be declared as a policyholder dividend based upon applicable regulations. Establishing these liabilities requires the exercise of significant judgement. In addition, the assumption that all relevant performance is declared as a policyholder dividend may not be borne out in practice. The Group accounts for other participating business by establishing a liability for the present value of guaranteed benefits and non-guaranteed participation, less estimated future net premiums to be collected from policyholders.

The judgements exercised in the valuation of insurance contract liabilities (including investment contracts with DPF) affect the amounts recognised in the consolidated financial statements as insurance contract benefits and insurance contract liabilities. Further details of the related accounting policy, key risk and variables, and the sensitivities of assumptions to the key variables in respect of insurance contract liabilities are provided in notes 2.4, 26 and 28.

3.3 DEFERRED ACQUISITION AND ORIGINATION COSTS

The judgements exercised in the deferral and amortisation of acquisition and origination costs affect amounts recognised in the consolidated financial statements as deferred acquisition and origination costs and insurance and investment contract benefits.

As noted in note 2.4.1, deferred acquisition costs for traditional life insurance and annuity policies are amortised over the expected life of the contracts as a constant percentage of expected premiums. Expected premiums are estimated at the date of policy issue and are applied consistently throughout the life of the contract unless a deficiency occurs when performing liability adequacy testing.

As noted in note 2.4.1, deferred acquisition costs for universal life and unit-linked contracts are amortised over the expected life of the contracts based on a constant percentage of the present value of estimated gross profits expected to be realised over the life of the contract or on a straight-line basis. As noted in note 3.2, significant judgement is exercised in making appropriate estimates of gross profits. The expensing of acquisition costs is accelerated following adverse investment performance. Likewise, in periods of favourable investment performance, previously expensed acquisition costs are reversed, not exceeding the amount initially deferred.

Additional details of deferred acquisition and origination costs are provided in notes 2.4 and 19.

3.4 LIABILITY ADEQUACY TESTING

The Group evaluates the adequacy of its insurance and investment contract liabilities with DPF at least annually. Significant judgement is exercised in determining the level of aggregation at which liability adequacy testing is performed and in selecting best estimate assumptions. Liability adequacy is assessed by portfolio of contracts in accordance with the Group’s manner of acquiring, servicing and measuring the profitability of its insurance contracts. The Group performs liability adequacy testing separately for each geographical market in which it operates.

The judgements exercised in liability adequacy testing affect amounts recognised in the consolidated financial statements as commission and other acquisition expenses, deferred acquisition costs, insurance contract benefits and insurance and investment contract liabilities.

3.5 FAIR VALUES OF FINANCIAL ASSETS

The Group determines the fair values of financial assets traded in active markets using quoted bid prices as of each reporting date. The fair values of financial assets that are not traded in active markets are typically determined using a variety of other valuation techniques, such as prices observed in recent transactions and values obtained from current bid prices of comparable investments. More judgement is used in measuring the fair value of financial assets for which market observable prices are not available or are available only infrequently.

The degree of judgement used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and general market conditions.

Changes in the fair value of financial assets held by the Group’s participating funds affect not only the value of financial assets, but are also reflected in corresponding movements in insurance and investment contract liabilities. This is due to an insurance liability being recorded for the proportion of the net assets of the participating funds that would be allocated to policyholders if all relevant surplus at the date of the consolidated statement of financial position were to be declared as a policyholder dividend based on current local regulations. Both of the foregoing changes are reflected in the consolidated income statement.

Changes in the fair value of financial assets held to back the Group’s unit-linked contracts result in a corresponding change in insurance and investment contract liabilities. Both of the foregoing changes are also reflected in the consolidated income statement.

Further details of the fair value of financial assets and the sensitivity analysis to interest rates and equity prices are provided in notes 22 and 37.

3.6 IMPAIRMENT OF FINANCIAL ASSETS

Financial assets, other than those at fair value through profit or loss, are assessed for impairment regularly. This requires the exercise of significant judgement. The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Objective evidence that a financial asset, or group of assets, is impaired includes observable data that comes to the attention of the Group about the following events:

significant financial difficulty of the issuer or debtor;
a breach of contract, such as a default or delinquency in payments;
it becomes probable that the issuer or debtor will enter bankruptcy or other financial reorganisation;
the disappearance of an active market for that financial asset because of financial difficulties; or
observable data, including market prices, indicating that there is a potential decrease in the estimated future cash flows since the initial recognition of those assets, including:
adverse changes in the payment status of issuers; or
national or local economic conditions that correlate with increased default risk.

For loans and receivables, impairment loss is determined using an analytical method based on knowledge of each loan group or receivable. The method is usually based on historical statistics, adjusted for trends in the group of financial assets or individual accounts.

Further details of the impairment of financial assets during the year are provided in note 24.

3.7 IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS

For the purposes of impairment testing, goodwill and other intangible assets are grouped into cash-generating units. These assets are tested for impairment by comparing the carrying amount of the cash-generating unit, including goodwill, to the recoverable amount of that cashgenerating unit. The determination of the recoverable amount requires significant judgement regarding the selection of appropriate valuation techniques and assumptions. Further details of the impairment of goodwill during the year are provided in note 13.

4. Exchange rates

The Group’s principal overseas operations during the reporting period were located within the Asia-Pacific region. The results and cash flows of these operations have been translated into US dollars at the following average rates:

	US dollar exchange rates	US dollar exchange rates	US dollar exchange rates
	Year ended		Year ended
	30	November	30 November
		2015	2014
Hong Kong		7.75	7.75
Thailand		33.96	32.43
Singapore		1.37	1.26
Malaysia		3.82	3.25
China		6.26	6.15
Korea		1,124.86	1,048.22

Assets and liabilities have been translated at the following year-end rates:

	US dollar exchange rates	US dollar exchange rates	US dollar exchange rates
		As at	As at
	30	November	30 November
		2015	2014
Hong Kong		7.75	7.75
Thailand		35.84	32.82
Singapore		1.41	1.30
Malaysia		4.25	3.38
China		6.40	6.15
Korea		1,156.49	1,107.65

Exchange rates are expressed in units of local currency per US$1.

5. Operating profit after tax

Operating profit after tax may be reconciled to net profit as follows:

US$m Note Operating profit after tax 7 Non-operating items, net of related changes in insurance and investment contract liabilities: Net (losses)/gains from equity securities (net of tax of 2015: US$11m; 2014: US$(111)m) Other non-operating investment experience and other items (net of tax of 2015: US$41m; 2014: US$(62)m) Net profit Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests	Year ended 30 November 2015 3,229 (370) (145) 2,714 3,209 20 2,691 23	Year ended 30 November 2014 2,925 508 35
		3,468

		2,910 15 3,450 18

6. Total weighted premium income and annualised new premiums

For management decision-making and internal performance management purposes, the Group measures business volumes during the year using a performance measure referred to as total weighted premium income (TWPI), while the Group measures new business activity using a performance measure referred to as annualised new premiums (ANP).

TWPI consists of 100 per cent of renewal premiums, 100 per cent of first year premiums and 10 per cent of single premiums, before reinsurance ceded, and includes deposits and contributions for contracts that are accounted for as deposits in accordance with the Group’s accounting policies.

Management considers that TWPI provides an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profits for shareholders. The amounts shown are not intended to be indicative of premiums and fee income recorded in the consolidated income statement.

ANP is a key internal measure of new business activities, which consists of 100 per cent of annualised first year premiums and 10 per cent of single premiums, before reinsurance ceded. ANP excludes new business of pension business, personal lines and motor insurance.

TWPI US$m TWPI by geography Hong Kong Thailand Singapore Malaysia China Korea Other Markets Total First year premiums by geography Hong Kong Thailand Singapore Malaysia China Korea Other Markets Total Single premiums by geography Hong Kong Thailand Singapore Malaysia China Korea Other Markets Total	Year ended 30 November 2015 5,115 3,324 2,283 1,825 2,028 2,031 3,270 19,876 1,070 476 261 260 410 230 686 3,393 1,480 194 1,959 152 107 171 703 4,766	Year ended 30 November 2014 4,330 3,334 2,339 2,084 1,786 2,205 3,133
		19,211

		772 498 300 259 297 286 675
		3,087

		1,585 209 1,684 202 27 309 481
		4,497

TWPI US$m Renewal premiums by geography Hong Kong Thailand Singapore Malaysia China Korea Other Markets Total ANP US$m ANP by geography Hong Kong Thailand Singapore Malaysia China Korea Other Markets Total	Year ended 30 November 2015 3,897 2,828 1,826 1,550 1,607 1,784 2,514 16,006 Year ended 30 November 2015 1,263 520 471 292 438 248 759 3,991	Year ended 30 November 2014 3,400 2,816 1,870 1,804 1,486 1,888 2,410
		15,674

		Year ended 30 November 2014 952 572 489 320 311 380 676
		3,700

7. Segment information

The Group’s operating segments, based on the reports received by the ExCo, are each of the geographical markets in which the Group operates. Each of the reportable segments, other than the “Group Corporate Centre” segment, writes life insurance business, providing life insurance, accident and health insurance and savings plans to customers in its local market, and distributes related investment and other financial services products. The reportable segments are Hong Kong (including Macau), Thailand, Singapore (including Brunei), Malaysia, China, Korea, Other Markets and Group Corporate Centre. Other Markets includes the Group’s operations in Australia, Indonesia, New Zealand, the Philippines, Sri Lanka, Taiwan, Vietnam and India. The activities of the Group Corporate Centre segment consist of the Group’s corporate functions, shared services and eliminations of intragroup transactions.

Because each reportable segment other than the Group Corporate Centre segment focuses on serving the life insurance needs of its local market, there are limited transactions between reportable segments. The key performance indicators reported in respect of each segment are:

ANP;
TWPI;
investment income (excluding investment income in respect of unit-linked contracts);
operating expenses;
operating profit after tax attributable to shareholders of AIA Group Limited;
expense ratio, measured as operating expenses divided by TWPI;
operating margin, measured as operating profit before tax expressed as a percentage of TWPI; and
operating return on shareholders’ allocated equity, measured as operating profit after tax attributable to shareholders of AIA Group Limited expressed as a percentage of the simple average of opening and closing shareholders’ allocated segment equity (being the segment assets less segment liabilities in respect of each reportable segment less non-controlling interests, fair value reserve and foreign currency translation reserve and others).

In presenting net capital in/(out) flows to reportable segments, capital outflows consist of dividends and profit distributions to the Group Corporate Centre segment and capital inflows consist of capital injections into reportable segments by the Group Corporate Centre segment. For the Group, net capital in/(out) flows reflect the net amount received from shareholders by way of capital contributions less amounts distributed by way of dividends.

Business volumes in respect of the Group’s five largest customers are less than 30 per cent of premiums and fee income.

US$m Year ended 30 November 2015 ANP TWPI Net premiums, fee income and other operating revenue (net of reinsurance ceded) Investment income(1) Total revenue Net insurance and investment contract benefits(2) Commission and other acquisition expenses Operating expenses Finance costs and other expenses(3) Total expenses Share of profit from associates and joint venture Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Key operating ratios:	Hong Kong Thailand Singapore Malaysia 1,263 520 471 292 5,115 3,324 2,283 1,825 5,040 3,320 3,355 1,679 1,476 915 881 507 6,516 4,235 4,236 2,186 4,461 2,686 3,168 1,503 558 594 381 183 253 178 158 162 108 46 23 21 5,380 3,504 3,730 1,869 – – – – 1,136 731 506 317 (84) (180) (76) (56) 1,052 551 430 261 1,049 551 430 259 3 – – 2	Hong Kong Thailand Singapore Malaysia 1,263 520 471 292 5,115 3,324 2,283 1,825 5,040 3,320 3,355 1,679 1,476 915 881 507 6,516 4,235 4,236 2,186 4,461 2,686 3,168 1,503 558 594 381 183 253 178 158 162 108 46 23 21 5,380 3,504 3,730 1,869 – – – – 1,136 731 506 317 (84) (180) (76) (56) 1,052 551 430 261 1,049 551 430 259 3 – – 2	Hong Kong Thailand Singapore Malaysia 1,263 520 471 292 5,115 3,324 2,283 1,825 5,040 3,320 3,355 1,679 1,476 915 881 507 6,516 4,235 4,236 2,186 4,461 2,686 3,168 1,503 558 594 381 183 253 178 158 162 108 46 23 21 5,380 3,504 3,730 1,869 – – – – 1,136 731 506 317 (84) (180) (76) (56) 1,052 551 430 261 1,049 551 430 259 3 – – 2	Hong Kong Thailand Singapore Malaysia 1,263 520 471 292 5,115 3,324 2,283 1,825 5,040 3,320 3,355 1,679 1,476 915 881 507 6,516 4,235 4,236 2,186 4,461 2,686 3,168 1,503 558 594 381 183 253 178 158 162 108 46 23 21 5,380 3,504 3,730 1,869 – – – – 1,136 731 506 317 (84) (180) (76) (56) 1,052 551 430 261 1,049 551 430 259 3 – – 2	China 438 2,028 1,910 618 2,528 1,665 145 224 56 2,090 – 438 (82) 356 356 –	Korea 248 2,031 1,503 429 1,932 1,312 231 144 13 1,700 – 232 (53) 179 179 –	Other Markets Group Corporate Centre 759 – 3,270 – 2,004 1 533 286 2,537 287 1,263 (2) 376 – 367 172 39 85 2,045 255 – – 492 32 (118) (6) 374 26 359 26 15 –	Other Markets Group Corporate Centre 759 – 3,270 – 2,004 1 533 286 2,537 287 1,263 (2) 376 – 367 172 39 85 2,045 255 – – 492 32 (118) (6) 374 26 359 26 15 –	Total 3,991 19,876 18,812 5,645 24,457 16,056 2,468 1,658 391 20,573 – 3,884 (655) 3,229 3,209 20
Expense ratio Operating margin Operating return on shareholders’ allocated equity	4.9% 22.2% 23.2%	5.4% 22.0% 13.7%	6.9% 22.2% 20.3%	8.9% 17.4% 9.6%	11.0% 21.6% 15.6%	7.1% 11.4% 9.2%	11.2% 15.0% 12.0%	– – –	8.3% 19.5% 12.6%
Operating profit before tax includes:
Finance costs Depreciation and amortisation	24 17	4 12	6 15	7 20	46 11	– 11	2 27	63 17	152 130

Notes:

(1) Excludes investment income related to unit-linked contracts.

(2) Excludes corresponding changes in insurance and investment contract liabilities from investment experience for unitlinked contracts and participating funds and investment income and investment management expenses related to unitlinked contracts. It also excludes policyholders’ share of tax relating to the change in insurance and investment contract liabilities.

(3) Excludes investment management expenses related to unit-linked contracts.

US$m 30 November 2015 Assets before investments in associates and joint venture Investments in associates and joint venture Total assets Total liabilities Total equity Shareholders’ allocated equity Net capital (out)/in flows	Hong Kong Thailand Singapore Malaysia 43,925 24,634 29,971 13,351 – – 1 6 43,925 24,634 29,972 13,357 38,107 20,087 27,583 11,297 5,818 4,547 2,389 2,060 4,545 3,811 2,125 2,711 (850) (708) (329) (188)	China 17,091 – 17,091 14,032 3,059 2,592 (1)	Korea 14,217 – 14,217 11,676 2,541 2,008 (31)	Other Markets Group Corporate Centre 15,996 8,300 130 – 16,126 8,300 12,392 2,908 3,734 5,392 3,112 5,476 (88) 1,371	Total 167,485 137
					167,622 138,082
					29,540
					26,380

					(824)

Segment information may be reconciled to the consolidated income statement as shown below:

US$m Year ended 30 November 2015	Segment information Investment return and related changes in insurance and investment contract liabilities and expenses related to: Other non- operating items Unit-linked contracts and consolidated investment funds Policyholders and shareholders	Segment information Investment return and related changes in insurance and investment contract liabilities and expenses related to: Other non- operating items Unit-linked contracts and consolidated investment funds Policyholders and shareholders	Segment information Investment return and related changes in insurance and investment contract liabilities and expenses related to: Other non- operating items Unit-linked contracts and consolidated investment funds Policyholders and shareholders	Segment information Investment return and related changes in insurance and investment contract liabilities and expenses related to: Other non- operating items Unit-linked contracts and consolidated investment funds Policyholders and shareholders	Consolidated income statement
		Unit-linked contracts and consolidated investment funds
Net premiums, fee income and other operating revenue Investment return	18,812 5,645	– (512)	– (671)	– –	18,812 Net premiums, fee income and other operating revenue 4,462 Investment return
Total revenue	24,457	(512)	(671)	–	23,274 Total revenue
Net insurance and investment contract benefits Other expenses	16,056 4,517	(632) 120	(237) –	5 95	15,192 Net insurance and investment contract benefits 4,732 Other expenses
Total expenses Share of profit from associates and joint venture Operating profit before tax	20,573 – 3,884	(512) – –	(237) – (434)	100 – (100)	19,924 Total expenses – Share of profit from associates and joint venture 3,350 Profit before tax

US$m Year ended 30 November 2014 ANP TWPI Net premiums, fee income and other operating revenue (net of reinsurance ceded) Investment income(1) Total revenue Net insurance and investment contract benefits(2) Commission and other acquisition expenses Operating expenses Finance costs and other expenses(3) Total expenses Share of profit/(loss) from associates and joint venture Operating profit/(loss) before tax Tax on operating profit/(loss) before tax Operating profit/(loss) after tax Operating profit/(loss) after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Key operating ratios:	Hong Kong Thailand Singapore Malaysia 952 572 489 320 4,330 3,334 2,339 2,084 4,138 3,391 2,685 1,888 1,280 933 838 552 5,418 4,324 3,523 2,440 3,635 2,817 2,579 1,764 473 575 265 141 223 174 158 180 99 44 20 22 4,430 3,610 3,022 2,107 – – – 1 988 714 501 334 (79) (170) (72) (53) 909 544 429 281 905 544 429 280 4 – – 1	Hong Kong Thailand Singapore Malaysia 952 572 489 320 4,330 3,334 2,339 2,084 4,138 3,391 2,685 1,888 1,280 933 838 552 5,418 4,324 3,523 2,440 3,635 2,817 2,579 1,764 473 575 265 141 223 174 158 180 99 44 20 22 4,430 3,610 3,022 2,107 – – – 1 988 714 501 334 (79) (170) (72) (53) 909 544 429 281 905 544 429 280 4 – – 1	Hong Kong Thailand Singapore Malaysia 952 572 489 320 4,330 3,334 2,339 2,084 4,138 3,391 2,685 1,888 1,280 933 838 552 5,418 4,324 3,523 2,440 3,635 2,817 2,579 1,764 473 575 265 141 223 174 158 180 99 44 20 22 4,430 3,610 3,022 2,107 – – – 1 988 714 501 334 (79) (170) (72) (53) 909 544 429 281 905 544 429 280 4 – – 1	Hong Kong Thailand Singapore Malaysia 952 572 489 320 4,330 3,334 2,339 2,084 4,138 3,391 2,685 1,888 1,280 933 838 552 5,418 4,324 3,523 2,440 3,635 2,817 2,579 1,764 473 575 265 141 223 174 158 180 99 44 20 22 4,430 3,610 3,022 2,107 – – – 1 988 714 501 334 (79) (170) (72) (53) 909 544 429 281 905 544 429 280 4 – – 1	China 311 1,786 1,668 536 2,204 1,486 144 210 27 1,867 – 337 (54) 283 283 –	Korea 380 2,205 1,602 426 2,028 1,403 240 155 13 1,811 – 217 (52) 165 165 –	Other Markets Group Corporate Centre 676 – 3,133 – 1,855 2 555 232 2,410 234 1,298 (2) 301 – 373 163 37 74 2,009 235 17 (4) 418 (5) (94) (5) 324 (10) 314 (10) 10 –	Other Markets Group Corporate Centre 676 – 3,133 – 1,855 2 555 232 2,410 234 1,298 (2) 301 – 373 163 37 74 2,009 235 17 (4) 418 (5) (94) (5) 324 (10) 314 (10) 10 –	Total 3,700 19,211 17,229 5,352 22,581 14,980 2,139 1,636 336 19,091 14 3,504 (579) 2,925 2,910 15
Expense ratio Operating margin Operating return on shareholders’ allocated equity	5.2% 22.8% 21.6%	5.2% 21.4% 13.1%	6.8% 21.4% 21.9%	8.6% 16.0% 10.8%	11.8% 18.9% 17.1%	7.0% 9.8% 9.0%	11.9% 13.3% 12.1%	– – –	8.5% 18.2% 12.6%
Operating profit before tax includes:
Finance costs Depreciation and amortisation	17 12	7 12	2 13	5 17	18 10	– 8	2 30	52 16	103 118

Notes:

(1) Excludes investment income related to unit-linked contracts.

(3) Excludes investment management expenses related to unit-linked contracts.

US$m 30 November 2014 Assets before investments in associates and joint venture Investments in associates and joint venture Total assets Total liabilities Total equity Shareholders’ allocated equity Net capital (out)/in flows	Hong Kong Thailand Singapore Malaysia 41,687 25,920 30,030 16,460 – – 1 7 41,687 25,920 30,031 16,467 34,477 20,567 27,311 13,821 7,210 5,353 2,720 2,646 4,497 4,243 2,120 2,679 (752) (641) (267) (112)	China 15,661 – 15,661 13,397 2,264 1,965 100	Korea 13,768 – 13,768 11,342 2,426 1,902 (24)	Other Markets Group Corporate Centre 16,411 6,851 123 – 16,534 6,851 12,494 2,555 4,040 4,296 2,851 4,256 (22) 1,022	Total 166,788 131
					166,919 135,964
					30,955
					24,513

					(696)

Segment information may be reconciled to the consolidated income statement as shown below:

US$m Year ended 30 November 2014	Segment information Investment return and related changes in insurance and investment contract liabilities and expenses related to: Other non- operating items Unit-linked contracts and consolidated investment funds Policyholders and shareholders	Segment information Investment return and related changes in insurance and investment contract liabilities and expenses related to: Other non- operating items Unit-linked contracts and consolidated investment funds Policyholders and shareholders	Segment information Investment return and related changes in insurance and investment contract liabilities and expenses related to: Other non- operating items Unit-linked contracts and consolidated investment funds Policyholders and shareholders	Segment information Investment return and related changes in insurance and investment contract liabilities and expenses related to: Other non- operating items Unit-linked contracts and consolidated investment funds Policyholders and shareholders	Consolidated income statement
		Unit-linked contracts and consolidated investment funds
Net premiums, fee income and other operating revenue Investment return	17,229 5,352	– 1,426	– 1,426	– –	17,229 Net premiums, fee income and other operating revenue 8,204 Investment return
Total revenue	22,581	1,426	1,426	–	25,433 Total revenue
Net insurance and investment contract benefits Other expenses	14,980 4,111	1,291 135	525 –	8 52	16,804 Net insurance and investment contract benefits 4,298 Other expenses
Total expenses Share of profit from associates and joint venture Operating profit before tax	19,091 14 3,504	1,426 – –	525 – 901	60 – (60)	21,102 Total expenses 14 Share of profit from associates and joint venture 4,345 Profit before tax

8. Revenue

INVESTMENT RETURN

US$m Interest income Dividend income Rental income Investment income Available for sale Net realised gains from debt securities Net gains of available for sale financial assets reflected in the consolidated income statement At fair value through profit or loss Net (losses)/gains of financial assets designated at fair value through profit or loss Net (losses)/gains of debt securities Net (losses)/gains of equity securities Net losses of financial instruments held for trading Net losses of debt investments Net fair value movement on derivatives Net (losses)/gains in respect of financial instruments at fair value through profit or loss Net foreign exchange gains Other net realised losses Investment experience Investment return	Year ended 30 November 2015 5,102 622 127 5,851 44 44 (187) (1,124) (1) (633) (1,945) 593 (81) (1,389) 4,462	Year ended 30 November 2014 4,901 546 123
		5,570 32
		32 653 1,996 – (206)
		2,443 188 (29)
		2,634
		8,204

Foreign currency movements resulted in the following gains recognised in the consolidated income statement (other than gains and losses arising on items measured at fair value through profit or loss):

US$m Foreign exchange gains OTHER OPERATING REVENUE	Year ended 30 November 2015 195	Year ended 30 November 2014 76

The balance of other operating revenue largely consists of asset management fees.

9. Expenses

US$m Insurance contract benefits Change in insurance contract liabilities Investment contract benefits Insurance and investment contract benefits Insurance and investment contract benefits ceded Insurance and investment contract benefits, net of reinsurance ceded Commission and other acquisition expenses incurred Deferral and amortisation of acquisition costs Commission and other acquisition expenses Employee benefit expenses Depreciation Amortisation Operating lease rentals Other operating expenses Operating expenses Investment management expenses and others Restructuring and other non-operating costs(1) Change in third-party interests in consolidated investment funds Other expenses Finance costs Total Note:	Year ended 30 November 2015 9,874 6,596 (336) 16,134 (942) 15,192 3,991 (1,523) 2,468 1,101 78 33 117 329 1,658 364 73 17 454 152 19,924	Year ended 30 November 2014 9,711 7,773 344 17,828 (1,024) 16,804 3,747 (1,608) 2,139 1,088 75 29 111 333 1,636 333 55 32 420 103 21,102

(1) Restructuring costs represent costs related to restructuring programmes and are primarily comprised of redundancy and contract termination costs. Other non-operating costs primarily consist of acquisition-related and integration expenses.

Other operating expenses include auditors’ remuneration of US$13m (2014: US$15m), an analysis of which is set out below:

Year ended 30 November US$m 2015 Audit services 11 Non-audit services, including audit-related services, tax services and others 2 Total 13 Investment management expenses and others may be analysed as: Year ended 30 November US$m 2015 Investment management expenses and others 340 Depreciation on investment property 24 Total 364 Finance costs may be analysed as: Year ended 30 November US$m 2015 Securities lending and repurchase agreements (see note 30 for details) 66 Bank and other loans 86 Total 152 Employee benefit expenses consist of: Year ended 30 November US$m 2015 Wages and salaries 900 Share-based compensation 75 Pension costs – defined contribution plans 60 Pension costs – defined benefit plans 8 Other employee benefit expenses 58 Total 1,101	Year ended 30 November 2014 11 4
	15

	Year ended 30 November 2014 312 21
	333

	Year ended 30 November 2014 34 69
	103

	Year ended 30 November 2014 875 80 60 14 59
	1,088

10. Income tax

Income tax
US$m Tax charged in the consolidated income statement Current income tax – Hong Kong Profits Tax Current income tax – overseas Deferred income tax on temporary differences Total	Year ended 30 November 2015 79 556 1 636	Year ended 30 November 2014 73 391 413
		877

The tax benefit or expense attributable to Singapore, Brunei, Malaysia, Indonesia, Australia, Sri Lanka and the Philippines life insurance policyholder returns is included in the tax charge or credit and is analysed separately in the consolidated income statement in order to permit comparison of the underlying effective rate of tax attributable to shareholders from year to year. The tax attributable to policyholders’ returns included above is US$33m (2014: US$125m).

The provision for Hong Kong Profits Tax is calculated at 16.5 per cent. Taxation for overseas subsidiaries and branches is charged at the appropriate current rates of taxation ruling in the relevant jurisdictions of which the most significant jurisdictions are outlined below.

	Year ended	Year ended	Year ended
	30 November		30 November
		2015	2014
Hong Kong		16.5%	16.5%
Thailand		20%	20%
Singapore		17%	17%
Malaysia		25%	25%
China		25%	25%
Korea		24.2%	24.2%
Others	12% – 30%		12% – 30%

The table above reflects the principal rate of corporate income taxes, as at the end of each year. The rate changes reflect changes to the enacted or substantively enacted corporate tax rates throughout the year in each jurisdiction.

In January 2016, the National Legislative Assembly of Thailand announced a change in the corporate income tax rate from 30 per cent to 20 per cent from assessment year 2016 onward. This change had been previously approved by the cabinet of the Government of Thailand in October 2015. Given the legislative process was not fully completed as at 30 November 2015, it was not considered “substantively enacted” under IFRS; accordingly, the financial impact of this change in tax rate has not been reflected in the consolidated financial statements.

For the year ended 30 November 2015, the corporate income tax rate in Thailand was 20 per cent and is assumed to be 30 per cent for years of assessment after 2015. This is consistent with the treatment in 2014.

US$m Income tax reconciliation Profit before income tax Tax calculated at domestic tax rates applicable to profits/(losses) in the respective jurisdictions Reduction in tax payable from: Exempt investment income Amount over-provided in prior years Changes in tax rate and law Provisions for uncertain tax positions Others Increase in tax payable from: Life insurance tax(1) Withholding taxes Disallowed expenses Unrecognised deferred tax assets Provisions for uncertain tax positions Others Total income tax expense Note:	Year ended 30 November 2015 3,350 671 (101) (19) (1) (49) – (170) 4 2 57 17 – 55 135 636	Year ended 30 November 2014 4,345 821 (91) (9) – – (43) (143) 54 – 39 27 79 – 199 877

(1) Life insurance tax refers to the permanent differences which arise where the tax regime specific to the life insurance business does not adopt net income as the basis for calculating taxable profit, for example Hong Kong, where life business taxable profit is derived from life premiums.

The movement in net deferred tax liabilities in the period may be analysed as set out below:

Credited/(charged) to other comprehensive income Fair value reserve(2) Foreign exchange Others (46) 41 – – 191 – – (130) – – – – – (10) 5 – (3) – – 71 – – 6 – (46) 166 5 (691) 18 – – 63 – – (44) – – – – – (3) (1) – – – – 25 – – 1 – (691) 60 (1)	Credited/(charged) to other comprehensive income Fair value reserve(2) Foreign exchange Others (46) 41 – – 191 – – (130) – – – – – (10) 5 – (3) – – 71 – – 6 – (46) 166 5 (691) 18 – – 63 – – (44) – – – – – (3) (1) – – – – 25 – – 1 – (691) 60 (1)	Net deferred tax asset/ (liability) at year end (1,429) (2,409) 1,477 (141) 139 23 (520) (85)
Fair value reserve(2) (46) – – – – – – – (46) (691) – – – – – – – (691)	Foreign exchange 41 191 (130) – (10) (3) 71 6 166 18 63 (44) – (3) – 25 1 60
		(2,945)

		(1,552) (2,417) 1,574 (139) 137 18 (610) (80)
		(3,069)

Notes:

(1) Life surplus relates to the temporary difference which arises where the taxable profits are based on actual distributions from the long-term fund. This primarily relates to Singapore and Malaysia.

(2) Of the fair value reserve deferred tax (credit)/charge of US$46m (2014: US$691m) for 2015, US$48m (2014: US$694m) relates to fair value gains and losses on available for sale financial assets and US$(2)m (2014: US$(3)m) relates to fair value gains and losses on available for sale financial assets transferred to income on disposal.

100

Deferred tax assets are recognised to the extent that sufficient future taxable profits will be available for realisation. The Group has not recognised deferred tax assets on tax losses and the temporary difference on insurance and investment contract liabilities arising from different accounting and statutory/tax reserving methodology for certain branches and subsidiaries on the basis that they have histories of tax losses and there is insufficient evidence that future profits will be available.

Temporary differences not recognised in the consolidated statement of financial position are:

US$m Tax losses Insurance and investment contract liabilities Total	Year ended 30 November 2015 52 28 80	Year ended 30 November 2014 53 30
		83

The Group has not provided deferred tax liabilities of US$98m (2014: US$97m) in respect of unremitted earnings of operations in three jurisdictions from which a withholding tax charge would be incurred upon distribution as the Group does not consider it probable that this portion of accumulated earnings will be remitted in the foreseeable future.

The Group has unused income tax losses carried forward in Hong Kong, Macau, Thailand, Malaysia, China, Korea, the Philippines, Taiwan, New Zealand and Sri Lanka. The tax losses of Hong Kong, Malaysia, New Zealand and Sri Lanka can be carried forward indefinitely. The tax losses of remaining branches and subsidiaries are due to expire within the periods ending 2018 (Macau, the Philippines and China), 2020 (Thailand) and 2025 (Korea and Taiwan).

11. Earnings per share

BASIC

Basic earnings per share is calculated by dividing the net profit attributable to shareholders of AIA Group Limited by the weighted average number of ordinary shares in issue during the year. The shares held by employee share-based trusts are not considered to be outstanding from the date of the purchase for purposes of computing basic and diluted earnings per share.

	Year ended	Year ended
	30 November	30 November
	2015	2014
Net profit attributable to shareholders of AIA Group Limited
(US$m)	2,691	3,450
Weighted average number of ordinary shares in issue
(million)	11,970	11,968
Basic earnings per share (US cents per share)	22.48	28.83

101

DILUTED

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. As of 30 November 2015 and 2014, the Group has potentially dilutive instruments which are the share options, restricted share units, restricted stock purchase units and restricted stock subscription units awarded to eligible directors, officers, employees and agents under various share-based compensation plans as described in note 39.

