EXHIBIT 99.1
Commission File Number 001-31914
(A joint stock limited company incorporated in the People’s Republic of China with limited liability)
(the “Company”)
(Stock Code: 2628)
ANNOUNCEMENT OF UNAUDITED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2010
FOR THE SIX MONTHS ENDED 30 JUNE 2010
CHAIRMAN’S STATEMENT
In the first half of 2010, due to the extreme complexity of both the domestic and international economic environment, there were macro-economic control dilemmas on an increasing number of issues, which led to greater challenges to the development of the insurance industry. With the full implementation of the “No. 2 Interpretation of Accounting Standard for Business Enterprises”, a new structure for the life insurance market in China is emerging. In order to actively respond to market competition, the Company accelerated its structural adjustments, strived to maintain the stable and healthy development of its business and strengthened its leading market position. By greatly improving its infrastructure, the Company made steady progress in the reform of its operation and management system. The Company also kept improving its back-office support capabilities, controlled its operating risks effectively, and transformed its model of development continuously.
During the Reporting Period, the Company’s total revenues reached RMB215,391 million, up 10.0% year-on-year. Net profit attributable to shareholders of the Company was RMB18,034 million, up 7.4% year-on-year and earnings per share (basic and diluted) were RMB0.64. As at the end of the Reporting Period, the Company’s total assets reached RMB1,320,354 million, up 7.7% from the end of 2009. The Company’s embedded value was RMB278,440 million.
Commission File Number 001-31914
Review of the First Half of 2010
The Company closely monitored the development trend of the life insurance market, intensified its efforts in business development and sped up the growth of its regular premiums business. On the basis of maintaining a steady and healthy business development, the Company has achieved remarkable success in its business restructuring. During the Reporting Period, the Company’s net premiums earned reached RMB183,589 million, up 13.3% year-on-year. First year premiums and first-year regular premiums increased by 9.4% and 24.2% compared to the corresponding period in 2009 respectively, and renewal premiums increased by 18.9% compared to the corresponding period in 2009. The percentage of first-year regular premiums in first year premiums increased to 27.82% in the first half of 2010 from 24.50% in the corresponding period in 2009. The percentage of accident insurance premiums in short-term insurance premiums increased to 53.28% in the first half of 2010 from 50.75% in the corresponding period in 2009. The percentage of renewal premiums in gross written premiums increased to 39.23% in the first half of 2010 from 37.28% in the corresponding period in 2009. New business value increased steadily, with new business value for the 6 months to 30 June 2010 reaching RMB11,548 million, an increase of 10.9% compared with that for the 6 months to 30 June 2009. Underwriting quality of the Company was further enhanced. As at 30 June 2010, the number of in-force policies increased by 7.8% from the end of 2009, and the Policy Persistency Rate (14 months and 26 months)1 reached 93.83% and 89.76%, respectively. Surrender Rate was 1.3%, a 0.34 percentage point decrease from the corresponding period in 2009.
The Company effectively responded to changes in the capital markets and consistently optimized its investment portfolio. By capturing market opportunities, the Company has increased investment in negotiated deposits, adjusted the structure of its investment in bonds, reduced the proportion of its equity investments, and successfully implemented its debt plan investment, achieving satisfactory investment results. As at the end of the Reporting Period, the Company’s investment assets2 reached RMB1,242,944 million, up 6.0% from the end of 2009. The proportion of debt securities decreased from 49.68% as at the end of 2009 to 48.46%, while the proportion of equity securities decreased from 15.31% to 11.15%. The proportion of term deposits increased from 29.43% as at the end of 2009 to 33.89%. During the Reporting Period, the Company’s gross investment yield3 was 2.51% (the simple annualized gross investment yield4 was 5.06%).
The Company kept on strengthening the infrastructure of its exclusive individual agent channel and enhancing the professionalism and meticulousness of its operation and management, as a result of which the quality of its sales team has improved continually. The group insurance channel intensified its efforts to expand the business from major projects, resulting in further increase of the Company’s market share in short-term insurance business, and the model of development on its policy-oriented business has been widely praised. The bancassurance channel has accomplished significant progress in increasing regular premium business, which resulted in a significant lead over its competitors in regular premium business and continuous improvement in its team’s competitiveness. As at the end of the Reporting Period, the Company had approximately 736,000 exclusive individual agents, and 12,900 direct sales representatives. The number of intermediary bancassurance outlets reached 97,000, with approximately 28,500 client service managers and 14,200 financial advisors.
1 | The Persistency Rate for long-term individual policy is an important operating performance indicator for life insurance companies. It measures the ratio of in-force policies in a pool of policies after a certain period of time. It refers to the proportion of policies that are still effective during the designated month in the pool of policies whose issue date was 14 or 26 months ago. | |
2 | Investment assets = Cash and cash equivalents + Securities at fair value through income + Available-for-sale securities + Held-to-maturity securities + Term deposits + Securities purchased under agreements to resell + Loans + Statutory deposits-restricted. | |
3 | Gross investment yield = (Investment income + Net realised gains/(losses) on financial assets + Net fair value gains/ (losses) on assets at fair value through income — Business tax and extra charges for investment)/((Investment assets at the beginning of the period + Investment assets at the end of the period)/2). | |
4 | Simple annualized gross investment yield = (the gross investment yield for the first half year/181)*365. |
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Commission File Number 001-31914
The Company introduced standards for all customer service personnel and developed the inquiry functions of self-service terminals, in the aim of improving customer services continuously. By optimizing its business management practices and workflows, the Company effectively enhanced the efficiency of its business processing operations. The Company also consistently improved the professional research and development of, and operation supporting systems for information technologies, so as to provide strong back-up support and services guarantee to all sales channels. The Company also actively promoted its telephone and online sales business.
The Company strictly implemented the “Standards for the Operation of Personal Accident and Casualty Insurance Business” issued by the China Insurance Regulatory Commission. The Company also strengthened the insurance agent risk warning system and follow-up visits of clients, and developed the credit assessment system for insurance agents. The Company revised and improved its Manual for the Implementation of Internal Control, focusing on certain key points, and further implemented the internal control standards, establishing a mechanism whereby all employees undertake to carry out internal control measures. The Company accomplished centralized management of internal audit functions and created an off-site audit control benchmark system for the commencement of off-site control.
Corporate Governance
In the first half of 2010, the Company has strictly complied with all the relevant regulatory requirements and listing rules. In the 2009 AGM, Mr. Anthony Francis Neoh was elected as an independent non-executive director of the Company to join the third session of the Board of Directors, thus further facilitating the development of the Board of Directors. Meanwhile, independent non-executive director Mr. Sun Shuyi left his position on 30 June 2010 after completing 6 consecutive years of service. The Company expresses its heartfelt gratitude to Mr. Sun Shuyi for his diligence towards his duties and his significant contribution to the Company’s development.
Corporate Social Responsibility
The Company donated RMB10 million to the Ministry of Civil Affairs through the China Life Foundation and RMB1 million to the Qinghai Charity Federation for the disaster rescue and post- disaster construction of Yushu. At the same time, the Company announced that it would support Yushu earthquake orphans by undertaking their basic living expenses until they reach the age of 18. The Company donated RMB1 million to Gansu Red Cross Society for the mudslide rescue and post-disaster construction of Zhouqu. The Company donated RMB1 million to “China Women’s Development Foundation — Special Fund for the Health of Chinese Women” to provide for “Screening for Two Gynaecological Cancers” and protection against serious diseases to women living in poor areas. The Company also donated RMB2 million to the China Foundation for Poverty Alleviation for addressing the drinking water and other livelihood problems encountered by the poor families in the Yunnan Province and Guizhou Province severely hit by drought. The Company donated over RMB1 million to Jiangxi Province, Fujian Province, Jilin Province and Shanxi Province which suffered from serious flood disasters. The Company continued to promote the “China Life Earthquake-striken Orphan Support Plan”. Through the scheme under which one-on-one assistance is provided to orphans by China Life volunteers, photography exibitions on Wenchuan earthquake orphans, and the second “China Life Summer Camp — earthquake orphans visiting the Shanghai EXPO”, etc., the Company provided orphans from the Wenchuan earthquake with long-term, continuous physical and spiritual support. Through the China Life Foundation, the Company continued to work on the “Healthy New Villages” project jointly initiated with the Red Cross Foundation of China.
