29, 2010 2009 Title of each class Name of each exchange on which registered Yeso No Large accelerated filer 25, 2008
SECURITIES AND EXCHANGE COMMISSION¨o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 xþ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 2007¨o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ¨o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Jurisdiction of incorporation or organization)Chaowai AvenueChaoyangFinancial Street
Xicheng District
Beijing 100020,100033, China
(Address of principal executive offices)
16 Financial Street
Xicheng District
Beijing 100033, China
Tel: (86-10) 6363-1191
Fax: (86-10) 6657-5112
Email: liyh@e-chinalife.com
(Name, Telephone, Email and/or Facsimile Number and Address of Company Contact Person) American depositary shares New York Stock Exchange H shares, par value RMB1.00 per share New York Stock Exchange* * Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares, each representing 15 H shares.
(Title of Class)
(Title of Class)classclasses of capital or common stock as of the close of the period covered by the annual report.2007,2009, 7,441,175,000 H shares and 20,823,530,000 A shares, par value RMB1.00 per share, were issued and outstanding. H shares are listed on the Hong Kong Stock Exchange. Since January 9, 2007, A shares have beenare listed on the Shanghai Stock Exchange. Both H shares and A shares are ordinary shares.xþ Yes¨o No¨o Yesxþ Noxþ Yes¨o NoxAccelerated filer ¨þ Accelerated filero Non-accelerated filer ¨oU.S. GAAP ¨International Financial Reporting Standards as issued by the International Accounting Standards Board ¨Other x¨o Item 17xo Item 18¨o Yesxþ No
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ii
future developments in the insurance industry in China;
• | future developments in the insurance industry in China; | ||
• | the industry regulatory environment as well as the industry outlook generally; | ||
• | the amount and nature of, and potential for, future development of our business; | ||
• | the outcome of litigation and regulatory proceedings that we currently face or may face in the future; | ||
• | our business strategy and plan of operations; | ||
• | the prospective financial information regarding our business; | ||
• | our dividend policy; and | ||
• | information regarding our embedded value. |
the industry regulatory environment as well as the industry outlook generally;
the amount and nature of, and potential for, future development of our business;
the outcome of litigation and regulatory proceedings that we currently face or may face in the future;
our business strategy and plan of operations;
the prospective financial information regarding our business;
our dividend policy; and
information regarding our embedded value.
In some cases, we use words such as “believe”, “intend”, “anticipate”, “estimate”, “project”, “forecast”, “plan”, “potential”, “will”, “may”, “should” and “expect” and similar expressions to identify forward-looking statements. All statements other than statements of historical facts included in this annual report, including statements regarding our future financial position, strategy, projected costs and plans and objectives of management for future operations, are forward-looking statements. Although we believe that the expectations reflected in those forward-looking statements are reasonable, we can give no assurance that those expectations will prove to have been correct, and you are cautioned not to place undue reliance on such statements. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Item 3. Key Information—Risk Factors” and elsewhere in this annual report, including in conjunction with the forward-looking statements included in this annual report. We undertake no obligation to publicly update or revise any forward-looking statements contained in this annual report, whether as a result of new information, future events or otherwise, except as required by law. All forward-looking statements contained in this annual report are qualified by reference to this cautionary statement.
1
Conventions
References to “A share offering” mean the 1,500,000,000 ordinary domestic shares which were newly issued by us on December 26, 2006 and offered to strategic, institutional and public investors as approved by the CSRC. References to “CLIC A shares” mean the 19,323,530,000 ordinary domestic shares held by CLIC prior to the A share offering, which have been registered with the China Securities Depository and Clearing Corporation Limited as circulative A shares with restrictive trading following the A share offering. CLIC has undertaken that for a period of 36 months commencing on January 9, 2007, it will not transfer or put on trust the CLIC A shares held by it or allow such CLIC A shares to be repurchased by China Life. IFRS.
Exchange of the PRC. References to “effective date”“SAIC” mean June 30, 2003, the effective dateState Administration for Industry and Commerce of the restructuring under the restructuring agreement between CLIC and us.
PRC.
References to “U.S. GAAP” mean the generally accepted accounting principles in the United States, references to “HKFRS” mean the financial reporting standards in Hong Kong, which are effective for accounting periods commencing on or after January 1, 2005, and references to “PRC GAAP” mean the PRC Accounting Standards for Business Enterprises (2006) applicable to companies listed in the PRC, which are effective for accounting periods commencing on or after January 1, 2007. Unless otherwise indicated, our financial information presented in this annual report has been prepared in accordance with HKFRS.2
3
4
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS. |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE. |
ITEM 3. | KEY INFORMATION. |
For a reconciliation of our consolidated net profit and consolidated shareholders’ equity to U.S. GAAP, see Note 35 of the notes to the consolidated financial statements included elsewhere in this annual report.
We were formed on June 30, 2003 in connection with CLIC’s restructuring. In connection with the restructuring, CLIC transferred to us (1) all long-term insurance policies (policies having a term of more than one year from the date of issuance) issued on or after June 10, 1999, having policy terms approved by or filed with the CIRC on or after June 10, 1999 and either (i) recorded as a long-term insurance policy as of June 30, 2003 in a database attached to the restructuring agreement as an annex or (ii) having policy terms for group supplemental medical insurance (fund type), (2) stand-alone short-term policies (policies having a term of one year or less from the date of issuance) issued on or after June 10, 1999 and (3) all riders supplemental to the policies described in clauses (1) and (2) above, together with the reinsurance contracts specified in an annex to the restructuring agreement. We refer to these policies as the “transferred policies”. See “Item 4. Information on the Company—History and Development of the Company—Our Restructuring”. All other insurance policies were retained by CLIC. We refer to these policies as the “non-transferred policies”. We assumed all obligations and liabilities of CLIC under the transferred policies. CLIC continues to be responsible for its liabilities and obligations under the non-transferred policies following the restructuring. The restructuring was effected through a restructuring agreement entered into with CLIC on September 30, 2003, with retroactive effect to June 30, 2003. Pursuant to PRC law and the restructuring agreement, the transferred policies were transferred to us as of June 30, 2003; however, for accounting purposes, the restructuring is treated as having occurred on September 30, 2003, the date of which all of the assets to be transferred were specifically identified. Therefore, for accounting purposes, our financial statements reflected a deemed distribution of assets to CLIC and deemed assumption of liabilities by CLIC as of September 30, 2003. To give effect to the restructuring agreement, the results of operations attributable to the timing difference between the effectiveness of the restructuring under the PRC law and the effectiveness of the restructuring for accounting purposes are reflected as a capital contribution from CLIC to us as of October 1, 2003. The business constituted by the policies and assets transferred to us and the obligations and liabilities assumed by us and the business constituted by the policies, assets, obligations and liabilities retained by CLIC were, prior to the restructuring, under common management from a number of significant aspects. Therefore, our consolidated balance sheet data and consolidated income statement as of and for the year ended December 31, 2003 reflect the restructuring as having occurred on September 30, 2003.
2009 only.
For the year ended December 31, | ||||||||||||||||||
Consolidated Income Statement Data | 2003(1) | 2004 | 2005 | 2006 | 2007 | 2007 | ||||||||||||
RMB | RMB | RMB | RMB | RMB | US$ | |||||||||||||
(in millions except for per share data) | ||||||||||||||||||
HKFRS | ||||||||||||||||||
Revenues | ||||||||||||||||||
Gross written premiums and policy fees | 69,334 | 66,257 | 81,022 | 99,417 | 111,886 | 15,338 | ||||||||||||
Less: premiums ceded to reinsurers | (1,571 | ) | (1,182 | ) | (769 | ) | (140 | ) | (85 | ) | (12 | ) | ||||||
Net written premiums and policy fees | 67,763 | 65,075 | 80,253 | 99,277 | 111,801 | 15,327 | ||||||||||||
Net change in unearned premium reserves | (547 | ) | (67 | ) | (215 | ) | (430 | ) | (397 | ) | (54 | ) | ||||||
Net premiums earned and policy fees | 67,216 | 65,008 | 80,038 | 98,847 | 111,404 | 15,272 | ||||||||||||
Net investment income | 9,825 | 11,317 | 16,685 | 24,942 | 44,020 | 6,035 | ||||||||||||
Net realized gains/(losses) on financial assets | — | — | (510 | ) | 1,595 | 15,385 | 2,109 | |||||||||||
Net realized gains/(losses) on investments | 868 | (237 | ) | — | — | — | — | |||||||||||
Net fair value gains on assets at fair value through income (held-for-trading) | — | — | 260 | 20,044 | 18,843 | 2,583 | ||||||||||||
Net unrealized gains/(losses) on trading assets | 247 | (1,061 | ) | — | — | — | — | |||||||||||
Other income | 727 | 1,779 | 1,739 | 1,883 | 1,720 | 236 | ||||||||||||
Total revenues | 78,883 | 76,806 | 98,212 | 147,311 | 191,372 | 26,235 | ||||||||||||
Benefits, claims and expenses | ||||||||||||||||||
Insurance benefits and claims | ||||||||||||||||||
Life insurance death and other benefits | (8,570 | ) | (6,816 | ) | (8,311 | ) | (10,797 | ) | (17,430 | ) | (2,389 | ) | ||||||
Accident and health claims and claim adjustment expenses | (4,882 | ) | (6,418 | ) | (6,847 | ) | (6,999 | ) | (6,343 | ) | (870 | ) | ||||||
Increase in long-term traditional insurance contracts liabilities | (39,966 | ) | (25,361 | ) | (33,977 | ) | (44,238 | ) | (45,334 | ) | (6,215 | ) | ||||||
Interest credited to long-term investment type insurance contracts | (6,811 | ) | (3,704 | ) | (4,894 | ) | (6,386 | ) | (7,181 | ) | (984 | ) | ||||||
Interest credited to investment contracts | (449 | ) | (616 | ) | (973 | ) | (996 | ) | (1,138 | ) | (156 | ) | ||||||
Increase in deferred income | (5,942 | ) | (7,793 | ) | (8,521 | ) | (11,607 | ) | (9,859 | ) | (1,352 | ) | ||||||
Policyholder dividends resulting from participation in profits | (1,207 | ) | (2,048 | ) | (5,359 | ) | (17,617 | ) | (29,251 | ) | (4,010 | ) | ||||||
Amortization of deferred policy acquisition costs | (5,023 | ) | (6,263 | ) | (7,766 | ) | (10,259 | ) | (13,461 | ) | (1,845 | ) | ||||||
Underwriting and policy acquisition costs | (1,294 | ) | (1,472 | ) | (1,845 | ) | (2,415 | ) | (2,725 | ) | (374 | ) | ||||||
Administrative expenses | (6,862 | ) | (6,585 | ) | (7,237 | ) | (9,339 | ) | (11,798 | ) | (1,617 | ) | ||||||
Other operating expenses | (872 | ) | (131 | ) | (798 | ) | (859 | ) | (1,651 | ) | (226 | ) | ||||||
Interest expense on bank borrowings | (7 | ) | — | — | — | — | — | |||||||||||
Statutory insurance fund | (85 | ) | (96 | ) | (174 | ) | (194 | ) | (219 | ) | (30 | ) | ||||||
Total benefits, claims and expenses | (81,970 | ) | (67,303 | ) | (86,702 | ) | (121,706 | ) | (146,390 | ) | (20,068 | ) | ||||||
Share of results of associates | — | — | — | — | 409 | 56 | ||||||||||||
Net profit/(loss) before income tax expense | (3,087 | ) | 9,503 | 11,510 | 25,605 | 45,391 | 6,223 | |||||||||||
Income tax expense | (1,180 | ) | (2,280 | ) | (2,145 | ) | (5,554 | ) | (6,331 | ) | (868 | ) | ||||||
Net profit/(loss) | (4,267 | ) | 7,223 | 9,365 | 20,051 | 39,060 | 5,355 | |||||||||||
Attributable to: | ||||||||||||||||||
—Shareholders of the Company | (4,252 | ) | 7,171 | 9,306 | 19,956 | 38,879 | 5,330 | |||||||||||
—Minority interest | (15 | ) | 52 | 59 | 95 | 181 | 25 | |||||||||||
Basic and diluted earnings/(loss) per share(2) | (0.21 | ) | 0.27 | 0.35 | 0.75 | 1.38 | 0.19 | |||||||||||
Dividends | — | — | 1,338 | 3,957 | 11,871 | 1,627 |
5
Consolidated Income Statement Data U.S. GAAP Revenues Net profit/(loss) attributable to shareholders of the Company Net profit/(loss) per share(2) Net profit/(loss) per ADS(2) Net profit/(loss) per ADS(3) For the year ended December 31, 2003(1) 2004 2005 2006 2007 2007 RMB RMB RMB RMB RMB US$ (in millions except for per share data) 78,883 76,806 98,212 147,311 191,372 26,235 (1,287 ) 7,171 9,306 19,956 43,625 5,980 (0.06 ) 0.27 0.35 0.75 1.54 0.21 (2.54 ) 10.72 13.91 N/A N/A N/A (0.95 ) 4.02 5.22 11.18 23.15 3.17
For the year ended December 31, | ||||||||||||
IFRS | 2008 | 2009 | 2009 | |||||||||
RMB | RMB | US$ | ||||||||||
(in millions except for per share data) | ||||||||||||
Consolidated Statement of Comprehensive Income | ||||||||||||
Revenues | ||||||||||||
Gross written premiums | 265,656 | 275,970 | 40,430 | |||||||||
Less: premiums ceded to reinsurers | (156 | ) | (158 | ) | (23 | ) | ||||||
Net written premiums | 265,500 | 275,812 | 40,407 | |||||||||
Net change in unearned premium reserves | (323 | ) | (735 | ) | (108 | ) | ||||||
Net premiums earned | 265,177 | 275,077 | 40,299 | |||||||||
Investment income | 44,946 | 38,890 | 5,697 | |||||||||
Net realized gains/(losses) on financial assets | (5,964 | ) | 21,244 | 3,112 | ||||||||
Net fair value gains/(losses) on assets at fair value through income (held-for-trading) | (7,194 | ) | 1,449 | 212 | ||||||||
Other income | 3,420 | 2,630 | 385 | |||||||||
Total revenues | 300,385 | 339,290 | 49,706 | |||||||||
Benefits, claims and expenses | ||||||||||||
Insurance benefits and claims | ||||||||||||
Life insurance death and other benefits | (89,659 | ) | (74,858 | ) | (10,967 | ) | ||||||
Accident and health claims and claim adjustment expenses | (7,641 | ) | (7,808 | ) | (1,144 | ) | ||||||
Increase in insurance contracts liabilities | (134,649 | ) | (154,372 | ) | (22,616 | ) | ||||||
Investment contract benefits | (1,931 | ) | (2,142 | ) | (314 | ) | ||||||
Policyholder dividends resulting from participation in profits | (1,671 | ) | (14,487 | ) | (2,122 | ) | ||||||
Underwriting and policy acquisition costs | (24,200 | ) | (22,936 | ) | (3,360 | ) | ||||||
Administrative expenses | (16,652 | ) | (18,719 | ) | (2,742 | ) | ||||||
Other operating expenses | (3,409 | ) | (2,390 | ) | (350 | ) | ||||||
Statutory insurance fund | (558 | ) | (537 | ) | (79 | ) | ||||||
Total benefits, claims and expenses | (280,370 | ) | (298,249 | ) | (43,694 | ) | ||||||
Share of results of associates | (56 | ) | 704 | 103 | ||||||||
Net profit before income tax expenses | 19,959 | 41,745 | 6,116 | |||||||||
Income tax expenses | (685 | ) | (8,709 | ) | (1,276 | ) | ||||||
Net profit | 19,274 | 33,036 | 4,840 | |||||||||
Attributable to: | ||||||||||||
- Shareholders of the Company | 19,137 | 32,881 | 4,817 | |||||||||
- Minority interests | 137 | 155 | 23 | |||||||||
Basic and diluted earnings per share(1) | 0.68 | 1.16 | 0.17 | |||||||||
Other comprehensive income/(loss) | ||||||||||||
Available-for-sale financial assets | ||||||||||||
Arising from available-for-sale securities | (61,622 | ) | 39,470 | 5,782 | ||||||||
Reclassification adjustment for gains included in profit or loss | 4,878 | (21,040 | ) | (3,082 | ) | |||||||
Impact from available-for-sale securities on other assets and liabilities | 11,702 | (3,999 | ) | (586 | ) | |||||||
Share of other comprehensive income/(loss) of associates | 291 | (70 | ) | (10 | ) | |||||||
Others | (3 | ) | — | — | ||||||||
Income tax relating to components of other comprehensive income/(loss) | 11,260 | (3,607 | ) | (528 | ) | |||||||
Other comprehensive income/(loss) for the year | (33,494 | ) | 10,754 | 1,575 | ||||||||
Total comprehensive income/(loss) for the year | (14,220 | ) | 43,790 | 6,415 | ||||||||
Attributable to | ||||||||||||
- Shareholders of the Company | (14,316 | ) | 43,626 | 6,391 | ||||||||
- Minority interests | 96 | 164 | 24 |
Numbers for |
6
As of December 31, | ||||||||||||
IFRS | 2008 | 2009 | 2009 | |||||||||
RMB | RMB | US$ | ||||||||||
(in millions) | ||||||||||||
Consolidated Statement of Financial Position | ||||||||||||
Assets | ||||||||||||
Property, plant and equipment | 16,720 | 17,467 | 2,559 | |||||||||
Investments in associates | 7,891 | 8,470 | 1,241 | |||||||||
Financial assets | ||||||||||||
Held-to-maturity securities | 211,929 | 235,099 | 34,442 | |||||||||
Loans | 17,926 | 23,081 | 3,381 | |||||||||
Term deposits | 228,272 | 344,983 | 50,540 | |||||||||
Statutory deposits—restricted | 6,153 | 6,153 | 901 | |||||||||
Available-for-sale securities | 424,939 | 517,499 | 75,814 | |||||||||
Securities at fair value through income | 14,099 | 9,133 | 1,338 | |||||||||
Accrued investment income | 13,149 | 14,208 | 2,081 | |||||||||
Premiums receivables | 6,433 | 6,818 | 999 | |||||||||
Reinsurance assets | 940 | 832 | 122 | |||||||||
Other assets | 4,957 | 6,317 | 925 | |||||||||
Cash and cash equivalents | 34,085 | 36,197 | 5,303 | |||||||||
Total assets | 987,493 | 1,226,257 | 179,648 | |||||||||
Liabilities and equity | ||||||||||||
Liabilities | ||||||||||||
Insurance contracts | 662,865 | 818,164 | 119,862 | |||||||||
Financial liabilities | ||||||||||||
Investment contracts | 65,063 | 67,326 | 9,863 | |||||||||
Securities sold under agreements to repurchase | 11,390 | 33,553 | 4,916 | |||||||||
Policyholder dividends payable | 43,178 | 54,587 | 7,997 | |||||||||
Annuity and other insurance balances payable | 4,980 | 5,721 | 838 | |||||||||
Premiums received in advance | 1,811 | 1,804 | 264 | |||||||||
Other liabilities | 11,057 | 11,978 | 1,755 | |||||||||
Deferred tax liabilities | 10,344 | 16,361 | 2,397 | |||||||||
Current income tax liabilities | 1,668 | 3,850 | 564 | |||||||||
Statutory insurance fund | 266 | 137 | 20 | |||||||||
Total liabilities | 812,622 | 1,013,481 | 148,476 | |||||||||
Shareholders’ equity | ||||||||||||
Share capital | 28,265 | 28,265 | 4,141 | |||||||||
Reserves | 84,447 | 102,787 | 15,058 | |||||||||
Retained earnings | 61,235 | 80,020 | 11,723 | |||||||||
Total shareholders’ equity | 173,947 | 211,072 | 30,922 | |||||||||
Minority interests | 924 | 1,704 | 250 | |||||||||
Total equity | 174,871 | 212,776 | 31,172 | |||||||||
Total liabilities and equity | 987,493 | 1,226,257 | 179,648 | |||||||||
As of December 31, | ||||||||||||
Consolidated Balance Sheet Data | 2003 | 2004 | 2005 | 2006 | 2007 | 2007 | ||||||
RMB | RMB | RMB | RMB | RMB | US$ | |||||||
(in millions) | ||||||||||||
HKFRS | ||||||||||||
Assets | ||||||||||||
Property, plant and equipment | 12,008 | 12,250 | 12,710 | 14,565 | 16,771 | 2,299 | ||||||
Deferred policy acquisition costs | 24,868 | 32,787 | 37,741 | 39,230 | 40,851 | 5,600 | ||||||
Investments in associates | — | — | — | 6,071 | 6,450 | 884 | ||||||
Financial assets | ||||||||||||
Debt securities | 70,604 | 150,234 | 255,554 | 357,898 | 443,181 | 60,755 | ||||||
Equity securities | 10,718 | 17,271 | 39,548 | 95,493 | 195,147 | 26,752 | ||||||
Term deposits | 137,192 | 175,498 | 164,869 | 175,476 | 168,594 | 23,112 | ||||||
Statutory deposits—restricted | 4,000 | 4,000 | 5,353 | 5,353 | 5,773 | 791 | ||||||
Loans | 116 | 391 | 981 | 2,371 | 7,144 | 979 | ||||||
Securities purchased under agreements to resell | 14,002 | 279 | — | — | 5,053 | 693 | ||||||
Accrued investment income | 2,875 | 5,084 | 6,813 | 8,461 | 9,857 | 1,351 | ||||||
Premiums receivables | 2,801 | 3,912 | 4,959 | 6,066 | 6,218 | 852 | ||||||
Reinsurance assets | 997 | 1,297 | 1,182 | 986 | 966 | 132 | ||||||
Other assets | 5,923 | 3,451 | 1,458 | 2,212 | 2,382 | 327 | ||||||
Cash and cash equivalents | 42,616 | 27,217 | 28,051 | 50,213 | 25,317 | 3,471 | ||||||
Total assets | 328,720 | 433,671 | 559,219 | 764,395 | 933,704 | 127,999 | ||||||
7
Consolidated Income Statement Data Liabilities and equity Liabilities Insurance Contracts Long-term traditional insurance contracts Long-term investment type insurance contracts Short-term insurance contracts —Reserves for claims and claim adjustment expenses —Unearned premium reserves Deferred income Financial liabilities Investment contracts —with discretionary participation feature (DPF) —without DPF Securities sold under agreements to repurchase Policyholder dividends payable Annuity and other insurance balances payable Premiums received in advance Other liabilities Deferred tax liabilities Current income tax liabilities Statutory insurance fund Total liabilities Shareholders’ equity Share Capital Reserves Retained earnings Total shareholders’ equity Minority interest Total equity Total liabilities and equity U.S. GAAP Total assets Total liabilities Shareholders’ equity As of December 31, 2003 2004 2005 2006 2007 2007 RMB RMB RMB RMB RMB US$ (in millions) 63,965 89,698 124,656 172,875 218,165 29,908 135,982 191,885 237,001 282,672 284,588 39,014 814 1,215 1,784 2,498 2,391 328 5,382 5,212 5,147 5,346 5,728 785 18,753 27,603 34,631 41,371 48,308 6,622 16,720 32,476 42,230 45,998 49,068 6,727 2,029 1,635 1,872 2,614 2,234 306 6,448 — 4,731 8,227 100 14 1,916 2,037 6,204 26,057 58,344 7,998 638 2,801 4,492 8,891 14,111 1,934 2,407 2,447 2,951 2,329 2,201 302 6,732 4,922 4,106 5,333 8,870 1,216 3,686 4,371 7,982 19,022 24,786 3,398 159 38 525 843 8,312 1,139 333 429 98 114 122 17 265,964 366,769 478,410 624,190 727,328 99,708 26,765 26,765 26,765 28,265 28,265 3,875 34,051 31,573 37,225 77,368 114,825 19,854 1,620 8,192 16,388 34,032 62,410 8,556 62,436 66,530 80,378 139,665 205,500 28,172 320 372 431 540 876 120 62,756 66,902 80,809 140,205 206,376 28,292 328,720 433,671 559,219 764,395 933,704 127,999 328,720 433,671 559,219 764,395 933,704 127,999 265,964 366,769 478,410 624,190 727,328 99,708 62,436 66,530 80,378 139,665 205,500 28,172
87.29466.8259 to US$1.00, the noon buying rate on December 31, 20072009 in the City of New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York. You should not assume that Renminbi amounts could actually be converted into U.S. dollars at these rates or at all.On the same day, the value of the Renminbi appreciated by 2.0% against the U.S. dollar. Since then, the PRC government has made, and may in the future make, further adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity for the trading against the Renminbi on the following working day.
RMB per US$ | HK$ per US$ | |||||||||||||||
High | Low | High | Low | |||||||||||||
October 2009 | 6.8292 | 6.8248 | 7.7502 | 7.7495 | ||||||||||||
November 2009 | 6.8300 | 6.8255 | 7.7501 | 7.7495 | ||||||||||||
December 2009 | 6.8299 | 6.8244 | 7.7572 | 7.7495 | ||||||||||||
January 2010 | 6.8295 | 6.8258 | 7.7752 | 7.7539 | ||||||||||||
February 2010 | 6.8330 | 6.8258 | 7.7716 | 7.7619 | ||||||||||||
March 2010 | 6.8270 | 6.8254 | 7.7648 | 7.7574 | ||||||||||||
April 2010 (through April 23, 2010) | 6.8275 | 6.8229 | 7.7672 | 7.7565 |
Noon buying rate | ||||||||
RMB per US$ | HK$ per US$ | |||||||
High | Low | High | Low | |||||
October 2007 | 7.5158 | 7.4682 | 7.7694 | 7.7497 | ||||
November 2007 | 7.4582 | 7.3800 | 7.7890 | 7.7573 | ||||
December 2007 | 7.4120 | 7.2946 | 7.8073 | 7.7879 | ||||
January 2008 | 7.2946 | 7.1818 | 7.8107 | 7.7961 | ||||
February 2008 | 7.1973 | 7.1100 | 7.8012 | 7.7807 | ||||
March 2008 | 7.1110 | 7.0105 | 7.7897 | 7.7642 | ||||
April 2008 (through April 23, 2008) | 7.0185 | 6.9840 | 7.7963 | 7.7863 |
9
Period-end noon buying rate | Average noon buying rate | |||||||
RMB per US$ | HK$ per US$ | RMB per US$ | HK$ per US$ | |||||
2003 | 8.2767 | 7.7640 | 8.2771 | 7.7864 | ||||
2004 | 8.2765 | 7.7723 | 8.2768 | 7.7899 | ||||
2005 | 8.0702 | 7.7533 | 8.1826 | 7.7755 | ||||
2006 | 7.8041 | 7.7771 | 7.9579 | 7.7685 | ||||
2007 | 7.2946 | 7.7984 | 7.5738 | 7.8008 | ||||
2008 (through April 23, 2008) | 6.9895 | 7.7963 | 7.0737 | 7.7888 |
Period-end rate | Average rate | |||||||||||||||
RMB per | RMB per | |||||||||||||||
US$ | HK$ per US$ | US$ | HK$ per US$ | |||||||||||||
2005 | 8.0702 | 7.7533 | 8.1826 | 7.7755 | ||||||||||||
2006 | 7.8041 | 7.7771 | 7.9579 | 7.7685 | ||||||||||||
2007 | 7.2946 | 7.7984 | 7.6072 | 7.8008 | ||||||||||||
2008 | 6.8225 | 7.7499 | 6.9477 | 7.7814 | ||||||||||||
2009 | 6.8259 | 7.7536 | 6.8295 | 7.7513 | ||||||||||||
2010 (through April 23, 2010) | 6.8270 | 7.7628 | 6.8264 | 7.7640 |
Banks
10
engaging in misrepresentation or fraudulent activities when marketing or selling insurance policies or annuity contracts to customers;
• | engaging in misrepresentation or fraudulent activities when marketing or selling insurance policies or annuity contracts to customers; | ||
• | hiding unauthorized or unsuccessful activities, resulting in unknown and unmanaged risks or losses; or | ||
• | otherwise not complying with laws or our control policies or procedures. |
hiding unauthorized or unsuccessful activities, resulting in unknown and unmanaged risks or losses; or
otherwise not complying with laws or our control policies or procedures.
We cannot always deter agent or employee misconduct, and the precautions we take to prevent and detect these activities may not be effective in all cases. We have experienced agent and employee misconduct that has
resulted in litigation and administrative actions against us and these agents and employees, and in some cases criminal proceedings and convictions against the agent or employee in question. None of these actions has resulted in material losses, damages, fines or other sanctions against us. We cannot assure you, however, that agent or employee misconduct will not lead to a material adverse effect on our business, results of operations or financial condition.
11
CLIC experienced a significant negative spread on its guaranteed rate policies and CLIC’s results of operations continue to be adversely impacted by the effect of those interest rate cuts.
12
Under the current PRC insurance law,
overseas financial markets as permitted by the CIRC. Thus, our investment results may be subject to foreign exchange risks, as well as the volatility and various other factors of overseas capital markets, including, among others, increase in interest rates, where we do not have previous investment experience.rates. We recorded RMB 1,03228 million (US$1414 million) in foreign exchange losses for the year ended December 31, 2007,2009, resulting from our assets held in foreign currencies, which were affected by the appreciation of the Renminbi. Future movements in the exchange rate of RMB against the U.S. dollar and other foreign currencies may adversely affect our results of operations and financial condition.
13
also invest in non-publicly traded securities investment funds. Beginning in March 2005, we are also permitted to directly invest in shares traded on the securities markets in China. The PRC securities markets are characterized by companies with relatively small market capitalizations and low trading volumes, and by evolving regulatory, accounting and disclosure requirements. For example, Chinese listed companies are required to adopt the new accounting standards issued by MOF effective from January 1, 2007, and the share reform in connection with the conversion of non-tradable state-owned shares into tradable shares is still in progress. This may from time to time result in significant price volatility, unexpected losses or lack of liquidity. These factors could cause us to incur losses on our publicly traded investments. In addition, the PRC securities markets have recently experienced, and may experience in the future, significant price volatility. For example, the SSE Index, a major stock exchange index in China, was at 3,472 points on March 31, 2008, which was a 34% decrease from 5,261 points on December 31, 2007. Also, as one of the largest institutional investors in China, we may from time to time hold significant positions in many securities in which we invest, and any decision to sell or any perception in the market that we are a major seller of a security could adversely affect the liquidity and market price of that security.
14
establish the liabilities, as well as onfuture may also impact our actual policy benefitsearnings and claims results.presentations of financial statements. We record changes in our liabilitiesreserves in the period the liabilitiesreserves are established or re-estimated. If the liabilitiesreserves originally established for future policy benefits prove inadequate or excessive, we must increase our liabilitiesreserves established for future policy benefits, which may have a material adverse effect on our earnings and our financial condition.
15
For example, the snow disaster in South China and Wen Chuan earthquake in 2008 increased our current claims payments. In 2008, our claims payments for the snow disaster and for the earthquake were approximately RMB 11.916 million (US$1.747 million) and RMB 153 million (US$22 million), respectively.
Class Action Litigations
China Life and certain of its former directors (the “defendants”) have been named in nine putative class action lawsuits filed in the United States District Court for the Southern District of New York between
March 16, 2004 and May 14, 2004. The lawsuits have been ordered to be consolidated and restyledIn re China Life Insurance Company Limited Securities Litigation, NO. 04 CV 2112 (TPG). Plaintiffs filed a consolidated amended complaint on January 19, 2005, which names China Life, Wang Xianzhang (former director), Miao Fuchun (former director) and Wu Yan (former director) as defendants. The consolidated amended complaint alleges that the defendants named therein violated Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. China Life has engaged U.S. counsel to contest vigorously on the lawsuits. The defendants jointly moved to dismiss the consolidated amended complaint on March 21, 2005. Plaintiffs then further amended their complaint. Defendants moved to dismiss the second amended complaint on November 18, 2005. That motion has been fully briefed and is pending before the Court. The likelihood of an unfavorable outcome is still uncertain. No provision has been made with respect to these lawsuits.
Others
16
17
• | Property and casualty companies.Beginning on January 1, 2003, property and casualty insurance companies have been permitted to sell accident and short-term health insurance products, but only with regulatory approval. There were |
• | Mutual fund companies, commercial banks and other financial services providers. We face competition from other financial services providers, primarily licensed mutual fund companies, commercial banks providing personal banking services and operating business of various financial products, trust companies and securities brokerage firms licensed to manage separate accounts. Recent changes in Chinese investment regulations relaxing rules on the formation of mutual funds and sales of securities have led to greater availability and variety of financial investment products. These products may prove to be attractive to the public and thereby adversely affect the sale of some products we offer, including participating life insurance policies and annuities. |
18
Life
Under the PRC insurance law, life
regime is undergoing significant changes toward a more transparent regulatory process and a convergent movement toward international standards. Some of these changes may result in additional costs or restrictions on our activities. Among other things, changes in 2003 to determinations of statutory reserves and solvency requirements have affected adversely our income under PRC GAAP and the amount of capital we are required to maintain. CIRC issued new regulations on the compilation of actuarial report and the actuary of investment-linked insurance products and universal insurance products in 2007. CIRC also amended the regulations on the compilation of actuarial report, effective December 31, 2007. These new regulations may further affect the determinations of our statutory reserves and solvency margins and hence our income under PRC GAAP. In addition, because the terms of our products are subject to regulations, changes in regulations may affect our profitability on the policies and contracts we issue. For instance, under guidelines issued by the CIRC, the dividends on our participating products must be no less than 70% of the distributable earnings from participating products in accordance with CIRC requirements. If this level were to be increased in the future, our profitability could be materially and adversely affected.
19
20
obligations to holders of the non-transferred policies who remain policyholders of CLIC and that there is no legal basis on which holders of the non-transferred policies can make a claim against China Life. We also have been advised by King & Wood that, although there is no specific law applicable to restructurings, these conclusions are supported by, among other things, the approval of the restructuring and various related matters by the State Council, the MOF and the CIRC; the support provided by the MOF with respect to the non-transferred policies as described above; and contract and other law. We cannot assure you that policyholders of CLIC, holders of transferred policies or other parties will not seek to challenge the transfer of the transferred policies or the separation of assets occurring as a consequence of the restructuring, or that a court would decide in a manner consistent with King & Wood’s conclusions. If the transfer of policies to us or the separation of assets were challenged successfully, our financial condition and results of operations would likely be materially and adversely affected.
21
22
the extent of government involvement;
• | the extent of government involvement; | ||
• | its level of development; | ||
• | its growth rate; and | ||
• | its control of foreign exchange. |
its level of development;
its growth rate; and
its control of foreign exchange.
The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industrial development. It also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
While China’s economy has experienced significant
The Chinese government has implemented variousto take certain measures, including reducing the interest rate on one year term deposits, a key benchmark rate, from 4.14% to 2.25%, in an effort to encourage economic growth, control inflationcorporate and guideconsumer spending. In 2009, the allocation of resources.Chinese government continued its stimulus measures. Some of these measures benefit the overall economy of China but may have a negative effect on us.our business. For example, our operating results and financial condition could be materially and adversely affected by government monetary policies, changes in interest rate polices,policies, tax regulations, or policies and regulations affecting the securitiescapital markets and asset management industry. In addition, due to China’s recent fast growing economy, the Chinese government is expected to take certain measures to slow down economic growth. For example, in October 2004, the interest rate on one-year term deposits, a key benchmark rate, was raised from 1.98% to 2.25%. In August 2006, the interest rate on one-year term deposits was further raised from 2.25% to 2.52%. During the year 2007, several revisions were made to the interest rate on one-year term deposits, which resulted in the further increase of the interest rate from 2.52% to 4.14%. A slowdown in Chinese growth rates could adversely affect us by impacting sales of our products, reducing our investment returns, or otherwise.
23
shares and ADSs.
association that are designed to protect minority shareholder rights. These mandatory provisions provide, among other things, that the rights of any class of shares, including H shares, may not be varied without a resolution approved by holders of shares in the affected class holding notno less than two-thirds of the shares of the affected class entitled to vote, and provide that in connection with a merger or division involving our company, a dissenting shareholder may require us or the consenting shareholders to purchase the dissenters’ shares at a fair price. Disputes arising from these protective provisions would likely have to be resolved by arbitration. See “—Holders of H shares and ADSs generally are required to resolve disputes with us, our senior management and holders of our A shares only through arbitration in Hong Kong or China”.
24
currencies for current account transactions. If this were to occur, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
25
The calculation of distributable profits for an insurance company under PRC GAAP differs in some respects from the calculation under HKFRS. As a result, we may not be able to pay any dividend in a given year if we do not have distributable profits as determined under PRC GAAP, even if we have profits for that year as determined under HKFRS. A strengthening in the statutory reserve requirements applicable to life insurance companies operating in China, which came into effect on December 31, 2003, led to a one-time adjustment to our PRC GAAP earnings in 2003.
ITEM 4. | INFORMATION ON THE COMPANY |
Cash, specified investment assets and various other assets were also transferred to us.
CLIC agreed not to, directly or indirectly through its subsidiaries and affiliates, participate, operate or engage in life, accident and health insurance businesses and any other business in China which may compete with our insurance business. CLIC also undertook (1) to refer to us any corporate business opportunity that falls within our business scope and which may directly or indirectly compete with our business and (2) to grant us a right of first refusal, on the same terms and conditions, to purchase any new business developed by CLIC. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Non-Competition Agreement”.
Substantially all of the management personnel and employees who were employed by CLIC in connection with the transferred assets and business were transferred to us. Some management and personnel remained with CLIC.
CLIC retained the trademarks used in our business, including the “China Life” name in English and Chinese and the “ball” logos, and granted us and our branches a royalty-free license to use these trademarks. CLIC and its subsidiaries and affiliates will be entitled to use these trademarks, but CLIC may not license or transfer these trademarks to any other third parties. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Trademark License Agreement”.
CLIC’s contracts with its agents and other intermediaries were transferred to us.26
We entered into various agreements under which we provide policy administration services to CLIC for the non-transferred policies, manage CLIC’s investment assets and lease office space from CLIC for our branch and field offices. See “Item 7. Major Shareholders and Related Party Transactions”.
• | Cash, specified investment assets and various other assets were also transferred to us. | ||
• | CLIC agreed not to, directly or indirectly through its subsidiaries and affiliates, participate, operate or engage in life, accident and health insurance businesses and any other business in China which may compete with our insurance business. CLIC also undertook (1) to refer to us any corporate business opportunity that falls within our business scope and which may directly or indirectly compete with our business and (2) to grant us a right of first refusal, on the same terms and conditions, to purchase any new business developed by CLIC. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Continuing Related Party Transactions with CLIC”. | ||
• | Substantially all of the management personnel and employees who were employed by CLIC in connection with the transferred assets and business were transferred to us. Some management and personnel remained with CLIC. | ||
• | CLIC retained the trademarks used in our business, including the “China Life” name in English and Chinese and the “ball” logos, and granted us and our branches a royalty-free license to use these trademarks. CLIC and its subsidiaries and affiliates will be entitled to use these trademarks, but CLIC may not license or transfer these trademarks to any other third parties. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Continuing Related Party Transactions with CLIC”. | ||
• | CLIC’s contracts with its agents and other intermediaries were transferred to us. | ||
• | We entered into various agreements under which we provide policy administration services to CLIC for the non-transferred policies, manage CLIC’s investment assets and lease office space from CLIC for our branch and field offices. See “Item 7. Major Shareholders and Related Party Transactions”. |
27
CLIC does not meet the minimum solvency requirements under CIRC solvency regulations. The CIRC has broad powers under these regulations and the insurance law in the event an insurance company fails to meet its minimum solvency requirements. These may include ordering the sale of the assets or transfer of the insurance business of an insurance company in default of these requirements to a third party and appointing a receiver to take over the management of the insurance company. See “—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Solvency requirements”. We believe that, in light of the MOF approval described above, it is unlikely that the CIRC will take these actions. However, we cannot assure you that the CIRC will not take actions against CLIC, which could have a material adverse effect on us.
China Life) has been approved by the CIRC and has been conducted without infringing upon the rights of the holders of non-transferred policies; (4) the arrangements made under the restructuring agreement, in particular the MOF’s support as described above, are expected to enable CLIC to satisfy its obligations under the non-transferred policies; and (5) PRC regulatory authorities have no legal power to direct China Life to assume CLIC’s obligations under the non-transferred policies or to indemnify the holders of the non-transferred policies.
28
Prior to the offering, CLIC held 19,323,530,000 ordinary domestic shares, or CLIC A shares, which have been registered with the China Securities Depository and Clearing Corporation Limited as circulative A shares with restrictive trading following the A share offering. CLIC has undertaken that for a period of 36 months commencing on January 9, 2007 it will not transfer or put on trust the CLIC A shares held by it or allow such CLIC A shares to be repurchased by China Life. On January 11, 2010, 19,323,530,000 CLIC A shares were released from trading restrictions. Of this amount, 150,000,000 shares remain frozen in accordance with relevant Chinese regulations.
electronic equipment.
For the financial year ended December 31, 2009, our lapse rate was approximately 2.54%. The policy persistency rate, which measures the ratio of the insurance policies that are still effective after a certain period, was 93.66% for 14 months after issuance and 87.44% for 26 months after issuance.
2008, constituting 88.0%94.8% and 87.1%94.9% of our total gross written premiums and policy fees for those periods. The figure for 20072009 represented a 13.7% increase over 2006. First-year gross written premiums from individual life insurance products in 2007 were RMB 25,480 million (US$3,493 million), representing a 12.4%3.8% increase from 2006. First-year single gross written premiums for the same period were RMB 1,273 million (US$175 million), representing 5.0% of first-year individual life insurance gross written premiums. Deposits generated by our individual life insurance and annuity products totaled RMB 72,069 million (US$9,880 million) for the year ended December 31, 2007 and RMB 70,355 million for the year ended December 31, 2006, constituting 76.5% and 76.9% of our total deposits for those periods. The figure for 2007 represented a 2.4% increase from 2006.
2008.
As of or for the year ended | Annual | |||||||||||||||
December 31, | growth rate | |||||||||||||||
2008 | 2009 | 2009 | (2008-2009) | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
(in millions, except as otherwise indicated) | ||||||||||||||||
Individual life gross written premiums | 252,130 | 261,715 | 38,341 | 3.8 | % | |||||||||||
Individual life liabilities of insurance contracts | 654,037 | 808,591 | 118,459 | 23.6 | % | |||||||||||
Individual life liabilities of investment contracts | 10,928 | 14,579 | 2,136 | 33.4 | % |
As of or for the year ended December 31, | Compound annual growth rate | ||||||||||
2005 | 2006 | 2007 | 2007 | (2005-2007) | |||||||
RMB | RMB | RMB | US$ | ||||||||
(in millions, except as otherwise indicated) | |||||||||||
Individual life gross written premiums and policy fees | 68,888 | 86,587 | 98,484 | 13,501 | 19.57 | % | |||||
First-year single gross written premiums | 1,085 | 1,175 | 1,273 | 175 | 8.32 | % | |||||
First-year regular gross written premiums | 18,489 | 21,484 | 24,207 | 3,318 | 14.42 | % | |||||
First-year gross written premiums | 19,574 | 22,659 | 25,480 | 3,493 | 14.09 | % | |||||
Individual life insurance deposits | 62,483 | 70,355 | 72,069 | 9,880 | 7.40 | % | |||||
First-year single deposits | 46,061 | 53,658 | 56,644 | 7,765 | 10.89 | % | |||||
First-year regular deposits | 3,083 | 2,902 | 3,538 | 485 | 7.13 | % | |||||
First-year deposits | 49,144 | 56,560 | 60,182 | 8,250 | 10.66 | % | |||||
Liabilities of long-term traditional insurance contracts | 123,457 | 170,954 | 216,280 | 29,649 | 32.36 | % | |||||
Deferred income | 34,104 | 40,744 | 47,761 | 6,546 | 18.34 | % | |||||
Liabilities of long-term investment type insurance contracts and investment contracts | 235,847 | 281,847 | 283,520 | 38,867 | 9.64 | % |
29
For the year ended December 31, | ||||||||
2005 | 2006 | 2007 | 2007 | |||||
RMB | RMB | RMB | US$ | |||||
(in millions) | ||||||||
Whole life and term life insurance: | ||||||||
Gross written premiums | 23,494 | 28,257 | 32,118 | 4,403 | ||||
First-year gross written premiums | 5,214 | 6,299 | 5,532 | 758 | ||||
Total single gross written premiums | 131 | 38 | 49 | 7 | ||||
Endowment: | ||||||||
Gross written premiums | 35,480 | 43,582 | 40,278 | 5,522 | ||||
First-year gross written premiums | 13,012 | 11,726 | 7,057 | 967 | ||||
Deposits | 60,310 | 69,583 | 70,331 | 9,642 | ||||
First-year deposits | 47,072 | 55,856 | 58,551 | 8,027 | ||||
Annuities: | ||||||||
Gross written premiums | 4,231 | 8,247 | 19,024 | 2,608 | ||||
First-year gross written premiums | 1,348 | 4,634 | 12,891 | 1,767 | ||||
Deposits | 2,173 | 772 | 1,013 | 139 | ||||
First-year deposits | 2,072 | 704 | 946 | 130 |
For the year ended December 31, | ||||||||||||
2008 | 2009 | 2009 | ||||||||||
RMB | RMB | US$ | ||||||||||
(in millions) | ||||||||||||
Gross written premiums | ||||||||||||
Whole life and term life insurance | 35,729 | 38,665 | 5,664 | |||||||||
Endowment | 188,099 | 184,841 | 27,079 | |||||||||
Annuities | 28,302 | 38,209 | 5,598 |
30
Participating endowment products are among our fastest growing product lines.
In January and November 2007, our new risk-type participating endowment products “Mei Man Yi Sheng” and “Jin Cai Ming Tian” were introduced to the market respectively.31
Annuities
Joint
We began the sale of joint life and universal products in certain provinces on a trial basis since 2005. In accordance with our overall strategy, which focuses on the sales of traditional and participating products, we steadily increased our sale of joint life and universal products.
Joint life products are life insurance policies, for which there are two or more persons insured under one policy. Joint life products can be term life, whole life or universal products.
32
business development strategies to focus more on the development of risk-type insurance products and to reduce the proportion of group annuity products.
As of or for the year ended December 31, | Compound annual growth rate | ||||||||||
2005 | 2006 | 2007 | 2007 | (2005-2007) | |||||||
RMB | RMB | RMB | US$ | ||||||||
(in millions, except as otherwise indicated) | |||||||||||
Group life gross written premiums and policy fees | 1,267 | 1,740 | 1,503 | 206 | 8.92 | % | |||||
First-year single gross written premiums | 811 | 1,030 | 705 | 97 | (6.76 | )% | |||||
First-year regular gross written premiums | 40 | 85 | 149 | 20 | 93.00 | % | |||||
First-year gross written premiums | 851 | 1,115 | 854 | 117 | 0.18 | % | |||||
Group life insurance deposits | 23,463 | 21,086 | 22,158 | 3,038 | (2.82 | )% | |||||
First-year single deposits | 23,401 | 21,072 | 22,061 | 3,024 | (2.91 | )% | |||||
First-year regular deposits | 51 | 6 | 82 | 11 | 26.80 | % | |||||
First-year deposits | 23,452 | 21,078 | 22,143 | 3,036 | (2.83 | )% | |||||
Liabilities of long-term traditional insurance contracts | 1,199 | 1,921 | 1,885 | 258 | 25.39 | % | |||||
Deferred income | 527 | 627 | 547 | 75 | 1.88 | % | |||||
Liabilities of long-term investment-type insurance contracts and investment contracts | 45,256 | 49,437 | 52,370 | 7,179 | 7.60 | % |
As of or for the year ended | Annual | |||||||||||||||
December 31, | growth rate | |||||||||||||||
2008 | 2009 | 2009 | (2008-2009) | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
(in millions, except as otherwise indicated) | ||||||||||||||||
Group life gross written premiums | 340 | 190 | 28 | (44.1 | %) | |||||||||||
Group life liabilities of insurance contracts | 811 | 632 | 93 | (22.1 | %) | |||||||||||
Group life liabilities of investment contracts | 54,135 | 52,747 | 7,727 | (2.6 | %) |
For the year ended December 31, | ||||||||
2005 | 2006 | 2007 | 2007 | |||||
RMB | RMB | RMB | US$ | |||||
(in millions) | ||||||||
Group annuities: | ||||||||
Premiums | 169 | 232 | 189 | 26 | ||||
Deposits | 21,528 | 18,411 | 19,804 | 2,715 | ||||
Group whole life and term life insurance: | ||||||||
Premiums | 698 | 912 | 687 | 94 | ||||
Deposits | 101 | 169 | 771 | 106 | ||||
Endowment: | ||||||||
Premiums | — | — | — | — | ||||
Deposits | 1,834 | 2,506 | 1,583 | 217 |
For the year ended December 31, | ||||||||||||
2008 | 2009 | 2009 | ||||||||||
RMB | RMB | US$ | ||||||||||
(in millions) | ||||||||||||
Gross written premiums: | ||||||||||||
Group annuities | 41 | 18 | 3 | |||||||||
Group whole life and term life insurance | 299 | 172 | 25 |
33
calculated at a guaranteed interest rate set at the time the product is priced, subject to a cap fixed by the CIRC, which currently is 2.50%. The annuitant is entitled to share a portion of our distributable earnings derived from our participating products, as determined by us based on formulas prescribed by the CIRC, in excess of the rate we guarantee to participating employees.
Group participating annuity products, including Yong Tai Annuity Series (Retirement Supplement), are our major product lines. For the year ended December 31, 2007, total combined deposits of Yong Tai Annuity Series (Retirement Supplement) were RMB 16,831 million (US$2,307 million), constituting 76% of total deposits of our group life insurance business for that year, representing a 9.1% increase from the year before.Total deposits from our group participating products in 2007 increased by 11.3% to RMB 20,087 million (US$2,754 million) from RMB 18,043 million in 2006.
The following table sets forth total combined deposits of our Yong Tai Annuity Series (Retirement Supplement) products for the periods indicated.
For the year ended December 31, | ||||||||
2005 | 2006 | 2007 | 2007 | |||||
RMB | RMB | RMB | US$ | |||||
(in millions) | ||||||||
Yong Tai Annuity Series (Retirement Supplement): | ||||||||
Deposits | 18,669 | 15,432 | 16,831 | 2,307 |
Accident and Health
As of or for the year ended | Annual | |||||||||||||||
December 31, | growth rate | |||||||||||||||
2008 | 2009 | 2009 | (2008-2009) | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
(in millions, except as otherwise indicated) | ||||||||||||||||
Short-term accident insurance premiums | 6,221 | 7,076 | 1,037 | 13.7 | % | |||||||||||
Short-term health insurance premiums | 6,965 | 6,989 | 1,024 | 0.3 | % | |||||||||||
Accident and health reserves for claims and claim adjustment expenses (gross) | 2,780 | 2,944 | 431 | 5.9 | % | |||||||||||
Accident and health insurance unearned premium reserves (gross) | 5,237 | 5,997 | 879 | 14.5 | % |
As of or for the year ended December 31, | Compound annual growth rate | ||||||||||
2005 | 2006 | 2007 | 2007 | (2005-2007) | |||||||
RMB | RMB | RMB | US$ | ||||||||
(in millions, except as otherwise indicated) | |||||||||||
Short-term accident insurance premiums | 5,135 | 5,148 | 5,495 | 753 | 3.45 | % | |||||
Short-term health insurance premiums | 5,732 | 5,942 | 6,404 | 878 | 5.70 | % | |||||
Accident and health reserves for claims and claim adjustment expenses (gross) | 1,784 | 2,498 | 2,391 | 328 | 15.77 | % | |||||
Accident and health insurance unearned premium reserves (gross) | 5,147 | 5,346 | 5,728 | 785 | 5.49 | % |
34
35
We are a leading health insurance provider in China.
2008.
36
• | for individual insurance distribution channels, the upgraded and modified Kang Ning Whole Life and Kang Ning Term Life products. Three types of products — Kang Ning Whole Life Major Disease Insurance, Kang Ning Term Life Major Disease Insurance and Kang Ning Supplemental Endowment Insurance — expand the coverage and increase the level of protection. The Fu Lu Participating series, such as Fu Lu Shuang Xi Participating Endowment and Fu Lu Zun Xiang Participating Endowment, enhances the product’s wealth management and protective function. A new generation children participating product, Fu Xing Children Participating Endowment, improves the product’s protective function. In addition, we also developed our first adjustable participating endowment product, Fu Rui Participating Life Endowment, to satisfy the needs of a particular group of customers; | ||
• | the Hong Ying Participating Endowment product, to be marketed through commercial banks, which extends the insurance and payment period and satisfies the broad insurance needs of consumers; | ||
• | our first group whole life major disease insurance product, Kang Zhong Whole Life Major Disease Insurance, to be marketed through group insurance channels; and | ||
• | the Hong Kang Participating Endowment (Class A) and Hong Kang Supplemental Major Disease Prepayment Insurance (Class A), to be marketed through telephone sales. |
Also, in 2007, we began to establish regional research centers for product development to study and satisfy market needs and enable us to respond more rapidly to changing market requirements. We currently have five regional product research and development centers in Shanghai, Jiangsu, Chongqing, Shenzhen and Liaoning.
In March 2007, our new product “China Life Simple Life andTong Tai Supplemental Transportation Accident In-Patient Fixed Payment Medical Insurance” (“SLMI”), an individual life insurance product, was launched. The terms of SLMI are simple and easy to understand, taking into account the consumers’ affordability and insurance requirements. We have introduced SLMI to the markets of the counties of 22 provinces. First year gross written premiums of SLMI for the year ended December 31, 2007 were RMB 1,220 million (US$167 million).
Insurance.
In connection with our restructuring, CLIC transferred its entire distribution force to us. After giving effect to our restructuring, we
37
As of December 31, | ||||||
2005 | 2006 | 2007 | ||||
Number of exclusive agents (approximately) | 640,000 | 650,000 | 638,000 | |||
Number of field offices | 12,000 | 15,000 | 15,500 |
As of December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Number of exclusive agents (approximately) | 638,000 | 716,000 | 777,000 | |||||||||
Number of field offices | 15,500 | 16,813 | 19,000 |
From
Under the PRC insurance law, an individual agent for an insurance company is required to obtain a qualification certificate fromcertificates issued by the CIRC, as well as to register with, and obtain a business license from,CIRC. See “Item 4. Information on the agent’s local bureau of the SAIC. See “—Company—Business Overview—Regulatory and Related Matters—Matters — Regulation of Insurance Agencies, Insurance Brokers and Other Intermediaries”. Essentially all of the agents in our exclusive agent sales force do not qualify as “individual agents” within the meaning of the insurance law because they do not meet the dual requirements of holding aUnder applicable CIRC qualification certificateregulations, we and a business license from the local bureau of industry and commerce. We believe that this situation is shared by all major life insurance companies in China. Approximately 97.9%members of our exclusive agents hold a CIRC qualification certificate, and essentially none has a business license. In May 2004, the CIRC issued a circular requiring insurance companies to take effective measures in carrying out the qualification certification requirement. Furthermore, no insurance companymanagement may issue a company certificate to any person identifying that person as its sales representative,face sanctions if the person does not have a CIRC qualification. Pursuant to the circular, we are also required to take appropriate measures to improve both participation of our agents taking the qualification examination and their success rate, and to report to the CIRC on a quarterly basis the percentage of our agents holding a CIRC qualification certificate. In April 2006, the CIRC issued regulations on administration of individual agents, effective on July 1, 2006, in order to further strengthen the administration of individual agents. Pursuant to these regulations, insurance companies that retain individual agents without CIRC qualification certificates and underwriting certificates, and policyholders who bought insurance policies through our unqualified agents are allowed to engage in insurance sales activities will be warned and fined up to RMB 30,000 andcancel the responsible memberpolicies, under some circumstances. As of senior managementDecember 31, 2009, approximately 99.8% of our individual agents had obtained such insurance companies will be warned and fined up to RMB 10,000. In serious circumstances, the CIRC may order the insurance companies to remove the responsible member of senior management from office and reject the application of setting up branch offices by such insurance companies. It is our understanding that the SAIC does not have procedures in place to effect the registration and licensing of individual insurance agents, although some local bureaus of industry and commerce have had on occasions required our agents to register. To date, this noncompliance has not had a material adverse effect on us. We are not sure whether or when this registration requirement will be enforced by bureaus of industry and commerce nationwide. If these registration and qualification requirements are enforced, or if they result in a substantial number of policyholders canceling their policies, our business may be materially and adversely affected.
certificate.
for our exclusive agents. We motivate our agents by rewarding them with performance-based bonuses and by organizing sales-related competitions among different field offices and sales units. We also try to increase the loyalty of our exclusive agents through other methods, such as through participation in sales conferences.
38
improving the overall productivity of our exclusive agents by expanding our customer-oriented market segmentation sales approach and standardized sales services to all agents nationwide;
• | improving the overall productivity of our exclusive agents by expanding our customer-oriented market segmentation sales approach and standardized sales services to all agents nationwide; | ||
• | motivating our exclusive agents with an improved performance-based compensation scheme; | ||
• | building a more professional exclusive agent force by improving our training programs and enhancing our training efforts, such as the Chartered Insurance Agency Manager courses organized by the Life Insurance Marketing and Research Association, and increasing the number of qualified exclusive agents; | ||
• | improving the quality of our exclusive agent force by expanding our recruitment program and standardizing our recruitment procedures and admission requirements; and | ||
• | improving the efficiency of our exclusive agents by providing sales support and equipments, including expanding the China Life sales support system nationwide and equipping our more productive exclusive agents with personal electronic devices to further enhance their marketing, time management and customer service capabilities. |
motivating our exclusive agents with an improved performance-based compensation scheme;
building a more professional exclusive agent force by improving our training programs and enhancing our training efforts, such as the Chartered Insurance Agency Manager courses organized by the Life Insurance Marketing and Research Association, and increasing the number of qualified exclusive agents;
improving the quality of our exclusive agent force by expanding our recruitment program and standardizing our recruitment procedures and admission requirements; and
improving the efficiency of our exclusive agents by providing sales support and equipments, including expanding the China Life sales support system nationwide and equipping our more productive exclusive agents with personal electronic devices to further enhance their marketing, time management and customer service capabilities.
Direct sales force
39
near future.
In the individual life insurance market, Ping An, China Pacific Life and we collectively represented 69% of total individual life insurance premiums in 2006. We primarily compete based on the nationwide reach of our sales network and the level of services we provide, as well as our strong brand name.
• | In the individual life insurance market, Ping An, China Pacific Life and we collectively represented 65% of total individual life insurance premiums in 2008. We primarily compete based on the nationwide reach of our sales network and the level of services we provide, as well as our strong brand name. | ||
• | In the group life insurance market, Ping An, China Pacific Life and we collectively represented 63% of total group life insurance premiums in 2008. We primarily compete based on the nationwide reach of our sales network and the level of services we provide, as well as our relationships and reputation among large companies and institutions in China. |
In the group life insurance market, Ping An, China Pacific Life and we collectively represented 61% of total group life insurance premiums in 2006. We primarily compete based on the nationwide reach of our sales network and the services we provide, as well as our relationships and reputation among large companies and institutions in China.
In the accident insurance market, Ping An, China Pacific Life and we collectively represented 75% of total accident premiums in 2006. We primarily compete based on the nationwide reach of our sales network and the services we provide and our strong brand name, as well as our cooperative arrangements with other companies and institutions.
In the health insurance market, Ping An, China Pacific Life and we collectively represented 67% of total health premiums in 2006. We primarily compete based on the nationwide reach of our sales network, the services we provide, our multi-layered managed care scheme and systems of policy review and claim management, as well as our strong brand name.40
• | In the accident insurance market, Ping An, China Pacific Life and we collectively represented 80% of total accident premiums in 2008. We primarily compete based on the nationwide reach of our sales network and the level of services we provide and our strong brand name, as well as our cooperative arrangements with other companies and institutions. | ||
• | In the health insurance market, Ping An, China Pacific Life and we collectively represented 53% of total health premiums in 2008. We primarily compete based on the nationwide reach of our sales network, the level of services we provide, our multi-layered managed care scheme and systems of policy review and claim management, as well as our strong brand name. |
Individual life premiums market share | Group life premiums market share | Accident premiums market share | Health premiums market share | Total premiums market share | |||||||||||
China Life | 45 | % | 41 | % | 46 | % | 24 | % | 45 | % | |||||
Ping An Insurance Company of China, Ltd. | 15 | % | 11 | % | 13 | % | 35 | % | 17 | % | |||||
China Pacific Life Insurance Co. Ltd. | 9 | % | 9 | % | 16 | % | 8 | % | 9 | % | |||||
New China Life Insurance Co. Ltd. | 6 | % | 7 | % | 2 | % | 7 | % | 7 | % | |||||
Tai Kang Life Insurance Co. Ltd. | 5 | % | 4 | % | 3 | % | 3 | % | 5 | % | |||||
Others(1) | 20 | % | 28 | % | 20 | % | 23 | % | 17 | % | |||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||
Individual | ||||||||||||||||||||
life | Group life | Accident | Health | Total | ||||||||||||||||
premiums | premiums | premiums | premiums | premiums | ||||||||||||||||
market share | market share | market share | market share | market share | ||||||||||||||||
China Life | 43 | % | 44 | % | 48 | % | 19 | % | 39 | % | ||||||||||
Ping An Insurance Company of China, Ltd. | 13 | % | 9 | % | 15 | % | 28 | % | 13 | % | ||||||||||
China Pacific Life Insurance Co. Ltd. | 9 | % | 10 | % | 17 | % | 6 | % | 9 | % | ||||||||||
New China Life Insurance Co. Ltd. | 8 | % | 3 | % | 3 | % | 5 | % | 7 | % | ||||||||||
Tai Kang Life Insurance Co. Ltd. | 8 | % | 13 | % | 3 | % | 3 | % | 8 | % | ||||||||||
Others(1) | 19 | % | 21 | % | 14 | % | 39 | % | 24 | % | ||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||
(1) | Others include Taiping Life Insurance Co. Ltd., Minsheng Life Insurance Co., Ltd., Sino Life Insurance Co., Ltd., PICC Life Insurance Co., Ltd., PICC Health Insurance Co., Ltd., Hua Tai Life Insurance Co., Ltd., Union Life Insurance Co., Ltd., Greatwall Life Insurance Co., Ltd., Manulife-Sinochem Life Insurance Co. Ltd., Pacific-Antai Life Insurance Co. Ltd., AXA-Minmetals Assurance Co., Ltd., China CMG Life Insurance Co., Ltd., Citic-Prudential Life Insurance Co., Ltd., John Hancock-Tianan Life Insurance Co. Ltd., Generali China Life Insurance Co. Ltd., Sun Life Everbright Life Insurance Co. Ltd., ING Capital Life Insurance Co., Ltd., Haier New York Life Insurance Co., Ltd., Aviva-COFCO Life Insurance Co., Ltd., AEGON-CNOOC Life Insurance Co., Ltd., CIGNA and CMC Life Insurance Co., Ltd., Nissay-SVA Life, Insurance Co., Ltd., Heng An Standard Life Insurance Co., Ltd., Skandia-BSM Life Insurance Co., Ltd., Sino-US Metlife Insurance Co., Ltd. and |
Source: | China Insurance Yearbook |
41
Asset
On November 23, 2003 we established an asset management joint venture, AMC, with our predecessor, CLIC, in connection with the restructuring for the purpose of operating the asset management business more professionally in a separate entity and to better attract and retain qualified investment management professionals. AMC manages our investment assets and, separately, substantially all of those of CLIC. For a description of our investment assets, see “—Investments”.
