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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  Ping An Insurance (Group) Company of China, Ltd.    2318   CNE1000003X6

PING AN INSURANCE (GROUP) COMPANY OF CHINA, LTD.

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Ping An Insurance of China : ANNOUNCEMENT OF AUDITED RESULTS FOR THE YEAR ENDED DECEMBER 31, 2019

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02/20/2020 | 05:28am EDT

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.

Ping An Insurance (Group) Company of China, Ltd.

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 2318)

ANNOUNCEMENT OF AUDITED RESULTS

FOR THE YEAR ENDED DECEMBER 31, 2019

The Board of Directors of Ping An Insurance (Group) Company of China, Ltd. ("Ping An" or the "Company") hereby announces the audited results of the Company and its subsidiaries for the year ended December 31, 2019. This announcement, containing the full text of the 2019 Annual Report of the Company, complies with the relevant requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") in relation to the information to accompany preliminary announcements of annual results.

Both the Chinese and English versions of this results announcement are available on the websites of the Company (www.pingan.cn) and the Hong Kong Stock Exchange (www.hkexnews.hk). Printed version of the Company's 2019 Annual Report will be delivered to the holders of H share of the Company and available for viewing on the websites of the Hong Kong Stock Exchange (www.hkexnews.hk) and the Company (www.pingan.cn) in early March 2020.

By order of the Board of Directors

Ma Mingzhe

Chairman and Chief Executive Officer

Shenzhen, PRC, February 20, 2020

As at the date of this announcement, the Executive Directors of the Company are Ma Mingzhe, Ren Huichuan, Yao Jason Bo and Cai Fangfang; the Non-executive Directors of the Company are Soopakij Chearavanont, Yang Xiaoping, Liu Chong and Wang Yongjian; the Independent Non-executive Directors of the Company are Ge Ming, Ouyang Hui, Ng Sing Yip, Chu Yiyun and Liu Hong.

Contents

ABOUT US

CORPORATE GOVERNANCE

i

Five-Year Summary

98

Corporate Governance Report

1

Introduction

113

Changes in the Share Capital and

2

Business Performance at a Glance

Shareholders' Profile

116

Directors, Supervisors, Senior Management

4

Chairman's Statement

and Employees

MANAGEMENT DISCUSSION AND ANALYSIS

134

Report of the Board of Directors

139

Report of the Supervisory Committee

7

Customer Development

141

Significant Events

12 Technology-Powered Business Transformation

17

Business Analysis

FINANCIAL STATEMENTS

17

Performance Overview

156

Independent Auditor's Report

20

Life and Health Insurance Business

162

Consolidated Income Statement

28

Property and Casualty Insurance Business

163

Consolidated Statement of Comprehensive

Investment Portfolio of Insurance Funds

34

Income

38

Banking Business

164

Consolidated Statement of Financial Position

46

Asset Management Business

166

Consolidated Statement of Changes in Equity

50

Technology Business

167

Consolidated Statement of Cash Flows

56

Analysis of Embedded Value

168

Notes to Consolidated Financial Statements

67 Liquidity and Capital Resources

72

Risk Management

OTHER INFORMATION

86

Sustainability

315

Ping An Milestones

96

Prospects of Future Development

316

Honors and Awards

317

Glossary

320

Corporate Information

Cautionary Statements Regarding Forward-Looking Statements

To the extent any statements made in this Report contain information that is not historical, these statements are essentially forward- looking. These forward-looking statements include but are not limited to projections, targets, estimates and business plans that the Company expects or anticipates will or may occur in the future. These forward-looking statements are subject to known and unknown risks and uncertainties that may be general or specific. Certain statements, such as those including the words or phrases "potential", "estimates", "expects", "anticipates", "objective", "intends", "plans", "believes", "will", "may", "should", and similar expressions or variations on such expressions may be considered forward-looking statements.

Readers should be cautioned that a variety of factors, many of which are beyond the Company's control, affect the performance, operations and results of the Company, and could cause actual results to differ materially from the expectations expressed in any of the Company's forward-looking statements. These factors include, but are not limited to, exchange rate fluctuations, market shares, competition, environmental risks, changes in legal, financial and regulatory frameworks, international economic and financial market conditions and other risks and factors beyond our control. These and other factors should be considered carefully and readers should not place undue reliance on the Company's forward-looking statements. In addition, the Company undertakes no obligation to publicly update or revise any forward-looking statement that is contained in this Report as a result of new information, future events or otherwise. None of the Company, or any of its employees or affiliates is responsible for, or is making, any representations concerning the future performance of the Company.

Embracing the future with a true heart

Beyond the high faraway mountains,

Behind the tall factory buildings,

In the cradle of the real economy,

We are fighting against poverty.

Clean water, green hills, and orange clothes,

The color of Ping An, and the song of happiness,

Written in folks' insurance policies,

Chanted as smart city melodies.

Data-driven transformations usher in next thirty years,

Ping An spreads wings of technologies and ecosystems,

No matter how the world changes,

Ping An is with you always.

For 31 years, Ping An has remained true to its original aspiration and committed to implementing national strategies, safeguarding people's livelihoods, and promoting national rejuvenation. Ping An continued to pursue transformations under the "finance + technology" and "finance + ecosystem" strategies. Ping An further developed the five ecosystems, namely financial services, health care, auto services, real estate services, and smart city services. Through robust data- driven operations, Ping An anticipated trends, made timely decisions, and took action ahead of others.

The year 2020 is the last year of China's 13th Five-Year Plan, a decisive year for building China into a moderately prosperous society, and a critical year for poverty alleviation in China. In a complex and ever-evolving world, Ping An will adhere to its original aspiration, focus on value creation, and seek sustainable growth. Ping An will maintain sound asset management and prudent investment strategies. Ping An will transform financial businesses by promoting smart business management, data-driven operations, robust channel development, and personalized customer services. Ping An will exploit its financial strength and technological expertise to serve customers, reward shareholders, support society, and contribute to the country. "After crossing the green hills, we are still young." Ping An will continue making contributions to China's poverty alleviation by advancing public welfare programs including Ping An Rural Communities Support.

Ping An embraces the future with a true heart.

Five-Year Summary

2019/

2018/

2017/

2016/

2015/

December

December

December

December

December

(in RMB million)

31, 2019

31, 2018

31, 2017

31, 2016

31, 2015

CUSTOMER DEVELOPMENT

515.50

Number of internet users (in million)

443.59

429.51

346.30

241.57

Number of retail customers (in million)

200.48

180.22

156.90

131.07

109.10

Number of contracts per customer (contract)

2.64

2.54

2.38

2.21

2.03

Operating profit per customer (in RMB)

612.54

542.28

474.99

N/A

N/A

Proportion of customers holding multiple contracts with

36.8

different subsidiaries (%)

34.3

29.6

24.0

19.0

Proportion of the Group' s new customers from internet

40.7

users within the Group' s five ecosystems (%)

34.4

37.2

22.3

19.4

GROUP

Operating profit attributable to shareholders of the parent

132,955

company

112,573

94,708

68,252

N/A

Operating ROE (%)

21.7

21.9

22.0

19.0

N/A

Basic operating earnings per share (in RMB)

7.48

6.31

5.31

3.82

N/A

Dividend per share (in RMB)

2.05

1.72

1.50

0.75

0.53

Equity attributable to shareholders of the parent company

673,161

556,508

473,351

383,449

334,248

Embedded value

1,200,533

1,002,456

825,173

637,703

551,514

Net profit attributable to shareholders of the parent

149,407

company

107,404

89,088

62,394

54,203

Group comprehensive solvency margin ratio (%)

229.8

216.4

214.9

210.0

204.9

Total Assets

8,222,929

7,142,960

6,493,075

5,576,903

4,765,159

Total liabilities

7,370,559

6,459,317

5,905,158

5,090,442

4,351,588

LIFE AND HEALTH INSURANCE BUSINESS

25.0

Operating return on embedded value (%)

30.8

35.5

27.0

21.4

Embedded value

757,490

613,223

496,381

360,312

325,474

New business value

75,945

72,294

67,357

50,805

38,420

Operating profit

88,950

71,345

52,824

40,518

N/A

Residual margin

918,416

786,633

616,319

454,705

330,846

Comprehensive solvency margin ratio - Ping An Life (%)

231.6

218.8

234.1

225.9

219.7

PROPERTY AND CASUALTY INSURANCE BUSINESS

20,952

Operating profit

12,274

13,372

12,700

N/A

Combined ratio (%)

96.4

96.0

96.2

95.9

95.6

Comprehensive solvency margin ratio (%)

259.2

223.8

217.5

267.3

269.5

BANKING BUSINESS

28,195

Net profit

24,818

23,189

22,599

21,865

Net interest margin (%)

2.62

2.35

2.37

2.75

2.81

Cost-to-income ratio (%)

29.61

30.32

29.89

25.97

31.31

Non-performing loan ratio (%)

1.65

1.75

1.70

1.74

1.45

Provision coverage ratio for loans more than 90 days

222.89

overdue (%)

159.45

105.67

98.51

N/A

Core tier 1 capital adequacy ratio (%)

9.11

8.54

8.28

8.36

9.03

ASSET MANAGEMENT BUSINESS

2,598

Trust business net profit

3,012

3,957

2,322

2,888

Securities business net profit

2,376

1,680

2,123

2,215

2,478

TECHNOLOGY BUSINESS

4,661

Operating profit

7,748

5,488

(3,575)

N/A

Note: Some indicators have been disclosed for less than five years. Certain figures have been reclassified or restated to conform to relevant periods' presentation.

i

Introduction

About us

Ping An strives to become a world-leadingtechnology-powered retail financial services group. In 2019, Ping An clearly defined "finance + technology" as its core and main businesses. While ensuring steady growth in its main financial businesses, Ping An increases investments in technology and promotes the "finance + ecosystem" empowerment to transform and upgrade its main businesses. Ping An employs technologies to improve efficiency, enhance risk management, and cut operating costs of its financial businesses. Moreover, Ping An leverages innovative technologies to develop five ecosystems, namely financial services, health care, auto services, real estate services, and smart city services, and to optimize the customer acquisition as well as quality and efficiency of integrated financial services. Ping An adopts an integrated financial business model of "one customer, multiple products, and one-stopservices." Ping An exploits local advantages while adhering to global corporate governance standards. Ping An provides financial products and services for 200 million retail customers and 516 million internet users by empowering financial services with technologies, empowering ecosystems with technologies, and empowering financial services with ecosystems.

World-leading Technology- powered Retail Financial Services Group

Pan Financial Assets

Pan Health Care

Finance + Technology

Finance + Ecosystem

Insurance Banking Asset Management

Financial

Health

Auto

Real

Smart

Estate

Services

Care

Services

City

Services

Ecosystem

Ecosystem

Ecosystem

Ecosystem

Ecosystem

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 1

Business Performance at a Glance

Financial Results of the Group

Total Revenue (in RMB million)

Operating Profit Attributable to Shareholders of the Parent Company (in RMB million)

17.6%

1,273,091

18.1%

132,955

11.0%

1,082,146

18.9%

112,573

974,570

94,708

2017

2018

2019

2017

2018

2019

Basic Operating EPS (in RMB)

Dividend Per Share(1) (in RMB)

7.48

6.31

18.5%

19.2%

2.05(2)

18.8%

1.72

5.31

14.7%

1.50

2017

2018

2019

2017

2018

2019

Embedded Value (in RMB million)

New Business Value (in RMB million)

7.3%

72,294

5.1%

75,945

67,357

19.8%

1,200,533

21.5%

1,002,456

825,173

December 31, 2017

December 31, 2018

December 31, 2019

2017

2018

2019

(1)

Dividend per share refers to the cash dividend, including

(2)

This includes a final dividend of RMB1.30 per share pending

the interim dividend and the final dividend.

approval at the 2019 Annual General Meeting.

2 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Top Ten Highlights

Profit grew steadily. In 2019, the Group's operating profit attributable to shareholders of the parent company rose by 18.1% year on year to RMB132,955 million. The operating ROE was 21.7%. The net profit attributable to shareholders of the parent company gained 39.1% year on year to RMB149,407 million.

Cash dividends continued to increase. With strong operating profit growth, the annual dividend per share for 2019 grew by 19.2% year on year to RMB2.05. The dividend payout ratio based on operating profit attributable to shareholders of the parent company (excluding share repurchases

in cash) stood at 28.1%. In addition, the Company repurchased RMB5 billion worth of A shares for the first time.

Customer development yielded good results. Operating profit from retail business rose by 25.7% year on year to RMB122,802 million, driven by steady growth in retail customers (up 11.2% from the beginning of 2019) and operating profit per customer (up 13.0% year on year). Retail customers increased to 200 million. The Company acquired 36.57 million new customers, 40.7% of whom were sourced from internet users within the Group's five ecosystems.

The life and health insurance business maintained steady growth. Operating profit after tax of the life and health insurance business rose by 24.7% year on year to RMB88,950 million. The Company accelerated its pivot toward high-valuebusiness, expanded the breadth of protection products, and upgraded its agent force using technology. Overall NBV margin and agent productivity continued to increase.

The property and casualty insurance business maintained excellent business quality. Operating profit after tax of Ping An Property & Casualty rose by 70.7% year on year to RMB20,952 million, with a better-than-industry combined ratio of 96.4%. Ping An Property & Casualty is the industry leader for online claims services. It launched the "Ping An Motor Insurance Trust Claim" service for auto owners with safe driving behaviors. Through this service, Ping An Property & Casualty shortened the annual average turnaround time of a single claim to only 3 minutes.

About us

The banking business furthered the retail transformation and maintained stable and healthy business growth. Net profit increased by 13.6% year on year to RMB28,195 million. Retail banking's revenue and net profit increased by 29.2% and 13.8% year on year respectively. Ping An Bank continued to de- risk. The non-performingloan ratio dropped by 0.10 pps from the beginning of 2019. The provision coverage ratio rose by 27.88 pps from the beginning of 2019.

Ping An continued to develop technological strengths. As of December 31, 2019, Ping An's technology patent applications increased by 9,112 from the beginning of 2019 to 21,383.

Ping An achieved global rankings of first in fintech and second in digital healthtech by published patent applications in 2019.

OneConnect went public successfully. OneConnect launched its initial public offering on the New York Stock Exchange on December 13, 2019. OneConnect was granted a virtual banking license by the Hong Kong Monetary Authority. Moreover, OneConnect's blockchain-enabledtrade finance network won the "Best Application of Advanced Technology in a Product or Service Award" of the BAI Global Innovation Awards.

Ping An furthered ESG-driven sustainable development. As of December 31, 2019, Ping An's responsible investment, insured amount of sustainable insurance and green credit lines granted reached RMB954,449 million, RMB121.21 trillion and RMB59,056 million respectively. The Company implemented Ping An Rural Communities Support in 21 provinces and autonomous regions across China. The Company provided RMB15,745 million for poverty alleviation, built or upgraded 949 rural clinics and 1,054 rural schools, and trained 11,175 village doctors and 11,826 village teachers.

Ping An's brand value increased steadily. The Company ranked 29th in the Fortune Global 500 list, 7th in the Forbes Global

2000 list, 40th in the BrandZTM Top 100 Most Valuable Global Brands list, and again No. 1 among global insurance brands.

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 3

Chairman's Statement

Speed is paramount. First-mover advantages are key to business competition. To secure first-moveradvantages, we need to anticipate trends, make timely decisions, and take action ahead of others on the basis of fast, relevant and accurate data. In recent years, Ping An has made remarkable progress in technology-powered, data-drivenoperations, which has enabled us to bring forward the 2019 annual results release more than 20 days.

The year 2019 marks the 70th anniversary of the founding of the People's Republic of China and the beginning of Ping An's second 30 years. In

2019, China's economy continued to grow strongly despite global economic slowdowns and difficult China-U.S. trade talks. We advanced steadfastly together with the country, fully aware of the rises and falls, gains and losses, strategies and

future prospects. Facing a new technological revolution, we pursued data-driven operations across the Group under the "finance + technology" and "finance + ecosystem" transformation strategies. Through unremitting efforts, we achieved stable growth in major financial metrics, including total assets, revenues, and operating profit, laying a solid foundation for a new beginning.

cash dividends. The cash dividend per share for 2019 rose by 19.2% year on year to RMB2.05. In addition, we implemented our first A share repurchase

plan to maximize shareholder value and motivate employees. A total of 57,594,607 shares were repurchased, amounting to RMB5 billion. All the repurchased shares will be used for our employee stock ownership plans.

Some refer to Ping An's ecosystem-based transformation as an "elephant herd effect." As a constructor of the forest ecosystem, an elephant herd helps spread tree seeds, improves the mix of carbon storage, and balances plants' demands for sunlight. Ping An is actively exploring "technological empowerment, ecosystem-based growth, and ESG-driven development" to evolve from a participant into an ecosystem leader.

On July 1, 2019, Group Chairman and CEO Ma Mingzhe and employees sang My Motherland and Me to celebrate the 70th anniversary of the founding of the People's Republic of China.

In 2019, Ping An continued to rank first among global insurers by market cap, 29th in the Fortune Global 500, and seventh in the Forbes Global 2000. In the BrandZTM Top 100 Most Valuable Global Brands list, Ping An ranked first among global insurance conglomerates for the fourth time in a row. Operating profit attributable to shareholders of the parent company increased by 18.1% year on year to RMB132,955 million. Net profit attributable to shareholders of the parent company rose by 39.1% year on year to RMB149,407 million. With fast-growing operating profit, we are increasing

On August 29, 2019, Ping An became the only financial institution selected by the Ministry of Science and Technology to build the National Open Innovation Platform for Next Generation Artificial Intelligence for inclusive finance.

We empower the integrated financial business model with technologies. As of December 31, 2019, Ping An's technology patent applications increased by 9,112 from the beginning of the year to 21,383, more than most international financial institutions'. Ping An won multiple awards in a number of technology sectors, including AI and blockchain. Ping An empowers its life and health insurance business with its technologies. As of December 31, 2019, Ping An applied an AI interview robot to 100% of sales agent recruitment interviews. The agents' exclusive smart personal assistant "AskBob" has served agents 340 million times since its go-live.In 2019, operating profit of the life and health insurance business rose 24.7% year on year to RMB88,950 million. Ping An optimized the business portfolio, with the overall NBV margin up 3.6 pps year on year to 47.3%. Leveraging cutting-edge AI-powered image-basedloss

4 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

assessment and precise customer profiling technologies, Ping An Property & Casualty launched the "Ping An Motor Insurance Trust Claim" service for auto owners with safe driving behaviors to provide 45 million auto owners with a line of credit. Technologies enabled us to ensure excellent business quality. In 2019, Ping An Property & Casualty's operating profit grew by 70.7% year on year to RMB20,952 million while the combined ratio stood at 96.4%. We also share technologies

with external entities. With world-leading blockchain technologies, OneConnect has provided products for all the major banks, 99% of the urban commercial banks, and 52% of the insurers in China. OneConnect launched its initial public offering on the New York Stock Exchange on December 13, 2019, as China's first technology-as-a-service cloud platform to go public in the U.S. Ping An empowers China's smart city initiative by building "1+N+1" platforms covering various sectors, including fiscal management, health care, environmental protection, transportation, and education. The platforms have gone live in 115 cities across China as well as countries and regions involved in the Belt and Road Initiative.

On December 13, 2019, OneConnect completed its initial public offering on the New York Stock Exchange, being the first U.S.- listed technology company incubated by Ping An.

We pursue customer development on the basis of ecosystems. We acquire new and prospective users by developing five ecosystems, namely financial services, health care, auto services, real estate services, and smart city services. In 2019, customer development yielded strong results. Retail operating profit increased by 25.7% year on year to RMB122,802 million, accounting for 92.4% of the Group's operating profit attributable to shareholders of the parent company. Retail customers grew by 11.2% from the beginning of 2019. In 2019, the Company acquired 36.57 million new customers, 40.7% of whom were sourced from internet users within the Group's five ecosystems. Ping An Bank furthered its retail

About us

transformation. Retail banking's revenue and net profit increased by 29.2% and 13.8% year on year, contributing to 58.0% and 69.1% of Ping An Bank's total revenue and net profit respectively. Ping An Bank maintained stable, healthy business growth and boosted net profit by 13.6% year on year to RMB28,195 million.

On December 9, 2019, Ping An launched a blockchain platform for electronic certificate application on the "i Shenzhen" government services app.

We seek ESG-driven sustainable development. Compliance with the globally applicable ESG (Environment, Social, Governance) criteria is highly instrumental in ensuring long-termsustainable development of a company. In 2019, Ping An joined the United Nations-supportedPrinciples for Responsible Investment initiative, and was selected for Dow Jones Sustainability™ Emerging Markets Index for the first time. Ping An has integrated ESG criteria with business operations, and established a policy framework to drive responsible investment and sustainable insurance business growth. By seeking ESG-drivensustainable development, Ping An has paved a unique path with Chinese characteristics for implementing the ESG criteria. Meanwhile, the Company continued to explore an innovative poverty alleviation model by advancing the program of Ping An Rural Communities Support. Under this model, Ping An provides rural residents with training and education, brings new vigor to rural industries, promotes the "one village, one product" approach, and helps rural enterprises to expand production and sales. As of December 31, 2019, Ping An implemented Ping An Rural Communities Support in 21 provinces and autonomous regions across China. The Company provided RMB15,745 million for poverty alleviation, benefiting over 500,000 people in poor areas. Moreover, Ping An built or upgraded 949 rural clinics and 1,054 rural schools, and trained 11,175 village doctors and 11,826 village teachers.

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 5

Chairman's Statement

The year 2020 will witness the completion of China's 13th Five-Year Plan, a critical year for building China into a moderately prosperous society and alleviating poverty across China. In early 2020, however, the country was hit by an outbreak of Coronavirus Disease 2019 (COVID-19). Without delay, the Company joined the nationwide fight against the raging outbreak, protected people's livelihoods and fulfilled its corporate social responsibilities through various channels and by multiple means including donations, insurance protection, financial services and medical aid. How will Ping An plan for the future amid increasing uncertainties in the global economic environment, rising risks and challenges, and the spread of COVID-19?

We will continue to transform our business operations and management. In the era of digital economy, we must realize smart business management, data-drivenoperations, robust channel development, and personalized customer services. We firmly believe that in the next 30 years, China will remain the world's largest and fastest-growinglife insurance market. Through structural adjustments and transformation, our insurance businesses will achieve sustainable, high-qualitydevelopment. In terms of business strategies, we will focus on value creation and seek sustainable growth. We will upgrade the

"1+N" product portfolio to provide more diverse and convenient one-stop integrated financial services. We will continue to develop long-term protection products and long-term savings hybrid products that are customer-centric,value-creating, and sales- boosting to enhance our ability to serve the real economy. In asset allocation, we will maintain robust asset-liability management and prudent investment strategies, supported by smart risk management and AI-enabled early warning. In this way, we

can strike a balance between risks, liabilities, and investment to create value for shareholders. We will increase investment in technological innovations and prepare for the future. This fight against the COVID-19 outbreak highlights the importance of technology to the transformation of the country and industries. Technology is key to future success. At

Ping An, smart office tools efficiently guaranteed internal operations. Online end-to-end services enabled 900,000 life insurance customers to renew their insurance policies during the Chinese New Year holiday. The "Ping An Auto Owner" app provided tens of millions of customers with comprehensive auto insurance services online. Ping An Bank's online operation capabilities are also at an industry-leading level. In addition, Ping An's online consultation and medical image reading services effectively alleviated the pressure on frontline medical staff. The year

2020 is critical for the Company to implement its "finance + technology" and "finance + ecosystem" transformation strategies. We will seize strategic opportunities for technological innovations, build basic technological capabilities, diversify and upgrade technology application scenarios, and rapidly replicate external empowerment. We will serve the country and people's livelihoods as well as empower our main financial businesses with world- leading fintech and healthtech capabilities.

We should boldly forge ahead rather than rest on our laurels. In 2020, we will remain committed to developing cutting-edge technologies and planning for the future. We will promote technological innovations and smart data-driven operations. To help the country win the fight against poverty, we will spare no effort to carry out targeted poverty alleviation measures, especially in poverty-stricken areas in Tibet, Xinjiang, Sichuan, Yunnan, Gansu, and Qinghai. We will remain true to our original aspirations of serving customers, rewarding shareholders, supporting society, and contributing to the country. We will leverage our strengths to overcome the various challenges brought by the COVID-19 outbreak, serve the real economy, fulfill our corporate social responsibilities, and contribute to the Chinese nation's great rejuvenation.

Chairman and Chief Executive Officer

Shenzhen, China

February 20, 2020

6 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Customer Development

The Group's operating profit from retail business rose 25.7% year on year to RMB122,802 million. Retail business accounted for 92.4% of the Group's operating profit attributable to shareholders of the parent company, up 5.6 pps year on year.

The Group's retail customers(1) grew by 11.2% from the beginning of

2019. In 2019, the Company acquired 36.57 million new customers, 14.90 million of whom were sourced from internet users within the Group's five ecosystems. Operating profit per customer gained 13.0% year on year to about RMB613. As of December 31, 2019, contracts per customer rose by 3.9% from the beginning of 2019 to 2.64. The Group's internet users(2) increased by 16.2% from the beginning of 2019 to 516 million. In 2019, the number of yearly active users(3) grew steadily to 282 million. On average, each internet user used 1.91 online services. Cross-selling within Ping An Group continued to improve. Retail customers holding multiple contracts with different subsidiaries increased by 19.3% from the beginning of 2019 to 73.71 million. They accounted for 36.8% of total customers, up 2.5 pps from the beginning of 2019.

Under the integrated financial business model, the Group's corporate business saw a significant increase in scale and a steady increase in value contribution. In 2019, the corporate premiums achieved through cross-selling reached RMB12,649 million, in which the written premium of the corporate channel rose by 115.5% year on year. The new financing scale achieved through corporate business cross-selling increased by

142.1% year on year to RMB296,742 million. As of December 31, 2019, the outstanding balance of retail assets referred by corporate business was RMB1.23 trillion; the underlying assets invested by insurance funds sourced from corporate business was RMB494,760 million, with an annual increment that expanded by 101.3% year on year in 2019 to RMB96,616 million.

CUSTOMER DEVELOPMENT STRATEGY

Under a customer-centric philosophy and the integrated finance strategy, Ping An has been dedicated to the development of retail customers and corporate customers. Ping An adheres to the philosophy of "one customer, multiple products, and one-stop services." Under the "finance + technology" and "finance

  • ecosystem" strategies, Ping An focuses on five ecosystems, namely financial services, health care, auto services, real estate services, and smart city services. Moreover, Ping An provides customers with diverse, excellent products and services by empowering financial services with technologies, empowering ecosystems with technologies, and empowering financial services with ecosystems. Retail business has become a strong growth driver as its operating profit grew steadily owing to increasing retail customers, contracts per customer, and product profitability. In corporate business, Ping An focuses on strategic customers and small and micro-business customers. Ping An satisfies customer demand for integrated financial services under a "1+N" customer development model (one customer + N products). Ping An uses technologies to improve customer experiences and reduce costs. Moreover, Ping An serves the real economy and offer inclusive finance services under the integrated financial services model.

Notes: (1) Retail customers refer to retail customers holding valid financial products with core financial companies of the Group. At the end of 2019, we revised the definition of retail customers by removing customers with complimentary insurance only from retail customers to provide a more objective representation of the size of valuable customers. Moreover, we restated the data for comparable periods in 2017 and 2018 accordingly.

(2) Internet users refer to unique registered users with accounts on internet service platforms (including webpage platforms and mobile apps) of the technology companies and core financial companies of the Group. At the end of 2019, we revised the definition of internet customers, removing independent users of suspended internet platforms from internet users, and restating the data for comparable periods in 2017 and 2018.