Net profit attributable to shareholders of AIA Group Limited (US$m) Weighted average number of ordinary shares in issue (million) Adjustment for share options, restricted share units, restricted stock purchase units and restricted stock subscription units awarded under share-based compensation plans Weighted average number of ordinary shares for diluted earnings per share (million) Diluted earnings per share (US cents per share)	Year ended 30 November 2015 2,691 11,970 37 12,007 22.41	Year ended 30 November 2014 3,450 11,968 41
		12,009 28.73

At 30 November 2015, 5,899,149 share options (2014: 13,414,360) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.

OPERATING PROFIT AFTER TAX PER SHARE

Operating profit after tax (see note 5) per share is calculated by dividing the operating profit after tax attributable to shareholders of AIA Group Limited by the weighted average number of ordinary shares in issue during the year. As of 30 November 2015 and 2014, the Group has potentially dilutive instruments which are the share options, restricted share units, restricted stock purchase units and restricted stock subscription units awarded to eligible directors, officers, employees and agents under various share-based compensation plans as described in note 39.

	Year ended	Year ended
	30 November	30 November
	2015	2014
Basic (US cents per share)	26.81	24.31
Diluted (US cents per share)	26.73	24.23

102

12. Dividends

Dividends to shareholders of the Company attributable to the year:

US$m Interim dividend declared and paid of 18.72 Hong Kong cents per share (2014: 16.00 Hong Kong cents per share) Final dividend proposed after the reporting date of 51.00 Hong Kong cents per share (2014: 34.00 Hong Kong cents per share)(1)	Year ended 30 November 2015 289 788 1,077	Year ended 30 November 2014 247 525
		772

Note:

(1) Based upon shares outstanding at 30 November 2015 and 2014 that are entitled to a dividend, other than those held by employee share-based trusts.

The above final dividend was proposed by the Board on 25 February 2016 subject to shareholders’ approval at the AGM to be held on 6 May 2016. The proposed final dividend has not been recognised as a liability at the reporting date.

Dividends to shareholders of the Company attributable to the previous financial year, approved and paid during the year:

Dividends to shareholders of the Company attributable to the and paid during the year:	previous financial	year, approved
	Year ended	Year ended
	30 November	30 November
US$m	2015	2014
Final dividend in respect of the previous financial year,
approved and paid during the year of 34.00 Hong Kong
cents per share (2014: 28.62 Hong Kong cents per share)	525	442

103

13. Intangible assets

US$m Cost At 1 December 2013 Additions Disposals Foreign exchange movements At 30 November 2014 Additions Disposals Disposal of a subsidiary Foreign exchange movements At 30 November 2015 Accumulated amortisation At 1 December 2013 Amortisation charge for the year Disposals Foreign exchange movements At 30 November 2014 Amortisation charge for the year Disposals Foreign exchange movements At 30 November 2015 Net book value At 30 November 2014 At 30 November 2015	Goodwill 1,135 – – – 1,135 – – (10) (317) 808 (6) – – – (6) – – 2 (4) 1,129 804	Computer software 289 48 (1) (11) 325 124 (16) – (28) 405 (181) (28) 1 7 (201) (32) 15 19 (199) 124 206	Distribution and other rights 104 831 – (2) 933 – (3) – (60) 870 (20) (15) – 1 (34) (20) 3 5 (46) 899 824	Total 1,528 879 (1) (13) 2,393 124 (19) (10) (405) 2,083 (207) (43) 1 8 (241) (52) 18 26 (249) 2,152 1,834

Of the above, US$1,782m (2014: US$2,109m) is expected to be recovered more than 12 months after the end of the reporting period.

During the year ended 30 November 2014, the Group entered into an agreement with Citibank to enter into an exclusive, long-term bancassurance partnership for a 15-year period. The agreement provided for a payment of US$800m to Citibank upon signing, which was capitalised as an intangible asset.

IMPAIRMENT TESTS FOR GOODWILL

Goodwill arises primarily in respect of the Group’s insurance business in Malaysia. Goodwill is tested for impairment by comparing the carrying amount of the cash-generating unit, including goodwill, to the recoverable amount of that cash-generating unit. If the recoverable amount of the unit exceeds the carrying amount of the unit, the goodwill allocated to that unit shall be regarded as not impaired. The recoverable amount is the value in use of the cash-generating unit unless otherwise stated. The value in use is determined by calculating the present value of expected future cash flows plus a multiple of the present value of the new business generated.

Value in use is calculated as an actuarially determined appraisal value, based on the embedded value of the business and the value from future new business.

104

The key assumptions used in the embedded value calculations include investment returns, mortality, morbidity, persistency, expenses and inflation. The value from future new business is calculated based on a combination of indicators which include, among others, a multiple of the projected one-year value of new business (VONB), taking into account recent production mix, business strategy and market trends. The Group may apply alternative method to estimate the value of future new business if the described method is not appropriate under the circumstances.

14. Investments in associates and joint venture

US$m Group Investments in associates Investment in joint venture Total	Year ended 30 November 2015 137 – 137	Year ended 30 November 2014 131 –
		131

Investments in associates and joint venture are held for their long-term contribution to the Group’s performance and so all amounts are expected to be realised more than 12 months after the end of the reporting period.

The Group’s interest in its principal associates is as follows:

Place of incorporation Principal activity Type of shares held Tata AIA Life Insurance Company Limited India Insurance Ordinary	Group’s interest %
	As at 30 November As at 30 November 2015 2014 26% 26%

All associates and joint venture are unlisted.

Aggregated financial information of associates

The investment in the associate is measured using the equity method. The following table analyses, in aggregate, the carrying amount and share of profit and other comprehensive income of these associates.

US$m Carrying amount in the statement of financial position Profit from continuing operations Other comprehensive income Total comprehensive income	Year ended 30 November 2015 137 – 3 3	Year ended 30 November 2014 131
		18 22
		40

105

15. Property, plant and equipment

US$m Cost At 1 December 2013 Additions Disposals Net transfers from investment property Foreign exchange movements At 30 November 2014 Additions Disposals Net transfers from investment property Foreign exchange movements At 30 November 2015 Accumulated depreciation At 1 December 2013 Depreciation charge for the year Disposals Net transfers to investment property Foreign exchange movements At 30 November 2014 Depreciation charge for the year Disposals Net transfers from investment property Foreign exchange movements At 30 November 2015 Net book value At 30 November 2014 At 30 November 2015	Property held for own use 493 24 (2) 61 (19) 557 14 – 10 (48) 533 (190) (15) 1 1 7 (196) (17) – (6) 22 (197) 361 336	Computer hardware Fixtures and fittings and others 216 349 26 43 (13) (15) – – (5) (7) 224 370 18 46 (18) (38) – – (17) (21) 207 357 (171) (217) (26) (34) 11 13 – – 5 5 (181) (233) (24) (37) 17 26 – – 16 16 (172) (228) 43 137 35 129	Total 1,058 93 (30) 61 (31) 1,151 78 (56) 10 (86) 1,097 (578) (75) 25 1 17 (610) (78) 43 (6) 54 (597) 541 500

The Group holds property, plant and equipment for its long-term use and, accordingly, the annual depreciation charge approximates to the amount expected to be recovered through consumption within 12 months after the end of the reporting period.

106

16. Investment property

US$m

Cost
At 1 December 2013
Additions
Disposals
Net transfers to property, plant and equipment
Foreign exchange movements
At 30 November 2014
Additions
Disposals
Net transfers to property, plant and equipment
Foreign exchange movements
At 30 November 2015
Accumulated depreciation
At 1 December 2013
Charge for the year
Disposals
Net transfers from property, plant and equipment
Foreign exchange movements
At 30 November 2014
Charge for the year
Net transfers to property, plant and equipment
Foreign exchange movements
At 30 November 2015
Net book value
At 30 November 2014
At 30 November 2015

1,201
358
(2)
(61)
(19)
1,477
80
(1)
(10)
(57)
1,489
(73)
(21)
1
(1)
1
(93)
(24)
6
8
(103)
1,384
1,386

The Group holds investment property for long-term use, and so the annual amortisation charge approximates to the amount expected to be recovered within 12 months after the reporting period.

The Group leases out its investment property under operating leases. The leases typically run for an initial period of one to twelve years, with an option to renew the lease based on future negotiations. Lease payments are usually negotiated every one to three years to reflect market rentals. There were not any material contingent rentals earned as income for the year. Rental income generated from investment property amounted to US$127m (2014: US$123m). Direct operating expenses (including repair and maintenance) on investment property that generates rental income amounted to US$28m (2014: US$29m).

The Group owns investment property in the form of freehold land outside Hong Kong and leasehold land under finance lease. The Group does not hold freehold land in Hong Kong.

107

The future minimum operating lease rental income under non-cancellable operating leases that the Group expects to receive in future periods may be analysed as follows:

		As at	As at
		30 November	30 November
	US$m	2015	2014
	Leases of investment property
	Expiring no later than one year	117	99
	Expiring later than one year and no later than five years	148	140
	Expiring after five years or more	8	5
	Total	273	244

17.	Fair value of investment property and property held for own use
		As at	As at
		30 November	30 November
	US$m	2015	2014
	Carrying value(1)
	Investment property	1,386	1,384
	Property held for own use (classified as property,
	plant and equipment)	336	361
	Leasehold land under operating lease
	(classified as prepayments in other assets)	430	442
	Total	2,152	2,187

	Fair value(1)
	Investment property (including land)	3,659	3,639
	Property held for own use (including land)	1,495	1,492
	Total	5,154	5,131

	Note:
	(1) Carrying and fair values are presented before non-controlling interests and, for assets held in participating
	funds, before allocation to policyholders.

18. Reinsurance assets

US$m Amounts recoverable from reinsurers Ceded insurance and investment contract liabilities Total	As at 30 November 2015 257 1,395 1,652	As at 30 November 2014 240 1,417
		1,657

108

19. Deferred acquisition and origination costs

US$m Carrying amount Deferred acquisition costs on insurance contracts Deferred origination costs on investment contracts Value of business acquired Total Movements in the year At beginning of financial year Deferral and amortisation of acquisition and origination costs Disposal of a subsidiary Foreign exchange movements Impact of assumption changes Other movements At end of financial year	As at 30 November 2015 16,424 470 198 17,092 Year ended 30 November 2015 16,593 1,490 (1) (1,151) 33 128 17,092	As at 30 November 2014 15,793 534 266 16,593 Year ended 30 November 2014 15,738 1,631 – (385) (23) (368) 16,593

Deferred acquisition and origination costs are expected to be recoverable over the mean term of the Group’s insurance and investment contracts, and liability adequacy testing is performed at least annually to confirm their recoverability. Accordingly, the annual amortisation charge, which varies with investment performance for certain universal life and unit-linked products, approximates to the amount which is expected to be realised within 12 months of the end of the reporting period.

20. Financial investments

The following tables analyse the Group’s financial investments by type and nature. The Group manages its financial investments in two distinct categories: Unit-linked Investments and Policyholder and Shareholder Investments. The investment risk in respect of Unit-linked Investments is generally wholly borne by our customers, and does not directly affect the profit for the year before tax. Furthermore, unit-linked contract holders are responsible for allocation of their policy values amongst investment options offered by the Group. Although profit for the year before tax is not affected by Unit-linked Investments, the investment return from such financial investments is included in the Group’s profit for the year before tax, as the Group has elected the fair value option for all Unit-linked Investments with corresponding changes in insurance and investment contract liabilities for unit-linked contracts. Policyholder and Shareholder Investments include all financial investments other than Unit-linked Investments. The investment risk in respect of Policyholder and Shareholder Investments is partially or wholly borne by the Group.

Policyholder and Shareholder Investments are further categorised as Participating Funds and Other Policyholder and Shareholder. The Group has elected to separately analyse financial investments held by Participating Funds within Policyholder and Shareholder Investments as they are subject to local regulations that generally prescribe a minimum proportion of policyholder participation in declared dividends. The Group has elected the fair value option for debt and equity securities of Participating Funds. The Group’s accounting policy is to record an insurance liability for the proportion of net assets of the Participating Funds that would be allocated to policyholders assuming all performance would be declared as a dividend based upon local regulations as at the date of the statement of financial position. As a result the Group’s net profit for the year before tax is impacted by the proportion of investment return that would be allocated to shareholders as described above.

109

Other Policyholder and Shareholder Investments are distinct from Unit-linked Investments and Participating Funds as there is not any direct contractual or regulatory requirement governing the amount, if any, for allocation to policyholders. The Group has elected to apply the fair value option for equity securities in this category and the available for sale classification in respect of the majority of debt securities in this category. The investment risk from investments in this category directly impacts the Group’s financial statements. Although a proportion of investment return may be allocated to policyholders through policyholder dividends, the Group’s accounting policy for insurance and certain investment contract liabilities utilises a net level premium methodology that includes best estimates as at the date of issue for non-guaranteed participation. To the extent investment return from these investments either is not allocated to participating contracts or varies from the best estimates, it will impact the Group’s profit before tax.

In the following tables, “FVTPL” indicates financial investments classified at fair value through profit or loss and “AFS” indicates financial investments classified as available for sale.

DEBT SECURITIES

In compiling the tables, external ratings have been used where available. Where external ratings are not readily available an internal rating methodology has been adopted. The following conventions have been adopted to conform the various ratings.

External	ratings	Internal ratings	Reported as
Standard and Poor’s	Moody’s
AAA	Aaa	1	AAA
AA+ to AA-	Aa1 to Aa3	2+ to 2-	AA
A+ to A-	A1 to A3	3+ to 3-	A
BBB+ to BBB-	Baa1 to Baa3	4+ to 4-	BBB
BB+ and below	Ba1 and below	5+ and below	Below investment grade(1)

Note:

(1) Unless otherwise identified individually.

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Debt securities by type comprise the following:

Policyholder and shareholder Participating funds Other policyholder and shareholder FVTPL FVTPL AFS – – 10,268 1,406 – 5,208 – – 3,650 1,488 – 1,066 – – 2,626 1,536 – 403 29 7 533 17 – 643 4,476 7 24,397 80 8 382 3 14 381 7 – 365 7 21 254 34 – 205 19 – 131 – 5 93 20 16 15 – 131 164 170 195 1,990 1,250 – 974 937 – 4,168 792 8 2,483 223 – 1,095 18 – 108 3,220 8 8,828	Policyholder and shareholder Participating funds Other policyholder and shareholder FVTPL FVTPL AFS – – 10,268 1,406 – 5,208 – – 3,650 1,488 – 1,066 – – 2,626 1,536 – 403 29 7 533 17 – 643 4,476 7 24,397 80 8 382 3 14 381 7 – 365 7 21 254 34 – 205 19 – 131 – 5 93 20 16 15 – 131 164 170 195 1,990 1,250 – 974 937 – 4,168 792 8 2,483 223 – 1,095 18 – 108 3,220 8 8,828	Total 10,268 6,646 3,903 2,912 2,702 1,966 601 663
Participating funds FVTPL – 1,406 – 1,488 – 1,536 29 17 4,476 80 3 7 7 34 19 – 20 – 170 1,250 937 792 223 18 3,220
	FVTPL – – – – – – 7 – 7 8 14 – 21 – – 5 16 131 195 – – 8 – – 8
		29,661
		491 447 377 282 241 156 98 51 316
		2,459
		2,346 5,358 3,325 1,322 132
		12,483

Notes:

(1) Of the total government bonds listed as “Other” at 30 November 2015, 54 per cent are rated as investment grade and a further 30 per cent are rated BB- and above. The remaining are rated below BB-.

(2) Government agency bonds comprise bonds issued by government-sponsored institutions such as national, provincial and municipal authorities; government-related entities; multilateral development banks and supranational organisations.

(3) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

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Policyholder and shareholder

US$m 30 November 2015 Corporate bonds AAA AA A BBB Below investment grade Not rated Subtotal Structured securities(4) AAA AA A BBB Below investment grade Not rated Subtotal Total(5)	Participating funds FVTPL 61 900 4,788 4,218 927 – 10,894 – 10 16 239 30 1 296 19,056	Other policyholder and shareholder FVTPL AFS – 168 8 5,802 28 17,303 61 18,694 4 3,224 – 1 101 45,192 – 11 19 139 39 197 – 172 56 – 37 14 151 533 462 80,940	Subtotal 229 6,710 22,119 22,973 4,155 1 56,187 11 168 252 411 86 52 980 100,458	Unit-linked Consolidated investment funds(3) FVTPL FVTPL 4 47 14 306 531 993 561 213 109 26 46 14 1,265 1,599 – – – – – 5 1 – – – – – 1 5 2,339 1,843	Total 280 7,030 23,643 23,747 4,290 61
		FVTPL – 8 28 61 4 – 101 – 19 39 – 56 37 151 462
					59,051
					11 168 257 412 86 52
					986
					104,640

Notes:

(3) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

(4) Structured securities include collateralised debt obligations, mortgage-backed securities and other asset-backed securities.

(5) Debt securities of US$3,354m are restricted due to local regulatory requirements.

112

Policyholder and shareholder

Participating funds US$m Rating FVTPL 30 November 2014 Government bonds – issued in local currency Thailand A – China AA 1,099 Korea AA – Singapore AAA 1,768 Philippines BBB – Malaysia A 2,149 Indonesia BB 23 Other(1) 16 Subtotal 5,055 Government bonds – foreign currency Indonesia BB 86 Philippines BBB – Qatar AA – Mexico BBB 7 Malaysia A 73 Korea A 19 South Africa BBB – Russia BBB 19 Other(1) – Subtotal 204 Government agency bonds(2) AAA 1,321 AA 612 A 803 BBB 253 Below investment grade 23 Not rated – Subtotal 3,012	Other policyholder and shareholder FVTPL AFS – 11,002 – 4,211 – 3,543 – 1,175 – 2,879 – 541 – 632 2 575 2 24,558 16 357 9 397 – 318 15 228 – 91 – 135 18 103 15 104 121 161 194 1,894 – 1,070 – 1,926 – 4,721 – 1,439 – 179 – – – 9,335	Subtotal 11,002 5,310 3,543 2,943 2,879 2,690 655 593 29,615 459 406 318 250 164 154 121 138 282 2,292 2,391 2,538 5,524 1,692 202 – 12,347	Unit-linked Consolidated investment funds(3) FVTPL FVTPL – – 18 – 202 – 435 – 75 – 24 – 55 – 2 – 811 – 5 – 89 – 3 – – – 2 – 7 – – – – – 12 – 118 – 116 39 83 61 18 50 6 – 6 – 6 61 235 211	Total 11,002 5,328 3,745 3,378 2,954 2,714 710 595
	FVTPL – – – – – – – 2 2 16 9 – 15 – – 18 15 121 194 – – – – – – –
				30,426
				464 495 321 250 166 161 121 138 294
				2,410
				2,546 2,682 5,592 1,698 208 67
				12,793

Notes:

(1) Of the total government bonds listed as “Other” at 30 November 2014, 61 per cent are rated as investment grade and a further 21 per cent are rated BB- and above. The remaining are rated below BB-.

(3) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

113

Policyholder and shareholder

US$m 30 November 2014 Corporate bonds AAA AA A BBB Below investment grade Not rated Subtotal Structured securities(4) AAA AA A BBB Below investment grade Not rated Subtotal Total(5)	Participating funds FVTPL 66 1,100 4,980 3,933 864 18 10,961 – 6 10 308 29 7 360 19,592	Other policyholder and shareholder FVTPL AFS – 81 8 4,457 61 16,778 76 17,150 – 2,701 1 149 146 41,316 – 10 20 18 – 438 38 150 56 – 56 25 170 641 512 77,744	Subtotal 147 5,565 21,819 21,159 3,565 168 52,423 10 44 448 496 85 88 1,171 97,848	Unit-linked Consolidated investment funds(3) FVTPL FVTPL 5 52 23 186 638 531 462 246 75 33 108 473 1,311 1,521 – – – – – – 2 5 – – 1 – 3 5 2,478 1,737	Total 204 5,774 22,988 21,867 3,673 749
		FVTPL – 8 61 76 – 1 146 – 20 – 38 56 56 170 512
					55,255
					10 44 448 503 85 89
					1,179
					102,063

Notes:

(3) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

(4) Structured securities include collateralised debt obligations, mortgage-backed securities and other asset-backed securities.

(5) Debt securities of US$2,920m are restricted due to local regulatory requirements.

The Group’s debt securities classified at fair value through profit or loss can be analysed as follows:

US$m Debt securities – FVTPL Designated at fair value through profit or loss Held for trading Total	As at 30 November 2015 23,700 – 23,700	As at 30 November 2014 24,297 22
		24,319

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EQUITY SECURITIES

Equity securities by type comprise the following:

US$m 30 November 2015 Equity shares Interests in investment funds Total US$m 30 November 2014 Equity shares Interests in investment funds Total	Policyholder and shareholder Participating funds Other policyholder and shareholder FVTPL FVTPL 3,285 5,484 1,630 1,812 4,915 7,296 Policyholder and shareholder Participating funds Other policyholder and shareholder FVTPL FVTPL 3,476 6,005 1,568 1,702 5,044 7,707	Subtotal 8,769 3,442 12,211 Subtotal 9,481 3,270 12,751	Unit-linked Consolidated investment funds(1) FVTPL FVTPL 3,234 1 11,710 3 14,944 4 Unit-linked Consolidated investment funds(1) FVTPL FVTPL 3,948 1 12,124 3 16,072 4	Total 12,004 15,155
				27,159

				Total 13,430 15,397
	Participating funds FVTPL 3,476 1,568 5,044
				28,827

Note:

(1) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

DEBT AND EQUITY SECURITIES

DEBT AND EQUITY SECURITIES
US$m Debt securities Listed Unlisted Total Equity securities Listed Unlisted Total	As at 30 November 2015 76,490 28,150 104,640 13,878 13,281 27,159	As at 30 November 2014 72,017 30,046
		102,063

		15,276 13,551
		28,827

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INTERESTS IN STRUCTURED ENTITIES

The Group has determined that the investment funds and structured securities, such as collateralised debt obligations, mortgage-backed securities and other asset-backed securities that the Group has interest are structured entities.

The Group has consolidated certain investment funds for which the Group provides guarantee on capital or rate of return to the investors and deemed to have control based on an analysis of the guidance in IFRS 10. For these investment funds, the Group has the ability to reduce the guaranteed rates of return, subject to obtaining approvals of applicable regulators. The Group has an obligation to absorb losses in the event that the returns of the funds are insufficient to cover the capital or rate of return guarantee provided to the investors.

The following table summarises the Group’s interest in unconsolidated structured entities:

US$m Available for sale debt securities Debt securities at fair value through profit or loss Equity securities at fair value through profit or loss Total	As at 30 November 2015 Investment funds Structured securities(1) 761(2) 533 404(2) 453 15,155 – 16,320 986	As at 30 November 2014 Investment funds Structured securities(1) 577(2) 641 360(2) 538 15,397 – 16,334 1,179

Notes:

(1) Structured securities include collateralised debt obligation, mortgage-backed securities and other asset-backed securities.

(2) Balance represents the Group’s interests in debt securities issued by real estate investment trusts.

The Group’s maximum exposure to loss arising from its interests in these unconsolidated structured entities is limited to the carrying amount of the assets. Dividend income and interest income are received during the reporting period from these interests in unconsolidated structured entities.

In addition, the Group receives management fees and trustee fees in respect of providing trustee, management and administrative services to certain retirement scheme funds and investment funds. These funds are not held and the associated investment risks are not borne by the Group, the Group does not have exposure to loss in these funds.

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LOANS AND DEPOSITS

US$m Policy loans Mortgage loans on residential real estate Mortgage loans on commercial real estate Other loans Allowance for loan losses Loans Term deposits Promissory notes(1) Total	As at 30 November 2015 2,383 538 51 781 (14) 3,739 2,035 1,437 7,211	As at 30 November 2014 2,433 645 14 808 (16) 3,884 2,201 1,569 7,654

Note:

(1) The promissory notes are issued by a government.

Certain term deposits with financial institutions and promissory notes are restricted due to local regulatory requirements or other pledge restrictions. The restricted balance held within term deposits and promissory notes is US$1,617m (2014: US$1,757m).

Other loans include receivables from reverse repurchase agreements under which the Group does not take physical possession of securities purchased under the agreements. Sales or transfers of securities are not permitted by the respective clearing house on which they are registered while the loan is outstanding. In the event of default by the counterparty to repay the loan, the Group has the right to the underlying securities held by the clearing house. At 30 November 2015, the carrying value of such receivables is US$155m (2014: US$101m).

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21. Derivative financial instruments

The Group’s non-hedge derivative exposure was as follows:

US$m
Notional amount
30 November 2015
Foreign exchange contracts
Cross-currency swaps
7,153
Forwards
1,547
Foreign exchange futures
119
Currency options
29
Total foreign exchange contracts
8,848
Interest rate contracts
Interest rate swaps
629
Other
Warrants and options
176
Netting
(119)
Total
9,534
30 November 2014
Foreign exchange contracts
Cross-currency swaps
6,142
Forwards
622
Foreign exchange futures
177
Currency options
20
Total foreign exchange contracts
6,961
Interest rate contracts
Interest rate swaps
157
Other
Warrants and options
144
Netting
(177)
Total
7,085

Fair value
Assets
Liabilities
60
(671)
4
(19)
–
–
–
–
64
(690)
2
(5)
7
–
–
–
73
(695)
246
(198)
4
(12)
–
–
–
–
250
(210)
7
(1)
8
–
–
–
265
(211)

Assets
60
4
–
–
64
2
7
–
73
246
4
–
–
250
7
8
–
265

The column “notional amount” in the above table represents the pay leg of derivative transactions.

Of the total derivatives, US$6m (2014: US$7m) are listed in exchange or dealer markets and the rest are over-the-counter (OTC) derivatives. OTC derivative contracts are individually negotiated between contracting parties and not cleared through an exchange. OTC derivatives include forwards, swaps and options. Derivatives are subject to various risks including market, liquidity and credit risks, similar to those related to the underlying financial instruments.

118

Derivative assets and derivative liabilities are recognised in the consolidated statement of financial position as financial assets at fair value through profit or loss and derivative financial liabilities respectively. The Group’s derivative contracts are established to economic hedge financial exposures. The Group adopts hedge accounting in limited circumstances. The notional or contractual amounts associated with derivative financial instruments are not recorded as assets or liabilities in the consolidated statement of financial position as they do not represent the fair value of these transactions. The notional amounts in the previous table reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall scale of derivative transactions.

FOREIGN EXCHANGE CONTRACTS

Foreign exchange forward and futures contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed price and settlement date. Currency options are agreements that give the buyer the right to exchange the currency of one country for the currency of another country at agreed prices and settlement dates. Currency swaps are contractual agreements that involve the exchange of both periodic and final amounts in two different currencies. Exposure to gain and loss on the foreign exchange contracts will increase or decrease over their respective lives as a function of maturity dates, interest and foreign exchange rates, implied volatilities of the underlying indices and the timing of payments.

INTEREST RATE SWAPS

Interest rate swaps are contractual agreements between two parties to exchange periodic payments in the same currency, each of which is computed on a different interest rate basis, on a specified notional amount. Most interest rate swaps involve the net exchange of payments calculated as the difference between the fixed and floating rate interest payments.

OTHER DERIVATIVES

Warrants and options are option agreements that give the owner the right to buy or sell securities at an agreed price and settlement date.

NETTING ADjUSTMENT

The netting adjustment is related to futures contracts executed through clearing house where the settlement arrangement satisfied the netting criteria under IFRS.

COLLATERAL UNDER DERIVATIVE TRANSACTIONS

At 30 November 2015, the Group had posted cash collateral of US$189m (2014: US$20m) and pledged debt securities with carrying value of US$439m (2014: US$96m) for liabilities and held cash collateral of US$8m (2014: US$122m), debt securities collateral with carrying value of US$2m (2014: US$2m) and no deposit collateral (2014: US$25m) for assets in respect of derivative transactions. The Group did not sell or repledge the collateral received. These transactions are conducted under terms that are usual and customary to collateralised transactions including, where relevant, standard securities lending and repurchase agreements.

119

22. Fair value measurement

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Group classifies all financial assets as either at fair value through profit or loss, or as available for sale, which are carried at fair value, or as loans and receivables, which are carried at amortised cost. Financial liabilities are classified as either at fair value through profit or loss or at amortised cost, except for investment contracts with DPF which are accounted for under IFRS 4.

The following tables present the fair values of the Group’s financial assets and financial liabilities:

Fair value US$m Notes Fair value through profit or loss Available for sale 30 November 2015 Financial investments 20 Loans and deposits – – Debt securities 23,700 80,940 Equity securities 27,159 – Derivative financial instruments 21 73 – Reinsurance receivables 18 – – Other receivables 23 – – Accrued investment income 23 – – Cash and cash equivalents 25 – – Financial assets 50,932 80,940 Notes Fair value through profit or loss Financial liabilities Investment contract liabilities 27 6,573 Borrowings 29 – Obligations under securities lending and repurchase agreements 30 – Derivative financial instruments 21 695 Other liabilities 33 1,214 Financial liabilities 8,482	Cost/ amortised cost 7,211 – – – 257 1,731 1,350 1,992 12,541 Cost/ amortised cost 543 3,195 3,085 – 3,443 10,266	Total carrying value 7,211 104,640 27,159 73 257 1,731 1,350 1,992 144,413 Total carrying value 7,116 3,195 3,085 695 4,657 18,748	Total fair value 7,222 104,640 27,159 73 257 1,731 1,350 1,992 144,424 Total fair value 7,116 3,217 3,085 695 4,657 18,770

120

Fair value US$m Notes Fair value through profit or loss Available for sale 30 November 2014 Financial investments 20 Loans and deposits – – Debt securities 24,319 77,744 Equity securities 28,827 – Derivative financial instruments 21 265 – Reinsurance receivables 18 – – Other receivables 23 – – Accrued investment income 23 – – Cash and cash equivalents 25 – – Financial assets 53,411 77,744 Notes Fair value through profit or loss Financial liabilities Investment contract liabilities 27 7,315 Borrowings 29 – Obligations under securities lending and repurchase agreements 30 – Derivative financial instruments 21 211 Other liabilities 33 1,221 Financial liabilities 8,747	Cost/ amortised cost 7,654 – – – 240 1,632 1,345 1,835 12,706 Cost/ amortised cost 622 2,934 3,753 – 3,321 10,630	Total carrying value 7,654 102,063 28,827 265 240 1,632 1,345 1,835 143,861 Total carrying value 7,937 2,934 3,753 211 4,542 19,377	Total fair value 7,675 102,063 28,827 265 240 1,632 1,345 1,835 143,882 Total fair value 7,937 3,005 3,753 211 4,542 19,448

The carrying amount of assets included in the above tables represents the maximum credit exposure.

Foreign currency exposure, including the net notional amount of foreign currency derivative positions, is shown in note 37 for the Group’s key foreign exchange exposures.

The fair value of investment contract liabilities measured at amortised cost is not considered to be materially different from the amortised cost carrying value.

The carrying value of financial instruments expected to be settled within 12 months (after taking into account valuation allowances, where applicable) is not considered to be materially different from the fair value.

FAIR VALUE MEASUREMENTS ON A RECURRING BASIS

The Group measures at fair value financial instruments classified at fair value through profit or loss, available for sale securities portfolios, derivative assets and liabilities, investments held by investment funds which are consolidated, investments in non-consolidated investment funds and certain investment contract liabilities on a recurring basis. The fair value of a financial instrument is the amount that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

121

The degree of judgement used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgement is used in measuring fair value. Conversely, financial instruments traded in other than active markets or that do not have quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgement. An active market is one in which transactions for the asset or liability being valued occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

An other than active market is one in which there are few transactions, the prices are not current, price quotations vary substantially either over time or among market makers, or in which little information is released publicly for the asset or liability being valued. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and general market conditions.

The Group does not have assets or liabilities measured at fair value on a non-recurring basis during the year ended 30 November 2015.

The following methods and assumptions were used by the Group to estimate the fair value of financial instruments.

DETERMINATION OF FAIR VALUE FOR FINANCIAL INSTRUMENTS

Loans and receivables

For loans and advances that are repriced frequently and have not had any significant changes in credit risk, carrying amounts represent a reasonable estimate of fair values. The fair values of other loans are estimated by discounting expected future cash flows using interest rates offered for similar loans to borrowers with similar credit ratings.

The fair values of mortgage loans are estimated by discounting future cash flows using interest rates currently being offered in respect of similar loans to borrowers with similar credit ratings. The fair values of fixed rate policy loans are estimated by discounting cash flows at the interest rates charged on policy loans of similar policies currently being issued. Loans with similar characteristics are aggregated for purposes of the calculations. The carrying values of policy loans with variable rates approximate to their fair values.