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Commission File Number 001-31914
Outlook
In the second half of 2010, the Company will face various challenges as well as opportunities in its development: China’s macro-economic environment will maintain a positive outlook. The coordination in respect of economic growth driven by consumption, investment and exports is hopefully to be strengthened, as a result of which the basis of the development for the insurance industry will be more stable. With the thorough implementation of the “No. 2 Interpretation of Accounting Standard for Business Enterprises”, the insurance industry will enjoy a healthier market environment for development. With investment channels for insurance companies further expanded, asset allocation will be more diversified. Meanwhile, the perspective for capital markets is unclear, resulting in greater challenges in asset-liability matching and achieving higher investment return.
On the basis of maintaining steady business development, the Company will proactively capture opportunities and strengthen its advantages, so as to achieve a robust and superior development. It will accelerate the development of its regular premium business and expand the scale of its renewal premiums, so as to enhance its sustainable development capabilities. The Company will strive to strengthen its sales force to further consolidate its core competitive edge. It will also establish a professional sales organization and management system to lay down a solid foundation for continuous development. In order to expand the scope for sustainable development, the Company will increase its capabilities for expanding customer resources. It will also strike a good balance between business scale and structure, short term and long term goals, objectives and foundations, as well as business development and risk control. The Company will also strive to enhance its core competitiveness, and create a new outlook for its sustainable development.
To Shareholders
With continuous economic and social development, the life insurance industry in China will continue to grow at a rapid pace and there will be tremendous room for market development, although a lot of uncertainties exist. China Life will focus on serving economic development, social improvement and security of people’s livelihood as a whole. Based on solid business development, internal management and team construction, we will make great efforts to achieve sustainable business development by utilizing our own competition advantages. We hereby express our heartful gratitude to the continuing support provided by all the Company’s shareholders. Taking a long-term perspective, we will maintain our commitment to offer long-term, stable return to the society and investors, and continue to display the Company’s image as a reliable and responsible corporate citizen for shareholders.
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Commission File Number 001-31914
MANAGEMENT DISCUSSION AND ANALYSIS5
I. | Analysis of Major Items of Consolidated Statement of Comprehensive Income |
1. | Total Revenues |
RMB million | ||||||||
January to | January to | |||||||
June 2010 | June 2009 | |||||||
Net premiums earned | 183,589 | 161,993 | ||||||
Individual life insurance business | 175,504 | 155,252 | ||||||
Group life insurance business | 281 | 123 | ||||||
Short-term insurance business | 7,804 | 6,618 | ||||||
Investment income | 24,715 | 18,977 | ||||||
Net realised gains on financial assets | 6,266 | 12,241 | ||||||
Debt securities | 436 | 2,348 | ||||||
Equity securities | 5,830 | 9,893 | ||||||
Net fair value gains/(losses) on assets at fair value through income | (369 | ) | 1,379 | |||||
Debt securities | 132 | (225 | ) | |||||
Equity securities | (501 | ) | 1,604 | |||||
Other income | 1,190 | 1,154 | ||||||
Total | 215,391 | 195,744 | ||||||
Net Premiums Earned
(1) | Individual Life Insurance Business | ||
During the Reporting Period, net premiums earned from individual life insurance business increased by 13.0% year-on-year. This was primarily due to an increase in the first-year regular premiums and renewal premiums. | |||
(2) | Group Life Insurance Business | ||
During the Reporting Period, net premiums earned from group life insurance business increased by 128.5% year-on-year. This was primarily due to our increased efforts on the development for protection-type business. |
5 | Unless otherwise specified, financial results of the six months from January to June 2009 have been adjusted in accordance with IFRS. Financial results of the Reporting Period are unaudited. |
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Commission File Number 001-31914
(3) | Short-term Insurance Business | ||
During the Reporting Period, net premiums earned from short-term insurance business increased by 17.9% year-on-year. This was primarily due to our increased efforts on the development for short-term accident insurance business. |
RMB million | ||||||||
Gross written premiums | ||||||||
January to | January to | |||||||
June 2010 | June 2009 | |||||||
Individual Life Insurance | 175,520 | 155,263 | ||||||
First-year business | 103,486 | 94,707 | ||||||
Single | 74,624 | 71,478 | ||||||
First-year regular | 28,862 | 23,229 | ||||||
Renewal business | 72,034 | 60,556 | ||||||
Group Life Insurance | 283 | 123 | ||||||
First-year business | 279 | 117 | ||||||
Single | 278 | 113 | ||||||
First-year regular | 1 | 4 | ||||||
Renewal business | 4 | 6 | ||||||
Accident and Health Insurance | 7,811 | 7,074 | ||||||
Short-term accident insurance business | 4,162 | 3,590 | ||||||
Short-term health insurance business | 3,649 | 3,484 | ||||||
Total | 183,614 | 162,460 | ||||||
Investment Income
RMB million | ||||||||
January to | January to | |||||||
June 2010 | June 2009 | |||||||
Investment income from securities at fair value through income | 62 | 191 | ||||||
Investment income from available-for-sale securities | 11,324 | 8,109 | ||||||
Investment income from held-to-maturity securities | 5,184 | 4,793 | ||||||
Investment income from term deposits | 7,375 | 5,324 | ||||||
Investment income from loans | 696 | 560 | ||||||
Other Investment income | 74 | — | ||||||
Total | 24,715 | 18,977 | ||||||
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Commission File Number 001-31914
(1) | Investment income from Securities at Fair Value through Income | ||
During the Reporting Period, investment income from securities at fair value through income decreased by 67.5% year-on-year. This was primarily due to a decrease in dividends and interest income from the held-for-trading securities. | |||
(2) | Investment income from Available-for-Sale Securities | ||
During the Reporting Period, investment income from available-for-sale securities increased by 39.6% year-on-year. This was primarily due to an increase in dividends and interest income from available-for-sale securities. | |||
(3) | Investment income from Held-to-Maturity Securities | ||
During the Reporting Period, investment income from held-to-maturity securities increased by 8.2% year-on-year. This was primarily due to an increase in interest income resulting from favorable structural adjustment of our investment in debt securities. | |||
(4) | Investment income from Term Deposits | ||
During the Reporting Period, investment income from term deposits increased by 38.5% year-on-year. This was primarily due to an increase in the amount of term deposits and currency assets. | |||
(5) | Investment income from Loans | ||
During the Reporting Period, investment income from loans increased by 24.3% year-on-year. This was primarily due to an increase in interest income from policy loans. |
Net Realised Gains on Financial Assets
(1) | Debt Securities | ||
During the Reporting Period, net realised gains on financial assets from debt securities decreased by 81.4% year-on-year. This was primarily due to a decrease in income from the buy-sale price differential in the trading of available-for-sale debt securities. | |||
(2) | Equity Securities | ||
During the Reporting Period, net realised gains on financial assets from equity securities decreased by 41.1% year-on-year. This was primarily due to a decrease in income from the buy-sale price differential in the trading of available-for sale stocks and fund interests resulting from the fluctuation in the capital markets. |
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Commission File Number 001-31914
Net Fair Value Gains/(Losses) on Assets at Fair Value through Income
(1) | Debt Securities | ||
During the Reporting Period, the change of net fair value gains/(losses) on assets at fair value through income from debt securities was primarily due to an increase in unrealized profits and income from the buy-sale price differential in trading of held-for-trading debt securities. | |||
(2) | Equity Securities | ||
During the Reporting Period, the change of net fair value gains/(losses) on assets at fair value through income from equity securities was primarily due to a decrease in unrealised profits and in income from the buy-sale price differential in trading of held-for trading stocks and fund interests resulting from the fluctuation in the capital markets. |
Other Income
During the Reporting Period, other income increased by 3.1% year-on-year. This was primarily due to an increase in income from asset management fees earned by the China Life Asset Management Company Limited.
