CHINA PACIFIC INSURANCE (GROUP) CO., LTD. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
中國太平洋保險（集團）股份有限公司
CHINA PACIFIC INSURANCE (GROUP) CO., LTD.
(A joint stock company incorporated in the People's Republic of China with limited liability)
(Stock Code：02601)
ANNOUNCEMENT OF AUDITED ANNUAL RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2020
Chairman's statement
Dear shareholders:
There is no doubt that 2020 will go down in history as "an extraordinary year",
reminiscent of the global spread of COVID-19, changing and complicated domestic and overseas situation, economic slow-down, and for those in the industry, cyclical shifts of the insurance sector. All these were common challenges to business leaders, and a test of their will and wisdom. Despite increasing uncertainties, in the past year, we moved ahead in the right direction, and achieved an "extraordinary" year for CPIC.
Results-driven, we translated declarations into deeds. The Board, with KPIs in mind, focused on delivery and rallied efforts on the operation of the core business of insurance. Group operating income exceeded RMB400 billion, with rapid growth of net operating profits (OPAT) and embedded value (EV), and steady increase in assets under management (AuM), marking a step-up in the company's development.
The core business segments maintained healthy momentum of growth. On the life insurance side, in the face of COVID-19, we accelerated on-line and off-line integration,enhanced the "role-model" effect of high-performing agents, pushed for the integration of products and health management, elderly care and wealth management services. As for property and casualty insurance, we pro-actively responded to the challenges of the pandemic and the comprehensive reform of automobile insurance, and successfully fostered renewal business as its key growth driver. On the other hand, non-auto insurance business vigorously supported China's effort to resume work and business, focused on emerging business lines, with agricultural insurance maintaining rapid growth. In investment, we adhered to value, long-term and prudent investing, stepped up system-building for a Group-integrated investment middle platform, enhanced investment management capabilities, and delivered sound investment results for the year.
We are always committed to ensure that our shareholders can share in the growth of the Company. In 2020, in spite of formidable challenges, the Board recommended annual cash dividend of RMB1.2 per share and 30th Anniversary Special Dividend of RMB0.1 per sharenote, with a pay-out ratio of 50.9%. Since our listing more than a decade ago, the annual average pay-out ratio reached 47.6%, testifying to our commitment of giving back to our investors.
Our business operation has been an inseparable part of the effort to promote social development and meet people's aspirations for a better life. In the face of the pandemic, as a leading insurer in China, we supported thousands of Chinese firms in their effort to resume normal business. As the only officially-designated insurance sponsor, we have provided insurance protection for China International Import Expo (CIIE) for 3 years on end. We signed a co-operation agreement with the organiser of the 2022 Hangzhou Asian Games, and became its official insurance partner. About 110,000 CPIC employees donated for the afforestation of the Sanjiangyuan, or origin of the Yangtze River, the Yellow River and Lancang River. We deepened the insurance-based poverty elimination mechanism with our own characteristics, and successfully lifted several rural townships and villages out of poverty, 9 months ahead of the schedule. Our poverty-reduction programmes cumulatively covered a total of 7.62 million people of documented impoverished households, and provided a total of RMB3.08 trillion in sum assured to poverty-stricken areas, doing our share in China's fight against poverty. We have taken concrete steps to enhance "CPIC Service" that is responsible, smart and caring, so as to contribute to national strategies and the lot of the Chinese people.
We achieved a number of milestones in reform and change in 2020. The issuance of GDR (Global Depositary Receipts, GDR) on the LSE made us the first insurer listed in Shanghai, Hong Kong and London. The optimisation of ownership structure paved the way for improvement in governance and strategies. The new Board consists of leading experts in various areas, and these new members, with advanced philosophies and an international vision, will contribute to a more professional, market-oriented and international board.
People is key to our long-term success. We launched "the Ever-green Plan" on a trial basis in our life and P/C operations, focusing on key positions, top-performing employees and front-line units, with mechanisms of deferred payment, claw-backs so as to offer both incentives and checks, laying a sound foundation for talent recruitment and retention. We particularly deepened mechanism for the cultivation of young employees, used multiple ways to identify those with potential, and strived to build an on-line corporate university driven by technology, open for sharing and integrated in content. This will stimulate organisational vitality and ensure sustainable development of the Company.
We completed the 1st phase of 10bn-yuan deployment in retirement properties. There are 7 projects up and running in Chengdu, Dali, Hangzhou, Shanghai, Xiamen and Nanjing, with a total floor space of 510,000 square meters, 6,300 beds under construction and 11,000 beds in the pipeline. With this, we have initially achieved a nationwide deployment in retirement properties, and a full spectrum of product and service offerings for different age groups, laying a solid foundation for our elderly care service known as "CPIC Home".
We have issued over 10,000 certificates of admission into our CPIC Home communities.
We deepened participation in the Healthy China Initiative. The Board reviewed and approved the development programme of health business. The document articulated positioning of the business, set out concrete measures and provided guidelines for deployment in the sector. We have set up a Special Committee on the Development of Health Industry, responsible for implementation of relevant initiatives and plans, as well as identification of key levers of growth. We have made substantial progress in certain priority areas. We joined hands with Ruijin Hospital, a top-notch health care provider in China, and established Guangci CPIC Internet Hospital, marking an important step towards a full life-cycle health management model closely linked with insurance business. We entered into strategic partnership with Sequoia Capital to promote long-term investment along the health value chain such as bio-pharmaceutical, medical appliances, medical care and tele-medicine.
We made further progress in marketisation of technology. We continued to optimise the governance structure for technology, and put in place an overarching governance framework covering management, research and application. We launched CPIC Fintech. We also formed strategic partnerships with leading technology firms and institutions of higher learning, and set up 3 innovation labs in collaboration with Shanghai Jiaotong University, Fudan University and Shanghai Insurance Exchange, focusing on AI, insurance technology and block-chain respectively. We used market-based mechanisms in the recruitment of leading experts of technology, including those specialising in big data, cloud computing, Internet operation and cyber security, with initial success in the establishment of a team of scientists.
We yielded tangible results in 2020. Next, we will prepare and foster new drivers of growth for the long-term future.
Thirty years ago, CPIC was established in Shanghai, as one of the earliest commercial insurance companies in China. It was named after the Pacific Ocean, which reminds people of vastness. In the past 3 decades, we grew in tandem with China's insurance market, and in the process we devoted ourselves to education of the public, raising people's awareness of insurance. At the same time, "Focus, Prudence, Dynamism and Responsibility" have gradually become our key differentiators.
Looking ahead to the next 30 years, we aspire to be "a long-race runner" of the insurance industry, and that calls for a long-term view in our business strategies, long-term commitments in customer services and long-term effort in reform and transformation.
At the recent board meeting, we initiated top-level design centring on new development philosophies. The Board special committees were reshuffled, with the establishment of a Strategic and Investment Decision-Making & ESG Committee. We will emulate best practices of ESG in China and overseas, incorporate philosophies of sustainable development into business operation to boost high-quality development in environment, society and governance. What we are doing will instil new vitality into our business philosophy, our culture and our DNA, and stimulate long-term growth.
The year 2021 remains challenging: the pandemic is still raging around the world, and the global economic recovery is far from being secured. But under the leadership of the Board, we are confident that we can overcome difficulties and mitigate external risks and uncertainties by securing our own development in 2021. In terms of business strategy, life insurance will focus on fostering new growth drivers as part of the "Changhang Programme". In particular, we will continue to improve the quality and productivity of the agency force, diversify value-added services and enhance digital empowerment. As for property and casualty insurance, we will emulate top players of the industry, continuously enhance underwriting profitability to sharpen competitive edge for long-term development. Investment will focus on improving asset allocation through economic cycles and enhancing research and risk control capabilities. In the meantime, we will continue to prioritise, striving for further progress in corporate governance, organisational reform, deployment in health and retirement sectors, marketisation of technology and collaborative development of key areas.
The year 2021 marks our 30th anniversary, an opportune moment for us to embark on a new stretch of journey, given the combination of experience on the market in the past 30 years and the readiness to embrace reform and change.
Note: Subject to SGM approval.
Review and analysis of operating results
Business overview
I. Key businesses
We are a leading integrated insurance group in China, and the first insurer simultaneously listed in Shanghai, Hong Kong and London. We provide, through our subsidiaries and along the insurance value chain, a broad range of risk protection solutions, wealth management and asset management services.
In particular, we provide life/health insurance products & services through CPIC Life, property and casualty insurance products & services through CPIC P/C and CPIC Anxin Agricultural, and specialised health insurance products & health management services through CPIC Health. We manage insurance funds, including third-party assets, through our investment arm, CPIC AMC. We conduct pension fund management business and other related asset management business via Changjiang Pension. We also engage in mutual fund management business through CPIC Fund.
In 2020, China's insurance market realised a premium income of RMB4,525.734 billion, up 6.1% from 2019. Of this, premium from life/health insurance companies amounted to RMB3,167.364 billion, a growth of 6.9%, and that from property and casualty insurance companies RMB1,358.369 billion, up 4.4%. Measured by direct business premiums, CPIC Life and CPIC P/C are both China's 3rd largest insurers for life and property and casualty insurance, respectively.
II. Core competitiveness
We are a leading integrated insurance group in China, and the first insurer simultaneously listed in Shanghai, Hong Kong and London, ranking 193rd among Fortune Global 500 released in 2020. On the back of vigorous effort in transformation and competitive insurance expertise, we can capitalise on the vast growth potential of China's insurance market.
Focus
We persist in the focus on insurance, and have obtained a full range of insurance-related licences covering life insurance, property and casualty insurance, pension, healthinsurance, agricultural insurance and asset management. With balanced development of business segments along the insurance value chain, we have fostered top-notch core competitiveness of specialised business operation in the insurance business. Our life/health insurance business centres on protection, deepen the model of "products + services", accelerates product innovation and the building of a multi-tiered service system to drive sustainable growth of customer value. The property and casualty insurance persists in enhancement of customer operation capabilities, strengthens business quality control to achieve industry leadership in premium growth and underwriting profitability. As for investment, we put in place the system of asset liability management (ALM) through economic cycles, adhere to prudent, value and long-term investing, and enhance mechanisms to curb cost of liabilities, with sustained improvement in industry-leading, liability-based strategic asset allocation(SAA) capabilities and specialised investment expertise. In 2020, in the face of the COVID-19 pandemic, we pro-actively stepped up on-line and off-line integration, innovated products and services to seize opportunities arising from the resumption of work and business, achieved steady business development and further improvement in specialised business operation.
Prudence
We are committed to protection as the central insurance value proposition, and pursue a path of high-quality development with a business philosophy centring on prudence and sustainability. We boast a professional and competent board of directors, an experienced management team and a group-centralised platform of management, with modernised corporate governance featuring a clear definition of responsibilities, checks and balances and well-coordinated mechanisms. Through GDR issuance on the LSE, we optimised shareholding structure, which paved the way for continued improvement in corporate governance and decision-making systems and capabilities, with an even more diversified, international and professional board of directors. We established an industry leading system for risk management and internal control, which ensures healthy and sustainable development of the Company.
Dynamism
We persist in customer orientation and forge ahead with transformation in a bid to foster capabilities for sustainable development. We optimised technology governance structure, introduced market-based reform so that technology & innovation can be a more powerfulenabler. In response to trends and dynamics of the industry, we pro-actively invested in emerging business segments such as health care and elderly care, with progress in establishing a value chain for full life cycle coverage, and the new "products + services" model. We seek to stimulate organisational vitality through adoption of "the Ever-green Plan", a long-term incentive system. We established an innovative on-line corporate university so that knowledge and wisdom can pass from generation to generation and drive sustainable development of the Company.
Responsibility
Committed to our responsibility to society, customers and shareholders, we vigorously participate in national initiatives, serve the needs of the real economy and peoples' aspirations for a better life, and promote the brand image of "Responsible, Smart and Caring" CPIC Service. We use insurance to fulfil our social responsibilities, pioneering in the fight against the pandemic, poverty and natural disasters. We implement ESG philosophies, promote green financing, take part in "Carbon Peaking" and "Carbon Neutrality" to contribute to the Green China Initiative. We conduct charitable activities as part of our branding, showing care for the vulnerable and underprivileged communities. At the same time, we strive to generate sound returns and give back to our shareholders so that they can benefit from the growth of the Company.
Performance overview
We focused on the core business of insurance, persisted in value growth, believed in the long-term, deepened the customer-oriented strategic transformation, pursued high quality development and delivered solid business results and sustained increase in overall strength.
I. Performance highlights
During the reporting period, Group operating incomenote 1 amounted to RMB422.182 billion, of which, gross written premiums (GWPs) reached RMB362.064 billion, a growth of 4.2% compared with that of 2019. Group net profitnote 2 reached RMB24.584 billion, down by 11.4%, with Group OPATnotes 2,3 of RMB31.140 billion, a growth of 11.7%. Group EV amounted to RMB459.320 billion, an increase of 16.0% from the end of 2019. Of this, value of in-force businessnote 4 reached RMB201.942 billion, up by 7.7%. Life insurance business delivered RMB17.841 billion in new business value (NBV), down by 27.5%compared with that of 2019, with an NBV margin of 38.9%, down by 4.4pt. Property and casualty insurance businessnote 5 recorded a combined ratio of 99.0%, up by 0.6pt. Growth rate of Group investments' net asset value rose by 0.2pt to 7.5%. As of the end of the reporting period, Group total number of customers amounted to 147.47 million, an increase of 8.91 million from the end of 2019.
Life business NBV growth under pressure, with steady growth of OPAT and residual margin.
CPIC Life realised RMB17.841 billion in NBV, down by 27.5%, with an NBV margin of 38.9%, down by 4.4pt. Given the focus on business quality, the NBV margin of the individual customer business stood at 54.9%.
OPAT of life insurance reached RMB25.875 billion, up by 16.7%; the residual margin of life insurance amounted to RMB351.077 billion, a growth of 6.5% from the end of 2019.
CPIC Life GWPs amounted to RMB211.952 billion, down by 0.3%. Of this, renewal business realised a growth of 5.5%.
Property and casualty businessnote 5 maintained underwriting profitability, with top-line growth leading in industry.
The combined ratio was 99.0%, up by 0.6pt. Of this, loss ratio stood at 61.5%, up by 1.1pt, and expense ratio 37.5%, down by 0.5pt.
GWPs amounted to RMB149.722 billion, an increase of 11.2%. Of this, non-auto business grew by 29.9% and accounted for 35.9% of total property and casualty insurance GWPs, up by 5.2pt.
Automobile insurance enhanced customer retention to push for a shift of growth drivers. Emerging business lines such as health, agricultural and liability insurance maintained rapid development. Of this, agricultural business realised RMB9.442 billion in direct business premiumsnote 6, a growth of 39.3%, with a fast increase in market share.
Persisted in asset allocation through economic cycles and based on profiles of liabilities, with solid investment results.
The share of fixed income investments stood at 78.3%, down by 2.1pt from the end of 2019; that of equity investments 18.8%, up by 3.1pt, and of this, core equityinvestmentsnote 7 accounted for 10.2% of total investment assets, an increase of 1.9pt from the end of 2019.
With continued effort to extend asset duration, enhance investment research capabilities and the Tactical Asset Allocation (TAA) process, growth rate of Group investments' net asset value reached 7.5%, up by 0.2pt from 2019. Total investment yield was 5.9%, up by 0.5pt, with net investment yield of 4.7%, down by 0.2pt.
Group AuM amounted to RMB2,436.080 billion, an increase of 19.2% from the end of 2019. Of this, third-party AuM amounted to RMB788.073 billion, an increase of 26.3%.
Notes:
1. Based on PRC GAAP.
2. Attributable to shareholders of the parent.
3. OPAT is based on net profit on the financial statements, while excluding certain P/L items with short-term volatility and material one-off items which management does not consider to be part of the Company's day-to-day business operation.
4. Based on the Group's share of CPIC Life's value of in-force business after solvency.
5. Consolidated data of CPIC P/C, CPIC Anxin Agricultural and CPIC HK.
6. Based on direct business premiums, excluding premium from reinsurance assumed, with consolidation of CPIC P/C and CPIC Anxin Agricultural.
7. Stocks and equity funds included.
II. Key performance indicators
Unit: RMB million
IndicatorsAs at 31 December 2020/for the period between January andAs at 31 December 2019/for the period between January and
Changes (%)
December in 2020
December in 2019
Key value indicators
Group embedded value Value of in-force businessnote 1 Group net assetsnote 2
459,320
395,987 16.0
201,942
187,585 7.7
215,224
178,427 20.6
NBV of CPIC Life
17,841
24,597 (27.5)
NBV margin of CPIC Life (%) Combined ratio of CPIC P/C (%)
38.9
43.3 (4.4pt)
99.0
98.3 0.7pt
Growth rate of Group investments' net asset value (%)
7.5
7.3 0.2pt
Key operating indicators
GWPs
362,064
347,517 4.2
CPIC Life
211,952
212,514 (0.3)
CPIC P/C
147,734
132,979 11.1
Group number of customers ('000)note 3 Average number of insurance policies per customer
147,473
138,558 6.4
2.09
1.95 7.2
Monthly average agent number ('000)
749
790 (5.2)
Surrender rate of CPIC Life (%) | 1.2 | 1.1 | 0.1pt |
Total investment yield (%) | 5.9 | 5.4 | 0.5pt |
Net investment yield (%) | 4.7 | 4.9 | (0.2pt) |
Third-party AuM | 788,073 | 623,815 | 26.3 |
CPIC AMC | 253,227 | 194,766 | 30.0 |
Changjiang Pension | 483,060 | 395,277 | 22.2 |
Key financial indicators | |||
Net profit attributable to shareholders of | |||
the parent | 24,584 | 27,741 | (11.4) |
CPIC Life | 18,642 | 20,530 | (9.2) |
CPIC P/C | 5,209 | 5,910 | (11.9) |
Basic earnings per share (RMB yuan)note 2 | 2.63 | 3.06 | (14.1) |
Net assets per share (RMB yuan)note 2 | 22.37 | 19.69 | 13.6 |
Comprehensive solvency margin ratio (%) | |||
CPIC Group | 288 | 295 | (7pt) |
CPIC Life | 242 | 257 | (15pt) |
CPIC P/C | 276 | 293 | (17pt) |
Notes: |
1. Based on the Group's share of CPIC Life's value of in-force business after solvency.
2. Attributable to shareholders of the parent.
3. The Group number of customers refers to the number of applicants and insureds who hold at least one insurance policy within the insurance period issued by one or any of CPIC subsidiaries as at the end of the reporting period. In the event that the applicants and insureds are the same person, they shall be deemed as one customer.
Life/health insurance business
Due to the impact of the COVID-19 pandemic, NBV growth was under pressure. CPIC Life stepped up on-line and off-line integration in business operation, promoted the restructuring of the agency force, enhanced the "role-model" effect of high-performing agents, and strived to establish a multi-tiered service system based on customer segmentation. CPIC Health boosted product and service innovations, deepened Group strategy of synergic development, and recorded rapid business growth.
