PING AN INSURANCE GROUP COMPANY 2020 Interim Report
Contents
ABOUT US | CORPORATE GOVERNANCE | ||
1 | Introduction | 92 | Changes in the Share Capital and |
4 | Chairman's Statement | Shareholders' Profile | |
94 | Directors, Supervisors and Senior Management | ||
8 | Financial Highlights | ||
96 | Significant Events | ||
MANAGEMENT DISCUSSION AND ANALYSIS | FINANCIAL STATEMENTS | ||
9 | Customer Development | 114 | Report on Review of Interim Condensed |
14 | Technology-Powered Business Transformation | ||
Consolidated Financial Information | |||
20 | Business Analysis | ||
115 | Interim Consolidated Income Statement | ||
20 | Performance Overview | ||
116 | Interim Consolidated Statement of | ||
Life and Health Insurance Business | |||
24 | Comprehensive Income | ||
32 | Property and Casualty Insurance Business | 117 | Interim Consolidated Statement of |
38 | Investment Portfolio of Insurance Funds | Financial Position | |
119 | Interim Consolidated Statement of | ||
43 | Banking Business | ||
Changes in Equity | |||
52 | Asset Management Business | ||
121 | Interim Consolidated Statement of Cash Flows | ||
58 | Technology Business | ||
122 | Notes to the Interim Condensed | ||
64 | Analysis of Embedded Value | Consolidated Financial Information |
74 Liquidity and Capital Resources
79 Sustainability | OTHER INFORMATION | |
173 | Glossary | |
176 | 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 may or may not occur in the future. Words such as "potential", "estimates", "expects", "anticipates", "objective", "intends", "plans", "believes", "will", "may", "should", variations of these words and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are subject to known and unknown risks and uncertainties that may be general or specific. 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.
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 1 |
Introduction
About us
Ping An strives to become a world-leading technology-poweredretail financial services group. Ping An continues to develop "finance + technology" as its core businesses. While ensuring steady growth in its main financial businesses, Ping An increases its investments in technology and accelerates "finance + ecosystem" empowerment to transform and upgrade its main businesses. Ping An employs technologies to drive revenue growth, improve efficiency, enhance risk management, and cut operating costs of its financial businesses. Moreover, Ping An leverages a broad array of innovative technologies to develop its five ecosystems, namely financial services, health care, auto services, real estate services, and smart city services, to optimize customer acquisition and promote integrated financial services. The core of Ping An's integrated financial business model is "one customer, multiple products, and one-stop services." Ping An leverages its local advantages while adhering to global corporate governance and business management standards. By empowering financial services with technologies, empowering ecosystems with technologies, and empowering financial services with ecosystems, Ping An provides financial products and services for 210 million retail customers and 560 million internet users. While remaining focused on retail business, Ping An extends its "1+N" philosophy to its corporate business to tap synergies among Ping An's multiple corporate-facing business units. Capitalizing on these synergies, Ping An seeks to strengthen the customer value and contributions of its corporate business by implementing an innovative corporate integrated financial business model.
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 1 |
Introduction
Ping An achieved steady business results. Ping An accelerated its transformation toward online operations and enhanced risk management to minimize the impact of COVID-19. In the first half of 2020, operating profit attributable to shareholders of the parent company rose by 1.2% year on year to RMB74,310 million, culminating in a 21.6% annualized operating ROE.
Ping An continues to pay dividends to shareholders. Despite the short- term adverse impact on economic growth, Ping An attaches importance to shareholder returns and will pay an interim dividend of RMB0.80 per share in cash, up 6.7% year on year.
Retail customer development continued to yield strong results. As of June 30, 2020, retail customers increased by 4.6% from the beginning of 2020 to 210 million. In the first half of 2020, Ping An acquired 18.09 million new customers, of whom 35.4% were sourced from internet users within the Group's five ecosystems. Contracts per customer rose by 1.9% from the beginning of 2020 to 2.69.
Value contributions from corporate business cross-sellinggrew steadily. Ping An continued to extend its "1+N" integrated financial business model to the corporate business and took a segmented approach to customer development, providing strategic customers with integrated "commercial banking + investment banking + investment" services while serving small and micro-business customers online. In the first half of 2020, the new financing scale achieved through corporate business cross- selling climbed by 170.2% year on year. The written premium of the corporate channel achieved through cross-selling grew by 168.4% year on year.
Ping An Life proactively utilized technology to minimize the impact of COVID-19 and advance its reform. In quick response to the epidemic, Ping An Life established an industry- leading online operations model. Ping An Life's sales agents recovered in the second quarter of 2020, with the number of sales agents increasing by
1.2% from March 31, 2020. In the first half of 2020, operating profit after tax of the life and health insurance business rose by 6.4% year on year to RMB51,535 million. Meanwhile, Ping An Life steadily advanced multiple reform projects to ensure sustainable, high-quality, and healthy growth.
The property and casualty insurance business grew steadily. In the first half of 2020, Ping An Property & Casualty's premium income grew by 10.5%
year on year despite the COVID-19 epidemic. Ping An Property & Casualty maintained better-than-industry business quality, with a combined ratio of 98.1%. As of June 30, 2020, the "Ping An Auto Owner" app had over 109 million registered users, up 17.8% year to date. In June 2020, the app had over 27 million monthly active users.
Ping An Bank maintained stable business operations and strengthened provisions. Amid the COVID-19 epidemic, Ping An Bank quickly resumed business by advancing online digital operations. In the first half of 2020, revenue increased by 15.5% year on year to RMB78,328 million. As of June 30, 2020, the provision coverage ratio rose by 31.81 pps to 214.93% from the beginning of 2020.
Revenue of online health care services surged. During the peak of the COVID-19 epidemic, Ping An Good Doctor's online platform was accessed over 1.11 billion times. In the first half of 2020, Ping An Good Doctor's revenue of online health care services grew strongly by 106.8% year on year to RMB695 million.
2 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Ping An continued to develop its technological capabilities. As of June 30, 2020, Ping An's technology patent applications increased by 4,625 year to date to 26,008. Ping An topped the 2020 global fintech patent ranking list for the second consecutive year with over 1,500 applications in the area. Ping An won multiple international honors in AI, healthtech and other fields. OneConnect's Gamma Lab topped the rankings in two sub-tasks at the Document Visual Question Answering (DocVQA) competition held by the Conference on Computer Vision and Pattern Recognition 2020 (CVPR 2020).
Ping An diligently fulfilled its social responsibilities. Ping An furthered sustainable development, and built the AI-ESG smart management platform to enable responsible investments. MSCI upgraded Ping An's ESG rating
Total Assets (in RMB million)
Jun 30, 2020 | 8,848,631 | |
Dec 31, 2019 | 8,222,929 | |
About us
to A. As of June 30, 2020, Ping An's responsible investments amounted to RMB1.18 trillion. The Company focused its efforts on targeted poverty alleviation, and provided RMB24,905 million for industrial poverty alleviation through Ping An Rural Communities Support. Amid the COVID-19 epidemic, Ping An rapidly acted to offer insurance protection, healthtech support, and donations, and donated supplies and cash totaling more than RMB175 million.
Ping An's brand value continued to increase. In 2020, the Company ranked 21st in the Fortune Global 500 list, 7th in the Forbes Global 2000 list, 38th in the BrandZTM Top 100 Most Valuable Global Brands list, and 1st among global insurance brands for the fifth time.
Total Revenue (in RMB million)
1H 2020 | 683,280 | ||
1H 2019 | 690,246 | ||
Operating Profit Attributable to Shareholders of the Parent Company (in RMB million)
1H 2020 | 74,310 | |
1H 2019 | 73,464 |
Equity Attributable to Shareholders of the Parent Company (in RMB million)
Jun 30, 2020 | 701,972 | |
Dec 31, 2019 | 673,161 | |
Basic Operating EPS (in RMB)
1H 2020 | 4.20 | |
1H 2019 | 4.12 | |
New Business Value of Life and Health Insurance Business (in RMB million)
1H 2020 | 31,031 | ||
1H 2019 | 41,052 | ||
Interim Dividend per Share (in RMB)
1H 2020 | 0.80 | |
1H 2019 | 0.75 | |
Embedded Value of Life and Health Insurance Business (in RMB million)
Jun 30, 2020 | 805,374 | ||
Dec 31, 2019 | 757,490 | ||
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 3 |
Chairman's Statement
TO COPE WITH CHANGE, WE MUST REFORM. TO ACCOMPLISH OUR MISSION, WE MUST REMAIN TRUE TO OUR ORIGINAL ASPIRATIONS.
So far 2020 has been challenging, having witnessed
- complex fast-changingmacro-environment, the dramatic impact of COVID-19, and highly volatile global markets. History shows that turbulence leads to great change and crisis breeds opportunities. At Ping An, 2020 is a year of reform for its life insurance business amid huge internal and external challenges. In this interim report, we are providing details of our reform progress in answer to the concerns of investors.
In pursuing reform and innovation, it is critical to remain true to our original aspirations. As the saying goes, "you reap what you sow." By holding true to our original aspirations we will accomplish our mission. We have made tremendous progress in realizing these aspirations. As one of the trailblazers in China's insurance industry, Ping An is breaking through old market conventions to provide customers with diverse insurance products and integrated financial services. Ping An serves the real economy and people's livelihoods with cutting-edgetechnologies and products to protect the safety of thousands of families and make life easier. Seizing the strategic opportunity brought by a once-in-a-century change, Ping An strives to become a
role model for Chinese financial companies and a benchmark for technology innovators, in doing so making contributions to national rejuvenation.
With challenges come opportunities, and now is the time for reform. Since its inception in 1994, our life insurance business has been growing strongly, benefiting from the favorable times, regulatory policies, and solid foundations laid
in our early days. In recent years, however, we have identified huge challenges threatening the healthy, sustainable development of the traditional life insurance business model; we have entered
a new era of market development. The evolving macro-environment, consumer demands and demographic dividends as well as advancing
technology applications have all raised new and higher requirements for the life insurance industry. To create something new, one must reform the obsolete. We urgently need to adjust and upgrade our internal management, product design, and channel development practices. We must carry out an all-encompassing reform for our life insurance business. We spent two to three years developing a reform strategy, and found a way to shift gears in the life insurance business. Now is the time for us to make changes, lay a solid foundation for future growth, and build platforms for sustainable high-quality development.
To accomplish our mission, we must remain true to our original aspirations. We had to clearly identify the problems before launching our reform. In following our original aspirations, to "meet customer demands" and "make life easier with expertise,"
we have identified four reform directions, namely teams, products, management, and culture. First, we will reform our sales teams because the mixed competencies of our sales agents call for better management and training. Second, we will reform our products by improving the "products + services" framework and empowering sales and operations through the "products + technologies" strategy. Third, we will reform our management to be more visionary in long-term planning and more patient with intensive cultivation. Fourth, we will reform our culture by prioritizing quality, aiming high, remaining alert to crises, and embracing technologies.
With clear aims, the reform will become one of our major corporate development milestones. I am the head of a task force dedicated to steering Ping An Life's reform. We aim to become not only the largest life insurer, but also a market leader, an industry benchmark, the customers' first choice, and a world-leadinglife insurer. The world's centuries-oldtraditional life insurance business model is undergoing comprehensive change. By advancing reform, Ping An is leading a revolution in the centuries-oldapproaches to the sales and operations of the life insurance sector.
4 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
The reform cannot be finished overnight. At the heart of Ping An Life's efforts to build platforms for long-term sustainable growth are digital operations established under a "channel
- product" strategy. The challenges facing life insurers have raised wide concern in the industry. Traditional insurers and internet insurance players are all stepping up their own reforms. Some drive growth by expanding their sales forces; some pursue higher productivity and better performance; and some take advantage of the internet, technologies, and innovative models. We plan to build platforms for long-term sustainable, healthy growth through product strategies, channel development and data-driven operations, providing customers with responsive, convenient, reliable and intuitive financial services.
We take a customer-centric approach to product reform. As times change, so do the needs and habits of insurance consumers, who exhibit huge and growing differences in demands, preferences, attributes, and sophistication. Therefore, we need to take a customer-centricapproach to meeting demands with more forward-lookingproduct strategies, rather than the traditional "one-product-fits-all"approach to life insurance marketing. We differentiate ourselves from rivals by leveraging the Group's strengths in integrated financial services to build a "life insurance +" product portfolio. To meet customers' diverse needs in daily life, we have developed ecosystems around their daily life scenarios, integrating our products with services, including health care, healthy lifestyles, elderly care, and education.
We empower our sales agents with technology, to build a high-productivity,high-income,high-quality agent force, and reform our sales channels. In sales management, we optimize our basic management to empower sales agents with multi-productsales skills. In team management, we optimize our organizational development paths under the basic management procedure for sales agents, conduct group-specificteam management, and strictly implement the Company's discipline and culture. In training management, we invest more heavily in training and upgrade the training models. We provide sales agents with highly personalized training resources, product-relatedresources, digital marketing resources, strong back-officesupport and business development tools. In the short term,
About us
we will focus on "team expansion + productivity promotion," thus improving agent recruitment and enhancing agents' sales skills to increase their productivity. In the long term, we will build a high-productivity,high-income,high-quality agent force.
We are digitizing our life insurance business for all-arounddata-driven operations. In this regard, we have built a "headquarters brain" that anticipates trends, makes timely decisions, and takes action ahead of others by predicting, tracking and intervening in operations in an effective and timely manner. With the "headquarters brain,"
we are increasing our capability in managing operations, making predictions, and applying technologies. In data-driven management, we boost management efficiency by adopting "standard, refined, automatic, and smart" operations processes. In data-driven marketing, we raise customer reach rates and pursue sales targets through approaches including content marketing, social marketing, event marketing, and service marketing. To ensure sustainable, high-quality and healthy development, Ping An Life remains committed to value creation, reshaping the Ping An spirit and adhering to its core business philosophies: "strength over scale" and "quality over quantity."
The reform projects are progressing steadily and paying off gradually. Ping An Life's reform initiative began as a product and channel adjustment exercise in 2018, and became the all-encompassingreform program that is seen now in November 2019. So
far, we have completed the top-level design of most of the projects, launched pilot programs at branches for nearly half of the projects, and started to implement projects across the Group. Despite the unprecedented difficulty and rare depth of the reform, we are filled with confidence because we have unique advantages in achieving our aspirations. With over 25 years of business experience, our life insurance management team has global vision, professional expertise, and diverse skills. Our sales force is highly competent, with industry-leading productivity. Our diverse integrated financial product portfolio provides sales agents with abundant opportunities to increase income and develop careers. Equipped with world-leading technologies, our sales agents are fully empowered to develop business. That is why we are confident that most of the reform projects will be implemented this year.
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 5 |
Chairman's Statement
In the first half of 2020, the Company maintained stable operations through reforms and business development. Despite the complex, challenging environment and headwinds, the Company maintained stable operations through key measures including transformation toward online operations and enhancement of risk management under the "finance + technology" and "finance + ecosystem" strategies. Operating profit attributable to shareholders of the parent company for the first half of 2020 increased by 1.2% year on year to RMB74,310 million. The annualized operating ROE was 21.6%. Despite the short-termadverse impact on economic growth, Ping An attaches importance to shareholder returns and will pay an interim dividend of RMB0.80 per share in cash, up 6.7% year on year. Retail customer development continued to yield strong results thanks to ecosystem development. As of June 30, 2020, retail customers increased by 4.6% from the beginning of 2020 to 210 million. In the first half of 2020, Ping An acquired 18.09 million new customers, of whom 35.4% were sourced from internet users within the Group's five ecosystems. Contracts per customer rose by 1.9% from the beginning of 2020 to 2.69. The value contributions from corporate business cross-sellinggrew steadily under the integrated financial business model of "one customer, multiple products, and one-stopservices." Ping An takes a segmented approach
to customer development, providing strategic customers with integrated "commercial banking + investment banking + investment" services, while serving small and micro-business customers online. In the first half of 2020, the new financing scale achieved through corporate business cross-selling climbed by 170.2% year on year. The written premium of the corporate channel achieved through cross-selling grew by 168.4% year on year.
Our core financial businesses withstood severe tests as we rapidly responded to COVID-19 and transformed toward online operations. Amid the COVID-19epidemic, Ping An Life conducted the reform program while maintaining business growth, and rapidly established an industry-leadingonline operations model. As of June 30, 2020, Ping An Life's sales agents increased by 1.2% from March 31, 2020 to 1.145 million. Ping An Property & Casualty's business grew as the premium income increased by 10.5% year on year, with a combined ratio of 98.1%, indicating better-than-industrybusiness quality. As of June 30, 2020, the "Ping An Auto
Owner" app had over 109 million registered users, up 17.8% from the beginning of 2020. In June 2020, the app had over 27 million monthly active users.
Ping An Bank maintained stable business operations and strengthened provisions. Amid the COVID-19 epidemic, Ping An Bank quickly resumed business by advancing online digital operations. In the first half of 2020, revenue increased by 15.5% year on year to RMB78,328 million. As of June 30, 2020, the provision coverage ratio rose by 31.81 pps from the beginning of 2020.
We continued to enhance our technological capabilities, and fought COVID-19 with our health technology. As of June 30, 2020, Ping An's technology patent applications increased by 4,625 from the beginning of 2020 to 26,008. Ping An topped the 2020 global fintech patent ranking list for the second consecutive year with over 1,500 fintech patent applications in the area. During the peak
of the COVID-19 epidemic, Ping An Good Doctor's online platform was accessed over 1.11 billion times. In the first half of 2020, Ping An Good Doctor's revenue of online health care services grew strongly by 106.8% year on year to RMB695 million.
The best rating | |||||
among financial | The only financial | ||||
companies in the | n | company in the | |||
Chinese mainland | I | c | Chinese mainland | ||
l | |||||
A | u | ||||
d | |||||
e | |||||
d | |||||
MSCI | DJSI | ||||
ESG rating | |||||
ESG | |||||
Indices & Ratings | |||||
B+ | Refinitiv ESG | CDP rating | B | ||
rating |
Note: Formerly | ||||
Thomson Reuters | ||||
Hang Seng Corporate | ||||
Sustainability Index Series | ||||
HSSUS | ||||
A+ | The best rating among | |||
financial companies in | ||||
the Chinese mainland |
The effect of sustainable development transformation driven by ESG is remarkable. In recent years, Ping An's global mainstream ESG ratings have continuously improved as it became the best among Chinese peers and joined the world's upper-middle bracket.
6 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
At critical moments, businesses should fulfill their social responsibilities. Amid the COVID-19epidemic, Ping An acted rapidly to make charitable donations, offer insurance protection, serve the real economy, and provide healthtech support. The cash and supplies donated by Ping An in the first half of 2020 totaled more than RMB175 million in value. Ping An adheres to the philosophy of sustainable development. As of June 30, 2020, Ping An's responsible investment amounted to RMB1.18 trillion. The Company focused its efforts on targeted poverty alleviation, and continued Ping An Rural Communities Support, providing RMB24,905 million for industrial poverty alleviation. Ping An's brand value and reputation rose steadily. In 2020, the Company ranked 21st in the Fortune Global 500 list, seventh in the Forbes Global 2000 list, 38th in the BrandZTM Top 100 Most Valuable Global Brands list, and first among global insurance brands for the fifth time.
Amid the COVID-19 epidemic in 2020, Ping An HealthKonnect and Ping An Healthcare Diagnostics Center dispatched to Wuhan a vehicle equipped with a mobile computed tomography scanner to ease local pressure.
About us
Looking into the second half of the year, the impact of COVID-19 on China's economy will continue due to the harsh situation in certain regions. In the short term, major economic indicators will improve as risks are mitigated and social normalcy is restored. However, in the medium and long term, uncertainties will remain due to the international environment and economic situation.
Adversity makes one stronger. There is no growth without pain. The more difficult the reform is, the more resolute we are. Today, reform is Ping An's biggest historic mission and direction. We will uphold the faith in reform, walk the walk, and tackle difficulties and challenges with a strong sense of mission and responsibility. We will address the root causes of deep-seatedproblems while maintaining daily operations and advancing reform and transformation. We will make the reform a resounding success by building platforms for long-termsustainable, high-qualitydevelopment, providing customers and society with reassuring, reliable insurance protection, and contributing our wisdom to the life insurance industry in China and beyond.
Chairman
Shenzhen, China
August 27, 2020
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 7 |
Financial Highlights
For the | For the | ||
six months | six months | ||
ended | ended | ||
June 30, 2020/ | June 30, 2019/ | ||
As of | As of | ||
(in RMB million) | June 30, | December 31, | Change |
2020 | 2019 | ||
CUSTOMER DEVELOPMENT | 560.21 | ||
Number of internet users (in million) | 515.50 | 8.7%, YTD | |
Number of retail customers (in million) | 209.62 | 200.48 | 4.6%, YTD |
Number of contracts per customer (contract) | 2.69 | 2.64 | 1.9%, YTD |
Operating profit per customer (in RMB) | 310.20 | 348.77 | -11.1%, YoY |
Proportion of retail customers holding multiple contracts | 37.3 | 36.8 | 0.5 pps, YTD |
with different subsidiaries (%) | |||
Proportion of the Group' s new customers sourced from | 35.4 | 31.4 | 4.0 pps, YoY |
internet users within the Group' s five ecosystems (%) | |||
THE GROUP | |||
Operating profit attributable to shareholders of the | 74,310 | 73,464 | 1.2%, YoY |
parent company | |||
Operating ROE (annualized, %) | 21.6 | 24.6 | -3.0 pps, YoY |
Basic operating earnings per share (in RMB) | 4.20 | 4.12 | 1.9%, YoY |
Interim dividend per share (in RMB) | 0.80 | 0.75 | 6.7%, YoY |
Net profit attributable to shareholders of the parent | 68,683 | 97,676 | -29.7%, YoY |
company | |||
Equity attributable to shareholders of the parent | 701,972 | 673,161 | 4.3%, YTD |
company | |||
Group comprehensive solvency margin ratio (%) | 230.8 | 229.8 | 1.0 pps, YTD |
Total assets | 8,848,631 | 8,222,929 | 7.6%, YTD |
Total liabilities | 7,926,460 | 7,370,559 | 7.5%, YTD |
LIFE AND HEALTH INSURANCE BUSINESS | 18.7 | ||
Operating return on embedded value (annualized, %) | 28.4 | -9.7 pps, YoY | |
Embedded value | 805,374 | 757,490 | 6.3%, YTD |
Value of first half year' s new business | 31,031 | 41,052 | -24.4%, YoY |
Operating profit | 51,535 | 48,433 | 6.4%, YoY |
Residual margin | 962,333 | 918,416 | 4.8%, YTD |
Comprehensive solvency margin ratio - Ping An Life (%) | 231.8 | 231.6 | 0.2 pps, YTD |
PROPERTY AND CASUALTY INSURANCE BUSINESS | 8,274 | ||
Operating profit | 10,039 | -17.6%, YoY | |
Combined ratio (%) | 98.1 | 96.6 | 1.5 pps, YoY |
Comprehensive solvency margin ratio (%) | 241.3 | 259.2 | -17.9 pps, YTD |
BANKING BUSINESS | 13,678 | ||
Net profit | 15,403 | -11.2%, YoY | |
Net interest margin (annualized, %) | 2.59 | 2.62 | -0.03 pps, YoY |
Cost-to-income ratio (%) | 27.30 | 29.46 | -2.16 pps, YoY |
Non-performing loan ratio (%) | 1.65 | 1.65 | -, YTD |
Provision coverage ratio for loans more than 60 days | 228.44 | 190.34 | 38.10 pps, YTD |
overdue (%) | |||
Core tier 1 capital adequacy ratio (%) | 8.93 | 9.11 | -0.18 pps, YTD |
ASSET MANAGEMENT BUSINESS | 1,653 | ||
Net profit of trust business | 1,874 | -11.8%, YoY | |
Net profit of securities business | 1,565 | 1,252 | 25.0%, YoY |
TECHNOLOGY BUSINESS | 4,045 | ||
Operating profit | 3,274 | 23.5%, YoY |
Note: Certain figures have been reclassified or restated to conform to the presentation for the relevant periods.
8 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Customer Development
Impacted by the COVID-19 epidemic, the Group's retail operating profit declined by 2.3% year on year to RMB65,025 million in the first half of
2020. Retail business accounted for 87.5% of the Group's operating profit attributable to shareholders of the parent company.
The Group's retail business results grew steadily. Ping An Group had 210 million retail customers(1) as of June 30, 2020, up 4.6% year to date. In the first half of 2020, 18.09 million new customers were acquired, of whom 35.4% were sourced from internet users within the Group's five ecosystems. Contracts per customer rose by 1.9% from the beginning of 2020 to 2.69. Amid continuous expansion of the customer base, the Group's retail cross- selling continued to develop. A total of 78.28 million retail customers held multiple contracts with different subsidiaries, up 6.2% year to date. The Group's cross-selling penetration rate rose by 0.5 pps year to date to 37.3%. The Group's user development capability continued to increase. As of June 30, 2020, the Group's internet users(2) increased by 8.7% year to date to 560 million, of whom 376 million have yet to become its customers. Five of Ping An's portfolio of apps have achieved more than 100 million registered users, respectively.
The Group's corporate business achieved a steady increase in value contribution. Ping An made progress in extending the philosophy of integrated finance, namely "one customer, multiple products and services" to its corporate business. The Group's corporate business achieved a significant growth in scale. In the first half of 2020, the written premium of the corporate channel achieved through cross-selling rose by 168.4% year on year. The new financing scale achieved through corporate business cross-selling increased by 170.2% year on year. As of June 30, 2020, the outstanding balance of retail assets referred by corporate business was RMB1.34 trillion while the underlying assets invested by insurance funds sourced from corporate business was RMB498,504 million, up RMB59,049 million year to date.
CUSTOMER DEVELOPMENT STRATEGY
Under a customer-centric philosophy and the integrated finance strategy, Ping An has been dedicated to the development of both retail and corporate customers. Ping An's retail business 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. Ping An provides customers with diverse products and excellent services by empowering financial services with technologies, empowering ecosystems with technologies, and empowering financial services with ecosystems. Ping An's abilities
to continuously expand the retail customer base, steadily increase contracts per customer, and maintain stable product profitability have become the internal drivers of Ping An's strong retail business growth. In corporate business, Ping An focuses on strategic customers and small and micro-business customers with tiered customer development. Ping An satisfies customer demands for integrated financial services under a "1+N" service model (one customer + N products). Ping An uses technologies to improve customer experiences and reduce costs. Moreover, Ping An serves the real economy and offers inclusive finance services under the integrated financial business model.
Notes: (1) | Retail customers refer to retail customers holding valid financial products with the 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 the comparable periods of 2017, 2018, and 2019. | |
(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 by removing the unique users of suspended internet platforms from internet users. Moreover, | |
we restated the data for the comparable periods of 2017, 2018, and 2019. |
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 9 |
Customer Development
Core drivers of the Group's operating profit growth | ||||||||||||||||||||||||||||
Retail customers | New customers | |||||||||||||||||||||||||||
Unit: million | Unit: million | |||||||||||||||||||||||||||
1H 2020 | ||||||||||||||||||||||||||||
Jun 30, 2020 | 210 | + 9.9% | 18.09 | |||||||||||||||||||||||||
1H 2019 | ||||||||||||||||||||||||||||
Jun 30, 2019 | 191 | 18.75 | ||||||||||||||||||||||||||
Retail operating | ||||||||||||||||||||||||||||
profit | ||||||||||||||||||||||||||||
Unit: RMB million | ||||||||||||||||||||||||||||
1H 2020 | 65,025 | - 2.3% | Contracts per | |||||||||||||||||||||||||
Group operating | 1H 2019 | customer | ||||||||||||||||||||||||||
66,576 | ||||||||||||||||||||||||||||
profit | Unit: contract | |||||||||||||||||||||||||||
Unit: RMB million | ||||||||||||||||||||||||||||
Operating profit | Jun 30, 2020 | 2.69 | + 3.9% | |||||||||||||||||||||||||
per customer | ||||||||||||||||||||||||||||
Jun 30, 2019 | ||||||||||||||||||||||||||||
1H 2020 | 74,310 | + 1.2% | 2.59 | |||||||||||||||||||||||||
Unit: RMB | ||||||||||||||||||||||||||||
1H 2019 | Corporate and other | |||||||||||||||||||||||||||
73,464 | 1H 2020 | 310.20 | - 11.1% | Product | ||||||||||||||||||||||||
operating profit | ||||||||||||||||||||||||||||
1H 2019 | profitability | |||||||||||||||||||||||||||
Unit: RMB million | 348.77 | |||||||||||||||||||||||||||
1H 2020 | + 34.8% | |||||||||||||||||||||||||||
9,285 | ||||||||||||||||||||||||||||
1H 2019 | ||||||||||||||||||||||||||||
6,888 | ||||||||||||||||||||||||||||
Note: Group operating profit is the operating profit attributable to shareholders of the parent company. Figures may not match the calculation due to rounding.
RETAIL CUSTOMER DEVELOPMENT Retail operating profit slightly decreased
In the first half of 2020, retail operating profit fell 2.3% year on year to RMB65,025 million. The decline was primarily driven by unfavorable factors including the difficulties in offline business processing and rising risks in retail consumer finance due to the COVID-19 epidemic.
Retail customers and internet users increased steadily
Ping An continued to optimize its products, channels, and scenarios to deliver excellent customer experiences. As of June 30, 2020, the Group had 210 million retail customers, up 4.6% from the beginning of 2020. In the first half of 2020, the Company acquired 18.09 million new customers, 6.40 million or 35.4% of whom were sourced from internet users within the Group's five ecosystems. Moreover, Ping An continued to promote the migration
and conversion between customers and users by improving service experiences on online platforms. As a result, the proportion of customers sourced from internet users increased steadily.
Retail customer mix
June 30, | December 31, | Change | |
(in million) | 2020 | 2019 | (%) |
Life insurance(1) | 64.78 | 63.00 | 2.8 |
Auto insurance(1) | 51.21 | 50.23 | 2.0 |
Retail banking | 73.92 | 69.25 | 6.7 |
Credit card | 58.59 | 56.71 | 3.3 |
Securities, fund and | 51.40 | ||
trust | 47.08 | 9.2 | |
Others(2) | 57.34 | 50.31 | 14.0 |
The Group | 209.62 | 200.48 | 4.6 |
Notes: (1) The numbers of customers of insurance companies are based on holders of in-force policies.
(2) Others include other investments, lending and insurance products.
(3) The numbers of retail customers of separate business lines do not add up to the total due to the removal of duplicates.
(4) The number of customers as of June 30, 2020 is not equal to the sum of customers as of December 31, 2019 and new customers in the Reporting Period due to customer attrition.
10 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Online retail customers
June 30, 2020 | December 31, 2019 | |||
% of | % of | |||
(in million) | Persons | customers | Persons | customers |
Number of retail | ||||
customers who | ||||
were also internet | 184.56 | 88.0 | ||
users | 173.74 | 86.7 | ||
Number of retail | ||||
customers who | 179.60 | 85.7 | ||
were also app users | 168.23 | 83.9 |
Ping An provides internet users with one-stop services, constantly improves online user experiences, and aligns services more closely with user needs. As of June 30, 2020, the Group had 560 million internet users, up 8.7% from the beginning of 2020. App users increased to 510 million, up 8.5% from the beginning of 2020. Five of Ping An's portfolio of apps have achieved more than 100 million registered users, respectively. On average, each internet user used 2.07 online service features from Ping An. Meanwhile, yearly active users(1) reached 307 million as user activity and stickiness increased due to efficient internet user development.
Note: (1) The number of yearly active users refers to the number of active users in the 12 months to the end of the Reporting Period.
Number of internet users
June 30, | December 31, | Change | |
(in million) | 2020 | 2019 | (%) |
Internet users | 560.21 | 515.50 | 8.7 |
Technology companies | 389.43 | 356.43 | 9.3 |
Core financial companies | 405.85 | 369.72 | 9.8 |
App users | 510.14 | 470.01 | 8.5 |
Technology companies | 276.74 | 249.75 | 10.8 |
Core financial companies | 380.62 | 345.42 | 10.2 |
Note: Internet users and app users of the Group include the users of technology companies and core financial companies, excluding duplicates.
Ping An continues to convert internet users into customers. As of June 30, 2020, retail customers who were also internet users increased by 6.2% year to date to 185 million. Of the Group's 560 million internet users, 376 million had not yet become
its customers, indicating large potential for user conversion. The Group will continue to leverage traditional channels and scenario-based selling in ecosystems to acquire retail customers. Moreover, Ping An will strengthen cross-selling penetration to increase contracts per customer and steadily boost the value of retail customers.