2. | Benefits, Claims and Expenses |
RMB million | ||||||||
January to | January to | |||||||
June 2010 | June 2009 | |||||||
Insurance benefits and claims | 163,315 | 143,741 | ||||||
Individual life insurance business | 158,760 | 139,703 | ||||||
Group life insurance business | 265 | 254 | ||||||
Short-term insurance business | 4,290 | 3,784 | ||||||
Investment contracts benefits | 1,062 | 1,028 | ||||||
Policyholder dividends resulting from participation in profits | 6,195 | 7,996 | ||||||
Underwriting and policy acquisition costs | 13,962 | 12,289 | ||||||
Administrative expenses | 8,405 | 8,161 | ||||||
Other operating expenses | 1,580 | 1,106 | ||||||
Statutory insurance fund | 339 | 305 | ||||||
Total | 194,858 | 174,626 | ||||||
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Commission File Number 001-31914
Insurance Benefits and Claims
(1) | Individual Life Insurance Business | ||
During the Reporting Period, insurance benefits and claims attributable to individual life insurance business increased by 13.6% year-on-year. This was primarily due to an increase in business volume and the accumulation of insurance liabilities. | |||
(2) | Group Life Insurance Business | ||
During the Reporting Period, insurance benefits and claims attributable to group life insurance business increased by 4.3% year-on-year. This was primarily due to an increase in business volume and the accumulation of insurance liabilities. | |||
(3) | Short-term Insurance Business | ||
During the Reporting Period, insurance benefits and claims attributable to short-term insurance business increased by 13.4% year-on-year. This was primarily due to an increase in business volume. |
Investment Contracts Benefits
During the Reporting Period, investment contracts benefits increased by 3.3% year-on-year. This was primarily due to an increase in average account balance resulting from the increased volume of investment contracts business.
Policyholder Dividends Resulting from Participation in Profits
During the Reporting Period, policyholder dividends resulting from participation in profits decreased by 22.5% year-on-year. This was primarily due to a decrease in investment yield for participating products resulting from the fluctuation of capital market.
Underwriting and Policy Acquisition Costs
During the Reporting Period, underwriting and policy acquisition costs increased by 13.6% year-on-year. This was primarily due to business development and optimization of business structure.
Administrative Expenses
During the Reporting Period, administrative expenses increased by 3.0% year-on-year. This was primarily due to business development and strengthened control of expenses.
Other Operating Expenses
During the Reporting Period, other operating expenses increased by 42.9% year-on-year. This was primarily due to an increase in interest expenses, etc.
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Commission File Number 001-31914
3. | Profit before Income Tax |
RMB million | ||||||||
January to | January to | |||||||
June 2010 | June 2009 | |||||||
Individual life insurance business | 19,144 | 19,845 | ||||||
Group life insurance business | 210 | 282 | ||||||
Short-term insurance business | 773 | 780 | ||||||
Other | 1,476 | 678 | ||||||
Total | 21,603 | 21,585 | ||||||
(1) | Individual Life Insurance Business | ||
During the Reporting Period, profit before income tax of the Company in the individual life insurance business decreased by 3.5% year-on-year. This was primarily due to a decrease in investment yield resulting from the fluctuation in the capital markets. | |||
(2) | Group Life Insurance Business | ||
During the Reporting Period, profit before income tax of the Company in the group life insurance business decreased by 25.5% year-on-year. This was primarily due to an increase in claims payments and a decrease in investment yield. | |||
(3) | Short-term Insurance Business | ||
During the Reporting Period, profit before income tax of the Company in the short-term insurance business decreased by 0.9% year-on-year. This was primarily due to an increase in claims payments. |
4. | Income Tax | ||
During the Reporting Period, income tax of the Company was RMB3,488 million, a 26.2% decrease year-on-year. This was primarily due to an increase in non-taxable income. Our effective tax rate for the first half of 2010 was 16.15%. | |||
5. | Net Profit | ||
During the Reporting Period, net profit attributable to shareholders of the Company was RMB18,034 million, a 7.4% increase year-on-year. This was primarily due to business development, optimization of business structure, and optimization of assets allocation. |
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Commission File Number 001-31914
II. | Analysis of Major Financial Position Items |
1. | Major Assets |
RMB million | ||||||||
As at | As at | |||||||
30 June | 31 December | |||||||
2010 | 2009 | |||||||
Investment assets | 1,242,944 | 1,172,145 | ||||||
Term deposits | 421,194 | 344,983 | ||||||
Held-to-maturity securities | 244,254 | 235,099 | ||||||
Available-for-sale securities | 485,616 | 517,499 | ||||||
Securities at fair value through income | 11,041 | 9,133 | ||||||
Securities purchased under agreements to resell | 190 | — | ||||||
Cash and cash equivalents | 44,718 | 36,197 | ||||||
Loans | 29,778 | 23,081 | ||||||
Statutory deposits—restricted | 6,153 | 6,153 | ||||||
Other assets | 77,410 | 54,112 | ||||||
Total | 1,320,354 | 1,226,257 | ||||||
Term Deposits
As at the end of the Reporting Period, term deposits increased by 22.1% from the end of 2009. This was primarily due to our increased efforts for investment in negotiated deposits with floating interest rates.
Held-to-Maturity Securities
As at the end of the Reporting Period, held-to-maturity securities increased by 3.9% from the end of 2009. This was primarily due to an increase in our total investment assets.
Available-for-Sale Securities
As at the end of the Reporting Period, available-for-sale securities decreased by 6.2% from the end of 2009. This was primarily due to a decrease in fair value on financial assets.
Securities at Fair Value through Income
As at the end of the Reporting Period, securities at fair value through income increased by 20.9% from the end of 2009. This was primarily due to an increase in the volume of held-for-trading fund interests.
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Commission File Number 001-31914
Cash and Cash Equivalents
As at the end of the Reporting Period, cash and cash equivalents increased by 23.5% from the end of 2009. This was primarily due to the asset allocation needs.
Loans
As at the end of the Reporting Period, loans increased by 29.0% from the end of 2009. This was primarily due to an increase in the demand of policy loans.
As at the end of the Reporting Period, our investment assets are categorized as below in terms of asset classes:
RMB million | ||||||||||||||||
As at | As at | |||||||||||||||
30 June 2010 | 31 December 2009 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Cash and cash equivalents | 44,718 | 3.60 | % | 36,197 | 3.09 | % | ||||||||||
Term deposits | 421,194 | 33.89 | % | 344,983 | 29.43 | % | ||||||||||
Bonds | 602,318 | 48.45 | % | 582,315 | 49.68 | % | ||||||||||
Funds | 65,592 | 5.28 | % | 76,367 | 6.52 | % | ||||||||||
Common stocks | 73,001 | 5.87 | % | 103,038 | 8.79 | % | ||||||||||
Other investments | 36,121 | 2.91 | % | 29,245 | 2.49 | % | ||||||||||
Total | 1,242,944 | 100 | % | 1,172,145 | 100 | % | ||||||||||
2. | Major Liabilities |
RMB million | ||||||||
As at | As at | |||||||
30 June | 31 December | |||||||
2010 | 2009 | |||||||
Insurance contracts | 940,693 | 818,164 | ||||||
Financial liabilities | 101,082 | 100,879 | ||||||
Investment contracts | 69,782 | 67,326 | ||||||
Securities sold under agreements to repurchase | 31,300 | 33,553 | ||||||
Policyholder dividends payable | 47,171 | 54,587 | ||||||
Annuity and other insurance balances payable | 7,924 | 5,721 | ||||||
Deferred tax liabilities | 11,565 | 16,361 | ||||||
Other liabilities | 18,520 | 17,769 | ||||||
Total | 1,126,955 | 1,013,481 | ||||||
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Commission File Number 001-31914
Insurance Contracts
As at the end of the Reporting Period, liabilities of insurance contracts increased by 15.0% from the end of 2009. This was primarily due to an increase in business volume and the accumulation of insurance liabilities.