I. CPIC Life
(I) Business analysis
In 2020, CPIC Life reported RMB211.952 billion in GWPs, a decrease of 0.3% compared with that of 2019. Due to the decline of new business premiums, the NBV fell by 27.5% to RMB17.841 billion. As a result of decreased share of first year premiums (FYPs) from individual customer business, the NBV margin fell by 4.4pt to 38.9%. Given the focus on business quality, the NBV margin of the individual customer business stood at 54.9%.
Going forward, CPIC Life, with a belief in long-termism, will persist in high-qualitydevelopment, promote transformation & innovation, push forward the "Changhang Programme" in an all-around way, maintain steady NBV growth and a solid market position, diversify distribution channels, accelerate digitalisation and the deployment in health and retirement business, stimulate organisational vitality, further improve incentive systems, ensure compliance and effective risk control, and strive to become a life insurance company with the best customer experience.
1. Analysis by channels
Unit: RMB million
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
Individual customers | 201,992 | 204,521 | (1.2) |
Agency channel | 191,291 | 195,166 | (2.0) |
New policies | 29,035 | 39,594 | (26.7) |
Regular premium business | 21,977 | 33,000 | (33.4) |
Renewed policies | 162,256 | 155,572 | 4.3 |
Other channelsnote | 10,701 | 9,355 | 14.4 |
Group clients | 9,960 | 7,993 | 24.6 |
Total GWPs | 211,952 | 212,514 | (0.3) |
Note: Other channels include bancassurance, insurance brokerage, direct sales by employees, telemarketing & internet sales, etc.
(1) Business from individual customers
For the reporting period, CPIC Life realised RMB201.992 billion in GWPs from individual customers, down by 1.2%. Of this, new policies from the agency channel amounted to RMB29.035 billion, down by 26.7%, and renewal business RMB162.256 billion, an increase of 4.3%. GWPs from the agency channel accounted for 90.3% of total GWPs, a decrease of 1.5pt from 2019.
In 2020, monthly average performing ratio of agents was 57.8%, down by 1.0pt compared with that of 2019, with monthly average FYP per agent of RMB3,259 yuan, down by 22.6%, mainly due to the impact of COVID-19 pandemic, which disrupted the off-line recruitment, distribution and fundamental management activity of the agency force. To address these challenges, CPIC Life deepened the on-line and off-line integration of the operational mode, enhanced the "role-model" effect of high-performing agents, promoted the restructuring of the agency force, strived to establish a multi-tiered service system based on customer segmentation, stepped up integration of insurance and health management, elderly care and wealth management so as to meet diverse needs of customers and pursue high-quality development.
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
Monthly average agent number ('000) | 749 | 790 | (5.2) |
Monthly average FYP per agent (RMB) | 3,259 | 4,212 | (22.6) |
Monthly average performing ratio of agents (%) | 57.8 | 58.8 | (1.0pt) |
Average number of new long-term life insurance | |||
policies per agent per month | 1.58 | 1.51 | 4.6 |
(2) Business from group clients |
In pursuit of high-quality development, CPIC Life focused on core customer segments of group business, effectively controlled expenses and risks through business and service innovations, and delivered improved profitability as evidenced by a lower combined ratio. In 2020, the business segment realised RMB9.960 billion in GWPs, up by 24.6%. It vigorously contributed to China's social health insurance system by engaging in government-sponsored business such as critical illness programmes, third-party administration (TPA) of social insurance, long-term care insurance and supplementary medical insurance, which, during the reporting period, covered over 125 million people, cumulatively responded to nearly 18 million service requests, and paid out a total of RMB19 billion in claims. There was cumulatively a total of 43 managed care programmes, covering over 30 million people under the social security system in 35 cities of 12 provinces.
2. Analysis by product types
CPIC Life focuses on both traditional and participating products. For the reporting period, traditional business generated RMB95.864 billion in GWPs, up 14.5%. Of this, long-term health insurance contributed RMB46.106 billion, up 5.0%. Participating business delivered RMB97.318 billion in GWPs, down by 12.7%, due to adjustment of product strategies in the context of market-orientedpricing.
Unit: RMB million | |||
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
GWPs | 211,952 | 212,514 | (0.3) |
Traditional | 95,864 | 83,689 | 14.5 |
Long-term health | 46,106 | 43,900 | 5.0 |
Participating | 97,318 | 111,521 | (12.7) |
Universal | 101 | 104 | (2.9) |
Tax-deferred pension | 75 | 75 | - |
Short-term accident and health | 18,594 | 17,125 | 8.6 |
Information of the top five products in 2020
Unit: RMB million
For 12 months ended 31 December
Ranking
Name
TypeGWPs
1 2 3 4 5
Jin You Ren Sheng Whole Life A (2014) 金佑人生終身壽險（分紅型）A 款（2014 版） Jin Nuo Ren Sheng Critical Illness (2018) 金諾人生重大疾病保險（2018 版） Jin You Ren Sheng Whole Life A (2017) 金佑人生終身壽險（分紅型）A 款（2017 版） Group medical insurance for critical illness of rural and urban residents (A) 城鄉居民大病團體醫療保險（A 型） Ju Bao Pen Annuity 聚寶盆年金保險（分紅型）
Participating 16,504
Traditional 7,881
Participating 6,703
Sales channel Individual customer business Individual customer business Individual customer business
Traditional 5,261
Group client business
Participating 5,131
Individual customer business
3. Policy persistency ratio
For 12 months ended 31 December
Individual life insurance customer 13-month persistency ratio (%)note 1 Individual life insurance customer 25-month persistency ratio (%)note 2 Notes:
2020 85.7 85.1
2019
Changes
90.3 (4.6pt)
89.2 (4.1pt)
1. 13-month persistency ratio: premiums from in-force policies 13 months after their issuance as a percentage of premiums from policies which entered into force during the same period.
2. 25-month persistency ratio: premiums from in-force policies 25 months after their issuance as a percentage of premiums from policies which entered into force during the same period.
The policy persistency of CPIC Life continued to decline, due to the change to product mix, agency force retention, coupled with the impact of the pandemic, with the 13-month and 25-month persistency ratios at 85.7% and 85.1% respectively.
4. Top 10 regions for GWPs
The GWPs of CPIC Life mainly came from economically developed regions or populous areas.
Unit: RMB million
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
GWPs | 211,952 | 212,514 | (0.3) |
Henan | 24,118 | 24,702 | (2.4) |
Jiangsu | 21,301 | 21,649 | (1.6) |
Shandong | 17,616 | 17,509 | 0.6 |
Zhejiang | 14,953 | 15,365 | (2.7) |
Hebei | 13,087 | 13,318 | (1.7) |
Guangdong | 11,759 | 12,212 | (3.7) |
Hubei | 8,971 | 9,170 | (2.2) |
Heilongjiang | 8,962 | 9,001 | (0.4) |
Shanxi | 8,500 | 9,026 | (5.8) |
Sichuan | 6,855 | 7,034 | (2.5) |
Subtotal | 136,122 | 138,986 | (2.1) |
Others | 75,830 | 73,528 | 3.1 |
(II) Financial analysis | |||
Unit: RMB million | |||
For 12 months ended 31 December | Changes (%) | ||
Net premiums earned | (0.2) | ||
Investment incomenote | 23.3 | ||
Other operating income | (2.1) | ||
Total income | 4.9 | ||
Net policyholders' benefits and claims | 9.6 | ||
Finance costs | 1.9 | ||
Interest credited to investment contracts | 11.3 | ||
Other operating and administrative expenses | (16.1) | ||
Total benefits, claims and expenses | 4.9 | ||
Profit before tax | 5.3 | ||
Income tax | (232.9) | ||
Net profit | (9.2) |
2020
2019
203,848 204,340
71,848 58,259
2,355 2,405
278,051 265,004 (214,641) (195,864)
(2,617) (2,569) (3,344) (3,005) (37,150) (44,283)
(257,752) (245,721)
20,299 19,283
(1,657) 1,247
18,642 20,530
Note: Investment income includes investment income and share of profit / (loss) in equity accounted investees on financial statements.
Investment income for the reporting period was RMB71.848 billion, up by 23.3%, mainly because of increase in gains from securities trading and interest income on bond investments.
Net policyholders' benefits and claims amounted to RMB214.641 billion, up by 9.6%, largely due to growth of changes in long-term life insurance contract liabilities.
Unit: RMB million
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
Net policyholders' benefits and claims | 214,641 | 195,864 | 9.6 |
Life insurance death and other benefits paid | 61,848 | 58,419 | 5.9 |
Claims incurred | 9,186 | 8,388 | 9.5 |
Changes in long-term life insurance contract liabilities | 132,095 | 118,280 | 11.7 |
Policyholder dividends | 11,512 | 10,777 | 6.8 |
Other operating and administrative expenses for the reporting period amounted to RMB37.150 billion, down by 16.1%.
Income tax for the reporting period was RMB1.657 billion, mainly due to adjustment of tax deductible policies on commissions and brokerage expenses of insurance companies. The income tax expense booked for 2018 was adjusted in 2019, resulting in a low base in 2019, hence the sharp increase in 2020. Excluding the above-mentioned factor, income tax for the reporting period would have decreased by 24.1% from the same period of 2019.
As a result, CPIC Life recorded a net profit of RMB18.642 billion, down by 9.2%.
II. CPIC Health
The subsidiary leveraged its strengths as a specialised provider of health insurance and management services, and strived to provide its customers with more comprehensive products and services, delivered in a faster and more convenient way, to contribute to the fight against the pandemic and promote the branding of CPIC Service. In the meantime, it seized opportunities of the implementation of Group health business strategy, focused on innovation in expertise and building of professional capabilities, vigorously explore paths of transitioning while maintaining rapid business growth. For the reporting period, it realised RMB6.818 billion in GWPs and health management fee income, a growth of 44.5%, and net profit of RMB116 million.
CPIC Health seized the window of opportunity of China's health insurance market, continuously enhanced professional capability-building. In product innovation, in response to the call for insurance supply-side reform, it differentiated in health insurance, supported CPIC Life and CPIC P/C in their effort to improve product line-up, deepened the mechanism of "health insurance + health services", helped with customer retention via the provision of full-cycle service, boosted the business development and enhanced customer experience of both CPIC Life and CPIC P/C, with a growth of 34.0% and 106.0%respectively for life insurance and P/C insurance collaboration business in 2020; at the same time, it continued to promote product innovation based on medical big data, and achieved initial success in development of products for single illnesses or covering the insured with prior conditions, tapping into a potentially 10-billion yuan market. In respect of operational risk control, it made further progress in smart underwriting, interaction of medical data, self-service claims handling, and self-service post-sale services through empowerment from data and technology, with continued effort in high-tech incubation and commercialisation. As for health management, the subsidiary stepped up sharing of medical and health care resources, improved the full life-cycle health management system, enhanced operational capabilities in health service, expanded the network of care provider partnerships to provide service to the entire Group.
Property and casualty insurance
CPIC P/Cnote introduced effective steps to mitigate the impact of COVID-19 pandemic, and achieved rapid growth in premium. It enhanced the capability of customer acquisition and retention of automobile insurance to promote the shift of growth drivers, persisted in business quality control, with stability in the combined ratio; non-auto business focused on the support for resumption of business and work, maintained rapid development of emerging business lines, with a sustained increase in share of business.
Note: References to CPIC P/C in this report do not include CPIC Anxin Agricultural.
I. CPIC P/C
(I) Business analysis
In the face of the pandemic and comprehensive reform of automobile insurance, CPIC P/C focused on disease control and prevention and the resumption of business and work. It enhanced the system of customer acquisition and retention, intensified technological empowerment to improve capabilities of high-quality development in an all-around way. During the reporting period, it recorded GWPs of RMB147.734 billion, up by 11.1%, with a combined ratio of 99.0%, an increase of 0.7pt from 2019. Of this, the loss ratio stood at 61.4%, up 1.2pt, and the expense ratio 37.6%, down by 0.5pt.
1. Analysis by lines of business
Unit: RMB million | |||
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
GWPs | 147,734 | 132,979 | 11.1 |
Automobile insurance | 95,670 | 93,218 | 2.6 |
Compulsory automobile insurance | 23,906 | 21,938 | 9.0 |
Commercial automobile insurance | 71,764 | 71,280 | 0.7 |
Non-automobile insurance | 52,064 | 39,761 | 30.9 |
Health insurance | 8,886 | 5,146 | 72.7 |
Liability insurance | 8,784 | 6,097 | 44.1 |
Agricultural insurance | 8,649 | 5,975 | 44.8 |
Guarantee insurance | 6,682 | 5,616 | 19.0 |
Others | 19,063 | 16,927 | 12.6 |
(1) Automobile insurance |
In 2020, CPIC P/C reported GWPs of RMB95.670 billion from automobile business, a growth of 2.6%, with a combined ratio of 97.9%, the same as that of 2019. Of this, loss ratio stood at 60.5%, down by 0.3pt and expense ratio rose by 0.3pt to 37.4%.
CPIC P/C proactively adapted to challenges such as the comprehensive reform of automobile insurance, slow-down of new vehicle sales and the impact of COVID-19 pandemic, strived to translate the comprehensive reform into a strategic opportunity, persisted in high-quality development, enhanced risk screening, deepened customer acquisition and retention and promoted on-line business operation in an all-around way, which delivered tangible benefits. Its market share increased for successive years, with a stable combined ratio and improved renewal ratio for commercial automobile insurance.
Going forward, CPIC P/C will focus on customer acquisition & retention and platform-based operation and centre its efforts on customers, integration and technology. To be specific, it will enhance risk control, improve business quality, promote customer acquisition & retention, step up technological empowerment and intensify claims management.
(2) Non-automobile insurance
CPIC P/C vigorously coped with the challenge of COVID-19, supported China's national strategies such as the target of "ensuring stability in 6 areas and protection in 6 priorities", contributed to the real economy and people's welfare, accelerated the development of emerging business lines and continued to enhance risk control. For the reporting period,it recorded GWPs of RMB52.064 billion, up by 30.9%, with a combined ratio of 101.9%, up by 2.0pt. Of the major business lines, health insurance, liability insurance and agricultural insurance maintained rapid growth, with accident insurance recording great improvement in underwriting profitability.
Health insurance seized opportunities arising from the upgrading of consumption and government supportive policies, diversified the supply of personal lines health insurance products, gradually expanded the scope of business of government-sponsored insurance, contributed to China's social health insurance system, pushed for rapid development of long-term care and health insurance for poverty alleviation. In 2020, health insurance reported RMB8.886 billion in GWPs, a growth of 72.7%.
Liability insurance focused on improving people's life, innovation in public administration and the real economy, and accelerated development of business in food safety, environmental protection, large high-tech machinery, and new materials. The business line delivered RMB8.784 billion in GWPs for 2020, up by 44.1%.
Agricultural insurance, in spite of the pandemic, seized opportunities of government supportive policies, leveraged new platforms, pressed ahead with innovation, emulated industry leaders, and realised profitable, sustainable development driven by intensive management and continued improvement of strategies in geography, business lines, customers and management. In 2020, the business line delivered RMB8.649 billion in GWPs, up by 44.8%.
Guarantee insurance persisted in "Value, Integration and Prudence", achieved steady development while ensuring control of risks. Of this, personal lines business accounted for over 90%; it continued to enhance the risk control systems, improved risk management capabilities via technological innovation, with stable business quality and healthy premium growth. Commercial lines focused on business of security deposit substitute, with business risk overall under control. In 2020, guarantee insurance reported GWPs of RMB6.682 billion, up by 19.0%, with a combined ratio of 98.1%, realising underwriting profitability.
Going forward, CPIC P/C will continue to step up product innovations, optimise service supply, focus on the development of emerging lines, increase digitalisation, and push for an all-around upgrading of customer operation capabilities. At the same time, the subsidiary will continue with the building of risk control systems, increase the use oftechnology, strengthen business quality control, so as to drive healthy and rapid development of the business.
(3) Key financials of major business lines
For 12 months ended 31 December
Name of insurance
Automobile insurance Health insurance Liability insurance Agricultural insurance Guarantee insurance
GWPs
95,670
8,886
8,784
8,649
6,682
2. Top 10 regions for GWPs
AmountsUnderwritinginsured
Unit: RMB million
ClaimsReservesCombined ratioprofit
(%)
36,225,463
180,940,237
67,996,791
307,341
147,899
56,071
63,417
1,849 97.9
5,222
4,490
(944) 113.8
3,780
6,784
(61) 101.1
6,264
2,916
7 99.9
2,248
9,120
80 98.1
CPIC P/C attaches great importance to the strategic opportunity arising from China's regional development initiatives, implements differentiated regional strategies for differentiated competition.
Unit: RMB million | |||
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
GWPs | 147,734 | 132,979 | 11.1 |
Guangdong | 17,539 | 15,540 | 12.9 |
Jiangsu | 15,940 | 14,348 | 11.1 |
Zhejiang | 13,764 | 12,992 | 5.9 |
Shanghai | 10,945 | 10,067 | 8.7 |
Shandong | 8,313 | 7,449 | 11.6 |
Beijing | 6,928 | 6,811 | 1.7 |
Hebei | 5,505 | 4,734 | 16.3 |
Henan | 5,306 | 4,578 | 15.9 |
Hunan | 5,303 | 4,650 | 14.0 |
Hubei | 5,236 | 4,832 | 8.4 |
Subtotal | 94,779 | 86,001 | 10.2 |
Others | 52,955 | 46,978 | 12.7 |
(II) Financial analysis | |||
Unit: RMB million | |||
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
Net premiums earned | 121,835 | 104,587 | 16.5 |
Investment incomenote | 6,485 | 4,986 | 30.1 |
Other operating income | 338 | 378 | (10.6) |
Total income | 128,658 | 109,951 | 17.0 |
Claims incurred | (74,904) | (63,026) | 18.8 |
Finance costs | (581) | (728) | (20.2) |
Other operating and administrative expenses | (46,285) | (40,072) | 15.5 |
Total benefits, claims and expenses | (121,770) | (103,826) | 17.3 |
Profit before tax | 6,888 | 6,125 | 12.5 |
Income tax | (1,679) | (215) | 680.9 |
Net profit | 5,209 | 5,910 | (11.9) |
Note: Investment income includes investment income and share of profit / (loss) in equity accounted investees on financial statements.
Investment income for the reporting period amounted to RMB6.485 billion, up by 30.1%, mainly attributable to higher gains from securities trading.
Other operating and administrative expenses amounted to RMB46.285 billion, up by 15.5%.
This, coupled with the impact of adjustment of policies on deductibles for corporate income tax in 2019, resulted in a net profit of RMB5.209 billion in 2020, a decrease of 11.9% from 2019.
II. CPIC Anxin Agricultural
In 2020, committed to the high-quality development objectives, CPIC Anxin Agricultural continued to cement its branding as a specialised provider of agricultural insurance, underpinned by innovation and transformation, deepening of integration and empowerment of technology. It delivered RMB1.473 billion in GWPs, up by 2.9%. Of this, agricultural insurance reported GWPs of RMB925 million, a growth of 0.5%, with a combined ratio of 96.5%, down by 3.3pt. It reported net profit of RMB151 million, up by 45.2%.
