As filed with the Securities and Exchange Commission on April 24, 201525, 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20142017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number001-31914
中国人寿保险股份有限公司
(Exact name of Registrant as specified in its charter)
China Life Insurance Company Limited
(Translation of Registrant’s name into English)
People’s Republic of China
(Jurisdiction of incorporation or organization)
16 Financial Street
Xicheng District
Beijing 100033, China
(Address of principal executive offices)
Tian ZengYinghui Li
16 Financial Street
Xicheng District
Beijing 100033, China
Tel:(86-10) 6363-1244 6363 1191
Fax:(86-10) 6657-5112 6657 5112
Email: zengtian@e-chinalife.comliyh@e-chinalife.com
(Name, Telephone, Email and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
American depositary shares | New York Stock Exchange | |
H shares, par value |
New York Stock Exchange* |
* | Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares, each representing |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None.
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None.
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of December 31, 2014,2017, 7,441,175,000 H shares and 20,823,530,000 Aand20,823,530,000A shares, par value RMB1.00RMB 1.00 per share, were issued and outstanding. H shares are listed on the Hong Kong Stock Exchange. A shares are listed on the Shanghai Stock Exchange. Both H shares and A shares are ordinary shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x☒ Yes ¨☐ No
If this report is an annual report or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨☐ Yes x☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x☒ Yes ¨☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨☒ Yes ¨☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a non-accelerated filer.an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“emerging growth company” in Rule12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (Check one)☐
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S.GAAP | International Financial Reporting Standards as issued by the International Accounting Standards Board | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ¨☐ Item 17 ¨☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). ¨☐ Yes x☒ No
CHINA LIFE INSURANCE COMPANY LIMITED
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Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | |||||
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Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||||
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ii
This annual report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements state our intentions, beliefs, expectations or predictions for the future, in particular under “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects” and “Item 8. Financial Information—Embedded Value”.
The forward-looking statements include, without limitation, statements relating to:
In some cases, we use words such as “believe”, “intend”, “anticipate”, “estimate”, “project”, “forecast”, “plan”, “potential”, “will”, “may”, “should” and “expect” and similar expressions to identify forward-looking statements. All statements other than statements of historical facts included in this annual report, including statements regarding our future financial position, strategy, projected costs and plans and objectives of management for future operations, are forward-looking statements. Although we believe that the expectations reflected in those forward-looking statements are reasonable, we can give no assurance that those expectations will prove to have been correct, and you are cautioned not to place undue reliance on such statements. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Item 3. Key Information—Risk Factors” and elsewhere in this annual report, including in conjunction with the forward-looking statements included in this annual report. We undertake no obligation to publicly update or revise any forward-looking statements contained in this annual report, whether as a result of new information, future events or otherwise, except as required by law. All forward-looking statements contained in this annual report are qualified by reference to this cautionary statement.
References in this annual report to “we”, “us”, “our”, the “Company” or “China Life” mean China Life Insurance Company Limited and, as the context may require, its subsidiaries. References to “CLIC” mean China Life Insurance (Group) Company and, as the context may require, its subsidiaries, other than China Life. References in this annual report to “AMC” mean China Life Asset Management Company Limited, the asset management company established by us with CLIC on November 23, 2003. References to “CLPCIC” mean China Life Property and Casualty Insurance Company Limited, the property and casualty company established by us with CLIC on December 30, 2006. References to “China Life Pension” mean China Life Pension Company Limited established by us, CLIC and AMC on January 15, 2007.
The statistical and market share information contained in this annual report has been derived from government sources, including the China Insurance Yearbook 2012,2015, the China Insurance Yearbook 2013,2016, the China Insurance Yearbook 20142017 and other public sources. The information has not been verified by us independently. Unless otherwise indicated, market share information set forth in this annual report is based on premium information as reported by the CIRC. The reported information includes premium information that is not determined in accordance with HKFRS, U.S. GAAP or IFRS.
References to “A shares” mean the RMB ordinary shares which have been listed on the Shanghai Stock Exchange since January 9, 2007.
References to the “CIRC” mean the China Insurance Regulatory Commission, which was established in 1998 and merged with the China Banking Regulatory Commission in April 2018. References to the “CBRC” mean the China Banking Regulatory Commission, which was established in 2003 and merged with the CIRC in April 2018. References to “CBIRC” mean the China Banking and Insurance Regulatory Commission, which was established in April 2018 as a result of the merger of CIRC and CBRC. In this annual report, references to the “CIRC” mean the China’s insurance regulator prior to April 2018 and references to the “CBIRC” mean the China’s insurance regulator after April 2018, as the context may require.
References to “China” or “PRC” mean the People’s Republic of China, excluding, for purposes of this annual report, Hong Kong, Macau and Taiwan. References to the “central government” mean the government of the PRC. References to “State Council” mean the State Council of the PRC. References to the “CIRC” mean the China Insurance Regulatory Commission. References to “MOF” or “Ministry of Finance” mean the Ministry of Finance of the PRC. References to “Ministry of Commerce” mean the Ministry of Commerce of the PRC. References to “CSRC” mean the China Securities Regulatory Commission. References to “CBRC” mean the China Banking Regulatory Commission. References to “PBOC” mean the People’s Bank of China. References to “SAFE” mean the State Administration of Foreign Exchange of the PRC. References to “SAIC” mean the State Administration for Industry and Commerce of the PRC.
References to “HKSE” or “Hong Kong Stock Exchange” mean The Stock Exchange of Hong Kong Limited. References to “NYSE” or “New York Stock Exchange” mean the New York Stock Exchange. References to “SSE” or “Shanghai Stock Exchange” mean the Shanghai Stock Exchange.
References to “IFRS” mean the International Financial Reporting Standards as issued by the International Accounting Standards Board, references to “U.S. GAAP” mean the generally accepted accounting principles in the United States, references to “HKFRS” mean the Hong Kong Financial Reporting Standards, issued by the Hong Kong Institute of Certified Public Accountants, and references to “PRC GAAP” mean the PRC Accounting Standards for Business Enterprises (2006) applicable to companies listed in the PRC. Unless otherwise indicated, our financial information presented in this annual report has been prepared in accordance with IFRS.
References to “Renminbi” or “RMB” in this annual report mean the currency of the PRC, references to “U.S. dollars” or “US$” mean the currency of the United States of America, and references to “Hong Kong dollars”, “H.K. dollars” or “HK$” mean the currency of the Hong Kong Special Administrative Region of the PRC.
Unless otherwise indicated, translations of RMB amounts into U.S. dollars for presentation only in this annual report have been made at the rate of US$1.00 to RMB 6.20466.5063, the noon buying rate in the City of New York for cable transfers payable in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2014.29, 2017. No representation is made that Renminbi amounts could have been, or could be, converted into U.S. dollars at that rate on December 31, 201429, 2017 or at all. Translations of foreign currency amounts into RMB amounts for the purpose of preparing our audited consolidated financial statements included elsewhere in this annual report or our previous annual reports have been made at the exchange rates published by the PBOC.
Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.
If there is any discrepancy or inconsistency between the Chinese names of the PRC entities in this annual report and their English translations, the Chinese version shall prevail.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable.
A.SELECTEDA. SELECTED FINANCIAL DATA
Selected Historical Consolidated Financial Data
The following tables set forth our selected consolidated financial information for the periods indicated. We have derived the consolidated financial information from our audited consolidated financial statements included elsewhere in this annual report or our previous annual reports.
We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB.
You should read this information in conjunction with the rest of the annual report, including our audited consolidated financial statements and the accompanying notes, “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report and the independent registered public accounting firm’s reports.
For the year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | 2014 | For the year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | US$ | 2013 | 2014 | 2015 | 2016 | 2017 | 2017 | |||||||||||||||||||||||||||||||||||||
(in millions except for per share data) | RMB | RMB | RMB | RMB | RMB | US$ | ||||||||||||||||||||||||||||||||||||||||||
Consolidated Statement of Comprehensive Income | (in millions except for per share data) | |||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Gross written premiums | 318,229 | 318,252 | 322,742 | 326,290 | 331,010 | 53,349 | 326,290 | 331,010 | 363,971 | 430,498 | 511,966 | 78,688 | ||||||||||||||||||||||||||||||||||||
Less: premiums ceded to reinsurers | (177 | ) | (232 | ) | (384 | ) | (556 | ) | (515 | ) | (83 | ) | (556 | ) | (515 | ) | (978 | ) | (1,758 | ) | (3,661 | ) | (563 | ) | ||||||||||||||||||||||||
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Net written premiums | 318,052 | 318,020 | 322,358 | 325,734 | 330,495 | 53,266 | 325,734 | 330,495 | 362,993 | 428,740 | 508,305 | 78,125 | ||||||||||||||||||||||||||||||||||||
Net change in unearned premium reserves | 36 | 256 | (232 | ) | (921 | ) | (390 | ) | (63 | ) | (921 | ) | (390 | ) | (692 | ) | (2,510 | ) | (1,395 | ) | (214 | ) | ||||||||||||||||||||||||||
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Net premiums earned | 318,088 | 318,276 | 322,126 | 324,813 | 330,105 | 53,203 | 324,813 | 330,105 | 362,301 | 426,230 | 506,910 | 77,911 | ||||||||||||||||||||||||||||||||||||