Debt securities and equity securities

The fair values of equity securities are based on quoted market prices or, if unquoted, on estimated market values generally based on quoted prices for similar securities. Fair values for fixed interest securities are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated using values obtained from brokers, private pricing services or by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investment. Priority is given to values from independent sources when available, but overall the source of pricing and/or valuation technique is chosen with the objective of arriving at the price at which an orderly transaction would take place between market participants on the measurement date. The inputs to determining fair value that are relevant to fixed interest securities include, but not limited to riskfree interest rates, the obligor’s credit spreads, foreign exchange rates and credit default rates. For holdings in hedge funds and limited partnerships, fair values are determined based on the net asset values provided by the general partner or manager of each investment, the accounts of which are generally audited on an annual basis. The transaction price is used as the best estimate of fair value at inception.

122

Derivative financial instruments

The Group values its derivative financial assets and liabilities using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value a derivative depends on the contract terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. The Group generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be verified and model selection does not involve significant management judgement. Examples of inputs that are generally observable include foreign exchange spot and forward rates, benchmark interest rate curves and volatilities for commonly traded option products. Examples of inputs that may be unobservable include volatilities for less commonly traded option products and correlations between market factors.

When the Group holds a group of derivative assets and derivative liabilities entered into with a particular counterparty, the Group takes into account the arrangements that mitigate credit risk exposure in the event of default (e.g. International Swap and Derivatives Association (ISDA) Master Agreements and Credit Support Annex (CSA) that require the exchange of collateral on the basis of each party’s net credit risk exposure). The Group measures the fair value of the group of financial assets and financial liabilities on the basis of its net exposure to the credit risk of that counterparty or the counterparty’s net exposure to our credit risk that reflects market participants’ expectations about the likelihood that such an arrangement would be legally enforceable in the event of default.

Cash and cash equivalents

The carrying amount of cash approximates its fair value.

Reinsurance receivables

The carrying amount of amounts receivable from reinsurers is not considered materially different to their fair value.

Fair value of securities sold under repurchase agreements and the associated payables

The contract values of payables under repurchase agreements approximate their fair value as these obligations are short-term in nature.

Other assets

The carrying amount of other financial assets is not materially different to their fair value. The fair values of deposits with banks are generally based on quoted market prices or, if unquoted, on estimates based on discounting future cash flows using available market interest rates offered for receivables with similar characteristics.

Investment contract liabilities

For investment contract liabilities, the fair values have been estimated using a discounted cash flow approach based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. For investment contracts where the investment risk is borne by the policyholder, the fair value generally approximates to the fair value of the underlying assets.

123

Investment contracts with DPF enable the contract holder to receive additional benefits as a supplement to guaranteed benefits. These are referred to as participating business and are measured and classified according to the Group practice for insurance contract liabilities and hence are disclosed within note 26. These are not measured at fair value as there is currently not an agreed definition of fair value for investment and insurance contracts with DPF under IFRS. In the absence of any agreed methodology, it is not possible to provide a range of estimates within which fair value is likely to fall. The IASB is expecting to address this issue in Phase II of its insurance contracts project.

Borrowings

The fair values of borrowings with stated maturities have been estimated based on discounting future cash flows using the interest rates currently applicable to deposits of similar maturities or prices obtained from brokers.

Other liabilities

The fair values of other unquoted financial liabilities is estimated by discounting expected future cash flows using current market rates applicable to their yield, credit quality and maturity, except for those without stated maturity, where the carrying value approximates to fair value.

FAIR VALUE HIERARCHY FOR FAIR VALUE MEASUREMENT ON A RECURRING BASIS

Assets and liabilities recorded at fair value in the consolidated statement of financial position are measured and classified in a hierarchy for disclosure purposes consisting of three “levels” based on the observability of inputs available in the marketplace used to measure their fair values as discussed below:

Level 1 : Fair value measurements that are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group has the ability to access as of the measurement date. Market price data is generally obtained from exchange or dealer markets. The Group does not adjust the quoted price for such instruments. Assets measured at fair value on a recurring basis and classified as Level 1 are actively traded listed equities. The Group considers that government debt securities issued by G7 countries (the United States, Canada, France, Germany, Italy, Japan, the United Kingdom) and traded in a dealer market to be Level 1, until they no longer trade with sufficient frequency and volume to be considered actively traded.
Level 2 : Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset and liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Assets and liabilities measured at fair value on a recurring basis and classified as Level 2 generally include government securities issued by non-G7 countries, most investment grade corporate bonds, hedge fund investments and derivative contracts.
Level 3 : Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Unobservable inputs are only used to measure fair value to the extent that relevant observable inputs are not available, allowing for circumstances in which there is little, if any, market activity for the asset or liability. Assets and liabilities measured at fair value on a recurring basis and classified as Level 3 include certain classes of structured securities, certain derivative contracts, private equity and real estate fund investments, and direct private equity investments.

124

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Group’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgement. In making the assessment, the Group considers factors specific to the asset or liability.

A summary of assets and liabilities carried at fair value on a recurring basis according to fair value hierarchy is given below:

Fair value hierarchy Level 1 Level 2 Level 3 – 79,927 1,013 – 18,732 324 – 3,914 268 – 287 175 4,537 127 251 14,918 26 4 6,448 429 419 – 64 – – 2 – 5 2 – 25,908 103,510 2,454 *19.6* *78.5* *1.9* – – 6,573 – 690 – – 5 – – 1,214 – – 1,909 6,573 – *22.5* *77.5*	Fair value hierarchy Level 1 Level 2 Level 3 – 79,927 1,013 – 18,732 324 – 3,914 268 – 287 175 4,537 127 251 14,918 26 4 6,448 429 419 – 64 – – 2 – 5 2 – 25,908 103,510 2,454 *19.6* *78.5* *1.9* – – 6,573 – 690 – – 5 – – 1,214 – – 1,909 6,573 – *22.5* *77.5*	Total 80,940 19,056 4,182 462 4,915 14,948 7,296 64 2 7
Level 1 – – – – 4,537 14,918 6,448 – – 5 25,908 *19.6* – – – – – –	Level 2 79,927 18,732 3,914 287 127 26 429 64 2 2 103,510 *78.5* – 690 5 1,214 1,909 *22.5*
		131,872 *100.0* 6,573 690 5 1,214
		8,482 *100.0*

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Fair value hierarchy Level 1 Level 2 Level 3 – 76,993 751 – 19,323 269 – 3,888 327 – 281 231 4,704 111 229 15,177 899 – 7,019 343 345 – 250 – – 7 – 7 1 – 26,907 102,096 2,152 20.5 77.9 1.6 – – 7,315 – 210 – – 1 – – 1,221 – – 1,432 7,315 – 16.4 83.6	Fair value hierarchy Level 1 Level 2 Level 3 – 76,993 751 – 19,323 269 – 3,888 327 – 281 231 4,704 111 229 15,177 899 – 7,019 343 345 – 250 – – 7 – 7 1 – 26,907 102,096 2,152 20.5 77.9 1.6 – – 7,315 – 210 – – 1 – – 1,221 – – 1,432 7,315 – 16.4 83.6	Total 77,744 19,592 4,215 512 5,044 16,076 7,707 250 7 8
Level 1 – – – – 4,704 15,177 7,019 – – 7 26,907 20.5 – – – – – –	Level 2 76,993 19,323 3,888 281 111 899 343 250 7 1 102,096 77.9 – 210 1 1,221 1,432 16.4
		131,155 100.0 7,315 210 1 1,221
		8,747 100.0

The Group’s policy is to recognise transfers of assets and liabilities between Level 1 and Level 2 at their fair values as at the end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. During the year ended 30 November 2015, the Group transferred US$29m (2014: US$55m) of assets measured at fair value from Level 1 to Level 2 during the year. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. The Group transferred US$985m (2014: US$483m) of assets from Level 2 to Level 1 during the year ended 30 November 2015.

The Group’s Level 2 financial instruments include debt securities, equity securities and derivative instruments. The fair values of Level 2 financial instruments are estimated using values obtained from private pricing services and brokers corroborated with internal review as necessary. When the quotes from third-party pricing services and brokers are not available, internal valuation techniques and inputs will be used to derive the fair value for the financial instruments.

The tables below set out a summary of changes in the Group’s Level 3 assets and liabilities measured at fair value on a recurring basis for the year ended 30 November 2015 and 2014. The tables reflect gains and losses, including gains and losses on financial assets and liabilities categorised as Level 3 as at 30 November 2015 and 2014.

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Level 3 financial assets and liabilities

US$m At 1 December 2014 Net movement on investment contract liabilities Total gains/(losses) Reported under investment return in the consolidated income statement Reported under fair value reserve and foreign currency translation reserve in the consolidated statement of comprehensive income Purchases Sales Settlements Disposal of a subsidiary Transfer into Level 3 Transfer out of Level 3 At 30 November 2015 Change in unrealised gains or losses included in the consolidated income statement for assets and liabilities held at the end of the reporting period, under investment return US$m At 1 December 2013 Net movement on investment contract liabilities Total gains/(losses) Reported under investment return in the consolidated income statement Reported under fair value reserve and foreign currency translation reserve in the consolidated statement of comprehensive income Purchases Sales Settlements Transfer into Level 3 Transfer out of Level 3 At 30 November 2014 Change in unrealised gains or losses included in the consolidated income statement for assets and liabilities held at the end of the reporting period, under investment return	Debt securities 1,578 – 16 (71) 449 (57) (141) (5) 17 (6) 1,780 (3) Debt securities 1,771 – 87 (12) 504 (202) (149) – (421) 1,578 70	Equity securities 574 – (7) (34) 170 (34) – – 6 (1) 674 (6) Equity securities 463 – 80 (12) 78 (35) – – – 574 82	Derivative financial assets/ (liabilities) – – – – – – – – – – – – Derivative financial assets/ (liabilities) 2 – (1) – – – (1) – – – (1)	Investment contracts (7,315) 742 – – – – – – – – (6,573) – Investment contracts (7,429) 114 – – – – – – – (7,315) –

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Movements in investment contract liabilities at fair value are offset by movements in the underlying portfolio of matching assets. Details of the movement in investment contract liabilities are provided in note 27.

Assets transferred out of Level 3 mainly relate to corporate debt instruments of which marketobservable inputs became available during the year and were used in determining the fair value.

There are not any differences between the fair values on initial recognition and the amounts determined using valuation techniques since the models adopted are calibrated using initial transaction prices.

SIGNIFICANT UNOBSERVABLE INPUTS FOR LEVEL 3 FAIR VALUE MEASUREMENTS

As at 30 November 2015 and 2014, the valuation techniques and applicable unobservable inputs used to measure the Group’s Level 3 financial instruments are summarised as follows:

	Fair value at	Valuation	Unobservable
Description	30 November 2015 (US$m)	techniques	inputs	Range
Debt securities	809	Discounted cash flows	Discount rate for liquidity	4.30% – 15.61%
	Fair value at	Valuation	Unobservable
Description	30 November 2014 (US$m)	techniques	inputs	Range
Debt securities	548	Discounted cash flows	Discount rate for liquidity	5.28% – 11.49%

VALUATION PROCESSES

The Group has the valuation policies, procedures and analyses in place to govern the valuation of financial assets required for financial reporting purposes, including Level 3 fair values. In determining the fair values of financial assets, the Group in general uses third-party pricing providers and, only in rare cases when third-party prices do not exist, will use prices derived from internal models. The Chief Investment Officers of each of the business units are required to review the reasonableness of the prices used and report price exceptions, if any. The Group Investment team analyses reported price exceptions and reviews price challenge responses from third-party pricing providers and provides the final recommendation on the appropriate price to be used. Any changes in valuation policies are reviewed and approved by the Group Pricing Committee (GPC) which is part of the Group’s wider financial risk governance processes. Changes in Level 2 and 3 fair values are analysed at each reporting date.

The main Level 3 input used by the Group pertains to the discount rate for the fixed income securities and investment contracts. The unobservable inputs for determining the fair value of these instruments include the obligor’s credit spread and/or the liquidity spread. A significant increase/(decrease) in any of the unobservable input may result in a significantly lower/(higher) fair value measurement. The Group has subscriptions to private pricing services for gathering such information. If the information from private pricing services is not available, the Group uses the proxy pricing method based on internally-developed valuation inputs.

128

FAIR VALUE FOR ASSETS AND LIABILITIES FOR WHICH THE FAIR VALUE IS DISCLOSED AT REPORTING DATE

A summary of fair value hierarchy of assets and liabilities not carried at fair value but for which the fair value is disclosed as at 30 November 2015 and 2014 is given below.

Fair value hierarchy Level 1 Level 2 Level 3 552 3,145 3,525 – 257 – – 1,707 24 19 1,331 – 1,992 – – – – 3,659 – – 1,495 2,563 6,440 8,703 – – 543 2,894 323 – – 3,085 – 412 2,970 61 3,306 6,378 604	Fair value hierarchy Level 1 Level 2 Level 3 552 3,145 3,525 – 257 – – 1,707 24 19 1,331 – 1,992 – – – – 3,659 – – 1,495 2,563 6,440 8,703 – – 543 2,894 323 – – 3,085 – 412 2,970 61 3,306 6,378 604	Total 7,222 257 1,731 1,350 1,992 3,659 1,495
Level 1 552 – – 19 1,992 – – 2,563 – 2,894 – 412 3,306	Level 2 3,145 257 1,707 1,331 – – – 6,440 – 323 3,085 2,970 6,378
		17,706

		543 3,217 3,085 3,443
		10,288

129

Fair value hierarchy Level 1 Level 2 Level 3 632 3,293 3,750 – 240 – – 1,534 98 15 1,330 – 1,835 – – – – 3,639 – – 1,492 2,482 6,397 8,979 – – 622 2,046 959 – – 3,753 – 204 3,027 90 2,250 7,739 712	Fair value hierarchy Level 1 Level 2 Level 3 632 3,293 3,750 – 240 – – 1,534 98 15 1,330 – 1,835 – – – – 3,639 – – 1,492 2,482 6,397 8,979 – – 622 2,046 959 – – 3,753 – 204 3,027 90 2,250 7,739 712	Total 7,675 240 1,632 1,345 1,835 3,639 1,492
Level 1 632 – – 15 1,835 – – 2,482 – 2,046 – 204 2,250	Level 2 3,293 240 1,534 1,330 – – – 6,397 – 959 3,753 3,027 7,739
		17,858

		622 3,005 3,753 3,321
		10,701

The Group engaged external, independent and qualified valuers to determine the fair value of the Group’s properties at the end of every financial year. The valuation on open market value basis by independent professional valuer for certain investment properties was calculated by reference to net rental income allowing for reversionary income potential. The fair values of other properties were derived using the Market Data Approach. In this approach, the values are based on sales and listing of comparable property registered in the vicinity.

In valuing the investment properties and properties in use, the current use of the properties are considered to be its highest and best use; records of recent sales and offerings of similar property are analysed and comparison made for such factors as size, location, quality and prospective use.

The investment properties and properties in use are valued on the basis of the highest and best use of the properties that is physically possible, legally permissible and financially feasible. Records of recent sales and offerings of similar property are analysed and comparison made for such factors as size, location, quality and prospective use. In limited occasions, potential redevelopment of the properties in use would be taken into account when they would maximise the fair value of the properties; the Group is occupying these properties for operational purposes.

130

23. Other assets

Other assets
US$m Accrued investment income Pension scheme assets Defined benefit pension scheme surpluses Insurance receivables due from insurance and investment contract holders Others Total	As at 30 November 2015 1,350 26 1,023 1,493 3,892	As at 30 November 2014 1,345 25 998 1,385
		3,753

All amounts other than certain prepayments are generally expected to be recovered within 12 months after the end of the reporting period.

24. Impairment of financial assets

In accordance with the Group’s accounting policies, impairment reviews were performed for available for sale securities and loans and receivables.

AVAILABLE FOR SALE DEBT SECURITIES

During the year ended 30 November 2015, there were not any impairment losses (2014: US$nil) recognised in respect of available for sale debt securities.

The carrying amounts of available for sale debt securities that are individually determined to be impaired at 30 November 2015 was US$31m (2014: US$48m).

LOANS AND RECEIVABLES

The Group’s primary potential credit risk exposure in respect of loans and receivables arises in respect of policy loans and a portfolio of mortgage loans on residential and commercial real estate (see note 20 Financial investments for further details). The Group’s credit exposure on policy loans is mitigated because, if and when the total indebtedness on any policy, including interest due and accrued, exceeds the cash surrender value, the policy terminates and becomes void. The Group has a first lien on all policies which are subject to policy loans.

The carrying amounts of loans and receivables that are individually determined to be impaired at 30 November 2015 was US$20m (2014: US$25m).

The Group has a portfolio of residential and commercial mortgage loans which it originates. To the extent that any such loans are past their due dates specific allowance is made, together with a collective allowance, based on historical delinquency. Insurance receivables are shortterm in nature and cover is not provided if consideration is not received. An ageing of accounts receivable is not provided as all amounts are due within one year and cover is cancelled if consideration is not received.

131

25. Cash and cash equivalents

US$m Cash Cash equivalents Total(1)	As at 30 November 2015 1,493 499 1,992	As at 30 November 2014 1,067 768
		1,835

Note:

(1) Of cash and cash equivalents, US$428m (2014: US$467m) are held to back unit-linked contracts and US$22m (2014: US$29m) are held by consolidated investment funds.

Cash comprises cash at bank and cash in hand. Cash equivalents comprise bank deposits and highly liquid short-term investments with maturities at acquisition of three months or less and money market funds. Accordingly, all such amounts are expected to be realised within 12 months after the end of the reporting period.

26. Insurance contract liabilities

The movement of insurance contract liabilities (including liabilities in respect of investment contracts with DPF) is shown as follows:

US$m At beginning of financial year Valuation premiums and deposits Liabilities released for policy termination or other policy benefits paid and related expenses Fees from account balances Accretion of interest Foreign exchange movements Change in net asset values attributable to policyholders Disposal of a subsidiary Other movements At end of financial year	Year ended 30 November 2015 113,097 21,300 (13,240) (1,261) 3,624 (7,850) 104 (22) 118 115,870	Year ended 30 November 2014 103,436 20,273 (12,170) (954) 3,442 (2,699) 2,055 – (286)
		113,097

Insurance contract liabilities (including liabilities in respect of investment contracts with DPF) can also be analysed as follows:

US$m Deferred profit liabilities and unearned revenue liabilities Policyholders’ share of participating surplus Others Total	Year ended 30 November 2015 7,974 6,348 101,548 115,870	Year ended 30 November 2014 7,045 7,238 98,814
		113,097

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BUSINESS DESCRIPTION

The table below summarises the key variables on which insurance and investment contract cash flows depend.

depend.
				Factors
				affecting	Key
			Nature of benefits and	contract	reportable
Type of contract		Material terms and conditions	compensation for claims	cash flows	segments
Traditional	Participating	Participating products combine	Minimum guaranteed benefits	• Investment	Singapore,
participating	funds	protection with a savings element.	may be enhanced based on	performance	China,
life assurance		The basic sum assured, payable on	investment experience and	• Expenses	Malaysia
with DPF		death or maturity, may be enhanced	other considerations	• Mortality
		by dividends, the aggregate amount		• Surrenders
		of which is determined by the
		performance of a distinct fund of assets
		and liabilities. The timing of dividend
		declarations is at the discretion of the
		insurer. Local regulations generally
		prescribe a minimum proportion of
		policyholder participation in declared
		dividends
	Other	Participating products combine	Minimum guaranteed benefits	• Investment	Hong Kong,
	participating business	protection with a savings element. The basic sum assured, payable on death or maturity, may be enhanced	may be enhanced based on investment experience and other considerations	performance • Expenses	Thailand, Other Markets
		by dividends, the timing or amount		• Mortality
		of which is at the discretion of the		• Surrenders
		insurer taking into account factors
		such as investment experience
Traditional non-participating life		Benefits paid on death, maturity,	Benefits, defined in the insurance	• Mortality	All(1)
		sickness or disability that are fixed	contract, are determined by the	• Morbidity
		and guaranteed and not at the	contract and are not affected by	• Lapses
		discretion of the insurer	investment performance or the	• Expenses
			performance of the contract as a
			whole
Accident and health		These products provide morbidity or	Benefits, defined in the insurance	• Mortality	All(1)
		sickness benefits and include health,	contract, are determined by the	• Morbidity
		disability, critical illness and accident	contract and are not affected by	• Lapses
		cover	investment performance or the	• Expenses
			performance of the contract as a	• Claims
			whole	experience
Unit-linked		Unit-linked contracts combine savings	Benefits are based on the	• Investment	All(1)
		with protection, the cash value of	value of the unitised funds	performance
		the policy depending on the value of	and death benefits	• Lapses
		unitised funds		• Expenses
				• Mortality
Universal life		The customer pays flexible premiums	Benefits are based on the	• Investment	All(1)
		subject to specified limits accumulated	account balance and death	performance
		in an account balance which are	benefit	• Crediting rates
		credited with interest at a rate set by		• Lapses
		the insurer, and a death benefit which		• Expenses
		may be varied by the customer		• Mortality
Note:

(1) Other than the Group Corporate Centre segment.

133

METHODOLOGY AND ASSUMPTIONS

The most significant items to which profit for the year and shareholders’ equity are sensitive are market, insurance and lapse risks which are shown in the table below. Indirect exposure indicates that there is a second order impact. For example, whilst the profit for the year attributable to shareholders is not directly affected by investment income earned where the investment risk is borne by policyholders (for example, in respect of unit-linked contracts), there is a second-order effect through the investment management fees which the Group earns by managing such investments. The distinction between direct and indirect exposure is not intended to indicate the relative sensitivity to each of these items. Where the direct exposure is shown as being “net neutral”, this is because the exposure to market and credit risk is offset by a corresponding movement in insurance contract liabilities.

Type of contract
Traditional
participating
life assurance
with DPF
Participating
funds
Other
participating
business
Traditional non-participating
life assurance
Accident and health
Pension
Unit-linked
Universal life

Market and credit risk
Direct exposure
Insurance and
investment contract
liabilities
Risks associated with
related investment
portfolio
Indirect exposure
Significant insurance
and lapse risks
• Net neutral except for
the insurer’s share of
participating investment
performance
• Guarantees
• Net neutral except for
the insurer’s share of
participating investment
performance
• Guarantees
• Investment
performance subject
to smoothing through
dividend declarations
• Impact of persistency on
future dividends
• Mortality
• Net neutral except for
the insurer’s share of
participating investment
performance
• Guarantees
• Net neutral except for
the insurer’s share of
participating investment
performance
• Guarantees
• Investment performance • Impact of persistency on
future dividends
• Mortality
• Investment performance
• Credit risk
• Asset-liability mismatch
risk
• Guarantees
• Asset-liability mismatch
risk
• Not applicable
• Mortality
• Persistency
• Morbidity
• Loss ratio
• Asset-liability mismatch
risk
• Investment performance
• Credit risk
• Asset-liability mismatch
risk
• Not applicable
• Claims experience
• Morbidity
• Persistency
• Net neutral
• Asset-liability mismatch
risk
• Net neutral
• Asset-liability mismatch
risk
• Performance-related
investment management
fees
• Persistency
• Net neutral
• Net neutral
• Performance-related
investment management
fees
• Persistency
• Mortality
• Guarantees
• Asset-liability mismatch
risk
• Investment performance
• Credit risk
• Asset-liability mismatch
risk
• Spread between earned
rate and crediting rate to
policyholders
• Mortality
• Persistency
• Withdrawals

The Group is also exposed to foreign exchange rate risk in respect of its operations, and to interest rate risk, credit risk and equity price risk on assets representing net shareholders’ equity, and to expense risk to the extent that actual expenses exceed those that can be charged to insurance and investment contract holders on non-participating business. Expense assumptions applied in the Group’s actuarial valuation models assume a continuing level of business volumes.

134

Valuation interest rates

As at 30 November 2015 and 2014, the ranges of applicable valuation interest rates for traditional insurance contracts, which vary by territory, year of issuance and products, within the first 20 years are as follows:

	As at	As at
	30 November	30 November
	2015	2014
Hong Kong	3.50% – 7.50%	3.50% – 7.50%
Thailand	3.25% – 9.00%	3.25% – 9.00%
Singapore	2.00% – 7.00%	2.00% – 7.25%
Malaysia	3.70% – 8.90%	3.70% – 8.90%
China	2.75% – 7.00%	2.75% – 7.00%
Korea	3.08% – 6.50%	3.33% – 6.50%
Philippines	2.20% – 9.20%	2.20% – 9.20%
Indonesia	3.10% – 10.80%	3.10% – 10.80%
Vietnam	5.07% – 12.25%	5.07% – 12.25%
Australia	3.83% – 7.11%	3.83% – 7.11%
New Zealand	3.83% – 5.75%	3.83% – 5.75%
Taiwan	1.75% – 6.50%	1.75% – 6.50%
Sri Lanka	7.95% – 11.00%	9.30% – 11.90%

27. Investment contract liabilities

US$m At beginning of financial year Effect of foreign exchange movements Investment contract benefits Fees charged Net withdrawals and other movements At end of financial year(1)	Year ended 30 November 2015 7,937 (170) (336) (189) (126) 7,116	Year ended 30 November 2014 8,698 (71) 344 (174) (860)
		7,937

Note:

(1) Of investment contract liabilities, US$636m (2014: US$728m) represents deferred fee income.

28. Effect of changes in assumptions and estimates

The table below sets out the sensitivities of the assumptions in respect of insurance and investment contracts with DPF to key variables. This disclosure only allows for the impact on liabilities and related assets, such as reinsurance, and deferred acquisition costs and does not allow for offsetting movements in the fair value of financial assets backing those liabilities.

	As at	As at
	30 November	30 November
US$m	2015	2014
(Increase)/decrease in insurance contract liabilities,
increase/(decrease) in equity and profit before tax
0.5 pps increase in investment return	18	14
0.5 pps decrease in investment return	(17)	(14)
10% increase in expenses	(5)	(4)
10% increase in mortality rates	(27)	(21)
10% increase in lapse/discontinuance rates	(18)	(16)

135

Future policy benefits for traditional life insurance policies (including investment contracts with DPF) are calculated using a net level premium valuation method with reference to best estimate assumptions set at policy inception date unless a deficiency arises on liability adequacy testing. There is not any impact of the above assumption sensitivities on the carrying amount of traditional life insurance liabilities as the sensitivities presented would not have triggered a liability adequacy adjustment. During the years presented there were not any effect of changes in assumptions and estimates on the Group’s traditional life products.

For interest sensitive insurance contracts, such as universal life products and unit-linked contracts, assumptions are made at each reporting date including mortality, persistency, expenses, future investment earnings and future crediting rates.

The impact of changes in assumptions on the valuation of insurance and investment contracts with DPF was US$8m increase in profit (2014: US$3m decrease).

29. Borrowings

US$m Bank loans Medium term notes Total	As at 30 November 2015 323 2,872 3,195	As at 30 November 2014 808 2,126
		2,934

At 30 November 2015, the Group did not have assets pledged as security with respect to amounts disclosed as bank loans above. At 30 November 2014, properties with a book value of US$874m and a fair value of US$2,135m and cash and cash equivalents and term deposits with a book value of US$21m were pledged as security with respect to amounts disclosed as bank loans above. Interest expense on borrowings is shown in note 9. Further information relating to interest rates and the maturity profile of borrowings is presented in note 37.

The following table summarises the Group’s outstanding medium term notes at 30 November 2015:

Issue date	Nominal amount	Interest rate	Tenor
13 March 2013(1)	US$500m	1.750%	5 years
13 March 2013(1)	US$500m	3.125%	10 years
4 November 2013	HK$1,160m	based upon HIBOR	3 years
11 March 2014(1)	US$500m	2.250%	5 years
11 March 2014(1)	US$500m	4.875%	30 years
11 March 2015(1)	US$750m	3.200%	10 years

Note:

(1) These medium term notes are listed on The Stock Exchange of Hong Kong Limited.

The net proceeds from issuance during the year ended 30 November 2015 are used for general corporate purposes.

136

The Group has access to an aggregate of US$2.05 billion unsecured committed credit facilities, which includes a US$300m multicurrency revolving credit facility expiring in 2016 and a US$1.75 billion five-year credit facility expiring in 2020. The credit facilities will be used for general corporate purposes. There were not any outstanding borrowings under these credit facilities as of 30 November 2015.

30. Obligations under securities lending and repurchase agreements

The Group has entered into securities lending agreement whereby securities are loaned to a national monetary authority. In addition, the Group has entered into repurchase agreements whereby securities are sold to third parties with a concurrent agreement to repurchase the securities at a specified date.

The securities related to these agreements are not derecognised from the Group’s consolidated statement of financial position, but are retained within the appropriate financial asset classification. During the term of the securities lending and repurchase agreements, the Group is restricted from selling or pledging the transferred debt securities. The following table specifies the amounts included within financial investments subject to securities lending or repurchase agreements which do not qualify for derecognition at each year end:

US$m Debt securities – AFS Repurchase agreements Debt securities – FVTPL Securities lending Repurchase agreements Total	As at 30 November 2015 2,522 – 677 3,199	As at 30 November 2014 3,243 299 598
		4,140

COLLATERAL

At 30 November 2015, the Group had pledged debt securities with carrying value of US$7m (2014: US$5m) and held cash collateral of US$8m (2014: US$10m). Debt securities collateral was not held (2014: US$2m based on the initial market value of the securities transferred). In the absence of default, the Group does not sell or repledge the debt securities collateral received and they are not recognised in the consolidated statement of financial position.

The Group did not have any securities lending transactions outstanding as at 30 November 2015. The securities lending transactions outstanding as at 30 November 2014 were conducted with a national monetary authority on securities denominated in local currency issued by the same authority.

The following table shows the obligations under repurchase agreements at each year end:

		As at	As at
	30	November	30 November
US$m		2015	2014
Repurchase agreements		3,085	3,753

137

31. Offsetting of financial assets and financial liabilities

OFFSETTING, ENFORCEABLE MASTER NETTING AGREEMENTS AND SIMILAR AGREEMENTS

The following table shows the assets that are subject to offsetting, enforceable master netting agreements and similar arrangements at each year end:

US$m 30 November 2015 Financial assets: Derivative assets Reverse repurchase agreements Total US$m 30 November 2014 Financial assets: Derivative assets Reverse repurchase agreements Total	Gross amount of recognised financial assets 73 155 228 Gross amount of recognised financial assets 265 101 366	Gross amount of recognised financial liabilities set off in the consolidated statement of financial position – – – Gross amount of recognised financial liabilities set off in the consolidated statement of financial position – – –	Net amount of financial assets presented in the consolidated statement of financial position 73 155 228 Net amount of financial assets presented in the consolidated statement of financial position 265 101 366	Related amounts not set off in the consolidated statement of financial position Financial instruments Cash collateral received (2) (8) (155) – (157) (8) Related amounts not set off in the consolidated statement of financial position Financial instruments Cash collateral received (2) (147) (101) – (103) (147)	Net amount 63 –
					63

					Net amount 116 –
				Financial instruments (2) (101) (103)
					116

138

The following table shows the liabilities that are subject to offsetting, enforceable master netting agreements and similar arrangements at each year end:

US$m 30 November 2015 Financial liabilities: Derivative liabilities Repurchase agreements Total US$m 30 November 2014 Financial liabilities: Derivative liabilities Repurchase agreements, securities lending, and similar arrangements Total	Gross amount of recognised financial liabilities 695 3,085 3,780 Gross amount of recognised financial liabilities 211 3,753 3,964	Gross amount of recognised financial assets set off in the consolidated statement of financial position – – – Gross amount of recognised financial assets set off in the consolidated statement of financial position – – –	Net amount of financial liabilities presented in the consolidated statement of financial position 695 3,085 3,780 Net amount of financial liabilities presented in the consolidated statement of financial position 211 3,753 3,964	Related amounts not set off in the consolidated statement of financial position Financial instruments Cash collateral pledged (439) (189) (3,085) – (3,524) (189) Related amounts not set off in the consolidated statement of financial position Financial instruments Cash collateral pledged (96) (20) (3,753) – (3,849) (20)	Net amount 67 –
					67

					Net amount 95 –
				Financial instruments (96) (3,753) (3,849)
					95

The Group entered into enforceable master netting agreements for derivative transactions, as well as the repurchase agreements and securities lending agreements for debt instruments with various counterparties. Except for certain futures contracts executed through clearing house mechanism where the settlement arrangement satisfied the IFRS netting criteria, the transactions under the enforceable master netting agreements and similar agreements involving the exchange of financial instruments or cash as collateral do not satisfy the IFRS netting criteria. The provision in the master netting agreement and similar agreements enables a party to terminate transactions early and settle at a net amount if a default or termination event occurs.