III. CPIC HK
We conduct overseas business via CPIC HK, a wholly-owned subsidiary. As at 31 December 2020, its total assets stood at RMB1.545 billion, with net assets of RMB514 million. GWPs for the reporting period amounted to RMB724 million, with a combined ratio of 105.4%, and a net profit of RMB6 million.
Asset management
We persist in long-term, value and prudent investing and support the core insurance business with outstanding ALM capabilities. Within the SAA framework, we continued to extend the duration of assets, while seizing market opportunities and dynamically adjusting the procedures of TAA. As a result, we delivered solid investment performance, with Group AuM on steady increase.
I. Group AuM
As of the end of 2020, Group AuM totalled RMB2,436.080 billion, rising 19.2% from the end of 2019. Of this, Group in-house investment assets amounted to RMB1,648.007 billion, a growth of 16.1%, and third-party AuM RMB788.073 billion, an increase of 26.3%, with a management fee income of RMB2.385 billion, up by 46.8% from 2019.
Unit: RMB million
Group AuM |
Group in-house investment assets |
Third-party AuM |
CPIC AMC |
Changjiang Pension |
II. Group in-house investment assets |
31 December 2020 | 31 December 2019 | Changes (%) |
2,436,080 | 2,043,078 | 19.2 |
1,648,007 | 1,419,263 | 16.1 |
788,073 | 623,815 | 26.3 |
253,227 | 194,766 | 30.0 |
483,060 | 395,277 | 22.2 |
During the reporting period, China delivered a GDP growth of 2.3%, the only country with positive growth among the major economies of the world, demonstrating resilience in the face of the challenge of COVID-19. On the capital markets, interest rates fell sharply and then came back to year-beginning levels amid effective control of the pandemic and economic recovery. The equity market plummeted at the year beginning due to the pandemic, and then rallied sharply, with volatility in the second half of the year. ChiNext and STAR markets were leading in the rally.
With the guidance of SAA, we conducted TAA with flexibility, seized market opportunities and achieved stable investment results which were higher than the cost of liabilities. Given expectations of lower interest rates, we increased strategic allocation into long-term T-bonds and local government bonds to extend asset duration. Given increasing credit risk on the fixed income market, we maintained prudence in credit risk exposure, enhanced credit risk control and took effective steps to mitigate credit risk.
In investment concentration, our investments are concentrated in financial services, communications & transport, real estate, infrastructure, and the energy sector like power, thermos and gas, with relatively strong resilience in the face of risks. Our equity investments spread across a wide range of instruments; as for fixed income assets, the debt issuers boasted strong overall strength, and our main counter-parties included China State Railway Group Co., Ltd., large commercial state-owned banks and State Grid Corporation of China.
(I) Group Consolidated investment portfolios
Unit: RMB million
31 December 2020
Share
(%)Share change from the end of 2019 (pt)Changes
(%)Group investment assets (total) By investment category
1,648,007
100.0
-16.1
Fixed income investments
1,290,629
78.3
(2.1) 13.0
- Debt securities
648,475
39.3
(3.3) 7.2
- Term deposits
192,966
11.7
1.3 30.6
- Debt investment plans
187,443
11.4
0.7 23.8
- Wealth management productsnote 1
157,751
9.6
(0.3) 11.6
- Preferred shares
32,000
1.9
(0.4)
-
- Other fixed income investmentsnote 2
71,994
4.4
(0.1) 12.3
Equity investments
310,249
18.8
3.1 39.7
- Equity funds
40,953
2.5
0.6 55.1
- Bond funds
19,138
1.2
(0.1) 5.3
- Stocks
127,286
7.7
1.3 40.5
- Wealth management productsnote 1
1,446
0.1
- 98.4
- Preferred shares
13,131
0.8
(0.2) (3.6)
- Other equity investmentsnote 3
108,295
6.5
1.5 49.2
Investment properties
7,866
0.5
(0.1) (5.0)
Cash, cash equivalents and others By investment purpose
39,263
2.4
(0.9) (16.6)
Financial assets at fair value through profit or lossnote 4
12,613
0.7
0.4 155.8
Available-for-sale financial assets Held-to-maturity financial assets Interests in associates Investment in joint ventures Loans and other investmentsnote 5
596,158
36.2
0.1 16.5
329,360
20.0
(0.8) 11.6
14,554
0.9
0.2 37.8
9,889
0.6
(0.1) 0.1
685,433
41.6
0.2 16.8
Notes:
1. Wealth management products include wealth management products issued by commercial banks, collective trust plans by trust firms, special asset management plans by securities firms and credit assets backed securities by banking institutions, etc.
2. Other fixed income investments include restricted statutory deposits and policy loans, etc.
3. Other equity investments include unlisted equities, and derivative financial assets, etc.
4. Financial assets at fair value through profit or loss include financial assets at fair value through profit or loss, and derivative financial assets on financial statements.
5. Loans and other investments include term deposits, cash and short-term time deposits, securities purchased under agreements to resell, policy loans, restricted statutory deposits, investments classified as loans and receivables, and investment properties, etc.
1. By investment category
As of the end of the reporting period, the share of debt securities was 39.3%, a drop of 3.3pt from the end of 2019. Of this, treasury bonds, local government bonds and financialbonds issued by policy banks made up 17.5% of total investment assets, up by 1.3pt from the end of 2019, with an average duration of 16.4 years, extended by 1.2 years versus the end of 2019. Moreover, 99.8% of enterprise bonds and financial bonds issued by non-policy banks had a debt/issuer rating of AA/A-1 or above. Out of these, the share of AAA reached 93.1%. We put in place and dynamically enhanced independent internal credit-rating teams and credit risk management systems covering the entire debt securities investment process, namely, before, during and after the investment. We vigorously pushed for the establishment of a Group integrated credit-rating system. In the selection of securities, we looked at the internal credit-rating of both the debt and debt issuer, identified the credit risk based on our internal credit-rating system and the input from in-house credit analysts, while considering other factors such as macroeconomic conditions, market environment and external credit-ratings in order to make a well-informed investment decision. At the same time, to assess the credit risk of the stock of bond holdings, we followed a uniform and standardised set of regulations and procedures, combining both regular and unscheduled follow-up tracking post the investment. Our corporate/enterprise bond holdings spread over a wide range of sectors with good diversification effect; the debt issuers all boasted sound financial strength, with the overall credit risk under control.
The share of equity investments stood at 18.8%, up by 3.1pt from the end of 2019. Of this, stocks and equity funds accounted for 10.2% of total investment assets, up by 1.9pt versus the end of 2019. On the back of market strategy research and in compliance of disciplined TAA processes, we pro-actively seized tactical opportunities on the equity market, increased allocation into equity assets and realised solid investment performance, supporting the core business of insurance.
As of the end of the reporting period, non-public financing instruments (NPFIs) totalled RMB356.422 billion, accounting for 21.6% of total investment assets, rising 0.7pt from the end of 2019. While ensuring full compliance with regulatory requirements and internal risk control policies, we persisted in prudent management as is inherently required of insurance companies, stayed highly selective about debt issuers and projects and strived to serve the needs of China's real economy. The underlying projects spread across sectors like infrastructure, non-bank financial institutions, communications & transport and real estate, and were geographically concentrated in China's prosperous areas such as Beijing, Shanghai, Guangdong and Jiangsu.
Overall, the credit risk of our NPFI holdings is in the comfort zone. 99% NPFIs had external credit-ratings, and of these, the share of AAA reached 94.9%, and that of AA+ and above 99.9%. 54.6% of NPFIs were exempt from debt issuer external credit-ratings, with the rest secured with credit-enhancing measures such as guarantee or pledge of collateral. In 2020, there were no new defaults, with credit risk manageable overall.
Mix and distribution of yields of non-public financing instruments
Sectors
Share of Nominal yieldAverage durationinvestments (%)
(%)
(year)Average remaining duration (year)
Infrastructure Real estate
37.2
5.3
7.1 5.4
18.4
5.3
6.4 4.6
Non-bank financial institutions Communications & transport Energy and manufacturing Others
17.8
4.9
5.1 3.7
12.8
5.4
9.2 6.5
7.2
5.4
6.3 3.9
Total
6.6 100.0
5.9 5.3
8.0 5.6
6.9
5.0
Note: Non-public financing instruments include wealth management products issued by commercial banks, debt investment plans, collective trust plans by trust firms, special asset management plans by securities firms and credit assets backed securities by banking institutions, etc.
2. By investment purpose
By investment purpose, our in-house investment assets are mainly in three categories, namely, available-for-sale (AFS) financial assets, held-to-maturity (HTM) financial assets as well as loans and other investments. Of this, financial assets at fair value through profit or loss increased by 155.8% from the end of 2019, mainly because of increased allocation in unlisted equities. AFS financial assets increased by 16.5%, mainly as a result of increased investments in listed stocks and funds. HTM financial assets grew by 11.6% from the end of 2019, mainly due to increased investments in government bonds. Interests in associates grew by 37.8% from the end of 2019, mainly due to increased investments in structured entities. Loans and other investments rose by 16.8%, largely attributable to increased allocation in debt investment plans and term deposits.
(II) Group consolidated investment income
For the reporting period, net investment income totalled RMB67.159 billion, up by 9.6%. This stemmed mainly from increased interest income from fixed income investments. Net investment yield reached 4.7%, down by 0.2pt compared with that of 2019.
Total investment income amounted to RMB83.997 billion, up by 25.4%, mainly attributable to increase in gains from securities trading and interest income from fixedincome investments, with total investment yield at 5.9%, up by 0.5pt. Growth rate of investments' net asset value rose by 0.2pt to 7.5%.
Unit: RMB million
For 12 months ended 31 December | 2020 | 2019 | Changes (%) |
Interest income from fixed income investments | 59,624 | 54,857 | 8.7 |
Dividend income from equity investments | 6,790 | 5,664 | 19.9 |
Rental income from investment properties | 745 | 754 | (1.2) |
Net investment income | 67,159 | 61,275 | 9.6 |
Realised gains | 19,462 | 6,174 | 215.2 |
Unrealised gains | 81 | 801 | (89.9) |
Charge of impairment losses on investment assets | (4,242) | (2,339) | 81.4 |
Other incomenote 1 | 1,537 | 1,067 | 44.0 |
Total investment income | 83,997 | 66,978 | 25.4 |
Net investment yield (%)note 2 | 4.7 | 4.9 | (0.2pt) |
Total investment yield (%)note 2 | 5.9 | 5.4 | 0.5pt |
Growth rate of investments' net asset value (%)notes 2,3 | 7.5 | 7.3 | 0.2pt |
Notes: |
1. Other income includes interest income on cash and short-term time deposits and securities purchased under agreements to resell, share of profit / (loss) in equity accounted investees, and investment income through the step acquisition of a subsidiary, etc.
2. The impact of securities sold under agreements to repurchase was considered in the calculation of net investment yield. Average investment assets as the denominator in the calculation of net / total investment yield and growth rate of investments' net asset value are computed based on the Modified Dietz method.
3. Growth rate of investments' net asset value = total investment yield + net of fair value changes of AFS booked as other comprehensive income / (loss) / average investment assets.
(III) Total investment yield on a consolidated basis
Unit: % | |||
For 12 months ended 31 December | 2020 | 2019 | Changes |
Total investment yield | 5.9 | 5.4 | 0.5pt |
Fixed income investmentsnote | 4.9 | 5.1 | (0.2pt) |
Equity investmentsnote | 10.1 | 6.3 | 3.8pt |
Investment propertiesnote | 9.6 | 9.3 | 0.3pt |
Cash, cash equivalents and othersnote | 1.3 | 1.7 | (0.4pt) |
Note: The impact of securities sold under agreements to repurchase was not considered.
III. Third-party AuM
(I) CPIC AMC
In the face of COVID-19 and the ensuing economic shocks, CPIC AMC persisted in the prevention of major risks, and effectively mitigated the adverse impact of the pandemic through support of the real economy. As of the end of the reporting period, its third-party AuM amounted to RMB253.227 billion, an increase of 30.0% from the end of 2019.
In alternative investment, the company centred on needs of national strategies and the real economy, looked for opportunities of "big projects and major co-operation". It focused on high-quality clients such as large SOEs under the central government, key SOEs under provincial governments, and key enterprises in urban economic centres, with investment in sectors of infrastructure, nuclear power, rail transit systems and high-tech parks, covering the Yangtze River Delta Region and the Greater Bay Area of Guangdong, Hong Kong and Macao. In particular, it supported the integration of the Yangtze River Delta Region and the building of the Greater Bay Area via investing in the debt investment plans of Jiangsu Communications Holding Group, China South Power Grid and China Power Construction respectively. To facilitate economic recovery and social development of areas most affected by the pandemic, it contacted, at the earliest possible time, owners of partnership projects in Hubei Province, and met their funding needs. In 2020, it registered a total of 33 alternative investment products involving an amount of RMB96.825 billion, a growth of 98.6% and maintaining industry leadership.
It launched a series of portfolio-based products with distinctive insurance asset management features, marking initial success in their branding. Under the guidelines of "market-based, product-driven and systematic development", the company faithfully implemented new regulatory rules, and steadily translated its insurance fund investment capabilities and strategies into development of portfolio-based insurance asset management products. The company reviewed the product positioning, leveraged its differentiating strengths and issued products in multiple classes, such as "fixed income +", liquidity management and strategic asset allocation, which were well received by its institutional clients. As of the end of the reporting period, the subsidiary reported RMB191.322 billion in third-party asset management products and AuM combined, an increase of 49.4% from the end of 2019.
(II) Changjiang Pension
Under the guidance of Transformation 2.0 objectives and vision, Changjiang Pension closely followed national strategies, enhanced CPIC Service, stayed focused on the core business of pension fund management, continued to improve core competencies in trustee service and investment research, increased incentives for people via organisational restructuring and innovation in mechanisms, made forward-looking deployment in fin-tech with digitalisation at the core, strived to formulate an integrated risk control system aligned with pension fund management, fully participated in the fightagainst the pandemic and pressed ahead with the transitioning towards high-quality development. As of the end of 2020, its third-party assets under trustee management amounted to RMB243.074 billion, up 63.8% from the end of 2019; third-party assets under investment management reached RMB483.060 billion, an increase of 22.2%.
It realised the goal of "nationwide presence" in pension business. In the first pillar, it maintained leadership, on a comparable basis, in AuM and investment performance of social security pension funds. As for the second pillar, the company provided service to 32 occupational annuity programmes at the central and provincial government level, with industry-leading performance for the year; it continued to deepen its presence in enterprise annuity business, and was selected as manager of a number of large enterprise annuity plans in public tendering; it maintained industry leadership in group pension business, and launched a TPA programme of retirees for payments extra to the social security system, the first of its kind in China, and a fund-based Employee Ownership Plan. These innovations supported firms in compensation management and reform of incentive systems. In the third pillar, Changjiang Pension continued to deliver solid investment performance for the tax-deferred pension schemes; in the light of regulatory trends, it pushed for transitioning of alternative business. In 2020, the company registered RMB73.1 billion in alternative insurance asset management products, and since its inception, it has cumulatively channelled RMB150 billion in direct funding to the real economy, playing its part in boosting China's economic development.
Customer operation
Since the launch of Transformation 2.0, we persisted in customer-centric business philosophy, pressed ahead with strategic transformation, and leveraged our strength as an insurer with a full range of insurance-related licenses and deployment in asset management, health and retirement business. Given the objective of delivering "integrated service to one customer via one interface", we are committed to providing
comprehensive, tailor-made product & service solutions which are easy and convenient to use, so as to enhance customer experience and steadily increase customer value.
I. Individual customer operation
We implemented the customer operation strategy, strived to meet, in a "one-stop" way, diverse needs of our customers for insurance products and services, delivering caring
"CPIC Service". The width and depth of service provided to individual customers have been continuously improved in recent years. As of the end of 2020, the number of customers with sum assured (SA) exceeding RMB300,000 on critical illness (CI) products
of CPIC Life reached 4.73 million, up by 17.1% from the year beginning, and the number
of customers with sum assured of a million yuan and above on Third-party Liability (TPL)
of automobile insurance amounted to 17.15 million, a jump of 31.9% from the year beginning.
2020
2019
2018
2017
Number of customers with SA exceeding RMB300,000 on CI products ofCPIC Life (million)
Number of customers with SA of a million yuan and above on TPL of automobile insurance of CPIC P/C (million)
4.73 17.15
4.04 13.00
2.99 1.74
9.68 6.03
We persisted in an innovation-driven mode, deepened comprehensive operation of individual customers, built a middle platform of collaborative operation for individual customers to boost the connectivity of accounts and data while ensuring customer data security, which helped us to achieve integration of products, services and tools. With profound insights into customers' diverse needs, we provided personalised product & service recommendations based on customer segmentation, with steady increase in average number of insurance policies per customer and number of customers with multiple insurance policies, pointing to enhanced customer loyalty. As of the end of 2020, Group average number of insurance policies per individual customer reached 2.09, an increase of 7.2% from the year beginning; the number of individual customers with 2 insurance policies and above amounted to 31.66 million, up by 23.3% from the year beginning.
Leveraging our strength as an insurer with a full range of insurance-related licenses, we put in place work mechanisms for collaboration across business segments and diversified the systems. We upgraded the one-stop platform for individual customer operation to provide life insurance agents with tools for sales across business lines and customer services spanning full processes, empowering integrated on-line operation of the agency force. Based on big data, we established a customer labelling system, achieving precision in customer segment selection and leads allocation. In recent years, the penetration of cross-sell of individual customers has been on steady increase. As of the end of the reporting period, the number of individual customers holding insurance policies ofmultiple Group subsidiaries reached 10.24 million, a growth of 22.5% versus year-beginning.
2020
2019
2018
2017
2016
Average number of insurance policies per individual customernote 1 Number of individual customers holding 2 insurance policies and abovenote 2 (million)
Number of individual customers holding insurance policies of multiple Group subsidiariesnote 2 (million)
2.09 31.66 10.24
1.95 25.68 8.36
1.83 20.26 5.61
1.73 1.64
15.81 13.91
3.48 2.32
Notes：
1. Based on applicants of in-force insurance policies.
2. Based on applicants of in-force insurance policies of one year or above.
We continued to deepen the model of "products + services", accelerated product
innovation and the building of a multi-tiered service system. Given the deployment in health and retirement business, our professional elderly care service under "CPIC Home"
retirement communities has delivered tangible benefits in the engagement of high-end customers. In response to the surge in demand for on-line health management service in the context of COVID-19, we enhanced the infrastructure of health management system, with "CPIC Blue Passports", a health management programme, covering nearly 13 million
customers, and "Tele-doctors" 2 million customers. We continuously diversified the system of services for automobile insurance customers to support life insurance agents in providing full life-cycle service to them, involving 2.05 million service deliveries in 2020.