Retail customer and internet user structure
Retail customers | Unit: million |
Internet users who were also retail customers | |
Internet users who were not yet retail customers |
516 | 560 | |||||
346 | 430 | 444 | ||||
376 | ||||||
342 | ||||||
296 | ||||||
242 | 247 | 303 | 200 | 210 | ||
180 | ||||||
157 | ||||||
131 | ||||||
109 | 184 | |||||
185 | ||||||
57 | 99 | 127 | 148 | 174 | ||
December 31, | December 31, | December 31, | December 31, | December 31, | June 30, | |
2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
Note: Figures may not match the calculation due to rounding.
Retail cross-selling continued to increase
Ping An continues to promote cross-selling under the integrated financial business strategy. As a result, contracts per customer increase year by year. In the first half of 2020, 17.31 million customer migrations occurred between core financial companies of Ping An. As of June 30, 2020, 78.28 million or 37.3% of retail customers held multiple contracts with different subsidiaries, up 0.5 pps from the beginning of 2020 amid continuous expansion of customer base. Contracts per customer grew by 1.9% year to date to 2.69.
Number of retail customers holding multiple contracts with different subsidiaries
Unit: million | % of total customers | ||||
34.3% | 36.8% | 37.3% | |||
29.6% | 73.71 | 78.28 | |||
24.0% | |||||
61.79 | |||||
19.0% | |||||
46.47 | |||||
31.50 | |||||
20.78 | |||||
December 31, | December 31, | December 31, | December 31, | December 31, | June 30, |
2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 11 |
Customer Development
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 June
30, 2020, the Group had 155 million middle-class or higher-level retail customers, accounting for 74.1% of the total. On average, each high net worth individual (HNWI) held 12.37 contracts, far more than affluent customers.
Retail customer wealth structure and proportion
Unit: million
HNWIs | 0.23 | |
(0.1%) | ||
Auent | 77.24 | 74.1% |
(36.8%) | ||
Middle-class | 77.93 | |
(37.2%) | ||
Mass | 54.21 | |
(25.9%) |
Retail customers and contracts per customer by segment
Number of | ||
customers | Contracts | |
(in million) | per customer | |
HNWIs | 0.23 | 12.37 |
Affluent | 77.24 | 3.67 |
Middle-class | 77.93 | 2.32 |
Mass | 54.21 | 1.76 |
The Group | 209.62 | 2.69 |
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 the calculation due to rounding.
Cross-selling between insurance businesses continued to grow strongly. In the first half of 2020, the premium incomes of Ping An Property
- Casualty, Ping An Annuity and Ping An Health achieved through the agent channel of Ping An Life rose by 8.5%, 3.1% and 68.3% respectively.
Premium income from cross-selling by Ping An Life's agents
2020 | 2019 | |||
For the six months ended | Channel contribution | Channel contribution | ||
June 30 | Percentage | Percentage | ||
(in RMB million) | Amount | (%) | Amount | (%) |
Ping An Property | 23,332 | 16.2 | ||
& Casualty | 21,501 | 16.5 | ||
Short-term insurance | ||||
business of Ping An | 4,981 | 39.0 | ||
Annuity | 4,830 | 41.4 | ||
Ping An Health | 3,393 | 69.3 | 2,016 | 66.1 |
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 CUSTOMER DEVELOPMENT Tiered customer development under a "1+N" service model of the corporate business
In corporate business, Ping An focuses on strategic customers as well as 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 targets customers in industries that contribute significantly to people's livelihoods as well as facilitate long-term economic development. The Company provides strategic customers with comprehensive tailor-made solutions combining "commercial banking + investment banking + investment" and "financing + intelligence" to satisfy customer demands for financing and management. 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 acquire more customers through existing ones.
12 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
In respect of services for small and micro-business customers, Ping An makes financing more accessible by reshaping supply chain finance and innovating credit enhancement with technologies including the
Performance of corporate integrated finance
For the six months ended | ||
June 30 | ||
(in RMB million) | 2020 | 2019 Change (%) |
Internet of Things (IoT) and blockchain. Moreover, Ping An makes financing more affordable by introducing superfast online review and streamlining credit approval processes. The financial needs of small and micro-business customers tend to be simple and standardized. 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. In the first half of 2020, the Group built a group-wide
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)
8,033 5,991 34.1
2,590 | 965 | 168.4 |
272,959 101,034 170.2
MANAGEMENT DISCUSSION AND ANALYSIS
customer development framework and a middle office management framework for corporate business to accelerate the online operations of customer reach and review of insurance products.
Significant results of customer development: continued growth in business scale and steady increases in value contributions
Under the corporate integrated financial business strategy, the corporate customer base continued to grow, customer services improved steadily, and the business scale increased significantly. In the first half of 2020, corporate premiums achieved through cross-selling(1) grew by 34.1% year on year to RMB8,033 million, in which the written premium of the corporate channel(2) rose by 168.4% year on year. The new financing scale achieved through corporate business cross-selling(3) increased by 170.2% year on year to RMB272,959 million. As a source of high-quality customers and assets, the corporate business contributed to the steady growth of the retail business, and sourced assets for the investment of insurance funds. As of June 30, 2020, the outstanding balance of retail assets referred by corporate business was RMB1.34 trillion, up 8.9% from the beginning of 2020. In the first half of 2020, the underlying assets invested by insurance funds sourced from corporate business(4) grew by RMB59,049 million to RMB498,504 million, with the increment expanding by 35.8% year on year.
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 the allocation of the Group's insurance funds.
Performance of integrated finance realized through Ping An Bank
As an engine of the Group's corporate business, Ping An Bank has advantageous distribution channels. In the first half of 2020, the premiums and financing referred by Ping An Bank rose by 271.0% and 147.6% year on year respectively.
For the six months ended | |||
June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Premiums referred by | 1,896 | ||
Ping An Bank(1) | 511 | 271.0 | |
Financing referred by | 220,612 | ||
Ping An Bank(2) | 89,088 | 147.6 |
Notes: (1) Premiums referred by Ping An Bank refer to the premiums 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-business customers. 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.
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 13 |
Technology-Powered Business Transformation
Ping An continued to invest heavily in research and development (R&D) to build leading technological capabilities and further develop its five ecosystems. As of June 30, 2020, Ping An's patent applications increased by 4,625 year to date to 26,008. Ping An ranked first on the global fintech patent ranking list for the second consecutive year.
Ping An made significant progress in developing its five ecosystems, which encompass financial services, health care, auto services, real estate services, and smart city services. Within its ecosystems, Ping An has an array of online and technology-powered offline businesses which interact to provide comprehensive scenarios, services and synergies for its 560 million internet users as of June 30, 2020. Empowering its main financial businesses with technology, Ping An achieved AI-driven product sales of RMB176.3 billion in the first half of 2020. Moreover, Ping An deployed advanced analytics engines to improve the quality and efficiency of risk management.
Ping An won multiple international honors in AI, healthtech and other fields. OneConnect's Gamma Lab topped the rankings in two sub-tasks at the Document Visual Question Answering (DocVQA) competition held by the Conference on Computer Vision and Pattern Recognition 2020 (CVPR 2020).
THE GROUP'S "FINANCE + TECHNOLOGY" AND "FINANCE + ECOSYSTEM" STRATEGIES
Ping An continues to execute the "finance + technology" and "finance + ecosystem" strategies. Ping An continues to invest heavily in R&D to build leading technological capabilities, which have been widely utilized to empower its main financial businesses and accelerate the development of
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, develop excellent products, and boost revenue. Moreover, Ping An offers leading innovative products and services to external clients to develop and empower business ecosystems with advanced technologies.
Ping An continues to focus on developing core technologies and securing proprietary intellectual property rights, and invest heavily in R&D. As of June 30, 2020, Ping An had a first-classtechnology team of nearly 110,000 technology employees, including over 3,000 scientists. Moreover, Ping An's eight research institutes and 57 laboratories have partnered with top universities including Peking University, Tsinghua University, and Fudan University as well as leading research institutes to realize technological breakthroughs. As of June
30, 2020, Ping An's patent applications increased by 4,625 year to date to 26,008, more than most other international financial institutions'. Of these applications, nearly 96% were for inventions, and
6,307 were filed under the Patent Cooperation Treaty (PCT) and abroad. Among the 2020 Global Fintech Patent Ranking List Top 100 released in June 2020, Ping An ranked top in the world for the second consecutive year by filing more than 1,500 patent applications. In 2019, Ping An ranked second globally by published digital healthtech patent applications. Ping An ranked eighth globally by international patent applications filed under PCT for 2019.
14 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Ping An won multiple international honors in AI, healthtech and other fields for technological breakthroughs in the first half of 2020. Ping An
was top-ranked at Stanford Question Answering Dataset 2.0 (SQuAD 2.0) of Stanford University, a test of machine reading comprehension, for the third time, and ranked first by the total score in 11 sub-tasks of the General Language Understanding Evaluation (GLUE) benchmark. OneConnect's Gamma Lab topped the rankings in two sub-tasks at the Document Visual Question Answering (DocVQA) competition held by the Conference on Computer Vision and Pattern Recognition 2020 (CVPR 2020). The OCR technology is capable of recognizing multiple languages including simplified Chinese, traditional Chinese, and English. The technology has been used over 100,000 times, saving existing clients 90% of time for data entry and 75% of labor cost under the same task conditions. Furthermore, Ping An actively published medical papers in authoritative journals, including one published with Jinling Hospital in EbioMedicine, a sub-journal of The Lancet, and one on endoscopic image quality in Scientific Reports, a sub-journal of Nature.
A research paper on ICU sepsis prediction coauthored by Ping An, the General Hospital of the People's Liberation Army, and Cornell University was published in Critical Care Medicine, a top international journal of critical care medicine.
Amid the COVID-19 epidemic, Ping An quickly resumed production through proprietary technologies. Ping An enabled its nearly 400,000 employees to work from home and attend online audio and video meetings on its self-developedplatform, which could accommodate over 300 attendees in a single meeting. Moreover, the "Zhi Niao" app facilitated concurrent live broadcast viewing by over one million life insurance sales agents, recording nearly three million views per day. In the meantime, Ping An strengthened its main products and service capabilities with technologies, offering services without delay while fighting the epidemic.
EMPOWERING MAIN FINANCIAL BUSINESSES WITH TECHNOLOGIES
From the perspective of transforming and upgrading Ping An's main businesses, technology benefits are reflected in greater profitability, stronger risk management, and higher business efficiency. In the first half of 2020, AI-drivensales reached RMB176.3 billion, up 104% year on year, including RMB105.9 billion in product sales driven by AI in service processes, which represented 57.9% of the total sales from platform synergies.
In respect of profitability improvement, Ping An leverages technologies to optimize business processes, boost operational efficiency, and improve customer experiences. Ping An boosts productivity by empowering service representatives with AI. In the first half of 2020, the average daily productivity of service representatives increased by 15% year on year from 114.5 times of services per person to 131.3 times of services per person. As of June 30, 2020, Ping An's self-developedrobots covered over 2,000 scenarios. These robots provided services 860 million times in the first half of 2020, up 82% year on year, representing 82% of the customer service workloads. Ping An Property & Casualty leverages technologies including AI robots to provide online, paperless, automatic smart insurance policy and claims services. As of June 30, 2020,
99.3% of the policy services of Ping An Property & Casualty were processed online, and 99.8% were paperless. Ping An processed 2.49 million end-to- end online family auto insurance claims; such claims accounted for 82.6% of total family auto insurance claims in June.
In respect of risk management, Ping An employs cutting-edge analytics engines to enhance the quality and efficiency of risk management. In the first half of 2020, AI helped collect RMB290 billion of loans per month on average (including RMB260 billion in the M0 stage and RMB30 billion in the M1 stage) and increased the balance of loans under management per capita by 15% from the beginning of 2020 to RMB62 million. Ping An dynamically monitors corporate credit risks with its smart alert technology, and gave over 3,000 warnings in the first half of 2020 with an accuracy rate of over 92%, involving a total risk exposure of nearly RMB40 billion.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 15 |
Technology-Powered Business Transformation
In respect of efficiency improvement, Ping An accelerates the application of new technologies to business scenarios including life insurance and banking to improve productivity. Ping An Life pioneered a smart customer-visitassistant that facilitates audio/video communication, sales proposal explanation and smart robot assistance, enabling agents to interact with customers through remote audio/video communication in the online AI Reception Room, which was used 7.72 million times in the first half of 2020. Moreover, Ping An continued to upgrade AI Training, a smart training toolkit, to provide agents with training in diverse scenarios including product knowledge and segment-specificsales practice. AI Training has been used 7.55 million times since it went live, being endorsed by 99%
of the agents. In AI-enabled retail banking, Ping An Bank issued 4.1753 million new credit cards in the first half of 2020, nearly 90% of which were automatically approved by AI. As of June 30, 2020, unmanned customer services accounted for 88.5% of Ping An Bank's AI-processed customer service workloads, up 2.4 pps from the beginning of 2020.
DEVELOPMENT OF PING AN'S 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 various financial service scenarios. Ping An has built multiple financial innovation platforms including Lufax Holding, OneConnect and E-wallet to satisfy customers' comprehensive financial demands, linking assets to funds through "open platforms
- open marketplaces." As of June 30, 2020, the app users of Ping An's core financial companies increased by 35.2 million year to date to 381 million.
In traditional financial services, Ping An leverages synergies between ecosystems to provide smart, online-merge-offlineand one-stopservices in comprehensive scenarios. In retail business, as of June 30, 2020, Ping An provided 210 million retail customers with over 10,000 financial products. Ping
An launched the Fortune Festival 2020 to satisfy customers' demands for diverse, one-stop financial services and improve customer service experiences. In the first half of 2020, Ping An achieved RMB3.41 trillion in transaction volume during the festival. The festival attracted over 44.77 million participants, 5.58 million of whom became Ping An's new retail customers. In corporate business, Ping An supports the real economy by providing corporate and financial institution customers with insurance, financing and investment services. In the first half of 2020, Ping An provided 4,729 corporate customers and key construction projects with disaster and loss prevention services. As of June 30, 2020, the year-to-date insured sum of corporate property and casualty insurance exceeded RMB12 trillion, and the balance of corporate loans granted by Ping An Bank to various corporate customers stood at RMB1,090,653 million.
In fintech, Ping An combines financial services industry expertise with cutting-edge technologies to boost service efficiency and enable business management. In services for financial institutions, OneConnect facilitated RMB47.4 billion of loans in the first half of 2020. As of June 30, 2020, OneConnect had served 630 banks and 100 insurance companies in total, including all of China's major banks, 99% of its city commercial banks, and 53% of its insurance companies, collectively reaching hundreds of millions of end-customers.In services for retail customers and merchants, E-wallet had provided over 280 million retail users with financial and consumption services including wealth management, shopping, payment, and loyalty point management as of June 30, 2020. E-wallet also empowers 2.1 million business customers by providing solutions for payment and customer loyalty management. Amid the COVID-19 epidemic, E-wallet proactively contributed to the resumption of work and production by tapping the mobile payment scenarios of day-to-day consumption and launching services including an online donation platform, a rural aid program, services for at-home consumption and corporate catering.
16 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Health Care Ecosystem
Ping An has built a comprehensive health care ecosystem of "patients-providers-payers." As of June 30, 2020, the health care ecosystem covered over 370 cities, 17,000 medical providers, and 346 million users. Taking Ping An Good Doctor as a portal, Ping An serves online and offline retail customers through various companies including Ping An Life, Ping An Annuity, and Ping An Health. Ping An empowers medical regulators and medical service participants through the smart city business. Ping An also empowers payers including Healthcare Security Administrations and commercial insurers through Ping An HealthKonnect's smart health care services platform.
As to patients, Ping An Good Doctor provides over 346 million users with one-stop health care services. Ping An Good Doctor provides users with timely, high-quality online-merge-offlinehealth care services through its in-house full-timemedical staff and AI-basedmedical system. These services include 24/7 online consultation, health management, prescription, registration, second medical opinions, and 1-hourdrug delivery. With its in-housefull- time medical team of 1,836 members, Ping An Good Doctor had over 346 million users as of June 30, 2020 and processed a total of nearly 825 million online medical consultations in the first half of 2020. Ping An Good Doctor empowers ecosystem partners with high-qualityresources including AI and medical services. Furthermore, Ping An Good Doctor has partnered with over 3,700 hospitals, including nearly 2,000 tier 3 hospitals, and over 111,000 pharmacies in 371 cities across China.
As to medical service providers, Ping An provides medical regulators and medical service providers with a smart integrated platform covering all the steps before, during and after medical services.
Ping An's smart health care services cover over
17,000 medical institutions, providing comprehensive services including integrated regulatory platforms, AI-based disease prediction, medical image recognition, and AskBob, a consultation/treatment assistant tool. AskBob was used 22.04 million times by approximately 413,000 doctors in the first half of 2020.
As to payers, Ping An HealthKonnect strives to be a smart technology company that fully empowers the health care ecosystem. Ping An HealthKonnect empowers Healthcare Security Administrations through its Smart Social Health Insurance (SHI) Integrated Platform. Ping An HealthKonnect also provides integrated medical management solutions covering hospitals, doctors, pharmacies, and insured members. Moreover, Ping An HealthKonnect empowers commercial insurers in terms of insurance product design, risk management, and marketing channels. So far, Ping An HealthKonnect has won platform construction project bids in multiple provinces.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 17 |
Technology-Powered Business Transformation
Auto Services Ecosystem
Ping An has built a comprehensive auto services ecosystem covering auto showcasing, purchase, and use. Ping An serves auto owners and empowers automakers, auto dealers and auto repair shops through companies including Autohome, Ping An Property & Casualty, Ping An Bank, and Ping An Financial Leasing.
As to retail customers, in June 2020, Autohome had 38 million daily active users on mobile devices. Ping An Property & Casualty's "Ping An Auto Owner" app had over 109 million registered users as of June 30, 2020, and over 27 million monthly active users in June. Ping An Bank actively promotes its auto owner credit cards which integrate the auto owners' benefits, transaction services, and financial services to provide auto owners with high-quality,one-stop service experiences.
As to businesses, over 17,000 auto dealers and 25 automakers bought Ping An's data products in the first half of 2020. In the first half of 2020, Ping An Bank's new auto loans amounted to RMB96,196 million. Ping An Financial Leasing's auto lease business volume amounted to RMB19,150 million.
Smart City Ecosystem
Ping An's smart city ecosystem is committed to promoting sustainable city development with technologies, aiming to fully extend a new generation of smart city services across China in government services, business development, and citizen services. As of June 30, 2020, Ping An's smart city business served 118 cities, nearly 600,000 enterprises, and over 87 million citizens. Amid the COVID-19 epidemic, Ping An leveraged big data and AI to predict the epidemiological trends and the work and production resumption progress, playing a unique role in helping cities promptly respond to public health emergencies and effectively prevent and control the epidemic.
In respect of government services, Ping An helps local governments increase their efficiency in fiscal, performance and environmental management through its integrated smart government service platform. In fiscal management, Ping An's smart fiscal system is serving more than 4,000 administrative units, businesses and public institutions, and enabling the management of over RMB6 trillion in assets. In performance management, Ping An's smart government system has been deployed in 25 cities and 52 commissions, offices and bureaus throughout China. The system has helped local governments analyze more than 400 themes and over 10,000 metrics, and review and archive over 200,000 structured policies. In environmental management, Ping An's smart environmental management system helped the Shenzhen Municipal Government monitor and supervise 100% of the monitored metrics of approximately 80,000 polluting enterprises in seven major industries, covering 230 pollutants and processing over 10 billion pieces of data.
18 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
In respect of business development, Ping An has built an integrated smart business platform from the perspectives of planning, services and supervision to provide comprehensive services to nearly 600,000 enterprises and optimize the business environment. In industry planning, Ping An covers more than 150 cities across China, 34 analysis themes, and over 4,500 economic metrics, facilitating industry analysis and forecast. In enterprise services, Ping An launched a work and production resumption index platform for the government to monitor
the resumption of work and production across the country and evaluate the impact of COVID-19 on the economy and enterprises, enabling policy formulation and promoting economic recovery. Ping An assisted over 300,000 enterprises in over 10 cities in their resumption of work and production, applications for masks, handling of government affairs, and applications for subsidies. In enterprise supervision, Ping An's smart market supervision platform covers over 600 supervisory scenarios and over 8,000 risk points. The accuracy rate of early warning is over 90% and the accuracy rate of risk identification is as high as 85%. Moreover, Ping An has enabled the video-based remote review for administrative licensing, shortening the review cycle of food business licensing from seven days to one hour.
In respect of people's livelihoods, Ping An's integrated smart citizen service platform improves daily life experiences of citizens in terms of convenience, health, and culture. The platform provides over 87 million citizens with over 5,000 online services, accessed 129 million times in June 2020 and 1.18 billion times since its go-live.In daily services for citizens, Ping An enabled the governments of 17 cities to provide over 5,000 online services, including 400 instant
24/7 AI-approved services. In health services, Ping An provided smart health care services through over 17,000 medical institutions in 90 cities. Ping An provided smart medical imaging services nearly 50 million times through nearly 600 medical institutions. Ping An provided over two million patients with chronic disease management services through more than 500 hospitals. AskBob, Ping An's self- developed consultation/treatment assistant tool, helped approximately 413,000 doctors improve their consultation/treatment efficiency and capacity, with a peak of over 81,000 monthly active users.
In education empowerment, Ping An provided vocational education services for over 50 million users and over 1,300 administrative and business entities through approximately 110,000 high-quality course sessions, which were broadcast over 54 million times. Moreover, Ping An gave over two million live broadcasts, attracting nearly 300 million views. Ping An provided youth education services for over six million users, with courses broadcast over 26 million times. Ping An also provided adult English teaching for over 11 million users, with courses broadcast 32 million times.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 19 |
Business Analysis
Performance Overview
In the first half of 2020, the annualized operating ROE was 21.6% with operating profit attributable to shareholders of the parent company rising 1.2% year on year to RMB74,310 million.
In the first half of 2020, the annualized ROE was 19.8% with net profit attributable to shareholders of the parent company falling by 29.7% year on year to RMB68,683 million.
In the first half of 2020, the Group's basic operating earnings per share rose by 1.9% year on year to RMB4.20.
CONSOLIDATED RESULTS
Ping An offers a wide range of financial products and services via various distribution channels under a uniform brand. Ping An engages in the financial business through subsidiaries including Ping An Life, Ping An Property & Casualty, Ping An Annuity, Ping An Health, Ping An Bank, Ping An Trust, Ping An Securities, Ping An Asset Management, and Ping An Financial Leasing. Ping An engages in the technology business through subsidiaries, associates and jointly controlled entities including Lufax Holding, OneConnect, Ping An Good Doctor, Ping An HealthKonnect, and Autohome.
For the six months ended June 30 | ||||
(in RMB million) | 2020 | 2019 | Change (%) | |
Operating profit | ||||
attributable to | ||||
shareholders of the | 74,310 | |||
parent company | 73,464 | 1.2 | ||
Basic operating earnings | 4.20 | |||
per share (in RMB) | 4.12 | 1.9 | ||
Operating ROE | 10.8 | |||
(unannualized, %) | 12.3 | -1.5 | pps | |
Operating ROE | 21.6 | |||
(annualized, %) | 24.6 | -3.0 | pps | |
Interim dividend per share | 0.80 | |||
(in RMB) | 0.75 | 6.7 | ||
Net profit attributable | ||||
to shareholders of the | 68,683 | |||
parent company | 97,676 | (29.7) | ||
ROE (unannualized, %) | 9.9 | 16.3 | -6.4 | pps |
ROE (annualized, %) | 19.8 | 32.6 | -12.8 | pps |
Note: Annualized operating ROE = unannualized operating ROE for the first half of the year x 2; annualized ROE = unannualized ROE for the first half of the year x 2.
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 used 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 the actual investment return of the life and health insurance business and the EV long-run investment return assumption, net of the associated 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
- The impact of one-offnon-operating items is the impact of material items that management considered to be non-operating incomes and expenses, which in the first half of 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 the significant accounting policies in the notes of the Company's 2019 Annual Report for the information about the discount rate.
20 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
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.
The COVID-19 outbreak in early 2020 interrupted production and consumption, dealing a huge blow to almost all industries. Amid the pandemic-induced unfavorable conditions, including difficulties in offline operations, rising credit risk, volatile equity markets and falling interest rates, the Company adopted measures including accelerated transformation toward online operations to mitigate the impact of COVID-19. Meanwhile, domestic and foreign stock markets fluctuated sharply in the first half of 2020, being much weaker than in the same period last year, with varying performance in different sectors. Moreover, fair value gains and losses became more volatile as the Company implemented IFRS 9, resulting in a decrease in investment income. In the first half of 2020, the Group's net profit attributable to shareholders of the parent company declined by 29.7% year on year to RMB68,683 million. However, the Group's operating profit attributable to shareholders of the parent company rose by 1.2% year on year to RMB74,310 million. The basic operating earnings per share was RMB4.20, up 1.9% year on year. Affected by agents' difficulty in offline visits arising from the COVID-19 epidemic, a slowdown in new business growth, and volatile policy persistency ratios, the life and health insurance business's operating profit attributable to shareholders of the parent company amounted to RMB51,127 million, up 6.6% year on year.
2020 | ||||||||||
Life and | Property | Other | ||||||||
health | and casualty | Other asset | businesses | |||||||
For the six months ended June 30 | 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 | 45,500 | 8,234 | 7,927 | 1,651 | 1,509 | 2,671 | 3,438 | (2,247) | 68,683 | |
Net profit attributable to non- | 5,751 | (108) | 7,285 | |||||||
controlling interests | 388 | 40 | 2 | 56 | 549 | 607 | ||||
Net profit (A) | 45,888 | 8,274 | 13,678 | 1,653 | 1,565 | 3,220 | 4,045 | (2,355) | 75,968 | |
Excluding: | ||||||||||
Short-term investment | (1,987) | - | - | - | - | - | - | - | (1,987) | |
variance(1) (B) | ||||||||||
Impact of discount rate change (C) | (3,660) | - | - | - | - | - | - | - | (3,660) | |
Impact of one-off material non- | - | - | - | - | - | - | - | - | - | |
operating items (D) | ||||||||||
Operating profit (E=A-B-C-D) | 51,535 | 8,274 | 13,678 | 1,653 | 1,565 | 3,220 | 4,045 | (2,355) | 81,615 | |
Operating profit attributable to | ||||||||||
shareholders of the parent | ||||||||||
company | 51,127 | 8,234 | 7,927 | 1,651 | 1,509 | 2,671 | 3,438 | (2,247) | 74,310 | |
Operating profit attributable to non- | 5,751 | (108) | 7,305 | |||||||
controlling interests | 408 | 40 | 2 | 56 | 549 | 607 | ||||
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 21 |
Business Analysis
Performance Overview
2019 | ||||||||||
Life and | Property | Other | ||||||||
health | and casualty | Other asset | businesses | |||||||
For the six months ended June 30 | 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 | 70,322 | 11,837 | 8,934 | 1,871 | 1,199 | 3,913 | 2,802 | (3,202) | 97,676 | |
Net profit attributable to non- | ||||||||||
controlling interests | 707 | 58 | 6,469 | 3 | 53 | 489 | 472 | (189) | 8,062 | |
Net profit (A) | 71,029 | 11,895 | 15,403 | 1,874 | 1,252 | 4,402 | 3,274 | (3,391) | 105,738 | |
Excluding: | ||||||||||
Short-term investment | ||||||||||
variance(1)(B) | 13,000 | - | - | - | - | - | - | - | 13,000 | |
Impact of discount rate change (C) | 999 | - | - | - | - | - | - | - | 999 | |
Impact of one-off material non- | ||||||||||
operating items (D) | 8,597 | 1,856 | - | - | - | - | - | - | 10,453 | |
Operating profit (E=A-B-C-D) | 48,433 | 10,039 | 15,403 | 1,874 | 1,252 | 4,402 | 3,274 | (3,391) | 81,286 | |
Operating profit attributable to | ||||||||||
shareholders of the parent | ||||||||||
company | 47,958 | 9,990 | 8,934 | 1,871 | 1,199 | 3,913 | 2,802 | (3,202) | 73,464 | |
Operating profit attributable to non- | ||||||||||
controlling interests | 475 | 49 | 6,469 | 3 | 53 | 489 | 472 | (189) | 7,822 |
Notes: (1) Short-term investment variance is the variance between the actual investment return and the EV long-run investment return assumption (5%), net of the associated impact on insurance and investment contract liability.
(2) The life and health insurance business represents the results of three subsidiaries, namely Ping An Life, Ping An Annuity, and
Ping An Health. The property and casualty insurance business represents the results of Ping An Property & Casualty. The banking business represents the results of Ping An Bank. The trust business represents the results of Ping An Trust and Ping An New Capital. The securities business represents the results of Ping An Securities. The other asset management business represents the results of subsidiaries that engage in asset management business including Ping An Asset Management, Ping An Financial Leasing, and Ping An Overseas Holdings. The technology business represents the results of subsidiaries, associates and jointly controlled entities 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.
22 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT COMPANY
June 30, | December | Change | |
(in RMB million) | 2020 | 31, 2019 | (%) |
Life and health insurance business | 262,750 | 246,069 | 6.8 |
Property and casualty insurance business | 99,146 | 92,548 | 7.1 |
Banking business | 174,689 | 169,814 | 2.9 |
Asset management business | 102,372 | 96,218 | 6.4 |
Including: Trust business | 20,829 | 20,581 | 1.2 |
Securities business | 31,050 | 30,256 | 2.6 |
Other asset management business | 50,493 | 45,381 | 11.3 |
Technology business | 90,886 | 85,737 | 6.0 |
Other businesses and elimination | (27,871) | (17,225) | 61.8 |
The Group | 701,972 | 673,161 | 4.3 |
OPERATING ROE (UNANNUALIZED) | |||
For the six months ended June 30 | Change | ||
(%) | 2020 | 2019 | (pps) |
Life and health insurance business | 19.6 | 21.9 | (2.3) |
Property and casualty insurance business | 8.6 | 12.4 | (3.8) |
Banking business | 4.6 | 6.3 | (1.7) |
Asset management business | 5.8 | 7.0 | (1.2) |
Including: Trust business | 8.4 | 9.9 | (1.5) |
Securities business | 4.9 | 4.2 | 0.7 |
Other asset management business | 5.5 | 7.6 | (2.1) |
Technology business | 4.1 | 3.7 | 0.4 |
Other businesses and elimination | N/A | N/A | N/A |
The Group | 10.8 | 12.3 | (1.5) |
OPERATING ROE (ANNUALIZED) | |||
For the six months ended June 30 | Change | ||
(%) | 2020 | 2019 | (pps) |
Life and health insurance business | 39.2 | 43.8 | (4.6) |
Property and casualty insurance business | 17.2 | 24.8 | (7.6) |
Banking business | 9.3 | 12.6 | (3.3) |
Asset management business | 11.6 | 14.0 | (2.4) |
Including: Trust business | 16.8 | 19.8 | (3.0) |
Securities business | 9.8 | 8.4 | 1.4 |
Other asset management business | 11.0 | 15.2 | (4.2) |
Technology business | 8.2 | 7.4 | 0.8 |
Other businesses and elimination | N/A | N/A | N/A |
The Group | 21.6 | 24.6 | (3.0) |
Note: Annualized operating ROE = unannualized operating ROE for the first half of the year x 2.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 23 |
Business Analysis
Life and Health Insurance Business
In the first half of 2020, operating profit after tax of the life and health insurance business (Life & Health) rose by 6.4% year on year to RMB51,535 million, with a 39.2% annualized operating ROE.
New business value (NBV) of the life and health insurance business for the first half of 2020 dropped by 24.4% year on year to RMB31,031 million, impacted by the COVID-19 epidemic. Amid the epidemic, Ping An Life made an agile response by optimizing product strategies and promoting the sales of simple, marketable online products with lower NBV margins to accumulate customer resources and new momentum for post-epidemic development when offline sales resume.
Ping An Life leveraged technologies to innovate and upgrade online operations. As of June 30, 2020, sales agents increased by 1.2% from March 31, 2020. The deep reform aims to enable Ping An Life to achieve long-term sustainable growth as a world-leading life insurer.
BUSINESS OVERVIEW
The Company conducts its life and health insurance business through Ping An Life, Ping An Annuity, and Ping An Health.
The Company proactively responds to challenges by upgrading the online operating models. Based on enhanced compliance and risk management, the Company continues to further its customer-centric "product+" and "technology+" strategies to solidify its business foundation for long-term sustainable growth. In the first half year of 2020, Ping An's traditional offline operations were hindered and high-value protection business was impacted by the COVID-19 epidemic. As a result, NBV of the life and health insurance business dropped by 24.4% year on year to RMB31,031 million and the NBV margin was down 8.0 pps year on year. The Company remains focused on protection products, but adopted an epidemic-specific product strategy to boost the sales of simple, marketable online products with lower NBV margins and accumulate customer resources for post-epidemic customer conversion. Despite short-term volatility in new businesses in the first half of 2020, profits attributable to core operations remained resilient. Operating profit after tax of the life and health insurance business rose by 6.4% year on year to RMB51,535 million, with an annualized operating ROE of 39.2%.