(3) The number of yearly active users refers to the number of active users in the 12 months to the end of the Reporting Period.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 7

Customer Development

Core drivers of the Group's operating profit growth

Retail customers

New customers

Unit: million

Unit: million

December 31, 2019

200

+11.2%

2019

36.57

-3.2%

December 31, 2018

180

2018

37.77

Retail operating

profit

Unit: RMB million

2019

122,802

+25.7%

2018

Contracts per

97,729

Group operating

customer

profit

Unit: contract

Unit: RMB million

+3.9%

Operating profit

December 31, 2019

2.64

2019

132,955

+18.1%

per customer

December 31, 2018

2.54

2018

112,573

Corporate and other

Unit: RMB

2019

612.54

+13.0%

Product profitability

operating profit

Unit: RMB million

2018

542.28

2019 10,153 -31.6%

201814,844

Note: Group operating profit is the operating profit attributable to shareholders of the parent company.

RETAIL CUSTOMER DEVELOPMENT

The group's retail customers and internet users increased steadily

Ping An continued to optimize its products, channels, and scenarios to deliver excellent customer experiences. As of December 31, 2019, the Group had 200 million retail customers, up 11.2% from the beginning of 2019. In 2019, the Company acquired 36.57 million new customers, 14.90 million or 40.7% of whom were sourced from internet users within the Group's five ecosystems. Ping An continued to promote migration and conversion between customers and users by improving service experiences across online platforms. The proportion of customers who were also internet users increased steadily.

Notes: (1) The numbers of customers of insurance companies are based on holders of in-force policies.

(2) Others include other investment, lending and insurance products.

(3) The numbers of accumulated customers of separate business lines do not add up to the total due to elimination of duplicate customers.

(4) The number of customers as of December 31, 2019 is not equal to the sum of customers as of December 31, 2018 and new customers in the Reporting Period due to customer attrition.

Online retail customers

December 31, 2019

December 31, 2018

% of

% of

(in million)

Persons

customers

Persons

customers

Number of retail

customers who were

173.74

86.7

also internet users

148.37

82.3

Retail customer structure

December 31,

December 31,

Change

(in million)

2019

2018

(%)

Life insurance(1)

63.00

59.09

6.6

Auto insurance(1)

50.23

46.46

8.1

Retail banking

69.25

60.13

15.2

Credit card

56.71

47.36

19.7

Securities, fund and trust

47.08

36.90

27.6

Others(2)

50.31

41.34

21.7

The Group

200.48

180.22

11.2

Number of retail

customers who were

168.23

83.9

also app users

141.28

78.4

8 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Ping An provides internet users with one-stop services, constantly improves online user experiences, and aligns services more closely with user needs. As of December 31, 2019, the Group had 516 million internet users, up 16.2% from the beginning of 2019. App users increased to 470 million, up 17.8% from the beginning of 2019. On average, each internet user used 1.91 online services from Ping An. Meanwhile, both user activity and stickiness increased, and yearly active users reached 282 million due to efficient internet user development.

Number of internet users

December

December

Change

(in million)

31, 2019

31, 2018

(%)

Internet users

515.50

443.59

16.2

Technology companies

356.43

314.74

13.2

Core financial companies

369.72

298.52

23.9

App users

470.01

399.01

17.8

Technology companies

249.75

223.49

11.7

Core financial companies

345.42

275.08

25.6

Note: Internet users and app users of the Group include users of technology companies and core financial companies, excluding duplicates.

Steady increase in customer value

Ping An promotes cross-selling under an integrated financial business strategy. As a result, contracts per customer and customer value increase year by year. In 2019, 37.48 million customer migrations happened among core financial companies of Ping An. As of December 31, 2019, about 73.71 million retail customers held multiple contracts with different subsidiaries, accounting for 36.8% of total customers, up 2.5 pps from the beginning of 2019. Each customer held 2.64 contracts on average, 3.9% more than at the beginning of 2019. In 2019, the Group's operating profit per customer was about RMB612.54, up 13.0% year on year.

Number of customers holding multiple contracts with different subsidiaries

Unit: million

% of total customers

29.6%

ANALYSIS

73.71

34.3%

36.8%

19.0%

24.0%

61.79

AND

46.47

DISCUSSION

20.78

31.50

MANAGEMENT

December 31,

December 31,

December 31,

December 31,

December 31,

2015

2016

2017

2018

2019

Ping An has gained better insights into customers from its long-term customer development: The wealthier customers are, the more contracts they hold and the more valuable they are. As

of December 31, 2019, the Group had 147 million middle-class or higher-level customers, accounting for 73.2% of the total. On average, each high net worth individual (HNWI) held 11.93 contracts, far more than affluent customers.

Customer wealth structure and proportion

Unit: million

HNWls

0.22

(0.1%)

Affluent

62.90

73.2%

(31.4%)

Middle-class

83.59

(41.7%)

Mass

53.76

(26.8%)

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 9

Customer Development

Customers and contracts per customer by segment

Number of customers

Contracts per

(in million)

customer

HNWIs

0.22

11.93

Affluent

62.90

3.88

Middle-class

83.59

2.28

Mass

53.76

1.69

The Group

200.48

2.64

Notes: (1) Mass customers are those with annual income below RMB100,000, middle-class customers RMB100,000-240,000, and affluent customers above RMB240,000. HNWIs have personal assets of RMB10 million or more.

(2) Figures may not match totals due to rounding.

Cross-selling between insurance businesses continued to grow strongly. In 2019, premium income of Ping An Property & Casualty, Ping An Annuity and Ping An Health from the agent channel of Ping An Life rose by 13.0% year on year to RMB58,160 million.

Premium income from cross-selling by Ping An Life's agents

2019

2018

Channel contribution

Channel contribution

Percentage

Percentage

(in RMB million)

Amount

(%)

Amount

(%)

Ping An Property &

45,427

16.8

Casualty

41,436

16.7

Short-term insurance

business of Ping An

8,663

43.7

Annuity

7,921

45.9

Ping An Health

4,070

66.2

2,096

56.6

Going forward, Ping An will continue to focus on retail customers, strengthen technological capabilities, and use innovative products and better services to improve customer experiences. In this way, the Company will boost both retail customer value and corporate value.

CORPORATE BUSINESS

Tiered customer development under a "1+N" service model of the corporate business

In corporate business, Ping An focuses on strategic customers and small and micro-business customers under a customer-centric philosophy. Ping An taps customer demand and promotes customer value by conducting tiered customer development under a "1+N" service model (one customer + N products).

In respect of services for strategic customers, Ping An develops strategic customers in industries that contribute significantly to people's livelihoods as well as long-term development of the country. The Company provides strategic customers with comprehensive tailor-made solutions combining "investment banking + commercial banking + investment" and "financing + intelligence" to satisfy customer demands. Taking advantage of insurance fund investment in infrastructure, the Company provides offerings along industry chains and across ecosystems to increase customer stickiness and value as well as win more customers through existing ones.

In respect of services for small and micro- business customers, Ping An makes financing more accessible by reshaping supply chain finance and innovating new ways of credit enhancement with technologies including the Internet of Things (IoT) and blockchain. The Company makes financing more affordable by introducing superfast online review and streamlining credit approval processes. The Company scales up its financial business and seizes market share by acquiring small and micro-business customers in batches with standard products and technologies.

10 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Customer development results: significant growth in business scale and a steady increase in value contribution

Performance of corporate integrated finance

(in RMB million)

2019

2018

Change (%)

Under the corporate integrated financial business development strategy, corporate customer development yielded initial results. The customer base continued to grow, customer services improved steadily, and the business scale increased significantly. In 2019, the corporate premiums achieved through cross-selling(1) grew by 23.5% year on year to RMB12,649 million, in which the written premium of the corporate channel(2) rose by 115.5% year on year. The new financing scale achieved through corporate business cross-selling(3) increased by . % year on year to RMB , million. As

Corporate premiums achieved through cross-selling(1)

Including: Written premium of the corporate channel(2)

New financing scale achieved through corporate business cross-selling(3)

12,649

10,240

23.5

2,672

1,240

115.5

296,742

122,560

142.1

MANAGEMENT DISCUSSION AND ANALYSIS

142 1296 742

an engine of the Group's corporate business, Ping An Bank has advantageous distribution channels. In 2019, the premium and financing referred by Ping An Bank rose by 326.6% and 140.4% year on year respectively. As a platform of high-quality customers and assets, the corporate business contributed to the steady growth in the retail business, and sourced assets for allocation of insurance funds. As of December 31, 2019, the outstanding balance of retail assets referred by corporate business to the retail business was RMB1.23 trillion, up by 10.2% from the beginning of 2019; the underlying assets invested by insurance funds sourced from corporate business(4) was RMB494,760 million, with an annual increment that expanded by 101.3% year on year in 2019 to RMB96,616 million.

Notes: (1) The corporate premiums achieved through cross-selling refer to written premiums of insurance policies sold by the Group to corporate customers through cross- selling.

(2) Written premium of the corporate channel refers to the written premium of the integrated financial business less that of the life insurance channel.

(3) The new financing scale achieved through corporate business cross-selling refers to the scale of new financing projects achieved by the Group's member companies through cross-selling.

(4) The underlying assets invested by insurance funds sourced from corporate business refer to the assets sourced by the Group's core financial companies, including Ping An Asset Management, Ping An Securities, and Ping An Trust, for allocation of the Group's insurance funds.

Performance of integrated finance realized through Ping An Bank

(in RMB million)

2019

2018

Change (%)

Premium referred by

1,331

Ping An Bank(1)

312

326.6

Financing referred by

251,376

Ping An Bank(2)

104,568

140.4

Notes: (1) Premium referred by Ping An Bank refers to the premium of Ping An's group insurance products distributed through Ping An Bank.

(2) Financing referred by Ping An Bank refers to the scale of financing projects referred by Ping An Bank for other member companies of the Group through cross-selling.

Going forward, Ping An's corporate customer development will remain focused on strategic customers and small and micro-businesses. By enhancing the "1 + N" service model, Ping An will improve customer services, strengthen risk management, maximize corporate customer value, and create greater value for customers.

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 11

Technology-Powered Business Transformation

As of December 31, 2019, Ping An's technology patent applications increased by 9,112 from the beginning of 2019 to 21,383, more than most other international financial institutions'. Of these applications, nearly 96% were for invention patents and 4,845 were filed under the Patent Cooperation Treaty (PCT) and abroad. In 2019, Ping An achieved global rankings of first in fintech and second in digital healthtech by published patent applications.

Ping An won international medical imaging championships in Automatic Cancer Detection and Classification in Whole-slide Lung Histopathology (ACDC), Endoscopic Artefact Detection (EAD), and Pathologic Myopia Challenge (PALM). In the Stanford Question Answering Dataset (SQuAD) 2.0 challenge, Ping An ranked first with a score of 90.9, defeating the human performance of 89.5. Ping An's AI interview system HR-X and OneConnect's blockchain-enabled trade finance network won the "Human Capital Innovation Award" and the "Best Application of Advanced Technology in a Product or Service Award" of the BAI Global Innovation Awards respectively.

THE GROUP'S "FINANCE + TECHNOLOGY" AND "FINANCE + ECOSYSTEM" STRATEGIES Increasing technological R&D investments and sharing technologies with others

Ping An adheres to the "finance + technology" and "finance + ecosystem" strategies. Ping An invests heavily in R&D to build leading technological capabilities. Ping An's technologies have been widely applied in areas including financial services, health care, and smart city services. Ping An develops the technologies to support its five ecosystems, namely financial services, health care, auto services, real estate services, and smart city services. Ping An applies an array of technologies to diverse scenarios to increase efficiency, cut costs, enhance risk management, and offer excellent products and service experiences. Moreover, Ping An shares leading innovative products and services with others to develop and empower business ecosystems with advanced technologies.

Ping An attaches great importance to developing core technologies and securing proprietary intellectual property rights, and constantly increases technological R&D investments. As

of December 31, 2019, Ping An had a technology team of nearly 110 thousand technology business employees, 35 thousand R&D employees, and 2.6 thousand scientists. Moreover, Ping An established eight research institutes and 57 laboratories, and partnered with top universities including Peking University, Tsinghua University and Fudan University and research institutes to pursue technological breakthroughs. As of December 31, 2019, Ping An's technology patent applications increased by 9,112 from the beginning of 2019 to 21,383, more than most other international financial institutions'. Of these applications, nearly 96% were for invention patents and 4,845 were filed under the Patent Cooperation Treaty (PCT) or abroad. In 2019, Ping An achieved global rankings of first in fintech and second in digital healthtech by published patent applications(1).

Note: (1) Rankings by published patent applications in fintech and digital healthtech areas are from the following lists jointly released by incoPat Innovation Index Research Center and IPRdaily: the 2019 global fintech invention patent list (Top 100) and the 2019 global digital healthtech invention patent list (Top 100) (data updated to December 2019).

12 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Ping An won 47 international awards for technological breakthroughs, and published over 20 medical research papers in authoritative medical journals. In the AI area, Ping An ranked first with a score of 90.9 in the Stanford Question Answering Dataset (SQuAD) 2.0 challenge, defeating the human performance of 89.5. At the 2019 Conference on Machine Translation (WMT

2019), Ping An won a world championship in the English-Chinese translation challenge. In the fintech area, OneConnect's blockchain-enabled trade finance network won the "Best Application of Advanced Technology in a Product or Service Award" and the "Most Disruptive Innovation

in Financial Services Award" of the BAI Global Innovation Awards respectively. In the healthtech area, Ping An won international medical imaging championships in Automatic Cancer Detection and Classification in Whole-slide Lung Histopathology (ACDC), Endoscopic Artefact Detection (EAD), and Pathologic Myopia Challenge (PALM) at the IEEE International Symposium on Biomedical Imaging (ISBI) meeting. The Company also claimed world firsts in six sub-tasks at the ISBI meeting. Ping An ranked first in a test of 2019 MEDIQA challenge sponsored by the International Association of Computational Linguistics (ACL) by defeating over 70 competitors. Ping An published over 20 medical research papers in authoritative medical journals, including a chronic kidney disease prediction model in the Journal of the American Society of Nephrology and a Chongqing-basedself-adaptive influenza prediction model in a sub-publication of The Lancet.

EMPOWERING MAIN FINANCIAL BUSINESSES WITH TECHNOLOGIES

Ping An leverages technologies to upgrade end-to-end services of its core financial businesses In respect of cost control, Ping An leverages cutting-edgetechnologies to optimize financial business processes, boost operational efficiency, and improve customer experiences. Ping An Property & Casualty leverages technologies including robots and optical character recognition (OCR) to pursue robotic process automation

of tasks including quotation, data entry, policy issue, and endorsement. In the retail auto insurance business, over 90% of quotes are made automatically, and many deals are struck upon the first quote. As no manual data entry is involved in the retail auto insurance business, the turnaround time from quotation to policy issue is as short as 20 seconds. Ping An's self-developed speech robots provided services 850 million times in 2019 in 83% of financial sales scenarios and 81% of customer services scenarios across the Group, cutting the annual cost of call center agents by 11%.

In respect of risk management, Ping An employs technology-enabledanalytics engines to enhance the quality and efficiency of risk management.

AI-poweredpost-lending management includes reminders to 100% of customers who have not defaulted. Per capita loans under management grew by 32% from the beginning of 2019 to RMB54 million. Ping An dynamically monitored corporate credit risk with its smart alert technology, and gave over 3,000 warnings in 2019 with an accuracy rate of 92%, involving a total risk exposure of nearly RMB20 billion.

In respect of business efficiency improvement, Ping An developed AI-poweredretail banking to enable all processes including sales, risk control, operations, and management. Of the 14.30 million credit cards issued by Ping An Bank in 2019, nearly 90% were automatically approved by AI. Over four million customers applied for credit cards through the big data-driven "One-ClickApplication" process. Non-manualservices accounted for 86.1% of Ping An Bank's customer service workloads, up by 6 pps year on year.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 13

Technology-Powered Business Transformation

DEVELOPMENT OF PING AN'S FIVE ECOSYSTEMS Financial Services Ecosystem

Ping An's financial services ecosystem provides diverse financial services including insurance, banking and investment to facilitate seamless connection and closed-loop transactions in varied financial service scenarios. Ping An has built multiple financial innovation platforms including OneConnect and E-wallet to satisfy customers' comprehensive financial demands, linking assets to funds through "open platforms + open marketplaces." As of December 31, 2019, app users of Ping An's core financial companies increased by about 70.34 million from the beginning of 2019 to 345 million.

In traditional finance, Ping An exploits synergies between ecosystems to provide smart, online-merge-offline and one-stop services in comprehensive scenarios. In retail business, as of December 31, 2019, Ping An provided over 200 million retail customers with over 15 thousand diverse financial products. Ping An launched the Ping An September 20 Financial Services Festival to offer convenient scenario-based experiences. The festival attracted 236 million participants,

4.19 million of whom became Ping An's new valid customers. During the festival, Ping An achieved RMB2.16 trillion in transaction volume. In corporate business, Ping An supports the real economy by providing corporate and institutional customers with insurance, financing and investment services. As of December 31, 2019, Ping An provided 14,280 corporate customers and key projects with disaster and loss prevention services. The annual insured sum of corporate property and casualty insurance exceeded RMB19 trillion. Ping An Bank granted RMB965,984 million of loans to institutional customers.

In the fintech area, Ping An combines financial service experience with cutting-edge technologies to boost service efficiency and enable business management. In services for financial institutions, OneConnect develops an open platform to connect the demanders and suppliers of technologies

and scenarios, providing financial service stakeholders with comprehensive, end-to-end business technology services. Ping An's blockchain technology has been applied in areas including financial services and smart city services. For

example, the financing platform for small and medium-sized enterprises (SMEs) sponsored by Guangdong Financial Regulatory Bureau has been connected to 129 financial institutions. A total

of 319 financial products have been launched on the platform, making it an important solution to the financing difficulties facing SMEs. In services for retail customers and merchants, E-wallet provides 257 million retail users with financial and consumption services including wealth management, shopping, daily life, payment, and loyalty point management. E-wallet also empowers the operations of 1.96 million merchants by providing comprehensive solutions to acquiring services, treasury management, and value-added financial services.

Health Care Ecosystem

Ping An has built a comprehensive health care ecosystem of "patients-providers-payers." Ping An serves online and offline retail customers through companies including Ping An Good Doctor, Ping An Life, Ping An Annuity, and Ping An Health. Ping An empowers medical regulators and service providers through the smart health care team in the smart city business and Ping An Good Doctor. Ping An empowers payers including Healthcare Security Administrations and commercial insurers through Ping An HealthKonnect's smart health care service platform.

As to patients, Ping An has built a health service system of "insurance protection + medical services and recuperation + health management." In respect of insurance protection, Ping An provides customers with health insurance covering varied illnesses and medical services. In respect of medical services and recuperation, the Health 360 program provides customers with comprehensive outpatient, inpatient, surgical and recuperation services. Ping An Good Doctor provides services including 24/7 online consultation, referral, registration, online drug purchase, and one-hour drug delivery. A total of over 670 million online consultations were provided. In respect of health management, Ping An transformed ex-post compensation mechanisms of traditional insurance into ex-ante health management by incentivizing customers to do physical exercise regularly. As of December 31, 2019, more than six million customers participated in the Ping An RUN program.

14 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

As to medical service providers, Ping An provides medical regulators and service providers with a smart integrated platform covering all the steps before, during, and after medical services. Ping An has implemented smart health care projects in over 100 cities, providing comprehensive services including integrated regulatory platforms, AI-baseddisease prediction, medical image recognition, and AskBob (Ping An's self-developeddiagnosis and treatment assistant tool covering smart medical decision support, a health think tank, follow-upsand patient education). Ping An Good Doctor empowers ecosystem partners with high-qualityresources including AI and medical services. Ping An Good Doctor has partnered with over three thousand hospitals, including more than 1.9 thousand 3A hospitals, as well as 94 thousand pharmacies. Ping An Good Doctor's offline health care network covers over 50 thousand medical and health service institutions including clinics and check-upproviders.

As to payers, Ping An provides social health insurers, commercial health insurers, and medical service providers with an integrated smart empowerment solution of "systems + services

  • operations." As of December 31, 2019, Ping An HealthKonnect provided services for over 800 million people in over 200 cities. Ping An HealthKonnect won the bids for projects of the National Healthcare Security Administration as well as provincial/municipal platform construction projects in Shandong, Hebei, and Qingdao. Ping An HealthKonnect's Social Health Insurance Digital Risk System provides users with targeted, effective cost control services by identifying 40 typical fraud scenarios.

Auto Services Ecosystem

Ping An provides auto services through companies including Autohome, Ping An Property & Casualty, Ping An Bank, and Ping An Financial Leasing.

Ping An serves auto owners and empowers automakers, dealers and auto repair shops through a comprehensive auto services ecosystem covering auto showcasing, purchase, and use.

As to retail customers, in December 2019, Autohome had a daily average of 36.83 million online mobile unique visitors, up 25.0% year on year. As of December 31, 2019, the "Ping An Auto Owner"

app had over 90 million registered users, about 49 million of whom were auto insurance customers of Ping An Property & Casualty. Ping An Bank actively promoted its auto owner credit card which integrated the auto owners' benefits, transaction services and financial services to provide auto owners with high-quality, convenient one-stop service experiences.

As to businesses, Ping An had more than 27 thousand paying dealers, over 17 thousand of which bought Ping An's data products, and covered over 90 automakers, 36 of which bought Ping An's data products. Regarding smart finance platforms, Autohome facilitated nearly RMB24.0 billion worth of auto finance and insurance transactions, Ping An Bank's new auto loans reached RMB156,674 million, and Ping An Financial Leasing's auto lease business volume amounted to RMB26.9 billion in 2019.

Real Estate Services Ecosystem

Ping An develops the real estate services ecosystem through Ping An Urban-Tech. Ping An Urban-Tech helps local governments break down information silos and promotes data fusion through its smart integrated "planning, construction, and management" platform. As of December 31, 2019, Ping An Urban-Techhad business presence in 61 large and medium-sizedcities across China as well as business relationships with 66 enterprises on the real estate industry chain.

As to government services, Ping An built the smart integrated "planning, construction, and management" platform to help local governments develop digital capabilities and smart management in residential housing construction. Ping An built

a "smart housing and construction" system with the Housing and Construction Bureau of Shenzhen Municipality in June 2019 to develop the urban construction, management and services in a smart way. Moreover, Ping An's real estate service system project in Yushu, Qinghai Province was presented at the 5th China International Smart City Expo

as a benchmark project. The system integrates inter-departmental processes, and realizes online application, appointment, and processing for housing transactions, tax payment, and real estate registration, enabling certificates to be issued as rapidly as within 15 minutes.

As to businesses, Ping An accelerated exploration of internal and external cooperation models, proactively planned for smart construction,

and launched an integrated smart management platform. Ping An provides services including construction site management, equipment management, and real estate project management to enhance enterprises' digital and smart management capabilities.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 15

Technology-Powered Business Transformation

Smart City Ecosystem

Ping An's smart city ecosystem is committed to promoting sustainable city development with technologies. It is Ping An's mission to fully extend the new-generation smart city services across China in government services, business development, and citizen services. As of December 31, 2019, Ping An's smart city ecosystem benefited 115 cities, 500 thousand enterprises, and 50 million citizens.

In respect of government services, Ping An helped local governments increase their efficiency in fiscal, performance, policy and environmental management through its integrated smart government service platform and self-developed AI, blockchain, cloud computing and other leading technologies. In fiscal management, Ping An's smart fiscal system is serving more than four thousand administrative entities, companies and public institutions, and enabling management of assets topping RMB6 trillion. In performance management, Ping An's smart governance service system has been deployed by over 20 cities and over 30 commissions, offices and bureaus throughout China. The system helps local governments analyze more than 400 themes and over 10 thousand metrics.

In environmental management, Ping An's smart environmental management system helps the Shenzhen Municipal Government monitor and supervise all the monitored metrics of 50 thousand polluting enterprises in Shenzhen with a knowledge graph covering five major industries and 50 pollutants.

In respect of business development, Ping An has built an integrated smart business platform from three perspectives of planning, services and supervision to provide comprehensive services to 500 thousand enterprises and optimize the business environment. In industry planning,

Ping An's smart macro-economic and industrial chain analytics cover more than 150 cities across China, 34 analysis themes, and over 4.5 thousand economic metrics. In enterprise services, Ping An has provided nearly 480 thousand enterprises with urban services. The Company's smart customs services facilitated more than 400 thousand customs declarations for RMB150 million worth of goods. The customs inspection period was shortened from 60 days to five days. The customs declaration cycle for enterprises was reduced from 200 minutes to five minutes. In enterprise supervision, Ping An's smart market supervision platform covers over 600 supervision scenarios and over eight thousand risk points. The accuracy rate of early warning is over

90% and the risk identification rate is as high as 85%.

In respect of people's livelihoods, Ping An's integrated smart citizen service platform improves daily life experiences of citizens in terms of health, culture and convenience. The platform provides

50 million citizens with over four thousand online services, and has over seven million monthly active users. In terms of citizen health, Ping An's smart health care services cover 14 thousand medical institutions. AskBob, Ping An's self-developeddiagnosis and treatment assistant tool, was used

11 million times by 260 thousand doctors in 2019. In terms of urban culture, Ping An provided 77 thousand high-quality vocational education courses for 36 million users and more than 1.2 thousand administrative and business entities. Moreover, Ping An provided online education sessions for 51 million trainees. In terms of urban transportation, Ping An's smart transportation platform increases accident processing efficiency and reduces vehicle safety hazards by automatically handling over 100 thousand traffic violations per day.

16 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Business Analysis

Performance Overview

In 2019, Ping An Group achieved an operating profit attributable to shareholders of the parent company of RMB132,955 million, up 18.1% year on year. The operating ROE was 21.7%.

In 2019, the net profit attributable to shareholders of the parent company rose 39.1% year on year to RMB149,407 million. The Group's ROE was 24.4%.

In 2019, the Group's basic operating earnings per share rose 18.5% year on year to RMB7.48. The dividend per share rose 19.2% year on year to RMB2.05. The dividend payout ratio based on operating profit attributable to shareholders of the parent company (excluding share repurchases in cash) stood at 28.1%. In addition, the Company repurchased RMB5 billion worth of A shares for the first time.

CONSOLIDATED RESULTS

Short-term investment variance, which is

Ping An offers a wide range of financial products

the variance between the actual investment

and services via various distribution channels under

return of the life and health insurance

a uniform brand. Ping An engages in three core

business and the EV ultimate investment

financial businesses of insurance, banking and asset

return assumption, net of associated relevant

management through companies including Ping An

impact on insurance and investment contract

Life, Ping An Property & Casualty, Ping An Annuity,

liability. The investment return of the life and

Ping An Health, Ping An Bank, Ping An Trust, Ping

health insurance business is locked at 5% after

An Securities, Ping An Asset Management, and

excluding the short-term investment variance;

Ping An Financial Leasing. Ping An engages in the

technology business through companies including

The impact of discount rate(1) change is the

Lufax Holding, OneConnect, Ping An Good Doctor,

effect on insurance contract liability of the life

Ping An HealthKonnect, and Autohome.

and health insurance business due to changes

in the discount rate;

(in RMB million)

2019

2018 Change (%)

MANAGEMENT DISCUSSION AND ANALYSIS

Operating profit

attributable to

shareholders of the

132,955

parent company

112,573

18.1

Basic operating earnings

7.48

per share (in RMB)

6.31

18.5

Operating ROE (%)

21.7

21.9

-0.2 pps

Dividend per share

2.05

(in RMB)

1.72

19.2

Net profit attributable

to shareholders of the

149,407

parent company

107,404

39.1

ROE (%)

24.4

20.9

3.5 pps

OPERATING PROFIT OF THE GROUP

Due to the long-term nature of the main part of the life and health insurance business, the measure of operating profit has been applied to more appropriately evaluate business performance. Operating profit after tax is based on net profit from financial statements, excluding items that are of short-term, volatile or one-off nature, including:

  • Impacts of one-offnon-operating items are material items that management considered to be non-operating income and expenses, which in 2019 refer to the one-off impact of the decrease in the income tax for 2018 factored into the income tax for 2019 as a result of the Company's insurance subsidiaries implementing the Circular on Pre-taxDeduction of Fee and Commission Expense for Insurers issued by the Ministry
    of Finance and the State Administration of Taxation on May 29, 2019. The impact of one-offnon-operating item in 2018 referred to the fair value revaluation gain or loss, as required by the accounting standards, of the convertible bonds issued by Lufax Holding to the Group as the consideration of Puhui transaction. The fair value of the convertible bonds significantly increased due to Lufax Holding's Series C financing.