AMC is our subsidiary, with us owning 60% and CLIC owning the remaining 40%. Members of the board of directors are Miao Jianmin, Zhuang Zuojin, Liu Jiade, Wan Feng, Lin Huimin, Shi Yucheng and Xia Bin. Directors of AMC are appointed by the shareholders in general meeting. Accordingly, we, as the controlling shareholder, effectively control the composition of its board of directors.
AMC obtained the qualification to serve as the investment manager for enterprise pension funds on August 1, 2005.
As of December 31, 2007, AMC had total assets of RMB 1,963 million (US$269 million), net assets of 1,751 million (US$240 million) and net profit of RMB 445 million (US$61 million).
Property and Casualty Business
We entered into a share subscription agreement on March 13, 2006 and a promoters agreement with CLIC on October 23, 2006 to establish a property and casualty company, CLPCIC, with us owning 40% and CLIC owning the remaining 60%. The property and casualty company obtained its business license on December 30, 2006. On November 27, 2007, our board of directors approved the proposal to increase, together with CLIC, the registered capital of CLPCIC from the current amount of RMB 1,000 million (US$137 million) to RMB 4,000 million (US$548 million), pursuant to which we plan to invest RMB 1,200 million (US$165 million) to RMB 2,000 million (US$274 million). Such plan is still subject to the approval of relevant authorities.
As of December 31, 2007, CLPCIC had total assets of RMB 1,602 million (US$220 million), net assets of RMB 712 million (US$98 million) and net losses of RMB 339 million (US$46 million).
Pension Insurance Business
We entered into a promoters agreement with CLIC and AMC on March 21, 2006 to establish a pension insurance joint venture, China Life Pension. The pension insurance company obtained its business license on January 15, 2007, with us owning 55%, CLIC owning 25% and AMC owning the remaining 20%. We are the controlling shareholder of China Life Pension as we directly own 55% of the share capital and AMC, which is 60% owned by us, owns 20%. China Life Pension obtained the qualification to serve as trustee and account manager of enterprise pension fund on November 19, 2007. On November 27, 2007, our board of directors approved the proposal to increase, together with CLIC, the registered capital of China Life Pension to 2,500 million (US$343 million) among which we plan to invest additional approximately RMB 1,855 million (US$254 million). Such plan is still subject to the approval of relevant authorities.
As of December 31, 2007, China Life Pension had total assets of RMB 708 million (US$97 million), net assets of RMB 622 million (US$85 million) and net losses of RMB 9 million (US$1 million).
network is managed by specialized customer service departments, which are responsible for setting uniform standards and procedures for providing policy-related services to customers, handling inquiries and complaints from customers and training customer services personnel.
We held the first “China Life Customer Festival” and launched the “China Life 1+N” service brand in 2007.
42
Reserves
ForInformation Hub, China Life Lecture Hall, China Life Preferential Value and Featured Customer Service Activities). We have also successfully held the “China Life Customer Festival” for three consecutive years.
Financial statement reserves
In accordance with HKFRS, our reserves for financial reporting purposes are based on actuarially recognized methods for estimating future policy benefits and claims. We expect these reserve amounts, along with future premiums to be received on policies and contracts and investment earnings on these amounts, to be sufficient to meet our insurance policy and contract obligations.
We establish the liabilities for obligations for future policy benefits and claims based on assumptions that are uncertain when made. Our assumptions include assumptions for mortality, morbidity, persistency, expenses, and investment returns, as well as macroeconomic factors such as inflation. These assumptions may deviate from our actual experiences and, as a result, we cannot determine precisely the amounts which weservices, they will ultimately pay to settle these liabilities or when these payments will need to be made. These amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future. We evaluate our liabilities periodically, based on changes in the assumptions used to establish the liabilities, as well as our actual policy benefits and claims experience. We expense changes in our liabilities in the period the liabilities are established or re-estimated. To the extent that trends in actual claims results are less favorable than our underlying assumptions used in establishing these liabilities, and these trends are expected to continue in the future, we may be required to increase our liabilities. This increase could have a material adverse effect on our profitability and, if significant, our financial condition. Any material impairment in our solvency margin could change our customers’ or business partners’ perception of our financial health, which in turn could affect our sales, earnings and operations.
Statutory reserves
We are required under China’s insurance law to report policy reserves for regulatory purposes. The minimum levels of these reserves are based on methodologies and assumptions mandated by the CIRC. We also maintain assets in excess of policy reserves to meet the solvency requirements under CIRC regulations.
See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Differences in future actual claims results from the assumptions used in pricing and establishing reserves for our insurance and annuity products may materially and adversely affect our earnings”.
Business Management
enjoy many value-added services.
Our underwriters
43
audits.
claim will be paid upon completion of the re-verification and approval procedure.
handling.
Since 1997 we
months notice.
44
As part
Investments45
As of December 31, | ||||||||||||||||||||||||
2007 | 2008 | 2009 | ||||||||||||||||||||||
Carrying | % of | Carrying | % of | Carrying | % of | |||||||||||||||||||
value | total | value | total | value | total | |||||||||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||
Cash and cash equivalents | 25,317 | 3.0 | % | 34,085 | 3.6 | % | 36,197 | 3.1 | % | |||||||||||||||
Term deposits (excluding structured deposits) | 164,248 | 19.3 | % | 225,367 | 24.0 | % | 344,710 | 29.4 | % | |||||||||||||||
Structured deposits | 4,346 | 0.5 | % | 2,905 | 0.3 | % | 273 | 0.0 | % | |||||||||||||||
Statutory deposits—restricted | 5,773 | 0.7 | % | 6,153 | 0.7 | % | 6,153 | 0.5 | % | |||||||||||||||
Debt securities, held-to-maturity | 195,703 | 23.0 | % | 211,929 | 22.6 | % | 235,099 | 20.1 | % | |||||||||||||||
Debt Securities, available-for-sale | 241,382 | 28.4 | % | 356,220 | 38.0 | % | 340,825 | 29.1 | % | |||||||||||||||
Debt securities, financial assets at fair value through income (held-for-trading) | 6,096 | 0.7 | % | 7,736 | 0.8 | % | 6,391 | 0.5 | % | |||||||||||||||
Debt securities | 443,181 | 52.1 | % | 575,885 | 61.4 | % | 582,315 | 49.7 | % | |||||||||||||||
Loans | 7,144 | 0.8 | % | 17,926 | 1.9 | % | 23,081 | 2.0 | % | |||||||||||||||
Equity securities, available for sale | 176,133 | 20.7 | % | 68,719 | 7.3 | % | 176,674 | 15.1 | % | |||||||||||||||
Equity securities, financial assets at fair value through income (held-for-trading) | 19,014 | 2.2 | % | 6,363 | 0.7 | % | 2,742 | 0.2 | % | |||||||||||||||
Equity securities | 195,147 | 23.0 | % | 75,082 | 8.0 | % | 179,416 | 15.3 | % | |||||||||||||||
Resale agreements | 5,053 | 0.6 | % | — | — | — | — | |||||||||||||||||
Total investment assets | 850,209 | 100 | % | 937,403 | 100 | % | 1,172,145 | 100 | % | |||||||||||||||
Average cash and investment assets balance | 768,507 | 893,806 | 1,054,774 |
As of December 31, | |||||||||||||||
2005 | 2006 | 2007 | |||||||||||||
Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | ||||||||||
(RMB in millions, except as otherwise indicated) | |||||||||||||||
Cash and cash equivalents | 28,051 | 5.7 | % | 50,213 | 7.3 | % | 25,317 | 3.0 | % | ||||||
Term deposits (excluding structured deposits) | 160,067 | 32.4 | % | 170,830 | 24.9 | % | 164,248 | 19.3 | % | ||||||
Structured deposits | 4,802 | 1.0 | % | 4,646 | 0.7 | % | 4,346 | 0.5 | % | ||||||
Statutory deposits—restricted | 5,353 | 1.1 | % | 5,353 | 0.8 | % | 5,773 | 0.7 | % | ||||||
Debt securities, held-to-maturity | 146,297 | 29.6 | % | 176,559 | 25.7 | % | 195,703 | 23.0 | % | ||||||
Debt Securities, available-for-sale | 96,425 | 19.5 | % | 176,868 | 25.8 | % | 241,382 | 28.4 | % | ||||||
Debt securities, financial assets at fair value through income (held-for-trading) | 12,832 | 2.6 | % | 4,471 | 0.6 | % | 6,096 | 0.7 | % | ||||||
Debt securities | 255,554 | 51.7 | % | 357,898 | 52.1 | % | 443,181 | 52.1 | % | ||||||
Loans | 981 | 0.2 | % | 2,371 | 0.3 | % | 7,144 | 0.8 | % | ||||||
Equity securities, available for sale | 26,261 | 5.3 | % | 62,595 | 9.1 | % | 176,133 | 20.7 | % | ||||||
Equity securities, financial assets at fair value through income (held-for-trading) | 13,287 | 2.7 | % | 32,898 | 4.8 | % | 19,014 | 2.2 | % | ||||||
Equity securities | 39,548 | 8.0 | % | 95,493 | 13.9 | % | 195,147 | 23.0 | % | ||||||
Repurchase agreements | — | — | — | — | 5,053 | 0.6 | % | ||||||||
Total investment assets | 494,356 | 100 | % | 686,804 | 100 | % | 850,209 | 100 | % | ||||||
Average cash and investment assets balance | 434,623 | 590,580 | 768,507 |
46
interest rate risk, relating to the market price and cash flow variability associated with changes in interest rates;
• | interest rate risk, relating to the market price and cash flow variability associated with changes in interest rates; | ||
• | credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest; | ||
• | market valuation risk, relating to the changes in market value for our investments, particularly our securities investment fund holdings and shares listed on the Chinese securities exchanges, which are denominated and traded in Renminbi; | ||
• | liquidity risk, relating to the lack of liquidity in many of the debt securities markets we invest in, due to contractual restrictions on transfer or the size of our investments in relation to the overall market; and | ||
• | currency exchange risk, relating to the impact of changes in the value of the Renminbi against the U.S. dollar and other currencies on the value of our investments. |
credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest;
market valuation risk, relating to the changes in market value for our investments, particularly our securities investment fund holdings and shares listed on the Chinese securities exchanges, which are denominated and traded in Renminbi;
liquidity risk, relating to the lack of liquidity in many of the debt securities markets we invest in, due to contractual restrictions on transfer or the size of our investments in relation to the overall market; and
currency exchange risk, relating to the impact of changes in the value of the Renminbi against the U.S. dollar and other currencies on the value of our investments.
Our investment assets are principally comprised of fixed income securities and term deposits, and therefore changes in interest rates have a significant impact on the rate of our investment return. We manage interest rate risk through adjustments to our portfolio mix and terms, and by managing, to the extent possible, the average duration and maturity of our assets and liabilities. However, because of the general lack of long-term fixed income securities in the Chinese financial markets and the restrictions on the types of investments we may make, the duration of some of our assets is lower than our liabilities. We believe that with the development of China’s
financial markets and the gradual easing of our investment restrictions, our ability to match our assets to our liabilities will improve. Chinese financial markets currently do not provide an effective means for us to hedge our interest rate risk.
47
As of or for the years ended December 31, | ||||||||||||||||
2008 | 2009 | |||||||||||||||
Yield(1) | Amount | Yield(1) | Amount | |||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||
Cash, cash equivalents and term deposits: | ||||||||||||||||
Investment income | 4.9 | % | 11,378 | 3.3 | % | 10,805 | ||||||||||
Ending assets: cash and cash equivalents | 34,085 | 36,197 | ||||||||||||||
Ending assets: statutory deposits—restricted | 6,153 | 6,153 | ||||||||||||||
Ending assets: term deposits | 228,272 | 344,983 | ||||||||||||||
Ending assets | 268,510 | 387,333 | ||||||||||||||
Debt securities: | ||||||||||||||||
Investment income | 4.5 | % | 22,690 | 4.1 | % | 23,759 | ||||||||||
Net realized gains/(losses) | 2,445 | 3,346 | ||||||||||||||
Net fair value gains/(losses) on assets at fair value through income | 300 | (277 | ) | |||||||||||||
Total | 25,435 | 26,828 | ||||||||||||||
Ending assets | 575,885 | 582,315 | ||||||||||||||
Loans: | ||||||||||||||||
Investment income | 5.6 | % | 696 | 5.7 | % | 1,172 | ||||||||||
Ending assets | 17,926 | 23,081 |
As of or for the years ended December 31, | ||||||||||||||||||
2005 | 2006 | 2007 | ||||||||||||||||
Yield(1) | Amount | Yield(1) | Amount | Yield(1) | Amount | |||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||
Cash, cash equivalents and term deposits: | ||||||||||||||||||
Investment income | 3.9 | % | 7,903 | 3.8 | % | 8,207 | 4.2 | % | 9,094 | |||||||||
Ending assets: cash and cash equivalents | 28,051 | 50,213 | 25,317 | |||||||||||||||
Ending assets: statutory deposits—restricted | 5,353 | 5,353 | 5,773 | |||||||||||||||
Ending assets: term deposits | 164,869 | 175,476 | 168,594 | |||||||||||||||
Ending assets | 198,273 | 231,042 | 199,684 | |||||||||||||||
Debt securities: | ||||||||||||||||||
Investment income | 4.2 | % | 8,429 | 4.0 | % | 12,384 | 4.2 | % | 16,678 | |||||||||
Net realized gains/(losses) | 61 | (6 | ) | (4,271 | ) | |||||||||||||
Total | 8,490 | 12,378 | 12,407 | |||||||||||||||
Ending assets | 255,554 | 375,898 | 443,181 | |||||||||||||||
Loans: | ||||||||||||||||||
Investment income | 3.2 | % | 22 | 4.8 | % | 80 | 5.2 | % | 248 | |||||||||
Ending assets | 981 | 2,371 | 7,144 | |||||||||||||||
Equity securities: | ||||||||||||||||||
Investment income | 1.7 | % | 494 | 9.3 | % | 4,662 | 13.3 | % | 19,400 | |||||||||
Net realized gains/(losses) | (571 | ) | 1,601 | 19,656 | ||||||||||||||
Total | (77 | ) | 6,263 | 39,056 | ||||||||||||||
Ending assets | 39,548 | 95,493 | 195,147 | |||||||||||||||
Resale and repurchase agreements: | ||||||||||||||||||
Resale agreements: | ||||||||||||||||||
Investment income | 2.2 | % | 3 | N/A | 23 | 8.2 | % | 206 | ||||||||||
Total | 3 | 23 | 206 | |||||||||||||||
Ending assets | — | — | 5,053 | |||||||||||||||
Repurchase agreements: | ||||||||||||||||||
Total | (70 | ) | (270 | ) | (1,281 | ) | ||||||||||||
Ending assets | 4,731 | 8,227 | 100 | |||||||||||||||
Investments in associates: | ||||||||||||||||||
Investment income/(losses) | — | — | — | — | 6.5 | % | 409 | |||||||||||
Ending assets | — | 6,071 | 6,450 | |||||||||||||||
Total investments: | ||||||||||||||||||
Net investment income | 3.9 | % | 16,685 | 4.3 | % | 24,942 | 5.8 | % | 44,020 | |||||||||
Net realized gains/(losses) | (510 | ) | 1,595 | 15,385 |
48
As of or for the years ended December 31, | ||||||||||||||||
2008 | 2009 | |||||||||||||||
Yield(1) | Amount | Yield(1) | Amount | |||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||
Equity securities: | ||||||||||||||||
Investment income | 7.5 | % | 10,093 | 2.5 | % | 3,146 | ||||||||||
Net realized gains/(losses) | (8,409 | ) | 17,898 | |||||||||||||
Net fair value gains/(losses) on assets at fair value through income | (7,494 | ) | 1,726 | |||||||||||||
Total | (5,810 | ) | 22,770 | |||||||||||||
Ending assets | 75,082 | 179,405 | ||||||||||||||
Resale and repurchase agreements: | ||||||||||||||||
Resale agreements: | ||||||||||||||||
Investment income | 3.0 | % | 89 | N/A | 8 | |||||||||||
Total | 89 | 8 | ||||||||||||||
Ending assets | — | — | ||||||||||||||
Repurchase agreements: | ||||||||||||||||
Investment expense | (438 | ) | (111 | ) | ||||||||||||
Ending assets | 11,390 | 33,553 | ||||||||||||||
Investments in associates: | ||||||||||||||||
Investment income/(losses) | (0.8 | %) | (56 | ) | 8.6 | % | 704 | |||||||||
Ending assets | 7,891 | 8,470 | ||||||||||||||
Total investments: | ||||||||||||||||
Investment income | 3.48 | % | 44,946 | 5.78 | % | 38,890 | ||||||||||
Net realized gains/(losses) | (5,964 | ) | 21,244 | |||||||||||||
Net fair value gains/(losses) on assets at fair value through income | (7,194 | ) | 1,449 | |||||||||||||
Business tax and extra charges for investment | (650 | ) | (662 | ) | ||||||||||||
Total | 31,138 | 60,921 | ||||||||||||||
Ending assets | 937,403 | 1,172,145 |
(1) | Yields for |
2007. to deposit rates set by the PBOC from time to time, thus providing us with a measure of protection against rising interest rates and, for a significant portion of them, the variable interest rates also cannot fall below a fixed guaranteed rate. They typically allow us to renegotiate terms with the banks upon prepayment, including 492007, 25.5% of our total investment assets as of December 31, 2006, and 33.4% of our total investment assets as of December 31, 2005.Substantially allMost of them carry variable interest rates which are linkedcalculationsthe methods for the calculation of accrued interest, if any. We make term deposits to obtain higher yields than can ordinarily be obtained with regular deposits.
As of December 31, | ||||||
2005 | 2006 | 2007 | ||||
Amortized cost | Amortized cost | Amortized cost | ||||
(RMB in millions) | ||||||
Due in one year or less | 10,563 | 57,930 | 46,706 | |||
Due after one year and through five years | 147,504 | 111,901 | 93,372 | |||
Due after five years and through ten years | 3,502 | 3,421 | 26,434 | |||
Due after ten years | 3,300 | 2,224 | 2,082 | |||
Total term deposits and structured term deposits | 164,869 | 175,476 | 168,594 | |||
As of December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Amortized | Amortized | Amortized | ||||||||||
cost | cost | cost | ||||||||||
(RMB in millions) | ||||||||||||
Due in one year or less | 46,706 | 64,621 | 84,393 | |||||||||
Due after one year and through five years | 93,372 | 155,320 | 196,090 | |||||||||
Due after five years and through ten years | 26,434 | 6,759 | 64,500 | |||||||||
Due after ten years | 2,082 | 1,572 | — | |||||||||
Total term deposits and structured term deposits | 168,594 | 228,272 | 344,983 | |||||||||
As of December 31, | ||||||
2005 | 2006 | 2007 | ||||
Amortized cost | Amortized cost | Amortized cost | ||||
(RMB in millions) | ||||||
Industrial & Commercial Bank of China | 23,416 | 24,093 | 5,657 | |||
Agriculture Bank of China | 11,278 | 18,079 | 18,090 | |||
Bank of China | 19,964 | 17,519 | 13,738 | |||
China Construction Bank | 2,148 | 1,845 | 200 | |||
Other banks | 108,063 | 113,940 | 130,909 | |||
Total term deposits and structured term deposits | 164,869 | 175,476 | 168,594 | |||
As of December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Amortized | Amortized | Amortized | ||||||||||
cost | cost | cost | ||||||||||
(RMB in millions) | ||||||||||||
Industrial & Commercial Bank of China | 5,657 | 7,939 | 2,700 | |||||||||
Agriculture Bank of China | 18,090 | 18,354 | 16,883 | |||||||||
Bank of China | 13,738 | 5,137 | 70,400 | |||||||||
China Construction Bank | 200 | 18,200 | 21,000 | |||||||||
Other banks | 130,909 | 178,642 | 234,000 | |||||||||
Total term deposits and structured term deposits | 168,594 | 228,272 | 344,983 | |||||||||
2009.
• | Chinese government bonds; | ||
• | government agency bonds (including local government bonds issued and repaid by the Ministry of Finance as agent, central bank notes, financial bonds issued by state-owned policy banks of the Chinese government, and RMB-denominated bonds issued by international development institutions); | ||
• | corporate bonds (including financial bonds issued by commercial banks, corporate bonds, convertible corporate bonds, short-term financing bonds and medium-term notes); and | ||
• | subordinated bonds and debt (including subordinated bonds issued by state-owned policy banks of the Chinese government, subordinated bonds issued by commercial banks, subordinated debt with fixed terms issued by commercial banks and subordinated debt with fixed terms issued by insurance companies). |
50
2007.
4.7% of our total available-for-sale debt securities as of December 31, 2005, respectively. Except for a few seriessmall number of our debt securities, which collectively had a carrying value of RMB 62,2566,509 million (US$8,535(US $954 million) as of December 31, 2007,2009, most of our debt securities are publicly traded on stock exchanges or in the interbank market in China.
The government bonds are sovereign debt of the Chinese government. The government agency bonds are bonds issued by Chinese policy banks.
As of December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | ||||||||||||||||||||||||||||||||||||||||||||||
Amortized | % of | Estimated | % of | Amortized | % of | Estimated | % of | Amortized | % of | Estimated | % of | |||||||||||||||||||||||||||||||||||||
cost | total | fair value | total | cost | total | fair value | total | cost | total | fair value | total | |||||||||||||||||||||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities, available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 83,137 | 18.3 | % | 80,588 | 18.4 | % | 73,130 | 13.2 | % | 80,006 | 13.5 | % | 50,623 | 8.6 | % | 51,996 | 8.9 | % | ||||||||||||||||||||||||||||||
Government agency bonds | 111,906 | 24.7 | % | 107,154 | 24.4 | % | 180,135 | 32.5 | % | 191,121 | 32.3 | % | 167,313 | 28,4 | % | 165,231 | 28.3 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 46,464 | 10.2 | % | 43,742 | 10.0 | % | 64,388 | 11.6 | % | 67,505 | 11.4 | % | 103,603 | 17.7 | % | 102,553 | 17.6 | % | ||||||||||||||||||||||||||||||
Subordinated bonds/debt | 10,462 | 2.3 | % | 9,898 | 2.3 | % | 17,265 | 3.1 | % | 17,588 | 3.0 | % | 21,198 | 3.6 | % | 21,045 | 3.6 | % | ||||||||||||||||||||||||||||||
Total debt securities, available-for-sale | 251,969 | 55.5 | % | 241,382 | 55.0 | % | 334,918 | 60.4 | % | 356,220 | 60.1 | % | 342,737 | 58.4 | % | 340,825 | 58.5 | % | ||||||||||||||||||||||||||||||
Debt securities, held to maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 96,786 | 21.3 | % | 96,234 | 21.9 | % | 102,688 | 18.5 | % | 112,681 | 19.0 | % | 103,980 | 17.8 | % | 107,432 | 18.4 | % | ||||||||||||||||||||||||||||||
Government agency bonds | 71,273 | 15.7 | % | 68,080 | 15.5 | % | 79,400 | 14.3 | % | 84,558 | 14.3 | % | 84,619 | 14.5 | % | 82,728 | 14.2 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 3,272 | 0.7 | % | 3,403 | 0.8 | % | 3,267 | 0.6 | % | 3,494 | 0.6 | % | 3,139 | 0.5 | % | 3,245 | 0.6 | % | ||||||||||||||||||||||||||||||
Subordinated bonds/debt | 24,372 | 5.4 | % | 23,872 | 5.4 | % | 26,574 | 4.8 | % | 27,865 | 4.7 | % | 43,361 | 7.4 | % | 42,264 | 7.3 | % | ||||||||||||||||||||||||||||||
Total debt securities, held to maturity | 195,703 | 43.1 | % | 191,589 | 43.6 | % | 211,929 | 38.2 | % | 228,598 | 38.6 | % | 235,099 | 40.2 | % | 235,669 | 40.4 | % | ||||||||||||||||||||||||||||||
Debt securities, financial assets at fair value through income (held-for-trading) | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 710 | 0.2 | % | 693 | 0.2 | % | 1,404 | 0.3 | % | 1,428 | 0.2 | % | 2,483 | 0.4 | % | 2,438 | 0.4 | % | ||||||||||||||||||||||||||||||
Government agency bonds | 4,679 | 1.0 | % | 4,583 | 1.0 | % | 4,525 | 0.8 | % | 4,660 | 0.8 | % | 3,559 | 0.6 | % | 3,549 | 0.6 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 458 | 0.1 | % | 513 | 0.1 | % | 1,614 | 0.3 | % | 1,648 | 0.3 | % | 403 | 0.1 | % | 404 | 0.1 | % | ||||||||||||||||||||||||||||||
Subordinated bonds/debt | 329 | 0.1 | % | 307 | 0.1 | % | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Total debt securities, financial assets at fair value through income (held-for-trading) | 6,176 | 1.4 | % | 6,096 | 1.4 | % | 7,543 | 1.4 | % | 7,736 | 1.3 | % | 6,445 | 1.1 | % | 6,391 | 1.1 | % | ||||||||||||||||||||||||||||||
Total debt securities | 453,768 | 100 | % | 439,067 | 100 | % | 554,583 | 100.0 | % | 592,554 | 100.0 | % | 580,623 | 100 | % | 582,834 | 100 | % | ||||||||||||||||||||||||||||||
As of December 31, | ||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | ||||||||||||||||||||||||||||
Amortized cost | % of total | Estimated fair value | % of total | Amortized cost | % of total | Estimated fair value | % of total | Amortized cost | % of total | Estimated fair value | % of total | |||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||||||||
Debt securities, available-for-sale: | ||||||||||||||||||||||||||||||
Government bonds | 49,180 | 19.3 | % | 49,922 | 18.7 | % | 60,058 | 16.8 | % | 60,352 | 16.3 | % | 83,137 | 18.3 | % | 80,588 | 18.4 | % | ||||||||||||
Government agency bonds | 30,776 | 12.1 | % | 30,662 | 11.5 | % | 78,300 | 21.9 | % | 78,721 | 21.3 | % | 111,906 | 24.7 | % | 107,154 | 24.4 | % | ||||||||||||
Corporate bonds | 10,806 | 4.2 | % | 11,315 | 4.2 | % | 31,001 | 8.7 | % | 30,752 | 8.3 | % | 46,464 | 10.2 | % | 43,742 | 10.0 | % | ||||||||||||
Subordinated bonds/debts | 4,458 | 1.8 | % | 4,526 | 1.7 | % | 7,068 | 2.0 | % | 7,043 | 1.9 | % | 10,462 | 2.3 | % | 9,898 | 2.3 | % | ||||||||||||
Total debt securities, available-for-sale | 95,220 | 37.4 | % | 96,425 | 36.1 | % | 176,427 | 49.4 | % | 176,868 | 47.8 | % | 251,969 | 55.5 | % | 241,382 | 55.0 | % | ||||||||||||
Debt securities, held to maturity: | ||||||||||||||||||||||||||||||
Government bonds | 90,067 | 35.4 | % | 98,706 | 37.0 | % | 94,999 | 26.6 | % | 102,764 | 27.9 | % | 96,786 | 21.3 | % | 96,234 | 21.9 | % | ||||||||||||
Government agency bonds | 28,609 | 11.2 | % | 30,247 | 11.3 | % | 53,935 | 15.1 | % | 56,333 | 15.2 | % | 71,273 | 15.7 | % | 68,080 | 15.5 | % | ||||||||||||
Corporate bonds | 3,257 | 1.3 | % | 3,567 | 1.3 | % | 3,257 | 0.9 | % | 3,553 | 1.0 | % | 3,272 | 0.7 | % | 3,403 | 0.8 | % | ||||||||||||
Subordinated bonds/debts | 24,364 | 9.6 | % | 25,265 | 9.5 | % | 24,368 | 6.8 | % | 25,642 | 6.9 | % | 24,372 | 5.4 | % | 23,872 | 5.4 | % | ||||||||||||
Total debt securities, held to maturity | 146,297 | 57.5 | % | 157,785 | 59.1 | % | 176,559 | 49.4 | % | 188,292 | 51.0 | % | 195,703 | 43.1 | % | 191,589 | 43.6 | % | ||||||||||||
Debt securities, financial assets at fair value through income (held-for-trading) | ||||||||||||||||||||||||||||||
Government bonds | 3,229 | 1.3 | % | 3,229 | 1.2 | % | 148 | 0.0 | % | 148 | 0.0 | % | 693 | 0.2 | % | 693 | 0.2 | % | ||||||||||||
Government agency bonds | 7,116 | 2.8 | % | 7,116 | 2.7 | % | 1,915 | 0.5 | % | 1,915 | 0.5 | % | 4,583 | 1.0 | % | 4,583 | 1.0 | % | ||||||||||||
Corporate bonds | 1,759 | 0.7 | % | 1,759 | 0.7 | % | 2,083 | 0.6 | % | 2,083 | 0.6 | % | 513 | 0.1 | % | 513 | 0.1 | % | ||||||||||||
Subordinated bonds/debts | 728 | 0.3 | % | 728 | 0.2 | % | 325 | 0.1 | % | 325 | 0.1 | % | 307 | 0.1 | % | 307 | 0.1 | % | ||||||||||||
Total debt securities, financial assets at fair value through income (held-for-trading) | 12,832 | 5.1 | % | 12,832 | 4.8 | % | 4,471 | 1.2 | % | 4,471 | 1.2 | % | 6,096 | 1.3 | % | 6,096 | 1.4 | % | ||||||||||||
Total debt securities | 254,349 | 100 | % | 267,042 | 100 | % | 357,457 | 100 | % | 369,631 | 100 | % | 453,768 | 100 | % | 439,067 | 100 | % | ||||||||||||
51
As of December 31, | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Amortized cost | Estimated fair value | Amortized cost | Estimated fair value | Amortized cost | Estimated fair value | |||||||
(RMB in millions) | ||||||||||||
Due in one year or less | 2,715 | 2,737 | 7,518 | 7,569 | 3,512 | 3,533 | ||||||
Due after one year and through five years | 50,918 | 53,251 | 78,147 | 81,361 | 73,198 | 73,533 | ||||||
Due after five years and through ten years | 91,642 | 97,249 | 97,556 | 100,274 | 142,001 | 140,450 | ||||||
Due after ten years | 96,242 | 100,973 | 169,765 | 175,956 | 228,961 | 215,455 | ||||||
Total debt securities | 241,517 | 254,210 | 352,986 | 365,160 | 447,672 | 432,971 | ||||||
Under the CIRC’s regulations, our
As of December 31, | ||||||||||||||||||||||||
2007 | 2008 | 2009 | ||||||||||||||||||||||
Amortized | Estimated | Amortized | Estimated | Amortized | Estimated | |||||||||||||||||||
cost | fair value | cost | fair value | cost | fair value | |||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||
Due in one year or less | 3,512 | 3,533 | 31,757 | 32,294 | 8,844 | 8,886 | ||||||||||||||||||
Due after one year and through five years | 73,198 | 73,533 | 97,909 | 103,801 | 79,641 | 82,511 | ||||||||||||||||||
Due after five years and through ten years | 142,001 | 140,450 | 168,978 | 183,617 | 165,523 | 169,484 | ||||||||||||||||||
Due after ten years | 228,961 | 215,455 | 248,203 | 265,106 | 323,827 | 315,612 | ||||||||||||||||||
Total debt securities | 447,672 | 432,971 | 546,847 | 584,818 | 577,835 | 576,493 | ||||||||||||||||||
Problem and restructured debt securities
We monitor debt securities to identify investments that management considers to be problems. We also monitor investments that have been restructured.
We define problem securities in the debt securities category as securities to which principal or interest payments are in default or are to be restructured pursuant to commenced negotiations, or as securities issued by a debtor that has subsequently entered liquidation.
We define restructured securities in the debt securities category as securities to which we have granted a concession that we would not have otherwise considered but for the financial difficulties of the obligor or issuer.
None of our debt securities is classified as either a problem security or a restructured security.
2008. We did not make any new investments in debt investment plans during the year of 2009.
52
shares issued by the fund fluctuates and the share value is set by the value of the assets held by the fund. Under the CIRC’s regulations, investment holdingsOur investments in securities investment funds during any given month, based on the costare subject to strict restrictions under relevant Chinese regulations. See “—Regulatory and Related Matters—Insurance Company Regulation—Regulation of investment, may not exceed 15% of the total assets of an insurance company as of the end of the proceeding month. In addition, investment holdings in a single securities investment fund during any given month may not exceed 3% of total assets of the company as of the end of the proceeding month, and no investment in any single “closed-end” securities investment fund may exceed 10% of that fund.investments”. Our holdings in securities investment funds comply with those restrictions.
As of December 31, | |||||||||||||||
2005 | 2006 | 2007 | |||||||||||||
Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | ||||||||||
(RMB in millions, except as otherwise indicated) | |||||||||||||||
Open-end | 25,114 | 74.9 | % | 33,006 | 72.9 | % | 53,555 | 76.8 | % | ||||||
Closed-end | 8,408 | 25.1 | % | 12,245 | 27.1 | % | 16,214 | 23.2 | % | ||||||
Total | 33,522 | 100 | % | 45,251 | 100 | % | 69,769 | 100 | % | ||||||
As of December 31, | ||||||||||||||||||||||||
2007 | 2008 | 2009 | ||||||||||||||||||||||
Carrying | % of | Carrying | % of | Carrying | % of | |||||||||||||||||||
value | total | value | total | value | total | |||||||||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||
Open-end | 53,555 | 76.8 | % | 31,047 | 91.4 | % | 68,343 | 89.8 | % | |||||||||||||||
Closed-end | 16,214 | 23.2 | % | 2,906 | 8.6 | % | 7,779 | 10.2 | % | |||||||||||||||
Total | 69,769 | 100 | % | 33,953 | 100 | % | 76,122 | 100 | % | |||||||||||||||
In March 2005, we were approved by the CIRC to invest
53
an office automation system. We plan to further improve our back-up systems to reduce the risk of system failures and the impacts these failures may have on our business. Our information technology systems are supported by approximately 1,7001,900 experienced engineers, technicians and specialists.
54
In 2007, we became a member of the Association for Cooperative Operations Research and Development (“ACORD”), which is a global non-profit insurance association whose mission is to facilitate the development and use of standards for the insurance, reinsurance and related financial services industries. We are now working with ACORD to improve and upgrade our information technology systems to achieve the standards established by ACORD.
Shanghai has been in operation since December 2009.
the PRC consist principally of the PRC Insurance Law and rules and regulations promulgated thereunder. The CIRC is the authority authorized by the PRC State Council to regulate and supervise the insurance industry in the PRC.
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Establishmentmajor provisions of the ChinaPRC Insurance Regulatory CommissionLaw include: (1) licensing of insurance companies and 2002 amendments to insurance law
China’sintermediaries, such as agents and brokers; (2) separation of property and casualty business and life insurance regulatory regime was strengthened further with the establishmentbusiness; (3) regulation of market conduct by participants; (4) substantive regulation of insurance products; (5) regulation of the CIRC in 1998. financial condition and performance of insurance companies; and (6) supervisory and enforcement powers of CIRC.
company’s business. Since its establishment, the CIRC has promulgated a series of regulations indicating a gradual shift in the regulatory approach to a more transparent regulatory process and a convergent movement toward international standards. Significant changes include:
more stringent reserve and solvency requirements and their disclosure;
the increase in the level of disclosures required to be made to the CIRC by insurance companies;
greater freedom for insurance companies to develop products to meet market needs, with a significant reduction in the items which require the CIRC’s approval;
broader investment powers for insurance companies, including allowing insurers to make equity investments in insurance-related enterprises, such as asset management companies;
tightening of market conduct regulation and increased penalties for violations;
phasing out of mandatory reinsurance by the beginning of 2006; and
reduction of barriers to entry, including allowing property and casualty insurers to enter the accident and short-term health insurance business.
Insurance Company Regulation
The CIRC.The CIRC has extensive supervisory authority over insurance companies, including:
promulgation of regulations applicable to the insurance industry;
examination of insurance companies;
establishment of investment regulations;
approving the policy terms and premium rates for certain insurance products;
setting of standards for measuring the financial soundness of insurance companies;
requiring insurance companies to submit reports concerning their business operations and condition of assets; and
ordering the suspension of all or part of an insurance company’s business.
Licensing 55requirements.requirements
Since June 2007, new administration measures relating to insurance licenses have been implemented. These measures have streamlined the types of insurance licenses by no longer distinguishing originals from duplicates and cancelled the requirement for insurance intermediary institutions to hold legal person licenses. An insurance holding company or insurance group that does not engage in insurance business or insurance asset management business is not required to obtain an insurance license. A license currently held by an insurance institution is still effective if no alteration occurs to the registration items of the license. Upon change of any of the registered capital or names of senior management, or upon the expiry of the valid term of the current license, the insurance company shall get a new license at the CIRC or the relevant insurance regulatory bureau no later than September 30, 2007. Insurance companies should make an announcement in the newspapers designated by the CIRC within 20 days after the new or replaced license is issued.
a change of company name, organizational form, and change in registered capital;
capital or address of registered office or principal executive offices; an expansion of business scope; an amendment to articles of association; a merger or spin-off;
a transfer ofchange in a 10%shareholder whose capital contribution accounts for 5% or more equity interest inof the total capital of the company or a shareholder holding 5% or more of the shares of the company;
and a termination of a branch offices; and
a dissolution or bankruptcy of the company.
office. In addition, certain other changes relating to the insurance company must be reviewed by or filed with the CIRC.
Corporate Governance of Insurance Companiesproducts. Based on the CIRC’s first comprehensive investigation on the corporate governance practices of insurance companies at the end of 2006, the CIRC has published a series of notices and guidelines with respect to risk management, compliance management, related transaction management, and internal audit. Insurance companies are required to conduct a special audit of their corporate governance practices, draft a report co-signed by the chairman of the board of directors and two independent directors, and submit the report to the CIRC by January 10, 2008.
Risk management. Insurance companies should establish and adopt basic procedures, relevant organization structures, systems and measures to identify, evaluate and control the risks involved in its insurance operation with the focus being put on operation objectives. An insurance company is required to determine its risk management objectives, establish and improve a risk management system, standardize risk management procedures and adopt advanced methods and measures for risk management so as to maximize the benefits based at an appropriate risk level. Insurance companies shall report to the CIRC in a timely manner any major risks, and include in the annual report the annual risk evaluation report reviewed by the board of directors.
Compliance management. Insurance companies should prevent, identify, evaluate, report and deal with compliance risks by taking measures such as setting up the compliance department, formulating and implementing compliance policies (which are required to be filed with the CIRC), exercising compliance monitoring, and providing compliance trainings, so as to ensure the compliance of the company, its staff and sales agents with the relevant laws and regulations, rules of regulatory authorities, industrial self-discipline rules, internal management systems and codes of ethics. The annual compliance report must be prepared by an insurance company and submitted to the CIRC by April 30 each year. Each insurance company is required by the CIRC to appoint a compliance officer before June 30, 2007. The compliance officer is required to report to both the board of directors and the management. Such compliance officer is also required to report to the CIRC any material non-compliance of the company. As of the date of this annual report, we have identified a candidate to be appointed as compliance officer and submitted our application to the CIRC for its approval. The CIRC regulations do not provide any sanctions for any delay in compliance with such requirement.
Related transaction management. Related transactions between an insurance company and any of its related parties are classified into “major related transactions” and “common related transactions”. The term “major related transactions” refers to any single transaction between an insurance company and a related party in which the trading volume accounts for 1% or more of the insurance company’s net assets as of the end of the previous year and has a value of more than RMB 5 million, or the transactions between an insurance company and a related party in which the accumulative trading volume within one accounting year accounts for 5% or more of the insurance company’s net assets as of the end of the previous year and has a value of more than RMB 50 million. The term “common related transactions” refers to all related transactions other than major related transactions. When calculating the trading volume of related transactions, the transactions between the insurance company and the related party as well as the transactions between the insurance company and any affiliated parties of the related party are calculated on a consolidated basis. A major related transaction is subject to approval by the board of directors or the shareholders, while a common related transaction must be reviewed in accordance with the internal authorization process of the insurance company. An insurance company is required to maintain a management system of related transactions and file them with the CIRC and take effective
measures to prevent its shareholders, directors, supervisors, senior managers or other related parties from taking advantage of their special positions to damage the interests of the company or the insured through related transactions or by any other means.
Internal audit. Insurance companies are required to establish an independent department for internal audit purposes, staffed with sufficient internal audit personnel (the number of full-time internal audit personnel generally must not be less than 5% of the total number of the company’s employees), establish an audit committee, and designate an audit controller whose appointment and replacement must be filed with the CIRC. An internal audit report is to be submitted to the CIRC by April 30 of each year and any major risk perceived during the internal audit process should be reported to the CIRC in a timely manner.
Reporting and disclosure requirements. Within the prescribed time period following the end of a fiscal year, an insurance company must submit to the CIRC, among others, an annual report with audited financial statements and an annual report setting forth its solvency margin as of the end of the fiscal year, as well as other regulatory monitoring items. When the insurance company’s solvency margin falls below the minimum solvency requirement, the CIRC may require the insurance company to file a corrective plan to bring it into compliance with the minimum requirement. Regulations regarding filing, coordinating, custody, utilization and destroy of the archives and documents relating to life insurance business have been in place since July 1, 2007.
Internal Control Assessment. In January 2006, the CIRC issued tentative rules on internal control assessment of life insurance companies to facilitate and supervise the companies to improve their awareness of, and strengthen their controls over, matters such as corporate governance in management, internal controls, and regulatory compliance in operations and risk management. Under these rules, life insurance companies must submit to the CIRC an internal control assessment form and an annual internal control assessment report each year. The CIRC will assess the internal control of life insurance companies within every three years, covering at least one third of the life insurance companies each year.
The CIRC notified life insurance companies in February 2008 of the requirements for processing the internal control self-assessment program and drafting the internal control self-assessment report. The CIRC also clarified and revised the detailed evaluation rules, including those relating to the soundness, reasonableness, and validity of the evaluation proportion. The internal control self-assessment report of year 2007, after review by the board of directors of a life insurance company, is required to be submitted to the CIRC or its local bureaus by April 30, 2008.
We were reviewed by the CIRC in 2006 and found to be in general compliance with the rules and regulations of CIRC, other than a small number of breaches by our branches which resulted in us being sanctioned by way of fines, none of which were material. The breaches mainly included the improper handling of certain premiums received, which violated relevant CIRC rules and regulations. The fines imposed by CIRC ranged from RMB 20,000 (US$2,563) to RMB 500,000 (US$64,069). All such fines have been paid in full.In 2007, CIRC conducted a follow-up review on the rectification of the breaches identified in 2006 and found that such breaches have been effectively rectified.
The 2002 amendment to the insurance law changed the manner in which insurance products were regulated, giving insurance companies greater freedom to develop products to meet market needs. Under the 2002 amendment, the terms and the rates for premiums and policy fees of non-traditionalnew types of life insurance, and annuity products, insurance products that affect social and public welfareinterests and insurance products that are mandatorily required by statute, are required to be submitted to the CIRC for approval. In determining whether or not to approve a product, the CIRC is required to consider whether the product adequately provides for the protectionThe terms and rates of social and public welfare and whether it will lead to inappropriate competition. Otherpremiums of other types of insurance products are
required to be filed with the CIRC. In general, the CIRC requires insurance companies to price their products based on mortality rate, interest rate and policy expense and commission assumptions. The assumed mortality rates are based on experience tables applicable to the PRC life insurance industry. The assumed interest rates represent the insurance company’s expectation of its investment returns, subject to CIRC regulations, and the assumed policy expenses and commissions are based on its assessment of its operating and sales expenses, which is also subject to CIRC regulations.regulatory bodies.
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An insurance company that offers participating products is required to have a computer system that can support these kinds of products, and the agents who sell these products are required to complete a training course designed specially for these products. Investment accounts for participating products are required to be segregated from those of non-participating products as well as from those of supplemental insurance that is added to the participating products.
Insurance companies offering participating products are required to file an annual report with the CIRC. The insurance company is also required to provide a performance report to the holders of its participating products at least once a year, setting forth specified financial and other information regarding the products.
Persons purchasing an investment-linked product must be given, prior to purchase, an explanatory statement that explains the nature and special characteristics of the policy, the risks to the purchaser of holding the product, the investment strategy of the separate investment account, the investment account’s performance for the past ten years (or, if shorter, since the date of inception), the applicable fees payable under the product policy and how they are determined, the method of valuation of the assets in the investment account and the future policy or contract value which may accrue from the investment account. Insurance companies are required to present three scenarios covering high, medium and low returns for illustration.
The establishment of separate investment accounts is subject to the CIRC’s approval. Transactions between a separate investment account and any other account of the insurance company, other than a transfer of cash to pay for operating expenses of the separate investment account, are prohibited.
The insurance law prohibits investment managers Other CIRC regulations govern the sale and disclosure terms of a separate investment account from engaging in an investment management business similar in nature to the management of the investment account, enter into transactions with the investment account or take any action which adversely affects the investment account. Agents who sell investment-linked products are required to pass a training course designed specially for these products.
An insurance company offering products with separate investment accounts is required to evaluate monthly the unit value of each investment account and publish a semi-annual notice which includes the financial condition of each investment account, the investment returns in the past five years (or, if shorter, since the date of inception), the investment portfolio as of the date of the report, the management fees charged in the report period and any change in the investment strategy or policy during the period. The insurance company is required to provide an annual report to the holders setting forth information regarding the product.
An insurance company offering products with separate investment accounts is required to submit to the CIRC annual financial reports regarding the investment accounts. In addition, the insurance company must notify the CIRC if on any day the net redemptions from an investment account exceed 1% or more of the total value of the account on the previous day. If the cumulative redemptions since the beginning of a fiscal year reach or exceed 30% of the value of the account at the beginning of the year, or if there have been sustained losses which the investment manager believes to be irreversible or will probably cause serious harm to the interests of policyholders, the insurance company may seek the approval of the CIRC to close the investment account.
Since March 2007, new actuarial rules have applied to investment-linked insurance products. Under the new rules, the sum insured for death risks of an investment-linked insurance product with pension option or a group investment-linked insurance product may be set as zero, while the sum set for an individual investment-linked insurance product should account for no less than 5% of the account value of the insurance policy at the time the policy is issued. There can be no guaranteed minimum rate for investment return from investment-linked insurance and investment account. An insurance company should evaluate the assets in the investment account at least once a week. The capital value of each investment account shall be no lower than the amount of the unit reserve corresponding to such investment account, nor shall the excess amount be higher than 2% of the capital value of the investment account or RMB 5 million, whichever is bigger. No investment-linked insurance product, other than those in compliance with regulatory requirements with respect to investment account evaluation, appraisal of investment unit, and deposit of statutory reserves, may be sold as of October 1, 2007. Insurance companies selling investment-linked products are required to intensify the management of sales people to avoid misleading sales activities. For example, if a sales agent is proved to conduct misleading sales activities in more than two occasions, the sales agent should be prohibited by the insurance company from selling investment-linked insurance products any longer.
insurance.
From January 1, 2007, sale of health insurance products which fail to comply with the specified product requirements set forth in the newly implemented health insurance rules is prohibited. In addition, insurance companies engaged in health insurance business must establish actuarial, accounting calculation, underwriting and other required internal systems by January 1, 2008.
Insurance companies engaged in health insurance business are required to submit an actuarial report or reserve assessment report for the preceding year in accordance with the relevant provisions of the CIRC. Insurance companies must also submit a pricing review report to the CIRC before March 15 of each year regarding the short-term health insurance products, as well as the claims and payments for the short-term health insurance products available for sale for more than one year in the preceding year.
Statutory reinsurance. All insurance companies were required to reinsure 5% of the risks insured under insurance policies, other than life insurance products, underwritten by them. This requirement began to be phased out beginning in 2003 and was abolished entirely at the beginning of 2006. Insurance companies are required to reinsure, for any single risk, the excess of the maximum potential liability over an amount equal to 10% of the sum of paid-in capital and capital reserves. As a safeguard, the reinsurer of any reinsurance agreement commencing after January 1, 2008 is required to comply with the provisions published by the CIRC in November 2007 with respect to minimum paid-in capital, financial credit rating, solvency and profitability.57
Regulation of issuance of subordinated indebtedness. Beginning in September 2004, insurance companies that meet a series of qualification tests and are approved by the CIRC may issue subordinated indebtedness with a fixed term of at least five years to certain qualified Chinese legal persons and foreign investors. The audited net asset value of the issuer must be at least RMB 500 million as of the end of the prior year and the total amount of the unpaid indebtedness at any given point after the issuance, including both principal and interest, must not
exceed the issuer’s net asset value as of the end of the prior year. The issuer must fulfil a set of disclosure obligations both at the time of the issuance and during the term of the indebtedness. The issuer may repay the indebtedness only if its solvency ratio remains at least 100% after the repayment of both principal and the interest.
Regulation of establishment of overseas insurance institutions. An insurance company may apply to the CIRC for approval for the establishment of overseas branches, overseas insurance companies and overseas insurance intermediaries, or the acquisition of overseas insurance companies or intermediaries. In order to submit such an application, an insurance company must have an operating history of no less than two years, total assets of no less than RMB 5 billion at the end of preceding year and foreign exchange funds of no less than USD15 million or its equivalent in other freely convertible currencies as at the end of the preceding year. The applicant insurance company must also comply with applicable solvency, risk management and other requirements as stipulated by the CIRC.
investment: Chinese insurer as of the end of the previous quarter. The total investment in any single issue by a commercial bank with a credit rating of A or 58. The 1995law requires insurance companiescompany, we are subject to invest their fundssignificant restrictions under the PRC Insurance Law and other related rules and regulations on the asset classes in a sound and prudent manner with the dual objective of seeking a return and preservation of capital. It significantly restricts the investmentswhich we are permitted to invest. Currently Chinese life insurance companies are allowed to make. Insuranceinvest their funds may be invested only in bank deposits, Chinese government bonds, government agency bonds issued by quasi-sovereign policy banks of the Chinese government, as well as other investment vehicles approved by the State Council, such as bonds of specified large state-owned enterprises. The 1995 insurance law specifically prohibits insurance companies from establishing any entity engaged in the securities businesses and from investing in enterprises.Since 1999,followings, subject to the CIRC has implemented a gradual but deliberate regulatory expansionsatisfaction of insurance company investment powers.Beginning in August 1999, insurance companies which were authorized to become membersconditions prescribed for each form of the inter-bank market were permitted to engage in purchases and sales of Chinese government bonds and government agency bonds in that market. Beginning in October 1999, insurance companies were allowed to invest in qualified domestic securities investment funds. The amount of investment assets that may be so invested by an insurance company may not exceed a percentage of its total assets as of the end of the prior year as prescribed by the CIRC. The investment in any one fund on a cost basis may not exceed 20% of the maximum amount that may be invested in securities investment funds, and that investment may not account for more than 10% of the fund. These quantitative restrictions were relaxed in January 2003. Since then, the amounts of investment assets that may be so invested by an insurance company may not exceed 15% of its total assets as of the end of the prior month. The investment in any one fund on a cost basis may not exceed 3% of the insurance total assets as of the end of the prior month. The investment in any one closed-end fund may not account for more than 10% of the fund. Notwithstanding the foregoing, insurance companies may invest up to 100% of the assets of one of the investment accounts relating to investment-linked products, up to 80% of the assets of the investment accounts relating to universal life products and up to 15% of the investment assets relating to participating products as of the prior month in qualified domestic securities investment funds.• bank deposits; • Chinese government bonds; • government agency bonds (including local government bonds issued and repaid by the Ministry of Finance as agent, central bank notes, financial bonds issued by state-owned policy banks of the Chinese government, and RMB-denominated bonds issued by international development institutions); • corporate bonds (including financial bonds issued by commercial banks, corporate bonds, convertible corporate bonds, short-term financing bonds and medium-term notes); • subordinated bonds and debt (including subordinated bonds issued by state-owned policy banks of the Chinese government, subordinated bonds issued by commercial banks, fixed term subordinated debt issued by commercial banks and fixed term subordinated debt issued by insurance companies.); • other bonds and debts as approved by relevant government agencies; • policy loans; • Chinese securities investment funds; • RMB-denominated common shares listed on PRC stock exchanges; • indirect investments in infrastructure projects; • equity interests of non-listed Chinese commercial banks; • repurchase and resale agreements; • overseas investments; and • other investment channels as approved by the State Council. notno less than RMB 30 million. The “jumbo” deposits generally bear more attractive interest rates than interest rates on “regular” deposits, which are subject to regulation by the central bank.The 2002 amendment of the insurance law allows insurance companies to invest in insurance companies, asset management companies (restricted to managing insurance company assets) other insurance-related enterprises upon receipt of regulatory approval from the CIRC. The general prohibition against investing in securities businesses and enterprises other than insurance-related enterprises remains in effect.Prior to June 2003, insurance companies were only allowed to invest in corporate bonds issued by four types of government enterprises: railway development, the Three Gorges Dam construction project and enterprises inthe telecommunications and power generation sectors. Furthermore, the total amount of these investments was limited to no more than 10% of an insurer’s total assets, and the total investment in any single issue of these four categories of bonds could not exceed 2% of the total assets of the insurer or 10% of the issue, whichever is lower. In June 2003, insurance companies were authorized to invest in any corporate bond provided that the bond has a rating AA or higher from China Chengxin International Credit Rating Co., Ltd., Dagong Global Credit Rating Agency, China Lianhe Credit Rating Co., Ltd., Shanghai Far East Credit Rating Co., Ltd. or other credit rating agencies approved by the CIRC, and its issuance has been authorized by the PRC securities regulators. Beginning in July 2004, insurance companies have been further allowed to invest in convertible bonds issued by qualified listed companies and certain key state-owned enterprises, which have been approved by the PRC securities regulators. An insurer’s total investment in all corporate bonds, including convertible bonds, on a cost basis may not exceed 20% of its total assets as of the end of the prior month. Furthermore, the total investment in any single issue of corporate bonds may not exceed the lower of 2% of the total assets of the insurer as of the end of the prior month and 15% of the issue. Notwithstanding the foregoing, up to 100% of the assets of one of the investment accounts relating to investment-linked products and up to 80% of the assets of the investment accounts relating to universal life products may be invested in approved corporate bonds. Up to 20% of the investment assets relating to participating and other separately accounted products as of the end of the prior month may be invested in approved corporate bonds.In March 2004, insurance companies were allowed to invest in subordinated indebtedness issued by wholly state-owned commercial banks and national joint-stock commercial banks which have fixed terms of six years or less. An insurer’s total investment in bank subordinated indebtedness on a cost basis may not exceed 8% (and 2% in any single bank) of its total assets as of the end of the prior month, and the total investment in any single issue of such bank subordinated indebtedness may not exceed 20% of the issue.Beginning in June 2004, insurance companies have been further allowed to invest in subordinated bonds issued by any commercial bank in connection with either a public offering or a private placement which has been approved by the China Banking Regulatory Commission and the PBOC. An insurer’s total investment in bank subordinated bonds on a cost basis may not exceed 15% (and 3% in any single bank) of its total assets asstate-owned policy banks of the end of the prior month, and the total investment in any single issue may not exceed 20% of the issue.Concurrently with the authorized issuance of subordinated indebtedness by insurance companies, insurance companies have also been permitted to invest in subordinated indebtedness issued by other insurance companies, beginning in September 2004. An insurer’s total investment in insurance company subordinated indebtedness on a cost basis may not exceed 20% (and 4% in any single issuer) of its net assets as of the end of the prior month, and the total investment in any single issue may not exceed 20% of the issue.Investment in debt securities.On August 17, 2005, the CIRC issued tentative rules on investments in debt securities by insurance companies to consolidate and further loosen the restrictions on the investments in debt securities by insurance companies.Government Bonds, Government Agency Bonds and Subordinated Bonds and RMB-denominated bonds issued by International Development Institutions.government.Insurance companies may invest in Chinese government bonds, local government agency bonds issued and repaid by the Ministry of Finance as agent, central bank notes, financial bonds issued by state-owned policy banks of the Chinese government and subordinated bonds, as well as RMB-denominated bonds issued by international development institutions. There are no CIRC prescribed maximum percentage of investments by insurance companies in these bonds.Bondsbonds and Subordinated Bondssubordinated bond issued by Commercial Banks.commercial banks.Insurance companies may invest in financial bonds and subordinated bonds issued by any qualified commercial bank in connection with either a public offering or a private placement. An insurer’s total investment in commercial bank financial bonds and subordinated bonds on a cost basis may not exceed 30% (and 10% in any single bank) of its total assets as of the end of the priorprevious quarter. The total investment in any single issue by a commercial bank with a credit rating of AA or above may not exceed 20% of the issue, and the balance of such investment may not exceed 5% of the total assets of suchaboveits equivalent may not exceed 10% of the issue, and the balance of such investment may not exceed 3% of the total assets of such insurer as of the end of the previous quarter.
Insurance companies may also invest in convertible bonds issued by qualified listed companies and certain key state-owned enterprises,among which have been approved by the PRC securities regulators. An insurer’s total investment in all suchbalance of corporate bonds including convertible bonds, on a cost basis may not exceed 30% (and 10% in any single issuer, among which 5% attributable to convertible bonds) of its total assets as of the end of the previous quarter. An insurer’s total investment in any single issue of convertible corporate bonds may not exceed if with irrevocable guarantees by qualified guarantors, 20% of the issue, and the balance of such investment may not exceed 3% of its total assets as of the end of the previous quarter, and, if without such guarantees, 10% and 1%, respectively.
Insurance companies may investthe guarantor meets one of the following conditions: (1) it is a financial institution with a credit rating of AA as assessed by a domestic credit rating agency in short-term financial bonds issued by qualified non-financial institutions. Anthe previous year, or (2) it is an enterprise with net assets of RMB 20 billion as of the end of the previous year. If the guarantor does meet any of the foregoing conditions, an insurer’s total investment in all such corporate bonds, including short-term financial bonds, on a cost basisany single issue may not exceed 30% (and 10% in any single issuer, among which 3% attributable to short-term financial bonds)of the issue, and the balance of such investment may not exceed 1% of its total assets as of the end of the previous quarter.
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In January 2007, the CIRC issued a set of guidelines for credit rating of debt
invested in, except for investments in Chinese government bonds, central bank notes and other bonds as recognized by the CIRC. Insurers are also required to establish and develop an internal credit rating system and file the same with the CIRC in a timely manner. The credit rating department of an insurer shall comprise of at least two professionals with financial knowledge and capabilities. The credit rating reports produced shall be submitted to relevant departments for use and the risk management department shall supervise the use of such credit rating results.
Overseas Investment.funds.Beginning in August 2004, a qualified life insurance company may invest abroad its foreign currency denominated insurance funds in bank deposits or debt securities with specified credit ratings and a limited number of other instruments. Total investments in debt securities issued by any single corporation or enterprise may not exceed on a cost basis 10% of the total quota approved by SAFE. In June 2005, the CIRC further broadened the permitted overseas investments to include shares of Chinese companies listed on the stock exchanges in New York, London, Frankfurt, Tokyo, Singapore and Hong Kong. The total amount of overseas investments in shares of Chinese companies may not exceed 10% of an insurance company’s total approved quota, and the investments in a single Chinese company by an insurance company may not exceed 5% of the its total shares issued and outstanding. In January 2005, we submitted an application to allow us to make such overseas investments and obtained such approval in November 2006.
With the announcement of No. 5 circular by the PBOC in April 2006, qualified insuranceInsurance companies are allowed to invest in overseas products with fixed proceeds and currency market instruments.qualified domestic securities investment funds. The Interim Measures for the Overseas Investment with Insurance Funds were implemented in June 2007, under which the requirements for overseas investment by insurance companies and the qualifications to act as investment agents and custodian have been broadened. Insurance companies in good standing, steady financial condition, good corporate governance, and without any violation of relevant laws or regulations during the past three years may engage qualified agents (insurance asset management companies or other professional investment management institution) established in or outside China to make investments abroad and appoint one qualified commercial bank or other custody institution as the custodian to supervise such investments. The overseas investment activities of, and the appointment of agents and custodian by, the insurance company are subject to the CIRC’s approval. In addition, the foreign currency quota for investment must be approved by the SAFE and the total amount of investment assets that may be so invested by an insurer may not exceed 15% of theits total assets of the insurance company as of the end of last year.
Thethe prior month. An investment in any single fund may not exceed 3% of its total assets as of the end of the previous month. An investment in any single closed-end fund may not account for more than 10% of the fund. Notwithstanding the foregoing, insurance fundscompanies may invest in the following categories:
currency market products, e.g., commercial instruments, large-sum negotiable deposit certificates, repurchase agreements and reverse repurchase agreements, and fundsup to 100% of the currency market;
assets of an investment account relating to investment-linked products, with fixed proceeds, e.g., bank deposits, structural deposits, bonds, convertible bonds, bond funds, securities-featuredup to 80% of an assets of an investment account relating to universal life products credit-featured products; and
equity up to 15% of the investment assets relating to participating products e.g., stocks, stock-based funds, equityas of the previous month in qualified domestic securities investment funds.
listed on PRC stock exchanges.Insurance companies are prohibited from conducting the following activities with insurance funds:
to provide any guarantee to any party with any insurance funds used for overseas investment;
to purchase or sell any foreign currency for speculative purposes;
to launder money;
to seek any illicit proceeds in collusion with any other organization or individual through its overseas investment with insurance funds; or
to conduct any activity as prohibited by domestic or overseas laws or regulations.
Investment in listed stock markets. In October 2004, the CIRC issued a new regulation further authorizing insurance companiesallowed to invest their insurance funds in publicly offered and listed equity securitiesshares which are denominated and traded in RenminbiRMB and other stock market investments. Such stock market investments may be made by an insurer directly or through an insurance asset management company, and may be made at primary market offering stage or through secondary market trading.
Notwithstanding the foregoing, up to 100% of the assets of an investment account relating to investment-linked products, up to 80% of the assets of an investment account relating to universal life products, and up to 5% of the maximum amount of the total assets that may be invested in the stock market as of the end of the prior year, excluding assets relating to investment-linked and universal life products, all at cost basis, may be accounted for stock market investments.
In addition, the total investment in listed companies with fewer than 100 million public shares may not exceed 20% of the maximum amount that may be invested in the stock market, including such amount relating to investment-linked and universal life products. Investment in the public shares of any one listed company may not exceed 5% of the maximum amount that may be invested in stock market on a cost basis, including such amount relating to participating and universal life products, and may not exceed 10% of the total public portion or 5% of the total equity, whichever is lower, of the listed company. The calculation of the above percentages shall take into consideration the number of common shares as a result of the conversion of the convertible bonds.
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Equityits assets available for investment in bond investment plans.
products), as well as other funds recognized by the CIRC.
The insurers
material investments, the insurers are further required to be able to accurately assess the performance and risks of the target bank. If an insurer wishes to purchase a 5% –— 10% stake in a commercial bank, the insurer must have total assets at the end of the previous year of no less than RMB 20 billion (in the case of an insurance holding company) or RMB 100 billion (in the case of an insurance operating company). For investments greater than 10%, the applicable minimum assets test increases to RMB 30 billion (in the case of an insurance holding company) or RMB 150 billion respectively (in the case of an insurance operating company). We are qualified under these rules to make investments for more than a 10% ownership stake in a commercial bank.
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• | currency market products such as commercial paper, negotiable deposits, repurchase agreements, reverse repurchase agreements and currency market funds; | ||
• | fixed income instruments such as bank deposits, structured deposits, bonds, convertible bonds, bond funds, securitization products and trust products; | ||
• | equity investments such as stocks, stock investment funds, equities and equity-type products; and | ||
• | other investments permitted by the PRC Insurance Law and the State Council. |
CIRC.