The COVID-19 epidemic strengthened people's health protection awareness, stimulated the demand for health insurance, and accelerated the shift toward online consumption. In addition, the government has adopted policies to encourage the development of commercial health insurance as well as the integration and innovation of health management services and health insurance. Leveraging cutting-edge technologies, Ping An will promote the healthy development of businesses including health insurance.
Key Indicators
For the six | For the six | ||
months | months | ||
ended June | ended June | ||
30, 2020/ | 30, 2019/ | ||
As of | As of | ||
(in RMB million) | June 30, | December 31, | Change |
2020 | 2019 | (%) | |
NBV | 31,031 | 41,052 | (24.4) |
NBV margin (%) | 36.7 | 44.7 | -8.0 pps |
First-year premium used to | |||
calculate NBV | 84,548 | 91,908 | (8.0) |
Embedded value | 805,374 | 757,490 | 6.3 |
Operating ROEV | |||
(annualized, %) | 18.7 | 28.4 | -9.7 pps |
Operating profit after tax | 51,535 | 48,433 | 6.4 |
Operating ROE | |||
(annualized, %) | 39.2 | 43.8 | -4.6 pps |
Net profit | 45,888 | 71,029 | (35.4) |
24 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
PING AN LIFE'S REFORM
In recent years, the traditional life insurance business model has faced huge challenges threatening its healthy, sustainable development. The evolving macro-environment, consumer demands and demographic dividends as well as advancing technology applications have raised new and higher requirements for the life insurance industry. Looking ahead, the life insurance business urgently needs comprehensive transformations although its development prospect remains bright. Ping An Life has taken the lead in introducing a series of reform projects to carry out the "channel
-
product" strategy, aiming to build platforms for long-term sustainable, healthy growth through product strategies, channel development, and data-driven operations. For product strategies, Ping An Life remains customer-centric and has leveraged the Group's strengths in integrated finance to build a "life insurance+" product portfolio, providing differentiated products and services and improving competitiveness. For channel strategies, in the short term, Ping An Life will focus on "team expansion + productivity promotion," improving agent recruitment and enhancing agents' sales skills to increase their productivity; in the long term, Ping An Life will build a high-productivity,high-income,high-quality agent force. Meanwhile, Ping An Life is digitizing its life insurance business for all-arounddata-driven operations. In data-driven operations, Ping An Life has built a "headquarters brain" that anticipates trends, makes timely decisions, and takes action ahead of others by predicting, tracking and intervening in operations in an effective
and timely manner. In data-driven management, Ping An Life boosts management efficiency by adopting standard, refined, automatic, and smart operations management processes. In data-driven marketing, Ping An Life raises customer reach rates and pursues sales targets through approaches including content marketing, social marketing, event marketing, and service marketing. In addition, Ping An Life remains committed to value creation to ensure its sustainable, high-quality and healthy development.
Ping An Life strives to be a world-leading life insurer, and accelerate the reform and transformation by leveraging its four core advantages. Firstly, Ping An Life has a management team with over 25 years of experience, global vision, professional expertise, and diverse skills. Secondly, Ping An Life has a highly competent sales force with industry-leading productivity. Thirdly, Ping An Life has a strong
integrated financial product portfolio to support growth in agent income and provide agents with better career planning. Fourthly, Ping An Life has world-leading technological strengths which empower agents to develop business. Ping An Life ranked seventh in the 2020 global fintech patent ranking list with 152 fintech patent applications.
Ping An Life's reform is still underway. Supported by the Group, Ping An Life will go all out to lead a revolution in the world's centuries-old approaches to the sales and operations of life insurance as a market leader, an industry benchmark, customers' first choice, and a world-leading life insurer.
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.
Life agent channel development. In the first half of 2020, the COVID-19epidemic hindered the traditional offline business development of Ping An Life's agents, affecting the sales of high-valueprotection products. Team management, training and customer reach were impaired, and the productivity of agents decreased. Agent channel NBV declined 23.5% year on year to RMB27,705 million in the first half of 2020, while NBV per agent dropped 14.7% year on year
in the first half of 2020. During the epidemic, Ping An faced challenges in selling sophisticated long- term protection products that require face-to-face visits. The agent channel NBV margin reached 55.2%, down 3.7 pps year on year. Under a quality-focused agent development strategy, Ping An Life tightened agent recruitment criteria through AI and other technologies to enhance basic agent management, integrated technologies with staffing, training
and customer development, and promoted online operations to empower the agent force. Moreover, Ping An Life implemented special appraisal policies to stabilize the agent force, and launched a series of team care and support policies to protect the agents' rights, interests and compensation during the peak period of the epidemic. As of June 30,
2020, Ping An Life's sales agents decreased by 1.9% from the beginning of 2020 due to the COVID-19 epidemic. However, the number of sales agents gradually recovered in the second quarter, up 1.2% from March 31, 2020 as the recruitment environment
improved. Meanwhile, Ping An Life further improved the quality of its sales agents and had over 100,000
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 25 |
Business Analysis
Life and Health Insurance Business
high-potential talented agents(1) as of June 30, 2020, up 1.9% from a year ago. In the first half of 2020, new recruits with college degrees or above accounted for 33.9% of all the new agents, up 5.6 pps year on year.
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Agent productivity and income | |||
Agent channel NBV | 27,705 | 36,197 | (23.5) |
Average number of agents | 1.108 | ||
per month (in million) | 1.235 | (10.3) | |
NBV per agent (RMB per | 25,003 | ||
agent per six months) | 29,314 | (14.7) | |
Activity rate of agents(2) (%) | 53.0 | 61.8 | -8.8 pps |
Agent income (RMB per | 6,189 | ||
agent per month) | 6,617 | (6.5) | |
Including: Income from | |||
Ping An Life's products | |||
(RMB per agent per | 5,127 | ||
month) | 5,901 | (13.1) | |
June 30, | December 31, | Change | |
2020 | 2019 | (%) | |
Number of individual life | |||
insurance sales agents | 1,145,142 | ||
(person) | 1,166,914 | (1.9) |
Notes: (1) High-potential talented agents refer to sales agents recruited according to the criteria for Talented Agents, covering the age, education background, occupation and income before joining the Company.
(2) Activity rate of agents = annual total of monthly agents who issued policies / annual total of monthly agents on board.
(3) Figures may not match the calculation due to rounding.
Development of other channels. The Company actively pursues channel diversification, developing the bancassurance, telemarketing, internet and other channels as its new growth drivers. In the first half of 2020, the total NBV of channels other than the agent channel reached RMB3,326 million, accounting for 10.7% of the overall NBV. The bancassurance channel strengthened technological empowerment under the value creation strategy, driving a 26.5% year-on-yearincrease in NBV in the first half of 2020. The telemarketing channel upgraded its business model from pure telemarketing to the long-termcustomer development model combining telemarketing and online marketing, achieving market-leadingpremium income growth and the largest market share. The internet channel continued to boost customer conversion and facilitate steady business development by optimizing its own platform, enhancing cooperation with third-partyplatforms, accurately acquiring customers with scenario-basedproducts, and improving value propositions and offerings.
PRODUCT STRATEGIES
Under the "product+" strategy and a customer- centric approach, Ping An Life furthered business transformation with an aim to establish a multilayered scenario-based "product+" service system by integrating insurance products with related services in the first half of 2020. These services include health management, chronic disease management, and elderly care. The transformation expanded Ping An Life's service scope and satisfied customers' demand for risk cover and diverse services. Regarding protection products, Ping An Life launched a new product combining critical illness insurance with premium-return. Ping An Life also launched a long-term care insurance product to expand into a new protection market while improving the competitiveness of existing flagship protection products. Regarding long-term savings products, Ping An Life further promoted protection and savings hybrid products with long premium payment periods to meet customers' demand for long-term annuity savings. In addition, to provide special protection during the COVID-19 epidemic, Ping An Life launched online complimentary insurance that covers expenses incurred by COVID-19 infection and one-year critical illness insurance, and incorporated the COVID-19 insurance coverage into 49 existing offline products. As a result, customer acquisition and customer stickiness were further improved, which laid a foundation for post-epidemic business recovery.
Ping An Life focused on value creation and proactively reduced the short-term savings products, which had high persistency ratios.
Changes in the product portfolio resulted in a decline in the overall persistency ratio. Ping An Life will apply AI to the ex-ante active management of policy renewal to strengthen services and improve the efficiency of renewal premium collection.
Change | |||
For the six months ended June 30 | 2020 | 2019 | (pps) |
Ping An Life | |||
13-month persistency ratio (%) | 88.1 | 90.6 | (2.5) |
25-month persistency ratio (%) | 85.1 | 91.3 | (6.2) |
26 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
TECHNOLOGY-DRIVEN TRANSFORMATION
Ping An Life pursued online operations to ensure healthy business development amid the COVID-19 epidemic. Regarding online recruitment, Ping An Life moved agent career forums from offline to online, leveraging technological means including visualized virtual scenarios and AI robots. On Ping An Life's "Jin Guan Jia" app which had 237 million users, 123 sessions of livestreamed career forums were held in the first half of 2020, attracting 40.40 million views. Regarding digital marketing, Ping An Life launched multiple marketing tools amid the COVID-19epidemic to empower sales agents. Ping An Life introduced AI Customer Visit Assistant which allows agents to present and explain sales plans and interact with customers through audio/ video communication with the assistance of AI robots. A total of 7.72 million visits were paid by the AI Customer Visit Assistant to customers online in the first half of 2020. Moreover, Ping
An Life upgraded AI Training to train agents in diverse scenarios including product knowledge and segment-specific sales solutions. Since its go- live, AI Training has been used 7.55 million times and has been endorsed by 99% of the agents. Regarding online services, Ping An Life ensured normal business operations and services across the country through the online self-service and video communication, to safeguard customers' interests during the COVID-19 epidemic. In the first half of 2020, 110 million times of customer services were offered, 99.8% of which were online. The Smart Customer Services rolled out an AI- powered, video-based customer survey robot to support online surveys on new contracts, delivering
- success rate of 98% for June 2020. An AI-powered robot made 42.22 million outbound calls to remind insured members to pay renewal premiums. The proportion of claims settled within 30 minutes via the Smart Quick Claim increased from 47% to 50%, with the quickest case taking only one minute to settle. Regarding online operations, Ping An Life established a data-driven operations platform and linked business processes with operational processes, facilitating end-to-end business forecast as well as real-time early warning and intervention via value chain models.
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 measure of operating profit has been used 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 the actual investment return of the life and health insurance business and the EV long-run investment return assumption, net of the associated 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
- The impact of one-offnon-operating items is the impact of material items that management considered to be non-operating incomes and expenses, which in the first half of 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 the significant accounting policies in the notes of the Company's 2019 Annual Report for the information about the discount rate.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 27 |
Business Analysis
Life and Health Insurance Business
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.
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Release of residual margin (A) | 40,342 | 35,840 | 12.6 |
Return on net worth(1) (B) | 6,261 | 5,216 | 20.0 |
Spread income(2)(C) | 2,791 | 1,628 | 71.4 |
Operating variances and | |||
others (D) | 9,890 | 12,219 | (19.1) |
Operating profit before tax | |||
(E=A+B+C+D) | 59,284 | 54,903 | 8.0 |
Income tax (F) | (7,749) | (6,470) | 19.8 |
Operating profit after tax | |||
(G=E+F) | 51,535 | 48,433 | 6.4 |
Short-term investment | |||
variance (H) | (1,987) | 13,000 | N/A |
Impact of discount rate | |||
change (I) | (3,660) | 999 | N/A |
Impact of one-off material | |||
non-operating items (J) | - | 8,597 | N/A |
Net profit (K=G+H+I+J) | 45,888 | 71,029 | (35.4) |
Notes: (1) Return on net worth is the investment return on shareholder equity based on the EV long-run investment return assumption (5%).
(2) Spread income is the expected investment return from assets backing contract liability based on the EV long- run investment return assumption (5%) exceeding the interest required on contract liability.
(3) Figures may not match the calculation due to rounding.
The spread income increased by 71.4% year on year as spread charges in 2019 were lowered in response to volatile capital markets in 2018.
Operating variances and others dropped 19.1% year on year, largely because of increased strategic investment in technology and agents team building as well as fluctuations in policy persistency ratios.
As of June 30, 2020, residual margin of the life and health insurance business was RMB962,333 million, up 4.8% from the beginning of 2020.
June 30, | June 30, | Change | |
(in RMB million) | 2020 | 2019 | (%) |
Opening residual margin | 918,416 | 786,633 | 16.8 |
Contribution from new | |||
business | 59,354 | 87,318 | (32.0) |
Expected interest growth | 18,034 | 16,350 | 10.3 |
Release of residual margin | (40,342) | (35,840) | 12.6 |
Lapse variances and others | 6,872 | 12,929 | (46.8) |
Closing residual margin | 962,333 | 867,390 | 10.9 |
Note: Figures may not match the calculation due to rounding.
Lapse variances and others declined by 46.8% year on year mainly because fluctuations in policy persistency ratios resulted in lower lapse variances and others.
SOLVENCY MARGIN
As of June 30, 2020, 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 2020 mainly due to net profit realization, dividend distribution, and business development.
Ping An Life | Ping An Annuity | Ping An Health | ||||||||
June 30, | December | June 30, | December | June 30, | December | |||||
(in RMB million) | 2020 | 31, 2019 Change (%) | 2020 | 31, 2019 Change (%) | 2020 | 31, 2019 Change (%) | ||||
Core capital | 970,268 | 934,301 | 3.8 | 11,608 | 10,423 | 11.4 | 2,500 | 2,251 | 11.1 | |
Actual capital | 1,005,268 | 949,301 | 5.9 | 11,608 | 10,423 | 11.4 | 2,500 | 2,251 | 11.1 | |
Minimum capital | 433,689 | 409,874 | 5.8 | 4,768 | 4,219 | 13.0 | 1,349 | 1,064 | 26.8 | |
Core solvency margin ratio (%) | 223.7 | 227.9 | -4.2 pps | 243.5 | 247.0 | -3.5 pps | 185.3 | 211.6 | -26.3 pps | |
Comprehensive solvency | 231.8 | 243.5 | 185.3 | |||||||
margin ratio (%) | 231.6 | 0.2 pps | 247.0 | -3.5 pps | 211.6 | -26.3 pps | ||||
Notes: (1) | Core solvency margin ratio = core capital / minimum capital; comprehensive solvency margin ratio = actual capital / minimum capital. | |||||||||
(2) | The minimum regulatory 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 the calculation due to rounding. |
28 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
OTHER MAJOR FINANCIAL AND REGULATORY
INFORMATION
Income Statement of the Life and Health Insurance
Business
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Written premium | 355,070 | 369,951 |
Less: Premium deposits of policies | ||
without significant insurance | ||
risk transfer | (1,766) | (1,964) |
Less: Premium deposits separated | ||
out from universal life and | ||
investment-linked products | (52,177) | (52,213) |
Premium income | 301,127 | 315,774 |
Reinsurance premium income | 1,736 | 887 |
Gross written premium | 302,863 | 316,661 |
Net earned premium | 293,288 | 309,705 |
Claims and policyholders' benefits | (256,953) | (259,775) |
Commission expenses of | ||
insurance operations | (37,778) | (44,421) |
Administrative expenses(1) | (22,821) | (25,350) |
Total investment income(2) | 78,207 | 93,862 |
Other net revenue and expenses(3) | (2,188) | (453) |
Profit before tax | 51,755 | 73,568 |
Income tax | (5,867) | (2,539) |
Net profit | 45,888 | 71,029 |
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 under the segmented income statement.
Written Premium
The written premium of the life and health insurance business is analyzed below by policyholder type and channel:
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Retail business | 339,340 | 356,399 |
New business | 79,239 | 87,770 |
Agent channel | 61,713 | 71,722 |
Including: regular premium | 52,438 | 66,758 |
Bancassurance channel | 5,649 | 4,275 |
Including: regular premium | 5,090 | 3,678 |
Telemarketing, internet and | ||
others | 11,877 | 11,773 |
Including: regular premium | 3,869 | 6,324 |
Renewed business | 260,101 | 268,629 |
Agent channel | 233,871 | 244,945 |
Bancassurance channel | 8,044 | 7,451 |
Telemarketing, internet and | ||
others | 18,186 | 16,233 |
Group business | 15,730 | 13,552 |
New business | 15,649 | 13,488 |
Renewed business | 81 | 64 |
Total | 355,070 | 369,951 |
The written premium of the life and health insurance business is analyzed below by product type:
For the six months ended June 30 | 2020 | |
(in RMB million) | 2019 | |
Participating insurance | 88,850 | 133,563 |
Universal insurance | 60,839 | 61,189 |
Traditional life insurance | 61,831 | 60,437 |
Long-term health insurance | 59,396 | 54,689 |
Accident and short-term health | 30,355 | |
insurance | 27,570 | |
Annuity | 53,023 | 31,644 |
Investment-linked insurance | 776 | 859 |
Total | 355,070 | 369,951 |
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 29 |
Business Analysis
Life and Health Insurance Business
The written premium of the life and health insurance business is analyzed below by region:
For the six months ended June 30 | 2020 | |
(in RMB million) | 2019 | |
Guangdong | 61,576 | 63,986 |
Shandong | 21,074 | 21,927 |
Beijing | 20,741 | 19,321 |
Jiangsu | 19,569 | 20,236 |
Henan | 19,194 | 19,748 |
Subtotal | 142,154 | 145,218 |
Total | 355,070 | 369,951 |
Claims and Policyholders' Benefits | ||
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Surrenders | 17,300 | 13,110 |
Surrender rate(1) (%) | 0.89 | 0.77 |
Claim expenses of insurance | ||
contracts | 43,035 | 46,379 |
Claims paid | 8,886 | 9,060 |
Annuities | 4,271 | 5,785 |
Maturity and survival benefits | 16,599 | 17,292 |
Death, injury and medical care | ||
benefits | 13,279 | 14,242 |
Reinsurer's share of claim expenses | ||
of insurance contracts | (2,076) | (2,025) |
Policyholder dividends | 13,374 | 13,776 |
Net increase in insurance reserves | 170,631 | 171,158 |
Interest credited to policyholder | ||
contract deposits | 14,689 | 17,377 |
Total | 256,953 | 259,775 |
Note: (1) Surrender rate = surrenders /(opening balance of life insurance reserve + opening balance of long-term health insurance reserve + long-term insurance premium income).
Maturity and survival benefits decreased by 4.0% year on year mainly because some products matured in 2019.
Death, injury and medical care benefits were 6.8% lower year on year, driven by the year-on-year decrease in the overall claim cases during the COVID-19 epidemic.
Policyholder dividends declined by 2.9% year on year due to the slight year-on-year decrease in planned dividend payments.
Net increase in insurance reserves decreased by 0.3% year on year, mostly due to the change in business scale and the decrease in undistributed surplus.
Interest credited to policyholder contract deposits was down 15.5% year on year due to the decreased investment income.
Commission Expenses of Insurance Operations In the first half of 2020, the commission expense of the insurance business (mainly paid to the Company's sales agents) decreased by 15.0% year on year due to a change in business scale.
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Health insurance | 16,044 | 16,455 |
Accident insurance | 1,796 | 3,203 |
Life insurance and others | 19,938 | 24,763 |
Total | 37,778 | 44,421 |
Administrative Expenses | ||
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Claims paid declined by 1.9% year on year, primarily due to the year-on-year decrease in claim cases for short-term health insurance amid the COVID-19 epidemic.
Annuity payments decreased by 26.2% year on year as the payments on some products peaked in 2019.
Operating expenses | 22,307 | 24,911 |
Tax and surcharges | 509 | 433 |
Impairment losses on receivables | ||
and others | 5 | 6 |
Total | 22,821 | 25,350 |
30 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Total Investment Income
In the first half of 2020, the net investment yield of the life and health insurance business decreased by
0.4 pps year on year to 4.1% mainly due to declining dividend income from equity investments and growing investment. The total investment yield fell by 1.1 pps year on year to 4.5%. The total investment income dropped by 16.7% year on year, mainly due to the greater fair value losses driven by sharp year- on-year capital markets fluctuations.
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Net investment income(1) | 68,522 | 66,708 |
Realized gains(2) | 14,646 | (100) |
Fair value gains and losses | (4,888) | 26,932 |
Impairment losses on investment | ||
assets | (73) | 322 |
Total investment income | 78,207 | 93,862 |
Net investment yield(3) | ||
(annualized, %) | 4.1 | 4.5 |
Total investment yield(3) | ||
(annualized, %) | 4.5 | 5.6 |
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 the computation of the above investment yields. Average investment assets used as the denominator are computed in line with principles of the Modified Dietz method. In the computation of annualized investment yields, only interest revenue from deposits and debt financial assets, and operating lease income from investment properties were annualized, while interest revenue from financial assets purchased under reverse repurchase agreements, interest expenses
on assets sold under agreements to repurchase and placements from banks and other financial institutions, dividend income, capital gains from investments and fair value gains and losses were not annualized.
Income Tax
The income tax of the life and health insurance business increased year on year mainly due to the lower income tax for the first half of 2019. 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 the first half of 2019.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 31 |
Business Analysis
Property and Casualty Insurance Business
In the first half of 2020, Ping An Property & Casualty maintained stable growth and expanded its premium income as well as market share by
10.5% and 0.5 pps year on year respectively despite the COVID-19 epidemic. Ping An Property & Casualty's overall combined ratio rose by 1.5 pps year on year to 98.1% driven by a short-term increase in guarantee insurance claims paid due to the temporary impact of COVID-19, but still better than peers'. Ping An Property & Casualty's operating profit declined by 17.6% year on year to RMB8,274 million. Ping An Property & Casualty delivered an annualized operating ROE of 17.2%.
Ping An Property & Casualty continued to apply technologies to online customer development and improve the service system. As of June 30, 2020, the "Ping An Auto Owner" app, as the largest automotive tool app in China, had over 109 million registered users, who had linked over 70 million vehicles with the app. In June 2020, the app had over 27 million monthly active users.
Ping An Property & Casualty's online claims service has been in the lead, offering excellent user experiences. Amid the COVID-19 epidemic, Ping An Property & Casualty launched "One-click Claims Services," greatly simplifying the auto claims process and enabling non-contact claim settlement anytime, anywhere. Claim reporting now takes only two minutes on average, and claims can be settled in a minimum of just three minutes.
BUSINESS OVERVIEW
The Company conducts its property and casualty insurance business mainly through Ping An Property
- Casualty which 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 ten consecutive years. Ping An Property
- Casualty distributes insurance products mainly through a 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.
Despite the COVID-19 epidemic, Ping An Property & Casualty maintained steady development in the first half of 2020. Ping An Property & Casualty's premium income grew by 10.5% year on year to RMB144,118 million, making it the second largest property and casualty insurance company in China by premium income. Ping An Property & Casualty's overall combined ratio rose by 1.5 pps year on year to
98.1% driven by a short-term increase in guarantee insurance claims paid due to the temporary impact of COVID-19, but still better than peers'. In the first half of 2020, Ping An Property & Casualty's operating profit declined by 17.6% year on year to RMB8,274 million, adversely impacted by the higher combined ratio and lower investment income. In the medium and long term, the combined ratio is expected to gradually return to normal owing to China's economic resilience and growth momentum, supportive government policies, and Ping An Property & Casualty's proactive risk management measures.
32 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Amid the COVID-19 epidemic, Ping An Property & Casualty provided approximately 500,000 small and micro-businesses across China with complimentary employee insurance services to facilitate their development. Each of the businesses got an insured amount of RMB1 million. Moreover, Ping An Property
- Casualty provided small and micro-businesses with a grace period for insurance renewal, postponing premium payment of over RMB20 million, involving a total insured amount of over RMB20,000 million, to ease their liquidity pressure. By integrating internal system functions and external resources, Ping An Property & Casualty also launched the "Ping An Qi Ye Bao" app and mini-program which provide small and micro-businesses with efficient, convenient and comprehensive online insurance services and value-added services. As of June 30, 2020, Ping An Property & Casualty completed over 120,000 endorsements online, processed over 70,000 non-auto insurance claims for small and micro-businesses with a total claims amount of over RMB180 million. Claims were settled in a minimum of 12 seconds. In this way, Ping An Property & Casualty effectively promoted economic recovery by supporting small and micro-businesses with digital technologies.
Key indicators | Analysis of Profit Sources | |||||||
For the six months ended June 30 | Change | For the six months ended June 30 | Change | |||||
(in RMB million) | 2020 | 2019 | (%) | (in RMB million) | 2020 | 2019 | (%) | |
Operating profit | 8,274 | 10,039 | (17.6) | Premium income | 144,118 | 130,466 | 10.5 | |
Operating ROE (annualized, %) | 17.2 | 24.8 | -7.6 pps | Net earned premiums | 122,339 | 111,611 | 9.6 | |
Profit before tax | 10,237 | 12,703 | (19.4) | |||||
Claim expenses | (73,366) | (66,045) | 11.1 | |||||
Net profit | 8,274 | 11,895 | (30.4) | |||||
Commission expenses of | ||||||||
Combined ratio (%) | 98.1 | 96.6 | 1.5 pps | (21,613) | ||||
insurance operations | (19,002) | 13.7 | ||||||
Including: Expense ratio(1) (%) | 38.1 | 37.4 | 0.7 pps | |||||
Administrative expenses(1) | (27,997) | (26,158) | 7.0 | |||||
Loss ratio(2) (%) | 60.0 | 59.2 | 0.8 pps | Reinsurance commission | ||||
3,033 | ||||||||
revenue | 3,442 | (11.9) | ||||||
Premium income | 144,118 130,466 | 10.5 | ||||||
Including: Auto insurance | 95,646 | 92,338 | 3.6 | Underwriting profit | 2,396 | 3,848 | (37.7) | |
Non-auto insurance | 40,363 | 31,928 | 26.4 | Combined ratio (%) | 98.1 | 96.6 | 1.5 pps | |
Accident and health | ||||||||
8,109 | Total investment income(2) | 8,406 | 9,366 | (10.2) | ||||
insurance | 6,200 | 30.8 | ||||||
Average investment | ||||||||
Market share(3) (%) | 20.0 | 19.5 | 0.5 pps | 298,591 | 267,877 | 11.5 | ||
Including: Auto insurance (%) | 23.4 | 23.3 | 0.1 pps | assets | ||||
Total investment yield | ||||||||
2.8 | ||||||||
Notes: (1) Expense ratio = (commission expenses of insurance | ||||||||
(unannualized, %) | 3.5 | -0.7 pps | ||||||
business + administrative expenses - reinsurance | Total investment yield | |||||||
commission revenue)/ net earned premiums. | 4.3 | |||||||
(2) Loss ratio = claim expenses / net earned premiums. | (annualized, %) | 5.2 | -0.9 pps | |||||
(3) The market share was calculated on the basis of the | Other net revenue and | |||||||
insurance industry data of the People's Republic of | (565) | (511) | 10.6 | |||||
China (the "PRC") published by the CBIRC. | expenses | |||||||
Profit before tax | 10,237 | 12,703 | (19.4) | |||||
Income tax | (1,963) | (808) | 142.9 | |||||
Net profit (A) | 8,274 | 11,895 | (30.4) | |||||
Impact of one-off material | - | |||||||
non-operating items(3) (B) | 1,856 | N/A | ||||||
Operating profit (C=A-B) | 8,274 | 10,039 | (17.6) |
Notes: (1) | Administrative expenses include administrative |
expenses and impairment losses on receivables and | |
(2) | others under the segmented income statement. |
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 | |
(3) | institutions under the segmented income statement. |
In the first half of 2019, we recognized a one-off | |
material impact of the decrease in 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
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 33 |
Business Analysis
Property and Casualty Insurance Business
OPERATING DATA BY PRODUCT TYPE
Among all the insurance products offered by Ping An Property & Casualty in the first half of 2020, the top five sources of premium income were auto insurance, guarantee insurance, liability insurance, accidental injury insurance, and corporate property and casualty insurance which collectively accounted for 93.8% of Ping An Property & Casualty's total premium income for the first half of 2020.
Auto Insurance
In the first half of 2020, amid plummeting new car sales due to the COVID-19 epidemic, Ping An Property & Casualty strengthened online customer services and improved customer satisfaction and stickiness by providing safe, convenient auto insurance services including "One-click Policy Renewal" and "One-click Claims Services" through the "Ping An Auto Owner" app. In the first half
of 2020, premium income from the auto insurance business grew by 3.6% year on year, underwriting profit was RMB4,782 million, and the combined ratio was 94.7%. The industry-leading profitability mainly benefited from the reduced incident rate due to the pandemic-induced slowdown in economic activity. In the second half of 2020, Ping An Property & Casualty will strive to maintain high-quality development and realize stable, healthy development of the auto insurance business by taking a customer-centric approach, promoting technological application in auto insurance operations, and transforming toward data-driven operations.
Guarantee Insurance
Ping An Property & Casualty provides credit enhancement through financing guarantee insurance for 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. The overall risk profile was significantly better than the industry average. Financing guarantee insurance helps small and micro-businesses address the financing difficulties and reduce financing costs. Given strong domestic demands, Ping An Property & Casualty's guarantee insurance business maintained stable growth in the first half of 2020. Affected by COVID-19, Ping An Property & Casualty's guarantee insurance business quality was under temporary pressure, with a combined ratio of 125.6%. To address this issue, Ping An Property & Casualty has taken targeted measures quickly to make
sure that the risks are under control. The pressure on the combined ratio will gradually ease in the second half of 2020 as the impact of the COVID-19 epidemic recedes and the macroeconomy recovers. In the medium and long term, COVID-19 will not have material impact on the development of Ping An Property & Casualty's guarantee insurance business, given that China has adopted supportive policies to maintain economic resilience and growth momentum and Ping An Property & Casualty has taken proactive risk management measures.
Liability Insurance
Premium income from the liability insurance business grew by 20.5% year on year. The combined ratio stood at 93.3%, indicating industry-leading growth and profitability. Ping An Property & Casualty ramped up efforts in product innovation, providing protection for epidemic prevention and control as well as work and production resumption. Meanwhile, supported by technologies, Ping An Property & Casualty continued to optimize business processes, diversify online services, and improve the risk management framework. Ping An Property
- Casualty gave full play to liability insurance in pluralistic social co-governance and high-quality economic development.
For the six months ended June 30, 2020 | Insured | Premium | Net earned | Claim | Underwriting | Combined | Reserve |
(in RMB million) | amount | income | premium | expenses | profit | ratio | liabilities |
Auto insurance | 34,178,022 | 95,646 | 90,001 | 50,984 | 4,782 | 94.7% | 148,776 |
Guarantee insurance | 242,939 | 20,467 | 13,554 | 14,095 | (3,476) | 125.6% | 61,896 |
Liability insurance | 541,266,128 | 8,040 | 5,957 | 2,785 | 397 | 93.3% | 13,273 |
Accidental injury insurance | 493,924,740 | 6,862 | 6,445 | 2,268 | 469 | 92.7% | 8,714 |
Corporate property and | |||||||
casualty insurance | 12,024,388 | 4,178 | 2,033 | 986 | 249 | 87.7% | 7,409 |
Note: Figures may not match the calculation due to rounding.
34 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
TECHNOLOGY-DRIVEN TRANSFORMATION Under the Group's "finance + technology" and "finance + ecosystem" strategies, Ping An Property
- Casualty continued to conduct data-driven business transformations and pursued technological innovations to improve customer experiences. Moreover, Ping An Property & Casualty used robots to enable smart operations and increase operational efficiency. As of June 30, 2020, Ping An Property & Casualty filed 1,112 technology patent applications, up 160% year on year, continuing its independent innovation initiatives.
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 the largest automotive tool app in China, the "Ping An Auto Owner" app had over 109 million registered users as of June 30, 2020, up 17.8% year to date. In June 2020, the app had over 27 million monthly active users. Over 70 million vehicles had been linked with the app, including over 20 million not insured by Ping An yet, indicating great potential of growth from user conversion. Amid the COVID-19 epidemic, Ping An Property & Casualty used the "Ping An Auto Owner" app to integrate online services and recommend the most suitable claims methods to customers according to their profiles and segmented scenarios. Ping An Property
- Casualty launched "One-click Claims Services," simplified the auto insurance claim process, and provided online support via robots and claim experts, enabling non-contact claim settlement anytime, anywhere. Claim reporting takes only two minutes on average, and claim settlement as short as three minutes. Meanwhile, Ping An Property
- Casualty leveraged the "Ping An Auto Owner" app to focus on engagement of online customers. Since the launch of the "One-click Policy Renewal" function in March 2020, it has enabled over 93% of customers to renew their insurance policies at one click.
