CHAIRMAN AND PRESIDENT'S REPORT

     We believe that leadership is secured and determined not by when you get to the top, but how long you are able to maintain that position. Having remained consistently the No. 1 non-life insurance company in the country for the past 37 years, we at the Malayan Group of Insurance Companies are very pleased to report that we are as passionately driven to excel and lead the industry as when we first strove to get here.

     As 2007 came to a close, we were thankful for maintaining a strong initiative to adapt, innovate and be even more responsive and relevant to the needs of our clients. The climate was favorable for growth in general. The country's GDP rose by an impressive 11% from its 2006 figure, following an upward trend in the last five years. The peso was trading at around the Php41 level to a US dollar and was Asia's best performing currency.

     It was a challenging year nevertheless, but we were able to surpass it on the strength of our collective leadership as the largest non-life insurance group in the Philippines. Tokio Marine Malayan Insurance Co. Inc. increased its underwriting income to P195 million and grew its investment and other income by 19%. First Nationwide Assurance Corporation experienced a 14% growth in total assets at P720 million, while Bankers Assurance Corporation enjoyed a 33% growth in gross premiums and a 29% increase in net insurance premiums.

     The Group's flagship company, Malayan Insurance Co., Inc., remained far and above the non-life insurance industry leader in gross premiums written and continued to enjoy stability on its 77th year of service to the Filipino people. MICO's gross premium revenues reached P5.71 billion, grown by 16% or P782 million higher than P5 billion in 2006.

     We were able to secure these gains despite the volatility of our operating environment. The imposition of the minimum capitalization of P100 million, which would increase to P500 million by 2011 as strictly mandated by the Insurance Commission has already been rationalizing the industry even more. This mandate has shaken up the industry considerably, leading to several mergers and public offers to help other fledgling firms beef up their capital base. While resistance was expected, companies also rushed to introduce more products at much lower prices and sought ways to venture into new markets, such as microinsurance, environment coverage, and the like.

     MICO's capital base of P750 million makes us well secured in this regard and is our assurance of our more-than-adequate capability to meet the insurance needs of our clients.

     Owning to this improved capitalization and stronger regulatory environment, the industry saw a considerable rise in non-life premiums and insurance penetration level in 2007. Consequently, the Philippines' non-life insurance industry finally gained a more favorable stable outlook from Standard & Poors, rising from the negative financial strength outlook in 2006 and now reflecting improved underwriting performance and strong growth prospects.

     This came about despite the drawn out clamor from many non-life insurance companies over the Compulsory Third Party Liability Issue that was first raised by the LTO and taken up by the government's GSIS agency. We hope the compromise plan works well for the benefit of all parties concerned.

     For a company to stay on top, the main challenge is always to surpass itself in every aspect and thus create a consistently high performing organization. We exhort every employee to live up to this challenge and play an active role in realizing Malayan's vision, which is to make our name synonymous with Non-Life Insurance.

    We have implemented a number of strategies to achieve this end. In terms of improving relationships with customers, we continued to invest in systems computerization and restructuring to improve our turnaround time, Malayan Insurance has implemented next level service concepts such as the First Contact Claims System that was successfully pilot-tested in our Makati Branch and eventually applied in our Head Office. This has resulted in improved turn around time for claims processing. Our pursuit of ISO certification, among others, will also ensure control and improvement in the quality of our products and services.

    The other companies within the Malayan Group individually implemented several effective strategies for retail growth. First Nationwide Assurance Corporation (FNAC) saw the value of going direct to customers in offering its Club Direct car insurance. Tokio Marine Malayan Insurance Company (TMMIC) intensified its business engagement with Japanese trading firms in the country and thereby expanded its Japanese accounts.

    For our intermediaries, our sales agents, brokers and partners, we have resolved to increase our interactions, enhance partnership drives and incentives, and intensify their training and development. Retaining their loyalty, increasing their motivation and improving their capabilities have been important considerations in all our activities, knowing they are our essential personal link to our clients.

    Likewise, we also focused on improving our relationship with employees, who we believe are the main source of our competitive advantage. We therefore devoted ourselves to enhance employee development via extensive training and recognition programs as well as commensurate benefits in health and wellness, social and recreational activities, and workplace improvement.

OUTLOOK FOR 2008

    The strong position in which we closed 2007 has poised us to meet what is shaping up to be a difficult 2008. Soaring oil prices, a slowdown in the US economy, and the negative effects of a strong peso slowed the Philippine economy in the first quarter and may prompt the government to cut its full-year growth forecast. First quarter 2008 GDP already slackened to 5.2 percent from its previous year's performance of 7.0 percent.

    Doubling our drive to deepen the insurance penetration rate is now our priority in light of this scenario. We at Malayan will continue to leverage on our leadership position to build and secure more partnerships that will open new markets for us. One direction that we are heading in is the micro loan insurance, and we continue to make inroads by having extensively pioneered in this segment, way ahead of the competition.

    By constantly rebuilding on our internal strengths, infusing renewed spirit and drive, we can assure our stockholders, officers, agents, employees and clients that we will continue to be at the top of the industry for many years to come. Once again, we thank everyone for your continued confidence and support.