We value feedbacks from customers, and strived to promote innovation and efficiency in customer services to enhance customer experience. We introduced the Net Promotional
Score (NPS), a leading tool for customer experience evaluation in the world, established step-by-step a closed-loop management system for customer experience, which helped us gain insights into the pain spots and take effective measures to enhance service quality. We built a digital platform for the monitoring of NPS, which enabled us to closely track customer feedbacks post key business journey interactions. In 2020, we received 1.47 million feedbacks from customers, which were instrumental in improvement of operational management and products & services.
Based on insights into customer experience, we focused on enhancing service capabilities and efficiency to improve convenience in service requests, speed in service responses and transparency in service processes. CPIC P/C used "CPIC AI", a smart tool for loss-
adjustment, which realised evaluation of losses within seconds, and graded claims payment, with the turnaround for payment as short as less than 2 minutes for small claimscases of automobile insurance. CPIC Life focused on R&D and roll-out of smart processes covering insurance application, claims management and post-sale customer services, achieved complete on-line process for insurance application and a much expedited claims turnaround on medical insurance due to direct connection of data, with average turnaround of 2.6 hours.
II. Group customer operation
To achieve the goal of "One Company, One-stop Service", we vigorously pushed forward collaboration within the Group, promoted sharing of group customers and centralised use of products, services and expertise, deepened organisational support, enhanced management innovation and system operation, so as to build capabilities in the provision of comprehensive solutions catering for needs of group customers. We introduced differentiated management of strategic accounts and key accounts. For the former, the Group co-ordinates business development by subsidiaries; as for the latter, we promote collaborative business development across subsidiaries based on market-oriented mechanisms.
At the Group level, we set up the cluster of key accounts, including central ministries and commissions, provincial/municipal governments, enterprises under the administration of central government, SOEs, major state-owned banks, joint-stock banks, securities firms, urban commercial banks, firms listed among China's Top 500, industry leading companies, and local champions. As of the end of 2020, we signed agreements with 103 partners for strategic cooperation, up by 33.8% from the end of 2019; entered into strategic partnership with 75% of provinces/municipalities (provinces, autonomous regions, municipalities under the central government, cities with vice-provincial status), an increase of 11.2pt from the end of 2019.
On the back of solid performance in group customer operation, we have consolidated our strengths in traditional business lines such as agricultural insurance, government-sponsored critical illness insurance, long-term care insurance, occupational annuity, while delivering continued progress in emerging business such as inherent defect insurance (IDI) and green insurance. At the same time, we continuously explored the path to deliver insurance solutions to employees and their families via our corporate/government clients. Given the surge in demand for health protection post the pandemic, we combined insurance with services, customised health tips for key accounts, and tailor-made healthmanagement services for strategic accounts.
ESG
I. ESG philosophies and management
(I) ESG philosophies
In recent years, climate change has become more severe, highlighting the urgency of low carbon and reduction in emissions. COVID-19 raised global attention on public health care. The Chinese government has put forward the target of achieving the peak carbon emissions by 2030, and carbon neutrality by 2060. China's 14th 5-year Development
Programme expressly calls for adherence to New Development Philosophies, building a New Development Pattern and a substantial shift of the mode of development. In such context, ESG philosophies, which integrate environment, society and governance, have become increasingly important.
Our vision is to be "the best in customer experience, business quality and risk control capabilities, achieving industry leadership in healthy and steady development". We adhere to high-quality development, focus on insurance, and persist in "value, long-term and prudent investing", all of which are in line with ESG philosophies. We are committed to creating value for customers, employees, shareholders, society, business partners and environment, translating social responsibility into drivers of sustainable development.
We practice energy-saving and emission reduction, enhance disaster mitigation and loss reduction, support green transitioning through sustainable insurance, responsible investment and green operation. We support national initiatives and the real economy, focus on the fight against COVID-19 and poverty, promote social benefits and protection of customer and employee rights and interests. We optimise the corporate governance system, push for risk management integration and improve anti-corruption rules & procedures.
(II) ESG governance
We incorporated ESG philosophies into business management, set up ESG top-level design and governance structure based on needs of business development. With the Board as the top decision-making body, we push for the integration of ESG philosophiesinto day-to-day business operation by functional departments and subsidiaries, to ensure the effectiveness of ESG management.
II. Alignment with the United Nations Sustainable Development Goals (SDGs)
In September 2015, the United Nations passed the 2030 Sustainable Development Agenda, floating 17 sustainable development goals. To facilitate their implementation in China, the Chinese government issued Country-specific Programme for Implementing 2030 Sustainable Development Agenda of China in September 2016.
In 2020, we aligned business operation and related projects of the Company with SDGs by priority, and clearly defined the connection between our business operation and sustainable development, which points to direction of our ESG effort going forward.
SDGs
Our actions
Centred on insurance and deepened insurance-based long-term mechanisms for poverty reduction with CPIC characteristics, focusing on officially-designated poverty-stricken regions, extremely impoverished areas, and "pair-up" regions with Shanghai and the Company. Fully leveraged our strengths in talent, expertise and resources, utilised insurance to cope with poverty, focused on lifting people out of poverty and preventing poverty, fulfilling our social responsibility.
Developed multiple innovative agricultural insurance products combining insurance and futures, covering against catastrophes, offering price, income and quality protection. Upgraded the e-Agricultural System to boost agricultural production through risk protection.
Continuously optimised the health care and retirement security system, served the 3 pillars of pension system, strived to improve elderly care and build an service system of "insurance + retirement + health"; committed to creating a healthy and safe work-place via diverse cultural events and training; provided sound financial support to companies, helping them combat the pandemic and resume business, doing our share in the national initiative of ensuring "stability in 6 areas and protection in 6 priorities".
Long-term commitment to education of children, and donated to total over 60 primary schools across China; organised volunteers to teach in rural areas on a regular basis, and improved conditions of schools in impoverished regions; actively promoted co-operation with firms and the academia, deeply involved in education and training of specialists in finance and insurance.
Long-term commitment in energy mix optimisation, contributing to an environmentally-friendly society via underwriting and investment in clean energy industries, with development of innovative products for clean energy.
Strictly abided by national laws & regulations, continued to improve welfare benefits, occupational training and career advancement paths on the basis of protecting employee rights and interests, to ensure inclusive development of the Company; promoted the stability and sustainable development of agents by means of technological empowerment, improvement in training and benefits; expanded campus recruitment to create jobs, focusing on impoverished areas in particular.
Pursued innovation in products and services in industries of aerospace & astronautics, ship-building, new materials and life sciences to facilitate domestic industry upgrading; developed customised products to mitigate financing difficulties of SMEs.
Keeping tabs on social and economic development needs and upholding central insurance value proposition, we expanded the scope of products and services in life/health insurance, P/C insurance and insurance asset management in a bid to contribute to a better life of the Chinese people and sustained urbanisation.
Actively employed new technologies and developed on-line products and services, optimised processes and improved transparency of processes in sales, application, and claims handling, providing strong support to agents .
Innovated multiple weather index insurance, catastrophe insurance products to mitigate risks in climate-vulnerable areas; intensified effort in green financing, and offered risk solutions to investment & financing and operation of environment protection, energy saving and clean energy projects; advocated green buildings and paperless work-place, donated for afforestation to reduce carbon footprints and conserve nature.
Developed public liability insurance against losses caused by wildlife, and forest insurance, which promoted bio-diversity while lowering social risks.
Committed to eliminating all forms of corruption and bribery, and establishing an effective, responsible and transparent governance system. Give back to stakeholders with a strong sense of responsibility, while ensuring sustainable value growth of the Company.
Actively participated in strategic partnerships with governments and companies, supported national strategies, real economy and promoted people's well-being; deeply involved in industry dialogues and exchanges, ready to share our own experience and strive for industry leadership in healthy and steady development.
III. ESG practice
Sustainable insurance products
We increased research into and investment in climate change and catastrophe risk mitigation, and developed a "Risk Radar" accessible to meteorological centres and
earthquake bureaus. Rolled out weather index insurance programmes in 24 provinces/municipalities, offering cover against losses caused by climate change worth over RMB1.46 billion in SA to 53,000 rural households. As of the end of 2020, we cumulatively provided environmental liability insurance to over 4,360 firms in China, with
SA exceeding RMB7.9 billion. We underwrote China's first environmental liability
insurance for public areas, and business of many large firms in the power-generation sector such as China Nuclear Group and the National Energy Group, cumulatively providing SA of RMB938.3 billion for renewable energy.
Responsible investment
We innovated mode of responsible investment with insurance characteristics, and focused on projects in environmental protection, renewable energy, energy conservation, resettlement of shanty town, and new infrastructure, so as to provide funding to economic and social transitioning. We directly invested in green projects via debt investment plans, equity investment plans, asset-backed plans and industry funds. Besides, we made indirect investments, especially via green bonds, to support development of green finance. As of the end of 2020, we invested RMB39.751 billion in renewable energy, RMB13.7 billion in water conservation and RMB864 million in environment protection.
Green operation
At the end of May 2020, our employees donated for afforestation of Sanjiangyuan, or origin of the Yangtze River, the Yellow River and Lancang River, planting 50,000 saplings covering about 67 hectares, which are projected to absorb 15,000 tons of CO2 in the next 30 years. In compliance with The Work Plan for GHG Emission Control during the 13th 5-year Development Period issued by the State Council, we advocated green travelling, improved efficiency in working and company vehicle use, and promoted green buildings in Luojing and Chengdu Data Centres to reduce carbon footprints, with targets and measures in discharge intensity, waste disposal sorting ratio, energy efficiency and water intensity.
Combating COVID-19
In 2020, in the face of COVID-19, we leveraged our strengths in risk protection and rolled out special programmes to support the fight against the pandemic in 35 most affected provinces and municipalities, offering over RMB2.8 billion in SA to more than 12,000 companies, while putting in place mechanisms for regular services.
· Launched guarantee insurance for financing against pledge of collateral to support micro, small and medium sized firms in their effort to resume business, involving SA of nearly RMB4 billion. Provided discounted or free insurance for 100,000 micro, small and medium sized firms in 11 regions, also extended the duration and reduced renewal premiums for certain firms. The Company cumulatively invested in RMB1.64 billion of anti-pandemic bonds.
·
Innovated comprehensive insurance solutions to mitigate disruption to supply chain of farm produce and launched price insurance for eggs, vegetables and milk, as well as income insurance for wheat. Issued more than 0.33 million insurance policies in food safety insurance covering food production, food processing, food circulation and restaurants, involving over RMB430 billion in SA.
· Donated specific insurance against COVID-19 to those fighting the pandemic at the frontline, involving nearly 10 million public health and medical professionals, police and people ensuring supply of basic necessities, with SA totally RMB1.2 trillion.
Supporting national initiatives
We leveraged our expertise in risk management, financial compensation, social administration and financing to boost China's opening up, promote regional development, support rural revitalisation, and contribute to a new economic development pattern. Provided one-stop comprehensive risk solutions spanning P/C, life and health insurance and integrated risk management to the 3rd CIIE, with SA totalling RMB884.8 billion. Since 2017, we have offered cumulatively more than RMB800 billion in SA in over 100 countries for the Belt & Road Initiative. To boost the integration of the Yangtze River Delta Region, we signed green insurance strategic cooperation agreements with local governments, set up green funds for environmental protection, so as to facilitate transitioning towards green industries. We innovated critical illness and medical insurance products customised for the Greater Bay Area. To support the Rural Revitalisation Initiative, we developed 732 agricultural insurance products, and in total over 3,000 insurance products, with innovations of income insurance, "insurance + futures" and "agricultural insurance +", providing RMB468.6 billion in SA to 30.04 million rural households.
Social medical insurance
We were involved in the building of China's social medical insurance system to improve public health. We conducted social medical insurance TPA, government-sponsored critical illness insurance, supplementary medical insurance and long-term care insurance, involving a total of 225 local governments in 277 programmes, covering 125 million people. To be specific, we conducted government-sponsored critical illness programmes in 54 prefectures/municipalities of 15 provinces, covering 92 million people, with cumulative pay-out totalling RMB15.9 billion via 14.27 million claims cases. In the face ofpopulation ageing, we have cumulatively conducted 59 TPA programmes since 2016, covering 38 prefectures/municipalities of 19 provinces; long-term care insurance served over 35 million people, involving more than 1 million claims cases. Besides, we also carried out the Huiminbao, or affordable supplementary medical insurance.
Poverty alleviation
The Company deepened insurance-based poverty alleviation mechanisms with CPIC characteristics to better contribute to the country's poverty alleviation campaign. It paired up with 2 rural townships and 3 rural villages in the Inner Mongolia Autonomous Region and Yunnan Province and succeeded in lifting them out of poverty 9 months ahead of plan. As of the end of 2020, its poverty alleviation programmes covered about 7.62 million registered impoverished households nationwide and provided a total of RMB 3.08 trillion in sum assured to poverty-stricken areas.
Donations
We donated to a total of 110 projects on poverty elimination, fight against COVID-19 and education. We were a sponsor of the "Magnolia Foundation" in Hong Kong, donating RMB40.72 million in total. We launched "CPIC Blue Foundation" in Shanghai, a charitable foundation devoted to elderly people with cognitive impairment. We donated a total of 64 primary schools across China, with employees volunteering for on-site teaching for 13 years on end. We currently boast over 7,000 volunteers, with total length of service of 45,000 hours.
Consumer rights protection
We are committed to consumer rights protection, and have established, as per laws and regulations such as The Law of Consumer Rights Protection, a Work Commission on Consumer Rights Protection to co-ordinate effort in the area. Our life and P/C companies have issued Provisions on Handling of Insurance Consumer Complaints respectively in 2020, explicitly defining the procedures, division of responsibilities and deadlines for the handling of consumer complaints. We drafted rules on intellectual property rights (IPR) protection, covering the acquisition, application, protection and management of IPRs, and have been granted 17 patents in software copyright.
Corporate governance
As per relevant laws and regulations such as The Company Law of the PRC, The Securities Law of the PRC and The Insurance Law of the PRC, we put in place a governance system consisting of the SGM, the board of directors, the board of supervisors and senior management, with co-operation, co-ordination and checks and balances between the top authority, the decision-making body, the body responsible for oversight and that of execution. We have formed a relatively sound governance structure through deepening of Group centralised management framework, optimised in-house resources allocation and enhanced communications with the capital market.
Employee rights and development
· Labour standards. We set out explicit rules on age, professional competence, compensation & dismissal, recruitment & promotion, working hours, leave, equal opportunities, diversity and anti-discrimination requirements in our labour standards. We provide more job opportunities and support local employment. There is no child labour in the Company. We do not encourage voluntary extension of working hours and there is no forced labour. We strictly abide by The Labour Law of the PRC, and do not discriminate against candidates due to their gender, ethnic groups, marital status, religion. We are committed to providing equal career development opportunities. The Administration Department and Legal & Compliance Department are responsible for management of whistle-blowing or lodging of complaints by employees. We formulated regulations on compensation, ensuring that the monthly salary paid is not lower than national or local statutory minimum requirements.
· Employee benefits. We are committed to creating a safe work-place, free from occupational hazards for our employees. We made proper policies for the protection of female employees. We organised physical exercises, health lectures, first-aid training, fire drills and psychological counselling for employees to foster a healthy and comfortable work environment. In 2020, there was no major work-place accidents.
·
Employee development. We established a comprehensive employee training system, with a series of policies, rules and guidelines for career development. We launched an on-line corporate university, providing shared services in training, accreditation ofqualifications and innovative empowerment.
Anti-corruption
We formulated Provisional Regulations on Anti-fraud Work, Management Rules on Money Laundering, and Provisional Regulations on Conflict of Interest between Related People, in a bid to prevent and combat misconduct or illegal behaviours such as bribery, blackmailing, frauds and money laundering. Drafted Policies on Irregular Whistle-blowing, Disciplinary Rules on Misconduct of Employees and Provisions on Accountability in Misconduct & Breaches of Laws and Regulations, which allowed for whistle-blowing via letters, e-mail or telephone calls on corruption and frauds. We continued to conduct training in anti-money laundering and anti-corruption, with enrollments for anti-embezzlement training reaching 12,691 people, and total length of the training amounting to 9,514.6 hours.
Supply-chain management
We formulated Policies on Centralised Purchases, Rules on Management of Suppliers, Provisional Implementation Rules on Management of Suppliers, stepped up co-ordination with suppliers, and enhanced their ESG capability. We continued to improve the full life-cycle management of the supply chain, strengthened the identification and control of environmental and social risks, gave priority to suppliers with sound ESG performance. We convene annual meetings of suppliers, advocating ESG policies. In 2020, we did not terminate co-operation with any suppliers due to major adverse impact on economy, society, and environment.
Analysis of specific items
I. Key consolidated results
Unit: RMB million
31 December 2020/Year 2020
31 December 2019/Year 2019
Changes
Main reasons
(%)
Total assets Total liabilities
1,771,004 1,550,169
1,528,333 1,345,013
15.9 Business expansion
15.3 Business expansion
Profit for the period, fair value
Total equity
220,835
183,320 20.5 change on AFS financial assets and issuance of GDR
Increase in investment
Net profit attributable to shareholders of the parent
24,584
27,741 (11.4)income and change of tax policy
II. Liquidity analysis
(I) Cash flow statement
Unit: RMB million
For 12 months ended 31 December
2020
2019
Changes (%)
Net cash flows from operating activities Net cash flows used in investing activities
108,063 (136,068)
Net cash flows from/(used in) financing activities
21,448
111,795 (96,855) (10,544)
(3.3)
40.5
(303.4)
(II) Gearing ratio
31 December 2020
31 December 2019
Changes
Gearing ratio (%)
87.8
88.3
(0.5pt)Note: Gearing ratio = (total liabilities + non-controlling interests) / total assets.
(III) Liquidity analysis
We centralise liquidity management including that of our subsidiaries at the Group level. As the parent company, our cash flows mainly stem from dividends from our subsidiaries and gains from our own investment activities.
Our liquidity mainly comes from premiums, net investment income, sales or maturity of financial assets and cash from financing activities. The demand for liquidity primarily arises from surrenders, reduction in sum assured or other forms of earlier termination of insurance contracts, insurance claims or benefit pay-outs, payment of dividends to shareholders and cash required for daily operation.
We normally record net cash inflows from our operating activities due to growing premium income. Meanwhile, adhering to ALM, and in line with our SAA, we would maintain an appropriate level of allocation in highly liquid assets to meet liquidity requirement.
Financing abilities also form a major part of our liquidity management. We have access to additional liquidity through securities repurchase arrangement and other financing arrangements.
We believe that our current liquidity level is sufficient for our needs in the foreseeable future.
III. Items concerning fair value accounting
Unit: RMB million
31 December 2020
31 December 2019
Changes
Impact of fair value changes on profitsnote
Financial assets at fair value through profit or loss Available-for-sale financial assets Derivative financial assets
Total
12,473 596,158 140 608,771
4,931 511,822 - 516,753
7,542 84,336 140 92,018
(59)
(3,925)
140 (3,844)
Note: Impact of fair value changes on profits for AFS financial assets refers to charges for impairment losses.