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 the first half of 2020, Ping An Property
- Casualty provided 4,729 corporate customers and key engineering projects with disaster and loss prevention services. Amid the COVID-19 epidemic, Ping An Property & Casualty rolled out comprehensive epidemic insurance products to help enterprises resume work and production
with insurance protection. Under the guidance of over 20 provincial and municipal governments, Ping An Property & Casualty provided over 200,000 enterprises with such comprehensive epidemic insurance coverage of over RMB5,000 million. In addition, Ping An Property & Casualty helped
7,318 enterprises resume work and production by donating anti-epidemic supplies, conducting training, and carrying out risk reviews. In addition, Ping An Property & Casualty carried out four disaster warning and loss prevention programs regarding severe natural disasters including typhoons and rainstorms, and sent out approximately 441,000 text message alerts in the first half of 2020. By developing a government-insurer risk management cloud platform, Ping An Property
- Casualty helped local governments improve their control over production safety, environmental protection, and construction quality management in their jurisdictions.
SOLVENCY MARGIN
As of June 30, 2020, Ping An Property & Casualty's core and comprehensive solvency margins were significantly above the regulatory requirements.
June 30, | December | Change | ||
(in RMB million) | 2020 | 31, 2019 | (%) | |
Core capital | 99,438 | 92,897 | 7.0 | |
Actual capital | 113,938 | 111,397 | 2.3 | |
Minimum capital | 47,214 | 42,982 | 9.8 | |
Core solvency margin | 210.6 | |||
ratio (%) | 216.1 | -5.5 | pps | |
Comprehensive solvency | 241.3 | |||
margin ratio (%) | 259.2 | -17.9 | pps |
Notes: (1) Core solvency margin ratio = core capital / minimum capital. Comprehensive solvency margin ratio = actual capital / minimum capital.
(2) The minimum regulatory 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
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 35 |
Business Analysis
Property and Casualty Insurance Business
OTHER MAJOR FINANCIAL AND REGULATORY INFORMATION
Premium Income
Below is a breakdown of the premium income from the Company's property and casualty insurance business by channel:
For the six months ended | 2020 | 2019 | ||
June 30 | Percentage | Percentage | ||
(in RMB million) | Amount | (%) | Amount | (%) |
Agencies | 35,165 | 24.4 | 29,120 | 22.3 |
Car dealers | 31,864 | 22.1 | 30,406 | 23.3 |
Cross-selling | 23,332 | 16.2 | 21,578 | 16.5 |
Telemarketing and | 23,291 | 16.2 | ||
online channels | 22,606 | 17.3 | ||
Direct selling | 17,063 | 11.8 | 15,059 | 11.5 |
Others | 13,403 | 9.3 | 11,697 | 9.1 |
Total | 144,118 | 100.0 | 130,466 | 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 at the end of 2019 to reflect the nature of online insurance business. The data for the same period of 2019 was restated accordingly.
Reinsurance Arrangement
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. Ping An Property & Casualty has partnered with nearly 100 reinsurers and reinsurance brokers worldwide, including China Property & Casualty Re, Swiss Re, SCOR, and Munich Re.
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Ceded premium | 9,025 | 9,147 |
Auto insurance | 3,577 | 3,468 |
Non-auto insurance | 5,234 | 5,626 |
Accident and health insurance | 214 | 53 |
Inward reinsurance premium | 34 | 51 |
Non-auto insurance | 34 | 51 |
Below is a breakdown of the premium income from the Company's property and casualty insurance business by region:
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Claim Expenses
In the first half of 2020, claim expenses rose by 11.1% year on year mainly due to sustained insurance business growth.
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Guangdong | 22,331 | 22,042 |
Jiangsu | 10,353 | 9,031 |
Zhejiang | 8,590 | 7,680 |
Shandong | 8,059 | 6,955 |
Shanghai | 7,985 | 7,226 |
Subtotal | 57,318 | 52,934 |
Total | 144,118 | 130,466 |
Auto insurance | 50,984 | 50,365 |
Non-auto insurance | 19,728 | 13,530 |
Accident and health insurance | 2,654 | 2,150 |
Total | 73,366 | 66,045 |
36 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Commission Expenses of Insurance Operations In the first half of 2020, commission expenses of insurance operations increased by 13.7% year on year, while the proportion of such expenses to premium income increased by 0.4 pps year on year, mainly due to premium income growth and intensified competition.
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Auto insurance | 14,900 | 14,049 |
Non-auto insurance | 3,854 | 3,165 |
Accident and health insurance | 2,859 | 1,788 |
Total | 21,613 | 19,002 |
Commission expenses as a | ||
percentage of premium | 15.0 | |
income (%) | 14.6 | |
Administrative Expenses
In the first half of 2020, administrative expenses rose by 7.0% year on year, mainly driven by sustained insurance business growth.
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Operating expenses | 26,012 | 24,721 |
Tax and surcharges | 760 | 648 |
Impairment losses on | 1,225 | |
receivables and others | 789 | |
Total | 27,997 | 26,158 |
Total Investment Income
In the first half of 2020, the net investment yield of the property and casualty insurance business dropped by 0.7 pps year on year to 3.8%. The total investment yield of the property and casualty insurance business was 4.3%, down 0.9 pps year on year. The decreases were mainly due to the year-on-year declines in dividend income from equity investments and income from fixed-income investments.
For the six months ended June 30 | ||
(in RMB million) | 2020 | 2019 |
Net investment income(1) | 6,882 | 7,661 |
Realized income(2) | 744 | 1,029 |
Fair value gains and losses | 756 | 599 |
Impairment losses on | ||
investment assets | 24 | 77 |
Total investment income | 8,406 | 9,366 |
Net investment yield(3) | 3.8 | |
(annualized, %) | 4.5 | |
Total investment yield(3) | 4.3 | |
(annualized, %) | 5.2 |
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 the computation of the above investment yields. Average investment assets used as the denominator are computed in line with principles of the Modified Dietz method. In the computation of annualized investment yields, only interest revenue from deposits and debt financial assets, and operating lease income from investment properties were annualized, while interest revenue from financial assets purchased under reverse repurchase agreements, interest expenses on assets sold under agreements to repurchase and placements from banks and other financial institutions, dividend income, capital gains from investments and fair value gains and losses were not annualized.
Income Tax
The income tax of Ping An Property & Casualty increased significantly year on year mainly because the income tax for the same period of 2019 was lower. In the first half of 2019, Ping An Property
- Casualty implemented 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, and the impact of RMB1,856 million on the income tax for 2018 was deducted from the income tax for the first half of 2019.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 37 |
Business Analysis
Investment Portfolio of Insurance Funds
The Company's investment portfolio of insurance funds rose by 7.3% year to date to RMB3.44 trillion as of June 30, 2020 with 17.2% of the financial assets carried at fair value through the profit and loss under IFRS 9. The Company ensured the safety and soundness of the investment portfolio by taking effective measures to prevent investment risks.
In the first half of 2020, the portfolio generated an annualized total investment yield of 4.4% and an annualized net investment yield of 4.1%.
The Company succeeded in further narrowing the asset-liability duration gap despite a market-wide shortage of long-duration assets. The Company further improved investment risk management, refined risk limits, increased monitoring frequency, and enhanced risk warning and review to ensure overall investment risks are under control.
BUSINESS OVERVIEW
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.
Major global economies significantly slowed down due to COVID-19 in the first half of 2020, but have slowly gained traction since the middle of the second quarter. Given a sharp decline in China's economy in the first quarter, the central government implemented countercyclical macroeconomic policies and promoted the resumption of work and production. As a result, the economy recovered gradually in the second quarter. Offshore capital markets once suffered drastic corrections amid
the pandemic, but gradually regained ground with the help of more countercyclical macroeconomic policies adopted by governments around the world. Moreover, as China took the lead in containing the epidemic and adopted timely policies to stabilize the market, domestic capital markets were less volatile than offshore markets in general. These policies include "ensuring stability in employment, financial markets, foreign trade, foreign investment, domestic investment, and expectations" and "ensuring job security, basic livelihoods, operations of market entities, food and energy security, stable industry and supply chains, and the normal functioning of primary-level governments." Shanghai Composite Index dropped slightly, but witnessed more mixed sector performances. The Hong Kong stock market declined over 10% due to the volatile overseas markets. In addition, interest rates in China dropped amid zero interest rate policies outside China and domestic monetary easing. The investment yields
of the Company's investment portfolio of insurance funds were under pressure due to volatile stock markets and declining interest rates. However, the Company ensured the safety and soundness of the investment portfolio of insurance funds by taking effective measures to prevent investment risks.
ASSET LIABILITY MANAGEMENT
The Company continued to improve asset-liability matching of insurance funds. The Company maintained robust asset-liabilitymanagement. In response to challenges brought by interest rate cuts, the Company continued to increase allocations to tax-exemptbonds including central and local government bonds as well as long-durationlow- risk bonds including financial bonds issued by policy banks to lengthen asset duration. Despite the challenges brought by the shortage of long-durationassets in the market, Ping An Group continued
to extend asset duration, thereby mitigating re-investment risk amid low interest rates, and further narrowed the asset-liability duration gap to improve asset-liability matching. In addition, Ping An established flexible asset-liability management mechanisms, maintained reasonable guaranteed interest rates of liabilities, and optimized interest rate matching of assets and liabilities. Moreover, Ping An managed equity investment flexibly to seize opportunities from epidemic-induced market volatility and boost investment returns. Bolstered by high-quality assets and flexible, robust equity investment, the Company does not need and has no plan to increase the risk appetite of the insurance fund portfolio in the current low interest rate environment.
38 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
INVESTMENT RISK MANAGEMENT
The Company constantly improved internal controls over investment risk management. Firstly, the Company continued to strengthen its asset-liabilityrisk management, and optimized the term structure of asset-liabilityduration matching by making more investment in long-durationrate bonds. Attaching great importance to risk management in matching costs and returns, the Company established a risk appetite framework in which the matching of costs and returns was a key quantitative indicator, and conducted necessary reviews and updates on a quarterly basis. The Company conducted regular stress tests on the investment portfolio of insurance funds by embedding testing in the asset allocation process and conducting ex-anterisk management. In case of increased market volatility, the Company would carry out intensified and more frequent stress testing in order to ensure the soundness of the portfolio under the exceptional market impact. Secondly, the Company focused on developing policies and processes.
To optimize end-to-end risk management, the Company standardized its business processes, improved its investment risk management framework, and enhanced admission strategies, credit rating, list-based counterparty management, risk warning, risk contingency management, and other key processes. Thirdly, the Company identified risks more rapidly, made timely decisions, and took action in advance by applying cutting-edge technologies to the management of key post-investment matters. The Company upheld the principles of "well-defined responsibilities, timely follow-up, and sound management," and was hence able to "monitor risks closely, identify risks accurately, and avoid risks promptly." In this way, the Company integrated risk management with value creation. Lastly, the Company enhanced its risk monitoring system and risk management information system. By establishing a comprehensive risk management database, the Company conducted automatic risk identification, smart risk warning, and smart risk management in real time.
INVESTMENT PORTFOLIO (BY CATEGORY)
June 30, 2020 | December 31, 2019 | ||
(in RMB million) | Carrying value Percentage (%) | Carrying value | Percentage (%) |
MANAGEMENT DISCUSSION 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)
111,162 | 3.2 | 95,680 | 3.0 |
225,429 | 6.5 | 210,925 | 6.6 |
1,694,508 | 49.2 | 1,504,059 | 46.9 |
54,146 | 1.6 | 42,234 | 1.3 |
122,103 | 3.5 | 114,896 | 3.6 |
17,895 | 0.5 | 17,838 | 0.6 |
152,317 | 4.4 | 139,326 | 4.3 |
120,809 | 3.5 | 132,462 | 4.1 |
272,578 | 7.9 | 297,631 | 9.3 |
284,004 | 8.3 | 295,429 | 9.2 |
68,589 | 2.0 | 49,491 | 1.5 |
34,627 | 1.0 | 38,187 | 1.2 |
68,719 | 2.0 | 67,462 | 2.1 |
129,094 | 3.8 | 120,345 | 3.8 |
60,011 | 1.7 | 61,005 | 1.9 |
26,044 | 0.9 | 21,866 | 0.6 |
Total investments | 3,442,035 | 100.0 | 3,208,836 | 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 derivative financial assets.
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 39 |
Business Analysis
Investment Portfolio of Insurance Funds
INVESTMENT PORTFOLIO (BY ACCOUNTING MEASUREMENT)
The Company has implemented the new accounting standards for financial instruments since January 1, 2018. As of June 30, 2020, our insurance fund portfolio's investment in financial assets carried at fair value through profit or loss accounted for 17.2% of the total investments.
June 30, 2020 | December 31, 2019 | |||
(in RMB million) | Carrying value | Percentage (%) | Carrying value | Percentage (%) |
Financial assets carried at fair value | 590,802 | 17.2 | ||
through profit or loss | 586,777 | 18.3 | ||
Fixed income | 331,524 | 9.6 | 336,594 | 10.5 |
Stocks | 88,195 | 2.6 | 95,895 | 3.0 |
Equity funds | 68,589 | 2.0 | 49,491 | 1.5 |
Other equity financial assets | 102,494 | 3.0 | 104,797 | 3.3 |
Financial assets carried at fair value | 482,237 | 14.0 | ||
through other comprehensive income | 509,167 | 15.9 | ||
Financial assets measured at amortized cost | 2,179,874 | 63.3 | 1,931,531 | 60.2 |
Others(1) | 189,122 | 5.5 | 181,361 | 5.6 |
Total investments | 3,442,035 | 100.0 | 3,208,836 | 100.0 |
Note: (1) Others include long-term equity stakes, investment properties, and derivative financial assets.
INVESTMENT INCOME
In the first half of 2020, the Company's annualized total investment yield from the investment portfolio of insurance funds was 4.4%, down 1.1 pps year on year mainly due to greater fair value losses driven by sharp year-on-year capital market fluctuations. The Company's annualized net investment yield was 4.1%, down 0.4 pps year on year due to a decrease in dividend income from equity assets and an increase in the investment scale. In the computation of annualized investment yields, only interest revenue from deposits and debt financial assets as well as operating lease income from investment properties were annualized, while interest revenue from financial assets purchased under reverse repurchase agreements, interest expenses on assets sold under agreements to repurchase and placements from banks and other financial institutions, dividend income, capital gains from investments and fair value gains and losses were not annualized.
For the six months ended June 30 | ||||
(in RMB million) | 2020 | 2019 | Change (%) | |
Net investment income(1) | 74,690 | 73,734 | 1.3 | |
Realized gains(2) | 15,390 | 928 | 1,558.4 | |
Fair value gains and losses | (4,132) | 27,531 | N/A | |
Impairment losses on investment assets | (49) | 400 | N/A | |
Total investment income | 85,899 | 102,593 | (16.3) | |
Net investment yield(3) (annualized, %) | 4.1 | 4.5 | -0.4 | pps |
Total investment yield(3) (annualized, %) | 4.4 | 5.5 | -1.1 | 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 investment yields. Average investment assets used as the denominator are computed in line with principles of the | |
Modified Dietz method. In the computation of annualized investment yields, only interest revenue from deposits and debt | |
financial assets as well as operating lease income from investment properties were annualized, while interest revenue from | |
financial assets purchased under reverse repurchase agreements, interest expenses on assets sold under agreements to |
repurchase and placements from banks and other financial institutions, dividend income, capital gains from investments and fair value gains and losses were not annualized.
40 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
For nearly ten years, the average annual investment yields of the Company's investment portfolio of insurance funds have been above 5%.
2010-2019 | |
Average net investment yield (%) | 5.2 |
Average total investment yield (%) | 5.2 |
Average comprehensive investment yield (%) | 5.5 |
CORPORATE BONDS
As of June 30, 2020, the Company held RMB116,432 million worth of corporate bonds, which accounted for 3.4% of its total investment assets, down 0.6 pps from the beginning of 2020 and down 2.4 pps from the beginning of 2019. In terms of credit ratings, the overall credit rating was quite good, the same as at the end of 2019. About 99% of the corporate bonds had AA and higher external ratings and about 89% had AAA external ratings. In terms of credit losses, the corporate bonds in the Company's investment portfolio of insurance funds were quite secure as their risks were under control. For risk management of corporate bonds, the Company carried out comprehensive investment risk management covering asset allocation, admission management, and dynamic monitoring. Since 2003, the Company has maintained an internal credit rating team that conducted strict internal credit ratings-based admission management for the investment in corporate bonds and reviewed and adjusted ratings to ensure that credit ratings reasonably reflect 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 June 30, 2020, our insurance fund portfolio's investment in debt schemes and debt wealth management products totaled RMB393,387 million, accounting for 11.4% of the total investment assets, down 2.0 pps from the beginning of 2020 and down 4.4 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 risks 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 debt schemes and debt wealth management products according to the funding level in each account, the return and liquidity demands, and similar assets' relative attractiveness. The second level is asset selection. When selecting assets, the Company prefers projects located in developed areas and leaders of industries in line with China's industry policies. All debt schemes and debt wealth management product investments have to go through the relevant Investment Committee. The third level is post-investment management. The Company closely monitors the assets and 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.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 41 |
Business Analysis
Investment Portfolio of Insurance Funds
Structure and yield distribution of debt schemes and debt wealth management products
Investment | Nominal | Remaining | ||
proportion | yield | Maturity | maturity | |
Industry | (%) | (%) | (year) | (year) |
Infrastructure | 36.4 | 5.72 | 8.58 | 4.73 |
Expressway | 13.4 | 5.84 | 9.87 | 5.41 |
Electric power | 3.4 | 5.26 | 7.70 | 3.63 |
Infrastructure and development zones | 9.3 | 5.86 | 8.12 | 5.37 |
Others (water supply, environmental | ||||
protection, railway...) | 10.3 | 5.58 | 7.63 | 3.64 |
Non-banking financial services(2) | 31.3 | 5.80 | 5.81 | 2.65 |
Real estate | 16.6 | 5.80 | 4.65 | 2.38 |
Coal mining | 1.4 | 5.83 | 8.41 | 3.14 |
Others | 14.3 | 5.32 | 6.17 | 4.70 |
Total | 100.0 | 5.69 | 6.71 | 3.66 |
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.
(4) Figures may not match the calculation due to rounding.
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 ratings, over 99% of the debt schemes and trust plans held by Ping An had AAA external ratings, and about 0.7% of them had 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, Ping An avoids high-risk industries and regions. Ping An's 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 June 30, 2020, our insurance fund portfolio's investment in equity wealth management products totaled RMB34,627 million, accounting for 1.0% of its 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 in the secondary market, indicating no significant liquidity risk. Private equity funds account for a tiny proportion; their underlying assets are mainly equities in central and local governments' partnerships, with risks under control.
42 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Business Analysis
Banking Business
Ping An Bank maintained stable business growth. In the first half of 2020, revenue grew by 15.5% year on year to RMB78,328 million. Operating income before impairment loss grew by 18.9% year on year to RMB56,150 million.
Ping An Bank proactively responded to external risks and optimized its business portfolio. Overall asset quality risk was under control, with a non-performing loan ratio of 1.65% as of June 30, 2020, the same as that at the beginning of 2020. The percentages of special mention loans, loans more than 60 days overdue and loans more than 90 days overdue dropped by 0.15 pps, 0.03 pps and 0.02 pps from the beginning of 2020 to 1.86%, 1.55% and 1.33% respectively. The deviations of loans more than 60 days overdue and loans more than 90 days overdue were both below 1. Meanwhile, Ping An Bank further strengthened risk provisions. The provision coverage ratios for non-performing loans, loans more than 60 days overdue and loans more than 90 days overdue rose by 31.81 pps, 38.10 pps and 44.12 pps from the beginning of 2020 to 214.93%, 228.44% and 267.01% respectively.
Ping An Bank upgraded its retail business transformation and maintained stable development despite the COVID-19 epidemic. In the first half of 2020, retail banking achieved RMB43,353 million in revenue, up 12.3% year on year. Retail customers and registered users of the "Ping An Pocket Bank" app both exceeded 100 million. Retail assets under management (AUM) rose by 17.1% from the beginning of 2020 to RMB2,321,615 million. The balance of retail deposits increased by 10.1% from the beginning of 2020 to RMB642,799 million.
In the first half of 2020, Ping An Bank issued RMB30 billion worth of undated capital bonds. As of June 30, 2020, the capital adequacy ratio rose by 0.74 pps from the beginning of 2020 to 13.96%.
MANAGEMENT DISCUSSION AND ANALYSIS
BUSINESS OVERVIEW
Ping An Bank continued its mission to build "China's most outstanding, world-leading smart retail bank" under the strategy of "technological empowerment, breakthroughs in retail banking, and enhancement of corporate banking." The year 2020 is the first year for Ping An Bank to implement its new 3-year strategy. Ping An Bank established the "3+2+1" strategy
for Retail, Corporate, and Interbank businesses to achieve balanced business development. Moreover, Ping An Bank has positioned itself as "a digital bank, an ecosystem, and a platform" to optimize its asset-liability structure, lay a solid foundation for transformation and upgrade, and further its development.
In the first half of 2020, in response to the sudden COVID-19 outbreak, Ping An Bank proactively implemented various strategic measures and resumed business quickly through online digital operations while fighting the epidemic. Meanwhile,
Ping An Bank continued to strengthen financial risk prevention and control, and actively fulfilled various social responsibilities. Ping An Bank follows the national policies of "ensuring stability in employment, financial markets, foreign trade, foreign investment, domestic investment, and expectations" and "ensuring job security, basic livelihoods, operations of market entities, food and energy security, stable industry and supply chains, and the normal functioning of primary-level governments." Ping An Bank made active efforts to effectively meet customers' demands for various financial services, support the rapid resumption of work and production, and give strong backing to the sustainable development of the real economy.
Ping An Bank continued to make its outlets smarter and improved their geographic distribution. As
of June 30, 2020, Ping An Bank had 92 branches (including the Hong Kong branch) and 1,078 business outlets.
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 43 |
Business Analysis
Banking Business
KEY INDICATORS
Ping An Bank maintained stable business growth with revenue increasing steadily by 15.5% year on year to RMB78,328 million in the first half of 2020.
Operating income before impairment loss grew by 18.9% year on year to RMB56,150 million. Meanwhile, due to the uncertainties brought by the COVID-19 epidemic, Ping An Bank proactively strengthened risk provisions based on economic trends and predictions on domestic and international environments, resulting in a year-on-year decline of 11.2% in net profit.
For the six months ended June 30 | ||||
(in RMB million) | 2020 | 2019 | Change (%) | |
Operating income | ||||
before impairment | 56,150 | |||
loss | 47,241 | 18.9 | ||
Net profit | 13,678 | 15,403 | (11.2) | |
Cost-to-income ratio(1) (%) | 27.30 | 29.46 | -2.16 | pps |
Average return on total | 0.67 | |||
assets (annualized, %) | 0.88 | -0.21 | pps | |
Weighted average ROE | 9.33 | |||
(annualized, %) | 12.63 | -3.30 | pps | |
Net interest margin | 2.59 | |||
(annualized, %) | 2.62 | -0.03 | pps |
Note: (1) Cost-to-income ratio = general and administrative expenses / total revenues.
(in RMB million) | June 30, | December 31, | Change (%) |
2020 | 2019 | ||
Deposits and loans(1) | |||
Total loans and advances | 2,508,408 | 2,323,205 | 8.0 |
Including: Retail loans | 1,417,755 | 1,357,221 | 4.5 |
Corporate loans | 1,090,653 | 965,984 | 12.9 |
Deposits | 2,486,121 | 2,436,935 | 2.0 |
Including: Retail deposits | 642,799 | 583,673 | 10.1 |
Corporate deposits | 1,843,322 | 1,853,262 | (0.5) |
Asset quality | |||
Non-performing loan ratio (%) | 1.65 | 1.65 | - |
Provision coverage ratio (%) | 214.93 | 183.12 | 31.81 pps |
Deviation of loans more than | |||
60 days overdue(2) (%) | 94 | 96 | -2 pps |
Capital adequacy ratio | |||
Core tier 1 capital adequacy | 8.93 | ||
ratio(3) (%) | 9.11 | -0.18 pps |
Notes: (1) Total loans and advances, deposits, and their components are exclusive of interest receivable and payable.
(2) Deviation of loans more than 60 days overdue = balance of loans more than 60 days overdue / balance of non-performing loans.
(3) The minimum regulatory requirement for the core tier
1 capital adequacy ratio is 7.5%.
44 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Analysis of Profit Sources
For the six months ended June 30
(in RMB million) | 2020 | 2019 | Change (%) |
Net interest revenue | 50,305 | 43,639 | 15.3 |
Average balance of | 3,887,854 | ||
interest-earning assets | 3,358,110 | 15.8 | |
Net interest margin(1) | 1.29 | ||
(unannualized, %) | 1.30 | -0.01 pps | |
Net interest margin | 2.59 | ||
(annualized, %) | 2.62 | -0.03 pps | |
Net non-interest revenue(2) | 28,023 | 24,190 | 15.8 |
Including: Net fee and | |||
commission | 19,722 | ||
revenue | 18,391 | 7.2 | |
Other net | |||
non-interest | 8,301 | ||
revenue | 5,799 | 43.1 | |
Revenue | 78,328 | 67,829 | 15.5 |
General and administrative | (21,380) | ||
expenses | (19,981) | 7.0 | |
Cost-to-income ratio (%) | 27.30 | 29.46 | -2.16 pps |
Tax and surcharges | (798) | (607) | 31.5 |
Operating income before | 56,150 | ||
impairment loss | 47,241 | 18.9 | |
Loan impairment loss | (32,302) | (23,597) | 36.9 |
Average balance of loans | |||
(including discounted | 2,429,534 | ||
bills) | 2,042,092 | 19.0 | |
Credit cost(3) | 1.33 | ||
(unannualized, %) | 1.16 | 0.17 pps | |
Credit cost | 2.67 | ||
(annualized, %) | 2.31 | 0.36 pps | |
Other expenses | (6,261) | (3,641) | 72.0 |
Profit before tax | 17,587 | 20,003 | (12.1) |
Income tax | (3,909) | (4,600) | (15.0) |
Net profit | 13,678 | 15,403 | (11.2) |
Notes: (1) Net interest margin = net interest revenue / average balance of interest-earning assets.
(2) Net non-interest revenue includes net fee and commission revenue, investment income, fair value gains and losses, foreign exchange gains and losses, other business revenue, asset disposal gains and losses, and other income.
(3) Credit cost = loan impairment loss / average balance of loans (including discounted bills).
Ping An Bank's net interest margin for the first half of 2020 decreased by 0.03 pps year on year to
2.59% mainly due to the decreasing loan prime rate and ample liquidity in the money market. Overall, the yield on interest-earning assets dropped slightly faster than the cost rate of interest-bearing liabilities.
Ping An Bank's net non-interest revenue for the first half of 2020 totaled RMB28,023 million, up 15.8% year on year as Ping An Bank proactively developed its private banking business, with commission revenue from the distribution of fund and trust plans recording year-on-year growth. Moreover, Ping An Bank grasped market opportunities and increased bond positions moderately, resulting in a year-on-year increase in investment income.
RETAIL BUSINESS
In the first half of 2020, under the "3+2+1" strategy, Ping An Bank promoted the three key businesses of "basic retail banking, private banking & wealth management, and consumer finance," enhanced the two core capabilities of "risk management and cost control," and developed the "one ecosystem" to drive integration. Meanwhile, Ping An Bank implemented the new strategy of data-driven operations, online operations, comprehensive services, and ecosystem-based development to promote its retail business transformation, in line with its new positioning as "a digital bank, an ecosystem, and a platform."
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 45 |
Business Analysis
Banking Business
With the COVID-19 epidemic being largely contained domestically but still uncertain overseas, Ping
An Bank resumed its retail business quickly and maintained steady business development with its online technology-powered,AI-enabled operational capabilities through rapid implementation of the above new strategy. In the first half of 2020, the growth of the retail banking business was impacted by the COVID-19 epidemic. Revenue from retail banking grew by 12.3% year on year to RMB43,353 million, accounting for 55.3% of Ping An Bank's total revenue, slightly lower year on year. As
Ping An Bank strengthened retail provisions, net profit from retail banking amounted to RMB7,480 million, accounting for 54.7% of Ping An Bank's net profit; the percentage declined year on year but was still within a reasonable range. As of June 30, 2020, Ping An Bank's retail AUM rose by 17.1% from the beginning of 2020 to RMB2,321,615 million. Retail customers and registered users of the "Ping An Pocket Bank" app both exceeded 100 million. Personal property mortgage loans and collateral mortgage loans accounted for 32.2% of the balance of retail loans, compared with 30.3% at the beginning of 2020, indicating Ping An Bank's customer mix was further improved. The integrated financial business model made increasing contributions
to retail banking. The cross-selling channel's non-performing loan ratio was generally lower than the overall non-performing loan ratio, showing that the customers referred by the cross-selling channel have better asset quality than other customers.
For the six months ended June 30 | |||
(in RMB million) | 2020 | 2019 | Change (%) |
Operating results of retail | |||
banking | |||
Revenue from retail banking | 43,353 | 38,596 | 12.3 |
% of revenue from | 55.3 | ||
retail banking | 56.9 | -1.6 pps | |
Net profit from | 7,480 | ||
retail banking | 10,810 | (30.8) | |
% of net profit from | 54.7 | ||
retail banking | 70.2 | -15.5 pps | |
2020 | ||
Cross-selling | ||
Cross-selling | channel' s | |
channel' s | contribution | |
For the six months ended June 30 | contribution | percentage (%) |
Cross-selling channel' s | ||
contributions to retail banking | ||
New credit cards issued | 1.29 | 30.8 |
(in million) | ||
Xinyidai unsecured loans | 29,719 | 64.3 |
granted (in RMB million) | ||
Auto loans granted | 31,855 | 33.1 |
(in RMB million) | ||
June 30, 2020 | ||
Cross-selling | ||
Overall non- | channel' s | |
performing | non-performing | |
(%) | loan ratio | loan ratio |
Asset quality of retail banking | ||
Including: Credit card receivables | 2.35 | 2.13 |
Xinyidai unsecured loans | 1.84 | 1.10 |
Auto loans(1) | 1.40 | 1.89 |
Note: (1) In respect of auto loans, the Group's cross-selling channel had a non-performing loan ratio of 1.89%, higher than the overall non-performing loan ratio mainly because the cross-selling channel had a high proportion of auto mortgages. Moreover, the non-performing loan ratio of the cross-selling channel's auto mortgages was 0.95 pps lower than that of the other customer segments' auto mortgages.
For retail deposits, Ping An Bank continued to drive deposit growth by expanding AUM, and retained more customer deposits by boosting accounts bundled for repayment of credit cards or other products. In addition, Ping An Bank raised settlement deposits by developing payroll and acquiring services to boost demand deposits and optimize its deposit mix. As of June 30, 2020, the balances of retail deposits and retail demand deposits increased by 10.1% and 13.2% from the beginning of 2020 to RMB642,799 million and RMB226,323 million respectively. The average cost rate of retail deposits for the first half of 2020 was 2.51%, down 0.17 pps year on year.
46 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
For the private banking & wealth management business, as of June 30, 2020, Ping An Bank had
882,700 wealth management customers, up 13.3% from the beginning of 2020. 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) was about 51,100, up 16.7% from the beginning of 2020. The AUM of qualified private banking customers stood at RMB923,055 million, up 25.8% from the beginning of 2020. Ping An Bank continued to promote its private banking business, and enhanced its comprehensive, professional and technology-powered capabilities. Ping An Bank actively promoted business innovation. Specifically, Ping An Bank signed this year's first family office service contract involving over RMB100 million in AUM, launched offshore family trust services for high net worth customers, and created the first tailor-made insurance trust and the first anti-epidemic charity trusts. Ping An Bank continued to develop the investment research, investment advisory and family office teams to provide a wider range of services and improve service experience for private banking customers. Ping An Bank continued to upgrade the benefits system focused on the needs of private banking customers to enhance its private banking brand image and value proposition.
June 30, | December 31, | Change (%) | |
2020 | 2019 | ||
Number of retail | 101.68 | ||
customers(1) (in million) | 97.08 | 4.7 | |
Including: Wealth | |||
management | |||
customers | 882.7 | ||
(in thousand) | 779.3 | 13.3 | |
Including: Qualified | |||
private | |||
banking | |||
customers | 51.1 | ||
(in thousand) | 43.8 | 16.7 | |
Retail assets under | |||
management | |||
(AUM, in RMB million) | 2,321,615 | 1,982,721 | 17.1 |
Number of credit cards in | 61.48 | ||
circulation (in million) | 60.33 | 1.9 |
Note: (1) Retail customers include debit cardholders and credit cardholders, with duplicates removed.