Financial Liabilities
As at the end of the Reporting Period, financial liabilities increased by 0.2% from the end of 2009. This was primarily due to an increase in business volume of investment contracts.
Policyholder Dividends Payable
As at the end of the Reporting Period, policyholder dividends payable decreased by 13.6% from the end of 2009. This was primarily due to a decrease in investment yield for participating products and a decrease in unrealised profit of financial assets (available for sale).
Annuity and Other Insurance Balances Payable
As at the end of the Reporting Period, annuity and other insurance balances payable increased by 38.5% from the end of 2009. This was primarily due to the accumulation of insurance liabilities.
Deferred Tax Liabilities
As at the end of the Reporting Period, deferred tax liabilities decreased by 29.3% from the end of 2009. This was primarily due to a decrease in unrealised profit of financial assets (available for sale).
3. | Shareholders’ Equity |
As at the end of the Reporting Period, shareholders’ equity was RMB191,739 million, a 9.2% decrease from the end of 2009. This decrease was primarily due to a decrease in fair value on financial assets (available for sale) and the distribution of cash dividends.
III | Analysis of Cash Flow |
1. | Liquidity Sources |
Our principal cash inflows come from insurance premiums, deposits, proceeds from sales and maturity of financial assets, and net investment income. The primary liquidity concerns with respect to these cash inflows are the risk of early withdrawals by contract holders and policyholders, as well as the risks of default by debtors, interest rate changes and other market volatilities. We closely monitor and manage these risks.
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Additional sources of liquidity to meet unexpected cash outflows are available from our investment portfolio. As at the end of the Reporting Period, the amount of cash and cash equivalents was RMB44,718 million. In addition, substantially all of our term deposits with banks allow us to withdraw funds on deposit, subject to a penalty interest charge. As at the end of the Reporting Period, the amount of term deposits was RMB421,194 million.
Our investment portfolio also provides us with a source of liquidity to meet unexpected cash outflows. As at the end of the Reporting Period, investments in debt securities had a fair value of RMB609,187 million, while investments in equity securities had a fair value of RMB138,593 million. The Company is also subject to market liquidity risk due to the large size of our investments in some of the markets in which we invest. From time to time some of our positions in our investment securities may be large enough to have an influence on the market value. These factors may limit our ability to sell these investments at an adequate price, or at all.
2. | Liquidity Uses |
Our principal cash outflows primarily relate to the liabilities associated with our various life insurance, annuity and accident and health insurance products, dividend and interest payments on our insurance policies and annuity contracts, operating expenses, income taxes and dividends that may be declared and payable to our shareholders. Liabilities arising from our insurance activities primarily relate to benefit payments under these insurance products, as well as payments for policy surrenders, withdrawals and loans.
We believe that our sources of liquidity are sufficient to meet our current cash requirements.
3. | Consolidated Cash Flows |
RMB million | ||||||||
January to | January to | |||||||
June 2010 | June 2009 | |||||||
Net cash provided by operating activities | 104,365 | 80,710 | ||||||
Net cash used in investment activities | (78,376 | ) | (38,778 | ) | ||||
Net cash provided by financing activities | (17,405 | ) | (14,727 | ) | ||||
Foreign currency losses on cash and cash equivalents | (63 | ) | (11 | ) | ||||
Net increase of cash and cash equivalents | 8,521 | 27,194 | ||||||
During the Reporting Period, net cash provided by operating activities increased by 29.3% year-on-year. This was primarily due to an increase in written premiums and a decrease in claims payments. Net cash used in investment activities increased by 102.1% year-on-year. This was primarily due to an increase in total investment assets and investment arrangements. Net cash provided by financing activities increased by 18.2%. This was primarily due to an increase in cash dividends.
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IV | Solvency Ratio |
The solvency ratio of an insurance company is a measure of capital adequacy, which is calculated by dividing the actual capital of the company (which is its admissible assets less admissible liabilities, determined in accordance with relevant rules) by the minimum capital it is required to meet. The following table shows our solvency ratio as at 30 June 2010:
RMB million | ||||||||
As at | As at | |||||||
30 June | 31 December | |||||||
2010 | 2009 | |||||||
Actual capital | 118,184 | 147,119 | ||||||
Minimum capital | 54,408 | 48,459 | ||||||
Solvency ratio | 217.22 | % | 303.59 | % | ||||
The decrease of our solvency ratio was primarily due to the fluctuation of capital market, the development of our business and the distribution of cash dividends.
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INTERIM RESULTS6
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2010
For the six months ended 30 June 2010
Unaudited | ||||||||||||
For the six months | ||||||||||||
ended 30 June | ||||||||||||
Note | 2010 | 2009 | ||||||||||
RMB million | RMB million | |||||||||||
REVENUES | ||||||||||||
Gross written premiums | 183,614 | 162,460 | ||||||||||
Less: premiums ceded to reinsurers | (90 | ) | (64 | ) | ||||||||
Net written premiums | 183,524 | 162,396 | ||||||||||
Net change in unearned premium reserves | 65 | (403 | ) | |||||||||
Net premiums earned | 183,589 | 161,993 | ||||||||||
Investment income | 1 | 24,715 | 18,977 | |||||||||
Net realised gains on financial assets | 2 | 6,266 | 12,241 | |||||||||
Net fair value gains/(losses) on assets at fair value through income | 3 | (369 | ) | 1,379 | ||||||||
Other income | 1,190 | 1,154 | ||||||||||
Total revenues | 215,391 | 195,744 | ||||||||||
BENEFITS, CLAIMS AND EXPENSES | ||||||||||||
Insurance benefits and claims | ||||||||||||
Life insurance death and other benefits | (36,482 | ) | (48,681 | ) | ||||||||
Accident and health claims and claim adjustment expenses | (4,290 | ) | (3,784 | ) | ||||||||
Increase in insurance contracts liabilities | (122,543 | ) | (91,276 | ) | ||||||||
Investment contract benefits | (1,062 | ) | (1,028 | ) | ||||||||
Policyholder dividends resulting from participation in profits | (6,195 | ) | (7,996 | ) | ||||||||
Underwriting and policy acquisition costs | (13,962 | ) | (12,289 | ) | ||||||||
Administrative expenses | (8,405 | ) | (8,161 | ) | ||||||||
Other operating expenses | (1,580 | ) | (1,106 | ) | ||||||||
Statutory insurance fund | (339 | ) | (305 | ) | ||||||||
Total benefits, claims and expenses | (194,858 | ) | (174,626 | ) | ||||||||
6 | The “Group” refers to China Life Insurance Company Limited and its subsidiaries in this part. |
16
Commission File Number 001-31914
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(CONTINUED)
For the six months ended 30 June 2010
(CONTINUED)
For the six months ended 30 June 2010
Unaudited | ||||||||||||
For the six months | ||||||||||||
ended 30 June | ||||||||||||