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Investment income | 48,872 | 60,722 | 73,243 | 82,816 | 93,548 | 15,077 | 82,816 | 93,548 | 97,582 | 109,147 | 122,727 | 18,863 | ||||||||||||||||||||||||||||||||||||
Net realised gains and impairment on financial assets | 15,841 | (11,208 | ) | (26,876 | ) | 5,793 | 7,120 | 1,148 | ||||||||||||||||||||||||||||||||||||||||
Net fair value gains/(losses) through profit or loss | 280 | 337 | (313 | ) | 137 | 5,808 | 936 | |||||||||||||||||||||||||||||||||||||||||
Net realized gains on financial assets | 5,793 | 7,120 | 32,297 | 6,038 | 42 | 6 | ||||||||||||||||||||||||||||||||||||||||||
Net fair value gains through profit or loss | 137 | 5,808 | 10,209 | (7,094 | ) | 6,183 | 950 | |||||||||||||||||||||||||||||||||||||||||
Other income | 2,757 | 2,772 | 3,305 | 4,324 | 4,185 | 675 | 4,324 | 4,185 | 5,060 | 6,460 | 7,493 | 1,152 | ||||||||||||||||||||||||||||||||||||
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Total revenues | 385,838 | 370,899 | 371,485 | 417,883 | 440,766 | 71,039 | 417,883 | 440,766 | 507,449 | 540,781 | 643,355 | 98,882 | ||||||||||||||||||||||||||||||||||||
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Benefits, claims and expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance benefits and claims expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance death and other benefits | (71,237 | ) | (101,349 | ) | (107,674 | ) | (193,671 | ) | (192,659 | ) | (31,051 | ) | (193,671 | ) | (192,659 | ) | (221,701 | ) | (253,157 | ) | (259,708 | ) | (39,916 | ) | ||||||||||||||||||||||||
Accident and health claims and claim adjustment expenses | (8,740 | ) | (7,789 | ) | (7,898 | ) | (11,263 | ) | (16,752 | ) | (2,700 | ) | (11,263 | ) | (16,752 | ) | (21,009 | ) | (27,269 | ) | (33,818 | ) | (5,198 | ) | ||||||||||||||||||||||||
Increase in insurance contract liabilities | (199,655 | ) | (181,579 | ) | (184,990 | ) | (107,354 | ) | (105,883 | ) | (17,065 | ) | (107,354 | ) | (105,883 | ) | (109,509 | ) | (126,619 | ) | (172,517 | ) | (26,515 | ) | ||||||||||||||||||||||||
Investment contract benefits | (1,950 | ) | (2,031 | ) | (2,032 | ) | (1,818 | ) | (1,958 | ) | (316 | ) | (1,818 | ) | (1,958 | ) | (2,264 | ) | (5,316 | ) | (8,076 | ) | (1,241 | ) | ||||||||||||||||||||||||
Policyholder dividends resulting from participation in profits | (13,224 | ) | (6,125 | ) | (3,435 | ) | (18,423 | ) | (24,866 | ) | (4,008 | ) | (18,423 | ) | (24,866 | ) | (33,491 | ) | (15,883 | ) | (21,871 | ) | (3,362 | ) | ||||||||||||||||||||||||
Underwriting and policy acquisition costs | (27,256 | ) | (27,434 | ) | (27,754 | ) | (25,690 | ) | (27,147 | ) | (4,375 | ) | (25,690 | ) | (27,147 | ) | (35,569 | ) | (52,022 | ) | (64,789 | ) | (9,958 | ) | ||||||||||||||||||||||||
Finance costs | (304 | ) | (873 | ) | (2,575 | ) | (4,032 | ) | (4,726 | ) | (762 | ) | (4,032 | ) | (4,726 | ) | (4,320 | ) | (4,767 | ) | (4,601 | ) | (707 | ) | ||||||||||||||||||||||||
Administrative expenses | (20,285 | ) | (21,549 | ) | (23,283 | ) | (24,805 | ) | (25,432 | ) | (4,099 | ) | (24,805 | ) | (25,432 | ) | (27,458 | ) | (31,854 | ) | (35,953 | ) | (5,526 | ) | ||||||||||||||||||||||||
Other expenses | (3,351 | ) | (3,275 | ) | (3,304 | ) | (3,864 | ) | (4,151 | ) | (668 | ) | (3,864 | ) | (4,151 | ) | (7,428 | ) | (4,859 | ) | (6,426 | ) | (988 | ) | ||||||||||||||||||||||||
Statutory insurance fund contribution | (599 | ) | (595 | ) | (609 | ) | (637 | ) | (701 | ) | (113 | ) | (637 | ) | (701 | ) | (743 | ) | (1,048 | ) | (1,068 | ) | (164 | ) | ||||||||||||||||||||||||
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Total benefits, claims and expenses | (346,601 | ) | (352,599 | ) | (363,554 | ) | (391,557 | ) | (404,275 | ) | (65,157 | ) | (391,557 | ) | (404,275 | ) | (463,492 | ) | (522,794 | ) | (608,827 | ) | (93,575 | ) | ||||||||||||||||||||||||
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Share of profit of associates and joint ventures | 1,771 | 2,213 | 3,037 | 3,125 | 3,911 | 630 | ||||||||||||||||||||||||||||||||||||||||||
Share of profit of associates and joint ventures, net | 3,125 | 3,911 | 1,974 | 5,855 | 7,143 | 1,098 | ||||||||||||||||||||||||||||||||||||||||||
Profit before income tax | 41,008 | 20,513 | 10,968 | 29,451 | 40,402 | 6,512 | 29,451 | 40,402 | 45,931 | 23,842 | 41,671 | 6,405 | ||||||||||||||||||||||||||||||||||||
Income tax | (7,197 | ) | (2,022 | ) | 304 | (4,443 | ) | (7,888 | ) | (1,272 | ) | (4,443 | ) | (7,888 | ) | (10,744 | ) | (4,257 | ) | (8,919 | ) | (1,371 | ) | |||||||||||||||||||||||||
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Net profit | 33,811 | 18,491 | 11,272 | 25,008 | 32,514 | 5,240 | 25,008 | 32,514 | 35,187 | 19,585 | 32,752 | 5,034 | ||||||||||||||||||||||||||||||||||||
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Attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||
- Equity holders of the Company | 33,626 | 18,331 | 11,061 | 24,765 | 32,211 | 5,191 | 24,765 | 32,211 | 34,699 | 19,127 | 32,253 | 4,957 | ||||||||||||||||||||||||||||||||||||
- Non-controlling interests | 185 | 160 | 211 | 243 | 303 | 49 | 243 | 303 | 488 | 458 | 499 | 77 | ||||||||||||||||||||||||||||||||||||
Basic and diluted earnings per share(1) | 1.19 | 0.65 | 0.39 | 0.88 | 1.14 | 0.18 | 0.88 | 1.14 | 1.22 | 0.66 | 1.13 | 0.17 | ||||||||||||||||||||||||||||||||||||
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(1) | Numbers are based on the weighted average number of 28,264,705,000 shares in issue. |
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | 2014 | 2013 | 2014 | 2015 | 2016 | 2017 | 2017 | |||||||||||||||||||||||||||||||||||||
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(in millions except for per share data) | (in millions except for per share data) | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income that may be reclassified to profit or loss in subsequent periods: | ||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Statement of Comprehensive Income | ||||||||||||||||||||||||||||||||||||||||||||||||
Fair value gains/(losses) on available-for-sale securities | (13,666 | ) | (45,576 | ) | 8,864 | (25,135 | ) | 70,342 | 11,339 | (25,135 | ) | 70,342 | 54,080 | (44,509 | ) | (15,003 | ) | (2,306 | ) | |||||||||||||||||||||||||||||
Amount transferred to net profit from other comprehensive income | (15,763 | ) | 11,054 | 26,876 | (5,793 | ) | (7,120 | ) | (1,148 | ) | (5,793 | ) | (7,120 | ) | (32,297 | ) | (6,038 | ) | (42 | ) | (6 | ) | ||||||||||||||||||||||||||
Portion of fair value changes on available-for-sale securities attributable to participating policyholders | 7,983 | 2,521 | (2,635 | ) | 2,635 | (11,035 | ) | (1,779 | ) | 2,635 | (11,035 | ) | (12,767 | ) | 17,372 | 5,605 | 861 | |||||||||||||||||||||||||||||||
Share of other comprehensive income of associates and joint ventures under the equity method | (131 | ) | (201 | ) | 167 | (332 | ) | 120 | 19 | (332 | ) | 120 | 353 | (864 | ) | 20 | 3 | |||||||||||||||||||||||||||||||
Others | (1 | ) | (1 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Exchange differences on translating foreign operations | — | — | 10 | 21 | (865 | ) | (133 | ) | ||||||||||||||||||||||||||||||||||||||||
Income tax relating to components of other comprehensive income | 5,362 | 7,989 | (8,265 | ) | 7,050 | (13,023 | ) | (2,099 | ) | 7,050 | (13,023 | ) | (2,242 | ) | 8,242 | 2,359 | 363 | |||||||||||||||||||||||||||||||
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Other comprehensive income that may be reclassified to profit or loss in subsequent periods | (16,216 | ) | (24,214 | ) | 25,007 | (21,575 | ) | 39,284 | 6,332 | (21,575 | ) | 39,284 | 7,137 | (25,776 | ) | (7,926 | ) | (1,218 | ) | |||||||||||||||||||||||||||||
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Other comprehensive income that will not be reclassified to profit or loss in subsequent periods | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Other comprehensive income for the year, net of tax | (16,216 | ) | (24,214 | ) | 25,007 | (21,575 | ) | 39,284 | 6,332 | (21,575 | ) | 39,284 | 7,137 | (25,776 | ) | (7,926 | ) | (1,218 | ) | |||||||||||||||||||||||||||||
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Total comprehensive income for the year, net of tax | 17,595 | (5,723 | ) | 36,279 | 3,433 | 71,798 | 11,572 | 3,433 | 71,798 | 42,324 | (6,191 | ) | 24,826 | 3,816 | ||||||||||||||||||||||||||||||||||
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Attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||
- Equity holders of the Company | 17,423 | (5,874 | ) | 36,056 | 3,203 | 71,443 | 11,515 | 3,203 | 71,443 | 41,775 | (6,647 | ) | 24,341 | 3,741 | ||||||||||||||||||||||||||||||||||
- Non-controlling interests | 172 | 151 | 223 | 230 | 355 | 57 | 230 | 355 | 549 | 456 | 485 | 75 |
As of December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | 2014 | As of December 31, | ||||||||||||||||||||||||||||||||||||||||||
RMB | RMB | RMB | RMB | RMB | US$ | 2013 | 2014 | 2015 | 2016 | 2017 | 2017 | |||||||||||||||||||||||||||||||||||||
(in millions) | RMB | RMB | RMB | RMB | RMB | US$ | ||||||||||||||||||||||||||||||||||||||||||
Consolidated Statement of Financial Position | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Property, plant and equipment | 18,946 | 20,231 | 22,335 | 23,393 | 25,348 | 4,085 | 23,393 | 25,348 | 26,974 | 30,389 | 42,707 | 6,564 | ||||||||||||||||||||||||||||||||||||
Investment properties | — | — | — | 1,329 | 1,283 | 207 | 1,329 | 1,283 | 1,237 | 1,191 | 3,064 | 471 | ||||||||||||||||||||||||||||||||||||
Investments in associates and joint ventures | 20,892 | 24,448 | 28,991 | 34,775 | 44,390 | 7,154 | 34,775 | 44,390 | 47,175 | 119,766 | 161,472 | 24,818 | ||||||||||||||||||||||||||||||||||||
Held-to-maturity securities | 246,227 | 261,933 | 452,389 | 503,075 | 517,283 | 83,371 | 503,075 | 517,283 | 504,075 | 594,730 | 717,037 | 110,207 | ||||||||||||||||||||||||||||||||||||
Loans | 36,543 | 61,104 | 80,419 | 118,626 | 166,453 | 26,827 | 118,626 | 166,453 | 207,267 | 226,573 | 383,504 | 58,943 | ||||||||||||||||||||||||||||||||||||
Term deposits | 441,585 | 520,793 | 641,080 | 664,174 | 690,156 | 111,233 | 664,174 | 690,156 | 562,622 | 538,325 | 449,400 | 69,072 | ||||||||||||||||||||||||||||||||||||
Statutory deposits - restricted | 6,153 | 6,153 | 6,153 | 6,153 | 6,153 | 992 | 6,153 | 6,153 | 6,333 | 6,333 | 6,333 | 973 | ||||||||||||||||||||||||||||||||||||
Available-for-sale securities | 548,121 | 562,948 | 506,416 | 491,527 | 607,531 | 97,916 | 491,527 | 607,531 | 770,516 | 766,423 | 810,734 | 124,608 | ||||||||||||||||||||||||||||||||||||
Securities at fair value through profit or loss | 9,762 | 23,683 | 34,035 | 34,172 | 53,052 | 8,550 | 34,172 | 53,052 | 137,990 | 209,124 | 136,809 | 21,027 | ||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | — | 2,370 | 894 | 8,295 | 11,925 | 1,922 | 8,295 | 11,925 | 21,503 | 43,538 | 36,185 | 5,562 | ||||||||||||||||||||||||||||||||||||
Accrued investment income | 18,193 | 22,946 | 28,926 | 34,717 | 44,350 | 7,148 | 34,717 | 44,350 | 49,552 | 55,945 | 50,641 | 7,783 | ||||||||||||||||||||||||||||||||||||
Premiums receivable | 7,274 | 8,253 | 8,738 | 9,876 | 11,166 | 1,800 | 9,876 | 11,166 | 11,913 | 13,421 | 14,121 | 2,170 | ||||||||||||||||||||||||||||||||||||
Reinsurance assets | 830 | 878 | 948 | 1,069 | 1,032 | 166 | 1,069 | 1,032 | 1,420 | 2,134 | 3,046 | 468 | ||||||||||||||||||||||||||||||||||||
Other assets | 8,199 | 12,182 | 18,140 | 20,430 | 19,411 | 3,129 | 20,430 | 19,411 | 23,642 | 22,013 | 33,952 | 5,218 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 47,854 | 55,985 | 69,452 | 21,330 | 47,034 | 7,581 | 21,330 | 47,034 | 76,096 | 67,046 | 48,586 | 7,468 | ||||||||||||||||||||||||||||||||||||