CORPORATE BUSINESS
In the first half of 2020, Ping An Bank's corporate banking served as an engine of the Group's "1+N" corporate integrated financial business model. Ping An Bank took a customer-centric approach and continued its "3+2+1" corporate banking strategy to promote balanced development and retail transformation. The strategy featured the three pillars of "industry-specific banking, transaction banking and integrated finance," the two core customer segments of "strategic customers and small and micro-business customers," and the one bottom line of "asset quality." Amid the COVID-19 epidemic, Ping An Bank achieved growth in the corporate banking business through accelerated data-driven operations by leveraging the Group's competitive advantages in "finance + technology" and focusing on new business opportunities of corporate banking. Ping An Bank reduced costs of liabilities by proactively controlling long-term,high-cost liabilities. As of June 30, 2020, the balance of corporate deposits was RMB1,843,322 million, representing a slight decrease year to date. The average cost rate of corporate deposits for the first half of 2020 was 2.29%, down 0.14 pps year on year. In the first half of 2020, corporate net non- interest revenue (excluding the interbank business) increased by 27.8% year on year to RMB6,632 million, and the proportion of corporate net non-interest revenue to corporate revenue grew 6.1 pps year on year, mainly attributable to revenues from cross- selling, forfaiting, bill discounting, bank acceptance and e-commerce. In the first half of 2020, insurance premiums referred by Ping An Bank rose by 271.0% year on year to RMB1,896 million.
Ping An Bank fully leveraged technologies including AI, blockchain and the IoT to enable corporate business innovation. In the first half of 2020, the transaction volume of Ping An Bank's internet payment and settlement service platform rose by
88.6% year on year to RMB3.30 trillion. As of June 30, 2020, the "Ping An Pocket Finance" app, a one-stop integrated financial services platform for corporate customers, had nearly 0.47 million registered users who contributed a transaction volume of RMB2.89 trillion in the first half of 2020, up 105.0% year on year. Ping An Bank provided 525 core enterprises and their upstream suppliers with financial services through a cloud-based supply chain accounts receivable service platform, with a total transaction volume of RMB23,941 million in the first half of
2020, up 38.9% year on year. New investment and financing projects implemented by Ping An Bank in cooperation with the Group's member companies grew 153.8% year on year to RMB234,969 million.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 47 |
Business Analysis
Banking Business
In addition to business development, Ping An Bank vigorously serves the real economy by supporting non-state-owned enterprises and small and micro-businesses while expanding the cooperation with strategic customers in key industries. As of June 30, 2020, the proportion of credit lines granted to key industries including transport infrastructure, real estate, health care, electronics manufacturing, and new energy stood at 46.9%. The balance of loans to strategic customers rose by 22.2% from the beginning of 2020, with its share in the corporate loan balance up 3.6 pps from the beginning of
2020. The balance of loans to non-state-owned enterprises rose by 8.0% from the beginning of 2020, representing 71.5% of the corporate loan balance. The balance of loans to small and micro- businesses each with a credit line not more than RMB10 million ("inclusive small and micro-business loans") increased by 7.73% from the beginning of 2020 to RMB237,111 million. The number of customers with such loans amounted to 682,500. Such loans accounted for 9.5% of the balance of Ping An Bank's loans. In the first half of 2020, Ping An Bank granted a total of RMB114,874 million in such loans.
INTERBANK BUSINESS
Ping An Bank implemented the "3+2+1" strategy for the interbank business, featuring the three business directions of "new transactions, new interbank business, and new asset management business," the two core capabilities of "sales and transactions," and the "one smart interbank business system platform." In the meantime, Ping An Bank fought COVID-19
to maintain normal operations and development. In the first half of 2020, Ping An Bank continued to carry out the FICC (fixed income, currencies and commodities) market making business by leveraging its market-leadingE-trading capability. In the derivatives market making rankings announced by China Foreign Exchange Trade System (CFETS) for the first half of 2020, Ping An Bank maintained its leading role in the market. As of June 30, 2020, Ping An Bank's integrated financial asset trading platform ET-Bank had cooperated with 2,258 customers
in total. In the first half of 2020, the interbank institutional sales volume reached RMB400,989 million, up 72.5% year on year. As of June 30, 2020, Ping An Bank had RMB403,022 million of NAV-type (net asset value-type) products in compliance with the new asset management regulations on NAV management, up 56.7% from the beginning of 2020, with an industry-leading proportion of the scale of NAV-type products to the total assets of wealth management products.
TECHNOLOGY-DRIVEN TRANSFORMATION Adopting "technology-drivenbusiness" as the driving force for strategic transformation, Ping An Bank continued to increase investment in fintech, optimized development processes, improved delivery efficiency, and enhanced online digital operations to promote its transformation toward "a digital bank, an ecosystem, and a platform." As of June 30, 2020, Ping An Bank's IT staff (including outsourced staff) increased by more than 13% from the beginning of 2020. In the first half of 2020, IT capital expenditure and expenses grew by 24.8% year on year.
Ping An Bank empowered its business with technologies. Ping An Bank furthered its agile transformation and improved the automation and intelligence of R&D operations. In the first half of 2020, business development requirements addressed by technology teams increased by over 30% year on year. Ping An Bank continued to upgrade and transform important business systems, including the new core system for credit cards, Ping An Good Chain, ET-Bank, Intelligent Finance, and Intelligent Risk Control. Meanwhile, Ping An Bank built an independent computer room and developed and deployed an IT system for its wealth management subsidiary, providing robust technical support for business operations. Paying much attention to application security management, Ping An Bank enhanced the security management of internet applications by continuously building and applying the Secure Software Development Life Cycle (S-SDLC).
Ping An Bank established leading technology infrastructure platforms. Ping An Bank accelerated its technological transformation by building cutting-edge infrastructure and platforms and improving technological products and solutions. As of June 30, 2020, Ping An Bank had moved over 40% of its applications onto the cloud, and applied technological framework and tools of the distributed Platform as a Service (PaaS) in more than 200 projects. Moreover, Ping An Bank builds Nebula-IoT, an IoT-enabled smart middle-office platform, proactively applying it in scenarios including
the Internet of Vehicles, the industrial internet, warehousing and logistics, smart manufacturing, and new retail.
48 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Ping An Bank accelerated its digital transformation and accelerated its capacity building for online digital operations. Regarding the data middle office, Ping An Bank promoted the development of data service platforms, and enhanced data service capabilities in its operations and management. Regarding AI platforms, Ping An Bank built a one-stop machine learning platform to automate the entire process from modeling to releasing, with over 600 models having gone live. Regarding data governance, Ping An Bank developed over
600 basic data standards and nearly 500 indicator standards in the first half of 2020. Regarding online operations, as a quick response to the COVID-19 outbreak, Ping An Bank launched "Banking at Home" and "Overseas Services," two fully online integrated service platforms on the "Ping An Pocket Bank" app, providing customers with financial products and quick services online. Ping An Bank set up online marketing channels including audio, short videos and live streaming platforms, and offered non-contact services by means of smart customer services, robo-advising, and online medical consultations. In the first half of 2020, Ping An Bank launched more than 3,000 marketing campaigns through the smart online operations platform
"AI Kuaizhan," attracting more than 640 million views and facilitating over seven million wealth management transaction orders.
Ping An Bank strengthened fintech innovation and application. With the Group's core technological resources, Ping An Bank accelerated the application of new technologies to banking scenarios to improve productivity and reduce operating
costs. In AI Bank, the credit card smart speech platform made nearly 12 million outbound calls per month, equivalent to the workloads of about 3,000 telemarketing representatives. In big data, Ping An Bank upgraded the customer journey platform to enhance the capability of targeted marketing and services. As a result, the conversion rates of customers purchasing wealth management products including "Tiantian Chengzhang C" increased by 60%. The small enterprise credit model enabled fully automatic loan approval, reducing the average turnaround time for granting a loan from 7.8 days to 2.2 days. In blockchain, Ping An Bank applied it to over 490,000 transactions in the first half of 2020, covering blockchain-based businesses including supply chain finance, bankruptcy and liquidation voting, cloud-based contract signing and certificate storage, and traceability. Ping An Bank built a blockchain-enabled taxation alliance with local tax authorities to lower enterprises' tax compliance costs and trade finance risks.
ASSET QUALITY
Ping An Bank went all out to support the prevention and control of the COVID-19 epidemic and the stability of financial markets. Ping An Bank offered differentiated emergency financial services to help businesses and individuals affected by the epidemic overcome difficulties. Meanwhile, Ping An Bank further adjusted and optimized its business portfolio to support the development of micro-, small and medium-sized enterprises. Ping An Bank stepped up the write-off and recovery of non-performing assets. In the first half of 2020, Ping An Bank wrote off RMB19,421 million in non-performing assets, and recovered RMB7,195 million in loans that had already been written off. Overall asset-quality risks were under control. As of June 30, 2020, the non-performing loan ratio was 1.65%, the same as that at the beginning of 2020. The percentages of special mention loans, loans more than 60 days overdue and loans more than 90 days overdue dropped by 0.15 pps, 0.03 pps and 0.02 pps from the beginning of 2020 to 1.86%, 1.55% and 1.33% respectively. The deviations of loans more than 60 days overdue and loans more than 90 days overdue were both below 1. Moreover, Ping An Bank further strengthened risk provisions. The provision coverage ratios for non-performing loans, loans more than 60 days overdue and loans more than 90 days overdue rose by 31.81 pps, 38.10 pps and 44.12 pps from the beginning of 2020 to 214.93%, 228.44% and 267.01% respectively. As of June 30, 2020, the balance of Ping An Bank's inclusive small and micro-business loans increased by 7.73% from the beginning of
2020. The weighted average interest rate on loans granted to such small and micro-businesses for the first half of 2020 was 0.80 pps lower than that for
2019. The non-performing loan ratio of such small and micro-businesses was kept within a reasonable range.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 49 |
Business Analysis
Banking Business
(in RMB million) | June 30, | December 31, | Change (%) |
2020 | 2019 | ||
Loan quality | |||
Pass | 2,420,357 | 2,238,307 | 8.1 |
Special mention | 46,738 | 46,665 | 0.2 |
Non-performing loans | 41,313 | 38,233 | 8.1 |
Sub-standard | 18,553 | 18,891 | (1.8) |
Doubtful | 11,360 | 6,272 | 81.1 |
Loss | 11,400 | 13,070 | (12.8) |
Total loans and advances | 2,508,408 | 2,323,205 | 8.0 |
Non-performing loan | 1.65 | ||
ratio (%) | 1.65 | - | |
Percentage of special | 1.86 | ||
mention loans (%) | 2.01 | -0.15 pps | |
Impairment provision | (88,794) | ||
balance | (70,013) | 26.8 | |
Provision coverage ratio (%) | 214.93 | 183.12 | 31.81 pps |
Loan loss provision | 3.54 | ||
ratio (%) | 3.01 | 0.53 pps | |
Balance of loans more than | 38,870 | ||
60 days overdue | 36,782 | 5.7 | |
Percentage of loans more | 1.55 | ||
than 60 days overdue (%) | 1.58 | -0.03 pps | |
Deviation of loans more | |||
than 60 days | |||
overdue(1) (%) | 94 | 96 | -2 pps |
Provision coverage ratio | |||
for loans more than | 228.44 | ||
60 days overdue (%) | 190.34 | 38.10 pps | |
Balance of loans more than | 33,255 | ||
90 days overdue | 31,411 | 5.9 | |
Percentage of loans more | 1.33 | ||
than 90 days overdue (%) | 1.35 | -0.02 pps | |
Deviation of loans more | |||
than 90 days | |||
overdue(2) (%) | 80 | 82 | -2 pps |
Provision coverage ratio | |||
for loans more than | 267.01 | ||
90 days overdue (%) | 222.89 | 44.12 pps |
Notes: (1) Deviation of loans more than 60 days overdue = balance of loans more than 60 days overdue / balance of non-performing loans.
(2) Deviation of loans more than 90 days overdue = balance of loans more than 90 days overdue / balance of non-performing loans.
(%) | June 30, | December 31, | Change | |
2020 | 2019 | |||
Non-performing loan ratios | ||||
Corporate loans | 1.76 | 2.29 | -0.53 | pps |
Retail loans | 1.56 | 1.19 | 0.37 | pps |
Total loans and advances | 1.65 | 1.65 | - | |
In respect of corporate asset quality, Ping An Bank focused on key industries, regions and clients, selected the industries with weak cyclicality, stable growth and high asset quality, and exited from high-risk industries. As a result, corporate asset quality gradually improved. As of June 30, 2020, the non-performing loan ratio of corporate loans declined by 0.53 pps from the beginning of 2020 to 1.76%.
In respect of retail asset quality, Ping An Bank improved customer qualification and risk identification, implemented differentiated risk management strategies, and continuously improved the customer mix with its industry-leading technologies and risk management models. However, Ping An Bank's retail asset quality experienced short-term fluctuations as new overdue retail loans increased due to COVID-19-induced unfavorable factors including fluctuations in the external economic environment, shrinking consumer demand, and declining household income. As of June 30, 2020, Ping An Bank's retail non-performing loan ratio increased by 0.37 pps from the beginning of 2020 to 1.56%. With the macroeconomic climate improving, the retail asset quality risk is expected to gradually return to a normal level. Ping An Bank has been customer-oriented since the outbreak of the epidemic. For customers temporarily deprived of income sources or unable to make normal repayments due to the epidemic, Ping An Bank postponed their repayments, reduced or exempted interest charges, and provided credit record protection according to specific circumstances
to minimize the impact of the epidemic on retail customers. Moreover, Ping An Bank developed an epidemic-specific emergency plan in late
50 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
January 2020. Ping An Bank strengthened the monitoring of external developments and review of internal risk management strategies to mitigate epidemic-induced temporary risks. Ping An Bank replenished the loan collection staff in time to handle the workloads. The resumption rate of the collection department has rapidly returned to the pre-epidemic level since March. Moreover, since
2018, Ping An Bank has been enhancing its ability to withstand risks by adopting stricter admission policies, adjusting the retail credit business portfolio, and increasing the proportions of secured loans and credit loans for high-qualitywhite-collar customers.
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 | 0.36 | 0.29 | 0.35 | 0.45 |
Xinyidai unsecured | ||||
loans | 0.15 | 0.17 | 0.20 | 0.16 |
Auto loans | 0.28 | 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 of the 2019 vintage analysis disclosed in the Company's 2019 Annual Report only reflected the quality of loans issued from January to July in 2019. As of June 30, 2020, the vintage period of loans or credit cards issued in 2019 has reached 6 months, that is, the data of 2019 vintage analysis disclosed in the above table reflected the quality of loans issued throughout the year 2019.
CAPITAL ADEQUACY
Ping An Bank continued to refine its capital management. In addition to stable internal sources of capital including retained earnings, Ping An Bank issued undated capital bonds in response to the state's call to diversify banks' sources of capital and pilot the issuance of innovative capital instruments. Ping An Bank received approval in 2019 to issue RMB50 billion worth of undated capital bonds ("perpetual bonds"), of which the first tranche worth RMB20 billion was issued in December 2019. In February 2020, Ping An Bank issued the remaining RMB30 billion worth of undated capital bonds in the China Interbank Bond Market. The funds raised were used to replenish other tier 1 capital. In this way, Ping An Bank further diversified its sources of capital, optimized its capital structure, and enhanced its risk buffer.
(in RMB million) | June 30, | December 31, | Change (%) | |
2020 | 2019 | |||
Capital adequacy ratio | ||||
Net core tier 1 capital | 258,105 | 253,646 | 1.8 | |
Net tier 1 capital | 328,049 | 293,594 | 11.7 | |
Net capital | 403,482 | 368,193 | 9.6 | |
Total risk weighted assets | 2,890,477 | 2,784,405 | 3.8 | |
Core tier 1 capital adequacy | 8.93 | |||
ratio (%) | 9.11 | -0.18 | pps | |
Tier 1 capital adequacy | 11.35 | |||
ratio (%) | 10.54 | 0.81 | pps | |
Capital adequacy ratio (%) | 13.96 | 13.22 | 0.74 | 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
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 51 |
Business Analysis
Asset Management Business
Ping An Securities increased its net profit by 25.0% year on year in the first half of 2020, leveraging on the Group's integrated financial services and technological strength amid challenges brought by the COVID-19 epidemic.
Ping An Financial Leasing achieved healthy growth in developed businesses and breakthroughs in innovative ones. In 2019, Ping An Financial Leasing ranked second by net profit and fifth by total assets in the industry.
Ping An Asset Management maintained steady business growth amid financial market turmoil. As of June 30, 2020, investment assets under management (AUM) stood at RMB3.48 trillion, up 6.4% 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. The investment income of the asset management business declined year on year due to the COVID-19 epidemic and capital market turmoil. Moreover, high incomes were realized in the same period of the previous year due to the exits from some investment projects. As a result, net profit of the asset management business for the first half of 2020 decreased by 14.5% year on year to RMB6,438 million.
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Net profit | |||
Trust business | 1,653 | 1,874 | (11.8) |
Securities business | 1,565 | 1,252 | 25.0 |
Other asset | 3,220 | ||
management business | 4,402 | (26.9) | |
Net profit of asset | |||
management business | 6,438 | 7,528 | (14.5) |
TRUST BUSINESS
The Company provides trust and financing services through Ping An Trust and its subsidiary Ping An New Capital.
Ping An Trust proactively responded to the COVID-19 epidemic, closely followed the regulatory guidance, and strengthened risk management. In the first half of 2020, the COVID-19epidemic had a significant impact on China's economy. Economic and social development faced considerable difficulties while financial regulation was further strengthened. Ping An Trust continued to strengthen risk management by developing differentiated and customized risk management strategies for different industries and customer groups based on factors including industry risks, counterparty strength, internal
and external customer ratings, project risks, and credit enhancements. Furthermore, Ping An Trust selected high-quality customers and assets, and reasonably verified the scales, durations and pricing of investment and financing projects based on the specific characteristics of the projects invested. Ping An Trust also adopted risk management measures including the requirement of guarantees, collateral, pledge, escrow accounts, certificate management, financial indicator monitoring, and cross-default management. Ping An Trust dynamically reviewed and adjusted business strategies on the basis of timely market research by leveraging external information sources including listed companies, bond markets, industry associations and professional information service terminals, as well as in-depth mining of internal data generated during operations.
52 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Ping An Trust adhered to its strategies, ramped up transformation efforts, and focused on its core trust businesses. Ping An Trust continued to focus on its four core businesses, namely special asset investment, infrastructure investment, financial service trusts and private equity investment, to help the real economy achieve high-qualitydevelopment. 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 investment banking services for special assets of enterprises. In infrastructure investment, Ping An Trust followed national strategies and focused on new infrastructure projects, infrastructure, 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 develop smart digital benchmarks for technology applications in the industry. Through technology application, Ping An Trust pioneered the online matching of funds and assets and fully automated product design to improve efficiency and empower businesses. Ping An Trust enabled smart risk management with technologies covering the entire trust business chain and built an industry-leadingrobust, comprehensive risk management system. As of June 30, 2020, Ping An Trust had RMB20,223 million in net capital. The ratio of net capital to total risk capital was 208.8% and the ratio of net capital to net assets was 79.2%, both meeting regulatory requirements (100% and 40% respectively).
Analysis of Profit Sources
Net profit of the trust business for the first half of 2020 dropped by 11.8% year on year because of a year-on-year decrease in the investment income due to a more prudent investment strategy amid rising industry risks.
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Fees and commission revenue | 2,259 | 2,012 | 12.3 |
Monthly average assets | 435,772 | ||
held in trust | 516,154 | (15.6) | |
Fee rate of assets held in | 0.52 | ||
trust(1)(%) | 0.39 | 0.13 pps | |
Fees and commission | (160) | ||
expenses | (75) | 113.3 | |
Net fees and commission | |||
revenue | 2,099 | 1,937 | 8.4 |
Administrative expenses(2) | (513) | (430) | 19.3 |
Total investment income(3) | 293 | 683 | (57.1) |
Other net revenue and | |||
expenses | 262 | 197 | 33.0 |
Profit before tax | 2,141 | 2,387 | (10.3) |
Income tax | (488) | (513) | (4.9) |
Net profit | 1,653 | 1,874 | (11.8) |
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.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 53 |
Business Analysis
Asset Management Business
Assets Held in Trust
In response to macro environment changes and new asset management regulations, Ping An Trust enhanced active management, and adjusted and optimized its business portfolio. As of June 30, 2020, Ping An Trust had RMB431,765 million in assets held in trust, down 2.4% from the beginning of 2020.
June 30, | December | Change | |
(in RMB million) | 2020 | 31, 2019 | (%) |
Investment category | 82,457 | 83,001 | (0.7) |
Capital market investment | 54,732 | 56,879 | (3.8) |
Financial institutions' | 15,523 | ||
investment | 9,652 | 60.8 | |
Other investments(1) | 12,202 | 16,470 | (25.9) |
Financing category | 191,265 | 174,675 | 9.5 |
Infrastructure industry | 26,782 | ||
financing | 20,569 | 30.2 | |
Real estate financing | 119,510 | 116,237 | 2.8 |
Corporate financing | 37,725 | 30,585 | 23.3 |
Pledge and other financing(2) | 7,248 | 7,284 | (0.5) |
Administrative category(3) | 158,043 | 184,932 | (14.5) |
Total | 431,765 | 442,608 | (2.4) |
Notes: (1) Other investments refer to investments other than the above, including structured equity investment, industrial investment, and other investment businesses.
(2) Pledge and other financing refers to financing other than the above, including financing by pledging or acquiring securities, financial assets, and other debts.
(3) 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 the first half of 2020 increased by 12.3 % year on year mainly due to the increased performance fees in the investment category.
For the six months ended June 30 | Change | |||
(in RMB million) | 2020 | 2019 | (%) | |
Fees and commission revenue | 2,259 | 2,012 | 12.3 | |
Investment category | 1,036 | 591 | 75.3 | |
Financing category | 1,101 | 1,195 | (7.9) | |
Administrative category | 122 | 226 | (46.0) | |
Fee rate of assets held in | 0.52 | |||
trust (unannualized, %) | 0.39 | 0.13 | pps | |
Investment category | 1.30 | |||
(unannualized, %) | 0.59 | 0.71 | pps | |
Financing category | 0.60 | |||
(unannualized, %) | 0.66 | -0.06 | pps | |
Administrative category | 0.07 | |||
(unannualized, %) | 0.10 | -0.03 | pps | |
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.
54 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Ping An Securities achieved stable performance growth by leveraging integrated financial services and technological strengths. In the first half of 2020, the COVID-19epidemic dealt a huge blow to the real economy. However, securities companies delivered improved business results, benefiting from increased market activities triggered by capital market reforms including the registration-basedsystem. Ping An Securities achieved RMB1,565 million in
net profit for the first half of 2020, an increase of 25.0% year on year, by leveraging technological advantages and minimizing negative impacts of the epidemic including difficulties in offline outlets' business development and rising credit risk. In the brokerage business, given the difficulty in conducting business through offline outlets, Ping An Securities conducted online digital operations at an accelerated pace by proactively leveraging its internet-based advantages. Ping An Securities strengthened online marketing and customer reach, with the average daily number of customers sourced online increasing sharply. In addition, Ping An Securities achieved a gradual recovery in the average daily number of customers sourced offline by strengthening internal and external cooperation. In the first half of 2020, Ping An Securities' market share in terms of the retail brokerage trading volume (excluding that in the Northbound Stock Connect market) continued to expand steadily by 0.32 pps year on year to 3.47%. In the investment banking business, Ping An Securities conducted the bond business by leveraging advantages
in integrated finance, and followed the state's pandemic response policy for the financial industry to serve the real economy. In the first half of 2020, Ping An Securities remained on top rank in the league table for bonds and asset-backed securities (ABSs) underwritten. Grasping opportunities created by the stock issuance registration system reform, Ping An Securities strengthened internal and external cooperation for the equities business, and developed high-quality customers. Equity projects in the pipeline continued to increase. In the trading business, Ping An Securities enhanced transaction execution efficiency and real-time risk management by enhancing its proprietary bond trading business and upgrading investment systems. In addition, Ping An Securities steadily improved investment performance by employing multiple trading instruments and strategies. In the asset management business, Ping An Securities promoted a transformation toward active asset management and continued to optimize its product portfolio.
Analysis of Profit Sources
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Fees and commission revenue | 3,636 | 2,744 | 32.5 |
Fees and commission expenses | (852) | (577) | 47.7 |
Net fees and commission | 2,784 | ||
revenue | 2,167 | 28.5 | |
Total investment income(1) | 3,245 | 2,948 | 10.1 |
Other revenue(2) | 2,545 | 2,335 | 9.0 |
Revenue | 8,574 | 7,450 | 15.1 |
Administrative expenses(3) | (2,357) | (2,109) | 11.8 |
Cost-to-income ratio(4) (%) | 44.3 | 46.4 | -2.1 pps |
Finance costs | (1,005) | (895) | 12.3 |
Other expenses(5) | (3,253) | (2,907) | 11.9 |
Profit before tax | 1,959 | 1,539 | 27.3 |
Income tax | (394) | (287) | 37.3 |
Net profit | 1,565 | 1,252 | 25.0 |
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
Fees and commission revenue of the securities business for the first half of 2020 rose by 32.5% year on year, benefiting from the year-on-year increase of 37.5% in brokerage fees and commission revenue due to the increased trading volume of the brokerage business.
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Fees and commission revenue | |||
Brokerage business | 2,540 | 1,847 | 37.5 |
Underwriting business | 482 | 452 | 6.6 |
Asset management | |||
business | 270 | 235 | 14.9 |
Others | 344 | 210 | 63.8 |
Total | 3,636 | 2,744 | 32.5 |
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 55 |
Business Analysis
Asset Management Business
OTHER ASSET MANAGEMENT BUSINESS
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 business strengths and scalability. Ping An Financial Leasing has realized its first 5-year strategic goal so far, becoming a leader in the industry and a bellwether of innovation. Going forward, Ping An Financial Leasing will strengthen its main business, enhance technological innovation capabilities, and continue to explore new business models to achieve sustainable development.
Ping An Financial Leasing takes the lead in multiple business lines with continued healthy growth in developed businesses and breakthroughs in innovative businesses. Giving full play to the industry's characteristics of "financing and leasing," Ping An Financial Leasing has become the leader in sectors where it has well-establishedpresence, including engineering, education, culture, manufacturing, processing and public transportation. Moreover, Ping An Financial Leasing enhanced
its presence in innovative sectors including auto finance and microfinance. In 2019, Ping An Financial Leasing ranked second by net profit and fifth by total assets in the industry.
Ping An Financial Leasing facilitated pandemic prevention and containment to fight COVID-19 and fulfill its corporate social responsibilities. The COVID-19epidemic had a significant impact on Ping An Financial Leasing's traditional business lines that rely on offline operations. To ensure normal business activities online, Ping An Financial Leasing quickly developed online smart systems including "Customers Online," "Employees Online" and "Resources Online." In addition, Ping An Financial Leasing took a series of measures to help SMEs overcome difficulties amid the pandemic. Ping An Financial Leasing issued the industry's first pandemic bond with proceeds going into pandemic- affected industries to help them recover. Moreover, Ping An Financial Leasing incepted a special fund to facilitate healthy growth of micro-,small and medium-sizeddistributors.
Ping An Financial Leasing strengthened risk management amid macro headwinds. Affected by macro environment changes and the COVID-19epidemic, Ping An Financial Leasing prudently assessed macro risks and set aside adequate provisions for asset impairment, resulting in a year-on-yeardecline in its net profit for the first half of 2020. As of June 30, 2020, Ping An Financial Leasing's non-performingasset ratio rose slightly from the beginning of 2020, but still below the industry average. To boost business development, Ping An Financial Leasing took multiple measures, including taking advantage of low market interest rates to reduce financing costs and optimize the financing structure. Moreover, Ping An Financial Leasing strengthened risk management by raising qualification requirements for new customers, improving asset quality management mechanisms for existing customers, and strengthening asset monitoring and risk management while increasing risk awareness. As a result, business risks were generally under control.
Results of Operation
For the six months ended June 30 | 2020 | Change | |
(in RMB million) | 2019 | (%) |
Revenue | 9,312 | 9,852 | (5.5) |
Net profit | 1,508 | 2,025 | (25.5) |
(in RMB million) | June 30, | December | Change |
2020 | 31, 2019 | (%) | |
Total assets | 253,376 | 254,684 | (0.5) |
Non-performing asset | 1.28 | 1.10 | 0.18 pps |
ratio (%) |
56 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Ping An Asset Management
Ping An Asset Management is responsible for the 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.
Ping An Asset Management responded to the COVID-19 epidemic and seized market opportunities. In the first half of 2020, despite unprecedented macroeconomic challenges and volatile capital markets due to COVID-19,Ping An Asset Management upheld 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 customers by managing risks and seizing opportunities. In the first half of 2020, the net profit of Ping An Asset Management increased by 2.1% year on year, mainly due to steady AUM growth.
Ping An Asset Management achieved stable growth in the third-party asset management business, and stayed ahead of its peers by alternative investment scale. In the asset management business, Ping An Asset Management leveraged
its advantages in active management to tap into new trends in the industry. Basing its business on expertise and markets, Ping An Asset Management maintained stable growth in the third-party asset management business. In line with the China's major strategies and objective of delivering high-quality economic growth, Ping An Asset Management became an industry leader by alternative investment scale, capable of serving the real economy more effectively.
Ping An Asset Management promoted technological empowerment, and built a smart investment management platform. As one of China's largest asset managers, Ping An Asset Management fully implemented the Group's "finance
- technology" strategy. Combining expert's wisdom with technologies, Ping An Asset Management profiles corporate bonds accurately and thoroughly on its proprietary integrated bond ecosystem platform. Leveraging its end-to-end process for bond investment and risk management on the platform, Ping An Asset Management can anticipate trends, make timely decisions, and take action ahead of others.
Results of Operation
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Net profit | 1,475 | 1,444 | 2.1 |
Revenue from third-party | |||
asset management | 798 | 842 | (5.2) |
June 30, | December | Change | |
(in RMB million) | 2020 | 31, 2019 | (%) |
Assets under management | 3,482,438 | 3,271,630 | 6.4 |
Including: AUM of third- | 386,439 | ||
party asset management | 291,902 | 32.4 | |
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 57 |
Business Analysis
Technology Business
Lufax Holding is a leading technology-empowered personal financial services platform in China. As of June 30, 2020, Lufax Holding achieved a
12.4% year-to-date increase in the balance of retail credit facilitated. Lufax Holding closely monitored the loan portfolio's quality during the COVID-19 epidemic. The online wealth management business recorded steady growth with client assets rising 8.0% year to date.
OneConnect (NYSE: OCFT) is a leading technology-as-a-service platform for financial institutions in China. As of June 30, 2020, OneConnect had served 630 banks and 100 insurance companies. Despite the COVID-19 epidemic, OneConnect's revenue for the first half of 2020 rose by 39.7% year on year.
Ping An Good Doctor (HKSE: 01833.HK) is China's leading online health care services platform. Ping An Good Doctor's revenue amounted to RMB2,747 million in the first half of 2020 driven by a year-on-year increase of 106.8% in the revenue of the online health care business. As operating efficiency improved, Ping An Good Doctor's net loss for the first half of 2020 decreased to RMB213 million.
Ping An HealthKonnect strives to be a smart technology company that fully empowers the health care ecosystem. In the first half of 2020, Ping An HealthKonnect won the bid for the "macro-decision-making big data application system" and "system support software" construction projects for the SHI platform of Qinghai Province.
Autohome (NYSE: ATHM) is China's leading online auto services platform. Autohome's revenue and net profit for the first half of 2020 fell slightly by 1.6% and 1.9% year on year respectively due to the 22.4% year-on-year decline of the domestic passenger vehicle sales. However, revenue from the online marketing business grew by 35.7% year on year driven by the increased online marketing service demands of automakers and auto dealers during the COVID-19 epidemic.
BUSINESS OVERVIEW
The Company conducts its technology business via subsidiaries, associates and jointly controlled entities including Lufax Holding, OneConnect, Ping An Good Doctor, Ping An HealthKonnect, and Autohome. The Company continues to explore innovative fintech and healthtech business models to strengthen its main financial businesses, facilitate industry upgrades, and serve the real economy. The total revenue of the technology business(1) for the first half of 2020 increased by 11.2% year on year to RMB42,732 million.
Note: (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.
LUFAX HOLDING
Lufax Holding is a leading technology-empowered personal financial services platform in China. In the first half of 2020, Lufax Holding rose to the challenge posed by COVID-19 and achieved steady business growth through strategic transformation.