The standard for calculation of the minimum capital was further revised by the CIRC in January 2010.
18% of the portion of net premium, deposits and policy fees received in the most recent fiscal year net of business tax and other surcharges which are not in excess of RMB 100 million, plus 16% of the portion which are in excess of RMB 100 million; and
• | 18% of the portion of net premium received in the most recent fiscal year net of business tax and other surcharges which is not in excess of RMB 100 million, plus 16% of the portion which are in excess of RMB 100 million; and | ||
• | 26% of the portion of the average annual claims payments during the most recent three fiscal years which is not in excess of RMB 70 million, plus 23% of the portion which is in excess of RMB 70 million. |
26% of the portion of the average annual claims payments during the most recent three fiscal years which is not in excess of RMB 70 million, plus 23% of the portion which is in excess of RMB 70 million.62
1% of reserves for its investment-linked insurance business;
• | 4% of the period-end reserves for insurance risks after unbundling of mixed insurance contracts; | ||
• | 4% of the period-end reserves for insurance contracts; | ||
• | 1% of the liabilities for other risks after unbundling of investment-linked insurance contracts; | ||
• | 4% of the liabilities for other risks after unbundling of other mixed insurance contracts; | ||
• | 4% of the liabilities for insurance policies which do not pass the tests for significant insurance risks; | ||
• | 0.1% of the total sums at risk under term life policies, the coverage period of which expires within three years; | ||
• | 0.15% of the total sums at risk under term life policies, the coverage period of which expires within three to five years; | ||
• | 0.3% of the total sums at risk under term life policies, the coverage period of which will not expire within five years; | ||
• | 0.3% of the total sums at risk under whole life policies; and | ||
• | 0.3% of the sums at risk of all other insurance and annuity products with a coverage period longer than one year. |
4% of reserves for its other insurance businesses;
0.1% of the total sums at risk under term life policies, the coverage period of which expires within three years;
0.15% of the total sums at risk under term life policies, the coverage period of which expires within three to five years;
0.3% of the total sums at risk under term life policies, the coverage period of which will not expire within five years;
0.3% of the total sums at risk under whole life policies; and
0.3% of the sums at risk of all other insurance and annuity products with a coverage period longer than one year.
An insurance company with a solvency ratio below 100% may be subject to a range of regulatory actions by the CIRC. If the solvency ratio is above 70%, theThe CIRC has the right tomay in such situations require the insurance company to, submit and implement a corrective plan. If the insurer fails to come into compliance with the solvency requirement within the prescribed time period, the CIRC may require the insurance company, among other things, to raise additional share capital, to seek reinsurance of its insurance obligations, to restrictlimit paying dividends on its shares, or to restrict the acquisition of fixed assets or business operations or the establishment of branch offices.
If the solvency ratio of an insurance company falls to or below 70% but stays at or above 30%, in addition to the right to take the above-mentioned measures, the CIRC may also order the insurance company to sell its non-performing assets, transfer its insurance business to others, limit the remuneration and expense accounts of its directors and senior management, restrict its advertising activities, orrestrict the establishment of branch offices and business operations, cease any new business development.
Ifdevelopment, transfer its insurance business to others or seek reinsurance of its insurance obligations, sell its assets or restrict the solvency ratio falls below 30%, in addition toacquisition of fixed assets, limit the right to take the regulatory actions described above, the CIRC also has the right tochannels for using its capital, change its management team or put the insurer into receivership.
Since June 2007, the CIRC has commenced to set up a Solvency Supervisory Standard Commission and published afterwards a series of related rules so as to reinforce the supervision over the solvency of the insurance industry. Any insurance company which has not satisfied or may not satisfy the solvency requirementwithin five working days after becoming aware that it is required to take such actions as capital increase or share issuance to meet the requirements by the second quarter of 2007. In addition, the annual and quarterly solvency report must comply with the updated requirements effective as of the year of 2007 and the third quarter of 2007, respectively.
For the financial year of 2007, among the twelve financial ratios, China Life’s ten financial ratios were within their normal ranges as determined by the CIRC. Our actual solvency ratio and our surrender rate were slightly higher than the normal range provided by the CIRC. Our solvency margin asinsolvent.
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to change the nature of the savings;
to withdraw the deposit on or before the due date (unless the deposit is re-saved at the same bank);
to transfer the deposit to another bank;
to use the deposit to pay off debts during a liquidation proceeding;
to partially withdraw the deposit due to the decrease of the registered capital; or
to utilize and dispose of the deposit in any other ways.
Statutory insurance fund.
The CIRC has opened a special bank account at China Industrial and Commerce Bank to accept deposits of the contributions by life insurance companies, including pension companies, health insurance companies and life reinsurance companies. Insurance companies are required to deposit, by March 31, 2005, 50% of the total accumulated amount of contributions as of the end of 2004, and the balance by the end of 2005 into such account. Thereafter, the contributions will be made quarterly each year, with each payment equalling 25% of the total contributions made in the prior year, and necessary adjustments will be made at the end of the year to reflect the actual amount required to be contributed for that year.
assets.
unearned premium reserves and reserves for future benefitsclaims and claims; and
reserves for pending payments based on insurance claims already made and claims not yet made but for which an insured event has occurred.
claim adjustment expense. These reserves are recorded as liabilities for purposes of determining an insurance company’s actual solvency. In May 2003,solvency in accordance with regulatory rules.
In January 2005, CIRC issued a new regulation requiring all life insurance companies to submit to the CIRC a new statutory actuarial report, on an annual basis,in November 2007 with respect to the operational results of their insurance business for the previous year. The most significant part of the new regulation is that a life insurance company is required to provide, in the actuarial report, their assessment of the sufficiency of their statutory reserves.
minimum paid-in capital, financial credit rating, solvency and profitability.
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specified by the CIRC. If the foreign insurance company is dissolved, or its corporate franchise is revoked or it is declared bankrupt, the Chinese branch of the foreign insurance company will be prohibited from conducting any new business.
(1) managing and operating insurance funds entrusted by its shareholders;
(2) managing and operating insurance funds entrusted by another insurance company controlled by its shareholders;
(3) managing and operating its own insurance funds; and
(4) other businesses otherwise approved by the CIRC or other departments of the State Council.
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Essentially none
We are working with our agents who are not yet CIRC-qualified to obtain the CIRC qualification certificate. It is our understanding that the SAIC does not have procedures in place to affect the registration and licensing of individual insurance agents. See “Item 3. Key Information—Risk Factors—Risks Relating to the PRC Life Insurance Industry—All of our agents are required to be qualified and to be registered as business entities. If these qualification and registration requirements are enforced or result in policyholders cancelling their policies, our business may be materially and adversely affected”.
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Our
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(1) | Wholly owned by CLIC |
List of Significant Subsidiaries
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Formerly known as China Life Asset Management (Hong Kong) Company Limited |
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Proportion of Ownership Interest | ||||||||
Name of Subsidiary | Jurisdiction of Incorporation | Owned by China Life | ||||||
The People’s Republic of China | 60% | |||||||
China Life Asset | (directly) | |||||||
Management Company Limited | ||||||||
Hong Kong | 50%(2) | |||||||
China Life Franklin Asset | (indirectly through affiliate) | |||||||
Management Company Limited(1) | ||||||||
The People’s Republic of China | 92.2%(3) | |||||||
China Life Pension Company Limited(2) | (directly and indirectly through affiliate) |
(1) | Formerly known as China Life Asset Management (Hong Kong) Company Limited | |
(2) | AMC, which is 60% owned by us, owns 50% |
(3) | We own |
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Under
We are in the process of purchasing new office buildings for our headquarters in Beijing. We have entered into the relevant agreements for the purchase of the new office buildings and have paid approximately RMB 1,942 million (US$ 266 million), amounting to 99% of the purchase price. The remaining 1% of the purchase price is retained as retention monies and will be paid when the defects liability period has expired accordingno available comparison, by reference to the termscosts incurred by China Life Investment Holding Company Limited in holding and maintaining the properties, plus a margin of the agreement.
approximately 5%.
ITEM 4A. | UNRESOLVED STAFF COMMENTS. |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS. |
Restructuring
We were formed in connectionaccordance with CLIC’s restructuring. In connection with the restructuring, CLIC transferred to us (1) all long-term insurance policies (policies having a term of more than one year from the date of issuance) issued on or after June 10, 1999, having policy terms approved by or filed with the CIRC on or after June 10, 1999 and either (i) recordedIFRS as a long-term insurance policy as of June 30, 2003 in a database attached to the restructuring agreement as an annex or (ii) having policy terms for group supplemental medical insurance (fund type), (2) stand-alone short-term policies (policies having a term of one year or less from the date of issuance) issued on or after June 10, 1999 and (3) all riders supplemental to the policies described in clauses (1) and (2) above, together with the reinsurance contracts specified in an annex to the restructuring agreement. We refer to these policies as the “transferred policies”. See “Item 4. Information on the Company—History and Development of the Company—Our Restructuring”. All other insurance policies as of June 30, 2003 were retained by CLIC. We refer to these policies as the “non-transferred policies”. We refer to the insurance policies issued by us following the restructuring as the “new policies”.
The restructuring was effected through a restructuring agreement entered into with CLIC on September 30, 2003, with retroactive effectIASB, which differ in certain aspects from U.S. GAAP. Following our adoption of IFRS in 2009, we are no longer required to June 30, 2003. Pursuant to PRC law and the restructuring agreement, the transferred policies were transferred to us as of June 30, 2003; however, for accounting purposes the
restructuring is treated as having occurred on September 30, 2003. As of June 30, 2003, we assumed all obligations and liabilities of CLIC under the transferred policies. CLIC continues to be responsible for its liabilities and obligations under the non-transferred policies following the restructuring. The business constituted by the policies and assets transferred to us and the obligations and liabilities assumed by us and the business constituted by the policies, assets, obligations and liabilities retained by CLIC were, prior to the restructuring, under common management from a number of significant aspects. Therefore,reconcile our consolidated balance sheet data and income statement datafinancial statements prepared in accordance with IFRS to U.S. GAAP.
Immediately following the restructuring, CLIC became our sole shareholder. Following our global offering in December 2003, CLIC became2008 and remains our controlling shareholder, holding approximately 72.2% of our voting shares. Following our A share offering in December 2006, CLIC now holds approximately 68.4% of our voting shares as of January 1, 2008 in accordance with IFRS. The impact of the transition to IFRS from consolidated financial statements previously prepared in accordance with HKFRS on our consolidated equity as of January 1, 2008 and December 31, 2008 and our net profit for the year ended December 31, 2008, is detailed in note 2.1 to our consolidated financial statements included elsewhere in this annual report.
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year ended December 31, 2007 has been included.
• | Individual life insurance, which offers participating and non-participating life insurance and annuities to individuals. The financial results of our individual long-term health and long-term accident insurance business are also reflected in our individual life insurance business segment. Our individual life insurance business comprises long-term products, including long-term health and long-term accident insurance products, meaning products having a term of more than one year at the date of their issuance. |
• | Group life insurance, which offers participating and non-participating life insurance and annuities products to companies and institutions. The financial results of our group long-term health and long-term accident insurance business are also reflected in our group life insurance business segment. Our group life insurance business comprises long-term products. |
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• | Individual life insurance |
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• | Group life insurancehad total gross written premiums of RMB 190 million (US$28 million) in 2009. |
• | Short-term insurancehad total gross written premiums of RMB 14,065 million (US$2,061 million) in 2009. |
policy fees for long-term investment–type insurance contracts and investment contracts (collectively, investment-type contracts). Policy fees accounted for 4.0% of total revenues in 2007.
investment income and realized and, in some cases, unrealized gains and losses from our investment assets. Net investmentInvestment income and net realized and unrealized gains and losses accounted for 40.9%18.2% of total revenues in 2007.
increases
amortization of deferred policy acquisition costs;
underwriting and policy acquisition costs;
policyholder dividends resulting from participation in profits;
interests credited to long-term investment-type insurance contracts
increases in deferred income; and
administrative and other expenses.
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revisions were made to2009. If the interest rate on one-year term deposits, which resultedeconomic condition improves in the further increase of the interest rate from 2.52% to 4.14%. Due to China’s recent fast growing economy,future, the Chinese government may take certain measures, including further raisingadjust the interest rates in an effort to ensure sustainable economic growth.accordingly. If the interest rates were to be further increased, but the CIRC did not raise the cap, sales of some of our products, including our non-participating investment-type products, could be adversely impacted. An increase in guaranteed rates caused by a rise in the CIRC cap may lead to an increase in surrenders and withdrawals of our existing products which offer rates lower than the new rates. See “—Financial Overview of Our Business”. As of December 31, 2007, the average guaranteed rate of return of our products was 2.31%.
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reduce the risk of duration mismatch by focusing on product offerings whose maturity profiles are in line with the duration of investments available to us in the prevailing investment environment.
For the year ended December 31, | ||||||||
2005 | 2006 | 2007 | ||||||
Debt securities | (92 | ) | — | (3,403 | ) | |||
Equity securities | (651 | ) | — | — | ||||
Total | (743 | ) | — | (3,403 | ) | |||
Impairments relating to2009.
For the year ended | ||||||||
December 31, | ||||||||
2008 | 2009 | |||||||
(RMB in millions) | ||||||||
Debt securities | 2,023 | 200 | ||||||
Equity securities | (15,744 | ) | (2,350 | ) | ||||
Total | (13,721 | ) | (2,150 | ) | ||||
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Available-for-sale/non-trading200 million as of 31 December 2009 as a first distribution and accordingly RMB 200 million of the previously recognized impairment losses was reversed.
As of December 31, | ||||||||||||
2005 | 2006 | 2007 | ||||||||||
Cost or amortized cost | Estimated fair value | Cost or amortized cost | Estimated fair value | Cost or amortized cost | Estimated fair value | |||||||
(RMB in millions) | ||||||||||||
Debt securities | ||||||||||||
Government bonds | 49,180 | 49,922 | 60,058 | 60,352 | 83,137 | 80,588 | ||||||
Government agency bonds | 30,776 | 30,662 | 78,300 | 78,721 | 111,906 | 107,154 | ||||||
Corporate bonds | 10,806 | 11,315 | 31,001 | 30,752 | 46,464 | 43,742 | ||||||
Subordinated bonds/debts | 4,458 | 4,526 | 7,068 | 7,043 | 10,462 | 9,898 | ||||||
Subtotal | 95,220 | 96,425 | 176,427 | 176,868 | 251,969 | 241,382 | ||||||
Equity securities | ||||||||||||
Funds | 24,845 | 25,114 | 20,535 | 32,869 | 37,513 | 60,624 | ||||||
Common stocks | 1,009 | 1,147 | 15,876 | 29,725 | 51,714 | 115,509 | ||||||
Warrants | — | — | — | 1 | — | — | ||||||
Subtotal | 25,854 | 26,261 | 36,411 | 62,595 | 89,227 | 176,133 | ||||||
Total | 121,074 | 122,686 | 212,838 | 239,463 | 341,196 | 417,515 | ||||||
2009.
As of December 31, | ||||||||||||||||
2008 | 2009 | |||||||||||||||
Cost or | Cost or | |||||||||||||||
amortized | Estimated | amortized | Estimated | |||||||||||||
cost | fair value | cost | fair value | |||||||||||||
(RMB in millions) | ||||||||||||||||
Debt securities | ||||||||||||||||
Government bonds | 73,130 | 80,006 | 50,623 | 51,996 | ||||||||||||
Government agency bonds | 180,135 | 191,121 | 167,312 | 165,231 | ||||||||||||
Corporate bonds | 64,388 | 67,505 | 103,603 | 102,553 | ||||||||||||
Subordinated bonds/debt | 17,265 | 17,588 | 21,198 | 21,045 | ||||||||||||
Subtotal | 334,918 | 356,220 | 342,736 | 340,825 | ||||||||||||
Equity securities | ||||||||||||||||
Funds | 32,313 | 29,890 | 62,818 | 75,798 | ||||||||||||
Common stocks | 38,132 | 38,829 | 72,740 | 100,876 | ||||||||||||
Subtotal | 70,445 | 68,719 | 135,558 | 176,674 | ||||||||||||
Total | 405,363 | 424,939 | 478,294 | 517,499 | ||||||||||||
decreases in the pricedecrease of the market value of debt securities resulting from the several increases of interest rates by the PBOC in 2007. The unrealized losses as of December 31, 2006 related primarily to mark tounfavorable market adjustments to bonds and securities investment funds. These unrealized losses as of December 31, 2005 related primarily to mark to market adjustments to government and government agency bonds.conditions. The SSE Index, a major stock exchange index in China, was 1,161at 3,277 points on December 31, 2005, a further decrease from 2004. The index was 2,675 points on December 31, 2006,2009, which was a 130.4%80% increase from 2005. The index was 5,261 points on December 31, 2007, which was a 96.7% increase from 2006.2008. This resulted in a significant decrease in total unrealized losses.losses of investment in equity securities. The unrealized losses as of December 31, 2008 related primarily to the sharp fall of the capital markets that year. We made substantially all of the revaluation adjustments on the basis of quoted market prices atas of the relevant balance sheet dates.
The following tables set forth the length of time that each class of available-for-sale/non-trading securities has continuously been in an unrealized loss position as of December 31, 2007, 2006 and 2005.
As of December 31, 2007 | 0-6 months | 7-12 months | More than 12 months | Total | |||||||
(RMB in millions) | |||||||||||
Debt securities | |||||||||||
Unrealized losses | (3,790 | ) | (7,942 | ) | — | (11,732) | |||||
Carrying amounts | 74,628 | 62,759 | — | 137,387 | |||||||
Unrealized losses as a percentage of carrying amounts | 5.08 | % | 12.65 | % | — | 8.54% | |||||
Equity securities | |||||||||||
Unrealized losses | (537 | ) | 0 | — | (537) | ||||||
Carrying amounts | 4,324 | 1 | — | 4,325 | |||||||
Unrealized losses as a percentage of carrying amounts | 12.42 | % | 0 | % | — | 12.42% | |||||
Total | |||||||||||
Total unrealized losses | (4,327 | ) | (7,942 | ) | — | (12,269) | |||||
Total carrying amounts | 78,952 | 62,760 | — | 141,712 | |||||||
Unrealized losses as a percentage of carrying amounts | 5.48 | % | 12.65 | % | — | 8.66% | |||||
As of December 31, 2006 | 0-6 months | 7-12 months | More than 12 months | Total | |||||||
(RMB in millions) | |||||||||||
Debt securities | |||||||||||
Unrealized losses | (819 | ) | (290 | ) | (227 | ) | (1,336) | ||||
Carrying amounts | 53,352 | 9,068 | 9,212 | 71,632 | |||||||
Unrealized losses as a percentage of carrying amounts | 1.54 | % | 3.20 | % | 2.46 | % | 1.87% | ||||
Equity securities | |||||||||||
Unrealized losses | (136 | ) | — | — | (136) | ||||||
Carrying amounts | 1,273 | — | — | 1,273 | |||||||
Unrealized losses as a percentage of carrying amounts | 10.68 | % | — | — | 10.68% | ||||||
Total | |||||||||||
Total unrealized losses | (955 | ) | (290 | ) | (227 | ) | (1,472) | ||||
Total carrying amounts | 54,625 | 9,068 | 9,212 | 72,905 | |||||||
Unrealized losses as a percentage of carrying amounts | 1.75 | % | 3.20 | % | 2.46 | % | 2.02% |
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As of December 31, 2005 Debt securities Unrealized losses Carrying amounts Unrealized losses as a percentage of carrying amounts Equity securities Unrealized losses Carrying amounts Unrealized losses as a percentage of carrying amounts Total Total unrealized losses Total carrying amounts Unrealized losses as a percentage of carrying amounts 0-6
months 7-12
months More than 12
months Total (RMB in millions) (647) (1) (261) (909) 29,235 17 9,520 38,772 2.21% 5.88% 2.74% 2.34% (58) (95) — (153) 3,267 1,696 — 4,963 1.78% 5.60% — 3.08% (705) (96) (261) (1,062) 32,502 1,713 9,520 43,735 2.17% 5.60% 2.74% 2.43%
the extent and the duration
equity securities was more than 50% below its cost at the financial condition of and near-term prospectsbalance sheet date;
our ability and intent to hold the investmentequity securities was more than 20% below its cost for a period of time to allowat least six months at the balance sheet date; and
As of December 31, 2005, our total investment assets were RMB 494,356 million and the investment yield for the year ended December 31, 2005 was 3.86%.
For 2005, 2006 and 2007,2009, we calculated the investment yields for a given year by dividing the net investment income for that year by the average of the ending balance of investment assets of that year and the previous year.
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As of or for the year ended December 31, | Compound annual growth rate | ||||||||||
2005 | 2006 | 2007 | 2007 | (2005-2007) | |||||||
RMB | RMB | RMB | US$ | ||||||||
(in millions) | |||||||||||
Individual life insurance business(1) | |||||||||||
Whole life and term life insurance: | |||||||||||
Gross written premiums | 23,494 | 28,257 | 32,118 | 4,402 | 16.92 | % | |||||
Endowment: | |||||||||||
Gross written premiums | 35,480 | 43,582 | 40,278 | 5,522 | 6.55 | % | |||||
Deposits | 60,310 | 69,583 | 70,331 | 9,741 | 7.99 | % | |||||
Annuities: | |||||||||||
Gross written premiums | 4,231 | 8,247 | 19,024 | 2,608 | 112.05 | % | |||||
Deposits | 2,173 | 772 | 1,013 | 108 | (31.72 | )% | |||||
Group life insurance business(1) | |||||||||||
Whole life and term life insurance: | |||||||||||
Gross written premiums | 698 | 912 | 687 | 154 | (0.79 | )% | |||||
Deposits | 101 | 169 | 771 | 64 | 176.29 | % | |||||
Annuities: | |||||||||||
Gross written premiums | 169 | 232 | 189 | 26 | 5.75 | % | |||||
Deposits | 21,528 | 18,411 | 19,804 | 2,554 | (4.09 | )% | |||||
Endowment: | |||||||||||
Premiums | — | — | — | — | — | ||||||
Deposits | 1,834 | 2,506 | 1,583 | 217 | (7.10 | )% | |||||
Accident and health insurance business(2) | |||||||||||
Accident gross written insurance premiums | 5,135 | 5,148 | 5,495 | 753 | 3.45 | % | |||||
Health gross written insurance premiums | 5,732 | 5,942 | 6,404 | 878 | 5.70 | % |
As of or for the year ended | Annual | |||||||||||||||
December 31, | growth rate | |||||||||||||||
2008 | 2009 | 2009 | (2008-2009) | |||||||||||||
RMB | RMB | US$ | ||||||||||||||
(in millions) | ||||||||||||||||
Individual life insurance business(1) | ||||||||||||||||
Whole life and term life insurance: | ||||||||||||||||
Gross written premiums | 35,729 | 38,665 | 5,664 | 8.2 | % | |||||||||||
Endowment: | ||||||||||||||||
Gross written premiums | 188,099 | 184,841 | 27,079 | (1.7 | %) | |||||||||||
Annuities: | ||||||||||||||||
Gross written premiums | 28,302 | 38,209 | 5,598 | 35.0 | % | |||||||||||
Group life insurance business(1) | ||||||||||||||||
Whole life and term life insurance: | ||||||||||||||||
Gross written premiums | 299 | 172 | 25 | (42.5 | %) | |||||||||||
Annuities: | ||||||||||||||||
Gross written premiums | 41 | 18 | 3 | 56.1 | % | |||||||||||
Short-term insurance business(2) | ||||||||||||||||
Accident gross written insurance premiums | 6,221 | 7,076 | 1,037 | 13.7 | % | |||||||||||
Health gross written insurance premiums | 6,965 | 6,989 | 1,024 | 0.3 | % |
(1) | Including long-term health and accident |
(2) | Including short-term health and accident |
Our revenues and profitability are affected by changes in the mix of products we offer. In recent years, the Chinese insurance market has been moving away from insurance policies offering fixed rates of return in favor of participating and investment-related products, and we expect these trends to continue. Consistent with these trends, participating life insurance and annuity products, have been our fastest-growing individual life insurance products.
CIRC, we are required to pay to our participating policyholders dividends which are no less than 70% of the distributable investment earnings and mortality gains on participating products. However, participating products still provide us with attractive profit contributions given the growing level of sales volume they produce.
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Reinsurance
The amounts presented in the historical consolidated statements of income for revenues and policyholder benefits are net of amounts ceded to reinsurers. Under the PRC insurance law and CIRC’s regulations, prior to 2003, life insurance companies in China were required to reinsure 20% of its accident and health insurance risks with China Reinsurance (Group) Company, as statutory reinsurer. The statutory reinsurance requirement was phased out beginning in 2003 and from the beginning of 2006 there is no such statutory requirement. We are also party to various reinsurance agreements with China Life Re for the reinsurance of individual risks, group risks and defined blocks of business. As of December 31, 2007, substantially all of our ceded premiums had been ceded to China Life Re.
The determination of the liabilities under long-term traditional insurance contracts is dependent on estimates made by us. For the long-term traditional insurance contracts, estimates are made in two stages. Assumptions about mortality rates, morbidity rates, lapse rates, investment returnsdiscount rate, and administrationexpenses assumption, and claim settlementbased on the following principles:
(i) | The guaranteed benefits based on contractual terms, including payments for deaths, disabilities, diseases, survivals, maturities and surrenders. |
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(ii) | Additional non-guaranteed benefits, such as policyholder dividends. |
(iii) | Expenses incurred to manage insurance contracts or to process claims, including administration and claim settlement expenses. |
Various assumptions for the estimates are reviewed at the end of each reporting period and any changes will be recognized in net profit. |
Margin is comprised of risk margin and residual margin. Risk margin is the reserve accrued to compensate for the uncertain amount and timing of future cash flows. At the inception of the contract, the residual margin is calculated net of certain acquisition costs by us for not recognizing the Day 1 gain. The residual margin is amortized over the life of the contracts. The subsequent measurement of residual margin is independent from the best estimate of future discounted cash flows and risk margin. The assumption changes have no effect on the subsequent measurement of residual margin. |
reserve calculation for insurance contracts.
Interest rates
For the insurance contracts of which the future returns are not affected by the investment yields of the corresponding investment portfolios, we use discount rate assumption to assess the time value impacts based on the “yield curve of reserve computation benchmark for insurance contracts”, published on “China Bond” website, with the consideration includes the liquidity spreads, taxation impacts and other relevant factors. The assumed discount rate with risk margin ranges from 2.81% to 4.95% for the year of 2008 and ranges from 2.69% to 5.32% for the year of 2009. |
The discount rate assumption is affected by certain factors, such as future macro-economy, fiscal policies, capital market results and availability of investment channels for investments of our insurance funds. We determine discount rate assumption based on the information obtained at the end of each reporting period including consideration of risk margin. |
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Our assumptions for
We base our mortality assumptions on China Life Insurance Mortality Table (2000-2003), adjusted where appropriate to reflect our recent historical mortality experience. The main source of uncertainty with life insurance contracts is that epidemics and wide-ranging lifestyle changes could result in deterioration in future mortality experience, thus leading to an inadequate liability. Similarly, continuing advancements in medical care and social conditions could result in improvements in longevity that exceed those allowed for in the estimates used to determine the liability for contracts where we are exposed to longevity risk. |
We base our morbidity assumptions for critical illness products on analysis of historical experience and expectations of future developments. There are two main sources of uncertainty. First, wide-ranging lifestyle changes could result in future deterioration in morbidity experience. Second, future development of medical technologies and improved coverage of medical facilities available to policyholders may bring forward the timing of diagnosing critical illness, which demands earlier payment of the critical illness benefits. Both could ultimately result in an inadequate liability if current morbidity assumptions do not properly reflect such secular trends. |
Risk margin is considered in our mortality and morbidity assumptions. |
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Our assumptions for policy administration expenses arerisk margin. Unit costs have been based on an analysis of actual experience.experience and expressed on both a per-policy and a percent-of-premium basis. Our expense assumption is effected by certain factors, such as inflation, market competition and other factors. We determine expense assumption based on the information obtained at the end of each reporting period with the consideration of risk margin. We have estimated the percentage of premiums costs used for year 1999 through 2002 to be 2% of premiums for 2002 and years prior thereto; 1.75% of premiums for 2003, 1.65-2.55%1.59% to 1.74% of premiums for individual life products and 1.65% of premiums1.54% for group life products for 2004; 1.50-1.80%2008; and 1.05% to 1.17% of premiums for individual life products and 1.30% of premiums1.01% for group life products for 2005; and 1.60%-1.85% of premiums for individual life products and 1.50% of premiums for group life products, for 2006 and 2007,2009, in each case plus a fixed per-policy expense.
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HKFRS4 permits the existing accounting policies to be applied to all contracts deemed to becomponents are accounted for as insurance contracts, and the non-insurance components are accounted for as investment contracts, which are stated in the investment contracts liabilities.
The liability for long-term investment type insurance contracts and investment contracts with discretionary participation features are recognized as accumulation of deposits received less charges plus interest credited.
For participating business, included in long-term traditional insurance contracts, long term investment type insurance contracts and investment contracts with discretionary participation features, we determine annually the amount of distributable surplus that must ultimately be paid to the participating policyholders in the form of policyholder dividends. Distributable surplus includes the life policyholders’ share of net investment income, unrealized appreciation of certain investments and mortality gains associated with the participating business. This share is specified by the insurance contract or by local insurance regulations. Each year, management determines how much of the total distributable surplus is to be paid in the form of policyholder dividends during the following fiscal year.
carried at amortized cost.
Revenue from these contracts consists of various charges, including policy fees, handling fees, management fees and surrender charges, made against the contract for the cost of insurance, expenses and early surrender. Excess first year charges are deferred as an unearned revenue liability and are recognized in income over the life of the contracts in a constant relationship to estimated gross profits.
Deferred Income. Deferred income includes the deferred profit liability arising from long-term traditional insurance contracts and the unearned revenue liability arising from long-term investment type insurance contracts and investment contracts. Both deferred income amounts will be released to income statement over the remaining lifetime of the business.
Valuation of Investments
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sheet approximate fair values.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business including commissions, underwriting and policy issue expenses, which vary with and are primarily related to the production of new and renewal business, are deferred. Deferred policy acquisition costs are subject to recoverability testing at the time of policy issue and at the end of each accounting period. Future investment income is taken into account in assessing recoverability.
Deferred policy acquisition costs for long-term traditional insurance contracts are amortized over the premium paying periodthese models, as a constant percentage of expected premiums. Expected premiums are based upon assumptions defined at the date of policy issue. These assumptions are consistently applied throughout the premium paying period unless adverse experience causes a deficiency in liability adequacy test.
Deferred policy acquisition costs for long-term investment type insurance contracts and investment contracts are amortized over the expected lifewell as our own test recalculation of the contracts asprices obtained from the pricing service at each reporting date.
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information.
In September 2005, the AICPA
In February 2006, the FASB issued FAS 155, “Accounting for Certain Hybrid Financial Instruments” (FAS 155), an amendment of FAS 140 and FAS 133. FAS 155 allows us to include changes in fair value in earnings on an instrument-by-instrument basis for any hybrid financial instrument that contains an embedded derivative that would otherwise be required to be bifurcated and accounted for separately under FAS 133. FAS 155 is effective for our fiscal year ending December 31, 2007. We2009. In addition, we early adopted this guidance on January 1, 2007 and it didIAS 24 Related Party Disclosure (Revised 2009) which was not have a material effect on our consolidated financial position or results of operations.effective but allowed for early adoption.
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income tax positions. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and additional disclosures. In May 2007, the FASB issued FSP 48-1,”Definition of Settlement in FASB Interpretation No. 48,” which amended FIN 48, to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits, effective upon the initial adoption of FIN 48. We adopted FIN 48 on January 1, 2007 and it did not have a material effect on our consolidated financial position or results of operations.86
In September 2006, the FASB issued FAS 157, “Fair Value Measurements” (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FSP 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”. Also in February 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157”, which defers the effective date of FAS 157 to fiscal years beginning after 15 November 2008, and interim periods within those fiscal years. We are currently assessing the impact of FAS 157 on our consolidated financial position and results of operations.
In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (FAS 159). FAS 159 permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. Subsequent changes in fair value for designated items will be required to be reported in earnings in the current period. FAS 159 also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. FAS 159 is effective for financial statements issued for accounting periods beginning on or after November 15, 2007. We are currently assessing the impact of FAS 159 on our consolidated financial position and results of operations.
In April 2007, the FASB issued FSP FIN 39-1, “Amendment of FASB Interpretation No. 39.” FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts,” and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. This FSP is effective for fiscal years beginning after November 15, 2007 and is required to be applied retrospectively to financial statements for all periods presented. We are currently assessing the impact of FSP FIN 39-1 on our consolidated financial position and results of operations.
In December 2007, the FASB issued FAS 160, “Noncontrolling Interests in Consolidated Financial Statements.” FAS 160 will change the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. The noncontrolling interests’ share of subsidiary income should be reported as a part of consolidated net income with disclosure of the attribution of consolidated net income to the controlling and noncontrolling interests on the face of the consolidated statement of income. This statement is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. Upon adoption, FAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. We are currently assessing the impact of FAS 160 on our consolidated financial position and results of operations.
In December 2007, the FASB issued FAS 141R, “Business Combinations.” This statement addresses the accounting for business acquisitions with a number of changes. Among other things, the new standard broadened the transactions or events that are considered business combinations. It requires that all acquisition-related costs be expensed as incurred, and that all restructuring costs related to acquired operations be expensed as incurred. This new standard also addresses the current and subsequent accounting for assets and liabilities arising from contingencies acquired or assumed and, for acquisitions both prior and subsequent to December 31, 2008, requires the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. This statement is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited, and generally applies to business acquisitions completed after December 31, 2008. We are currently assessing the impact of FAS 141R on our consolidated financial position and results of operations.
In February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.” FSP FAS 140-3 provides guidance on accounting for a transfer of a financial asset and a repurchase financing and presumes that an initial transfer of a financial asset and a
repurchase financing are considered part of the same arrangement (linked transaction) under Statement 140. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under Statement 140. This FSP is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Earlier application is not permitted. We are currently assessing the impact of this FSP on our consolidated financial position and results of operations.
2008 insurance business volume. to reduce the proportion of group annuity products.threetwo years. According to the China Statistical Bureau, China’s overall national inflation rates, as represented by the general consumer price index, were approximately (0.7%), 5.9%, 4.8%, 1.5%, and 1.8%, 3.9% and 1.2% in 2009, 2008, 2007, 2006 and 2005, 2004 and 2003, respectively.Class Action LitigationChina Life and certain of its former directors (the “defendants”) have been named in nine putative class action lawsuits filed in the United States District Court for the Southern District of New York between March 16, 2004 and May 14, 2004. The lawsuits have been ordered to be consolidated and restyledIn re China Life Insurance Company Limited Securities Litigation, NO. 04 CV 2112 (TPG). Plaintiffs filed a consolidated amended complaint on January 19, 2005, which names China Life, Wang Xianzhang (former director), Miao Fuchun (former director) and Wu Yan (former director) as defendants. The consolidated amended complaint alleges that the defendants named therein violated Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. China Life has engaged U.S. counsel to contest vigorously on the lawsuits. The defendants jointly moved to dismiss the consolidated amended complaint on March 21, 2005. Plaintiffs then further amended their complaint. Defendants moved to dismiss the second amended complaint on November 18, 2005. That motion has been fully briefed and is pending before the Court. The likelihood of an unfavorable outcome is still uncertain. No provision has been made with respect to these lawsuits.20072009 Compared with Year Ended December 31, 2006 and Policy Feesand policy fees increased by RMB 12,5579,900 million, or 12.7%3.7%, to RMB 111,404275,077 million in 20072009 from RMB 98,847265,177 million in 2006.2008. This increase was primarily due to increases in net premiums earned from the individual life insurance and accident and health insurance businesses and policy fees from the individual life insurance business. Net premiums earned from participating products of long-term traditional insurance contracts were RMB 46,972 million in 2007, an increase of RMB 5,971 million, or 14.6%, from RMB 41,001 million in 2006. This increase was primarily due to our increased sales efforts for participating endowment products. Of total net premiums earned in 2007, RMB 1,978 million was attributable to single premium products and RMB 90,304 million was attributable to regular premium products (including both first-year and renewal premiums). Of total net premiums earned in 2006, RMB 2,205 million was attributable to single premium products and RMB 78,952 million was attributable to regular premium products (including both first-year and renewal premiums). and policy fees from the individual life insurance business increased by RMB 11,9519,581 million, or 13.8%3.8%, to RMB 98,470261,694 million in 20072009 from RMB 86,519252,113 million in 2006.2008. This increase was primarily due to increasesthe adjustment of our business structure to focus more on sales of products with regular premiums, which resulted in a more steady increase of our first-year premiums and renewal premiums, policy fees and new policy premiums. and policy fees from the group life insurance business decreased by RMB 232150 million, or 13.4%44.2%, to RMB 1,503189 million in 20072009 from RMB 1,735339 million in 2006.2008. This decrease was primarily due to changes in government policiesthe adjustment of our business development strategies to focus more on development of risk-type products and market conditions.Accident and HealthShort-term Insurance Businessthe accident and healthshort-term insurance business (both of which comprise short-term products) increased by RMB 838469 million, or 7.9%3.7%, to RMB 11,43113,194 million in 20072009 from RMB 10,59312,725 million in 2006. Gross written2008. Net premiums earned from the accident insurance business increased by RMB 347864 million, or 6.7%14.3%, to RMB 5,4956,886 million in 20072009 from RMB 5,1486,022 million in 20062008 and gross writtennet premiums earned from the health insurance business increaseddecreased by RMB 462395 million, or 7.8%5.9%, to RMB 6,4046,308 million in 20072009 from RMB 5,9426,703 million in 2006.2008. These increases were primarily due to our increased salesdevelopment efforts for accident and health insurance businesses.Net business.Net investmentincreaseddecreased by RMB 19,0786,056 million, or 76.5%13.5%, to RMB 44,02038,890 million in 20072009 from RMB 24,94244,946 million in 2006. This increase was primarily due to the growth in investment assets during 2007 and an increase in investment yield.As of December 31, 2007, total investment assets were RMB 850,209 million, an increase of RMB 163,405 million, or 23.8%, from RMB 686,804 million in 2006.2008. The net investment yield for the year ended December 31, 20072009 was 5.76%5.78%, a 1.492.30 percentage point increase from the net investment yield of 4.27%3.48%% for the year ended December 31, 2006. This increase was primarily due to increased investments in equity securities, favorable adjustment of our investment portfolio and favorable capital market conditions.2008.Net Realized Gains on Financial Assets87
Net realized gains on financial assets increased by RMB 13,790 million, or 864.6%, to RMB 15,385 million in 2007
Net Fair Value Gains on AssetsSecurities at Fair Value Throughthrough Income (Held-for-Trading)
We reflect net fair value gains on assets
Other Income
Other income decreased by RMB 163 million, or 8.7%, to RMB 1,720 million in 2007 from RMB 1,883 million in 2006.2008. This was primarily due to a decrease in the feetotal volume of financial assets at fair value through income receivedand a decrease of dividends from China Life Insurance (Group) Company,securities investment funds.
Deposits and Policy Fees
Deposits are gross additionsRMB 16,688 million in 2009 from RMB 22,636 million in 2008. This was primarily due to long-term investment-type insurance contracts anda decrease of dividends from securities investment contracts (collectively, investment-type contracts). Total depositsfunds.
Individual Life Insurance Business
Deposits in the individual life insurance business increased by RMB 1,714 million, or 2.4%, to RMB 72,069 million in 2007 from RMB 70,355 million in 2006.2008. This increase was primarily due to an increase in the sales of investment-type contracts. Policy feesincome from the individual life insurance businesspurchase and sale of debt securities resulting from our adjustment of debt investment strategies by taking advantage of market opportunities.
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unrealized profits from stocks and fund interests resulting from favorable market conditions.
Deposits in the group life insurance business increased
income from investment contracts.
There are no deposits in our accident and health insurance business.
Insurance Benefits and Claims
claims attributable to participating products, life insurance death and other benefits increased by RMB 4,596 million, or 98.8%, to RMB 9,248 million in 2007 from RMB 4,652 million in 2006; the increase in liability of long-term traditional insurance contracts decreased by RMB 797 million, or 3.4%, to RMB 22,548 million in 2007 from RMB 23,345 million in 2006; and the interest credited to long-term investment-type insurance contacts increased by RMB 612 million, or 11.0%, to RMB 6,166 million in 2007 from RMB 5,554 million in 2006.
2008.
for group annuity products.
Interest Credited to Investment Contracts
Interest credited to investment contracts increased by RMB 142 million, or 14.3%, to RMB 1,138 million in 2007 from RMB 996 million in 2006. This increase primarily reflected an increase in the total policyholder account balance. Interest credited to participating investment contracts increased by RMB 138 million, or 14.5%, to RMB 1,089 million in 2007 from RMB 951 million in 2006.
Increase in Deferred Income
Increase in deferred income includes the deferred profit liability arising from long-term traditional insurance contracts and the unearned revenue liability arising from long-term investment-type insurance contracts and investment contracts. The increase in deferred income decreased by RMB 1,748 million, or 15.1%, to RMB 9,859 million in 2007 from RMB 11,607 million in 2006. This decrease was primarily due to an increase in amortization of deferred incomebusiness volume.
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contracts issued.
Amortization of Deferred Policy Acquisition Costs
Amortization of deferred policy acquisition costs increased by RMB 3,202 million, or 31.2%, to RMB 13,461 million in 2007 from RMB 10,259 million in 2006.2008. This increase was primarily due to an increase in the number of policies in force and overall amount of business and an increase in investment income in 2007.
yield for participating products.
Of this amount, underwriting and policy acquisition costs in the individual life insurance business and group life insurance business together increased by RMB 157 million, or 8.4%, to RMB 2,019 million in 2007 from RMB 1,862 million in 2006. This increase was primarily due to the increase in business volume during the period. Underwriting and policy acquisition costs in the accident and health insurance business increased by RMB 150 million, or 27.1%, to RMB 703 million in 2007 from RMB 553 million in 2006. This increase was primarily due to the increase in business volume and increased market competition.
market competition.
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purposes.
Individual Life Insurance Business
Net profit in the individual life insurance business increased by RMB 17,539 million, or 74.1%, to RMB 41,202 million in 2007 from RMB 23,663 million in 2006. This increase was primarily due to the increases in investment income and business volume.
Group Life Insurance Business
Net profit in the group life insurance business increased by RMB 699 million, or 80.9%, to RMB 1,563 million in 2007, from RMB 864 million in 2006.2008. This increase was primarily due to an increase in investment yield.
yield resulting from favorable capital market conditions.
Net profit in the accident and health insurance business
2008.
Net Premiums Earned and Policy Fees
Net premiums earned and policy fees
negotiated deposits with floating interest rates.
Net premiums earned and policy fees from the individual life insurance business
Group Life Insurance Business
Net premiums earned and policy fees from the group life insurance business increased by RMB 478 million, or 38.0%, to RMB 1,735 million in 2006 from RMB 1,257 million in 2005. This increase was primarily due to increases in sales of whole-life insurance products and an increase in policy fees.
Accident and Health Insurance Business
Net premiums earned from the accident and health insurance business (both of which comprise short-term products) increased by RMB 561 million, or 5.6%, to RMB 10,593 million in 2006 from RMB 10,032 million in 2005. Gross written premiums from the accident insurance business increased by RMB 13 million, or 0.3%, to RMB 5,148 million in 2006 from RMB 5,135 million in 2005 and gross written premiums from the health insurance business increased by RMB 210 million, or 3.7%, to RMB 5,942 million in 2006 from RMB 5,732 million in 2005. These increases were primarily due to our increased sales efforts for accident insurance business but offset in part by our adjustment of our sales strategies for health insurance business to reduce our sales of certain health products with relatively higher risks.
Net Investment Income
Net investment income increased by RMB 8,257 million, or 49.5%, to RMB 24,942 million in 2006 from RMB 16,685 million in 2005. This increase was primarily due to the growth in investment assets during 2006 and an increase in investment yield.
As of December 31, 2006, total investment assets were RMB 686,804 million and the investment yield for the year ended December 31, 2006 was 4.27%. As of December 31, 2005, total investment assets were RMB 494,356 million and the investment yield for the year ended December 31, 2005 was 3.86%. This increase was primarily due to increased investments in debt and equity securities, favorable adjustment of our investment portfolio, favorable capital market conditions and expanded investment channels for insurance companies. Our investment income is affected by many factors, including the volatility of the securities markets in China. Changes in the PRC capital markets and volatilities in the PRC securities markets in the future could have an impact on our net investment income, and accordingly an adverse impact on our net profit.
Net Realized Gains/(Losses) on Financial Assets
Net realized gains on financial assets increased by RMB 2,105 million to RMB 1,595 million in 2006 from net losses of RMB 510 million in 2005. The results in 2006 reflected net realized losses of RMB 6 million on debt securities and net realized gains of RMB 1,601 million on equity securities, which was primarily due to the favorable China stock market in 2006.
Net Fair Value Gains on Assets at Fair Value Through Income (Held-for-Trading)
We reflect net fair value gains on assets at fair value through income (held-for-trading) in current year income. Our net fair value gains on assets at fair value through income (held-for-trading) increased by 19,784 million, to RMB 20,044 million in 2006 from RMB 260 million in 2005. The results in 2006 reflected net fair value gains on assets at fair value through income (held-for-trading) of RMB 305 million on debt securities, resulting from favorable conditions in debt securities markets in 2006 and increased investments in debt securities. Net fair value gains on assets at fair value through income (held-for-trading) of RMB 19,739 million on equity securities, resulting from extremely favorable conditions in equity securities markets and increased investments in equity securities.
Other Income
Other income increased by RMB 144 million, or 8.3%, to RMB 1,883 million in 2006 from RMB 1,739 million in 2005. This was primarily due to the fee income received from CLIC as the reward for assisting CLIC to mitigate its business risk arising from non-transferred policies.
Deposits and Policy Fees
Deposits are gross additions to long-term investment-type insurance contracts and investment contracts (collectively, investment-type contracts). Total deposits increased by RMB 5,495 million, or 6.4%, to RMB 91,441 million in 2006 from RMB 85,946 million in 2005. This increase was primarily due to an increase in business volume. Policy feesour total investment assets.
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Individual Life Insurance Business
Deposits in the individual life insurance business increased by RMB 7,872 million, or 12.6%, to RMB 70,355 million in 2006 from RMB 62,483 million in 2005.2008. This increase was primarily due to an increase
in the sales of investment-type contracts. Policy fees from the individual life insurance businessincreased demand for policy loans.
Group Life Insurance Business
Deposits in the group life insurance business decreased by RMB 2,377 million, or 10.1%, to RMB 21,086 million in 2006 from RMB 23,463 million in 2005. Policy fees from the group life insurance business increased by RMB 196 million, or 49.0%, to RMB 596 million in 2006 from RMB 400 million in 2005. These changes were primarily due to an increase of the proportion of investment-type contracts with higher policy fee charges.
Accident and Health Insurance Business
There are no deposits in our accident and health insurance business.
Insurance Benefits and Claims
Insurance benefits and claims, net of amounts ceded through reinsurance, increased by RMB 14,391 million, or 26.6%, to RMB 68,420 million in 2006 from RMB 54,029 million in 2005. This increase was due to an increase in insurance benefits and claims of individual life insurance business as a result of an increase in business volume and the accumulation of liabilities. Life insurance death and other benefits increased by RMB 2,486 million, or 29.9%, to RMB 10,797 million in 2006 from RMB 8,311 million in 2005. This increase was principally due to an increase in the number of policies in force and the accumulation of liabilities. Life insurance death and other benefits as a percentage of gross written premiums and policy fees were 10.9% and 10.3% in 2006 and 2005 respectively. Interest credited to long-term investment-type insurance contracts increased by RMB 1,492155,299 million, or 30.5%23.4%, to RMB 6,386818,164 million in 20062009 from RMB 4,894662,865 million in 2005.2008. This increase primarily reflected an increase in the total policyholder account balance. Insurance benefits and claims, net of amounts ceded through reinsurance, attributable to participating products increased by RMB 8,545 million, or 34.2%, to RMB 33,551 million in 2006 from RMB 25,006 million in 2005. Of these insurance benefits and claims attributable to participating products, life insurance death and other benefits increased by RMB 599 million, or 14.8%, to RMB 4,652 million in 2006 from RMB 4,053 million in 2005, the increase in liability of long-term traditional insurance contracts increased by RMB 6,501 million, or 38.6%, to RMB 23,345 million in 2006 from RMB 16,844 million in 2005, and the interest credited to long-term investment-type insurance contacts increased by RMB 1,445 million, or 35.2%, to RMB 5,554 million in 2006 from RMB 4,109 million in 2005.
Individual Life Insurance Business
Insurance benefits and claims for the individual life insurance business increased by RMB 14,244 million, or 30.9%, to RMB 60,405 million in 2006 from RMB 46,161 million in 2005. This increase was due to an increase in business volume and the accumulation of liabilities. Of these insurance benefits and claims, life insurance death and other benefits increased by RMB 2,381 million, or 30.7%, to RMB 10,125 million in 2006 from RMB 7,744 million in 2005 and the increase in liability of long-term traditional insurance contracts increased by RMB 10,365 million, or 30.9%, to RMB 43,915 million in 2006 from RMB 33,550 million in 2005. The increase in liability of long-term traditional insurance contracts was primarily due to an increase in business volume and the accumulation of insurance liabilities.
Insurance benefits and claims for the group life insurance business decreased
the increment of long-term traditional insurance contracts liabilities and interest credited to long-term traditional insurance contracts but offset in part by an increase in life insurance death and other benefits. Of these insurance benefits and claims, life insurance death and other benefits increased by RMB 105 million, or 18.5%, to RMB 672 million in 2006 from RMB 567 million in 2005 and the increase in long-term traditional insurance contracts liabilities decreased by RMB 104 million, or 24.4%, to RMB 323 million in 2006 from RMB 427 million in 2005. This decrease was primarily due to a decrease in the contracts in force.
Accident and Health Insurance Business
Insurance benefits and claims for the accident and health insurance business increased by RMB 152 million, or 2.2%, to RMB 6,999 million in 2006 from RMB 6,847 million in 2005. This increase was primarily due to increases in business volume in our accident and health insurance business.
Interest Credited to Investment Contracts
Interest credited to investment contracts increased by RMB 23 million, or 2.4%, to RMB 996 million in 2006 from RMB 973 million in 2005. This increase primarily reflected an increase in the total policyholder account balance. Interest credited to participating investment contracts increased by RMB 12 million, or 1.3%, to RMB 951 million in 2006 from RMB 939 million in 2005.
Increase in Deferred Income
Increase in deferred income includes the deferred profit liability arising from long-term traditional insurance contracts and the unearned revenue liability arising from long-term investment-type insurance contracts and investment contracts. The increase in deferred income increased by RMB 3,086 million, or 36.2%, to RMB 11,607 million in 2006 from RMB 8,521 million in 2005. This increase was primarily due to an increase in business volume.
securities sold under agreements to repurchase.
Payable
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Amortization of Deferred Policy Acquisition Costs
Amortization of deferred policy acquisition costs increased by RMB 2,493 million, or 32.1%, to RMB 10,259 million in 2006 from RMB 7,766 million in 2005. This increase was primarily due to an increase in the number of policies and overall amount of in-force business and an increase in investment income in 2006.
Underwriting and Policy Acquisition Costs
Underwriting and policy acquisition costs primarily reflect the non-deferrable portion of underwriting and policy acquisition costs. Underwriting and policy acquisition costs increased by RMB 570 million, or 30.9%, to RMB 2,415 million in 2006 from RMB 1,845 million in 2005. Underwriting and policy acquisition costs were 2.4% and 2.3% of net premiums earned and policy fees in 2006 and 2005, respectively.
Of this amount, underwriting and policy acquisition costs in the individual life insurance business and group life insurance business together increased by RMB 444 million, or 31.3%, to RMB 1,862 million in 2006 from RMB 1,418 million in 2005. This increase was primarily due to the increase in business volume during the
period, as well as an increase in the sales of risk-type insurance contracts and regular-premium products, which have a relatively higher commission. Underwriting and policy acquisition costs in the accident and health insurance business increased by RMB 126 million, or 29.5%, to RMB 553 million in 2006 from RMB 427 million in 2005. This increase was primarily due to the increase in business volume and increased market competition.
Administrative Expenses
Administrative expenses include the non-deferrable portion of policy acquisition costs, as well as compensation and other administrative expenses. Administrative expenses increased by RMB 2,102 million, or 29.0%, to RMB 9,339 million in 2006 from RMB 7,237 million in 2005. This increase primarily reflected the increase in business volume.
Other Operating Expenses
Other operating expenses, which primarily consist of foreign exchange losses and expenses for non-core business, increased by RMB 61 million, or 7.6%, to RMB 859 million in 2006 from RMB 798 million in 2005. This increase primarily reflected an increase in charity donations including RMB 50 million for the establishment of a charitable foundation.
Income Tax
We pay income tax according to applicable Chinese enterprise income tax regulations and rules. Income tax expense, including current and deferred taxations, increased by RMB 3,409 million, or 158.9%, to RMB 5,554 million in 2006 from RMB 2,145 million in 2005. This increase was primarily due to the increase in business volume. Our effective tax rate for 2006 was 21.7% as compared with a statutory tax rate of 33%.
Net Profit Attributable to Shareholders of the Company
For the reasons set forth above, net profit attributable to shareholders of the Company increased by RMB 10,650 million, or 114.4%, to RMB19,956 million in 2006 from RMB 9,306 million in 2005. This increase was primarily due to the increases in net profits of individual life and group life insurance businesses.
Individual Life Insurance Business
Net profit in the individual life insurance business increased by RMB 12,993 million, or 121.8%, to RMB 23,663 million in 2006 from RMB 10,670 million in 2005. This increase was primarily due to the increases in investment income and business volume of regular payment products.
Group Life Insurance Business
Net profit in the group life insurance business increased by RMB 1,377 million to RMB 864 million in 2006, from a net loss of RMB 513 million in 2005. This increase was primarily due to the increases in investment income and business volume of regular payment products.
Accident and Health Insurance Business
Net profit in the accident and health insurance business decreased by RMB 271 million, or 21.2%, to RMB 1,009 million in 2006 from RMB 1,280 million in 2005. The decrease in profitability was primarily due to increased market competition, which led to an increase in administrative expenses, offset in part by net fair value gains on assets at fair value through income (held-for-trading) in our accident and health insurance business.
yields.
As of December 31, 2009, investments in debt securities had a fair value of RMB 582,885 million.
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a decrease in claims payments.
net cash provided by financing activities.
payments under long-term investment type insurance contracts and investment contracts. Net cash provided by financing activities was RMB 83,313 millionconducted through bond repurchase transactions to provide cash for our investments in the year ended December 31, 2006, an increase of RMB 22,596 million from 2005. The changes in cash provided by financing activities over these periods were primarily due to the cash proceeds from our A shares offering in December 2006.
negotiated deposits under favorable market conditions.
2009.
As at December 31, | As at December 31, | |||||||
2009 | 2008 | |||||||
Ratio of assets and liabilities | 82.65 | % | 82.29 | % |
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| ||
| ||
|
Insurance companies are required to calculate2009 and report annually to the CIRC their solvency margin and twelve additional financial ratios to assist it in monitoring the financial condition of insurers. A “usual range” of results for each of the twelve ratios is used as a benchmark. The departure from the “usual range” of four or more of the ratios can lead to regulatory action being taken by the CIRC.
Our solvency margin as of December 31, 2007 was approximately 5.25 times the minimum regulatory requirement. Among the twelve financial ratios, ten financial ratios were within their normal ranges as determined by CIRC. Our actual solvency ratio was slightly higher than the normal range provided by the CIRC. 2008:
As of December 31, 2009 | As of December 31, 2008 | |||||||
(RMB in millions, | ||||||||
except percentage data) | ||||||||
Actual capital | 147,119 | 124,561 | ||||||
Minimum capital | 48,459 | 40,154 | ||||||
Solvency ratio | 303.59 | % | 310.21 | % |
business development.
Not later than 1 year | Later than 1 year but not later than 3 years | Later than 3 years but not later than 5 years | Later than 5 years | Total | ||||||
(RMB in millions) | ||||||||||
As of December 31, 2007 | ||||||||||
Securities sold under agreements to repurchase | 100 | — | — | — | 100 | |||||
Off balance sheet operating leases | 206 | 234 | 82 | 29 | 551 | |||||
Capital commitments | 663 | — | — | — | 663 | |||||
Total | 969 | 234 | 82 | 29 | 1,314 | |||||
Long-term Business | ||||||||||
Long-term traditional insurance contracts | 23,870 | 50,536 | 52,127 | 925,213 | 1,051,746 | |||||
Long-term investment type insurance contracts | 76,974 | 102,931 | 93,760 | 158,383 | 432,048 | |||||
Investment contracts with discretionary participation feature | 14,101 | 16,141 | 9,829 | 43,361 | 83,432 | |||||
Investment contracts without discretionary participation feature | 871 | 519 | 246 | 821 | 2,457 | |||||
Short-term Business | 5,564 | — | — | — | 5,564 |
2009.
Later | ||||||||||||||||||||
than 3 | ||||||||||||||||||||
Not | Later than | years but | ||||||||||||||||||
later | 1 year but | not later | Later | |||||||||||||||||
than | not later | than 5 | than | |||||||||||||||||
As of December 31, 2009 | 1 year | than 3 years | years | 5 years | Total | |||||||||||||||
(RMB in millions) | ||||||||||||||||||||
Securities sold under agreements to repurchase | 33,553 | — | — | — | 33,553 | |||||||||||||||
Annuity and other insurance balances payable | 5,721 | — | — | — | 5,721 | |||||||||||||||
Insurance contracts | (7,558 | ) | 34,103 | 118,673 | 1,335,276 | 1,480,494 | ||||||||||||||
Investment contracts | 18,386 | 20,121 | 13,595 | 34,352 | 86,454 | |||||||||||||||
Off balance sheet operating leases | 297 | 371 | 107 | 49 | 824 | |||||||||||||||
Capital commitments | 419 | 69 | — | — | 488 | |||||||||||||||
Total | 50,818 | 54,664 | 132,375 | 1,369,677 | 1,607,534 | |||||||||||||||
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• | holding all other variables constant, if mortality rates and morbidity rates increase or decease from current best estimates by 10%, pre-tax profit for the year would have been RMB 8,899 million or RMB 9,290 million lower or higher. | ||
• | holding all other variables constant, if lapse rates increase or decease from current best estimates by 10%, pre-tax profit for the year would have been RMB 5,426 million or RMB 5,802 million lower or higher. | ||
• | holding all other variables constant, if the discount rates are 50 basis points higher or lower than current best estimates, pre-tax profit for the year would have been RMB 23,429 million or RMB 27,157 million higher or lower. |
96
The consolidated financial statements contained in this annual report have been prepared in accordance with HKFRS. There are no material differences between HKFRS and U.S. GAAP that had an effect on net profit for the years ended December 31, 2006 and 2005 and shareholders’ equity as at December 31, 2007 and 2006.
The corporate income tax rate applicable to China Life decreased from 33% for 2007 to 25% for 2008 with effect from January 1, 2008. Such tax rate changes are treated differently under HKFRS and U.S. GAAP, which resulted in an increase of RMB 4,746 million for the net profit under U.S. GAAP and a corresponding decrease of RMB 4,746 million for the equity reserves balance under U.S. GAAP for the year ended December 31, 2007. See Note 35 of the notes to the consolidated financial statements included elsewhere in this annual report.
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
|
| |||||
| ||||||
Name | Age | Position | ||||
Yang Chao | 60 | Chairman of the | ||||
Wan Feng | 52 | President and executive director | ||||
Lin Dairen | 52 | Vice President and executive director | ||||
Liu Yingqi | 52 | Vice President, executive director and secretary of the board of directors | ||||
| 45 | |||||
| ||||||
| ||||||
| Non-executive director | |||||
| 58 | Non-executive director | ||||
| 58 | Non-executive director | ||||
Sun Shuyi | 69 | Independent | ||||
| 68 | Independent | ||||
| 68 | Independent | ||||
| 61 | Independent | ||||
| 47 | Vice president | ||||
| 56 | Vice president | ||||
| 47 | Vice president | ||||
| 52 | Vice president | ||||
| 56 | |||||
| Chief actuary |
industries, and was awarded a special allowance by the State Council. He is currently the vice president of National Association of Financial Market Institutional Investors, the chairman of the Chairmanship of China Federation of Industrial Economics, a member of Shanghai International Financial Center Construction Advisory Committee and a member of Association for Relations Across the Taiwan Straits.
97
PICC Life, and the general manager of the Hangzhou branch of PICC Life from July 1996 to March 1999. From 1981 to 1996, she acted as accounting staff, deputy chief, chief and chief accountant of the planning and finance division of the Zhejiang branch of the People’s Insurance Company of China.2006. Ms. Zhuang graduated from the Correspondence College of the Central PartyCCP School, with majormajored in economics and management and studied Probability Statistics (insurance actuarial oriented) atprobability and statistics (major in insurance actuary) in Zhejiang University from September 19991998 to January 2000. She isMs. Zhuang, a senior accountant, and has worked in the insurance companiesindustry for over 2729 years, withand has accumulated extensive experience in insurance businessthe operation and management.management of insurance businesses. She is currently the vice president of Financial Accounting Society of China.
Sun Shuyi has been an independent non-executive director of our company since 2004. Mr. SunHe is also the executive vice president of China Federation of Industrial Economics, vice chairman of the United China Enterprise Association, executive vice president of China Enterprise Association, deputy supervisor of China Brand Promotion Committee and a member of the 10th10th Chinese People’s Political Consultative Conference. From 1993 to 2001, Mr. Sun acted as the deputy chiefgeneral manager of General Office deputy director of the Personnel Department of the Central Steering Committee of Financial Affairs of China, deputy minister of Ministry of Labour and deputy party secretary of Central Government Enterprise Working Committee. From 1988 to 1993, he was the deputy head of the Finance Management Department and the deputy head and head of the Production System Department of the State System Reform Commission. Mr. Sun graduated from the University of Science and Technology of China in 1963 and is a senior engineer and a certified public accountant.
98
September 1966.
Iron and Steel Research Institute.1995, he worked in various senior financial management roles at Prudential Life Insurance (U.S.). Mr. CaiMoore graduated from the Machinery Faculty of the Northeastern IndustryBrown University in 19821971, with a bachelor’s degree of engineering. He studied at the New York State University from 1984 to 1986,major in applied mathematics. Mr. Moore is an FSA, FCAS, MAAA and graduated with an MBA degree. He pursued on-the-job studies at the School of Business Administration of Renmin University of China from 1997 to 2001 and obtained a doctorate degree in business administration. From 1997 to 1998,CFA. Mr. Cai was a visiting professor at the Cambridge University in the United Kingdom. Mr. Cai is a professor-level senior engineer and was awarded special allowance by the State Council.