IV. Solvency
We calculate and disclose our core capital, actual capital, minimum required capital and solvency margin ratio in accordance with requirements by CBIRC. The solvency margin ratio of domestic insurance companies in the People's Republic of China (PRC) shall meet certain prescribed levels as stipulated by CBIRC.
Unit: RMB million
31 December 31 December
2020
2019
Reasons for changeCPIC Group
Core capital 500,766 453,838
Profit for the period, capital raising, profit distribution to shareholders, and change of fair value of investment assets
Actual capital 510,766 463,838
Profit for the period, capital raising, profit distribution to shareholders, and change of fair value of investment assets
Minimum required capital 177,288 157,481
Growth of insurance business and changes to asset allocation
Core solvency margin ratio (%) Comprehensive solvency margin ratio (%)
282 288
288 295
CPIC Life
Core capital 377,203 357,883
Actual capital 377,203 357,883
Minimum required capital 155,860 139,354
Profit for the period, profit distribution | to |
shareholders, and change of fair value | of |
investment assets | |
Profit for the period, profit distribution | to |
shareholders, and change of fair value | of |
investment assets |
Growth of insurance business and changes to asset allocation
Core solvency margin ratio (%) Comprehensive solvency margin ratio (%)
242 257
242 257
CPIC P/C
Core capital
44,208 38,900
Actual capital
54,208 48,900
Profit for the period, profit distribution | to |
shareholders, and change of fair value | of |
investment assets | |
Profit for the period, profit distribution | to |
shareholders, and change of fair value | of |
investment assets |
Minimum required capital
19,672 16,713
Growth of insurance business and changes to asset allocation
Core solvency margin ratio (%) Comprehensive solvency margin ratio (%)
225 233
276 293
CPIC Health
Core capital Actual capital
1,294 1,084
Profit for the period and change of fair value of investment assets
1,294 1,084
Profit for the period and change of fair value of investment assets
Minimum required capital
949 702
Growth of insurance business and changes to asset allocation
Core solvency margin ratio (%) Comprehensive solvency margin ratio (%)
136 155
136 155
CPIC Anxin Agricultural
Core capital
1,821 1,684
Actual capital
1,821 1,684
Minimum required capital
614 557
Profit for the period, profit distribution | to |
shareholders, and change of fair value | of |
investment assets | |
Profit for the period, profit distribution | to |
shareholders, and change of fair value | of |
investment assets |
Growth of insurance business and changes to asset allocation
Core solvency margin ratio (%) Comprehensive solvency margin ratio (%)
297 303
297 303
Please refer to the summaries of solvency reports published on the websites of SSE
(www.sse.com.cn), SEHK (www.hkexnews.hk), LSE (www.londonstockexchange.com) and the Company (www.cpic.com.cn) for more information about the solvency of CPIC Group and its main insurance subsidiaries.
V. Sensitivity analysis
Sensitivity analysis of price risk
The following table shows the sensitivity analysis of price risk, i.e. the pre-tax impactnote 1 of fair value changes of all equity assetsnote 2 in the case of a 10% change in stock prices as at the end of the reporting period on the profit before tax and shareholders' equity (assuming the fair value of equity assetsnote 2 moves in proportion to stock prices), other variables being equal.
Unit: RMB million | ||
2020 / 31 December 2020 | ||
Market value | Impact on profit before tax | Impact on equity |
+10% | 18 | 10,416 |
-10% | (18) | (10,416) |
Notes:
1. After policyholder participation.
2. Equity assets do not include bond funds, money market funds, wealth management products, preferred shares and other equity investments, etc.
VI. Insurance contract liabilities
Insurance contract liabilities include unearned premium reserves, claim reserves, and long-term life insurance contract liabilities. All three are applicable in life insurance business, while only the first two are applicable in property and casualty insurance.
As at 31 December 2020, insurance contract liabilities of CPIC Life amounted to RMB1,118.370 billion, representing an increase of 15.0% from the end of 2019. Those of CPIC P/C amounted to RMB104.478 billion, an increase of 11.5%. The rise was mainly caused by business expansion and accumulation of insurance liabilities.
We also test the adequacy of reserves at the balance sheet date. If the testing shows that reserves set aside for each type of insurance contracts are sufficient, there is no need for additional provisions; if not, then additional reserves are required.
Unit: RMB million | |||
31 December 2020 | 31 December 2019 | Changes (%) | |
CPIC Life | |||
Unearned premium reserves | 4,100 | 4,500 | (8.9) |
Claim reserves | 5,287 | 4,472 | 18.2 |
Long-term life insurance contract liabilities | 1,108,983 | 963,540 | 15.1 |
CPIC P/C | |||
Unearned premium reserves | 63,706 | 56,643 | 12.5 |
Claim reserves | 40,772 | 37,026 | 10.1 |
VII. Investment contract liabilities |
Investment contract liabilities mainly cover the non-insurance portion of insurance contracts, and those contracts which failed to pass the testing of significant insurance risk.
Unit: RMB million
31 December 31 DecemberIncrease for the periodDecrease for the period
2019
Deposits Interest received creditedOthersDepositsFeeswithdrawn deducted
2020
Investment contract liabilities
75,506
14,994
3,344
1,694
(8,220)
(262)
87,056
VIII. Reinsurance business
In 2020, premiums ceded to reinsurers are shown below:
Unit: RMB million
For 12 months ended 31 December CPIC Life
Traditional
Long-term health
2020 8,643 3,481 2,583
2019
Changes (%)
7,771 11.2
3,694 (5.8)
2,832 (8.8)
Participating Universal Tax-deferred pension Short-term accident and health CPIC P/C
Automobile Non-automobile
332 59 - 4,771 20,244 6,315 13,929
441 (24.7)
62 (4.8)
- 3,574
/ 33.5
17,228 17.5
6,249 1.1
10,979 26.9
In 2020, premiums from reinsurance assumed are set out below:
Unit: RMB million
For 12 months ended 31 December CPIC Life
Traditional
Long-term health
Participating
Universal
Tax-deferred pension
Short-term accident and health CPIC P/C
Automobile Non-automobile
2020 3,493 3,493 1 - - - - 1,017 - 1,017
2019
Changes (%)
150 2,228.7
150 2,228.7
- - - - - 747 - 747
/ / / / / 36.1
/ 36.1
As at the end of 2020, assets under reinsurance are set out below:
Unit: RMB million
31 December 2020
31 December 2019
Changes (%)CPIC Life
Reinsurers' share of insurance contract liabilities
Unearned premiums
Claim reserves
Long-term life insurance contract liabilities
1,206 379 12,938
1,067 13.0
246 54.1
12,340 4.8
CPIC P/C
Reinsurers' share of insurance contract liabilities
Unearned premiums
Claim reserves
7,692 6,853
6,283 22.4
6,117 12.0
We determine retained insured amounts and reinsurance ratio according to insurance regulations and our business development needs. To lower the concentration risk of reinsurance, we also entered into reinsurance agreements with various leading international reinsurance companies. The criteria for the selection of reinsurance companies include their financial strength, service level, insurance clauses, claims settlement efficiency and price. In general, only domestic reinsurance companies with proven records or international reinsurance companies of ratings of A- or above wouldqualify as our reinsurance partners. Besides China Reinsurance (Group) Corporation and its subsidiaries, i.e., China Life Reinsurance Company Ltd., and China Property & Casualty Reinsurance Company Ltd., our reinsurance partners also include international giants like Swiss Reinsurance Company (瑞士再保險公司) and Munich Reinsurance Company (慕尼
黑再保險公司).
IX. Main subsidiaries & associates and equity participation
As of the end of 2020, the Company's main subsidiaries, associates and equity participation are set out as below:
Unit: RMB million
Company | Main business scope | Registered capital | Group shareholdingnote 2 | Total assets | Net assets | Net profit |
China Pacific Property Insurance Co., Ltd. | Property indemnity insurance; liability insurance; credit and guarantee insurance; short-term health and accident insurance; reinsurance of the above said insurance; insurance funds investment as approved by relevant laws and regulations; other business as approved by CBIRC. | 19,470 | 98.5% | 184,066 | 45,346 | 5,209 |
China Pacific Life Insurance Co., Ltd. | Personal lines insurance including life insurance, health insurance, accident insurance, etc. denominated in RMB or foreign currencies; reinsurance of the above said insurance; statutory life/health insurance; agency and business relationships with domestic and overseas insurers and organisations, | 8,420 | 98.3% | 1,484,364 | 93,747 | 18,642 |
loss adjustment,
loss adjustment, claims and other business entrusted from overseas insurance organisations; insurance funds investment as prescribed by Insurance Law of the PRC and relevant laws and regulations; international insurance activities as approved; other business as approved by CBIRC. | ||||||
Changjiang Pension Insurance Co., Ltd. | Group pension and annuity business; individual pension and annuity business; short-term health insurance; accident insurance; reinsurance of the aforementioned business; outsourced money management business denominated in RMB or foreign currencies for the purpose of elderly provisions; pension insurance asset management business; advisory business pertaining to asset management; insurance fund management as allowed by the PRC laws and regulations; other business as approved by CBIRC. | 3,000 | 61.1% | 5,559 | 3,856 | 620 |
Pacific Asset Management | Asset management of capital and | 2,100 | 99.7% | 4,393 | 3,631 | 489 |
Co., Ltd.
insurance funds;
Co., Ltd. | insurance funds; outsourcing of fund management; advisory services relating to asset management; other asset management business as allowed by the PRC laws and regulations. | |||||
Pacific Health Insurance Co., Ltd. | Health and accident insurance denominated in RMB yuan or foreign currencies; health insurance sponsored by the government or supplementary to state medical insurance policies; reinsurance of the above said insurance; health insurance-related advisory and agency business; insurance funds investment as approved by relevant laws and regulations; other business as approved by CBIRC. | 1,700 | 77.1% | 9,384 | 1,410 | 116 |
China Pacific Anxin Agricultural Insurance Co., Ltd. | Agricultural insurance; property indemnity insurance; liability insurance; statutory liability insurance; credit and guarantee insurance; short-term health insurance and accident insurance; property insurance relating to rural areas and farmers; reinsurance of the above said insurance; | 700 | 51.3% | 4,040 | 1,679 | 151 |
insurance agency business. | ||||||
CPIC Fund Management Co., Ltd. | Fund management business; the launch of mutual funds and other business as approved by competent authorities of the PRC. | 150 | 50.8% | 732 | 568 | 69 |
Notes:
1. Figures for companies in the table are on an unconsolidated basis. For other information pertaining to the Company's main subsidiaries, associates or invested entities, please refer to "Review and analysis of operating results" of this report, and "Scope of consolidation", "Interests in associates" and "Investment in joint ventures" in notes to the financial statements.
2. Figures for Group shareholding include direct and indirect shareholdings.
X. Top five customers
During the reporting period, the top 5 customers accounted for approximately 0.6% of the Company's GWPs. To the knowledge of the Company, Directors, Supervisors and their respective close associates, shareholders owning more than 5% of the number of issued shares of the Company have no interest in any of the top five customers.
Given its business nature, the Company does not have any supplier that is directly related to its business.
XI. Environmental policies, employee engagement and customer relations
For information of environmental policies and employee engagement of the Company, please refer to the section "Report of the Board of Directors and significant events" of the annual report of the Company.
In 2020, the Company persisted in customer orientation and valued and maintained good customer relations.
XII. Seizure, attachment, and freeze of major assets or their pledge as collateral
The Company's assets are mainly financial assets. The repurchase of bonds forms part of the Company's day-to-day securities investment activities, and as of the end of the reporting period, no abnormality was detected.
Outlook
I. Market environment and business plan
There are great uncertainties in the pandemic situation and market environment. The 5th Plenary Session of the 19th Party Congress made a major decision to establish a new development pattern of "mutual reinforcement of domestic and international cycles with the former at the core", ushering in the era of high-quality development, defined by higher efficiency, better quality and improved equity. In the long-term, economic development, rising per capita income, demographic shifts, change of government roles and innovation in public administration will continue to drive sustainable development of China's insurance industry. The COVID-19 pandemic further raised public awareness of and stimulated demand for insurance and health care service. Overall, China remains one of the most dynamic and fastest-growing insurance markets of the world.
Going forward, with a vision of "achieving leadership in healthy and steady development of the insurance industry", and the targets of "being the best in customer experience, business quality and risk control capabilities", the Company will focus on the long-term, continue to deepen transformation, promote the establishment of long-term incentive systems, marketisation of technology, platform development of health-related business, specialisation of investment management and modernisation of corporate governance, so as to foster core competitiveness for the future. It will step up deployment in key sectors such as health business, regional integration initiatives and big data to boost new development drivers. Meanwhile, it will promote the branding of "CPIC Service", vigorously serve national strategies, support the real economy, improve the welfare of the Chinese people, ensure the prevention of major risks, and achieve more success in high-quality development.
II. Major risks and mitigating measures
Firstly, in terms of macroeconomic environment, uncertainties are still rising. The global spread of COVID-19 and complicated international economic and political landscape will pose new challenges. Global trade and investment contracted considerably, disrupting world economic recovery. At the same time, the pandemic has a profound impact on China's economy. Resumption of business and work will run in tandem with the control and prevention of the pandemic, forming a new normal. Rising credit defaults, the pressure on long-term risk-free interest rates and deterioration of liquidity risk maymaterially impact insurance and asset management business.
Secondly, in terms of industry development, China's insurance market is also slowing down, complicated by a shift of the development model, and accumulation of risks over the years which have begun to surface. The regulator will continue to intensify its efforts to mitigate risks, tackle irregularities and tighten the overall regulation. Amendments to critical illness morbidity and administrative rules on health insurance, the launch of comprehensive reform of automobile insurance, issuance of new regulations on Internet insurance will compel the industry to enhance capacity-building and professionalism. The COVID-19 pandemic will stimulate digital transformation of the industry, reshape its business model as new technologies are increasingly important drivers of development. Domestic insurance players will face more intense competitions as a result of increased opening-up of the industry.
Thirdly, in respect of its business operation, the Company is facing a relatively high catastrophe risk and risk of large claims arising from extreme weather, natural disasters and artificial accidents, with emerging risks starting to have potential impact on the stability of its business performance. Its GDR issuance and the execution of internationalisation strategy will require even higher standards of compliance and professionalism in corporate governance and investment capabilities.
To cope with these risks, we will persist in compliance in business operation, stay focused on the core business of insurance and press ahead with transformation & innovation. In particular, we will step up analysis of macroeconomic trends, early-warning and mitigation of key risks, enhance customer insights and risk selection through technology empowerment, accelerate innovation in products and services, and continuously optimise resource-allocation; improve ALM and counter-party credit risk management in an all-around way, strengthen investment research capabilities and the matching of assets and liabilities; continuously optimise mechanisms for risk identification, assessment, early warning and mitigation, as well as programmes of cumulative risk exposure control and reinsurance so as to forestall major risks and ensure stable business operation and healthy solvency levels.
Change in accounting estimates
When measuring the insurance contract liabilities, the Group determines actuarial assumptions such as discount rate, mortality and morbidity, surrender rates, expenses assumptions and policy dividend assumptions based on information currently available as at the balance sheet date.
As at 31 December 2020, the Group used information currently available to determine the above assumptions. Mainly due to change of the benchmark yield curve of discount rate for life and long-term health insurance reserves, life and long-term health insurance reserves after reinsurance increased by approximately RMB 11.733 billion as at 31 December 2020 and profit before tax decreased by approximately RMB 11.733 billion for 2020.
Embedded value
Summary of Embedded Value and Value of One Year's Sales
The table below shows the Group Embedded Value of CPIC Group as at 31 December 2020, and the value of one year's sales of CPIC Life in the 12 months to 31 December 2020 at a risk discount rate of 11%.
Unit: RMB million
Valuation Date
31 December 2020
31 December 2019
Group Adjusted Net Worth Adjusted Net Worth of CPIC Life
257,378
208,402
135,898
114,677
Value of In Force Business of CPIC Life Before Cost of Required Capital Held Cost of Required Capital Held for CPIC Life
217,617
203,392
(12,167)
(12,548)
Value of In Force Business of CPIC Life After Cost of Required Capital Held
205,451
190,844
CPIC Group's Equity Interest in CPIC Life
98.29%
98.29%
Value of In Force Business of CPIC Life After Cost of Required Capital Held attributable to the shareholders of CPIC Group
Group Embedded Value
CPIC Life Embedded Value
201,942 459,320 341,348
187,585 395,987 305,521
Valuation Date
31 December 2020
31 December 2019
Value of One Year's Sales of CPIC Life Before Cost of Required Capital Held
Cost of Required Capital Held
Value of One Year's Sales of CPIC Life After Cost of Required Capital Held Notes:
20,058 (2,217) 17,841
28,533 (3,936) 24,597
1. Figures may not be additive due to rounding.
2. Results in column "31 December 2019" are those reported in the 2019 annual report.
The Group Adjusted Net Worth represents the shareholder net equity of the Company based on the China Accounting Standards, inclusive of adjustments of the value of certain assets to market value and adjusted for the relevant differences, such as difference between China Accounting Standards reserves and policy liabilities valued under "Appraisal of Embedded Value" standard published by the CAA. It should be noted that the Group Adjusted Net Worth incorporates the shareholder net equity of the Company as a whole (including CPIC Life and other operations of the Company), and the value of in force business and the value of one year's sales are of CPIC Life only. The Group Embedded Value also does not include the value of in force business that is attributable to minority shareholders of CPIC Life.
New Business Volumes and Value of One Year's Sales
The table below shows the volume of new business sold in terms of first year annual premium and value of one year's sales of CPIC Life after cost of required capital held at a risk discount rate of 11% for year 2020.
Unit: RMB million
First Year Annual Premium
Value of One Year's Sales
(FYAP)
2020 2019
After Cost of Required Capital Held 2020 2019
Total | 45,903 | 56,773 | 17,841 | 24,597 |
Of which: Traditional | 19,112 | 26,620 | 15,242 | 20,741 |
Participating | 7,079 | 9,205 | 1,756 | 2,228 |
Analysis of change in embedded value
The following table shows the change in the Group Embedded Value from 31 December 2019 to 31 December 2020.
Unit: RMB million
No.
Item
Value
Comments
1
Embedded Value of the life business at 31 December 2019
305,521
2
Expected Return on Embedded Value
27,753
Expected returns on the 2019 embedded value of CPIC Life and the value of one year's sales of CPIC Life in 2020
3
Value of One Year's Sales
17,841
Value of one year's sales in respect of new business written in the 12 months prior to 31 December 2020
4
Investment Experience Variance
6,530
Reflects the difference between actual and assumed investment return in 2020
5
Operating Experience Variance
(679)
Reflects the difference between actual and assumed operating experience
6
Change in methodology, assumptions and models
(881)
Reflects assumption and methodology changes, together with model enhancements
7
Diversification effects
2,536
Changes in diversification benefits on cost of required capital from new business and different business mix
8 9 10
Change in market value adjustment
(245)
Reflects the change in value of certain assets not valued on a market value basisShareholder Dividends
(16,840)
Shareholder dividends distributed to shareholders of CPIC Life
Others
(186)
11
Embedded Value of the life business at 31 December 2020
12
Adjusted net worth of businesses other than CPIC Life as at 31
December 2019
13
Change in Adjusted Net Worth before payment of shareholder dividends to shareholders of CPIC Group
14 15
Shareholder dividendsChange in market value adjustment
16
Adjusted net worth of businesses other than CPIC Life as at 31
December 2020
17 18 19
Minority interests relating to equity and market value adjustments
Group Embedded Value as at 31
December 2020
Embedded Value as at 31 December 2020 per share (RMB)
Note: Figures may not be additive due to rounding.