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Total assets | 1,410,579 | 1,583,907 | 1,898,916 | 1,972,941 | 2,246,567 | 362,081 | 1,972,941 | 2,246,567 | 2,448,315 | 2,696,951 | 2,897,591 | 445,352 | ||||||||||||||||||||||||||||||||||||
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Liabilities and equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance contracts | 1,018,135 | 1,199,373 | 1,384,537 | 1,494,497 | 1,603,446 | 258,429 | 1,494,497 | 1,603,446 | 1,715,985 | 1,847,986 | 2,025,133 | 311,257 | ||||||||||||||||||||||||||||||||||||
Investment contracts | 70,171 | 69,797 | 66,639 | 65,087 | 72,275 | 11,649 | 65,087 | 72,275 | 84,106 | 195,706 | 232,500 | 35,735 | ||||||||||||||||||||||||||||||||||||
Policyholder dividends payable | 52,828 | 46,368 | 44,240 | 49,536 | 74,745 | 12,047 | 49,536 | 74,745 | 107,774 | 87,725 | 83,910 | 12,897 | ||||||||||||||||||||||||||||||||||||
Interest-bearing loans and borrowings | — | — | — | — | 2,623 | 423 | — | 2,623 | 2,643 | 16,170 | 18,794 | 2,889 | ||||||||||||||||||||||||||||||||||||
Bonds payable | — | 29,990 | 67,981 | 67,985 | 67,989 | 10,958 | 67,985 | 67,989 | 67,994 | 37,998 | — | — | ||||||||||||||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss | — | — | — | — | 10,890 | 1,755 | — | 10,890 | 856 | 2,031 | 2,529 | 389 | ||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 23,065 | 13,000 | 68,499 | 20,426 | 46,089 | 7,428 | 20,426 | 46,089 | 31,354 | 81,088 | 87,309 | 13,419 | ||||||||||||||||||||||||||||||||||||
Annuity and other insurance balances payable | 8,275 | 11,954 | 16,890 | 23,179 | 25,617 | 4,129 | 23,179 | 25,617 | 30,092 | 39,038 | 44,820 | 6,889 | ||||||||||||||||||||||||||||||||||||
Premiums received in advance | 1,880 | 3,719 | 2,576 | 6,305 | 15,850 | 2,555 | 6,305 | 15,850 | 32,266 | 35,252 | 18,505 | 2,844 | ||||||||||||||||||||||||||||||||||||
Other liabilities | 13,746 | 13,968 | 16,435 | 18,233 | 20,062 | 3,232 | 18,233 | 20,062 | 26,514 | 36,836 | 47,430 | 7,290 | ||||||||||||||||||||||||||||||||||||
Deferred tax liabilities | 11,776 | 1,454 | 7,834 | 4,919 | 19,375 | 3,123 | 4,919 | 19,375 | 16,953 | 7,768 | 4,871 | 749 | ||||||||||||||||||||||||||||||||||||
Current income tax liabilities | 34 | 750 | 22 | 5 | 52 | 8 | 5 | 52 | 5,347 | 1,214 | 6,198 | 953 | ||||||||||||||||||||||||||||||||||||
Statutory insurance fund | 194 | 146 | 162 | 184 | 223 | 36 | 184 | 223 | 217 | 491 | 282 | 43 | ||||||||||||||||||||||||||||||||||||
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Total liabilities | 1,200,104 | 1,390,519 | 1,675,815 | 1,750,356 | 1,959,236 | 315,772 | 1,750,356 | 1,959,236 | 2,122,101 | 2,389,303 | 2,572,281 | 395,352 | ||||||||||||||||||||||||||||||||||||
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Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Share capital | 28,265 | 28,265 | 28,265 | 28,265 | 28,265 | 4,555 | 28,265 | 28,265 | 28,265 | 28,265 | 28,265 | 4,344 | ||||||||||||||||||||||||||||||||||||
Other equity instruments | — | — | 7,791 | 7,791 | 7,791 | 1,197 | ||||||||||||||||||||||||||||||||||||||||||
Reserves | 100,537 | 83,424 | 112,509 | 97,029 | 145,919 | 23,518 | 97,029 | 145,919 | 163,381 | 145,007 | 145,675 | 22,390 | ||||||||||||||||||||||||||||||||||||
Retained earnings | 79,908 | 79,841 | 80,311 | 95,037 | 109,937 | 17,719 | 95,037 | 109,937 | 123,055 | 122,558 | 139,202 | 21,395 | ||||||||||||||||||||||||||||||||||||
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Attributable to equity holders of the Company | 208,710 | 191,530 | 221,085 | 220,331 | 284,121 | 45,792 | 220,331 | 284,121 | 322,492 | 303,621 | 320,933 | 49,326 | ||||||||||||||||||||||||||||||||||||
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Non-controlling interests | 1,765 | 1,858 | 2,016 | 2,254 | 3,210 | 517 | ||||||||||||||||||||||||||||||||||||||||||
Non-controlling interests | 2,254 | 3,210 | 3,722 | 4,027 | 4,377 | 673 | ||||||||||||||||||||||||||||||||||||||||||
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Total equity | 210,475 | 193,388 | 223,101 | 222,585 | 287,331 | 46,309 | 222,585 | 287,331 | 326,214 | 307,648 | 325,310 | 49,999 | ||||||||||||||||||||||||||||||||||||
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Total liabilities and equity | 1,410,579 | 1,583,907 | 1,898,916 | 1,972,941 | 2,246,567 | 362,081 | 1,972,941 | 2,246,567 | 2,448,315 | 2,696,951 | 2,897,591 | 445,352 | ||||||||||||||||||||||||||||||||||||
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Exchange Rate Information
We prepare our consolidated financial statements in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars, and U.S. dollars into Renminbi, at RMB 6.2046 to6.5063to US$1.00, the noon buying rate on December 31, 201429, 2017 in the City of New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York. You should not assume that Renminbi amounts could actually be converted into U.S. dollars at these rates or at all. Translations of foreign currency amounts into RMB amounts for the purpose of preparing our audited consolidated financial statements included elsewhere in this annual report or our previous annual reports have been made at the exchange rates published by the PBOC.
Since July 21, 2005, the PRC government has followed a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. DuringUnder this period,system, the PRC government has made, and may in the future make, further adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity for the trading against the Renminbi on the following working day. On August 11, 2015, the PBOC adjusted the quotation mechanism of the Renminbi central parity to also consider demand and supply in foreign exchange markets and price movements of major currencies, in addition to the closing price on the previous working day. On May 26, 2017, the PBOC introduced a “counter-cyclical factor” into its formula that determines a central parity of Renminbi against the U.S. dollar. Under the current mechanism, the central parity of the Renminbi against the U.S. dollar is determined based on the closing rate, changes in a basket of currencies and the counter-cyclical factor. See “Item 3. Key Information—Risk Factors—Risks Relating to the People’s Republic of China—Government control of currency conversion and the fluctuation of the Renminbi may materially and adversely affect our operations and financial results”. In 2017, the Renminbi appreciated by approximately 6.36% against the U.S. dollar. It remains unclear what further fluctuations may occur or what impact this will have on the value of the Renminbi.
Although PRC governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital account items, such as foreign direct investments, loans or securities, requires the approval of the SAFE and other relevant authorities. Although experimental policies were recently introduced in certain pilot areas such as the Shanghai free trade zone to reduce foreign exchange control, restrictions on the convertibility of Renminbi into foreign currency are still in force in most parts of China.
The Hong Kong dollar is freely convertible into other currencies, including the U.S. dollar. Since October 17, 1983, the Hong Kong dollar has been linked to the U.S. dollar at the rate of HK$7.80 to US$1.00. The central element in the arrangements which give effect to the link is that by agreement between the Hong Kong government and the three Hong Kong banknote issuing banks, The Hong KongHongkong and Shanghai Banking Corporation Limited, Standard Chartered Bank (Hong Kong) Limited and the Bank of China (Hong Kong) Limited, certificates of debts, which are issued by the Hong Kong Government Exchange Fund to the banknote issuing banks to be held as cover for their banknote issues, are issued and redeemed only against payment in U.S. dollars, at the fixed exchange rate of HK$7.80 to US$1.00. When the banknotes are withdrawn from circulation, the banknote issuing banks surrender the certificates of debts to the Hong Kong Government Exchange Fund and are paid the equivalent U.S. dollars at the fixed rate.
The market exchange rate of the Hong Kong dollar against the U.S. dollar continues to be determined by the forces of supply and demand in the foreign exchange market. However, against the background of the fixed rate which applies to the issue of the Hong Kong currency in the form of banknotes, as described above, the market exchange rate has not deviated materially from the level of HK$7.80 to US$1.00 since the link was first established. The Hong Kong government has stated its intention to maintain the link at that rate, and it, acting through the Hong Kong Monetary Authority, has a number of means by which it may act to maintain exchange rate stability. Exchange rates between the Hong Kong dollar and other currencies are influenced by the linked rate between the U.S. dollar and the Hong Kong dollar.
The following tables set forth various information concerning exchange rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates we used in this annual report. The source of these rates is the H.10 statistical release of the Federal Reserve Board. On April 17, 2015,13, 2018, the exchange rates were US$ 1.00 to RMB 6.1976 and6.2725and US$ 1.00 to HK$7.7510, 7.8499, respectively. The following table sets forth the high and low rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for each of the periods shown:
RMB per US$ | HK$ per US$ | |||||||||||||||
High | Low | High | Low | |||||||||||||
October 2014 | 6.1385 | 6.1107 | 7.7645 | 7.7541 | ||||||||||||
November 2014 | 6.1429 | 6.1117 | 7.7572 | 7.7519 | ||||||||||||
December 2014 | 6.2256 | 6.1490 | 7.7616 | 7.7509 | ||||||||||||
January 2015 | 6.2535 | 6.1870 | 7.7563 | 7.7508 | ||||||||||||
February 2015 | 6.2695 | 6.2399 | 7.7584 | 7.7517 | ||||||||||||
March 2015 | 6.2741 | 6.1930 | 7.7686 | 7.7516 | ||||||||||||
April 2015 (through April 17, 2015) | 6.2152 | 6.1930 | 7.7525 | 7.7499 |
RMB per US$ | HK$ per US$ | |||||||||||||||
High | Low | High | Low | |||||||||||||
October 2017 | 6.6533 | 6.5712 | 7.8106 | 7.7996 | ||||||||||||
November 2017 | 6.6385 | 6.5967 | 7.8118 | 7.7955 | ||||||||||||
December 2017 | 6.6210 | 6.5063 | 7.8228 | 7.8050 | ||||||||||||
January 2018 | 6.5263 | 6.2841 | 7.8230 | 7.8161 | ||||||||||||
February 2018 | 6.3471 | 6.2649 | 7.8267 | 7.8183 | ||||||||||||
March 2018 | 6.3565 | 6.2685 | 7.8486 | 7.8275 | ||||||||||||
April 2018 (through April 13, 2018) | 6.3045 | 6.2655 | 7.8499 | 7.8482 |
The following table sets forth theperiod-end rates and the average rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for each of 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 and 20152018 (through April 17, 2015)13, 2018) (calculated by averaging the rates on the last day of each month of the periods shown):
Period-end rate | Average rate | |||||||||||||||
RMB per US$ | HK$ per US$ | RMB per US$ | HK$ per US$ | |||||||||||||
2010 | 6.6000 | 7.7810 | 6.7603 | 7.7692 | ||||||||||||
2011 | 6.2939 | 7.7663 | 6.4475 | 7.7793 | ||||||||||||
2012 | 6.2301 | 7.7507 | 6.2990 | 7.7556 | ||||||||||||
2013 | 6.0537 | 7.7539 | 6.1412 | 7.7565 | ||||||||||||
2014 | 6.2046 | 7.7531 | 6.1704 | 7.7554 | ||||||||||||
2015 (through April 17, 2015) | 6.1976 | 7.7510 | 6.2289 | 7.7535 |
Period-end rate | Average rate | |||||||||||||||
RMB per US$ | HK$ per US$ | RMB per US$ | HK$ per US$ | |||||||||||||
2013 | 6.0537 | 7.7539 | 6.1412 | 7.7565 | ||||||||||||
2014 | 6.2046 | 7.7531 | 6.1704 | 7.7554 | ||||||||||||
2015 | 6.4778 | 7.7507 | 6.2869 | 7.7519 | ||||||||||||
2016 | 6.9430 | 7.7534 | 6.6549 | 7.7618 | ||||||||||||
2017 | 6.5063 | 7.8128 | 6.7350 | 7.7950 | ||||||||||||
2018 (through April 13, 2018) | 6.2725 | 7.8499 | 6.2893 | 7.8364 |
B. CAPITALIZATION AND INDEBTEDNESS
Not Applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable.