139

32. Provisions

US$m At 1 December 2013 Charged to the consolidated income statement Charged to other comprehensive income Exchange differences Released during the year Utilised during the year Other movements At 30 November 2014 Charged to the consolidated income statement Charged to other comprehensive income Exchange differences Released during the year Utilised during the year Other movements At 30 November 2015	Employee benefits 106 15 9 (3) (3) (3) 3 124 8 12 (9) (2) (19) 3 117	Other 81 61 – (2) (19) (32) – 89 89 – (4) (5) (40) (1) 128	Total 187 76 9 (5) (22) (35) 3
			213 97 12 (13) (7) (59) 2
			245

OTHER PROVISIONS

Other provisions comprise provisions in respect of regulatory matters, litigation, reorganisation and restructuring. In view of the diverse nature of the matters provided for and the contingent nature of the matters to which they relate, the Group is unable to provide an accurate assessment of the term over which provisions are expected to be utilised.

33. Other liabilities

Other liabilities
US$m Trade and other payables Third-party interests in consolidated investment funds Reinsurance payables Total	As at 30 November 2015 3,032 1,214 411 4,657	As at 30 November 2014 2,926 1,221 395
		4,542

Third-party interests in consolidated investment funds consist of third-party unit holders’ interests in consolidated investment funds which are reflected as a liability since they can be put back to the Group for cash.

Trade and other payables are generally expected to be settled within 12 months after the end of the reporting period. The realisation of third-party interests in investment funds cannot be predicted with accuracy since these represent the interests of third-party unit holders in consolidated investment funds held to back insurance and investment contract liabilities and are subject to market risk and the actions of third-party investors.

140

34. Share capital and reserves

SHARE CAPITAL

At beginning of the financial year Transfers from share premium on 3 March 2014 Shares issued under share option scheme and agency share purchase plan At end of the financial year	As at 30 November 2015 Million shares US$m 12,045 13,962 – – 3 9 12,048 13,971	As at 30 November 2014 Million shares US$m 12,044 12,044 – 1,914 1 4 12,045 13,962	As at 30 November 2014 Million shares US$m 12,044 12,044 – 1,914 1 4 12,045 13,962
			13,962

The Company issued 2,190,404 shares under share option schemes (2014: 1,117,224 shares) and 1,041,690 shares under agency share purchase plan (2014: nil) during the year ended 30 November 2015.

The Company and its subsidiaries have not purchased, sold or redeemed any of the Company’s shares during the year ended 30 November 2015 with the exception of 16,867,524 shares (2014: 19,404,804 shares) of the Company purchased by and 204,295 shares (2014: 320,390 shares) of the Company sold by the employee share-based trusts. These purchases were made by the relevant scheme trustees on the Hong Kong Stock Exchange. These shares are held on trust for participants of the relevant schemes and therefore were not cancelled.

During the year ended 30 November 2015, 14,734,751 shares (2014: 20,464,365 shares) were transferred to eligible directors, officers and employees of the Group from the employee sharebased trusts under share-based compensation plans as a result of vesting. As at 30 November 2015, 75,147,538 shares (2014: 73,219,060 shares) of the Company were held by the employee share-based trusts.

The transfer of share premium to share capital resulted from the abolition of nominal value of shares under the Hong Kong Companies Ordinance (Cap. 622) which is effective from 3 March 2014. There is not any impact on the number of shares in issue or the relative entitlement of any of the members as a result of this transition.

RESERVES

Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available for sale securities held at the end of the reporting period.

Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign currency exchange differences arising from the translation of the financial statements of foreign operations.

Employee share-based trusts

Trusts have been established to acquire shares of the Company for distribution to participants in future periods through the share-based compensation schemes. Those shares acquired by the trusts, to the extent not transferred to the participants upon vesting, are reported as “Employee share-based trusts”.

Other reserves

Other reserves mainly include the impact of merger accounting for business combinations under common control and share-based compensation.

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35. Non-controlling interests

US$m Equity shares in subsidiaries Share of earnings Share of other reserves Total	As at 30 November 2015 59 57 23 139	As at 30 November 2014 59 52 38 149

36. Group capital structure

CAPITAL MANAGEMENT APPROACH

The Group’s capital management objectives focus on maintaining a strong capital base to support the development of its business, maintaining the ability to move capital freely and satisfying regulatory capital requirements at all times.

The Group’s capital management function oversees all capital-related activities of the Group and assists senior management in making capital decisions. The capital management function participates in decisions concerning asset-liability management, strategic asset allocation and ongoing solvency management. This includes ensuring capital considerations are paramount in the strategy and business planning processes and when determining the AIA’s capacity to pay dividends to shareholders.

REGULATORY SOLVENCY

The Group is in compliance with the solvency and capital adequacy requirements applied by its regulators. The Group’s primary insurance regulator at the AIA Company Limited (AIA Co.) and AIA International Limited (AIA International) levels is the Hong Kong Office of the Commissioner of Insurance (HKOCI), which requires that AIA Co. and AIA International meet the solvency margin requirements of the Hong Kong Insurance Companies Ordinance (HKICO). The HKICO (among other matters) sets minimum solvency margin requirements that an insurer must meet in order to be authorised to carry on insurance business in or from Hong Kong. The HKOCI requires AIA Co. and AIA International to maintain an excess of assets over liabilities of not less than the required minimum solvency margin. The amount required under the HKICO is 100 per cent of the required minimum solvency margin. The excess of assets over liabilities to be maintained by AIA Co. and AIA International required by the HKOCI is not less than 150 per cent of the required minimum solvency margin.

The capital positions of the Group’s two principal operating companies as of 30 November 2015 and 2014 are as follows:

	30	November 2015		30	November 2014
	Total	Regulatory		Total	Regulatory
	available	minimum	Solvency	available	minimum	Solvency
US$m	capital	capital	ratio	capital	capital	ratio
AIA Co.	6,761	1,579	428%	6,730	1,577	427%
AIA International	6,388	1,794	356%	6,319	1,641	385%

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For these purposes, the Group defines total available capital as the amount of assets in excess of liabilities measured in accordance with the HKICO and “regulatory minimum capital” as the required minimum margin of solvency calculated in accordance with the HKICO. The solvency ratio is the ratio of total available capital to regulatory minimum capital.

The Group’s individual branches and subsidiaries are also subject to the supervision of government regulators in the jurisdictions in which those branches and subsidiaries operate and, in relation to subsidiaries, in which they are incorporated. The various regulators overseeing the Group actively monitor our local solvency positions. AIA Co. and AIA International submit annual filings to the HKOCI of their solvency margin position based on their annual audited financial statements, and the Group’s other operating units perform similar annual filings with their respective local regulators.

The ability of the Company to pay dividends to shareholders and to meet other obligations depends ultimately on dividends and other payments being received from its operating subsidiaries and branches, which are subject to contractual, regulatory and other limitations. The various regulators overseeing the individual branches and subsidiaries of the Group have the discretion to impose additional restrictions on the ability of those regulated subsidiaries and branches to make payment of dividends or other distributions and payments to AIA Co., including increasing the required margin of solvency that an operating unit must maintain. For example, capital may not be remitted without the consent from regulators for certain individual branches or subsidiaries of the Group. The payment of dividends, distributions and other payments to shareholders is subject to the oversight of the HKOCI.

CAPITAL AND REGULATORY ORDERS SPECIFIC TO THE GROUP

As of 30 November 2015, the requirements and restrictions summarised below may be considered material to the Group and remain in effect unless otherwise stated.

Hong Kong Office of the Commissioner of Insurance

AIA Group Limited has given to the Insurance Authority an undertaking that AIA Group Limited will:

(i) ensure that (a) AIA Co. and AIA International will at all times maintain a solvency ratio of not less than 150 per cent, both on an individual insurer basis and on an AIA Co./ AIA International consolidated basis; (b) it will not withdraw capital or transfer any funds or assets out of either AIA Co. or AIA International that will cause AIA Co.’s or AIA International’s solvency ratio to fall below 150 per cent, except with, in either case, the prior written consent of the Insurance Authority; and (c) should the solvency ratio of either AIA Co. or AIA International fall below 150 per cent, AIA Group Limited will take steps as soon as possible to restore it to at least 150 per cent in a manner acceptable to the Insurance Authority;
(ii) notify the Insurance Authority in writing as soon as the Company becomes aware of any person (a) becoming a controller (within the meaning of Section 9(1)(c)(ii) of the HKICO) of AIA Co. and AIA International through the acquisition of our shares traded on the HKSE; or (b) ceasing to be a controller (within the meaning of Section 9(1)(c)(ii) of the HKICO) of AIA Co. and AIA International through the disposal of our shares traded on the HKSE;

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(iii) be subject to the supervision of the Insurance Authority and AIA Group Limited will be required to continually comply with the Insurance Authority’s guidance on the “fit and proper” standards of a controller pursuant to Section 8(2) of the HKICO. The Insurance Authority is empowered by the HKICO to raise objection if it appears to it that any person is not fit and proper to be a controller or director of an authorised insurer. These standards include the sufficiency of a holding company’s financial resources; the viability of a holding company’s business plan for its insurance subsidiaries which are regulated by the Insurance Authority; the clarity of the Group’s legal, managerial and operational structures; the identities of any other holding companies or major regulated subsidiaries; whether the holding company, its directors or controllers is subject to receivership, administration, liquidation or other similar proceedings or failed to satisfy any judgement debt under a court order or the subject of any criminal convictions or in breach of any statutory or regulatory requirements; the soundness of the Group’s corporate governance; the soundness of the Group’s risk management framework; the receipt of information from its insurance subsidiaries which are regulated by the Insurance Authority to ensure that they are managed in compliance with applicable laws, rules and regulation; and its role in overseeing and managing the operations of its insurance subsidiaries which are regulated by the Insurance Authority; and
(iv) fulfil all enhancements or improvements to the guidance referred to in subparagraph (iii) above, as well as administrative measures issued from time to time by the Insurance Authority or requirements that may be prescribed by the Insurance Authority in accordance with the HKICO, regulations under the HKICO or guidance notes issued by the Insurance Authority from time to time.

37. Risk management

RISK MANAGEMENT FRAMEWORK

AIA recognises the importance of sound risk management in every aspect of our business and for all our stakeholders. The Risk Management Framework (RMF) provides the structure for identifying, quantifying and mitigating risk across the Group. An effective RMF is the key to avoiding the financial and reputational damage that arises from inadequate or ineffective control of the risks in the business.

INSURANCE RISK

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Management of insurance risk starts with product design. Ensuring products meet customer needs, are fairly priced and clearly understood is the best guarantee of persistency and customer satisfaction.

The Group manages product design risk through the New Product Approval Process where products are reviewed against pricing, design and operational risk benchmarks agreed by the Group’s Financial Risk Committee (FRC). Local business units work closely with a number of Group functions including product management, actuarial, legal, risk & compliance and underwriting. The Group monitors the performance of new products and focuses on actively managing each part of the actuarial control cycle to minimise risk in the in-force book as well as for new products.

Lapse

The risk arises from changes in the rates of policy termination or renewal.

Risk & compliance monitor persistency closely through the Business Quality Framework, a joint endeavour of First and Second Line functions to understand and mitigate the causes of lapse and to protect the Group against potential misconduct.

Expense

Morbidity and Mortality

Reinsurance is used to reduce concentration and volatility risk, especially with large policies or new risks, and as protection against catastrophic events such as pandemics or natural disasters.

145

INVESTMENT AND FINANCIAL RISKS

Financial risk is the potential loss resulting from adverse movements in financial markets, changes in the financial condition of counterparties and in market liquidity to buy and sell investments. The Group is exposed to a range of investment and financial risks, including credit risk, market risk and liquidity risk. The Group manages its exposure to investment and financial risk within tolerances agreed by the FRC.

The following section summarises the Group’s key risk exposures and the primary policies and processes used by the Group to manage its exposures to these risks.

Credit risk

The resulting matrix of limits is refreshed annually and approved by the Group FRC. These limits cover individual counterparty, segmental concentration and cross-border exposures.

Interest rate risk

The impact of options and guarantees can further complicate the picture, with a need to consider the impact of both rising and falling interest rates.

146

Exposure to interest rate risk is summarised below, which shows the split of financial assets and liabilities between variable, fixed and non-interest bearing investments.

Exposure to interest rate risk

The table below summarises the nature of the interest rate risk associated with financial assets and financial liabilities. In preparing this analysis, fixed rate interest bearing instruments that mature or reprice within 12 months of the reporting date have been disclosed as variable rate instruments.

US$m 30 November 2015 Financial assets Loans and deposits Other receivables Debt securities Equity securities Reinsurance receivables Accrued investment income Cash and cash equivalents Derivative financial instruments Total financial assets Financial liabilities Investment contract liabilities Borrowings Obligations under securities lending and repurchase agreements Other liabilities Derivative financial instruments Total financial liabilities	Variable interest rate 1,009 183 7,680 – – – 1,826 – 10,698 – 472 3,085 15 – 3,572	Fixed interest rate 6,170 – 96,960 – – – – – 103,130 – 2,723 – – – 2,723	Non-interest bearing 32 1,458 – 27,159 257 1,350 166 73 30,495 7,116 – – 4,642 695 12,453	Total 7,211 1,641 104,640 27,159 257 1,350 1,992 73
				144,323

				7,116 3,195 3,085 4,657 695
				18,748

147

US$m 30 November 2014 Financial assets Loans and deposits Other receivables Debt securities Equity securities Reinsurance receivables Accrued investment income Cash and cash equivalents Derivative financial instruments Total financial assets Financial liabilities Investment contract liabilities Borrowings Obligations under securities lending and repurchase agreements Other liabilities Derivative financial instruments Total financial liabilities Equity price risk	Variable interest rate 1,062 18 7,156 – – – 1,674 – 9,910 – 958 3,753 159 – 4,870	Fixed interest rate 6,570 – 94,907 – – – – – 101,477 – 1,976 – – – 1,976	Non-interest bearing 22 1,589 – 28,827 240 1,345 161 265 32,449 7,937 – – 4,383 211 12,531	Total 7,654 1,607 102,063 28,827 240 1,345 1,835 265
				143,836

				7,937 2,934 3,753 4,542 211
				19,377

The extent of exposure to equities at any time is at the discretion of the Investment Department operating within the terms of the Group’s and local business units’ strategic asset allocations.

Equity price risk is managed in the first instance through the individual investment mandates which define benchmarks and any tracking error targets. Equity limits are also applied at Group, Business Unit and individual fund levels to contain individual exposures. Equity exposures are included in the aggregate credit exposure reports on individual counterparties to ensure concentrations are avoided.

148

Sensitivity analysis

Sensitivity analysis to the key variables affecting financial assets and liabilities is set out in the table below. Information relating to sensitivity of insurance and investment contracts with DPF is provided in note 28. The carrying values of other financial assets are not subject to changes in response to movements in interest rates or equity prices. In calculating the sensitivity of debt and equity instruments to changes in interest rates and equity prices, the Group has made assumptions about the corresponding impact of asset valuations on liabilities to policyholders. Assets held to support unit-linked contracts have been excluded on the basis that changes in fair value are wholly borne by policyholders. Sensitivity analysis for assets held in participating funds has been calculated after allocation of returns to policyholders using the applicable minimum policyholders’ participation ratios described in note 2. Information is presented to illustrate the estimated impact on profits and net assets arising from a change in a single variable before taking into account the effects of taxation.

The impact of any impairments of financial assets has been ignored for the purpose of illustrating the sensitivity of profit before tax and net assets before the effects of taxation to changes in interest rates and equity prices on the grounds that default events reflect the characteristics of individual issuers. Because the Group’s accounting policies lock in interest rate assumptions on policy inception and the Group’s assumptions incorporate a provision for adverse deviations, the level of movement illustrated in this sensitivity analysis does not result in loss recognition and so there is not any corresponding effect on liabilities.

	30 November 2015	30 November 2015	30 November 2014	30 November 2014
		Impact on		Impact on
		net assets		net assets
	Impact	(before the	Impact	(before the
	on profit	effects of	on profit	effects of
US$m	before tax	taxation)	before tax	taxation)
Equity price risk
10 per cent increase in equity prices	792	792	836	836
10 per cent decrease in equity prices	(792)	(792)	(836)	(836)
Interest rate risk
+ 50 basis points shift in yield curves	(127)	(4,115)	(121)	(3,868)
- 50 basis points shift in yield curves	127	4,115	121	3,868

Foreign exchange rate risk

Foreign exchange rate risk is managed in AIA on various levels. The balance sheet values of our operating units and subsidiaries are not hedged to the Group’s reporting currency, US dollar.

However, assets, liabilities and all regulatory and stress capital in each BU are generally currency matched with the exception of holdings of foreign equities, or any expected capital movements due within one year which may be hedged at the discretion of Group management. Foreign bond holdings are commonly hedged with cross-currency swaps or foreign exchange forward contracts.

This approach applies to the matching of US dollar and HK dollar assets and liabilities in the Hong Kong businesses.

Financial Resources held at Group are normally held in US dollars. No attempt is made to match the currency of such capital to the currency of AIA’s Required Economic or Hong Kong regulatory capital.

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Foreign exchange rate net exposure

US$m 30 November 2015 Equity analysed by original currency Net notional amounts of currency derivative positions Currency exposure 5% strengthening of original currency Impact on profit before tax Impact on other comprehensive income Impact on total equity 5% strengthening of the US dollar Impact on profit before tax Impact on other comprehensive income Impact on total equity	United States Dollar 18,726 (6,617) 12,109 134 (157) (23) 134 (157) (23)	Hong Kong Dollar 809 601 1,410 10 23 33 24 (57) (33)	Thai Baht 2,195 1,818 4,013 5 195 200 (4) (196) (200)	Singapore Dollar (2,841) 2,698 (143) 25 (33) (8) (10) 18 8	Malaysian Ringgit 1,911 (177) 1,734 (7) 94 87 9 (96) (87)	China Renminbi 3,420 (21) 3,399 21 149 170 (15) (155) (170)	Korean Won 1,855 986
							2,841

							30 112
							142

							(21) (121)
							(142)

150

US$m 30 November 2014 Equity analysed by original currency Net notional amounts of currency derivative positions Currency exposure 5% strengthening of original currency Impact on profit before tax Impact on other comprehensive income Impact on total equity 5% strengthening of the US dollar Impact on profit before tax Impact on other comprehensive income Impact on total equity	United States Dollar 19,256 (6,180) 13,076 144 (144) – 144 (144) –	Hong Kong Dollar 309 601 910 17 (8) 9 8 (17) (9)	Thai Baht 3,189 1,665 4,854 5 238 243 (4) (239) (243)	Singapore Dollar (2,472) 3,228 756 26 11 37 (9) (28) (37)	Malaysian Ringgit 1,535 – 1,535 2 75 77 (1) (76) (77)	China Renminbi 2,575 19 2,594 23 107 130 (16) (114) (130)	Korean Won 2,306 573
							2,879

							30 114
							144

							(24) (120)
							(144)

Liquidity risk

AIA identifies liquidity risk as occurring in two ways, financial liquidity risk and investment liquidity risk.

Financial liquidity risk is the risk that insufficient cash is available to meet payment obligations to counterparties as they fall due. While life insurance companies are generally well placed to manage financial liquidity risk on account of the tenor of their liabilities the experience of the Global Financial Crisis shows the need to be able to withstand extreme liquidity shocks.

One area of particular focus in the management of financial liquidity is collateral. Again the Global Financial Crisis exposed the risk to financial institutions from their commitments to post collateral to counterparties.

However, investment liquidity risk has become more significant since the Global Financial Crisis as new regulations have led banks and dealers to reduce inventory levels and market-making activity.

151

US$m 30 November 2015 Financial assets Loans and deposits Other receivables Debt securities Equity securities Reinsurance receivables Accrued investment income Cash and cash equivalents Derivative financial instruments Total Financial and insurance contract liabilities Insurance and investment contract liabilities (net of reinsurance) Borrowings Obligations under securities lending and repurchase agreements Other liabilities Derivative financial instruments Total	Total 7,211 1,641 104,640 27,159 257 1,350 1,992 73 144,323 121,501 3,195 3,085 4,657 695 133,133	No fixed maturity 2,385 53 – 27,159 – 8 – – 29,605 – – – 1,214 – 1,214	Due in one year or less 808 1,536 3,782 – 257 1,341 1,992 43 9,759 (1,020) 150 3,085 3,365 28 5,608	Due after one year through five years 1,385 49 16,964 – – 1 – 23 18,422 483 1,318(1) – 45 259 2,105	Due after five years through ten years 458 2 28,386 – – – – 6 28,852 6,910 1,240 – 3 398 8,551	Due after ten years 2,175 1 55,508 – – – – 1 57,685 115,128 487 – 30 10 115,655

Note:

(1) Includes amounts of US$995m falling due after 2 years through 5 years.

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US$m 30 November 2014 Financial assets Loans and deposits Other receivables Debt securities Equity securities Reinsurance receivables Accrued investment income Cash and cash equivalents Derivative financial instruments Total Financial and insurance contract liabilities Insurance and investment contract liabilities (net of reinsurance) Borrowings Obligations under securities lending and repurchase agreements Other liabilities Derivative financial instruments Total	Total 7,654 1,607 102,063 28,827 240 1,345 1,835 265 143,836 119,592 2,934 3,753 4,542 211 131,032	No fixed maturity 2,437 48 – 28,827 – 4 – – 31,316 – – – 1,221 – 1,221	Due in one year or less 797 1,525 3,322 – 240 1,335 1,835 102 9,156 (967) 410 3,753 3,248 13 6,457	Due after one year through five years 1,477 25 18,724 – – 6 – 151 20,383 937 1,537(1) – 33 58 2,565	Due after five years through ten years 602 2 26,689 – – – – 7 27,300 8,763 497 – 1 132 9,393	Due after ten years 2,341 7 53,328 – – – – 5 55,681 110,859 490 – 39 8 111,396

Note:

(1) Includes amounts of US$1,390m falling due after 2 years through 5 years.

38. Employee benefits

DEFINED BENEFIT PLANS

The Group operates funded and unfunded defined benefit plans that provide life and medical benefits for participating employees after retirement and a lump sum benefit on cessation of employment. The locations covered by these plans include Hong Kong, Singapore, Malaysia, Thailand, Taiwan, Indonesia, the Philippines, Sri Lanka, Korea and Vietnam. The latest independent actuarial valuations of the plans were at 30 November 2015 and were prepared by credentialed actuaries. All the actuaries are qualified members of professional actuarial organisations to render the actuarial opinions. The actuarial valuations indicate that the Group’s obligations under these defined benefit retirement plans are 41 per cent (2014: 46 per cent) covered by the plan assets held by the trustees. The fair value of plan assets as at year end at the date of valuation was US$63m (2014: US$83m). The total expenses relating to these plans recognised in the consolidated income statement was US$8m (2014: US$14m).

DEFINED CONTRIBUTION PLANS

The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current year was US$60m (2014: US$60m). Employees and the employer are required to make monthly contributions equal to 1 per cent to 22 per cent of the employees’ monthly basic salaries, depending on years of service and subject to any applicable caps of monthly relevant income in different jurisdictions. For defined contribution pension plans with vesting conditions, any forfeited contributions by employers on behalf of employees who leave the scheme prior to vesting fully in such contributions are used by the employer to reduce any future contributions. The amount of forfeited contributions used to reduce the existing level of contributions is not material.

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39. Share-based compensation

SHARE-BASED COMPENSATION PLANS

During the year ended 30 November 2015, the Group made further awards of share options, restricted share units (RSUs) and restricted stock purchase units to certain directors, officers and employees of the Group under the Share Option Scheme (SO Scheme), the Restricted Share Unit Scheme (RSU Scheme) and the Employee Share Purchase Plan (ESPP). In addition, the Group made further awards of restricted stock subscription units to eligible agents under the Agency Share Purchase Plan (ASPP).

RSU SCHEME

Under the RSU Scheme, the vesting of the awarded RSUs is conditional upon the eligible participants remaining in employment with the Group during the respective vesting periods. RSU awards are vested either entirely after a specific period of time or in tranches over the vesting period. For RSU awards that are vested in tranches, each vesting tranche is accounted for as a separate award for the purposes of recognising the expense over the vesting period. For certain RSUs, performance conditions are also attached which include both market and non-market conditions. RSUs subject to performance conditions are released to the participants at the end of the vesting period depending on the actual achievement of the performance conditions. During the vesting period, the participants are not entitled to dividends of the underlying shares. Except in jurisdictions where restrictions apply, the awarded RSUs are expected to be settled in equity; awards that the Group has the legal or constructive obligation to settle in cash are insignificant to the Group. The maximum number of shares that can be awarded under this scheme is 301,100,000 (2014: 301,100,000), representing 2.5 per cent (2014: 2.5 per cent) of the number of shares in issue at 30 November 2015.

Number of shares Restricted Share Units Outstanding at beginning of financial year Awarded Forfeited Vested Outstanding at end of financial year	Year ended 30 November 2015 58,590,419 17,933,566 (8,785,462) (14,087,745) 53,650,778	Year ended 30 November 2014 64,002,086 19,086,387 (4,585,447) (19,912,607) 58,590,419

SO Scheme

The objectives of the SO Scheme are to align eligible participants’ interests with those of the shareholders of the Company by allowing eligible participants to share in the value created at the point they exercise their options. Share option (SO) awards are vested either entirely after a specific period of time or in tranches over the vesting period approximately three to five years, during which, the eligible participants are required to remain in employment with the Group. For SO awards vested in tranches, each vesting tranche is accounted for as a separate award for the purposes of recognising the expense over the vesting period. The awarded share options expire 10 years from the date of grant and each share option entitles the eligible participant to subscribe for one ordinary share. Except in jurisdictions where restrictions apply, the awarded share options are expected to be settled in equity; awards that the Group has the legal or constructive obligation to settle in cash are insignificant to the Group. The total number of shares under options that can be awarded under the scheme is 301,100,000 (2014: 301,100,000), representing 2.5 per cent (2014: 2.5 per cent) of the number of shares in issue at 30 November 2015.

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Information about share options outstanding and share options exercisable by the Group’s employees and directors as at the end of the reporting period is as follows:

Share options Outstanding at beginning of financial year Awarded Exercised Forfeited or expired Outstanding at end of financial year Share options exercisable at end of financial year	Year ended 30 November 2015 Number of share options Weighted average exercise price (HK$) 37,105,919 30.67 5,937,871 47.73 (2,190,404) 27.68 (395,282) 35.48 40,458,104 33.29 17,817,979 27.71	Year ended 30 November 2014 Number of share options Weighted average exercise price (HK$) 32,291,121 29.08 6,678,445 37.65 (1,117,224) 27.35 (746,423) 29.34 37,105,919 30.67 9,663,878 27.36

The weighted average share price of the Company at the date the share option was exercised was HK$48.32 for the year ended 30 November 2015 (2014: HK$39.68).

The range of exercise prices for the share options outstanding as of 30 November 2015 and 2014 is summarised in the table below.

Range of exercise price HK$26 – HK$35 HK$36 – HK$45 HK$46 – HK$55 Outstanding at end of financial year	Year ended 30 November 2015 Number of share options outstanding Weighted average remaining contractual life (years) 28,008,527 6.09 6,550,428 8.27 5,899,149 9.28 40,458,104 6.91	Year ended 30 November 2014 Number of share options outstanding Weighted average remaining contractual life (years) 30,427,474 7.07 6,678,445 9.27 – – 37,105,919 7.47

ESPP

Under the plan, eligible employees of the Group can purchase ordinary shares of the Company with qualified employee contributions and the Company will award one matching restricted stock purchase unit to them at the end of the vesting period for each two shares purchased through the qualified employee contributions (contribution shares). Contribution shares are purchased from the open market. During the vesting period, the eligible employees must hold the contribution shares purchased during the plan cycle and remain employed by the Group. The level of qualified employee contribution is limited to not more than 5 per cent of the annual basic salary subject to a maximum of US$15,000 per annum. The awarded matching restricted stock purchase units are expected to be settled in equity. For the year ended 30 November 2015, eligible employees paid US$12m (2014: US$10m) to purchase 1,962,088 ordinary shares (2014: 1,893,088 ordinary shares) of the Company.

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ASPP

The structure of the ASPP generally follows that of the ESPP, the key difference being that the eligible agents are required to pay a subscription price of US$1 to subscribe for each new share in the Company at the end of the vesting period. Under the plan, eligible agents of the Group can purchase ordinary shares of the Company with qualified agent contributions and the Company will award one matching restricted stock subscription unit to them at the end of the vesting period for each two shares purchased through the qualified agent contributions (agent contribution shares). Each restricted stock subscription unit entitles eligible agents to subscribe for one new share of the Company. Agent contribution shares are purchased from the open market. During the vesting period, the eligible agents must hold the contribution shares purchased during the plan cycle and maintain their agent contracts with the Group. The awarded matching restricted stock subscription units are expected to be settled in equity. The level of qualified agent contribution is subject to a maximum of US$15,000 per annum. For the year ended 30 November 2015, eligible agents paid US$14m (2014: US$12m) to purchase 2,361,838 ordinary shares (2014: 2,222,176 ordinary shares) of the Company.

VALUATION METHODOLOGY

The Group utilises a binomial lattice model to calculate the fair value of the share option awards, a Monte-Carlo simulation model and/or discounted cash flow technique to calculate the fair value of the RSU, ESPP and ASPP awards, taking into account the terms and conditions upon which the awards were made. The price volatility is estimated on the basis of implied volatility of the Company’s shares which is based on an analysis of historical data since they are traded in the Hong Kong Stock Exchange. The expected life of the share options is derived from the output of the valuation model and is calculated based on an analysis of expected exercise behaviour of the Company’s employees. The estimate of market condition for performance-based RSUs is based on one-year historical data preceding the grant date. An allowance for forfeiture prior to vesting is not included in the valuation of the awards.

The fair value calculated for share options is inherently subjective due to the assumptions made and the limitations of the model utilised.

		Year ended 30	November 2015
			ESPP	ASPP
			Restricted	Restricted
			stock	stock
	Share	Restricted	purchase	subscription
	options	share units	units	units
Assumptions
Risk-free interest rate	1.61%	*0.56% – 0.80% **	0.44% – 0.90%	0.85%
Volatility	20%	20%	20% – 25%	20%
Dividend yield	1.2%	1.2%	1.2%	1.2%
Exercise price (HK$)	47.73	n/a	n/a	n/a
Share option life (in years)	10	n/a	n/a	n/a
Expected life (in years)	7.94	n/a	n/a	n/a
Weighted average fair value
per option/unit at measurement
date (HK$)	10.15	39.27	41.67	35.98

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		Year ended 30	November 2014
			ESPP	ASPP
			Restricted	Restricted
			stock	stock
	Share	Restricted	purchase	subscription
	options	share units	units	units
Assumptions
Risk-free interest rate	2.14% – 2.22%	0.51% – 0.59%*	0.37% – 0.94%	0.64%
Volatility	25%	25%	25% – 26%	25%
Dividend yield	1.2%	1.2%	1.2%	1.2%
Exercise price (HK$)	37.56 – 39.45	n/a	n/a	n/a
Share option life (in years)	10	n/a	n/a	n/a
Expected life (in years)	7.54	n/a	n/a	n/a
Weighted average fair value
per option/unit at measurement
date (HK$)	10.43	30.77	38.85	30.64

Applicable to RSU with market conditions.

The weighted average share price for share option valuation for awards made during the year ended 30 November 2015 is HK$47.15 (2014: HK$37.50). The total fair value of share options awarded during the year ended 30 November 2015 is US$8m (2014: US$9m).

RECOGNISED COMPENSATION COST

The total recognised compensation cost (net of expected forfeitures) related to various sharebased compensation awards made under the RSU Scheme, SO Scheme, ESPP and ASPP by the Group for the year ended 30 November 2015 is US$79m (2014: US$84m).

40. Remuneration of directors and key management personnel

DIRECTORS’ REMUNERATION

The Executive Director receives compensation in the form of salaries, bonuses, contributions to pension schemes, long-term incentives, housing and other allowances, and benefits in kind subject to applicable laws, rules and regulations. Bonuses and long-term incentives represent the variable components in the Executive Director’s compensation and are linked to the performance of the Group and the Executive Director. Details of share-based payment schemes are described in note 39.

US$ Year ended 30 November 2015 Executive Director Mr. Mark Edward Tucker Total	Director’s fees Salaries, allowances and benefits in kind(1) – 2,130,577 – 2,130,577	Bonuses 4,414,600 4,414,600	Share- based payments(2) Pension scheme contribution 8,343,876 105,833 8,343,876 105,833	Other benefits – –	Inducement fees – –	Total 14,994,886
						14,994,886

Notes:

(1) It includes non-cash benefits for housing, medical and life insurance, children education, club and professional membership, company car and perquisites.

(2) Include SOs and RSUs awarded based upon the fair value at grant date assuming maximum performance levels are achieved.