341,348
99,138
39,713
(10,874)
(157)
127,820
(9,848)
459,320
Dividend distributed to shareholders of CPIC Group
Reflects the change in value of assets not valued on a market value basis
Minority interests on Embedded Value as at 31 December 2020
47.74
Compliance of the Corporate Governance Code
During the reporting period, save as disclosed below, the Company has complied with all the code provisions and substantially all of the recommended best practices of the Corporate Governance Code, as well as the latest revisions of the Corporate Governance Code including but not limited to improving the transparency and accountability of the Board and board member election, and advocating the diversity of board members.
In 2019, after the former president Mr. HE Qing resigned, a resolution in relation to theappointment of Mr. FU Fan as the president of the Company has been considered and approved at the 22nd session of the 8th Board, and his appointment qualification has been approved by CBIRC in March 2020. The Board has designated Mr. KONG Qingwei, Chairman of the Board, as the temporary person-in-charge to act on behalf of the president prior to the tenure of office of Mr. FU Fan. According to the Code Provision A.2.1 of the Corporate Governance Code, the roles of chairman and chief executive should be separate and should not be performed by the same individual. After considering the principles under Code Provision A.2.1 of the Corporate Governance Code and examining the Company's situation that the appointment qualification of the president shall be approved by the CBIRC, the Board is of the view that such temporary arrangement is able to provide the Company with effective management and, at the same time, protect the shareholders' rights to the greatest extent. Since March 2020, Mr. KONG Qingwei serves as Chairman of the Board, and Mr. FU Fan serves as President of the Company. The Chairman is responsible for presiding over the general meeting of shareholders and the board of directors and performing other duties as delegated by the board of directors, while the President is responsible to the board of directors, and preside over the management of the company. The division of responsibilities between the Chairman and President of the Company is stated in the Articles of Association.
Completion of the issuance and listing of GDRs
Upon the approval of CBIRC, domestic and foreign securities regulators and stock exchanges, the GDRs issued by the Company were listed on the LSE on 22 June 2020 (London time) (Stock Name: China Pacific Insurance (Group) Co., Ltd.; Trading Symbol: CPIC). Newly issued PRC domestic A shares of the Company are used as the underlying securities of the GDRs, with each GDR representing 5 A shares of the Company. After the listing of the A shares issued upon the exercise of over-allotment option on the SSE on 9 July 2020 (Beijing time), 111,668,291 GDRs were issued by the Company in total, and the total share capital of the Company changed to 9,620,341,455 shares. The issue price was USD17.60 per GDR, and the gross proceeds raised from the issuance of GDRs were USD1,965.4 million.
Purchase, redemption or sale of the Company's listed securities
During the reporting period, neither the Company nor its subsidiaries purchased, sold or redeemed any listed securities of the Company.
Proposed final dividend
On 26 March 2021, the Board recommended annual cash dividend of RMB1.2 per share (tax included) and 30th Anniversary Special Dividend of RMB0.1 per share (tax included), amounting to approximately RMB12,506,443,891.50 yuan in aggregate. The proposed profit distribution is subject to the approval of shareholders at the 2020 annual general meeting of the Company ("AGM"). If approved, it is expected that the payment of the final dividend will be made on or about Wednesday, 30 June 2021 to the shareholders.
Withholding of dividend income tax
Pursuant to the applicable provisions of the Enterprise Income Tax Law of the People's Republic of China (PRC) and its implementation rules enacted in 2008, the Company is required to withhold and pay 10% of corporate income tax when it distributes the final dividend to H Share shareholders eligible for the proposed final dividend.
Pursuant to the applicable provisions of the Individual Income Tax Law of the PRC and its implementation rules and confirmed by the relevant tax authorities in the PRC after consulting with them by the Company, the Company will withhold and pay individual income tax at the tax rate of 10% when it distributes the final dividend to H Share shareholders eligible for the proposed final dividend. However, if it is otherwise stated in the tax regulations and relevant tax treaties, the Company will withhold and pay individual income tax in accordance with the required tax rate and procedures set out in the relevant regulations and treaties. If the applicable dividend tax rate is less than 10%, the individual H Share shareholders are entitled to apply for refund of the over-deducted amount on their own or appoint an agent to act on their behalf according to the tax treaty entered into between their countries of domicile and the PRC and the regulations of the relevant PRC tax authorities. The Company will withhold and pay the enterprise income tax as well as the individual income tax as required by law. The Company assumes no responsibility and disclaims all liabilities whatsoever in relation to the tax status or tax treatment of the individual H Share shareholders and for any claims arising from any delay in or inaccurate determination of the tax status or tax treatment of the individual H Share shareholders or any disputes over the withholding and payment mechanism or arrangements.
Withholding of Income Tax for Holders of H Shares via the Hong Kong Stock Connect
Pursuant to the Notice on Relevant Taxation Policies Concerning the Pilot Inter-connected Mechanism for Trading on the Shanghai Stock Market and the Hong Kong Stock Market (Cai Shui [2014] No. 81) (《財政部、國家稅務總局、證監會關於滬港股票市場交易互 聯互通機制試點有關稅收政策的通知》 ( 財稅 [2014]81 號 )) promulgated on 17 November 2014:
● In respect of the dividends received by mainland individual investors who invest in the
H shares of the Company via the Shanghai-Hong Kong Stock Connect Program, the Company will withhold individual income tax at the rate of 20%. Individual investors may, by producing valid tax payment proofs, apply to the competent tax authority of China Securities Depository and Clearing Company Limited for tax credit relating to the withholding tax already paid abroad. In respect of the dividends received by Mainland securities investment funds that invest in the H shares of the Company via the Shanghai-Hong Kong Stock Connect Program, the Company will withhold individual income tax in the same way as the foregoing requirements;
● In respect of the dividends received by mainland corporate investors that invest in the
H shares of the Company via the Shanghai-Hong Kong Stock Connect Program, the Company will not withhold any income tax from the dividend and the mainland corporate investors shall file the tax returns on their own.
Pursuant to the Notice on Relevant Taxation Policies Concerning the Pilot Interconnected Mechanism for Trading on the Shenzhen Stock Market and the Hong Kong Stock Market (Cai Shui [2016] No. 127) (《財政部、國家稅務總局、證監會關於深港股票市場交易 互聯互通機制試點有關稅收政策的通知》(財稅[2016]127 號)) implemented on 5 December 2016:
● In respect of the dividends received by mainland individual investors who invest in the
H shares of the Company via the Shenzhen-Hong Kong Stock Connect Program, the Company will withhold individual income tax at the rate of 20%. Individual investors may, by producing valid tax payment proofs, apply to the competent tax authority of China Securities Depository and Clearing Company Limited for tax credit relating to the withholding tax already paid abroad. In respect of the dividends received by mainlandsecurities investment funds that invest in the H shares of the Company via the Shenzhen-Hong Kong Stock Connect Program, the Company will withhold individual income tax in the same way as the foregoing requirements;
● In respect of the dividends received by mainland corporate investors that invest in the
H shares of the Company via the Shenzhen-Hong Kong Stock Connect Program, the Company will not withhold any income tax from the dividend and the mainland corporate investors shall file the tax returns on their own.
Withholding of Income Tax for Holders of A Shares via the Shanghai Stock Connect
For investors of the Hong Kong Stock Exchange (including enterprises and individuals)
investing in the A shares of the Company listed on SSE (the "Shanghai Stock Connect"),
the dividends received by them will be distributed in RMB by the Company through the Shanghai Branch of China Securities Depository and Clearing Corporation Limited as the nominee account holding such A shares. Pursuant to the Notice on Relevant Taxation Policies Concerning the Pilot Inter-connected Mechanism for Trading on the Shanghai
Stock Market and the Hong Kong Stock Market (Cai Shui [2014] No. 81) (《財政部、國家 稅務總局、證監會關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知》
( 財稅[2014]81 號 )), the Company will withhold income tax at the rate of 10% on behalf of those investors and will undertake the reporting procedures on the tax withholding and payment with the tax authorities, and the after-tax cash dividend will be RMB1.17 per share. For investors of Shanghai Stock Connect who are tax residents of other countries and whose country of domicile is a country which has entered into a tax treaty with the PRC stipulating a dividend tax rate of lower than 10%, those enterprises and individuals may apply to the competent tax authorities for the entitlement of the rate under such tax treaty. Upon approval by the tax authorities, the amount paid in excess of the tax payable based on the tax rate according to such tax treaty will be refunded.
All investors should read this announcement carefully. Shareholders are recommended to consult their tax advisors on the PRC, Hong Kong and other tax effects regarding their holding and disposing of H shares of the Company.
The eligibility for attending the AGM and eligibility for proposed final dividend and closure of H share register of members
The Company will announce further details in relation to the eligibility for attending the AGM, the eligibility for the proposed final dividend and the closure of register of member for H Shares after the arrangement of AGM is finalised.
The Company will announce details on A Share shareholders' qualification for attending the annual general meeting and the payment of the final dividend for the year 2020 to A Share shareholder on SSE.
Review of accounts
The audit committee of the Company has reviewed the principal accounting policies of the Company and the audited financial statements the year ended 31 December 2020 in the presence of internal and external auditors.
Publication of results on the websites of SEHK and the Company
The annual report of the Company for the year ended 31 December 2020 will be dispatched to shareholders of the Company and will be published on the websites of SEHK (www.hkexnews.hk) and the Company (www.cpic.com.cn) in due course.
DEFINITIONS
"The Company", "the Group", | China Pacific Insurance (Group) Co., Ltd. |
"CPIC" or "CPIC Group" | |
"CPIC Life" | China Pacific Life Insurance Co., Ltd., a subsidiary of China Pacific Insurance (Group) |
Co., Ltd. | |
"CPIC P/C" | China Pacific Property Insurance Co., Ltd., a subsidiary of China Pacific Insurance |
(Group) Co., Ltd. | |
"CPIC AMC" | Pacific Asset Management Co., Ltd., a subsidiary of China Pacific Insurance (Group) |
Co., Ltd. | |
"CPIC HK" | China Pacific Insurance Co., (H.K.) Limited, a wholly-owned subsidiary of China Pacific |
Insurance (Group) Co., Ltd. | |
"Changjiang Pension" | Changjiang Pension Insurance Co., Ltd., a subsidiary of China Pacific Insurance |
(Group) Co., Ltd. | |
"CPIC Anxin Agricultural" | China Pacific Anxin Agricultural Insurance Co., Ltd (former Anxin Agricultural |
Insurance Co., Ltd, renamed in December 2020)., a subsidiary of China Pacific | |
Insurance (Group) Co., Ltd. | |
"CPIC Fund" | CPIC Fund Management Co., Ltd., a subsidiary of China Pacific Insurance (Group) Co., |
Ltd. | |
"CPIC Health" | Pacific Health Insurance Co., Ltd. (former CPIC Allianz Health Insurance Co., Ltd. |
renamed in March 2021), a subsidiary of China Pacific Insurance (Group) Co., Ltd. | |
58 | |
"CBIRC" | China Banking and Insurance Regulatory Commission |
"SSE" | Shanghai Stock Exchange |
"SEHK" | The Stock Exchange of Hong Kong Limited |
"LSE" | London Stock Exchange |
"PRC GAAP" | China Accounting Standards for Business Enterprises issued by Ministry of Finance |
of the People's Republic of China, and the application guide, interpretation and other | |
related regulations issued afterwards | |
"Corporate Governance Code" | Corporate Governance Code as set out in Appendix 14 to the Rules Governing the |
Listing of Securities on The Stock Exchange of Hong Kong Limited | |
"ESG" | Environmental, Social and Governance |
"RMB" | Renminbi |
"pt" | Percentage point |
By Order of the Board
China Pacific Insurance (Group) Co., Ltd.
KONG Qingwei
Chairman
Hong Kong, 28 March 2021
As at the date of this announcement, the Executive Directors of the Company are Mr. KONG Qingwei and Mr. FU Fan; the Non-executive Directors of the Company are Mr. HUANG Dinan, Mr. WANG Tayu, Mr. WU Junhao, Mr. CHEN Ran, Mr. ZHOU Donghui, Ms. LIANG Hong, Ms. LU Qiaoling and Mr. John Robert DACEY; and the Independent Non-executive Directors of the Company are Ms. LIU Xiaodan, Mr. CHEN Jizhong, Ms. LAM Tyng Yhi, Elizabeth, Mr. WOO Ka Biu, Jackson and Mr. JIANG Xuping.
* Note: The appointment qualification of Mr. John Robert DACEY is subject to the approval of China Banking and Insurance Regulatory Commission.
CHINA PACIFIC INSURANCE (GROUP) CO., LTD.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2020
CHINA PACIFIC INSURANCE (GROUP) CO., LTD. | |
AUDITED CONSOLIDATED FINANCIAL STATEMENTS | |
31 DECEMBER 2020 | |
CONTENTS | Pages |
INDEPENDENT AUDITOR'S REPORT | 1-8 |
AUDITED CONSOLIDATED FINANCIAL STATEMENTS | |
Consolidated income statement | 9 |
Consolidated statement of comprehensive income | 10 |
Consolidated balance sheet | 11 - 12 |
Consolidated statement of changes in equity | 13 - 14 |
Consolidated cash flow statement | 15 |
Notes to consolidated financial statements | 16 - 145 |
Independent Auditor's Report
To the Shareholders of China Pacific Insurance (Group) Co., Ltd. (Incorporated in the People's Republic of China with limited liability)
Opinion
What we have audited
The consolidated financial statements of China Pacific Insurance (Group) Co., Ltd. (the "Company") and its subsidiaries (the "Group") set out on pages 9 to 145, which comprise:
• the consolidated balance sheet as at 31 December 2020;
• the consolidated income statement for the year then ended;
• the consolidated statement of comprehensive income for the year then ended;
• the consolidated statement of changes in equity for the year then ended;
• the consolidated cash flow statement for the year then ended; and
• the notes to the consolidated financial statements, which include a summary of significant accounting policies.
Our opinion
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.
Basis for Opinion
We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matters identified in our audit are summarised as follows:
• Valuation of life insurance contract liabilities
• Valuation of non-life insurance contract liabilities
• Valuation of level 3 investments
Key Audit Matter | How our audit addressed the Key Audit Matter |
Valuation of life insurance contract liabilities Refer to note 2.2(23) Summary of principal accounting policies - Insurance contract liabilities and note 40 Insurance contract liabilities to the consolidated financial statements. Refer to note 3.2(1) Estimation uncertainty - Valuation of insurance contract liabilities to the consolidated financial statements. The Group had significant long-term life insurance contract liabilities stated at RMB 1,109.0 billion as at 31 December 2020, representing 72% of the Group's total liabilities. The valuation of long-term life insurance contract liabilities involves complex models and a high degree of judgment by management in setting assumptions. Key assumptions used in measuring long-term life insurance contract liabilities include discount rates, insurance incident occurrence rates (mainly including mortality and morbidity), surrender rates, expenses assumptions and policy dividend assumptions, etc. | With the assistance of our actuarial experts, we performed the following audit procedures:
|
Key Audit Matters (Continued)
Key Audit Matter | How our audit addressed the Key Audit Matter |
Valuation of life insurance contract liabilities (continued) We focused on this area due to the significant quantum amount of long-term life insurance contract liabilities to the consolidated financial statements and because the relevant key assumptions applied in valuation involved significant judgments and estimates and the inherent risk in relation to the valuation of life insurance contract liabilities was considered significant. |
Based on our audit work, we found methodologies applied appropriate and key assumptions adopted supportable by the evidence we gathered. |
Key Audit Matters (Continued)
Key Audit Matter | How our audit addressed the Key Audit Matter |
Valuation liabilitiesofnon-lifeinsurancecontract Refer to note 2.2(23) Summary of principal accounting policies - Insurance contract liabilities and note 40 Insurance contract liabilities to the consolidated financial statements. Refer to note 3.2(1) Estimation uncertainty-Valuation of insurance contract liabilities to the consolidated financial statements. The Group had claim reserves which was included in non-life insurance contract liabilities stated at RMB 47.4 billion as at 31 December 2020, representing 3% of the Group's total liabilities. We focused on this area because the valuation of claim reserves involved a high degree of judgment by management in selecting the models and setting the assumptions including the development of paid and incurred losses and ultimate loss ratios, and the inherent risk in relation to the valuation of non-life insurance contract liabilities was considered significant. | With the assistance of our actuarial experts, we performed the following audit procedures: We obtained an understanding of the management's assessment process of valuation of non-life insurance contract liabilities and assessed the inherent risk of material misstatement by considering the degree of estimation uncertainty and level of other inherent risk factors such as complexity, subjectivity and susceptibility to management bias or fraud. We understood, evaluated and tested the management's internal controls over valuation of non-life insurance contract liabilities including data collection and analysis, and management's assumptions setting processes, etc. We performed independent modelling analysis for claim reserves by performing below procedures.