Note: (1) Refer to the significant accounting policies in the notes of the Company's 2019 Annual Report for the relative information about the discount rate.

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 17

Business Analysis

Performance Overview

The operating profit after tax which excludes fluctuations of the above non-operating items can provide a clearer and more objective representation of the Company's business performance and trend.

In 2019, the Group's operating profit attributable to shareholders of the parent company grew 18.1% year on year to RMB132,955 million. The basic operating earnings per share was RMB7.48, up 18.5% year on year. The life and health insurance business's operating profit attributable to shareholders of the parent company rose 25.2% year on year to RMB88,054 million.

2019

Property

Other

Life and

and

health

casualty

Other asset

businesses

insurance

insurance

Banking

Trust

Securities

management

Technology

and

(in RMB million)

business

business

business

business

business

business

business

elimination

The Group

Net profit attributable to

shareholders of the parent

company

102,659

22,697

16,342

2,595

2,319

4,680

3,487

(5,372)

149,407

Net profit attributable to

1,078

11,853

1,174

(79)

14,958

non-controlling interests

111

3

57

761

Net profit (A)

103,737

22,808

28,195

2,598

2,376

5,441

4,661

(5,451)

164,365

Excluding:

Short-term investment

19,354

-

-

-

-

-

-

-

19,354

variance(1) (B)

Impact of discount rate

(13,164)

-

-

-

-

-

-

-

(13,164)

change (C)

Impact of one-off material

8,597

1,856

-

-

-

-

-

-

10,453

non-operating items (D)

Operating profit (E=A-B-C-D)

88,950

20,952

28,195

2,598

2,376

5,441

4,661

(5,451)

147,722

Operating profit attributable

to shareholders of the parent

company

88,054

20,850

16,342

2,595

2,319

4,680

3,487

(5,372)

132,955

Operating profit attributable to

11,853

1,174

(79)

14,767

non-controlling interests

896

102

3

57

761

18 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

2018

Life and

Property

Other

health

and casualty

Other asset

businesses

insurance

insurance

Banking

Trust

Securities

management

Technology

and

(in RMB million)

business

business

business

business

business

business

business

elimination

The Group

Net profit attributable to

shareholders of the parent

company

57,914

12,215

14,394

3,008

1,599

8,264

14,006

(3,996)

107,404

Net profit attributable to

non-controlling interests

843

59

10,424

4

81

753

978

(94)

13,048

Net profit (A)

58,757

12,274

24,818

3,012

1,680

9,017

14,984

(4,090)

120,452

Excluding:

Short-term investment

variance(1) (B)

(12,853)

-

-

-

-

-

-

-

(12,853)

Impact of discount rate

change (C)

265

-

-

-

-

-

-

-

265

Impact of one-off material

non-operating items (D)

-

-

-

-

-

-

7,236

-

7,236

Operating profit (E=A-B-C-D)

71,345

12,274

24,818

3,012

1,680

9,017

7,748

(4,090)

125,804

Operating profit attributable

to shareholders of the parent

company

70,320

12,215

14,394

3,008

1,599

8,264

6,770

(3,996)

112,573

Operating profit attributable to

non-controlling interests

1,026

59

10,424

4

81

753

978

(94)

13,231

Notes: (1) Short-term investment variance is the variance between the actual investment return and the EV ultimate investment return assumption (5%), net of the associated impact on insurance and investment contract liability.

(2) The life and health insurance business represents results of Ping An Life, Ping An Annuity, and Ping An Health. The property and casualty insurance business represents results of Ping An Property & Casualty. The banking business represents results of Ping An Bank. The trust business represents results of Ping An Trust and Ping An New Capital. The securities business represents results of Ping An Securities. The other asset management business represents results of companies that engage in asset management business including Ping An Asset Management, Ping An Financial Leasing, and Ping An Overseas Holdings. The technology business represents results of companies that engage in technology business including Lufax Holding, OneConnect, Ping An Good Doctor, Ping An HealthKonnect, and Autohome. Eliminations include offsets against cross-shareholding among business lines.

(3) Figures may not match the calculation due to rounding.

MANAGEMENT DISCUSSION AND ANALYSIS

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT COMPANY

December

December

Change

(in RMB million)

31, 2019

31, 2018

(%)

Life and health insurance

246,069

business

178,824

37.6

Property and casualty insurance

92,548

business

77,014

20.2

Banking business

169,814

139,224

22.0

Asset management business

96,218

88,854

8.3

Including: Trust business

20,581

17,717

16.2

Securities business

30,256

27,976

8.1

Other asset

management

45,381

business

43,161

5.1

Technology business

85,737

79,541

7.8

Other businesses and elimination

(17,225)

(6,949)

147.9

The Group

673,161

556,508

21.0

OPERATING ROE

Change

(%)

2019

2018

(pps)

Life and health insurance

40.5

business

40.7

(0.2)

Property and casualty insurance

24.6

business

16.7

7.9

Banking business

11.3

11.5

(0.2)

Asset management business

10.2

14.7

(4.5)

Including: Trust business

14.2

16.1

(1.9)

Securities business

7.8

5.9

1.9

Other asset

management

10.5

business

19.5

(9.0)

Technology business

5.1

10.8

(5.7)

Other businesses and elimination

N/A

N/A

N/A

The Group

21.7

21.9

(0.2)

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 19

Business Analysis

Life and Health Insurance Business

In 2019, new business value (NBV) of the life and health insurance business rose 5.1% year on year to RMB75,945 million. Agent channel NBV rose 5.9% year on year, driven by a 16.4% year-on-year rise in average NBV per agent and partially offset by a 9.1% year-on-year decrease in the average number of agents per month. Overall NBV margin reached 47.3%, up 3.6 pps year on year on the back of a 7.8 pps year-on-year agent channel NBV margin increase to 64.9%.

In 2019, operating profit after tax of the life and health insurance business rose 24.7% year on year to RMB88,950 million. The operating ROE was 40.5%.

The Company strengthened technology applications in business development and data-driven operations. The Company applied an AI interview robot to sales agent recruitment interviews. As of December 31, 2019, 100% of agent recruitment interviews were AI-based, and Ping An Life conducted over six million AI-based interviews, reducing in- person interviews by over 680 thousand hours. The agents' exclusive smart personal assistant "AskBob" has served agents 340 million times since its go-live. AskBob provides agents with various sales enabling tools to help them improve sales conversion, contributing to the material rise in agent productivity.

BUSINESS OVERVIEW

The Company conducts its life and health insurance business through Ping An Life, Ping An Annuity, and Ping An Health.

The Company achieved balanced, steady growth of business and value across all channels through the customer-centric "product+" and "technology+" strategies on the basis of compliance and risk management. In 2019, NBV of the life and health insurance business grew by 5.1% year on year to RMB75,945 million. The NBV margin was up 3.6 pps year on year due to the Company's prioritization of high-value,high-protection products.

Key indicators of the life and health insurance business

2019/

2018/

December

December

Change

(in RMB million)

31, 2019

31, 2018

(%)

NBV

75,945

72,294

5.1

NBV margin (%)

47.3

43.7

3.6

pps

First-year premium used to

160,478

calculate NBV

165,446

(3.0)

Embedded value

757,490

613,223

23.5

Operating ROEV (%)

25.0

30.8

-5.8

pps

Operating profit after tax

88,950

71,345

24.7

Operating ROE (%)

40.5

40.7

-0.2

pps

Net profit

103,737

58,757

76.6

20 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

CHANNEL DEVELOPMENT

Ping An Life provides customers with life insurance products through its nationwide service network of 42 branches (including seven telemarketing centers) and over 3,300 business outlets.

In 2019, the Company conducted reform in its life insurance business as the Company accelerated the pivot of its business toward high-value protection products. To realize healthier and more stable long-term value growth, the Company improved business management, and upgraded its agent force with technology.

Life agent channel development. Under a high-qualitytalent development strategy, the Company pushed forward transformation using technologies, and underwent significant business reforms in 2019. A key focus of the reform was upgrading quality of agent force through tightening agent recruitment criteria through AI and other measures to enhance agent management, while continuing to implement stringent appraisal and dismissal standards. Meanwhile, the Company proactively applied technologies to agent recruitment, training, and customer development to empower agent team development. The Company also revised the basic law for agent management to attract high quality talent, and pursued high-qualitydevelopment of agents via multiple approaches to improve agent productivity. In 2019, the monthly average sales agent headcount decreased by 9.1% year on year. That said, NBV per agent rose 16.4% year on year in 2019, resulting in agent channel NBV rising 5.9% year on year to RMB68,209 million in 2019. The agent channel NBV margin reached 64.9%, up

7.8 pps year on year. Meanwhile, new life insurance policies sold per agent per month increased by 13.1% year on year in 2019.

(in RMB million)

2019

2018

Change (%)

Agent productivity and

income

Agent channel NBV

68,209

64,401

5.9

Average number of agents

1.20

per month (in million)

1.32

(9.1)

NBV per agent (RMB per

56,791

agent per year)

48,789

16.4

Activity rate of agents(1) (%)

60.9

62.6

-1.7 pps

New individual life insurance

policies per agent

(policies per agent per

1.38

month)

1.22

13.1

Agent income (RMB per

6,309

agent per month)

6,294

0.2

Including: Income from

Ping An Life' s products

(RMB per agent per

5,512

month)

5,414

1.8

December

December

Change

31, 2019

31, 2018

(%)

Number of individual life

1,166,914

insurance sales agents

1,417,383

(17.7)

Notes: (1) Activity rate of agents = annual total of monthly agents who issued policies/annual total of monthly agents on board.

(2) Figures may not match the calculation due to rounding.

Development of other channels. The Company proactively pursued diversified development of bancassurance, telemarketing, internet and other channels, and made them new growth drivers. In 2019, the total NBV of channels other than the agent channel reached RMB7,737 million, accounting for 10.2% of the overall NBV. The bancassurance channel transformed the regular premium business based on the value creation strategy, and achieved sustainable, healthy, stable growth in embedded value and business scale. The channel also continuously optimized its business portfolio, driving the NBV up 37.7% year on year, and the NBV margin up 1.7 pps year on year. The telemarketing channel maintained its dominant market share

by continuing to transform its business models, upgrade from individual operations to platform operations, and improve operational efficiency and customer experience. The internet channel, relying on the scenario-based operations, satisfied diverse customer needs to fuel fast business growth.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 21

Business Analysis

Life and Health Insurance Business

PING AN LIFE'S PRODUCT STRATEGIES

Ping An Life answered the CBIRC's call for the industry to return to protection, built a multilayered product portfolio under the "product +" strategy, and rolled out a broad suite of protection products and long-term savings hybrid products to underpin growth in high-value business. Regarding protection products, Ping An Life offered protection products with wider coverage tailored for different customer segments. Ping An Life upgraded existing flagship protection products, launched new critical illness insurance products, and developed new accident protection products to meet mass customers' needs for long- term accident insurance. By doing so, Ping An Life expanded its customer base and market share. For certain market segments, Ping An Life adopted an "exclusive products + services" model, launched products exclusively for certain groups of people such as the diabetics in line with their health cycles, and offered various health management services to satisfy comprehensive health risk management needs of different customer groups. Regarding long-termsavings hybrid products, Ping An Life stepped up efforts to promote product development and insurance products with long premium payment periods to cater for customers' diverse needs. Ping An Life will further develop protection products, integrate products with health services, old-agecare, childcare and other services through systematic planning and implementation of the "product +" strategy, expand the service scope, and satisfy customers' demands for protection and related services.

OPERATIONS OF INSURANCE PRODUCTS Top five products of Ping An Life in terms of premium income in 2019 are presented below.

Premium

(in RMB million)

Distribution channel

income

Surrender

Yingyue Rensheng

Annuity

Sales agents,

(participating)

Bancassurance

36,655

292

Jinrui Rensheng

Sales agents,

Annuity

Bancassurance

20,962

110

Ping An Fu Whole

Sales agents,

Life Insurance

Bancassurance

15,732

574

Xiyue Rensheng

Annuity for

Children

Sales agents,

(participating)

Bancassurance

15,166

139

Xiyue Rensheng

Annuity

for Adults

Sales agents,

(participating)

Bancassurance

13,789

166

2019

2018

Change (pps)

13-month persistency

87.8

ratio (%)

91.4

(3.6)

25-month persistency

87.1

ratio (%)

88.2

(1.1)

PING AN LIFE'S TECHNOLOGY APPLICATIONS Ping An Life is pursuing comprehensive data- driven operations by implementing smart processes of marketing, customer services, operations, and so on.

Regarding data-driven marketing, Ping An Life has established processes for smart agent team management from recruitment, team building, and sales support. Regarding agent recruitment, 100% of interviews were AI-based.As of December 31, 2019, Ping An Life conducted over six million AI-basedinterviews, reducing the in-personinterviews by over 680 thousand hours. Regarding team building, Ping An Life obtained insights into different agents' potential through precise big databased profiling, developed personalized training plans and provided 24/7 online training for agents. The time for developing a high-potentialagent into a top performer was reduced by 3.6 months compared with 2018. We check training course attendance and learning status via the AI-basedimage recognition technology to improve efficiency in distance learning management. Regarding sales support, AskBob, Ping An's self-developedsmart search engine and AI-based decision-makingtool, provides agents with various sales-enablingtools as agents' exclusive smart personal assistant. AskBob answers agents' questions, gives scenario-baseddrills, and provides sales guidance for agents in

an efficient and convenient manner to help them improve sales conversion. AskBob served agents

340 million times as of December 31, 2019, and was accessed 920 thousand times per day on average in 2019. Regarding data-drivencustomer services, Ping An Life implemented smart processes of policy administration, underwriting, and so on.

In respect of policy administration, Ping An Life provided smart customer services over 50 million times in 2019; 99% of such service tasks were completed online within as short as one minute. The "Jin Guan Jia" app, which has 220 million users, launched the AI-powered video customer survey function, allowing customers to receive online customer surveys, look up information, and ask questions at any time. The industry's first task-basedmulti-round dialog customer service

22 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

robot was continuously upgraded, offering business processing, inquiry answering, and differentiated product recommendations. Ping An's online store called "Cloud Store" covers the whole country, and enables business processing through tri-party video conferences. In respect of underwriting, Ping An Life launched an underwriting risk model on its smart underwriting platform, with an accuracy rate of 90.8% in risk identification. In 2019, the platform served over 18 million policyholders, and approved 96% of policies through automatic underwriting. The underwriting turnaround time per case was shortened from 3.8 days of manual underwriting

to ten minutes, optimizing customer experiences. Regarding data-drivenoperations, Ping An Life has built a platform that enables the three core functionalities of quick data check, problem identification, and exception detection. The system covers business indicators for performance, teams, productivity, products, customers, and services, helping Ping An Life anticipate trends, make timely decisions, and take action ahead of others.

ANALYSIS OF OPERATING PROFIT AND PROFIT SOURCES

Due to the long-term nature of the main part of the life and health insurance business, the Company introduced the measure of operating profit to more appropriately evaluate business performance. Operating profit after tax is based on net profit from financial statements, excluding items that are of short-term, volatile or one-off nature, including:

  • Short-terminvestment variance, which is the variance between actual investment return of the life and health insurance business and the EV ultimate investment return assumption, net of associated relevant impact on insurance and investment contract liability. The investment return of the life and health insurance business is locked at 5% after excluding the short-term investment variance;
  • The impact of discount rate(1) change is the effect on insurance contract liability of the life and health insurance business due to changes in the discount rate; and
  • Impacts of one-offnon-operating items are material items that management considered to be non-operating income and expenses, which in 2019 refers to the one-off impact of the decrease in the income tax for 2018 factored into the income tax for 2019 as a result of the Company's insurance subsidiaries implementing the Circular on Pre-taxDeduction of Fee and Commission Expense for Insurers issued by the Ministry of Finance and the State Administration of Taxation on May 29, 2019.

Note: (1) Refer to "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in the Company's 2019 Annual Report for information about the discount rate.

The operating profit after tax which excludes fluctuations of the above non-operating items could provide a clearer and more objective representation of the Company's business performance and trend.

(in RMB million)

2019

2018

Change (%)

Release of residual margin

74,454

(A)

62,287

19.5

Return on net worth(1) (B)

11,738

8,959

31.0

Spread income(2) (C)

3,947

5,048

(21.8)

Operating variance and

10,406

others (D)

21,749

(52.2)

Operating profit before tax

(E=A+B+C+D)

100,545

98,043

2.6

Income tax (F)

(11,595)

(26,698)

(56.6)

Operating profit after tax

(G=E+F)

88,950

71,345

24.7

Short-term investment

19,354

variance (H)

(12,853)

N/A

Impact of discount rate

(13,164)

change (I)

265

N/A

Impact of one-off material

8,597

non-operating items (J)

-

N/A

Net profit (K=G+H+I+J)

103,737

58,757

76.6

Notes: (1) Return on net worth is the investment return on shareholder equity based on the EV ultimate investment return assumption (5%).

(2) Spread income is the expected investment return from assets backing contract liability based on the EV ultimate investment return assumption (5%) exceeding the interest required on contract liability.

(3) Figures may not match the calculation due to rounding.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 23

Business Analysis

Life and Health Insurance Business

The spread income decreased by 21.8% year on year as we lowered spread charges on our participating and universal insurance products to maintain their long-term interest settlement competitiveness in response to volatile capital markets in 2018. The impact continued into 2019, weighing on the spread income in the short term.

Operating variance and others dropped 52.2% year on year, largely because of increased strategic investment in technologies and agent team building as well as short-term fluctuation of policy persistency causing a decrease in operating variance.

As of December 31, 2019, residual margin of the life and health insurance business was RMB918,416 million, up by 16.8% from the beginning of 2019.

(in RMB million)

2019

2018

Change (%)

Opening residual margin

786,633

616,319

27.6

Contribution from new

155,684

business

177,485

(12.3)

Expected interest growth

33,811

28,498

18.6

Release of residual margin

(74,454)

(62,287)

19.5

Lapse variances and others

16,742

26,617

(37.1)

Closing residual margin

918,416

786,633

16.8

Note: Figures may not match the calculation due to rounding.

Income tax decreased by 56.6% year on year due to a lower effective tax rate attributable to the Circular on Pre-taxDeduction of Fee and Commission Expense for Insurers issued by the Ministry of Finance and the State Administration of Taxation on May 29, 2019.

Lapse variances and others declined by 37.1% year on year as the short-term volatility in the policy persistency ratio has certain impacts on growth of lapse variances and others. However, lapse variances and others continued to contribute positively due to better-than-assumed experience.

SOLVENCY MARGIN

As of December 31, 2019, the solvency margin ratios of Ping An Life, Ping An Annuity and Ping An Health met regulatory requirements. The solvency margin ratios of Ping An Life, Ping An Annuity and Ping An Health changed from the beginning of 2019 mainly due to net profit realization, dividend distribution, and business development.

Ping An Life

Ping An Annuity

Ping An Health

December

December

December

December

December

December

(in RMB million)

31, 2019

31, 2018 Change (%)

31, 2019

31, 2018

Change (%)

31, 2019

31, 2018

Change (%)

Core capital

934,301

741,727

26.0

10,423

8,677

20.1

2,251

1,690

33.2

Actual capital

949,301

764,727

24.1

10,423

8,677

20.1

2,251

1,690

33.2

Minimum capital

409,874

349,513

17.3

4,219

3,473

21.5

1,064

553

92.4

Core solvency

227.9

247.0

211.6

margin ratio (%)

212.2

15.7 pps

249.8

-2.8 pps

305.5

-93.9 pps

Comprehensive

solvency margin

231.6

247.0

211.6

ratio (%)

218.8

12.8 pps

249.8

-2.8 pps

305.5

-93.9 pps

Notes: (1) Core solvency margin ratio = core capital/minimum capital; comprehensive solvency margin ratio = actual capital/minimum capital.

(2) The regulatory minimum requirements for the core solvency margin ratio and comprehensive solvency margin ratio are 50% and 100% respectively.

(3) For details of subsidiaries' solvency margin, please visit the Company's website (www.pingan.cn).

(4) Figures may not match calculation due to rounding.

24 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

OTHER MAJOR FINANCIAL AND REGULATORY

INFORMATION

Income Statement of the Life and Health Insurance

Business

(in RMB million)

2019

2018

Written premium

611,637

570,523

Less: Premium deposits of

policies without significant

(3,543)

insurance risk transfer

(5,654)

Less: Premium deposits separated

out from universal life

and investment-linked

(84,422)

products

(93,169)

Premium income

523,672

471,700

Reinsurance premium income

3,139

659

Gross written premium

526,811

472,359

Net earned premium

517,140

465,583

Claims and policyholders' benefits

(445,775)

(323,494)

Commission expenses of

(80,034)

insurance operations

(84,142)

Administrative expenses(1)

(54,787)

(50,202)

Total investment income(2)

174,682

79,384

Other net revenue and expenses(3)

(2,428)

(5,870)

Profit before tax

108,798

81,259

Income tax

(5,061)

(22,502)

Net profit

103,737

58,757

Notes: (1) Administrative expenses include the administrative expenses, taxes and surcharges on investment operations and impairment losses on receivables and others under the segmented income statement.

(2) Total investment income includes interest revenue from non-banking operations, investment income, share of profits and losses of associates and jointly controlled entities, impairment losses on investment assets, and interest expenses on assets sold under agreements

to repurchase and placements from banks and other financial institutions under the segmented income statement.

(3) Other net revenue and expenses include the reinsurance commission revenue, other revenues and other gains, foreign exchange gains and losses, investment expenses net of taxes and surcharges on investment operations, finance costs, and other expenses.

Written Premium

The written premium of the life and health insurance business is analyzed below by policyholder type and channel:

(in RMB million)

2019

2018

Retail business

589,239

548,555

New business

153,968

156,599

Agent channel

124,631

130,715

Including: regular premium

114,685

124,394

Bancassurance channel

6,498

5,500

Including: regular premium

5,290

4,252

Telemarketing, internet and

22,839

others

20,384

Including: regular premium

11,209

12,322

Renewed business

435,271

391,956

Agent channel

389,790

353,343

Bancassurance channel

11,870

10,001

Telemarketing, internet and

33,611

others

28,612

Group business

22,398

21,968

New business

22,272

21,907

Renewed business

126

61

Total

611,637

570,523

The written premium of the life and health insurance business is analyzed below by product type:

(in RMB million)

2019

2018

Participating insurance

179,159

207,856

Universal insurance

102,020

111,029

Traditional life insurance

119,010

100,449

Long-term health insurance

107,015

90,105

Accident & short-term health

47,600

insurance

43,903

Annuity

55,411

15,679

Investment-linked insurance

1,422

1,502

Total

611,637

570,523

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 25

Business Analysis

Life and Health Insurance Business

The written premium of the life and health insurance business is analyzed below by region:

(in RMB million)

2019

2018

Maturity and survival benefits increased by 17.1% year on year because some insurance products matured in 2019.

Guangdong

108,696

102,697

Shandong

36,984

34,825

Jiangsu

34,679

31,999

Henan

32,952

29,111

Beijing

32,935

29,988

Subtotal

246,246

228,620

Total

611,637

570,523

Claims and Policyholders' Benefits

(in RMB million)

2019

2018

Surrenders

26,661

21,539

Surrender rate(1) (%)

1.4

1.3

Claim expenses of insurance

86,086

contracts

84,713

Claims paid

20,381

15,836

Annuities

9,557

22,725

Maturity and survival benefits

25,983

22,186

Death, injury and medical care

30,165

benefits

23,966

Reinsurer' s share of claim

expenses of insurance

(4,623)

contracts

(2,653)

Policyholder dividends

19,329

16,445

Net increase in insurance reserves

286,687

186,043

Interest credited to policyholder

31,635

contract deposits

17,407

Total

445,775

323,494

Note: (1) Surrender rate = surrenders/(opening balance of life insurance reserve + opening balance of long-term health insurance reserve + long-term insurance premium income).

Death, injury and medical care benefits were 25.9% higher year on year, driven by the expansion of the traditional life insurance and long-term health insurance businesses.

Policyholder dividends increased by 17.5% year on year due to the increase in existing participating insurance policies.

Net increase in insurance reserves increased by 54.1% year on year, mostly due to the business growth, increase in undistributed surplus, and movement of the benchmarking yield curve for measuring reserves for insurance contracts.

Interest credited to policyholder contract deposits was up 81.7% year on year due to the increased business scale and higher investment income in 2019.

Commission Expenses of Insurance Operations In 2019, the commission expense of the insurance business (mainly paid to the Company's sales agents) decreased by 4.9% year on year due to the improved business portfolio.

(in RMB million)

2019

2018

Health insurance

31,330

32,198

Accident insurance

4,925

7,205

Life insurance and others

43,779

44,739

Total

80,034

84,142

Administrative Expenses

(in RMB million)

2019

2018

Claims paid grew by 28.7% year on year, primarily due to continued growth in the short-term health insurance business.

Annuity payments decreased by 57.9% year on year as the payments peaked in 2018 when some products matured.

Operating expenses

53,867

49,276

Tax and surcharges

881

883

Impairment losses on receivables

and others

39

43

Total

54,787

50,202

26 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Total Investment Income

In 2019, the total investment yield of the life and health insurance business grew by 3.4 pps year on year to 7.0%. The total investment income grew by 120.0% year on year, mainly due to higher investment returns driven by capital market recoveries. The net investment yield was 5.2%, the same as that in 2018.

(in RMB million)

2019

2018

Net investment income(1)

130,702

114,169

Realized gains(2)

(722)

1,482

Fair value gains and losses

44,658

(36,067)

Impairment losses on investment

assets

44

(200)

Total investment income

174,682

79,384

Net investment yield(3) (%)

5.2

5.2

Total investment yield(3) (%)

7.0

3.6

Notes: (1) Net investment income includes interest revenue from deposits and debt financial assets, dividend income from equity financial assets, operating lease income from investment properties, and the share of profits and losses of associates and jointly controlled entities.

(2) Realized gains include realized capital gains from securities investments.

(3) Net exchange gains or losses on investment assets denominated in foreign currencies are excluded from computation of investment yields. Average investment assets used as the denominator are computed in line with principles of the Modified Dietz method.

Income Tax

In 2019, the income tax of the life and health insurance business decreased sharply year on year mainly due to the following: According to the Circular on Pre-taxDeduction of Fee and Commission Expense for Insurers (No. 72, 2019) (the "Circular") issued by the Ministry of Finance and the State Administration of Taxation on May 29, 2019, the maximum proportion of pre-tax deduction of fee and commission expense for insurers has been raised to 18% (inclusive) of the balance of premium income less surrenders for the current year, and the excess may be carried forward to the following year. Insurers shall compute and pay their income tax for 2018 in accordance with the Circular. Regarding our life and health insurance business, the impact of the Circular on the income tax for 2018 is RMB8,597 million, which has been factored into the income tax for 2019.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 27

Business Analysis

Property and Casualty Insurance Business

Ping An Property & Casualty's operating profit for 2019 grew by 70.7% year on year to RMB20,952 million, with an operating ROE of 24.6%. The combined ratio was 96.4%, indicating better-than-industry business quality.

Ping An Property & Casualty employs new technologies to promote online customer development and improve the service system. As of December 31, 2019, the "Ping An Auto Owner" app had over 90 million registered users, about 49 million of whom were also auto insurance customers of Ping An Property & Casualty. In December 2019, the app had over 25 million monthly active users, topping the list of auto service apps in China.

Ping An Property & Casualty is the industry leader for pioneering online claims services. We developed cutting-edgeAI-poweredimage-based loss assessment and precise customer profiling technologies. Capitalizing on these technologies, we launched the "Ping An Motor Insurance Trust Claim" service for auto owners with safe driving behaviors. Through this pioneering service, we shortened the annual average turnaround time of a single claim to only 3 minutes, with no back-end manual operation involved.

