China Pacific Insurance : Q&A for CPIC 2022 Annual Results Announcement

Q&A for CPIC 2022 Annual Results Announcement

（Shenzhen & Shanghai, March 2023）

1. Q: In recent years, due to economic slow-down, both the banking and the insurance sectors are facing grave challenges. What is management view on your business performance in 2022? Looking ahead, challenges and uncertainties may still persist. How do you plan to cope with them to fulfill your vision of "industry leadership in healthy and steady development"?

A: The way to see business results in 2022: first, scale. As an insurance group headquartered in Shanghai, we delivered industry leading business growth, thanks to the concerted effort of all CPIC employees. Second, quality. Business quality of P/C insurance was the best in a decade. In the 1st year of the Changhang Transformation, key metrics of our life insurance business also saw signs of improvement, and the momentum continued into Q1 this year. In Q4 2022, CPIC Life and CPIC P/C ranked AAA and AA respectively at the regulatory IRR, maintaining industry leadership. Asset management took a pro-active approach and maintained resilient investment performance. Third, growth. There was growth in Group number of customers and number of customers with multiple insurance policies, pointing to progress in synergy, which is also one of the priorities of Transformation 2.0. Our strategies in health care, big data and regional integrated development proceeded as planned. At the upcoming ceremony of the launch of Healthy China - CPIC Action, you will see more concrete examples of enhanced capabilities and expanded scope of customer service. Five more CPIC Home retirement communities will open for business this year, on top of the 3 facilities that are already operational.

In the face of complicated business environment, we must adhere to 3 basic elements and 3 key factors, so as to fulfill the vision of industry leadership in healthy and steady development.

Basic elements: 1) We will stay value-oriented, adopt a long-term view and always remain vigilant of major risks in business management. While promoting insurance

business development in an orderly manner, we set great store by our responsibilities as an asset manager. 2) We are committed to innovation. Insurance business is a traditional sector, but it's also an emerging sector. In the medium and long term, we will implement the 3 key strategies to boost innovation and inject new vitality into the industry. 3) We will uphold business quality management to protect consumers and fulfill our responsibilities to investors by means of enhancing professional expertise of sales personnel and incorporating CPIC Service into the corporate culture. In brief, value growth is the core, and innovation defines our strategy, which, coupled with insurance business quality management, constitute the 3 basic elements of healthy and steady development.

Key factors: 1) Digital transitioning. We will capture opportunity of the Digital China Initiative and drive business development through digitalisation, aiming for industry leadership.2) Talent. We will pay even closer attention to recruitment and retention of talent based on market-oriented mechanisms, especially young talent from around the world, while abiding by relevant norms and rules. The incentive system will be more scientific, effective and rule-based, helping to ensure sustainable development of the company. 3) Off-limits thinking. We will always give first priority to customer interests and compliance in business operation, and cement the foundation for healthy and stable development.

2. Q: It's been over a year since you kicked off the Changhang Transformation Phase I for life insurance. The reform has delivered some initial results amid industry pressures last year, evidenced by improving NBV growth and core capabilities. Will there be a Phase II? If so, what would be its focus and key initiatives? Has the reform proceeded according to plan so far? What are the biggest difficulties or challenges you encountered?

A: The progress of the Changhang Transformation so far is largely in line with management expectations, with projects in agency force, distribution channels and products proceeding according to plan. Going forward, the focus will be on deepening organisational restructuring to better motivate branch offices at various

levels, which, in turn, would release potential and improve productivity. The rationale is that optimised organisational structure and improved professionalism of staff could better match the career-based, professional and digital transformation of the agency channel.

The reform in the past year has delivered benefits, though it was an arduous journey, particularly given challenges of the market environment. There were moments of anxiety, stress and even agony. But the worst is over, thanks to steadfast effort in the past year. In Q1 this year, business metrics demonstrated momentum of improvement. The biggest difficulty was the constraint of time, especially last year, given the complication of multiple challenges. Last year we rolled out the top-level design to branch offices. and we acutely felt the pressing of time. Good news is that there has been a strong consensus on the direction of transformation, and if we press ahead and maintain consistency, we will reap more benefits.

3. Q: Your P/C insurance business posted an overall better-than-expected set of results, particularly rapid premium growth with notable improvement in underwriting profitability. How did you achieve this? Given sustained improvement in underwriting profitability in the past 2 years, what is your long-term strategy in today's market environment?