Note | 2010 | 2009 | ||||||||||
RMB million | RMB million | |||||||||||
Share of results of associates | 1,070 | 467 | ||||||||||
Profit before income tax | 4 | 21,603 | 21,585 | |||||||||
Income tax expenses | 5 | (3,488 | ) | (4,728 | ) | |||||||
Net profit | 18,115 | 16,857 | ||||||||||
Attributable to: | ||||||||||||
– shareholders of the Company | 18,034 | 16,795 | ||||||||||
– non-controlling interests | 81 | 62 | ||||||||||
Basic and diluted earnings per share | 6 | RMB | 0.64 | RMB | 0.59 | |||||||
Other comprehensive income/(loss) | ||||||||||||
Available-for-sale financial assets | ||||||||||||
Arising from available-for-sale securities | (26,690 | ) | 28,655 | |||||||||
Reclassification adjustment for gains included in profit or loss | (6,264 | ) | (12,242 | ) | ||||||||
Impact from available-for-sale securities on other assets and liabilities | 9,770 | (3,619 | ) | |||||||||
Share of other comprehensive loss of associates | (208 | ) | (53 | ) | ||||||||
Income tax relating to components of other comprehensive income/(loss) | 5,796 | (3,198 | ) | |||||||||
Other comprehensive income/(loss) for the period | (17,596 | ) | 9,543 | |||||||||
Total comprehensive income for the period | 519 | 26,400 | ||||||||||
Attributable to: | ||||||||||||
– shareholders of the Company | 452 | 26,331 | ||||||||||
– non-controlling interests | 67 | 69 | ||||||||||
17
Commission File Number 001-31914
Note:
1. | INVESTMENT INCOME |
For the six months | ||||||||
ended 30 June | ||||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
Debt securities | 12,548 | 11,713 | ||||||
– held-to-maturity securities | 5,184 | 4,793 | ||||||
– available-for-sale securities | 7,329 | 6,761 | ||||||
– at fair value through income | 35 | 159 | ||||||
Equity securities | 4,022 | 1,380 | ||||||
– available-for-sale securities | 3,995 | 1,348 | ||||||
– at fair value through income | 27 | 32 | ||||||
Bank deposits | 7,375 | 5,324 | ||||||
Loans | 696 | 560 | ||||||
Securities purchased under agreements to resell | 74 | — | ||||||
Total | 24,715 | 18,977 | ||||||
Included in investment income is interest income of RMB20,693 million (for the six months ended 30 June 2009: RMB17,597 million) using the effective interest method. The investment income from listed and unlisted investment for the six months ended 30 June 2010 are RMB3,370 million (for the six months ended 30 June 2009: RMB2,090 million) and RMB13,200 million (for the six months ended 30 June 2009: RMB11,005 million) respectively.
2. | NET REALISED GAINS ON FINANCIAL ASSETS |
For the six months | ||||||||
ended 30 June | ||||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
Debt securities | ||||||||
Net realised gains | 436 | 2,348 | ||||||
Subtotal | 436 | 2,348 | ||||||
Equity securities | ||||||||
Net realised gains | 6,143 | 12,177 | ||||||
Impairments | (313 | ) | (2,284 | ) | ||||
Subtotal | 5,830 | 9,893 | ||||||
Total | 6,266 | 12,241 | ||||||
Net realised gains on financial assets are from available-for-sale securities.
During the six months ended 30 June 2010, the Group recognized impairment expense of RMB313 million (for the six months ended 30 June 2009: RMB2,284 million) of available-for-sale securities for which the Group determined that objective evidence of impairment existed.
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Commission File Number 001-31914
3. | NET FAIR VALUE GAINS/(LOSSES) ON ASSETS AT FAIR VALUE THROUGH INCOME |
For the six months | ||||||||
ended 30 June | ||||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
Debt securities | 132 | (225 | ) | |||||
Equity securities | (501 | ) | 1,604 | |||||
Total | (369 | ) | 1,379 | |||||
4. | PROFIT BEFORE INCOME TAX |
Profit before income tax is stated after charging the following:
For the six months | ||||||||
ended 30 June | ||||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
Employee salary and welfare cost | 2,966 | 2,538 | ||||||
Housing benefits | 237 | 175 | ||||||
Contribution to the defined contribution pension plan | 644 | 493 | ||||||
Depreciation and amortisation | 872 | 688 | ||||||
Interest expenses on securities sold under the agreements to repurchase | 68 | 42 | ||||||
Exchange loss | 78 | 12 |
5. | 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.
(a) | The amount of taxation charged to the net profit represents: |
For the six months | ||||||||
ended 30 June | ||||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
Current taxation – Enterprise income tax | 2,488 | 1,942 | ||||||
Deferred taxation | 1,000 | 2,786 | ||||||
Taxation charges | 3,488 | 4,728 | ||||||
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Commission File Number 001-31914
(b) | The reconciliation between the Group’s effective tax rate and the statutory tax rate of 25% in the PRC (for the six months ended 30 June 2009: 25%) is as follows: |
For the six months | ||||||||||||
ended 30 June | ||||||||||||
2010 | 2009 | |||||||||||
RMB million | RMB million | |||||||||||
Net profit before income tax expenses | 21,603 | 21,585 | ||||||||||
Tax computed at the statutory tax rate | 5,401 | 5,396 | ||||||||||
Non-taxable income | (i | ) | (2,043 | ) | (1,226 | ) | ||||||
Additional tax liability from expenses not deductible for tax purposes | (i | ) | 122 | 556 | ||||||||
Unused tax losses | 8 | 2 | ||||||||||
Income taxes at effective tax rate | 3,488 | 4,728 | ||||||||||
(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 that do not meet the criteria for deduction set by relevant tax regulations. |
(c) | The movement in deferred tax assets and liabilities during the period is as follows: |
As at 30 June 2010, deferred income taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 25%.
Deferred tax | Insurance | Investment | Others | Total | ||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
(i) | (ii) | (iii) | ||||||||||||||
As at 1 January 2009 | (9,452 | ) | (1,473 | ) | 581 | (10,344 | ) | |||||||||
(Charged)/credited to net profit | (756 | ) | (1,823 | ) | (207 | ) | (2,786 | ) | ||||||||
(Charged)/credited to other comprehensive income | ||||||||||||||||
– Available-for-sale securities | — | (4,101 | ) | — | (4,101 | ) | ||||||||||
– Impact of available-for-sale securities on policyholder dividend payables | 905 | — | — | 905 | ||||||||||||
As at 30 June 2009 | (9,303 | ) | (7,397 | ) | 374 | (16,326 | ) | |||||||||
As at 1 January 2010 | (8,531 | ) | (8,482 | ) | 653 | (16,360 | ) | |||||||||
(Charged)/credited to net profit | (536 | ) | (189 | ) | (276 | ) | (1,001 | ) | ||||||||
(Charged)/credited to other comprehensive income | ||||||||||||||||
– Available-for-sale securities | — | 8,238 | — | 8,238 | ||||||||||||
– Impact of available-for-sale securities on policyholder dividend payables | (2,442 | ) | — | — | (2,442 | ) | ||||||||||
As at 30 June 2010 | (11,509 | ) | (433 | ) | 377 | (11,565 | ) | |||||||||
20
Commission File Number 001-31914
(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 carry forward impacts of first time adoption of IFRS; | |
(ii) | 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 fair value through income; | |
(iii) | The deferred tax arising from others is mainly related to the temporary difference of employee salary and welfare cost payables. |
6. | EARNINGS PER SHARE |
There is no difference between basic and diluted earnings per share. The basic and diluted earnings per share for the six months ended 30 June 2010 are based on the weighted average number of 28,264,705,000 ordinary shares (for the six months ended 30 June 2009: 28,264,705,000).