157

US$ Year ended 30 November 2014 Executive Director Mr. Mark Edward Tucker Total	Director’s fees Salaries, allowances and benefits in kind(1) – 2,052,688 – 2,052,688	Bonuses 4,244,400 4,244,400	Share- based payments(2) Pension scheme contribution 8,896,950 83,876 8,896,950 83,876	Other benefits – –	Inducement fees – –	Total 15,277,914
						15,277,914

Notes:

(1) It includes non-cash benefits for housing, medical and life insurance, children education, club and professional membership and company car.
(2) Include SOs and RSUs awarded based upon the fair value at grant date assuming maximum performance levels are achieved.

The remuneration of Non-executive Director and Independent Non-executive Directors of the Company at 30 November 2015 and 2014 are included in the tables below:

US$ Year ended 30 November 2015 Non-executive Director Mr. Edmund Sze-Wing Tse(2) Independent Non-executive Directors Mr. Jack Chak-Kwong So Mr. Chung-Kong Chow Mr. John Barrie Harrison Mr. George Yong-Boon Yeo Mr. Mohamed Azman Yahya Professor Lawrence Juen-Yee Lau Ms. Swee-Lian Teo(3) Total	Director’s fees Salaries, allowances and benefits in kind(1) 573,388 95,383 220,000 – 205,000 – 235,000 – 210,000 – 185,000 – 190,000 – 56,740 – 1,875,128 95,383	Bonuses – – – – – – – – –	Share- based payments Pension scheme contribution – – – – – – – – – – – – – – – – – –	Other benefits – – – – – – – – –	Inducement fees – – – – – – – – –	Total 668,771 220,000 205,000 235,000 210,000 185,000 190,000 56,740
						1,970,511

Notes:

(1) It includes non-cash benefits for housing, club membership and medical insurance and company car.
(2) US$22,388 which represents remuneration to Mr. Edmund Sze-Wing Tse in respect of his services as director of a subsidiary of the Company is included in his fees.
(3) Ms. Swee-Lian Teo was appointed as Independent Non-executive Director of the Company on 14 August 2015.

158

US$ Year ended 30 November 2014 Non-executive Director Mr. Edmund Sze-Wing Tse(2) Independent Non-executive Directors Mr. Jack Chak-Kwong So Mr. Chung-Kong Chow Mr. John Barrie Harrison Mr. George Yong-Boon Yeo Mr. Mohamed Azman Yahya(3) Professor Lawrence Juen-Yee Lau(3) Dr. Qin Xiao(4) Dr. Narongchai Akrasanee(4) Total	Director’s fees Salaries, allowances and benefits in kind(1) 575,126 92,883 220,000 – 205,000 – 235,000 – 207,425 – 141,918 – 38,521 – 91,233 – 142,630 – 1,856,853 92,883	Bonuses – – – – – – – – – –	Share- based payments Pension scheme contribution – – – – – – – – – – – – – – – – – – – –	Other benefits – – – – – – – – – –	Inducement fees – – – – – – – – – –	Total 668,009 220,000 205,000 235,000 207,425 141,918 38,521 91,233 142,630
						1,949,736

Notes:

(1) It includes non-cash benefits for housing, club membership and medical insurance and company car.
(2) US$24,126 which represents remuneration to Mr. Edmund Sze-Wing Tse in respect of his services as director of a subsidiary of the Company is included in his fees.
(3) Mr. Mohamed Azman Yahya and Professor Lawrence Juen-Yee Lau were appointed as Independent Nonexecutive Directors of the Company on 24 February 2014 and 18 September 2014, respectively.
(4) Dr. Qin Xiao and Dr. Narongchai Akrasanee resigned as Independent Non-executive Directors of the Company with effect from 30 May 2014 and 1 September 2014, respectively.

REMUNERATION OF FIVE HIGHEST-PAID INDIVIDUALS

The aggregate remuneration of the five highest-paid individuals employed by the Group in each of the years ended 30 November 2015 and 2014 is presented in the table below.

		Salaries,
		allowances		Share-	Pension
	Director’s	and benefits		based	scheme	Other	Inducement
US$	fees	in kind(1)	Bonuses	payments(2)	contribution	benefits	fees	Total
Year ended
30 November 2015	–	7,214,483	8,937,600	16,712,069	262,242	–	–	33,126,394
30 November 2014	–	5,840,510	8,584,077	18,816,073	197,286	–	–	33,437,946

Notes:

(1) 2015 non-cash benefits include housing, medical and life insurance, medical check-up, children education, club and professional membership, company car and perquisites.
2014 non-cash benefits include housing, medical and life insurance, children education, club and professional membership, company car and perquisites.
(2) Include SOs and RSUs awarded to the five highest-paid individuals based upon the fair value at grant date assuming maximum performance levels are achieved.

159

The emoluments of the five individuals with the highest emoluments are within the following bands:

	Year ended	Year ended
	30 November	30 November
HK$	2015	2014
27,500,001 to 28,000,000	–	1
28,000,001 to 28,500,000	1	–
28,500,001 to 29,000,000	–	1
33,500,001 to 34,000,000	1	–
37,000,001 to 37,500,000	–	1
38,000,001 to 38,500,000	1	–
40,000,001 to 40,500,000	1	–
46,500,001 to 47,000,000	–	1
116,000,001 to 116,500,000	1	–
118,000,001 to 118,500,000	–	1

KEY MANAGEMENT PERSONNEL REMUNERATION

Key management personnel have been identified as the members of the Group’s Executive Committee.

US$ Key management compensation and other expenses Salaries and other short-term employee benefits Post-employment benefits – defined contribution Post-employment benefits – medical & life Other long-term benefits Share-based payments(1) Total	Year ended 30 November 2015 25,821,543 501,124 – – 23,076,292 49,398,959	Year ended 30 November 2014 22,012,074 420,921 – – 24,031,010
		46,464,005

Note:

(1) Include SOs and RSUs awarded to the key management personnel based upon the fair value at grant date assuming maximum performance levels are achieved.

160

The emoluments of the Key Management Personnel are within the following bands:

	Year ended	Year ended
	30 November	30 November
US$	2015	2014
Below 1,000,000	1	–
1,000,001 to 2,000,000	4	2
2,000,001 to 3,000,000	2	–
3,000,001 to 4,000,000	2	5
4,000,001 to 5,000,000	2	1
5,000,001 to 6,000,000	1	–
6,000,001 to 7,000,000	–	1
Over 7,000,000	1	1

41. Related party transactions

Remuneration of directors and key management personnel is disclosed in note 40.

42. Commitments and contingencies

COMMITMENTS UNDER OPERATING LEASES

Total future aggregate minimum lease payments under non-cancellable operating leases are as follows:

US$m Properties and others expiring Not later than one year Later than one and not later than five years Later than five years Total	As at 30 November 2015 97 121 42 260	As at 30 November 2014 89 131 56
		276

The Group is the lessee in respect of a number of properties and items of office equipment held under operating leases. The leases typically run for an initial period of one to ten years, with an option to renew the lease when all terms are renegotiated. Lease payments are usually reviewed at the end of the lease term to reflect market rates. None of the leases include contingent rentals.

161

INVESTMENT AND CAPITAL COMMITMENTS

INVESTMENT AND CAPITAL COMMITMENTS
US$m Not later than one year Later than one and not later than five years Later than five years Total	As at 30 November 2015 523 3 – 526	As at 30 November 2014 427 6 –
		433

Investment and capital commitments consist of commitments to invest in private equity partnerships and other assets.

CONTINGENCIES

The Group is subject to regulation in each of the geographical markets in which it operates from insurance, securities, capital markets, pension, data privacy and other regulators and is exposed to the risk of regulatory actions in response to perceived or actual non-compliance with regulations relating to suitability, sales or underwriting practices, claims payments and procedures, product design, disclosure, administration, denial or delay of benefits and breaches of fiduciary or other duties. The Group believes that these matters have been adequately provided for in these financial statements.

The Group is exposed to legal proceedings, complaints and other actions from its activities including those arising from commercial activities, sales practices, suitability of products, policies and claims. The Group believes that these matters are adequately provided for in these financial statements.

The Group is the reinsurer in a residential mortgage credit reinsurance agreement covering residential mortgages in Australia. Due to a change in law, further cessions under this contract ended in July 2008. This reinsurance was fully retroceded to a subsidiary of American International Group, Inc. and this retrocession was terminated in February 2012 on a run-off basis. The Group is exposed to the risk of losses in the event of the failure of the counterparty retrocessionaire to honour its outstanding obligations which is mitigated by a trust agreement put in place after the aforesaid termination and a novation in September 2015 of the runoff obligations to another subsidiary within the American International Group, Inc. which in contrast to the prior retrocessionaire has an investment grade rating issued to it by credit rating agencies. The principal balance outstanding of mortgage loans to which the reinsurance agreement relates were approximately US$684m at 30 November 2015 (2014: US$924m). The liabilities and related reinsurance assets, which totalled US$4m (2014: US$4m), respectively, arising from these agreements are reflected and presented on a gross basis in these financial statements in accordance with the Group’s accounting policies. The Group expects to fully recover amounts outstanding at the reporting date under the terms of this agreement from the retrocessionaire.

162

43. Subsidiaries

The principal subsidiary companies which materially contribute to the net income of the Group or hold a material element of its assets and liabilities are:

				As	at		As	at
	Place of			30 November		2015	30 November		2014
	incorporation	Principal		Group’s		NCI’s	Group’s		NCI’s
Name of entity	and operation	activity	Issued share capital	interest %	interest %		interest %	interest		%
AIA Company Limited(1)	Hong Kong	Insurance	1,151,049,861 ordinary shares for	100%		–	100%			–
			US$5,962,084,000 issued share capital
AIA International Limited	Bermuda	Insurance	3,000,000 ordinary shares	100%		–	100%			–
			of US$1.20 each
AIA Australia Limited	Australia	Insurance	112,068,300 ordinary shares	100%		–	100%			–
			of A$1 each
AIA Pension and Trustee Co. Ltd.	British Virgin Islands	Trusteeship	1,300,000 ordinary shares	100%		–	100%			–
			of US$1 each
AIA Bhd.	Malaysia	Insurance	767,438,174 ordinary shares	100%		–	100%			–
			of RM1 each
AIA Singapore Private Limited	Singapore	Insurance	1,374,000,001 ordinary shares	100%		–	100%			–
			of S$1 each
PT. AIA Financial	Indonesia	Insurance	477,711,032 ordinary shares	100%		–	100%			–
			of Rp1,000 each
The Philippine American Life and	Philippines	Insurance	199,560,671 ordinary shares	100%		–	100%			–
General Insurance (PHILAM LIFE)			of PHP10 each and 439,329
Company			treasury shares
AIA (Vietnam) Life Insurance	Vietnam	Insurance	Contributed capital of	100%		–	100%			–
Company Limited			VND1,264,300,000,000
AIA Insurance Lanka PLC	Sri Lanka	Insurance	Contributed capital of LKR511,921,836	97.16%		2.84%	97.15%		2.85%
Bayshore Development Group	British Virgin Islands	Investment	100 ordinary shares of	90%		10%	90%		10%
Limited		holding	US$1 each
		company
BPI-Philam Life Assurance	Philippines	Insurance	749,993,979 ordinary shares of	51%		49%	51%		49%
Corporation			PHP1 each and 6,000
			treasury shares
AIA Reinsurance Limited	Bermuda	Reinsurance	250,000 common shares of US$1 each	100%		–	100%			–

Notes:

(1) The Company’s subsidiary.

(2) All of the above subsidiaries are audited by PricewaterhouseCoopers.

All subsidiaries are unlisted except AIA Insurance Lanka PLC which is listed on the Main Board of the Colombo Stock Exchange.

163

44. Change in group composition

DISPOSALS

On 23 October 2015, the Group disposed its entire interest in AIA General Insurance Lanka Limited, a wholly owned subsidiary of AIA Insurance Lanka PLC, for LKR3.2 billion (approximately US$22.7m). There was not any gain or loss on disposal of this subsidiary.

45. Events after the reporting period

On 7 December 2015, the Group announced an agreement, under which the Group will increase its shareholdering in Tata AIA Life Insurance Company Limited from the current level of 26 per cent to 49 per cent. The completion of the transaction is subject to securing all necessary regulatory and governmental approvals.

On 25 February 2016, the Board of Directors proposed a final dividend of 51.00 Hong Kong cents per share (2014: 34.00 Hong Kong cents per share).

46. Statement of financial position of the Company

US$m Assets Investment in a subsidiary Deposits Available for sale – debt securities Loans to/amounts due from subsidiaries Other assets Cash and cash equivalents Total assets Liabilities Borrowings Other liabilities Total liabilities Equity Share capital Employee share-based trusts Other reserves Retained earnings Amounts reflected in other comprehensive income Total equity Total liabilities and equity	As at 30 November 2015 15,742 45 736 2,945 13 358 19,839 3,070 201 3,271 13,971 (321) 155 2,785 (22) 16,568 19,839	As at 30 November 2014 15,741 – – 2,345 35 45 18,166 2,226 19 2,245 13,962 (286) 139 2,102 4 15,921 18,166

Note:

(1) The financial information of the Company should be read in conjunction with the consolidated financial statements of the Group.

164

47. Statement of changes in equity of the Company

US$m Balance at 1 December 2014 Net profit Cash flow hedges Fair value losses on available for sale financial assets Dividends Shares issued under share option scheme and agency share purchase plan Share-based compensation Purchase of shares held by employee share-based trusts Transfer of vested shares from employee share-based trusts Balance at 30 November 2015 US$m Balance at 1 December 2013 Net profit Cash flow hedges Dividends Shares issued under share option scheme Share-based compensation Purchase of shares held by employee share-based trusts Transfer of vested shares from employee share-based trusts Balance at 30 November 2014	Share capital 13,962 – – – – 9 – – – 13,971 Share capital and share premium 13,958 – – – 4 – – – 13,962	Employee share-based trusts (286) – – – – – – (98) 63 (321) Employee share-based trusts (274) – – – – – (91) 79 (286)	Other reserves 139 – – – – – 79 – (63) 155 Other reserves 135 – – – – 83 – (79) 139	Retained earnings Amounts reflected in other comprehensive income 2,102 4 1,497 – – 5 – (31) (814) – – – – – – – – – 2,785 (22) Retained earnings Amounts reflected in other comprehensive income 1,652 – 1,139 – – 4 (689) – – – – – – – – – 2,102 4	Total equity 15,921 1,497 5 (31) (814) 9 79 (98) –
					16,568

					Total equity 15,471 1,139 4 (689) 4 83 (91) –
					15,921

165

48. Effect of adoption of revised accounting policies

With effect from 1 December 2015, the Group revised its accounting policies for real estate as follows:

Property held for own use is carried at fair value at last valuation date less accumulated depreciation. Previously, property held for own use was carried at historical cost less accumulated depreciation. When an asset is adjusted for the latest fair value, any accumulated depreciation at the date of valuation is eliminated against the gross carrying amount of the asset. The movement of fair values is generally recognised in other comprehensive income. When such properties are sold, the amounts accumulated in other comprehensive income are transferred to retained earnings. The revised accounting policy is applied prospectively from the date of adoption, resulting in increases of US$450m and US$259m in total assets and total equity, respectively, as of 1 December 2015.

Property held for own use is valued by independent professional valuation firm at least annually to ensure that fair value of the revalued asset does not differ materially from its carrying value. Changes in fair values are recognised in the other comprehensive income and reported in the consolidated statement of financial position as property revaluation reserve.

In conjunction with the revised real estate accounting policies, depreciation expense for property held for own use is presented as ‘other expenses’ for IFRS reporting and this presentation change will be applied retrospectively. Operating leasehold land relating to property held for own use will continue to be carried at cost less accumulated amortisation and impairment losses (if any) and be reported as part of ‘other assets’ on the consolidated statement of financial position.

Investment property, including land and buildings, is initially recognised at cost with changes in fair values in subsequent periods recognised in the consolidated income statement. Operating leasehold land relating to investment properties is reclassified from ‘other assets’ to ‘investment properties’ accordingly on the consolidated statement of financial position. The revised accounting policy will be applied retrospectively.

The Group believes measuring property held for own use and investment property in accordance with the revised accounting policies (based on guidance in IAS 16 Property, Plant and Equipment and IAS 40 Investment Property, respectively) provide reliable and more relevant information to the users of the financial statements than that measured based on cost model under the current accounting policy.

The quantitative effect of the adoption of the above revised accounting policies on the Group’s consolidated financial statements for the years ended 30 November 2015, 2014 and 2013 as well as the six months ended 31 May 2015 and 2014 are set out as follows:

166

(a) Consolidated income statement

US$m Revenue Turnover Premiums and fee income Premiums ceded to reinsurers Net premiums and fee income Investment return Other operating revenue Total revenue Expenses Insurance and investment contract benefits Insurance and investment contract benefits ceded Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs Other expenses Total expenses Profit before share of profit from associates and joint venture Share of profit from associates and joint venture Profit before tax Income tax expense attributable to policyholders’ returns Profit before tax attributable to shareholders’ profits Tax expense Tax attributable to policyholders’ returns Tax expense attributable to shareholders’ profits Net profit Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests Earnings per share (US$) Basic Diluted	Year ended 30 November 2015 (As previously reported) 19,781 (1,165) 18,616 4,462 196 23,274 16,134 (942) 15,192 2,468 1,658 152 454 19,924 3,350 – 3,350 (33) 3,317 (636) 33 (603) 2,714 2,691 23 0.22 0.22	Reclassifications – – – – – – – – – – (20) – 20 – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – – 73 – 73 2 – 2 – – – (26) (24) 97 – 97 – 97 (19) – (19) 78 74 4 0.01 0.01	Year ended 30 November 2015 (As adjusted) 19,781 (1,165)
				18,616 4,535 196
				23,347

				16,136 (942)
				15,194 2,468 1,638 152 448
				19,900

				3,447 –
				3,447

				(33)
				3,414

				(655) 33 (622)
				2,792

				2,765 27 0.23 0.23

167

US$m Revenue Turnover Premiums and fee income Premiums ceded to reinsurers Net premiums and fee income Investment return Other operating revenue Total revenue Expenses Insurance and investment contract benefits Insurance and investment contract benefits ceded Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs Other expenses Total expenses Profit before share of profit from associates and joint venture Share of profit from associates and joint venture Profit before tax Income tax expense attributable to policyholders’ returns Profit before tax attributable to shareholders’ profits Tax expense Tax attributable to policyholders’ returns Tax expense attributable to shareholders’ profits Net profit Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests Earnings per share (US$) Basic Diluted	Six months ended 31 May 2015 (As previously reported) 9,361 (585) 8,776 5,051 101 13,928 9,486 (477) 9,009 1,168 801 80 212 11,270 2,658 – 2,658 (60) 2,598 (465) 60 (405) 2,193 2,180 13 0.18 0.18	Reclassifications – – – – – – – – – – (10) – 10 – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – – 19 – 19 1 – 1 – – – (13) (12) 31 – 31 – 31 (6) – (6) 25 24 1 – –	Six months ended 31 May 2015 (As adjusted) 9,361 (585)
				8,776 5,070 101
				13,947

				9,487 (477)
				9,010 1,168 791 80 209
				11,258

				2,689 –
				2,689

				(60)
				2,629

				(471) 60 (411)
				2,218

				2,204 14 0.18 0.18

168

US$m Revenue Turnover Premiums and fee income Premiums ceded to reinsurers Net premiums and fee income Investment return Other operating revenue Total revenue Expenses Insurance and investment contract benefits Insurance and investment contract benefits ceded Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs Other expenses Total expenses Profit before share of profit from associates and joint venture Share of profit from associates and joint venture Profit before tax Income tax expense attributable to policyholders’ returns Profit before tax attributable to shareholders’ profits Tax expense Tax attributable to policyholders’ returns Tax expense attributable to shareholders’ profits Net profit Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests Earnings per share (US$) Basic Diluted	Year ended 30 November 2014 (As previously reported) 18,225 (1,173) 17,052 8,204 177 25,433 17,828 (1,024) 16,804 2,139 1,636 103 420 21,102 4,331 14 4,345 (125) 4,220 (877) 125 (752) 3,468 3,450 18 0.29 0.29	Reclassifications – – – – – – – – – – (17) – 17 – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – – 220 – 220 6 – 6 – – – (24) (18) 238 – 238 – 238 (42) – (42) 196 194 2 0.01 0.01	Year ended 30 November 2014 (As adjusted) 18,225 (1,173)
				17,052 8,424 177
				25,653

				17,834 (1,024)
				16,810 2,139 1,619 103 413
				21,084

				4,569 14
				4,583

				(125)
				4,458

				(919) 125 (794)
				3,664

				3,644 20 0.30 0.30

169

US$m Revenue Turnover Premiums and fee income Premiums ceded to reinsurers Net premiums and fee income Investment return Other operating revenue Total revenue Expenses Insurance and investment contract benefits Insurance and investment contract benefits ceded Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs Other expenses Total expenses Profit before share of profit from associates and joint venture Share of profit from associates and joint venture Profit before tax Income tax expense attributable to policyholders’ returns Profit before tax attributable to shareholders’ profits Tax expense Tax attributable to policyholders’ returns Tax expense attributable to shareholders’ profits Net profit Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests Earnings per share (US$) Basic Diluted	Six months ended 31 May 2014 (As previously reported) 8,407 (552) 7,855 3,625 89 11,569 8,119 (487) 7,632 993 765 40 179 9,609 1,960 5 1,965 (71) 1,894 (410) 71 (339) 1,555 1,546 9 0.13 0.13	Reclassifications – – – – – – – – – – (9) – 9 – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – – 46 – 46 4 – 4 – – – (13) (9) 55 – 55 – 55 (13) – (13) 42 41 1 – –	Six months ended 31 May 2014 (As adjusted) 8,407 (552)
				7,855 3,671 89
				11,615

				8,123 (487)
				7,636 993 756 40 175
				9,600

				2,015 5
				2,020

				(71)
				1,949

				(423) 71 (352)
				1,597

				1,587 10 0.13 0.13

170

US$m Revenue Turnover Premiums and fee income Premiums ceded to reinsurers Net premiums and fee income Investment return Other operating revenue Total revenue Expenses Insurance and investment contract benefits Insurance and investment contract benefits ceded Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs Other expenses Total expenses Profit before share of profit from associates and joint venture Share of profit from associates and joint venture Profit before tax Income tax expense attributable to policyholders’ returns Profit before tax attributable to shareholders’ profits Tax expense Tax attributable to policyholders’ returns Tax expense attributable to shareholders’ profits Net profit Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests Earnings per share (US$) Basic Diluted	Year ended 30 November 2013 (As previously reported) 16,666 (959) 15,707 6,030 155 21,892 15,299 (816) 14,483 1,934 1,537 71 340 18,365 3,527 14 3,541 (47) 3,494 (692) 47 (645) 2,849 2,824 25 0.24 0.24	Reclassifications – – – – – – – – – – (18) – 18 – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – – 124 – 124 (1) – (1) – – – (21) (22) 146 – 146 – 146 (24) – (24) 122 115 7 0.01 –	Year ended 30 November 2013 (As adjusted) 16,666 (959)
				15,707 6,154 155
				22,016

				15,298 (816)
				14,482 1,934 1,519 71 337
				18,343

				3,673 14
				3,687

				(47)
				3,640

				(716) 47 (669)
				2,971

				2,939 32 0.25 0.24

171

(b) Consolidated statement of financial position

US$m Assets Intangible assets Investments in associates and joint venture Property, plant and equipment Investment property Reinsurance assets Deferred acquisition and origination costs Financial investments: Loans and deposits Available for sale Debt securities At fair value through profit or loss Debt securities Equity securities Derivative financial instruments Deferred tax assets Current tax recoverable Other assets Cash and cash equivalents Total assets Liabilities Insurance contract liabilities Investment contract liabilities Borrowings Obligations under securities lending and repurchase agreements Derivative financial instruments Provisions Deferred tax liabilities Current tax liabilities Other liabilities Total liabilities Equity Share capital Employee share-based trusts Other reserves Retained earnings Fair value reserve Foreign currency translation reserve Property revaluation reserve Others Amounts reflected in other comprehensive income Total equity attributable to: Shareholders of AIA Group Limited Non-controlling interests Total equity Total liabilities and equity	As at 30 November 2015 (As previously reported) 1,834 137 500 1,386 1,652 17,092 7,211 80,940 23,700 27,159 73 139,083 9 45 3,892 1,992 167,622 115,870 7,116 3,195 3,085 695 245 2,954 265 4,657 138,082 13,971 (321) (11,978) 24,708 4,414 (1,381) – (12) 3,021 29,401 139 29,540 167,622	Reclassifications – – – 244 – – – – – – – – – – (244) – – – – – – – – – – – – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – 79 2,029 – – – – – – – – – – 28 – 2,136 99 – – – – – 155 – – 254 – – – 1,586 – (8) 140 – 132 1,718 164 1,882 2,136	As at 30 November 2015 (As adjusted) 1,834 137 579 3,659 1,652 17,092 7,211 80,940 23,700 27,159 73
				139,083 9 45 3,676 1,992
				169,758

				115,969 7,116 3,195 3,085 695 245 3,109 265 4,657
				138,336

				13,971 (321) (11,978) 26,294 4,414 (1,389) 140 (12)
				3,153 31,119 303
				31,422
				169,758

172

US$m Assets Intangible assets Investments in associates and joint venture Property, plant and equipment Investment property Reinsurance assets Deferred acquisition and origination costs Financial investments: Loans and deposits Available for sale Debt securities At fair value through profit or loss Debt securities Equity securities Derivative financial instruments Deferred tax assets Current tax recoverable Other assets Cash and cash equivalents Total assets Liabilities Insurance contract liabilities Investment contract liabilities Borrowings Obligations under securities lending and repurchase agreements Derivative financial instruments Provisions Deferred tax liabilities Current tax liabilities Other liabilities Total liabilities Equity Share capital Employee share-based trusts Other reserves Retained earnings Fair value reserve Foreign currency translation reserve Property revaluation reserve Others Amounts reflected in other comprehensive income Total equity attributable to: Shareholders of AIA Group Limited Non-controlling interests Total equity Total liabilities and equity	As at 31 May 2015 (As previously reported) 2,136 141 517 1,432 1,636 16,909 7,471 80,309 24,379 31,332 168 143,659 10 38 3,927 1,655 172,060 116,663 8,050 3,193 3,856 371 216 3,154 367 4,292 140,162 13,967 (322) (12,013) 24,486 5,830 (194) – (2) 5,634 31,752 146 31,898 172,060	Reclassifications – – – 220 – – – – – – – – – – (220) – – – – – – – – – – – – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – 57 2,011 – – – – – – – – – – 24 – 2,092 103 – – – – – 147 – – 250 – – – 1,536 – 3 141 – 144 1,680 162 1,842 2,092	As at 31 May 2015 (As adjusted) 2,136 141 574 3,663 1,636 16,909 7,471 80,309 24,379 31,332 168
				143,659 10 38 3,731 1,655
				174,152

				116,766 8,050 3,193 3,856 371 216 3,301 367 4,292
				140,412

				13,967 (322) (12,013) 26,022 5,830 (191) 141 (2)
				5,778 33,432 308
				33,740
				174,152

173

US$m Assets Intangible assets Investments in associates and joint venture Property, plant and equipment Investment property Reinsurance assets Deferred acquisition and origination costs Financial investments: Loans and deposits Available for sale Debt securities At fair value through profit or loss Debt securities Equity securities Derivative financial instruments Deferred tax assets Current tax recoverable Other assets Cash and cash equivalents Total assets Liabilities Insurance contract liabilities Investment contract liabilities Borrowings Obligations under securities lending and repurchase agreements Derivative financial instruments Provisions Deferred tax liabilities Current tax liabilities Other liabilities Total liabilities Equity Share capital Employee share-based trusts Other reserves Retained earnings Fair value reserve Foreign currency translation reserve Property revaluation reserve Others Amounts reflected in other comprehensive income Total equity attributable to: Shareholders of AIA Group Limited Non-controlling interests Total equity Total liabilities and equity	As at 30 November 2014 (As previously reported) 2,152 131 541 1,384 1,657 16,593 7,654 77,744 24,319 28,827 265 138,809 10 54 3,753 1,835 166,919 113,097 7,937 2,934 3,753 211 213 3,079 198 4,542 135,964 13,962 (286) (11,994) 22,831 6,076 227 – (10) 6,293 30,806 149 30,955 166,919	Reclassifications – – – 264 – – – – – – – – – – (264) – – – – – – – – – – – – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – 57 1,991 – – – – – – – – – – 22 – 2,070 105 – – – – – 143 – – 248 – – – 1,512 – 7 142 – 149 1,661 161 1,822 2,070	As at 30 November 2014 (As adjusted) 2,152 131 598 3,639 1,657 16,593 7,654 77,744 24,319 28,827 265
				138,809 10 54 3,511 1,835
				168,989

				113,202 7,937 2,934 3,753 211 213 3,222 198 4,542
				136,212

				13,962 (286) (11,994) 24,343 6,076 234 142 (10)
				6,442 32,467 310
				32,777
				168,989

174

US$m Assets Intangible assets Investments in associates and joint venture Property, plant and equipment Investment property Reinsurance assets Deferred acquisition and origination costs Financial investments: Loans and deposits Available for sale Debt securities At fair value through profit or loss Debt securities Equity securities Derivative financial instruments Deferred tax assets Current tax recoverable Other assets Cash and cash equivalents Total assets Liabilities Insurance contract liabilities Investment contract liabilities Borrowings Obligations under securities lending and repurchase agreements Derivative financial instruments Provisions Deferred tax liabilities Current tax liabilities Other liabilities Total liabilities Equity Share capital Employee share-based trusts Other reserves Retained earnings Fair value reserve Foreign currency translation reserve Property revaluation reserve Others Amounts reflected in other comprehensive income Total equity attributable to: Shareholders of AIA Group Limited Non-controlling interests Total equity Total liabilities and equity	As at 31 May 2014 (As previously reported) 2,115 102 464 1,375 1,623 16,250 7,376 71,716 23,991 27,234 389 130,706 10 63 3,806 2,039 158,553 108,710 8,575 2,932 2,908 113 186 2,482 347 4,121 130,374 13,961 (292) (12,025) 21,174 4,590 622 – – 5,212 28,030 149 28,179 158,553	Reclassifications – – – 337 – – – – – – – – – – (337) – – – – – – – – – – – – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – 55 1,821 – – – – – – – – – – 19 – 1,895 109 – – – – – 114 – – 223 – – – 1,359 – 9 143 – 152 1,511 161 1,672 1,895	As at 31 May 2014 (As adjusted) 2,115 102 519 3,533 1,623 16,250 7,376 71,716 23,991 27,234 389
				130,706 10 63 3,488 2,039
				160,448

				108,819 8,575 2,932 2,908 113 186 2,596 347 4,121
				130,597

				13,961 (292) (12,025) 22,533 4,590 631 143 –
				5,364 29,541 310
				29,851
				160,448

175

US$m Assets Intangible assets Investments in associates and joint venture Property, plant and equipment Investment property Reinsurance assets Deferred acquisition and origination costs Financial investments: Loans and deposits Available for sale Debt securities At fair value through profit or loss Debt securities Equity securities Derivative financial instruments Deferred tax assets Current tax recoverable Other assets Cash and cash equivalents Total assets Liabilities Insurance contract liabilities Investment contract liabilities Borrowings Obligations under securities lending and repurchase agreements Derivative financial instruments Provisions Deferred tax liabilities Current tax liabilities Other liabilities Total liabilities Equity Share capital Share premium Employee share-based trusts Other reserves Retained earnings Fair value reserve Foreign currency translation reserve Property revaluation reserve Others Amounts reflected in other comprehensive income Total equity attributable to: Shareholders of AIA Group Limited Non-controlling interests Total equity Total liabilities and equity	As at 30 November 2013 (As previously reported) 1,321 93 480 1,128 1,379 15,738 7,484 64,763 22,560 26,102 445 121,354 6 44 3,543 2,316 147,402 103,436 8,698 1,950 1,889 89 187 2,030 242 4,054 122,575 12,044 1,914 (274) (11,995) 20,070 2,270 657 – (4) 2,923 24,682 145 24,827 147,402	Reclassifications – – – 317 – – – – – – – – – – (317) – – – – – – – – – – – – – – – – – – – – – – – – – –	Retrospective adjustments for IAS 40 – – 48 1,735 – – – – – – – – – – 16 – 1,799 80 – – – – – 98 – – 178 – – – – 1,318 – 12 131 – 143 1,461 160 1,621 1,799	As at 30 November 2013 (As adjusted) 1,321 93 528 3,180 1,379 15,738 7,484 64,763 22,560 26,102 445
				121,354 6 44 3,242 2,316
				149,201

				103,516 8,698 1,950 1,889 89 187 2,128 242 4,054
				122,753

				12,044 1,914 (274) (11,995) 21,388 2,270 669 131 (4)
				3,066 26,143 305
				26,448
				149,201

176

49. Operating profit based upon long-term investment returns

Effective from 1 December 2015, the Group revised its definition of operating profit to include the expected long-term investment returns for equities and real estate. The change does not affect net profit or shareholders’ equity.