A: With the hard work of the past year, we cemented foundation of sustainable development, and increased the market share by 0.3pt, with that of auto, non-auto and agricultural business all reaching double digits. In the meantime, the combined ratio was the best in the past 10 years, at 97.3%, down by 1.7pt year-on-year, with an ROE of 16.7%, also a 10-year best.

We optimised the customer resources management (CRM)structure and took effective measures to translate uncertainties of the business environment into certainties in our own business results. We established the Business Development Centre of New Energy Vehicles, promoted the building of new business models in a systematic way, with the market share of NEV reaching 13.7%. Combined ratio of non-auto insurance stood at 98.1%. We made a particular effort to address loss-making business lines such as employer liability insurance and delivered good

results. Our share of agricultural insurance market rose to No.2, with a turnaround of livestock farming insurance.

Committed to high-quality and sustainable development, we formulated relevant strategies with 3 priorities: 1) To drive sustainable development, we stepped up deployment in emerging business areas such as green insurance, technology insurance, and sannong (i.e., rural areas, agriculture and farmers)insurance, set up a centre for sustainable development, formulated green insurance standards, with first-mover advantage in NEV auto-insurance, loss reduction and risk mitigation of green power, and innovation in carbon assets. 2)To enhance business resilience, we drafted plans for systematic capacity-building, which focused on forward-looking business deployment, targeted customer resources management and centralised management of middle platforms, and thorough execution, aiming for more effective and targeted business management. 3) To realise systematic management, we embarked on an all-around building of the digital and smart business management system. One initiative is to build the CPIC P/C Cerebral for effective collection and management of data assets and roll-out of data network. Second is to use practical smart technology to realise automated operation and customer service.

4. Q: Last year, the domestic and international environment was fraught with uncertainties, which posed a formidable challenge to insurance asset management. What is your outlook for the capital market in 2023? What is your investment strategy this year? And what is the outlook for your investment performance this year?

A: In 2023, China's economy is expected to weather the short-term shocks and get back on track of gradual recovery on the back of government policies to stimulate domestic demand. Statistics in the first two months of the year indicate weakening demand overseas in the context of global economic slow-down, hence the rationale for the Chinese government to boost domestic consumption. Therefore, we expect steady recovery of China's economy, which is likely to grow 5% for the year, coupled with improvement in companies' profitability. That would be a bright spot amid the economic downturn of the world. In terms of asset allocation, global investors will

pay more attention to Chinese assets. On the equity market, as China's economic cycle shifts from contraction towards recovery, and the US Fed considers an end to the spell of interest rate hikes, stocks may benefit from expectation of domestic economic growth and improved liquidity on the overseas market. At the same time, dividend yield and equity risk premiums are currently at historical highs, meaning stocks are more attractive relative to other asset classes.As for trends of interest rates, amid economic recovery and credit expansion, the benchmark of interest rates may go up slightly, but we believe there is no policy inclination towards strong stimulus. So we expect a gradual process of economic recovery, with the risk of steep increase in interest rates under control. What we need to watch for is the return of core inflation and the volatility of the wealth management products, which may trigger increased redemption, and this in turn will exacerbate the volatility of the bond market. When its comes to asset allocation strategies, with the adoption of new accounting standards near at hand, we face a major challenge in balancing asset volatility and returns. In the meantime, we will persist in the long term, prepare for the worst, optimise strategic asset allocation across economic cycles and conduct more pro-active and effective tactical asset allocation.

This year, we have 3 priorities in asset allocation. 1) ALM in light of the long-term nature of insurance funds. Long-termT-bonds remain the key asset class for allocation, which serves as the bedrock of our investment. We'll dynamically adjust the timing and size of such investments based on market conditions, i.e., increasing allocation in T-bonds at a time when interest rates are relatively high. 2) In equity investment, the primary focus is balance between volatility and long-term returns. In this respect, we have 2 strategies. First is to increase exposure to industry champions with high dividend yields and stable business performance. These are long-term investments, mainly intended for high dividend income and return stemming from improving business results. Therefore, they are assets for "allocation purpose" which will generate medium and long-term returns. Second is to increase exposure to firms with high growth potential in line with the direction of China's high-quality development strategies. Specifically, there are consumption and health care, which