BUSINESS OVERVIEW

The Company conducts its property and casualty insurance business mainly through Ping An Property & Casualty. The business scope of Ping An Property & Casualty covers all lawful property and casualty insurance businesses including auto insurance, corporate property and casualty insurance, engineering insurance, cargo insurance, liability insurance, guarantee insurance, credit insurance, home contents insurance, accident and health insurance, as well as international reinsurance business. Ping An Property & Casualty has been honored as the "No.1 Brand" in China's auto insurance and property and casualty insurance markets for nine consecutive years. Ping An Property & Casualty distributes insurance products mainly through

  1. network of 43 branches and over 2,740 central sub-branches,sub-branches, sales service outlets, and business outlets across China. Main distribution channels include in-house sales representatives, insurance agents and brokers at all levels, telemarketing, online marketing, and cross-selling.

In 2019, Ping An Property & Casualty's premium income grew by 9.5% year on year to RMB270,930 million. Ping An Property & Casualty is the second largest property and casualty insurance company in China by premium income. Through robust corporate management and risk screening, Ping An Property & Casualty maintained excellent business quality, with a better-than-industry combined ratio of 96.4%. Operating profit for 2019 rose 70.7% year on year to RMB20,952 million due to a year-on-year increase in total investment income driven by recovering capital markets and a year-on-year decrease in income tax attributable to declining commission rates.

28 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Key indicators of the property and casualty insurance business

(in RMB million)

2019

2018

Change (%)

Operating profit

20,952

12,274

70.7

Operating ROE (%)

24.6

16.7

7.9 pps

Profit before tax

25,485

19,515

30.6

Net profit

22,808

12,274

85.8

Combined ratio (%)

96.4

96.0

0.4 pps

Including:

39.1

Expense ratio(1) (%)

41.1

-2.0

pps

Loss ratio(2) (%)

57.3

54.9

2.4

pps

Premium income

270,930

247,444

9.5

Including:

194,315

Auto insurance

181,768

6.9

Non-auto insurance

63,703

56,211

13.3

Accident and health

12,912

insurance

9,465

36.4

Market share(3) (%)

20.8

21.0

-0.2

pps

Including:

23.7

Auto insurance (%)

23.2

0.5

pps

Notes: (1) Expense ratio = (commission expenses of insurance business + administrative expenses - reinsurance commission revenue)/net earned premiums.

(2) Loss ratio = claim expenses/net earned premiums.

(3) The market share was calculated on the basis of the insurance industry data of the People's Republic of China (the "PRC") published by the CBIRC.

Analysis of Profit Sources

(in RMB million)

2019

2018

Change (%)

Premium income

270,930

247,444

9.5

Net earned premiums

231,403

211,918

9.2

Claim expenses

(132,615)

(116,305)

14.0

Commission expenses of

(39,368)

insurance operations

(49,337)

(20.2)

Administrative expenses(1)

(57,567)

(44,760)

28.6

Reinsurance commission

6,547

revenue

6,964

(6.0)

Underwriting profit

8,400

8,480

(0.9)

Combined ratio (%)

96.4

96.0

0.4 pps

Total investment income(2)

17,981

11,016

63.2

Average investment

273,819

assets

249,576

9.7

Total investment yield (%)

6.6

4.4

2.2 pps

Other net revenue and

(896)

expenses

19

N/A

Profit before tax

25,485

19,515

30.6

Income tax

(2,677)

(7,241)

(63.0)

Net profit (A)

22,808

12,274

85.8

Impact of one-off material

1,856

non-operating items(3) (B)

-

N/A

Operating profit (C=A-B)

20,952

12,274

70.7

Notes : (1) Administrative expenses include administrative expenses and impairment losses on receivables and others under the segmented income statement.

(2) Total investment income includes interest revenue from non-banking operations, investment income, share of profits and losses of associates and jointly controlled entities, impairment losses on investment assets, and interest expenses on assets sold under agreements

to repurchase and placements from banks and other financial institutions under the segmented income statement.

(3) In 2019, we recognized a one-off material impact of the decrease in the income tax for 2018 factored into the income tax for 2019 as a result of Ping An Property & Casualty implementing the Circular on

Pre-tax Deduction of Fee and Commission Expense for Insurers issued by the Ministry of Finance and the State Administration of Taxation on May 29, 2019.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 29

Business Analysis

Property and Casualty Insurance Business

OPERATING DATA BY PRODUCT TYPE

Among all the insurance products offered by Ping An Property & Casualty in 2019, the top five sources of premium income were auto insurance, guarantee insurance, liability insurance, accidental injury insurance, and corporate property and casualty insurance. Premium income of these five insurance segments accounted for 95.6% of Ping An Property & Casualty's total premium income for 2019.

Auto Insurance

Premium income from the auto insurance business grew by 6.9% year on year. Underwriting profit was RMB4,915 million. The combined ratio stood at 97.2%, indicating industry-leading profitability. In 2019, Ping An Property & Casualty aimed for high-quality development, remained focused on customer demands, and transformed its auto insurance business into data-driven operations through process reengineering and technological change.

Guarantee Insurance

Ping An Property & Casualty provides credit guarantee insurance to individuals and small and micro-business owners referred by other member companies of the Group only. Moreover, Ping An Property & Casualty shares advantages with other member companies of the Group through cross-checks and multi-dimensional risk reviews to contain business risks. Premium income from the guarantee insurance business for 2019 grew by 5.1% year on year. The growth slowed largely because Ping An Property & Casualty enhanced risk management and optimized its customer portfolio to focus on low-risk,low-premium customers amid changes in domestic economic and financial situations. The combined ratio rose 5.0 pps year on year to 93.6% as some in-force policies written in 2018 impacted the current claim expenses to some extent. Despite this, the guarantee insurance business maintained strong profitability, delivering RMB1,552 million in underwriting profit.

Insured

Premium

Net earned

Claim

Underwriting

Combined

Reserve

(in RMB million)

amount

income

premium

expenses

profit

ratio

liabilities

Auto insurance

65,925,601

194,315

176,799

101,063

4,915

97.2%

143,112

Guarantee insurance

374,438

34,708

24,135

18,307

1,552

93.6%

55,359

Liability insurance

1,156,894,115

11,981

9,230

4,156

223

97.6%

10,806

Accidental injury insurance

624,006,362

11,750

10,831

2,842

1,705

84.3%

7,253

Corporate property &

casualty insurance

19,128,756

6,356

3,187

1,618

524

83.6%

6,374

30 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

PING AN PROPERTY & CASUALTY'S TECHNOLOGY APPLICATIONS

Under the Group's "finance + technology" and "finance + ecosystem" strategies, Ping An Property

  • Casualty conducted data-driven business transformations and pursued technological innovations to improve customer experiences. Ping An Property & Casualty was honored as a role model for corporate digital transformations and smart services in China for 2019 by Harvard Business Review. Ping An Property & Casualty's optical character recognition (OCR) technology ranked No.1 in the Robust Reading Challenge on Scanned Receipts Optical Character Recognition and Information Extraction (SROIE) at the International Conference on Document Analysis and Recognition.

In auto insurance, Ping An Property & Casualty provided one-stop auto use services and diverse auto aftermarket services via the "Ping An Auto Owner" app. As of December 31, 2019, the "Ping An Auto Owner" app had over 90 million registered users, about 49 million of whom were also auto insurance customers of Ping An Property & Casualty. In December 2019, the app had over 25 million monthly active users, topping the list of auto service apps in China. Ping An Property & Casualty is the industry leader for online claims services. We developed cutting-edgeAI-poweredimage-based loss assessment and precise customer profiling technologies. We provided nearly 90% of claimants with end-to-end online support for claim settlement and inquiry services. Almost 25% of claims can be handled through smart loss assessment; this is at an industry-leading level. Meanwhile, we launched the "Ping An Motor Insurance Trust Claim" service for auto owners with safe driving behaviors. Through this pioneering service, we shortened the annual average turnaround time of a single claim to 3 minutes, with no back-end manual operation involved. Moreover, under the philosophy of "sharing + openness," Ping An Property & Casualty embedded the AI-poweredimage-based loss assessment technology in the "Ping An Auto Owner" app to facilitate free self-assessment of external damage. We also recommend reliable repair shops to users. In this way, we have built a closed loop of auto owner services.

In property and casualty insurance, Ping An Property & Casualty initiated a Know Your Risk (KYR) enterprise risk management consultant project to offer diverse risk management services under an innovative "services + insurance" model. In 2019, Ping An Property & Casualty provided 14.28 thousand corporate customers and key engineering projects with disaster/loss prevention services. Ping An Property & Casualty conducted 87 emergency management training sessions, covering over 25 thousand trainees. Ping An Property & Casualty carried out 10 disaster warning and loss prevention programs regarding severe natural disasters including typhoons and rainstorms, and sent out 1.10 million text message alerts in 2019. By developing

  1. government-insurerrisk management cloud platform, Ping An Property & Casualty helps local governments improve their control over production safety, environmental protection, and construction quality management in their jurisdictions.

SOLVENCY MARGIN

As of December 31, 2019, Ping An Property & Casualty's solvency was adequate. The solvency margin ratios changed mainly due to the combined effect of net profit, capital supplement bond issuance, and business development.

December

December

Change

(in RMB million)

31, 2019

31, 2018

(%)

Core capital

92,897

77,057

20.6

Actual capital

111,397

85,557

30.2

Minimum capital

42,982

38,236

12.4

Core solvency margin

216.1

ratio (%)

201.5

14.6

pps

Comprehensive solvency

259.2

margin ratio (%)

223.8

35.4

pps

Notes: (1) Core solvency margin ratio = core capital/minimum capital. Comprehensive solvency margin ratio = actual capital/minimum capital.

(2) The regulatory minimum requirements for the core solvency margin ratio and comprehensive solvency margin ratio in the above table are 50% and 100% respectively.

(3) For details of Ping An Property & Casualty's solvency margin, please refer to the Company's website (www. pingan.cn).

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 31

Business Analysis

Property and Casualty Insurance Business

OTHER MAJOR FINANCIAL AND REGULATORY INFORMATION

Premium Income

Below is a breakdown of the premium income from our property and casualty insurance business by channel:

2019

2018

Percentage

Percentage

(in RMB million)

Amount

(%)

Amount

(%)

Car dealers

65,431

24.2

59,426

24.0

Agencies

63,318

23.4

57,217

23.1

Telemarketing and

online channels

47,832

17.7

47,710

19.3

Cross-selling

45,427

16.8

41,436

16.7

Direct selling

28,273

10.4

24,176

9.8

Others

20,649

7.5

17,479

7.1

Total

270,930

100.0

247,444

100.0

Note: Regarding credit guarantee insurance provided to individuals

and small and micro-business owners referred by other member companies of the Group, Ping An Property & Casualty reclassified the channels into the telemarketing and online channels according to the business feature of online application and automatic underwriting to reflect the nature of online insurance business. The data for 2018 was restated accordingly.

Below is a breakdown of the premium income from our property and casualty insurance business by region:

(in RMB million)

2019

2018

Guangdong

44,337

43,788

Jiangsu

18,849

17,125

Zhejiang

16,829

14,920

Shanghai

14,862

12,974

Shandong

14,365

13,127

Subtotal

109,242

101,934

Total

270,930

247,444

Reinsurance Arrangements

Ping An Property & Casualty adopts a prudent approach to its reinsurance policy to scale up underwriting, diversify operating risks, and ensure healthy business growth and stable operating results. Ping An Property & Casualty maintains close long-standing relationships with the world's major reinsurance brokers and reinsurers, actively sharing experience in business development and promoting technological empowerment of reinsurance. Our reinsurance business has received strong support in major reinsurance markets around the world, including Europe, the U.S., Bermuda, and Asia.

We have partnered with nearly 100 reinsurers and reinsurance brokers worldwide, including China Property & Casualty Re, Swiss Re, Munich Re, and Hannover Re.

(in RMB million)

2019

2018

Ceded premium

15,928

14,881

Auto insurance

7,325

6,895

Non-auto insurance

8,586

7,895

Accident and health insurance

17

91

Inward reinsurance premium

66

82

Non-auto insurance

66

82

Claim Expenses

In 2019, claim expenses rose by 14.0% year on year mainly due to sustained insurance business growth.

(in RMB million)

2019

2018

Auto insurance

101,063

91,634

Non-auto insurance

27,748

21,523

Accident and health insurance

3,804

3,148

Total

132,615

116,305

32 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Commission Expenses of Insurance Operations In 2019, commission expenses of insurance operations decreased by 20.2% year on year, while their proportion in premium income declined by 5.4 pps year on year mainly due to the year-on-yearpremium income growth and adjusted expense structure.

(in RMB million)

2019

2018

Auto insurance

29,591

42,994

Non-auto insurance

5,754

3,834

Accident and health insurance

4,023

2,509

Total

39,368

49,337

Commission expenses as a

percentage of premium

14.5

income (%)

19.9

Administrative Expenses

In 2019, administrative expenses rose by 28.6% year on year, mainly driven by sustained insurance business growth and greater investment in technology.

(in RMB million)

2019

2018

Operating expenses

54,720

42,253

Tax and surcharges

1,405

1,284

Impairment losses on

1,442

receivables and others

1,223

Total

57,567

44,760

Total Investment Income

In 2019, the total investment yield of the property and casualty insurance business was 6.6%, up 2.2 pps year on year. The total investment income grew by 63.2% year on year mainly due to greater volatility of fair value gains and losses driven by capital market recoveries. The net investment yield was 5.4%, the same as that in 2018.

(in RMB million)

2019

2018

Net investment income(1)

14,748

13,438

Realized income(2)

121

(1,203)

Fair value gains and losses

3,008

(1,032)

Impairment losses on investment

assets

104

(187)

Total investment income

17,981

11,016

Net investment yield(3) (%)

5.4

5.4

Total investment yield(3) (%)

6.6

4.4

Notes: (1) Net investment income includes interest revenue from deposits and debt financial assets, dividend income from equity financial assets, operating lease income from investment properties, and the share of profits and losses of associates and jointly controlled entities.

(2) Realized income includes capital gains from securities investments.

(3) Net exchange gains or losses on investment assets denominated in foreign currencies are excluded from computation of investment yields. Average investment assets used as the denominator are computed in line with principles of the Modified Dietz method.

Income Tax

In 2019, the income tax of Ping An Property & Casualty decreased sharply year on year due to the following: 1) the income tax for 2018 was reduced by RMB1,856 million due to the Circular on Pre-taxDeduction of Fee and Commission Expense for Insurers issued by the Ministry of Finance and the State Administration of Taxation on May 29, 2019, with a one-off impact on the income tax for 2019; and 2) commission expenses decreased, causing the income tax payable to decline year on year.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 33

Business Analysis

Investment Portfolio of Insurance Funds

As of December 31, 2019, the Company's investment portfolio of insurance funds grew to RMB3.21 trillion by 14.8% from the beginning of 2019.

In 2019, the net investment yield and total investment yield of the investment portfolio of insurance funds were 5.2% and 6.9% respectively.

The Company further narrowed the duration gap between assets and liabilities despite the fact that long-duration assets were in short supply. The Company further improved investment risk management, refined risk limits, increased monitoring frequency, and enhanced early warning and risk review to ensure overall investment risks are controllable.

OVERVIEW OF INVESTMENT PORTFOLIO OF INSURANCE FUNDS

The Company's investment portfolio of insurance funds is comprised of investable funds from the life and health insurance business and the property and casualty insurance business.

In 2019, China's economy faced downward pressure while the world's major economies showed slackening growth. The Chinese government upheld a new development philosophy, unswervingly pursued high-quality development, furthered the supply-side structural reform, and carried out countercyclical adjustments through macro-economic policies. As a result, the quality of China's economic growth improved and major macro-economic indicators stayed within acceptable ranges. Although influenced by factors such as overseas market fluctuations and international economic and trade frictions, the Chinese government shored up market confidence through policies. China's stock market rose overall, while interest rates fluctuated at low levels.

The Company continued to improve asset- liability duration matching of insurance funds. The Company maintained robust asset-liabilitymanagement. The Company maintained a stable risk appetite in a changing market environment through robust asset allocation, in-depth macro-economicresearches, and tracking of thematic issues. The Company analyzed market rates and opportunistically increased allocation to tax-exemptbonds including central and local government bonds as well as long-duration low-riskbonds including financial bonds issued by policy

banks. The Company further narrowed the duration gap between assets and liabilities to improve asset-liability matching, and actively responded to the challenge brought by a shortage of long- duration assets in markets. In addition, the Company dynamically adjusted proportions of equity assets in the portfolio and increased long-term equity stakes to reduce impacts of equity market volatility.

The Company constantly improved internal controls over investment risk management. Firstly, the Company continued to strengthen asset-liabilityrisk management, and optimized the term structure of asset-liabilityduration matching by making more investment in long-durationrate bonds. The Company attached great importance to risk management in matching costs and returns, established a risk appetite framework

in which the matching of costs and returns was a key quantitative indicator, and conducted necessary updates through quarterly reviews. Secondly, the Company focused on developing policies and processes. To optimize end-to-end risk management, the Company standardized the business processes, improved the investment risk management framework, and established and enhanced risk appetite strategies, credit ratings, list-based counterparty management, risk warnings, risk contingency management, and other key processes. Thirdly, by managing key post-investment matters, the Company identified risks, made decisions, and took action in advance. The Company provided investee companies with modern market-oriented business management philosophies and techniques. The Company upheld the principles of "well-defined responsibilities,

34 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

timely follow-up, and sound management," with which the Company was able to "monitor risks closely, identify risks accurately, and avoid risks promptly." In this way, the Company integrated risk management with value creation. Fourthly, the Company enhanced the risk monitoring system and the risk management information system, and established a comprehensive risk management database, with which the Company conducted automatic risk identification, smart early warning, and smart risk management in real time.

INVESTMENT PORTFOLIO (BY CATEGORY)

December 31, 2019

December 31, 2018

(in RMB million)

Carrying value Percentage (%)

Carrying value

Percentage (%)

AND ANALYSIS

Cash and cash equivalents Term deposits

Debt financial assets Bond investments Bond funds Preferred stocks Perpetual bonds Policy loans Debt schemes

Wealth management products Equity financial assets

Stocks Equity funds

Wealth management products Unlisted equities

Long-term equity stakes Investment properties Other investments(2)

(1)

(1)

95,680

3.0

116,532

4.1

210,925

6.6

201,251

7.2

1,504,059

46.9

1,270,765

45.4

42,234

1.3

43,541

1.6

114,896

3.6

79,881

2.9

17,838

0.6

-

-

139,326

4.3

111,219

4.0

132,462

4.1

156,501

5.6

297,631

9.3

285,663

10.2

295,429

9.2

231,801

8.3

49,491

1.5

44,276

1.6

38,187

1.2

32,183

1.2

67,462

2.1

49,757

1.8

120,345

3.8

93,225

3.3

61,005

1.9

53,356

1.9

21,866

0.6

24,669

0.9

MANAGEMENT DISCUSSION

Total investments

3,208,836

100.0

2,794,620

100.0

Notes: (1) Wealth management products include trust plans from trust companies, products from insurance asset management companies, and wealth management products from commercial banks.

(2) Other investments mainly include statutory deposits for insurance operations, three-month or longer-term financial assets purchased under reverse repurchase agreements, and financial derivatives.

INVESTMENT PORTFOLIO (BY ACCOUNTING MEASUREMENT)

December 31, 2019

December 31, 2018

(in RMB million)

Carrying value

Percentage (%)

Carrying value

Percentage (%)

Financial assets carried at fair value through

586,777

18.3

profit or loss

515,114

18.5

Fixed income

336,594

10.5

310,886

11.2

Stocks

95,895

3.0

78,757

2.8

Equity funds

49,491

1.5

44,276

1.6

Other equity financial assets

104,797

3.3

81,195

2.9

Financial assets carried at fair value through

509,167

15.9

other comprehensive income

411,074

14.7

Financial assets measured at amortized cost

1,931,531

60.2

1,721,808

61.6

Others(1)

181,361

5.6

146,624

5.2

Total investments

3,208,836

100.0

2,794,620

100.0

Note: (1) Others include long-term equity stakes, investment properties, and derivative financial assets.

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 35

Business Analysis

Investment Portfolio of Insurance Funds

INVESTMENT INCOME

In 2019, the Company's total investment yield from the investment portfolio of insurance funds grew to 6.9%, up 3.2 pps year on year. This was mainly due to the year-on-year increase in investment income driven by capital market recoveries. The Company's net investment yield was 5.2%, the same as that in the previous year.

(in RMB million)

2019

2018

Change (%)

Net investment income(1)

144,050

126,707

13.7

Realized gains(2)

(601)

280

N/A

Fair value gains and losses

47,666

(37,099)

N/A

Impairment losses on

investment assets

148

(387)

N/A

Total investment income

191,263

89,501

113.7

Net investment yield(3) (%)

5.2

5.2

-

Total investment yield(3) (%)

6.9

3.7

3.2 pps

Notes: (1) Net investment income includes interest income from deposits and debt financial assets, dividend income from equity financial assets, operating lease income from investment properties, and the share of profits and losses of associates and jointly controlled entities.

(2) Realized gains include capital gains from securities investments.

(3) Net exchange gains or losses on investment assets denominated in foreign currencies are excluded from computation of the above yields. Average investment assets used as the denominator are computed in line with principles of the Modified Dietz method.

CORPORATE BONDS IN CAPITAL MARKETS As of December 31, 2019, the Company held RMB127,511 million worth of corporate bonds, which accounted for 4.0% of the total investment assets, down 1.8 pps year on year. In terms of the credit level, the overall credit rating improved compared with the end of 2018. About 99% of the corporate bonds have AA and higher external ratings while about 89% have AAA ratings. Credit quality of the portfolio remained sound as these corporate bonds are secure and risks are under control. For risk management of corporate bonds, the Company carries out comprehensive risk management covering asset allocation, admission management, and dynamic monitoring. The Company has had an internal credit rating team in place since 2003, who conducted strict admission management for

the investment of corporate bonds, and reviewed and adjusted ratings to ensure that credit ratings reasonably reflected credit profiles of bond issuers. Moreover, the Company established an early-warning system to monitor potential risks in corporate bonds, on the basis of a bond issuer list, and a rapid response mechanism that deals with negative news about bond issuers. The Company effectively identified and reported high-risk corporate bonds to enhance early warning and risk management.

DEBT SCHEMES AND DEBT WEALTH

MANAGEMENT PRODUCTS

Debt schemes and debt wealth management products include debt investment schemes incepted by insurance asset management companies, debt trust plans incepted by trust companies, and fixed- income wealth management products incepted

by commercial banks. As of December 31, 2019, our investment in debt schemes and debt wealth management products totaled RMB430,093 million, accounting for 13.4% of the total investment assets, down 2.4 pps from the beginning of 2019. The Company manages risks in debt schemes and debt wealth management products at three levels. The first level is asset allocation. The Company has developed a set of effective, robust asset allocation models. While keeping the overall risk within the risk appetite, the Company formulates a strategic asset allocation plan for each account, and sets upper and lower limits on proportions of asset allocation. In tactical asset allocation, the Company gives opinions on capital allocation to non-standard debt instruments according to the funding level in each account, the return and liquidity demands, and similar assets' relative attractiveness. The second level is asset selection. The selection of assets is subject to strict internal and external requirements as well as the approval by clients. When selecting assets, the Company prefers projects located in developed areas and industry leaders encouraged by China's industry policies. The third level is post-investment management. The Company's post-investment management team closely monitors the assets. The Company has established a multi-dimensional risk warning framework covering all investment areas, assets, and instruments to ensure that overall investment risks are thoroughly assessed and controllable.

36 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Structure and yield distribution of debt schemes and debt wealth management products

Investment

Nominal yield

Maturity

Remaining

Industry

proportion (%)

(%)

(year)

maturity (year)

Infrastructure

33.5

5.75

8.69

5.19

Expressway

12.5

5.85

9.87

5.74

Electric power

2.9

5.34

7.93

3.91

Infrastructure and development zones

8.7

5.85

8.16

5.90

Others (water supply, environmental

protection, railway...)

9.4

5.65

7.85

4.21

Non-banking financial services(2)

36.3

5.74

5.46

2.71

Real estate

18.3

5.90

4.69

2.05

Coal mining

1.5

5.90

8.13

3.07

Others

10.4

5.48

6.56

5.11

Total

100.0

5.75

6.56

3.68

Notes: (1) The debt schemes and debt wealth management products were classified by industry in line with Shenyin Wanguo's industry classification.

(2) Non-banking financial services refer to financial institutions other than banks, including insurers, asset management companies, and financial leasing companies.

(3) Some industries have been grouped into "others" as they account for small proportions.

There has been no default on the debt schemes and debt wealth management products held by Ping An, and overall risks are controllable. In terms of credit level, over 99% of the debt schemes and trust plans held by Ping An have AAA external ratings, and about 1% of them have AA+ external ratings. Aside from some high-credit entities which do not need credit enhancement for their financing, most of the assets the Company holds have guarantees or collateral. In terms of industry and geographic distribution, we avoid high-risk industries and regions. Our target assets are mainly in the non-banking financial services, real estate, and expressway industries in developed and coastal areas including Beijing, Shanghai, and Guangdong. In terms of investment timing and returns, Ping An seized time windows of large supplies of high-quality assets to boost overall portfolio yields.

EQUITY WEALTH MANAGEMENT PRODUCTS

As of December 31, 2019, our investment in equity wealth management products totaled RMB38,187 million, accounting for 1.2% of the total investment assets. The equity wealth management products held by Ping An are mainly products from insurance asset management companies. The underlying assets of these products are mainly tradable shares of domestic and foreign high-quality companies, indicating no significant liquidity risk. Private equity funds account for a tiny proportion; the exposure to them is limited, and their underlying assets are mainly equities in central and local governments' partnerships, with risks under control.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 37

Business Analysis

Banking Business

Ping An Bank maintained stable and healthy business growth. Revenues grew by 18.2% year on year to RMB137,958 million, and net profit increased by 13.6% year on year to RMB28,195 million.

Ping An Bank furthered the retail transformation. Retail banking's revenues and net profit increased by 29.2% and 13.8% year on year, contributing to

58.0% and 69.1% of Ping An Bank's total revenue and net profit respectively. Retail banking accounted for 24.0% of deposits and 58.4% of loans, up 2.3 pps and 0.6 pps from the beginning of 2019 respectively.

Ping An Bank continued to de-risk. The non-performing loan ratio dropped by 0.10 pps from the beginning of 2019 to 1.65%. The percentages of special mention loans, loans more than 60 days overdue and loans more than

90 days overdue dropped by 0.72 pps, 0.34 pps and 0.35 pps respectively from the beginning of 2019 to 2.01%, 1.58% and 1.35% respectively. The provision coverage ratios for non-performing loans, loans more than 60 days overdue and loans more than 90 days overdue rose by 27.88 pps, 49.10 pps and 63.44 pps from the beginning of 2019 respectively. The deviations of loans more than 60 days overdue and loans more than 90 days overdue were both below 1.

In 2019, Ping An Bank completed the issuance and conversion of RMB26 billion worth of A share convertible corporate bonds. Ping An Bank also issued RMB30 billion worth of tier 2 capital bonds and RMB20 billion worth of undated capital bonds. As of December 31, 2019, the core tier 1 capital adequacy ratio and capital adequacy ratio rose 0.57 pps and 1.72 pps from the beginning of 2019 to 9.11% and 13.22% respectively.

BUSINESS OVERVIEW

In 2019, Ping An Bank continued its mission to build "China's most outstanding, world-leading smart retail bank" under the strategy of "technology-driven breakthroughs in retail banking and enhancement of corporate banking." Ping An Bank established the "3+2+1" strategies for retail, corporate, and interbank businesses to achieve balanced business development on the basis of previous transformation. Moreover, Ping An Bank continued to pursue data-driven operations and strengthen financial risk management. Ping An Bank enhanced its capability to serve the real economy by empowering non-state-owned enterprises and small and micro-businesses and conducting poverty alleviation via financial services.

KEY INDICATORS

Ping An Bank maintained stable and healthy business growth with both revenues and net profit increasing steadily in 2019. Revenues grew by

18.2% year on year to RMB137,958 million. Net profit increased by 13.6% year on year to RMB28,195 million.