The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal performance management purposes, the Group evaluates its results and its operating segments using a financial performance measure referred to as “operating profit”. Under the revised definition, operating profit includes the expected long-term investment returns for investments in equities and real estate based on the assumptions used by the Group in the Supplementary Embedded Value Information.

The Group defines operating profit after tax as net profit excluding the following non-operating items:

short-term fluctuations between expected and actual investment returns related to equities and real estate;
other investment experience (including short-term fluctuations due to market factors); and
other significant items that management considers to be non-operating income and expenses.

The Group considers that the revised presentation of operating profit enhances the understanding and comparability of its performance and that of its operating segments. The Group considers that trends can be more clearly identified without the fluctuating effects of these non-operating items, many of which are largely dependent on market factors.

Operating profit is provided as additional information to assist in the comparison of business trends in different reporting periods on a consistent basis and enhance overall understanding of financial performance. The revised definition will be applied retrospectively when presenting in future reporting periods.

In addition, the Group revised certain aspects of its segment reporting as follows:

Shareholders’ allocated equity for each reportable segment includes foreign currency translation reserve and others; and
Goodwill is included in the Group Corporate Centre segment as opposed to being allocated to the other reportable segments.

177

The tables below set out the impacts of including the expected long-term investment returns in operating profit is as follows:

US$m Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Operating profit after tax per share (US$) Basic Diluted US$m Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Operating profit after tax per share (US$) Basic Diluted US$m Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Operating profit after tax per share (US$) Basic Diluted	Year ended 30 November 2015 (As previously reported) 3,884 (655) 3,229 3,209 20 0.27 0.27 Six months ended 31 May 2015 (As previously reported) 1,980 (340) 1,640 1,630 10 0.14 0.14 Year ended 30 November 2014 (As previously reported) 3,504 (579) 2,925 2,910 15 0.24 0.24	Impact of change in preparation basis 436 (80) 356 347 9 0.03 0.03 Impact of change in preparation basis 211 (39) 172 168 4 0.01 0.01 Impact of change in preparation basis 414 (68) 346 338 8 0.03 0.03	Year ended 30 November 2015 (As adjusted) 4,320 (735) 3,585 3,556 29 0.30 0.30 Six months ended 31 May 2015 (As adjusted) 2,191 (379) 1,812 1,798 14 0.15 0.15 Year ended 30 November 2014 (As adjusted) 3,918 (647) 3,271 3,248 23 0.27 0.27

178

US$m Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Operating profit after tax per share (US$) Basic Diluted US$m Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Operating profit after tax per share (US$) Basic Diluted	Six months ended 31 May 2014 (As previously reported) 1,760 (295) 1,465 1,457 8 0.12 0.12 Year ended 30 November 2013 (As previously reported) 3,082 (566) 2,516 2,506 10 0.21 0.21	Impact of change in preparation basis 190 (28) 162 158 4 0.01 0.01 Impact of change in preparation basis 408 (67) 341 333 8 0.03 0.03	Six months ended 31 May 2014 (As adjusted) 1,950 (323) 1,627 1,615 12 0.13 0.13 Year ended 30 November 2013 (As adjusted) 3,490 (633) 2,857 2,839 18 0.24 0.24

179

A reconciliation of operating profit after tax reflecting the expected long-term investment returns to net profit (including impacts described in note 48) is as follows:

US$m Operating profit after tax Non-operating items, net of related changes in insurance and investment contract liabilities: Short-term fluctuations in investment experience related to equities and real estate (net of tax of: 2015: US$77m; 2014: US$(84)m; 2013: US$(47)m) Other non-operating investment experience and other items (net of tax of: 2015: US$36m; 2014: US$(63)m; 2013: US$12m) Net profit Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests US$m Operating profit after tax Non-operating items, net of related changes in insurance and investment contract liabilities: Short-term fluctuations in investment experience related to equities and real estate (net of tax of: six months ended 31 May 2015: US$(66)m; six months ended 31 May 2014: US$(2)m) Other non-operating investment experience and other items (net of tax of: six months ended 31 May 2015: US$34m; six months ended 31 May 2014: US$(27)m) Net profit Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests	Year ended 30 November 2015 (As adjusted) 3,585 (717) (76) 2,792 3,556 29 2,765 27 Six months ended 31 May 2015 (As adjusted) 1,812 409 (3) 2,218 1,798 14 2,204 14	Year ended 30 November 2014 (As adjusted) 3,271 312 81 3,664 3,248 23 3,644 20 Six months ended 31 May 2014 (As adjusted) 1,627 (88) 58 1,597 1,615 12 1,587 10	Year ended 30 November 2013 (As adjusted) 2,857 168 (54) 2,971 2,839 18 2,939 32

180

The tables below set out the segment analysis of including the long-term investment returns in operating profits:

US$m Year ended 30 November 2015 – As adjusted ANP TWPI Net premiums, fee income and other operating revenue (net of reinsurance ceded) Investment return Total revenue Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs and other expenses Total expenses Share of profit from associates and joint venture Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Key operating ratios:	Hong Kong 1,263 5,115 5,040 1,564 6,604 4,461 558 249 94 5,362 – 1,242 (86) 1,156 1,147 9	Thailand 520 3,324 3,320 1,090 4,410 2,686 594 177 37 3,494 – 916 (235) 681 681 –	Singapore 471 2,283 3,355 956 4,311 3,258 381 154 16 3,809 – 502 (76) 426 426 –	Malaysia 292 1,825 1,679 556 2,235 1,558 183 156 11 1,908 – 327 (58) 269 267 2	China 438 2,028 1,910 641 2,551 1,694 145 224 11 2,074 – 477 (93) 384 384 –	Korea 248 2,031 1,503 453 1,956 1,312 231 143 9 1,695 – 261 (60) 201 201 –	Other Markets 759 3,270 2,004 564 2,568 1,265 376 366 37 2,044 – 524 (119) 405 387 18	Group Corporate Centre – – 1 319 320 (2) – 169 82 249 – 71 (8) 63 63 –	Total 3,991 19,876 18,812 6,143 24,955 16,232 2,468 1,638 297 20,635 – 4,320 (735) 3,585 3,556 29
Expense ratio Operating margin Operating return on shareholders’ allocated equity	4.9% 24.3% 20.2%	5.3% 27.6% 16.8%	6.7% 22.0% 18.2%	8.5% 17.9% 17.7%	11.0% 23.5% 16.1%	7.0% 12.9% 11.1%	11.2% 16.0% 14.8%	– – –	8.2% 21.7% 13.4%
US$m Year ended 30 November 2015 – As adjusted Assets before investments in associates and joint venture Investments in associates and joint venture Total assets Total liabilities Total equity Shareholders’ allocated equity Net capital (out)/in flows	Hong Kong 45,265 – 45,265 38,135 7,130 5,713 (850)	Thailand 24,758 – 24,758 20,124 4,634 3,679 (708)	Singapore 30,133 1 30,134 27,693 2,441 2,247 (329)	Malaysia 12,673 6 12,679 11,307 1,372 1,362 (188)	China 17,091 – 17,091 14,032 3,059 2,644 (1)	Korea 14,245 – 14,245 11,683 2,562 1,832 (31)	Other Markets 16,006 130 16,136 12,402 3,734 2,626 (88)	Group Corporate Centre 9,450 – 9,450 2,960 6,490 6,602 1,371	Total 169,621 137 169,758 138,336 31,422 26,705 (824)

181

US$m Six months ended 31 May 2015 – As adjusted ANP TWPI Net premiums, fee income and other operating revenue (net of reinsurance ceded) Investment return Total revenue Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs and other expenses Total expenses Share of profit from associates and joint venture Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Key operating ratios:	Hong Kong 540 2,271 2,170 767 2,937 1,906 239 117 45 2,307 – 630 (40) 590 585 5	Thailand 256 1,632 1,623 557 2,180 1,311 303 89 19 1,722 – 458 (115) 343 343 –	Singapore 225 1,141 1,540 457 1,997 1,511 163 75 8 1,757 – 240 (39) 201 201 –	Malaysia 138 960 892 294 1,186 828 91 80 6 1,005 – 181 (36) 145 144 1	China 220 991 919 318 1,237 815 77 103 4 999 – 238 (47) 191 191 –	Korea 132 1,065 775 228 1,003 679 118 71 5 873 – 130 (31) 99 99 –	Other Markets 367 1,573 960 290 1,250 605 177 176 17 975 – 275 (67) 208 200 8	Group Corporate Centre – – (2) 159 157 (3) – 80 41 118 – 39 (4) 35 35 –	Total 1,878 9,633 8,877 3,070 11,947 7,652 1,168 791 145 9,756 – 2,191 (379) 1,812 1,798 14
Expense ratio Operating margin Operating return on shareholders’ allocated equity	5.2% 27.7% 20.1%	5.5% 28.1% 15.9%	6.6% 21.0% 16.1%	8.3% 18.9% 18.4%	10.4% 24.0% 16.1%	6.7% 12.2% 10.8%	11.2% 17.5% 14.9%	– – –	8.2% 22.7% 13.3%
US$m Period ended 31 May 2015 – As adjusted Assets before investments in associates and joint venture Investments in associates and joint venture Total assets Total liabilities Total equity Shareholders’ allocated equity Net capital (out)/in flows	Hong Kong 45,672 – 45,672 37,154 8,518 6,000 (420)	Thailand 25,930 – 25,930 20,758 5,172 4,201 (400)	Singapore 30,663 1 30,664 27,761 2,903 2,567 –	Malaysia 14,724 7 14,731 13,212 1,519 1,479 (188)	China 17,081 – 17,081 14,280 2,801 2,622 –	Korea 14,462 – 14,462 11,841 2,621 1,873 (31)	Other Markets 16,633 133 16,766 12,664 4,102 2,749 21	Group Corporate Centre 8,846 – 8,846 2,742 6,104 6,111 443	Total 174,011 141 174,152 140,412 33,740 27,602 (575)

182

US$m Year ended 30 November 2014 – As adjusted ANP TWPI Net premiums, fee income and other operating revenue (net of reinsurance ceded) Investment return Total revenue Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs and other expenses Total expenses Share of profit/(loss) from associates and joint venture Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Key operating ratios:	Hong Kong 952 4,330 4,138 1,381 5,519 3,635 473 219 87 4,414 – 1,105 (79) 1,026 1,016 10	Thailand 572 3,334 3,391 1,086 4,477 2,817 575 172 36 3,600 – 877 (218) 659 659 –	Singapore 489 2,339 2,685 915 3,600 2,667 265 153 17 3,102 – 498 (72) 426 426 –	Malaysia 320 2,084 1,888 624 2,512 1,836 141 175 15 2,167 1 346 (56) 290 289 1	China 311 1,786 1,668 545 2,213 1,496 144 210 9 1,859 – 354 (58) 296 296 –	Korea 380 2,205 1,602 459 2,061 1,403 240 155 8 1,806 – 255 (61) 194 194 –	Other Markets 676 3,133 1,855 583 2,438 1,301 301 373 34 2,009 17 446 (96) 350 338 12	Group Corporate Centre – – 2 271 273 (2) – 162 72 232 (4) 37 (7) 30 30 –	Total 3,700 19,211 17,229 5,864 23,093 15,153 2,139 1,619 278 19,189 14 3,918 (647) 3,271 3,248 23
Expense ratio Operating margin Operating return on shareholders’ allocated equity	5.1% 25.5% 19.3%	5.2% 26.3% 15.1%	6.5% 21.3% 18.6%	8.4% 16.6% 18.0%	11.8% 19.8% 16.4%	7.0% 11.6% 11.0%	11.9% 14.2% 14.1%	– – –	8.4% 20.4% 12.9%
US$m Year ended 30 November 2014 – As adjusted Assets before investments in associates and joint venture Investments in associates and joint venture Total assets Total liabilities Total equity Shareholders’ allocated equity Net capital (out)/in flows	Hong Kong 42,993 – 42,993 34,504 8,489 5,639 (752)	Thailand 26,028 – 26,028 20,599 5,429 4,446 (641)	Singapore 30,206 1 30,207 27,430 2,777 2,424 (267)	Malaysia 15,512 7 15,519 13,831 1,688 1,658 (112)	China 15,661 – 15,661 13,397 2,264 2,112 100	Korea 13,786 – 13,786 11,346 2,440 1,803 (24)	Other Markets 16,363 123 16,486 12,503 3,983 2,609 (22)	Group Corporate Centre 8,309 – 8,309 2,602 5,707 5,700 1,022	Total 168,858 131 168,989 136,212 32,777 26,391 (696)

183

US$m Six months ended 31 May 2014 – As adjusted ANP TWPI Net premiums, fee income and other operating revenue (net of reinsurance ceded) Investment return Total revenue Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs and other expenses Total expenses Share of profit/(loss) from associates and joint venture Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Key operating ratios:	Hong Kong 401 1,929 1,805 676 2,481 1,577 205 96 40 1,918 – 563 (35) 528 523 5	Thailand 256 1,555 1,597 530 2,127 1,310 294 85 16 1,705 – 422 (99) 323 323 –	Singapore 214 1,134 1,199 448 1,647 1,211 112 74 9 1,406 – 241 (38) 203 203 –	Malaysia 161 1,027 920 303 1,223 879 62 86 7 1,034 – 189 (43) 146 145 1	China 152 850 775 261 1,036 699 65 100 4 868 – 168 (29) 139 139 –	Korea 189 1,087 779 220 999 700 107 71 4 882 – 117 (27) 90 90 –	Other Markets 317 1,422 866 290 1,156 605 148 173 16 942 9 223 (49) 174 168 6	Group Corporate Centre – – 3 129 132 (1) – 71 31 101 (4) 27 (3) 24 24 –	Total 1,690 9,004 7,944 2,857 10,801 6,980 993 756 127 8,856 5 1,950 (323) 1,627 1,615 12
Expense ratio Operating margin Operating return on shareholders’ allocated equity	5.0% 29.2% 20.4%	5.5% 27.1% 15.0%	6.5% 21.3% 17.4%	8.4% 18.4% 18.4%	11.8% 19.8% 17.3%	6.5% 10.8% 10.1%	12.2% 15.7% 14.1%	– – –	8.4% 21.7% 13.2%
US$m Period ended 31 May 2014 – As adjusted Assets before investments in associates and joint venture Investments in associates and joint venture Total assets Total liabilities Total equity Shareholders’ allocated equity Net capital (out)/in flows	Hong Kong 40,377 – 40,377 32,443 7,934 5,356 (377)	Thailand 24,523 – 24,523 19,604 4,919 4,314 (292)	Singapore 29,764 1 29,765 26,969 2,796 2,516 –	Malaysia 15,517 7 15,524 13,935 1,589 1,597 (108)	China 12,826 – 12,826 11,302 1,524 1,708 –	Korea 13,850 – 13,850 11,632 2,218 1,848 (24)	Other Markets 15,828 94 15,922 12,028 3,894 2,585 19	Group Corporate Centre 7,661 – 7,661 2,684 4,977 5,027 295	Total 160,346 102 160,448 130,597 29,851 24,951 (487)

184

US$m Year ended 30 November 2013 – As adjusted ANP TWPI Net premiums, fee income and other operating revenue (net of reinsurance ceded) Investment return Total revenue Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs and other expenses Total expenses Share of profit/(loss) from associates and joint venture Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Key operating ratios:	Hong Kong 781 3,770 3,344 1,238 4,582 2,959 381 189 78 3,607 – 975 (66) 909 899 10	Thailand 565 3,364 3,498 1,110 4,608 2,959 559 183 34 3,735 – 873 (217) 656 656 –	Singapore 400 2,150 2,369 877 3,246 2,438 191 146 14 2,789 – 457 (59) 398 398 –	Malaysia 319 2,036 1,899 585 2,484 1,827 144 168 14 2,153 1 332 (74) 258 258 –	China 249 1,599 1,498 464 1,962 1,357 145 194 7 1,703 – 259 (36) 223 223 –	Korea 338 2,049 1,504 400 1,904 1,345 206 138 6 1,695 – 209 (51) 158 158 –	Other Markets 689 2,840 1,740 586 2,326 1,289 308 360 33 1,990 19 355 (89) 266 258 8	Group Corporate Centre – – 10 207 217 (2) – 141 42 181 (6) 30 (41) (11) (11) –	Total 3,341 17,808 15,862 5,467 21,329 14,172 1,934 1,519 228 17,853 14 3,490 (633) 2,857 2,839 18
Expense ratio Operating margin Operating return on shareholders’ allocated equity	5.0% 25.9% 18.6%	5.4% 26.0% 14.8%	6.8% 21.3% 18.7%	8.3% 16.3% 22.8%	12.1% 16.2% 16.9%	6.7% 10.2% 9.6%	12.7% 12.5% 12.5%	– – –	8.5% 19.6% 12.4%
US$m Year ended 30 November 2013 – As adjusted Assets before investments in associates and joint venture Investments in associates and joint venture Total assets Total liabilities Total equity Shareholders’ allocated equity Net capital (out)/in flows	Hong Kong 36,660 – 36,660 30,529 6,131 4,909 (839)	Thailand 24,065 – 24,065 19,445 4,620 4,294 (700)	Singapore 27,687 1 27,688 25,406 2,282 2,163 (222)	Malaysia 14,821 7 14,828 13,278 1,550 1,549 1,636	China 11,728 – 11,728 10,601 1,127 1,505 101	Korea 12,631 – 12,631 10,675 1,956 1,727 (27)	Other Markets 14,309 81 14,390 10,950 3,440 2,177 183	Group Corporate Centre 7,207 4 7,211 1,869 5,342 5,549 (748)	Total 149,108 93 149,201 122,753 26,448 23,873 (616)

185

SUPPLEMENTARY EMBEDDED VALUE INFORMATION

Willis Towers Watson Report on the Review of the Supplementary Embedded Value Information

AIA Group Limited (the “Company”) and its subsidiaries (together, “AIA” or the “Group”) have prepared supplementary embedded value results (EV Results) for the year ended 30 November 2015 (the Period). These EV Results, together with a description of the methodology and assumptions that have been used, are shown in the Supplementary Embedded Value Information section of this report.

Towers Watson Hong Kong Limited (trading as Willis Towers Watson), has been engaged to review the Group’s EV Results and prior year comparisons. This opinion is made solely to the Company and, to the fullest extent permitted by applicable law, Willis Towers Watson does not accept nor assume any responsibility, duty of care or liability to any third party for or in connection with its review work, the opinions it has formed, or for any statement set forth in this opinion.

Scope of Work

Our scope of work covered:

A review of the methodology used to calculate the embedded value and the equity attributable to shareholders of the Company on the embedded value basis as at 30 November 2015, and the value of new business for the year ended 30 November 2015;
A review of the economic and operating assumptions used to calculate the embedded value as at 30 November 2015 and the value of new business for the year ended 30 November 2015; and
A review of the results of AIA’s calculation of the EV Results.

In carrying out our review, we have relied on data and information provided by the Group.

Opinion

We have concluded that:

The methodology used to calculate the embedded value and value of new business is consistent with recent industry practice for publicly listed companies in Hong Kong as regards traditional embedded value calculations based on discounted values of projected deterministic after-tax cash flows. This methodology makes an overall allowance for risk for the Group through the use of risk discount rates which incorporate risk margins and vary by Business Unit, together with an explicit allowance for the cost of holding required capital;
The economic assumptions are internally consistent and have been set with regard to current economic conditions; and
The operating assumptions have been set with appropriate regard to past, current and expected future experience, taking into account the nature of the business conducted by each Business Unit.

We have performed a number of high-level checks on the models, processes and the results of the calculations, and has confirmed that no issues have been discovered that have a material impact on the disclosed embedded value and the equity attributable to shareholders of the Company on the embedded value basis as at 30 November 2015, the value of new business for the year ended 30 November 2015, the analysis of movement in embedded value for the year ended 30 November 2015, and the sensitivity analysis.

Willis Towers Watson

25 February 2016

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Cautionary statements concerning Supplementary Embedded Value Information

This report includes non-IFRS financial measures and should not be viewed as a substitute for IFRS financial measures.

The results shown in this report are not intended to represent an opinion of market value and should not be interpreted in that manner. This report does not purport to encompass all of the many factors that may bear upon a market value.

The results shown in this report are based on a series of assumptions as to the future. It should be recognised that actual future results may differ from those shown, on account of changes in the operating and economic environments and natural variations in experience. The results shown are presented at the valuation dates stated in this report and no warranty is given by the Group that future experience after these valuation dates will be in line with the assumptions made.

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1. Highlights

The embedded value (EV) is a measure of the value of shareholders’ interests in the earnings distributable from assets allocated to the in-force business after allowance for the aggregate risks in that business. The Group uses a traditional deterministic discounted cash flow methodology for determining its EV and value of new business (VONB). This methodology makes implicit allowance for all sources of risk including the cost of investment return guarantees and policyholder options, asset-liability mismatch risk, credit risk, the risk that actual experience in future years differs from that assumed, and for the economic cost of capital, through the use of a risk-adjusted discount rate. The equity attributable to shareholders of the Company on the embedded value basis (EV Equity) is the total of EV, goodwill and other intangible assets attributable to shareholders of the Company. More details of the EV Results, methodology and assumptions are covered in later sections of this report.

Summary of Key Metrics[(1)] (US$ millions)

	As at 30 November 2015 As at 30 November 2014 YoY CER YoY AER
Equity attributable to shareholders of the Company on the embedded value basis (EV Equity) Embedded value (EV) Adjusted net worth (ANW) Value of in-force business (VIF)	39,818 39,042 8% 2% 38,198 37,153 8% 3% 15,189 15,351 3% (1)% 23,009 21,802 12% 6%
	Year ended 30 November 2015 Year ended 30 November 2014 YoY CER YoY AER
Value of new business (VONB)(3) Annualised new premiums (ANP)(2) (3) VONB margin(3)	2,198 1,845 26% 19% 3,991 3,700 14% 8% 54.0% 49.1% 4.6pps 4.9pps

Notes:

(1) The results are after adjustments to reflect additional Hong Kong reserving and capital requirements and the after-tax value of unallocated Group Office expenses.
(2) ANP represents 100 per cent of annualised first year premiums and 10 per cent of single premiums, before reinsurance ceded.
(3) VONB includes pension business. ANP and VONB margin exclude pension business.

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2. EV Results

2.1 EMBEDDED VALUE BY BUSINESS UNIT

The EV as at 30 November 2015 is presented consistently with the segment information in the IFRS financial statements. Section 4.1 of this report contains a full list of the entities included in this report and the mapping of these entities to Business Units for the purpose of this report.

Summary of EV by Business Unit (US$ millions)

Business Unit AIA Hong Kong AIA Thailand AIA Singapore AIA Malaysia AIA China AIA Korea Other Markets Group Corporate Centre Subtotal Adjustment to reflect additional Hong Kong reserving and capital requirements(3) After-tax value of unallocated Group Office expenses Total		As at 30 November 2015	As at 30 November 2015	As at 30 November 2015	As at 30 November 2014 EV EV 12,655 12,472 6,660 7,122 4,489 4,275 2,129 2,513 5,041 4,065 1,672 2,152 4,130 4,553 5,971 4,772 42,747 41,924 (3,805) (4,094) (744) (677) 38,198 37,153
	ANW(1) 5,065 4,075 1,753 1,105 2,170 1,512 2,570 6,145 24,395 (9,206) – 15,189	VIF before CoC(2) 8,262 3,199 3,257 1,209 3,115 776 1,830 (174) 21,474 5,733 (744) 26,463	CoC(2) 672 614 521 185 244 616 270 – 3,122 332 – 3,454	VIF after CoC(2) 7,590 2,585 2,736 1,024 2,871 160 1,560 (174) 18,352 5,401 (744) 23,009

Notes:

(1) ANW by Business Unit is after net capital flows between Business Units and Group Corporate Centre as reported in the IFRS financial statements.

(2) CoC refers to the cost arising from holding the required capital as described in Section 4.2 of this report.

(3) Adjustment to EV for the branches of AIA Co. and AIA International, as described in Section 4.4 of this report.

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2.2 RECONCILIATION OF ANW TO IFRS EQUITY

Derivation of the Group ANW from IFRS equity (US$ millions)

IFRS equity attributable to shareholders of the Company Elimination of IFRS deferred acquisition and origination costs assets Difference between IFRS policy liabilities and local statutory policy liabilities (for entities included in the EV Results) Difference between net IFRS policy liabilities and local statutory policy liabilities (for entities included in the EV Results) Mark-to-market adjustment for property and mortgage loan investments, net of amounts attributable to participating funds Elimination of intangible assets Recognition of deferred tax impacts of the above adjustments Recognition of non-controlling interests impacts of the above adjustments Group ANW (local statutory basis) Adjustment to reflect additional Hong Kong reserving requirements, net of tax Group ANW (after additional Hong Kong reserving requirements)	As at 30 November 2015 29,401 (17,092) 10,201 (6,891) 2,582 (1,834) 1,249 (112) 24,395 (9,206) 15,189	As at 30 November 2014 30,806 (16,593) 9,894 (6,699) 2,509 (2,152) 1,175 (132) 25,507 (10,156) 15,351

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2.3 BREAKDOWN OF ANW

The breakdown of the ANW for the Group between the required capital, as defined in Section 4.6 of this report, and the free surplus, which is the ANW in excess of the required capital, is set out below:

Free surplus and required capital for the Group (US$ millions)

Free surplus Required capital ANW	As at 30 November 2015 Local statutory basis Hong Kong basis(1) 17,557 7,528 6,838 7,661 24,395 15,189	As at 30 November 2014 Local statutory basis Hong Kong basis(1) 18,884 7,794 6,623 7,557 25,507 15,351	As at 30 November 2014 Local statutory basis Hong Kong basis(1) 18,884 7,794 6,623 7,557 25,507 15,351
			15,351

Note:

(1) Hong Kong basis for branches of AIA Co. and AIA International and local statutory basis for subsidiaries of AIA Co. and AIA International.

The Company’s subsidiaries, AIA Co. and AIA International, are both Hong Kong-regulated entities subject to Hong Kong statutory requirements. The business written in the branches of AIA Co. and AIA International is subject to both the local reserving and capital requirements in the relevant territory and the Hong Kong reserving and capital requirements applicable to AIA Co. and AIA International at the entity level.

At 30 November 2015, the more onerous reserving and capital basis for both AIA Co. and AIA International was the Hong Kong basis. Therefore, the Group’s free surplus at 30 November 2015 reduced by US$10,029 million (2014: US$11,090 million) under the Hong Kong basis compared with the local statutory basis, reflecting US$9,206 million (2014: US$10,156 million) higher reserving requirements and US$823 million (2014: US$934 million) higher required capital under the Hong Kong basis for branches of AIA Co. and AIA International.

2.4 EARNINGS PROFILE

The table below shows how the after-tax distributable earnings from the assets backing the statutory reserves and required capital of the in-force business of the Group are projected to emerge over future years. The projected values reflect the Hong Kong reserving and capital requirements for the branches of AIA Co. and AIA International.

Profile of projected after-tax distributable earnings for the Group’s in-force business (US$ millions)

Financial year 2016 – 2020 2021 – 2025 2026 – 2030 2031 – 2035 2036 and thereafter Total	As at 30 November 2015 Undiscounted Discounted 14,143 11,664 13,114 7,187 12,340 4,600 11,250 2,878 56,866 4,341 107,713 30,670	As at 30 November 2015 Undiscounted Discounted 14,143 11,664 13,114 7,187 12,340 4,600 11,250 2,878 56,866 4,341 107,713 30,670
		30,670

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The profile of distributable earnings is shown on an undiscounted and discounted basis. The discounted value of after-tax distributable earnings of US$30,670 million (2014: US$29,359 million) plus the free surplus of US$7,528 million (2014: US$7,794 million) shown in Section 2.3 of this report is equal to the EV of US$38,198 million (2014: US$37,153 million) shown in Section 2.1 of this report.

2.5 VALUE OF NEW BUSINESS

The VONB for the Group for the year ended 30 November 2015 is summarised in the table below. The VONB is defined as the present value, at the point of sale, of the projected after-tax statutory profits less the cost of required capital. Results are presented consistently with the segment information in the IFRS financial statements. Section 4.1 of this report contains a full list of the entities included in this report and the mapping of these entities to Business Units for the purpose of this report.

The Group VONB for the year ended 30 November 2015 was US$2,198 million, an increase of US$353 million, or 19 per cent, from US$1,845 million for the year ended 30 November 2014.

Summary of VONB by Business Unit (US$ millions)

Business Unit AIA Hong Kong AIA Thailand AIA Singapore AIA Malaysia AIA China AIA Korea Other Markets Total before unallocated Group Office expenses (local statutory basis) Adjustment to reflect additional Hong Kong reserving and capital requirements(3) Total before unallocated Group Office expenses (after additional Hong Kong reserving and capital requirements) After-tax value of unallocated Group Office expenses Total	Year ended 30 November 2015 VONB before CoC(1) CoC(1) VONB after CoC(1) (2) 961 141 820 476 81 395 360 19 341 191 19 172 404 38 366 60 14 46 280 30 250 2,732 342 2,390 (119) (47) (72) 2,613 295 2,318 (120) – (120) 2,493 295 2,198	Year ended 30 November 2015 VONB before CoC(1) CoC(1) VONB after CoC(1) (2) 961 141 820 476 81 395 360 19 341 191 19 172 404 38 366 60 14 46 280 30 250 2,732 342 2,390 (119) (47) (72) 2,613 295 2,318 (120) – (120) 2,493 295 2,198	Year ended 30 November 2014 VONB after CoC(1) (2) 619 361 299 161 258 82 212 1,992 (50) 1,942 (97) 1,845
	VONB before CoC(1) 961 476 360 191 404 60 280 2,732 (119) 2,613 (120) 2,493	CoC(1) 141 81 19 19 38 14 30 342 (47) 295 – 295

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Notes:

(1) CoC refers to the cost arising from holding the required capital as described in Section 4.2 of this report.
(2) VONB for the Group is calculated before deducting the amount attributable to non-controlling interests. The amounts of VONB attributable to non-controlling interests for the year ended 30 November 2015 and 30 November 2014 were US$21 million and US$13 million respectively.
(3) Adjustment to VONB for the branches of AIA Co. and AIA International, as described in Section 4.4 of this report.

The table below shows the VONB margin for the Group. The VONB margin is defined as VONB, excluding pension business, expressed as a percentage of ANP. The VONB for pension business is excluded from the margin calculation to be consistent with the definition of ANP.

The Group VONB margin for the year ended 30 November 2015 was 54.0 per cent compared with 49.1 per cent for the year ended 30 November 2014.

Summary of VONB Margin by Business Unit (US$ millions)

Business Unit AIA Hong Kong AIA Thailand AIA Singapore AIA Malaysia AIA China AIA Korea Other Markets Total before unallocated Group Office expenses (local statutory basis) Adjustment to reflect additional Hong Kong reserving and capital requirements(2) Total before unallocated Group Office expenses (after additional Hong Kong reserving and capital requirements) After-tax value of unallocated Group Office expenses Total	Year ended 30 November 2015 VONB Excluding Pension ANP(1) VONB Margin (1) 783 1,263 62.0% 395 520 75.8% 341 471 72.4% 169 292 57.9% 366 438 83.5% 46 248 18.8% 249 759 32.9% 2,349 3,991 58.9% (72) – 2,277 3,991 57.0% (120) – 2,157 3,991 54.0%	Year ended 30 November 2015 VONB Excluding Pension ANP(1) VONB Margin (1) 783 1,263 62.0% 395 520 75.8% 341 471 72.4% 169 292 57.9% 366 438 83.5% 46 248 18.8% 249 759 32.9% 2,349 3,991 58.9% (72) – 2,277 3,991 57.0% (120) – 2,157 3,991 54.0%	Year ended 30 November 2014 VONB Margin(1) 62.3% 63.2% 61.2% 50.1% 83.1% 21.7% 31.3% 53.1% 51.8% 49.1%
	VONB Excluding Pension 783 395 341 169 366 46 249 2,349 (72) 2,277 (120) 2,157	ANP(1) 1,263 520 471 292 438 248 759 3,991 – 3,991 – 3,991

Notes:

(1) ANP and VONB margin exclude pension business.

(2) Adjustment to VONB for the branches of AIA Co. and AIA International, as described in Section 4.4 of this report.

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The table below shows the breakdown of the VONB, ANP and VONB margin for the Group by quarter for business written in the year ended 30 November 2015. For comparison purposes, the quarterly VONB, ANP and VONB margin for business written in the year ended 30 November 2014 are also shown in the same table.