Our business, financial condition and results of operations can be affected materially and adversely by any of the following risk factors. The risks and uncertainties described below may not be the only ones that we face. Additional risks and uncertainties that we are not aware of or that we currently believe are immaterial may also adversely affect our business, financial condition or results of operations.
Risks Relating to Our Business
Our investments are subject to risks.
We are exposed to potential investment losses if there is an economic downturn in China.
Until November 2006, we were only permitted to invest the premiums and other income we receive in investments in China. We obtained the approval to invest overseas with our foreign currency denominated funds in November 2006. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Regulation of investments”. However, we continued to make our investments mainly in China and, as of December 31, 2017, approximately98.90% of our total investment assets were in China. In particular, as of December 31, 2017, approximately 48.43% of our total investment assets consisted of debt securities including Chinese government bonds, government agency bonds, corporate bonds, subordinated bonds and debt and other bonds and debts as approved by relevant government agencies;approximately 17.34% of our total investment assets consisted of term deposits with Chinese banks, of which 58.80% were placed with the five largest Chinese state-owned commercial banks; and approximately 14.80% of our total investment assets consisted of loans provided to Chinese entities and individuals, including policy loans, investment in debt investment plans and trust schemes. A serious downturn in the Chinese economy may lead to investment losses, which would reduce our earnings.
The PRC securities markets are still emerging markets, which may expose us to risks of loss from our investments there.
As of December 31, 2017, we had RMB 409,528 million (US$ 62,943million) invested in equity securities, among which RMB 132,826 million (US$ 20,415million) were invested in PRC securities markets, including securities investment funds and shares traded on the securities markets in China. These securities investment funds and shares are primarily invested in equity securities that are issued by Chinese companies and traded on China’s stock exchanges. The PRC securities markets are still emerging markets and are characterized by evolving regulatory, accounting and disclosure requirements. This may from time to time result in significant price volatility, unexpected losses or lack of liquidity. These factors could cause us to incur losses on our publicly traded investments. Also, as one of the largest institutional investors in China, we may from time to time hold significant positions in many securities in which we invest, and any decision to sell or any perception in the market that we are a major seller of a security could adversely affect the liquidity and market price of that security.
Defaults on our debt investments may materially and adversely affect our profitability.
Approximately 48.43% of our investment assets as of December 31, 2017 were comprised of debt securities. The issuers whose debt securities we hold may fail to pay or otherwise default on their obligations due to bankruptcy, a lack of liquidity, a downturn in the economy, operational failures or other reasons. Losses due to these defaults could reduce our profitability.
Defaults on our investments in loans may materially and adversely affect our profitability.
Approximately 14.80% of our investment assets as of December 31, 2017 were comprised of loans, including policy loans, investments in debt investment plans and trust schemes. The borrowers to whom we provided loans may fail to pay or otherwise default on their obligations due to bankruptcy, a lack of liquidity, a downturn in the economy, operational failures or other reasons. Losses due to these defaults could reduce our profitability.
Investments in new investment channels may not lead to improvements in our rate of investment return or we may incur losses.
The CIRC has in recent years significantly broadened the investment channels of Chinese life insurance companies.We have considered these alternative channels when making investments. For example, we made our first domestic private equity fund investment in 2011.In2012, wemade a direct equity investment in COFCO Futures Co., Ltd. by acquiring a 35% equity interest in it. In 2013, we began making investments in commercial real estate properties.In 2014, we made our first overseas real estate investment, first overseas private equity fund investment and first domestic preferred shares investment.In 2016, we made our first investment in shares traded on the Hong Kong Stock Exchange through the Shanghai-Hong Kong Stock Connect between China’s mainland markets and the Hong Kong Stock Exchange, and we also made our first investment in interbank negotiable certificates of deposit.However, our experience with these new investment channels, especially overseas channels, is limited, and these new channels are still subject to evolving regulatory requirements, which may increase the risk exposure of our investments. For example, since January 2013, debt investment plans are no longer required to be filed with and reviewed by the CIRC, and in March 2014, the CIRC warned insurance companies of risks in debt investment plans. The CIRC noted, among other things, that issuers of some debt investment plans are not properly backed by their parent companies which are supposed to guarantee the payments if the plans face financial difficulties. Parent companies of some issuers do not engage in operating activities that can generate cash inflows and do not have effective control over their subsidiaries. As a result, the consolidated financial statements of these companies may not fully reflect their capacity to make payments when the plans face financial difficulties.As of December 31, 2017, the total amount of our investment in debt investment plans was RMB 73,668 million (US$ 11,323million).These factors could cause us to incur losses for our investments in these new investment channels or limit our ability to improve our rate of investment return.
We may incur foreign exchange and other losses for our investments denominated in foreign currencies.
A portion of our investment assets are held in foreign currencies. We are authorized by the CBIRC (formerly CIRC) to invest our assets held in foreign currencies in the overseas financial markets as permitted by the CBIRC (formerly CIRC). Thus, our investment results may be subject to foreign exchange gains and losses due to changes in exchange rates as well as the volatility and various other factors of overseas capital markets, including, among others, increase in interest rates. We recorded RMB 52 million (US$ 8.0 million) in foreign exchange gains for the year ended December 31, 2017, resulting mainly from the increase in our assets held in foreign currencies and the fluctuation of the Renminbi exchange rate. However, it remains unclear what further fluctuations may occur or what impact this will have on the value of the Renminbi. Future movements in the exchange rate of RMB against the U.S. dollar and other foreign currencies may adversely affect our results of operations and financial condition.
We are exposed to changes in interest rates.
Changes in interest rates may affect our profitability.
Our profitability is affected by changes in interest rates. Interest rates are highly sensitive to many factors, including economic growth rate, inflation, governmental monetary and tax policies, domestic and international economic and political conditions, financial regulatory requirements and other factors beyond our control. If interest rates were to increase significantly in the future, surrenders and withdrawals of life insurance and annuity policies and contracts may increase as policy holders may seek other investments with higher perceived returns. This process may result in cash outflows requiring that we sell investment assets at a time when the prices of those assets are adversely affected by the increase in market interest rates, which may result in realized investment losses. However, if interest rates were to decline in the future, the income we realize from our investments may decrease, affecting our profitability. In addition, as instruments in our investment portfolio mature, we might have to reinvest the funds we receive in investments bearing low interest rates, which may also affect our profitability. See “Item 11 Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk”.
For our long-term life insurance products including annuity products, we are obligated to pay contractual benefits to our policyholders or the beneficiaries based on a guaranteed interest rate, which is established when the product is priced. These products expose us to the risk that changes in interest rates may change our “spread”, or the difference between the amount of return that we are able to earn on our investments and the amount of return that we are required to pay based on a guaranteed interest rate under the policies.
On June 10, 1999, the CIRC set the maximum guaranteed interest rate which insurance companies could commit to pay on new policies at 2.50% (compounded annually) and, in response, we set the guaranteed interest rates on our products at a range of between 1.50% and 2.50%. In August 2013, February 2015 and September 2015, the CIRC removed the 2.50% cap on the guaranteed interest rates for traditionalnon-participating insurance policies, universal life insurance policies and participating life insurance policies, respectively. From October 1, 2015, the guaranteed interest rates of all long-term life insurance products are to be decided by insurance companies at their discretion in accordance with the principle of prudence, but CBIRC (formerly CIRC) approval is required for products with guaranteed interest rates above the maximum valuation rate set by the CIRC. This maximum valuation rate varies by product. Although the removal of the 2.50% cap has not resulted in any material impact on the profitability of our insurance policies in force, it could result in the increase of the guaranteed interest rates of our new products and the decrease of our spread. We cannot assure you that the removal of the 2.50% cap will not lead to a material adverse effect on our business, results of operations or financial condition.
As of December 31, 2017, the average guaranteed rate of return for all of our long-term insurance policies in force was 2.62%, while our investment yields for the years ended December 31, 2017, 2016 and 2015 were 5.16%, 4.61% and 6.47%, respectively. See “Item 4. Information on the Company—Business Overview—Investments—Investment Results”. However, if the rates of return on our investments were to fall below the minimum rates we guarantee, our profitability would be materially and adversely affected.
Because of the general lack of long-term fixed income securities in the Chinese capital markets, we are unable to match closely the duration of our assets and liabilities, which increases our exposure to interest rate risk.
Like other insurance companies, we seek to manage interest rate risk through managing, to the extent possible, the average duration of our investment assets and the insurance policy liabilities they support. Matching the duration of our assets to their related liabilities reduces our exposure to changes in interest rates, because the effect of the changes largely will be offset against each other.However, the limited availability of long-duration investment assets in the markets in which we invest, has resulted in, and in the future may result in, the duration of our assets being shorter than that of our liabilities, particularly with respect to liabilities with durations of more than 20 years.Furthermore, the Chinese financial markets currently do not provide adequate financial derivative products for us to hedge our interest rate risk.We believe that with the development of the Chinese capital markets and the gradual easing of the investment restrictions imposed on insurance companies in China, our ability to match the duration of our assets to that of our liabilities will improve. We also seek to manage the risk of duration mismatch by focusing on product offerings whose maturity profiles are in line with the duration of investments available to us in the prevailing investment environment. However, until we are able to match more closely the duration of our assets and liabilities, we will continue to be exposed to interest rate changes, which may materially and adversely affect our business and earnings.
Our growth is dependent on our ability to attract and retain productive agents.
A substantial portion of our business is conducted through our individual agents. Becauseexclusive agents.Because of differences in productivity, a relatively small percentagesome of our sales agents isare responsible for a disproportionately high percentage of our sales of individual products. If we are unable to retain and build on this core group of highly productive agents, our business could be materially and adversely affected. Increasing competition for agents from other insurance companies and business institutions and increasing labor costs in China may also force us to increase the compensation of our agents, and sales representatives, which would increase our operating costs and reduce our profitability. In addition, on January 6, 2013, the CIRC issued the Regulatory Rules on Insurance Sales Personnel, or the Sales Personnel Rules, which became effective on July 1, 2013. Among other things, the Sales Personnel Rules provide that individualexclusive agents must have at least a college degree, instead of a junior high school degree as previously required by the CIRC. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Regulation of Insurance Agencies, Insurance Brokers and Other Intermediaries”. While detailed rules implementing the Sales Personnel Rules have not been issued and it is still unclear how such rules will be implemented by the CIRC at the national level, theThe CIRC has authorized its local branches to set the education degree requirements for individualexclusive agents by considering local conditions. As of the date of this annual report, the CIRC’s local branches maintain different requirements on education degrees of the individual agents who practice in their respective jurisdictions. For example, the CIRC’s Beijing branch has stipulated that since January 1, 2015, any new qualified individual agents that sell insurance products in Beijing must have at least a college degree. The CIRC’s Jiangsu branch has stipulated that the college degree requirement will be applicable to any new qualified individual agents who sell insurance products in Jiangsu province’s non-rural and rural areas since July 1, 2015 and July 1, 2018, respectively. The CIRC’s Hainan branch has stipulated that since July 1, 2013, any new qualified individual agents who sell insurance products in Hainan’s non-rural areas must have at least a high school degree. Weconditions.We believe that the market competition for qualified agents will be increased further if more CIRCCBIRC (formerly CIRC) branches were to impose the requirement of having a college degree or above on new qualified individualexclusive agents, or if the CIRC were to strictly enforce such rules at the national level. Wewe cannot guarantee that we will not have difficulty in attracting and retaining productive agents in the future. In addition, as the market competition for qualified agents increases, our costs of attracting and retaining qualified agents may increase.