Ngai Wai Fungbecame an Independent Non-Executive Director of the Company in December 2006. He is the Non-executive Chairman of Top Orient Group of Companies, Director and head of listing services of KCS Limited (formally the commercial division of KPMG and GT), vice president of the Hong Kong Institute of Chartered Secretaries, and the Chairman of its China Affairs Committee and Membership Committee. He has held many senior management positions, including executive Director, chief financial officer and company secretary of a number of listed companies in Hong Kong, including COSCO, China Unicom Limited and Industrial and Commercial Bank of China (Asia) Ltd. Mr. NgaiMoore has over 1835 years of senior management experience most of which is inserving the areas of finance, accounting, internal control and regulatory compliance for issuers including major H share and red chip companies. Mr. Ngai playedinsurance industry as an executive or a leading role or took part in important corporate finance projects such as listing, acquisitions and mergers and bond issuance. He has provided professional services and support in regulatory compliance, corporate governance and secretarial services to various state-owned enterprises and red chip companies. He is a fellow of The Association of Chartered Certified Accountants, Hong Kong Institute of Certified Public Accountants, fellow member of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries, and member of The Hong Kong Institute of Directors and Hong Kong Securities Institute. Mr. Ngai graduated from Andrews University of Michigan in 1992, and obtained a Masters Degree in Business Administration, and graduated from Hong Kong Polytechnic University in 2002, and obtained a Masters Degree in Finance. He is currently studying for a doctorate in Finance at the Shanghai University of Finance and Economics.
Board of consultant.
Supervisors
|
| |||||
Name | ||||||
| ||||||
Xia Zhihua | 54 | Chairperson of | ||||
| 51 | Supervisor | ||||
| 43 | Employee | ||||
| 43 | Employee | ||||
Tian Hui | 58 | Supervisor |
Wu Weiminhas been a supervisor of our company since 2003. Mr. Wu servesJanuary 2006 and the chairperson of our board of supervisors since March 2006. Ms. Xia served as the State Council’s representative in CLIC, designated supervisor of bureau level grade official and office director of the board of supervisors of China Export & Credit Insurance Corporation from August 2003 to December 2005. Ms. Xia had 16 years work experience in the State Ministry of Finance relating to economic and financial management and 6 years of working experience as the State Council’s representative in the board of supervisors of state-owned important financial institutions. Ms. Xia graduated from department of economics at Xiamen University in 1982 and received a BA degree in politics and economics. She graduated from department of economics at Xiamen University in 1984 and received a MA degree in world economics.
99
Qing Ge has been a supervisoroffice director of our company since June 2006. He is currently the person in charge of the project team of our Beijing IT Center, and has been both the general manager of the working department and the
deputy director of the Trade Union of our company since September 2005. Betweenfrom September 2003 andto September 2005,2008. From March 2002 to August 2003, Mr. Qing wasShi served as the deputy general manager of our Beijing branch. From 1999 to September 2003, he wassupervisory department of China Life Insurance Company. Mr. Shi graduated from the general managerchemistry school of Inner Mongoliathe first branch and deputy general managercollege of Beijing branch of CLIC. From July 1996 to April 1999, he was the general manager of Inner Mongolia branch of PICC Life. From 1993 to 1996, he was the deputy general managerUniversity, and party secretary of The People’s Insurance Company of China, Inner Mongolia branch. Mr. Qing graduated from South China University of Technology with undergraduate education qualification. He isreceived a senior economist.
bachelor’s degree in science.
, see “—Directors and Senior Management—Directors” for his profile.
Liu Yingqi has been a vice president of our company since January 2006. Ms. Liu was the chairperson of our Board of Supervisors from August 2003 to January 2006. Ms. Liu became the General Manager of Group Insurance Department of former China Life Insurance Company, Deputy General Manager of former China Life Insurance Company, Anhui branch, and Deputy General Manager of former China Life Insurance Company, Hefei branch (General Manager rank) from 1997. Prior to this, Ms. Liu worked with former PICC’s Anhui branch, where she served as both division chief of the accident insurance division and deputy division chief of the life insurance division. Ms. Liu graduated with a BA in Economics from Anhui University in 1982. Ms. Liu has over 21 years operational and management experience in the life insurance industry in China. Ms. Liu, a senior economist, has extensive experience in operation and management.
Liu Jiade has been a vice president of our company since 2003 and has been a director of China Life Asset Management Company Limited sinceAMC from June 2004. Mr. Liu has served as Directora director of China Life Franklin Asset Management Company Limited fromsince May 2006, and became the Directoras a director of Guangdong Development Bank inGDB since December 2006. He wasbecame the vice director of the Finance Bureaufinance bureau of the Ministry of Finance since 2000, and the division chief in the Treasury Bond Bureau of the Ministry of Finance from 1998 to 2000. Prior to this, Mr. Liu was the Deputy County Chiefis a graduate of the People’s Government of Guan Tao County in Hebei Province, and Deputy Division Chief and Division Chief in the Commercial Finance Bureau in the Ministry of Finance. During his tenure at the Ministry of Finance, Mr. Liu gained extensive experience in the administration of assets, finance and taxation of insurance companies, banks, trust companies and securities institutions. Mr. Liu graduated from Central Finance College in 1984 (now Central University of Finance and Economics), with a bachelor’s degree in economics.
public finance. He is currently a director of the Insurance Institute of China and a member of the State Ministry of Finance Accounting Informationization Committee.
100
He is currently the chairman of the Insurance Marketing Association of the Insurance Association of China.
Liu Anlin became the Chief Information Technology Officer of the Company in July 2006. Mr. Liu was the Deputy Head and General Manager of Information Technology Department of the Company from November 2002 to July 2006, and General Manager of Human Resources Department of former China Life Insurance Company from November 2001 to November 2002. Prior to this, he was the Deputy Division Chief of Company Division of former China Life Insurance Company, Gansu Branch, and Assistant General Manager of former China Life Insurance Company, Gansu Branch from April 1999 to November 2001, Assistant Deputy Chief and Deputy Division Chief of Computer Division of PICC Life, Gansu Branch from June 1996 to April 1999, Manager of Technology Division of Computer Center of PICC, Gansu Branch, and Manager of Technology Development Division of PICC Technology and Electronics Company Limited in Gansu from January 1995 to June 1996. Mr. Liu graduated from Mathematics and Mechanics Department of Lanzhou University and majored in Computer Mathematics, with a Bachelor’s degree in Science in 1985 and obtained a Master’s degree in Business Administration from Tsinghua University in 2006. He is studying the doctorate in Risk Management in Beijing Normal University.
Liu Ting’an has been the secretary of our board of directors since 2003 and our spokesman since November 2007. From 2000 to 2004, he acted as the general manager of the investment department of former China Life Insurance Company. From 1995 to 2000, he served as the assistant to the head of former Hainan Development Bank. From 1997 to 2000, he served as the head of former Hainan Development Bank, Guangzhou Branch. Prior to this, he was the division chief and deputy division chief of the Planning Division and Integrated Planning and Pilot Division of the State Restructuring and Reform Commission. Mr. Liu graduated from Jiangxi Finance and Economic College, Renmin University of China and obtained Bachelor’s and Master’s degrees in Economics respectively. From 1990 to 1991, he studied in St. Edmund School of Oxford University in Britain. Mr. Liu is a senior economist.
Shiu Wai Chung has served as the Chief Actuary of the Companyactuary since March 2007. Prior to that, Ms. Shiu had been the Senior Deputy PresidentShao was a senior deputy president and Chief Actuarychief actuary of subsidiaries underof the Prudential Financial Group of the United States, and has accumulated extensive working experience in insurance companies. She acted as the Presidentpresident and Senior Officersenior officer of many actuary societies, and obtained the qualifications of CFA (Chartered Financial Consultant), CERA (Chartered Enterprise Risk Analyst), CEBS (Certified Employee Benefit Specialist), CHFC (Chartered Financial Consultant), CLU (Chartered Life Underwriter), MAAA (Member of the American Academy of Actuaries), FSA.FSA (Fellow of the Society of Actuaries), etc. Ms. ShiuShao obtained a Bachelor’sbachelor’s degree from National Chengchi University in Taiwan and a Master’smaster’s degree from the University of Iowa, US.
U.S. She is currently a member of Society of Actuaries of Greater China.
101
Name | Salaries/Fees | Discretionary Bonus | Inducement Fees | Other Benefits | Employer’s Contribution To Pension Scheme | Compensation for loss of office as director | Total | |||||||
In RMB | ||||||||||||||
Yang Chao | 640,000 | 1,325,333 | — | — | 21,164 | — | 1,986,497 | |||||||
Wu Yan(1) | 53,333 | 1,105,722 | — | — | 1,640 | — | 1,160,695 | |||||||
Wan Feng | 613,625 | 1,248,425 | — | — | 21,164 | — | 1,883,214 | |||||||
Shi Guoqing | — | — | — | — | — | — | — | |||||||
Zhuang Zuojin | — | — | — | — | — | — | — | |||||||
Long Yongtu | 250,000 | — | — | — | — | — | 250,000 | |||||||
Sun Shuyi | 270,000 | — | — | — | — | — | 270,000 | |||||||
Ma Yongwei | 250,000 | — | — | — | — | — | 250,000 | |||||||
Chau Tak Hay | 270,000 | — | — | — | — | — | 270,000 | |||||||
Cai Rang | 270,000 | — | — | — | — | — | 270,000 | |||||||
Ngai Wai Fung | 270,000 | — | — | — | — | — | 270,000 | |||||||
Xia Zhihua | 533,500 | 1,095,367 | — | — | 21,164 | — | 1,650,031 | |||||||
Wu Weimin | 331,500 | 499,900 | — | — | 21,164 | — | 852,564 | |||||||
Qing Ge | 334,208 | 500,775 | — | — | 21,164 | — | 856,147 | |||||||
Yang Hong | 344,500 | 463,417 | — | — | 21,164 | — | 829,081 | |||||||
Tian Hui | — | — | — | 120,000 | — | — | 120,000 | |||||||
Total | 4,430,666 | 6,238,939 | — | 120,000 | 128,624 | — | 10,918,229 | |||||||
Compensation | ||||||||||||||||||||
for loss of | ||||||||||||||||||||
Inducement | Other | office as | ||||||||||||||||||
Name | Salaries/Fees | Fees | Benefits | director | Total | |||||||||||||||
In RMB | ||||||||||||||||||||
Yang Chao | 864,168 | — | — | — | 864,168 | |||||||||||||||
Wan Feng | 929,600 | — | — | — | 929,600 | |||||||||||||||
Lin Dairen | 855,733 | — | — | — | 855,733 | |||||||||||||||
Liu Yingqi | 855,733 | — | — | — | 855,733 | |||||||||||||||
Miao Jianmin | — | — | — | — | — | |||||||||||||||
Shi Guoqing | — | — | — | — | — | |||||||||||||||
Zhuang Zuojin | — | — | — | — | — | |||||||||||||||
Sun Shuyi | — | — | — | — | — | |||||||||||||||
Ma Yongwei | — | — | — | — | — | |||||||||||||||
Sun Changji | — | — | — | — | — | |||||||||||||||
Bruce Douglas Moore | 157,500 | — | — | — | 157,500 | |||||||||||||||
Long Yongtu(1) | — | — | — | — | — | |||||||||||||||
Chau Tak Hay(1) | 112,500 | — | — | — | 112,500 | |||||||||||||||
Cai Rang(1) | 112,500 | — | — | — | 112,500 | |||||||||||||||
Ngai Wai Fung(1) | 112,500 | — | — | — | 112,500 | |||||||||||||||
Xia Zhihua | 855,733 | — | — | — | 855,733 | |||||||||||||||
Shi Xiangming | 337,283 | — | — | — | 337,283 | |||||||||||||||
Yang Hong | 553,000 | — | — | — | 553,000 | |||||||||||||||
Wang Xu | 322,583 | — | — | — | 322,583 | |||||||||||||||
Tian Hui | 120,000 | — | — | — | 120,000 | |||||||||||||||
Wu Weimin(2) | 251,417 | — | — | — | 251,417 | |||||||||||||||
Qing Ge(2) | 251,417 | — | — | — | 251,417 | |||||||||||||||
Total | 6,691,667 | — | — | — | 6,691,667 | |||||||||||||||
(1) | Resigned as the | |
(2) | Resigned as the employee representative supervisor on May 25, 2009. |
2009. The total compensation package for our executive officers for the year ended December 31, 2009 has not yet been finalized in accordance with regulations of the relevant PRC authorities. The amount of the compensation not provided for is not expected to have a significant impact on our financial statements for the year ended December 31, 2009. We will make further disclosure of the amount of the final compensation when it is determined.
| ||||
Name | Total | |||
In RMB | ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| 850,000 | |||
Zhou Ying | 850,000 | |||
Su Hengxuan | 850,000 | |||
Miao Ping | 60,000 | |||
Liu Lefei(3) | 170,000 | |||
Liu Anlin(4) | 700,000 | |||
Hwei-Chung Shao | 2,930,000 | |||
Total | 4,860,000 | |||
(3) | Removed as our chief investment officer on January 19, 2009. | |
(4) | Removed as our chief information technology officer on December 21, 2009. |
RMB 169,312 (US$23,211) was contributed to various defined contribution retirement plans as described above.102
The amount of compensation we paid to our highest paid individual employee, during the year ended December 31, 2009 was approximately RMB 2,930,000 (US$429,247).
In order to provide better incentives for our senior management and to enhance further the alignment between our senior management’s performance and our shareholders’ value, our shareholders, upon the recommendation of our board of directors, have adopted a compensation system for our senior management, which was designed with the assistance of an independent compensation consulting firm. The system is designed to link our senior management’s financial interests with our results of operations and the performance of our shares. Under this system, our senior management’s compensation will consist of three components:
basic salaries and other fixed allowances;
short-term incentive compensation (annual performance bonuses); and
long-term incentive compensation in the form of stock appreciation rights, which generally entitle recipients to receive cash payments when the market price of our H shares rises above the exercise price granted in the stock appreciation rights.
The variable components in our senior management’s compensation, which consist of performance bonuses and stock appreciation rights, account for 30% to 70% of their total potential compensation. Generally, the more direct impact the recipient’s responsibilities have on our final operating results, the larger the variable portion of the recipient’s compensation package will be.
The annual performance bonuses are closely linked with our annual results of operations and the individual performance of our senior management. We have established a complete performance management system, under which key performance indicators are assigned to each position. For example, the key performance indicators assigned to our chief actuary position include the ratio of profitable products to all insurance products, as well as the profit ratio of new insurance products. The key performance indicators assigned to the general manager of our human resources department include the retention rate of specified key positions, the degree of satisfaction of other departments in the general manager’s performance and the duration of vacancies of our senior management.
The issuance of stock appreciation rights does not involve any issuance of new shares, nor does it have a dilutive effect on our shareholders. Stock appreciation rights may be awarded to the senior management and other outstanding personnel, including members of the board of directors and the board of supervisors (but excluding independent non-executive directors and independent supervisors), the president, vice presidents, heads of the departments and divisions in our headquarters, general managers and deputy general managers of our principal and municipal branches, senior professionals and technicians of key positions, such as the chief actuary, as well as exclusive agents with outstanding performance. Our board of directors will determine the recipients of stock appreciation rights according to internal procedures.
Stock appreciation rights will be awarded in units, with each unit representing one H share. Among the senior management to whom stock appreciation rights are awarded, the ratio between the highest and the lowest awards will in general not exceed 18:1, with the number of units of the highest award not exceeding 10% of the total units awarded to all participants. The total number of stock appreciation rights that have been awarded but not exercised or cancelled and the total number of stock appreciation rights that have been exercised may not exceed 0.5% of our issued share capital, including both A shares and H shares. During any fiscal year, the number of stock appreciation rights awarded may not exceed 0.2% of our issued share capital.
According to this plan, all stock appreciation rights will have an exercise period of five years and will not be exercisable before the fourth anniversary of the date of award unless specified market or other conditions have been met. Under these market conditions, the exercise right may be accelerated, on a cumulative basis, if the share price rises by the percentages and within the time periods indicated below. Upon an employee’s completion of four years of continuous service after the date of award, all of the stock appreciation rights will be exercisable, regardless of the extent, if any, to which the performance criteria set forth below have been satisfied.
A total of one-third of the stock appreciation rights may be exercised provided that within 6 to 18 months from the date of award, the share price is at least 10% higher than the exercise price for a period of 20 consecutive trading days;
If such portion of the stock appreciation rights have not already become exercisable during the period between 6 and 18 months from the award date, a total of one-third of the stock appreciation rights may be exercised provided that within 18 to 30 months from the date of award, the share price is 10% to 20% higher than the exercise price for a period of 20 consecutive trading days. Additionally, a total of two-thirds of the stock appreciation rights (that is, inclusive of any portion of the stock appreciation rights that have been exercisable by achieving the lower stock thresholds in the relevant period) may be exercised if, during the period from 18 to 30 months from the date of award, the share price is more than 20% higher than the exercise price for a period of 20 consecutive trading days; and
If such portion of the stock appreciation rights have not already become exercisable during the period between 6 and 30 months from the award date, a total of one-third of the stock appreciation rights may be exercised provided that after 30 months from the date of award, the share price is 10% to 20% higher than the exercise price for a period of 20 consecutive trading days and a total of two-thirds of the stock appreciation rights may be exercised if the share price is more than 20% higher during such period. Additionally, all of the stock appreciation rights may be exercised if the share price is more than 30% higher for a period of 20 consecutive trading days at any time after 30 months from the award date.
The exercise price of stock appreciation rights will be the average closing price of the shares in the five trading days prior to the date of the award. Upon exercise of the stock appreciation rights, the exercising participant will receive payment in Renminbi, subject to any withholding tax, equal to the number of stock appreciation rights exercised times the difference between the exercise price and market price of the H shares at the time of exercise.
As disclosedSystem” in our annual report under the rules of Hong Kong Stock Exchangeon Form 20-F for the fiscal year of 2004 and submitted to the SECended December 31, 2007, as filed on Form 6-K on May 5, 2005, subject to the approval by our board of directors, we planned to award stock appreciation rights to our senior management personnel in 2005. Accordingly, our board of directors approved, on January 5, 2006, an initial award of stock appreciation rights of 4,053,015 units of stock appreciation rights, each representing one H share, to our senior management personnel, including our chairman of the board of directors, executive directors, non-executive directors (excluding independent non-executive directors), chairman of the board of supervisors, internal supervisors, president, vice presidents, secretary to the board of directors, appointed actuary and appointed legal officer as required by the CIRC, head of key departments in our headquarters and heads of our branches at the provincial level. The award covered 68 personnel existing at July 1, 2005, and the exercise price of the rights was the average closing price of our H shares in the five trading days prior to July 1, 2005.
On January 5, 2006, our board of directors approved in principle our second award plan of stock appreciation rights. On August 21, 2006, our board of directors further approved the second award plan of stock appreciation rights consisting of approximately 53,220,000 units awarded to the senior management and outstanding personnel, including the personnel covered under our initial award plan, deputy managers and assistants to the managers of the departments in our headquarters, managers and certain qualified deputy managers of the divisions in our headquarters, deputy managers and equivalent management personnel of our branches at the provincial level, assistants to the managers, outstanding management personnel of our branches at
the municipal level and outstanding exclusive agents. The exercise price of the rights was the average closing price of our H shares in the five trading days prior to January 1, 2006.
On December 29, 2006, our board of directors also approved in principle our third award plan of stock appreciation rights, and the exercise price of the rights is the average closing price of our shares in the five trading days prior to January 1, 2007. On June 12, 2007, our board of directors further approved the third award plan of stock appreciation rights consisting of approximately 51 million units to be awarded to the management and outstanding personnel, including the personnel who, during the period from June 30, 2006 to January 1, 2007, joined us at the positions or were promoted to the positions which would otherwise be eligible to be awarded the stock appreciation rights under our second award plan; general managers and deputy general managers (including equivalent management personnel) of the branches at the municipal level excluding those who have already been awarded the stock appreciation rights; general managers and deputy managers at the county level who had outstanding performance in 2006; and outstanding exclusive agents and model employees. As of the date of this annual report, the third award of stock appreciation rights had not been granted.
The table below sets forth the numbers of stock appreciation rights awarded to members of our senior management under award plan described above.
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April 25, 2008.
103
Sun Changji. Mr. Bruce Douglas Moore serves as the chairman.
Miao Jianmin. Mr. Sun Changji serves as the chairman.
Liu Yingqi. Mr. Ma Yongwei serves as the chairman.
Liu Dairen.
As of December 31 | |||||||||||||||
2005 | 2006 | 2007 | |||||||||||||
Number of employees | % of total | Number of employees | % of total | Number of employees | % of total | ||||||||||
Management and administrative staff | 9,303 | 12.28 | % | 11,643 | 15.06 | % | 18,535 | 19.17 | % | ||||||
Financial and auditing staff | 5,335 | 7.05 | % | 5,501 | 7.11 | % | 7,931 | 8.20 | % | ||||||
Sales and marketing staff(1) | 33,674 | 44.47 | % | 32,373 | 41.87 | % | 25,473 | 26.34 | % | ||||||
Underwriters, claim specialists and customer service staff | 15,950 | 21.06 | % | 17,108 | 22.13 | % | 33,703 | 34.85 | % | ||||||
Other professional and technical staff(2) | 1,779 | 2.35 | % | 1,905 | 2.46 | % | 2,742 | 2.84 | % | ||||||
Other | 9,687 | 12.79 | % | 8,788 | 11.37 | % | 8,314 | 8.60 | % | ||||||
Total | 75,728 | 100 | % | 77,318 | 100 | % | 96,698 | 100 | % | ||||||
As of December 31 | ||||||||||||||||||||||||
2007 | 2008 | 2009 | ||||||||||||||||||||||
Number | % | Number | % | Number | % | |||||||||||||||||||
of | of | of | of | of | of | |||||||||||||||||||
employees | total | employees | total | employees | total | |||||||||||||||||||
Management and administrative staff | 18,535 | 19.17 | % | 20,250 | 19.81 | % | 21,450 | 20.52 | % | |||||||||||||||
Financial and auditing staff | 7,931 | 8.20 | % | 7,663 | 7.50 | % | 7,967 | 7.62 | % | |||||||||||||||
Sales and marketing staff(1) | 25,473 | 26.34 | % | 25,473 | 24.92 | % | 26,320 | 25.18 | % | |||||||||||||||
Underwriters, claim specialists and customer service staff | 33,703 | 34.85 | % | 38,797 | 37.96 | % | 39,329 | 37.54 | % | |||||||||||||||
Other professional and technical staff(2) | 2,742 | 2.84 | % | 3,680 | 3.60 | % | 3,800 | 3.64 | % | |||||||||||||||
Other | 8,314 | 8.60 | % | 6,378 | 6.24 | % | 5,759 | 5.51 | % | |||||||||||||||
Total | 96,698 | 100 | % | 102,241 | 100 | % | 104,535 | 100 | % | |||||||||||||||
(1) | Includes direct sales representatives. |
(2) | Includes actuaries, product development personnel, investment management personnel and information technology specialists. |
104
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. |
Title of Class | Identity of Person or Group | Amount Owned | Percentage of Class | Percentage of Total Share Capital | ||||||
A Shares | China Life Insurance (Group) Company | 19,323,530,000(L) | 92.80 | % | 68.37 | % | ||||
H Shares | Lee Shau Kee(1) | 428,358,620(L) | 5.76 | % | 1.52 | % | ||||
H Shares | Leeworld (Cayman) Limited(1) | 428,358,620(L) | 5.76 | % | 1.52 | % | ||||
H Shares | Leesons (Cayman) Limited(1) | 428,358,620(L) | 5.76 | % | 1.52 | % | ||||
H Shares | Lee Financial (Cayman) Limited(1) | 428,358,620(L) | 5.76 | % | 1.52 | % | ||||
H Shares | Shau Kee Financial Enterprises Limited(1) | 428,358,620(L) | 5.76 | % | 1.52 | % | ||||
H Shares | Richbo Investment Limited(1) | 428,358,620(L) | 5.76 | % | 1.52 | % | ||||
H Shares | Deutsche Bank Aktiengesellschaft(2) | 863,050,852(L) | 11.60 | % | 3.05 | % | ||||
591,314,167(S) | 7.95 | % | 2.09 | % | ||||||
H Shares | JPMorgan Chase & Co.(3) | 594,332,529(L) | 7.99 | % | 2.10 | % | ||||
182,693,978(S) | 2.46 | % | 0.65 | % | ||||||
134,008,400(P) | 1.80 | % | 0.47 | % | ||||||
H Shares | UBS AG(4) | 461,238,864(L) | 6.20 | % | 1.63 | % | ||||
146,951,348(S) | 1.97 | % | 0.52 | % |
The letter “L” denotes a long position. The letter “S” denotes a short position. The letter “P” denotes interest in a lending pool.
Percentage of | ||||||||||||
Percentage of | Total Share | |||||||||||
Title of Class | Identity of Person or Group | Amount Owned | Class | Capital | ||||||||
A Shares | China Life Insurance (Group) Company | 19,323,530,000(L) | 92.80 | % | 68.37 | % | ||||||
H Shares | JPMorgan Chase & Co.(1) | 592,454,359(L) | 7.96 | % | 2.10 | % | ||||||
52,441,871(S) | 0.70 | % | 0.19 | % | ||||||||
282,699,343(P) | 3.80 | % | 1.00 | % | ||||||||
H Shares | Blackrock, Inc.(2) | 387,227,148(L) | 5.20 | % | 1.37 | % | ||||||
864,500(S) | 0.01 | % | 0.00 | % |
The letter L denotes a |
JPMorgan Chase & Co. was interested in a total of |
Included in the |
In addition, JPMorgan Chase & Co. held by way of attribution a |
(2): | Blackrock, Inc. was interested in a total of |
Blackrock, Inc. held by way of attribution a |
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Details of these transactions with CLIC, AMC and IHC are set forth below.
Set forth below are details Details of the transactions with GDB are set forth below.
Restructuring Agreement
We have entered intotransactions with CLIC. These transactions are governed by several agreements between CLIC and us, including a restructuring agreement, with CLIC under which CLIC agreed to transfer to us a portion of its insurance business and various investment and operating assets, management personnel and employees, and we assumed various obligations and liabilities, as described under “Item 4. Information on the Company—History and Development of the Company—Our Restructuring”. We received the benefits of all of the rights and interests, and assumed all the liabilities and obligations, associated with the transferred assets and policies, commencing as of June 30, 2003, the effective date of the restructuring. The remaining business of CLIC primarily comprised the non-transferred policies and non-core businesses which are not insurance-related, including investments in property, hotels and other operations through subsidiaries. As a result of the restructuring, CLIC’s management and personnel are different from ours and we work independently of CLIC.
Under the restructuring agreement, CLIC made various representations and warranties in relation to the business, assets and liabilities transferred to us in the restructuring.
In addition, under the restructuring agreement, CLIC indemnified us against all claims, losses, damages, payments or other expenses incurred by us in connection with or arising from, among others:
1) all taxes, fees, surcharges, penalties and interest payable by CLIC as determined under the restructuring agreement;
2) the negligence or fault of CLIC in acting on our behalf while holding any assets, interests or liabilities that were to be transferred to us, but for which third-party consents had not been obtained by the effective date;
3) any dispute regarding our status as the insurer of the insurance policies issued by CLIC on or after June 30, 2003 until the date when we begin to write polices on our own behalf;
4) all claims by policyholders under long-term insurance policies issued on or after June 10, 1999, having policy terms approved by or filed with the CIRC on or after June 10, 1999, but which for whatever reason failed to be recorded as long-term insurance policies as of June 30, 2003 in the database attached to the restructuring agreement as an annex;
5) the failure of CLIC to transfer the assets, interests and liabilities to us in accordance with the restructuring agreement and other restructuring documents;
6) the assets, interests and liabilities retained by CLIC after the restructuring;
7) the transfer of the assets, interests and liabilities to us under the restructuring;
8) a breach of any provision of the restructuring agreement on the part of CLIC; and
9) any actual, pending or threatened arbitration or litigation affecting any asset transferred to us.
The restructuring agreement provides, among other things, that any profits or losses incurred on the transferred assets and policies from June 30, 2002 to June 30, 2003 are for the benefit of or to be borne by CLIC.
We agreed to indemnify CLIC against any claims or losses arising from our breach of the restructuring agreement.
Policy Management Agreement
General
As part of the restructuring, CLIC transferred its entire branch services network to us. In order to capitalize on the large customer base of CLIC, increase the utilization of our customer service network and increase our revenue sources, CLIC engaged us to provide policy administration services relating to the non-transferred policies after the restructuring.
We and CLIC entered into a policy management agreement, a trademark license agreement and a non-competition agreement. A detailed discussion of these agreements is set forth in Note 29 to our consolidated financial statements included elsewhere in this annual report and under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on September 30, 2003 which sets outForm 20-F filed with the Securities and Exchange Commission on April 28, 2009.
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Terms of the Policy Management Agreement
Pursuant to the renewed policy management agreement, we agreed to provide policy administration services to CLIC relating to the non-transferred policies, including day-to-day insurance administration services, customer services, statistics and file management, invoice and receipt management, reinstatement of non-transferred policies, applications for and renewal of additional coverage to the non-transferred policies, reinsurance, and handling of disputes relating to the non-transferred policies. We act as a service provider under the agreement and do not acquire any rights or assume any obligations as an insurer under the non-transferred policies.
Under the renewed policy management agreement, we will issue a monthly funding request to CLIC, based on actuarially determined forecasts and supporting data, for amounts to be payable to CLIC policyholders. CLIC will transfer, within five business days prior to each calendar month, to an account under our control, funds sufficient to pay insurance benefits and commissions to be paid under the non-transferred policies, as well as estimated third-party costs and expenses, for that calendar month. We may also request emergency funding from CLIC, if we reasonably believe that the account balance will become insufficient in ten business days to make those payments. We are not required to make any advances on behalf of CLIC to cover any shortfall of funds.
In consideration of our services provided under the agreement, CLIC will pay us a service fee based on our estimated cost of providing the services, to which a profit margin is added. The service fee is equal to, for each semi-annual payment period, the sum of (1) the number of non-transferred policies in force as of the last day of the period, multiplied by RMB 8.0 per policy; and (2) 2.50% of the actual premiums and deposits in respect of such policies collected during the period. For these purposes, the number of policies in-force for group insurance policies is equal to the number of individuals covered by the policies (excluding those whose policies have lapsed or matured).
The renewed policy management agreement is valid for a term of three years effective from January 1, 2006 and expiring on December 31, 2008. Subject to the HKSE Listing Rules, the agreement will be automatically renewed for successive three years terms, unless terminated by either party by giving to the other party not less
than 180 days’ prior written notice to terminate the agreement at the expiration of the then current term. We are also permitted to terminate the agreement, upon giving 30 days’ prior written notice, if (1) CLIC fails to pay us the service fee in accordance with the agreement in an aggregate amount of at least RMB 100 million; or (2) we are unable to make timely payment of insurance benefits, commissions and/or third-party costs in an aggregate amount of at least RMB 300 million as a result of CLIC failing to transfer sufficient funds to the account controlled by us in accordance with the agreement.
Measures Taken to Ensure that We Have Sufficient Cash to Settle Claims Relating to Non-Transferred Policies
The following is a description of the measures that we currently have in place to ensure that we have sufficient cash to settle claims relating to non-transferred policies.
Under the renewed policy management agreement, the operations relating to the transferred policies and the non-transferred policies must be separately managed, settled (including daily and monthly settlement) and checked, and we are not required to make any advances on behalf of CLIC to cover deficiencies in the payment of claims under the non-transferred policies. In order to ensure that there is sufficient cash to pay claims under the non-transferred policies on a day-to-day basis, we and CLIC have implemented the following procedures:
Our headquarters and all branch offices at provincial level have opened and are using segregated bank accounts to manage funds and payments in relation to claims and benefits under the non-transferred policies. Substantially all of our branches below the provincial level have already opened segregated bank accounts, and the remaining branches will also open segregated bank accounts as necessary.
We will, based on actuarially determined forecasts and supporting data relating to the non-transferred policies, maintain a minimum daily balance for each segregated account. The segregated accounts will be brought up to this minimum daily balance should they fall below the required level on any given day.
In the event of an unexpectedly large claim or benefit payment, or a claim or benefit payment which exceeds the minimum daily balance, a request for funds will be made to the branch at the next higher level. If a provincial-level branch does not have sufficient funds to make a payment, it will make a request for funding to our headquarters. If there is a deficiency at the headquarters level, we will make a payment request to CLIC or to the special purpose fund established by the MOF and CLIC.
Asset Management Agreements
AMC has entered into two asset management agreements, effective on November 30, 2003, one with us and one with CLIC.
We renewed the agreement with AMC on December 29, 2005 for a term of two years expiring on December 31, 2007. Subject to the HKSE Listing Rules, the agreement will be automatically renewed for successive one year term, unless terminated by either party giving the other party not less than 90 day’s prior written notice to terminate the agreement at the expiration of the then current term. The agreement was automatically renewed on the same terms as the previous year in December 2007 for a one yearone-year term expiring on December 31, 2008.
In connection with the asset management agreement with AMC and in order to ensure the safeguarding2010. A detailed discussion of our insurance assets, we entered into a custodian agreement with Industrial and Commercial Bank of China, as the custodian bank of our assets, and a memorandum on the investment management and custody of insurance assets among Industrial and Commercial Bank of China, AMC and us.
The material terms of the renewed asset management agreement between China Life and AMC are set forth below.
Under the asset management agreement between AMC and China Life, AMC agreed to invest and manage assets entrusted to it by China Life on a discretionary basis, subject to the investment guidelines and instructions given by China Life.
In accordance with the agreement, China Life retains the title of the entrusted assets and AMCus is authorized to operate the accounts associated with the entrusted assets for and on behalf of China Life. China Life may add to or withdraw from the assets managed by AMC pursuant to the agreement. All investment losses relating to the assets managed by AMC pursuant to the agreement will be borne by China Life, except for losses and liabilities arising from AMC’s misconduct. China Life has the right to establish, and amend from time to time, the investment guidelines which set forth the general investment principles regarding the assets under AMC’s management and, for specific periods, requirements relating to, among others, investment scope, portfolio, risk control and benchmark investment rate of return. China Life also has the right to give instructions for the liquidation of assets to meet its cash needs and the right to monitor the investment management activities of AMC.
In addition to acting as China Life’s investment manager, AMC is permitted to invest its own assets and provide investment management services to third-party insurance companies. AMC agreed to inform China Life in the event that it, in its professional judgment, believes that there is a conflict of interest in the activities on behalf of itself and others. AMC has discretion to take such actions and measures which in its professional judgment are fair, reasonable and necessary to resolve any such conflict.
In consideration of its services provided under the agreement, China Life agreed to pay AMC service fees, comprised of a monthly service fee and an annual floating service fee. The monthly service fee payable is comprised of two parts: (1) the aggregate of the monthly service fee for each specified category of assets that are not under the custody of Industrial and Commercial Bank of China and (2) the aggregate of the monthly service fee for each specified category of assets that are under the custody of Industrial and Commercial Bank of China. The monthly service fee for assets not under custody is calculated on a monthly basis, by multiplying the average of net asset value of the assets in each such category under management at the end of any given month and the end of the previous month by the applicable annual rate for that month set forth in Note 29 to our consolidated financial statements included elsewhere in this annual report and under the table below (by reference to basis points), divided by twelve.heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form 20-F filed with the Securities and Exchange Commission on April 28, 2009. The monthly service fee for assets under custody is calculated on a daily basis, by multiplying the net asset valueannual cap in respect of the assets in each such category under management at the end of any given day by the applicable annual rate set forth in the table below (by reference to basis points), divided by 360.
AMC and China Life may, within the first month of each year, agree to change the annual rate for that year, but if there is no new agreement, the existing annual rate for the prior year will remain in force. In relation to any new type of investment product (not included in the categories below) which may be permitted by applicable law or the CIRC in the future, the agreement provides that AMC and China Life will agree on a fair and reasonable annual rateservice fees to be applicablepaid by us to that type of investment product.
The following table sets forth the applicable annual rates in relation to the total net asset value of the assets managed by AMC.
Total net asset value of managed assets at the end of relevant month/day | ||||||||
Item | RMB 450 billion below | More than and equal to RMB 450 billion and less than RMB 550 billion | More than and equal to RMB 550 billion and less than RMB 650 billion | More than RMB 650 billion | ||||
(bps) | (bps) | (bps) | (bps) | |||||
Term deposits | ||||||||
Existing | 1.2 | 1.2 | 0.7 | 0.4 | ||||
Incremental | 1.2 | 1.2 | 0.7 | 0.4 | ||||
Debt securities(1) | ||||||||
Held-to-maturity | 5 | 4.2 | 3 | 2 | ||||
Held-for-sale | 5 | 4.2 | 3 | 2 | ||||
Held-for-trading | 30 | 28 | 26 | 22 | ||||
Securities investment funds | ||||||||
Stocks | 25 | 25 | 22 | 20 | ||||
Index | 15 | 13 | 11 | 10 | ||||
Equity investment | ||||||||
Active | 50 | 48 | 45 | 40 | ||||
Passive | 30 | 25 | 20 | 15 | ||||
Cash | 1 | 1 | 1 | 1 |
In addition to the monthly service fee, China Life will pay AMC an annual floating service fee. Within 90 days of the submission of the annual report for the previous year by the joint venture, China Life will review the investment performance of AMC for the previous year and conclude a performance score that ranges from 0 to 100. The annual floating service fee for any given year is calculated by multiplying ten percent of the aggregate of the monthly service fee paid for that year by performance score divided by 100.
The service fee under the asset management agreement wasfor the year ending December 31, 2010 is RMB 800 million. The annual cap has been determined by China Life and AMC based on an analysis of the cost of providing the service, market practice andreference to historical figures, the size and composition of the asset poolassets managed and to be managed.
As a result of a substantial increase in market activitymanaged by AMC, and the inherent volatility of the capital marketsmarket.
CLIC renewed the agreementcontinuing related party transactions with AMC on December 27, 2005 for a term of three years expiring on December 31, 2008. Subject to the HKSE Listing Rules, the parties may negotiate the term of the renewal not less than 90 days prior to the expiration of the current term.
The material terms of the renewed asset management agreement between CLIC and AMC are set forth below.
Under theunder an asset management agreement between AMC and CLIC AMC agreedwhich will be effective until December 31, 2011. A detailed discussion of this agreement is set forth in Note 29 to investour consolidated financial statements included elsewhere in this annual report and manage assets entrustedunder the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form 20-F filed with the Securities and Exchange Commission on April 28, 2009. The annual caps in respect of the service fees to itbe paid by CLIC on a discretionary basis, subject to AMC under the investment guidelinesasset management agreement for the years ending December 31, 2010 and instructions given2011 are RMB 290 million and RMB 300 million, respectively. The annual cap has been determined by CLIC.
In accordance withreference to historical figures, the agreement, CLIC retains the titlesize and composition of the entrusted assets and AMC is authorized to operate the accounts associated with the entrusted assets for and on behalf of CLIC. CLIC may add to or withdraw from the assets managed and to be managed by AMC, pursuant to the agreement. CLIC has the right to establish, and amend from time to time, the investment guidelines which set forth the general investment principles regarding the assets under AMC’s management and, for specific periods, requirements relating to, among others, investment scope, portfolio, liquidity, risk control and benchmark investment return. CLIC also has the right to monitor the investment management activities of AMC.
In addition to acting as CLIC’s investment manager, AMC is permitted to invest its own assets and provide investment management services to third-party insurance companies.
In consideration of its services provided under the agreement, CLIC agreed to pay AMC a monthly service fee and an annual bonus or deduction, where applicable. The monthly service fee is calculated on a monthly basis, by multiplying the average of account balance value of the assets under management (less funds from sale of securities under the agreement to repurchase and interest thereof) at the beginning and the end of any given month by the basis annual rate of 0.05%, divided by twelve.
After the conclusion of each fiscal year, CLIC will review the investment performance of AMC for the previous year. If the investment return for the assets managed for a particular year exceeds the benchmark investment return, as previously agreed between CLIC and AMC for those assets for that year, AMC will be entitled to an annual performance bonus fee determined by CLIC, the amount of which shall not exceed the difference between the actual investment return and the benchmark investment return set for the previous year. If the actual investment return is less than the benchmark investment return as agreed between CLIC and AMC for those assets for that year, AMC will be required to rebate a portion of its monthly fees received for the previous year determined by the CLIC, the amount of which shall not exceed the difference between the actual investment return and the benchmark investment return set for the previous year.
During the year of 2007, as a result of a substantial increase in market activityinherent volatility of the capital markets in the PRC, the market capitalization of the A share market in the PRC and a change in the valuation method under the PRC Accounting Standard for Business Enterprises (2006), CLIC paid AMC an asset management fee of RMB 104 million, which slightly exceeded the annual cap amount as previously announced by RMB 2 million. China Life set the annual cap at RMB 280 million for the year of 2008.
Property Leasing Agreement
market.
properties.
We further renewed the agreement with CLIC on January 4, 2007 under substantially the same terms ofon December 23, 2005 and January 4, 2007 and amended the agreement entered into on September 30, 2003. Pursuant toJanuary 8, 2008. Under the renewed and amended agreement, which will expireexpired on December 31, 2009, CLIC agreed to lease to us 1,1742,011 CLIC owned properties and 12685 CLIC leased properties. CLIC transferred all of its rights and obligations in the CLIC owned properties and CLIC leased properties to IHC on June 30, 2008, and IHC was substituted for an aggregate initialCLIC as a party to the property leasing agreement.
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Thereport and under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form 20-F filed with the Securities and Exchange Commission on April 28, 2009.
will be determined by reference to the rent payablereport and under the head lease plus the actual costs incurred by CLIC arisingheading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in connectionour annual report on Form 20-F filed with the sublettingSecurities and Exchange Commission on April 28, 2009.
Each party may, by giving notice to the other party no later than November 30 of each year, reduce or increase the number of properties under the leaseCompany, CLIC and make adjustments accordingly to the rent payable for the next year. The parties will also revise the annual rent payable at the year end to reflect, in addition to any decrease or increase to the number of properties to be leased, any changeAMC. In consideration of the market rates.
services provided by China Life Pension under this agreement, we, CLIC and AMC agreed to indemnifypay China Life Pension entrusted management fees and account management fees.
The agreement also contains rights of first refusal allowing us to purchase the underlying property if CLIC wishes to sell the property. In this regard, we will comply with the provisions of Chapter 14A of the HKSE Listing Rules if we exercise the right of first refusal to acquire the properties from CLIC unless we apply for, and obtain, a separate waiver from the HKSE.
CIRC.
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The continuing related party transactions with GDB are not regarded as connected transactions for us under the HKSE Listing Rules.
| ||||
The aggregate value for | ||||
the year ended | ||||
Transactions | December 31, 2009 | |||
(RMB in millions) | ||||
1. Policy management agreement | 1,193 | |||
2. Asset management agreement | ||||
(a) between CLIC and AMC | 112 | |||
(b) between AMC and | 540 | |||
3. Property leasing agreement | 64 |
1) | the transactions were entered into in the ordinary and usual course of our business; | ||
2) | the transactions were conducted either on normal commercial terms or on terms that are fair and reasonable so far as our independent shareholders are concerned; | ||
3) | the transactions were entered into in accordance with the agreements governing those transactions; and | ||
4) | the amounts of the transactions had not exceeded the relevant annual caps as announced by us. |
(i) the transactions were entered into in the ordinary and usual course of the business of China Life;109
(ii) the transactions were conducted either on normal commercial terms or on terms that are fair and reasonable so far as our independent shareholders are concerned;
(iii) the transactions were entered into in accordance with the agreements governing those transactions; and
(iv) except for the amount of asset management fee earned from CLIC, the amounts of the transactions had not exceeded the relevant annual caps as announced by China Life.
Trademark License Agreement
We conduct our business under the “China Life” brand name (in English and Chinese), the “ball” logos and other business related slogans and logos. We entered into a trademark license agreement with CLIC on September 30, 2003, pursuant to which CLIC granted to us and our branches a royalty-free license to use these trademarks in the PRC and other countries and territories in which CLIC has registered these trademarks. CLIC has registered these trademarks with the Trademark Office of the SAIC. CLIC undertook in the trademark license agreement to maintain and renew, at its own expense, the registration of the licensed trademarks. If requested by us, CLIC will procure, at its own expense, registration of the trademarks in additional products and service classifications and/or additional countries or territories. CLIC will retain ownership of these trademarks.
We may also license a third party to use the trademarks with the written consent of CLIC. CLIC and its subsidiaries and affiliates are entitled to use these trademarks. CLIC may not license or transfer these trademarks to any other third party or allow any other third party to use the trademarks.
The trademark license agreement permits us to use the trademarks until such time as either the trademark license agreement is terminated either by agreement between CLIC and ourselves, or pursuant to relevant laws, regulations or consent orders, or at the expiration of the registration of the trademarks, and is renewable at our option. The registration of “China Life” brand name (in English and Chinese) and the “ball” logo, which are the major trademarks used in our business, will expire on August 13, 2016 and February 6, 2016, respectively.
Non-Competition Agreement
We entered into a non-competition agreement with CLIC on September 30, 2003 pursuant to which CLIC undertook that during the term of the agreement, unless we otherwise consent in writing in advance, it will not, and it will use its best efforts to procure its subsidiaries and affiliates not to, directly or indirectly, participate, operate or engage in any life, accident or health insurance or other businesses in China which may compete with our insurance businesses. Before entering into the share subscription agreement in connection with the formation of a property and casualty insurance joint stock company on March 13, 2006, as described below, we consented in writing that CLIC may engage in accident and short-term health businesses indirectly through a property and casualty joint venture with us. CLIC also undertook (1) to refer to us any corporate business opportunity that falls within our business scope and which may directly or indirectly compete with our business and (2) to grant us a right of first refusal, on the same terms and conditions, to purchase any new business developed by CLIC. The non-competition agreement allows CLIC to continue its business under the non-transferred policies.
In addition, CLIC currently holds a 51% interest in China Life-CMG Life Assurance Company Ltd., a Sino-foreign joint venture with CMG, an Australian insurance company. The joint venture is registered in Shanghai, China and engaged in the business of life insurance and related reinsurance in Shanghai. CLIC agreed to dispose of all of its interests in this joint venture to third parties or eliminate any competition between China Life-CMG Life Assurance Company Ltd. and us within three years of our listing on the HKSE. As of the date of this annual report, the transfer of CLIC’s equity interest in this joint venture was still ongoing.
CLIC also agreed with us in the non-competition agreement that we will have a right of first refusal in respect of the transfer of the non-transferred policies retained by CLIC.
The non-competition agreement will remain valid and in full force until the earlier of (1) CLIC beneficially holding, directly or indirectly, less than 30% of our issued share capital and ceasing to control the majority of our board of directors; and (2) our H shares or ADSs no longer being listed on the HKSE or any other stock exchange.
Asset Purchase Agreement
We entered into an asset purchase agreement with CLIC in January 2007 pursuant to which we purchased from CLIC certain assets which were owned by CLIC or which CLIC had the rights to dispose of, including real estate, construction in progress, land use rights, cars and equipment. We paid approximately RMB 488 million for these assets. In September 2007, we entered into a supplemental asset purchase agreement with CLIC to purchase additional real estate, construction in progress and land use rights. We paid approximately RMB 21 million for these assets. The price for these assets was determined by a valuation provided by a third-party assets valuator mutually engaged by CLIC and us. Most of the assets purchased by us were previously leased to us by CLIC and are being used by our branch offices.
Strategic Cooperation Agreement, Negotiated Deposit Agreements and Individual Bancassurance Products Cooperation Agreement with GDB
We entered into a strategic cooperation agreement with GDB in March 2007, pursuant to which we agreed to cooperate with GDB in various areas, including, among others, insurance business, bank cards business, financial business, e-commerce, client resources sharing, information technology, product development and brand promotion. With regards to the cooperation in the insurance business, GDB undertook to provide bancassurance services on our behalf. Subject to relevant laws and regulations, we undertook to offer our insurance products to GDB under certain preferential terms, while GDB agreed to purchase our products in priority under the same terms and conditions. The term of this agreement is five years.
We entered into two negotiated deposit agreements with GDB in April and December 2007 respectively. Under the agreement entered into in April 2007, we agreed to deposit in GDB a total of RMB 3,000 million (US$411 million) for a term of 61 months. The annual interest rate will be determined based on the interest rate on one-year term deposits announced by the PBOC. When the interest rate on one-year term deposits announced by PBOC is at or lower than 2.79%, the annual interest rate applicable to our deposits will be fixed at 4.41%. When the interest rate on one-year term deposits announced by the PBOC is higher than 2.79%, the annual interest rate applicable to our deposits will be the interest rate on one-year term deposits announced by the PBOC plus 1.62%. Under the agreement entered into in December 2007, we agreed to deposit in GDB a total of RMB 3,000 million (US$411 million) for a term of 61 months. The annual interest rate applicable to our deposits will be the interest rate on one-year term deposits announced by the PBOC plus 1.62% provided that, in any event, the annual interest rate will not be lower than 4.50%. The currently applicable annual interest rate under this agreement is 5.76%. The interest payable on the deposits is paid annually.
We entered into an individual bancassurance products cooperation agreement with GDB in April 2007, pursuant to which GDB will sell our individual insurance products suitable for sale through banks. Under this agreement, GDB will act as an intermediary to sell our individual insurance products and will also act on our behalf to receive premiums and pay insurance benefits. In return, we will pay GDB commission fees including: (i) a monthly commission fee for sales by GDB as an intermediary, calculated on a monthly basis, by multiplying the total premiums received and a fixed commission rate, which ranges from 2.0% to 25%; and (ii) a monthly commission fee for acting on our behalf to receive premiums and pay insurance benefits, calculated on a monthly basis, by multiplying the number of policies handled by GDB and a fixed commission fee which is not more than RMB 1 per policy. The commission fees will be paid monthly. The term of this agreement is five years.
criminal offenses to the PRC authorities and may also bring concurrent civil actions against employees or individual agents. We have experienced agent and employee misconduct that has resulted in litigation and administrative actions against us and these agents and employees, and in some cases criminal proceedings and convictions against the agent or employee in question. None of these actions has resulted in material losses, damages, fines or other sanctions against us. We cannot assure you, however, that agent or employee misconduct will not lead to a material adverse effect on our business, results of operations or financial condition. 110ITEM 8. FINANCIAL INFORMATION. Class Action LitigationsChina Life and certain of its former directors (the “defendants”) have been named in nine putative class action lawsuits filed in the United States District Court for the Southern District of New York between March 16, 2004 and May 14, 2004. The lawsuits have been ordered to be consolidated and restyledIn re China Life Insurance Company Limited Securities Litigation, NO. 04 CV 2112 (TPG). Plaintiffs filed a consolidated amended complaint on January 19, 2005, which names China Life, Wang Xianzhang (former director), Miao Fuchun (former director) and Wu Yan (former director) as defendants. The consolidated amended complaint alleges that the defendants named therein violated Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. China Life has engaged U.S. counsel to contest vigorously on the lawsuits. The defendants jointly moved to dismiss the consolidated amended complaint on March 21, 2005. Plaintiffs then further amended their complaint. Defendants moved to dismiss the second amended complaint on November 18, 2005. That motion has been fully briefed and is pending before the Court. The likelihood of an unfavorable outcome is still uncertain. No provision has been made with respect to these lawsuits.OthersIn April 2006, the CIRC announced that it will assess the effectiveness of internal controls, as well as regulatory compliance matters relating to business operations, of Chinese insurance companies, health insurance companies and pension insurance companies during a three-year period immediately after the announcement, in accordance with the tentative rules on internal control assessment of life insurance companies. The purposes of such assessment were stated to be to facilitate and supervise the companies in order to improve their awareness of, and strengthen their controls over, matters such as corporate governance in management, internal controls, regulatory compliance in operations and risk management. We were reviewed by the CIRC in 2006 and were found to be in general compliance with the rules and regulations of CIRC, other than a small number of breaches by our branches which resulted in us being sanctioned by way of fines, none of which were material. The breaches mainly included improper handling of certain premiums received, which violated relevant CIRC rules and regulations. The fines imposed by CIRC ranged from RMB 20,000 (US$2,563) to RMB 500,000 (US$64,069). All the fines have been paid in full. In 2007, CIRC conducted a follow-up review on the rectification of the breaches identified in 2006 and found that such breaches have been effectively rectified.March 25, 2008April 7, 2010 to propose for approval at the annual general meeting of the declaration of final dividends of RMB 0.420.70 per share, totaling approximately RMB 11,87119,785 million (US$1,6272,899 million), for the year ended December 31, 2007.2009. The proposed dividends have not been provided for in our consolidated financial statements for the year ended December 31, 2007.2009.
our results of operations and cash flows;
• | our results of operations and cash flows; | ||
• | our financial position; | ||
• | statutory solvency requirements as determined under PRC GAAP with reference to CIRC rules; | ||
• | our shareholders’ interests; | ||
• | general business conditions; | ||
• | our future prospects; | ||
• | statutory and regulatory restrictions on the payment of dividends by us; and | ||
• | other factors that our board of directors deems relevant. |
our financial position;
statutory solvency requirements as determined under PRC GAAP with reference to CIRC rules;
our shareholders’ interests;
general business conditions;
our future prospects;
statutory and regulatory restrictions on the payment of dividends by us; and
other factors that our board of directors deems relevant.
We will pay dividends out of our after-tax profits only after we have made the following allowances and allocations:
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See “Item 5. Operating and Financial Review and Prospects—Class Action Litigation”.
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According to the PRC accounting basis, some investment assets are not measured on market value. As the embedded value is based on market value, it is necessary to make adjustments to the value of net assets under the PRC accounting basis.
Assumptions
The calculations are based upon assumed corporate tax rate of 33% in 2007 and 25% thereafter. The investment returns are assumed to be 5.5% level throughout the projection period. An average of 25% in 2007, grading to 14% in 2017 (remaining level thereafter) of the investment returns is assumed to be exempt from income tax. These returns and tax exempt assumptions are based on our long term strategic asset mix and expected future returns. The risk-adjusted discount rate used is 11.5%.
Other operating assumptions such as mortality, morbidity, lapses and expenses are based on our recent operating experience and expected future outlook.
Preparation
Tillinghast insurance consulting business ofthe CIRC. Towers Perrin (“Tillinghast”),Watson, an international firm of consulting actuariesconsultants, performed a review of China Life’sour embedded value. The review statement from TillinghastTowers Watson is contained in the “Embedded Value“Report on Towers Watson Review Statement”and Opinion on Embedded Value” section.
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Item | 2007 | 2006 | ||||||
A | Adjusted Net Worth | 168,175 | 117,700 | |||||
B | Value of In-Force Business before Cost of Solvency Margin | 100,659 | 78,296 | |||||
C | Cost of Solvency Margin | (16,266 | ) | (14,006 | ) | |||
D | Value of In-Force Business after Cost of Solvency Margin (B + C) | 84,393 | 64,290 | |||||
E | Embedded Value (A + D) | 252,568 | 181,989 | |||||
F | Value of One Year’s Sales before Cost of Solvency Margin | 14,578 | 12,971 | |||||
G | Cost of Solvency Margin | (2,531 | ) | (2,489 | ) | |||
H | Value of One Year’s Sales after Cost of Solvency Margin (F + G) | 12,047 | 10,481 |
ITEM | 2009 | 2008 | ||||||
A Adjusted Net Worth | 159,948 | 137,816 | ||||||
B Value of In-Force Business before Cost of Solvency Margin | 149,387 | 122,898 | ||||||
C Cost of Solvency Margin | (24,106 | ) | (20,626 | ) | ||||
D Value of In-Force Business after Cost of Solvency Margin (B+C) | 125,282 | 102,271 | ||||||
E Embedded Value (A + D) | 285,229 | 240,087 | ||||||
F Value of One Year’s Sales before Cost of Solvency Margin | 21,352 | 17,528 | ||||||
G Cost of Solvency Margin | (3,638 | ) | (3,604 | ) | ||||
H Value of One Year’s Sales after Cost of Solvency Margin (F + G) | 17,713 | 13,924 |
Note: | Numbers may not be additive due to rounding. |
B C D E F G H I J Numbers may not be additive due to rounding. 1142007the Year of 2009 (RMB million)Item RMB Million A RMB million A Embedded Value at Start of Year 181,989240,087 Expected Return on Embedded Value 12,73621,123 Value of New Business in the Period 12,04717,713 Operating Experience Variance 1,075(560 ) Investment Experience Variance 51,92319,590 Methodology, Model and Assumption Changes 3,269(1,155 ) Market Value Adjustment ( 4,1814,283) Exchange Gains or Losses ( 1,03228) Shareholder Dividend Distribution ( 3,9576,500) Other ( 1,301757) Embedded Value as at 31 December 2007Dec 2009 (sum A through J) 252,568285,229 Notes: 1) 2) Items B through J are explained below: B Reflects 11.5%unwinding of the opening value of in-force business and value of new business sales in 20072009 plus the expected return on investments supporting the 20072009 opening net worth. C Value of new business sales in 2007.2009.
D | Reflects the difference between actual |
E | Compares actual with expected investment returns during |
F | Reflects the effect of projection method, model enhancements |
G | Change in the market value adjustment from the beginning of year |
H | Reflect the gains or losses due to change in exchange rate. |
I | Reflects dividends distributed to shareholders during |
J | Other miscellaneous items. |
Base case scenario Risk discount rate of 12.5% Risk discount rate of 10.5% 10% increase in investment return 10% decrease in investment return 10% increase in expenses 10% decrease in expenses 10% increase in mortality rate for non-annuity products and 10% decrease in mortality rate for annuity products 10% decrease in mortality rate for non-annuity products and 10% increase in mortality rate for annuity products 10% increase in lapse rates 10% decrease in lapse rates 10% increase in morbidity rates 10% decrease in morbidity rates Solvency margin at 150% of statutory minimum 10% increase in claim ratio of short term business 10% decrease in claim ratio of short term business 115 VALUE OF IN- VALUE OF ONE FORCE BUSINESS YEAR’S SALES Scenarios 1-16: Assuming the method to AFTER COST OF AFTER COST OF determine taxable income for 2009 and thereafter SOLVENCY SOLVENCY was the same as that in 2008 MARGIN MARGIN Base case scenario 125,282 17,713 118,536 16,706 132,544 18,800 148,993 20,492 101,664 14,958 123,264 16,211 127,297 19,215 123,782 17,581 126,802 17,847 123,681 17,461 126,962 17,974 123,562 17,546 127,016 17,882 125,029 17,200 125,534 18,227 113,229 15,894 126,117 17,994 120,004 17,227 Adjusted Net Worth Base Case Scenario 159,948 156,112 Note: Scenarios 17 and 18 reflect the sensitivity to a different approach in determining the taxable income. Value of In-force
Business after Cost of
Solvency Margin Value of One Year’s
Sales after Cost of
Solvency Margin 84,393 12,047 76,252 10,706 93,750 13,606 99,478 14,186 69,314 9,884 83,254 11,214 85,532 12,815 83,362 11,909 85,437 12,185 82,863 11,776 86,010 12,335 83,238 11,895 85,557 12,200 77,373 10,712 84,208 11,674 84,578 12,420
To:
of China Life Insurance Company Limited
Tillinghast’swork
the results of China Life’s calculations
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Tillinghast’s opinion has relied
Tillinghast insurance consulting businessbehalf of Towers Perrin
| ||||
| ||||
| THE OFFER AND LISTING. |
Price per H Share (HK$) | Price per ADS(1) (US$) | Price per A share (RMB) | ||||||||||||
High | Low | High | Low | High | Low | |||||||||
Annual | ||||||||||||||
2003 | 6.4000 | 4.5250 | 13.03 | 8.61 | — | — | ||||||||
2004 | 6.5500 | 3.8500 | 12.96 | 7.49 | — | — | ||||||||
2005 | 6.9000 | 4.8500 | 13.49 | 9.45 | — | — | ||||||||
2006 | 27.2000 | 7.0500 | 52.18 | 13.76 | — | — | ||||||||
2007 | 52.0000 | 19.2600 | 106.56 | 36.70 | 75.0800 | (2) | 32.0400 | (2) | ||||||
Quarterly | ||||||||||||||
First Quarter, 2006 | 10.1500 | 7.0500 | 19.34 | 13.76 | — | — | ||||||||
Second Quarter, 2006 | 12.8500 | 9.9000 | 24.54 | 19.28 | — | — | ||||||||
Third Quarter, 2006 | 16.0000 | 12.0000 | 31.13 | 23.12 | — | — | ||||||||
Fourth Quarter, 2006 | 27.2000 | 15.3400 | 52.18 | 29.33 | — | — | ||||||||
First Quarter, 2007 | 28.3000 | 19.2600 | 55.75 | 36.70 | 46.8600 | (2) | 32.0400 | (2) | ||||||
Second Quarter, 2007 | 28.9500 | 22.4000 | 55.37 | 43.20 | 44.9100 | 33.9600 | ||||||||
Third Quarter, 2007 | 44.6500 | 27.6000 | 86.22 | 52.55 | 62.4100 | 39.2800 | ||||||||
Fourth Quarter, 2007 | 52.0000 | 39.0000 | 106.56 | 74.03 | 75.0800 | 52.9000 | ||||||||
First Quarter, 2008 | 39.8500 | 25.1500 | 76.75 | 50.00 | 58.9700 | 26.7100 | ||||||||
Monthly | ||||||||||||||
October 2007 | 52.0000 | 45.6500 | 106.56 | 86.66 | 75.0800 | 67.0400 | ||||||||
November 2007 | 44.6500 | 39.0000 | 96.75 | 75.37 | 73.0500 | 52.9000 | ||||||||
December 2007 | 51.8500 | 39.0000 | 88.24 | 74.03 | 61.0500 | 54.7500 | ||||||||
January 2008 | 39.8500 | 27.6000 | 76.75 | 55.75 | 58.9700 | 39.2300 | ||||||||
February 2008 | 32.2500 | 28.0000 | 61.46 | 55.26 | 43.6000 | 35.4400 | ||||||||
March 2008 | 30.1000 | 25.1500 | 58.26 | 50.00 | 39.1000 | 26.7100 | ||||||||
April 2008 (through April 23, 2008) | 31.3000 | 27.2000 | 63.82 | 54.74 | 32.6600 | 27.0300 |
Price per H Share | Price per ADS(1) | Price per A share | ||||||||||||||||||||||
(HK$) | (US$) | (RMB) | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Annual | ||||||||||||||||||||||||
2005 | 6.9000 | 4.8500 | 13.49 | 9.45 | — | — | ||||||||||||||||||
2006 | 27.2000 | 7.0500 | 52.18 | 13.76 | — | — | ||||||||||||||||||
2007 | 52.0000 | 19.2600 | 106.56 | 36.70 | 75.0800 | (2) | 32.0400 | (2) | ||||||||||||||||
2008 | 39.8500 | 16.7000 | 76.75 | 33.57 | 58.9700 | 18.1500 | ||||||||||||||||||
2009 | 41.0000 | 19.9000 | 79.86 | 38.34 | 33.1800 | 18.6700 | ||||||||||||||||||
Quarterly | ||||||||||||||||||||||||
First Quarter, 2008 | 39.8500 | 25.1500 | 76.75 | 50.00 | 58.9700 | 26.7100 | ||||||||||||||||||
Second Quarter, 2008 | 35.3500 | 27.2000 | 68.35 | 52.18 | 36.5900 | 23.9200 | ||||||||||||||||||
Third Quarter, 2008 | 30.4000 | 25.4000 | 59.09 | 48.79 | 27.6400 | 18.9700 | ||||||||||||||||||
Fourth Quarter, 2008 | 29.5000 | 16.7000 | 57.00 | 33.57 | 23.7900 | 18.1500 | ||||||||||||||||||
First Quarter, 2009 | 26.4500 | 19.9000 | 51.56 | 38.34 | 24.0300 | 18.6700 | ||||||||||||||||||
Second Quarter, 2009 | 30.5000 | 25.4500 | 59.39 | 50.10 | 27.7500 | 22.6200 | ||||||||||||||||||
Third Quarter, 2009 | 36.1500 | 28.6000 | 70.09 | 54.83 | 34.0100 | 25.1000 | ||||||||||||||||||
Fourth Quarter, 2009 | 41.0000 | 32.8000 | 79.86 | 63.16 | 33.1800 | 28.3800 | ||||||||||||||||||
First Quarter, 2010 | 39.3000 | 32.6000 | 76.14 | 62.50 | 31.4200 | 26.6900 | ||||||||||||||||||
Monthly | ||||||||||||||||||||||||
October 2009 | 37.1000 | 32.8000 | 72.63 | 63.16 | 31.5400 | 28.3800 | ||||||||||||||||||
November 2009 | 40.7500 | 36.2000 | 78.85 | 70.64 | 32.3000 | 29.5100 | ||||||||||||||||||
December 2009 | 41.0000 | 36.3000 | 79.86 | 70.97 | 31.1800 | 29.1000 | ||||||||||||||||||
January 2010 | 39.3000 | 33.8000 | 76.14 | 65.04 | 31.4200 | 27.0500 | ||||||||||||||||||
February 2010 | 34.8500 | 32.6000 | 67.48 | 62.50 | 28.0900 | 26.6900 | ||||||||||||||||||
March 2010 | 37.3500 | 34.2000 | 72.04 | 67.25 | 28.7300 | 27.0200 | ||||||||||||||||||
April 2010 (through April 23, 2010) | 38.2000 | 36.3000 | 74.79 | 70.17 | 29.2800 | 27.1300 |
(1) | Each ADS represented 40 H shares until December 29, 2006 when the ratio was altered such that each ADS represented 15 H shares. The market quotations shown in the table above have been restated for all periods to reflect the current ratio of 15 H shares per ADS. |
(2) | From the date of listing: January 9, 2007. |
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ITEM 10. | ADDITIONAL INFORMATION. |
Our
In additionpurported to be complete. For further information, you should refer to the A share offering, the amendment addressed, among others, the following aspects:
alterationfull text of our registered capitalarticles of association and shareholding structure;
regulations on the proceedings of shareholders’ annual general meetings;
regulations on the election and appointment of directors and supervisors;
regulations on the rights and obligations of shareholders, directors, supervisors, president, vice-president and other senior management;
provisions in relation to the rules and procedurestexts of the shareholders’ general meetings, board meetings and supervisory committee meetings; and
other provisions as required by any applicable laws and regulations for complying with A shares in issue.