Summary of VONB, ANP and VONB Margin by quarter for the Group (US$ millions)

	VONB after		VONB
Quarter	CoC (1) (2)	ANP(2)	Margin(2)
*Values for 2015*
3 months ended 28 February 2015	425	895	46.8%
3 months ended 31 May 2015	534	983	53.4%
3 months ended 31 August 2015	552	936	57.6%
3 months ended 30 November 2015	687	1,177	57.2%
*Values for 2014*
3 months ended 28 February 2014	354	799	43.8%
3 months ended 31 May 2014	438	891	48.4%
3 months ended 31 August 2014	468	944	48.7%
3 months ended 30 November 2014	585	1,066	54.2%

Notes:

(1) CoC refers to the cost arising from holding the required capital as described in Section 4.2 of this report.

(2) VONB includes pension business. ANP and VONB margin exclude pension business.

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2.6 ANALYSIS OF EV MOVEMENT

Analysis of movement in EV (US$ millions)

Year ended 30 November 2015 Year ended 30 November 2014 ANW VIF EV EV 15,351 21,802 37,153 33,818 – – – (800) 15,351 21,802 37,153 33,018 (902) 3,100 2,198 1,845 3,364 (666) 2,698 2,635 29 245 274 188 (112) 86 (26) (80) (76) – (76) (53) 2,303 2,765 5,068 4,535 (1,494) (310) (1,804) 720 – 145 145 122 436 (67) 369 23 1,245 2,533 3,778 5,400 (814) – (814) (689) (12) – (12) (14) (581) (1,326) (1,907) (562) 15,189 23,009 38,198 37,153	Year ended 30 November 2015 Year ended 30 November 2014 ANW VIF EV EV 15,351 21,802 37,153 33,818 – – – (800) 15,351 21,802 37,153 33,018 (902) 3,100 2,198 1,845 3,364 (666) 2,698 2,635 29 245 274 188 (112) 86 (26) (80) (76) – (76) (53) 2,303 2,765 5,068 4,535 (1,494) (310) (1,804) 720 – 145 145 122 436 (67) 369 23 1,245 2,533 3,778 5,400 (814) – (814) (689) (12) – (12) (14) (581) (1,326) (1,907) (562) 15,189 23,009 38,198 37,153	YoY
ANW 15,351 – 15,351 (902) 3,364 29 (112) (76) 2,303 (1,494) – 436 1,245 (814) (12) (581) 15,189	VIF 21,802 – 21,802 3,100 (666) 245 86 – 2,765 (310) 145 (67) 2,533 – – (1,326) 23,009	EV 10% n/m
		13% 19% 2% 46% (68)% 43%
		12% n/m 19% n/m
		(30)% 18% (14)% 239%
		3%

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EV operating profit grew by 12 per cent to US$5,068 million (2014: US$4,535 million) compared with 2014. The growth benefited from a combination of a higher VONB of US$2,198 million (2014: US$1,845 million) and an increased expected return on EV of US$2,698 million (2014: US$2,635 million). Overall operating experience variances and operating assumption changes were again positive at US$248 million (2014: US$108 million). Finance costs from the medium term notes were US$76 million (2014: US$53 million).

The VONB shown in Section 2.6 of this report is calculated at the point of sale for business written during the Period before deducting the amount attributable to non-controlling interests. The expected return on EV is the expected change in the EV over the Period plus the expected return on the VONB from the point of sale to 30 November 2015 less the VONB attributable to non-controlling interests. Operating experience variances reflect the impact on the ANW and VIF from differences between the actual experience over the Period and that expected based on the operating assumptions.

The main operating experience variances, net of tax, are:

Expense variances of US$16 million (2014: US$16 million) including non-recurring project expenses of US$(6) million (2014: US$(14) million);
Mortality and morbidity claims variances of US$164 million (2014: US$124 million); and
Persistency and other variances of US$94 million (2014: US$48 million) including the positive effect of reinsurance.

The effect of changes to operating assumptions during the Period was US$(26) million (2014: US$(80) million) mainly from increased surrender claims in Thailand reflecting industry-wide trends as previously reported in our interim results announcement, although AIA Thailand’s aggregate persistency continued to outperform that of the industry overall, partially offset by other favourable operating assumption changes.

The EV profit of US$3,778 million (2014: US$5,400 million) is the total of EV operating profit, investment return variances, the effect of changes in economic assumptions and other non-operating variances.

The investment return variances arise from the impact of differences between the actual investment returns in the Period and the expected investment returns. This includes the impact on the EV of changes in the market values and market yields on existing fixed income assets, and the impact on the EV of changes in the economic assumptions used in the statutory reserving bases for the Group. Investment return variances of US$(1,804) million (2014: US$720 million) were largely due to equity market losses and increased statutory reserves.

The effect of changes in economic assumptions of US$145 million (2014: US$122 million) includes the impact of changes in long-term investment return assumptions of US$8 million (2014: US$(337) million) and the impact of changes in risk discount rates of US$137 million (2014: US$459 million).

Other non-operating variances amounted to US$369 million (2014: US$23 million) and included:

Tax-related adjustments of US$526 million (2014: US$24 million) mainly due to the announced change in the Thailand corporate income tax rate, as described in Section 5.10 Note (2) of this report;
Restructuring and other non-operating costs of US$55 million (2014: US$52 million); and
Others including modelling enhancements.

The Group paid total shareholder dividends of US$814 million (2014: US$689 million). Other capital movements reduced EV by US$12 million (2014: US$14 million).

Foreign exchange movements were US$(1,907) million (2014: US$(562) million).

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2.7 EV EQUITY

The EV Equity grew to US$39,818 million at 30 November 2015, an increase of 2 per cent from US$39,042 million as at 30 November 2014.

Derivation of EV Equity from EV (US$ millions)

	As at 30 November 2015 As at 30 November 2014 Change
EV Goodwill and other intangible assets(1)	38,198 37,153 3% 1,620 1,889 (14)%
EV Equity	39,818 39,042 2%

Note:

(1) Consistent with the IFRS financial statements, net of tax, amounts attributable to participating funds and non-controlling interests.

3. Sensitivity Analysis

The EV as at 30 November 2015 and the VONB for the year ended 30 November 2015 have been recalculated to illustrate the sensitivity of the results to changes in certain central assumptions discussed in Section 5 of this report.

The sensitivities analysed were:

Risk discount rates 200 basis points per annum higher than the central assumptions;
Risk discount rates 200 basis points per annum lower than the central assumptions;
Interest rates 50 basis points per annum higher than the central assumptions;
Interest rates 50 basis points per annum lower than the central assumptions;
The presentation currency (as explained below) appreciated by 5 per cent;
The presentation currency depreciated by 5 per cent;
Lapse and premium discontinuance rates increased proportionally by 10 per cent (i.e. 110 per cent of the central assumptions);
Lapse and premium discontinuance rates decreased proportionally by 10 per cent (i.e. 90 per cent of the central assumptions);
Mortality/morbidity rates increased proportionally by 10 per cent (i.e. 110 per cent of the central assumptions);
Mortality/morbidity rates decreased proportionally by 10 per cent (i.e. 90 per cent of the central assumptions);
Maintenance expenses 10 per cent lower (i.e. 90 per cent of the central assumptions); and
Expense inflation set to 0 per cent.

197

The EV as at 30 November 2015 has been further analysed for the following sensitivities:

Equity prices increased proportionally by 10 per cent (i.e. 110 per cent of the prices at 30 November 2015); and
Equity prices decreased proportionally by 10 per cent (i.e. 90 per cent of the prices at 30 November 2015).

For the interest rate sensitivities, the investment return assumptions and the risk discount rates were changed by 50 basis points per annum; the projected bonus rates on participating business, the statutory reserving bases at 30 November 2015 and the values of debt instruments held at 30 November 2015 were changed to be consistent with the interest rate assumptions in the sensitivity analysis, while all the other assumptions were unchanged.

The EV Results of each entity in Section 4.1 of this report are measured in the currency of the primary economic environment in which that entity operates (the functional currency) and presented in US dollars (the presentation currency). In order to provide sensitivity results for EV and VONB of the impact of foreign currency movements to the translation from functional currencies, a change of 5 per cent to the presentation currency is included. This sensitivity does not include the impact of currency movements on the translation of transactions denominated in a foreign currency of an entity into its functional currency (including any impacts on VIF).

For the equity price sensitivities, the projected bonus rates on participating business and the values of equity securities and equity funds held at 30 November 2015 were changed to be consistent with the equity price assumptions in the sensitivity analysis, while all the other assumptions were unchanged.

For each of the remaining sensitivity analyses, the statutory reserving bases as at 30 November 2015 and the projected bonus rates on participating business were changed to be consistent with the sensitivity analysis assumptions, while all the other assumptions remain unchanged.

The sensitivities chosen do not represent the boundaries of possible outcomes, but instead illustrate how certain alternative assumptions would affect the results.

Sensitivity of EV as at 30 November 2015 (US$ millions)

Sensitivity of EV as at 30 November 2015 (US$ millions)
Scenario	EV
Central value	38,198
200 bps increase in risk discount rates	33,340
200 bps decrease in risk discount rates	45,435
10% increase in equity prices	38,924
10% decrease in equity prices	37,458
50 bps increase in interest rates	38,305
50 bps decrease in interest rates	38,087
5% appreciation in the presentation currency	37,210
5% depreciation in the presentation currency	39,186
10% increase in lapse/discontinuance rates	37,725
10% decrease in lapse/discontinuance rates	38,730
10% increase in mortality/morbidity rates	35,103
10% decrease in mortality/morbidity rates	41,256
10% decrease in maintenance expenses	38,687
Expense inflation set to 0%	38,680

198

Sensitivity of VONB for the year ended 30 November 2015 (US$ millions)

Scenario	VONB
Central value	2,198
200 bps increase in risk discount rates	1,639
200 bps decrease in risk discount rates	3,066
50 bps increase in interest rates	2,336
50 bps decrease in interest rates	2,036
5% appreciation in the presentation currency	2,123
5% depreciation in the presentation currency	2,273
10% increase in lapse rates	2,064
10% decrease in lapse rates	2,341
10% increase in mortality/morbidity rates	1,893
10% decrease in mortality/morbidity rates	2,502
10% decrease in maintenance expenses	2,266
Expense inflation set to 0%	2,246

4. Methodology

4.1 ENTITIES INCLUDED IN THIS REPORT

The Group operates through a number of subsidiaries and branches. Its two main operating subsidiaries are AIA Company Limited (AIA Co.), a subsidiary of the Company, and AIA International Limited (AIA International), a subsidiary of AIA Co. Furthermore, AIA Co. has branches located in Brunei, China and Thailand and AIA International has branches located in Hong Kong, Korea, Macau, New Zealand and Taiwan.

The following is a full list of the entities and their mapping to Business Units for the purpose of this report.

AIA Australia refers to AIA Australia Limited, a subsidiary of AIA Co.;
AIA China refers to the China branches of AIA Co.;
AIA Hong Kong refers to the total of the following three entities:
the Hong Kong and Macau branches of AIA International;
the Hong Kong and Macau business written by AIA Co.; and
AIA Pension and Trustee Co. Ltd., a subsidiary of AIA Co.
AIA Indonesia refers to PT. AIA Financial, a subsidiary of AIA International;
AIA Korea refers to the Korea branch of AIA International;
AIA Malaysia refers to AIA Bhd., a subsidiary of AIA Co., its subsidiary Green Health Certification Berhad and AIA PUBLIC Takaful Bhd., a 70 per cent owned subsidiary of AIA Co.;
AIA New Zealand refers to the New Zealand branch of AIA International;
Philam Life refers to The Philippine American Life and General Insurance (PHILAM LIFE) Company, a subsidiary of AIA Co. and its 51 per cent owned subsidiary BPI-Philam Life Assurance Corporation;

199

AIA Singapore refers to AIA Singapore Private Limited, a subsidiary of AIA Co., and the Brunei branch of AIA Co.;
AIA Sri Lanka refers to AIA Insurance Lanka PLC, a 97.16 per cent owned subsidiary of AIA Co.;
AIA Taiwan refers to the Taiwan branch of AIA International;
AIA Thailand refers to the Thailand branches of AIA Co.; and
AIA Vietnam refers to AIA (Vietnam) Life Insurance Company Limited, a subsidiary of AIA International.

In addition, the entity Tata AIA Life Insurance Company Limited, which is 26 per cent owned by AIA International, has been included in the Group ANW presented in this report on an equity method accounting basis.

Results are presented consistently with the segment information in the IFRS financial statements. The summary of the EV of the Group by Business Unit in this report also includes a segment for “Group Corporate Centre” results. The results shown for this segment consist of the ANW for the Group’s corporate functions and the present value of remittance taxes payable on distributable profits to Hong Kong. The ANW has been derived as the IFRS equity for this segment plus mark-to-market adjustments less the value of excluded intangible assets. For the VONB, “Other Markets” includes the present value of allowance for remittance taxes payable on distributable profits to Hong Kong.

4.2 EMBEDDED VALUE AND VALUE OF NEW BUSINESS

The Group uses a traditional deterministic discounted cash flow methodology for determining its EV and VONB. This methodology makes implicit allowance for all sources of risk including the cost of investment return guarantees and policyholder options, asset-liability mismatch risk, credit risk, the risk that actual experience in future years differs from that assumed, and for the economic cost of capital, through the use of a risk-adjusted discount rate. Typically, the higher the risk discount rate, the greater the allowance for these factors. This is a common methodology used by life insurance companies in Asia currently. Alternative valuation methodologies and approaches continue to emerge and may be considered by AIA.

The business included in the VIF and VONB calculations includes all life business written by the Business Units of the Group, plus other lines of business which may not be classified as life business but have similar characteristics. These include accident and health, group and pension businesses. The projected in-force business included in the VIF also incorporates expected renewals on short-term business with a term of one year or less.

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The EV is the sum of the ANW and VIF. The ANW is the market value of assets in excess of the assets backing the policy reserves and other liabilities of the life (and similar) business of the Group, plus the IFRS equity value of other activities, such as general insurance business, less the value of intangible assets. It excludes any amounts not attributable to shareholders of the Company. The market value of investment property and property held for own use that is used to determine the ANW is based on the fair value disclosed in the Group’s IFRS financial statements as at the valuation date. It is the Group’s policy to obtain external property valuations annually except in the case of a discrete event occurring in the interim that has a significant impact on the fair value of the properties.

The VIF is the present value of projected after-tax statutory profits emerging in the future from the current in-force business less the cost arising from holding the required capital (CoC) to support the in-force business. CoC is calculated as the face value of the required capital as at the valuation date less the present value of the net-of-tax investment return on the shareholder assets backing required capital and the present value of projected releases from the assets backing the required capital. Where the required capital may be covered by policyholder assets such as surplus assets in a participating fund, there is no associated cost of capital included in the VIF or VONB.

EV Equity is the total of EV, goodwill and other intangible assets attributable to shareholders of the Company.

The VONB is the present value, measured at the point of sale, of projected after-tax statutory profits emerging in the future from new business sold in the period less the cost of holding required capital in excess of regulatory reserves to support this business. The VONB for the Group is calculated based on assumptions applicable at the point of measurement and before deducting the amount attributable to non-controlling interests. The VONB attributable to non-controlling interests was US$21 million for the year ended 30 November 2015 (2014: US$13 million).

A deduction has been made from the EV and VONB for the present value of future after-tax unallocated Group Office expenses, representing the expenses incurred by the Group Office which are not allocated to the Business Units. These unallocated Group Office expenses have been allocated to acquisition and maintenance activities, and a deduction made from the VONB and VIF respectively.

4.3 DEFINITION OF NEW BUSINESS

New business includes the sale of new contracts during the period, additional single premium payments on recurrent single premium contracts and increments to existing contracts where these are not variations allowed for in the calculation of the VIF. The VONB also includes the present value of cash flows associated with new policies written during the reporting period but subsequently terminated before the valuation date.

For group renewable business including group yearly renewable term business, new business is composed of new schemes set up during the period plus any premium payable on existing schemes that exceeds the prior year’s premiums. For individually significant group cases, the VONB is calculated over each premium rate guarantee period entered upon contract inception or renewal.

For short-term accident and health business with a term of one year or less, renewals of existing contracts are not considered new business, and the value of expected renewals on this business is included in the VIF.

For pension business, sales of new contracts during the period and any new contributions, including assets transferred in, are considered as new business for the calculation of the VONB.

New business volumes shown in this report are measured using annualised new premiums (ANP), which is an internal measure of new business sales. This represents 100 per cent of annualised first year premiums and 10 per cent of single premiums, before reinsurance ceded.

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4.4 CONSOLIDATION OF BRANCHES OF AIA CO. AND AIA INTERNATIONAL

The Group’s subsidiaries, AIA Co. and AIA International, are both Hong Kong-regulated entities. AIA operates in a number of territories as branches of these entities. Therefore, the business written in these branches is subject to the local reserving and capital requirements in the relevant territory and the Hong Kong reserving and capital requirements applicable to AIA Co. and AIA International at the entity level.

For these branches, the EV Results shown in Section 2 of this report have been calculated reflecting the more onerous of the Hong Kong and branch level local regulatory reserving and capital requirements. This was done because the ultimate distribution of profits to shareholders of the Company from AIA Co. and AIA International will depend on both the Hong Kong and the local regulatory reserving and capital requirements. At the end of November 2015, the more onerous reserving and capital basis for both AIA Co. and AIA International was the Hong Kong regulatory basis. This impact is shown as a Group-level adjustment to the EV and VONB. The EV and VONB for each Business Unit reflect only the local reserving and capital requirements, as discussed in Section 4.6 of this report.

4.5 VALUATION OF FUTURE STATUTORY LOSSES

For certain lines of business, projected future statutory profits are negative due to the local statutory reserves being insufficient to meet the value of future policyholder cash flows. Within a traditional embedded value framework, there are a number of acceptable methods for determining the value of a combination of positive and negative statutory profits for different lines of business.

For the purposes of this valuation, future projected statutory losses have been valued by discounting them at the risk discount rate for the relevant Business Unit, with any negative VIF eliminated for each reported segment by reducing the ANW and EV. This has been done because the allowance for risk in the range of selected risk discount rates for each Business Unit has been set taking into account the presence of any such business lines with projected statutory losses. Also, the currently more onerous Hong Kong regulatory reserving and capital requirements for the branches of AIA Co. and AIA International have the effect of reducing the level of any future projected statutory losses for these Business Units. Based on the assumptions described in Section 5 of this report, and allowing for the Hong Kong statutory reserving and capital requirements for the branches of AIA Co. and AIA International, the overall projected annual distributable profits from the current in-force business and the assets backing the required capital of the Group are positive over the remaining lifetime of the business. Therefore, it is not considered necessary to change the discounting approach described above.

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4.6 REQUIRED CAPITAL

Each of the Business Units has a regulatory requirement to hold shareholder capital in addition to the assets backing the insurance liabilities. The Group’s assumed levels of required capital for each Business Unit are set out in the table below. Further, the consolidated EV Results for the Group have been calculated reflecting the more onerous of the Hong Kong and branch level local regulatory reserving and capital requirements for AIA Co. and AIA International.

Required Capital by Business Unit

Business Unit Required Capital

AIA Australia 100% of regulatory capital adequacy requirement AIA China 100% of required minimum solvency margin[(1)] AIA Hong Kong 150% of required minimum solvency margin[(2)] AIA Indonesia 120% of regulatory Risk-Based Capital requirement AIA Korea 150% of regulatory Risk-Based Capital requirement AIA Malaysia 170% of regulatory Risk-Based Capital requirement AIA New Zealand 100% of local regulatory requirement Philam Life 100% of regulatory Risk-Based Capital requirement AIA Singapore 180% of regulatory Risk-Based Capital requirement AIA Sri Lanka 120% of proposed Risk-Based Capital requirement AIA Taiwan 250% of regulatory Risk-Based Capital requirement AIA Thailand 140% of regulatory Risk-Based Capital requirement AIA Vietnam 100% of required minimum solvency margin

Notes:

(1) The China Risk Oriented Solvency System which was not implemented at the valuation date has not been applied.
(2) The assumed level of required capital for AIA Hong Kong is also used for the branches of AIA Co. and AIA International in the calculation of the consolidated EV Results.

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5. Assumptions

5.1 INTRODUCTION

This section summarises the assumptions used by the Group to determine the EV as at 30 November 2015 and the VONB for the year ended 30 November 2015 and highlights certain differences in assumptions between the EV as at 30 November 2014 and the EV as at 30 November 2015.

5.2 ECONOMIC ASSUMPTIONS

Investment returns

The Group has set the assumed long-term future returns for fixed income assets to reflect its view of expected returns having regard to historical returns, estimates of long-term forward rates from yields available on government bonds and current bond yields. In determining returns on fixed income assets the Group allows for the risk of default, and this allowance varies by the credit rating of the underlying asset.

Where long-term views of investment return assumptions differ from current market yields on existing fixed income assets such that there would be a significant impact on value, an adjustment was made to make some allowance for the current market yields. In these cases, in calculating the VIF, adjustments have been made to the investment return assumptions such that the investment returns on existing fixed income assets were set consistently with the current market yield on these assets for their full remaining term, to be consistent with the valuation of the assets backing the policy liabilities.

The Group has set the equity return assumptions by reference to the return on 10-year government bonds, allowing for an internal assessment of equity risk premia that vary by territory.

For each Business Unit, the non-linked portfolio is divided into a number of distinct product groups, and the returns for each of these product groups have been derived by considering current and future targeted asset allocations and associated investment returns for major asset classes.

For unit-linked business, fund growth assumptions have been determined based on actual fund mixes at the valuation date and expected long-term returns for major asset classes.

Risk discount rates

The risk discount rates for each Business Unit can be considered as the sum of the appropriate risk-free interest rate, to reflect the time value of money, and a risk margin to make allowance for the risk profile of the business.

The Group has generally set the risk discount rates to be equal to the estimated cost of equity capital for each Business Unit within the Group. The cost of equity capital is derived using an estimated long-term risk-free interest rate, an equity risk premium and a market risk factor. In some cases, adjustments have been made to reflect territorial or Business Unit-specific factors.

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The table below summarises the risk discount rates and assumed long-term investment returns for the major asset classes for each Business Unit as at 30 November 2015. The investment returns on existing fixed income assets were set consistently with the market yields on these assets. Note that VONB results were calculated based on start-of-quarter economic assumptions consistent with the measurement at the point of sale. The same risk discount rates were used for all the EV Results shown in Section 1 and Section 2 of this report. In particular, for the branches of AIA Co. and AIA International, the consolidated EV Results reflecting the Hong Kong reserving and capital requirements were calculated using the branch-specific risk discount rates shown in the table below. The present value of unallocated Group Office expenses was calculated using the AIA Hong Kong risk discount rate. The investment returns shown are gross of tax and investment expenses.

Risk discount rates and long-term investment return assumptions by Business Unit (%)

Business Unit AIA Australia AIA China AIA Hong Kong(1) AIA Indonesia AIA Korea AIA Malaysia AIA New Zealand Philam Life AIA Singapore AIA Sri Lanka AIA Taiwan AIA Thailand AIA Vietnam	Risk discount rates As at 30 Nov 2015 As at 30 Nov 2014 7.75 7.75 9.75 9.75 7.00 7.00 13.50 13.00 9.10 9.50 8.75 8.75 8.25 8.25 10.50 10.50 6.90 6.75 15.70 18.00 7.85 7.75 8.80 9.00 13.80 13.80	10-year government bonds As at 30 Nov 2015 As at 30 Nov 2014 3.40 3.37 3.70 3.74 2.50 2.50 8.00 7.50 3.20 3.60 4.20 4.20 4.00 3.99 4.00 4.00 2.50 2.23 10.00 12.33 1.60 1.48 3.40 3.62 8.00 8.00	Local equities As at 30 Nov 2015 As at 30 Nov 2014 7.50 7.15 9.50 9.49 7.55 7.55 12.80 12.25 7.20 6.94 8.75 8.75 n/a(2) n/a (2) 9.20 9.16 7.00 7.00 11.70 14.00 6.60 6.62 9.20 9.37 13.80 13.80

Notes:

(1) The majority of AIA Hong Kong’s assets and liabilities are denominated in US dollars. The 10-year government bond assumption is for US dollar-denominated bonds.

(2) The assumed asset allocations do not include equities.

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5.3 PERSISTENCY

Persistency covers the assumptions required, where relevant, for policy lapse (including surrender), premium persistency, premium holidays, partial withdrawals and retirement rates for pension products.

Assumptions have been developed by each of the Business Units based on their recent historical experience, and their best estimate expectations of current and expected future experience. Persistency assumptions vary by policy year and product type with different rates for regular and single premium products.

Where experience for a particular product was not credible enough to allow any meaningful analysis to be performed, experience for similar products was used as a basis for future persistency experience assumptions.

In the case of surrenders, the valuation assumes that current surrender value bases will continue to apply in the future.

5.4 EXPENSES

The expense assumptions have been set based on the most recent expense analysis. The purpose of the expense analysis is to allocate total expenses between acquisition and maintenance activities, and then to allocate these acquisition and maintenance expenses to various product categories to derive unit cost assumptions.

Where the expenses associated with certain activities have been identified as being one-off, these expenses have been excluded from the expense analysis.

Expense assumptions have been determined for acquisition and maintenance activities, split by product type, and unit costs expressed as a percentage of premiums, sum assured and an amount per policy. Where relevant, expense assumptions have been calculated per distribution channel.

Expense assumptions do not make allowance for any anticipated future expense savings as a result of any strategic initiatives aimed at improving policy administration and claims handling efficiency.

Assumptions for commission rates and other sales-related payments have been set in line with actual experience.

Group Office expenses

Group Office expense assumptions have been set, after excluding non-recurring expenses, based on actual acquisition and maintenance expenses in the year ended 30 November 2015. The Group Office acquisition expenses have been deducted from the VONB. The present value of the projected future Group Office maintenance expenses has been deducted from the Group EV. The maintenance expense assumptions in the VONB also allow for the allocation of Group Office expenses.

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5.5 EXPENSE INFLATION

The assumed expense inflation rates are based on expectations of long-term consumer price and salary inflation.

Expense inflation assumptions by Business Unit (%)

	As at	As at
	30 November	30 November
Business Unit	2015	2014
AIA Australia	3.25	3.25
AIA China	2.0	2.0
AIA Hong Kong	2.0	2.0
AIA Indonesia	6.0	6.0
AIA Korea	3.5	3.5
AIA Malaysia	3.0	3.0
AIA New Zealand	2.5	2.5
Philam Life	3.5	3.5
AIA Singapore	2.0	2.0
AIA Sri Lanka	6.5	6.5
AIA Taiwan	1.2	1.0
AIA Thailand	2.0	2.0
AIA Vietnam	5.0	5.0

Unallocated Group Office expenses are assumed to inflate by the weighted average of the Business Unit expense inflation rates.

5.6 MORTALITY

Assumptions have been developed by each Business Unit based on their recent historical experience, and their expectations of current and expected future experience. Where historical experience is not credible, reference has been made to pricing assumptions supplemented by market data, where available.

Mortality assumptions have been expressed as a percentage of either standard industry experience tables or, where experience is sufficiently credible, as a percentage of tables that have been developed internally by the Group.

For products that are exposed to longevity risk, an allowance has been made for expected improvements in mortality; otherwise no allowance has been made for mortality improvements.

5.7 MORBIDITY

Assumptions have been developed by each Business Unit based on their recent historical experience, and their expectations of current and expected future experience. Morbidity rate assumptions have been expressed as a percentage of standard industry experience tables or as expected claims ratios.

5.8 REINSURANCE

Reinsurance assumptions have been developed by each Business Unit based on the reinsurance arrangements in force as at the valuation date and the recent historical and expected future experience.

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5.9 POLICYHOLDER DIVIDENDS, PROFIT SHARING AND INTEREST CREDITING

The projected policyholder dividends, profit sharing and interest crediting assumptions set by each Business Unit that have been used in calculating the EV Results presented in this report, reflect contractual and regulatory requirements, policyholders’ reasonable expectations (where clearly defined) and each Business Unit’s best estimate of future policies, strategies and operations consistent with the investment return assumptions used in the EV Results.

Participating fund surpluses have been assumed to be distributed between policyholders and shareholders via future final bonuses or at the end of the projection period so that there are no residual assets at the end of the projection period.

5.10 TAXATION

The projections of distributable earnings underlying the values presented in this report are net of corporate income tax, based on current taxation legislation and corporate income tax rates. The projected amount of tax payable in any year allows, where relevant, for the benefits arising from any tax loss carried forward.

The local corporate income tax rates used by each Business Unit are set out below:

Local corporate income tax rates by Business Unit (%)

	As at	As at
	30 November	30 November
Business Unit	2015	2014
AIA Australia	30.0	30.0
AIA China	25.0	25.0
AIA Hong Kong	16.5	16.5
AIA Indonesia	25.0	25.0
AIA Korea	24.2	24.2
AIA Malaysia(1)	25.0 for	25.0 for
	assessment	assessment
	year 2015;	years 2014
	24.0 thereafter	and 2015;
		24.0 thereafter
AIA New Zealand	28.0	28.0
Philam Life	30.0	30.0
AIA Singapore	17.0	17.0
AIA Sri Lanka	28.0	28.0
AIA Taiwan	17.0	17.0
AIA Thailand(2)	20.0	20.0 for
		assessment
		years 2014
		and 2015;
		30.0 thereafter
AIA Vietnam	22.0 for	22.0 for
	assessment	assessment
	year 2015;	years 2014
	20.0 thereafter	and 2015;
		20.0 thereafter

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Notes:

(1) The Malaysian Government announced a corporate income tax rate change in the Federal Government Budget 2014 which will be effective from assessment year 2016.
(2) On 22 January 2016, the National Legislative Assembly of Thailand announced a change in corporate income tax rate from 30 per cent to 20 per cent from assessment year 2016 onward. This change had been previously approved by the cabinet of the Government of Thailand in October 2015. The reported EV is determined using a best estimate basis and therefore includes this revised corporate income tax rate in line with market practice. For clarity, VONB is reported at point of sale during the 2015 financial year and it has therefore been determined assuming the higher 30 per cent corporate income tax rate from assessment year 2016 onward. The approach for VONB is consistent with the treatment in 2014.

The tax assumptions used in the valuation reflect the local corporate income tax rates set out above. Where applicable, tax payable on investment income has been reflected in projected investment returns.

The EV of the Group as at 30 November 2015 is calculated after deducting any remittance taxes payable on the anticipated distribution of both the ANW and VIF.

Where territories have an imputation credit system in place, e.g. Australia, no allowance has been made for the value of the imputation credits in the results shown in this report.

5.11 STATUTORY VALUATION BASES

The projection of regulatory liabilities at future points in time assumes the continuation of the reserving methodologies used to value policyholder liabilities as at the valuation date.

The reserving basis under the China Risk Oriented Solvency System which was not implemented at the valuation date has not been applied.

On 10 June 2015, the Insurance Commission of the Republic of the Philippines issued a circular letter to the insurance industry announcing changes to the reserving basis which has been reflected in the EV of Philam Life as at 30 November 2015.

5.12 PRODUCT CHARGES

Management fees and product charges reflected in the VIF and VONB have been assumed to follow existing scales.

5.13 FOREIGN EXCHANGE

The EV as at 30 November 2015 and 30 November 2014 have been translated into US dollars using exchange rates as at each valuation date. The VONB results shown in this report have been translated into US dollars using the corresponding average exchange rates for each quarter. The other components of the EV profit shown in the analysis of movement in EV have been translated using average exchange rates for the period.

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6. Events after the Reporting Period

On 3 December 2015, the Financial Supervisory Commission of Taiwan announced changes to the Risk-Based Capital requirement. These changes are effective 31 December 2015. The impact is not expected to be significant.

On 7 December 2015, the Group announced an agreement, under which the Group will increase its shareholding in Tata AIA Life Insurance Company Limited from the current level of 26 per cent to 49 per cent. The completion of the transaction is subject to securing all necessary regulatory and governmental approvals.

On 15 December 2015, the Insurance Board of Sri Lanka announced the implementation of the Risk-Based Capital Requirement, effective 1 January 2016. The impact is not expected to be significant.

On 25 January 2016, the China Insurance Regulatory Commission announced the implementation of the China Risk Oriented Solvency System, effective 1 January 2016.

On 25 February 2016, the Board of Directors proposed a final dividend of 51.00 Hong Kong cents per share (2014: 34.00 Hong Kong cents per share).

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INFORMATION FOR SHAREHOLDERS

REVIEW OF ACCOUNTS

The Audit Committee has reviewed the Group’s consolidated financial statements for the year ended 30 November 2015, including the accounting principles and practices adopted by the Group.