If we are unable to develop other distribution channels for our products, our growth may be materially and adversely affected.
Commercial banks and banking operations of post offices are rapidly emerging as some of the fastest growing distribution channels in China. NewlyMany newly established domestic and foreign-invested life insurance companies have been focusing on commercial banks and banking operations of post offices as one of their main distribution channels. Inchannels.In addition, with the relaxation of the regulatory restrictions of ownership by commercial banks in insurance companies, the number of insurance companies owned or controlled by commercial banks is increasing. Each of the five largest Chinese stated-ownedstate-owned commercial banks has set up their own life insurance companies. These insurance companies are able to benefit from their holding relationships with these commercial banks to develop bancassurance as their main distribution channels. We do not have exclusive arrangements with any of the commercial banks and banking operations of post offices through which we sell life insurance and annuity products, and thus our sales may be materially and adversely affected if one or more commercial banks or banking operations of post offices choose to favor our competitors’ products over our own. Inown.In addition, as the bancassurance market becomes increasingly competitive, commercial banks and banking operations of post offices may demand higher commission rates, which could increase our cost of sales and reduce our profitability. Ifprofitability.If we are unable to continue to develop our alternative distribution channels, our growth may be materially and adversely affected.
Agent and employee misconduct is difficult to detect and deter and could harm our reputation or lead to regulatory sanctions or litigation costs.
Agent or employee misconduct could result in violations of law by us, regulatory sanctions, litigation or serious reputational or financial harm. Misconduct could include:
We cannot always deter agent or employee misconduct, and the precautions we take to prevent and detect these activities may not be effective in all cases. We have experienced agent and employee misconduct that has resulted in litigation and administrative actions against us and these agents and employees, and in some cases criminal proceedings and convictions against the agent or employee in question. Nonequestion.None of these actions has resulted in material losses, damages, fines or other sanctions against us. Weus.We cannot assure you, however, that agent or employee misconduct will not lead to a material adverse effect on our business, results of operations, financial condition or prospects.
Our business is dependent on our ability to attract and retain key personnel, including senior management, underwriting personnel, actuaries, information technology specialists, investment managers and other professionals.
The success of our business is dependent to a large extent on our ability to attract and retain key personnel who havein-depth knowledge and understanding of the life insurance market in China, including members of our senior management, qualified underwriting personnel, actuaries, information technology specialists and experienced investment managers. Asmanagers.As of the date of this annual report, we do not carry key personnel insurance for any of these personnel. Wepersonnel.We compete to attract and retain these key personnel with other life insurance companies and financial institutions, some of which may offer better compensation arrangements. Existing insurers are expanding their operations and the number of other financial institutions is growing. As the insurance and investment businesses continue to expand in China, we expect that competition for these personnel will increase in the future. Although we have not had difficulty in attracting and retaining qualified key personnel in the past,we cannot guarantee that this will continue to be the case. If we were unable to continue to attract and retain key personnel, our business and financial performance could be materially and adversely affected.
We are exposed to changes in interest rates.
Changes in interest rates may affect our profitability.
Our profitability is affected by changes in interest rates. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, trade surpluses and deficits, regulatory requirements and other factors beyond our control. During 2012, the PBOC reduced the interest rates twice, from 3.50% to 3.00%. In November 2014, the interest rate on one-year term deposits was reduced from 3.00% to 2.75%, and in March 2015, the interest rate was further reduced from 2.75% to 2.50%. The Chinese government may further reduce interest rates, which may reduce the income we realize from our investments, affecting our profitability. In addition, as instruments in our investment portfolio mature, we might have to reinvest the funds we receive in investments bearing low interest rates. However, if interest rates were to increase in the future, surrenders and withdrawals of insurance and annuity policies and contracts may increase as policy holders may seek other investments with higher perceived returns. This process may result in cash outflows requiring that we sell investment assets at a time when the prices of those assets are adversely affected by the increase in market interest rates, which may result in realized investment losses.
For many of our long-term life insurance and annuity products, we are obligated to pay a minimum interest or crediting rate to our policyholders or annuitants, which is established when the product is priced. These products expose us to the risk that changes in interest rates may reduce our “spread”, or the difference between the rates that we are required to pay under the policies and the rate of return we are able to earn on our investments intended to support our insurance obligations.
On June 10, 1999, the CIRC reduced to 2.50% the maximum guaranteed rate which life insurance companies could commit to pay on new policies and, in response, CLIC adopted new pricing policies which reduced the guaranteed rates on its products to a range of between 1.50% and 2.50%. As of December 31, 2014, the average guaranteed rate of return of the products we offered was 2.49%. We also have shifted our mix of products to emphasize products that lessen the impact from interest rate changes, including traditional policies that are not as sensitive to interest rates and participating policies under which our customers receive a portion of our distributable earnings from participating products, as well as products having shorter terms to better match the duration of our investment portfolio. Furthermore, we have made use of the relaxation of investment restrictions applicable to us to diversify our investments. We have not incurred negative spread on policies we have issued since our incorporation, as the average investment returns we have been able to generate have been higher than their guaranteed rates. However, if the rates of return on our investments were to fall below the minimum rates we guarantee, our profitability would be materially and adversely affected.
In August 2013 and February 2015, the CIRC published regulations that removed the cap fixed by it on the guaranteed rate which life insurance companies could commit to pay on traditional non-participating insurance policies and universal life insurance policies, which was 2.50%. The 2.50% cap on the guaranteed rate will still remain in effect for participating life insurance policies. We have not yet determined the impact of the new CIRC regulations, if any, on our business as a whole in the long term, although it is possible that it could affect the profitability of our products. We cannot assure you that the removal of the 2.50% cap will not lead to a material adverse effect on our business, results of operations or financial condition.
Because of the general lack of long-term fixed income securities in the Chinese capital markets, we are unable to match closely the duration of our assets and liabilities, which increases our exposure to interest rate risk.
Like other insurance companies, we seek to manage interest rate risk through managing, to the extent possible, the average duration of our investment assets and the insurance policy liabilities they support. Matching the duration of our assets to their related liabilities reduces our exposure to changes in interest rates, because the effect of the changes largely will be offset against each other. However, the limited availability of long-duration investment assets in the markets in which we invest, has resulted in, and in the future may result in, the duration of our assets being shorter than that of our liabilities, particularly with respect to liabilities with durations of more than 20 years. Furthermore, the Chinese financial markets currently do not provide adequate financial derivative products for us to hedge our interest rate risk. We believe that with the development of the Chinese capital markets and the gradual easing of the investment restrictions imposed on insurance companies in China, our ability to match the duration of our assets to that of our liabilities will improve. We also seek to manage the risk of duration mismatch by focusing on product offerings whose maturity profiles are in line with the duration of investments available to us in the prevailing investment environment. However, until we are able to match more closely the duration of our assets and liabilities, we will continue to be exposed to interest rate changes, which may materially and adversely affect our business and earnings.
Our investments are subject to risks.
We are exposed to potential investment losses if there is an economic downturn in China.
Until November 2006, we were only permitted to invest the premiums and other income we receive in investments in China. We obtained the approval to invest overseas with our foreign currency denominated funds in November 2006. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Regulation of investments”. However, we continued to make our investments mainly in China and, as of December 31, 2014, approximately 99.38% of our total investment assets were in China. In particular, as of December 31, 2014, approximately 44.83% of our total investment assets consisted of debt securities including Chinese government bonds, government agency bonds, corporate bonds, subordinated bonds and debt and other bonds and debts as approved by relevant government agencies; and 32.85% of our total investment assets consisted of term deposits with Chinese banks, and of these deposits, 67.82% were placed with the five largest Chinese state-owned commercial banks. A serious downturn in the Chinese economy may lead to investment losses, which would reduce our earnings.
The PRC securities markets are still emerging markets, which may expose us to risks of loss from our investments there.
As of December 31, 2014, we had RMB 236,030 million (US$38,041 million) invested in equity securities, among which RMB 225,248 million (US$36,303 million) were invested in PRC securities markets, including securities investment funds and shares traded on the securities markets in China. These securities investment funds are primarily invested in equity securities that are issued by Chinese companies and traded on China’s stock exchanges. Beginning in March 2005, we are also permitted to directly invest in shares traded on the securities markets in China. The PRC securities markets are still emerging markets and are characterized by evolving regulatory, accounting and disclosure requirements. This may from time to time result in significant price volatility, unexpected losses or lack of liquidity. These factors could cause us to incur losses on our publicly traded investments. In addition, the PRC securities markets have recently experienced, and may experience in the future, significant volatility. Also, as one of the largest institutional investors in China, we may from time to time hold significant positions in many securities in which we invest, and any decision to sell or any perception in the market that we are a major seller of a security could adversely affect the liquidity and market price of that security.
Defaults on our debt investments may materially and adversely affect our profitability.
Approximately 44.83% of our investment assets as of December 31, 2014 were comprised of debt securities. The issuers whose debt securities we hold may fail to pay or otherwise default on their obligations due to bankruptcy, a lack of liquidity, a downturn in the economy, operational failures or other reasons. Losses due to these defaults could reduce our profitability.
Investments in new investment channels may not lead to improvements in our rate of investment return or we may incur losses.
The CIRC has in recent years significantly broadened the investment channels of Chinese life insurance companies. We have considered these alternative methods when making investments. For example, we made our first domestic private equity fund investment in 2011. In 2012, we made a direct equity investment in COFCO Futures Co., Ltd. by acquiring a 35% equity interest in it. In 2013, we began making investments in commercial real estate properties. In 2014, we made our first overseas real property investment, first overseas private equity fund investment and first domestic preferred shares investment. However, our experience with these new investment channels, especially overseas channels, might be limited, and these new channels are still subject to evolving regulatory requirements, which may increase the risk exposure of our investments. For example, since January 2013, debt investment plans are no longer required to be filed with and reviewed by the CIRC, and in March 2014, the CIRC warned insurance companies of risks in debt investment plans. The CIRC noted, among other things, that issuers of some debt investment plans are not properly backed by their parent companies which are supposed to guarantee the payments if the plans face financial difficulties. Parent companies of some issuers do not engage in operating activities that can generate cash inflows and do not have effective control over their subsidiaries. As a result, the consolidated financial statements of these companies may not fully reflect their capacity to make payments when the plans face financial difficulties. In addition, the total amount of debt investment plans issued in recent years increased significantly, which caused concerns over the health of the debt investment plans market. As of December 31, 2014, the total amount of our investment in debt investment plans was RMB 59,897 million (US$9,654 million). These factors could cause us to incur losses for our investments in these new investment channels or limit our ability to improve our rate of investment return.
We may incur foreign exchange and other losses for our investments denominated in foreign currencies.
A portion of our investment assets are held in foreign currencies. We are authorized by the CIRC to invest our assets held in foreign currencies in the overseas financial markets as permitted by the CIRC. Thus, our investment results may be subject to foreign exchange risks, as well as the volatility and various other factors of overseas capital markets, including, among others, increase in interest rates. We recorded RMB 437 million in foreign exchange losses for the year ended December 31, 2013, resulting from our assets held in foreign currencies, which were affected by the appreciation of the Renminbi. In June 2014, to fund our overseas investments, we obtained a fixed-interest rate bank loan of 275 million British pounds sterling with a term of five years. We recorded RMB 268 million (US$43 million) in foreign exchange gains for the year ended December 31, 2014, resulting mainly from the depreciation of the British pound against the Renminbi. Future movements in the exchange rate of RMB against the U.S. dollar and other foreign currencies may adversely affect our results of operations and financial condition.
Under China’s existing foreign exchange control regulations, the conversion of foreign currencies into the Renminbi requires approval of relevant government agencies. We obtained an approval to settle a portion of our assets held in foreign currencies into the Renminbi in 2005, which partially reduced the foreign exchange risks we are exposed to. Except for the aforementioned approval obtained in 2005, we have not obtained any approval to settle any portion of our assets held in foreign currencies into the Renminbi, and there is no guarantee that we will be able to obtain any such approval in the future. If we do not obtain such approval, our ability to manage our foreign exchange risks may be limited. There are few financial products available in China to hedge foreign exchange risks, which substantially limits our ability to manage our foreign exchange risks.