It is proposed that a special resolution be passed at the shareholders’ annual general meeting to be held on May 28, 2008 to authorize our board of directors to issue additional shares,
Purposes
The following is a summary of information relating to our share capital, based upon provisions of our articles of association and the PRC company law. You should refer to the text of our articles of association and to the texts of applicable laws and regulations for further information.
Our share capital consists of A shares and H shares, including the H shares represented by ADSs. They are all ordinary shares in our share capital. The par value of both our A shares and H shares is RMB 1.00 per share. A shares are the RMB ordinary shares that are listed on the SSE, and may only be subscribed for by, and traded among, legal or natural persons of the PRC and certain qualified foreign institutional investors, and must be subscribed for and traded in Renminbi. We must pay all dividends on A shares in Renminbi. H shares are “overseas listed foreign-invested shares” that have been admitted for listing on the Hong Kong Stock Exchange, the par value of which is denominated in Renminbi, and that are subscribed for and traded in Hong Kong dollars by and among investors of Hong Kong, Macau, Taiwan and any country other than the PRC. H shares may also be listed on a stock exchange in the United States in the form of American depositary shares evidenced by American depositary receipts.
Holders of A shares and H shares are deemed to be shareholders of different classes for various matters which may affect their respective interests. For instance, if we propose an increase in A shares, holders of H shares will be entitled to vote on that proposal as a separate class. See “—Voting Rights and Shareholders’ Meetings”.
As of the date of this annual report, our total share capital consisted of 20,823,530,000 A shares and 7,441,175,000 H shares.
Our global offering in 2003 consisted solely of an offering of H shares and ADSs representing H shares. Consequently, the following discussion primarily concerns H shares and the rights of holders of H shares. The
holders of ADSs will not be treated as our shareholders and will be required to surrender their ADSs for cancellation and withdrawal from the depositary facility in which the H shares are held in order to exercise rights as holders of H shares. The depositary agreed, so far as it is practical, to vote or cause to be voted the amount of H shares represented by ADSs in accordance with the non-discretionary written instructions of the holders of such ADSs.
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Hong Kong International Arbitration Center. If an applicant chooses to have the dispute arbitrated at the Hong Kong International Arbitration Center, either party may request that venue be changed to Shenzhen, a city in mainland China near Hong Kong. The governing law for the above-mentioned disputes or claims is Chinese law unless otherwise provided by Chinese law. Our articles of association provide that anyAny such arbitration will be final and conclusive.
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and payment of debts out of our remaining assets shall be made in the order of priority prescribed by applicable laws and regulations or, if no such standards exist, in accordance with such procedures as the liquidation committee that has been appointed either by us or the People’s Courts of China may consider to be fair and reasonable. After payment of debts, we shall distribute the remaining property to shareholders in proportion to the number of shares they hold.
board of supervisors.
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It is proposed that a
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You may not individually or with your nominees
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shareholders of the corporation, unless the corporation opted out of the relevant Delaware business combination statute. Under Delaware law, an interested shareholder of a corporation is someone who, together with its affiliates and associates, owns more than 15% of the outstanding common shares of the corporation. No such business combination statute or regulation applies to PRC joint stock companies.
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July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. On the same day, the value of the Renminbi appreciated by 2.0% against the U.S. dollar. Since then, the PRC government has made, and may in the future make, further adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity for the trading against the Renminbi on the following working day.
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individual who is not a resident of China, the receipt of dividends from a company in China is normally subject to a withholding tax of 20% unless reduced by an applicable tax treaty. However, the Chinese State Administration of Taxation, or the SAT, the Chinese central government tax authority which succeeded the State Tax Bureau, issued, on July 21, 1993, a Notice of the Chinese State Administration of Taxation Concerning the Taxation of Gains on Transfer and Dividends from Share (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals, or the Tax Notice, which states that dividends paid by a Chinese company to individuals with respect to shares listed on an overseas stock exchange, or Overseas Shares, such as H shares, are temporarily not subject to Chinese withholding tax. The relevant tax authority has not collected withholding tax on dividend payments on Overseas Shares, including H shares and ADSs.
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accordance with tax treaties.
Overseas Shares would, temporarily, not be subject to capital gains taxes. With respect to individual holders of H shares, the Provisions for Implementation of Individual Income Tax Law of China, as amended, orpreferential tax policies defined under the Provisions, stipulated that income tax on gains realized on the sale of equity shares would be regulated in separate rules to be draftedaforesaid circular issued by the Ministry of Finance. However, no income tax on gains realizedFinance and the SAT.
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gain tax for the net income of transfer of the overseas shares issued by enterprises in the PRC.
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paid to non-resident individuals on H shares or ADSs, asuch U.S. Holder shouldHolders may be entitled, at its option, to either a deduction or a tax credit for the amount paid or withheld. There are significant and complex limitations that apply to foreign tax credits. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and U.S. Holders are urged to consult their own U.S. tax advisers with respect to foreign tax credit considerations in their individual circumstances.
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ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
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Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | value | ||||||||||||||||||||||||
(RMB in millions, except as otherwise stated) | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | ||||||||||||||||||||||||||||||||
Fixed rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 4,206 | 32,650 | 5,521 | 7,824 | 20,552 | 480,981 | 551,734 | 550,128 | ||||||||||||||||||||||||
Average interest rate | 3.68 | % | 4.57 | % | 4.74 | % | 4.66 | % | 4.75 | % | 4.36 | % | 4.39 | % | ||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
in HK$ | — | — | — | — | — | 7 | 7 | 7 | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | 5.38 | % | 5.38 | % | |||||||||||||||||||||||
Variable rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 3,784 | 1,746 | 1,008 | 5,073 | 3,219 | 8,362 | 23,192 | 23,546 | ||||||||||||||||||||||||
Average interest rate | 4.76 | % | 5.33 | % | 5.10 | % | 4.98 | % | 5.62 | % | 4.68 | % | 4.96 | % | ||||||||||||||||||
in US$ | 854 | — | — | 2,048 | — | — | 2,902 | 2,902 | ||||||||||||||||||||||||
Average interest rate | 0.99 | % | — | — | 1.41 | % | — | — | 1.29 | % | ||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in RMB | 77,580 | 19,200 | 36,400 | 78,367 | 58,850 | 64,500 | 337,897 | 337,897 | ||||||||||||||||||||||||
Average interest rate | 2.69 | % | 4.34 | % | 3.78 | % | 4.06 | % | 3.64 | % | 3.76 | % | 3.60 | % | ||||||||||||||||||
in US$ | 6,813 | — | — | — | — | — | 6,813 | 6,813 | ||||||||||||||||||||||||
Average interest rate | 3.18 | % | — | — | — | — | — | 3.18 | % | |||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | 273 | — | — | — | 273 | 272 | ||||||||||||||||||||||||
Average interest rate | — | — | 0.95 | % | — | — | — | 0.95 | % | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 33,553 | — | — | — | — | — | 33,553 | 33,553 | ||||||||||||||||||||||||
Average interest rate | 1.84 | % | — | — | — | — | — | 1.84 | % | |||||||||||||||||||||||
Investment contracts | 2,035 | 1,043 | 1,118 | 657 | 2,144 | 60,329 | 67,326 | 66,184 | ||||||||||||||||||||||||
Average interest rate | 2.02 | % | 1.34 | % | 1.39 | % | 2.50 | % | 2.50 | % | 2.35 | % | 2.32 | % |
Expected Maturity Date | |||||||||||||||||||
As of December 31, 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | Fair value | |||||||||||
(RMB in millions, except as otherwise stated) | |||||||||||||||||||
Assets | |||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | |||||||||||||||||||
Fixed rate bonds | |||||||||||||||||||
in RMB | 3,477 | 22,257 | 4,181 | 26,336 | 8,769 | 351,885 | 416,905 | 412,631 | |||||||||||
Average interest rate | 4.11% | 4.35% | 4.31% | 4.40% | 4.31% | 4.30 | % | 4.31 | % | ||||||||||
in US$ | 15 | — | — | — | — | — | 15 | 15 | |||||||||||
Average interest rate | 3.65% | — | — | — | — | — | 3.65 | % | |||||||||||
Variable rate bonds | |||||||||||||||||||
in RMB | 16 | 3,600 | 4,417 | 1,404 | 854 | 6,770 | 17,061 | 17,221 | |||||||||||
Average interest rate | 3.62% | 5.97% | 6.29% | 4.89% | 4.84% | 4.79 | % | 5.44 | % | ||||||||||
in US$ | — | — | 913 | — | — | 2,191 | 3,104 | 3,104 | |||||||||||
Average interest rate | — | — | 5.75% | — | — | 5.94 | % | 5.89 | % | ||||||||||
Term deposits (excluding structured deposits) | |||||||||||||||||||
in RMB | 46,487 | 41,200 | 6,380 | 4,500 | 41,000 | 24,462 | 164,029 | 164,029 | |||||||||||
Average interest rate | 5.38% | 6.00% | 5.99% | 4.33% | 5.47 | % | 5.73 | % | 5.60 | % | |||||||||
in US$ | 219 | — | — | — | — | — | 219 | 219 | |||||||||||
Average interest rate | 4.11% | — | — | — | — | — | 4.11 | % | |||||||||||
Structured deposits(1) | |||||||||||||||||||
in US$ | — | — | — | — | 292 | 4,054 | 4,346 | 4,281 | |||||||||||
Average interest rate | — | — | — | — | 5.55 | % | 8.01 | % | 7.85 | % | |||||||||
Securities purchased under agreements to resell | |||||||||||||||||||
in RMB | 5,053 | — | — | — | — | — | 5,053 | 5,053 | |||||||||||
Average interest rate | 2.44% | — | — | — | — | — | 2.44 | % | |||||||||||
Liabilities | |||||||||||||||||||
Securities sold under agreements to repurchase | 100 | — | — | — | — | — | 100 | 100 | |||||||||||
Average interest rate | 2.01% | — | — | — | — | — | 2.01 | % | — | ||||||||||
Long-term investment type insurance contracts (excluding universal life contracts) | 55,448 | 41,294 | 33,170 | 50,606 | 50,744 | 51,383 | 282,645 | 271,523 | |||||||||||
Average interest rate | 2.00% | 2.01% | 2.91% | 2.96% | 2.90 | % | 3.13 | % | 2.65 | % | |||||||||
Investment contracts | 4,053 | 900 | 1,134 | 677 | 1,257 | 43,281 | 51,302 | 41,866 | |||||||||||
Average interest rate | 2.34% | 2.08% | 1.96% | 2.54% | 2.53 | % | 2.55 | % | 2.51 | % |
143
Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | value | ||||||||||||||||||||||||
(RMB in millions, except as otherwise stated) | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | ||||||||||||||||||||||||||||||||
Fixed rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 28,157 | 3,202 | 52,559 | 8,386 | 17,379 | 405,956 | 515,638 | 553,271 | ||||||||||||||||||||||||
Average interest rate | 4.23 | % | 4.50 | % | 4.57 | % | 4.33 | % | 4.59 | % | 4.34 | % | 4.37 | % | ||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Variable rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 3,600 | 3,845 | 1,861 | 1,216 | 6,557 | 11,224 | 28,303 | 28,641 | ||||||||||||||||||||||||
Average interest rate | 6.06 | % | 4.94 | % | 4.86 | % | 5.04 | % | 4.87 | % | 4.90 | % | 5.05 | % | ||||||||||||||||||
in US$ | — | 854 | — | — | 2,050 | — | 2,905 | 2,905 | ||||||||||||||||||||||||
Average interest rate | — | 3.15 | % | — | — | 3.49 | % | — | 3.39 | % | ||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in RMB | 59,700 | 18,080 | 19,200 | 39,400 | 78,367 | 5,699 | 220,446 | 220,446 | ||||||||||||||||||||||||
Average interest rate | 3.95 | % | 4.13 | % | 4.34 | % | 3.79 | % | 4.06 | % | 3.97 | % | 4.01 | % | ||||||||||||||||||
in US$ | 4,921 | — | — | — | — | — | 4,921 | 4,921 | ||||||||||||||||||||||||
Average interest rate | 6.00 | % | — | — | — | — | — | 6.00 | % | |||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | — | 273 | — | 2,632 | 2,905 | 2,887 | ||||||||||||||||||||||||
Average interest rate | — | — | — | 3.65 | % | — | 8.09 | % | 7.67 | % | ||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 11,390 | — | — | — | — | — | 11,390 | 11,390 | ||||||||||||||||||||||||
Average interest rate | 1.14 | % | — | — | — | — | — | 1.14 | % | |||||||||||||||||||||||
Investment contracts | 2,258 | 947 | 1,088 | 783 | 1,274 | 46,879 | 53,229 | 51,212 | ||||||||||||||||||||||||
Average interest rate | 2.31 | % | 2.15 | % | 1.58 | % | 2.50 | % | 2.50 | % | 2.47 | % | 2.44 | % |
(1) | assuming the interest rates are within the specified ranges and the deposits are not terminated earlier by the banks. |
As of December 31, 2006 Assets Held-to-maturity and available-for-sale debt securities Fixed rate bonds in RMB Average interest rate in US$ Average interest rate Variable rate bonds in RMB Average interest rate in US$ Average interest rate Term deposits (excluding structured deposits) in RMB Average interest rate in US$ Average interest rate Structured deposits(1) in US$ Average interest rate Liabilities Securities sold under agreements to repurchase Average interest rate Long-term investment type insurance contracts (excluding universal life contracts) Average interest rate Investment contracts Average interest rate144 Expected Maturity Date 2007 2008 2009 2010 2011 Thereafter Total Fair
value (RMB in millions, except as otherwise stated) 7,104 3,958 28,523 5,103 29,151 258,862 332,701 344,253 3.45 % 3.41 % 3.94 % 2.79 % 4.13 % 3.96 % 3.93 % — 16 — — — — 16 16 — 3.65 % — — — — 3.65 % 431 16 6,236 2,555 1,966 6,187 17,391 17,570 2.89 % 3.15 % 5.06 % 3.95 % 3,73 % 3.74 % 4.22 % — — — 976 — 2,343 3,319 3,319 — — — 4.69 % — 5.88 % 5.53 % 54,806 46,487 41,200 6,380 17,600 999 167,472 167,472 4.24 % 3.84 % 4.38 % 4.38 % 3.85 % 5.77 % 4.14 % 3,124 234 — — — — 3,358 3,358 5.67 % 4.11 % — — — — 5.56 % — — — — — 4,646 4,646 4,419 — — — — — 7.46 % 7.46 % 8,227 — — — — — 8,227 8,227 2.36 % — — — — — 2.36 % 49,555 55,975 44,115 36,572 53,954 42,349 282,520 276,129 2.01 % 2.00 % 2.01 % 2.92 % 2.95 % 3.10 % 2.47 % 2,773 1,105 1,461 957 1,050 41,266 48,612 42,034 2.41 % 1.79 % 1.80 % 2.51 % 2.51 % 2.51 % 2.47 %
As of December 31, | ||||||||
2006 | 2007 | |||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||
(RMB in millions) | ||||||||
Equity securities | 95,493 | 95,493 | 195,147 | 195,147 | ||||
Financial assets at fair value through income (held-for-trading) | 32,898 | 32,898 | 19,014 | 19,014 | ||||
Available-for-sale | 62,595 | 62,595 | 176,133 | 176,133 |
2008.
As of December 31, | ||||||||||||||||
2008 | 2009 | |||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||
(RMB in millions) | ||||||||||||||||
Equity securities | 75,082 | 75,082 | 179,416 | 179,416 | ||||||||||||
Financial assets at fair value through income (held for trading) | 6,363 | 6,363 | 2,742 | 2,742 | ||||||||||||
Available-for-sale | 68,719 | 68,719 | 176,674 | 176,674 |
145
Expected Maturity Date | |||||||||||||||||||||
As of December 31, 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | Fair value | |||||||||||||
(in millions) | |||||||||||||||||||||
Debt securities | |||||||||||||||||||||
in US$ | 2 | — | 125 | — | — | 300 | 427 | 427 | |||||||||||||
Average interest rate | 3.65 | % | — | 5.75 | % | — | — | 5.94 | % | 5.87 | % | ||||||||||
Term deposits (excluding structured deposits) | |||||||||||||||||||||
in US$ | 30 | — | — | — | — | — | 30 | 30 | |||||||||||||
Average interest rate | 4.11 | % | — | — | — | — | — | 4.11 | % | ||||||||||||
Structured deposits(1) | |||||||||||||||||||||
in US$ | — | — | — | — | 40 | 555 | 595 | 586 | |||||||||||||
Average interest rate | — | — | — | — | 5.55 | % | 8.01 | % | 7.85 | % | |||||||||||
Cash and Cash equivalents | |||||||||||||||||||||
in US$ | 937 | — | — | — | — | — | 937 | 937 | |||||||||||||
Average interest rate | 5.29 | % | — | — | — | — | — | 5.29 | % | ||||||||||||
in HK$ | 48 | — | — | — | — | — | 48 | 48 | |||||||||||||
Average interest rate | 1.67 | % | — | — | — | — | — | 1.67 | % |
As of December 31, 2006 Debt securities in US$ Average interest rate Term deposits (excluding structured deposits) in US$ Average interest rate Structured deposits(1) in US$ Average interest rate Cash and Cash equivalents in US$ Average interest rate in HK$ Average interest rate Expected Maturity Date 2007 2008 2009 2010 2011 Thereafter Total Fair
value (in millions) — 2 — 125 — 300 427 427 — 3.65 % — 4.69 % — 5.88 % 5.52 % 400 30 — — — — 430 430 5.67 % 4.11 % — — — — 5.56 % — — — — — 595 595 566 — — — — — 7.46 % 7.46 % 651 — — — — — 651 651 5.36 % — — — — — 5.36 % 82 — — — — — 82 82 3.62 % — — — — — 3.62 %
Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | value | ||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
in US$ | — | 125 | — | — | 300 | — | 425 | 425 | ||||||||||||||||||||||||
Average interest rate | — | 3.15 | % | — | — | 3.49 | % | — | 3.39 | % | ||||||||||||||||||||||
in HK$ | — | — | — | — | — | 8 | 8 | 8 | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | 5.38 | % | 5.38 | % | |||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in US$ | 998 | — | — | — | — | — | 998 | 998 | ||||||||||||||||||||||||
Average interest rate | 3.18 | % | — | — | — | — | — | 3.18 | % | |||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | 40 | — | — | — | 40 | 40 | ||||||||||||||||||||||||
Average interest rate | — | — | 0.95 | % | — | — | — | 0.95 | % | |||||||||||||||||||||||
Cash and Cash equivalents | ||||||||||||||||||||||||||||||||
in US$ | 5 | — | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||
Average interest rate | 1.95 | % | — | — | — | — | — | 1.95 | % | |||||||||||||||||||||||
in HK$ | 341 | — | — | — | — | — | 341 | 341 | ||||||||||||||||||||||||
Average interest rate | 0.00 | % | — | — | — | — | — | 0.00 | % |
(1) | assuming the interest rates are within the specified range and the deposits are not terminated earlier by the banks. |
146 Expected Maturity Date Fair As of December 31, 2008 2009 2010 2011 2012 2013 Thereafter Total value (in millions) in US$ — 125 — — 300 — 425 425 Average interest rate — 3.15 % — — 3.49 % — 3.39 % in US$ 720 — — — — — 720 720 Average interest rate 6.00 % — — — — — 6.00 % in US$ — — — 40 — 385 425 425 Average interest rate — — — 3.65 % — 8.09 % 7.67 % in US$ 1,205 — — — — — 1,205 1,205 Average interest rate 3.57 % — — — — — 3.57 % in HK$ 579 — — — — — 579 579 Average interest rate 0.10 % — — — — — 0.10 % ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. OTHER THAN EQUITY SECURITIES.
Category | Depositary Actions | Associated Fee | ||
(a) Depositing or substituting the underlying shares | Each person to whom ADRs are issued against deposits of shares, including deposits and issuances in respect of: • share distributions, rights, merger • exchange of securities or any other transaction or event or other distribution affecting the ADSs or the deposited securities | US$5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered | ||
(b) Receiving or distributing dividends | Distribution of dividends | US$0.02 or less per ADS | ||
(c) Selling or exercising rights | Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities | US$5.00 for each 100 ADSs (or portion thereof) | ||
(d) Withdrawing an underlying security | Acceptance of ADRs surrendered for withdrawal of deposited securities | US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered | ||
(e) Transferring, splitting or grouping receipts | Transfers, combining or grouping of depositary receipts | US$1.50 per ADS | ||
(f) Expenses of the depositary | Expenses incurred on behalf of ADR holders in connection with: • compliance with foreign exchange control regulations or any law or regulation relating to foreign investment; • the depositary’s or its custodian’s compliance with applicable law, rule or regulation; • stock transfer or other taxes and other governmental charges; • cable, telex, facsimile transmission and delivery; • expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency); and • any other charge payable by depositary or its agents. | Expenses payable at the sole discretion of the depositary by billing ADR holders or by deducting charges from one or more cash dividends or other cash distributions. |
Amount Reimbursed from | ||||
Category of Expenses | January 1, 2009 to January 3, 2010 | |||
Investor relations(1) | US$ | 262,627.05 | ||
Broker reimbursements(2) | US$ | 42,400.65 | ||
Total | US$ | 305,027.70 |
(1) | Includes expenses related to announcement of results, ADR training programs, non-deal roadshows and investor relations activities. | |
(2) | Broker reimbursements are fees payable to Broadridge and other service providers for the distribution of hard copy material to beneficial ADR holders holding in the Depositary Trust Company. Corporate material includes information related to shareholders’ meetings and related voting instruction cards. These fees are SEC approved. |
147
Category of Expenses | Amount Reimbursed from January 4, 2010 to April 23, 2010 | |||
NYSE listing fees | US$ | 38,000.00 | ||
Legal fees(1) | US$ | 69,363.12 | ||
Investor relations(2) | US$ | 23,410.00 | ||
Total | US$ | 130,773.12 |
(1) | Includes legal expenses related to change of our depositary bank. | |
(2) | Includes expenses related to a investor relations conference in Japan. |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. |
148
ITEM 15. | CONTROLS AND PROCEDURES. |
2009.
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable generally accepted accounting principles. The Group’sCompany’s internal control over financial reporting includes those policies and procedures that:
149
2009.
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Employees”.
ITEM 16B. | CODE OF ETHICS. |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees | |||||||||||||
(RMB in millions) | ||||||||||||||||
2009 | 69.50 | (1) | — | — | — | |||||||||||
2008 | 64 | (1) | — | — | — |
(1) | |||||||||
| |||||||||
|
Audit fees include fees billed for professional services rendered for audits of the consolidated financial statements, review of interim financial statements, statutory audits of China Life and its subsidiaries. |
150
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. |
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT. |
ITEM 16G. | CORPORATE GOVERNANCE. |
151
152
153
ITEM 17. | FINANCIAL STATEMENTS. |
ITEM 18. | FINANCIAL STATEMENTS. |
EXHIBIT INDEX
| EXHIBITS. |
154
No. | Description of Exhibit | |||
1.1 | Amended and Restated Articles of Association of the Registrant | |||
2.1 | Form of H share certificate(1) | |||
2.2 | Form of Deposit Agreement, including the Form of American Depositary Receipt(2) | |||
4.1 | Restructuring Agreement(1) | |||
4.2 | Trademark License Agreement(1) | |||
4.3 | Policy Management Agreement | |||
4.4 | Asset Management Agreement between China Life Insurance Company Limited and China Life | |||
4.5 | Asset Management Agreement between China Life Insurance (Group) Company and China Life | |||
4.6 | Property Leasing Agreement | |||
4.7 | Non-Competition Agreement(1) | |||
4.8 | Confirmation Letter to Renew Policy Management Agreement | |||
4.9 | Agreement for Assignment of Rights and Obligations under Property Leasing Agreement(5) | |||
4.10 | Capital Injection Agreement between China Life Insurance Company Limited and China Life Pension Insurance Company Limited(5) | |||
4.11 | Capital Injection Agreement between China Life Insurance Company Limited and China Life Property and Casualty Insurance Company Limited(5) | |||
4.12 | Capital Injection Agreement among China Life Insurance Company Limited, China Life Insurance (Group) Company and China Life Asset Management Company Limited(5) | |||
4.13 | Entrustment and Account Management Agreement for Corporate Annuity Fund | |||
8.1 | List of subsidiaries of the Registrant | |||
11.1 | Code of Business Conduct and Ethics | |||
12.1 | Certification pursuant to Rule 13a-14(a) | |||
12.2 | Certification pursuant to Rule 13a-14(a) | |||
13.1 | Certification pursuant to Rule 13a-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code |
(1) | Incorporated by reference to the Registration Statement on Form F-1 (File No. 333-110615), filed with the Commission on December 9, 2003. |
(2) | Incorporated by reference to the Registration Statement on Form F-6 (File No. |
(3) |
Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2004, filed with the Commission on May 27, 2005. |
(4) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2005, filed with the Commission on May 30, 2006. |
(5) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, |
SIGNATURES155
China Life Insurance Company Limited | ||||
By: | /s/ Wan Feng | |||
|
| Wan Feng | ||
Title: | President and Executive Director | |||
EXHIBIT INDEX
|
| |
i
F-2 | ||||
F-3 | ||||
F-5 | ||||
F-7 | ||||
F-9 | ||||
F-11 |
F-1
Accounting principles generally accepted in Hong Kong vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 35.
Hong Kong, March 25, 2008
F-2
As at 31 December 2007 | As at 31 December | |||||||||
Note | RMB million | RMB million | ||||||||
ASSETS | ||||||||||
Property, plant and equipment | 6 | 16,771 | 14,565 | |||||||
Deferred policy acquisition costs (“DAC”) | 7 | 40,851 | 39,230 | |||||||
Investments in associates | 8 | 6,450 | 6,071 | |||||||
Financial assets | ||||||||||
Debt securities | 443,181 | 357,898 | ||||||||
—held-to-maturity securities | 9.1 | 195,703 | 176,559 | |||||||
—available-for-sale securities | 9.2 | 241,382 | 176,868 | |||||||
—at fair value through income (held-for-trading) | 9.3 | 6,096 | 4,471 | |||||||
Equity securities | 195,147 | 95,493 | ||||||||
—available-for-sale securities | 9.2 | 176,133 | 62,595 | |||||||
—at fair value through income (held-for-trading) | 9.3 | 19,014 | 32,898 | |||||||
Term deposits | 9.5 | 168,594 | 175,476 | |||||||
Statutory deposits-restricted | 9.6 | 5,773 | 5,353 | |||||||
Loans | 9.7 | 7,144 | 2,371 | |||||||
Securities purchased under agreements to resell | 9.8 | 5,053 | — | |||||||
Accrued investment income | 9.9 | 9,857 | 8,461 | |||||||
Premiums receivables | 11 | 6,218 | 6,066 | |||||||
Reinsurance assets | 12 | 966 | 986 | |||||||
Other assets | 13 | 2,382 | 2,212 | |||||||
Cash and cash equivalents | 25,317 | 50,213 | ||||||||
Total Assets | 933,704 | 764,395 | ||||||||
December 2009
As at 31 | As at 31 | As at 1 | ||||||||||||||
December | December | January | ||||||||||||||
2009 | 2008 | 2008 | ||||||||||||||
Note | RMB million | RMB million | RMB million | |||||||||||||
ASSETS | ||||||||||||||||
Property, plant and equipment | 6 | 17,467 | 16,720 | 15,506 | ||||||||||||
Investments in associates | 7 | 8,470 | 7,891 | 6,449 | ||||||||||||
Financial assets | ||||||||||||||||
Held-to-maturity securities | 8.1 | 235,099 | 211,929 | 195,703 | ||||||||||||
Loans | 8.2 | 23,081 | 17,926 | 7,144 | ||||||||||||
Term deposits | 8.3 | 344,983 | 228,272 | 168,594 | ||||||||||||
Statutory deposits-restricted | 8.4 | 6,153 | 6,153 | 5,773 | ||||||||||||
Available-for-sale securities | 8.5 | 517,499 | 424,939 | 417,515 | ||||||||||||
Securities at fair value through income | 8.6 | 9,133 | 14,099 | 25,110 | ||||||||||||
Securities purchased under agreements to resell | 8.7 | — | — | 5,053 | ||||||||||||
Accrued investment income | 8.8 | 14,208 | 13,149 | 9,857 | ||||||||||||
Premiums receivable | 10 | 6,818 | 6,433 | 6,218 | ||||||||||||
Reinsurance assets | 11 | 832 | 940 | 1,111 | ||||||||||||
Other assets | 12 | 6,317 | 4,957 | 4,990 | ||||||||||||
Cash and cash equivalents | 36,197 | 34,085 | 25,317 | |||||||||||||
Total assets | 1,226,257 | 987,493 | 894,340 | |||||||||||||
F-3
CONSOLIDATED BALANCE SHEET (continued)
AS AT
As at 2007 | As at 31 December 2006 | |||||
Note | RMB million | RMB million | ||||
LIABILITIES AND EQUITY | ||||||
Liabilities | ||||||
Insurance contracts | ||||||
Long-term traditional insurance contracts | 14 | 218,165 | 172,875 | |||
Long-term investment type insurance contracts | 14 | 284,588 | 282,672 | |||
Short-term insurance contracts: | ||||||
—reserves for claims and claim adjustment expenses | 14 | 2,391 | 2,498 | |||
—unearned premium reserves | 14 | 5,728 | 5,346 | |||
Deferred income | 15 | 48,308 | 41,371 | |||
Financial Liabilities | ||||||
Investment contracts | ||||||
—with Discretionary Participation Feature (“DPF”) | 16 | 49,068 | 45,998 | |||
—without DPF | 16 | 2,234 | 2,614 | |||
Securities sold under agreements to repurchase | 17 | 100 | 8,227 | |||
Policyholder dividends payable | 58,344 | 26,057 | ||||
Annuity and other insurance balances payable | 14,111 | 8,891 | ||||
Premiums received in advance | 2,201 | 2,329 | ||||
Other liabilities | 18 | 8,870 | 5,333 | |||
Deferred tax liabilities | 25 | 24,786 | 19,022 | |||
Current income tax liabilities | 8,312 | 843 | ||||
Statutory insurance fund | 19 | 122 | 114 | |||
Total liabilities | 727,328 | 624,190 | ||||
Shareholders’ equity | ||||||
Share capital | 30 | 28,265 | 28,265 | |||
Reserves | 31 | 114,825 | 77,368 | |||
Retained earnings | 62,410 | 34,032 | ||||
Total shareholders’ equity | 205,500 | 139,665 | ||||
Minority interest | 876 | 540 | ||||
Total equity | 206,376 | 140,205 | ||||
Total liabilities and equity | 933,704 | 764,395 | ||||
December 2009
As at 31 | As at 31 | As at 1 | ||||||||||||||
December | December | January | ||||||||||||||
2009 | 2008 | 2008 | ||||||||||||||
Note | RMB million | RMB million | RMB million | |||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||
Liabilities | ||||||||||||||||
Insurance contracts | 13 | 818,164 | 662,865 | 527,507 | ||||||||||||
Financial liabilities | ||||||||||||||||
Investment contracts | 14 | 67,326 | 65,063 | 53,424 | ||||||||||||
Securities sold under agreements to repurchase | 15 | 33,553 | 11,390 | 100 | ||||||||||||
Policyholder dividends payable | 54,587 | 43,178 | 64,473 | |||||||||||||
Annuity and other insurance balances payable | 5,721 | 4,980 | 4,059 | |||||||||||||
Premiums received in advance | 1,804 | 1,811 | 2,201 | |||||||||||||
Other liabilities | 16 | 11,978 | 11,057 | 10,135 | ||||||||||||
Deferred tax liabilities | 24 | 16,361 | 10,344 | 22,997 | ||||||||||||
Current income tax liabilities | 3,850 | 1,668 | 8,312 | |||||||||||||
Statutory insurance fund | 17 | 137 | 266 | 122 | ||||||||||||
Total liabilities | 1,013,481 | 812,622 | 693,330 | |||||||||||||
Shareholders’ equity | ||||||||||||||||
Share capital | 29 | 28,265 | 28,265 | 28,265 | ||||||||||||
Reserves | 30 | 102,787 | 84,447 | 111,276 | ||||||||||||
Retained earnings | 80,020 | 61,235 | 60,593 | |||||||||||||
Total shareholders’ equity | 211,072 | 173,947 | 200,134 | |||||||||||||
Minority interests | 1,704 | 924 | 876 | |||||||||||||
Total equity | 212,776 | 174,871 | 201,010 | |||||||||||||
Total liabilities and equity | 1,226,257 | 987,493 | 894,340 | |||||||||||||
|
| |
|
April 7, 2010.
F-4
2007 | 2006 | 2005 | |||||||||
Note | RMB million | RMB million | RMB million | ||||||||
REVENUES | |||||||||||
Gross written premiums and policy fees (including gross written premiums and policy fees from insurance contracts 2007: RMB 111,286 million, 2006: RMB 98,840 million, 2005: RMB 80,651 million) | 111,886 | 99,417 | 81,022 | ||||||||
Less: premiums ceded to reinsurers | (85 | ) | (140 | ) | (769 | ) | |||||
Net written premiums and policy fees | 111,801 | 99,277 | 80,253 | ||||||||
Net change in unearned premium reserves | (397 | ) | (430 | ) | (215 | ) | |||||
Net premiums earned and policy fees | 111,404 | 98,847 | 80,038 | ||||||||
Net investment income | 20 | 44,020 | 24,942 | 16,685 | |||||||
Net realised gains on financial assets | 21 | 15,385 | 1,595 | (510 | ) | ||||||
Net fair value gains on assets at fair value through income (held-for-trading) | 22 | 18,843 | 20,044 | 260 | |||||||
Other income | 1,720 | 1,883 | 1,739 | ||||||||
Total revenues | 191,372 | 147,311 | 98,212 | ||||||||
BENEFITS, CLAIMS AND EXPENSES | |||||||||||
Insurance benefits and claims | |||||||||||
Life insurance death and other benefits | 23 | (17,430 | ) | (10,797 | ) | (8,311 | ) | ||||
Accident and health claims and claim adjustment expenses | 23 | (6,343 | ) | (6,999 | ) | (6,847 | ) | ||||
Increase in long-term traditional insurance contracts liabilities | 23 | (45,334 | ) | (44,238 | ) | (33,977 | ) | ||||
Interest credited to long-term investment type insurance contracts | 23 | (7,181 | ) | (6,386 | ) | (4,894 | ) | ||||
Interest credited to investment contracts | (1,138 | ) | (996 | ) | (973 | ) | |||||
Increase in deferred income | (9,859 | ) | (11,607 | ) | (8,521 | ) | |||||
Policyholder dividends resulting from participation in profits | (29,251 | ) | (17,617 | ) | (5,359 | ) | |||||
Amortisation of deferred policy acquisition costs | 7 | (13,461 | ) | (10,259 | ) | (7,766 | ) | ||||
Underwriting and policy acquisition costs | (2,725 | ) | (2,415 | ) | (1,845 | ) | |||||
Administrative expenses | (11,798 | ) | (9,339 | ) | (7,237 | ) | |||||
Other operating expenses | (1,651 | ) | (859 | ) | (798 | ) | |||||
Statutory insurance fund | (219 | ) | (194 | ) | (174 | ) | |||||
Total benefits, claims and expenses | (146,390 | ) | (121,706 | ) | (86,702 | ) | |||||
Share of results of associates | 8 | 409 | — | — | |||||||
Net profit before income tax expenses | 24 | 45,391 | 25,605 | 11,510 | |||||||
Income tax expenses | 25 | (6,331 | ) | (5,554 | ) | (2,145 | ) | ||||
Net profit | 39,060 | 20,051 | 9,365 | ||||||||
Attributable to: | |||||||||||
—shareholders of the Company | 38,879 | 19,956 | 9,306 | ||||||||
—minority interest | 181 | 95 | 59 | ||||||||
Basic and diluted earnings per share | 26 | RMB 1.38 | RMB 0.75 | RMB 0.35 | |||||||
Dividends | 28 | 11,871 | 3,957 | 1,338 |
December 2009
2009 | 2008 | |||||||||||
Note | RMB million | RMB million | ||||||||||
REVENUES | ||||||||||||
Gross written premiums | 275,970 | 265,656 | ||||||||||
Less: premiums ceded to reinsurers | (158 | ) | (156 | ) | ||||||||
Net written premiums | 275,812 | 265,500 | ||||||||||
Net change in unearned premium reserves | (735 | ) | (323 | ) | ||||||||
Net premiums earned | 275,077 | 265,177 | ||||||||||
Investment income | 18 | 38,890 | 44,946 | |||||||||
Net realised gains/(losses) on financial assets | 19 | 21,244 | (5,964 | ) | ||||||||
Net fair value gains/(losses) on assets at fair value through income | 20 | 1,449 | (7,194 | ) | ||||||||
Other income | 2,630 | 3,420 | ||||||||||
Total revenues | 339,290 | 300,385 | ||||||||||
BENEFITS, CLAIMS AND EXPENSES | ||||||||||||
Insurance benefits and claims | ||||||||||||
Life insurance death and other benefits | 21 | (74,858 | ) | (89,659 | ) | |||||||
Accident and health claims and claim adjustment expenses | 21 | (7,808 | ) | (7,641 | ) | |||||||
Increase in insurance contracts liabilities | 21 | (154,372 | ) | (134,649 | ) | |||||||
Investment contract benefits | 22 | (2,142 | ) | (1,931 | ) | |||||||
Policyholder dividends resulting from participation in profits | (14,487 | ) | (1,671 | ) | ||||||||
Underwriting and policy acquisition costs | (22,936 | ) | (24,200 | ) | ||||||||
Administrative expenses | (18,719 | ) | (16,652 | ) | ||||||||
Other operating expenses | (2,390 | ) | (3,409 | ) | ||||||||
Statutory insurance fund | (537 | ) | (558 | ) | ||||||||
Total benefits, claims and expenses | (298,249 | ) | (280,370 | ) | ||||||||
Share of results of associates | 7 | 704 | (56 | ) | ||||||||
Net profit before income tax expenses | 23 | 41,745 | 19,959 | |||||||||
Income tax expenses | 24 | (8,709 | ) | (685 | ) | |||||||
Net profit | 33,036 | 19,274 | ||||||||||
Attributable to: | ||||||||||||
- shareholders of the Company | 32,881 | 19,137 | ||||||||||
- minority interests | 155 | 137 | ||||||||||
Basic and diluted earnings per share | 25 | RMB 1.16 | RMB 0.68 | |||||||||
F-5
Attributable to shareholders of the Company | ||||||||||||||
Share (Note 30) | Reserves RMB million (Note 31) | Retained
| Minority
| Total
| ||||||||||
As at 1 January 2005 | 26,765 | 31,573 | 8,192 | 372 | 66,902 | |||||||||
Net profit | — | — | 9,306 | 59 | 9,365 | |||||||||
Appropriation to reserves | — | 1,110 | (1,110 | ) | — | — | ||||||||
Unrealised gains, net of tax | — | 4,542 | — | — | 4,542 | |||||||||
As at 31 December 2005 | 26,765 | 37,225 | 16,388 | 431 | 80,809 | |||||||||
As at 1 January 2006 | 26,765 | 37,225 | 16,388 | 431 | 80,809 | |||||||||
Net profit | — | — | 19,956 | 95 | 20,051 | |||||||||
Issue of shares | 1,500 | 26,820 | — | — | 28,320 | |||||||||
Share issue expenses | — | (510 | ) | — | — | (510 | ) | |||||||
Dividends paid | — | — | (1,338 | ) | — | (1,338 | ) | |||||||
Dividends to minority interest | — | — | — | (8 | ) | (8 | ) | |||||||
Appropriation to reserves | — | 974 | (974 | ) | — | — | ||||||||
Unrealised gains, net of tax | — | 12,859 | — | 22 | 12,881 | |||||||||
As at 31 December 2006 | 28,265 | 77,368 | 34,032 | 540 | 140,205 | |||||||||
As at 1 January 2007 | 28,265 | 77,368 | 34,032 | 540 | 140,205 | |||||||||
Net profit | — | — | 38,879 | 181 | 39,060 | |||||||||
Dividends paid | — | — | (3,957 | ) | — | (3,957 | ) | |||||||
Dividends to minority interest | — | — | — | (42 | ) | (42 | ) | |||||||
Appropriation to reserves | — | 6,544 | (6,544 | ) | — | — | ||||||||
Unrealised gains, net of tax | — | 30,913 | — | 21 | 30,934 | |||||||||
Capital contribution | — | — | — | 179 | 179 | |||||||||
Others | — | — | — | (3 | ) | (3 | ) | |||||||
As at 31 December 2007 | 28,265 | 114,825 | 62,410 | 876 | 206,376 | |||||||||
December 2009
2009 | 2008 | |||||||||||
Note | RMB million | RMB million | ||||||||||
Other comprehensive income/(loss) | ||||||||||||
Available-for-sale financial assets | ||||||||||||
Arising from available-for-sale securities | 39,470 | (61,622 | ) | |||||||||
Reclassification adjustment for gains included in profit or loss | (21,040 | ) | 4,878 | |||||||||
Impact from available-for-sale securities on other assets and liabilities | (3,999 | ) | 11,702 | |||||||||
Share of other comprehensive income/(loss) of associates | (70 | ) | 291 | |||||||||
Others | — | (3 | ) | |||||||||
Income tax relating to components of other comprehensive income/(loss) | 24 | (3,607 | ) | 11,260 | ||||||||
Other comprehensive income/(loss) for the year | 10,754 | (33,494 | ) | |||||||||
Total comprehensive income/(loss) for the year | 43,790 | (14,220 | ) | |||||||||
Attributable to: | ||||||||||||
- shareholders of the Company | 43,626 | (14,316 | ) | |||||||||
- minority interests | 164 | 96 | ||||||||||
F-6
2007 | 2006 | 2005 | |||||||
RMB million | RMB million | RMB million | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
Net profit before income tax expenses: | 45,391 | 25,605 | 11,510 | ||||||
Adjustments for: | |||||||||
Net investment income | (45,803 | ) | (23,495 | ) | (15,059 | ) | |||
Net realised and unrealised gains on financial assets | (34,228 | ) | (21,639 | ) | 250 | ||||
Amortisation of deferred policy acquisition costs | 13,461 | 10,259 | 7,766 | ||||||
Increase in deferred income | 9,859 | 11,614 | 8,570 | ||||||
Interest credited to long-term investment type insurance contracts and investment contracts | 8,319 | 7,382 | 5,867 | ||||||
Policy fees | (7,691 | ) | (7,097 | ) | (6,083 | ) | |||
Depreciation and amortisation | 1,070 | 912 | 948 | ||||||
Amortisation of premiums and discounts | (648 | ) | (267 | ) | (130 | ) | |||
Loss on foreign exchange and impairments | 641 | 642 | 646 | ||||||
Changes in operational assets and liabilities: | |||||||||
Deferred policy acquisition costs | (17,480 | ) | (15,914 | ) | (14,131 | ) | |||
Financial assets at fair value through income (held-for-trading) | 31,187 | 8,943 | (20,321 | ) | |||||
Receivables and payables | 28,626 | 15,412 | 2,804 | ||||||
Reserves for claims and claim adjustment expenses | (107 | ) | 714 | 569 | |||||
Unearned premium reserves | 382 | 199 | (65 | ) | |||||
Long-term traditional insurance contracts | 45,344 | 44,263 | 34,108 | ||||||
Income tax paid | (1,261 | ) | (535 | ) | (279 | ) | |||
Interest received | 26,392 | 18,939 | 14,552 | ||||||
Dividends received | 19,400 | 4,415 | 306 | ||||||
Net cash inflow from operating activities | 122,854 | 80,352 | 31,828 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
Sales and maturities: | |||||||||
Sales of debt securities | 26,891 | 6,635 | 15,094 | ||||||
Maturities of debt securities | 8,548 | 4,129 | 408 | ||||||
Sales of equity securities | 46,829 | 43,363 | 46,555 | ||||||
Property, plant and equipment | 207 | 53 | 31 | ||||||
Purchases: | |||||||||
Debt securities | (134,205 | ) | (122,246 | ) | (102,427 | ) | |||
Equity securities | (80,322 | ) | (52,050 | ) | (58,214 | ) | |||
Property, plant and equipment | (3,388 | ) | (2,742 | ) | (1,484 | ) | |||
Acquisition of associate | — | (6,071 | ) | — | |||||
Term deposits, net | 6,572 | (10,719 | ) | 9,008 | |||||
Securities purchased under agreements to resell, net | (5,053 | ) | — | 279 | |||||
Other | (4,593 | ) | (1,390 | ) | (590 | ) | |||
Net cash outflow from investing activities | (138,514 | ) | (141,038 | ) | (91,340 | ) | |||
December 2009
Attributable to shareholders | ||||||||||||||||||||
of the Company | ||||||||||||||||||||
Retained | Minority | |||||||||||||||||||
Share capital | Reserves | earnings | interests | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Note 29) | (Note 30) | |||||||||||||||||||
As at 1 January 2008 | 28,265 | 111,276 | 60,593 | 876 | 201,010 | |||||||||||||||
Net profit | — | — | 19,137 | 137 | 19,274 | |||||||||||||||
Other comprehensive loss for the year | — | (33,453 | ) | — | (41 | ) | (33,494 | ) | ||||||||||||
Total comprehensive income/(loss) | — | (33,453 | ) | 19,137 | 96 | (14,220 | ) | |||||||||||||
Transactions with owners | ||||||||||||||||||||
Capital contribution | — | — | — | 45 | 45 | |||||||||||||||
Appropriation to reserve | — | 6,624 | (6,624 | ) | — | — | ||||||||||||||
Dividends paid | — | — | (11,871 | ) | — | (11,871 | ) | |||||||||||||
Dividends to minority interests | — | — | (93 | ) | (93 | ) | ||||||||||||||
Total transactions with owners | — | 6,624 | (18,495 | ) | (48 | ) | (11,919 | ) | ||||||||||||
As at 31 December 2008 | 28,265 | 84,447 | 61,235 | 924 | 174,871 | |||||||||||||||
F-7
CONSOLIDATED CASH FLOW STATEMENT (continued)
FOR THE YEAR ENDED
2007 | 2006 | 2005 | |||||||
RMB million | RMB million | RMB million | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
Proceeds from investment in securities sold under agreements to repurchase, net | (8,127 | ) | 3,496 | 4,731 | |||||
Deposits in long-term investment type insurance contracts and investment contracts | 94,227 | 91,441 | 85,946 | ||||||
Withdrawals from long-term investment type insurance contracts and investment contracts | (90,904 | ) | (38,088 | ) | (29,960 | ) | |||
Net proceeds from shares issued | — | 27,810 | — | ||||||
Contribution from minority shareholders | 29 | — | — | ||||||
Dividends paid to Company’s shareholders | (3,957 | ) | (1,338 | ) | — | ||||
Dividends paid to minority interest | (42 | ) | (8 | ) | — | ||||
Cash flow from other financing activities | 45 | — | — | ||||||
Net cash inflow/(outflow) from financing activities | (8,729 | ) | 83,313 | 60,717 | |||||
Net increase/(decrease) in cash and cash equivalents | (24,389 | ) | 22,627 | 1,205 | |||||
Cash and cash equivalents | |||||||||
Beginning of year | 50,213 | 28,051 | 27,217 | ||||||
Foreign currency losses on cash and cash equivalents | (507 | ) | (465 | ) | (371 | ) | |||
End of year | 25,317 | 50,213 | 28,051 | ||||||
Analysis of balance of cash and cash equivalents | |||||||||
Cash at bank and in hand | 18,536 | 45,130 | 12,448 | ||||||
Short-term bank deposits | 6,781 | 5,083 | 15,603 |
December 2009
Attributable to shareholders | ||||||||||||||||||||
of the Company | ||||||||||||||||||||
Retained | Minority | |||||||||||||||||||
Share capital | Reserves | earnings | interests | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Note 29) | (Note 30) | |||||||||||||||||||
As at 1 January 2009 | 28,265 | 84,447 | 61,235 | 924 | 174,871 | |||||||||||||||
Net profit | — | — | 32,881 | 155 | 33,036 | |||||||||||||||
Other comprehensive income for the period | — | 10,745 | — | 9 | 10,754 | |||||||||||||||
Total comprehensive income | — | 10,745 | 32,881 | 164 | 43,790 | |||||||||||||||
Transactions with owners | ||||||||||||||||||||
Capital contribution | — | — | 720 | 720 | ||||||||||||||||
Appropriation to reserve | — | 7,595 | (7,595 | ) | — | — | ||||||||||||||
Dividends paid | — | — | (6,501 | ) | — | (6,501 | ) | |||||||||||||
Dividends to minority interest | — | — | — | (104 | ) | (104 | ) | |||||||||||||
Total transactions with owners | — | 7,595 | (14,096 | ) | 616 | (5,885 | ) | |||||||||||||
As at 31 December 2009 | 28,265 | 102,787 | 80,020 | 1,704 | 212,776 | |||||||||||||||
F-8
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net profit before income tax expenses: | 41,745 | 19,959 | ||||||
Adjustments for: | ||||||||
Investment income | (38,890 | ) | (44,946 | ) | ||||
Net realised and unrealised (gains)/losses on financial assets | (22,693 | ) | 13,158 | |||||
Insurance contracts | 155,252 | 135,284 | ||||||
Depreciation and amortisation | 1,560 | 1,363 | ||||||
Amortisation of premiums and discounts | 10 | (156 | ) | |||||
Loss on foreign exchange and impairments | 28 | 907 | ||||||
Changes in operational assets and liabilities: | ||||||||
Financial assets at fair value through income | 6,435 | 3,977 | ||||||
Receivables and payables | 9,917 | 4,484 | ||||||
Cash generated from operating activities | ||||||||
Income tax paid | (3,995 | ) | (8,583 | ) | ||||
Interest received | 291 | 101 | ||||||
Dividends received | 40 | 529 | ||||||
Net cash inflow from operating activities | 149,700 | 126,077 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Sales and maturities: | ||||||||
Sales of debt securities | 95,197 | 19,594 | ||||||
Maturities of debt securities | 25,730 | 4,187 | ||||||
Sales of equity securities | 101,112 | 59,855 | ||||||
Property, plant and equipment | 420 | 247 | ||||||
Purchases: | ||||||||
Debt securities | (148,559 | ) | (119,989 | ) | ||||
Equity securities | (149,523 | ) | (49,480 | ) | ||||
Property, plant and equipment | (3,261 | ) | (2,950 | ) | ||||
Investment in associate | — | (1,200 | ) | |||||
Term deposits, net | (116,711 | ) | (60,095 | ) | ||||
Securities purchased under agreements to resell, net | 8 | 5,142 | ||||||
Interest received | 34,139 | 30,378 | ||||||
Dividends received | 3,159 | 9,563 | ||||||
Other | (5,462 | ) | (11,162 | ) | ||||
Net cash outflow from investing activities | (163,751 | ) | (115,910 | ) | ||||
F-9
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from investment in securities sold under agreements to repurchase, net | 22,163 | 11,290 | ||||||
Interest paid | (111 | ) | (437 | ) | ||||
Contribution from minority shareholders | 720 | — | ||||||
Dividends paid to the Company’s shareholders | (6,501 | ) | (11,871 | ) | ||||
Dividends paid to minority interests | (104 | ) | (93 | ) | ||||
Net cash inflow/(outflow) from financing activities | 16,167 | (1,111 | ) | |||||
Foreign currency losses on cash and cash equivalents | (4 | ) | (288 | ) | ||||
Net increase in cash and cash equivalents | 2,112 | 8,768 | ||||||
Cash and cash equivalents | ||||||||
Beginning of year | 34,085 | 25,317 | ||||||
End of year | 36,197 | 34,085 | ||||||
Analysis of balance of cash and cash equivalents | ||||||||
Cash at bank and in hand | 23,640 | 20,841 | ||||||
Short-term bank deposits | 12,557 | 13,244 |
F-10
FOR THE YEAR ENDED 31 DECEMBER 2007
1 | ORGANIZATION AND PRINCIPAL ACTIVITIES |
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.1 | First-time Adoption of |
These
Stock Exchange | GAAP | |
Stock Exchange of Hong Kong | Hong Kong Financial Reporting Standards (“HKFRS”) | |
New York Stock Exchange | HKFRS with reconciliations to accounting principles generally accepted in the US (“US GAAP”) | |
Shanghai Stock Exchange | China Accounting Standards (“CAS”) |
F-11
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.1 | First-time Adoption of International Financial Reporting Standards and Statement of Compliance (continued) |
As at 31 December 2008 | ||||||||||||
Assets | Liabilities | Equity | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Under CAS(before adoption of MoF new guidance) | 990,164 | 854,283 | 135,881 | |||||||||
Insurance contracts | 16 | (52,004 | ) | 52,020 | ||||||||
Tax implication | (2,661 | ) | 10,343 | (13,004 | ) | |||||||
Share of insurance associate, net of tax | (26 | ) | — | (26 | ) | |||||||
Under CAS(after adoption of MoF new guidance) | 987,493 | 812,622 | 174,871 | |||||||||
As at 1 January 2008 | ||||||||||||
Assets | Liabilities | Equity | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Under CAS(before adoption of MoF new guidance) | 894,601 | 723,512 | 171,089 | |||||||||
Insurance contracts | (260 | ) | (40,155 | ) | 39,895 | |||||||
Tax implication | — | 9,973 | (9,973 | ) | ||||||||
Share of insurance associate, net of tax | (1 | ) | — | (1 | ) | |||||||
Under CAS(after adoption of MoF new guidance) | 894,340 | 693,330 | 201,010 | |||||||||
F-12
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.1 | First-time Adoption of International Financial Reporting Standards and Statement of Compliance (continued) |
For the year ended 31 December 2008 | ||||
Net profit | ||||
RMB million | ||||
Under CAS(before adoption of MoF new guidance) | 10,205 | |||
Insurance contracts | 12,125 | |||
Tax implication | (3,031 | ) | ||
Share of insurance associate, net of tax | (25 | ) | ||
Under CAS(after adoption of MoF new guidance) | 19,274 | |||
Equity | Net profit | |||||||||||
As at 31 | As at 1 | For the year ended | ||||||||||
December 2008 | January 2008 | 31 December 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Under HKFRS | 181,573 | 206,376 | 21,414 | |||||||||
Adjustments: | ||||||||||||
PPE | 1,239 | 1,344 | (105 | ) | ||||||||
Insurance contracts | (9,881 | ) | (8,498 | ) | (2,465 | ) | ||||||
Tax implication | 2,154 | 1,789 | 643 | |||||||||
Share of insurance associate, net of tax | (214 | ) | (1 | ) | (213 | ) | ||||||
Upon first-time adoption of IFRS | 174,871 | 201,010 | 19,274 | |||||||||
F-13
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.1 | First-time Adoption of International Financial Reporting Standards and Statement of Compliance (continued) |
2.2 | Basis of preparation |
profit or loss, available-for-sale financial assets, insurance contract liabilities and certain PPE at deemed cost. The preparation of financial statements in conformity with HKFRSIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgementjudgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgementjudgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 3.
F-14
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.2 | Basis of preparation (continued) |
(a) Standards, amendments and interpretations to published standards effective in 2007
HKFRS 7, Financial Instruments: Disclosures, and a complementary Amendment to HKAS 1, Presentation of Financial Statements—Capital Disclosures. HKFRS 7 introduces new disclosures relating to financial instruments. HKFRS 7 also amends HKFRS 4 requiring that insurance contracts issued and reinsurance contracts held are considered as if they were in the scope of HKFRS 7 for disclosures in relation to credit, liquidity and market risk. This standard does not have any impact on the classification and valuation of the Group’s financial instruments.
HK(IFRIC)-Int 8, Scope of HKFRS2. HK(IFRIC)-Int 8 requires consideration of transactions involving the issuance of equity instruments—where the identifiable consideration received is less than the fair value of the equity instruments issued—to establish whether or not they fall within the scope of HKFRS 2. This standard does not have any impact on the Group’s financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
(a) Standards, amendments and interpretations to published standards effective in 2007 (continued)
HK(IFRIC)-Int 9, Reassessment of Embedded Derivatives. HK(IFRIC)-Int 9 requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. This standard does not have any impact on the Group’s financial statements.
HK(IFRIC)-Int 10, Interim Financial Reporting and Impairment. HK(IFRIC)-Int 10 prohibits the impairment losses recognized in an interim period on goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet date. This standard does not have any impact on the Group’s financial statements.
(b) Standards, amendments and interpretations to published standards effective in 2007 but not relevant to the Group’s operations
HK(IFRIC)-Int 7, Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies.
(c) Standards, amendments and interpretations to published standards that are not yet effectiveeffective. This is not intended to be a complete list as only those standards, interpretations and amendments that are anticipated to have not been early adopted bya future impact upon the Group
The followingGroup’s financial statements have been published that are mandatorydiscussed.
HKFRS 8, Operating Segments (effective from 1 January 2009). HKFRS 8 replaces HKAS 14. The new standard requires a “management approach”, under which segment information is presented on the same basis as that used for internal reporting purposes. The group will apply HKFRS 8 from 1 January 2009. The expected impact is still being assessed in detail by management.
(d) Interpretations to published standards that are not yet effective and not relevant for the Group’s operations
HKAS 23 (Revised), Borrowing Costs
HK(IFRIC)-Int 11, HKFRS2—Group and Treasury Share Transactions.
HK(IFRIC)-Int 12, Service Concession Arrangements.
HK(IFRIC)-Int 13, Customer Loyalty Programmes.
HK(IFRIC)-Int 14, HKAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
Consolidation |
In the Company only balance sheet the investments in subsidiaries is stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.
net profit.
Unrealised
F-15
FOR THE YEAR ENDED 31 DECEMBER 2007
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Consolidation (continued) |
In the Company only balance sheet the investments
2.4 | Segment reporting |
Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. In accordancemanner consistent with the Group’s internal financialmanagement reporting provided to the president office for deciding how to allocate resources and for assessing performance.
Foreign currency translation |
F-16
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.6 | Property, plant and equipment |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
Estimated useful life | ||
Buildings | 15 to 35 years | |
Office equipment, furniture and fixtures | 5 to 10 years | |
Motor vehicles | 4 to 8 years | |
Leasehold improvements | Over the lesser of the remaining term of the lease or the useful life |
F-17
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.7 | Financial assets |
Classification |
(i) | Held-to-maturity securities |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
(ii) | Securities at fair value through income |
(iii) | Available-for-sale securities |
Recognition and measurement |
F-18
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.7 | Financial assets (continued) |
2.7.c | Term deposits |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
Loans |
Securities purchased under agreements to resell |
Impairment of financial assets other than at fair value through income |
Cash and cash equivalents |
F-19
FOR THE YEAR ENDED 31 DECEMBER 2007
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Insurance contracts and investment contracts |
Classification |
2.9.2 | Insurance contracts |
2.9.2.a | Recognition and measurement |
(i) | Short-term insurance contracts |
(ii) | Long-term |
Liabilities arising from long-term traditional insurance contracts comprise a policyholder reserve based on the net level premium valuation methodfollowing principles:
(a) | The reserves for long-term insurance contracts are recognised on the basis of best estimates of future payouts that will be required to fulfil the contractual obligations. These expenses refer to the expected net future cash outflows for the insurance contracts, which is the difference between the expected future cash outflows and the expected future cash inflows. The expected future cash inflows include cash inflows arising from the undertaking of insurance obligations. The expected future cash outflows are cash outflows incurred to fulfil contractual obligations, consisting of the following: |
F-20
FOR THE YEAR ENDED 31 DECEMBER 2007
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Insurance contracts |
Recognition and measurement (continued) |
Long-term |
Long-term investment type
(b) | Margin has been taken into consideration while computing the reserve of insurance contracts, measured separately and recognized in the net profit in each period over the life of the contracts. At the inception of the contracts, the Group doesn’t recognize Day 1 gain, whereas on the other hand, Day 1 loss is recognized as incurred. |
The liabilitiescompensate for long-term investment type insurance contractsthe uncertain amount and investment contracts with DPF are recognized as accumulationtiming of deposits received less charges plus interest credited. Revenue from a contract consistsfuture cash flows. At the inception of various charges (policy fees, handling fees, management fees, surrender charges) made against the contract, the residual margin is calculated net of certain acquisition cost by the Group for not recognizing the cost of insurance, expenses and early surrender. Excess first year charges are deferred as an unearned revenue liability and are recognized in incomeDay 1 gain. The residual margin will be amortized over the life of the contracts. The subsequent measurement of residual margin is independent from best estimate of future discounted cash flows and risk margin. The assumption changes have no effect on the subsequent measurement of residual margin.
(c) | The Group has considered the impact of time value on the reserve calculation for insurance contracts. |
(iii) | Universal life contracts and unit-linked contracts |
Liability adequacy test |
At each balance sheet date, liability adequacy tests are performed to ensure
Any DAC written off as a result of the liability adequacy test cannotreserves will be subsequently reinstated.
Reinsurance contracts held |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
F-21
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.9 | Insurance contracts and investment contracts (continued) |
2.9.3 | Investment contracts |
DPF in long-term insurance contracts and investment contracts |
Investment contracts without DPF are not considered to be insurance contracts and are accounted for as a financial liability. The liability for investment contracts without DPF is recognized as the accumulation of deposits received less charges plus interest credited.