(in RMB million)

2019

2018

Change (%)

Net profit

28,195

24,818

13.6

Cost-to-income ratio(1) (%)

29.61

30.32

-0.71

pps

Average return on total

assets (%)

0.77

0.74

0.03

pps

Weighted average ROE (%)

11.30

11.49

-0.19

pps

Net interest margin(2) (%)

2.62

2.35

0.27

pps

Notes: (1) Cost-to-income ratio = general and administrative expenses/total revenues.

(2) Net interest margin = net interest revenue/average balance of interest-earning assets.

38 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

December

December

Change

(in RMB million)

31, 2019

31, 2018

(%)

Deposits and loans(1)

Total loans and advances

2,323,205

1,997,529

16.3

Including: Retail loans

1,357,221

1,154,013

17.6

Corporate loans

965,984

843,516

14.5

Deposits

2,436,935

2,128,557

14.5

Including: Retail deposits

583,673

461,591

26.4

Corporate deposits

1,853,262

1,666,966

11.2

Asset quality

Analysis of Profit Sources

(in RMB million)

2019

2018

Change (%)

Net interest revenue

89,961

74,745

20.4

Average balance of interest-

3,433,756

earning assets

3,186,151

7.8

Net interest margin (%)

2.62

2.35

0.27 pps

Net non-interest revenue

47,997

41,971

14.4

Including:

Net fee and commission

36,743

revenue

31,297

17.4

Other net non-interest

11,254

revenue

10,674

5.4

DISCUSSION AND ANALYSIS

Non-performing loan ratio (%) Provision coverage ratio (%) Deviation of loans more than

90 days overdue(2) (%)

Deviation of loans more than

60 days overdue(3) (%)

1.65

1.75

-0.10

pps

183.12

155.24

27.88

pps

82 97 -15 pps

96

110

-14 pps

Revenue

137,958

116,716

18.2

General and administrative

(40,852)

expenses

(35,391)

15.4

Cost-to-income ratio (%)

29.61

30.32

-0.71 pps

Loan impairment loss

(53,288)

(43,657)

22.1

Average balance of loans

MANAGEMENT

Capital adequacy ratio

Core tier 1 capital adequacy

9.11

ratio(4) (%)

8.54 0.57 pps

Notes: (1) Total loans and advances, deposits, and their components are exclusive of interest receivable and payable.

(2) Deviation of loans more than 90 days overdue = balance of loans more than 90 days overdue/balance of non-performing loans.

(3) Deviation of loans more than 60 days overdue = balance of loans more than 60 days overdue/balance of non-performing loans.

(4) The minimum regulatory requirement for the core tier 1 capital adequacy ratio is 7.5%.

(including discounted bills)

2,096,394

1,858,353

12.8

Credit cost(1) (%)

2.54

2.35

0.19 pps

Other expenses

(7,578)

(5,437)

39.4

Profit before tax

36,240

32,231

12.4

Income tax

(8,045)

(7,413)

8.5

Net profit

28,195

24,818

13.6

Note: (1) Credit cost = loan impairment loss/average balance of loans (including discounted bills).

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 39

Business Analysis

Banking Business

Net Interest Margin

Ping An Bank's net interest margin for 2019 increased by 0.27 pps year on year to 2.62%, benefiting from higher asset yields and lower funding costs. As Ping An Bank further optimized its business portfolio, the yields on interest-earning assets rose as the scale and proportion of

higher yield retail loans increased. Meanwhile, interest-bearing liabilities' cost dropped further due to increases in lower cost deposits and ample liquidity in the market in 2019.

Net Non-interest Revenue

Ping An Bank's net non-interest revenue totaled RMB47,997 million in 2019, up 14.4 % year on year, mainly due to higher bank card fee revenue.

Apart from net fee and commission revenue, net non-interest revenue includes investment income, fair value gains and losses, foreign exchange gains and losses, other business revenue, asset disposal gains and losses, and other income.

OPERATING RESULTS

Retail Banking

In 2019, Ping An Bank furthered its retail transformation by continuing reforms under the philosophy of data-drivenoperations. Under the "3+2+1" strategy, Ping An Bank promoted three key businesses of "basic retail banking, private banking

  • wealth management (PBWM) and consumer finance," enhanced two core capabilities of "risk management and cost control," and developed "one ecosystem" to enhance integration. In 2019, retail banking accounted for RMB79,973 million or 58.0% of Ping An Bank's revenues, up 29.2% year on year, and RMB19,493 million or 69.1% of its net profit, up
    13.8% year on year. As of December 31, 2019, Ping An Bank's retail assets under management (AUM) rose by 39.9% from the beginning of 2019 to RMB1,982,721 million. The balance of retail loans increased by
    17.6% from the beginning of 2019 to RMB1,357,221 million. In 2019, Ping An Bank's net non-interest revenue from distribution of the Group's insurance products through retail channels grew by 13.2% year on year to RMB2,789 million. The integrated financial business model made increasing contributions
    to retail banking. Customers referred by the cross-selling channel have better asset quality than other customers.

(in RMB million)

2019

2018

Change (%)

Operating results of retail

banking

Revenue from retail banking

79,973

61,883

29.2

% of revenue from retail

58.0

banking

53.0

5.0 pps

Net profit from retail banking

19,493

17,129

13.8

% of net profit from retail

69.1

banking

69.0

0.1 pps

2019

Cross-selling

channel' s

Cross-selling

contribution

channel' s

percentage

contribution

(%)

Cross-selling channel' s contributions

to retail banking

Credit cards issued (in million)

4.88

34.1

Xin Yi Dai unsecured loans granted

(in RMB million)

68,682

61.3

Auto loans granted (in RMB million)

54,676

34.9

December 31, 2019

Cross-selling

channel' s

Overall non-

non-

performing

performing

(%)

loan ratio

loan ratio

Asset quality of retail banking

Credit card receivables

1.66

1.46

Xin Yi Dai unsecured loans

1.34

0.69

Auto loans

0.74

0.74

40 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Ping An Bank kept asset-quality risks under control. Ping An Bank pays close attention to risk management while developing its business. Risks in the consumer finance industry were on the rise in 2019 against a backdrop of the complicated, ever-changingglobal and domestic economic landscape, rising joint-debtrisks, declining auto sales, and other external factors. To be prudent, Ping An Bank tightened the five-levelclassification standards. As of December 31, 2019, the retail non-performingloan ratio was 1.19%, up 0.12 pps from the beginning of 2019. According to the original five-levelclassification standards, the retail non-performingloan ratio decreased by 0.09 pps from the beginning of 2019, indicating that the overall non-performingloan level remained stable and controllable. The non-performingasset ratios of credit card receivables and Xin Yi Dai unsecured loans stood at 1.66% and 1.34%, both up by 0.34 pps from the beginning of 2019 as adjustments to the metric definitions pushed up the two metrics by 0.33 pps respectively. The non-performingloan ratio of Ping An Bank's auto finance business was 0.74%, up 0.20 pps from the beginning of 2019, as adjustments to the metric definition pushed up the metric by 0.14 pps. Since the end of 2017, Ping An Bank has adjusted its risk policies proactively to prevent joint-debtrisks and effectively reduce the proportion of customers who face joint-debtrisks, have high debt levels, or are in high-riskareas. Measures include imposing lower quotas and tightening facility granting. The overall risk of new customers remains at a historically low level. Given the macro-economicdownturn pressure and Ping An Bank's priority on asset quality, Ping An Bank actively improved loan extension strategies for loan products. Ping An Bank raised the underwriting bars for credit cards and other loan products, developed high-qualityhome loan customers, and steered toward customers at the higher-qualityspectrum.

Loan granting period

(%)

2019

2018

2017

2016

The percentage of loans

more than 30 days

overdue as at the end

of the 6-month vintage

period

Credit card receivables

0.35

0.29

0.35

0.45

Xin Yi Dai unsecured loans

0.13

0.17

0.20

0.16

Auto loans

0.23

0.17

0.18

0.12

Notes: (1) Vintage analysis, also known as static pool analysis of default rates, is a method of evaluating the credit quality of account holders by monitoring credit assets in accounts opened in different periods and analyzing the vintages. The percentage of loans more than 30 days overdue as at the end of the 6-month vintage period = the balance of current-year new loans or credit card receivables more than 30 days overdue as at the end of the 6-month vintage period/the balance of current-year new loans or credit card receivables that have been on books for 6 months.

(2) The data for 2019 shows the vintage analysis results of loans granted from January to July 2019. Loans granted from August to December 2019 will be included in analysis when the vintages of these loans reach six months.

Retail deposits increased steadily. Ping An Bank continued to expand AUM to increase derivative deposits, and retained more customer deposits by boosting accounts bundled for repayment of credit cards or other loan products. In addition, Ping An Bank raised settlement deposits by developing payroll and acquiring services, which increased demand deposits and optimized the structure

of retail deposits. As of December 31, 2019, the balance of retail deposits and retail current deposits increased 26.4% and 15.3% from the beginning of

2019 to RMB583,673 million and RMB199,949 million respectively.

The private wealth management business recorded rapid growth. In 2019, Ping An Bank proactively continued its business transformation under the private banking strategy. By empowering the front office with data-drivenoperation tools, Ping An Bank strengthened its private banking customer development and asset allocation to improve customer experiences. Leveraging AI and Ping An Group's integrated financial service model, Ping An Bank established a professional AI-poweredinvestment advisory team, developed a "1+N" (1 private banker + N experts) online-merge-offlinebusiness model and an open product platform. This helps Ping An Bank maximize its service coverage and strengthen its expertise. By integrating internal and external resources, Ping An Bank diversified offerings, and upgraded the benefits and customer services to optimize customer experiences. Under a product management committee mechanism, Ping An Bank sourced diverse high-qualityassets, and strengthened its risk management and compliance teams to strictly control asset risks. As of December 31, 2019, the number of wealth management customers reached 779.3 thousand, up 31.7% from the beginning of 2019. The number of qualified private banking customers (the criterion for a qualified private banking customer is over RMB6 million in daily average assets for any one of the recent three months) reached 43.8 thousand, up 45.7% from the beginning of 2019. The AUM of qualified private banking customers stood at RMB733,941 million, up 60.3% from the beginning of 2019.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 41

Business Analysis

Banking Business

December

December

Change

31, 2019

31, 2018

(%)

Number of retail customers(1)

(million)

97.08

83.90

15.7

Retail assets under

management

(AUM, in RMB million)

1,982,721

1,416,796

39.9

Retail loans (in RMB million)

1,357,221

1,154,013

17.6

Number of credit cards in

circulation (in million)

60.33

51.52

17.1

Note: (1) Retail customers include debit cardholders and credit cardholders, with duplicates removed.

Enhancing Corporate Banking

As of December 31, 2019, the balance of corporate deposits rose 11.2% from the beginning of 2019 to RMB1,853,262 million. In 2019, corporate net non-interest revenue increased by 5.7% year on year to RMB5,363 million. Corporate net non-interest revenue as a percentage of the total operating revenue of corporate banking was up 1.14 pps year on year. Ping An Bank, as a "1+N" engine of the Group's corporate integrated finance business, takes a customer-centric approach to strengthen its business gradually. In 2019, Ping An implemented the "3+2+1" strategy for corporate banking, featuring three pillars of "industry-specific banking, transaction banking and integrated finance," two core customer segments of "strategic customers and small and micro-business customers," and one bottom line of "ensuring asset quality." In addition, Ping An Bank fully leverages technologies including AI, blockchain and the Internet of Things (IOT) to empower business innovation. In 2019,

the transaction volume of Ping An Bank's internet payment and settlement service platform rose

64.5% year on year to RMB4.18 trillion. The "Ping An Pocket Finance" app, a one-stop integrated financial services platform for corporate customers, had

359.8 thousand registered users who contributed

  1. transaction volume of RMB3.72 trillion as of December 31, 2019, up 338.3% year on year. Through the cloud-based supply chain accounts receivable service platform, Ping An Bank provided 450 core enterprises and their upstream suppliers with financial services. In 2019, transactions on the platform totaled RMB34,038 million. In 2019, Ping An's group insurance premiums referred by Ping An Bank rose 326.6% year on year to RMB1,331 million. New investment and financing projects implemented by Ping An Bank in cooperation with the Group's member companies totaled RMB261,116 million, up 137.5% year on year.

In addition to business development, Ping An Bank vigorously serves the real economy by supporting non-state-owned enterprises and small and micro-businesses. As of December 31, 2019, the proportion of credit lines granted to Ping An Bank's key industries including health care, environmental protection, and clean energy stood at 46.9%. Strategic customers' balance of loans rose 53.3% from the beginning of 2019, and their share in the corporate loan balance increased by 4.8 pps from the beginning of 2019. In 2019, Ping An Bank served 34,156 customers through "Know Your Business (KYB) for Small Enterprises" and granted RMB22,376 million in loans. In 2019, new non-state-owned corporate loan customers accounted for over 70% of new corporate loan customers.

Ping An Bank maintained a satisfying risk profile of new corporate customers, continued to adjust the structure of existing assets, stepped up efforts to recover non-performing assets, and gradually improved the quality of corporate assets. As of December 31, 2019, the non-performing loan ratio of corporate loans declined by 0.39 pps from the beginning of 2019 to 2.29%.

Upgrading Interbank Business

Under the customer-centric and data-driven philosophy, Ping An Bank formulated the "3+2+1" strategy for the interbank business, featuring three business directions of "new transactions, new interbank business, and new asset management business," two core capabilities of "sales and transactions," and "one system platform." In 2019, Ping An Bank's bond trading volume rose by 178.3% year on year to RMB3.51 trillion. The interest rate swap volume increased by 50.6% year on year to RMB3.13 trillion. Ping An Bank, by capitalizing on its industry-leading technological strength and transaction capabilities, became a market leader in multiple metrics of market making for bonds, interest rate swaps, and standard bond forwards, including the quotations, transactions, positions and comprehensive rankings. As of December 31, 2019, ET-Bank, Ping An Bank's integrated financial asset trading platform, had cooperated with nearly 2,200 customers. In 2019, the interbank institutional sales volume reached RMB503,880 million, up 123.7% year on year.

42 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Technology-driven business yielded impressive results

Ping An Bank takes "technology-driven business" as the driving force for strategic transformation and data-driven operations. Ping An Bank's technology-empowered business has yielded impressive results as it increased investment in technologies, optimized development processes, and improved delivery efficiency. As of December 31,

2019, Ping An Bank's IT staff (including outsourced personnel) exceeded 7,500, up by over 34% from the beginning of 2019. IT capital expenditure and expenses grew by 35.8% year on year. Ping An Bank continued to empower business development and improve operation efficiency and productivity with fintech. In 2019, the per capita retail revenue rose 17.7% year on year.

Firstly, Ping An Bank furthered its agile transformation. In 2019, Ping An Bank launched the bankwide development and operations integration project (Starlink) and the Security Development Life Cycle (SDLC) project. The projects helped establish an end-to-end R&D process from requirement development to production, and accelerated IT deliveries, allowing Ping An Bank to address 30% more business development requirements than in 2018. Moreover, Ping An Bank further integrated technologies with businesses. Key projects including the smart risk management platform, the New Generation of Financial Market Business System, cloud-based acquiring services for corporate business, and smart custody business have been launched. With these projects, Ping An Bank's financial products and services became smarter and more efficient, stable and reliable.

Secondly, Ping An Bank further promoted data-driven operations. To implement data- driven operations in a real-time, refined, visualized and value-creating manner, Ping An Bank has implemented three programs-the data governance, data middle office, and AI platform. Regarding the data governance, Ping An Bank has developed over

900 basic data standards and nearly 2,000 indicator standards. Regarding the data middle office,

Ping An Bank accelerated the development of the data indicator platform, data service platform, and five databases-customers, products, personnel, channels, and cases. Regarding the AI platform, all the 11 AI middle office projects have been put into production to facilitate modular, parameterized and closed-loop management. Ping An Bank empowers the front-end business with AI-powered robots designed for customer services, marketing, risk management, speech recognition, quality control, and smart recommendation. For example, the smart recommendation platform helps the "Ping An Pocket Bank" app and the homepage of the credit card business achieve precise marketing and advertising, significantly boosting the conversion rate compared with manual advertising.

Thirdly, Ping An Bank established leading technology infrastructure platforms. Ping An Bank underpins business growth by building and improving infrastructure platforms including the private cloud platform, Platform as a Service (PaaS), open platforms, blockchain-based integrated service platform, and enterprise-grade big data platforms. In 2019, Ping An Bank developed the distributed PaaS, and piloted it in more than 70 projects. PaaS greatly enhanced the security and controllability

of Ping An Bank's IT systems, and cut costs of development, operations and maintenance. For example, the business peak processing capability of the new core credit card system based on the PaaS has increased by nearly 1,000% compared with the previous system while the cost was only one third of the previous one. The blockchain-based integrated service platform has been applied in areas including supply chain finance, bankruptcy and liquidation voting, cloud-based contract signing and certificate storage, and traceability, facilitating over 350,000 transactions in 2019.

Ping An Bank continued to make its outlets smarter and improved their geographic distribution. As of December 31, 2019, Ping An Bank had 91 branches (including the Hong Kong branch) and 1,058 business outlets. Moreover, Ping An Bank opened 298 new retail stores.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 43

Business Analysis

Banking Business

Improving Asset Quality

Ping An Bank adjusted its business portfolio to tackle external risks, and granted more loans to retail segments with good asset quality. Ping An Bank continued to enhance its corporate business, and selectively granted new loans to key industries, key regions, and key customers. As of December 31, 2019, both the non-performing loan ratio and the percentage of special mention loans of Ping An Bank dropped by 0.10 pps and 0.72 pps from the beginning of 2019 respectively. The percentage of loans more than 60 days overdue declined by

0.34 pps from the beginning of 2019 to 1.58%. The percentage of loans more than 90 days overdue declined by 0.35 pps from the beginning of 2019 to 1.35%. The provision coverage ratios for non- performing loans, loans more than 60 days overdue and loans more than 90 days overdue rose by 27.88 pps, 49.10 pps and 63.44 pps from the beginning of 2019 to 183.12%, 190.34% and 222.89% respectively, indicating strengthened risk compensation. Ping An Bank's deviations of loans more than 60 days overdue and loans more than 90 days overdue were both below 1. Ping An Bank also strengthened recovery of non-performing assets (NPAs). In 2019, recovered NPAs reached RMB21,366 million, up 14.0% year on year; 91.4% of the recovered amount was collected in cash, while the rest was in kind.

December

December

Change

(in RMB million)

31, 2019

31, 2018

(%)

Loan quality

Pass

2,238,307

1,908,072

17.3

Special mention

46,665

54,552

(14.5)

Non-performing loans

38,233

34,905

9.5

Sub-standard

18,891

17,955

5.2

Doubtful

6,272

4,509

39.1

Loss

13,070

12,441

5.1

Total loans and advances

2,323,205

1,997,529

16.3

Non-performing loan ratio (%)

1.65

1.75

-0.10 pps

Deviation of loans more than

90 days overdue(1) (%)

82

97

-15 pps

Deviation of loans more than

60 days overdue(2) (%)

96

110

-14 pps

Balance of loans more than 90

31,411

days overdue

33,984

(7.6)

Percentage of loans more

than 90 days overdue (%)

1.35

1.70

-0.35 pps

Percentage of loans more

than 60 days overdue (%)

1.58

1.92

-0.34 pps

Percentage of special

mention loans (%)

2.01

2.73

-0.72 pps

Impairment provision balance

(70,013)

(54,187)

29.2

Loan loss provision ratio (%)

3.01

2.71

0.30 pps

Provision coverage ratio (%)

183.12

155.24

27.88 pps

Provision coverage ratio for

loans more than 90 days

222.89

overdue (%)

159.45

63.44 pps

Provision coverage ratio for

loans more than 60 days

190.34

overdue (%)

141.24

49.10 pps

Notes: (1) Deviation of loans more than 90 days overdue = balance of loans more than 90 days overdue/balance of non-performing loans.

(2) Deviation of loans more than 60 days overdue = balance of loans more than 60 days overdue/balance of non-performing loans.

44 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

CAPITAL ADEQUACY RATIO

Ping An Bank furthered its reform in capital management, and pursued robust capital management. In addition to stable internal sources of capital including retained earnings, Ping An Bank issued RMB26 billion worth of A share convertible corporate bonds in January 2019. Ping An Bank completed conversion of these bonds to replenish core tier 1 capital in September 2019. Furthermore, Ping An Bank issued RMB30 billion worth of tier 2 capital bonds in the China Interbank Bond Market on April 25, 2019 to replenish tier 2 capital and improve capital adequacy. In addition, Ping An Bank issued the first tranche of undated capital bonds worth of RMB20 billion in the China Interbank Bond Market on December 26, 2019 as the Chinese government encourages banks to broaden their channels of replenishing capital and speed up the pilot on

the issuance of innovative capital replenishing instruments. The funds raised are used to replenish other tier 1 capital, further broaden the capital replenishing channels, optimize the capital structure, and enhance Ping An Bank's risk mitigation.

December

December

Change

(in RMB million)

31, 2019

31, 2018

(%)

Capital adequacy ratio

Net core tier 1 capital

253,646

199,782

27.0

Net tier 1 capital

293,594

219,735

33.6

Net capital

368,193

269,115

36.8

Total risk weighted assets

2,784,405

2,340,236

19.0

Core tier 1 capital adequacy

9.11

ratio (%)

8.54

0.57

pps

Tier 1 capital adequacy ratio

10.54

(%)

9.39

1.15

pps

Capital adequacy ratio (%)

13.22

11.50

1.72

pps

Notes: (1) Capital requirements regarding credit risk, market risk and operational risk are measured by the weighted method, standard method, and basic indicator method respectively.

(2) Minimum regulatory requirements for the core tier 1 capital adequacy ratio, tier 1 capital adequacy ratio, and capital adequacy ratio are 7.5%, 8.5%, and 10.5% respectively.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 45

Business Analysis

Asset Management Business

Ping An Securities is developing a smart securities service platform under the Group's integrated financial business strategy. Net profit for 2019 increased by 41.4% year on year.

Apart from business growth in the leasing market of developed industries, Ping An Financial Leasing's net profit rose by 36.0% year on year as it has established leading innovative businesses in sectors including auto finance and microfinance.

Ping An Asset Management maintained steady business growth. As of December 31, 2019, the investment assets under management (AUM) stood at RMB3.27 trillion, up 13.2% from the beginning of the year.

BUSINESS OVERVIEW

The Company conducts its asset management business through companies including Ping An Trust, Ping An Securities, Ping An Financial Leasing, and Ping An Asset Management. Net profit of the asset management business for 2019 was RMB10,415 million, down 24.0% year on year due to profit volatility and impairment of some investment assets in the other asset management business.

Change

(in RMB million)

2019

2018

(%)

Net profit

Trust business

2,598

3,012

(13.7)

Securities business

2,376

1,680

41.4

Other asset management

business

5,441

9,017

(39.7)

Including:

Ping An Financial Leasing

4,476

3,292

36.0

Ping An Asset Management

2,865

2,662

7.6

Total

10,415

13,709

(24.0)

TRUST BUSINESS

The Company provides trust services through Ping An Trust and its subsidiary Ping An New Capital.

In 2019, China's economy remained stable and the economic structure improved. Keeping up with the times, Ping An Trust switched its focus back to its core trust businesses, namely special asset investment, infrastructure investment, financial service trusts and private equity investment. Observing the tradition while pursuing innovation, Ping An Trust made steady progress in helping the

real economy to achieve high-quality development. In special asset investment, Ping An Trust explored innovative models and channels to serve the real economy, built a large platform for special assets, integrated high-quality resources, helped the real economy mitigate risks, and provided relevant investment banking services for enterprises. In infrastructure investment, Ping An Trust followed national strategic directions and focused on urban infrastructure, transportation, energy and other fields, providing insurance funds and institutional investors with financial products featuring stable cash flows and reasonable returns to support China's infrastructure upgrades. In financial service trusts, Ping An Trust strengthened active management and focused on development of business customers, providing institutional investors with excellent trust services. In private equity investment, Ping An Trust helped enterprises

to boost operational efficiency and value, and supported China's industrial structure upgrades by sharing profound investment and management expertise with emerging industries including energy saving and environmental protection, high-end manufacturing, and health care.

Ping An Trust continued to establish smart, digital benchmarks for technology applications in the industry. Ping An Trust employed technologies to develop a smart service platform covering the entire trust business chain. Ping An Trust also built an industry-leading smart, robust, comprehensive risk management system with cutting-edge technologies. As of December 31, 2019, Ping An Trust had RMB18,046 million in net capital. The ratio of net capital to total risk capital was 212.4% (regulatory requirement 100%), and the ratio of net capital to net assets was 77.4% (regulatory requirement 40%), both meeting regulatory requirements.

46 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

ANALYSIS OF PROFIT SOURCES

Net profit of the trust business for 2019 declined by 13.7% year on year because of a year-on-year decrease in investment income due to lower investment exits.

(in RMB million)

2019

2018

Change (%)

Fees and commission revenue

3,722

3,801

(2.1)

Monthly average assets

held in trust

491,630

588,788

(16.5)

Fee rate of assets held in

trust(1) (%)

0.76

0.65

0.11 pps

Fees and commission

expenses

(190)

(116)

63.8

Net fees and commission

revenue

3,532

3,685

(4.2)

Administrative expenses(2)

(1,217)

(1,039)

17.1

Total investment income(3)

617

1,104

(44.1)

Other net revenue and

expenses

437

163

168.1

Profit before tax

3,369

3,913

(13.9)

Income tax

(771)

(901)

(14.4)

Net profit

2,598

3,012

(13.7)

Notes: (1) Fee rate of assets held in trust = fees and commission revenue/monthly average assets held in trust.

(2) Administrative expenses include administrative expenses, and impairment losses on receivables and others under the segmented income statement.

(3) Total investment income includes interest revenue from non-banking operations, investment income, share of profits and losses of associates and jointly controlled entities, impairment losses on investment assets, and interest expenses on assets sold under agreements

to repurchase and placements from banks and other financial institutions under the segmented income statement.

December

December

(in RMB million)

31, 2019

31, 2018 Change (%)

Investment category

83,001

100,829

(17.7)

Capital market investment

56,879

46,767

21.6

Financial institutions'

9,652

investment

11,644

(17.1)

Other investments(1)

16,470

42,418

(61.2)

Financing category(2)

174,675

185,870

(6.0)

Infrastructure industry

20,569

financing

25,736

(20.1)

Real estate financing

116,237

92,930

25.1

Corporate loans

30,585

59,598

(48.7)

Pledge and other financing(3)

7,284

7,606

(4.2)

Administrative category(4)

184,932

247,425

(25.3)

Total

442,608

534,124

(17.1)

Notes: (1) Other investments refer to investments other than the above, including structured equity investment, industrial investment, and other investment businesses.

(2) In 2019, Ping An Trust optimized its product classification, reclassified the industries of the assets held in trust, and restated the data as of December 31,

2018.

(3) Pledge and other financing refers to financing other than the above, including financing by pledging or acquiring securities, financial assets, and other debts.

(4) An administrative trust refers to a trust scheme under which a trust company, acting as the trustee, assumes the administrative function to provide the trustor (beneficiary) with administrative and executive services for specified purposes.

Fees and Commission Revenue

Fees and commission revenue of the trust business for 2019 declined by 2.1% year on year mainly due to decreased assets in the investment category and increased fee rate in the financing category.

(in RMB million)

2019

2018

Change (%)

MANAGEMENT DISCUSSION AND ANALYSIS

Assets Held in Trust

Ping An Trust adjusted and optimized its business portfolio in response to macro-environment changes and new asset management regulations. As of December 31, 2019, Ping An Trust had RMB442,608 million in assets held in trust, down 17.1% from the beginning of 2019.

Fees and commission revenue

3,722

3,801

(2.1)

Investment category

924

1,406

(34.3)

Financing category

2,384

1,913

24.6

Administrative category

414

482

(14.1)

Fee rate of assets held in

0.76

trust (%)

0.65

0.11

pps

Investment category (%)

1.00

1.14

-0.14

pps

Financing category (%)

1.35

1.10

0.25

pps

Administrative category

0.19

(%)

0.17

0.02

pps

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 47

Business Analysis

Asset Management Business

SECURITIES BUSINESS

The Company provides securities brokerage, futures brokerage, investment banking, asset management, and financial advisory services through Ping An Securities and its subsidiaries including Ping An Futures, Ping An Caizhi, Ping An Securities (Hong Kong), and Ping An Pioneer Capital.