58 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
In retail credit facilitation, Lufax Holding is a leading technology-powered retail credit facilitation platform in China, integrating high-quality resources in the financial services ecosystem. With 16 years of operating experience in retail credit facilitation, Lufax Holding has facilitated loans for 13.43 million small and micro-business owners and retail customers with its O2O loan facilitation services from offline consultation to online application. In addition, Lufax Holding has enabled 58 partner financial institutions to identify borrowers' risks with its increased application of AI in areas including borrower acquisition, customer risk identification and loan management. In the first half of 2020, the credit business of the financial industry was impacted
by the COVID-19 epidemic to different degrees. Capitalizing on its offline-to-online (O2O) service model, Lufax Holding achieved a 12.4% year-to-date increase in the balance of loans under management to RMB519,410 million although it tightened approval standards. As of June 30, 2020, the ratio of loans more than 30 days overdue(1) rose by 0.7 pps year on year to 2.9% due to the COVID-19 epidemic. Lufax Holding closely monitored the asset quality risks in all regions and industries, and adjusted the policies for key regions and industries hardest hit by COVID-19. Furthermore, Lufax Holding proactively applied AI to post-lending services and repayment reminders, effectively mitigating the impact of the epidemic on asset quality. Delinquency rates of Lufax Holding are expected to improve gradually in the second half
of 2020 as the economy returns to normal after the epidemic. In addition, Ping An Consumer Finance Co., Ltd. started business in April 2020 and saw the launch of and drawdown on its first technology-enabled retail revolving consumer credit loan product on June 3, 2020.
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.
In wealth management, Lufax Holding provides the middle class and affluent population with diverse, personalized products and services. Lufax Holding provided 12.78 million active investors with over 8,000 products and personalized financial services through partnerships with over 400 institutions. In the first half of 2020, Lufax Holding continued to grow its client assets by 8.0% year to date despite the COVID-19 epidemic causing short-term disruption to the supply of products sourced offline. Non-peer-to-peer client assets grew strongly by 34.2% year to date owing to the transformation of standard products into NAV-type (net asset value-type) products and the strengthened marketing of smart mutual fund portfolios. At present, over 75% of client assets on Lufax Holding's wealth management platform are from customers who each have over RMB300,000 in client assets.
Number of Users
June 30, | December 31, | Change | |
(in million) | 2020 | 2019 | (%) |
Wealth management | 44.65 | ||
registered investors | 44.02 | 1.4 | |
Active investors(1) | 12.78 | 12.50 | 2.2 |
Accumulated borrowers | 13.43 | 12.37 | 8.6 |
Note: (1) Active investors refer to customers who made an investment or had a positive account balance in the past 12 months.
Assets under Management
June 30, | December 31, | Change | |
(in RMB million) | 2020 | 2019 | (%) |
Balance of retail credit | 519,410 | ||
facilitated | 462,243 | 12.4 | |
Client assets | 374,728 | 346,856 | 8.0 |
Including: Peer-to-peer(1) | 47,796 | 103,303 | (53.7) |
Standard | 197,881 | ||
products(2) | 178,328 | 11.0 | |
B-end | 129,051 | ||
cooperation(3) | 65,225 | 97.9 |
Notes: (1) Peer-to-peer client assets were significantly 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 mutual funds, privately offered funds, and asset management products from insurance asset managers and securities firms.
(3) The B-end cooperation refers to balances of investments made by wealth management customers at partner financial institutions through Lufax Holding's technology-powered system.
Transaction Volume
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
New loans | 284,461 | 227,859 | 24.8 |
Wealth management | 517,450 | 487,327 | 6.2 |
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 59 |
Business Analysis
Technology Business
ONECONNECT
OneConnect (NYSE: OCFT) is a leading technology- as-a-service platform for financial institutions in China. OneConnect provides comprehensive end- to-end solutions for financial institutions including banks, insurers, and investment managers by integrating extensive financial services experience with market-leading technology. OneConnect's solutions enable customers' digital transformations, helping them increase revenues, manage risks, improve efficiency, enhance service quality, and reduce costs. OneConnect was listed on the New York Stock Exchange on December 13, 2019.
In the first half of 2020, OneConnect grew its revenue by 39.7% year on year to RMB1,355 million through its unique volume-based charging schemes despite the impact of COVID-19, which made it temporarily difficult to visit prospective clients onsite. Revenue from operational support services grew strongly
by 162.1% year on year in the first half of 2020 due to customers' growing demands for solutions including smart customer services. As of June 30, 2020, OneConnect had served a total of 630 banks, including 18 major banks and 132 city commercial banks, accounting for 100% and 99% of major banks and city commercial banks respectively in China. In addition, OneConnect had served a total of 100 insurance companies, including 40 life insurers and 52 property and casualty insurers, accounting for 45% and 60% of domestic life insurers and property and casualty insurers respectively. As the customer base expanded rapidly, customer relationships continued to grow and customer quality continued to improve. OneConnect's gross profit margin rose by 7.8 pps year on year in the first half of 2020 due to the optimized business portfolio and increased product value. In addition, as OneConnect strengthened refined expense management, the net loss margin declined by 20.7 pps year on year to 57.4%.
OneConnect upholds a "technology + business" empowerment model, with its technological strengths widely recognized. As of June 30, 2020, OneConnect had filed 4,327 patent applications, of which 945 were filed abroad. OneConnect passed the Capability Maturity Model Integration (CMMI) Level 5 certification, the world's highest level of global software certification. OneConnect's Gamma Lab won the Digital Team of the Year award and the Best Digital Financial Inclusion Project award from The Asset magazine and has won a total of 13 awards. OneConnect's information extraction technology topped the rankings in two subtasks at the International Workshop on Semantic Evaluation (SemEval). OneConnect gave full play to its own cutting-edge technologies, applying them to products and solutions. In the first half of 2020, OneConnect joined forces with Digital Guangxi Group to build the first ASEAN-oriented cross- border digital financial services platform. Meanwhile, OneConnect worked with China Merchants Port to build a blockchain-enabled port logistics network. Moreover, OneConnect accelerated its overseas expansion while implementing multiple new projects. Ping An OneConnect Bank (Hong Kong) Limited started a soft opening to build a virtual banking ecosystem. OneConnect signed a cooperation agreement with Abu Dhabi Global Market (ADGM) to support the development of the ADGM Digital Lab, and collaborated with an Indonesian credit reference agency to launch credit models. As of June 30, 2020, OneConnect had provided services
to or signed cooperation agreements with over 50 overseas institutions in over 15 foreign countries or regions.
60 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Facing the impacts and challenges brought by COVID-19 in the first half of 2020, OneConnect continued to serve customers with its leading technologies and diverse businesses, showing strong resilience. OneConnect responded quickly to the growing demands of the financial industry by helping financial institutions to upgrade their abilities to fight the epidemic, ensure efficient and smooth business operations, and effectively improve online front-, middle- and back-office capabilities. Looking forward, the pandemic will promote the long-term development of the financial industry
by stimulating the industry's demands for cloud solutions and online products. OneConnect will strengthen its research on industry changes and customer needs and upgrade products to lead the industry's development and meet customers' growing business demands.
For the six months ended June 30 | Change | ||
(in RMB million) | 2020 | 2019 | (%) |
Revenue | 1,355 | 970 | 39.7 |
Including: Implementation | |||
revenue | 355 | 220 | 61.3 |
Business | |||
origination | |||
services | 327 | 359 | (8.8) |
Risk management | |||
services | 154 | 180 | (14.3) |
Operational | |||
support services | 452 | 173 | 162.1 |
Post- | |||
implementation | |||
support services | 20 | 21 | (5.4) |
Others | 46 | 18 | 160.6 |
Cost of revenue | (856) | (689) | 24.3 |
Gross profit | 499 | 281 | 77.4 |
Gross profit margin（%） | 36.8 | 29.0 | 7.8 pps |
Net profit | (778) | (758) | 2.7 |
Note: Figures may not match the calculation due to rounding.
For the six months ended June 30 | 2020 | 2019 | Change (%) |
Transaction volume of | |||
retail loans (in RMB | 33.3 | ||
billion) | 32.3 | 3.3 | |
Transaction volume of | |||
SME loans (in RMB | 14.1 | ||
billion) | 18.8 | (24.7) | |
Claims processed via | |||
Smart Quick Claim (in | 2.44 | ||
million) | 1.95 | 25.4 |
Note: Figures may not match the calculation due to rounding.
PING AN GOOD DOCTOR
Ping An Good Doctor (HKSE: 01833.HK), as China's leading online health care services platform,
is committed to building a bridge of effective communication between doctors and patients. Ping An Good Doctor provides users with timely, high-quality online health care services (including
24/7 online consultation, prescription, registration, and 1-hour drug delivery) and health management services (including maternal and child care, mental health, and chronic disease management) through its in-housefull-time medical team and AI-based medical system. Meanwhile, Ping An Good Doctor provides users with a wider range of one- stop health care services through the constantly improving nationwide and worldwide networks of third-party renowned doctors as well as the offline health care network (including hospitals, clinics, checkup centers, and pharmacies).
As of June 30, 2020, Ping An Good Doctor had a total of over 346 million registered users. In the first half of 2020, average daily consultations increased significantly by 26.7% year on year to 831,200 times per day. In June 2020, monthly active users grew by 7.3% year on year to 67.27 million. In the first half of 2020, Ping An Good Doctor's revenue rose by 20.9% year on year to RMB2,747 million, driven by a year-on-year increase of 106.8% in the revenue of the online health care business. Revenue from the online health care business accounted for
25.3% of the total revenue, compared with 14.8% in the same period of 2019. Meanwhile, as operating efficiency improved, net loss for the first half of 2020 decreased to RMB213 million. For products, after launching the "Health 360" membership service in 2018, Ping An Good Doctor rolled out "Ping An Good Doctor VIP Membership," a strategic new product, in August 2019 on the basis of experience in existing membership products and the ever-improving ecosystem. The new product provides users with comprehensive active health care services, including 24/7 one-to-one online consultation with exclusive private doctors, second medical opinions of famous doctors, arrangement of outpatient services of hospitals, health management, and chronic disease management. In the first half of 2020, revenue from member products of Ping An Good Doctor's online health care business exceeded RMB0.42 billion, up over 200% year on year.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 61 |
Business Analysis
Technology Business
In early 2020, the sudden outbreak of COVID-19 significantly raised the public's awareness and acceptance of online health care, laying a solid foundation for the sustainable, rapid future development of the online health care industry. Ping An Good Doctor's online platform was accessed over 1.11 billion times during the three- week peak of the COVID-19 epidemic from January
20 to February 10, 2020. Since the outbreak, the Chinese government has promulgated policies to encourage the development of internet-based health care, and accelerate the local SHI co-payment for internet-based health care.
In the ecosystem network, as of June 30, 2020, Ping An Good Doctor expanded its in-house medical team by 427 members to 1,836 members year to date, providing users with diverse online health care services. In addition, Ping An Good Doctor continued to develop its offline ecosystem network by increasing partner hospitals by nearly 400 from the beginning of 2020 to over 3,700 hospitals which included nearly 2,000 tier 3 hospitals, and expanding partner pharmacies by over 17,000 from the beginning of 2020 to over 111,000. In addition, Ping An Good Doctor continued to improve its service network which covered over 53,000 health care service providers, including over 160 medical cosmetic institutions, 430 traditional Chinese medicine clinics, nearly 1,800 dental clinics, over 2,000 checkup centers, and over 49,000 clinics.
For technologies, Ping An Good Doctor continued to improve its AI-based medical system on the basis of nearly 825 million entries of consultation data and the expertise of its in-house medical team. In April 2020, Ping An Good Doctor's AI-based medical system received the highest level of certification by WONCA, the world's largest family physician organization, symbolizing the alignment of China's AI health technology with international standards and that Ping An Good Doctor's AI-based medical system has reached the world's highest level of AI health technology.
In respect of international expansion, Ping An Good Doctor has set up joint ventures to offer online health care services in Indonesia and Japan in cooperation with international partners, leveraging diverse local resources, cutting-edge AI, and advanced online health care platform experience. In March 2020, Ping An Good Doctor's online platform was designated by the Indonesian government
as the official online health care platform for fighting COVID-19, providing health care services for Indonesian residents during the epidemic. Ping An Good Doctor's joint venture established with SoftBank Group Corp. officially launched HELPO, an online health care service platform, in the first half of 2020. HELPO provides some corporate customers with a full range of services from online health consultation to same-day delivery of over-the- counter (OTC) medicines, widely praised by users.
June 30, | December 31, | Change (%) | |
2020 | 2019 | ||
Registered users (in million) | 346.21 | 315.23 | 9.8 |
Consultations (in million) | 824.91 | 673.76 | 22.4 |
For the six months ended June 30 | |||
(in RMB million) | 2020 | 2019 | Change (%) |
Revenue | 2,747 | 2,273 | 20.9 |
Including: Revenue of | |||
online health care | |||
business | 695 | 336 | 106.8 |
Cost | (1,925) | (1,781) | 8.1 |
Gross profit | 822 | 492 | 67.1 |
Net profit | (213) | (274) | (22.1) |
Note: Figures may not match the calculation due to rounding.
62 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
PING AN HEALTHKONNECT
Ping An HealthKonnect strives to be a technology company that fully empowers the health care ecosystem with focus on social health insurance (SHI). Through the provision of software and services, Ping An HealthKonnect promotes
the co-development of SHI, health care and medicine to lower medical costs, improve service experiences and increase insurance coverage. Ping An HealthKonnect empowers Healthcare Security Administrations by developing the Smart SHI Integrated Platform centering around a smart SHI system. Starting from SHI, Ping An HealthKonnect also provides integrated medical management solutions covering hospitals, doctors, pharmacies, and insured members. Moreover, Ping An HealthKonnect empowers commercial insurers in terms of insurance product design, risk management, and marketing channels. In the first half of 2020, Ping An HealthKonnect won the bid for the "macro-decision-making big data application system" and "system support software" construction projects for the SHI platform of Qinghai Province. As of June 30, 2020, Ping An HealthKonnect had won platform construction project bids in multiple provinces.
Amid the COVID-19 epidemic, Ping An HealthKonnect and Ping An Healthcare Diagnostics Center went all out to prevent and control the epidemic, giving full play to their value and advantages as third-party health care providers to support the resumption of work and production. During the COVID-19 epidemic, Ping An HealthKonnect and Ping An Healthcare Diagnostics Center dispatched to Wuhan a 5G-powered vehicle equipped with a mobile 64-slice CT scanner, screening over 13,000 people and alleviating the local urgent need for CT equipment. Moreover, Ping An HealthKonnect performed nucleic acid tests on over 450,000 samples for COVID-19. Ping An HealthKonnect assisted the National Health Commission Capacity Building and Continuing Education Center in providing training on epidemic prevention and control, and helped municipal
SHI bureaus to provide services through mobile devices. Ping An Healthcare Diagnostics Center co-establishes regional healthtech platforms with leading hospitals in counties and districts covered by the existing regional medical unions through various operational practices. These platforms aim to strengthen regional healthtech service capabilities and support tiered diagnosis and treatment mechanisms by empowering primary medical institutions with expert resources, remote medical collaboration networks, education and training.
AUTOHOME
Autohome (NYSE: ATHM), as China's leading online auto services platform, 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 across the entire auto lifecycle.
In the first half of 2020, Autohome's business grew steadily and its revenue slightly declined by 1.6% year on year to RMB3,860 million due to the 22.4% year-on-year decline of the domestic passenger vehicle sales as the COVID-19 epidemic posed challenges to the auto industry, impacting the operations of automakers and auto dealers. Autohome's revenue from the online marketplace business for the first half of 2020 grew strongly by 35.7% year on year to RMB850 million due to higher demand for online marketing services from changing marketing approaches and ongoing digital transformation of automakers and dealers amid the epidemic. Autohome's net profit(1) was RMB1,527 million, down 1.9% year on year.
Autohome strengthened its leading role among auto service apps in China through diverse channels and high-quality contents. In June 2020, Autohome's average daily active users on mobile devices(2) reached 38 million. In the data business, Autohome is committed to empowering automakers and dealers in terms of R&D, marketing and conversion. In the first half of 2020, over 17,000 dealers purchased data products from Autohome. In auto dealing, Autohome created strategic synergies with partners. In auto finance, Autohome proactively facilitated financial transactions including lending, financial leasing and insurance services for consumers and dealers.
For the six months ended June 30 | |||
(in RMB million) | 2020 | 2019 | Change (%) |
Revenue | 3,860 | 3,921 | (1.6) |
Including: Revenue of | |||
online marketplace | |||
business | 850 | 626 | 35.7 |
Net profit | 1,527 | 1,556 | (1.9) |
Notes: (1) Net profit refers to the non-GAAP adjusted net profit of Autohome.
(2) Average daily active users on mobile devices include those on mobile webpages, apps and mini-programs.
(3) Figures may not match the calculation due to rounding.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 63 |
Analysis of Embedded Value
Life & Health insurance business achieved an annualized operating ROEV of 18.7% in the first half of 2020. Life and Health Embedded Value rose by 6.3% from the beginning of the 2020.
Life & Health's NBV declined 24.4% year on year to RMB31,031 million, adversely impacted by the COVID-19 epidemic, including difficulties in offline operations.
KEY INDICATORS
For the | For the | ||
six months | six months | ||
ended June | ended June | ||
30, 2020/ | 30, 2019/ | ||
As of June As of December | |||
(in RMB million) | 30, 2020 | 31, 2019 | Change(%) |
L&H EV | 805,374 | 757,490 | 6.3 |
L&H operating ROEV (annualized, %) | 18.7 | 28.4 | -9.7 pps |
L&H value of first half year' s new business after cost of | 31,031 | ||
capital (NBV) | 41,052 | (24.4) | |
Long-run investment return assumption (%) | 5.0 | 5.0 | - |
Risk discount rate (%) | 11.0 | 11.0 | - |
ANALYSIS OF EMBEDDED VALUE
The Company has disclosed information regarding embedded value (EV) in this section in order to provide investors with an additional tool to understand our economic value and business performance results.
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 June 30, 2020.
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 interim embedded value for 2020 in accordance with the Standards and China Risk Oriented Solvency System (C-ROSS).
64 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Components of Economic Value
(in RMB million) | June 30, | December 31, |
2020 | 2019 | |
L&H adjusted net asset value (ANA) | 294,010 | 267,553 |
Value of in-force insurance business before cost of capital | 553,256 | 528,875 |
Cost of capital | (41,892) | (38,938) |
L&H EV | 805,374 | 757,490 |
Other business ANA | 451,717 | 443,043 |
Group EV | 1,257,092 | 1,200,533 |
(in RMB million) | June 30, | December 31, |
2020 | 2019 | |
Value of one year' s new business | 78,689 | 90,191 |
Cost of capital | (12,766) | (14,246) |
Value of one year' s new business after cost of capital | 65,923 | 75,945 |
Value of first half year' s new business after cost of capital | 31,031 | 41,052 |
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 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 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.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 65 |
Analysis of Embedded Value
Key Assumptions
The assumptions used in the interim embedded value calculation in 2020 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.
66 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
New Business Value
The new business volumes measured by first year premium (FYP) and its new business value by segment for the first half of the year are:
FYP used to calculate | |||||||
For the six months ended June 30 | New Business Value | New Business Value | |||||
(in RMB million) | 2020 | 2019 | Change (%) | 2020 | 2019 | Change (%) | |
Retail business | 63,760 | 73,692 | (13.5) | 30,931 | 40,797 | (24.2) | |
Agency | 50,229 | 61,472 | (18.3) | 27,705 | 36,197 | (23.5) | |
Long-term protection | 16,281 | 25,419 | (35.9) | 16,999 | 24,727 | (31.3) | |
Protection & Saving hybrid | 7,387 | 4,090 | |||||
(long-PPP) | 5,109 | 44.6 | 3,257 | 25.6 | |||
Protection & Saving hybrid | 23,756 | 5,003 | |||||
(short-PPP) | 27,593 | (13.9) | 6,752 | (25.9) | |||
Short-term | 2,805 | 3,351 | (16.3) | 1,613 | 1,461 | 10.4 | |
Tele, internet and others | 7,967 | 8,307 | (4.1) | 2,298 | 3,867 | (40.6) | |
Bancassurance | 5,564 | 3,913 | 42.2 | 928 | 733 | 26.5 | |
Group business | 20,788 | 18,217 | 14.1 | 100 | 256 | (60.9) | |
Total | 84,548 | 91,908 | (8.0) | 31,031 | 41,052 | (24.4) | |
Notes: (1) | Figures may not match the calculation due to rounding. | ||||||
(2) "PPP" stands for Premium Payment Period. | |||||||
(3) | Long-term protection products cover whole-life, term life, critical illness and long-term accident insurance. Protection & Saving | ||||||
products (long-PPP) cover endowment and annuity products with PPP of 10 years and above. Protection & Saving products | |||||||
(short-PPP) cover endowment and annuity products with PPP below 10 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 (%) | ||||||
For the six months ended June 30 | 2020 | 2019 | 2020 | 2019 | |||
Retail business | 48.5 | 55.4 | 53.8 | 57.0 | |||
Agency | 55.2 | 58.9 | 62.7 | 61.1 | |||
Long-term protection | 104.4 | 97.3 | 104.5 | 97.0 | |||
Protection & Saving hybrid (long-PPP) | 55.4 | 63.7 | 55.3 | 63.3 | |||
Protection & Saving hybrid (short-PPP) | 21.1 | 24.5 | 28.3 | 26.9 | |||
Short-term | 57.5 | 43.6 | 57.6 | 43.6 | |||
Tele, internet and others | 28.8 | 46.5 | 29.5 | 44.9 | |||
Bancassurance | 16.7 | 18.7 | 17.8 | 19.5 | |||
Group business | 0.5 | 1.4 | 0.6 | 1.7 | |||
Total | 36.7 | 44.7 | 41.7 | 47.4 |
Notes: (1) ANP (Annualized new premium) is calculated as the sum of 100 percent of annualized first year premiums and 10 percent of single premiums.
(2) Figures may not match the calculation due to rounding.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 67 |
Analysis of Embedded Value
Embedded Value Movement
The table below shows how the Company's embedded value changed from the opening balance of RMB1,200,533 million as of December 31, 2019 to the closing balance of RMB1,257,092 million as of June 30,
2020.
(in RMB million) | 2020 | Note | |
L&H Opening EV | [1] | 757,490 | |
Expected return on opening EV | [2] | 32,254 | |
Including: Unwinding of in-force | 27,355 | In-force and NBV unwind at the 11% risk | |
value | discount rate | ||
ANA return | 4,899 | ||
NBV post-risk diversification benefits | [3] | 36,342 | |
Including: NBV pre-risk diversified | 31,031 | Reported NBV based on a cost of capital | |
calculated at policy level | |||
Diversification effects | 2,812 | Diversification within new business lowers cost | |
within new business | of capital | ||
Diversification effects | 2,498 | Diversification between new business and in- | |
with in-force | force lowers cost of capital | ||
Operating assumptions and model | [4] | 713 | |
changes | |||
Operating variances and others | [5] | 1,688 | Favorable operating experience mainly from |
variance in mortality spread gain | |||
L&H EV operating profit | [6]=[2+...+5] | 70,996 | |
Economic assumptions changes | [7] | - | |
Market value adjustment | [8] | 1,577 | Change in market value adjustment of free |
surplus during the Reporting Period | |||
Investment return variance | [9] | (11,394) | Lower than assumed investment return |
Non-operatingone-off item | [10] | - | |
L&H EV profit | [11]=[6+...+10] | 61,179 | |
Shareholder dividends | (11,739) | Dividends upstreamed from Ping An Life to the | |
Company | |||
Employee stock ownership plan | (1,556) | 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 | |||
L&H Closing EV | 805,374 | ||
68 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
(in RMB million) | 2020 | Note |
Other business opening ANA | 443,043 | |
Operating profit of other business | 23,183 | |
Market value adjustment and other | 1,068 | |
variance | ||
Other business closing ANA before | 467,295 | |
capital changes | ||
Dividends received | 11,739 | Dividends received from Ping An Life |
Dividends paid | (23,673) | Dividends paid by the Company to shareholders |
Employee stock ownership plan | (2,649) | 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 | (994) | Repurchase of A shares of Ping An Group |
Other business closing ANA | 451,717 | |
Group EV | 1,257,092 | |
Group EV per share (in RMB) | 68.77 | |
Note: Figures may not match the calculation due to rounding. |
EV operating profit of L&H in the first half of 2020 was RMB70,996 million, mainly comprised of NBV and expected return on opening EV.
For the six months ended June 30 | |||
(in RMB million) | 2020 | 2019 | |
L&H EV operating profit | [6] | 70,996 | 87,117 |
L&H operating ROEV (unannualized, %) | [12]=[6]/[1] | 9.4 | 14.2 |
L&H operating ROEV (annualized, %) | [13]=[12] x 2 | 18.7 | 28.4 |
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
- 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
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 69 |
Analysis of Embedded Value
Sensitivity to investment return and risk discount rate changes
(in RMB million) | Group EV | L&H EV | NBV |
Investment return and risk discount rate increased by 50 bps | |||
per annum | 1,306,666 | 854,948 | 70,160 |
Base case | 1,257,092 | 805,374 | 65,923 |
Investment return and risk discount rate decreased by 50 bps | |||
per annum | 1,202,415 | 750,697 | 61,129 |
Sensitivity to other assumptions | Group EV | L&H EV | NBV |
(in RMB million) | |||
Base case | 1,257,092 | 805,374 | 65,923 |
10% increase in mortality, morbidity and accident rates | 1,232,741 | 781,024 | 60,396 |
10% increase in policy discontinuance rates | 1,248,279 | 796,562 | 63,582 |
10% increase in maintenance expenses | 1,253,717 | 802,000 | 65,372 |
5% increase in the policyholders' dividend payout ratio | 1,247,447 | 795,730 | 65,798 |
10% decrease in fair value of equity assets | 1,235,222 | 788,978 | N/A |
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 June 30, 2020.
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 used 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 long-run investment return assumption, net of the associated 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
- The impact of one-offnon-operating items is the impact of material items that management considered to be non-operating incomes and expenses, which in the first half of 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 the significant accounting policies in the notes of the Company's 2019 Annual Report for the information about the discount rate.
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.
70 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
The Group operating profit after tax attributable to shareholders of the parent company in the first half of 2020 was RMB74,310 million, which was up 1.2% year on year. Meanwhile, due to the slowdown of new business growth and fluctuation of policy persistency ratios caused by the decline of customer visits during the epidemic, the L&H operating profit after tax attributable to shareholders of the parent company was RMB51,127 million, which was up 6.6% year on year.
Operating profit after tax attributable to shareholders of the parent company
For the six months ended June 30 | |||
(in RMB million) | 2020 | 2019 | Change (%) |
Life and health insurance business | 51,127 | 47,958 | 6.6 |
Property and casualty insurance business | 8,234 | 9,990 | (17.6) |
Banking business | 7,927 | 8,934 | (11.3) |
Asset management business | 5,831 | 6,983 | (16.5) |
Including: Trust business | 1,651 | 1,871 | (11.8) |
Securities business | 1,509 | 1,199 | 25.9 |
Other asset management business | 2,671 | 3,913 | (31.7) |
Technology business | 3,438 | 2,802 | 22.7 |
Other businesses and elimination | (2,247) | (3,202) | (29.8) |
The Group | 74,310 | 73,464 | 1.2 |
Note: Figures may not match the calculation due to rounding. | |||||
The Group | L&H business | ||||
For the six months ended June 30 | |||||
(in RMB million) | 2020 | 2019 | 2020 | 2019 | |
Net profit | [1] | 75,968 | 105,738 | 45,888 | 71,029 |
Excluding: | |||||
Short-term investment variance of L&H(1) | [2] | (1,987) | 13,000 | (1,987) | 13,000 |
Impact of discount rate change of L&H(1) | [3] | (3,660) | 999 | (3,660) | 999 |
Impact of one-off material non-operating | - | - | |||
items | [4] | 10,453 | 8,597 | ||
Operating profit after tax | [5]=[1-2-3-4] | 81,615 | 81,286 | 51,535 | 48,433 |
Attributable to: | |||||
- Owners of the parent | 74,310 | 73,464 | 51,127 | 47,958 | |
- Non-controlling interests | 7,305 | 7,822 | 408 | 475 |
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.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 71 |
Analysis of Embedded Value
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:
For the six months ended June 30 | ||||
(in RMB million) | 2020 | 2019 | Note | |
Release of residual margin | [1] | 40,342 | 35,840 | |
Return on net worth(1) | [2] | 6,261 | 5,216 | |
Spread income (2) | [3] | 2,791 | 1,628 | Spread charges in 2019 were |
lowered in response to volatile | ||||
capital markets in 2018 | ||||
Operating variances and others | [4] | 9,890 | 12,219 | Strategically increased |
investment in technology and | ||||
agents team building, and | ||||
fluctuation of the persistency | ||||
ratio | ||||
L&H operating profit before tax | [5]=[1+2+3+4] | 59,284 | 54,903 | |
Income tax | [6] | (7,749) | (6,470) | |
L&H operating profit after tax | [7]=[5]+[6] | 51,535 | 48,433 |
Notes: (1) Return on net worth is the investment return on shareholder equity based on the EV long-run investment return assumption (5%).
(2) Spread income is the expected investment return from assets backing contract liability based on the EV long-run investment return assumption (5%) exceeding the interest required on contract liability.
(3) Figures may not match the calculation due to rounding.
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 June 30, 2020, residual margin of life and health insurance business was RMB962,333 million, which rose by 4.8% from the beginning of 2020 mainly due to the contribution from new business. The movement of L&H residual margin has been presented below:
(in RMB million) | June 30, 2020 | June 30, 2019 | Note | |
Opening residual margin | [1] | 918,416 | 786,633 | |
Contribution from new business | [2] | 59,354 | 87,318 | |
Expected interest growth | [3] | 18,034 | 16,350 | |
Release of residual margin | [4] | (40,342) | (35,840) | |
Lapse variances and others | [5] | 6,872 | 12,929 | Volatility in policy persistency |
resulted in lower lapse | ||||
variances and others | ||||
Closing residual margin | [6]=[1+...+5] | 962,333 | 867,390 |
Note: Figures may not match the calculation due to rounding.
72 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Appendix
The differences between FYP used to calculate value of new business and FYP disclosed in MD&A are explained below.
For the six months ended | FYP used to | |||
June 30, 2020 | calculate value | FYP disclosed | ||
(in RMB million) | of new business | in MD&A | Difference | Reasons |
Retail business | 63,760 | 79,239 | (15,480) | 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 | 20,788 | 15,649 | 5,139 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 | 84,548 | 94,888 | (10,340) |
Note: Figures may not match the calculation due to rounding.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 73 |
Liquidity and Capital Resources
As of June 30, 2020, the Group's core and comprehensive solvency margin ratios were both significantly above regulatory requirements.
As of June 30, 2020, free cash of the parent company amounted to RMB41,938 million, 51.0% more than a year ago.
The Board of Directors proposed to pay an interim dividend of RMB0.80 per share in cash for 2020, an increase of 6.7% year on year.
OVERVIEW
Liquidity refers to the availability of cash assets or cash supply to meet the financing 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 at the Group level. The Budget Management Committee, the Risk Management Executive Committee, and the Investment Management Committee under the Group Executive Committee oversee 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 Board of Directors of the Group 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 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 subsidiaries are therefore able to monitor cash flows on a day-today basis.
(in RMB million) | June 30, | December 31, | Change (%) |
2020 | 2019 | ||
Total assets | 8,848,631 | 8,222,929 | 7.6 |
Total liabilities | 7,926,460 | 7,370,559 | 7.5 |
Total liabilities to total | 89.6 | ||
assets ratio (%) | 89.6 | - |
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 June 30, 2020, the Group's equity attributable to shareholders of the parent company was RMB701,972 million, up 4.3% from the beginning of 2020. The parent company's capital mainly comprises contributions from shareholders as well as proceeds from issuance of A and H shares.