21
Commission File Number 001-31914
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2010
Unaudited | Audited | |||||||
As at | As at | |||||||
30 June 2010 | 31 December 2009 | |||||||
RMB million | RMB million | |||||||
ASSETS | ||||||||
Property, plant and equipment | 17,908 | 17,467 | ||||||
Investments in associates | 17,174 | 8,470 | ||||||
Financial assets | ||||||||
Held-to-maturity securities | 244,254 | 235,099 | ||||||
Loans | 29,778 | 23,081 | ||||||
Term deposits | 421,194 | 344,983 | ||||||
Statutory deposits-restricted | 6,153 | 6,153 | ||||||
Available-for-sale securities | 485,616 | 517,499 | ||||||
Securities at fair value through income | 11,041 | 9,133 | ||||||
Securities purchased under agreements to resell | 190 | — | ||||||
Accrued investment income | 19,283 | 14,208 | ||||||
Premiums receivable | 12,484 | 6,818 | ||||||
Reinsurance assets | 825 | 832 | ||||||
Other assets | 9,736 | 6,317 | ||||||
Cash and cash equivalents | 44,718 | 36,197 | ||||||
Total assets | 1,320,354 | 1,226,257 | ||||||
22
Commission File Number 001-31914
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(CONTINUED)
As at 30 June 2010
(CONTINUED)
As at 30 June 2010
Unaudited | Audited | |||||||
As at | As at 31 | |||||||
30 June 2010 | December 2009 | |||||||
RMB million | RMB million | |||||||
LIABILITIES AND EQUITY | ||||||||
Liabilities | ||||||||
Insurance contracts | 940,693 | 818,164 | ||||||
Financial liabilities | ||||||||
Investment contracts | 69,782 | 67,326 | ||||||
Securities sold under agreements to repurchase | 31,300 | 33,553 | ||||||
Policyholder dividends payable | 47,171 | 54,587 | ||||||
Annuity and other insurance balances payable | 7,924 | 5,721 | ||||||
Premiums received in advance | 1,785 | 1,804 | ||||||
Other liabilities | 16,075 | 11,978 | ||||||
Deferred tax liabilities | 11,565 | 16,361 | ||||||
Current income tax liabilities | 454 | 3,850 | ||||||
Statutory insurance fund | 206 | 137 | ||||||
Total liabilities | 1,126,955 | 1,013,481 | ||||||
Shareholders’ equity | ||||||||
Share capital | 28,265 | 28,265 | ||||||
Reserves | 92,397 | 102,787 | ||||||
Retained earnings | 71,077 | 80,020 | ||||||
Total shareholders’ equity | 191,739 | 211,072 | ||||||
Non-controlling interests | 1,660 | 1,704 | ||||||
Total equity | 193,399 | 212,776 | ||||||
Total liabilities and equity | 1,320,354 | 1,226,257 | ||||||
23
Commission File Number 001-31914
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2010
For the six months ended 30 June 2010
Unaudited | ||||||||||||||||||||
Attributable to shareholders | ||||||||||||||||||||
of the Company | ||||||||||||||||||||
Retained | Non-controlling | |||||||||||||||||||
Share capital | Reserves | earnings | interests | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
As at 1 January 2009 | 28,265 | 84,447 | 61,235 | 924 | 174,871 | |||||||||||||||
Net profit | — | — | 16,795 | 62 | 16,857 | |||||||||||||||
Other comprehensive gain for the period | — | 9,536 | — | 7 | 9,543 | |||||||||||||||
Total comprehensive income | — | 9,536 | 16,795 | 69 | 26,400 | |||||||||||||||
Transactions with owners | ||||||||||||||||||||
Capital contribution | — | — | — | 720 | 720 | |||||||||||||||
Appropriation to reserve | — | 1,009 | (1,009 | ) | — | — | ||||||||||||||
Dividends paid | — | — | (6,501 | ) | — | (6,501 | ) | |||||||||||||
Dividends to non-controlling interests | — | — | — | (104 | ) | (104 | ) | |||||||||||||
Total transactions with owners | — | 1,009 | (7,510 | ) | 616 | (5,885 | ) | |||||||||||||
As at 30 June 2009 | 28,265 | 94,992 | 70,520 | 1,609 | 195,386 | |||||||||||||||
As at 1 January 2010 | 28,265 | 102,787 | 80,020 | 1,704 | 212,776 | |||||||||||||||
Net profit | — | — | 18,034 | 81 | 18,115 | |||||||||||||||
Other comprehensive loss for the period | — | (17,582 | ) | — | (14 | ) | (17,596 | ) | ||||||||||||
Total comprehensive income/(loss) | — | (17,582 | ) | 18,034 | 67 | 519 | ||||||||||||||
Transactions with owners | ||||||||||||||||||||
Capital contribution | — | — | — | — | — | |||||||||||||||
Appropriation to reserve | — | 7,192 | (7,192 | ) | — | — | ||||||||||||||
Dividends paid | — | — | (19,785 | ) | — | (19,785 | ) | |||||||||||||
Dividends to non-controlling interests | — | — | — | (111 | ) | (111 | ) | |||||||||||||
Total transactions with owners | — | 7,192 | (26,977 | ) | (111 | ) | (19,896 | ) | ||||||||||||
As at 30 June 2010 | 28,265 | 92,397 | 71,077 | 1,660 | 193,399 | |||||||||||||||
24
Commission File Number 001-31914
CONDENSED CONSOLIDATED CASH FLOWS STATEMENT
For the six months ended 30 June 2010
For the six months ended 30 June 2010
Unaudited | ||||||||
For the six months | ||||||||
ended 30 June | ||||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
Net cash inflow from operating activities | 104,365 | 80,710 | ||||||
Net cash outflow from investing activities | (78,376 | ) | (38,778 | ) | ||||
Net cash outflow from financing activities | (17,405 | ) | (14,727 | ) | ||||
Foreign currency losses on cash and cash equivalents | (63 | ) | (11 | ) | ||||
Net increase in cash and cash equivalents | 8,521 | 27,194 | ||||||
Cash and cash equivalents | ||||||||
Beginning of period at 1 January | 36,197 | 34,085 | ||||||
End of period at 30 June | 44,718 | 61,279 | ||||||
Analysis of balance of cash and cash equivalents | ||||||||
Cash at bank and in hand | 37,908 | 50,752 | ||||||
Short-term bank deposits | 6,810 | 10,527 |
25
Commission File Number 001-31914
SEGMENT INFORMATION
1. | Operating segments |
The Group operates in four operating segments:
(i) | Individual life insurance business (Individual life) | ||
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) | ||
Group life insurance business relates primarily to the sale of insurance contracts and investment contracts to group entities. | |||
(iii) | Short-term insurance business (Short-term) | ||
Short-term insurance business relates primarily to the sale of short-term insurance contracts. | |||
(iv) | Corporate and other business (Corporate and other) | ||
Corporate and other business relates primarily to income, tax expenses and allocated costs of insurance agency business in respect of the provision of the services to CLIC, share of results of associates, income and expenses of subsidiaries, unallocated incomes and expenditures of the Group. |
2. | Allocation basis of income and expenses |
Investment income, net realised gains or losses on financial assets, net fair value gains or losses on assets at fair value through income and foreign exchange losses within other operating expenses 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 period. Administrative expenses and certain other operating expenses are allocated among segments in proportion to the unit cost of products in the respective segments. Except for those arising from investment contracts which can be allocated to the corresponding segments above, other income and other operating expenses are presented in “Corporate and other” directly.
26
Commission File Number 001-31914
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 period. Insurance liabilities are presented among segments respectively.