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. Excess first year charges are deferred as an unearned revenue liability and are recognized in income over the life of the contracts in a constant relationship to estimated gross profits (defined in Note 2.8.3).
The costs of acquiring new and renewal business including commissions, underwriting and policy issue expenses, which vary with and are primarily related to the production of new and renewal business, are deferred. DAC are subject to recoverability testing at the time of policy issue and at the end of each accounting period. Future investment income is taken into account in assessing recoverability.
DAC for long-term traditional insurance contracts are amortised over the premium paying period as a constant percentage of expected premiums. Expected premiums are based upon assumptions defined at the date of policy issue. These assumptions are consistently applied throughout the premium paying period unless adverse experience causes a deficiency in liability adequacy test as described in Note 2.8.1.b.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
DAC for long-term investment type insurance contracts and investment contracts are amortised over the expected life of the contracts as a constant percent of the present value of estimated gross profits expected to be realised over the life of the contract. To the extent unrealised gains or losses from available-for-sale securities affect the estimated gross profits, shadow adjustments are recognized in the shareholders’ equity.
Estimated gross profits include expected amounts to be assessed for mortality, administration, investment and surrender less benefit claims in excess of policyholder balances, administrative expenses and interest credited. Estimated gross profits are revised regularly and the future 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 periods. Deviations of actual results from estimated experience are reflected in the income statement.
Deferred income includes the deferred profit liability arising from long-term traditional insurance contracts and the unearned revenue liability arising from long-term investment type insurance contracts and investment contracts. Both are described in Note 2.8.1.a and Note 2.8.2. Both deferred income amounts will be released to income statement over the remaining lifetime of the business.
Securities sold with agreements to repurchase |
2.11 | Derivative instruments |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
F-22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.12 | Employee benefits |
2.13 | Share capital |
2.14 | Revenue recognition |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
Net
Net investment which consists of various charges (policy fees, handling fees and management fees, etc.) over period service is provided. Excess charges over certain acquisition costs are deferred as unearned revenue and amortized over the expected life of the contracts. Policy fee income is presented as other income.
F-23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2.15 | Current and deferred income taxation |
2.16 | Operating leases |
2.17 | Contingencies |
2.18 | Dividend distribution |
F-24
FOR THE YEAR ENDED 31 DECEMBER 2007
Compensation under the stock appreciation rights is measured based on the fair value of the liabilities incurred and is expensed over the vesting period. Valuation techniques including option pricing models are used to estimate fair value of relevant liabilities. The liability is remeasured at each balance sheet date to its fair value until settlement with all changes included in administrative expenses in the consolidated income statement. The related liability is included in other liabilities.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES |
3.1 | Estimate of future benefit payments and premiums arising from long-term |
The assumed lapsed rates, mortality rates and morbidity rates are described in Note 14. Investment return assumptions are based on estimates of future yields on the Group’s investments as described in Note 14. The assumption for policy administration expenses has been based on expected unit costs plus, where applicable, a margin for adverse deviation as described in Note 14.
At each balance sheet date, liability adequacy tests are performed to ensure the adequacy of the insurance contract liabilities net of related DAC. Liability adequacy testing is performed by portfolio of contracts that are subject to broadly similar risks. In performing these tests, current best estimates of future cash flows under the contracts are used. As set out in Note 3.1 above, liability assumptions for long-term traditional insurance contracts are defined at the inception of the contract. When the liability adequacy test requires the adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are used for the subsequent measurement of these liabilities. Any DAC written off as a result of this test cannot subsequently be reinstated.F-25
FOR THE YEAR ENDED 31 DECEMBER 2007
3 | CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES (continued) |
Investments |
2.7.f.
• | Debt securities: fair values are generally based upon current bid prices. Where current bid prices are not readily available, fair values are estimated using either prices observed in recent transactions, values obtained from current bid prices of comparable investments and valuation techniques when the market is not active. | ||
• | Equity securities: fair values are generally based upon current bid prices. Where current bid prices are not readily available, fair values are estimated using either prices observed in recent transactions or commonly used market pricing model. Equity securities, for which fair values cannot be measured reliably, are recognized at cost less impairment. | ||
• | Term deposits (excluding structured deposits), loans and securities purchased or sold under agreements to resell or repurchase: the carrying amounts of these assets in the statement of financial position approximate fair values. | ||
• | Structured deposits: the market for structured deposits is not active and the Group establishes fair value by using discounted cash flow analysis and option pricing models as the valuation technique. The Group uses the US$ swap rate (the benchmark rate) to determine the fair value of financial instruments. |
3.3 | Income tax |
Debt securities: fair values are generally based upon current bid prices. Where current bid prices are not readily available, fair values are estimated using either prices observed in recent transactions, values obtained from current bid prices of comparable investments and valuation techniques whendeferred tax for the market is not active.
Equity securities: fair values are generally based upon current bid prices. Where current bid prices are not readily available, fair values are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities, for which fair values cannot be measured reliably, are recognized at cost less impairment.
Term deposits (excluding structured deposits), loans and securities purchased or sold under agreements to resell or repurchase: the carrying amounts of these assets in the balance sheet approximate fair values.
Structured deposits: the market for structured deposits is not active, the Group establishes fair value by using discounted cash flow analysis and option pricing models as the valuation technique. The Group uses the US$ swap rate (the benchmark rate) to determine the fair value of financial instruments. Due to the complexity of structured deposits, significant judgement and estimates are involved in the absence of quoted market values. These estimates are based on valuation methodologies and assumptions deemed appropriate in the circumstances.F-26
FOR THE YEAR ENDED 31 DECEMBER 2007
4 | Risk Management |
4.1 | Insurance risk |
4.1.1 | Types of Insurance risks |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
Concentration of insurance risks |
F-27
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) |
4.1 | Insurance risk (continued) |
4.1.2 | Concentration of insurance risks (continued) |
Product name
2007 | 2006 | |||||||||
RMB million | % | RMB million | % | |||||||
Premium | ||||||||||
Kang Ning Whole Life(a) | 29,850 | 32.3% | 26,079 | 32.0% | ||||||
Hong Xin Endowment(b) | 21,673 | 23.5% | 26,781 | 33.0% | ||||||
Meiman Yisheng Annunity(d) | 10,322 | 11.2% | 1,359 | 1.7% | ||||||
Others | 30,451 | 33.0% | 27,011 | 33.3% | ||||||
Total | 92,296 | 100.0% | 81,230 | 100.0% | ||||||
Insurance benefits | ||||||||||
Kang Ning Whole Life(a) | 3,184 | 18.3% | 2,498 | 23.1% | ||||||
Hong Xin Endowment(b) | 3,961 | 22.7% | 1,368 | 12.7% | ||||||
Qian Xi Endowment(c) | 3,706 | 21.3% | 2,454 | 22.7% | ||||||
Others | 6,579 | 37.7% | 4,477 | 41.5% | ||||||
Total | 17,430 | 100.0% | 10,797 | 100.0% | ||||||
Liabilities of long-term traditional insurance contracts | ||||||||||
Kang Ning Whole Life(a) | 73,405 | 33.6% | 57,406 | 33.2% | ||||||
Hong Xin Endowment(b) | 48,868 | 22.4% | 37,647 | 21.8% | ||||||
Qian Xi Endowment(c) | 25,022 | 11.5% | 23,700 | 13.7% | ||||||
Others | 70,870 | 32.5% | 54,122 | 31.3% | ||||||
Total | 218,165 | 100.0% | 172,875 | 100.0% | ||||||
2009 | 2008 | |||||||||||||||
Product name | RMB million | % | RMB million | % | ||||||||||||
Premiums | ||||||||||||||||
Hong Feng Endowment (a) | 59,229 | 22.6 | % | 105,343 | 41.7 | % | ||||||||||
Hong Fu Endowment (b) | 54,919 | 21.0 | % | 8,169 | 3.2 | % | ||||||||||
Kang Ning Whole Life (c) | 30,151 | 11.5 | % | 31,806 | 12.6 | % | ||||||||||
Hong Tai Endowment (d) | 11,300 | 4.3 | % | 13,999 | 5.5 | % | ||||||||||
Hong Rui Endowment (e) | 674 | 0.3 | % | 2,221 | 0.9 | % | ||||||||||
Others (f) | 105,632 | 40.3 | % | 90,932 | 36.1 | % | ||||||||||
Total | 261,905 | 100.0 | % | 252,470 | 100.0 | % | ||||||||||
Insurance benefits | ||||||||||||||||
Hong Feng Endowment (a) | 464 | 0.9 | % | 290 | 0.5 | % | ||||||||||
Hong Fu Endowment (b) | 36 | 0.1 | % | 4 | 0.0 | % | ||||||||||
Kang Ning Whole Life (c) | 2,772 | 5.4 | % | 2,466 | 3.8 | % | ||||||||||
Hong Tai Endowment (d) | 29,173 | 56.6 | % | 7,343 | 11.4 | % | ||||||||||
Hong Rui Endowment (e) | 11,299 | 21.9 | % | 26,168 | 40.8 | % | ||||||||||
Others (f) | 7,812 | 15.1 | % | 27,920 | 43.5 | % | ||||||||||
Total | 51,556 | 100.0 | % | 64,191 | 100.0 | % | ||||||||||
Liabilities of long-term insurance contracts | ||||||||||||||||
Hong Feng Endowment (a) | 265,270 | 32.8 | % | 213,103 | 32.5 | % | ||||||||||
Hong Fu Endowment (b) | 58,369 | 7.2 | % | 7,570 | 1.2 | % | ||||||||||
Kang Ning Whole Life (c) | 85,260 | 10.5 | % | 71,548 | 11.0 | % | ||||||||||
Hong Tai Endowment (d) | 28,757 | 3.6 | % | 49,263 | 7.5 | % | ||||||||||
Hong Rui Endowment (e) | 13,186 | 1.6 | % | 24,415 | 3.7 | % | ||||||||||
Others (f) | 358,381 | 44.3 | % | 288,949 | 44.1 | % | ||||||||||
Total | 809,223 | 100.0 | % | 654,848 | 100.0 | % | ||||||||||
(a) | Hong Feng is long-term individual endowment insurance contract with options for premium term of single. Insured period can be 5 years or 10 years. The insured can be benefited up to age of 65. Maturity benefit is paid at 100% of basic sum insured. Disease Death benefit incurred within one year after contract effective date is paid at premium received (without interest). Disease death benefit incurred exceed one year after contract effective date is paid at basic sum insured. Accident death benefit is paid at 300% of basic sum insured. | |
(b) | Hong Fu is long-term individual endowment insurance contract with options for premium term of single and 3 year, designed for healthy policyholders of age between 30 days and 60 years old. Maturity benefit for lump sum premium is paid at 100% of basic sum insured. Maturity benefit for regular premium is paid at basic sum insured multiplied by number of year of premium payments. Disease Death benefit incurred within one year after contract effective date is paid at premium received (without interest). Disease death benefits incurred exceed one year after contract effective date are paid at basic sum insured and basic sum insured multiplied by number of year of premium payments for lump sum premium and regular premium respectively. Accident death benefit is paid at 300% of basic sum insured and 300% of basic sum insured multiplied by number of year of premium payments for lump sum premium and regular premium respectively. | |
(c) | Kang Ning Whole Life is long-term individual whole life |
F-28
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) |
4.1 | Insurance risk (continued) |
4.1.2 | Concentration of insurance risks (continued) |
(d) | Hong | |
(e) | Hong Rui is long-term individual endowment insurance contract with options for premium term of single and 5 years. The insured can be benefited up to age of |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
(f) | Others consist of various long-term insurance contracts with no significant concentration. |
For
4.1.3 | Sensitivity Analysis |
Participating contracts for the year ended 31 December 2007 represented approximately 53% of gross and net life insurance premium and policy fees, respectively (2006: 52%, 2005: 50%). The net investment income, net realised gains on financial assets and net fair value gains on assets at fair value through income (held-for-trading) attributable to participating contracts in 2007 are RMB29,133 million, RMB10,673 million and RMB11,125 million respectively (2006: RMB16,600 million, RMB849 million and RMB16,149 million, 2005 RMB11,102 million, RMB(318) million and RMB98 million).
Sensitivity Analysis
For liabilities under long-term traditional insurance contracts and long-term investment typethe liabilities unbundled from universal life insurance contracts changes inand unit-linked insurance contracts with insurance risk are calculated based on the assumptions on mortality rates, morbidity rates, will not cause a change to the carrying amount of the liabilities, unless the change is severe enough to trigger a liability adequacy test adjustment. If the actuallapse rates and discount rates.
For liabilities under long-term traditional insurance contracts, long-term investment type insurance contracts and investment contracts with DPF, changes in investment returns will not cause a change to the carrying amount of the liabilities, unless the change is severe enough to trigger a liability adequacy test adjustment. If the investment returns are 50 basis points lower or higher than current assumptions, there will be no impact to the Group’s consolidated financial statements since the variance will not trigger a liability adequacy test adjustment.
As disclosed in Note 2.8.3 and Note 2.8.1.a, DAC and unearned revenue liability (“URL”) for long-term investment type insurance contracts and investment contracts are amortised and recognized in income respectively over the expected life of the contracts as a constant percent of the present value of estimated gross profits expected to be realised over the life of the contract. Although the Group measures the expected gross profits based on an investment return assumption updated on an annual basis, change in the investment return assumption will not cause material impact on the Group’s consolidated financial statements since the net amount of DAC amortization and change of URL is not material.
Short-term insurance contract liabilities are not directly sensitive to the level of investment returns, as they are undiscounted and contractually non-interest-bearing. Investment contracts without DPF are accounted for at amortised cost and their carrying amounts are not sensitive to changes in the level of investment returns.
For liabilities under short-term insurance contracts, if the loss ratio had increased/decreased by 100 basis points with all other variables held constant, pre-tax profit for the year would have been RMB114RMB 8,899 or 9,290 million (2006: RMB106(2008: RMB 8,252 or 8,635 million) lower/lower or higher.
F-29
FOR THE YEAR ENDED 31 DECEMBER 2007
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) |
Insurance risk (continued) |
4.1.3 | Sensitivity Analysis (continued) |
Short-term insurance contracts (accident year) | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | Total | |||||||||||||||||||
Current year/End of the year | 6,653 | 6,771 | 7,082 | 7,725 | 8,102 | |||||||||||||||||||
Later than 1 year | 7,039 | 6,074 | 6,891 | 7,591 | ||||||||||||||||||||
Later than 2 years | 7,087 | 6,168 | 6,990 | |||||||||||||||||||||
Later than 3 years | 7,087 | 6,168 | ||||||||||||||||||||||
Later than 4 years | 7,087 | |||||||||||||||||||||||
Estimated accumulated claims | 7,087 | 6,168 | 6,990 | 7,591 | 8,102 | 35,938 | ||||||||||||||||||
Accumulated paid claims | (7,087 | ) | (6,168 | ) | (6,990 | ) | (7,271 | ) | (5,478 | ) | (32,994 | ) | ||||||||||||
Unpaid claims | — | — | — | 320 | 2,624 | 2,944 | ||||||||||||||||||
Short-term insurance contracts (accident year) | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | Total | |||||||||||||||||||
Current year/End of the year | 5,928 | 6,703 | 7,036 | 7,671 | 8,017 | |||||||||||||||||||
Later than 1 year | 6,314 | 6,013 | 6,847 | 7,538 | ||||||||||||||||||||
Later than 2 years | 6,426 | 6,106 | 6,945 | |||||||||||||||||||||
Later than 3 years | 6,426 | 6,106 | ||||||||||||||||||||||
Later than 4 years | 6,426 | |||||||||||||||||||||||
Estimated accumulated claims | 6,426 | 6,106 | 6,945 | 7,538 | 8,017 | 35,032 | ||||||||||||||||||
Accumulated paid claims | (6,426 | ) | (6,106 | ) | (6,945 | ) | (7,221 | ) | (5,421 | ) | (32,119 | ) | ||||||||||||
Unpaid claims | — | — | — | 317 | 2,596 | 2,913 | ||||||||||||||||||
4.2 | Financial risk |
F-30
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) |
4.2 | Financial risk (continued) |
4.2.1 | Market risk |
(i) Interest rate risk
(i) | Interest rate risk |
period.
F-31
FOR THE YEAR ENDED 31 DECEMBER 2007
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) |
4.2 | Financial risk (continued) |
4.2.1 | Market risk (continued) | |
(ii) | Price risk | |
Price risk arises mainly from the volatility of prices of equity securities held by the Group. Prices of equity securities are determined by market forces. The Group is subject to increased price risk largely because China’s stock markets are relatively volatile. | ||
The Group manages price risk by holding an appropriately diversified investment portfolio as permitted by laws and regulations designed to reduce the risk of concentration in any one specific industry or issuer. | ||
At 31 December 2009, if all the Group’s equity securities’ prices had increased or decreased by 10% with all other variables held constant, pre-tax profit for the year would have been RMB 127 million (2008: RMB 452 million) higher or lower respectively, mainly as a result of an increase or decrease in fair value of equity securities excluding available-for-sale securities, net of impact thereof on undistributed participating policyholders’ dividends. Pre-tax available-for-sale reserve in equity would have been RMB 11,470 million higher or lower (2008: RMB 4,619 million) as a result of an increase or decrease in fair value of available-for-sale equity securities, net of impact thereof on undistributed participating policyholders’ dividends. | ||
(iii) | Currency risk | |
Currency risk is volatility of fair value or future cash flows of financial instruments resulting from changes in foreign currency exchange rates. The Group operates principally in the PRC except for limited exposure to foreign exchange rate risk arising primarily with respect to structured deposits, debt securities and common stocks denominated in US dollar (“US$”) or HK dollar (“HK$”). | ||
The Group holds shares traded on the HK stock market, which are traded in HK dollars. Investment income from H share holdings have offset the adverse impact of the appreciation of the Renminbi and thus spread the risk indirectly. | ||
The following table summaries financial assets denominated in currencies other than RMB as at 31 December 2009 and 2008. |
US$ | HK$ | Total | ||||||||||
As at 31 December 2009 | RMB million | RMB million | RMB million | |||||||||
Equity securities | — | 13,570 | 13,570 | |||||||||
- Available-for-sale securities | — | 13,570 | 13,570 | |||||||||
Debt securities | 2,902 | 7 | 2,909 | |||||||||
- Held-to-maturity securities | 2,048 | 7 | 2,055 | |||||||||
- Available-for-sale securities | 854 | — | 854 | |||||||||
Term deposits (excluding structured deposits) | 6,814 | — | 6,814 | |||||||||
Structured deposits | 273 | — | 273 | |||||||||
Cash and cash equivalents | 1,911 | 1,538 | 3,449 | |||||||||
Total | 11,900 | 15,115 | 27,015 | |||||||||
(ii) Price riskF-32
Price risk arises mainly from the volatility of prices of equity securities held by the Group. Prices of equity securities are determined by market forces. The Group is subject to increased market risk largely because China’s stock markets are relatively volatile.
The Group manages price risk by holding an appropriately diversified investment portfolio as permitted by laws and regulations designed to reduce the risk of concentration in any one specific industry or issuer.
At 31 December 2007, if all the Group’s equity securities’ prices had increased/decreased by 10% with all other variables held constant, pre-tax profit for the year would have been RMB1,072 million (2006: RMB1,548 million) higher/lower, mainly as a result of an increase/decrease in fair value of equity securities excluding available-for-sale securities, net of impact thereof on undistributed participating policyholders’ dividends. Pre-tax available-for-sale reserve in equity would have been RMB12,079 million higher/lower (2006: RMB4,244 million) as a result of an increase/decrease in fair value of available-for-sale equity securities, net of impact thereof on undistributed participating policyholders’ dividends and other shadow adjustments.
(iii) Currency risk
Currency risk is volatility of fair value or future cash flows of financial instruments resulting from changes in foreign currency exchange rates. The Group operates principally in the PRC except for limited exposure to foreign exchange rate risk arising primarily with respect to structured deposits, debt securities and common stocks denominated in US dollar (“US$”) or HK dollar (“HK$”).
The Group holds shares traded on the HK stock market which are traded in HK dollars. Investment income from H share holdings have offset the adverse impact of the appreciation of the Renminbi and thus spread the risk indirectly.
The following table summaries financial assets denominated in currencies other than RMB as at 31 December 2007 and 2006.
US$ | HK$ | Total | ||||
As at 31 December 2007 | RMB million | RMB million | RMB million | |||
Equity securities | — | 8,476 | 8,476 | |||
Debt securities | 3,119 | — | 3,119 | |||
Term deposits (excluding structured deposits) | 219 | — | 219 | |||
Structured deposits | 4,346 | — | 4,346 | |||
Cash and cash equivalents | 6,844 | 45 | 6,889 | |||
Total | 14,528 | 8,521 | 23,049 | |||
US$ | HK$ | Total | ||||
As at 31 December 2006 | RMB million | RMB million | RMB million | |||
Equity securities | — | 6,884 | 6,884 | |||
Debt securities | 3,334 | — | 3,334 | |||
Term deposits (excluding structured deposits) | 3,358 | — | 3,358 | |||
Structured deposits | 4,646 | — | 4,646 | |||
Cash and cash equivalents | 5,083 | 82 | 5,165 | |||
Total | 16,421 | 6,966 | 23,387 | |||
FOR THE YEAR ENDED 31 DECEMBER 20074 4.2 4.2.1 (iii) US$ HK$ Total As at 31 December 2008 RMB million RMB million RMB million Equity securities — 2,410 2,410 - Available-for-sale securities — 2,398 2,398 - Securities at fair value through income — 12 12 Debt securities 2,905 — 2,905 - Held-to-maturity securities 2,051 — 2,051 - Available-for-sale securities 854 — 854 Term deposits (excluding structured deposits) 4,921 — 4,921 Structured deposits 2,905 — 2,905 Cash and cash equivalents 8,236 511 8,747 18,967 2,921 21,888 Monetary assets are exposed to currency risk whereas non-monetary assets, such as equity securities, expose themselves to price risk. As at 31 December 2009, if RMB had strengthened or weakened by 10% against USD and HK dollar with all other variables held constant, pre-tax profit for the year would have been RMB 1,345 million (2008: RMB 1,948 million) lower or higher respectively, mainly as a result of foreign exchange losses or gains on translation of USD and HK dollar denominated financial assets other than the equity securities included in the table above. 4.2.2 Credit risk is the risk that one party to a financial transaction or the issuer of a financial instrument will fail to discharge an obligation and cause another party to incur a financial loss. Because the Group is limited in the types of investments as permitted by China Insurance Regulatory Commission (“CIRC”) and a significant portion of the portfolio is in government bonds, government agency bonds and term deposits with the state-owned commercial banks, the Group’s overall exposure to credit risk is relatively low. Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. The Group manages credit risk through in-house fundamental analysis of the Chinese economy and the underlying obligors and transaction structures. Where appropriate, the Group obtains collateral in the form of rights to cash, securities, property and equipment. The carrying amount of financial assets included on the consolidated statement of financial position represents the maximum credit exposure without taking account of any collateral held or other credit enhancements attached. The Group has no credit risk exposures relating to off-statement of financial position items as at 31 December 2009 and 2008. Securities purchased under agreements to resell are pledged by counterpart’s debt securities or term deposits of which the Group could take the ownership should the owner of the collateral default. Policy loans and premium receivables are collateralized by their policies’ cash value according to the terms and conditions of policy loan contracts and policy contracts respectively signed by the Group together with policyholders. Monetary assets are exposed to currency risk whereas non-monetary assets, such as equity securities, expose themselves to price risk. As at 31 December 2007, if RMB had strengthened/weakened by 10% against USD and HK dollar with all other variables held constant, pre-tax profit for the year would have been RMB1,457 million (2006: RMB1,650 million) lower/higher, mainly as a result of foreign exchange losses/gains on translation of USD and HK dollar denominated financial assets other than the equity securities included in the table above.F-33
Credit risk is the risk that one party to a financial transaction or the issuer of a financial instrument will fail to discharge an obligation and cause another party to incur a financial loss. Because the Group is limited in the types of investments as permitted by China Insurance Regulatory Commission (“CIRC”) and a significant portion of the portfolio is in government bonds, government agency bonds and term deposits with the state-owned commercial banks, the Group’s overall exposure to credit risk is relatively low.
Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. The Group manages credit risk through in-house fundamental analysis of the Chinese economy and the underlying obligors and transaction structures. Where appropriate, the Group obtains collateral in the form of rights to cash, securities, property and equipment.
Credit exposure
The carrying amount of financial assets included on the consolidated balance sheet represents the maximum credit exposure without taking account of any collateral held or other credit enhancements attached. The Group has no credit risk exposures relating to off-balance sheet items as at 31 December 2007 and 2006.
Collateral and other credit enhancements
Securities purchased under agreements to resell are pledged by counterpart’s debt securities or term deposits of which the Group could take the ownership should the owner of the collateral default. Policy loans and premium receivables are collateralized by their policies’ cash value according to the terms and conditions of policy loan contracts and policy contracts respectively signed by the Group together with policyholders.
Credit quality
The Group’s debt securities investment includes government bonds, government agency bonds, corporate bonds and subordinated bonds/debts. As at 31 December 2007, 98.9% (as at 31 December 2006: 99.9%) of the corporate bonds held by the Group have credit rating of AA/A-2 or above. As at 31 December 2007, 99.1% (as at 31 December 2006: 99.1%) of the subordinated bonds/debts held by the Group either have credit rating of AA/A-2 or above, or were issued by national commercial banks. The bond/debt’s credit rating is assigned by a qualified appraisal institution in the PRC at the time of its issuance.
FOR THE YEAR ENDED 31 DECEMBER 20074 4.2 4.2.2 The Group’s debt securities investment includes government bonds, government agency bonds, corporate bonds and subordinated bonds or debts, and most of the debt securities are guaranteed by either the Chinese government or a Chinese government controlled financial institution. As at 31 December 2009, 100% (as at 31 December 2008: 100%) of the corporate bonds held by the Group have credit rating of AA/A-2 or above. As at 31 December 2009, 99.5% (as at 31 December 2008: 99.3% ) of the subordinated bonds or debts held by the Group either have credit rating of AA/A-2 or above, or were issued by national commercial banks. The bond or debt’s credit rating is assigned by a qualified appraisal institution in the PRC at the time of its issuance. As at 31 December 2009, 100% (as at 31 December 2008: 99.8%) of the Group’s bank deposits are with the four largest state-owned commercial banks, other national commercial banks and China Securities Depository and Clearing Corporation Limited (CSDCC) in the PRC, and almost all of the reinsurance agreements of the Group are with a state-owned reinsurance company. The Group believes these commercial banks, SD&C and the reinsurance company have a high credit quality. As a result, the Group concludes credit risk associated with term deposits and accrued investment income thereof, statutory deposits-restricted, cash equivalents and reinsurance assets will not cause material impact on the Group’s consolidated financial statements as at 31 December 2009 and 2008. The credit risk associated with securities purchased under agreements to resell, policy loans and premium receivables will not cause a material impact on the Group’s consolidated financial statements taking into consideration of their collateral held and maturity term of no more than one year as at 31 December 2009 and 2008. As at 31 December 2007, 94.8% (as at 31 December 2006: 96.8%) of the Group’s bank deposits are with the four largest state-owned commercial banks and other national commercial banks in the PRC, and almost all of the reinsurance agreements of the Group are with a state-owned reinsurance company. The Group believes these commercial banks and the reinsurance company have a high credit quality. As a result, the Group concludes credit risk associated with term deposits and accrued investment income thereof, statutory deposits-restricted, cash equivalents and reinsurance assets will not cause material impact on the Group’s consolidated financial statements as at 31 December 2007 and 2006.F-34
The credit risk associated with securities purchased under agreements to resell, policy loans and premium receivables will not cause a material impact on the Group’s consolidated financial statements taking into consideration of their collateral held and maturity term of no more than one year as at 31 December 2007 and 2006.
Liquidity risk is the risk that the Group will not have access to sufficient funds to meet its liabilities as they become due.
In the normal course of business, the Group attempts to match the maturity of investment assets to the maturity of insurance liabilities.
The following tables set forth the contractual undiscounted cash flows for financial liabilities excluding investment contracts as well as expected undiscounted cash flows for insurance contracts and investment contracts.
As at 31 December 2007 | Carrying amount | Contractual and expected cash flows (undiscounted) | |||||||||||
Not later than 1 year | Later than 1 year but not later than 3 years | Later than 3 years but not later than 5 years | Later than 5 years | ||||||||||
(RMB million) | |||||||||||||
Financial and insurance liabilities | |||||||||||||
Expected cash flows out/(in) | |||||||||||||
Short term insurance contracts | 8,119 | 5,564 | — | — | — | ||||||||
Long-term traditional insurance contracts | 218,165 | (43,182 | ) | (52,962 | ) | (24,852 | ) | 717,464 | |||||
Long-term investment type insurance contracts | 284,588 | 67,012 | 85,571 | 79,443 | 123,878 | ||||||||
Investment contracts | 51,302 | 14,345 | 15,450 | 8,910 | 37,279 | ||||||||
Contractual cash flows out | |||||||||||||
Securities sold under agreements to repurchase | 100 | 100 | — | — | — | ||||||||
Annuity and other insurance balances payable | 14,111 | 14,111 | — | — | — |
Contractual and expected cash flows (undiscounted) Financial and insurance liabilities Expected cash flows out/(in) Short term insurance contracts Long-term traditional insurance contracts Long-term investment type insurance contracts Investment contracts Contractual cash flows out Securities sold under agreements to repurchase Annuity and other insurance balances payable
FOR THE YEAR ENDED 31 DECEMBER 20074 4.2 4.2.3 Liquidity risk (continued)is the risk that the Group will not have access to sufficient funds to meet its liabilities as they become due.In the normal course of business, the Group attempts to match the maturity of financial assets to the maturity of insurance and financial liabilities. The following tables set forth the contractual and expected undiscounted cash flows for financial assets, insurance and financial liabilities: Contractual and expected cash flows (undiscounted) Not Later than 1 Later than 3 later year but not years but not Later Carrying Without than 1 later than 3 later than 5 than 5 As at 31 December 2009 amount maturity year years years years Equity securities 179,390 179,390 — — — — Debt securities 582,285 — 27,803 91,257 85,720 686,923 Loans 23,081 — 14,448 1,234 1,234 12,746 Term deposits 344,983 — 91,552 79,100 149,936 65,405 Statutory deposits-restricted 6,153 — 191 2,319 4,406 — Accrued investment income 14,208 — 14,208 — — — Premiums receivable 6,818 — 6,818 — — — Cash and cash equivalent 36,176 — 36,176 — — — 1,193,094 179,390 191,196 173,910 241,296 765,074 Insurance contracts 818,164 — (7,558 ) 34,103 118,673 1,335,276 Investment contracts 67,274 — 18,386 20,121 13,595 34,352 Securities sold under agreements to repurchase 33,553 — 33,553 — — — Annuity and other insurance balances payable 5,721 — 5,721 — — — 924,712 — 50,102 54,224 132,268 1,369,628 268,382 179,390 141,094 119,686 109,028 (604,554 ) As at 31 December 2006 Carrying
amount Not later
than 1
year Later than
1 year but
not later
than 3
years Later than
3 years
but not
later than
5 years Later than
5 years (RMB million) 7,844 5,438 — — — 172,875 (36,803 ) (45,574 ) (25,033 ) 561,609 282,672 52,614 105,460 83,673 109,851 48,612 12,897 15,842 10,546 20,956 8,227 8,227 — — — 8,891 8,891 — — — The amounts set forth in the tables above for insurance and investment contracts in each column are the cash flows representing expected future benefit payments taking into consideration of future premiums payments or deposits from policyholders. The estimate is affected by assumptions related to mortality, morbidity, lapses, withdrawals, credited rates, loss ratio, claim adjustment expenses and other assumptions. Actual experience may differ from estimates.F-35
As at 31 December 2007, declared dividends of RMB26,238 million (as at 31 December 2006: RMB9,018 million) included in policyholder dividends payable have a maturity not later than one year. For the remaining policyholder dividends payable, the amount and timing of the cash flows are indeterminate due to the uncertainty of future experiences including investment returns and are subject to future declarations by the Group.
Another maturity analysis assuming all long-term insurance contracts and investment contracts were surrendered immediately would have been RMB571,465 million at 31 December 2007 (at 31 December 2006: RMB512,353 million), payable within one year. Although contractually these options can be exercised immediately by all policyholders, at once, the Group’s expected cash flows are as shown in the above tables based on its experience and future expectations.
The Group’s objectives when managing capital are to comply with the insurance capital requirements required by the CIRC to meet the minimum solvency margin and safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders.
FOR THE YEAR ENDED 31 DECEMBER 20074 4.2 4.2.3 Contractual and expected cash flows (undiscounted) Not Later than 1 Later than 3 later year but not years but not Later Carrying Without than 1 later than 3 later than 5 than 5 As at 31 December 2008 amount maturity year years years years Equity securities 75,075 75,075 — — — — Debt securities 575,871 — 49,178 108,633 77,224 571,228 Loans 17,926 — 9,293 1,234 1,234 13,363 Term deposits 228,272 — 69,359 50,902 126,210 9,298 Statutory deposits-restricted 6,153 — 460 748 5,919 — Accrued investment income 13,149 — 13,149 — — — Premiums receivable 6,433 — 6,433 — — — Cash and cash equivalent 34,074 — 34,074 — — — 956,953 75,075 181,946 161,517 210,587 593,889 Insurance contracts 662,865 — (2,367 ) 20,358 95,160 1,069,670 Investment contracts 65,050 — 18,079 18,582 9,979 37,430 Securities sold under agreements to repurchase 11,390 — 11,390 — — — Annuity and other insurance balances payable 4,980 — 4,980 — — — 744,285 — 32,082 38,940 105,139 1,107,100 212,668 75,075 149,864 122,577 105,448 (513,211 ) 4.2.4Capital management (continued)The amounts set forth in the tables above for insurance and investment contracts in each column are the cash flows representing expected future benefit payments taking into consideration of future premiums payments or deposits from policyholders. The excess cash inflow from matured financial assets will be reinvested to cover any future liquidity exposures. The estimate is subject to assumptions related to mortality, morbidity, discount rate, loss ratio, expenses assumption and other assumptions. Actual experience may differ from estimates. At 31 December 2009, declared dividends of RMB 23,833 million (2008: RMB 24,295 million) included in policyholder dividends payable have a maturity not later than one year. For the remaining policyholder dividends payable, the amount and timing of the cash flows are indeterminate due to the uncertainty of future experiences including investment returns and are subject to future declarations by the Group. The other maturity analysis is conducted on the assumption that all investment contracts (with DPF and without DPF) and universal life insurance contracts were surrendered immediately. This would cause a cash outflow of RMB 50,365 million, RMB 1,482 million and RMB 14,891 million respectively for the period ended 31 December 2009 (2008: RMB 51,818 million, RMB 1,543 million and RMB 11,249 million respectively), payable within one year. Although contractually these options can be exercised immediately by all policyholders at once, the Group’s expected cash flows as shown in the above tables are based on past experience and future expectations. The Group is also subject to other local capital requirements, such as Statutory deposits-restricted requirement and Statutory reserve fund requirement, discussed in detail under Note 9.6 and Note 31, respectively.F-36
The Group ensures its continuous and full compliance with the regulations mainly through monitoring quarterly and annual static solvency margin, as well as the dynamic solvency margin, which predicts the solvency margin for the next three years based on different scenarios. It has complied with all the local capital requirements.
The table below summarises the solvency ratio of the Company, the regulatory capital held (represented by actual solvency margin) against the minimum required capital (represented by minimum solvency margin).
As at 31 December | ||||||
2007 | 2006 | |||||
RMB million | RMB million | |||||
Actual solvency margin | 168,357 | 96,297 | ||||
Minimum solvency margin | 32,054 | 27,549 | ||||
Solvency ratio | 525 | % | 350 | % |
According to CIRC Order [2003] No.1, all insurance companies have to report their actual solvency margin (i.e. admitted statutory capital and surplus) to the CIRC at the end of each fiscal year. The solvency ratio is computed by dividing the actual solvency margin by the minimum solvency margin (i.e. minimum statutory capital and surplus necessary to satisfy regulatory requirement). CIRC will closely monitor those insurance companies with solvency ratio less than 100% and may, depending on the individual circumstances, undertake certain regulatory measures, including but not limited to restricting the payment of dividends.
F-37
FOR THE YEAR ENDED 31 DECEMBER 200754SEGMENT INFORMATION4.2 4.2.4 The Group’s objectives when managing capital, which is actual capital, calculated as the difference between admitted assets (defined by CIRC) and the admitted liabilities (defined by CIRC), are to comply with the insurance capital requirements required by the CIRC to meet the minimum capital and safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Group is also subject to other local capital requirements, such as statutory deposits-restricted requirement and Statutory reserve fund requirement, discussed in detail under Note 8.4 and Note 30, respectively. The Group ensures its continuous and full compliance with the regulations mainly through monitoring quarterly and annual static solvency margin, as well as the dynamic solvency margin, which predicts the solvency margin for the next three years based on different scenarios. It has complied with all the local capital requirements. The table below summarises the solvency ratio of the Company, the regulatory capital held (represented by actual capital) against the minimum required capital (represented by minimum capital). The solvency ratio for the year ended 31 December 2008 was recalculated due to the adoption of MoF new guidance as disclosed in Note 2.1. 5.1Business segmentsThe Group has the following main business segments: As at 31 As at 31 December 2009 December 2008 RMB million RMB million Actual capital 147,119 124,561 Minimum capital 48,459 40,154 Solvency ratio 304 % 310 % According to “Solvency Regulations of Insurance Companies”, the solvency ratio is computed by dividing the actual capital by the minimum capital. CIRC will closely monitor those insurance companies with solvency ratio less than 100% and may, depending on the individual circumstances, undertake certain regulatory measures, including but not limited to restricting the payment of dividends. Insurance companies with solvency ratio between 100% and 150% would be required to submit and implement plans preventing capital from being inadequate. And Insurance companies with solvency ratio above 100% but significant solvency risk noticed would be required to take necessary rectification action.
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.3 | Fair value hierarchy | |
At 31 December 2009, investments classified as Level 1 comprise approximately 41.78% of financial assets measured at fair value on a recurring basis. Fair value measurements classified as Level 1 include certain debt securities, equity securities that are traded in an active exchange market or inter-bank market. The Group considers a combination of certain factors to determine whether a market for a financial instrument is active, including the occurrence of trades within the specific period, the respective trading volume, and the degree which the implied yields for a debt security for observed transactions differs from the Group’s understanding of the current relevant market rates and information. | ||
At 31 December 2009, investments classified as Level 2 comprise approximately 57.93% of financial assets measured at fair value on a recurring basis. They primarily include certain debt securities and equity securities. Valuations are generally obtained from third party pricing services for identical or comparable assets, or through the use of valuation methodologies using observable market inputs, or recent quoted market prices. Valuation service providers typically gather, analyze and interpret information related to market transactions and other key valuation model inputs from multiple sources, and through the use of widely accepted internal valuation models, provide a theoretical quote on various securities. | ||
For the years ended 31 December 2009 and 2008, most of these prices obtained from the pricing services are for debt securities issued by the Chinese government and government controlled organizations. These pricing services utilize a discounted cash flow valuation model using market observable inputs, mainly interest rates, to determine a fair value. These debt securities are classified as Level 2. | ||
Fair value provide by valuation service providers are subject to a number of validation procedures by management. These procedures include a review of the valuation models utilized and the results of these models, and as well as the recalculation of prices obtained from pricing services at the end of each reporting period. | ||
Fair value is based on significant inputs, other than Level 1 quoted price, that are observable for the asset being measured, either directly or indirectly, for substantially the full term of the asset through corroboration with observable market data. Observable inputs generally used to measure the fair value of securities classified as Level 2 include quoted market prices for similar assets in active markets; quoted market prices in markets that are not active for identical or similar assets and other market observable inputs. | ||
Under certain conditions, the Group may not received price from independent third party pricing services. In this instance, the Group may choose to apply internally developed values to the assets being measured. In such cases, the valuations are generally classified as Level 3. Key inputs involved in internal valuation services include, but are not limited to market price from recently completed transactions, interest yield curves, credit spreads, currency rates as well as assumptions made by management based on judgements and experiences. | ||
At 31 December 2009, investments classified as Level 3 comprise approximately 0.29% of financial assets measured at fair value on a recurring basis. They primarily include subordinated debts, certain corporate and government agency bonds and certain equity securities. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques. Determinations to classify fair value measures within Level 3 of the valuation hierarchy are generally based on the significance of the unobservable factors to the overall fair value measurement, and valuation methodologies such as discounted cash flow models and other similar techniques. |
F-38
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.3 | Fair value hierarchy (continued) | |
For the accounting policies regarding the determination of the fair values of financial assets and financial liabilities, see Note 3.2. | ||
The following table presents the Group’s assets and liabilities measured at fair value at 31 December 2009. |
Level 1 | Level 2 | Level 3 | Total balance | |||||||||||||
Assets | ||||||||||||||||
Available-for-sale securities | ||||||||||||||||
—Equity securities | 172,383 | 3,053 | 1,238 | 176,674 | ||||||||||||
—Debt securities | 42,308 | 298,216 | 301 | 340,825 | ||||||||||||
Securities at fair value through income | ||||||||||||||||
—Equity securities | 2,704 | 38 | — | 2,742 | ||||||||||||
—Debt securities | 2,628 | 3,763 | — | 6,391 | ||||||||||||
Total assets | 220,023 | 305,070 | 1,539 | 526,632 | ||||||||||||
Liabilities | ||||||||||||||||
Investment contracts at fair value through income | (52 | ) | — | — | (52 | ) | ||||||||||
Total liabilities | (52 | ) | — | — | (52 | ) | ||||||||||
The following table presents the changes in Level 3 instruments for the year ended 31 December 2009. |
Securities at fair value | ||||||||||||||||
Available-for-sale Securities | through income | |||||||||||||||
Debt | Equity | Equity | Total | |||||||||||||
securities | Securities | Securities | assets | |||||||||||||
Opening balance | 385 | 1,007 | 15 | 1,407 | ||||||||||||
Total gains and losses recognized in | ||||||||||||||||
— Profit or loss | 3 | — | 15 | 18 | ||||||||||||
— Other comprehensive income/(loss) | (3 | ) | 127 | — | 124 | |||||||||||
Transfer out of Level 3 | — | (617 | ) | (30 | ) | (647 | ) | |||||||||
Purchases | — | 721 | — | 721 | ||||||||||||
Settlements | (84 | ) | — | — | (84 | ) | ||||||||||
Closing balance | 301 | 1,238 | — | 1,539 | ||||||||||||
Total gains for the period included in income for assets and liabilities held at the end of the reporting period | — | — | — | — | ||||||||||||
In 2009, the Group transferred certain debt and equity securities between Level 1, Level 2 and Level 3. This was due to the change in the availability of market observable inputs. |
F-39
5 | SEGMENT INFORMATION | |
5.1 | Operating segments | |
The Group operates in four operating segments: | ||
(i) | Individual life insurance business |
Individual life insurance business relates primarily to the sale of insurance contracts and investment contracts to individuals and comprises participating and non-participating business. Participating life insurance business relates primarily to the sale of participating contracts, which provides the policyholder with a participation in the profits arising from the invested assets relating to the policy and mortality gains, as described in Note 2.8.1.d. Non-participating insurance business relates primarily to non-participating life insurance and annuity products, which provides guaranteed benefits to the insured without a participation in the profits.
Individual life insurance business relates primarily to the sale of long-term life insurance contracts and universal life contracts to individuals and assumed individual reinsurance contracts. | ||
(ii) | Group life insurance business |
Group life insurance business relates primarily to the sale of insurance contracts and investment contracts to group entities and comprises participating and non-participating business as described above.
Group life insurance business relates primarily to the sale of insurance contracts and investment contracts to group entities. | ||
(iii) | Short-term insurance business |
Accident and health insurance business relates primarily to the sale of accident and health insurance and accident only products.
Short-term insurance business relates primarily to the sale of short-term insurance contracts. | ||
(iv) | Corporate and other business |
Corporate and other business relates primarily to income and expenses in respect of the provision of the services to CLIC, as described in Note 29, share of results of associates and unallocated income taxes.
Corporate and other |
Net investment
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
For the year ended 31 December 2007 | |||||||||||||||
Individual life | Group life | Accident & Health | Corporate & other | Total | |||||||||||
(RMB million) | |||||||||||||||
Revenues | |||||||||||||||
Gross written premiums and policy fees | 98,484 | 1,503 | 11,899 | — | 111,886 | ||||||||||
Gross written premiums | 91,420 | 876 | 11,899 | — | |||||||||||
—Term Life | 175 | 9 | — | — | |||||||||||
—Whole Life | 31,943 | 678 | — | — | |||||||||||
—Endowment | 40,278 | — | — | — | |||||||||||
—Annuity | 19,024 | 189 | — | — | |||||||||||
Policy fees | 7,064 | 627 | — | — | |||||||||||
Net premiums earned and policy fees | 98,470 | 1,503 | 11,431 | — | 111,404 | ||||||||||
Net investment income | 39,489 | 3,902 | 629 | — | 44,020 | ||||||||||
Net realised gains on financial assets | 13,801 | 1,364 | 220 | — | 15,385 | ||||||||||
Net fair value gains on assets at fair value through income (held-for-trading) | 16,904 | 1,670 | 269 | — | 18,843 | ||||||||||
Other income | — | — | — | 1,720 | 1,720 | ||||||||||
Segment revenues | 168,664 | 8,439 | 12,549 | 1,720 | 191,372 | ||||||||||
Benefits, claims and expenses | |||||||||||||||
Insurance benefits and claims | |||||||||||||||
Life insurance death and other benefits | (16,463 | ) | (967 | ) | — | — | (17,430 | ) | |||||||
Accident and health claims and claim adjustment expenses | — | — | (6,343 | ) | — | (6,343 | ) | ||||||||
Increase/decrease in long-term traditional insurance contracts liabilities | (45,370 | ) | 36 | — | — | (45,334 | ) | ||||||||
Interest credited to long-term investment type insurance contracts | (7,157 | ) | (24 | ) | — | — | (7,181 | ) | |||||||
Interest credited to investment contracts | — | (1,138 | ) | — | — | (1,138 | ) | ||||||||
Increase in deferred income | (9,828 | ) | (31 | ) | — | — | (9,859 | ) | |||||||
Policyholder dividends resulting from participation in profits | (25,729 | ) | (3,522 | ) | — | — | (29,251 | ) | |||||||
Amortisation of deferred policy acquisition costs | (12,182 | ) | (485 | ) | (794 | ) | — | (13,461 | ) | ||||||
Underwriting and policy acquisition costs | (2,013 | ) | (6 | ) | (703 | ) | (3 | ) | (2,725 | ) | |||||
Administrative expenses | (7,214 | ) | (606 | ) | (2,192 | ) | (1,786 | ) | (11,798 | ) | |||||
Other operating expenses | (1,343 | ) | (132 | ) | (106 | ) | (70 | ) | (1,651 | ) | |||||
Statutory insurance fund | (163 | ) | (1 | ) | (55 | ) | — | (219 | ) | ||||||
Segment benefits, claims and expenses | (127,462 | ) | (6,876 | ) | (10,193 | ) | (1,859 | ) | (146,390 | ) | |||||
Share of results of associates | — | — | — | 409 | 409 | ||||||||||
Segment results | 41,202 | 1,563 | 2,356 | 270 | 45,391 | ||||||||||
Income tax expenses | — | — | — | (6,331 | ) | (6,331 | ) | ||||||||
Net profit/(loss) | 41,202 | 1,563 | 2,356 | (6,061 | ) | 39,060 | |||||||||
Attributable to: | |||||||||||||||
—shareholders of the Company | 41,202 | 1,563 | 2,356 | (6,242 | ) | 38,879 | |||||||||
—minority interest | — | — | — | 181 | 181 | ||||||||||
Unrealised gains/(losses) included in shareholders’ equity | 27,758 | 2,743 | 442 | (30 | ) | 30,913 | |||||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
As at 31 December 2007 | ||||||||||
Individual life | Group life | Accident & Health | Corporate & other | Total | ||||||
( RMB million ) | ||||||||||
Assets | ||||||||||
Financial assets | 748,831 | 73,988 | 11,930 | — | 834,749 | |||||
Deferred policy acquisition costs | 39,037 | 764 | 1,050 | — | 40,851 | |||||
Cash and cash equivalents | 22,711 | 2,244 | 362 | — | 25,317 | |||||
Segment assets | 810,579 | 76,996 | 13,342 | — | 900,917 | |||||
Unallocated | ||||||||||
Property, plant and equipment | 16,771 | |||||||||
Other assets | 16,016 | |||||||||
Total | 933,704 | |||||||||
Liabilities | ||||||||||
Insurance contracts | ||||||||||
Long-term traditional insurance contracts | 216,280 | 1,885 | — | — | 218,165 | |||||
Long-term investment type insurance contracts | 283,520 | 1,068 | — | — | 284,588 | |||||
Short-term insurance contracts: | ||||||||||
—reserves for claims and claim adjustment expenses | — | — | 2,391 | — | 2,391 | |||||
—unearned premium reserves | — | — | 5,728 | — | 5,728 | |||||
Deferred income | 47,761 | 547 | — | — | 48,308 | |||||
Financial liabilities | ||||||||||
Investment contracts | ||||||||||
—with DPF | — | 49,068 | — | — | 49,068 | |||||
—without DPF | — | 2,234 | — | — | 2,234 | |||||
Securities sold under agreements to repurchase | 90 | 9 | 1 | — | 100 | |||||
Segment liabilities | 547,651 | 54,811 | 8,120 | — | 610,582 | |||||
Unallocated | ||||||||||
Other liabilities | 116,746 | |||||||||
Total | 727,328 | |||||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
For the year ended 31 December 2006 | |||||||||||||||
Individual life | Group life | Accident & Health | Corporate & other | Total | |||||||||||
(RMB million) | |||||||||||||||
Revenues | |||||||||||||||
Gross written premiums and policy fees | 86,587 | 1,740 | 11,090 | — | 99,417 | ||||||||||
Gross written premiums | 80,086 | 1,144 | 11,090 | — | |||||||||||
—Term Life | 177 | 26 | — | — | |||||||||||
—Whole Life | 28,079 | 886 | — | — | |||||||||||
—Endowment | 43,583 | — | — | — | |||||||||||
—Annuity | 8,247 | 232 | — | — | |||||||||||
Policy fees | 6,501 | 596 | — | — | |||||||||||
Net premiums earned and policy fees | 86,519 | 1,735 | 10,593 | — | 98,847 | ||||||||||
Net investment income | 22,215 | 2,462 | 265 | — | 24,942 | ||||||||||
Net realised gains on financial assets | 1,421 | 157 | 17 | — | 1,595 | ||||||||||
Net fair value gains on assets at fair value through income (held-for-trading) | 17,852 | 1,979 | 213 | — | 20,044 | ||||||||||
Other income | — | — | — | 1,883 | 1,883 | ||||||||||
Segment revenues | 128,007 | 6,333 | 11,088 | 1,883 | 147,311 | ||||||||||
Benefits, claims and expenses | |||||||||||||||
Insurance benefits and claims | |||||||||||||||
Life insurance death and other benefits | (10,125 | ) | (672 | ) | — | — | (10,797 | ) | |||||||
Accident and health claims and claim adjustment expenses | — | — | (6,999 | ) | — | (6,999 | ) | ||||||||
Increase in long-term traditional insurance contracts liabilities | (43,915 | ) | (323 | ) | — | — | (44,238 | ) | |||||||
Interest credited to long-term investment type insurance contracts | (6,365 | ) | (21 | ) | — | — | (6,386 | ) | |||||||
Interest credited to investment contracts | — | (996 | ) | — | — | (996 | ) | ||||||||
Increase in deferred income | (11,307 | ) | (300 | ) | — | — | (11,607 | ) | |||||||
Policyholder dividends resulting from participation in profits | (15,536 | ) | (2,081 | ) | — | — | (17,617 | ) | |||||||
Amortisation of deferred policy acquisition costs | (9,391 | ) | (265 | ) | (603 | ) | — | (10,259 | ) | ||||||
Underwriting and policy acquisition costs | (1,822 | ) | (40 | ) | (553 | ) | — | (2,415 | ) | ||||||
Administrative expenses | (5,109 | ) | (699 | ) | (1,855 | ) | (1,676 | ) | (9,339 | ) | |||||
Other operating expenses | (629 | ) | (71 | ) | (21 | ) | (138 | ) | (859 | ) | |||||
Statutory insurance fund | (145 | ) | (1 | ) | (48 | ) | — | (194 | ) | ||||||
Segment benefits, claims and expenses | (104,344 | ) | (5,469 | ) | (10,079 | ) | (1,814 | ) | (121,706 | ) | |||||
Segment results | 23,663 | 864 | 1,009 | 69 | 25,605 | ||||||||||
Income tax expenses | — | — | — | (5,554 | ) | (5,554 | ) | ||||||||
Net profit/(loss) | 23,663 | 864 | 1,009 | (5,485 | ) | 20,051 | |||||||||
Attributable to: | |||||||||||||||
—shareholders of the Company | 23,663 | 864 | 1,009 | (5,580 | ) | 19,956 | |||||||||
—minority interest | — | — | — | 95 | 95 | ||||||||||
Unrealised gains included in shareholders’ equity | 11,452 | 1,270 | 137 | — | 12,859 | ||||||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
As at 31 December 2006 | ||||||||||
Individual life | Group life | Accident & Health | Corporate & other | Total | ||||||
(RMB million) | ||||||||||
Assets | ||||||||||
Financial assets | 574,503 | 63,685 | 6,864 | — | 645,052 | |||||
Deferred policy acquisition costs | 37,591 | 845 | 794 | — | 39,230 | |||||
Cash and cash equivalents | 44,721 | 4,958 | 534 | — | 50,213 | |||||
Segment assets | 656,815 | 69,488 | 8,192 | — | 734,495 | |||||
Unallocated | ||||||||||
Property, plant and equipment | 14,565 | |||||||||
Other assets | 15,335 | |||||||||
Total | 764,395 | |||||||||
Liabilities | ||||||||||
Insurance contracts | ||||||||||
Long-term traditional insurance contracts | 170,954 | 1,921 | — | — | 172,875 | |||||
Long-term investment type insurance contracts | 281,847 | 825 | — | — | 282,672 | |||||
Short-term insurance contracts: | ||||||||||
—reserves for claims and claim adjustment expenses | — | — | 2,498 | — | 2,498 | |||||
—unearned premium reserves | — | — | 5,346 | — | 5,346 | |||||
Deferred income | 40,744 | 627 | — | — | 41,371 | |||||
Financial liabilities | ||||||||||
Investment contracts | ||||||||||
—with DPF | — | 45,998 | — | — | 45,998 | |||||
—without DPF | — | 2,614 | — | — | 2,614 | |||||
Securities sold under agreements to repurchase | 7,327 | 812 | 88 | — | 8,227 | |||||
Segment liabilities | 500,872 | 52,797 | 7,932 | — | 561,601 | |||||
Unallocated | ||||||||||
Other liabilities | 62,589 | |||||||||
Total | 624,190 | |||||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
For the year ended 31 December 2005 | |||||||||||||||
Individual life | Group life | Accident & Health | Corporate & other | Total | |||||||||||
(RMB million) | |||||||||||||||
Revenues | |||||||||||||||
Gross written premiums and policy fees | 68,888 | 1,267 | 10,867 | — | 81,022 | ||||||||||
Gross written premiums | 63,205 | 867 | 10,867 | — | |||||||||||
—Term Life | 184 | 24 | — | — | |||||||||||
—Whole Life | 23,310 | 674 | — | — | |||||||||||
—Endowment | 35,480 | — | — | — | |||||||||||
—Annuity | 4,231 | 169 | — | — | |||||||||||
Policy fees | 5,683 | 400 | — | — | |||||||||||
Net premiums earned and policy fees | 68,749 | 1,257 | 10,032 | — | 80,038 | ||||||||||
Net investment income | 14,682 | 1,788 | 215 | — | 16,685 | ||||||||||
Net realised losses on financial assets | (448 | ) | (55 | ) | (7 | ) | — | (510 | ) | ||||||
Net fair value gains on assets at fair value through income (held-for-trading) | 229 | 28 | 3 | — | 260 | ||||||||||
Other income | — | — | — | 1,739 | 1,739 | ||||||||||
Segment revenues | 83,212 | 3,018 | 10,243 | 1,739 | 98,212 | ||||||||||
Benefits, claims and expenses | |||||||||||||||
Insurance benefits and claims | |||||||||||||||
Life insurance death and other benefits | (7,744 | ) | (567 | ) | — | — | (8,311 | ) | |||||||
Accident and health claims and claim adjustment expenses | — | — | (6,847 | ) | — | (6,847 | ) | ||||||||
Increase in long-term traditional insurance contracts liabilities | (33,550 | ) | (427 | ) | — | — | (33,977 | ) | |||||||
Interest credited to long-term investment type insurance contracts | (4,867 | ) | (27 | ) | — | — | (4,894 | ) | |||||||
Interest credited to investment contracts | — | (973 | ) | — | — | (973 | ) | ||||||||
Increase in deferred income | (8,484 | ) | (37 | ) | — | — | (8,521 | ) | |||||||
Policyholder dividends resulting from participation in profits | (4,965 | ) | (394 | ) | — | — | (5,359 | ) | |||||||
Amortisation of deferred policy acquisition costs | (6,955 | ) | (544 | ) | (267 | ) | — | (7,766 | ) | ||||||
Underwriting and policy acquisition costs | (1,350 | ) | (68 | ) | (427 | ) | — | (1,845 | ) | ||||||
Administrative expenses | (3,863 | ) | (415 | ) | (1,338 | ) | (1,621 | ) | (7,237 | ) | |||||
Other operating expenses | (646 | ) | (78 | ) | (29 | ) | (45 | ) | (798 | ) | |||||
Statutory insurance fund | (118 | ) | (1 | ) | (55 | ) | — | (174 | ) | ||||||
Segment benefits, claims and expenses | (72,542 | ) | (3,531 | ) | (8,963 | ) | (1,666 | ) | (86,702 | ) | |||||
Segment results | 10,670 | (513 | ) | 1,280 | 73 | 11,510 | |||||||||
Income tax expenses | — | — | — | (2,145 | ) | (2,145 | ) | ||||||||
Net profit/(loss) | 10,670 | (513 | ) | 1,280 | (2,072 | ) | 9,365 | ||||||||
Attributable to | |||||||||||||||
—shareholders of the Company | 10,670 | (513 | ) | 1,280 | (2,131 | ) | 9,306 | ||||||||
—minority interest | — | — | — | 59 | 59 | ||||||||||
Unrealised gains included in shareholders’ equity | 3,997 | 487 | 58 | — | 4,542 | ||||||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 | ||||||||||||||||||
Buildings | Office equipment, furniture and fixtures | Motor vehicles | Assets under construction | Leasehold improvements | Total | |||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||
Cost | ||||||||||||||||||
As at 1 January 2007 | 12,925 | 3,210 | 1,815 | 2,160 | 218 | 20,328 | ||||||||||||
Additions | 1,014 | 789 | 310 | 1,190 | 122 | 3,425 | ||||||||||||
Disposals | (51 | ) | (151 | ) | (98 | ) | (142 | ) | (7 | ) | (449 | ) | ||||||
Transfers upon completion | 614 | — | — | (614 | ) | — | — | |||||||||||
As at 31 December 2007 | 14,502 | 3,848 | 2,027 | 2,594 | 333 | 23,304 | ||||||||||||
Accumulated depreciation and impairment | ||||||||||||||||||
As at 1 January 2007 | (2,509 | ) | (1,800 | ) | (1,337 | ) | — | (117 | ) | (5,763 | ) | |||||||
Charges for the year | (408 | ) | (446 | ) | (124 | ) | — | (42 | ) | (1,020 | ) | |||||||
Disposals | 13 | 146 | 91 | — | — | 250 | ||||||||||||
As at 31 December 2007 | (2,904 | ) | (2,100 | ) | (1,370 | ) | — | (159 | ) | (6,533 | ) | |||||||
Net book value | ||||||||||||||||||
As at 1 January 2007 | 10,416 | 1,410 | 478 | 2,160 | 101 | 14,565 | ||||||||||||
As at 31 December 2007 | 11,598 | 1,748 | 657 | 2,594 | 174 | 16,771 | ||||||||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
2006 | ||||||||||||||||||
Buildings | Office equipment, furniture and fixtures | Motor vehicles | Assets under construction | Leasehold improvements | Total | |||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||
Cost | ||||||||||||||||||
As at 1 January 2006 | 12,144 | 2,746 | 1,711 | 1,086 | 152 | 17,839 | ||||||||||||
Additions | 152 | 561 | 212 | 1,773 | 61 | 2,759 | ||||||||||||
Disposals | (41 | ) | (119 | ) | (108 | ) | — | (2 | ) | (270 | ) | |||||||
Transfers upon completion | 670 | 22 | — | (699 | ) | 7 | — | |||||||||||
As at 31 December 2006 | 12,925 | 3,210 | 1,815 | 2,160 | 218 | 20,328 | ||||||||||||
Accumulated depreciation and impairment | ||||||||||||||||||
As at 1 January 2006 | (2,164 | ) | (1,540 | ) | (1,325 | ) | — | (100 | ) | (5,129 | ) | |||||||
Charges for the year | (345 | ) | (373 | ) | (112 | ) | — | (18 | ) | (848 | ) | |||||||
Impairment loss | (3 | ) | — | — | — | — | (3 | ) | ||||||||||
Disposals | 3 | 113 | 100 | — | 1 | 217 | ||||||||||||
As at 31 December 2006 | (2,509 | ) | (1,800 | ) | (1,337 | ) | — | (117 | ) | (5,763 | ) | |||||||
Net book value | ||||||||||||||||||
As at 1 January 2006 | 9,980 | 1,206 | 386 | 1,086 | 52 | 12,710 | ||||||||||||
As at 31 December 2006 | 10,416 | 1,410 | 478 | 2,160 | 101 | 14,565 | ||||||||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 | 2006 | 2005 | |||||||
RMB million | RMB million | RMB million | |||||||
Gross | |||||||||
As at 1 January | 39,245 | 37,841 | 32,981 | ||||||
Acquisition costs deferred | 17,490 | 15,929 | 14,231 | ||||||
Amortisation charged through income | (13,476 | ) | (10,359 | ) | (7,960 | ) | |||
Amortisation charged through equity | (2,398 | ) | (4,166 | ) | (1,411 | ) | |||
As at 31 December | 40,861 | 39,245 | 37,841 | ||||||
Ceded | |||||||||
As at 1 January | (15 | ) | (100 | ) | (194 | ) | |||
Acquisition costs deferred | (10 | ) | (15 | ) | (100 | ) | |||
Amortisation charged through income | 15 | 100 | 194 | ||||||
As at 31 December | (10 | ) | (15 | ) | (100 | ) | |||
Net | |||||||||
As at 1 January | 39,230 | 37,741 | 32,787 | ||||||
Acquisition costs deferred | 17,480 | 15,914 | 14,131 | ||||||
Amortisation charged through income | (13,461 | ) | (10,259 | ) | (7,766 | ) | |||
Amortisation charged through equity | (2,398 | ) | (4,166 | ) | (1,411 | ) | |||
As at 31 December | 40,851 | 39,230 | 37,741 | ||||||
DAC excluding unrealised gains | 47,862 | 43,843 | 38,188 | ||||||
DAC recorded in unrealised gains | (7,011 | ) | (4,613 | ) | (447 | ) | |||
Total | 40,851 | 39,230 | 37,741 | ||||||
Current | 1,050 | 794 | 603 | ||||||
Non-current | 39,801 | 38,436 | 37,138 | ||||||
Total | 40,851 | 39,230 | 37,741 | ||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 | 2006 | ||||
RMB million | RMB million | ||||
At 1 January | 6,071 | — | |||
Acquisition of Guangdong Development Bank (“GDB”) (a) | — | 5,671 | |||
Investment in China Life Property & Casualty Insurance Company Limited (“CLP&C”) (b) | — | 400 | |||
Share of results | 409 | — | |||
Other equity movements (Note 31) | (30 | ) | — | ||
At 31 December | 6,450 | 6,071 | |||
(a) The Group acquired 20% of the share capital of GDB on 18 December 2006 for a cash consideration of RMB5,671 million.