74 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
The following table shows the balances of capital bonds issued by the Group and main subsidiaries as of June 30, 2020:
Par value | Issuance | |||||
Issuer | Type | (in RMB million) | Coupon rate | year | Maturity | |
Ping An Life | Capital supplement bonds | 5,000 | First 5 years: 3.90% | 2015 | 10 | years |
Next 5 years: 4.90% | ||||||
(If not redeemed) | ||||||
Ping An Life | Capital supplement bonds | 10,000 | First 5 years: 3.82% | 2016 | 10 | years |
Next 5 years: 4.82% | ||||||
(If not redeemed) | ||||||
Ping An Life | Capital supplement bonds | 20,000 | First 5 years: 3.58% | 2020 | 10 | years |
Next 5 years: 4.58% | ||||||
(If not redeemed) | ||||||
Ping An Property & Casualty | Capital supplement bonds | 5,000 | First 5 years: 4.79% | 2015 | 10 | years |
Next 5 years: 5.79% | ||||||
(If not redeemed) | ||||||
Ping An Property & Casualty | Capital supplement bonds | 3,500 | First 5 years: 5.10% | 2017 | 10 | years |
Next 5 years: 6.10% | ||||||
(If not redeemed) | ||||||
Ping An Property & Casualty | Capital supplement bonds | 10,000 | First 5 years: 4.64% | 2019 | 10 | years |
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 | ||||||
Ping An Bank | Undated capital bonds | 30,000 | First 5 years: 3.85% | 2020 | Undated | |
Adjusted every 5 years | ||||||
FREE CASH OF THE PARENT COMPANY
Free cash of the parent company includes bonds, equity securities, bank deposits and cash equivalents that the parent company holds. Free cash of the parent company is mainly invested in subsidiaries or used in daily operations or for dividend distribution. As of June 30, 2020, free cash of the parent company amounted to RMB41,938 million, 51.0% more than a year ago.
(in RMB million) | June 30, | June 30, | Change (%) |
2020 | 2019 |
MANAGEMENT DISCUSSION AND ANALYSIS
Opening balance of free cash Dividend from subsidiaries Dividend paid out to shareholders Share repurchase
Investments in subsidiaries(1) Others(2)
45,068 | 42,010 | 7.3 |
22,081 | 15,606 | 41.5 |
(23,673) | (20,108) | 17.7 |
(994) | (3,421) | (70.9) |
- (13,887) N/A
(544) 7,578N/A
Closing balance of free cash | 41,938 | 27,778 | 51.0 |
Notes: (1) The Company's investments in subsidiaries in the first half of 2019 include the RMB1,000 million capital injection into subsidiaries and the RMB12,887 million subscription for convertible bonds issued by Ping An Bank.
(2) Others mainly include short-term borrowings.
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 75 |
Liquidity and Capital Resources
The major free cash outflows were the dividend of RMB23,673 million to A and H shareholders, and repurchase of RMB994 million worth of the Company's A shares. The major free cash inflows were the dividends of RMB22,081 million from subsidiaries as detailed below:
For the six months ended June 30 | |
(in RMB million) | 2020 |
Ping An Life | 19,739 |
Ping An Bank | 2,097 |
Ping An Securities | 246 |
Total | 22,081 |
Note: Figures may not match the calculation due to rounding. |
DIVIDEND DISTRIBUTION
According to Article 216 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 our prospect, the Board of Directors proposed to pay an interim dividend of RMB0.80 per share in cash for 2020, an increase of 6.7% year on year.
Dividend payouts of the parent company are decided according to the increase in the Group's operating profit attributable to shareholders of the parent company. The Company's cash dividends and cash dividend payout ratios computed on the basis of operating profit attributable to shareholders of the parent company for the past three years are shown in the table below.
Cash dividend | ||||||
payout ratio based | ||||||
Cash dividend | on net profit | |||||
payout ratio based | attributable to | |||||
on operating profit | Share | shareholders of the | ||||
Cash dividend | Growth of cash | Cash dividend | 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 | 37,340 | 28.1 | 5,001 | 28.3 |
2018 | 1.72 | 14.7 | 31,442 | 27.9 | - | 29.3 |
2017 | 1.50 | 100.0 | 27,420 | 29.0 | - | 30.8 |
Note: Cash dividend per share includes the interim dividend and final dividend for the year. Pursuant to the Detailed Rules for Implementation of Share Repurchase by Listed Companies promulgated by the SSE, the Company's A shares in the Company's repurchased securities account are not entitled to dividend distribution.
76 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
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 the capital adequacy of regulated member companies satisfies 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 an insurance group were a single reporting entity. The group solvency margin ratios are important regulatory measures for assessing an insurance group's capital adequacy.
In September 2017, the former China Insurance Regulatory Commission released the Development Plan for the China Risk Oriented Solvency System (C-ROSS)Phase II Project, planning to upgrade the C-ROSS in about three years so that it will match China's market reality and risk prevention requirements. Since the commencement of the C-ROSS Phase II project, Ping An has led and engaged in multiple studies of the Phase II project, and actively participated in joint industry tests to prepare for the project implementation. Under the C-ROSS Phase II project, we expect the solvency risk measurement to be more rational and effective, which will have a positive impact on the overall solvency margin assessment and management of the Group.
The following table shows the solvency data of the Group under C-ROSS:
(in RMB million) | June 30, | December 31, | Change (%) | |
2020 | 2019 | |||
Core capital | 1,659,155 | 1,574,150 | 5.4 | |
Actual capital | 1,708,655 | 1,607,650 | 6.3 | |
Minimum capital | 740,317 | 699,522 | 5.8 | |
Core solvency margin ratio (%) | 224.1 | 225.0 | -0.9 | pps |
Comprehensive solvency margin ratio (%) | 230.8 | 229.8 | 1.0 | pps |
Notes: (1) | Core solvency margin ratio = core capital / minimum capital; comprehensive solvency margin ratio = actual capital / minimum |
capital. | |
(2) | The minimum regulatory 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 showing the 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 June 30, 2020 are disclosed below:
Comprehensive solvency margin ratio | |||
Ping An Property & | |||
Ping An Group | Ping An Life | Casualty | |
Base case | 230.8% | 231.8% | 241.3% |
50 bps decline in interest rate | 223.5% | 217.9% | 241.8% |
30% decrease in fair value of equity assets | 220.7% | 216.2% | 237.1% |
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 77 |
Liquidity and Capital Resources
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, 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
For the six months ended June 30 | |||
(in RMB million) | 2020 | 2019 | Change (%) |
Net cash flows from | 130,740 | ||
operating activities | 181,853 | (28.1) | |
Net cash flows from | (231,270) | ||
investing activities | (122,956) | 88.1 | |
Net cash flows from | 149,800 | ||
financing activities | (65,447) | N/A | |
Net cash inflows from operating activities decreased year on year mainly due to the year-on-year increases in cash outflows driven by the increases in Ping An Bank's lending and advancing.
Net cash outflows from investing activities increased year on year mainly due to the year-on- year increases in cash outflows from Ping An Life's investing activities.
Net cash inflows from financing activities increased year on year mainly due to the year-on-year increases in cash inflows driven by the increases in Ping An Life's sales of assets under agreements to repurchase.
CASH AND CASH EQUIVALENTS
(in RMB million) | June 30, | December 31, | Change (%) |
2020 | 2019 | ||
Cash | 265,547 | 208,953 | 27.1 |
Bonds of original maturities | |||
within 3 months | 795 | 5,269 | (84.9) |
Financial assets purchased | |||
under reverse | |||
repurchase agreements | |||
of original maturities | 87,592 | ||
within 3 months | 89,244 | (1.9) | |
Total | 353,934 | 303,466 | 16.6 |
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.
78 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Sustainability
In the first half of 2020, Ping An donated over RMB122 million in cash and over RMB53 million worth of various supplies to combat COVID-19.
As of June 30, 2020, Ping An had implemented Ping An Rural Communities Support in 21 provinces and autonomous regions across China. Ping
An provided RMB24,905 million for industrial poverty alleviation, built or upgraded 949 rural clinics and 1,054 rural schools, and trained 11,175 village doctors and 13,987 village teachers.
As of June 30, 2020, Ping An's responsible investment amounted to RMB1.18 trillion. The balances of inclusive loans and green loans were RMB1,249,593 million and RMB22,667 million respectively.
Ping An introduced a CN-ESG smart evaluation framework with Chinese characteristics, and built an AI-ESG smart management platform for ESG performance management and responsible investment risk management.
MANAGEMENT DISCUSSION AND ANALYSIS
PHILOSOPHY AND MANAGEMENT OF SUSTAINABLE DEVELOPMENT Sustainable Development Philosophy Driven by the sustainability strategy, Ping An integrates the core philosophies and standards of ESG into corporate management, and builds a scientific, professional sustainability management framework based on business practices. Ping An influences society through financial services and technologies, and creates value with expertise for its shareholders, customers, employees, communities, environments, and partners. Ping An seeks to boost both business values and social values and realize people's dreams for a better life.
In respect of the environment, Ping An employs leading technologies to enable environmental protection and governance to facilitate an environment-friendly business ecosystem. In respect of society, Ping An adheres to the philosophy
of responsible investment, takes serving the real economy as the starting point and foothold of its business development, empowers small and medium-sized enterprises, promotes social and economic development with integrated financial services, and pursues long-term healthy, sustainable development of itself and society. In respect
of governance, Ping An continues to improve corporate governance and risk management to ensure steady development.
Amid the COVID-19 epidemic, Ping An gave full play to insurance protection and contributed to the fight against COVID-19 by quickly providing insurance services, claims services, financial services, medical support, and charitable donations. In 2020, as China is in the final push to eradicate poverty, Ping An is increasing its efforts in poverty alleviation, focused on poverty-stricken areas in Tibet, Xinjiang, Sichuan, Yunnan, Gansu, and Qinghai. Through Ping An Rural Communities Support, the Company alleviates poverty by promoting industries, health care, and education in rural areas.
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 79 |
Sustainability
Sustainable Development Management
Having integrated sustainability into its development strategy, Ping An builds and practices a scientific, professional corporate sustainability management framework and a clear, transparent ESG governance structure. The Board of Directors of the Group has oversight of all ESG issues. The Investor Relations and ESG Committee under the Group Executive Committee is responsible for daily ESG work.
Level 1 (L1): The Board of Directors has oversight of all ESG issues.
Level 2 (L2): The Investor Relations and ESG Committee, along with other committees, is responsible for identifying ESG risks, setting objectives, formulating plans and policies, and appraising performance.
Level 3 (L3): The Group ESG Office and other functional centers of the Group act as task forces for the coordination of sustainability initiatives within and outside the Group.
Level 4 (L4): The matrix consisting of the Group's functional units and member companies is responsible for ESG execution.
Ping An's overall ESG work plan is governed by clear management objectives, clear responsibilities and appraisal mechanisms, and continuous improvements in the management of ESG issues and risks. Regular reporting to directors and senior executives on ESG risk management, objectives, plans, implementation and progress ensures the effectiveness of ESG management.
Board of Directors
ESG Oversight | L1 | ||||||||||||||||||
Group Executive Committee | |||||||||||||||||||
- ESG Risk Identification | |||||||||||||||||||
- Planning | Risk | Investor | Investment | Technology | |||||||||||||||
- Goal Setting and Policy | Management | Relations | L2 | ||||||||||||||||
Making | Management | Development | |||||||||||||||||
Executive | and ESG | ||||||||||||||||||
- Performance Assessment | Committee | Committee | |||||||||||||||||
Committee | Committee | ||||||||||||||||||
Group ESG Office | |||||||||||||||||||
- Group Level Execution | Authorization | L3 | |||||||||||||||||
- Internal and External | |||||||||||||||||||
Sustainability Initiatives | |||||||||||||||||||
Management | |||||||||||||||||||
ESG Task Forces (CSR/IR/PR/Group Functional Representatives) | |||||||||||||||||||
Group Functional Units | |||||||||||||||||||
Branding Board HR Finance | Planning Asset | Internal | Procurement Others | ||||||||||||||||
& PR | Office | Management | Control | ||||||||||||||||
Execution Matrix | L4 | ||||||||||||||||||
Member companies | Insurance | ||||||||||||||||||
Investment | Ping An Group Execution Matrix | ||||||||||||||||||
Banking | |||||||||||||||||||
Technology | |||||||||||||||||||
ESG Governance Structure
Sustainable Development Recognition
Ping An's achievements in sustainability have been globally recognized. So far, Ping An is the only financial company from the Chinese mainland to be selected for the Dow Jones Sustainability indices (DJSI), and also the first Chinese mainland insurance company in the indices. Ping An received an A+ rating in Hang Seng's sustainability assessment and was included in Hang Seng Corporate Sustainability Benchmark Index. Furthermore, Ping An received an A rating in the MSCI ESG assessment, which made it a leader both at home and abroad in ESG. In addition, Ping An received a B+ rating in Refinitiv's ESG assessment and a B rating in the Carbon Disclosure Project (CDP), the highest rating granted to financial companies in the Chinese mainland.
80 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
PING AN'S SDGs MAP
Ping An aligns and integrates the key areas of the Company's business development with the United Nations Sustainable Development Goals (SDGs), and actively promotes the realization of the global SDGs to seek both commercial and social values.
1 No
Poverty
2 Zero
Hunger
3 Good Health and well-being
4 Quality Education
Ping An actively responds to the national call of "poverty alleviation" by providing inclusive financial services including insurance and banking to people in poverty and making other targeted poverty alleviation efforts. Ping An has contributed to the high-quality economic and social development, helped increase the residents' per capita income, and cultivated their needs for wealth management.
Improving agricultural productivity is an important means to eliminate hunger. Ping An attaches great importance to agricultural investment. Through products a n d s e r v i c e s i n c l u d i n g a g r i c u l t u r a l insurance, inclusive agricultural loans, and smart agricultural platforms, Ping An contributes to sustainable agricultural development. Ping An has carried out the "Ping An Consumption-driven Poverty Alleviation Month" program. Through the endorsement by senior management, Ping An has developed a new way to support agriculture and reduce poverty.
Ping An focuses on "pan health care" a n d h a s c o n t i n u o u s l y i n n o v a t e d i n a r e a s i n c l u d i n g h e a l t h p r o t e c t i o n , medical services, social health insurance management, and smart anti-epidemic services. Ping An pays great attention to the health conditions of people at all ages, and integrates health-related demands into the design of insurance products to prevent population health risks.
Quality education is the basis for people to improve their quality of life and pursue better jobs and lives. Ping An provides continuous support for charitable education programs. Ping An has built Ping An Smart Elementary Schools, initiated the Village Teacher Program and the Juvenile Science and Technology Literacy Enhancement Program, and linked high-quality urban education resources to remote villages, bridging the gap between urban and rural areas to create a fair education environment.
5 Gender
Equality
6 Clean Water And Sanitation
7 Affordable and clean energy
8 Decent work and economic growth
The sustainable development of the economy and society is inseparable from the active participation of women. Ping An fully respects and protects women' s rights and interests. Ping An supports women empowerment by cooperating closely with NGOs including the China Women Development Foundation to help rural women in remote areas. Ping An has integrated anti-discrimination into its business processes and maintained a code of conduct to eliminate gender discrimination in the workplace, boosting the morale of female employees.
Improving environmental sanitation and water supply is essential to people' s health. Ping An implements its water- saving plan, invests in public drinking water facilities, and helps rural areas improve the conditions of drinking water and sanitary facilities. These measures help reduce operating costs while protecting water resources.
Fossil fuel depletion and environmental pollution are universal concerns. Ping An supports clean energy development and energy structure upgrade by providing responsible investment, granting new energy credit, and developing new energy insurance products. Ping An encourages society to switch from fossil fuels to efficient, energy-saving and environment- friendly energies.
Ping An regards employees as important assets of the Company, and is committed to providing room and resources for employees' career development. Ping A n r e s p e c t s e m p l o y e e s ' r i g h t s a n d interests, and constantly improves their compensation and benefits, keeping the working environment safe and pleasant. M e a n w h i l e , P i n g A n a t t a c h e s g r e a t importance to the growth and development of sales agents, constantly improves training practices and courses, and builds highly competent teams of employees and agents.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 81 |
Sustainability
9Industry, Innovation and Infrastructure
10 Reduced Inequalities
11Sustainable cities And Communities
12 ResPonsible
Consumption
And Production
Infrastructure and the real economy are important engines of economic and social development. By improving infrastructure, Ping An promotes the mobility of talent and various factors of production, raises returns on the assets of companies in which Ping An have invested, and supports the Belt and Road Initiative, the development of Guangdong-HongKong-Macao Greater Bay Area, and micro-, small and medium- sized enterprises.
Regional inequality seriously constrains economic and social development and affects social stability. Ping An has in- depth practices in areas including inclusive finance, technology applications, targeted poverty alleviation, and social welfare. Ping An created smart financial service platforms including AI-BANK, and offers financial services in rural villages and other remote areas. Ping An uses technology to fix the uneven distribution of resources, and develops new business scenarios while facilitating regional development.
Rapid urbanization brings about many challenges while creating social prosperity. Adhering to the philosophy of "expertise creates value," Ping An supports the sustainable development of cities and communities by leveraging its expertise of "finance + technology" in financial services, health care, auto services, real estate services, and smart city services.
Giving full play to its risk management expertise in operations, products and services, Ping An helps its clients and other companies to prevent risks, with a supplier ESG code of conduct in place. Ping An and relevant parties jointly maintain
- low-carbonoperating environment by saving energies and reducing emissions to generate environmental economies of scale and improve overall ESG performance.
13 Climate Action
16 Peace, Justice
and strong
Institutions
17 Partnerships for the goals
Climate change is a matter of greatest concern across the world. Ping An actively manages carbon emissions in its operations, provides environmental insurance products to help society deal with the effects of climate change, and promotes low-carbon development with green investment . Under relevant climate agreements, Ping An strives to limit global warming to two degrees Celsius.
A robust business code of conduct will significantly reduce operational risks facing an enterprise. Ping An regards business ethics and anti-corruption as the foundation for healthy development. Ping An ensures transparency and compliance by continuously improving policies and educating employees to reduce compliance and operational risks.
Ping An actively engages in external cooperation in economic, social and environmental fields with an open mind, and continuously creates shared value for all stakeholders. Ping An has become a signatory of the United Nations Principles for Sustainable Insurance (UNPSI) and the United Nations Principles for Responsible Investment (UNPRI), enhancing its prestige and influence.
82 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
KEY INITIATIVES FOR SUSTAINABLE
DEVELOPMENT
Ping An Group has set up nine key initiatives for sustainable development, and has taken action across the Company to improve its ESG performance.
Community Impact
Ping An Rural Communities Support
Ping An supports China's poverty eradication strategy by addressing three root causes of poverty, namely industries, health care and education, via Ping An Rural Communities Support comprising the Village Officer Program, Village Doctor Program, and Village Teacher Program. As of
June 30, 2020, Ping An had implemented Ping An Rural Communities Support in 21 provinces and autonomous regions across China. Ping An provided RMB24,905 million for industrial poverty alleviation, built or upgraded 949 rural clinics and 1,054 rural schools, and trained 11,175 village doctors and 13,987 village teachers.
In boosting industries in rural areas, Ping An has developed three insurance products, namely Poverty Alleviation Insurance, Traceability Insurance, and Poverty Returning Prevention Insurance, for the three stages of "pre-production, production and post-production." Meanwhile, Ping An provides rural residents with training and education, and helps rural enterprises expand production and sales to reduce poverty by developing industries. In addition, Ping An explores sustainable consumption- driven mechanisms for poverty alleviation in
poor areas. Ping An launched a campaign titled "Ping An Consumption-driven Poverty Alleviation Month" together with the Poverty Relief Offices of Guangdong Province to promote online sales of agricultural products. Moreover, Ping An launched "Ping An Cloud Farm," where senior executives personally claimed crops, and developed a new model of consumption-driven poverty alleviation with employees and the public.
In improving health care, Ping An integrated superior medical resources for targeted poverty alleviation through health care. During the Health Protection Action-Health Care for Hundreds of Millions in Remote Areas, Ping An carried out public welfare activities in rural areas, including free diagnosis with mobile testing, a smart remote diagnosis and treatment system, delivery of medicines to rural areas, and training for village doctors.
In supporting education, Ping An rolled out public welfare programs including the Juvenile Science and Technology Literacy Enhancement Program, and the Not Reading Alone-Juvenile Literary Attainment Enhancement Program, offering "online + offline" science and technology and literature courses
and literacy enhancement lectures nationwide to help teenagers gain technological and literary attainments.
Fighting COVID-19
Amid the COVID-19 epidemic in 2020, Ping An gave full play to insurance protection and contributed to the fight against COVID-19 by quickly providing insurance services, financial services, claims services, medical support, and charitable donations. In the first half of 2020, Ping An Group and its member companies donated a total of over RMB175 million, including over RMB122 million in cash and over RMB53 million worth of supplies. Ping An also provided complimentary insurance for eight million disease control and medical workers and 15,000 volunteers.
-
In respect of insurance services, Ping An carried out five user-friendly claims settlement measures, canceling restrictions on medicines, treatments, designated hospitals, waiting periods and deductibles. Moreover, Ping
An quickly initiated 24/7 online consultation services, claims services by designated specialists, fast tracks for claims, and advance payment services for special cases. - In respect of medical support, Ping An HealthKonnect and Ping An Healthcare Diagnostics Center provided hospitals with free remote image reading services and dispatched to Wuhan a vehicle equipped with a mobile computed tomography scanner for screening services. Ping An Healthcare Medical Examination Laboratory, a provincial medical laboratory in Hubei Province, became one of the first designated coronavirus nucleic acid testing institutions. Ping An Good Doctor launched a 24/7 anti-coronavirus hotline in Wuhan, and offered free COVID-19-related consultations and guidance in cooperation with health authorities in Wuhan, Fuzhou, Hefei and Tangshan.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 83 |
Sustainability
- In combating COVID-19 with technology, Ping An mobilized multiple resources and gave full play to its advantages in smart health care, smart transportation, smart government, and smart education. Ping An participated in the epidemic prevention and control by dispatching to Wuhan a vehicle equipped with a mobile computed tomography scanner, and providing services including online consultation, nucleic acid testing, smart image reading,
and daily epidemic analysis and forecast. The Company launched the Health Protection- Anti-COVID-19 Volunteer Service Campaign with China Volunteer Service Federation and China Association for Science and Technology. In addition, the Company invited renowned doctors from Shanghai and Beijing to train rural doctors and frontline medical workers through online live broadcast courses on the prevention and control of the epidemic. The courses covered detection and reporting of COVID-19 cases, epidemiological study, referral requirements, hospital-acquired infection prevention and control, and personal protective measures. During the domestic peak of the epidemic, Ping An held 57 live training sessions which were viewed 136 million times. - In respect of charitable donations, Ping An provided complimentary insurance with a total sum insured of over RMB13.6 trillion for frontline doctors, nurses, police officers, media workers, and volunteers immediately after the COVID-19 outbreak. In addition, Ping An provided complimentary insurance benefits for approximately 500,000 small and micro-businesses nationwide, facilitating the resumption of work and production. Ping An and Ming Yuan Charity Fund donated RMB18 million to the Chinese Academy of Medical Sciences to support COVID-19 medicine research. Through the Shenzhen Ping An Public Welfare Foundation, Ping An established the Anti-COVID-19 Rescue Fund for the Police, offering relief funds up to RMB100 million. Ping An purchased nearly RMB20 million worth of supplies from severely impoverished areas in Central and West China, and donated them
to Wuhan. Ping An and Chairman Ma Mingzhe jointly donated RMB10 million worth of medical equipment and anti-epidemic supplies to Indonesia and the United Kingdom respectively to help the two countries fight COVID-19.
Volunteer Services
The Ping An Volunteers Association, since its establishment in 2018, has set up 24 branches nationwide, covering over 20 member companies of the Group. As of June 30, 2020, the "San Cun Hui" public welfare app had 2.11 million registered users, 525,000 of whom were employees and sales agents of Ping An.
Business Code of Conduct
Ping An has formulated the Business Code of Conduct of Ping An Group and other relevant policies, specified its commitments to the Company's business ethics and employees' business behaviors, and continued to standardize its management.
Corporate Business Ethics
In accordance with applicable laws and regulations, the Company formulated procedures including the Articles of Association, the Whistle-blowingManagement Procedure, and the Procurement Management Procedure which apply to all of its member companies, suppliers and partners, and pledges the following:
- In respect of tax policies, the Company complies with all laws and regulations with respect to its operations, proactively cooperates with governments in implementing tax policies, duly performs tax duties, discloses tax information as required by law, and prevents tax dodging and evasion.
- In respect of fair trade and anti-monopoly, the Company observes anti-monopoly laws and regulations, strictly scrutinizes all merger and acquisition transactions, and meets all disclosure requirements.
- In respect of anti-money laundering, anti- terrorist financing, and sanctions compliance, the Company identifies, monitors, and prevents financial crimes according to applicable laws and regulations as well as the Company's Anti- money Laundering Management Policy and Guidelines on Anti-moneyLaundering List- based Monitoring and Sanctions Compliance. The Company performs anti-money laundering and anti-terrorist financing duties, and has a robust anti-money laundering framework in place. The Company has incorporated the anti- money laundering framework into its enterprise risk management framework to effectively contain and strictly manage money laundering and sanctions compliance risks.
84 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
- In respect of fairness and employee rights protection, the Company protects legitimate interests of all employees in internal management and business dealings. The Company also calls on partners to protect their employees' legitimate interests, oppose gender, regional and age discrimination, and not to use child labor or forced labor. The Company has in place relevant procedures including the Procurement Supplier Management Procedure to ensure that suppliers' commitments to employee rights and welfare are met.
- In respect of whistle-blowing management, Ping An has formulated the Whistle-blowingManagement Procedure, with a mailbox and a hotline for employees to voice their concerns. The Company's whistle-blowing departments handle whistle-blowing in a legal, objective, just, and timely manner and safeguard the whistle-blowers' rights to fairness and justice. Ping An safeguards the confidentiality and safety of whistle-blowers and the information reported, and implements the whistle-blowing management procedure in an effective and reasonable manner.
Employee Code of Conduct
The Company pays great attention to combating fraud, corruption and commercial bribery, and supervising other business conduct. We have developed systematic internal management rules and procedures covering full-time and part-time employees, including the Employee Interest Conflict Management Policy, the Anti-fraudProcedure and the Anti-moneyLaundering Management Procedure. Systematic training is conducted for employees on
- half-yearlybasis. Ping An formulates the employee code of conduct in the following aspects:
- In respect of information management and social media management, employees are required to strictly follow the requirements of customer information security management to actively protect customer information from being leaked. Official accounts and employee accounts may not disclose confidential business information or illegal information on social media.
- In respect of conflict of interests and non- public information management, employees are required to understand and comply with the Company's rules and regulations on conflicts of interest. The Company prevents and punishes improper business dealings in line with the principles of "risk coverage, self-declaration, conflict avoidance, and zero tolerance." Employees are responsible for maintaining the confidentiality of insider information and may not divulge it.
- In respect of anti-bribery, corruption and fraud, employees and partners may not engage in any illegal or improper activities in exchange for personal benefits or damage the Company's legitimate economic interests and reputation. Once a fraudulent action is confirmed, the relevant employees will be subject to the Red, Yellow, and Blue Card Punishment Procedure and the Standard for Handling of Employees' Rule Violations for penalties and punishments.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 85 |
Sustainability
Responsible Investment
Adhering to the United Nations Principles for Responsible Investment (UNPRI) and relevant guidelines issued by Chinese regulators, Ping An is the first company in China to sign the UNPRI, the Climate Action 100+ and the Green Investment Principles for the Belt and Road as an asset owner. Ping An is also a member of the Green Finance Committee of the China Society for Finance and Banking. Ping An promotes the development of responsible investment in various aspects including the organizational structure and policies, and development and application of investment risk management tools and financial products.
Organizational Structure and Policies
Under the supervision of the Group IR and ESG Committee, the Group ESG Office and investment departments have established a panel of experts to work on the Group's responsible investment and provide necessary guidance and support
to integrate ESG elements into investment and business decisions. The Group has formulated policies including the Responsible Investment Policy of Ping An Group and the Statement on Coal- Related Industries of Ping An Group to elaborate the background, principles and implementation rules of responsible investment, organization and training, periodic reporting and disclosure, and integrated responsible investment into the key initiatives for the sustainable development of the Company.
The five principles of Ping An's responsible investment are ESG Integration, Active Ownership, Impact Investing, Exclusion, and Information Transparency.
- ESG Integration: Ping An integrates ESG factors into investment decision-making, actively develops the CN-ESG smart evaluation system, and forms evaluation standards for listed companies, bond issuers and ESG due diligence as well as the basis for investments.
- Active Ownership: Through conducting ESG communication and counseling, Ping An gives full play to the positive influence of shareholders, urges investee companies to improve ESG performance, and puts forward feasible suggestions to support the healthy development of investee companies.
- Impact Investing: Ping An implements the development concept of inclusive finance and green finance, and promotes green investments such as environmental protection, environmental restoration and clean energy, and inclusive investing projects such as infrastructure construction and rural revitalization.
- Exclusion: Ping An promises not to invest in industries including gambling and pornography, adopts restrictive conditions for high-pollution and high-energy consumption projects, and prudently invests in thermal power and coal industries.
- Information Transparency: Qualitative and quantitative information about responsible investment is disclosed in interim reports and annual sustainability reports.
AI-ESG Responsible Investment Tools
Based on strong experience in integrated finance and technology, Ping An has established a smart CN-ESG index evaluation system with Chinese characteristics which can reflect ESG performance of Chinese companies more accurately. Using technologies including AI, natural language processing (NLP) and remote sensing satellites, CN-ESG addresses the pain points of existing ESG evaluation systems in the market, including weaknesses in massive data processing, inconsistency and subjectivity of manual scoring, and low update frequency.
Based on the CN-ESG smart evaluation system, Ping An has built an AI-ESG smart management platform using an AI-driven middle office to realize ESG comprehensive performance management and responsible investment risk management
by providing customized smart products and services. The platform can provide listed companies with tools to manage ESG performance, enable investment institutions to understand ESG evaluation performance of the target companies, and provide comprehensive ESG functions for rating agencies, governments, associations and NGOs.
86 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Responsible Investment Practice
Adhering to the responsible investment principles, Ping An has made full use of AI-ESG tools to integrate ESG risk management into the Group's investment risk management, and has established the Group's responsible investment product framework which covers equities, bonds, financial products, mutual funds, lease receivables and so on. In the first half of 2020, Ping An of China Asset Management (Hong Kong) Company Limited issued a green bond fund to invest in fixed income products which meet Climate Bonds Initiative's green bond standards. The product ensures
that issuers comply with prevailing green bond requirements, to achieve significant environmental benefits through investment behaviors. In May
2020, Ping An Trust applied the ESG integration method to the SOE mixed ownership reform project of Shenzhen Shentou Environmental Technology Co., Ltd., to ensure that responsible investment principles were integrated in mergers and acquisitions for risk screening and value enhancement. At the post-investment stage, Ping An will assist Shenzhen Shentou Environmental Technology Co., Ltd. in enhancing ESG performance and fulfilling shareholder obligations.
As of June 30, 2020, Ping An's responsible investments were as follows:
Financial | Mutual | Lease | |||
(in RMB million) | Equities | Bonds | products | funds | receivables |
ESG integration | |||||
principle | 16,354 | 6,900 | - | - | - |
Impact investing | |||||
principle | |||||
Including: Green | |||||
investment | 13,927 | 8,955 | 11,062 | 6,789 | 3,680 |
Social and | |||||
inclusive | |||||
investment | 23,798 | 593,107 | 497,977 | 1,153 | - |
Notes: (1) Responsible investment data covers all financial products of the Group as a fund provider and product issuer. As of June 30, 2020, the Group's responsible investments only reflected the application of the ESG Integration principle and the Impact Investing principle. The rest of the principles will be applied in the investments afterwards.
(2) Green investment includes projects recommended by the Guidelines of the National Development and Reform Commission (NDRC) for Green Bonds and the Guidelines of the Asset Management Association of China for Green Investment.
(3) Social and inclusive investment includes infrastructure, small and micro-business support, old-age care and health care, education and culture, poverty alleviation for agriculture, farmers and rural areas, shanty area reconstruction and so on.
As an integrated financial services group, Ping An has continuously bolstered sustainable economic growth through credit. As of June 30, 2020, Ping An Bank granted green credit lines of RMB44,298 million, with the balance of loans being RMB22,667 million and the balance of social and inclusive loans being RMB730,183 million. Lufax Holding vigorously supports poverty alleviation by providing professional lending services for small and micro- business owners, sole proprietorships and the self-employed. As of June 30, 2020, Lufax Holding provided about 1,633,700 customers with inclusive credit facilitation, which enabled the granting of RMB284,461 million in loans in the first half of 2020, with a loan balance of RMB519,410 million. RMB22.88 billion in total of loans were granted to about 137,200 customers in rural areas in the first half of 2020.
Sustainable Insurance
Ping An is committed to embedding ESG criteria into the insurance business and making continuous improvement of the Policies for Sustainable Insurance System of Ping An Group, to integrate sustainability into the design of the insurance products and develop into a trustworthy insurance company.