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

Except as noted below, throughout the year ended 30 November 2015, the Company complied with all applicable provisions of the Corporate Governance Code. For the period from 1 December 2014 to 22 July 2015, the Company operated under a variant of the model required under Code Provision F.1.3, which provides that the company secretary should report to the chairman of the board and/or the chief executive such that the Group Company Secretary reported to the Group General Counsel who is ultimately accountable for the company secretarial function and who in turn reported directly to the Group Chief Executive. Following the appointment of the Group General Counsel as the Company Secretary on 22 July 2015, the Company has complied with Code Provision F.1.3.

The Company has also adopted its own Directors’ and Chief Executives’ Dealing Policy on terms no less exacting than those set out in the Model Code in respect of dealings by the Directors in the securities of the Company. All of the Directors confirmed, following specific enquiry by the Company, that they have complied with the required standards set out in the Model Code and the Directors’ and Chief Executives’ Dealing Policy throughout the year ended 30 November 2015.

PURCHASE, SALE AND REDEMPTION OF THE SECURITIES OF THE COMPANY

Save for the purchase of 16,867,524 shares and sale of 204,295 forfeited shares of the Company under the Restricted Share Unit Scheme and the Employee Share Purchase Plan at a total consideration of approximately US$99 million and US$1 million respectively, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the year ended 30 November 2015. These purchases and sales were made by the relevant scheme trustees on the Hong Kong Stock Exchange. These shares are held on trust for participants of the relevant schemes and therefore were not cancelled. Please refer to note 39 to the financial statements for details.

EVENTS AFTER THE REPORTING PERIOD

Details of significant events after the year ended 30 November 2015 are set out in note 45 to the financial statements.

PUBLICATION OF CERTAIN FINANCIAL AND OTHER DATA PURSUANT TO LOCAL REGULATORY REQUIREMENTS

The Company and its subsidiaries or their respective branches are subject to local regulatory oversight in each of the countries or jurisdictions in which they operate. In a number of these jurisdictions, local insurance and other regulations require the publication of certain financial and other data primarily for policyholders’ information and prudential supervisory purposes. The Local Statutory Data is often produced pursuant to regulations that are not designed with the protection or requirements of public shareholders as a primary objective. The Local Statutory Data that we expect to be published in 2016 includes the following:

Location	Expected Time of Publication
People’s Republic of China	Monthly
Hong Kong	March, May, August and November
Malaysia	February, March, May, July, August and November
Singapore	April and June

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Expected Time of Publication

Location

Korea March, May, August and November Thailand April, May, August and November

The Company uses IFRS to prepare its consolidated financial information. Local Statutory Data may be prepared on bases different from IFRS and may be substantially different from the Company’s audited IFRS financial information.

Accordingly, our shareholders and potential investors are advised that the Local Statutory Data should not be relied on for an assessment of the Company’s financial performance.

FINAL DIVIDEND

The Board has recommended a final dividend of 51.00 Hong Kong cents per share (2014: 34.00 Hong Kong cents per share) in respect of the year ended 30 November 2015. If approved, the proposed final dividend together with the interim dividend will represent a total dividend of 69.72 Hong Kong cents per share (2014: 50.00 Hong Kong cents per share) in respect of the year ended 30 November 2015.

Subject to shareholders’ approval at the AGM, the final dividend will be payable on Friday, 27 May 2016 to shareholders whose names appear on the register of members of the Company at the close of business on Wednesday, 11 May 2016.

CLOSURE OF REGISTER OF MEMBERS AND RECORD DATE

The register of members of the Company will be closed from Wednesday, 4 May 2016 to Friday, 6 May 2016, both dates inclusive, during which period, no transfer of shares will be registered. In order to qualify to attend and vote at the AGM, all properly completed transfer forms accompanied by the relevant share certificates must be lodged for registration with the Company’s share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong by no later than 4:30 p.m., Tuesday, 3 May 2016.

In order to qualify for the entitlement of the final dividend, all properly completed transfer forms, accompanied by the relevant share certificates, must be lodged for registration with the Company’s share registrar, Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong by no later than 4:30 p.m., Wednesday, 11 May 2016.

ANNUAL GENERAL MEETING

The 2016 Annual General Meeting will be held at 11:00 a.m. Hong Kong time on Friday, 6 May 2016 at The Grand Ballroom, Kowloon Shangri-La, Hong Kong, 64 Mody Road, Tsim Sha Tsui East, Kowloon, Hong Kong. Notice of the AGM will be published on the website of the Hong Kong Stock Exchange and the Company’s website.

Details of voting results at the AGM can be found on the website of the Hong Kong Stock Exchange at www.hkex.com.hk and the Company’s website at www.aia.com on Friday, 6 May 2016.

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FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements relating to the Group that are based on the beliefs of the Group’s management as well as assumptions made by and information currently available to the Group’s management. These forward-looking statements are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to the Group’s business prospects, future developments, trends and conditions in the industry and geographical markets in which the Group operates, its strategies, plans, objectives and goals, its ability to control costs, statements relating to prices, volumes, operations, margins, overall market trends, risk management and exchange rates.

When used in this document, the words “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may”, “ought to”, “plan”, “project”, “seek”, “should”, “will”, “would” and similar expressions, as they relate to the Group or the Group’s management, are intended to identify forwardlooking statements. These forward-looking statements reflect the Group’s views as of the date hereof with respect to future events and are not a guarantee of future performance or developments. You are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. Actual results and events may differ materially from information contained in the forward-looking statements as a result of a number of factors, including any changes in the laws, rules and regulations relating to any aspects of the Group’s business operations, general economic, market and business conditions, including capital market developments, changes or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices, the actions and developments of the Group’s competitors and the effects of competition in the insurance industry on the demand for, and price of, the Group’s products and services, various business opportunities that the Group may or may not pursue, changes in population growth and other demographic trends, including mortality, morbidity and longevity rates, persistency levels, the Group’s ability to identify, measure, monitor and control risks in the Group’s business, including its ability to manage and adapt its overall risk profile and risk management practices, its ability to properly price its products and services and establish reserves for future policy benefits and claims, seasonal fluctuations and factors beyond the Group’s control. Subject to the requirements of the Listing Rules, the Group does not intend to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forwardlooking events and circumstances discussed in this document might not occur in the way the Group expects, or at all. Accordingly, you should not place undue reliance on any forward-looking information or statements. All forward-looking statements in this document are qualified by reference to the cautionary statements set forth in this section.

By Order of the Board Mark Edward Tucker Executive Director Group Chief Executive and President

Hong Kong, 25 February 2016

As at the date of this announcement, the Board of Directors of the Company comprises:

Non-executive Chairman and Non-executive Director:

Mr. Edmund Sze-Wing Tse

Executive Director, Group Chief Executive and President:

Mr. Mark Edward Tucker

Independent Non-executive Directors:

Mr. Jack Chak-Kwong So, Mr. Chung-Kong Chow, Mr. John Barrie Harrison, Mr. George Yong-Boon Yeo, Mr. Mohamed Azman Yahya, Professor Lawrence Juen-Yee Lau, Ms. Swee-Lian Teo and Dr. Narongchai Akrasanee

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GLOSSARY

Accident and health (A&H) A&H insurance products provide morbidity or sickness benefits insurance products and include health, disability, critical illness and accident cover. A&H insurance products are sold both as stand-alone policies and as riders that can be attached to our individual life insurance policies.

Acquisition cost (of a financial instrument)

The amount of cash or cash equivalents paid or the fair value of other consideration provided, in order to acquire an asset at the date of its acquisition.

Active agent Active market

An agent who sells at least one policy per month.

A market in which all the following conditions exist:

the items traded within the market are homogeneous;
willing buyers and sellers can normally be found at any time; and
prices are available to the public.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

Adjusted net worth (ANW) ANW is the market value of assets in excess of the assets backing the policy reserves and other liabilities of the life (and similar) business of AIA, plus the IFRS equity value of other activities, such as general insurance business, less the value of intangible assets. It excludes any amounts not attributable to shareholders of AIA Group Limited. The market value of investment property and property held for own use that is used to determine the ANW is based on the fair value disclosed in AIA’s IFRS financial statements as at the valuation date. It is AIA’s policy to obtain external property valuations annually except in the case of a discrete event occurring in the interim that has a significant impact on the fair value of the properties.

AER Actual exchange rates. AGM 2016 Annual General Meeting of the Company to be held at 11:00 a.m. Hong Kong time on Friday, 6 May 2016. AIA or the Group AIA Group Limited and its subsidiaries. AIA Co. AIA Company Limited, a subsidiary of the Company. AIA International AIA International Limited, a subsidiary of AIA Co. AIA Vitality A science-backed wellness programme that provides participants with the knowledge, tools and motivation to help them achieve their personal health goals. The programme is a joint venture between AIA and Discovery Limited, a specialist insurer headquartered in South Africa.

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Amortised cost The amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount and the maturity amount, and minus any reduction for impairment or uncollectibility.

Annualised new premiums (ANP) ANP represents 100 per cent of annualised first year premiums and 10 per cent of single premiums, before reinsurance ceded. It is an internally used measure of new business sales or activity for all entities within AIA. ANP excludes new business of pension business, personal lines and motor insurance.
Annuity A savings product where the accumulated amount can be paid out to the customer in a variety of income streams.
ASPP Agency Share Purchase Plan. Asset-liability management ALM is the management of the relative risk profiles of assets and (ALM) liabilities. Available for sale (AFS) Financial assets that may be sold before maturity and that are financial assets used to back insurance and investment contract liabilities and shareholders’ equity, and which are not managed on a fair value basis. Non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables or as at fair value through profit or loss. Available for sale financial instruments are measured at fair value, with movements in fair value recorded in other comprehensive income.
Bancassurance The distribution of insurance products through banks or other financial institutions.
CER Constant exchange rates. Change on constant exchange rates is calculated using constant average exchange rates for current year and prior year.
Common control A business combination involving entities under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination.
Consolidated investment funds Investment funds in which the Group has interests and power to direct their relevant activities that affect the return of the funds.
Corporate Governance Code Corporate Governance Code set out in Appendix 14 to the Listing Rules.

Cost of capital (CoC) CoC is calculated as the face value of the required capital as at the valuation date less the present value of the net-of-tax investment return on the shareholder assets backing the required capital and the present value of projected releases from the assets backing the required capital. Where the required capital may be covered by policyholder assets such as surplus assets in participating funds, there is no associated cost of capital included in the VIF or VONB.

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Credit risk

The risk that third parties fail to meet their obligations to the Group when they fall due.

Deferred acquisition costs DAC are expenses of an insurer which are incurred in connection (DAC) with the acquisition of new insurance contracts or the renewal of existing insurance contracts. They include commissions and other variable sales inducements and the direct costs of issuing the policy, such as underwriting and other policy issue expenses. These costs are deferred and expensed to the consolidated income statement on a systematic basis over the life of the policy. DAC assets are tested for recoverability at least annually.

Deferred origination costs (DOC)
Origination costs are expenses which are incurred in connection with the origination of new investment contracts or the renewal of existing investment contracts. For contracts that involve the provision of investment management services, these include commissions and other incremental expenses directly related to the issue of each new contract. Origination costs on contracts with investment management services are deferred and recognised as an asset in the consolidated statement of financial position and expensed to the consolidated income statement on a systematic basis in line with the revenue generated by the investment management services provided. Such assets are tested for recoverability.
Defined benefit plans
Post-employment benefit plans under which amounts to be paid or services to be provided as post-retirement benefits are determined by reference to a formula usually based on employees’ earnings and/or years of service.
Defined contribution plans
Post-employment benefit plans under which amounts to be paid as post-retirement benefits are determined by contributions to a fund together with earnings thereon. The Group has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay the post-retirement benefits.
Discretionary participation features (DPF)

A contractual right to receive, as a supplement to guaranteed benefits, additional benefits or bonuses:

that are likely to be a significant portion of the total contractual benefits;
whose amount or timing is contractually at the discretion of the Group; and
that are contractually based on:
the performance of a specified pool of contracts or a specified type of contract;
realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or
the profit or loss of the Company, fund or other entity that issues the contract.

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Effective interest method A method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts future cash payments or receipts through the expected life of the financial instrument, or when appropriate, a shorter period, to the net carrying value of the financial asset or financial liability. Embedded value (EV) An actuarially determined estimate of the economic value of a life insurance business based on a particular set of assumptions as to future experience, excluding any economic value attributable to future new business. EPS Earnings per share. Equity attributable to EV Equity is the total of embedded value, goodwill and other shareholders of the Company intangible assets attributable to shareholders of the Company. on the embedded value basis (EV Equity) ESPP Employee Share Purchase Plan. ExCo The Executive Committee of the Group. Fair value The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Fair value through profit or loss Financial assets that are held to back unit-linked contracts and (FVTPL) participating funds or financial assets and liabilities that are held for trading. A financial asset or financial liability that is measured at fair value in the statement of financial position with gains and losses arising from movements in fair value being presented in the consolidated income statement as a component of the profit or loss for the year. Financial liquidity risk The risk that insufficient cash is available to meet payment obligations to counterparties as they fall due. First year premiums First year premiums are premiums received in the first year of a recurring premium policy, and include the amount of premiums that is expected to be required to provide insurance coverage until maturity. Foreign exchange rate risk The risk that the Company’s value may be affected by changes in exchange rates. FRC Financial Risk Committee. Free surplus ANW in excess of the required capital. Functional currency The currency of the primary economic environment in which the entity operates. GAMA International A worldwide association serving the professional development needs of field leaders in the insurance, investment and financial services industry.

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Goodwill Goodwill represents the excess of the purchase price of an acquisition over the fair value of the Group’s share of the net identifiable assets including VOBA of the acquired subsidiary, associate or joint venture at the date of acquisition. Group insurance An insurance scheme whereby individual participants are covered by a master contract held by a single group or entity on their behalf. Group Office Group Office includes the activities of the Group Corporate Centre segment consisting of the Group’s corporate functions, shared services and eliminations of intragroup transactions. HIBOR Hong Kong Interbank Offered Rate. HKFRS Hong Kong Financial Reporting Standards. HKOCI Hong Kong Office of the Commissioner of Insurance. Hong Kong The Hong Kong Special Administrative Region of the PRC; in the context of our reportable segments, Hong Kong includes Macau. Hong Kong Companies Ordinance A substantial part of the Companies Ordinance (Laws of Hong Kong, Chapter 622) which came into force on 3 March 2014. Hong Kong Insurance Companies The Insurance Companies Ordinance (Laws of Hong Kong, Ordinance (HKICO) Chapter 41) (HKICO) provides a legislative framework for the prudential supervision of the insurance industry in Hong Kong. The objectives of the HKICO are to protect the interests of the insuring public and to promote the general stability of the insurance industry.

Hong Kong Stock Exchange The Stock Exchange of Hong Kong Limited. (HKSE)

IAS International Accounting Standards. IASB International Accounting Standards Board. IFA Independent financial adviser. IFRS Standards and interpretations adopted by the International Accounting Standards Board (IASB) comprising:

International Financial Reporting Standards;
International Accounting Standards; and
Interpretations developed by the IFRS Interpretations Committee (IFRS IC) or the former Standing Interpretations Committee (SIC).

Insurance contract A contract under which the insurer accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if specified uncertain future events adversely affect the policyholder.

218

Insurance risk The potential loss resulting from mortality, morbidity, persistency, longevity and adverse expense experiences. Under IFRS, insurance risk means risk, other than financial risk, transferred from the holder of a contract to the issuer.

Interactive Mobile Office (iMO) iMO is a mobile office platform with a comprehensive suite of applications that allow agents and agency leaders to manage their daily activities from lead generation, sales productivity and recruitment activity through to development training and customer analytics.
Interactive Point of Sale (iPoS) iPoS is a secure, mobile point-of-sale technology that features a paperless sales process from the completion of the customer’s financial-needs analysis to proposal generation with electronic biometric signature of life insurance applications on tablet devices.
Investment contract An investment contract is an insurance policy that, whilst structured and regulated as a contract of insurance, does not meet the accounting definition of an insurance contract because it does not transfer significant insurance risk.
Investment experience Realised and unrealised investment gains and losses recognised in the consolidated income statement.
Investment income Investment income comprises interest income, dividend income and rental income.
Investment liquidity risk The risk that the Group will be unable to buy and sell securities. This is a function of the size of the Group’s holdings relative to the availability of counterparties willing to buy or sell these holdings at any given time. In times of stress, market losses will generally be compounded by forced sellers seeking unwilling buyers.
Investment property Property (land and/or a building or part of a building) held to earn rentals or for capital appreciation or both rather than for use by AIA.
Investment return Investment return consists of investment income plus investment experience.
IPO Initial public offering. Lapse risk The risk that, having purchased an insurance policy from AIA, customers either surrender the policy or cease paying premiums on it and so the expected stream of future premiums ceases. Lapse risk is taken into account in formulating projections of future premium revenues, for example when testing for liability adequacy and the recoverability of deferred acquisition and origination costs.

Liability adequacy testing An assessment of whether the carrying amount of an insurance liability needs to be increased or the carrying amount of related deferred acquisition and origination costs or related intangible assets decreased based on a review of future cash flows.

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Life Insurance and Market	A worldwide research, consulting and professional development
Research Association (LIMRA)	organisation, established to help its member companies from
	life insurance and financial services industries improve their
	marketing and distribution effectiveness.
Liquidity risk	A general term for the risks that companies may be unable to
	meet their obligations to counterparties as they fall due or to buy
	and sell securities as required. See also financial liquidity risk and
	investment liquidity risk.
Listing Rules	Rules Governing the Listing of Securities on The Stock Exchange
	of Hong Kong Limited.
Local Statutory Data	Certain financial and other data required to be published under
	local insurance and other regulations, primarily for policyholders’
	information and prudential supervisory purposes.
Market risk	The risk of financial loss from adverse movements in the value of
	assets owing to market factors, including changes in interest and
	foreign exchange rates, as well as movements in the spread of
	credit instruments to corresponding government bonds, or credit
	spread risk, and in equity and property prices.
Million Dollar Round Table	MDRT is a global professional trade association of life insurance
(MDRT)	and financial services professionals that recognises significant
	sales achievements and high service standards.
Model Code	Model Code for Securities Transactions by Directors of Listed
	Issuers set out in Appendix 10 to the Listing Rules.
Monetary items	Units of currency held and assets and liabilities to be received or
	paid in a fixed or determinable number of units of currency.
Net book value	The net value of an asset. Equal to its original cost (its book
	value) minus depreciation and amortisation.
Net funds to Group Corporate	In presenting net capital in/(out) flows to reportable segments,
Centre	capital outflows consist of dividends and profit distributions to
	the Group Corporate Centre segment and capital inflows consist
	of capital injections into reportable segments by the Group
	Corporate Centre segment. For the Group, net capital in/(out)
	flows reflect the net amount received from shareholders by way of
	capital contributions less amounts distributed by way of dividends.
Net profit	Net profit is calculated by subtracting a company’s total expenses
	from total revenue, including share of profit/(loss) from associates
	and joint venture and after tax.
Non-controlling interests	The equity in a subsidiary not attributable, directly or indirectly, to
	a parent. Also referred to as “minority interests”.
Non-participating life assurance	Contracts of insurance with no DPF.
n/a	Not available.
n/m	Not meaningful.
OPAT	Operating profit after tax attributable to shareholders of AIA Group
	Limited.

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Operating profit before tax and after tax

The Group defines operating profit before and after tax as profit excluding investment experience; investment income and investment management expenses related to unit-linked contracts; corresponding changes in insurance and investment contract liabilities in respect of unit-linked contracts and participating funds; changes in third-party interests in consolidated investment funds; policyholders’ share of tax relating to changes in insurance and investment contract liabilities and other significant items of non-operating income and expenses.

Operating return on shareholders’ allocated equity
Operating return on shareholders’ allocated equity is calculated as operating profit after tax attributable to shareholders of the Company, expressed as a percentage of the simple average of opening and closing shareholders’ allocated equity.

Operating segment

A component of an entity that:

engages in business activities from which it may earn revenues and incur expenses;
whose operating results are regularly reviewed by the entity’s chief operating decision-maker to make decisions about resources to be allocated to the segment and assess its performance; and
for which discrete financial information is available.
Operational risk

The risk of direct or indirect loss resulting from inadequate or failed internal processes, personnel and systems or from external events.

ORC Operational Risk Committee.

OTC Over-the-counter.

Other comprehensive income Items of income and expense that form part of total comprehensive income but, as required or permitted by IFRS, do not form part of profit or loss for the year, such as fair value gains and losses on available for sale financial assets.

Participating funds Participating funds are distinct portfolios where the policyholders have a contractual right to receive at the discretion of the insurer additional benefits based on factors such as the performance of a pool of assets held within the fund, as a supplement to any guaranteed benefits. The Group may either have discretion as to the timing of the allocation of those benefits to participating policyholders or may have discretion as to the timing and the amount of the additional benefits.
Participating policies Participating policies are contracts with DPF. Participating policies may either be written within participating funds or may be written within the Company’s general account, whereby the investment performance is determined for a group of assets or contracts, or by reference to the Company’s overall investment performance and other factors. The latter is referred to by the Group as “other participating business”. Whether participating policies are written within a separate participating fund or not largely depends on matters of local practice and regulation.

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Persistency	The percentage of insurance policies remaining in force from
	month to month in the past 12 months, as measured by premiums.
Philam Life	The Philippine American Life and General Insurance (PHILAM
	LIFE) Company, a subsidiary of AIA Co.; in the context of the
	Supplementary Embedded Value Information, Philam Life includes
	BPI-Philam Life Assurance Corporation.
Policyholder and shareholder	Investments other than those held to back unit-linked contracts as
investments	well as assets from consolidated investment funds.
Policyholder dividends	Policyholder dividends are the means of participating policyholders
	receiving the non-guaranteed element of the discretionary benefits,
	through which they participate in the investment return of the reference
	portfolio or pool of assets.
pps	Percentage points.
PRC	The People’s Republic of China.
Property held for own use	Property held for own use in AIA’s business.
Protection gap	The difference between the resources needed and resources
	available to maintain dependants’ living standards after the death
	of the primary wage-earner.
Puttable liabilities	A puttable financial instrument is one in which the holder of the
	instrument has the right to put the instrument back to the issuer
	for cash (or another financial asset). Units in investment funds
	such as mutual funds and open-ended investment companies
	are typically puttable instruments. As these can be put back to
	the issuer for cash, the non-controlling interest in any such funds
	which have to be consolidated by AIA are treated as financial
	liabilities.
RAS	Risk Appetite Statement.
Regulatory minimum capital	Net assets held to meet the minimum solvency margin
	requirement set by the HKICO that an insurer must meet in order
	to be authorised to carry on insurance business in or from Hong
	Kong.
Related parties	Related parties may be related to AIA for any of the following
	reasons:
	• they are directly or indirectly controlled by an AIA entity;

an AIA entity has significant influence on the party;
they are in a joint venture arrangement with an AIA entity;
they are part of AIA’s key management or a close member of the family of any key management or any entity that is controlled by these persons; or
they are a post-retirement benefit plan for the employees of AIA.

Renewal premiums Premiums receivable in subsequent years of a recurring premium policy.

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Repurchase agreements A repurchase transaction involves the sale of financial (repos) investments by AIA to a counterparty, subject to a simultaneous agreement to repurchase those securities at a later date at an agreed price. Accordingly, for accounting purposes, the securities are retained on AIA’s consolidated statement of financial position for the life of the transaction, valued in accordance with AIA’s policy for assets of that nature. The proceeds of the transaction are reported in the caption “Obligations under securities lending and repurchase agreements”. Interest expense from repo transactions is reported within finance costs in the consolidated income statement.

Reverse repurchase agreements A reverse repurchase transaction (reverse repo) involves the (reverse repos) purchase of financial investments with a simultaneous obligation to sell the assets at a future date, at an agreed price. Such transactions are reported within “Loans and deposits” in the consolidated statement of financial position. The interest income from reverse repo transactions is reported within investment return in the consolidated income statement.

Rider A supplemental plan that can be attached to a basic insurance policy, typically with payment of additional premiums.

Risk-adjusted return The return produced by an investment after accounting for the risks involved in producing that return.

Risk appetite Risk appetite is the amount of risk that companies are willing to take in order to achieve their business objectives.

Risk-Based Capital (RBC) RBC represents an amount of capital based on an assessment of risks that a company should hold to protect customers against adverse developments.

RMF Risk Management Framework.
RSU Scheme Restricted Share Unit Scheme.
RSUs Restricted share units. Securities lending Securities lending consists of the loan of certain securities within the Group’s financial investments to third parties on a short-term basis. The loaned securities continue to be recognised within the appropriate financial investment classifications in the Group’s consolidated statement of financial position.
Shadow accounting Investment experience (realised and unrealised investment gains and losses) has a direct effect on the measurement of insurance contract liabilities and related deferred acquisition costs and intangible assets, such as VOBA (see below). Shadow accounting permits adjustments to insurance contract liabilities and the related assets to be reflected in other comprehensive income to match the extent to which unrealised investment gains and losses are recognised in other comprehensive income.

Shareholders’ allocated equity Shareholders’ allocated equity is total equity attributable to shareholders of the Company, less the fair value reserve and foreign currency translation reserve and others.

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Singapore	The Republic of Singapore; in the context of our reportable
	segments, Singapore includes Brunei.
Single premiums	Single premiums are the lump sum payments from a policyholder,
	excluding first year premiums and renewal premiums.
SME	Small-and-medium sized enterprise.
SO Scheme	Share Option Scheme.
Solvency	The ability of an insurance company to satisfy its policyholder
	benefits and claims obligations.
Solvency ratio	The ratio of the total available capital to the regulatory minimum
	capital applicable to the insurer pursuant to relevant regulations.
Statement of financial position	Formerly referred to as the balance sheet.
Strategic asset allocation (SAA)	SAA is the setting of strategic asset allocation targets, based
	on long-term capital market assumptions, to meet long-term
	requirements of the insurance business and shareholders.
Strategic risk	The adverse impacts from unexpected changes to the Group’s
	operating and market environment.
Stress tests	The application of shocks to the assumptions underlying
	valuations. Stress tests are used to observe the resilience of the
	Company to stress events and the volatility of those valuations.
Takaful	Islamic insurance which is based on the principles of mutual
	assistance and risk sharing.
The Company	AIA Group Limited.
Total weighted premium income	TWPI consists of 100 per cent of renewal premiums, 100 per
(TWPI)	cent of first year premiums and 10 per cent of single premiums,
	before reinsurance ceded. As such it provides an indication of
	AIA’s longer-term business volumes as it smoothes the peaks and
	troughs in single premiums.
Underwriting	The process of examining, accepting or rejecting insurance risks,
	and classifying those accepted, in order to charge an appropriate
	premium for each accepted risk.
Unit-linked investments	Financial investments held to back unit-linked contracts.
Unit-linked products	Unit-linked products are insurance products where the policy
	value is linked to the value of underlying investments (such as
	collective investment schemes, internal investment pools or other
	property) or fluctuations in the value of underlying investment or
	indices. Investment risk associated with the product is usually
	borne by the policyholder. Insurance coverage, investment and
	administration services are provided for which the charges are
	deducted from the investment fund assets. Benefits payable will
	depend on the price of the units prevailing at the time of death
	of the insured or surrender or maturity of the policy, subject to
	surrender charges.

224

Universal life

A type of insurance product where the customer pays flexible premiums, subject to specified limits, which are accumulated in an account balance which are credited with interest at a rate either set by the insurer or reflecting returns on a pool of matching assets. The customer may vary the death benefit and the contract may permit the policyholder to withdraw the account balance, typically subject to a surrender charge.

Value of business acquired (VOBA)
VOBA in respect of a portfolio of long-term insurance and investment contracts acquired is recognised as an asset, calculated using discounted cash flow techniques, reflecting all future cash flows expected to be realised from the portfolio. VOBA is amortised over the estimated life of the contracts in the acquired portfolio on a systematic basis. The rate of amortisation reflects the profile of the additional value of the business acquired. The carrying value of VOBA is reviewed annually for impairment and any impairment is charged to the consolidated income statement.
Value of in-force business (VIF)
VIF is the present value of projected after-tax statutory profits emerging in the future from the current in-force business less the cost arising from holding the required capital (CoC) to support the in-force business.
Value of new business (VONB)
VONB is the present value, measured at the point of sale, of projected after-tax statutory profits emerging in the future from new business sold in the period less the cost of holding the required capital in excess of regulatory reserves to support this business. VONB for AIA is stated after adjustments to reflect additional Hong Kong reserving and capital requirements and the after-tax value of unallocated Group Office expenses. VONB by market is stated before adjustments to reflect additional Hong Kong reserving and capital requirements and unallocated Group Office expenses, and presented on a local statutory basis.
VONB margin VONB excluding pension business, expressed as a percentage of ANP. VONB margin for AIA is stated after adjustments to reflect additional Hong Kong reserving and capital requirements and the after-tax value of unallocated Group Office expenses. VONB margin by market is stated before adjustments to reflect additional Hong Kong reserving and capital requirements and unallocated Group Office expenses, and presented on a local statutory basis.
Withholding tax When a payment is made to a party in another country, the laws of the payer’s country may require withholding tax to be applied to the payment. International withholding tax may be required for payments of dividends or interest. A double tax treaty may reduce the amount of withholding tax required, depending upon the jurisdiction in which the recipient is tax resident.
Working capital Working capital comprises debt and equity securities, deposits and cash and cash equivalents held at the Group Corporate Centre. These liquid assets are available to invest in building the Group’s business operations.

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AI assistant

AIA Group Limited — Annual Report 2015

49833_rns_2016-02-24_7b5afd5d-5e87-48b5-9440-de3c6baacf56.pdf

ANNUAL RESULTS FOR THE YEAR ENDED 30 NOVEMBER 2015

AIA DELIVERS STRONG GROWTH IN 2015

VONB UP 26 PER CENT ON CONSTANT EXCHANGE RATES OPERATING PROFIT UP 16 PER CENT AND FINAL DIVIDEND UP 50 PER CENT

Strong growth in value of new business (VONB) (on a constant exchange rate basis)

Robust operating profit growth (on a constant exchange rate basis)

Strong cash flow and capital position

Significant increase in recommended final dividend

Mark Tucker, AIA’s Group Chief Executive and President, said:

About AIA

Contacts

FINANCIAL SUMMARY

Performance Highlights

New Business Performance by Segment

Notes:

TABLE OF CONTENTS

GROUP CHIEF EXECUTIVE AND PRESIDENT’S REPORT

2015 PERFORMANCE HIGHLIGHTS (ON A CONSTANT EXCHANGE RATE BASIS)

GROUP-WIDE OVERVIEW

Distribution

Marketing and Product Innovation

CORPORATE SOCIAL RESPONSIBILITY (CSR)

ENGAGEMENT WITH PEOPLE

OUTLOOK

FINANCIAL AND OPERATING REVIEW

FINANCIAL REVIEW

Summary

VALUE GROWTH

IFRS EARNINGS

CAPITAL AND DIVIDENDS

New Business Growth

VALUE OF NEW BUSINESS (VONB), ANNUALISED NEW PREMIUMS (ANP) AND MARGIN BY SEGMENT

Embedded Value (EV) Equity

EV OPERATING PROFIT

EV OPERATING PROFIT PER SHARE – BASIC

EV OPERATING PROFIT PER SHARE – DILUTED

EV NON-OPERATING MOVEMENT

ANALYSIS OF EV MOVEMENT

EV AND VONB SENSITIVITIES

IFRS Profit

IFRS OPERATING PROFIT AFTER TAX (OPAT)[(1)] BY SEGMENT

TOTAL WEIGHTED PREMIUM INCOME (TWPI) BY SEGMENT

INVESTMENT INCOME[(1)]

OPERATING EXPENSES

NET PROFIT[(1)]

IFRS NON-OPERATING MOVEMENT

MOVEMENT IN SHAREHOLDERS’ ALLOCATED EQUITY

IFRS Earnings per Share (EPS)

IFRS EARNINGS PER SHARE – BASIC

IFRS EARNINGS PER SHARE – DILUTED

Capital

FREE SURPLUS GENERATION

NET FUNDS TO GROUP CORPORATE CENTRE

IFRS Balance Sheet

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

UNIT-LINKED CONTRACTS AND CONSOLIDATED INVESTMENT FUNDS

POLICYHOLDER AND SHAREHOLDER INVESTMENTS

ASSETS

LIABILITIES

Regulatory Capital

Global Medium Term Note Programme

Credit Ratings

Dividends

BUSINESS REVIEW

Distribution

AGENCY

PARTNERSHIPS

Bancassurance

Direct Marketing and Other Partnership Channels

GROUP INSURANCE

Marketing

CUSTOMER ENGAGEMENT

PRODUCT DEVELOPMENT

Technology and Operations

DRIVING OPERATIONAL EFFICIENCY AND PRODUCTIVITY

SIMPLIFYING CUSTOMER INTERACTIONS

PROMOTING INNOVATION

Geographical Markets

AIA Group Limited Annual Report 2015