Differences in future actual operating results from the assumptions used in pricing and establishing reserves for our insurance and annuity products may materially affect our earnings.
Our earnings depend significantly upon the extent to which our actual operating results are consistent with the relevant assumptions used in setting the prices for our productspricing and establishing the reserves for insurance contracts in our financial statements. Our assumptions include those for discount rate, mortality, morbidity, expenses and lapse rate as well as certain macro-economic factors.and expenses. To the extent that trends in actual experiences are less favorable than our underlying assumptions used in establishing these reserves, and these trends are expected to continue in the future, we could be required to increase our reserves. Any such increase could have a material adverse effect on our profitability and, if significant, our financial condition.
We establish the reserves for obligations of future policiesinsurance contracts based on the expected payout of benefits, calculated through the use of assumptions for discount rate, mortality, morbidity, expenses and lapse rate as well as certain macro-economic factors.and expenses. These assumptions are based on our previous experience and the data published by other Chinese life insurers, as well as judgments made by the management. These assumptions may deviate from our actual experience, and, as a result, we cannot determine precisely the amounts which we will ultimately pay to settle these reservesfulfill our obligations under the insurance contracts or when these payments will need to be made. These amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future. The discount rate assumption is affected by certain factors, such as further macro-economy, monetary and exchange rate policies, capital market results and availability of investment channels to invest our insurance funds. We review and update the assumptions used to evaluate the reserves periodically, and establish the reserves for insurance policiescontracts based on such assumptions. Standards with respect to the calculation and presentation of reserves are still evolving, and any charges in the future may also impact our earnings and presentations of financial statements. We record changes in our reserves in the period the reserves are established or re-estimated. If the reserves originally established for future policy benefits prove inadequate, we must increase our reserves established for future policy benefits, which may have a material effect on our earnings and our financial condition.
We have data available for a shorter period of time than dolife insurance companies operating in some other countries do and, as a result, less claims experience on which to base some of the assumptions used in establishing our reserves. For a discussion of how we establish our assumptions for mortality, morbidity and lapse rate, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies”. Given the limited nature of this experience, it is possible that our actual claims could vary significantly from the assumptions used.
Our risk management and internal reporting systems, policies and procedures may leave us exposed to unidentified or unanticipated risks, which could materially and adversely affect our businesses or result in losses.
Our policies and procedures to identify, monitor and manage risks may not be fully effective. Many of our current methods of managing risk and exposures are based upon our use of observed historical market behavior or statistics based on historical models. As a result, these methods may not fully predict future exposures, which could be significantly greater than what the historical measures indicate. OtherIn addition, risk management methods dependdepends upon the evaluation of information regarding markets, customers or other matters that is publicly available or otherwise accessible to us, which may not always be accurate, complete,up-to-date or properly evaluated. In addition, a significant portion of business information needs to be centralized from our many branch offices. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective. Failure or the ineffectiveness of these systems could materially and adversely affect our business or result in losses.
We are likely to offer a broader and more diverse range of insurance and investment products in the future as the insurance market in China continues to develop. At the same time, we anticipate that the relaxing of regulatory restraints will result in us being able towe may invest in a significantly broader range of asset classes. The combination of these factors will require us to continue to enhance our risk management capabilities and is likely to increase the importance of our risk management policies and procedures to our results of operations and financial condition. If we fail to adapt our risk management policies and procedures to our changing business, our business, results of operations and financial condition could be materially and adversely affected.
Catastrophes could materially reduce our earnings and cash flow.
We could in the future experience catastrophic losses that may have an adverse impact on the business, results of operations and financial condition of our insurance business. Catastrophes can be caused by various events, including terrorist attacks, earthquakes, hurricanes, floods, fires and epidemics, such as severe acute respiratory syndrome, or SARS. ForSARS.For example, the snow disaster in South China and earthquake in Wen Chuan in 2008 increased our current claims payments. In 2008, our claims payments for the snow disaster and for the earthquake were approximately RMB 12 million and RMB 153 million, respectively.
We establish liabilities for claims arising from a specific catastrophe after assessing the exposure and damages arising from the event. Althoughevent.Although we have purchased catastrophe reinsurance in order to reduce our catastrophe exposure, we cannot assure you that any significant catastrophic event will not have a material adverse effect on us.
Current or future litigation, arbitration and regulatory proceedings could result in financial losses or harm our businesses.
We are involved in litigation and arbitration proceedings involving our insurance operations on an ongoing basis. In addition, the CIRC,CBIRC (formerly CIRC), as well as other PRC governmental agencies, including tax, commerce and industrial administration and audit bureaus, from time to time make inquiries and conduct examinations or investigations concerning our compliance with PRC laws and regulations. Theseregulations.These litigation, arbitration and administrative proceedings have in the past resulted in payments of insurance benefits, damage awards, settlements or administrative sanctions, including fines, which have not been material to us. Weus.We currently have control procedures in place to monitor our litigation, arbitration and regulatory exposure and take appropriate actions. See “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Legal and Regulatory Proceedings”. While.While we cannot predict the outcome of any pending or future litigation, arbitration, examination or investigation, we do not believe that any pending legal matter will have a material adverse effect on our business, financial condition or results of operations. However,operations.However, we cannot assure you that any future litigation, arbitration or regulatory proceeding will not have an adverse outcome, which could have a material adverse effect on our operating results or cash flows. See “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Legal and Regulatory Proceedings”.
The embedded value information we present in this annual report is based on several assumptions and may vary significantly as those assumptions are changed.
In order to provide investors with an additional tool to understand our economic value and business results, we have disclosed information regarding our embedded value, as discussed in the section entitled “Item 8. Financial Information—Embedded Value”. These measures areThe embedded value is an estimate of our economic value (excluding the value attributed to new business after the valuation date) and is based on a discounted cash flow valuation determined using commonly applied actuarial methodologies. Standards with respect to the calculation of embedded value are still evolving, however, and there is no universal standard which defines the form, calculation method or presentation format of the embedded value of an insurance company. Assumptionscompany.Assumptions used in embedded value calculations include rate of investment return, discount rate, mortality, morbidity, expenses and surrender rate, as well as certain macro-economic factors.macro factors, many of which are beyond our control. These assumptions may deviate significantly from our actual experience.experience and therefore the embedded value is consequently not inherently predictive. Furthermore, since our actual market value is determined by investors based on a variety of information available to them, the embedded value should not be construed to be a direct reflection of our performance. The inclusion of the embedded value in this annual report should not be regarded as a representation by us, our management or any other person as to our future profitability. Because of the technical complexity involved in embedded value calculations and the fact that embedded value estimates vary materially as key assumptions are changed, you should read the discussion under the section entitled “Item 8. Financial Information—Embedded Value” in its entirety. You should use special care when interpreting embedded value results and should not place undue reliance solely on them. See also “Forward-Looking Statements”.
A computer system failure, cyber-attacks or other security breaches may disrupt our business, damage our reputation and adversely affect our results of operations and financial condition.
We use computer systems to store, retrieve, evaluate and utilize customer and company data and information. Our business is highly dependent on our ability to access these systems to perform necessary business functions such as developing and selling insurance products, providing customer support, policy management, filing and paying claims, managing our investment portfolios and producing financial statements. Although we have designed and implemented a variety of security measures and backup plans to prevent or limit the effect of failure, our computer systems may be vulnerable to disruptions as a result of natural disasters,man-made disasters, criminal activities, pandemics or other events beyond our control. In addition, our computer systems may be subject to computer viruses or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. The failure of our computer systems for any reason could disrupt our operations and may adversely affect our business, results of operations and financial condition. Although we have not experienced such a computer system failure or security breach in the past, we cannot assure you that we will not encounter a failure or security breach in the future.
We retain confidential information on our computer systems, including customer information and proprietary business information. In addition, for business purposes, from time to time customer information is transmitted between our computer systems and those of third parties, such as third-party agents selling insurance products for us. Any compromise of the security or other errors of our computer systems or those arising during the information transmission process that result in the disclosure of personally identifiable customer information could damage our reputation, expose us to litigation, increase regulatory scrutiny and require us to incur significant technical, legal and other expenses.
United States Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act, or FATCA, generally requires a foreign financial institution, or FFI, to enter into an FFI agreement under which it will agree to identify and provide the United States Internal Revenue Service, or the IRS, with information regarding accounts, including certain insurance policies, held by U.S. persons and U.S.-owned foreign entities, or facebe subject to a 30% withholding tax on “withholdable payments,” which include among other items, payments of U.S.-source interest and dividends and gross proceeds from the sale or other disposition of property that may produce U.S.-source interest or dividends. In addition, an FFI that has entered into an FFI agreement may be required to withhold on certain “foreign passsthrupassthru payments” that it makes to FFIs that have not entered into their own FFI Agreementsagreements or to account holders who do not respond to requests to confirm their U.S. person status and/or do not agree to allow the FFI to report certain account related information to the IRS. Withholding on foreign passthru payments will begin no earlier than 2017.2019. Since existing guidance reserves on the definition of “foreign passthru payment,” the scope of any withholding on foreign passthru payments is uncertain at this time.
The United States and the PRC have agreed in substance on the terms of an intergovernmental agreement, or IGA, that is intended to facilitate the type of information reporting required under FATCA. Under the agreed terms, instead of reporting directly to the IRS, Chinese FFIs are required to report specified account information directly to the PRC taxingtax authority, which will then pass that information to the IRS. While compliance with the IGA will not eliminate the risk of withholding described above, it is expected to reduce that risk for FFIs that are resident in China. Although the IGA has not yet been officially signed, the PRC and the United States have agreed to treat the IGA as in effect from June 26, 2014, provided that the PRC continues to demonstrate “firm resolve” to sign the IGA as soon as possible. If the United States and the PRC ultimately fail to reach a final agreement on the terms of the IGA, then the FATCA reporting and withholding regime described in the prior paragraph will apply to Chinese FFIs.
We will closely monitor developments regarding FATCA and the IGA. If we are required to comply with the terms of the IGA or FATCA, as applicable, we expect that our compliance costs will increase. If we do not comply with the terms of the IGA or FATCA, as applicable, then certain payments to us will be subject to withholding under FATCA. However, since the text of the IGA has not been released, and regulations and other guidance remain under development, the future impact of this law on us is uncertain.
The auditors’ reports included in this annual report are prepared by relying on audit work which is not inspected by the Public Company Accounting Oversight Board and, as such, investors may be deprived of the benefits of such inspection.
Auditors of companies that are registered with the SEC and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the US Public Company Accounting Oversight Board (United States), or the PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because we have substantial operations within China and our auditor relied on itsindependent registered public accounting firm is based in China, affiliate to perform audits on our consolidated financial statements, and the PCAOB is currently unable to conduct inspections of the work of our auditor as it relates to those operations without the approval of the Chinese authorities, and thus our auditor’s work related to our operations in China is not currently inspected by the PCAOB.
This lack of PCAOB inspection of audit work performed in China prevents the PCAOB from regularly evaluating the audit work of any auditor that was performed in China including those performed by our auditor. As a result, investors may be deprived of the full benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of audit work performed in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures as compared to auditors in other jurisdictions that are subject to PCAOB inspections on all of their work. Investors may lose confidence in our reported financial information and procedures and the quality of our consolidated financial statements.
We may be adversely affected if additional remedial measures are imposed on the four China-based accounting firms which reached settlement with the SEC in the administrative proceedings brought by the SEC against them.