In 2019, domestic stock markets recovered as China furthered its capital market reform. As a result, performance of the securities industry improved significantly. Net profit of Ping An Securities for 2019 was RMB2,376 million, up 41.4% year on year due to the increased brokerage trading volume and the expanded bond and asset-backed securities (ABS) underwriting volumes. In brokerage business, Ping An Securities continued to optimize its customer portfolio by promoting balanced development of three customer segments, namely mass, wealthy, and institutional. Ping An Securities employed technologies to develop wealth management capabilities by building a comprehensive financial product line, a smart services platform, and a professional team of investment advisors. Market share by net revenue from securities brokerage business (exclusive of seat leasing) of Ping An Securities grew by 0.45 pps year on year to 2.96%, continuing an upward trend. In investment banking business, Ping An Securities focused on key areas and institutional customers, proactively developed strategic customers, and improved the full-cycle integrated financial service model covering all products. Ping An Securities continued to upgrade its sales and services systems. Ping An Securities remained among the top-tier securities firms

by bonds and ABS underwritten, and increased equity projects in the pipeline. In trading business, Ping An Securities steadily improved investment performance by exploiting bond volatility with trading strategies through an all-around smart investment and management system. In asset management, Ping An Securities enhanced cross-market,cross-instrument "fixed income +" asset allocation capabilities, developed equity and quantitative businesses, strengthened active management capabilities, and diversified products.

Analysis of Profit Sources

(in RMB million)

2019

2018

Change (%)

Fees and commission revenue

5,457

4,014

35.9

Fees and commission

(1,183)

expenses

(847)

39.7

Net fees and commission

4,274

revenue

3,167

35.0

Total investment income(1)

5,520

4,654

18.6

Other revenue(2)

4,510

2,928

54.0

Revenue

14,304

10,749

33.1

Administrative expenses(3)

(3,892)

(3,497)

11.3

Cost-to-income ratio(4) (%)

44.8

52.7

-7.9 pps

Finance costs

(1,813)

(1,125)

61.2

Other expenses(5)

(5,612)

(4,113)

36.4

Profit before tax

2,987

2,014

48.3

Income tax

(611)

(334)

82.9

Net profit

2,376

1,680

41.4

Notes: (1) Total investment income includes interest revenue from non-banking operations, investment income, and share of profits and losses of associates and jointly controlled entities under the segmented income statement. Investment income excludes operating lease income from investment properties.

(2) Other revenue includes other revenues and other gains, foreign exchange gains or losses, and operating lease income from investment properties under the segmented income statement. Other revenue and other gains exclude non-operating gains.

(3) Administrative expenses include administrative expenses and impairment losses on receivables and others under the segmented income statement.

(4) Cost-to-income ratio = administrative expenses/ (revenue - other expenses).

(5) Other expenses include interest expenses on assets sold under agreements to repurchase and placements from banks and other financial institutions, other expenses, impairment losses on investment assets, and non-operating gains under the segmented income statement.

Fees and Commission Revenue

Brokerage fees and commission revenue for 2019 rose by 52.7% year on year due to the increased trading volume. Underwriting fees and commission revenue grew by 32.1% year on year due to the expanded bond and ABS underwriting volumes. Asset management fees and commission revenue declined slightly year on year as the management fee rates decreased due to the market environment.

(in RMB million)

2019

2018

Change (%)

Fees and commission revenue

Brokerage business

3,544

2,321

52.7

Underwriting business

991

750

32.1

Asset management

business

463

527

(12.1)

Others

459

416

10.3

Total

5,457

4,014

35.9

48 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

OTHER ASSET MANAGEMENT BUSINESSES

The other asset management business represents results of companies including Ping An Financial Leasing, Ping An Asset Management, and Ping An Overseas Holdings.

Ping An Financial Leasing

Ping An Financial Leasing seeks expertise-based innovations and empowers business with cutting-edge technologies. Taking advantage of the Group's integrated financial business model, Ping An Financial Leasing is committed to providing customers with flexible, diverse financing products and comprehensive value-added services. Ping An Financial Leasing aims to become an expert leader in serving small and medium-sized enterprises (SMEs) and specialized markets in China with unique commercial vitality and scalability.

Ping An Financial Leasing gives full play to the industry's characteristics of "financing and leasing." Ping An Financial Leasing has developed multiple business lines and become the leader in developed sectors including engineering, construction, energy, metallurgy, education, culture, manufacturing, and processing. Moreover, Ping An Financial Leasing has emerged as a top-tier player in innovative sectors including auto finance and microfinance. Ping An Financial Leasing has become an industry leader and innovation pioneer by increasing the depth and width of the leasing business and extending business models.

In 2019, net profit of Ping An Financial Leasing increased by 36.0% year on year mainly due to stable, healthy development of developed businesses and breakthroughs in innovative ones. Meanwhile, the macro-economic environment and the tightened regulation of some industries continued to weigh on the real economy. As of December 31, 2019, Ping An Financial Leasing's non-performing asset ratio increased slightly from the beginning of 2019, but remained lower than most peers'. Going forward, Ping An Financial Leasing will continue to enhance asset management, and adjust management measures according to the risk profile in a timely manner. For new assets, Ping An Financial Leasing will raise qualification requirements and focus on high-end customers.

For existing assets, Ping An Financial Leasing will strengthen risk management and establish rapid procedures covering assessment, negotiation and disposal to ensure risks are controllable.

Results of Operation

(in RMB million)2019 2018 Change (%)

Revenue

20,510

16,427

24.9

Net profit

4,476

3,292

36.0

December

December

(in RMB million)

31, 2019

31, 2018

Change (%)

Total assets

254,684

234,657

8.5

Non-performing asset ratio

1.10

0.89

0.21 pps

(%)

Ping An Asset Management

Ping An Asset Management is responsible for domestic investment management business of the Company. Entrusted with the insurance funds of the Company, Ping An Asset Management also provides investment products and third-party asset management services to other investors through various channels.

Despite macro-economic changes and capital market fluctuations, Ping An Asset Management upholds the philosophies of value investing and prudence. Ping An Asset Management continued to meet the investment management demands of insurance funds and create value for various customers by managing risks and seizing opportunities. In line with the Chinese government's major strategies and the objective of delivering high-quality economic growth, Ping An Asset Management became an industry leader by the scale of alternative investment and served the real economy more effectively. Amid new trends in the industry, Ping An Asset Management gave full play to its advantages in active management, and based its business on expertise and markets. The third-party asset management business maintained stable growth. Net profit of Ping An Asset Management for 2019 increased by 7.6% year on year mainly due to continued AUM growth. As one of China's largest asset managers, Ping An Asset Management is committed to building an industry-leading "asset management + ecosystem" investment platform. Ping An Asset Management will continue to improve its investment capability, risk management, and customer services with technologies. Remaining customer-centric and performance-oriented, Ping An Asset Management will leverage its expertise to create value for customers. Ping An Asset Management will pursue more technological innovations to become China's leading technology-powered asset manager.

Results of Operation

(in RMB million)2019 2018 Change (%)

Net profit

2,865

2,662

7.6

Revenue from third-party

1,906

asset management

1,754

8.7

December

December

(in RMB million)

31, 2019

31, 2018

Change (%)

Assets under management

3,271,630

2,889,616

13.2

Including: AUM of third-

291,902

party asset management

268,718

8.6

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 49

Business Analysis

Technology Business

Lufax Holding maintained its industry-leading market shares in businesses including wealth management and retail lending. The balance of loans grew steadily, and credit quality remained excellent. The ratio of loans more than 30 days overdue dropped 0.4 pps year on year to 1.9%, significantly lower than peers'.

OneConnect, which successfully listed on the NYSE on December 13, 2019, is China's leading technology-as-a-service cloud platform for financial institutions. OneConnect provides financial institutions with comprehensive end-to-end solutions. As of December 31, 2019, OneConnect had served 621 banks and 96 insurance companies. OneConnect's revenues for 2019 rose by 64.7% year on year to RMB2,328 million.

As of December 31, 2019, Ping An Good Doctor had over 315 million registered users. In December 2019, Ping An Good Doctor had 66.90 million monthly active users. Ping An Good Doctor is the largest online health care services platform in China. Ping An Good Doctor's revenues for 2019 rose by 51.7% year on year to RMB5,065 million, driven by rapid growth in online health care business. As operating efficiency improved, net loss for 2019 narrowed further by RMB166 million year on year to RMB747 million.

Ping An HealthKonnect continued to make breakthroughs. Ping An HealthKonnect won the bids for the "macro-decision making big data application subsystem" and the "operation monitoring subsystem" of the National Healthcare Security Administration as well as provincial/municipal platform construction projects in Shandong, Hebei and Qingdao. Ping An HealthKonnect has provided social health insurance (SHI) management and member services for SHI fund managers in over 200 cities.

Autohome maintained business growth despite a weak market environment. Revenues and net profit for 2019 increased by 16.4% and 10.7% year on year respectively.

BUSINESS OVERVIEW

The Company conducts its technology business via companies including Lufax Holding, OneConnect, Ping An Good Doctor, Ping An HealthKonnect, and Autohome. The Company continued to explore innovative fintech and healthtech business models to strengthen its main financial businesses, enable industry upgrades, and serve the real economy. The total revenue(1) of the technology business for 2019 increased by 27.1% year on year to RMB82,109 million. As of December 31, 2019, OneConnect, Ping An Good Doctor and Autohome went public, Lufax Holding and Ping An HealthKonnect completed external financing, and the total valuation(2) of our technology companies was about USD69.1 billion.

Notes: (1) The total revenue of the technology business is the sum of revenues of technology companies in our technology segment, without considering the shareholding proportions.

(2) The total valuation of technology companies is the sum of valuations of technology companies in our technology segment, without considering the shareholding proportions. The valuations of listed companies are computed based on their market caps

as of closing on December 31, 2019, while the valuations of private companies are computed based on their most recent post-money valuations.

LUFAX HOLDING

Lufax Holding is a world-leading online wealth management and retail lending technology platform. In 2019, China's internet finance industry entered a cycle of strong regulation. Under the philosophy

of empowering traditional financial services with technological innovations, Lufax Holding tackled challenges in main businesses including wealth management and retail lending to seize new opportunities and maintain growth.

50 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

In wealth management, Lufax Holding provides the middle class with diverse personalized products and services. Lufax Holding has provided 12.50 million active investor customers with more than seven thousand products and personalized financial services through partnerships with over 300 institutions. In 2019, Lufax Holding rapidly adjusted its product portfolio and sought cooperation

with trust companies and banks to rebuild its product advantages. Lufax Holding employs AI and machine learning to match products with customers in real time based on Know Your Customer (KYC), Know Your Product (KYP) and Know Your Intention (KYI) in diverse scenarios. In this way, Lufax Holding recommends the right products to the right customers by the right means at the right time. Currently, more than half of the customer assets on Lufax Holding's platform are from customers with assets of over RMB500,000. Lufax Holding's smart service robots have covered over 8.8 million platform customers and facilitated

  1. total investment of over RMB219.1 billion. As of December 31, 2019, Lufax Holding had 44.02 million registered users on its platform, up 9.1% from the beginning of the year. Customer assets under management dropped by 6.1% from the beginning of 2019 to RMB346,856 million due to the asset portfolio adjustment and restrictions on consumer finance products. The wealth management transaction volume fell by 29.8% year on year as we optimized the product portfolio by reducing the proportion of products with frequent transactions but unsatisfactory profitability.

In retail lending, as a leading offline-to-online (O2O) non-bank retail lending services provider in China, Lufax Holding integrates high-quality resources

in the financial services ecosystem. With 15 years' lending experience in China, Lufax Holding provided 12.37 million micro-, small and medium-sized business owners and retail customers with O2O lending services from offline consultation to online application. Lufax Holding effectively enhanced risk management by adapting to the changing market environment. Lufax Holding employed AI to select high-quality borrowers, and developed and launched the first AI loan approval robot in China. Lufax Holding also carried out regular stress testing and risk monitoring by region and industry to prevent risks. In addition, Lufax Holding diversified the sources of institutional funds to flexibly respond

to market and industry changes. In the sources of funding, after peer-to-peer (P2P) lending regulation tightened, Lufax Holding made adjustments proactively to continue meeting customers' financing demands with institutional funds. Lufax Holding has partnered with 44 institutional fund providers which have become the main sources

of funding. Lufax Holding stopped adding new P2P assets from September. The funding cost declined compared with the beginning of 2019. As of December 31, 2019, Lufax Holding's balance of loans under management stood at RMB462,243 million, up 23.3% from the beginning of 2019. Lufax Holding's ratio of loans more than 30 days overdue(1) was 1.9%, significantly lower than that of its peers.

Note: (1) The ratio of loans more than 30 days overdue refers to the proportion of loans more than 30 days (inclusive) overdue to the balance of loans under management.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 51

Business Analysis

Technology Business

Number of Users

December

December

Change

(in million)

31, 2019

31, 2018

(%)

Lufax' s registered users

44.02

40.35

9.1

Active investor

12.50

customers(1)

11.17

11.9

Accumulated borrowers

12.37

10.28

20.3

Note: (1) Active investor customers refer to customers who made an investment or had a positive account balance in the past 12 months.

Assets under Management

December

December

Change

(in RMB million)

31, 2019

31, 2018

(%)

Customer assets

346,856

369,414

(6.1)

Including:

103,303

Consumer finance(1)

186,916

(44.7)

Standard products(2)

178,328

175,089

1.8

Business cooperation(3)

65,225

7,409

780.3

Balance of loans under

462,243

management

375,006

23.3

Notes: (1) Consumer finance customers' assets were greatly affected due to the regulatory requirements for decreases in the business scale, lenders and borrowers, and outlets.

(2) The standard products refer to products distributed by the wealth management business, including publicly offered funds, privately offered funds, and asset management products from insurance asset managers and securities firms.

(3) The business cooperation refers to balances of investments made by wealth management customers at partner financial institutions through Lufax Holding's technology-powered system. In 2019, the customer assets rapidly increased, aided by expanded cooperation with banks, trust companies and other institutions.

Transaction Volume

(in RMB million)

2019

2018

Change (%)

Wealth management

1,036,085

1,475,008

(29.8)

New loans

494,471

396,962

24.6

ONECONNECT

OneConnect (NYSE: OCFT) which successfully listed on the New York Stock Exchange ("NYSE") on December 13, 2019, is China's leading technology- as-a-service cloud platform for financial institutions. OneConnect provides comprehensive end-to-end solutions for various financial institutions including banks, insurers, and investment managers by integrating extensive financial service experience with market-leading technology. In this way, OneConnect's solutions enable customers' digital transformations, which help them increase revenue, manage risks, improve efficiency, enhance service quality and reduce costs.

In 2019, OneConnect grew its total revenue by 64.7% year on year to RMB2,328 million garnered through its unique transaction based revenue model. As

of December 31, 2019, OneConnect had provided services for 621 banks and 96 insurance companies, which include all of China's major banks, 99% of its city commercial banks, and 52% of its insurance companies, collectively reaching hundreds of millions of end-customers. The customer base is expanding rapidly while the customer relationships are growing. The number of premium customers increased by 114.0% from the beginning of 2019 to 473, and the recurring volume-based revenue rose by 57.9% year on year. The credit risk assessments reached 1.55 billion in 2019.

52 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

In 2019, OneConnect's technological strength was recognized under the "technology + business" model. OneConnect passed the Capability Maturity Model Integration (CMMI) Level 5 certification, the highest level of global software certification. As of December 31, 2019, OneConnect had filed

3,710 patent applications, of which 765 were filed abroad. OneConnect was ranked 62nd on the 2019 IDC FinTech Rankings Top 100 list. OneConnect's leadership in blockchain development and application helped it get listed on the Asian Top

50 Blockchain Companies in the Asian Blockchain Technology and Application Forum, and win the Real Economy Empowerment Contribution Award in the Blockdata Awards 2019. OneConnect's blockchain-enabled trade finance network was awarded the "Best Application of Advanced Technology in a Product or Service" by BAI, marking the only blockchain case that received this award in China. OneConnect's AI technology won the first place in the Chinese Machine Reading Comprehension (CMRC) Contest in China National Conference on Computational Linguistics. OneConnect vigorously implemented the platform strategy to provide institutions with optimum products, services and solutions. OneConnect launched one-stop, systematic core solutions that cover financial institutions' core systems, mobile banking, retail risk management, and SME financing. OneConnect unveiled the Gamma O platform that provides open access to technologies, customers and scenarios, and connects the demanders, suppliers and regulators of technologies and scenarios. In addition, OneConnect continued

to build its presence overseas. OneConnect's subsidiary in Hong Kong was granted a virtual banking license by the Hong Kong Monetary Authority, and is preparing for its business launch. The subsidiary aims to develop inclusive finance in Hong Kong. OneConnect has also established a Japanese joint venture with SBI Neo Financial Services to serve local financial institutions with digital transformation. In Southeast Asia, in addition to Singapore, branches had also been opened

in Jakarta, Indonesia. As of December 31, 2019, OneConnect had provided direct services to or signed contractual agreements with 47 institutions in 14 countries or regions.

(in RMB million)

2019

2018

Change (%)

Revenue

2,328

1,413

64.7

Including: Recurring

volume-based

1,721

revenue

1,090

57.9

Recurring

fixed

revenue

36

27

31.2

Implementation

revenue

571

296

92.9

Cost

(1,561)

(1,025)

52.3

Gross profit

767

389

97.3

Net profit

(1,688)

(1,190)

41.8

Note: Figures may not match the calculation due to rounding.

(in RMB billion)

2019

2018

Change (%)

Transaction volume

130.3

facilitated(1)

50.0

160.6

Note: (1) The transaction volume facilitated refers to the scale of retail business and corporate business transactions processed on OneConnect's fintech platform which helps partners improve efficiency, increase revenues, and reduce risks.

December

December

Change

31, 2019

31, 2018

(%)

Premium customers(1)

473

221

114.0

Partner banks

621

597

4.0

Partner insurance

companies

96

70

37.1

Products

54

41

31.7

Notes: (1) The number of premium customers is the number of institutional customers with annual operating revenue of RMB100,000 or more, excluding Ping An Group and its subsidiaries.

(2) In 2019, OneConnect optimized the definition of partners and restated the data for 2018 to provide a more objective representation.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 53

Business Analysis

Technology Business

PING AN GOOD DOCTOR

Ping An Good Doctor (HKSE: 01833.HK) provides users with timely, high-quality online health care services through its in-house medical staff and AI-based consultation/treatment system. These services include 24/7 online consultation, health management, prescription, referral, registration, second medical opinions, and 1-hour drug delivery. As an integral part of the Company's health care ecosystem strategy, Ping An Good Doctor expands its user base externally while leveraging the Group's resources. As of December 31, 2019, Ping An Good Doctor had over 315 million registered users. In December 2019, Ping An Good Doctor had 66.90 million monthly active users. Ping An Good Doctor is the largest online health care services platform in China.

In August 2019, the National Healthcare Security Administration issued favorable policies(1) for the online health care industry. As a leader in the industry, Ping An Good Doctor hopes to develop China's online health care industry and empower local governments to boost efficiency by taking advantage of its extensive experience in online health care platform operations and powerful AI. In December 2019, Ping An Good Doctor reached a cooperation agreement with the Fuzhou Branch of Fujian Provincial Health Commission on developing and operating an online hospital service platform for Fuzhou. The platform consists of five modules, namely online consultation, prescription circulation, health management, data management, and back- office management. The platform will serve the local citizens as the only online platform for all public hospitals in Fuzhou. Ping An Good Doctor is actively negotiating with local governments across China for cooperation, hoping to replicate the Fuzhou model to other places across China.

Note: (1) In August 2019, the National Healthcare Security Administration issued the Guidelines on Improving Pricing and Social Health Insurance Payment Policies for "Internet+" Health Care Services. For the first time, internet-based consultation and treatment services are covered by the Social Health Insurance (SHI) under law, and the fair prices and payment polices apply to online- merge-offline health care services. This shows the country's determination to further promote "internet

  • health care," which is positive for online health care service providers.

For the ecosystem network, as of December 31, 2019, Ping An Good Doctor had 1,409 in-house full- time medical staff members. Ping An Good Doctor partners with over three thousand hospitals, more than 1.9 thousand of which are 3A hospitals. The number of partner pharmacies covering 375 cities across China increased significantly from the beginning of 2019 to 94 thousand. In addition, the health care service provider network covers over 150 medical cosmetic institutions, 430 clinics of traditional Chinese medicine, nearly 1.8 thousand dental clinics, over two thousand checkup centers, and over 48 thousand clinics.

For technologies, Ping An Good Doctor improved its AI-based consultation/treatment system on the basis of over 670 million entries of consultation data and the expertise of its in-house medical team. In 2019, the system was used by all the 22 departments of the in-house medical team. Annual average daily online medical consultations increased 36.3% year on year to 729 thousand. Service efficiency of the in- house full-time medical team improved significantly.

For products, after the "Health 360" membership service was launched in 2018, Ping An Good Doctor launched "Ping An Good Doctor VIP Membership," a strategic new product, in August 2019 on the basis of experience in existing membership products and the constantly improved ecosystem. The new product provides children, adults, the elderly and patients with chronic diseases with comprehensive, high-quality health care services. Through one-toone exclusive private doctors (senior doctors from Ping An Good Doctor's in-housefull-time medical team) and the expert panel comprising famous doctors from top 100 hospitals in China, Ping An Good Doctor provides users with comprehensive active health care services, including 24/7 online consultation, second medical opinions of famous doctors, arrangement of outpatient services of hospitals, health management, and chronic disease management. In 2019, revenue of Ping An Good Doctor's online health care business exceeded RMB400 million.

54 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Leveraging diverse local resources, leading AI technology, and advanced online health care platform experience, Ping An Good Doctor has offered online health care services in Indonesia and Japan in cooperation with international partners.

December 31,

December 31,

Change (%)

2019

2018

Registered users (in million)

315.23

265.19

18.9

Consultations (in million)

673.76

407.06

65.5

(in RMB million)

2019

2018

Change (%)

Revenue

5,065

3,338

51.7

Including: Revenue

of online health care

business

858

411

108.8

Cost

(3,894)

(2,426)

60.5

Gross profit

1,171

912

28.4

Net profit

(747)

(913)

(18.2)

PING AN HEALTHKONNECT

On the basis of SHI payers and in line with China's comprehensive health reforms, Ping An HealthKonnect leverages its experience in SHI, medical, health and disease management to offer a closed-loop solution for the health care ecosystem. Ping An HealthKonnect provides comprehensive smart solutions of "software + services" for the SHI, commercial health insurers, and medical service providers. Employing the natural language processing (NLP) technology, the deep learning word embedding technology, and unsupervised learning technology, Ping An HealthKonnect developed the SHI Digital Risk System (DRS) based on "rule-based review + big data-based risk management." Based on massive data and smart technologies, Ping An HealthKonnect provides users with targeted, efficient expense control services through the DRS that is now capable of identifying 40 typical SHI fraud scenarios.

Ping An HealthKonnect made remarkable progress in 2019. Ping An HealthKonnect won the bids for the macro-decision making big data application subsystem and the operation monitoring subsystem of the National Healthcare Security Administration as well as provincial/municipal platform construction projects in Shandong, Hebei and Qingdao. As of December 31, 2019, Ping An HealthKonnect's services covered over 200 cities in China, serving over 800 million insured members.

AUTOHOME

Autohome (NYSE: ATHM), a leading internet-based auto service platform in China, is committed to developing a smart auto ecosystem centering on data and technology. In the ecosystem, Autohome provides auto consumers with diverse products and services.

In 2019, Autohome maintained business growth with revenue totaling RMB8,421 million, up 16.4% year on year. Revenue from the online marketplace business was RMB1,491 million, which accounted for 17.7% of the total revenue, up 5.9 pps year

on year. Autohome's net profit(1) was RMB3,409 million, up 10.7% year on year. Autohome has solidified its leading role among auto service apps in China through diverse channels and high-quality contents. In December 2019, the average daily unique visitors on mobile devices(2) of Autohome reached 36.83 million, up 25.0% year on year. In data-based business, Autohome is committed to empowering automakers and dealers in terms of research, marketing and conversion. In 2019, a total of over 17 thousand dealers purchased data-based products of Autohome. In auto dealing, Autohome created strategic synergies with partners. In auto finance, Autohome proactively facilitated financial transactions, which consist of lending, financial leasing and insurance services to consumers

and dealers. In 2019, Autohome facilitated nearly RMB24.0 billion worth of auto finance and insurance transactions.

(in RMB million)

2019

2018

Change (%)

Revenue

8,421

7,233

16.4

Including: Revenue of

online marketplace

1,491

business

854

74.7

Net profit

3,409

3,078

10.7

Notes: (1) Net profit refers to non-GAAP adjusted net profit of Autohome.

(2) The average daily unique visitors on mobile devices for 2019 include those on mobile apps and applets. The data for 2018 has been restated accordingly.

(3) Figures may not match the calculation due to rounding.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 55

Analysis of Embedded Value

As of December 31, 2019, Group embedded value was RMB1,200,533 million, up by 19.8% from the beginning of 2019. The embedded value of the life and health insurance business ("L&H") rose 23.5% from the beginning of the 2019, accounting for 63.1% of Group embedded value. L&H achieved an operating ROEV of 25.0% in 2019.

Life & Health one year's NBV rose 5.1% year on year to RMB75,945 million, benefiting from rising agent productivity and an NBV margin expansion of 3.6 pps.

As of December 31, 2019, the residual margin of L&H was RMB918,416 million, up by 16.8% from the beginning of 2019.

INDEPENDENT ACTUARIES REVIEW OPINION REPORT ON THE ANALYSIS OF EMBEDDED VALUE AND OPERATING PROFIT DISCLOSURES

To the directors of

Ping An Insurance (Group) Company of China, Ltd.

We have reviewed the Analysis of Embedded Value and Operating Profit of Ping An Insurance (Group) Company of China, Ltd. (the "Company") as of December 31, 2019. The EV and Operating Profit results include embedded value, new business value after cost of capital ("NBV"), valuation methodology and assumptions, first year premium of new business, profit margin of new business, interest margin, embedded value movement, sensitivity analysis, operating profit, source of earning and residual margin related data.

The Company prepared the embedded value and NBV results in accordance with the Standards for Actuarial Practice: Valuation Standard for Embedded Value of Life Insurance (the "Standards") which was promulgated by the China Association of Actuaries in November 2016. Our responsibility, as independent actuaries, is to perform certain review procedures set out in our letter of engagement and, based on these procedures, conclude whether the embedded value methodology and assumptions are consistent with the Standards and available market information.

We have reviewed the methodology and assumptions used in preparing the EV and Operating Profit results, including:

  • Review the embedded value, NBV and interest margin of the Company as of December 31, 2019;
  • Review the sensitivity analysis of the embedded value and NBV;
  • Review the embedded value movement analysis, and
  • Review the operating profit of the Company, source of earning and residual margin related data of
    L&H.

56 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Our review procedures included, but were not limited to, considering whether the methodology and assumptions of the EV results are consistent with the Standards and available market information, considering whether the methodology of the operating profit results is consistent with the disclosed methodology in the 2019 annual report, validating actuarial models on the basis of sample testing, and inspecting related documentation. In forming our conclusion, we have relied on the audited and unaudited data and information provided by the Company.

The preparation of the EV results requires assumptions and projections about future economic and financial situations, many of which are outside the control of the Company. Therefore, actual experience may differ from these assumptions and projections.

OPINION:

  • Based on our review procedures, we have concluded that the methodology and assumptions used in preparing the EV results are in compliance with the Standards and consistent with available market information;
  • The EV and Operating Profit results, in all material aspects, are consistent with the methodology and assumptions stated in the Analysis of Embedded Value chapter in the 2019 annual report.

We also confirm that the EV and Operating Profit results disclosed in the Analysis of Embedded Value chapter in the 2019 annual report are consistent with the results we reviewed.