For the six months ended 30 June 2010 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Gross written premiums | 175,520 | 283 | 7,811 | — | — | 183,614 | ||||||||||||||||||
-Term Life | 778 | 196 | — | — | — | |||||||||||||||||||
-Whole Life | 18,308 | 71 | — | — | — | |||||||||||||||||||
-Endowment | 131,872 | — | — | — | — | |||||||||||||||||||
-Annuity | 24,562 | 16 | — | — | — | |||||||||||||||||||
Net premiums earned | 175,504 | 281 | 7,804 | — | — | 183,589 | ||||||||||||||||||
Investment income | 22,976 | 1,410 | 232 | 97 | — | 24,715 | ||||||||||||||||||
Net realised gains on financial assets | 5,814 | 357 | 59 | 36 | — | 6,266 | ||||||||||||||||||
Net fair value loss on assets at fair value through income | (341 | ) | (21 | ) | (3 | ) | (4 | ) | — | (369 | ) | |||||||||||||
Other income | 124 | 163 | — | 1,203 | (300 | ) | 1,190 | |||||||||||||||||
Including: inter-segment revenue | — | — | — | 300 | (300 | ) | — | |||||||||||||||||
Segment revenues | 204,077 | 2,190 | 8,092 | 1,332 | (300 | ) | 215,391 | |||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||
Insurance benefits and claims | ||||||||||||||||||||||||
Life insurance death and other benefits | (36,300 | ) | (182 | ) | — | — | — | (36,482 | ) | |||||||||||||||
Accident and health claims and claim adjustment expenses | — | — | (4,290 | ) | — | — | (4,290 | ) | ||||||||||||||||
Increase in insurance contracts liabilities | (122,460 | ) | (83 | ) | — | — | — | (122,543 | ) | |||||||||||||||
Investment contract benefits | (1,001 | ) | (61 | ) | — | — | — | (1,062 | ) | |||||||||||||||
Policyholder dividends resulting from participation in profits | (5,728 | ) | (467 | ) | — | — | — | (6,195 | ) | |||||||||||||||
Underwriting and policy acquisition costs | (12,578 | ) | (48 | ) | (1,266 | ) | (70 | ) | — | (13,962 | ) | |||||||||||||
Administrative expenses | (5,794 | ) | (342 | ) | (1,498 | ) | (771 | ) | — | (8,405 | ) | |||||||||||||
Other operating expenses | (755 | ) | (778 | ) | (262 | ) | (85 | ) | 300 | (1,580 | ) | |||||||||||||
Including: Inter-segment expenses | (280 | ) | (17 | ) | (3 | ) | — | 300 | — | |||||||||||||||
Statutory insurance fund | (317 | ) | (19 | ) | (3 | ) | — | — | (339 | ) | ||||||||||||||
Segment benefits, claims and expenses | (184,933 | ) | (1,980 | ) | (7,319 | ) | (926 | ) | 300 | (194,858 | ) | |||||||||||||
Share of results of associates | — | — | — | 1,070 | — | 1,070 | ||||||||||||||||||
Segment results | 19,144 | 210 | 773 | 1,476 | — | 21,603 | ||||||||||||||||||
Income tax | (3,488 | ) | ||||||||||||||||||||||
Net profit | 18,115 | |||||||||||||||||||||||
Unrealised loss included in shareholder’s equity | (16,339 | ) | (1,003 | ) | (165 | ) | (75 | ) | — | (17,582 | ) | |||||||||||||
Depreciation and amortisation | 652 | 39 | 161 | 20 | — | 872 | ||||||||||||||||||
27
Commission File Number 001-31914
For the six months ended 30 June 2009 | ||||||||||||||||||||||||
Individual | Group | Corporate | ||||||||||||||||||||||
life | life | Short-term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Gross written premiums | 155,263 | 123 | 7,074 | — | — | 162,460 | ||||||||||||||||||
-Term Life | 338 | 46 | — | — | — | |||||||||||||||||||
-Whole Life | 18,235 | 62 | — | — | — | |||||||||||||||||||
-Endowment | 110,699 | — | — | — | — | |||||||||||||||||||
-Annuity | 25,991 | 15 | — | — | — | |||||||||||||||||||
Net premiums earned | 155,252 | 123 | 6,618 | — | — | 161,993 | ||||||||||||||||||
Investment income | 17,367 | 1,324 | 199 | 87 | — | 18,977 | ||||||||||||||||||
Net realised gain on financial assets | 11,225 | 856 | 130 | 30 | — | 12,241 | ||||||||||||||||||
Net fair value gain on assets at fair value through income | 1,263 | 96 | 15 | 5 | — | 1,379 | ||||||||||||||||||
Other income | 49 | 262 | — | 1,078 | (235 | ) | 1,154 | |||||||||||||||||
Including: inter-segment revenue | — | — | — | 235 | (235 | ) | — | |||||||||||||||||
Segment revenues | 185,156 | 2,661 | 6,962 | 1,200 | (235 | ) | 195,744 | |||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||
Insurance benefits and claims | ||||||||||||||||||||||||
Life insurance death and other benefits | (48,336 | ) | (345 | ) | — | — | — | (48,681 | ) | |||||||||||||||
Accident and health claims and claim adjustment expenses | — | — | (3,784 | ) | — | — | (3,784 | ) | ||||||||||||||||
Increase in insurance contracts liabilities | (91,367 | ) | 91 | — | — | (91,276 | ) | |||||||||||||||||
Investment contract benefits | (940 | ) | (88 | ) | — | — | — | (1,028 | ) | |||||||||||||||
Policyholder dividends resulting from participation in profits | (7,225 | ) | (771 | ) | — | — | — | (7,996 | ) | |||||||||||||||
Underwriting and policy acquisition costs | (11,426 | ) | (62 | ) | (801 | ) | — | — | (12,289 | ) | ||||||||||||||
Administrative expenses | (5,476 | ) | (368 | ) | (1,431 | ) | (886 | ) | — | (8,161 | ) | |||||||||||||
Other operating expenses | (260 | ) | (815 | ) | (163 | ) | (103 | ) | 235 | (1,106 | ) | |||||||||||||
Including: Inter-segment expenses | (218 | ) | (15 | ) | (3 | ) | 1 | 235 | — | |||||||||||||||
Statutory insurance fund | (281 | ) | (21 | ) | (3 | ) | — | — | (305 | ) | ||||||||||||||
Segment benefits, claims and expenses | (165,311 | ) | (2,379 | ) | (6,182 | ) | (989 | ) | 235 | (174,626 | ) | |||||||||||||
Share of results of associates | — | — | — | 467 | — | 467 | ||||||||||||||||||
Segment results | 19,845 | 282 | 780 | 678 | — | 21,585 | ||||||||||||||||||
Income tax expenses | (4,728 | ) | ||||||||||||||||||||||
Net profit | �� | 16,857 | ||||||||||||||||||||||
Unrealised gain/(loss) included in shareholder’s equity | 8,796 | 671 | 101 | (32 | ) | — | 9,536 | |||||||||||||||||
Depreciation and amortisation | 575 | 39 | 140 | 15 | — | 769 | ||||||||||||||||||
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Commission File Number 001-31914
EMBEDDED VALUE
Summary of Results
The embedded value as at 30 June 2010, and the value of one year’s sales for the 12 months to 30 June 2010, and their corresponding results in 2009 are shown below.