In December 2012, the SEC initiated administrative proceedings against five accounting firms in China, alleging that they refused to produce audit work papers and other documents related to certain China-based companies under investigation by the SEC for potential accounting fraud. In January 2014, an SEC administrative law judge ruled in favor of the SEC, issuing an initial decision which censured each of the five accounting firms for failure to provide their audit work papers to the SEC and ordered asix-month suspension of the China-based affiliates of four of the five accounting firms’ right to practice before the SEC. The accounting firms have appealed the decision of the administrative law judge to the SEC, and the decision will not come into force unless and until an order of finality is issued by the SEC. We are not subject to any SEC investigations, nor are we involved in the proceedings brought by the SEC against the accounting firms. However, the China affiliate of the independent registered public accounting firm that has issued the auditors’ reportsauditor’s report included in our annual reports filed with the SEC for the 2013, 2014 and 2015 fiscal years, of 2011 and 2012 and the China affiliate ofwhich is also our independent registered public accounting firm for the 2016 and 2017 fiscal years, of 2013 and 2014 are twois one of the five accounting firms named in the SEC’s proceedings.
In February 2015, four of the five accounting firms, including the China affiliate of the independent registered public accounting firm that has issued the auditors’ reportsauditor’s report included in our annual reportsreport filed with the SEC for the 2013, 2014 and 2015 fiscal years, of 2011 and 2012 and the China affiliate ofwhich is also our independent registered public accounting firm for the 2016 and 2017 fiscal years, of 2013 and 2014, each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to audit documents of China-based companies via the CSRC. If future document productions fail to meet the specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure, including an automaticsix-month bar on the performance of certain audit work, commencement of a new proceeding or the resumption of the current proceeding by the SEC. While we cannot predict if the SEC will further review the four China-based accounting firms’ compliance with specified criteria or if the results of such a review would result in the SEC imposing penalties, if they are subject to additional remedial measures, we may be adversely affected, along with other U.S.-listed companies in China audited by these accounting firms because the independent registered public accounting firms that have issued the auditors’ reports included in our annual reports filed with the SEC have relied on their China affiliates to perform audits on our financial statements.firms. If none of the China-based auditors are able to continue to perform audit work for China-based companies listed in the U.S., we will not be able to meet the reporting requirements under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which may ultimately result in our deregistration by the SEC and delisting of our ADSs from the NYSE.
Risks Relating to the PRC Life Insurance Industry
We expect competition in the Chinese insurance industry to increase, which may materially and adversely affect the growth of our business.
We face competitive pressures from both domestic and foreign-invested life insurance companies operating in China, as well as from property and casualty insurance companies, which may compete with our accident and short-term health insurance businesses, and other financial institutions that sell other financial investment products in competition with ours. In addition, the establishment of other professional health insurance companies and pension annuities companies may also lead to greater competition in the health insurance business and commercial pension insurance business. Ifbusiness.If we are not able to adapt to these increasingly competitive pressures in the future, our growth rate may decline, which could materially and adversely affect our earnings.
Competition among domestic life insurance companies is increasing.
Our closest competitors are Ping An Life Insurance Company of China, Ltd., or Ping An Life, China Pacific Life Insurance Co., Ltd., or China Pacific Life, New China Life Insurance Co., Ltd., or New China Life, and China PacificTaikang Life Insurance Co., Ltd., or Taikang Life.According to statistical and unaudited market share information released by the CIRC on its website, together, Ping An Life, China Pacific Life. Together, Ping An Life, New China Life, China PacificTaikang Life and we accounted for more than 64%approximately 49% of the life insurance premiums in China in 2013,2017, with our market share in China decreasing from 19.9% in 2016 to 19.7% in 2017. Each of Ping An Life, China Pacific Life, New China Life and Taikang Life has operated in the last yearChinese insurance market for which official market information is available.more than twenty years, and each has a recognized brand name. According to statistical and market share information derived from China Insurance Yearbook, ourin 2016, the last year for which the audited market share of the life insurance premiums in China decreased from 33% in 2012 to 31% in 2013. Each of Ping An Life, New China Lifeinformation for separate business segments and China Pacific Life has operated in the Chinese insurance market for more than ten years, and each has a recognized brand name. In 2013, geographic markets business is available,Ping An Life had a greater market share than we did in Beijing, Shanghai, Tianjin, Qingdao, Dalian, Shenzhen, Xiamen, Hainan and Xiamen Ningbo,and New China Life had a greater market share than we did in Beijing. WeBeijing.We also face competition from insurance companies owned or controlled by commercial banks.
Each of the five largest Chinese state-owned commercial banks has set up their own life insurance companies. These insurance companies are able to benefit from their holding relationships with these commercial banks to develop bancassurance as their main distribution channels. Inchannels.In addition, we also face competition from smaller insurance companies, which may develop strong positionshave competitive advantages in various regions in which we operate, and new entrants to the group life insurance market, including professional pension companies that are being established pursuant to a set of regulations promulgated by the Ministry of Human Resources and Social Security of the PRC, and new entrants to the health insurance industry, including newly approved and established professional health insurance companies, following theChinese government’s adoption by the Chinese government of policies that encourage the development of health insurance and improved health care in China.
Competition from foreign-invested life insurance companies is increasing, as restrictions on their operations in China are relaxed.
Foreign-invested life insurance companies are insurance companies in which foreign entities hold at least a 25% interest. Foreign-investedinterest.Foreign-invested life insurers have been permitted to sell health, annuity and group life insurance products nationwide in China since December 2004. In Shanghai, Guangzhou, Shenzhen2004.According to statistical and Beijing, where foreign-invested insurers have been allowed to operate since 1992, 1995, 1999 and 2003,unaudited market share information released by the CIRC on its website, foreign-invested insurers had respectivea life insurance market sharesshare of approximately 19%7.4% in 2017.On November 10, 2017, China announced that it will substantially relax foreign ownership limits in life insurance companies. On April 11, 2018, the Governor of the PBOC further clarified that regulations would be introduced within the next several months increasing the limit on foreign ownership in Chinese life insurance companies to 51% from the current 50%, 22%, 11% and 20%with all foreign ownership restrictions in 2013. Wethe Chinese life insurance sector removed in three years. Although detailed implementation rules have not yet been issued, we believe that the relaxation of the restrictions on foreign-invested insurers, once implemented, will continue to increase the competitive pressures we are facing. Foreign-invested life insurance companies, through their Chinese and/or foreign shareholders, may have access to greater financial, technological or other resources than we do.
We are likely to face increasing competition from property and casualty insurance companies and other companies offering products that compete with our own.
In addition to competition from life insurance companies, we face competition from other companies that may offer products that compete with our own, including:
• | Property and casualty companies. Beginning on January 1, 2003, property and casualty insurance companies have been permitted to sell |
• | Mutual fund companies, commercial banks and other financial services providers. We face increasing competition from other financial services providers, primarily licensed mutual fund companies, commercial banks providing personal banking services and |
All of our individual agents are required to obtain qualification certificates and all of our institutional insurance agencies and brokers are required to obtain permits and be registered. If a substantial number of our individual agents, institutional insurance agencies and brokers fail to meet these qualification and registration requirements or this failure results in policyholders canceling their policies, our business may be materially and adversely affected.
Individual life insurance agents, representatives of institutional insurance agencies and insurance brokers are required to obtain a qualification certificate from the CIRC in order to conduct insurance agency business. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Regulation of Insurance Agencies, Insurance Brokers and Other Intermediaries”. Approximately 0.13% of our individual agents had not obtained such a certificate as of December 31, 2014. Under applicable CIRC regulations, insurance companies that retain individual agents without CIRC qualification certificates to engage in insurance sales activities will be warned and fined up to RMB 30,000, and such individual agents will also be warned and fined up to RMB 10,000. If a substantial number of our agents do not become qualified, or if a substantial number of our policyholders who bought insurance policies through our unqualified exclusive agents were to cancel the policies because of these regulations, our business may be materially and adversely affected. Moreover, we may be subject to fines and other administrative proceedings for the failure of our insurance agents to obtain the necessary CIRC qualification certificates. In addition, on January 6, 2013, the CIRC issued the Sales Personnel Rules, which became effective on July 1, 2013. Among other things, the Sales Personnel Rules provide that individual agents must have at least a college degree, instead of a junior high school degree previously required by the CIRC. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Regulation of Insurance Agencies, Insurance Brokers and Other Intermediaries”. While the detailed rules implementing the Sales Personnel Rules have not been issued and it is still unclear how such rules will be implemented by the CIRC at the national level, the CIRC has authorized its local branches to set the education degree requirements for individual agents by considering local conditions. As of the date of this annual report, the CIRC’s local branches maintain different requirements on education degrees of the individual agents who practice in their respective jurisdictions. For example, the CIRC’s Beijing branch has stipulated that since January 1, 2015, any new qualified individual agents who sell insurance products in Beijing must have at least a college degree. The CIRC’s Jiangsu branch has stipulated that the college degree requirement will be applicable to any new qualified individual agents who sell insurance products in Jiangsu province’s non-rural and rural areas since July 1, 2015 and July 1, 2018, respectively. The CIRC’s Hainan branch has stipulated that since July 1, 2013, any new qualified individual agents who sell insurance products in Hainan’s non-rural areas must have at least a high school degree. If more CIRC branches were to impose the requirement of having a college degree or above on new qualified individual agents or if the CIRC were to strictly enforce such rules at the national level, we may be subject to fines and other administrative proceedings if any of our individual agents fail to meet the requirements. Any such fines or administrative proceedings could materially and adversely affect our business, financial condition and results of operations.
Institutional insurance agents and insurance brokers are required under the PRC insurance law to register with the administration of industry and commerce, and obtain business licenses with the permits issued by the CIRC.CBIRC (formerly CIRC). It also requiresnon-dedicated institutional insurance agencies to obtain registrations with the administration of industry and commerce with the permits issued by the CIRC. WeCBIRC (formerly CIRC).We cannot assure you that all of our institutional agents wouldwill obtain such licenses. The enforcement of this requirement could adversely affect the composition and effectivenessproductivity of our distribution system,channel, which could have a material adverse effect on our business.
Further development of regulations in China may impose additional costs andor restrictions on our activities.
We operate in a highly regulated industry. The CIRCCBIRC (formerly CIRC) supervises and administers the insurance industry in China. In exercising its authority, it is given certain discretion to administer the law. China’s insurance regulatory regime is undergoing significant changes toward a more transparent regulatory process and a convergent movement toward international standards. Some of these changes may result in additional costs or restrictions on our activities. Foractivities.For example, on January 6, 2013, the CIRC issued notices in September 2016 and May 2017 to further reinforce the Sales Personnel Rules, which became effective on July 1, 2013. Among other things,regulation of life insurance products by requiring insurance companies to revise or improve the Sales Personnel Rules provide that individual agents must have at least a college degree, insteaddesign of a junior high school degreenumber of insurance products. For instance, insurance companies are required to (i) increase the death coverage for insurance products including individual term life insurance, individual endowment insurance and individual whole life insurance products, and (ii) seek CIRC approval for universal insurance products with a guaranteed interest rate above 3%. CIRC also required that (i) whole life insurance, annuity insurance and care insurance products must not be designed as was previously required byshort-to-medium term products, (ii) the CIRC.first payment of survival insurance benefits for endowment products and annuity products must only occur after five years since the policy has become effective, and the annual payment or partial payment must not exceed 20% of the paid premiums, and (iii) insurance companies must not design universal insurance products or investment-linked insurance products in the form of riders. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Regulation of Insurance Agencies, Insurance Brokersproducts”. These new requirements apply to a number of key products sold by us. Although these requirements are consistent with our long-term development strategy, revising the design of a number of products during a short period of time may increase our operating costs and Other Intermediaries”. Although the detailed rules implementing the Sales Personnel Rules have not been issuedmay adversely affect our business, results of operations and it is still unclear how such rules will be implemented by the CIRC at the national level, we believe that the market competition for qualified agents may be increased further and therefore the cost of attracting and retaining qualified agents may increase. financial condition.