PricewaterhouseCoopers Consultants (Shenzhen) Limited

Jiang Hua Hua, Actuary

February 20, 2020

KEY DATA SUMMARY

2019/

2018/

December

December 31,

Change

(in RMB million)

31, 2019

2018

(%)

EV of Group

1,200,533

1,002,456

19.8

Group operating profit after tax attributable to shareholders

132,955

of the parent company

112,573

18.1

EV of L&H

757,490

613,223

23.5

Operating ROEV of L&H (%)

25.0

30.8

-5.8 pps

Value of one year' s new business after cost of capital of

75,945

L&H (NBV)

72,294

5.1

L&H operating profit after tax attributable to shareholders

88,054

of the parent company

70,320

25.2

Residual margin of L&H

918,416

786,633

16.8

Ultimate investment return rate (%)

5.0

5.0

-

Risk discount rate (%)

11.0

11.0

-

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 57

Analysis of Embedded Value

ANALYSIS OF EMBEDDED VALUE

In order to provide investors with an additional tool to understand our economic value and business performance results, the Company has disclosed information regarding embedded value ("EV") in this section. The embedded value represents the shareholders' adjusted net asset value ("ANA") plus the value of the Company's in-force life and health insurance business ("L&H") adjusted for the cost of holding the required capital. The embedded value excludes the value of future new business.

In accordance with the related provisions of the Rules for the Compilation of Information Disclosures by the Companies Offering Securities to the Public (No. 4) - Special Provisions on Information Disclosures by Insurance Companies, the Company has engaged PricewaterhouseCoopers Consultants (Shenzhen) Limited to review the reasonableness of the methodology, the assumptions and the calculation results of the Company's analysis of embedded value as of December 31, 2019.

The calculation of the analysis of embedded value relies on a number of assumptions with respect to future experience. Future experience may vary from that assumed in the calculation, and these variations may be material. The market value of the Company is measured by the value of the Company's shares on any particular day. In valuing the Company's shares, investors take into account a variety of information available to them and their own investment criteria. Therefore, these calculated values should not be construed as a direct reflection of the actual market value.

The Standards for Actuarial Practice: Valuation Standard for Embedded Value of Life Insurance (the "Standards") issued by the China Association of Actuaries became effective in November 2016. The Company has disclosed the embedded value for 2019 in accordance with the Standards and China Risk Oriented Solvency System (C-ROSS).

Components of Economic Value

(in RMB million)

December 31,

December 31,

2019

2018

Adjusted net asset value (ANA)

710,597

602,155

Including: Adjusted net asset value of L&H

267,553

212,922

Value of in-force insurance business written prior to June 1999

18,644

17,051

Value of in-force insurance business written since June 1999

510,230

418,534

Cost of capital

(38,938)

(35,284)

EV of Group

1,200,533

1,002,456

Including: EV of L&H

757,490

613,223

(in RMB million)

2019

2018

Value of one year' s new business

90,191

88,889

Cost of capital

(14,246)

(16,596)

Value of one year' s new business after cost of capital

75,945

72,294

Note: Figures may not match the calculation due to rounding.

The adjusted net asset value of the life and health insurance business is based on the unaudited shareholders' net asset value of the relevant life and health insurance business of the Company as measured in compliance with the Standards. This unaudited shareholders' net asset value is calculated based on the audited shareholders' net asset value in accordance with CAS by adjusting the relevant differences including reserves. The adjusted net asset value of other business is based on the audited shareholders' net asset value of the relevant business of the Company in accordance with CAS. The relevant life and health insurance business includes business conducted through Ping An Life, Ping An Annuity and Ping An Health. The values placed on certain assets have been adjusted to the market value.

58 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Key Assumptions

The assumptions used in the embedded value calculation in 2019 have been made on a "going concern" basis, assuming continuation of the economic and legal environment currently prevailing in China.

The calculation is in line with the Standards and capital requirement under C-ROSS. Certain portfolio assumptions were based on the Company's own recent experience as well as considering the more general China market and other life insurance markets' experience. The principal bases and assumptions used in the calculation are described below:

1. Risk discount rate

The discount rate for calculating the value of in-force and the value of new business of the life and health insurance business is assumed to be 11.0%.

2. Investment return

For non-investment-linked insurance funds, the future investment return is assumed to be 4.75% in the first year and remains at 5.0% from the second year. For investment-linked funds, future investment returns have been assumed to be slightly higher than the above non-investment-linked fund investment returns assumption. These returns have been derived by consideration of the current capital market condition, the Company's current and expected future asset allocations and associated investment returns for a range of major asset classes.

3. Taxation

A 25% average income tax rate has been assumed. The percentage of investment returns that can be exempted from income tax has been assumed to be 12% in the next year and to be increased by 2% annually up to 16%.

4. Mortality

The experience mortality rates have been based on the China Life (2010-2013) tables and the Company's most recent experience studies. They are tailored to be product specific and future mortality improvement has been taken into consideration for annuity products.

5. Other incident rates

Morbidity rate and accident rate assumptions have been based on the industry table or the Company's own pricing table. The trend of long-term morbidity deterioration has been taken into consideration. The loss ratios have been assumed to be within the range of 15% to 100% for short-term accident and health insurance business.

6. Discontinuance

Policy discontinuance rates have been based on the Company's recent experience studies. The discontinuance rates are pricing interest rate and product type specific.

7. Expense

Expense assumptions have been based on the Company's most recent expenses investigation. Expense assumptions mainly consist of acquisition expense and maintenance expenses assumptions. The unit maintenance expense was assumed to increase by 2% per annum.

8. Policyholder dividend

Policyholder dividends have been based on 75% of the interest and mortality surplus for individual participating business. For group participating business, dividends have been based on 80% of interest surplus only.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 59

Analysis of Embedded Value

New Business Value

The new business volumes measured by first year premium (FYP) and its new business value by segment are:

FYP used to calculate

New Business Value

New Business Value

(in RMB million)

2019

2018

Change (%)

2019

2018

Change (%)

Retail business

126,352

133,417

(5.3)

75,486

71,874

5.0

Agency

105,043

112,712

(6.8)

68,209

64,401

5.9

Long-term protection

47,662

51,701

(7.8)

49,998

48,975

2.1

Protection & Saving hybrid

11,845

6,661

(long-PPP)

9,365

26.5

5,192

28.3

Protection & Saving hybrid

39,125

8,640

(short-PPP)

44,717

(12.5)

7,577

14.0

Short-term

6,411

6,929

(7.5)

2,909

2,657

9.5

Tele, internet and others

15,477

16,091

(3.8)

6,087

6,608

(7.9)

Bancassurance

5,832

4,613

26.4

1,191

865

37.7

Group business

34,126

32,030

6.5

459

420

9.3

Total

160,478

165,446

(3.0)

75,945

72,294

5.1

Notes: (1) Figures may not match the calculation due to rounding. (2) "PPP" stands for Premium Payment Period.

(3) Long-term protection covers whole-life, term life, critical illness and long term accident insurance. Protection & Saving (long-

  1. covers endowment and annuity insurance with a PPP of ten years or longer. Protection & Saving (short-PPP) covers endowment and annuity insurance with a PPP shorter than ten years.

(4) Tele, internet and others include telemarketing, internet marketing and Ping An Health's retail business.

(5) The differences between FYP used to calculate value of new business and FYP disclosed in Management Discussion and Analysis (MD&A) are explained in the appendix.

The NBV margin by segment:

By FYP (%)

By ANP (%)

2019

2018

2019

2018

Retail business

59.7

53.9

62.4

54.7

Agency

64.9

57.1

68.4

58.5

Long-term protection

104.9

94.7

104.9

94.6

Protection & Saving hybrid (long-PPP)

56.2

55.4

55.8

55.2

Protection & Saving hybrid (short-PPP)

22.1

16.9

25.6

18.0

Short-term

45.4

38.3

45.4

38.5

Tele, internet and others

39.3

41.1

37.1

40.5

Bancassurance

20.4

18.7

21.8

19.5

Group business

1.3

1.3

1.8

1.8

Total

47.3

43.7

51.6

46.7

Note: ANP (Annualized new premium) is calculated as the sum of 100 per cent of annualized first year premiums and 10 per cent of single premiums.

The investment spread and non-investment spread (including mortality, expense and other spreads) as percentages of value of one year's new business after cost of capital are shown below:

Investment spread

Non-investment spread

as % of NBV

as % of NBV

Life and Health Insurance Business

35.1

64.9

Including: Long-term protection

24.9

75.1

Note: Investment spread of traditional and participating products is defined as the contribution of investment return exceeding minimum guaranteed return for customers and attributable to the Company, while non-investment spread of universal and unit-linked products is defined as the present value of investment spread and management charges.

60 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Embedded Value Movement

The table below shows how the Company's embedded value changed from the opening balance of

RMB1,002,456 million as of December 31, 2018 to the closing balance of RMB1,200,533 million as of December

31, 2019.

(in RMB million)

2019

Note

Opening EV of L&H

[1]

613,223

Expected return on opening EV

[2]

57,757

Including: Unwinding of in-force value

49,868

In-force and NBV unwind at the 11% risk discount

rate

ANA return

7,889

NBV post-risk diversification benefits

[3]

90,048

Including: NBV pre-risk diversified

75,945

Reported NBV based on a cost of capital calculated

at policy level

Diversification effects within

7,080

Diversification within new business lowers cost of

new business

capital

Diversification effects with

7,023

Diversification between new business and in-force

in-force

lowers cost of capital

Operating assumptions and model

[4]

1,898

changes

Operating variances and others

[5]

3,672

Favorable operating experience mainly from

variance in mortality spread gain

EV operating profit of L&H

[6]=

153,375

[2+...+5]

Economic assumptions changes

[7]

-

Market value adjustment

[8]

271

Change in market value adjustment of free

surplus during the Reporting Period

Investment return variance

[9]

32,142

Higher than assumed investment return

Non-operatingone-off item

[10]

8,540

Impact of the income tax reduction of 2018

from L&H attributable to the parent

company

EV profit of L&H

[11]=

194,328

[6+...+10]

Shareholder dividends

(48,536)

Dividends upstreamed from Ping An Life to the

Company

Employee stock ownership plan

(1,525)

L&H' s Long-term Service Plan and Key

Employee Share Purchase Plan, as well as

the offset effect for the amortization during

the Reporting Period

Closing EV of L&H

757,490

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 61

Analysis of Embedded Value

(in RMB million)

2019

Note

Opening ANA of other business

389,233

Operating profit of other business

Non-operating profit of other business

Market value adjustment and other variances

44,901

1,847 Tax reduction from Ping An P&C attributable to the parent company

(27)

Closing ANA of other business

435,954

before capital changes

Dividends received

48,536

Dividends received from Ping An Life

Dividends paid

(33,775)

Dividends paid by the Company to

shareholders

Employee stock ownership plan

(2,670)

Long-term Service Plan and Key Employee

Share Purchase Plan, as well as the offset

effect for the amortization during the

Reporting Period

Shares repurchase

(5,001)

Repurchase of A Shares of Ping An Group

Closing ANA of other business

443,043

Closing EV

1,200,533

Closing EV per share (in RMB)

65.67

Note: Figures may not match the calculation due to rounding.

EV operating profit of L&H in 2019 was RMB153,375 million, mainly comprised of NBV and expected return on opening EV.

(in RMB million)

2019

2018

EV operating profit of L&H

[6]

153,375

153,109

Operating ROEV of L&H (%)

[12]=[6]/[1]

25.0

30.8

Note: Figures may not match the calculation due to rounding.

Sensitivity Analysis

The Company has investigated the effect, on the embedded value of Group, embedded value of the life and health insurance business and the value of one year's new business, of certain independently varying assumptions regarding future experience. Specifically, the following changes in assumptions have been considered:

  • Investment return and risk discount rate
  • Assumptions and model used in 2018
  • A 10% increase in mortality, morbidity and accident rates
  • A 10% increase in policy discontinuance rates
  • A 10% increase in maintenance expenses
  • A 5% increase in the policyholders' dividend payout ratio
  • A 10% decrease in fair value of equity assets

62 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Sensitivity of EV of Group to investment return and risk discount rate

Risk discount rate

(in RMB million)

10.5%

11.0%

11.5%

Investment return increased by 50 bps per annum

1,278,887

1,257,695

1,238,099

Base case

1,218,749

1,200,533

1,183,668

Investment return decreased by 50 bps per annum

1,158,453

1,143,217

1,129,087

Sensitivity of EV of L&H to investment return and risk discount rate

Risk discount rate

(in RMB million)

10.5%

11.0%

11.5%

Investment return increased by 50 bps per annum

835,844

814,652

795,055

Base case

775,706

757,490

740,625

Investment return decreased by 50 bps per annum

715,409

700,174

686,044

Sensitivity of NBV to investment return and risk discount rate

Risk discount rate

(in RMB million)

10.5%

11.0%

11.5%

Investment return increased by 50 bps per annum

87,749

83,762

80,036

Base case

79,516

75,945

72,601

Investment return decreased by 50 bps per annum

71,271

68,115

65,154

Sensitivity to other assumptions

EV of Group

EV of L&H

NBV

(in RMB million)

Base case

1,200,533

757,490

75,945

Assumptions and model used in 2018

1,195,290

752,246

73,402

10% increase in mortality, morbidity and accident rates

1,177,517

734,473

69,865

10% increase in policy discontinuance rates

1,190,909

747,866

73,149

10% increase in maintenance expenses

1,197,198

754,155

75,338

5% increase in the policyholders' dividend payout ratio

1,191,073

748,030

75,787

10% decrease in fair value of equity asset

1,177,777

741,033

N/A

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 63

Analysis of Embedded Value

ANALYSIS OF OPERATING PROFIT

This section contains the Group Operating Profit and Source of Earning and Residual Margin Analysis of L&H. The Company has engaged PricewaterhouseCoopers Consultants (Shenzhen) Limited to review the reasonableness of the methodology and the calculation results of the Analysis of Operating Profit as of December 31, 2019.

Operating profit of the Group

Due to the long-term nature of the majority insurance business of life and health, the measure of operating profit has been applied to more appropriately evaluate business performance. Operating profit after tax is based on net profit from financial statements, excluding items that are of short-term, volatile or one-off nature, including:

  • Short-terminvestment variance, which is the variance between actual investment return of L&H and the EV ultimate investment return assumption, net of associated relevant impact on insurance and investment contract liability. The life and health insurance business operating profit is based on a 5% investment return assumption after excluding the short-term investment variance;
  • Impact of discount rate(1) change is the effect on insurance contract liability of L&H due to changes in discount rate;
  • Impact of one-offnon-operating items are significant items that management considered to be non-operating income and expenses, which in 2019 refers to the one-off impact of the decrease in the income tax for 2018 factored into the income tax for 2019 as a result of the Company's insurance subsidiaries implementing the Circular on Pre-taxDeduction of Fee and Commission Expense for Insurers issued by the Ministry of Finance and the State Administration of Taxation on May 29, 2019. The impact of one-offnon-operating item in 2018 referred to the fair value revaluation gain, as required by the accounting standards, of the convertible bonds issued by Lufax Holding to the Group as the consideration of the Puhui transaction. The fair value of the convertible bonds significantly increased due to Lufax Holding's Series C financing.

Note: (1) Refer to the significant accounting policies in the notes of the Company's 2019 Annual Report for the relative information about the discount rate.

The operating profit after tax which excludes fluctuations of above non-operating related items can provide a clearer and more objective representation of the Company's business performance and trend.

The Group operating profit after tax attributable to shareholders of the parent company in 2019 was RMB132,955 million, which was up by 18.1% year on year. The L&H operating profit after tax attributable to shareholders of the parent company was RMB88,054 million, which was up by 25.2% year on year.

Operating profit after tax attributable to shareholders of the parent company

(in RMB million)

2019

2018

Change (%)

Life and health insurance business

88,054

70,320

25.2

Property and casualty insurance business

20,850

12,215

70.7

Banking business

16,342

14,394

13.5

Asset management business

9,594

12,871

(25.5)

Including: Trust business

2,595

3,008

(13.7)

Securities business

2,319

1,599

45.0

Other asset management business

4,680

8,264

(43.4)

Technology business

3,487

6,770

(48.5)

Other businesses and elimination

(5,372)

(3,996)

34.4

The Group

132,955

112,573

18.1

Note: Figures may not match the calculation due to rounding.

64 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Group

L&H business

(in RMB million)

2019

2018

2019

2018

Net profit

[1]

164,365

120,452

103,737

58,757

Excluding:

Short-term investment variance of L&H(1)

[2]

19,354

(12,853)

19,354

(12,853)

Impact of discount rate change of L&H(1)

[3]

(13,164)

265

(13,164)

265

Impact of one-off material non-operating

10,453

8,597

items

[4]

7,236

-

Operating profit after tax

[5]=[1-2-3-4]

147,722

125,804

88,950

71,345

Attributable to:

- Owners of the parent

132,955

112,573

88,054

70,320

- Non-controlling interests

14,767

13,231

896

1,026

Notes: (1) The short-term investment variance and impact of discount rate change of L&H set out above are net of tax. (2) Figures may not match the calculation due to rounding.

Source of Earning and Residual Margin Analysis of L&H

The breakdown by source of earning of L&H operating profit has been shown as below.

(in RMB million)

2019

2018

Note

Release of residual margin

[1]

74,454

62,287

Return on net worth(1)

[2]

11,738

8,959

Spread income(2)

[3]

3,947

5,048

We proactively lowered spread

charges to maintain product

competitiveness in response

to volatile capital markets in

2018. The impact continued

into 2019

Operating variances and other

[4]

10,406

21,749

Strategically increased

investment in technology and

agents team building, and

short-term fluctuation of the

persistency ratio

L&H operating profit before tax

[5]=[1+2+3+4]

100,545

98,043

Income tax

[6]

(11,595)

(26,698)

Reduction in effective tax rate

caused by the implementation

of the "Circular"

L&H operating profit after tax

[7]=[5]+[6]

88,950

71,345

Notes: (1) Return on net worth is the investment return on shareholder equity based on the EV ultimate investment return assumption (5%).

(2) Spread income is the expected investment return from assets backing contract liability based on the EV ultimate investment return assumption (5%) exceeding the interest required on contract liability.

(3) Figures may not match the calculation due to rounding.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 65

Analysis of Embedded Value

Residual margin is the present value of future profits with release pattern locked in at the time of policy issuance, resulting in stable release and immunity to capital market volatility. As of December 31, 2019, residual margin of life and health insurance business was RMB918,416 million, which rose by 16.8% from the beginning of 2019 mainly due to the contribution from new business. The movement of L&H residual margin has been presented below:

(in RMB million)

2019

2018

Note

Opening residual margin

[1]

786,633

616,319

Contribution from new business

[2]

155,684

177,485

Expected interest growth

[3]

33,811

28,498

Release of residual margin

[4]

(74,454)

(62,287)

Lapse variance and others

[5]

16,742

26,617

Short-term volatility in policy

persistency resulted in lower

lapse variance and others,

which remained positive

benefiting from better-than-

assumed persistency

Closing residual margin

[6]=[1+...+5]

918,416

786,633

Note: Figures may not match the calculation due to rounding.

Appendix

The differences between FYP used to calculate value of new business and FYP disclosed in MD&A are explained below.

For the 12 months ended

FYP used to

Dec 31, 2019

calculate value

FYP disclosed

(in RMB million)

of new business

in MD&A

Difference

Reasons

Retail business

126,352

153,968

(27,616)

Guaranteed renewal and other short

term products' renewal premiums

are included in FYP disclosed in

MD&A but not included in FYP used

to calculate value of new business

Group business

34,126

22,272

11,855 In compliance with current accounting

standards, group investment

contracts are not included in FYP

disclosed in MD&A, but included in

FYP used to calculate value of new

business due to their contribution to

value of new business

Total

160,478

176,240

(15,761)

Note: Figures may not match the calculation due to rounding.

66 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

Liquidity and Capital Resources

The Company manages its liquidity and capital resources from the perspective of the Group as a whole.

As of December 31, 2019, the solvency of the Group was adequate. The comprehensive solvency margin ratio rose by 13.4 pps from the beginning of 2019 to 229.8%, higher than the regulatory requirement (100%).

DISCUSSION AND ANALYSIS

OVERVIEW

Liquidity refers to the availability of cash assets or cash supply to meet the financial requirements of the Company whenever such cash assets or cash supply are needed. The aim of the Group's liquidity management is to meet the liquidity requirements of its operating, investing and financing activities while maximizing shareholders' returns by optimizing its financial resource allocation and capital structure.

The Company manages its liquidity and capital resources from the perspective of the Group as a whole. The Budget Management Committee, Risk Management Executive Committee, and Investment Management Committee under the Group Executive Committee are overseeing these essentials at the group level. As the Group's liquidity management execution unit, the Treasury Department is responsible for the Group's treasury management functions including cash settlement management, cash flow management, funding management, and capital management.

Liquidity management of the Group comprises capital management and cash flow management. The Group has put in place a comprehensive capital management and decision-making mechanism.

As part of this process, the Group's subsidiaries put forward their capital requirements based on their own business development needs. The parent company then submits its recommendations on the overall capital plan for the Group, based on the overall situation of the subsidiaries' business development. The Group Executive Committee then determines a final capital plan based on the strategic plan of the Group before allocating capital accordingly.

All operating, investing and financing activities of the Group should meet the requirements of liquidity management. The parent company and its insurance subsidiaries implement separate management based on their operating cash inflows and outflows. Allocation and deployment of funds are centralized through the pooling of cash inflows and outflows. The parent company and its insurance subsidiaries are therefore able to monitor cash flow status in a timely manner.

(in RMB million)

December 31,

December 31,

Change (%)

2019

2018

Total assets

8,222,929

7,142,960

15.1

Total liabilities

7,370,559

6,459,317

14.1

Total liabilities to total

89.6

assets ratio (%)

90.4

-0.8 pps

Note: Total liabilities to total assets ratio = total liabilities/total assets.

CAPITAL STRUCTURE

The Group's long-term capital stability stems from the profits continuously generated by its various businesses. Furthermore, in accordance with the capital plan, the Group ensures capital adequacy by issuing capital market instruments including equity securities, capital supplement bonds, hybrid capital debt instruments, tier 2 capital bonds, convertible bonds, and undated capital bonds to raise capital. Adjustments are made to surplus capital through dividend distribution or by other means. As of December 31, 2019, the Group's equity attributable to shareholders of the parent company was RMB673,161 million, up 21.0% from the beginning of 2019. The parent company's capital mainly comprises contributions from shareholders as well as proceeds from issuance of A and H shares.

MANAGEMENT

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 67

Liquidity and Capital Resources

The following table shows the balances of capital bonds issued by the Group and main subsidiaries as of December 31, 2019:

Par value

Issuer

Type

(in RMB million)

Coupon rate

Issuance year

Maturity

Ping An Life

Capital supplement

5,000

First 5 years: 3.90%

2015

10

years

bonds

Next 5 years: 4.90%

(If not redeemed)

Ping An Life

Capital supplement

10,000

First 5 years: 3.82%

2016

10

years

bonds

Next 5 years: 4.82%

(If not redeemed)

Ping An Property &

Capital supplement

5,000

First 5 years: 4.79%

2015

10

years

Casualty

bonds

Next 5 years: 5.79%

(If not redeemed)

Ping An Property &

Capital supplement

3,500

First 5 years: 5.10%

2017

10

years

Casualty

bonds

Next 5 years: 6.10%

(If not redeemed)

Ping An Property &

Capital supplement

10,000

First 5 years: 4.64%

2019

10

years

Casualty

bonds

Next 5 years: 5.64%

(If not redeemed)

Ping An Bank

Hybrid capital debt

3,650

Fixed rate of 7.50%

2011

15

years

instrument

Ping An Bank

Tier 2 capital bonds

10,000

Fixed rate of 3.85%

2016

10

years

Ping An Bank

Tier 2 capital bonds

30,000

Fixed rate of 4.55%

2019

10

years

Ping An Bank

Undated capital bonds

20,000

First 5 years: 4.10%

2019

Undated

Adjusted every 5 years

FREE CASH OF THE PARENT COMPANY

The free cash of the parent company includes bonds, equity securities, bank deposits and cash equivalents that the parent company holds. They are mainly invested in subsidiaries or used in daily operations or for dividend distribution. As of December 31, 2019, the parent company's free cash amounted to RMB45,068 million, up RMB3,058 million compared with the beginning of the year.

(in RMB million)

2019

2018

Change (%)

Opening balance of free cash

42,010

38,332

9.6

Dividend from subsidiaries

52,695

48,566

8.5

Dividend out to shareholders

(33,775)

(33,270)

1.5

Share repurchase

(5,001)

-

N/A

Investments in subsidiaries(1)

(14,164)

(8,584)

65.0

Others(2)

3,303

(3,034)

N/A

Closing balance of free cash

45,068

42,010

7.3

Notes: (1) The Company's investments in subsidiaries in 2019 mainly include the capital injections into Ping An Financial Leasing and Ping An Health, and the subscription for convertible bonds issued by Ping An Bank.

(2) Others mainly include short-term borrowings.

68 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

The major cash outflows were the dividend of RMB33,775 million to A and H shareholders, repurchase of RMB5,001 million worth of the Company's A shares, and investments of RMB14,164 million into subsidiaries. The major cash inflow was the dividend of RMB52,695 million from subsidiaries as detailed below:

(in RMB million)

2019

Ping An Life

40,535

Ping An Property & Casualty

8,459

Ping An Bank

1,234

Ping An Asset Management

2,467

Total

52,695

DIVIDEND DISTRIBUTION

According to Article 217 of the Articles of Association, the Company shall attach importance to reasonable investment returns for investors in terms of profit distribution. The profit distribution policy of the Company shall maintain its continuity and stability. The accumulated profit to be distributed in cash for any three consecutive years shall not be less than 30% of the yearly average distributable profit realized in the three years, provided that the annual distributable profit of the Company (namely profit after tax of the Company after covering the losses and making contributions to the revenue reserve) is positive in value and such distributions are in compliance with the prevailing laws and regulations and the requirements of regulatory authorities for solvency margin ratios. In determining the specific cash dividend payout ratio, the Company shall consider its profit, cash flow, solvency, operation and business development requirements. The Board of Directors of the Company shall be responsible for formulating and implementing a distribution plan in accordance with the Articles of Association. The Board of Directors will ensure the continuity and stability of the profit distribution policy so that the Group can seize opportunities for growth in the future while maintaining financial flexibility. Given the sustained operating profit growth and confidence in the Group's prospect, the Board of Directors proposed to pay a final dividend of RMB1.30 per share in cash for 2019. As the Group already paid an interim cash dividend of RMB0.75 per share, the total cash dividend for 2019 is RMB2.05 per share, up 19.2% year on year.

According to the Shanghai Stock Exchange's Implementation Rules for Share Repurchases by Listed Companies, A shares of the Company in the repurchased securities account will not be entitled to the dividend distribution. As of December 31, 2019, a total of 57,594,607 A shares of the Company were repurchased by the Company by means of centralized bidding transactions via the system of the SSE. The total amount of funds paid was RMB5,001 million. At the release of the 2019 annual report, it is difficult to predict the total number of shares that will be entitled to the final dividend distribution on the record date of A shareholders. Therefore, we cannot determine the total amount of the final dividend payment. The total amount of the final dividend payment for 2019 is estimated at RMB23,689 million based on the total share capital of 18,280,241,410 shares less A shares of the Company in the repurchased securities account as of December 31, 2019.

Cash dividend

Cash dividend

payout ratio based

on net profit

payout ratio based

attributable to

Cash dividend

Growth of cash

Cash dividend

on operating profit

Share

shareholders of the

attributable to

repurchase

parent company

per share

dividend per share

amount

shareholders of the

amount

(inclusive of share

(in RMB)

(%)

(in RMB million)

parent company (%)

(in RMB million)

repurchases, %)

2019

2.05

19.2

37,356

28.1

5,001

28.4(3)

2018

1.72

14.7

31,442

27.9

-

29.3

2017

1.50

100.0

27,420

29.0

-

30.8

Notes: (1)

Cash dividend per share includes the interim dividend and final dividend for the year.