Based on our audit work, we found management judgments in the valuation of claim reserves supportable by the evidence we gathered. |
Key Audit Matters (Continued)
Key Audit Matter | How our audit addressed the Key Audit Matter |
Valuation of level 3 investments Refer to note 3.2(2) Estimation uncertainty - Fair values of financial assets and derivative financial instruments determined using valuation techniques and note 49 Fair value measurement to the consolidated financial statements. The Group's investment measured at fair value that were classified in level 3 stated at RMB 92.1 billion as at 31 December 2020, representing 5% of the Group's total assets. We focused on this area because level 3 investments were valued based on models and inputs and assumptions that are not observable by third parties. The valuation involved significant management judgment and the inherent risk in relation to the valuation of level 3 investments was considered significant. | We obtained an understanding of the management's assessment process of valuation of level 3 investments and assessed the inherent risk of material misstatement by considering the degree of estimation uncertainty and level of other inherent risk factors such as complexity, subjectivity and susceptibility to management bias or fraud. We understood, evaluated and tested the management's internal controls over the investment valuation process including management's determination and approval of assumptions and methodologies used in model-based calculations, controls over data integrity and choice for internally operated valuation models and management's review of valuation inputs provided by data vendors. With the assistance of our valuation experts, our audit work over the measurement of level 3 investments included:
Based on our audit work, we found that the valuation methodologies applied were consistent with industry practice and that the inputs and assumptions used were supportable by the evidence we gathered. |
Other Information
The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor's report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements
The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements (Continued)
As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements (Continued)
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is CHAN KWONG TAK.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 26 March 2021
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2020
Group | Notes | 2020 | 2019 |
Gross written premiums | 6(a) | 362,064 | 347,517 |
Less: Premiums ceded to reinsurers | 6(b) | (24,741) | (22,358) |
Net written premiums | 6(c) | 337,323 | 325,159 |
Net change in unearned premium reserves | (5,684) | (11,913) | |
Net premiums earned | 331,639 | 313,246 | |
Investment income | 7 | 82,740 | 65,730 |
Other operating income | 4,585 | 3,706 | |
Other income | 87,325 | 69,436 | |
Total income | 418,964 | 382,682 | |
Net policyholders' benefits and claims: | |||
Life insurance death and other benefits paid | 8 | (61,848) | (58,437) |
Claims incurred | 8 | (87,377) | (73,163) |
Changes in long-term life insurance contract | |||
liabilities | 8 | (132,678) | (118,473) |
Policyholder dividends | 8 | (11,512) | (10,777) |
Finance costs | 9 | (3,405) | (3,511) |
Interest credited to investment contracts | (3,344) | (3,005) | |
Other operating and administrative expenses | (90,074) | (87,844) | |
Total benefits, claims and expenses | (390,238) | (355,210) | |
Share of profit in equity accounted investees | 512 | 494 | |
Profit before tax | 10 | 29,238 | 27,966 |
Income tax | 14 | (3,886) | 388 |
Net profit for the year | 25,352 | 28,354 | |
Attributable to: | |||
Shareholders of the parent | 24,584 | 27,741 | |
Non-controlling interests | 768 | 613 | |
25,352 | 28,354 | ||
Basic earnings per share | 15 | RMB 2.63 | RMB 3.06 |
Diluted earnings per share | 15 | RMB 2.63 | RMB 3.06 |
9
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2020
Group | Notes | 2020 | 2019 |
Net profit for the year | 25,352 | 28,354 | |
Other comprehensive income/(loss) | |||
Exchange differences on translation of foreign | |||
operations | 16 | (34) | 13 |
Available-for-sale financial assets | 16 | 12,909 | 13,716 |
Income tax relating to these items | 16 | (3,259) | (3,383) |
Other comprehensive income to be reclassified to | |||
profit or loss in subsequent periods | 9,616 | 10,346 | |
Other comprehensive income for the year | 16 | 9,616 | 10,346 |
Total comprehensive income for the year | 34,968 | 38,700 | |
Attributable to: | |||
Shareholders of the parent | 33,975 | 37,898 | |
Non-controlling interests | 993 | 802 | |
34,968 | 38,700 |
CONSOLIDATED BALANCE SHEET
31 December | 31 December | ||
Group | Notes | 2020 | 2019 |
ASSETS | |||
Goodwill | 17 | 1,357 | 1,357 |
Property and equipment | 18 | 19,293 | 19,365 |
Right-of-use assets | 19 | 5,168 | 4,810 |
Investment properties | 20 | 7,866 | 8,283 |
Other intangible assets | 21 | 3,323 | 2,972 |
Interests in associates | 22 | 14,554 | 10,563 |
Investment in joint ventures | 23 | 9,889 | 9,879 |
Held-to-maturity financial assets | 24 | 329,360 | 295,247 |
Investments classified as loans and receivables | 25 | 380,174 | 324,013 |
Restricted statutory deposits | 26 | 6,858 | 6,658 |
Term deposits | 27 | 192,966 | 147,756 |
Available-for-sale financial assets | 28 | 596,158 | 511,822 |
Financial assets at fair value through profit or loss | 29 | 12,473 | 4,931 |
Derivative financial assets | 30 | 140 | - |
Securities purchased under agreements to resell | 31 | 14,327 | 28,045 |
Policy loans | 62,364 | 57,194 | |
Interest receivables | 32 | 20,563 | 19,493 |
Reinsurance assets | 33 | 27,719 | 25,560 |
Deferred income tax assets | 34 | 845 | 860 |
Insurance receivables | 35 | 29,872 | 23,256 |
Other assets | 36 | 14,857 | 11,397 |
Cash and short-term time deposits | 37 | 20,878 | 14,872 |
Total assets | 1,771,004 | 1,528,333 |
CONSOLIDATED BALANCE SHEET (continued)
31 December | 31 December | ||
Group | Notes | 2020 | 2019 |
EQUITY AND LIABILITIES | |||
Equity | |||
Issued capital | 38 | 9,620 | 9,062 |
Reserves | 39 | 124,071 | 98,763 |
Retained profits | 39 | 81,533 | 70,602 |
Equity attributable to shareholders of the parent | 215,224 | 178,427 | |
Non-controlling interests | 5,611 | 4,893 | |
Total equity | 220,835 | 183,320 | |
Liabilities | |||
Insurance contract liabilities | 40 | 1,225,176 | 1,068,021 |
Investment contract liabilities | 41 | 87,056 | 75,506 |
Policyholders' deposits | 70 | 70 | |
Bonds payable | 42 | 9,991 | 9,988 |
Securities sold under agreements to repurchase | 43 | 90,825 | 78,366 |
Lease liabilities | 3,430 | 3,668 | |
Deferred income tax liabilities | 34 | 5,055 | 2,911 |
Income tax payable | 1,396 | 549 | |
Premium received in advance | 27,983 | 21,000 | |
Policyholder dividend payable | 24,351 | 25,447 | |
Payables to reinsurers | 5,501 | 4,543 | |
Other liabilities | 44 | 69,335 | 54,944 |
Total liabilities | 1,550,169 | 1,345,013 | |
Total equity and liabilities | 1,771,004 | 1,528,333 | |
FU Fan | |||
Director |
KONG Qingwei
Director
12
CHINA PACIFIC INSURANCE (GROUP) CO., LTD.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2020
(All amounts expressed in RMB million unless otherwise specified)
Group
2020
Attributable to shareholders of the parent
Reserves
Available-for-sale | ||||||||||
investment | Foreign currency | Non- | ||||||||
Issued | Capital | Surplus | General | revaluation | translation | Retained | controlling | Total | ||
capital | reserves | reserves | reserves | reserves | reserves | profits | Subtotal | interests | equity | |
At 1 January 2020 | 9,062 | 66,650 | 4,835 | 14,329 | 12,952 | (3) | 70,602 | 178,427 | 4,893 | 183,320 |
Total comprehensive income | - | - | - | - | 9,425 | (34) | 24,584 | 33,975 | 993 | 34,968 |
Dividend declared 1 | - | - | - | - | - | - | (10,874) | (10,874) | - | (10,874) |
Issue of shares (Note 1) | 558 | 13,148 | - | - | - | - | - | 13,706 | - | 13,706 |
Acquisition of subsidiaries | - | - | - | - | - | - | - | - | 145 | 145 |
De-registration of subsidiaries | - | (15) | - | - | - | - | - | (15) | - | (15) |
Share of other changes in equity of | ||||||||||
investees accounted for using the | ||||||||||
equity method | - | 5 | - | - | - | - | - | 5 | - | 5 |
Appropriations to general reserves | - | - | - | 2,500 | - | - | (2,500) | - | - | - |
Appropriations to surplus reserves | - | - | 279 | - | - | - | (279) | - | - | - |
Dividends paid to non-controlling | ||||||||||
shareholders | - | - | - | - | - | - | - | - | (420) | (420) |
At 31 December 2020 | 9,620 | 79,788 | 5,114 | 16,829 | 22,377 | (37) | 81,533 | 215,224 | 5,611 | 220,835 |
1 Dividend declared represents the final dividend on ordinary shares declared for the year ended 31 December 2019, amounting to RMB 10,874 million (RMB 1.20 per share).
13
CHINA PACIFIC INSURANCE (GROUP) CO., LTD.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued) For the year ended 31 December 2020
(All amounts expressed in RMB million unless otherwise specified)
Group
2019
Attributable to shareholders of the parent
Reserves
Available-for-sale | ||||||||||
investment | Foreign currency | Non- | ||||||||
Issued | Capital | Surplus | General | revaluation | translation | Retained | controlling | Total | ||
capital | reserves | reserves | reserves | reserves | reserves | profits | Subtotal | interests | equity | |
At 1 January 2019 | 9,062 | 66,635 | 4,835 | 11,642 | 2,808 | (16) | 54,610 | 149,576 | 4,472 | 154,048 |
Total comprehensive income | - | - | - | - | 10,144 | 13 | 27,741 | 37,898 | 802 | 38,700 |
Dividend declared 1 | - | - | - | - | - | - | (9,062) | (9,062) | - | (9,062) |
Share of other changes in equity of | ||||||||||
investees accounted for using the | ||||||||||
equity method | - | 15 | - | - | - | - | - | 15 | - | 15 |
Appropriations to general reserves | - | - | - | 2,687 | - | - | (2,687) | - | - | - |
Dividends paid to non-controlling | ||||||||||
shareholders | - | - | - | - | - | - | - | - | (381) | (381) |
At 31 December 2019 | 9,062 | 66,650 | 4,835 | 14,329 | 12,952 | (3) | 70,602 | 178,427 | 4,893 | 183,320 |
1 Dividend declared represents the final dividend on ordinary shares declared for the year ended 31 December 2018, amounting to RMB 9,062million (RMB 1.00 per share).
14
CHINA PACIFIC INSURANCE (GROUP) CO., LTD. CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2020
Group | Notes | 2020 | 2019 |
OPERATING ACTIVITIES | |||
Cash generated from operating activities | 50 | 113,490 | 118,310 |
Income tax paid | (5,427) | (6,515) | |
Net cash inflows from operating activities | 108,063 | 111,795 | |
INVESTING ACTIVITIES | |||
Purchases of property and equipment, intangible assets and | |||
other assets | (3,628) | (3,475) | |
Proceeds from disposal of property and equipment, | |||
intangible assets and other assets | 21 | 61 | |
Purchases of investments, net | (196,317) | (151,236) | |
Acquisition of subsidiaries and other business entities, net | (4,031) | (2,943) | |
Proceeds from disposal of subsidiaries and other business | |||
entities, net | 318 | 3 | |
Interest received | 60,715 | 55,948 | |
Dividends received from investments | 6,863 | 5,741 | |
Other cash paid related to investing activities | (9) | (954) | |
Net cash outflows from investing activities | (136,068) | (96,855) | |
FINANCING ACTIVITIES | |||
Securities sold under agreements to repurchase, net | 12,433 | 3,215 | |
Proceeds from the issue of asset-backed securities | 10,890 | 4,540 | |
Proceeds from the issue of share capital | 13,915 | - | |
Transaction costs of share issuance | (209) | - | |
Capital injection to subsidiaries by non-controlling interests | - | 229 | |
Capital repayment to non-controlling interests of | |||
subsidiaries | (229) | - | |
Repayment of borrowings | (2,290) | (6,750) | |
Interest paid | (2,530) | (2,768) | |
Dividends paid | (11,294) | (9,443) | |
Principal elements of lease payments | (1,579) | (1,542) | |
Cash received related to non-controlling interests of | |||
consolidated structured entities, net | 2,341 | 1,975 | |
Net cash inflows/(outflows) from financing activities | 21,448 | (10,544) | |
Effects of exchange rate changes on cash and cash equivalents | (1,222) | 29 | |
Net (decrease)/increase in cash and cash equivalents | (7,779) | 4,425 | |
Cash and cash equivalents at the beginning of year | 42,546 | 38,121 | |
Cash and cash equivalents at the end of year | 34,767 | 42,546 | |
Analysis of balances of cash and cash equivalents | |||
Cash at banks and on hand | 18,203 | 13,159 | |
Time deposits with original maturity of no more than three | |||
months | 1,132 | 358 | |
Other monetary assets | 1,105 | 984 | |
Investments with original maturity of no more than three | |||
months | 14,327 | 28,045 | |
Cash and cash equivalents at the end of year | 34,767 | 42,546 |
CHINA PACIFIC INSURANCE (GROUP) CO., LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 31 December 2020
1. CORPORATE INFORMATION
China Pacific Insurance (Group) Co., Ltd. (the "Company") was established in Shanghai, the People's Republic of China (the "PRC") in May 1991, under the original name of China Pacific Insurance Co., Ltd. Pursuant to the approval of the State Council of the PRC and Circular [2001] No. 239 issued by the former China Insurance Regulatory Commission (the "CIRC"), the Company was restructured as a joint stock limited company in October 2001 with an issued capital of RMB 2,006.39 million. The Company increased its issued capital to RMB 6,700 million through issuing new shares to its then existing shareholders and new shareholders in 2002 and 2007.
In December 2007, the Company conducted a public offering of 1,000 million A shares in the PRC. Upon the completion of the A share offering, the issued capital was increased to RMB 7,700 million. The Company's A shares are listed on the Shanghai Stock Exchange and trading of its A shares commenced on 25 December 2007.
In December 2009, the Company conducted a global offering of overseas listed foreign shares ("H shares"). Upon the completion of the H share offering, the issued capital was increased to RMB 8,600 million. The Company's H shares are listed on the Hong Kong Stock Exchange and trading of its H shares commenced on 23 December 2009.
In November 2012, the Company conducted a non-public offering of 462 million H shares. Upon completion of the H share offering, the issued capital was increased to RMB 9,062 million, which was approved by the CIRC in December 2012.
In June 2020, the Company issued 102,873,300 Global Depositary Receipts ("GDRs") on the London Stock Exchange (the "LSE") and listed on the LSE. In July 2020, the Company further issued 8,794,991 GDRs. Each GDR represents five A shares of the Company. After GDR issuance, the issued capital of the Company was increased to approximately RMB 9,620 million. The capital change registration is still in process.
The authorised business scope of the Company includes investing in insurance enterprises; supervising and managing the domestic and overseas reinsurance businesses of subsidiaries and their utilisation of funds; and participating in approved international insurance activities. The principal activities of the Company and its subsidiaries (the "Group" or "CPIC Group") are property and casualty insurance businesses, life and health insurance businesses, pension and annuity insurance businesses, as well as investments with insurance funds,etc.
2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES
2.1 Basis of preparation
These consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs") and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA"), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention other than financial instruments that have been measured at fair values and insurance contract liabilities that have been measured primarily based on actuarial methods. These consolidated financial statements are presented in RMB and all values are rounded to the nearest million except when otherwise indicated.
Basis of preparation (continued)
(1) Changes in accounting policy and disclosures
The Group has adopted the following revised HKFRSs for the first time for the current year's consolidated financial statements. Though in certain cases, giving rise to new or revised accounting policies, the adoption of these revised HKFRSs currently has had no significant impact on these consolidated financial statements.
Amendments to HKAS 1
and HKAS 8 | Definition of Material |
Amendments to HKFRS 3 | Definition of a Business |
Amendments to HKFRS 9, | |
HKAS 39 and HKFRS 7 | Interest Rate Benchmark Reform |
The Group has not early adopted any other standard, interpretation or amendment that was issued but is not yet effective.
(2)New and revised standards not yet adopted
All HKFRSs that remain in effect which are relevant to the Group have been applied except HKFRS 9, as the Group qualifies for a temporary exemption from HKFRS 9 which was illuminated in HKFRS 4 Amendments.
The Group has not applied the following key new and revised HKFRSs that have been issued but are not yet effective, in these consolidated financial statements:
Amendments to HKFRS 16 | Covid-19-related Rent Concessions1 |
Amendments to HKFRS 3 | Reference to the Conceptual Framework2 |
Amendments to HKAS 37 | Onerous Contracts - Cost of Fulfilling a Contract2 |
Annual improvements to HKFRS standards 2018-2020 | |
Amendments to HKFRSs | Cycle2 |
Property, Plant and Equipment: Proceeds before | |
Amendments to HKAS 16 | intended use2 |
HKFRS 17 | Insurance Contracts3 |
Amendments to HKAS 1 | Classification of Liabilities as Current or Non-current3 |
1 | Effective for annual periods beginning on or after 1 June 2020 |
2 | Effective for annual periods beginning on or after 1 January 2022 |
3 | Effective for annual periods beginning on or after 1 January 2023 |
17 |
Basis of preparation (continued)
(2)New and revised standards not yet adopted (continued)
None of these HKFRSs is expected to have a significant effect on the consolidated financial statements of the Group, except for the following as set out below:
HKFRS 9, 'Financial instruments', addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of HKFRS 9 was issued in July 2014. It replaces the guidance in HKAS 39 that relates to the classification and measurement of financial instruments. HKFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value
through other comprehensive income ("OCI") and fair value through profit or loss. The basis of classification depends on the entity's business model and the contractual cash flow
characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI which are not recycled to profit or loss. There is now a new expected credit losses model that replaces the incurred loss impairment model used in HKAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. HKFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be
the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under HKAS 39. The standard is effective for accounting periods beginning on 1 January 2018. The Group is eligible to and has elected to apply the temporary option to defer the effective date of HKFRS 9 under
the amendments to HKFRS 4 'Insurance contracts'. The impact of the adoption of HKFRS 9 on the Group's consolidated financial statements will, to a large extent, have to take into account
the interaction with the issued insurance contracts standard. The Group will not adopt the HKFRS 9 until 1 January 2023 and the Group makes additional disclosures as below:
The Group is defined as an insurer with its activities predominantly connected with insurance, with the percentage of the total carrying amounts of its liabilities connected with insurance relative to the total carrying amounts of all its liabilities greater than 90%.
Basis of preparation (continued)
(2)New and revised standards not yet adopted (continued)
Financial assets meet SPPI are relevant financial assets of which the contractual cash flows generated on a specific date are solely payments of principal and interest on the principal amount.
Additional disclosures of financial assets listed in financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity financial assets, investments classified as loans and receivables are as follows:
As at 31 December | 2020 | |
2020 | Change in the | |
Fair value | fair value | |
Financial assets held for trading(A) | 3,583 | (70) |
Financial assets managed and whose performance | ||
evaluated on a fair value basis (B) | 8,890 | 11 |
Financial assets other than A or B | ||
--Financial assets meet SPPI(C) | 1,005,922 | (3,729) |
--Financial assets not meet SPPI | 318,952 | 22,738 |
Total | 1,337,347 | 18,950 |
Basis of preparation (continued)
(2) New and revised standards not yet adopted (continued)
Credit risk rating grades of financial assets meet SPPI(C) | As at 31 December 2020 |
Carrying amount | |
Domestic | |
Exempt from ratingNote | 252,463 |
AAA | 691,597 |
A-1 | 386 |
AA+ | 35,621 |
AA(inclusive) or below | 5,892 |
Overseas | |
A-(inclusive) or above | 354 |
BBB+ | 269 |
BBB | 69 |
BBB- | 24 |
BB+(inclusive) or below | 125 |
Total | 986,800 |
Note:"Exempt from rating", a domestic rating grade, is to describe a rating grade above "AAA". It mainly includes government bonds and policy financial bonds.
As at 31 December 2020
Financial assets not have low credit risk | Carrying amount | Fair value |
Domestic | 5,892 | 5,892 |
Overseas | 125 | 128 |
Total | 6,017 | 6,020 |
Except for the above assets, other financial assets other than cash and derivative financial assets held by the Group, including securities purchased under agreements to resell, policy loans, term deposits, restricted statutory deposits, etc., are financial assets which meet the SPPI conditions. The carrying amounts are close to their fair value.