(b) As approved by CIRC, the Company entered an agreement with CLIC to establish CLP&C with total paid-in capital of RMB1,000 million in 2006. The Company and CLIC own 40% and 60% of CLP&C, respectively. CLP&C obtained its business license and commenced operation on 30 December 2006.
The Group’s share in investment in associates is as follows:
Country of incorporation | Assets | Liabilities | Revenues | Profit/ (Loss) | Interest held | |||||||||
(RMB million) | ||||||||||||||
GDB | PRC | 77,901 | 72,230 | 59 | — | 20 | % | |||||||
CLP&C | PRC | 400 | — | — | — | 40 | % | |||||||
Total at 31 December 2006 | 78,301 | 72,230 | 59 | — | ||||||||||
GDB | PRC | 90,584 | 84,419 | 2,534 | 544 | 20 | % | |||||||
CLP&C | PRC | 641 | 356 | 81 | (135 | ) | 40 | % | ||||||
Total at 31 December 2007 | 91,225 | 84,775 | 2,615 | 409 | ||||||||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
Amortised cost | Gross unrealised gains | Gross unrealised losses | Estimated fair value | ||||||
RMB million | RMB million | RMB million | RMB million | ||||||
As at 31 December 2007 | |||||||||
Debt securities | |||||||||
Government bonds | 96,786 | 1,228 | (1,780 | ) | 96,234 | ||||
Government agency bonds | 71,273 | 1,110 | (4,303 | ) | 68,080 | ||||
Corporate bonds | 3,272 | 171 | (40 | ) | 3,403 | ||||
Subordinated bonds/debts | 24,372 | 62 | (562 | ) | 23,872 | ||||
Total | 195,703 | 2,571 | (6,685 | ) | 191,589 | ||||
Amortised cost | Gross unrealised gains | Gross unrealised losses | Estimated fair value | ||||||
RMB million | RMB million | RMB million | RMB million | ||||||
As at 31 December 2006 | |||||||||
Debt securities | |||||||||
Government bonds | 94,999 | 7,791 | (26 | ) | 102,764 | ||||
Government agency bonds | 53,935 | 2,642 | (244 | ) | 56,333 | ||||
Corporate bonds | 3,257 | 296 | — | 3,553 | |||||
Subordinated bonds/debts | 24,368 | 1,282 | (8 | ) | 25,642 | ||||
Total | 176,559 | 12,011 | (278 | ) | 188,292 | ||||
Amortised cost | Estimated fair value | |||||||
As at 31 December 2007 | As at 31 December 2006 | As at 31 December 2007 | As at 31 December 2006 | |||||
RMB million | RMB million | RMB million | RMB million | |||||
Maturing: | ||||||||
Within one year | 2,896 | 2,974 | 2,921 | 3,008 | ||||
After one year but within five years | 50,059 | 51,483 | 50,861 | 54,345 | ||||
After five years but within ten years | 52,508 | 37,295 | 52,835 | 40,279 | ||||
After ten years | 90,240 | 84,807 | 84,972 | 90,660 | ||||
Total | 195,703 | 176,559 | 191,589 | 188,292 | ||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
Amortised cost/Cost | Gross unrealised gains | Gross unrealised losses | Estimated fair value | ||||||
RMB million | RMB million | RMB million | RMB million | ||||||
As at 31 December 2007 | |||||||||
Debt securities | |||||||||
Government bonds | 83,137 | 183 | (2,732 | ) | 80,588 | ||||
Government agency bonds | 111,906 | 686 | (5,438 | ) | 107,154 | ||||
Corporate bonds | 46,464 | 120 | (2,842 | ) | 43,742 | ||||
Subordinated bonds/debts | 10,462 | 156 | (720 | ) | 9,898 | ||||
Subtotal | 251,969 | 1,145 | (11,732 | ) | 241,382 | ||||
Equity securities | |||||||||
Funds | 37,513 | 23,328 | (217 | ) | 60,624 | ||||
Common stocks | 51,714 | 64,115 | (320 | ) | 115,509 | ||||
Subtotal | 89,227 | 87,443 | (537 | ) | 176,133 | ||||
Total | 341,196 | 88,588 | (12,269 | ) | 417,515 | ||||
Amortised cost/Cost | Gross gains | Gross losses | Estimated fair value | ||||||
RMB million | RMB million | RMB million | RMB million | ||||||
As at 31 December 2006 | |||||||||
Debt securities | |||||||||
Government bonds | 60,058 | 863 | (569 | ) | 60,352 | ||||
Government agency bonds | 78,300 | 664 | (243 | ) | 78,721 | ||||
Corporate bonds | 31,001 | 238 | (487 | ) | 30,752 | ||||
Subordinated bonds/debts | 7,068 | 12 | (37 | ) | 7,043 | ||||
Subtotal | 176,427 | 1,777 | (1,336 | ) | 176,868 | ||||
Equity securities | |||||||||
Funds | 20,535 | 12,437 | (103 | ) | 32,869 | ||||
Common stocks | 15,876 | 13,882 | (33 | ) | 29,725 | ||||
Warrants | — | 1 | — | 1 | |||||
Subtotal | 36,411 | 26,320 | (136 | ) | 62,595 | ||||
Total | 212,838 | 28,097 | (1,472 | ) | 239,463 | ||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
Debt securities | Amortised cost | Estimated fair value | ||||||
—contractual maturity schedule | As at 31 December | As at 31 December | As at 31 December | As at 31 December | ||||
RMB million | RMB million | RMB million | RMB million | |||||
Maturing: | ||||||||
Within one year | 616 | 4,544 | 612 | 4,561 | ||||
After one year but within five years | 23,139 | 26,664 | 22,672 | 27,016 | ||||
After five years but within ten years | 89,493 | 60,261 | 87,615 | 59,995 | ||||
After ten years | 138,721 | 84,958 | 130,483 | 85,296 | ||||
Total | 251,969 | 176,427 | 241,382 | 176,868 | ||||
5.3 | Allocation basis of assets and liabilities | |
Financial assets and securities sold under agreements to repurchase are allocated among segments in proportion to each respective segment’s average liabilities of insurance contracts and investment contracts at the beginning and end of the year. Insurance liabilities are presented among segments respectively. |
As at 31 December | As at 31 December | |||
RMB million | RMB million | |||
Debt securities | ||||
Government bonds | 693 | 148 | ||
Government agency bonds | 4,583 | 1,915 | ||
Corporate bonds | 513 | 2,083 | ||
Subordinated bonds/debts | 307 | 325 | ||
Subtotal | 6,096 | 4,471 | ||
Equity securities | ||||
Funds | 9,145 | 12,382 | ||
Common stocks | 9,842 | 20,460 | ||
Warrants | 27 | 56 | ||
Subtotal | 19,014 | 32,898 | ||
Total | 25,110 | 37,369 | ||
F-40
FOR THE YEAR ENDED 31 DECEMBER 2007
5 | SEGMENT INFORMATION (continued) |
For the year ended 31 December 2009 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Gross written premiums | 261,715 | 190 | 14,065 | — | — | 275,970 | ||||||||||||||||||
- Term Life | 805 | 112 | — | — | — | |||||||||||||||||||
- Whole Life | 37,860 | 60 | — | — | — | |||||||||||||||||||
- Endowment | 184,841 | — | — | — | — | |||||||||||||||||||
- Annuity | 38,209 | 18 | — | — | — | |||||||||||||||||||
Net premiums earned | 261,694 | 189 | 13,194 | — | 275,077 | |||||||||||||||||||
Investment income | 35,693 | 2,614 | 408 | 175 | — | 38,890 | ||||||||||||||||||
Net realised gains on financial assets | 19,522 | 1,430 | 222 | 70 | — | 21,244 | ||||||||||||||||||
Net fair value gains on assets at fair value through income | 1,330 | 97 | 16 | 6 | — | 1,449 | ||||||||||||||||||
Other income | 283 | 331 | — | 2,586 | (570 | ) | 2,630 | |||||||||||||||||
including: inter-segment revenue | — | — | — | 570 | (570 | ) | — | |||||||||||||||||
Segment revenues | 318,522 | 4,661 | 13,840 | 2,837 | (570 | ) | 339,290 | |||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||
Insurance benefits and claims | ||||||||||||||||||||||||
Life insurance death and other benefits | (74,416 | ) | (442 | ) | — | — | — | (74,858 | ) | |||||||||||||||
Accident and health claims and claim adjustment expenses | — | — | (7,808 | ) | — | — | (7,808 | ) | ||||||||||||||||
Increase in insurance contracts liabilities | (154,552) | 180 | — | — | — | (154,372 | ) | |||||||||||||||||
Investment contract benefits | (560 | ) | (1,582 | ) | — | — | — | (2,142 | ) | |||||||||||||||
Policyholder dividends resulting from participation in profits | (13,181 | ) | (1,306 | ) | — | — | — | (14,487 | ) | |||||||||||||||
Underwriting and policy acquisition costs | (20,881 | ) | (113 | ) | (1,877 | ) | (65 | ) | — | (22,936 | ) | |||||||||||||
Administrative expenses | (13,057 | ) | (779 | ) | (3,236 | ) | (1,647 | ) | — | (18,719 | ) | |||||||||||||
Other operating expenses | (1,702 | ) | (131 | ) | (387 | ) | (740 | ) | 570 | (2,390 | ) | |||||||||||||
including: Inter-segment expenses | (504 | ) | (37 | ) | (6 | ) | (23 | ) | 570 | — | ||||||||||||||
Statutory insurance fund | (404 | ) | (21 | ) | (112 | ) | — | — | (537 | ) | ||||||||||||||
Segment benefits, claims and expenses | (278,753 | ) | (4,194 | ) | (13,420 | ) | (2,452 | ) | 570 | (298,249 | ) | |||||||||||||
Share of results of associates | — | — | — | 704 | — | 704 | ||||||||||||||||||
Segment results | 39,769 | 467 | 420 | 1,089 | — | 41,745 | ||||||||||||||||||
Income tax expenses | — | — | — | (8,709 | ) | — | (8,709 | ) | ||||||||||||||||
Net profit/(loss) | 39,769 | 467 | 420 | (7,620 | ) | — | 33,036 | |||||||||||||||||
Attributable to | ||||||||||||||||||||||||
- shareholders of the Company | 39,769 | 467 | 420 | (7,775 | ) | — | 32,881 | |||||||||||||||||
- minority interests | — | — | — | 155 | — | 155 | ||||||||||||||||||
Unrealised gains/(losses) included in shareholder’s equity | 9,953 | 729 | 113 | (50 | ) | — | 10,745 | |||||||||||||||||
Depreciation and amortisation | 1,169 | 69 | 289 | 33 | — | 1,560 |
F-41
As at 31 December | As at 31 December | |||
RMB million | RMB million | |||
Listed debt securities in PRC | ||||
Government bonds | 51,296 | 64,562 | ||
Corporate bonds | 6,571 | 6,839 | ||
Subtotal | 57,867 | 71,401 | ||
Unlisted debt securities in PRC | ||||
Government bonds | 126,771 | 90,937 | ||
Government agency bonds | 183,010 | 134,571 | ||
Corporate bonds | 40,956 | 29,253 | ||
Subordinated bonds/debts | 34,577 | 31,736 | ||
Subtotal | 385,314 | 286,497 | ||
Listed equity securities in PRC | ||||
Common stocks | ||||
—listed in HK, PRC | 8,476 | 6,884 | ||
—listed in mainland, PRC | 116,873 | 43,301 | ||
Funds—listed in mainland, PRC | 17,677 | 12,861 | ||
Warrants—listed in mainland, PRC | 27 | 57 | ||
Subtotal | 143,053 | 63,103 | ||
Unlisted equity securities in PRC | ||||
Funds | 52,092 | 32,390 | ||
Common stocks | 2 | — | ||
Subtotal | 52,094 | 32,390 | ||
Total | 638,328 | 453,391 | ||
As at 31 December 2007, the amount of unlisted debt securities, traded in the inter-bank market, is RMB 323,058 million (as at 31 December 2006: RMB 260,289 million).
As at 31 December 2007 | As at 31 December 2006 | |||
RMB million | RMB million | |||
Maturing: | ||||
Within one year | 46,706 | 57,930 | ||
After one year but within five years | 93,372 | 111,901 | ||
After five years but within ten years | 26,434 | 3,421 | ||
After ten years | 2,082 | 2,224 | ||
Total | 168,594 | 175,476 | ||
Included in term deposits are structured deposits of RMB 4,346 million (31 December 2006: RMB4,646 million). The interest rate on these deposits fluctuates based on changes in interest rate indexes. The Group uses structured deposits primarily to enhance the returns on investments. Structured deposits are stated at amortised cost.
F-42
FOR THE YEAR ENDED 31 DECEMBER 20075 As at 31 December 2009 Individual Group Short- Corporate life life term & other Elimination Total (RMB million) Financial assets 1,056,319 76,351 11,877 5,609 — 1,150,156 Cash and cash equivalents 32,808 2,401 373 615 — 36,197 Other 701 — 114 8,470 — 9,285 1,089,828 78,752 12,364 14,694 — 1,195,638 Property, plant and equipment 17,467 Other 13,152 1,226,257 Insurance contracts 808,591 632 8,941 — — 818,164 Financial liabilities Investment contracts 14,579 52,747 — — — 67,326 Securities sold under agreements to repurchase 30,250 2,215 345 743 — 33,553 Other 120 436 — — — 556 853,540 56,030 9,286 743 — 919,599 Other 93,882 1,013,481
SEGMENT INFORMATION (continued) |
For the year ended 31 December 2008 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Gross written premiums | 252,130 | 340 | 13,186 | — | — | 265,656 | ||||||||||||||||||
- Term Life | 308 | 25 | — | — | — | |||||||||||||||||||
- Whole Life | 35,421 | 274 | — | — | — | |||||||||||||||||||
- Endowment | 188,099 | — | — | — | — | |||||||||||||||||||
- Annuity | 28,302 | 41 | — | — | — | |||||||||||||||||||
Net premiums earned | 252,113 | 339 | 12,725 | — | 265,177 | |||||||||||||||||||
Investment income | 40,407 | 3,699 | 524 | 316 | — | 44,946 | ||||||||||||||||||
Net realised losses on financial assets | (5,355 | ) | (490 | ) | (69 | ) | (50 | ) | — | (5,964 | ) | |||||||||||||
Net fair value losses on assets at fair value through income | (6,382 | ) | (584 | ) | (83 | ) | (145 | ) | — | (7,194 | ) | |||||||||||||
Other income | 605 | 683 | 2,513 | (381 | ) | 3,420 | ||||||||||||||||||
including: inter-segment revenue | — | — | — | 381 | (381 | ) | — | |||||||||||||||||
Segment revenues | 281,388 | 3,647 | 13,097 | 2,634 | (381 | ) | 300,385 | |||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||
Insurance benefits and claims | ||||||||||||||||||||||||
Life insurance death and other benefits | (88,507 | ) | (1,152 | ) | — | — | — | (89,659 | ) | |||||||||||||||
Accident and health claims and claim adjustment expenses | — | — | (7,641 | ) | — | — | (7,641 | ) | ||||||||||||||||
Increase in insurance contracts liabilities | (135,298) | 649 | — | — | — | (134,649 | ) | |||||||||||||||||
Investment contract benefits | (224 | ) | (1,707 | ) | — | — | — | (1,931 | ) | |||||||||||||||
Policyholder dividends resulting from participation in profits | (1,589 | ) | (82 | ) | — | — | — | (1,671 | ) | |||||||||||||||
Underwriting and policy acquisition costs | (22,127 | ) | (212 | ) | (1,848 | ) | (13 | ) | — | (24,200 | ) | |||||||||||||
Administrative expenses | (11,347 | ) | (761 | ) | (2,614 | ) | (1,930 | ) | — | (16,652 | ) | |||||||||||||
Other operating expenses | (2,826 | ) | (273 | ) | (263 | ) | (428 | ) | 381 | (3,409 | ) | |||||||||||||
including: Inter-segment expenses | (212 | ) | (19 | ) | (3 | ) | (147 | ) | 381 | — | ||||||||||||||
Statutory insurance fund | (395 | ) | (28 | ) | (135 | ) | — | — | (558 | ) | ||||||||||||||
Segment benefits, claims and expenses | (262,313 | ) | (3,566 | ) | (12,501 | ) | (2,371 | ) | 381 | (280,370 | ) | |||||||||||||
Share of results of associates | — | — | — | (56 | ) | — | (56 | ) | ||||||||||||||||
Segment results | 19,075 | 81 | 596 | 207 | — | 19,959 | ||||||||||||||||||
Income tax expenses | — | — | — | (685 | ) | — | (685 | ) | ||||||||||||||||
Net profit/(loss) | 19,075 | 81 | 596 | (478 | ) | — | 19,274 | |||||||||||||||||
Attributable to | ||||||||||||||||||||||||
- shareholders of the Company | 19,075 | 81 | 596 | (615 | ) | — | 19,137 | |||||||||||||||||
- minority interests | — | — | — | 137 | — | 137 | ||||||||||||||||||
Unrealised gains/(losses) included in shareholder’s equity | (30,457 | ) | (2,788 | ) | (395 | ) | 188 | — | (33,452 | ) | ||||||||||||||
Depreciation and amortisation | 1,014 | 68 | 248 | 28 | — | 1,358 |
F-43
5 | SEGMENT INFORMATION (continued) |
As at 31 December 2008 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Financial assets | 827,033 | 74,923 | 10,606 | 3,905 | — | 916,467 | ||||||||||||||||||
Cash and cash equivalents | 30,724 | 2,812 | 398 | 151 | — | 34,085 | ||||||||||||||||||
Other | 698 | — | 77 | 7,891 | — | 8,666 | ||||||||||||||||||
Segment assets | 858,455 | 77,735 | 11,081 | 11,947 | — | 959,218 | ||||||||||||||||||
Unallocated | ||||||||||||||||||||||||
Property, plant and equipment | 16,720 | |||||||||||||||||||||||
Other | 11,555 | |||||||||||||||||||||||
Total | 987,493 | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Insurance contracts | 654,037 | 811 | 8,017 | — | — | 662,865 | ||||||||||||||||||
Financial Liabilities | ||||||||||||||||||||||||
Investment contracts | 10,928 | 54,135 | — | — | — | 65,063 | ||||||||||||||||||
Securities sold under agreements to repurchase | 10,141 | 928 | 131 | 190 | — | 11,390 | ||||||||||||||||||
Other | 48 | 237 | — | — | — | 285 | ||||||||||||||||||
Segment liabilities | 675,154 | 56,111 | 8,148 | 190 | — | 739,603 | ||||||||||||||||||
Unallocated | ||||||||||||||||||||||||
Other | 73,019 | |||||||||||||||||||||||
Total | 812,622 | |||||||||||||||||||||||
F-44
6 | PROPERTY, PLANT AND EQUIPMENT |
2009 | ||||||||||||||||||||||||
Office | ||||||||||||||||||||||||
equipment | ||||||||||||||||||||||||
furniture and | Motor | Assets under | Leasehold | |||||||||||||||||||||
Buildings | fixtures | vehicles | construction | improvements | Total | |||||||||||||||||||
(RMB Million) | ||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||
As at 1 January 2009 | 13,397 | 4,092 | 1,853 | 3,024 | 691 | 23,057 | ||||||||||||||||||
Transfers upon completion | 560 | 6 | — | (607 | ) | 41 | — | |||||||||||||||||
Additions | 190 | 750 | 157 | 1,520 | 78 | 2,695 | ||||||||||||||||||
Disposals | (75 | ) | (213 | ) | (164 | ) | (401 | ) | (18 | ) | (871 | ) | ||||||||||||
As at 31 December 2009 | 14,072 | 4,635 | 1,846 | 3,536 | 792 | 24,881 | ||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
As at 1 January 2009 | (2,789 | ) | (2,157 | ) | (1,116 | ) | — | (243 | ) | (6,305 | ) | |||||||||||||
Additions | (502 | ) | (598 | ) | (175 | ) | — | (139 | ) | (1,414 | ) | |||||||||||||
Disposals | 15 | 168 | 142 | — | 10 | 335 | ||||||||||||||||||
As at 31 December 2009 | (3,276 | ) | (2,587 | ) | (1,149 | ) | — | (372 | ) | (7,384 | ) | |||||||||||||
Impairment | ||||||||||||||||||||||||
As at 1 January 2009 | (32 | ) | — | — | — | — | (32 | ) | ||||||||||||||||
Additions | (1 | ) | — | — | — | — | (1 | ) | ||||||||||||||||
Disposals | 3 | — | — | — | — | 3 | ||||||||||||||||||
As at 31 December 2009 | (30 | ) | — | — | — | — | (30 | ) | ||||||||||||||||
Net book value | ||||||||||||||||||||||||
As at 1 January 2009 | 10,576 | 1,935 | 737 | 3,024 | 448 | 16,720 | ||||||||||||||||||
As at 31 December 2009 | 10,766 | 2,048 | 697 | 3,536 | 420 | 17,467 | ||||||||||||||||||
F-45
6 | PROPERTY, PLANT AND EQUIPMENT(Continued) |
2008 | ||||||||||||||||||||||||
Office | ||||||||||||||||||||||||
equipment | ||||||||||||||||||||||||
furniture and | Motor | Assets under | Leasehold | |||||||||||||||||||||
Buildings | fixtures | vehicles | construction | improvements | Total | |||||||||||||||||||
(RMB Million) | ||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||
As at 1 January 2008 | 12,655 | 3,617 | 1,815 | 2,594 | 333 | 21,014 | ||||||||||||||||||
Transfers upon completion | 416 | — | — | (416 | ) | — | — | |||||||||||||||||
Additions | 439 | 752 | 203 | 898 | 369 | 2,661 | ||||||||||||||||||
Disposals | (113 | ) | (277 | ) | (165 | ) | (52 | ) | (11 | ) | (618 | ) | ||||||||||||
As at 31 December 2008 | 13,397 | 4,092 | 1,853 | 3,024 | 691 | 23,057 | ||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
As at 1 January 2008 | (2,374 | ) | (1,865 | ) | (1,097 | ) | — | (159 | ) | (5,495 | ) | |||||||||||||
Additions | (444 | ) | (531 | ) | (175 | ) | — | (94 | ) | (1,244 | ) | |||||||||||||
Disposals | 29 | 239 | 156 | — | 10 | 434 | ||||||||||||||||||
As at 31 December 2008 | (2,789 | ) | (2,157 | ) | (1,116 | ) | — | (243 | ) | (6,305 | ) | |||||||||||||
Impairment | ||||||||||||||||||||||||
As at 1 January 2008 | (13 | ) | — | — | — | — | (13 | ) | ||||||||||||||||
Additions | (24 | ) | — | — | — | — | (24 | ) | ||||||||||||||||
Disposals | 5 | — | — | — | — | 5 | ||||||||||||||||||
As at 31 December 2008 | (32 | ) | — | — | — | — | (32 | ) | ||||||||||||||||
Net book value | ||||||||||||||||||||||||
As at 1 January 2008 | 10,268 | 1,752 | 718 | 2,594 | 174 | 15,506 | ||||||||||||||||||
As at 31 December 2008 | 10,576 | 1,935 | 737 | 3,024 | 448 | 16,720 | ||||||||||||||||||
F-46
7 | INVESTMENTS IN ASSOCIATES |
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
As at 1 January | 7,891 | 6,449 | ||||||
Additional capital contribution to China Life Property &Casualty Insurance Company Limited(“CLP&C”)(Note 28(e)) | — | 1,200 | ||||||
Investment in China Life Insurance Brokers(“CIB”) | — | 7 | ||||||
Share of results | 704 | (56 | ) | |||||
Other equity movements | (70 | ) | 291 | |||||
Dividend received | (55 | ) | — | |||||
As at 31 December | 8,470 | 7,891 | ||||||
The group’s share in investment its associates, all of which are unlisted, is as follows: | ||
Assets and liabilities of associates |
Country of | Interest | |||||||||||||||
Name | incorporation | held | Assets | Liabilities | ||||||||||||
RMB million | RMB million | |||||||||||||||
Guangdong Development Bank(“GDB”) | PRC | 20 | % | 90,584 | 84,419 | |||||||||||
CLP&C | PRC | 40 | % | 641 | 357 | |||||||||||
Total as at 1 January 2008 | 91,225 | 84,776 | ||||||||||||||
GDB | PRC | 20 | % | 112,252 | 105,283 | |||||||||||
CLP&C | PRC | 40 | % | 3,595 | 2,680 | |||||||||||
CIB | PRC | 49 | % | 7 | — | |||||||||||
Total as at 31 December 2008 | 115,854 | 107,963 | ||||||||||||||
GDB | PRC | 20 | % | 136,344 | 128,859 | |||||||||||
CLP&C | PRC | 40 | % | 4,855 | 3,876 | |||||||||||
CIB | PRC | 49 | % | 6 | — | |||||||||||
Total as at 31 December 2009 | 141,205 | 132,735 | ||||||||||||||
Revenues and profit/(loss) of associates |
Name | Revenue | Profit/(Loss) | ||||||
RMB million | RMB million | |||||||
GDB | 3,542 | 559 | ||||||
CLP&C | 1,273 | (615 | ) | |||||
CIB | — | — | ||||||
Total for the year ended 31 December 2008 | 4,815 | (56 | ) | |||||
GDB | 3,023 | 673 | ||||||
CLP&C | 2,946 | 32 | ||||||
CIB | — | (1 | ) | |||||
Total for the year ended 31 December 2009 | 5,969 | 704 | ||||||
F-47
8 | FINANCIAL ASSETS | |
8.1 | Held-to-maturity securities |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Debt securities | ||||||||||||
Government bonds | 103,980 | 102,688 | 96,786 | |||||||||
Government agency bonds | 84,619 | 79,400 | 71,273 | |||||||||
Corporate bonds | 3,139 | 3,267 | 3,272 | |||||||||
Subordinated bonds/debts | 43,361 | 26,574 | 24,372 | |||||||||
Total | 235,099 | 211,929 | 195,703 | |||||||||
As at 31 | As at 31 | As at 1 | ||||||||||
Debt securities | December 2009 | December 2008 | January 2008 | |||||||||
- Contractual maturity schedule | RMB million | RMB million | RMB million | |||||||||
Maturing | ||||||||||||
Within one year | 5,937 | 24,107 | 2,896 | |||||||||
After one year but within five years | 34,903 | 28,445 | 50,059 | |||||||||
After five years but within ten years | 43,792 | 55,866 | 52,508 | |||||||||
After ten years | 150,467 | 103,511 | 90,240 | |||||||||
Total | 235,099 | 211,929 | 195,703 | |||||||||
8.2 | Loans |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Policy loans | 13,831 | 8,676 | 5,944 | |||||||||
Other loans | 9,250 | 9,250 | 1,200 | |||||||||
Total | 23,081 | 17,926 | 7,144 | |||||||||
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Maturing | ||||||||||||
Within one year | 13,831 | 8,676 | 5,944 | |||||||||
After one year but within five years | — | — | — | |||||||||
After five years but within ten years | 1,200 | 1,200 | 1,200 | |||||||||
After ten years | 8,050 | 8,050 | — | |||||||||
Total | 23,081 | 17,926 | 7,144 | |||||||||
F-48
8.3 | Term deposits |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Maturing | ||||||||||||
Within one year | 84,393 | 64,621 | 46,706 | |||||||||
After one year but within five years | 196,090 | 155,320 | 93,372 | |||||||||
After five years but within ten years | 64,500 | 6,759 | 26,434 | |||||||||
After ten years | — | 1,572 | 2,082 | |||||||||
Total | 344,983 | 228,272 | 168,594 | |||||||||
Included in term deposits are structured deposits of RMB 273 million (31 December 2008: RMB 2,905 million; 1 January 2008: 4,346 million). The interest rate on these deposits fluctuates based on changes in interest rate indexes. Structured deposits are stated at amortised cost. | ||
8.4 | Statutory deposits-restricted |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Contractual maturity schedule | ||||||||||||
Within one year | 100 | 200 | 5,353 | |||||||||
After one year but within five years | 6,053 | 5,953 | 420 | |||||||||
Total | 6,153 | 6,153 | 5,773 | |||||||||
Insurance companies in China are required to deposit an amount equal to 20% of their registered capital with banks designated by CIRC. These funds may not be used for any purpose, other than to pay off debts during a liquidation proceeding. |
F-49
8 | FINANCIAL ASSETS (continued) | |
8.5 | Available-for-sale securities |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Debt securities | ||||||||||||
Government bonds | 51,996 | 80,006 | 80,588 | |||||||||
Government agency bonds | 165,231 | 191,121 | 107,154 | |||||||||
Corporate bonds | 102,553 | 67,505 | 43,742 | |||||||||
Subordinated bonds/debts | 21,045 | 17,588 | 9,898 | |||||||||
Subtotal | 340,825 | 356,220 | 241,382 | |||||||||
Equity securities | ||||||||||||
Funds | 75,798 | 29,890 | 60,624 | |||||||||
Common stocks | 100,876 | 38,829 | 115,509 | |||||||||
Subtotal | 176,674 | 68,719 | 176,133 | |||||||||
Total | 517,499 | 424,939 | 417,515 | |||||||||
Debt securities | ||||||||||||
Listed in mainland, PRC | 28,086 | 29,202 | 31,947 | |||||||||
Unlisted | 312,739 | 327,018 | 209,435 | |||||||||
Subtotal | 340,825 | 356,220 | 241,382 | |||||||||
Equity securities | ||||||||||||
Listed in Hong Kong, PRC | 13,570 | 2,398 | 8,464 | |||||||||
Listed in mainland, PRC | 97,803 | 39,311 | 123,810 | |||||||||
Unlisted | 65,301 | 27,010 | 43,859 | |||||||||
Subtotal | 176,674 | 68,719 | 176,133 | |||||||||
Total | 517,499 | 424,939 | 417,515 | |||||||||
F-50
FINANCIAL ASSETS (continued) | ||
8.5 | Available-for-sale securities(continued) |
As at 31 | As at 31 | As at 1 | ||||||||||
Debt securities | December 2009 | December 2008 | January 2008 | |||||||||
- contractual maturity schedule | RMB million | RMB million | RMB million | |||||||||
Maturing | ||||||||||||
Within one year | 2,912 | 7,801 | 612 | |||||||||
After one year but within five years | 45,607 | 73,461 | 22,672 | |||||||||
After five years but within ten years | 123,719 | 121,916 | 87,615 | |||||||||
After ten years | 168,587 | 153,042 | 130,483 | |||||||||
Total | 340,825 | 356,220 | 241,382 | |||||||||
As at 31 December 2007 | As at 31 December 2006 | |||
RMB million | RMB million | |||
Contractually maturing: | ||||
Within one year | 5,353 | — | ||
After one year but within five years | 420 | 5,353 | ||
Total | 5,773 | 5,353 | ||
Insurance companies in China are required to deposit an amount equal to 20% of their registered capital with banks designated by CIRC. These funds may not be used for any purpose, other than to pay off debts during a liquidation proceeding.F-51
8 | FINANCIAL ASSETS (continued) | |
8.6 | Securities at fair value through income |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Debt securities | ||||||||||||
Government bonds | 2,438 | 1,428 | 693 | |||||||||
Government agency bonds | 3,549 | 4,660 | 4,583 | |||||||||
Corporate bonds | 404 | 1,648 | 513 | |||||||||
Subordinated bonds/debts | — | — | 307 | |||||||||
Subtotal | 6,391 | 7,736 | 6,096 | |||||||||
Equity securities | ||||||||||||
Funds | 569 | 4,063 | 9,145 | |||||||||
Common stocks | 2,162 | 2,295 | 9,842 | |||||||||
Warrants | 11 | 5 | 27 | |||||||||
Subtotal | 2,742 | 6,363 | 19,014 | |||||||||
Total | 9,133 | 14,099 | 25,110 | |||||||||
Debt securities | ||||||||||||
Listed in mainland, PRC | 672 | 1,216 | 578 | |||||||||
Unlisted | 5,719 | 6,520 | 5,518 | |||||||||
Subtotal | 6,391 | 7,736 | 6,096 | |||||||||
Equity securities | ||||||||||||
Listed in Hong Kong, PRC | — | 12 | 12 | |||||||||
Listed in mainland, PRC | 2,201 | 2,755 | 10,767 | |||||||||
Unlisted | 541 | 3,596 | 8,235 | |||||||||
Subtotal | 2,742 | 6,363 | 19,014 | |||||||||
Total | 9,133 | 14,099 | 25,110 | |||||||||
F-52
FINANCIAL ASSETS (continued) |
As at 31 December 2007 | As at 31 December 2006 | |||
RMB million | RMB million | |||
Policy loans | 5,944 | 2,371 | ||
Other loans | 1,200 | — | ||
Total | 7,144 | 2,371 | ||
As at 31 December 2007 | As at 31 December 2006 | |||
RMB million | RMB million | |||
Maturing: | ||||
Within one year | 5,944 | 2,371 | ||
After five years but within ten years | 1,200 | — | ||
Total | 7,144 | 2,371 | ||
8.7 | Securities purchased under agreements to resell |
As at 31 | As at 31 | As at 1 | |||||||||||
| January 2008 | ||||||||||||
RMB million | RMB million | RMB million | |||||||||||
| |||||||||||||
Maturing: | |||||||||||||
Within thirty days | — | — | 5,053 | ||||||||||
| |||||||||||||
8.8 | Accrued investment income |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Bank deposits | 5,987 | 4,525 | 3,700 | |||||||||
Debt securities | 8,030 | 8,348 | 6,014 | |||||||||
Others | 191 | 276 | 143 | |||||||||
Total | 14,208 | 13,149 | 9,857 | |||||||||
Current | 14,208 | 13,149 | 9,824 | |||||||||
Non-current | — | — | 33 | |||||||||
Total | 14,208 | 13,149 | 9,857 | |||||||||
F-53
FOR THE YEAR ENDED 31 DECEMBER 2007
9 |
As at 2007 | As at 2006 | |||
RMB million | RMB million | |||
Bank deposits | 3,700 | 3,259 | ||
Debt securities | 6,014 | 5,008 | ||
Others | 143 | 194 | ||
Total | 9,857 | 8,461 | ||
As at 2007 | As at 2006 | |||
RMB million | RMB million | |||
Current | 9,824 | 8,439 | ||
Non-current | 33 | 22 | ||
Total | 9,857 | 8,461 | ||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES | ||
The estimates and judgments to determine the fair value of financial assets are described in Note 3.2. | ||
The fair value of investment contracts are determined by using valuation techniques, with consideration of the present value of expected cash flows arising from contracts using a risk-adjusted discount rate, allowing for risk free rate available on valuation date, the own credit risk and risk margin associated with the future cash flows. | ||
The table below presents the estimated fair value and carrying value of financial assets and liabilities. |
The estimates and judgments to determine the fair value of financial assets are described in Note 3.3.
The fair value of long-term investment type insurance contracts and investment contracts are determined by using valuation techniques, with consideration of the surrender value before surrender charges that the Group is required to pay if such payment is immediately demanded by the holders of investment contracts.
The table below presents the estimated fair value and carrying value of financial assets and liabilities.
Carrying value | Estimated fair value | |||||||||||||||
As at 31 | As at 31 | As at 31 | As at 31 | |||||||||||||
December | December | December | December | |||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
Held-to-maturity securities | 235,099 | 211,929 | 235,668 | 228,598 | ||||||||||||
Loans | 23,081 | 17,926 | 23,081 | 17,926 | ||||||||||||
Term deposits (excluding structured deposits) | 344,710 | 225,367 | 344,710 | 225,367 | ||||||||||||
Structured deposits | 273 | 2,905 | 272 | 2,887 | ||||||||||||
Statutory deposits-restricted | 6,153 | 6,153 | 6,153 | 6,153 | ||||||||||||
Available-for-sale securities | 517,499 | 424,939 | 517,499 | 424,939 | ||||||||||||
Securities at fair value through income | 9,133 | 14,099 | 9,133 | 14,099 | ||||||||||||
Cash and cash equivalents | 36,197 | 34,085 | 36,197 | 34,085 | ||||||||||||
Investment contracts | (67,326 | ) | (65,063 | ) | (66,184 | ) | (63,878 | ) | ||||||||
Securities sold under agreements to repurchase | (33,553 | ) | (11,390 | ) | (33,553 | ) | (11,390 | ) |
10 | PREMIUMS RECEIVABLE | |
The aging of premiums receivable is within 12 months. | ||
11 | REINSURANCE ASSETS |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Long-term insurance contracts ceded (Note 13) | 701 | 700 | 658 | |||||||||
Due from reinsurance companies | 17 | 163 | 399 | |||||||||
Ceded unearned premiums (Note 13) | 83 | 58 | 38 | |||||||||
Claims recoverable from reinsurers (Note 13) | 31 | 19 | 16 | |||||||||
Total | 832 | 940 | 1,111 | |||||||||
Current | 131 | 240 | 453 | |||||||||
Non-current | 701 | 700 | 658 | |||||||||
Total | 832 | 940 | 1,111 | |||||||||
Carrying value | Estimated fair value | |||||||||||
As at 31 December 2007 | As at 31 December 2006 | As at 31 December 2007 | As at 31 December 2006 | |||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||
Debt securities | 443,181 | 357,898 | 439,067 | 369,631 | ||||||||
Equity securities | 195,147 | 95,493 | 195,147 | 95,493 | ||||||||
Term deposits (excluding structured deposits) | 164,248 | 170,830 | 164,248 | 170,830 | ||||||||
Structured deposits | 4,346 | 4,646 | 4,281 | 4,419 | ||||||||
Statutory deposits-restricted | 5,773 | 5,353 | 5,773 | 5,353 | ||||||||
Securities purchased under agreements to resell | 5,053 | — | 5,053 | — | ||||||||
Loans | 7,144 | 2,371 | 7,144 | 2,371 | ||||||||
Cash and cash equivalents | 25,317 | 50,213 | 25,317 | 50,213 | ||||||||
Long-term investment type insurance contracts (excluding universal life insurance contracts) | (282,645 | ) | (282,520 | ) | (271,523 | ) | (276,129 | ) | ||||
Investment contracts with DPF | (49,068 | ) | (45,998 | ) | (39,551 | ) | (39,575 | ) | ||||
Investment contracts without DPF | (2,234 | ) | (2,614 | ) | (2,315 | ) | (2,459 | ) | ||||
Securities sold under agreements to repurchase | (100 | ) | (8,227 | ) | (100 | ) | (8,227 | ) |
F-54
The aging of premiums receivables is within 12 months.
As at 31 December 2007 | As at 31 December | |||
RMB million | RMB million | |||
Claims recoverable from reinsurers (Note 14) | 24 | 15 | ||
Ceded unearned premiums (Note 14) | 45 | 60 | ||
Long-term traditional insurance contracts ceded (Note 14) | 707 | 704 | ||
Due from reinsurance companies | 190 | 207 | ||
Total | 966 | 986 | ||
F-55 As at 31 December As at 31 December Current Non-current Total As at 31 December 2007 As at 31 December 2006 Due from CLIC (Note 29(c)) Deposits on fund units pending issuance/receivable on funds redeemed Advances Others Total As at 31 December 2007 As at 2006 Current Non-current Total
FOR THE YEAR ENDED 31 DECEMBER 200712 As at 31 As at 31 As at 1 December 2009 December 2008 January 2008 RMB million RMB million RMB million Land use rights 3,279 2,667 2,606 Due from CLIC (Note 28(f)) 646 684 739 Deposits on fund units pending issuance/receivables on funds units redeemed 300 — 500 Advances 302 273 206 Others 1,790 1,333 939 6,317 4,957 4,990 Current 2,471 1,720 2,122 Non-current 3,846 3,237 2,868 6,317 4,957 4,990 12REINSURANCE ASSETS (continued)
2007
2006 RMB million RMB million 259 282 707 704 966 986 13OTHER ASSETS RMB million RMB million 739 996 500 135 206 102 937 979 2,382 2,212
31 December RMB million RMB million 2,297 1,650 85 562 2,382 2,212 14INSURANCE CONTRACTS(a) Process used to decide on assumptions
(i) Investment return assumptions are based on estimates of future yields on the Group’s investments. In determining interest rate assumptions, the Group considers expectations about future economic conditions and company’s investment strategy. The assumed rate of investment return and provision for adverse deviation used for the past five years are as follows:
Year of policy issue | Interest rate assumptions | Provision for adverse deviation | ||
2003 | 3.65% - 5.00% | 0.25% -0.50% | ||
2004 | 3.70% - 5.17% | 0.25% - 0.50% | ||
2005 | 4.00% - 5.20% | 0.25% - 0.50% | ||
2006 | 4.60% - 5.40% | 0.25% - 0.60% | ||
2007 | 5.50% | 0.50% |
FOR THE YEAR ENDED 31 DECEMBER 20071413 (continued)(a) Process used to decide on assumptions (continued)(a) (i) For the insurance contracts of which future returns are affected by the investment yields of corresponding investment portfolios, investment return assumptions are applied as discount rates to assess the time value impacts on reserve computation. In developing discount rate assumptions, the Group considers investment experience, current and future investment portfolio and trend of the yield curve. The discount rate reflects the future economic outlook as well as the company’s investment strategy. The assumed discount rate with risk margin for the past two years are as follows: Discount rate assumptions As at 31 December 2008 3.50%~5.00 % As at 31 December 2009 4.40%~5.00 % For the insurance contracts of which the future returns are not affected by the investment yields of the corresponding investment portfolios, the Group use discount rate assumption to assess the time value impacts based on the “yield curve of reserve computation benchmark for insurance contracts”, published on “China Bond” website, with the consideration includes the liquidity spreads, taxation impacts and other relevant factors. The assumed discount rate with risk margin for the past two years are as follows: Discount rate assumptions As at 31 December 2008 2.81%~4.95 % As at 31 December 2009 2.69%~5.32 % The discount rate assumption is affected by certain factors, such as future macro-economy, fiscal policies, capital market and availability of investment channel of insurance funds. The Group determines discount rate assumption based on the information obtained at the end of each reporting period including consideration of risk margin. (ii) The mortality and morbidity assumptions are based on the Group’s historical mortality and morbidity experience. The assumed mortality rates and morbidity rates are varying by age of the insured and contract type. The Group bases its mortality assumptions on China Life Insurance Mortality Table (2000-2003), adjusted where appropriate to reflect the Group’s recent historical mortality experience. The main source of uncertainty with life insurance contracts is that epidemics and wide-ranging lifestyle changes could result in deterioration in future mortality experience, thus leading to an inadequate liability. Similarly, continuing advancements in medical care and social conditions could result in improvements in longevity that exceed those allowed for in the estimates used to determine the liability for contracts where the Group is exposed to longevity risk. The Group bases its morbidity assumptions for critical illness products on analysis of historical experience and expectations of future developments. There are two main sources of uncertainty. First, wide-ranging lifestyle changes could result in future deterioration in morbidity experience. Second, future development of medical technologies and improved coverage of medical facilities available to policyholders may bring forward the timing of diagnosing critical illness, which demands earlier payment of the critical illness benefits. Both could ultimately result in an inadequate liability if current morbidity assumptions do not properly reflect such secular trends. Risk margin is considered in the Group’s mortality and morbidity assumptions. (ii) Estimates are made for mortality and morbidity rates in each of the years that the Group is exposed to risk. The assumed mortality rates and morbidity rates, varying by age of the insured and contract type, are based upon expected experience at the date of contract issue plus, where applicable, a margin for adverse deviation.F-56
The Group bases its mortality assumptions on China Life Insurance Mortality Table (1990-1993) and China Life Insurance Mortality Table (2000-2003), adjusted where appropriate to reflect the Group’s recent historical mortality experience. Appropriate but not excessively prudent allowance is made for future mortality improvement on contracts that insure the risk of longevity, such as annuities. The main source of uncertainty with life insurance contracts is that epidemics such as Avian Flu, AIDS, SARS and wide-ranging lifestyle changes could result in deterioration in future mortality experience, thus leading to an inadequate liability. Similarly, continuing advancements in medical care and social conditions could result in improvements in longevity that exceed those allowed for in the estimates used to determine the liability for contracts where the Group is exposed to longevity risk.
The Group bases its morbidity assumptions for critical illness products on Taiwanese experience in the critical illness market, as the best proxy for the China’s market adjusted where appropriate to reflect the Group’s recent historical and projected future experience. There are two main sources of uncertainty. First, wide-ranging lifestyle changes could result in future deterioration in morbidity experience. Second, future development of medical technologies and improved coverage of medical facilities available to policyholders may bring forward the timing of diagnosing critical illness, which demands earlier payment of the critical illness benefits. Both could ultimately result in an inadequate liability if current morbidity assumptions do not properly reflect such secular trends.
(iii) The assumption for policy administration expenses has been based on expected unit costs plus, where applicable, a margin for adverse deviation. Unit costs have been based on an analysis of actual experience. The unit cost factors are expressed on both a per-policy and a percent-of-premium basis for the past five years, as follows:
Individual Life | Group Life | ||||||||
Year of policy issue | RMB Per Policy | % of Premium | RMB Per Policy | % of Premium | |||||
2003 | 12.5 | 1.75% | 12.5 | 1.75 | % | ||||
2004 | 10.0 - 17.5 | 1.65% - 2.55% | 17.5 | 1.65 | % | ||||
2005 | 14.5 - 19.5 | 1.50% - 1.80% | 4.0 | 1.30 | % | ||||
2006 | 15.0 - 22.0 | 1.60% - 1.85% | 6.5 | 1.50 | % | ||||
2007 | 15.0 - 22.0 | 1.60% - 1.85% | 6.5 | 1.50 | % |
(iv) Lapse rates and other assumptions are determined with reference to past experience where creditable, current conditions and future expectations.
The Group did not change its process used to decide on assumptions for the insurance contracts disclosed in this note.
FOR THE YEAR ENDED 31 DECEMBER 20071413(iii) The expense assumption has been based on expected unit costs with the consideration of risk margin. Unit costs have been based on an analysis of actual experience and expressed on both a per-policy and a percent-of-premium basis. The Group’s expense assumption is effected by certain factors, such as inflation, market competition and other factors. The Group determines expense assumption based on the information obtained at the end of each reporting period with the consideration of risk margin. Individual Life Group Life RMB Per Policy % of Premium RMB Per Policy % of Premium As at 31 December 2008 22.5~33.0 1.59%~1.74 % 9.7 1.54 % As at 31 December 2009 26.3~38.5 1.05%~1.17 % 11.3 1.01 % (iv) The lapse rates and other assumptions are effected by certain factors, such as future macro-economy, availability of financial substitutions, market competition and other factors, which brings uncertainty to lapse rate and other assumptions. The lapse rates and other assumptions are determined with reference to past experience where creditable, current conditions, future expectations and other information obtained at the end of each reporting period with consideration of risk margin. The Group did not change its process used to decide on assumptions for the insurance contracts disclosed in this note. As at 31 As at 31 As at 1 December 2009 December 2008 January 2008 RMB million RMB million RMB million Long-term insurance contracts 809,223 654,848 520,158 Short term insurance contracts - claims and claim adjustment expenses 2,944 2,780 2,455 - unearned premiums 5,997 5,237 4,894 818,164 662,865 527,507 Long-term insurance contracts (Note 11) (701 ) (700 ) (658 ) Short-term insurance contracts - claims and claim adjustment expenses (Note 11) (31 ) (19 ) (16 ) - unearned premiums (Note 11) (83 ) (58 ) (38 ) (815 ) (777 ) (712 ) Long-term insurance contracts 808,522 654,148 519,500 Short-term insurance contracts - claims and claim adjustment expenses 2,913 2,761 2,439 - unearned premiums 5,914 5,179 4,856 817,349 662,088 526,795 (b) Net liabilities of insurance contracts and investment contractsF-57
As at 2007 | As at 31 December 2006 | |||||
RMB million | RMB million | |||||
Gross | ||||||
Long-term traditional insurance contracts | 218,165 | 172,875 | ||||
Long-term investment type insurance contracts | 284,588 | 282,672 | ||||
Short-term insurance contracts | ||||||
—claims and claim adjustment expenses | 2,391 | 2,498 | ||||
—unearned premiums | 5,728 | 5,346 | ||||
Investment contracts | ||||||
—with DPF | 49,068 | 45,998 | ||||
—without DPF | 2,234 | 2,614 | ||||
Total, gross | 562,174 | 512,003 | ||||
Recoverable from reinsurers | ||||||
Long-term traditional insurance contracts (Note 12) | (707 | ) | (704 | ) | ||
Short-term insurance contracts | ||||||
—claims and claim adjustment expenses (Note 12) | (24 | ) | (15 | ) | ||
—unearned premiums (Note 12) | (45 | ) | (60 | ) | ||
Total, ceded | (776 | ) | (779 | ) | ||
Net | ||||||
Long-term traditional insurance contracts | 217,458 | 172,171 | ||||
Long-term investment type insurance contracts | 284,588 | 282,672 | ||||
Short-term insurance contracts | ||||||
—claims and claim adjustment expenses | 2,367 | 2,483 | ||||
—unearned premiums | 5,683 | 5,286 | ||||
Investment contracts | ||||||
—with DPF | 49,068 | 45,998 | ||||
—without DPF | 2,234 | 2,614 | ||||
Total, net | 561,398 | 511,224 | ||||
(c) Claims incurred ratio
2007 | 2006 | 2005 | |||||||
RMB million | RMB million | RMB million | |||||||
Claims incurred-net | 6,343 | 6,999 | 6,847 | ||||||
Claims incurred ratio | 55 | % | 66 | % | 68 | % | |||
FOR THE YEAR ENDED 31 DECEMBER 20071413The table below presents movement of reserves of claims and claim adjustment expenses: 2009 2008 RMB million RMB million - Notified claims 352 378 - Incurred but not reported 2,428 2,077 2,780 2,455 Cash paid for claims settled in year - Cash paid for current year claims (5,478 ) (5,124 ) - Cash paid for prior year claims (2,274 ) (2,256 ) Claims incurred in year - Claims arising in current year 7,951 7,842 - Claims arising in prior year (35 ) (137 ) 2,944 2,780 - Notified claims 228 352 - Incurred but not reported 2,716 2,428 2,944 2,780 The table below presents movement of unearned premium reserves: 2009 2008 RMB million RMB million Gross Ceded Net Gross Ceded Net 5,237 (58 ) 5,179 4,894 (38 ) 4,856 Increase 5,997 (83 ) 5,914 5,237 (58 ) 5,179 Release (5,237 ) 58 (5,179 ) (4,894 ) 38 (4,856 ) 5,997 (83 ) 5,914 5,237 (58 ) 5,179 The table below presents movement in the liabilities of insurance contracts: 2009 2008 RMB million RMB million As at 1 January 654,848 520,158 Premiums 261,905 252,470 Release of liabilities (i ) (127,472 ) (140,281 ) Accretion of interest 26,834 24,414 Change in assumptions (8,085 ) (3,720 ) Other movements 1,193 1,807 809,223 654,848 (i) The release of liabilities mainly consists of payments for death or other termination and related expenses, release of residual margin and change of reserves for claims and claim adjustment expenses. (d) Movements in liabilities of short-term insurance contractsF-58
The table below presents movement of reserves of claims and claim adjustment expenses:
2007 | 2006 | |||||
RMB million | RMB million | |||||
—Notified claims | 487 | 638 | ||||
—Incurred but not reported | 2,011 | 1,146 | ||||
Total as at 1 January—Gross | 2,498 | 1,784 | ||||
Cash paid for claims settled in year | ||||||
—Cash paid for current year claims | (4,750 | ) | (4,346 | ) | ||
—Cash paid for prior year claims | (1,790 | ) | (2,149 | ) | ||
Claims incurred in year | ||||||
—Claims arising in current year | 7,082 | 6,771 | ||||
—Claims arising in prior year | (649 | ) | 438 | |||
Total as at 31 December—Gross | 2,391 | 2,498 | ||||
Notified claims | 368 | 487 | ||||
Incurred but not reported | 2,023 | 2,011 | ||||
Total as at 31 December—Gross | 2,391 | 2,498 | ||||
The table below presents movement of unearned premium reserves:
2007 | 2006 | |||||||||||||||||
RMB million | RMB million | |||||||||||||||||
Gross | Ceded | Net | Gross | Ceded | Net | |||||||||||||
At as 1 January | 5,346 | (60 | ) | 5,286 | 5,147 | (291 | ) | 4,856 | ||||||||||
Increase in the period | 5,728 | (45 | ) | 5,683 | 5,346 | (60 | ) | 5,286 | ||||||||||
Release in the period | (5,346 | ) | 60 | (5,286 | ) | (5,147 | ) | 291 | (4,856 | ) | ||||||||
At as 31 December | 5,728 | (45 | ) | 5,683 | 5,346 | (60 | ) | 5,286 | ||||||||||
(e) Movements in liabilities for long-term traditional insurance contracts
The table below presents movement in the liabilities of long-term traditional insurance contracts:
2007 | 2006 | |||||
RMB million | RMB million | |||||
As at 1 January | 172,875 | 124,656 | ||||
Valuation premiums | 57,979 | 54,764 | ||||
Liabilities released for death or other termination and related expenses | (20,598 | ) | (13,169 | ) | ||
Accretion of interest | 7,511 | 5,634 | ||||
Other movements | 398 | 990 | ||||
As at 31 December | 218,165 | 172,875 | ||||
Valuation premiums are the premiums that would be required to meet the benefits and administration expenses based on the valuation assumptions used.
FOR THE YEAR ENDED 31 DECEMBER 200714 INSURANCE (continued) As at 31 As at 31 As at 1 December 2009 December 2008 January 2008 RMB million RMB million RMB million Investment Contracts with DPF 50,219 51,676 48,961 Investment Contracts without DPF - At amortised cost 17,055 13,374 4,463 - Designated as at fair value through income 52 13 — 67,326 65,063 53,424 The table below presents movement of investment contracts with DPF 2009 2008 RMB million RMB million 51,676 48,961 Deposits received 10,061 19,472 Deposits withdrawn and paid on death and other benefits (12,488 ) (17,621 ) Policy fees deducted from account balances (221 ) (356 ) Interest credited 1,191 1,220 50,219 51,676 (f) Movements in liabilities of long-term investment type insurance contractsF-59
The table below presents movement in the liabilities of long-term investment type insurance contracts:
2007 | 2006 | |||||
RMB million | RMB million | |||||
As at 1 January | 282,672 | 237,001 | ||||
Deposits received | 72,516 | 70,472 | ||||
Deposits withdrawn and paid on death and other benefits | (70,690 | ) | (24,667 | ) | ||
Fees deducted from account balances | (7,091 | ) | (6,520 | ) | ||
Interest credited | 7,181 | 6,386 | ||||
As at 31 December | 284,588 | 282,672 | ||||
The table below presents movement of deferred income:
2007 | 2006 | |||||
RMB million | RMB million | |||||
As at 1 January | 41,371 | 34,631 | ||||
Income deferred | 21,867 | 18,234 | ||||
Amortisation charged through income | (12,011 | ) | (6,620 | ) | ||
Amortisation charged through equity | (2,919 | ) | (4,874 | ) | ||
As at 31 December | 48,308 | 41,371 | ||||
Deferred income excluding unrealised gains | 56,586 | 46,730 | ||||
Deferred income recognized in unrealised gains | (8,278 | ) | (5,359 | ) | ||
Total deferred income | 48,308 | 41,371 | ||||
The table below presents movement of investment contracts:
2007 | 2006 | |||||
RMB million | RMB million | |||||
As at 1 January | 48,612 | 44,102 | ||||
Deposits received | 21,711 | 20,969 | ||||
Deposits withdrawn and paid on death and other benefits | (19,559 | ) | (16,878 | ) | ||
Policy fees deducted from account balances | (600 | ) | (577 | ) | ||
Interest credited | 1,138 | 996 | ||||
As at 31 December | 51,302 | 48,612 | ||||
Investment contracts | ||||||
—with DPF | 49,068 | 45,998 | ||||
—without DPF | 2,234 | 2,614 | ||||
Total | 51,302 | 48,612 | ||||
As at 31 December As at 31 December Maturing: Within thirty days After thirty but within ninety days Total As at 31 December As at 31 December Debt securities pledged Total F-60 As at 31 December 2007 As at 31 December 2006 Salary and staff welfare payable Commission and brokerage payable Agent deposits Tax payable Payable to constructors Stock appreciation rights(Note 27) Others Total As at 31 December As at 31 December Current Non-current Total
FOR THE YEAR ENDED 31 DECEMBER 20071715 As at 31 As at 31 As at 1 December 2009 December 2008 January 2008 RMB million RMB million RMB million Maturing: Within thirty days 25,326 11,390 100 After thirty but within ninety days 8,227 — — 33,553 11,390 100 The carrying values of debt securities pledged as collateral are as follows As at 31 As at 31 As at 1 December 2009 December 2008 January 2008 RMB million RMB million RMB million Debt securities pledged 34,306 12,048 99 34,306 12,048 99
2007
2006 RMB million RMB million 100 8,202 — 25 100 8,227 The carrying values of debt securities pledged as collateral are as follows:
2007
2006 RMB million RMB million 99 8,351 99 8,351 18OTHER LIABILITIES RMB million RMB million 1,973 1,805 1,134 1,025 602 554 739 299 293 249 1,290 444 2,839 957 8,870 5,333
2007
2006 RMB million RMB million 8,870 5,248 — 85 8,870 5,333 19STATUTORY INSURANCE FUNDAs required by CIRC Order [2004] No. 16, all insurance companies have to pay statutory insurance fund contribution to the CIRC. The Group is subject to statutory insurance fund contribution at 1%, 0.15% and 0.05% of net premium from accident and short-term health policies, long-term life policies with guaranteed return and long-term health policies and long-term life policies without guaranteed return, respectively. When the accumulated statutory insurance fund contributions reach 1% of the Group’s total assets, no additional contribution to the statutory insurance fund contribution is required.