Risk Management of Insurance Products
Ping An continues to research and monitor global climate change risks (including global warming and extreme weather disasters) and social change risks (including demographic change, population aging and a high incidence of diseases), to ensure reasonable ESG risk pricing for insurance products, and manage and prevent risks in enrollment. In the meantime, Ping An has formulated a rational and consistent insurance risk management system with mechanisms and processes in place to manage insurance risks and control the ESG risk exposure of its insurance products. All insurance subsidiaries have established and implemented ESG insurance risk management measures and processes covering product development, underwriting, claims, product management, reserve evaluation, and reinsurance management, and have taken specific ESG risk management measures.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 87 |
Sustainability
Sustainable Insurance Product Portfolio Ping An is the first company in the Chinese mainland to sign the Principles for Sustainable Insurance (PSI) established by the United Nations Environment Programme Finance Initiative.
Ping An fulfills its environmental and social responsibilities through a well-developed sustainable insurance product portfolio. As of June 30, 2020, Ping An Property & Casualty has launched 712 sustainable insurance products. Among them, there are environment and ecosystem related products, including environmental liability insurance, catastrophe insurance, and wildlife protection insurance; society and livelihood related products including engineering insurance, food safety insurance, medical malpractice insurance and inclusive insurance targeting small and micro- businesses, farmers, and other groups with special needs. Moreover, Ping An continues to watch health trends in China and changes in insurance market demand brought about by enhanced insurance awareness, and promote the development of protection-oriented products, offering 675 sustainable products, namely medical insurance, critical illness insurance, old-age insurance and social health insurance, through Ping An Life, Ping An Annuity and Ping An Health.
In the first half of 2020, the performance of the Company's sustainable insurance product portfolio was as follows:
Environmental | Social | Inclusive | |
(in RMB million) | insurance(1) | insurance(2) | insurance(3) |
Premium income | 80 | 86,661 | 18,885 |
Insured amount | 49,562 | 75,998,890 | 1,943,051 |
Notes: (1) Environmental insurance includes environmental liability insurance and catastrophe insurance.
(2) Social insurance includes liability insurance (including workplace safety insurance and food safety insurance), medical insurance, and critical illness insurance.
(3) Inclusive insurance includes agriculture insurance, insurance for rural areas, insurance for farmers, insurance for vulnerable groups, and small and micro- business operations insurance.
Information Security and AI Governance
The rapid development of science and technology highlights the increased importance of private data protection and technology ethics review. Information security has always been a key pillar of Ping An's operation. Since 2019, Ping An has focused on improving its ethical system, with an AI Ethics Management Committee established at the Group level to oversee the development and application of AI in a comprehensive and reasonable manner.
Information Security and Privacy Protection Ping An abides by the information security requirements under laws, regulations, and industry norms and codes. To ensure the confidentiality, integrity and availability of information, Ping
An constantly improves its information security management system. Ping An has formulated rules for information security management including the Procedure for Information Security Management of Ping An Group. In addition, Ping An established a data security governance model centering on customer data protection to ensure data security before, during and after a risk event. Ping An regularly conducted internal and external audits of its information security management and data privacy protection. Moreover, Ping An has passed the ISO 27001 information security management system certification for consecutive years, ensuring the effective and stable operations of the information security system.
Privacy protection is the top priority in Ping An's information security management system, and also the bottom line of Ping An's management. Ping An has developed the Privacy Protection Statement of Ping An Group, the Procedure for Data Management and the Procedure for External Data Cooperation Management to ensure that personal data is captured, transmitted, stored and used in a compliant, safe manner. The member companies of the Group formulated and implemented their own detailed implementation rules, and took a series of measures to prevent data leakage. Moreover, Ping An undertakes to protect customer information and privacy rights of customers and employees in business activities.
88 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
AI Governance
Ping An is committed to applying AI in line with the five ethical principles of "human-oriented, human autonomous, secure and controllable, fair and just, and open and transparent" and keeping AI application under ethical review.
Ping An has clear ethical goals for data, algorithms and applications, and constantly improves its AI governance framework. Internally, Ping An has established the AI Ethics Management Committee, forming a comprehensive AI governance system at the Group level. The AI Ethics Management Committee is responsible for steering the macro direction of Ping An's AI ethics policy, and ensuring fairness and justice for products under development. While providing services and products, the AI Ethics Management Committee will oversee information security and privacy protection, and better resolve AI ethical issues during practical projects. Externally, Ping An proactively engaged in global AI governance, strengthened exchanges with other players and academia. For instance, Ping An took part in standard making for the AI Risk Management Evaluation Model under China Electronics Standardization Institute, contributing to the standardization of AI governance.
Product Responsibility
As an integrated financial services group, Ping An offers a wide range of products and services covering insurance, banking, investment and technology. The Company adheres to the principles of compliance, fairness, inclusiveness, and environmental protection throughout the life cycles of products and services. The Company undertakes that all its products and services are offered in accordance with the principles of compliance, fairness and environmental protection. The Company will not provide products and services involving violation of individual rights, violation of the freedom of speech, and political repression, nor involving high emissions, high pollution, ecological destruction, and animal right violations. The Company will not engage in monopoly, unfair competition, pyramid sales, or terrorism. Moreover, the Company will make every effort to prevent violation of laws, regulations, and codes of ethics.
Ping An's product management is divided into three phases, namely product design, product development and launch preparation, and sales and after-sales services. Ping An has established a policy regime governing all products and services, including the Consumer Rights Protection Management Measures of Ping An Group, the Product Sales Management Measures, the Product Development and Design Standards, and the Red, Yellow, and Blue Card Punishment Procedure. In this way, the Company manages all products and services throughout their entire life cycles to avoid potential violation of laws and regulations.
To protect consumer rights and strengthen product management, Ping An set up the Consumer Rights Protection Committee under the Board of Directors in February 2020.
Sustainable Supply Chain
Ping An pursues clean and open procurement in supply chain management. The Company has established the Sustainable Supply Chain Policy of Ping An Group, integrating ESG requirements into supply chain management that covers supplier selection, cooperation approval, process management, tracking and feedback. Ping An attaches great importance to suppliers' ESG performance in environmental protection and employee rights protection. The Company has also included ESG requirements into existing supplier contracts, setting out articles on anti-bribery, information security and privacy protection, labor rights protection, low-carbon and green technological transformation and development, and employee development.
Ping An also provides partners with training programs on product quality, work skills, compliance management, and employee rights protection to improve suppliers' sustainability performance. The Company will continue to encourage suppliers and partners to seek environmental, social and corporate benefits and achieve joint sustainable development.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 89 |
Sustainability
Employee Rights and Care
Employee Rights
Ping An complies with the core sections of the International Labor Conventions and the relevant agreements approved by the countries where Ping An has presence. The Company formulated the Employee Rights and Welfare Policy of Ping An Group and other documents, undertaking to protect the legitimate rights and interests of employees. In addition, the Company released anti-discrimination rules to eliminate unfair treatment. The Company ensures equal pay for equal work, and prohibits all forms of discrimination in recruitment, on-boarding, training, promotion and rewards. The Company
is against any use of child labor and forced labor. Moreover, the Company does not interfere with the right of employees to participate in or form any legitimate association.
Ping An always upholds fair, just and transparent salary and performance management, and constantly reviews the competitiveness of employee salaries. Ping An conducts rational performance- based salary management on the principle of fair and equitable distribution according to work to motivate employees to improve skills and grow with the Company. To retain key employees and establish long-term incentive and restraint mechanisms, Ping An implemented the Key Employee Share Purchase Plan and the Long-term Service Plan. Ping An has established sound, diverse channels for feedback, complaints and whistle-blowing, and formulated the Whistle-blowingManagement Procedure to guarantee employees' freedom of expression and protect their legitimate rights and interests.
Employee Development
Ping An has been continuously diversifying and optimizing its talent standards and systems. Each year, Ping An organizes talent reviews of key positions. In addition to multiple dimensions including performance, skill sets, and development potential, the Company also conducts talent assessment on 24 dimensions including capabilities, behavior, and personality, and has a Senior Talent Evaluator Team in place to ensure fair and efficient talent selection.
All employees, including in-house staff, field staff and interns, have the right to participate in various forms of training. The Company arranges high-quality offline and online training activities according to the needs of employees. Ping An School of Financial Management vigorously develops a high-quality curriculum and online learning with accurate course recommendations, including recommendations based on performance, smart recommendations, and recommendations from supervisors, using technology to disseminate knowledge and identify employees' potential and development needs.
90 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Employee Benefits
To accomplish the mission of "making a career plan for a prosperous and contented life," Ping An provides employees with benefits including commercial insurance, high-end health insurance, and health check-up packages for family members. Ping An ensures that employees can realize their value in a highly satisfactory environment. In addition, Ping An provides a health management platform where employees can directly conduct online consultations and hospital registration.
Ping An provides regular health check-ups for employees and arranges for professional doctors to interpret health check-up reports. In addition, the Ping An Employee Assistance Program (EAP) offers comprehensive services including stress management, occupational mental health, psychological intervention, and healthy living to assist employees in dealing with personal difficulties and staying positive in workplace and personal lives. Ping An has developed HR-X, a smart human resources mobile app to provide employees with
a series of convenient services, including mobile attendance, one-click request for leave, company ID card application, social security processing, and personal file management.
Ping An respects and cares for female employees, and provides nursing rooms and corresponding facilities in the office.
Green Operations
Ping An strictly abides by the relevant laws and regulations including the Environmental Protection Law of the PRC, and has formulated the Low-carbonBusiness and Operation Policy of Ping An Group. Ping An has incorporated environmental protection in its business development plans and strives to minimize the negative impact of business operations on the environment by conducting energy conservation transformation, building smart offices, and adopting electronic business processes. Ping An has set the following environmental targets:
- Carbon emission intensity: Taking 2018 as the base year, to reduce carbon emission intensity by 5%, 10% and 20% by 2020, 2025 and 2030 respectively.
- Paper use intensity: Taking 2016 as the base year, to reduce paper use intensity by 50%, 60% and 80% over the next three, five and ten years respectively.
- Carbon emissions reduction potential: Taking 2016 as the base year, to increase carbon emissions reduction by 60% and 80% over the next three and five years respectively, and ultimately routinize electronic operations.
- Green buildings: Ping An pledges that all new buildings of Ping An Group will reach China's Green Building Label (2-star) or equivalent Leadership in Energy and Environmental Design (LEED) certification. Ping An will complete the green building transformation of its headquarters and obtain the green building certification by 2020.
MANAGEMENT DISCUSSION AND ANALYSIS
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 91 |
Changes in the Share Capital and Shareholders' Profile
CHANGES IN SHARE CAPITAL
There was no change in the total number of shares and shareholding structure of the Company during the six months ended June 30, 2020 (the "Reporting Period").
January 1, 2020 | Changes during the Reporting Period | June 30, 2020 | |||||||||
Number of | Percentage | Issue of | Transfer from | Number of | Percentage | ||||||
Unit: Shares | shares | (%) | new shares | Bonus issue | reserve | Others | Sub-total | shares | (%) |
- Selling-restricted
shares | - | - | - | - | - | - | - | - | - |
- Selling-unrestrictedcirculating shares
1. | RMB ordinary shares | 10,832,664,498 | 59.26 | - | - | - | - | - | 10,832,664,498 | 59.26 | |
2. | Domestically listed | ||||||||||
foreign shares | - | - | - | - | - | - | - | - | - | ||
3. Overseas listed foreign | |||||||||||
shares | 7,447,576,912 | 40.74 | - | - | - | - | - | 7,447,576,912 | 40.74 | ||
4. | Others | - | - | - | - | - | - | - | - | - | |
Subtotal | 18,280,241,410 | 100.00 | - | - | - | - | - | 18,280,241,410 | 100.00 | ||
III. | Total number of shares | 18,280,241,410 | 100.00 | - | - | - | - | - | 18,280,241,410 | 100.00 | |
SHAREHOLDERS' INFORMATION
Number of shareholders
Unit: Shareholder | June 30, 2020 |
Total number of shareholders | 825,921 (including 821,415 domestic shareholders) |
92 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Shareholdings of top ten shareholders as at the end of the Reporting Period
Shareholding | Changes during | Number of | ||||||
percentage | Total number of | the Reporting | selling-restricted | Number of pledged or | ||||
Name of shareholder | Nature of shareholder(1) | (%) | shares held(2) | Period | Type of shares | shares held | frozen shares | |
Hong Kong Securities Clearing Company | Overseas legal person | 34.00 | 6,215,228,883(4) | +102,622,483 | H Share | - | Unknown | |
Nominees Limited(3) | ||||||||
Shenzhen Investment Holdings Co., Ltd. | State | 5.27 | 962,719,102 | - | A Share | - | 341,740,000 | |
pledged shares | ||||||||
Hong Kong Securities Clearing Company | Others | 4.04 | 737,653,762 | -81,524,616 | A Share | - | - | |
Limited(5) | ||||||||
New Orient Ventures Limited | Overseas legal person | 3.40 | 622,149,664 | -92,514,333 | H Share | - | - | |
Business Fortune Holdings Limited | Overseas legal person | 3.21 | 587,146,218 | -10,038,823 | H Share | - | 422,401,317 | |
pledged shares | ||||||||
China Securities Finance Corporation Limited | Others | 2.99 | 547,459,336 | - | A Share | - | - | |
Central Huijin Asset Management Ltd. | State-owned legal person | 2.65 | 483,801,600 | - | A Share | - | - | |
Shum Yip Group Limited | State-owned legal person | 1.41 | 257,728,008 | - | A Share | - | - | |
Dacheng Fund-Agricultural Bank of China | Others | 1.10 | 201,948,582 | - | A Share | - | - | |
-Dacheng Zhongzheng Financial Asset | ||||||||
Management Plan | ||||||||
Huaxia Fund-Agricultural Bank of China | Others | 1.09 | 199,511,462 | - | A Share | - | - | |
-Huaxia Zhongzheng Financial Asset | ||||||||
Management Plan | ||||||||
Notes: (1) | Nature of the holders of A shares represents the nature of accounts held by the holders of A shares registered on the | |||||||
Shanghai Branch of China Securities Depository and Clearing Corporation Limited. | ||||||||
(2) | As the shares of the Company could be used as underlying securities for margin financing and securities lending, the | |||||||
shareholdings of the shareholders are the aggregate of all the shares and interests held in ordinary securities accounts and | ||||||||
credit securities accounts. | ||||||||
(3) | Hong Kong Securities Clearing Company Nominees Limited ("HKSCC Nominees Limited") is the nominee holder of the shares | |||||||
held by non-registered H shareholders of the Company. | ||||||||
(4) | New Orient Ventures Limited and Business Fortune Holdings Limited are indirect wholly-owned subsidiaries of CP Group Ltd., | |||||||
and the shares owned by these two companies have been registered under the name of HKSCC Nominees Limited. In order to | ||||||||
avoid double counting, the shares owned by the above two companies have been deducted from the shares held by HKSCC | ||||||||
Nominees Limited. | ||||||||
(5) | The shares held by Hong Kong Securities Clearing Company Limited refer to the shares held by non-registered shareholders | |||||||
of the Northbound Trading of the Shanghai-Hong Kong Stock Connect Program. |
Explanation of the connected relationship or acting-in-concert relationship among the above shareholders:
New Orient Ventures Limited and Business Fortune Holdings Limited are indirect wholly-owned subsidiaries of CP Group Ltd., and they are presumed to be acting in concert with each other since they are under the common control of CP Group Ltd. As of June 30, 2020, CP Group Ltd., through the above two companies and other subsidiaries, indirectly held 1,609,766,901 H shares of the Company in total, representing approximately 8.81% of the total share capital of the Company.
Save as disclosed above, the Company is not aware of any connected relationship or acting-in-concert relationship among the above-mentioned shareholders.
Particulars of Controlling Shareholder and De Facto Controller
The shareholding structure of the Company is relatively scattered. There is no controlling shareholder, nor de facto controller.
Corporate Governance
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 93 |
Directors, Supervisors and
Senior Management
APPOINTMENT OR RETIREMENT OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Name | Position | Period of appointment |
XIE Yonglin(1) | Newly-appointed Executive Director | Since April 2020 |
TAN Sin Yin(1) | Newly-appointed Executive Director | Since April 2020 |
HUANG Baoxin(2) | Newly-appointed Senior Management | Since April 2020 |
LEE Yuansiong(3) | Retired Executive Director | June 2013-January 2020 |
Retired Senior Management | January 2011-January 2020 | |
REN Huichuan(4) | Retired Executive Director | July 2012-March 2020 |
LIU Chong(5) | Retired Non-executive Director | January 2016-June 2020 |
Notes: (1) | Mr. Xie Yonglin and Ms. Tan Sin Yin took office as Executive Directors of the Company on April 3, 2020. |
(2) | Mr. Huang Baoxin took office as Senior Vice President of the Company on April 22, 2020. |
(3) | Mr. Lee Yuansiong ceased to serve as Executive Director, Co-Chief Executive Officer and Executive Vice President of the |
Company on February 1, 2020. | |
(4) | Mr. Ren Huichuan ceased to serve as Executive Director and Vice Chairman of the Company on March 16, 2020. |
(5) | Mr. Liu Chong ceased to serve as Non-executive Director of the Company on June 15, 2020. |
SHAREHOLDINGS OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
Change in the Number of Shares Held in the Company
As of June 30, 2020, the interests of the current Directors, Supervisors and Senior Management of the Company and those who vacated office during the Reporting Period in the shares of the Company which shall be disclosed pursuant to the Standard No. 3 Concerning the Contents and Formats of Information Disclosed by Listed Companies - The Contents and Formats of Interim Report issued by the CSRC were as follows:
Number of | Number of | ||||||||
shares held | Percentage | ||||||||
at the | shares held | Percentage | |||||||
beginning | at the end | of total | |||||||
H/A | of the period | of the period | Change | Nature of | issued | of total issued | |||
Name | Capacity | shares | (shares) | (shares) | (shares) | Reason for the change | interest | H/A shares (%) | shares (%) |
MA Mingzhe | Beneficial owner | A | 1,364,608 | 1,584,026 | +219,418 | Key Employee Share Purchase Plan | Long position | 0.01462 | 0.00867 |
XIE Yonglin | Beneficial owner | A | 159,518 | 303,508 | +143,990 | Key Employee Share Purchase Plan | Long position | 0.00280 | 0.00166 |
TAN Sin Yin | Beneficial owner | A | 164,835 | 301,528 | +136,693 | Key Employee Share Purchase Plan | Long position | 0.00278 | 0.00165 |
YAO Jason Bo | Beneficial owner | A | 321,378 | 465,432 | +144,054 | Key Employee Share Purchase Plan | Long position | 0.00430 | 0.00255 |
Beneficial owner | H | 24,000 | 24,000 | - | - | Long position | 0.00032 | 0.00013 | |
IP So Lan | Beneficial owner | A | 268,191 | 412,245 | +144,054 | Key Employee Share Purchase Plan | Long position | 0.00381 | 0.00226 |
CHEN Kexiang | Beneficial owner | A | 272,538 | 401,967 | +129,429 | Purchase, Key Employee Share | Long position | 0.00371 | 0.00220 |
Purchase Plan | |||||||||
CAI Fangfang | Beneficial owner | A | 145,101 | 228,629 | +83,528 | Key Employee Share Purchase Plan | Long position | 0.00211 | 0.00125 |
HUANG Baoxin | Beneficial owner | A | 54,700 | 63,512 | +8,812 | Purchase, Key Employee Share | Long position | 0.00059 | 0.00035 |
Purchase Plan | |||||||||
SHENG Ruisheng | Beneficial owner | A | 162,774 | 249,098 | +86,324 | Key Employee Share Purchase Plan | Long position | 0.00230 | 0.00136 |
WANG Zhiliang | Beneficial owner | A | 37,446 | 45,073 | +7,627 | Key Employee Share Purchase Plan | Long position | 0.00042 | 0.00025 |
PAN Zhongwu | Beneficial owner | A | 21,012 | 25,488 | +4,476 | Key Employee Share Purchase Plan | Long position | 0.00024 | 0.00014 |
LEE Yuansiong | Beneficial owner | A | 282,120 | 282,120 | - | Key Employee Share Purchase Plan | Long position | 0.00260 | 0.00154 |
REN Huichuan | Beneficial owner | A | 841,205 | 1,061,725 | +220,520 | Key Employee Share Purchase Plan | Long position | 0.00980 | 0.00581 |
Note: During the Reporting Period, there were no share options held by or restricted shares granted to the current Directors, Supervisors and Senior Management of the Company and those who vacated office during the Reporting Period.
94 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
Save as disclosed above, as of June 30, 2020, the interests and short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company which shall have been notified to the Company and the HKEX pursuant to Divisions 7 and 8 of Part XV of the SFO, including interests and short positions which the Directors or chief executives of the Company are taken as or deemed to have under such provisions of the SFO, or which are recorded in the register required to be kept by the Company pursuant to section 352 of the SFO or as otherwise required to be notified by the Directors and chief executives to the Company and the HKEX pursuant to the Model Code, were as follows:
Interests | Interests | Percentage | Percentage | |||||||
held at the | held at | of total | ||||||||
beginning | the end of | issued | of total | |||||||
of the period | the period | Change | Reason for | H/A shares | issued shares | |||||
Name | Capacity | H/A shares | (shares) | (shares) | (shares) | the change | Nature of interest | (%) | (%) | |
MA Mingzhe | Interest of his spouse | H | 20,000 | 20,000 | - | - | Long position | 0.00027 | 0.00011 | |
Others(1) | A | 252,762 | 502,266 | +249,504 | Others(1) | Long position | 0.00464 | 0.00275 | ||
XIE Yonglin | Others(1) | A | 189,571 | 376,699 | +187,128 | Others(1) | Long position | 0.00348 | 0.00206 | |
TAN Sin Yin | Others(1) | A | 189,571 | 376,699 | +187,128 | Others(1) | Long position | 0.00348 | 0.00206 | |
YAO Jason Bo | Interest of his spouse | H | 64,000 | 64,000 | - | - | Long position | 0.00086 | 0.00035 | |
Others(1) | A | 126,381 | 251,133 | +124,752 | Others(1) | Long position | 0.00232 | 0.00137 | ||
CAI Fangfang | Others(1) | A | 126,381 | 251,133 | +124,752 | Others(1) | Long position | 0.00232 | 0.00137 | |
Note: (1) | Conditional interests that can be vested in future under the Long-term Service Plan, subject to terms and conditions in the | |||||||||
Long-term Service Plan of Ping An Insurance (Group) Company of China, Ltd. |
Change in the Number of Shares Held in Associated Corporations of the Company
As of June 30, 2020, none of the Directors and chief executives held or was deemed to hold any interests or short positions in the shares, underlying shares or debentures of the Company's associated corporations (as defined in the SFO), which shall have been notified to the Company and the HKEX pursuant to Divisions 7 and 8 of Part XV of the SFO, or which are recorded in the register required to be kept under section 352 of the SFO, or otherwise required to be notified by the Directors and chief executives to the Company and the HKEX pursuant to the Model Code.
CHANGES IN INFORMATION OF DIRECTORS AND SUPERVISORS
1. Mr. Ma Mingzhe, the Chairman of the Company, ceased to work concurrently as the Chief Executive Officer of the Company in July 2020.
2. Mr. Yao Jason Bo, an Executive Director of the Company, has served as a Co-Chief Executive Officer of the Company since July 2020.
3. Mr. Yang Xiaoping, a Non-executive Director of the Company, ceased to be a non-executive director of Tianjin Binhai Teda Logistics (Group) Corporation Limited in June 2020.
4. Mr. Ge Ming, an Independent Non-executive Director of the Company, ceased to be an independent non-executive director of Chong Sing Holdings FinTech Group Limited in April 2020.
5. Mr. Gu Liji, the Chairman of Supervisory Committee, ceased to be a Non-executive Director of Xiangtan Electric Manufacturing Group Co., Ltd in July 2020.
6. Mr. Pan Zhongwu, an Employee Representative Supervisor of the Company, has served as a non- executive director of Ping An Good Doctor since February 2020.
Save as disclosed above, there is no other information required to be disclosed pursuant to Rule 13.51B(1) of the HKEX Listing Rules.
Corporate Governance
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 95 |
Significant Events
IMPLEMENTATION OF PROFIT DISTRIBUTION PLAN DURING THE REPORTING PERIOD
The 2019 profit distribution plan of the Company was deliberated and approved at the 2019 Annual General Meeting, pursuant to which the Company paid in cash the 2019 final dividend of RMB1.30 (tax inclusive) per share, totaling RMB23,673,304,989.10 (tax inclusive) based on 18,210,234,607 shares, the actual number
of shares entitled to the dividend distribution (exclusive of A shares of the Company in the repurchased securities account). The profit distribution plan has been implemented.
INTERIM RESULTS AND PROFIT DISTRIBUTION
The Group's results for the first half of 2020 are set out in the section headed "FINANCIAL STATEMENTS." The Board of Directors hereby declares that the 2020 interim dividend of RMB0.80 (tax inclusive) per share in cash will be distributed to the shareholders of the Company. Pursuant to the Detailed Rules for Implementation of Share Repurchase by Listed Companies promulgated by the SSE and the applicable regulations, the Company's A shares in the Company's repurchased securities account after trading hours on the record date of A shareholders for the dividend will not be entitled to the dividend distribution. The total amount of the interim dividend payment for the first half of 2020 is RMB14,568,187,685.60 (tax inclusive) based on the total share capital of 18,280,241,410 shares less the 70,006,803 A shares of the Company in the repurchased securities account as of June 30, 2020. The actual total amount of dividend payment is subject to the total number of shares that will be entitled to the dividend distribution on the record date of A shareholders. The dividend payment will have no material impact on the Group's solvency margin ratios. After the dividend payment, the Group's solvency margin ratios will still meet the relevant regulatory requirements.
The decision-making procedure and mechanism of the above profit distribution plan are complete, and the dividend payout standards and proportions are clear. The above profit distribution plan is in line with the Articles of Association and relevant deliberation procedures and fully protects the legitimate interests of the minority shareholders. All the Independent Non-executive Directors of the Company have expressed independent opinions of their agreement on the profit distribution plan.
GENERAL ANALYSIS OF EXTERNAL INVESTMENT
Ping An is an integrated financial services group, and investment is one of its core businesses. The investment of insurance funds represents a majority of the equity investment of the Company. The investment of insurance funds is subject to applicable laws and regulations. For details of the asset allocation of the investment portfolio of insurance funds, please refer to the relevant section headed "Business Analysis."
Material Equity Investment
During the Reporting Period, there was no material equity investment that was required to be disclosed.
Material Non-Equity Investment
During the Reporting Period, there was no material non-equity investment that was required to be disclosed.
Financial Instruments Recorded at Fair Value
Details of financial instruments recorded at fair value of the Company are set out in Note 43 to the financial statements.
SALE OF MAJOR ASSETS AND EQUITIES
During the Reporting Period, there was no sale of major assets and equities that was required to be disclosed.
MAJOR SUBSIDIARIES AND ASSOCIATES OF THE COMPANY
Details of major subsidiaries and associates of the Company are set out in Note 3.(2) and Note 28 to the financial statements respectively.
STRUCTURED ENTITIES CONTROLLED BY THE COMPANY
There is no significant change in the details of Structured Entities controlled by the Company compared with the year of 2019.
96 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
IMPLEMENTATION OF SHARE PURCHASE PLANS OF THE COMPANY
Key Employee Share Purchase Plan
As deliberated at the 16th Meeting of the 9th Board of Directors held on October 28, 2014 and approved at the 2015 1st extraordinary general meeting held on February 5, 2015, the Key Employee Share Purchase Plan of the Company has been officially implemented since 2015. For the Key Employee Share Purchase Plan of the Company, the participants are key employees of the Company and its subsidiaries including the directors, employee representative supervisors, and senior management. The sources of funding are legitimate incomes and performance bonuses of the employees.
As at the end of the Reporting Period, six phases of the Key Employee Share Purchase Plan were implemented. Among them, all shares under the two phases for 2015 and 2016 were unlocked and vested, and the four phases for 2017-2020 were implemented as follows:
Regarding the Key Employee Share Purchase Plan for 2017, there were 1,157 participants. A total of
16,419,990 A shares of the Company were purchased for a total amount of RMB603,498,822.25 (expenses inclusive), accounting for 0.090% of the total share capital of the Company at that time. During the Reporting Period, the lock-up period in respect of one third of the shares under the Key Employee Share Purchase Plan for this phase expired and all such shares were vested in batches to 1,002 employees. As to the remaining 47 employees who did not qualify for the vesting, 234,957 shares were forfeited. Shares under the Key Employee Share Purchase Plan for this phase were unlocked.
Regarding the Key Employee Share Purchase Plan for 2018, there were 1,296 participants. A total of 9,666,900
- shares of the Company were purchased for a total amount of RMB592,698,901.19 (expenses inclusive), accounting for 0.053% of the total share capital of the Company at that time. During the Reporting Period, the lock-up period in respect of one third of the shares under the Key Employee Share Purchase Plan for this phase expired and all such shares were vested in batches to 1,176 employees. As to the remaining 55 employees who did not qualify for the vesting, 330,834 shares were forfeited.
Regarding the Key Employee Share Purchase Plan for 2019, there were 1,267 participants. A total of 8,078,395
- shares of the Company were purchased for a total amount of RMB588,197,823.00 (expenses inclusive), accounting for 0.044% of the total share capital of the Company at that time. During the Reporting Period, the lock-up period in respect of one third of the shares under the Key Employee Share Purchase Plan for this phase expired and all such shares were vested in batches to 1,207 employees. As to the remaining 60 employees who did not qualify for the vesting, 403,697 shares were forfeited.
Regarding the Key Employee Share Purchase Plan for 2020, there were 1,522 participants. A total of 7,955,730
- shares of the Company were purchased for a total amount of RMB638,032,305.75 (expenses inclusive), accounting for 0.044% of the total share capital of the Company at that time. During the Reporting Period, there was no change in equity under the Key Employee Share Purchase Plan for 2020.
During the Reporting Period, as deliberated at the 13th Meeting of the 11th Board of Directors held on April 23, 2020, the Key Employee Share Purchase Plan of the Company was extended by six years to February
4, 2027. For details, please refer to the Announcement regarding Extension of the Terms of Key Employee Share Purchase Plan published by the Company on the websites of the HKEX and the SSE on April 23, 2020 and April 24, 2020 respectively. The manager of the Key Employee Share Purchase Plan of the Company was not changed.
As at the end of the Reporting Period, the key employees held 20,199,099 shares of the Company in total through the Key Employee Share Purchase Plan, accounting for 0.110% of the total share capital of the Company.
Corporate Governance
Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. 97 |
Significant Events
The Long-term Service Plan
As deliberated at the 3rd meeting of the 11th Board of Directors held on October 29, 2018 and approved at the 2018 2nd extraordinary general meeting held on December 14, 2018, the Company has implemented the Long-term Service Plan since 2019. For the Long-term Service Plan of the Company, the participants are employees of the Company and its subsidiaries including the directors, employee representative supervisors, and senior management. The source of funding is the payroll payable.
As at the end of the Reporting Period, two phases of the Long-term Service Plan were implemented:
Regarding the Long-term Service Plan for 2019, there were 31,026 participants. A total of 54,294,720 A shares of the Company were purchased for a total amount of RMB4,296,112,202.60 (expenses inclusive), accounting for 0.297% of the total share capital of the Company at that time. Regarding the Long-term Service Plan for 2020, there were 32,022 participants. A total of 49,759,305 A shares of the Company were purchased for a total amount of RMB3,988,648,517.41 (expenses inclusive), accounting for 0.272% of the total share capital of the Company at that time. In the Reporting Period, 1,332 employees did not qualify for the vesting and 2,907,308 shares were forfeited under the Long-term Service Plan for 2019, and 1,139 employees did not qualify for the vesting and 1,827,933 shares were forfeited under the Long-term Service Plan for 2020.
During the Reporting Period, the manager of the Long-term Service Plan was changed from China Merchants Securities Asset Management Co., Ltd. to the Company itself.
As at the end of the Reporting Period, the Long-term Service Plan held a total of 104,054,025 A shares of the Company, accounting for 0.569% of the total share capital of the Company.
Since the implementation of the Key Employee Share Purchase Plan and the Long-term Service Plan, the Company has had stable, healthy operations. The shareholders, the Company, and the employees have shared benefits and risks, providing a strong foundation for further improving the Company's governance structure as well as establishing and strengthening long-term incentive and restraint mechanisms to facilitate long-term sustainable, healthy development of the Company.
IMPLEMENTATION OF SHARE INCENTIVE SCHEME OF THE COMPANY AND ITS EFFECTS
During the Reporting Period, the Company did not implement any share incentive scheme based on the Company's shares.
98 Interim Report 2020 | Ping An Insurance (Group) Company of China, Ltd. |
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