2. BASIS OF PREPARATION AND PRINCIPAL ACCOUNTING POLICIES (continued)
2.1 Basis of preparation (continued)
(2)New and revised standards not yet adopted (continued)
HKFRS 17 was issued in May 2017 and will replace the current HKFRS 4 Insurance Contracts. It applies to the measurement of insurance contracts issued, all reinsurance contracts and investment contracts with discretionary participating features. It requires a current measurement model where estimates are re-measured each reporting period. Contracts are measured using the building blocks of:
• discounted probability-weighted cash flows
• an explicit risk adjustment, and
• a contractual service margin ("CSM") representing the unearned profit of the contract which is recognised as revenue over the coverage period.
In October 2020, the Amendments to HKFRS 17 was issued. The standard is currently mandatorily effective for annual periods beginning on or after 1 January 2023 and earlier application is permitted. The impact is expected to be significant, and the Group is in the process of assessing the impact of adoption of HKFRS 17.
There are no other HKFRSs or HK (IFRIC) interpretations that are not yet effective that would be expected to have a material impact on the Group.
2.2 Summary of principal accounting policies
A summary of the significant accounting policies adopted and consistently applied by the Group in the preparation of these consolidated financial statements is set out below.
(1)Basis of consolidation
These consolidated financial statements comprise the financial statements of the Group for the year ended 31 December 2020. The financial statements of the subsidiaries for the purpose of preparing the consolidated financial statements are prepared for the same reporting period, using consistent accounting policies. All income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full.
Non-controlling interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company's subsidiaries and are presented separately in the
consolidated income statement and within equity in the consolidated balance sheet, separately from the parent shareholders' equity. However, when non-controlling interests arise through the non-controlling interest in consolidated structured entities, they are recognised as a liability reflecting the net assets of the consolidated entity. Losses within a subsidiary are attributed to the non-controlling interests even if this results in a deficit balance.
Summary of principal accounting policies (continued)
(1) Basis of consolidation (continued)
The acquisition of subsidiaries not under common control is accounted for using the purchase method of accounting. This method involves allocating the cost of the business combinations to the fair value of the identifiable assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described in the accounting policy for subsidiaries below. The changes in the Company's ownership interest in a subsidiary that do not result in the change of control are accounted for as equity transactions (i.e.,
transactions between owners acting in their capacity as owners), whereby the carrying amounts of the non-controlling interests shall be adjusted to reflect the changes in their interests in the subsidiary. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received shall be recognised directly in equity (as capital reserves). If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group's share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate.
(2) Foreign currency translation
These consolidated financial statements are presented in RMB, which is the Company's functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
Transactions in foreign currencies recorded by the entities in the Group are initially recorded using their respective functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated into the functional currency at the rates of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. All foreign exchange differences are taken to the income statement or other comprehensive income.
Summary of principal accounting policies (continued)
(2) Foreign currency translation (continued)
The functional currencies of certain overseas operations are currencies other than RMB. As at the balance sheet date, the assets and liabilities of these overseas operations are translated into RMB at the exchange rates ruling at the balance sheet date and their income statements are translated into RMB at the weighted average exchange rates for the year. The resulting exchange differences arising on the retranslation are recognised in other comprehensive income and accumulated in a separate component of equity. On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity relating to that particular foreign operation is recognised in the income statement.
For the purpose of the consolidated cash flow statement, the cash flows of overseas operations are translated into RMB at the weighted average exchange rates for the period.
(3) Subsidiaries
A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).
When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group's voting rights and potential voting rights.
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only, and the relevant activities are directed by means of contractual arrangements.
Summary of principal accounting policies (continued)
(3) Subsidiaries(continued)
Structured entities include trust products, debt investment plans, equity investment plans, asset backed plans and wealth management products, etc. Trust products, equity investment plans and asset backed plans are managed by affiliated or unaffiliated trust companies or asset managers and invest the funds raised in loans or equities of other companies. Wealth management products are managed by affiliated or unaffiliated asset managers and invest in negotiation deposits and public investment funds. Debt investment plans are managed by affiliated or unaffiliated asset managers and their major investment objectives are infrastructure and real estate funding projects. Trust products, debt investment plans, equity investment plans, asset backed plans and wealth management products finance their operations by signing contracts and entitle the holders to a proportional stake in the respective trust products', debt investment plans', equity
investment plans', asset backed plans' and wealth management products' income. The Group holds contracts in each of its trust products, debt investment plans, equity investment plans, asset backed plans and wealth management products.
(4) Investments in associates and joint ventures
An associate is an entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
The Group's investments in associates and joint ventures are stated in the consolidated balance sheet at the Group's share of net assets under the equity method of accounting, less any impairment losses.
Summary of principal accounting policies (continued)
(4)Investments in associates and joint ventures (continued)
The Group's share of the post-acquisition results and other comprehensive income of associates and joint ventures is included in the consolidated income statement and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group's investments in the associates or joint ventures, except
where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates or joint ventures is included as part of the Group's investments in associates or joint ventures.
If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
The results of associates and joint ventures are included in the Company's income statement to the extent of dividends received and receivable. The Company's investments in associates and joint ventures are treated as non-current assets and are stated at cost less any impairment losses.
Summary of principal accounting policies (continued)
(5)Business combinations and goodwill
Business combinations are accounted for using the acquisition accounting method. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value. Acquisition costs are expensed as incurred.
When the Group acquires a business, it reassesses all assets and liabilities acquired to determine their classification or designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. However, no reclassification of leases and insurance contracts is required for business combination unless the contractual terms are modified at the acquisition date.
If the business combination is achieved in stages, the acquirer's previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through profit or loss. Any related amount that was previously recognised in other comprehensive income shall be reclassified to profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability will be recognised as measurement period adjustments if new information is obtained about facts and circumstances that existed as of the acquisition date. If the contingent consideration is classified as equity, it will not be remeasured and its subsequent settlement will be accounted for within equity.
Goodwill acquired in a business combination is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the Group's previously held equity interests in the acquiree over the net identifiable assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets of the subsidiary acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment, annually or more frequently, if events or changes in circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.
Summary of principal accounting policies (continued)
(5) Business combinations and goodwill (continued)
Impairment is determined by assessing the recoverable amount of the cash-generating unit (groups of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (groups of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.
Where goodwill forms part of a cash-generating unit (groups of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation differences and goodwill is recognised in the income statement.
(6) Related parties
A party is considered to be related to the Group if:
(a) the party is a person or a close member of that person's family and that person:
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or its parent.
or
(b)the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);
(ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a);
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity);
Summary of principal accounting policies (continued)
(7) Property and equipment and depreciation
Property and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.
Depreciation is calculated on the straight-line basis to write off the cost of each item of property and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:
Land and buildings
1.39% to 4.04%
Motor vehicles
12.13% to 32.33%
Office furniture and equipment
10% to 33.33%
Leasehold improvements
Over the shorter of the lease terms and 20%
Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each year end.
Where parts of an item of property and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.
An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.
Construction in progress represents costs of construction of buildings and other items of property as well as costs of equipment under installation. Construction in progress is stated at cost less any impairment losses, and is not depreciated, and is reclassified to the appropriate category of property and equipment when completed and ready for use.
(8) Investment properties
The Group's investment properties are buildings held to earn rental income, rather than for the supply of services or for administrative purposes.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and any impairment loss.
Summary of principal accounting policies (continued)
(8) Investment properties (continued)
Depreciation is computed on the straight-line basis over the estimated useful life. The estimated useful life of the investment properties is 30 to 70 years.
The residual value, the useful life and the depreciation method are reviewed at least at each year end to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from the investment properties.
An investment property is derecognised when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of retirement or disposal. A transfer to, or from, an investment property is made when, and only when, there is evidence of a change in use.
(9) Intangible assets (other than goodwill)
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each year end. Intangible assets are amortised over their estimated useful lives of three to ten years.
The period for which the franchise license can bring economic benefits to the Group is not certain, so it is recognised as intangible asset with indefinite useful lives. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.
(10) Leases
A contract is, or contains, a lease if it conveys the right to control the use of an asset for a period of time in exchange for consideration.
As the lessee, the Group shall recognise right-of-use assets and lease liabilities at the commencement date. The only exceptions are short-term leases and leases of low-value assets. Right-of-use assets are the assets that represent the Group's rights to use an underlying asset for the lease term. The commencement date is the date on which a lessor makes an underlying asset available for use by the Group.
Summary of principal accounting policies (continued)
(10) Leases (continued)
The right-of-use assets of the Group are initially measured at cost. The cost of right-of-use asset shall comprise:
(1) the amount of the initial measurement of the lease liability;
(2) any lease payments made at or before the commencement date, less any lease incentives received;
(3) any initial direct costs incurred by the lessee; and
(4) an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.
The Group depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
The Group measures the lease liabilities at the present value of the lease payments that are not paid at the commencement date. Lease payments includes fixed payments and the payments for terminating the lease with an option to terminate the lease, etc. Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the Group use the incremental borrowing rate. Interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability, and is recognised in profit or loss.
Payments related to short-term leases and low-value asset leases are recognised in profit or loss on a straight-line basis over each lease term. Short-term lease is the lease that, at the commencement date, has a lease term of 12 months or less. Lease of low-value asset is the lease for which the individual underlying asset is of low value when it is new.
As the lessor, the income from operating lease is recognised as rental income on a straight-line basis over each lease period.
Summary of principal accounting policies (continued)
(11) Investments and other financial assets
Financial assets within the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity financial assets, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs.
The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.
All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require receipt or delivery of assets within the period generally established by regulation or convention in the marketplace.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or financial guarantee contracts. Gains or losses on these financial assets are recognised in the income statement. The net fair value gain or loss recognised in the income statement does not include any dividends on these financial assets, which are recognised in accordance with the policy set out for "Revenue recognition" below.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables mainly comprise different kinds of account receivables, policy loans, term deposits, investments classified as loans and receivables, restricted statutory deposits and securities purchased under agreements to resell. After initial measurement, such assets are subsequently carried at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. Gains and losses are recognised in the income statement as "Investment income" when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
Summary of principal accounting policies (continued)
(11) Investments and other financial assets (continued)
Held-to-maturity financial assets
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the Group has the positive intention and ability to hold to maturity. Held-to-maturity financial assets are subsequently measured at amortised cost less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. Gains and losses are recognised in the income statement as "Investment income" when the investments are derecognised or impaired, as well as through the amortisation process.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the other three categories. After initial recognition, available-for-sale financial assets are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment revaluation reserves until the investments are derecognised or until the investments are determined to be impaired, at which time the cumulative gain or loss is recognised in the income statement and removed from the available-for-sale investment revaluation reserves.
Interest and dividends earned are reported as interest income and dividend income, respectively
and are recognised in the income statement as "Other income" in accordance with the policies set out for "Revenue recognition" below. Losses arising from the impairment of such investments are recognised in the income statement as "Investment income".
(12) Derivative financial instruments
Derivative financial instruments are classified as held for trading unless they are designated as effective hedging instruments. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Embedded derivatives are treated as separate derivatives and are recorded at fair value if their economic characteristics and risks are not closely related to those of the related host contract and the host contract is not itself recorded at fair value through profit or loss.
Summary of principal accounting policies (continued)
(13) Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and other valuation models. For discounted cash flow techniques, estimated future cash flows are based on directors' best estimates and the discount rate used is a market related rate for a similar instrument. Certain financial instruments, including derivative financial instruments, are valued using pricing models that consider, among other factors, contractual and market prices, correlation, time value of money, credit risk, yield curve volatility factors and/or prepayment rates of the underlying positions. The use of different pricing models and assumptions could produce materially different estimates of fair values.
Summary of principal accounting policies (continued)
(13) Fair value measurement (continued)
The fair values of floating rate and overnight deposits with credit institutions are their carrying values. The carrying value is the cost of the deposit and accrued interest. The fair value of fixed interest-bearing deposits is estimated using discounted cash flow techniques. Expected cash flows are discounted at current market rates for similar instruments at the balance sheet date.
(14) Impairment of financial assets
The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.
Assets carried at amortised cost
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been incurred). The related collateral value shall also be taken into account. The present value of the estimated future cash flows is discounted at the financial asset's original effective interest rate (i.e., the effective
interest rate computed at initial recognition or the current effective interest rate if a loan has a variable interest rate).
The carrying amount of the asset is reduced either directly or through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery.
If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to the income statement.
Summary of principal accounting policies (continued)
(14) Impairment of financial assets (continued)
Available-for-sale financial assets
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is removed from other comprehensive income and recognised in the income statement. The Group uses the weighted average method to calculate the initial costs of available-for-sale equity investments. A provision for impairment is made for available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below its cost or where other objective evidence of impairment exists.
The determination of what is "significant" or "prolonged" requires judgement. The Group collectively considers the magnitude of the decline in fair value relative to the cost, volatility, and the duration of the decline in evaluating whether a decline in fair value is significant. The Group considers the period and consistency of the decline in evaluating whether a decline in fair value is prolonged. The Group usually considers a significant decline to be one in which the fair value is below the weighted average cost by more than 50% or a prolonged decline to be one in which fair value is below the weighted average cost for a continuous period of more than twelve months.
The Group also considers qualitative evidence that includes, but is not necessarily limited to the following:
• Significant financial difficulty of the investee, including failure to comply with contractual obligations, financial restructuring, deterioration of going concern expectations;
• Adverse changes relative to the investee's technology, market, customer base, macroeconomic indicators relative to the business, and significant legal or regulatory matters.
Impairment losses on equity instruments classified as available-for-sale are not reversed through the income statement. Increases in their fair value after impairment are recognised directly in other comprehensive income. Impairment losses on debt instruments are reversed through the income statement if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement.
Summary of principal accounting policies (continued)
(15) Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:
• the rights to receive cash flows from the asset have expired; or
• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from a financial asset or has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
(16) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
(17) Securities purchased under agreements to resell
The Group enters into purchases of securities under agreements to resell substantially identical securities. These agreements are classified as loans and receivables. The amounts advanced under these agreements are reflected as assets in the balance sheet. The Group does not take physical possession of securities purchased under agreements to resell. In the event of default by the counterparty to repay the loan, the Group has the right to the underlying securities.
Summary of principal accounting policies (continued)
(18) Impairment of non-financial assets other than deferred tax assets and goodwill
Where an indication of impairment exists, or when impairment testing for an asset is required at least at each year end (other than deferred tax assets, financial assets and goodwill), the asset's recoverable amount is estimated. An asset's recoverable amount is the higher of the asset's or
cash-generating unit's value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises.
An assessment is made at the end of each period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset (other than goodwill) is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to the income statement in the period in which it arises.
(19) Reinsurance
The Group cedes insurance risk in the normal course of business. Reinsurance agreements that transfer significant insurance risk are treated as reinsurance contracts; reinsurance agreements that do not transfer significant insurance risk are not treated as reinsurance contracts.
Reinsurance assets primarily represent balances due from reinsurance companies for ceded insurance liabilities. Amounts recoverable from reinsurers are estimated in a manner consistent with the reinsured risks and in accordance with the terms of the reinsurance contracts.
An impairment review is performed at each reporting date or more frequently when an indication of impairment arises during the reporting year. Impairment occurs when objective evidence exists that the Group may not recover outstanding amounts under the terms of the contract and when the impact on the amounts that the Group will receive from the reinsurer can be measured reliably. The impairment loss is recorded in the income statement.
Summary of principal accounting policies (continued)
(19) Reinsurance (continued)
Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. The Group also assumes reinsurance risk in the normal course of business. Premiums and claims on assumed reinsurance are recognised as income and expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Amounts payable to reinsurers are estimated in a manner consistent with that of the associated reinsurance contracts.
Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance unless a legal right and the intention of offset exist.
Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party.
(20) Cash and cash equivalents
For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short-term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group's cash management.
(21) Insurance contracts
Insurance contracts are those contracts under which the Group has accepted significant insurance risk from the policyholders by agreeing to compensate the policyholders if a specified uncertain future event (the insured event) adversely affects the policyholders. Insurance contracts are classified as direct insurance contracts and reinsurance contracts. The significance of insurance risk as determined by the Group is dependent on both the probability of an insurance event and the magnitude of its potential effect.
Contracts that only transfer insurance risk are treated as insurance contracts. If the Group signs contracts with policyholders which transfer insurance risk as well as other risks, the treatments would depend on:
(a) If the insurance risk portion and other risk portion are distinct and separately measurable, the insurance risk portion and other risk portion should be unbundled. The portion with insurance risk should be treated as an insurance contract, while the portion with other risks should not be treated as an insurance contract.
(b) If the insurance risk portion and other risk portion are not distinct, or if they are distinct but cannot be separately measurable, the Group would test the significance of insurance risk at the initial recognition of such contracts. The whole contract should be treated as an insurance contract if the insurance risk is significant; the whole contract should not be treated as an insurance contract if the insurance risk is insignificant.
Summary of principal accounting policies (continued)
(22) Significant insurance risk test
For contracts issued by the Group which require testing the significance of insurance risk, it should be performed at the initial recognition of such contracts, and based on a group of contracts with a similar nature.
When testing the significance of insurance risk, the Group makes judgements in this sequence: whether the contract transfers insurance risk; whether the contract has commercial substance; whether the insurance risk transferred is significant.
When determining whether the contracts (or policies) transfer significant insurance risk, the Group considers: (i) annuity contracts that transfer longevity risk are treated as insurance contracts; (ii) for non-annuity contracts, if the insurance risk ratio is greater than or equal to 5% at certain points of time during the duration of the contracts, they are treated as insurance contracts; the insurance risk ratio is derived by comparing the benefits paid with the benefits payable if the insured event did not occur. For property and casualty and short-term life policies that obviously transfer significant risk, the Group recognises them as insurance contracts directly.
When determining whether reinsurance policies transfer significant insurance risk, the Group considers thoroughly the commercial substance and other relevant contracts and agreements, and if the insurance risk ratio of reinsurance contracts are greater than 1%, they are treated as reinsurance contracts. The insurance risk ratio of reinsurance policies is derived by comparing the present value of probability-weighted expected loss with the present value of expected reinsurance premiums. If the reinsurance contracts obviously transfer significant insurance risk, the Group directly recognises them as reinsurance contracts.
For the purpose of testing the significance of insurance risk, contracts of a similar nature are grouped together. Through considering the risk distribution and characteristics, the Group selects sufficient representative samples to test the significance of insurance risk. If most samples transfer significant insurance risk, all contracts in the group are treated as insurance contracts.
The assumptions used for testing the significance of insurance risk mainly include loss ratio, mortality and morbidity, loss distribution, etc. The Group determines such assumptions based on historical experiences and the estimation on future development trends so as to reflect the Group's product characters and actual claim payments.
This is an excerpt of the original content. To continue reading it, access the original document here.
Attachments
- Original document
- Permalink
Disclaimer
China Pacific Insurance (Group) Co. Ltd. published this content on 28 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 March 2021 10:29:01 UTC.