FOR THE YEAR ENDED 31 DECEMBER 2007
16 | OTHER LIABILITIES |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Salary and staff welfare payable | 2,892 | 2,936 | 1,973 | |||||||||
Commission and brokerage payable | 1,320 | 1,654 | 1,134 | |||||||||
Agent deposits | 659 | 632 | 811 | |||||||||
Tax payable | 356 | 284 | 739 | |||||||||
Payable to constructors | 317 | 308 | 293 | |||||||||
Stock appreciation rights (Note 26) | 1,555 | 716 | 1,290 | |||||||||
Others | 4,879 | 4,527 | 3,895 | |||||||||
Total | 11,978 | 11,057 | 10,135 | |||||||||
Current | 11,978 | 11,057 | 10,135 | |||||||||
Non-current | — | — | — | |||||||||
Total | 11,978 | 11,057 | 10,135 | |||||||||
17 | STATUTORY INSURANCE FUND | |
As required by CIRC Order [2008] No. 2, all insurance companies have to pay statutory insurance fund contribution to the CIRC since 1 January 2009. The Group is subject to statutory insurance fund contribution, (i) at 0.15% and 0.05% of premiums and accumulated policyholder deposits from life policies with guaranteed benefits and life policies without guaranteed benefits, respectively. (ii) at 0.8% and 0.15% of premiums from short-term health policies and long-term health policies, respectively. (iii) at 0.8% of premiums from accident insurance contracts, at 0.08% and 0.05% of accumulated policyholder deposits from accident investment contracts with guaranteed benefits and without guaranteed benefits, respectively. When the accumulated statutory insurance fund contributions reach 1% of the Group’s total assets, no additional contribution to the statutory insurance fund is required. | ||
For the year ended 31 December 2008, as required by CIRC Order [2004] No. 16, all insurance companies have to pay statutory insurance fund contribution to the CIRC. The Group is subject to statutory insurance fund contribution at 1%, 0.15% and 0.05% of net premium from accident and short-term health policies, long-term life policies with guaranteed benefits and long-term health policies and long-term life policies without guaranteed benefits, respectively. When the accumulated statutory insurance fund contributions reach 1% of the Group’s total assets, no additional contribution to the statutory insurance fund is required. |
F-61
INVESTMENT INCOME |
For the year ended 31 December | ||||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Debt securities | 23,759 | 22,690 | ||||||
— held-to-maturity securities | 9,882 | 9,245 | ||||||
— available-for-sale securities | 13,580 | 13,074 | ||||||
— at fair value through income | 297 | 371 | ||||||
Equity securities | 3,146 | 10,093 | ||||||
— available-for-sale securities | 3,108 | 9,563 | ||||||
— at fair value through income | 38 | 530 | ||||||
Bank deposits | 10,805 | 11,378 | ||||||
Loans | 1,172 | 696 | ||||||
Securities purchased under agreements to resell | 8 | 89 | ||||||
Total | 38,890 | 44,946 | ||||||
Included in investment income is interest income of RMB 35,744 million (2008: RMB 34,853 million) using the effective interest method. |
For the year ended 31 December | |||||||||
2007 | 2006 | 2005 | |||||||
RMB million | RMB million | RMB million | |||||||
Debt securities | 16,678 | 12,384 | 8,429 | ||||||
—held-to-maturity securities | 8,305 | 7,341 | 5,645 | ||||||
—available-for-sale securities | 7,881 | 4,825 | 2,724 | ||||||
—at fair value through income (held-for-trading) | 492 | 218 | 60 | ||||||
Equity securities | 19,400 | 4,662 | 494 | ||||||
—available-for-sale securities | 15,728 | 3,591 | 316 | ||||||
—at fair value through income (held-for-trading) | 3,672 | 1,071 | 178 | ||||||
Bank deposits | 9,094 | 8,207 | 7,903 | ||||||
Loans | 248 | 80 | 22 | ||||||
Securities purchased under agreements to resell | 206 | 23 | 3 | ||||||
Other | 2 | — | — | ||||||
Subtotal | 45,628 | 25,356 | 16,851 | ||||||
Securities sold under agreements to repurchase | (1,281 | ) | (270 | ) | (70 | ) | |||
Investment expenses | (327 | ) | (144 | ) | (96 | ) | |||
Total | 44,020 | 24,942 | 16,685 | ||||||
The interest income of impaired assets for the year ended as atF-62
NET REALISED GAINS/(LOSSES) ON FINANCIAL ASSETS |
For the year ended 31 December | |||||||||
2007 | 2006 | 2005 | |||||||
RMB million | RMB million | RMB million | |||||||
Debt securities | |||||||||
Gross realised gains | 388 | 20 | 158 | ||||||
Gross realised losses | (1,256 | ) | (26 | ) | (5 | ) | |||
Impairments | (3,403 | ) | — | (92 | ) | ||||
Subtotal | (4,271 | ) | (6 | ) | 61 | ||||
Equity securities | |||||||||
Gross realised gains | 19,868 | 1,601 | 143 | ||||||
Gross realised losses | (212 | ) | — | (63 | ) | ||||
Impairments | — | — | (651 | ) | |||||
Subtotal | 19,656 | 1,601 | (571 | ) | |||||
Total | 15,385 | 1,595 | (510 | ) | |||||
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
For the year ended 31 December | ||||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Debt securities | ||||||||
Net realised gains | 3,146 | 422 | ||||||
Impairments | 200 | 2,023 | ||||||
Subtotal | 3,346 | 2,445 | ||||||
Equity securities | ||||||||
Net realised gains | 20,248 | 7,335 | ||||||
Impairments | (2,350 | ) | (15,744 | ) | ||||
Subtotal | 17,898 | (8,409 | ) | |||||
Total | 21,244 | (5,964 | ) | |||||
Net realised gains/(losses) on financial assets are from available-for-sale securities. |
The proceeds from sales and maturities of available-for-sale securities and the gross realised gains/ (losses) for the years ended 31 December 2007, 2006 and 2005 were as follows:
2007 | 2006 | 2005 | |||||||
RMB million | RMB million | RMB million | |||||||
Proceeds from sales of available-for-sale securities | 79,287 | 49,902 | 59,806 | ||||||
Gross realised gains | 20,256 | 1,621 | 301 | ||||||
Gross realised losses | (1,468 | ) | (26 | ) | (68 | ) |
During the year ended 31 December 2009, the Company recognized impairment expense of RMB 2,350 million (2008: RMB 15,744 million) of available-for-sale securities for which the Company determined that objective impairment evidence of impairment existed. | ||
As at the end of 31 December 2008, the Company held RMB 400 million available-for-sale securities, entrusted to Minfa, which had been impaired entirely due to Minfa’s bankruptcy. During the year, Minfa’s bankruptcy administrator according to the Fuzhou Intermediate People’s Court’s final resolution ([2008] No. 2-7) dated 31 December 2009 granted the Company certain listed shares with total fair value of RMB 200 million as of 31 December 2009 as a first distribution. Consequently the Company has reversed RMB 200 million impaired losses. The Company has completed the ownership registration of these listed shares on 11 January 2010. | ||
During the year ended 31 December 2008, RMB 2,023 million of previously recognized impairment losses relating to certain available-for-sale debt securities decreased. This decrease related objectively to certain events occurring after the impairment was recognized and as such the previously recognized impairment loss was reversed. | ||
20 | NET FAIR VALUE |
For the year ended 31 December | ||||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Debt securities | (277 | ) | 300 | |||||
Equity securities | 1,726 | (7,494 | ) | |||||
Total | 1,449 | (7,194 | ) | |||||
For the year ended 31 December | ||||||
2007 | 2006 | 2005 | ||||
RMB million | RMB million | RMB million | ||||
Debt securities | 366 | 305 | 88 | |||
Equity securities | 18,477 | 19,739 | 172 | |||
Total | 18,843 | 20,044 | 260 | |||
F-63
Gross | Ceded | Net | |||||
RMB million | RMB million | RMB million | |||||
For the year ended 31 December 2007 | |||||||
Life insurance death and other benefits | 17,444 | (14 | ) | 17,430 | |||
Accident and health claims and claim adjustment expenses | 6,433 | (90 | ) | 6,343 | |||
Increase in long-term traditional insurance contracts | 45,337 | (3 | ) | 45,334 | |||
Interest credited to long-term investment type insurance contracts | 7,181 | — | 7,181 | ||||
Total insurance benefits and claims | 76,395 | (107 | ) | 76,288 | |||
For the year ended 31 December 2006 | |||||||
Life insurance death and other benefits | 10,814 | (17 | ) | 10,797 | |||
Accident and health claims and claim adjustment expenses | 7,209 | (210 | ) | 6,999 | |||
Increase in long-term traditional insurance contracts | 44,264 | (26 | ) | 44,238 | |||
Interest credited to long-term investment type insurance contracts | 6,386 | — | 6,386 | ||||
Total insurance benefits and claims | 68,673 | (253 | ) | 68,420 | |||
For the year ended 31 December 2005 | |||||||
Life insurance death and other benefits | 8,320 | (9 | ) | 8,311 | |||
Accident and health claims and claim adjustment expenses | 7,506 | (659 | ) | 6,847 | |||
Increase in long-term traditional insurance contracts | 34,114 | (137 | ) | 33,977 | |||
Interest credited to long-term investment type insurance contracts | 4,894 | — | 4,894 | ||||
Total insurance benefits and claims | 54,834 | (805 | ) | 54,029 | |||
FOR THE YEAR ENDED 31 DECEMBER 2007
INSURANCE BENEFITS AND CLAIMS |
Gross | Ceded | Net | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
For the year ended 31 December 2009 | ||||||||||||
Life insurance death and other benefits | 74,876 | (18 | ) | 74,858 | ||||||||
Accident and health claims and claim adjustment expenses | 7,909 | (101 | ) | 7,808 | ||||||||
Increase in insurance contracts | 154,374 | (2 | ) | 154,372 | ||||||||
Total insurance benefits and claims | 237,159 | (121 | ) | 237,038 | ||||||||
For the year ended 31 December 2008 | ||||||||||||
Life insurance death and other benefits | 89,677 | (18 | ) | 89,659 | ||||||||
Accident and health claims and claim adjustment expenses | 7,703 | (62 | ) | 7,641 | ||||||||
Increase in insurance contracts | 134,690 | (41 | ) | 134,649 | ||||||||
Total insurance benefits and claims | 232,070 | (121 | ) | 231,949 | ||||||||
22 | INVESTMENT CONTRACT BENEFITS |
Benefits of investment contract are mainly the interest credited to investment contracts and universal life contracts. | ||
23 | NET PROFIT BEFORE INCOME TAX EXPENSES | |
Net profit before income tax expenses is stated after charging the following: |
Net profit before income tax expenses is stated after charging the following:
For the year ended 31 December | ||||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Employee salary and welfare cost | 7,773 | 5,089 | ||||||
Housing benefits | 472 | 336 | ||||||
Contribution to the defined contribution pension plan | 1,182 | 873 | ||||||
Depreciation and amortisation | 1,560 | 1,358 | ||||||
Interest expenses on securities sold under the agreements to repurchase | 111 | 438 | ||||||
Exchange loss | 28 | 907 |
For the year ended 31 December | ||||||
2007 | 2006 | 2005 | ||||
RMB million | RMB million | RMB million | ||||
Employ salary and welfare cost | 5,766 | 4,197 | 3,118 | |||
Housing benefits | 272 | 256 | 251 | |||
Contribution to the defined contribution pension plan | 575 | 358 | 342 | |||
Depreciation | 1,020 | 848 | 884 | |||
Loss on disposal of property, plant and equipment | — | — | 7 | |||
Exchange loss | 1,032 | 639 | 639 |
F-64
TAXATION |
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax relate to the same fiscal authority.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax relate to the same fiscal authority. | ||
(a) | The amount of taxation charged to the |
For the year ended 31 December | |||||||
2007 | 2006 | 2005 | |||||
RMB million | RMB million | RMB million | |||||
Current taxation-enterprises income tax | 8,730 | 858 | 772 | ||||
Deferred taxation | (2,399 | ) | 4,696 | 1,373 | |||
Taxation charges | 6,331 | 5,554 | 2,145 | ||||
For the year ended 31 December | ||||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Current taxation — Enterprise income tax | 6,299 | 2,078 | ||||||
Deferred taxation | 2,410 | (1,393 | ) | |||||
Taxation charges | 8,709 | 685 | ||||||
(b) | The reconciliation between the Group’s effective tax rate and the statutory tax rate of |
For the year ended 31 December | ||||||||||||
2009 | 2008 | |||||||||||
RMB million | RMB million | |||||||||||
Net profit before income tax expenses | 41,745 | 19,959 | ||||||||||
Tax computed at the statutory tax rate | 10,436 | 4,990 | ||||||||||
Non-taxable income | (i | ) | (2,627 | ) | (4,524 | ) | ||||||
Additional tax liability from expenses not deductible for tax purposes | (i | ) | 520 | 196 | ||||||||
Unused tax losses | 25 | 23 | ||||||||||
Other | 355 | — | ||||||||||
Income taxes at effective tax rate | 8,709 | 685 | ||||||||||
(i) | Non-taxable income mainly includes interest income from government bonds and fund distribution. Expenses not deductible for tax purposes mainly include commission, brokerage and donation expenses in excess of deductible amounts as allowed by relevant tax regulations. |
For the year ended 31 December | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Net profit before income tax expenses | 45,391 | 25,605 | 11,510 | |||||||||
Tax computed at the statutory tax rate of 33% | 14,979 | 8,450 | 3,798 | |||||||||
Non-taxable income | (i | ) | (6,802 | ) | (3,250 | ) | (1,763 | ) | ||||
Additional tax liability from expenses not deductible for tax purposes | (i | ) | 1,310 | 354 | 110 | |||||||
Effect on change in statutory tax rate | (ii | ) | (3,156 | ) | — | — | ||||||
Income taxes at effective tax rate | 6,331 | 5,554 | 2,145 | |||||||||
(i) Non-taxable income mainly includes interest income from government bonds and fund distribution. Expenses not deductible for tax purposes mainly include salary, commission, brokerage and donation expenses in excess of deductible amounts as allowed by relevant tax regulations.F-65
(ii) On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the new “CIT Law”). The new CIT Law reduces the domestic corporate income tax rate from 33% to 25% with effect from 1 January 2008.
As at 1 January Deferred taxation charged to income statement Deferred taxation charged to equity As at 31 December F-66
FOR THE YEAR ENDED 31 DECEMBER 20072524(c) The movement in deferred tax assets and liabilities during the year is as follows: As at 31 December 2007,2009, deferred income taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 25% (as. Insurance Investment Others Total RMB RMB RMB RMB million million million million (i) (ii) (iii) As at 1 January 2008 (2,372 ) (20,625 ) — (22,997 ) (Charged) / credited to net profit (4,154 ) 4,966 581 1,393 (Charged) / credited to other comprehensive income (2,926 ) 14,186 — 11,260 - Available-for-sale securities — 14,186 — 14,186 - Others (2,926 ) — — (2,926 ) (9,452 ) (1,473 ) 581 (10,344 ) As at 1 January 2009 (9,452 ) (1,473 ) 581 (10,344 ) (Charged) / credited to net profit (79 ) (2,404 ) 73 (2,410 ) (Charged) / credited to other comprehensive income 1,000 (4,607 ) — (3,607 ) - Available-for-sale securities — (4,607 ) — (4,607 ) - Others 1,000 — — 1,000 (8,531 ) (8,484 ) 654 (16,361 ) (i) The deferred tax arising from the insurance is mainly related to the temporary difference of short duration insurance contracts liabilities, policyholder dividend payables and impacts of adoption of MoF new guidance as disclosed in Note 2.1; (iii) The deferred tax arising from the investments is mainly related to the temporary difference of unrealised gains/(losses) of available-for-sale securities and securities at 31 December 2006:33%).fair value through income;(iv) The deferred tax arising from others is mainly related to the temporary difference of employee salary and welfare cost payables. The movement on the deferred income tax liabilities account is as follows: 2007 2006 RMB million RMB million 19,022 7,982 (2,399 ) 4,696 8,163 6,344 24,786 19,022
TAXATION (continued) | ||
(c) | The movement in deferred tax assets and liabilities during the year is as |
As at 31 | As at 31 | As at 1 | ||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Deferred tax assets: | ||||||||||||
- deferred tax assets to be recovered after more than 12 months | 6,063 | 7,115 | 7,276 | |||||||||
- deferred tax assets to be recovered within 12 months | 592 | 540 | 1,046 | |||||||||
Subtotal | 6,655 | 7,655 | 8,322 | |||||||||
Deferred tax liabilities: | ||||||||||||
- deferred tax liabilities to be settled after more than 12 months | (22,668 | ) | (17,651 | ) | (31,023 | ) | ||||||
- deferred tax liabilities to be settled within 12 months | (348 | ) | (348 | ) | (296 | ) | ||||||
Subtotal | (23,016 | ) | (17,999 | ) | (31,319 | ) | ||||||
Total net deferred income tax liabilities | (16,361 | ) | (10,344 | ) | (22,997 | ) | ||||||
25 | EARNINGS PER SHARE | |
There is no difference between basic and diluted earnings per share. The basic and diluted earnings per share for the year ended 31 December 2009 are based on the weighted average number of 28,264,705,000 ordinary shares (for the year ended 31 December 2008: 28,264,705,000). |
Deferred tax | Long-term insurance contracts and investment contracts | Short-term insurance contracts | Investments | DAC | Others | Total | ||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||
As at 1 January 2006 | 3,615 | 158 | 389 | (12,454 | ) | 310 | (7,982 | ) | ||||||||||
(Charged)/credited to income statement | 1,900 | 500 | (5,097 | ) | (1,865 | ) | (134 | ) | (4,696 | ) | ||||||||
(Charged)/credited to equity | 536 | — | (8,255 | ) | 1,375 | — | (6,344 | ) | ||||||||||
As at 31 December 2006 | 6,051 | 658 | (12,963 | ) | (12,944 | ) | 176 | (19,022 | ) | |||||||||
As at 1 January 2007 | 6,051 | 658 | (12,963 | ) | (12,944 | ) | 176 | (19,022 | ) | |||||||||
(Charged)/credited to income statement | (5,247 | ) | (304 | ) | 5,238 | 2,502 | 210 | 2,399 | ||||||||||
(Charged)/credited to equity | 1,902 | — | (10,295 | ) | 230 | — | (8,163 | ) | ||||||||||
As at 31 December 2007 | 2,706 | 354 | (18,020 | ) | (10,212 | ) | 386 | (24,786 | ) | |||||||||
F-67
As at 31 December | ||||||
2007 | 2006 | |||||
RMB million | RMB million | |||||
Deferred tax assets: | ||||||
—deferred tax asset to be recovered after more than 12 months | 8,042 | 8,094 | ||||
—deferred tax asset to be recovered within 12 months | 1,027 | 1,405 | ||||
Subtotal | 9,069 | 9,499 | ||||
Deferred tax liabilities: | ||||||
—deferred tax liability to be settled after more than 12 months | (33,504 | ) | (28,169 | ) | ||
—deferred tax liability to be settled within 12 months | (351 | ) | (352 | ) | ||
Subtotal | (33,855 | ) | (28,521 | ) | ||
Total net deferred income tax liabilities | (24,786 | ) | (19,022 | ) | ||
FOR THE YEAR ENDED 31 DECEMBER 2007
26 |
There is no difference between basic and diluted earnings per share. The basic and diluted earnings per share for the year ended 31 December 2007 are based on the weighted average number of 28,264,705,000 ordinary shares (for the year ended 31 December 2006: 26,777,033,767).
STOCK APPRECIATION RIGHTS | ||
Stock appreciation rights have been awarded in units, with each unit representing the value of one H share. No shares of common stock will be issued under the stock appreciation rights plan. According to the Company’s plan, all stock appreciation rights will have an exercise period of five years from date of award and will not be exercisable before the fourth anniversary of the date of award unless specified market or other conditions have been met. The exercise price of stock appreciation rights will be the average closing price of the shares in the five trading days prior to the date of the award. Upon the exercise of stock appreciation rights, exercising recipients will receive payments in RMB, subject to any withholding tax, equal to the number of stock appreciation rights exercised times the difference between the exercise price and market price of the H shares at the time of exercise. | ||
The Board of Directors of the Company approved, on 5 January 2006, an award of stock appreciation rights of 4.05 million units and on 21 August 2006, another award of stock appreciation rights of 53.22 million units to eligible employees. The exercise prices of the two awards were HK$5.33 and HK$6.83, respectively, the average closing price of shares in the five trading days prior to 1 July 2005 and 1 January 2006, the dates for vesting and exercise price setting purposes of this award. No stock appreciation right was exercised, forfeited or expired in 2009. As at 31 December 2009, there are 55.71 million units outstanding (as at 31 December 2008: 55.71 million) and 55.71 million units exercisable (as at 31 December 2008: 55.71 million). As at 31 December 2009, the amount of intrinsic value for the vested stock appreciation rights is RMB 1,551 million (as at 31 December 2008: RMB 826 million). | ||
The fair value of the stock appreciation rights is estimated on the date of valuation using lattice-based option valuation models based on expected volatility from 60% to 70%, an expected dividend yield of no higher than 0.5% and risk-free interest rate from 0.2% to 0.3%. | ||
As at 31 December 2009, the Company charged compensation cost of RMB 839 million (as at 31 December 2008: reversed RMB 574 million) which was included in net profit. RMB 1,542 million and RMB 13 million were included in Salary and staff welfare payable for the units not exercised and exercised but not paid as at 31 December 2009 (as at 31 December 2008: RMB 703 million and RMB 13 million respectively). | ||
27 | DIVIDENDS | |
Pursuant to the shareholders’ approval at the Annual General Meeting in May 2009, a final dividend of RMB 0.23 per ordinary share totalling RMB 6,501 million in respect of the year ended 31 December 2008 was declared and was paid in 2009. These dividends have been recorded in the consolidated financial statements for the year ended 31 December 2009. | ||
Pursuant to a resolution passed at the meeting of the Board of Directors on 7 April 2010, a final dividend of RMB 0.70 per ordinary share totalling approximately RMB 19,785 million for the year ended 31 December 2009 was proposed for shareholders’ approval at the Annual General Meeting. The dividend has not been provided in the consolidated financial statements for the year ended 31 December 2009. |
Stock appreciation rights have been awarded in units, with each unit representing the value of one H share. No shares of common stock will be issued under the stock appreciation rights plan. According to the Company’s plan, all stock appreciation rights will have an exercise period of five years from date of award and will not be exercisable before the fourth anniversary of the date of award unless specified market or other conditions have been met. The exercise price of stock appreciation rights will be the average closing price of the shares in the five trading days prior to the date of the award. Upon the exercise of stock appreciation rights, exercising recipients will receive payments in RMB, subject to any withholding tax, equal to the number of stock appreciation rights exercised times the difference between the exercise price and market price of the H shares at the time of exercise.
The Board of Directors of the Company approved, on 5 January 2006, an award of stock appreciation rights of 4.05 million units and on 21 August 2006, another award of stock appreciation rights of 53.22 million units to eligible employees. The exercise prices of the two awards were HK$5.33 and HK$6.83, respectively, the average closing price of shares in the five trading days prior to 1 July 2005 and 1 January 2006, the dates for vesting and exercise price setting purposes of this award. No unit of the stock appreciation rights was exercised, forfeited or expired in 2007. As at 31 December 2007, there are 55.71 million units outstanding (as at 31 December 2006: 55.71 million) and 36.62 million units exercisable (as at 31 December 2006: 17.05 million). As at 31 December 2007, the amount of intrinsic value for the vested stock appreciation rights is RMB 1,152 million (as at 31 December 2006: RMB 356 million).F-68
The fair value of the stock appreciation rights is estimated on the date of valuation using lattice-based option valuation models based on expected volatility from 37% to 47%, an expected dividend yield of no higher than 0.5% and risk-free interest rates from 1.8% to 1.9%.
As at 31 December 2007, the Company recognized compensation cost of RMB 846 million (as at 31 December 2006: RMB 444 million) which was included in administrative expenses. RMB 1,277 million and RMB 13 million were included in other liabilities (Note 18) for the units not exercised and exercised but not paid as at 31 December 2007 (as at 31 December 2006: RMB 431 million and RMB 13 million respectively). The unrecognized compensation cost of outstanding units is approximately RMB 471 million as at 31 December 2007 (as at 31 December 2006: RMB 761 million), which is expected to be recognized within the next year (as at 31 December 2006: within the next 2 years).
On 12 June 2007, another award of stock appreciation rights was approved by the Board of Directors of the Company. The exercise price of the award was HK$25.71, the average closing price of shares in the five trading days prior to 1 January 2007. As at 31 December 2007, the stock appreciation rights had not been granted.
F-69
FOR THE YEAR ENDED 31 DECEMBER 200728 DIVIDENDSPursuant to the shareholders’ approval at the Annual General Meeting in June 2007, a final dividend of RMB 0.14 per ordinary share totalling RMB 3,957 million in respect of the year ended 31 December 2006 was declared and was paid in July 2007. These dividends have been recorded in the consolidated financial statements for the year ended 31 December 2007.Pursuant to a resolution passed at the meeting of the Board of Directors on 25 March 2008, a final dividend of RMB 0.42 per ordinary share totalling approximately RMB 11,871 million for the year ended 31 December 2007 was proposed for shareholders’ approval at the Annual General Meeting. The dividend has not been provided in the consolidated financial statements for the year ended 31 December 2007.29(a)Related partiesRelated parties are those parties which have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The table set forth below summarises the names of significant related parties and nature of relationship with the Company as at 31 December 2007:(a) The information of parent company is as follows: Location of Relationship with Nature of Legal Name registration Principal business the company economic Representative CLIC Beijing, China Life insurance, health and accident insurance and other types of personal insurance and reinsurance. Funds management business under permission of national laws and regulations or State Council of the People’s Republic of China. Various types of personal insurance, Consulting and agency services. Other business under approvals by National Insurance Supervisors department’s Immediate and ultimate holding company State owned Chao Yang (b) As at 31 December 2008 Increase Decrease As at 31 December 2009 Name of related party RMB million RMB million RMB million RMB million CLIC 4,600 — — 4,600 China Life Asset Management Company Limited (“AMC”) 1,000 2,000 — 3,000 China Life Pension Company Limited (“Pension Company”) 2,500 — — 2,500 China Life Franklin Asset Management Co, Limited (“AMC HK”) HKD 60 million — — HKD 60 million Note: In February 2009, the Company, AMC and CLIC entered into an agreement, whereby AMC’s registered capital increased to RMB 2,000 million. The Company subscribed for RMB 1,200 million, in the form of RMB 1,080 million cash and RMB 120 million retained earnings. CLIC subscribed for RMB 800 million, in the form of RMB 720 million cash and RMB 80 million retained earnings. CIRC approved the change of registered capital in April 2009. (c) As at 31 December 2008 As at 31 December 2009 Amount Percentage of Increase Decrease Amount Percentage of Shareholder RMB million holding RMB million RMB million RMB million holding CLIC 19,324 68.40 % — — 19,324 68.40 % As at 31 December 2008 As at 31 December 2009 Amount Percentage of Increase Decrease Amount Percentage of Subsidiaries RMB million holding RMB million RMB million RMB million holding AMC 600 60.00 % 1,080 — 1,680 60.00 % Pension Company 2,305 92.20 % — — 2,305 92.20 % AMC HK HK$30 million 50.00 % — — HK$30 million 50.00 %
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) |
(d) | Related parties | |
Related parties are those parties which have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The table set forth below summarises the names of significant related parties and nature of relationship with the Company as at 31 December 2009: |
Significant related party | Relationship with the Company | |
CLIC | The ultimate holding company | |
A subsidiary of the Company | ||
An associate of the Company | ||
An associate of the Company and under common control of the ultimate holding company | ||
A subsidiary of the Company | ||
China Life Real Estate Co., Limited (“CLRE”, former Beijing Zhongbaoxin Real Estate Development Co., | A subsidiary of a subsidiary of the ultimate holding company | |
China Life Insurance (Overseas) Co.,
| Under common control of the ultimate holding company | |
A subsidiary of a subsidiary of the Company | ||
CIB | An associate of the Company | |
China Life Investment Holding Company Limited (“IHC”) | Under common control of the ultimate holding company | |
Chengdu Insurance Institution | Under common control of the ultimate holding company | |
China Life Enterprise Annuity Fund (“EAP”) | A pension fund operated for the benefit of employees in the Company and AMC |
Note: | In July 2009, CLIC, the Company and the AMC entered into an agreement, whereby they agreed to establish a defined contribution enterprise annuity fund for their employees. |
F-70
FOR THE YEAR ENDED 31 DECEMBER 2007
SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) |
(e) | Transactions with significant related parties | |
The following table summarises significant transactions carried out by the Group with its significant related parties for the year ended 31 December 2009. |
The following table summarises significant transactions carried out by the Group with its significant related parties for the year ended 31 December 2007.
For the year ended 31 December | |||||||||||||
2009 | 2008 | ||||||||||||
Note | RMB million | RMB million | |||||||||||
Transactions with CLIC and its subsidiaries | |||||||||||||
Policy management fee income earned from CLIC | (i | ) | 1,193 | 1,298 | |||||||||
Asset management fee earned from CLIC | (ii | ) | 112 | 243 | |||||||||
Additional capital contribution to AMC from CLIC | 720 | — | |||||||||||
Rewards from CLIC for non-transferred policies | (iii | ) | — | 88 | |||||||||
Dividends to CLIC | 4,444 | 8,116 | |||||||||||
Property leasing expense charged by CLIC | (iv | ) | — | 33 | |||||||||
Dividends to CLIC from AMC | 104 | 93 | |||||||||||
Non-performing assets management fee earned from CLIC and others | — | 16 | |||||||||||
Asset management fee earned from China Life Overseas | (ii | ) | 15 | 15 | |||||||||
Asset management fee earned from CLP&C | (ii | ) | 3 | 2 | |||||||||
Property insurance payments to CLP&C | 37 | 29 | |||||||||||
Claim payment and others to the Company from CLP&C | 41 | 46 | |||||||||||
Brokerage fee from CLP&C | (v | ) | 129 | 79 | |||||||||
Additional capital contribution to CLP&C | (vi | ) | — | 1,200 | |||||||||
Rentals and policy management fee income earned from CLP&C | 36 | — | |||||||||||
Rentals, project payments and others to CLRE | (vii | ) | 8 | 18 | |||||||||
Property leasing expense charged by IHC | (iv | ) | 64 | 33 | |||||||||
Asset management fee earned from IHC | 7 | 21 | |||||||||||
Services fee and other income earned from IHC | 30 | — | |||||||||||
Asset purchase payments to Chengdu Insurance Institution | 19 | — | |||||||||||
Transaction with GDB | |||||||||||||
Interest income earned from GDB | 309 | 361 | |||||||||||
Brokerage fee charged by GDB | (viii | ) | 20 | 25 | |||||||||
Dividends from GDB | 55 | — | |||||||||||
Transaction with EAP | |||||||||||||
Payment to EAP | 298 | — | |||||||||||
Transaction with AMC | |||||||||||||
Asset management fee expense charged to the Company by AMC | (ii | ) | 540 | 362 | |||||||||
Dividends to the Company | 156 | 140 | |||||||||||
Payments of insurance policies by AMC to the Company | 1 | 1 | |||||||||||
Brokerage fee to the Company | (ix | ) | 5 | 1 | |||||||||
Additional capital contribution to AMC | 1,080 | — | |||||||||||
Transaction with Pension Company | |||||||||||||
Additional capital contribution to Pension Company | (x | ) | — | 1,855 | |||||||||
Surcharge on building sold to Pension Company | (xi | ) | 244 | — | |||||||||
Expenses paid on behalf of Pension Company | 86 | 79 | |||||||||||
IT services fee income earned from Pension Company | 2 | — | |||||||||||
Investment brokerage fee charged by the Company | 2 | — | |||||||||||
Brokerage fee to the Company | (ix | ) | 3 | 1 | |||||||||
Transaction with AMC HK | |||||||||||||
Investment management fee expense charged to the Company by AMC HK | (ii | ) | 8 | 7 |
For the year ended 31 December | |||||||||
Note | 2007 | 2006 | 2005 | ||||||
RMB million | RMB million | RMB million | |||||||
Transactions with CLIC and its subsidiaries | |||||||||
Policy management fee income earned from CLIC | (i | ) | 1,426 | 1,555 | 1,567 | ||||
Asset management fee earned from CLIC | (ii | ) | 104 | 84 | 84 | ||||
Rewards from CLIC for non-transferred policies | (iii | ) | 70 | 177 | — | ||||
Non-performing assets management fee earned from CLIC | — | — | 11 | ||||||
Dividends to CLIC | 2,705 | 966 | — | ||||||
Property, plant and equipment purchased from CLIC | (iv | ) | 495 | — | — | ||||
Property leasing expense charged by CLIC | (v | ) | 66 | 168 | 335 | ||||
Dividends to CLIC from AMC | 42 | — | — | ||||||
Pre-operating salary expenses paid on behalf of Pension Company by CLIC | 9 | — | — | ||||||
Asset management fee earned from China Life Overseas | (ii | ) | 15 | — | — | ||||
Asset management fee earned from CLP&C | (ii | ) | 4 | — | — | ||||
Property insurance payments to CLP&C | 24 | — | — | ||||||
Rentals, deposits and project payments to Zhongbaoxin | (vi | ) | 16 | 36 | — | ||||
Transaction with AMC | |||||||||
Asset management fee expense charged to the Company by AMC | (ii | ) | 390 | 283 | 239 | ||||
Asset management fee expense charged to Pension Company by AMC | (ii | ) | 2 | — | — | ||||
Dividends to the Company | 62 | — | — | ||||||
Transaction with Pension Company | |||||||||
Pre-operating salary expenses paid on behalf of Pension Company | 8 | — | — | ||||||
Transaction with GDB | |||||||||
Brokerage fee charged by GDB | (vii | ) | 7 | — | — | ||||
Interest income earned from GDB | 140 | — | — |
Notes:F-71
(i) As part of the restructuring, CLIC transferred its entire branch services network to the Company. CLIC and the Company have entered into an agreement to engage the Company to provide policy administration services to CLIC relating to the non-transferred policies. The Company, as a service provider, does not acquire any rights or assume any obligations as an insurer under the non-transferred policies. In consideration of the services provided under the agreement, CLIC will pay the Company a service fee based on the estimated cost of providing the services, to which a profit margin is added. The service fee is equal to, for each semi-annual payment period, the sum of (1) the number of non-transferred policies in force that were within their policy term as at the last day of the period, multiplied by RMB 8.00 per policy and (2) 2.50% of the actual premiums and deposits in respect of such policies collected during the period. The policy management fee income is included in other income in consolidated income statement.
F-72
FOR THE YEAR ENDED 31 DECEMBER 20072928(b)(e) Notes (continued):(ii) CLIC and the AMC have entered into an agreement, whereby CLIC agreed to pay the AMC a service fee at the rate of 0.05% per annum. The service fee is calculated and payable on a monthly basis, by multiplying the average of balance of book value of the assets under management (after deducting the funds obtained and interests accrued from repurchase transactions) at the beginning and at the end of any given month by the rate of 0.05%, divided by 12. Such rate was determined with reference to the applicable management fee rate pre-determined for each specified category of assets managed by the AMC to arrive at a comprehensive service fee rate.(i) As part of the restructuring, CLIC transferred its entire branch services network to the Company. CLIC and the Company have entered into an agreement on 24 December 2005 to engage the Company to provide policy administration services to CLIC relating to the non-transferred policies. The Company, as a service provider, does not acquire any rights or assume any obligations as an insurer under the non-transferred policies. In consideration of the services provided under the agreement, CLIC will pay the Company a policy management fee based on the estimated cost of providing the services, to which a profit margin is added. The policy management fee is equal to, for each semi-annual payment period, the sum of (1) the number of non-transferred policies in force that were within their policy term as at the last day of the period, multiplied by RMB8.00 per policy and (2) 2.50% of the actual premiums and deposits in respect of such policies collected during the period. The agreement would be automatically renewed for a three year term subject to compliance with the Stock Exchange regulations unless a written notice of non renewal is issued by the Company or the Group 180 days prior to the expiration of the contract or the renewed term. The Company and the Group could modify term of policy management fee based on the current market terms when renewing the contract. Otherwise, the original fee term would apply. On 30 December 2008, the Company and CLIC signed a renewal agreement to extend the contract signed on 24 December 2005 to 31 December 2011, with all the terms unchanged. The policy management fee income is included in other income in consolidated statement of comprehensive income statement. (ii) In December 2005, CLIC and the AMC have entered into an agreement, whereby CLIC agreed to pay the AMC a service fee at the rate of 0.05% per annum. The service fee was calculated and payable on a monthly basis, by multiplying the average of balance of book value of the assets under management (after deducting the funds obtained and interests accrued from repurchase transactions) at the beginning and at the end of any given month by the rate of 0.05%, divided by 12. Such rate was determined with reference to the applicable management fee rate pre-determined for each specified category of assets managed by the AMC to arrive at a comprehensive service fee rate. On 30 December 2008, CLIC and AMC signed a renewal agreement, which expanded the effective period of the original agreement to 31 December 2011. The service fee is calculated in the same way of original agreement and would be adjusted according to the performance. TheIn December 2005, the Company and the AMC have entered into a separate agreement, whereby the Company agreed to pay the AMC a fixed service fee and a variable service fee. The fixed service fee is payable monthly and is calculated with reference to the net asset value of the assets in each specified category managed by the AMC and the applicable management fee rates pre-determined by the parties on an arm’s length basis. The variable service fee equals to 10% of the fixed service fee per annum payable annually. The service fees were determined by the Company and the AMC based on an analysis of the cost of service, market practice and the size and composition of the asset pool to be managed. On 30 December 2008, the Company and AMC signed a renewal agreement, which expanded the effective period of the original agreement to 31 December 2010. The variable service fee changes to 20% of the fixed service fee per annum payable annually and is adjusted according to the performance. Although the description of the service fee rates under the two agreements are different, the ultimate comprehensive service fee rate calculated under each of these two agreements is basically the same. In March 2007, PCLP&C and the AMC have entered into an agreement, whereby CLP&C agreed to pay the AMC a fixed service fee and a variable service fee. The agreement expired in December 2008. In 2009, CLP&C and the AMC signed a new agreement, with effective period to 31 December 2010. The agreement is subject to an automatic renewal for one year if there is no objection between both parities when expired. According to the agreement, the fixed service fee is payable monthly and the service fee is calculated and payable on a monthly basis, by multiplying the average of balance of book value of the assets under management at the beginning and at the end of any given month by the rate of 0.2%0.05%, divided by 12. The variable service fee equalsis adjusted according to 10% of the excess return per annum payable annually.investment performance. In September 2007, China Life Overseas and the AMC HK have entered into an agreement, whereby China Life Overseas agreed to pay the AMC HK a management service fee at a basis rate and calculated based on actual net investment return yield. In 2009, China Life Overseas and the AMC HK signed a renewal agreement, which expanded the effective period of the original agreement to 31 December 2009.
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) | |
(e) | Transactions with significant related parties (continued) | |
Note: (continued) | ||
In April 2007, Pension Company and the AMC have entered into an agreement, whereby Pension Company agreed to pay the AMC a fixed service fee and a bonus for excess return per annum. The agreement expired in December 2008. In 2009, Pension Company and AMC signed a new agreement with effective period to 31 December 2009. The agreement is subject to an automatic renewal for one year if there is no objection between both parties when expired. According to the agreement, the fixed service fee is calculated and payable on a monthly basis, by multiplying the average of balance of book value of the assets under management at the beginning and at the end of any given month by the rate of 0.05%, divided by 12. The bonus equals to 10% of the excess return per annum payable annually. |
In May 2008, the Company and the AMC HK have entered into a “Offshore Investment Management Service Agreement for Entrusted Fund”, whereby the Company agreed to pay AMC HK Primary and Secondary Market asset management fee. The fixed asset management fee is calculated on a monthly basis, and paid quarterly. Asset management fee for the Primary market is calculated on a rate of 2% of the total investment realised gains. Asset management fee for the Secondary market is calculated by a fixed rate of 0.45%. | ||
The asset management fee charged to the Company and Pension Company by AMC and AMC HK is eliminated |
(iii) The Company assisted CLIC to mitigate business risk arising from non-transferred policies, and received in 2007 a fee income of RMB 70
(iv) On 4 January 2007, the Company and CLIC entered into an agreement on purchasing part of CLIC’s buildings, construction in progress, rights to the use of the land, motor vehicles and equipments etc. The purchase price was based on the valuation of China Enterprise Appraisals’ assets appraisal report issued on 8 December 2006, which totalling RMB 488 million. On 28 September 2007, the Company and CLIC established a supplementary agreement on the above business under the same purchase price. The purchase price was based on the valuation of China Enterprise Appraisals’ assets appraisal report issued on 8 December 2006, which totalling RMB 21 million.F-73
FOR THE YEAR ENDED 31 DECEMBER 2007
SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) |
Transactions with significant related parties (continued) | ||
Note: (continued) | ||
(viii) | In April 2007, the Company and GDB entered into a five year individual bank insurance agency agreement. All insurance products suitable for delivery through bank channels are involved in the agreement. GDB will provide services, including selling insurance products, receiving premiums, paying benefits. The company has agreed to pay commission fees as follows: 1) A monthly service fee, calculated on a monthly basis, by multiplying total premium received and a fixed commission rate; or 2) A monthly commission fee, calculated on a monthly basis, by multiplying number of policy being handled and fixed commission rate which is not more than RMB1 per policy, where GDB handles premiums receipts and benefits payments. The agreement will expire in five years. |
Notes (continued):
(v) The Company has entered into a property leasing agreement with CLIC, pursuant to which CLIC agreed to lease to the Company some of its owned and leased buildings. The annual rent payable by the Company to CLIC in relation to the CLIC owned properties is determined by reference to market rent or, the costs incurred by CLIC in holding and maintaining the properties, plus a margin of approximately 5%. The annual rent payable by the Company to CLIC in relation to the CLIC leased properties is determined by reference to the rent payable under the head lease plus the actual costs incurred by CLIC arising in connection with the subletting of the properties. The Company has directly paid the relevant rental expenses raised from CLIC leased properties to the third-party instead of CLIC.
(vi) The Group made certain project payments to third parties through Zhongbaoxin and paid other miscellaneous expenditures mainly comprised of rentals and deposits to Zhongbaoxin.
(vii) On 29 April 2007, the Company and GDB entered into a five year individual bank insurance agency agreement. All insurance products suitable for delivery through bank channels are involved in the agreement. GDB will provide services, including selling insurance products, receiving premiums, paying benefits. The company has agreed to pay commission fees as follows: 1) A monthly service fee, calculated on a monthly basis, by multiplying total premium received and a fixed commission rate. 2) A monthly commission fee, calculated on a monthly basis, by multiplying number of policy being handled and fixed commission rate which is not more than RMB 1 per policy, where GDB handles premiums receipts and benefits payments.
In November 2007, the Company and Pension Company entered into an agreement, whereby Pension Company entrusted the Company to sale enterprise annuity funds and provide customer service. The service fee is calculated on a rate of 80% of first year management fee. The agreement term is one year and is subject to an automatic renewal for one year. | ||
In June 2007, the Company and AMC entered into an agreement, whereby AMC entrusted the Company to provide market developing service and enterprise annuity asset management service. The service fee is calculated by the first year actual asset management fee collected deducted by risk reserve and other related fees. The agreement expired on 31 December 2008. | ||
(x) | In June 2008, the Company and China Credit Trust Co., Ltd (“CCTIC”) made capital injection to Pension Company. Pension Company’s share capital was increased to RMB 2,500 million after the capital contribution. As a result, the ownership percentage of the Company, CLIC, AMC and CCTIC was 87.4%, 6.0%, 4.8% and 1.8%, respectively. | |
(xi) | The Company sold certain floors of the office building which is under construction to Pension Company. The Company received the payment from Pension Company in Feb 2009. | |
(f) | Amounts due from / to significant related parties | |
The following table summarises the resulting balance due from and to significant related parties. The balance is non-interest bearing, unsecured and has no fixed repayment terms except for the deposits in GDB. |
The following table summarises the resulting balance due from and to significant related parties. The balance is non-interest bearing, unsecured and has no fixed repayment terms except for the deposits in GDB.
As at 31 December 2009 | As at 31 December 2008 | |||||||
RMB million | RMB million | |||||||
The Group | ||||||||
Amount due from CLIC (Note 12) | 646 | 684 | ||||||
Amount due from China Life Overseas | 15 | 8 | ||||||
Amount due from CLP&C | 22 | 2 | ||||||
Amount due to CLP&C | (2 | ) | (28 | ) | ||||
Amount deposited with GDB | 7,098 | 7,114 | ||||||
Amount due from CLRE | — | 1 | ||||||
Amount due to CLRE | — | (8 | ) | |||||
Amount due from IHC | 34 | 21 | ||||||
Amount due to IHC | (64 | ) | (33 | ) | ||||
The Company | ||||||||
Amount due from Pension Company | 56 | 66 | ||||||
Amount due to AMC | (43 | ) | (68 | ) | ||||
Amount due to AMC HK | (1 | ) | (2 | ) |
As at 31 December | As at 31 December | |||||
RMB million | RMB million | |||||
Amount due from CLIC (Note 13) | 739 | 996 | ||||
Amount due to CLIC | (40 | ) | (3 | ) | ||
Amount due from China Life Overseas | 13 | — | ||||
Amount due from CLP&C | 5 | — | ||||
Amount due from Zhongbaoxin | 1 | 1 | ||||
Amount due to Zhongbaoxin | (5 | ) | — |
F-74
For the year ended 31 December | ||||||
2007 | 2006 | 2005 | ||||
RMB million | RMB million | RMB million | ||||
Salaries and other short-term employee benefits | 27 | 17 | 9 | |||
Termination benefits | — | — | — | |||
Post-employment benefits | — | — | — | |||
Other long-term benefits | — | — | — | |||
Total | 27 | 17 | 9 | |||
FOR THE YEAR ENDED 31 DECEMBER 2007
SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) | ||
(g) | Key management compensation |
For the year ended 31 December | ||||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Salaries and other short-term employee benefits | 13 | 24 | ||||||
Termination benefits | — | — | ||||||
Post-employment benefits | — | — | ||||||
Share-based payment | — | — | ||||||
Other long-term benefits | — | — | ||||||
Total | 13 | 24 | ||||||
Transactions with state-owned enterprises | ||
Under IAS 24(amendment), business transactions between state-owned enterprises controlled by the PRC government are within the scope of related party transactions. CLIC, the ultimate holding company of the Group, is a state-owned enterprise. The Group’s key business and therefore the business transactions with other state-owned enterprises are primarily related to insurance and investment activities. The related party transactions with other state-owned enterprises were conducted in the ordinary course of business. Due to the complex ownership structure, the PRC government may hold indirect interests in many companies. Some of these interests may, in themselves or when combined with other indirect interests, be controlling interests which may not be known to the Group. Nevertheless, the Group believes that the following captures the material related parties and applied IAS 24 (amendment) exemption to disclose only qualitative information. | ||
As at 31 December 2009 and 2008, most of bank deposits were with state-owned banks; the issuers of corporate bonds and subordinated bonds held by the Group were mainly state-owned enterprises. For the year ended 31 December 2008, a large portion of its group insurance business of the Group were with state-owned enterprises; the majority of bank assurance brokerage charges were paid to state-owned banks and post office; almost all of the reinsurance agreements of the Group are entered into with a state-owned reinsurance company; most of bank deposit interest income were from state-owned banks. |
Under HKAS 24, business transactions between state-owned enterprises controlled by the PRC government are within the scope of related party transactions. CLIC, the ultimate holding company of the Group, is a state-owned enterprise. The Group’s key business and therefore the business transactions with other state-owned enterprises are primarily related to insurance and investment activities. The related party transactions with other state-owned enterprises were conducted in the ordinary course of business. Due to the complex ownership structure, the PRC government may hold indirect interests in many companies. Some of these interests may, in themselves or when combined with other indirect interests, be controlling interests which may not be known to the Group. Nevertheless, the Group believes that the following captures the material related parties.
As at 31 December 2007, more than 68% (as at 31 December 2006: more than 70%) of bank deposits were with state-owned banks; approximately 96% (as at 31 December 2006: approximately 95%) of the issuers of corporate bonds and subordinated bonds held by the Group were state-owned enterprises. For the year ended 31 December 2007, more than 74% (for the year ended 31 December 2006: more than 71%) of the group insurance business of the Group were with state-owned enterprises; approximately 83% (for the year ended 31 December 2006: approximately 89%) of bank assurance brokerage charges of RMB 2,085 million (for the year ended 31 December 2006: RMB 1,989 million) were paid to state-owned banks and post office; almost all of the reinsurance agreements of the Group are entered into with a state-owned reinsurance company; more than 68% (for the year ended 31 December 2006: more than 70%) of bank deposit interest income were from state-owned banks.
29 | SHARE CAPITAL |
As at 31 | As at 31 | As at 1 | ||||||||||||||||||||||
December 2009 | December 2008 | January 2008 | ||||||||||||||||||||||
No. of shares | RMB million | No. of shares | RMB million | No. of shares | RMB million | |||||||||||||||||||
Registered, authorized, issued and fully paid | ||||||||||||||||||||||||
Ordinary shares of RMB1 each | 28,264,705,000 | 28,265 | 28,264,705,000 | 28,265 | 28,264,705,000 | 28,265 | ||||||||||||||||||
As at 31 December 2009, the Company’s share capital is as follows: |
As at 31 December 2009 | ||||||||
No. of shares | RMB million | |||||||
Owned by CLIC (Note 33(i)) | 19,323,530,000 | 19,324 | ||||||
Owned by other shareholders | 8,941,175,000 | 8,941 | ||||||
Including: Domestic listed | 1,500,000,000 | 1,500 | ||||||
Overseas listed | 7,441,175,000 | 7,441 | ||||||
Total | 28,264,705,000 | 28,265 | ||||||
Overseas listed shares are traded on the Stock Exchange of Hong Kong and the New York Stock Exchange. |
F-75
As at 31 December 2007 | As at 31 December 2006 | |||||||
No. of shares | RMB million | No. of shares | RMB million | |||||
Registered, authorized, issued and fully paid Ordinary shares of RMB 1 each | 28,264,705,000 | 28,265 | 28,264,705,000 | 28,265 |
As at 31 December 2007, the Company’s share capital is as follows:
As at 31 December 2007 | ||||
No. of shares | RMB million | |||
Owned by CLIC | 19,323,530,000 | 19,324 | ||
Owned by other shareholders | 8,941,175,000 | 8,941 | ||
Including: Domestic listed | 1,500,000,000 | 1,500 | ||
Overseas listed | 7,441,175,000 | 7,441 | ||
Total | 28,264,705,000 | 28,265 | ||
Overseas listed shares are traded on the Stock Exchange of Hong Kong and the New York Stock Exchange. 600,000,000 shares of the domestic listed shares may only be traded on the Shanghai Stock Exchange since 9 January 2008. The shares owned by CLIC are not transferable until 11 January 2010.
F-76 As at 1 January 2005 Unrealised gains —arising from available-for-sale securities during the period —reclassification adjustment for gains included in income statement —impact from available-for-sale securities on other assets and liabilities Subtotal —tax on unrealised gains Appropriation to reserve Change in the year As at 31 December 2005 Issue of shares Share issue expenses Unrealised gains —arising from available-for-sale securities during the period —reclassification adjustment for gains included in income statement —impact from available-for-sale securities on other assets and liabilities Subtotal —tax on unrealised gains Appropriation to reserve Change in the year As at 31 December 2006 Unrealised gains —arising from available-for-sale securities during the period —reclassification adjustment for gains included in income statement —impact from available-for-sale securities on other assets and liabilities Subtotal —tax on unrealised gains —arising from share of results of associates Appropriation to reserve Change in the year As at 31 December 2007
FOR THE YEAR ENDED 31 DECEMBER 200730 Exchange differences on Additional translating paid in Unrealised Reserve General foreign capital gains/(losses) fund reserve operations Total RMB million RMB million RMB million RMB million RMB million RMB million (a) (b) As at 1 January 2008 53,860 43,509 9,480 4,427 — 111,276 Other comprehensive loss for the year — (33,452 ) — — (1 ) (33,453 ) Appropriation to reserve — — 4,708 1,916 — 6,624 53,860 10,057 14,188 6,343 (1 ) 84,447 Other comprehensive income for the year — 10,745 — — — 10,745 Appropriation to reserve — — 4,302 3,293 — 7,595 53,860 20,802 18,490 9,636 (1 ) 102,787 31RESERVES Additional
paid in
capital Unrealised
gains/(losses) Reserve
fund General
reserve Total RMB million RMB million RMB million RMB million RMB million (a) (b) 34,776 (3,855 ) 652 — 31,573 — 7,427 — — 7,427 — (153 ) — — (153 ) — (495 ) — — (495 ) — 6,779 — — 6,779 — (2,237 ) — — (2,237 ) — — 1,110 — 1,110 — 4,542 1,110 — 5,652 34,776 687 1,762 — 37,225 26,820 — — — 26,820 (510 ) — — — (510 ) — 25,093 — — 25,093 — (115 ) — — (115 ) — (5,785 ) — — (5,785 ) — 19,193 — — 19,193 — (6,334 ) — — (6,334 ) — — 974 — 974 26,310 12,859 974 — 40,143 61,086 13,546 2,736 — 77,368 — 64,328 — — 64,328 — (14,658 ) — — (14,658 ) — (10,568 ) — — (10,568 ) — 39,102 — — 39,102 — (8,159 ) — — (8,159 ) — (30 ) — — (30 ) — — 3,752 2,792 6,544 — 30,913 3,752 2,792 37,457 61,086 44,459 6,488 2,792 114,825
FOR THE YEAR ENDED 31 DECEMBER 2007
RESERVES (continued) |
(a) | Under relevant PRC law, the Company is required to transfer 10% of its net profit under CAS to statutory reserve fund. The Company appropriated 10% of net profit to the statutory reserve for the year ended 31 December 2009 and 2008, RMB 3,293 million and RMB 1,916 million respectively. The Company also appropriated RMB 2,992 million to the statutory reserve fund under CAS retrospectively reflected in 1 January 2008 due to adoption of MoF new guidance as disclosed in Note 2.1. In May 2009, approved by Annual General Meeting, the Company appropriated RMB 1,009 million to discretionary reserve fund for the year ended 31 December 2008 based on the net profit under A share financial statement (2008: RMB 2,792 million). | |
(b) | Pursuant to “Financial Standards of Financial Enterprises — Implementation Guide” issued by Ministry of Finance of People’s Republic of China on 30 March 2007, for the year ended 31 December 2009 and 2008, the Company appropriated 10% of net profit under CAS which is RMB 3,293 million and RMB 1,916 million respectively to general reserve for future uncertain disasters, which can not be used for dividend distribution or share capital increment. The Company also appropriated RMB 1,635 million to general reserve under CAS retrospectively reflected in 1 January 2008 due to adoption of MoF new guidance as disclosed in Note 2.1. | |
Under related PRC law, dividends may be paid only out of distributable profits. Distributable profits generally means the Company’s after-tax profits as determined under accounting standards generally accepted in PRC or IFRS, whichever is lower, less any recovery of accumulated losses and allocations to statutory funds that the Company is required to make, subject to further regulatory restrictions. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years. The amount of distributable retained earnings based on the above is RMB 78,491 million as at 31 December 2009 (as at 31 December 2008: RMB 60,848 million). |
(a) Under relevant PRC law, the Company is required to transfer 10% of its net profit to statutory reserve fund. The Company appropriated 10% of net profit which is RMB2,792 million to statutory reserve fund for the year endedF-77
(b) Pursuant to “Financial Standards of Financial Enterprises—Implementation Guide” issued by Ministry of Finance of People’s Republic of China on 30 March 2007, the Company appropriated 10% of net profit which is RMB2,792 million to general reserve for future uncertain disasters, which can not be used for dividend distribution or share capital increment.
Under related PRC law, dividends may be paid only out of distributable profits. Distributable profits generally means the Company’s after-tax profits as determined under accounting standards generally accepted in PRC or HKFRS, whichever is lower, less any recovery of accumulated losses and allocations to statutory funds that the Company is required to make, subject to further regulatory restrictions. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years. The amount of distributable retained earnings based on the above is RMB31,881 million as at 31 December 2007.
CONTINGENCIES | ||
The following is a summary of the significant contingent liabilities: |
The following is a summary of the significant contingent liabilities:
As at 31 December 2007 | As at 31 December 2006 | |||
RMB million | RMB million | |||
Pending lawsuits (b) | 66 | 54 |
As at 31 | As at 31 | |||||||
December | December | |||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Pending lawsuits | 113 | 96 | ||||||
The Group has been named in a number of lawsuits arising in the ordinary course of business. Provision has been made for the probable losses to the Group on those claims when management can reasonably estimate the outcome of the lawsuits taking into account the legal advice. No provision has been made for pending lawsuits when the outcome of the lawsuits cannot be reasonably estimated or management believes a loss is not probable. |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2007
32 | COMMITMENTS | |
(a) | Capital commitments |
i) | Capital commitments for property, plant and equipment |
As at 31 December 2007 | As at 31 December 2006 | |||
RMB million | RMB million | |||
Contracted but not provided for | 310 | 990 |
As at 31 | As at 31 | |||||||
December | December | |||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Contracted but not provided for | 488 | 878 | ||||||
ii) | Capital commitments to acquire Bohai Venture Capital Fund |
The Group committed to contribute RMB500 million to Bohai Venture Capital Fund and RMB5 million to Bohai Venture Capital Fund Management Company of which RMB152 million had been paid at 31 December 2007. The remaining RMB353 million will be paid when called.
The Group committed to contribute RMB 500 million to Bohai Venture Capital Fund to Bohai Venture Capital Fund Management Company of which RMB 245 million had been paid at 31 December 2009. The remaining RMB 255 million will be paid when called. | ||
(b) | Operating lease commitments | |
The future minimum lease payments under non-cancellable operating leases are as follows: |
The future minimum lease payments under non-cancelable operating leases are as follows:
As at 31 | As at 31 | |||||||
December | December | |||||||
2009 | 2008 | |||||||
RMB million | RMB million | |||||||
Land and buildings | ||||||||
Not later than one year | 297 | 238 | ||||||
Later than one year but not later than five years | 478 | 383 | ||||||
Later than five years | 49 | 44 | ||||||
Total | 824 | 665 | ||||||
The operating lease payments charged to the net profit for the year ended 31 December 2009 was RMB 593 million (for the year ended 31 December 2008: RMB 482 million). |
As at 31 December 2007 | As at 31 December 2006 | |||
RMB million | RMB million | |||
Land and buildings | ||||
Not later than one year | 206 | 242 | ||
Later than one year but not later than five years | 316 | 386 | ||
Later than five years | 29 | 50 | ||
Total | 551 | 678 | ||
The operating lease payments charged to the consolidated income statement for the year ended 31 December 2007 was RMB391 million (for the year ended 31 December 2006: RMB391 million).F-78
The directors regard China Life Insurance (Group) Company, a company incorporated in the PRC, as being the ultimate holding company.
SUPPLEMENTARY INFORMATION FOR ADS HOLDERS
Less than 6 months More than 6 months but less than More than 12 months Government bonds Government agency bonds Corporate bonds Subordinate bonds/debts Equity securities Total temporarilyimpaired securities Less than 6 months More than 6 months but less than 12 months More than 12 months Debt securities Government bonds Government agency bonds Corporate bonds Subordinate bonds/debts Equity securities Total temporarily impaired securities Net profit attributable to shareholders of the Company Total other comprehensive income, unrealised gains, net of tax Total comprehensive income
FOR THE YEAR ENDED 31 DECEMBER 2007DEC 20093533Reconciliation of HKFRS and United States generally accepted accounting principles (“US GAAP”)(a)(i) The consolidated financial statements36-month restriction of 19,323,530,000 ordinary shares held by the CLIC expired on 11 January 2010, of which 19,173,530,000 shares are publically traded and 150,000,000 shares are frozen due to regulatory requirement.(ii) On 27 December 2009, the Group purchased 934 million shares of Sino-Ocean Land Holdings Limited (“Sino-ocean”, a HKSE listed company) at the total cost of HKD 5,819 million. As a result of this acquisition, the Group became the second largest shareholder by holding 16.57% of the total Sino-ocean shares outstanding. On 12 January 2010, the Group have been prepared in accordance with HKFRS, which differs in certain significant respects from US GAAP. Difference between HKFRS and US GAAP, which may have significant impacts on consolidated net profit/(loss) and consolidated shareholders’acquired 423 million more shares of Sino-ocean. As a result of this acquisition, the Group became the largest shareholder by holding 24.08% equity are described below.interest of Sino-ocean.Deferred Taxes and Tax ReversalThe tax rate changes as disclosed in Note 25(b)(ii) are accounted for consistently with the accounting for the transaction itself. Therefore, if the underlying temporary difference and related deferred taxes have been recorded in equity, a change due to tax law/tax rates is recorded in equity as well. Under US GAAP, the impact of changes in tax rate/tax law is included in net income even if the original deferred taxes have been recognized in equity. For the year ended 31 December 2007, this difference results in a RMB4,746 million increase in the US GAAP net profit and a corresponding RMB4,746 million decrease to the US GAAP equity reserves balance.There are no material differences between HKFRS and US GAAP that had an effect on shareholders’ equity as at 31 December 2007 and 2006 and net profit for the year ended 31 December 2006 and 2005.(b)Disclosures about available-for-sale securities held continuously in an unrealised loss position for the time periods. As at 31 December 2007
12 months Total RMB million RMB million RMB million RMB million Debt securities Fair value 15,596 29,715 — 45,311 Unrealised losses (300 ) (2,432 ) — (2,732 ) Fair value 31,872 21,289 — 53,161 Unrealised losses (1,366 ) (4,072 ) — (5,438 ) Fair value 21,308 11,340 — 32,648 Unrealised losses (1,498 ) (1,344 ) — (2,842 ) Fair value 5,852 415 — 6,267 Unrealised losses (626 ) (94 ) — (720 ) Fair value 4,324 1 — 4,325 Unrealised losses (537 ) — — (537 ) Fair value 78,952 62,760 — 141,712 Unrealised losses (4,327 ) (7,942 ) — (12,269 ) SUPPLEMENTARY INFORMATION FOR ADS HOLDERSFOR THE YEAR ENDED 31 DECEMBER 200735Reconciliation of HKFRS and United States generally accepted accounting principles (“US GAAP”) (continued)(b)Disclosures about available-for-sale securities held continuously in an unrealised loss position for the time periods. (continued) As at 31 December 2006 Total RMB million RMB million RMB million RMB million Fair value 22,050 1,198 7,149 30,397 Unrealised losses (362 ) (15 ) (192 ) (569 ) Fair value 15,471 1,265 1,497 18,233 Unrealised losses (180 ) (41 ) (22 ) (243 ) Fair value 13,502 6,605 566 20,673 Unrealised losses (240 ) (234 ) (13 ) (487 ) Fair value 2,329 — — 2,329 Unrealised losses (37 ) — — (37 ) Fair value 1,273 — — 1,273 Unrealised losses (136 ) — — (136 ) Fair value 54,625 9,068 9,212 72,905 Unrealised losses (955 ) (290 ) (227 ) (1,472 ) Available-for-sale securities have generally been identified as temporarily impaired if their amortised cost as at 31 December 2007 was greater than their fair value, resulting in an unrealised loss. Unrealised losses in respect of financial assets at fair value through income have been included in net income and have been excluded from the above table. Unrealised losses from debt securities are largely due to interest rate fluctuations. Based on a review of these financial assets, it is believed that the contractual terms of these available-for-sale securities will be met. A total 218 debt securities positions and 77 equity securities positions were in an unrealised loss position at 31 December 2007 of which 100 debt securities and 76 equity securities positions were in a continuous loss position for less than 6 months, 172 debt securities and 1 equity security positions for more than 6 months but less than 12 months.(c)Comprehensive income 2007 2006 2005 RMB million RMB million RMB million 43,625 19,956 9,306 26,167 12,859 4,542 69,792 32,815 13,848 SUPPLEMENTARY INFORMATION FOR ADS HOLDERSFOR THE YEAR ENDED 31 DECEMBER 200735Reconciliation of HKFRS and United States generally accepted accounting principles (“US GAAP”) (continued)(d)Recently issued accounting standardsIn September 2005, the AICPA issued Statement of Position 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts” (SOP 05-1). SOP 05-1 provides guidance on accounting for DAC on internal replacements of insurance and investment contracts other than those specifically described in FAS 97. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverage that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. The Group adopted this guidance on 1 January 2007 and it did not have a material effect on the Group’s consolidated financial position or results of operations.F-79In February 2006, the FASB issued FAS 155, “Accounting for Certain Hybrid Financial Instruments” (FAS 155), an amendment of FAS 140 and FAS 133. FAS 155 allows the Group to include changes in fair value in earnings on an instrument-by-instrument basis for any hybrid financial instrument that contains an embedded derivative that would otherwise be required to be bifurcated and accounted for separately under FAS 133. FAS 155 is effective for the Group’s fiscal year ending 31 December 2007. The Group adopted this guidance on 1 January 2007 and it did not have a material effect on the Group’s consolidated financial position or results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income tax positions. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and additional disclosures. In May 2007, the FASB issued FSP 48-1,”Definition of Settlement in FASB Interpretation No. 48,” which amended FIN 48, to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits, effective upon the initial adoption of FIN 48. The Group adopted FIN 48 on 1 January 2007 and it did not have a material effect on the Group’s consolidated financial position or results of operations.
In September 2006, the FASB issued FAS 157, “Fair Value Measurements” (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FSP 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13”. Also in February 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement No. 157”, which defers the effective date of FAS 157 to fiscal years beginning after 15 November 2008, and interim periods within those fiscal years. The Group is currently assessing the impact of FAS 157 on the Group’s consolidated financial position and results of operations.
In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (FAS 159). FAS 159 permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. Subsequent changes in fair value for designated items will be required to be reported in earnings in the current period. FAS 159 also establishes presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. FAS 159 is effective for financial statements issued for accounting periods beginning on or after 15 November 2007. The Group is currently assessing the impact of FAS 159 on the Group’s consolidated financial position and results of operations.
SUPPLEMENTARY INFORMATION FOR ADS HOLDERS
FOR THE YEAR ENDED 31 DECEMBER 2007
In April 2007, the FASB issued FSP FIN 39-1, “Amendment of FASB Interpretation No. 39.” FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts,” and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. This FSP is effective for fiscal years beginning after 15 November 2007 and is required to be applied retrospectively to financial statements for all periods presented. The Group is currently assessing the impact of FSP FIN 39-1 on the Group’s consolidated financial position and results of operations.
In December 2007, the FASB issued FAS 160, “Noncontrolling Interests in Consolidated Financial Statements.” FAS 160 will change the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. The noncontrolling interests’ share of subsidiary income should be reported as a part of consolidated net income with disclosure of the attribution of consolidated net income to the controlling and noncontrolling interests on the face of the consolidated statement of income. This statement is effective for fiscal years beginning on or after 15 December 2008, with early adoption prohibited. Upon adoption, FAS 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. The Group is currently assessing the impact of FAS 160 on the Group’s consolidated financial position and results of operations.
In December 2007, the FASB issued FAS 141R, “Business Combinations.” This statement addresses the accounting for business acquisitions with a number of changes. Among other things, the new standard broadened the transactions or events that are considered business combinations. It requires that all acquisition-related costs be expensed as incurred, and that all restructuring costs related to acquired operations be expensed as incurred. This new standard also addresses the current and subsequent accounting for assets and liabilities arising from contingencies acquired or assumed and, for acquisitions both prior and subsequent to 31 December 2008, requires the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. This statement is effective for fiscal years beginning on or after 15 December 2008, with early adoption prohibited, and generally applies to business acquisitions completed after 31 December 2008. The Group is currently assessing the impact of FAS 141R on the Group’s consolidated financial position and results of operations.
In February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.” FSP FAS 140-3 provides guidance on accounting for a transfer of a financial asset and a repurchase financing and presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under Statement 140. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under Statement 140. This FSP is effective for fiscal years beginning after 15 November 2008, and interim periods within those fiscal years. Earlier application is not permitted. The Group is currently assessing the impact of this FSP on the Group’s consolidated financial position and results of operations.
F-72