Table 1
Components of Embedded Value and Value of One Year’s Sales(RMB million)
(Assuming the method to determine taxable income for 2009 and thereafter was the same as that in 2008)
June 30 | Dec 31 | |||||||
ITEM | 2010 | 2009 | ||||||
A Adjusted Net Worth | 137,661 | 159,948 | ||||||
B Value of In-Force Business before Cost of Solvency Margin | 167,352 | 149,387 | ||||||
C Cost of Solvency Margin | (26,572 | ) | (24,106 | ) | ||||
D Value of In-Force Business after Cost of Solvency Margin (B+C) | 140,779 | 125,282 | ||||||
E Embedded Value (A + D) | 278,440 | 285,229 | ||||||
F Value of One Year’s Sales before Cost of Solvency Margin | 22,532 | 21,352 | ||||||
G Cost of Solvency Margin | (3,682 | ) | (3,638 | ) | ||||
H Value of One Year’s Sales after Cost of Solvency Margin (F + G) | 18,850 | 17,713 | ||||||
Note: | Numbers may not be additive due to rounding. |
Table 2
Components of Value of Half Year’s Sales (RMB million)
(Assuming the method to determine taxable income for 2009 and thereafter was the same as that in 2008)
June 30 | June 30 | |||||||
ITEM | 2010 | 2009 | ||||||
A Value of Half Year’s Sales before Cost of Solvency Margin | 13,635 | 12,454 | ||||||
B Cost of Solvency Margin | (2,087 | ) | (2,043 | ) | ||||
C Value of Half Year’s Sales after Cost of Solvency Margin (A + B) | 11,548 | 10,411 | ||||||
Note: | The value of half year’s sales is defined as the discounted value of the projected stream of future after-tax distributable profits for the half year’s sales in the 6 months immediately preceding the valuation date. | |
The value of half year’s sales to 30 June 2009 is recalculated using the assumptions used as at 31 December 2009. The value disclosed at 30 June 2009 was RMB10,346 million. |
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Commission File Number 001-31914
MOVEMENT ANALYSIS
The following analysis tracks the movement of the embedded value from the start to the end of the Reporting Period.
Table 3
Analysis of Embedded Value Movement in the First Half Year of 2010 (RMB million)
(Assuming the method to determine taxable income for 2009 and thereafter was the same as that in 2008)
ITEM | RMB MILLION | |||
A Embedded Value at Start of Year | 285,229 | |||
B Expected Return on Embedded Value | 12,114 | |||
C Value of New Business in the Period | 11,548 | |||
D Operating Experience Variance | 3,086 | |||
E Investment Experience Variance | (14,818 | ) | ||
F Methodology, Model Changes | 31 | |||
G Market Value Adjustment | 1,353 | |||
H Exchange Gains or Losses | (78 | ) | ||
I Shareholder Dividend Distribution | (19,785 | ) | ||
J Other | (241 | ) | ||
K Embedded Value as at 30 June 2010 (sum A through J) | 278,440 |
Notes: | 1) | Numbers may not be additive due to rounding. |
2) | Items B through J are explained below: |
B | Reflects unwinding of the opening value of in-force business and value of new business sales in the first half year of 2010 plus the expected return on investments supporting the 2010 opening net worth. | ||
C | Value of new business sales in the first half year of 2010. | ||
D | Reflects the difference between actual experience in the first half year of 2010 (including lapse, mortality, morbidity, and expense etc.) and the assumptions. | ||
E | Compares actual with expected investment returns during the first half year of 2010. | ||
F | Reflects the effect of projection method and model enhancements. | ||
G | Change in the market value adjustment from the beginning of year 2010 to 30 June 2010, and other related adjustments. | ||
H | Reflect the gains or losses due to change in exchange rate. | ||
I | Reflects dividends distributed to shareholders during the year of 2010. | ||
J | Other miscellaneous items. |
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Commission File Number 001-31914
SENSITIVITY TESTING
Sensitivity testing was performed using a range of alternative assumptions. In each of the sensitivity tests, only the assumption referred to was changed, with all other assumptions remaining unchanged. The results are summarized below.
Table 4
Sensitivity Results(RMB million)
VALUE OF | VALUE OF | |||||||
Scenarios 1-15: Assuming the method to | IN-FORCE BUSINESS | ONE YEAR’S SALES | ||||||
determine taxable income for 2009 and | AFTER COST OF | AFTER COST OF | ||||||
thereafter was the same as that in 2008 | SOLVENCY MARGIN | SOLVENCY MARGIN | ||||||
Base Case Scenario | 140,779 | 18,850 | ||||||
1. Risk discount rate of 11.5% | 133,430 | 17,822 | ||||||
2. Risk discount rate of 10.5% | 148,681 | 19,955 | ||||||
3. 10% increase in investment return | 166,525 | 21,593 | ||||||
4. 10% decrease in investment return | 115,141 | 16,129 | ||||||
5. 10% increase in expenses | 138,659 | 17,148 | ||||||
6. 10% decrease in expenses | 142,897 | 20,553 | ||||||
7. 10% increase in mortality rate for non-annuity products and 10% decrease in mortality rate for annuity products | 139,214 | 18,731 | ||||||
8. 10% decrease in mortality rate for non-annuity products and 10% increase in mortality rate for annuity products | 142,366 | 18,970 | ||||||
9. 10% increase in lapse rates | 139,279 | 18,721 | ||||||
10. 10% decrease in lapse rates | 142,349 | 18,977 | ||||||
11. 10% increase in morbidity rates | 139,019 | 18,707 | ||||||
12. 10% decrease in morbidity rates | 142,554 | 18,994 | ||||||
13. 10% increase in claim ratio of short term business | 140,492 | 18,316 | ||||||
14. 10% decrease in claim ratio of short term business | 141,067 | 19,384 | ||||||
15. Solvency margin at 150% of statutory minimum | 128,146 | 16,983 | ||||||
16. Projected taxable income based on accounting profit in accordance to “the Provisions on the Accounting Treatment Related to Insurance Contracts” | 135,983 | 18,428 | ||||||
Adjusted Net Worth | ||||||||
Base Case Scenario | 137,661 | |||||||
17. Taxable income based on accounting profit in accordance to “the Provisions on the Accounting Treatment Related to Insurance Contracts” for 2009 and 2010 | 132,389 | |||||||
Note: | Scenarios 16 and 17 reflect the sensitivity to a different approach in determining the taxable income. |
31
Commission File Number 001-31914
CORPORATE GOVERNANCE
The Company has implemented a full set of corporate governance practices, and strongly believes that through fostering sound corporate governance, the Company can further enhance its transparency and accountability. This also helps the Company achieve its goals and enable the Company to operate in a more regulated manner and boost the confidence of investors.
For the Reporting Period, the Company complied with all the code provisions under the Code on Corporate Governance Practices as set out in Appendix 14 of the Listing Rules.
DIVIDEND
The Company will not declare an interim dividend for the Reporting Period.
PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S SECURITIES
For the Reporting Period, the Company and its subsidiaries have not purchased, sold or redeemed any of the Company’s listed securities.
COMPLIANCE WITH THE CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS AND SUPERVISORS OF THE COMPANY
After making specific inquiries to all the directors and supervisors of the Company, they have confirmed that they had complied with the Model Code for Securities Transactions by Directors of Listed Companies (“Model Code”) as set out in Appendix 10 of the Listing Rules during the Reporting Period. The Board has established written guidelines on no less exacting terms than the Model Code for directors and supervisors in respect of their dealings in the securities of the Company.
REVIEW OF ACCOUNTS
The Audit Committee together with external auditors engaged by the Company has reviewed the unaudited consolidated financial statements of the Company for the six months ended 30 June 2010.
PUBLICATION OF INTERIM REPORT
The Company’s interim report will be published on the Company’s website (http://www.e-chinalife.com) and the website of The Stock Exchange of Hong Kong Limited (http://www.hkexnews. hk) in due course.
This announcement is published in both English and Chinese languages. Should there be any inconsistency between the Chinese and English versions, the Chinese version shall prevail.
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Commission File Number 001-31914
As at the date of this announcement, the Directors of the Company are as follows:
Executive Directors: | Mr. Yang Chao, Mr. Wan Feng, Mr. Lin Dairen, Ms. Liu Yingqi | |
Non-executive Directors: | Mr. Miao Jianmin, Mr. Shi Guoqing, Ms. Zhuang Zuojin | |
Independent Non-executive Directors: | Mr. Ma Yongwei, Mr. Sun Changji, Mr. Bruce Douglas Moore, Mr. Anthony Francis Neoh |
By Order of the Board of | ||
CHINA LIFE INSURANCE COMPANY LIMITED | ||
Yang Chao | ||
Chairman |
Beijing, China, 25 August 2010
33