(2)

Except for the 2019 final dividend pending approval at the 2019 Annual General Meeting, the profit distribution for other years

was completed during the relevant years.

(3) According to the Shanghai Stock Exchange's Implementation Rules for Share Repurchases by Listed Companies, the amount of share repurchases executed in a year should be regarded as cash dividends and be factored into the computation of the cash dividend payout ratio for the year. After the RMB5,001 million share repurchases in cash are factored into the computation, the cash dividend payout ratio based on net profit attributable to shareholders of the parent company is 28.4%.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 69

Liquidity and Capital Resources

CAPITAL ALLOCATION

In terms of capital allocation, the Company facilitates strategic development and improves capital efficiency through prudent investment and ongoing optimization of returns and the asset and liability structure. The Company follows three core principles for capital allocation: 1) to ensure that capital adequacy ratios of regulated member companies satisfy minimum regulatory requirements; 2) to develop mature businesses that deliver stable returns, and constantly boost performance to create value for Ping An; and 3) to ensure the capital input required for innovative business incubation, and seek new profit drivers to realize sustainable growth.

GROUP SOLVENCY MARGIN

The insurance group solvency margin represents the consolidated solvency margin calculated as if all the members of the insurance group were a single reporting entity. The group solvency margin ratios are important regulatory measures for assessing an insurance group's capital adequacy.

The following table shows solvency data of the Group under the China Risk Oriented Solvency System (C-ROSS):

(in RMB million)

December 31,

December 31,

Change (%)

2019

2018

Core capital

1,574,150

1,258,768

25.1

Actual capital

1,607,650

1,290,268

24.6

Minimum capital

699,522

596,238

17.3

Core solvency margin ratio (%)

225.0

211.1

13.9

pps

Comprehensive solvency margin ratio (%)

229.8

216.4

13.4

pps

Notes: (1)

Core solvency margin ratio = core capital/minimum capital; comprehensive solvency margin ratio = actual capital/minimum

capital.

(2)

The regulatory minimum requirements for the core solvency margin ratio and comprehensive solvency margin ratio are 50% and

100% respectively.

Stable solvency margin ratios ensure that the Company meets capital requirements specified by external institutions including regulators and rating agencies, and support the Company in developing business and creating value for shareholders.

Stress test results about impacts of declines in interest rates and equity assets on solvency margin ratios of Ping An Group, Ping An Life, and Ping An Property & Casualty as of December 31, 2019 are disclosed below:

Comprehensive solvency margin ratio

Ping An Property &

Ping An Group

Ping An Life

Casualty

Base case

229.8%

231.6%

259.2%

50 bps decline in interest rate

222.2%

217.6%

259.8%

30% decrease in fair value of equity assets

220.2%

219.5%

254.4%

70 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

LIQUIDITY RISK MANAGEMENT

Liquidity risk refers to the risk of the Company being unable to obtain sufficient cash in time, or being unable to obtain sufficient cash in time at a reasonable cost, to repay debts that have become due or fulfill other payment obligations.

To meet domestic and international regulatory requirements including those for the Global Systemically Important Insurers (G-SIIs) and those under C-ROSS, the Group has developed and regularly updated the Liquidity Risk Management Plan of Ping An Insurance (Group) Company of China, Ltd. (LRMP). The Group has also established a robust liquidity risk management framework covering risk appetites and limits, risk strategies, risk monitoring, stress testing, emergency management, appraisal and accountability, and relevant policies. Ping An has constantly improved its management procedures and processes for better identification, evaluation, and management of the liquidity risk for the Group and its members.

Under the Group's principles and guidelines for liquidity risk management, the subsidiaries have developed their own liquidity risk appetites, risk indicators, and risk limits according to the applicable regulations, industry practices, and features of their business activities. The Group and its subsidiaries have established robust liquidity risk information systems and liquidity monitoring and reporting procedures for adequate identification, accurate measurement, continuous monitoring, and effective control of the liquidity risk in various business activities. The Group coordinates its subsidiaries to regularly evaluate liquid assets and maturing debts, conduct stress tests of cash flows, and carry out forward-looking analyses of the liquidity risk for a certain period in the future to identify the potential liquidity risk and take measures to control liquidity gaps.

The Group and its subsidiaries have established liquidity reserve policies and maintained stable, convenient, and diverse sources of financing to ensure that they have adequate liquidity to tackle possible impacts from adverse situations. Moreover, the Group and its subsidiaries have developed robust liquidity contingency plans for handling any significant liquidity events. The Group has set up internal firewalls to prevent intra-group contagion of the liquidity risk.

CASH FLOW ANALYSIS

(in RMB million)

2019

2018

Change (%)

Net cash flows from

249,445

operating activities

206,260

20.9

Net cash flows from

(380,157)

investing activities

(240,426)

58.1

Net cash flows from

125,077

financing activities

31,264

300.1

Net cash flows from operating activities increased year on year mainly due to year-on-year increases in cash inflows from Ping An Life's insurance business growth.

Net cash outflows from investing activities increased year on year mainly due to year-on-year increases in cash outflows from Ping An Bank's investing activities.

Net cash inflows from financing activities increased year on year mainly due to year-on-year decreases in cash outflows from Ping An Bank's debt repayment.

CASH AND CASH EQUIVALENTS

(in RMB million)

December 31,

December 31,

Change (%)

2019

2018

Cash

208,953

219,959

(5.0)

Bonds of original

maturities within

5,269

3 months

2,534

107.9

Financial assets

purchased under

reverse repurchase

agreements of original

maturities within

89,244

3 months

85,531

4.3

Total

303,466

308,024

(1.5)

The Company believes that the liquid assets currently held, together with net cash generated from future operations and the short-term borrowings available, will be sufficient to meet the foreseeable liquidity requirements of the Group.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 71

Risk Management

We strive to become a "world-leadingtechnology-powered retail financial services group." To achieve this goal, we continuously optimize the risk management system and develop a risk management platform. By identifying, evaluating and mitigating risks, we achieve a balance between risks and returns which ultimately contributes to the sustainable growth of the Group.

RISK MANAGEMENT OBJECTIVES

For over 30 years since its establishment, Ping An has regarded risk management as an integral part of its operations and business activities. We take steady steps to build an enterprise risk management system aligned with the Group's strategies and the nature of our business. We continuously optimize the risk management framework, standardize risk management procedures, and adopt qualitative and quantitative risk management methodologies to identify, evaluate, and mitigate risks. Keeping risks under control, we promote sustainable business growth and build Ping An into a "world-leadingtechnology-powered retail financial services group."

Amid evolving regulations in the changing domestic and global economic environments, Ping An has diversified its offerings under the "finance + technology" and "finance + ecosystem" strategies. Based on robust compliance management and internal control, the Group builds an effective enterprise risk management framework in line with international standards through risk quantification tools and risk performance appraisals, centering on capital management and being risk appetite-oriented. By improving risk management and technology, and dynamically managing both individual and cumulative risks, the Company aims to achieve a balance between risk management and business development.

RISK MANAGEMENT ORGANIZATIONAL STRUCTURE

The Group proactively complies with the Company Law of the People's Republic of China and relevant laws, regulations and regulatory requirements, as well as the Articles of Association and relevant corporate risk governance requirements. We have in place a comprehensive risk governance framework which holds the Group Board of Directors ultimately accountable, and which is directly upheld by the management. Supported closely by various committees and relevant departments, the framework covers risk management across all of the Group's members and business lines.

Group Board of Directors

Audit and Risk

Related Party Transaction

Management Committee

Control Committee

Group Executive

Committee

Global Systemically

Budget

Risk Management

Investment

Technology

Investor

Important Insurer

Executive Committee

Relations

Management

Development

Management

Management

Chairman: Group Chief

and ESG

Committee

Committee

Committee

Committee

Risk Ocer

Committee

Internal Control

Finance & Planning

Information

Group Asset

Group

Management

Security/Operations

Branding Department

Center of the

Management

Center of the

Department of the

of the Group

Group

Center

Group

Group

Member

Risk Management/

Finance & Planning

Information

Branding Department

Asset Risk

Compliance Depart-

Security/Operations

Management

Department of

companies

ment of member

Department of

of member companies

Department of

member companies

companies

member companies

member companies

72 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

The Board of Directors is the highest decision- making authority for the Company's risk management and takes responsibility for the effectiveness of the enterprise risk management function. The Audit and Risk Management Committee under the Board of Directors is responsible for having a thorough understanding of the Company's major risk exposures and management situations, monitoring effectiveness of the risk management framework, deliberating the following matters and making recommendations to the Board of Directors:

Overall objectives of risk management, risk appetites and tolerance, and risk management policies and procedures;

The organizational structure and responsibilities of risk management;

Risk assessments for major decisions and solutions to significant risks; and

Annual risk assessment reports.

According to relevant regulations of the CBIRC, the Company set up the Related Party Transaction Control Committee under the Board of Directors in 2019. The Related Party Transaction Control Committee coordinates related party transactions management of the Company, ensures the compliance and fairness of the Company's related party transactions, and prevents risks from related party transactions. The Committee performs its duties as follows:

To determine the overall management targets, basic policies, and management systems for related party transactions;

To review material related party transactions, including but not limited to providing opinions on related party transactions and matters considered by the Company's Board of Directors according to the regulatory requirements, and submitting them to the Company's Board of Directors for review and approval and giving written opinions on the compliance, fairness, and necessity of material related party transactions, and whether the interests of the Company and insurance consumers would be affected;

To review annual reports related to related party transactions;

To regularly review the related party list under the Measures for the Administration of Related- party Transactions of Insurance Companies; and

Other duties that shall be undertaken according to regulations and other tasks stipulated by the Charter of the Related Party Transaction Control Committee of the Board and authorized by the Board of Directors.

The Group Executive Committee leads all aspects of the Group's risk management, comprising eight committees including the Risk Management Executive Committee (RMEC), the Investment Management Committee, the Budget Management Committee, the Investor Relations and ESG Committee, the Global Systemically Important Insurer Management Committee, and the Technology Development Committee. The RMEC as a specialized committee reports to the Group Executive Committee and holds the supreme leadership in the Group's risk management. The RMEC makes major decisions on risk management and is fully responsible for the Group's risk management results. Main duties of the RMEC include deliberating on the overall risk management goal, risk appetites, risk limits, basic policies and principles of risk management, giving instructions on developing risk management frameworks, monitoring the Company's risk exposures and available capital, deliberating on risk management related reports and financial management initiatives, supervising implementation of the risk management system in each member company or business

line, and promoting a culture of enterprise risk management across the Group.

The Group's Chief Risk Officer acts as the RMEC's Chairman. Members of the RMEC are the executives in charge of different risk categories and the heads of various risk management departments, each of whom has clearly-defined responsibilities for managing the asset quality risk, liquidity risk, information security risk, operational compliance risk, brand reputation risk, and so on.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 73

Risk Management

In 2019, the Group continued to optimize the enterprise risk management framework based on the latest regulatory requirements and internal management needs. By improving the risk management structure of the Group and member companies as well as strengthening risk management mechanisms, we optimized the centralized management and control platform to enhance the overall risk management capabilities of the Group. In 2019, the Group further improved its risk appetite system and the enterprise risk management policies, developed the enterprise risk management platform, optimized the risk indicator system, and enhanced the risk monitoring, early warning and reporting mechanisms. The Group also applied artificial intelligence to risk management to ensure that all risks are effectively identified and managed on a timely basis. The Group continued to conduct risk reviews of business development and optimized the capital utilization to keep a balance between business development and risk management.

The Group implemented domestic and international regulatory requirements related to systemic risk management with high standards to establish

a sound systemic risk monitoring and control system, monitored the systemic risks of core businesses from multiple aspects and developed an effective early warning identification system and risk mitigation measures. According to the comprehensive review and assessment, Ping An has effectively kept risks under control with its specialized enterprise risk management framework, and the Group's systemic impact on financial markets is limited. Meanwhile, in order to effectively supplement the daily emergency response mechanism, the Group continues to improve the crisis governance framework, identify potential systemic risk crisis scenarios from multiple dimensions and constantly optimize disposal and recovery schemes to improve the timeliness and effectiveness of the crisis response of the Group and boost the prudent development of the Group.

To meet regulatory requirements and support the Company's strategy and business development in a healthy and effective manner, the Group implemented a set of top-down and performance- linked evaluation metrics. The evaluation criteria for personnel, entities and procedures were developed on the principle of "accountability at every level with evaluation at each stage." The Group aims to closely link risk compliance with performance appraisal, and raise the awareness of risk management.

RISK MANAGEMENT CULTURE

As the risk governance system becomes more sophisticated, a risk culture has permeated the Group's ranks, from the Board of Directors to senior management and from specialized committees to employees. This culture has facilitated an effective and efficient approach that is both top-down

and bottom-up, which lays a solid foundation for the effective integration of risk management into the Group's daily operations. This in turn helps to protect shareholder equity, improves capital efficiency, supports management decisions, and ultimately creates value for the Group.

RISK APPETITE SYSTEM

A risk appetite system is central to Ping An's overall strategy and enterprise risk management. Considering the Group's overall strategy and members' development needs, the Group has built a risk appetite system that matches its business strategies, and combined risk appetites with management decisions and business development to promote healthy growth of the Group and its members.

The Group's risk appetite system has five core dimensions: capital adequacy, liquidity adequacy, sustainable and stable models of profit growth, a good reputation, and compliance. The Group has used these dimensions to guide its members in specifying their unique risk appetite dimensions according to their business features and demands. We have broken down risk appetites and tolerance into risk limits under different categories, and applied the risk limits to routine risk monitoring and early warning, so as to support business decision-making and strike a balance between risk management and business development.

74 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

RISK MANAGEMENT METHODOLOGY

The Group continues to strengthen its enterprise risk management system, improve its organizational structure, formulate risk management policy

and guidelines, standardize risk management procedures, and fulfill risk management responsibilities. The Group adopts qualitative and quantitative risk management approaches to identify, evaluate and mitigate risks, so as to effectively prevent systemic risks associated with integrated finance, and enhance the overall risk management capabilities under an integrated model of various businesses.

The Group has established an optimal risk governance framework and risk management reporting mechanism, and included risk indicators in the performance appraisal system which integrates risk management culture into its corporate culture. In this way, we have laid the foundation for healthy, sustainable and stable development of the Group's business;

The Group has improved the risk appetite framework in line with its business development strategy. The Group also formulates risk management guidelines and standardizes risk management requirements for members;

The Group has improved the risk management system on risk concentration and strengthened its ability to manage concentrated risks, ranging from policy formulation to risk

limit management, system building and risk reporting, so as to improve the Group's overall capabilities of risk management for its integrated financial service business;

The Group utilizes tools and methods such as the risk dashboard, scenario analysis, stress tests and risk limits to continuously develop and optimize quantitative techniques and models of risk management, analyze risk exposures and evaluate their quantitative and qualitative impacts on the risk bottom lines. Such measures enable us to plan ahead and take necessary precautions in a timely manner to prevent and mitigate risks;

The Group has improved its risk warning mechanism, providing timely and effective alerts on industry developments, regulatory information or risk events, and effectively guarding against potential risks. The Group has also enhanced its risk emergency management mechanism;

The Group has carried out studies and practice of asset-liability risk management, and consolidated risk monitoring. Artificial intelligence has been effectively applied to the entire risk management cycle to enhance risk management capabilities and support the Company's "finance + technology" and "finance + ecosystem" strategies; and

The Group conducts holistic management of member companies' risks, carries out comprehensive assessment of risk management capabilities, and constantly improves risk monitoring indicators and measurement methods. Member companies are encouraged to employ technologies such as artificial intelligence to build smart risk management capabilities. By improving the risk management platforms of the Group, we constantly enhance the efficiency of risk management.

RISK ANALYSIS

The Group has categorized all risks to ensure they are well defined and managed. Below are major risks and their definitions:

1. General Risks

2. Group-level Risks

1.1 Insurance Risk

2.1 Risk Contagion

1.2 Market Risk

2.2 Organizational Structure

Non-transparency Risk

1.3 Credit Risk

2.3 Concentration Risk

1.4 Operational Risk

2.4 Non-insurance Risk

1.5 Strategic Risk

1.6 Reputation Risk

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 75

Risk Management

1. General Risks

The Group attaches importance to effective management of subsidiaries' general risks. Following the requirements of internal management and external regulation, the Group has strengthened active management of the insurance risk, market risk, credit risk, operational risk, strategic risk, and reputation risk.

1.1 Insurance Risk

Insurance risk refers to the risk of adverse deviation of the actual mortality rate, morbidity rate, loss ratio, expense ratio, and surrender rate from expectations, which may cause losses to the Group.

The Group assesses and monitors insurance risks involved in insurance business through sensitivity analysis, stress testing, and so on. We mainly evaluate the impacts of actuarial assumptions, including the discount rate, investment yield, mortality rate, morbidity rate, surrender rate, and expense ratio, on our insurance liability reserve, solvency, and profit in different scenarios.

Sensitivity analysis of long-term life insurance contracts' insurance liability reserve

Impact on insurance

liability reserve (after

December 31, 2019

Change in

reinsurance) increase/

(in RMB million)

assumptions

(decrease)

Discount rate/

investment yield(1)

+10 bps

(7,960)

Discount rate/

investment yield(1)

-10 bps

8,183

Mortality, morbidity,

and accident rates(2)

+10%

53,776

Surrender rate

+10%

18,366

Policy maintenance

expense ratio

+5%

3,478

Notes: (1) For long-term life and health insurance contracts where future insurance benefits are not affected by the investment yield of the underlying asset portfolio, with consideration of the Cai Kuai [2017] No.637 issued by the former CIRC and other related regulatory requirements, the corresponding sensitivity results are prepared based on the benchmark yield curve for the measurement of insurance contract reserves increased or decreased by 10 basis points.

(2) Change in mortality, morbidity, and accident rates refers to a 10% increase in the morbidity rate, mortality rate, accident rate, and other rates for life insurance policies (and a 10% increase before the payment period and a 10% decrease after the payment period in the mortality rate for annuity policies).

Sensitivity analysis of property and casualty insurance and short-term life insurance contracts' outstanding claims reserves

Change in

Impact on net

December 31, 2019

average claim

claim reserves

(in RMB million)

costs

increase/(decrease)

Property and

casualty insurance

+5%

4,048

Short-term life

insurance

+5%

403

The mechanisms and procedures adopted by the Group to manage insurance risks are as follows:

Develop insurance risk management policies and a scientific and consistent insurance risk management framework within the Group;

Develop a set of key insurance risk indicators, monitor them on a regular basis, analyze abnormal changes, and take management measures;

Establish model management policies, standardize actuarial models of the Group, and strictly control model risks;

Implement effective product development policies to develop products with proper insurance coverage and fair pricing, and control product pricing risks;

Implement prudent underwriting policies, establish guidelines for policy contracting and underwriting, and effectively prevent and reduce adverse selection risks;

Maintain strict claim investigation and settlement procedures, identify and prevent questionable or fraudulent claims;

Maintain effective product management procedures, analyze the experience and trends with the latest and the most accurate and reliable data, and well manage the product portfolio to control insurance risks;

Evaluate unearned premium reserves and outstanding claims reserves using effective reserve assessment procedures and methods, and assess the reserve adequacy on a regular basis; and

Maintain effective reinsurance management procedures, properly set self-retained risk limits, and use reinsurance as an effective risk transfer tool to transfer the excess risks to reinsurers with a high level of security to control insurance risks.

76 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

1.2 Market Risk

Market risks refer to the risks that cause unexpected losses to the Group due to unfavorable changes in interest rates, equity prices, foreign exchange rates, and real estate prices.

The Group has continuously strengthened its market risk management approach, and strengthened the abilities to identify, evaluate, measure, analyze and report on market risks from multiple dimensions. The Group further strengthened its investment

risk management IT platform to reinforce the foundation of risk management and improve risk management efficiency. The Group improved the risk management reporting mechanism, and consolidated risk monitoring and management. Stress testing was optimized to realize its decisional role in adherence to the bottom line of risk control. The risk limit framework was improved to monitor risks across the Group, subsidiaries, and business lines. The Group also enhanced the risk early warning mechanism, which led to more targeted, forward-looking and thorough risk management.

The mechanisms and procedures adopted by the Group to manage market risks are as follows:

Market risks are managed in a top-down manner by the RMEC, the Group's Investment Management Committee, and the risk management committees of member companies;

Investment and asset risk management guidelines are developed to manage market risks in a forward-looking manner while ensuring safety, comprehensiveness and effectiveness, and matching assets and liabilities;

A multi-layered risk limit framework is maintained on the basis of risk bottom lines and asset-liability management strategies to keep market risks under control. When setting risk limits, the Group takes account of the risk management strategies and the impacts on financial strength;

Methods including value at risk (VaR), sensitivity analysis, and stress tests are applied based on the characteristics of investment and market risk management, for scientific and effective assessment and management of market risks; and

The risk monitoring and reporting mechanism is standardized. Risk reports are issued regularly to provide suggestions on risk management and ensure market risks are within the Group's tolerance.

The main market risks to which the Group is exposed are interest rate risk, equity risk, foreign exchange risk, and real estate price risk.

Market Risk - Interest Rate Risk

Fixed maturity investments held by the Group are exposed to the interest rate risk. These investments are substantially represented by bond investments booked at fair value on the balance sheet. The Group uses various methods including sensitivity analysis and stress tests to evaluate the interest rate risk faced by such investments.

The sensitivity of interest risk is assessed by assuming a 50 basis-point parallel shift of the government bond yield curve, the impacts of which are illustrated in the table below:

December 31, 2019

Change in

Decrease in

Decrease in

(in RMB million)

interest rate

profit

equity

Bond investments classified

as financial assets carried

at fair value through profit

or loss and carried at

fair value through other

comprehensive income

+50 bps

3,386

12,568

The impacts of interest rate re-pricing and duration mismatch of assets and liabilities on yields are assessed through gap analysis. The Group analyzes the re-pricing characteristics of assets and liabilities on a regular basis, and carries out scenario analysis of the interest rate risk through the asset liability management system. On the basis of the existing gaps, the Group adjusts the re-pricing frequency and sets limits on the maturity of corporate deposits to reduce duration mismatch in re-pricing. Meanwhile, the Assets and Liabilities Management Committee holds regular meetings to make timely and appropriate adjustments to the asset-liability structure and manage the interest rate risk in response to macro-economic trends and the PBC's policies on interest rates.

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 77

Risk Management

Market Risk - Equity Risk

Listed equity investments held by the Group are exposed to market price risks. These investments are primarily listed equity securities and securities investment funds.

The Group adopts the 10-day market price value-at-risk ("VaR") technique to estimate its risk exposure. The market price VaR measures a maximum loss in the value of an equity portfolio due to normal market fluctuation within a given confidence level (99%) and a specified timeframe (10 days).

As of December 31, 2019, the VaR for listed equity securities and securities investment funds is as follows:

December 31, 2019

(in RMB million)

Impact on equity

Listed equity securities and

securities investment funds

classified as financial assets

carried at fair value through

profit or loss and carried

at fair value through other

comprehensive income

24,866

Market Risk - Foreign Exchange Risk

Foreign currency-denominated assets held by the Group are exposed to foreign exchange risks. These assets include monetary assets such as deposits and bonds held in foreign currencies and non-monetary assets measured at fair value such as stocks and funds held in foreign currencies. The Group's foreign currency-denominated liabilities are also exposed to risks as a result of fluctuations in exchange rates. These liabilities include monetary liabilities such as borrowings, customers' deposits and claim reserves denominated in foreign currencies, as well as non-monetary liabilities measured at fair value.

The sensitivity to foreign exchange risk is calculated by assuming a simultaneous and uniform depreciation of 5% against the Renminbi of all foreign currency denominated monetary assets and liabilities, as well as non-monetary assets and liabilities measured at fair value as illustrated in the table below:

December 31, 2019

Decrease in

(in RMB million)

equity

Net exposure to fluctuations in

exchange rates assuming

a simultaneous and uniform

depreciation of 5% of all foreign

currency denominated monetary

assets and liabilities and non-monetary

assets and liabilities measured at

fair value against the Renminbi

3,162

If the above currencies appreciate by the same proportion, the appreciation will have an inverse effect of the same amount on equity in the table.

Market Risk - Real Estate Price Risk

The Group is exposed to real estate price risk associated with its holding of investment properties. The Group tracks its exposure to property investment, monitors the movement of real estate prices in relevant regions, analyzes the impact of macro policies and regional economic development on real estate prices, has engaged independent valuers for the fair value assessment, and conducts stress tests on a regular basis.

As of December 31, 2019, the fair value of the Group's holding of buildings under investment properties stood at RMB71,117 million.

1.3 Credit Risk

Credit risk is the risk of unexpected losses resulting from the default of any debtors or counterparties or from adverse changes in their credit profiles. The Group is exposed to credit risk primarily associated with its deposit arrangements with other commercial banks, loans and advances, bond investments, reinsurance arrangements with reinsurance companies, policy loans, margin trading and off-balance-sheet activities.

78 Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd.

The Group manages credit risk through various measures, including:

Establishing a credit risk management mechanism with risk rating as its core methodology;

Developing standardized policies, rules and procedures for credit risk management;

Setting credit risk limits in multiple dimensions for investments and credit portfolios;

Monitoring credit risk through a risk management IT system; and

Monitoring public opinion, giving early warnings as appropriate, and enhancing post-investment management.

The Group is in strict compliance with the credit risk management guidelines issued by regulators. Under the guidance of the Board of Directors and the senior management, the Group carries out consolidated analysis, monitoring and management of the credit risk exposures of lending and investment businesses at the group level. On this basis, the Group establishes and refines credit risk limits for different members and business lines to manage high risk exposures and risk concentration after consolidating the Group's financial statements. The Group also provides forward-looking insights into and analysis of potential credit risks and their impacts on the Group.

The Group carries out targeted measures to control specific credit risks and concentration risks in light of different characteristics and risk profiles of businesses such as insurance, banking and investment. For credit risk associated with the banking business, the Group continuously improved the whole process management of credit risks and effectively enhanced the management of bank credit risks in line with changes in the financial and economic situation and macro-control policies as well as the requirements of regulatory authorities. The Group implemented the strategy of "breakthroughs in retail banking and enhancement of corporate banking" to continuously optimize the asset portfolio. The Group strengthened the early warning management to establish and continuously improve the automatic early warning system based on big data, strictly implemented post-lending management policies, and regularly reviewed problematic customers and overall asset quality. Risk mitigations were strengthened in key areas to prevent the accumulation of credit risk from large exposures. The disposal of non-performing assets was enhanced by leveraging the Group's strengths. For credit risk associated with the investment business, the Group assesses the credit of potential investment instruments in line with internal risk rating policies and procedures, strictly reviews the quality of counterparties through counterparty name lists and credit line management, chooses counterparties that have relatively high credit standing, and adopts a multi-dimensional approach for setting risk limits on investment portfolios

to manage credit risks. Moreover, the Group proactively conducts public opinion early warning and enhances post-investment management to achieve "rapid, accurate and rigid" credit risk management, namely, rapid response, accurate risk prediction, and rigid risk control. For reinsurance credit risk associated with insurance business, namely, credit risk which occurs when a reinsurance company is unable to fulfill its obligations, the Group evaluates the credit of the reinsurers before entering into a reinsurance contract, and cooperates with selected reinsurance companies that have higher credit for mitigating credit risks.

As percentage of

December 31, 2019

carrying value

Low-risk financial assets measured

at amortized cost held by the

Group

94.9%

MANAGEMENT DISCUSSION AND ANALYSIS

Annual Report 2019

Ping An Insurance (Group) Company of China, Ltd. 79

Risk Management

1.4 Operational Risk

Operational risk refers to the risk of losses resulting from inadequate or flawed internal procedures, employees, information technology systems, and external events.

The Group strictly follows applicable regulations and its operational risk management strategies. The Group uses the existing compliance management and internal control framework as the basis to integrate domestic and foreign regulators' advanced standards, methods, and tools for operational risk management. The Group optimizes the structure and policies for operational risk management, and strengthens collaboration and cooperation between departments. The Group has established daily monitoring and reporting mechani