In addition, because the terms of our products are subject to regulations, changes in regulations may affect our profitability on the policies and contracts we issue. Forissue.For instance, under the guidelines issued by the CIRC, the dividends on our participating products must be no less than 70% of the distributable earnings from participating products in accordance with CIRC requirements. If this level were to be increased in the future, our profitability could be materially and adversely affected. Furthermore,affected.Furthermore, in August 2013, February 2015 and FebruarySeptember 2015, the CIRC published regulations that removed the cap fixed by it on the guaranteed rate which life insurance companies could commit to pay on traditional non-participating insurance policies and universal life insurance policies, which was 2.50%. The 2.50% cap on the guaranteed rate will still remain in effectinterest rates for traditionalnon-participating insurance policies, universal life insurance policies and participating life insurance policies. We have not yet determinedpolicies, respectively. From October 1, 2015, the impactguaranteed interest rates of all long-term life insurance products are to be decided by insurance companies at their discretion in accordance with the principle of prudence, but CBIRC (formerly CIRC) approval is required for products with guaranteed interest rates above the maximum valuation rate set by the CIRC, which varies by product. Although the removal of the new CIRC regulations, if2.50% cap has not resulted in any material impact on our business as a whole in the long term, although it is possible that it could affect the profitability of our products. Weinsurance policies in force, it could result in the increase of the guaranteed interest rates of our new products and the decrease of our spread, and therefore we cannot assure you that the removal of the 2.50% cap will not lead to a material adverse effect on our business, results of operations or financial condition.
Our ability to comply with minimum solvency requirements is affected by a number of factors, and our compliance may force us to raise additional capital, which could increase our financing costs or be dilutive to our existing investors, or to reduce our growth.
WeIn February 2015, the CIRC issued the major technical standards for a new set of solvency regulations, the “China Risk Oriented Solvency System”, orC-ROSS, with the aim of replacing the then current solvency requirements on Chinese insurance companies, or Solvency I.C-ROSS adopts the internationally accepted “three-pillar” regulatory system which includes quantitative capital requirements, qualitative regulatory requirements and market discipline mechanisms while its regulatory concept, models, methods and parameters are required by CIRC regulation to maintain our solvency at a level in excess of minimum solvency levels. The solvency ratio is calculated by dividing the actual capital of anbased on Chinese insurance companymarket conditions.C-ROSS was officially implemented by the minimum capital it is required to meet.CIRC on January 1, 2016. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Solvency requirements”. Our minimum capital is affected primarily by the policy reserves we are required to maintain which, in turn, are affected by the volume of policies and contracts we sell and by regulations on the determination of minimum capital. Ourcore solvency adequacy ratio is also affected by a number of other factors, including the profit margin of our products, returns on our investments, underwriting and acquisition costs and policyholder and shareholder dividends. Our solvency ratiounderC-ROSS as of December 31, 20142017 was 294.48%277.61%, and our comprehensive solvency adequacy ratio underC-ROSS as of December 31, 2017 was 277.65%. While our solvency ratio is currently above the required ratio of 100%,regulatory requirements, if we grow rapidly in the future, or if the required solvency level is raised in the future, we may need to raise additional capital to meet our solvency requirement, including through additional issuance of subordinated term debt, which would increase our financing costs, or through additional issuance of shares, which would be dilutive to our existing investors. If we are not able to raise additional capital, we may be forced to reduce the growth of our business.
In February 2015, Prior to the CIRC issued the major technical standards for a new set of solvency regulations, the “China Risk Oriented Solvency System”, or Solvency II, with the aim of replacing the current solvency requirements on Chinese insurance companies. Solvency II adopts the internationally accepted “three-pillar” regulatory system which includes quantitative capital requirements, qualitative regulatory requirements and market discipline mechanisms while its regulatory concept, models, methods and parameters are based on Chinese insurance market conditions. As of the datefiling of this annual report, Solvency II has not been officially implemented by the CIRC, and Chinese insurance companies are required to follow the current solvency regulatory regime while simultaneously submitting a solvency report preparedwe became aware that, based on the requirements under Solvency II. Basedlatest comprehensive rating results regarding the solvency risks of insurers released by the CBIRC for the fourth quarter of 2017, we had been classified as a Category B insurer (i.e. an insurer whose solvency adequacy ratio meets the regulatory requirement and whose risk level is relatively low for operation risk, strategy risk, reputation risk and liquidity risk). Category B insurers may be subject to a range of regulatory actions by the CBIRC. See “Item 4. Information on the testing resultsCompany—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Solvency requirements”. Previously we were classified as a Category A insurer. It remains unclear whether the CBIRC will take any regulatory action with respect to our company or how these regulatory actions (if any) will affect our business or financial condition.
Furthermore, as we are exposed to potential insurance, market and investment risks, we cannot assure you that our solvency ratio underC-ROSS will always be obtained by it duringabove the transitional period,required level. If our solvency ratio underC-ROSS is below the CIRC will determine whenrequired solvency level, we may need to raise additional capital to meet our solvency requirement, including through additional issuance of subordinated debt, which would increase our financing costs, or through additional issuance of shares, which would be dilutive to our existing investors. If we are not able to raise additional capital, we may be forced to reduce the current solvencygrowth of our business. A failure to meet our Solvency requirement can also lead to various regulatory regime will be officially replaced by Solvency II. As Solvency II is still under preliminary testingactions being taken by the CIRCCBIRC (formerly CIRC), which could have a material adverse effect on our business or financial condition. See “Item 4. Information on the Company—Business Overview—Regulatory and it is still unclear when it will be officially implemented, we are currently unable to assess the extent to which we will be affected if the complete set of Related Matters—Insurance Company Regulation—Solvency II regulations are finalized and officially implemented.requirements”.
Risks Relating to the Restructuring
CLIC has incurred substantial losses on the policies retained by it in the restructuring. If CLIC is unable to meet its obligations to its policyholders, it may seek to increase the level of dividends we pay, sell the China Life shares it owns or take other actions which may have a material adverse effect on the value of the shares our other existing investors own.
In connection with the restructuring, CLIC transferred to us (1) all long-term insurance policies (policies having a term of more than one year from the date of issuance) issued on or after June 10, 1999, having policy terms approved by or filed with the CIRC on or after June 10, 1999 and either (i) recorded as a long-term insurance policy as of June 30, 2003 in aan actuarial database attached to the restructuring agreement as an annex or (ii) having policy terms for group supplemental medical insurance (fund type), (2) stand-alone short-term policies (policies having a term of one year or less from the date of issuance) issued on or after June 10, 1999, and (3) all riders supplemental to the policies described in clauses (1) and (2) above, together with the reinsurance contracts specified in an annex to the restructuring agreement. See “Item 4. Information on the Company—History and Development of the Company—Our Restructuring”. CLIC has incurred substantial losses on thesenon-transferred policies, primarily because the guaranteed interest rates it had committed to pay on these policies are higher than the investment return it was able to generate on its investment assets. This negative spread onnon-transferred policies created substantial losses for CLIC and a resulting negative net worth. Theworth.The amount of accumulated undistributed profits of CLIC itself is expected to remain negative in the short term.
In connection with the restructuring, CLIC has established, together with the MOF, a special purpose fund for the purpose of paying claims under thenon-transferred policies. The special purpose fund will be funded by investment assets retained by CLIC; renewal premiums paid on the non-transferred policies over time; a portion of the tax payments made by CLIC, China Life and AMC; profits from the investments of the special purpose fund; shareholder dividends paid in cash to CLIC by China Life; proceeds from the disposition of China Life shares by CLIC over time; and funds injected by the MOF in the event of a deficiency in the special purpose fund, as described below. The fund is co-administered by CLIC and the MOF. The special purpose fund will be available to satisfy CLIC’s operating expenses, including the payment of benefits and claims obligations arising from the non-transferred policies, as well as expenses incurred in operating the special purpose fund, including third-party management fees and professional fees, and such other purposes as the management committee of the fund may agree. The special purpose fund will be dissolved when all claims and benefits under the non-transferred policies have been paid, or sooner if the management committee so agrees.
The MOF’s approval of the special purpose fund issued to CLIC provides that in the event there is any deficiency in the special purpose fund for so long as the fund is in existence, as described above, to meet any payment obligation arising out of the non-transferred policies, the MOF will provide support through the injection of funds to ensure the payments of benefits and claims to the policyholders of thenon-transferred policies. See “Item 4. Information on the Company—History and Development of the Company—Our Restructuring”. In connection with the restructuring, we were advised by our PRC legal counsel, King & Wood, that (1) the MOF has the authority to issue this approval regarding the special purpose fund, (2) the approval is valid and effective, and (3) it has no reason to believe that the MOF will revoke the approval. We cannot assure you, however, that a court would decide in a manner consistent with King & Wood’s conclusions.
We cannot predict the amount of funds that will be available to the special purpose fund from CLIC’s own operations to satisfy its obligations to its policyholders as they become due. CLIC’s cash requirements and available cash resources will be affected by several factors which are subject to uncertainty, including prevailing interest rates and the returns on investment generated by CLIC’s assets, as well as the claims, expenses and persistency experience with respect to CLIC’s insurance policies. The cash resources available to CLIC will also depend in part on our profitability, which will affect the amount of our tax payments and hence the amount of refund contributed to the fund (if CLIC’s application for the extension of the period during which the income tax payments will be rebated is approved; see “Item 4. Information on the Company—History and Development of the Company—Our Restructuring”), the timing and amount of our dividend payments and the market prices of our shares and ADSs, which will affect the proceeds to CLIC from dispositions of our shares. If it is unable to satisfy its obligations to its policyholders from other sources, CLIC may seek, subject to our articles of association and applicable laws, to increase the amount of dividends we pay in order to satisfy its cash flow requirements. Any such increase in our dividend payments would reduce the funds available for reinvestment in our business. In addition, if we are unable to pay dividends in amounts sufficient to satisfy these requirements, CLIC may seek to sell its shareholdings in us or take other actions in order to satisfy these needs. The sale of these holdings or even the market perception of such a sale may materially and adversely affect the price of our shares.
The transfer of policies to us by CLIC and/or the separation of assets between CLIC and us may be subject to challenge.
We have been advised by our PRC legal counsel, King & Wood, that (1) the transferred policies have been legally and validly transferred to China Life and (2) following the restructuring, we will not have any continuing obligations to holders of thenon-transferred policies who remain policyholders of CLIC and that there is no legal basis on which holders of thenon-transferred policies can make a claim against China Life. We also have been advised by King & Wood that, although there is no specific law applicable to restructurings, these conclusions are supported by, among other things, the approval of the restructuring and various related matters by the State Council, the MOF and the CIRC; the support provided by the MOF with respect to thenon-transferred policies as described above; and contract and other law. We cannot assure you that policyholders of CLIC, holders of transferred policies or other parties will not seek to challenge the transfer of the transferred policies or the separation of assets occurring as a consequence of the restructuring, or that a court would decide in a manner consistent with King & Wood’s conclusions. If the transfer of policies to us or the separation of assets were challenged successfully, our financial condition and results of operations would likely be materially and adversely affected.
We do not hold exclusive rights to the trademarks in the “China Life” name (in English and Chinese), the “ball” logos and other business related slogans and logos, and CLIC, which owns these trademarks, may take actions that would impair the benefits we derive from their use.
We conduct our business under the “China Life” brand name, the “ball” logos, the “C” mark and other business related slogans and logos. CLIC owns these trademarks and has registered them with the Trademark Office of the SAIC. CLICSAIC.CLIC has entered into a trademark license agreement with us, under which CLIC has agreed to grant us and our branches a royalty-free license to use these trademarks.the “China Life” brand name, the “ball�� logos and the “C” mark.
Although CLIC has undertaken in anon-competition agreement with us not to compete with us in China, without our prior consent in writing, in any life, accident and health insurance and any other businesses in China which may compete with our insurance business, CLIC, its subsidiaries and affiliates are permitted to use the brand name and logo in their own businesses, including life insurance business outside China and any other businesses they may enter into in the future within China, including property and casualty (other than businesses that compete with our accident and health businesses) and asset management businesses. In addition, they are not precluded from taking actions that may impair the value of the brand name, which could harm our business. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Continuing Related Party Transactions with CLIC”. The China Life brand name and our reputation could be materially harmed if CLIC fails to make payments when due on outstanding policies retained by CLIC in the restructuring or new policies written by CLIC after the restructuring, if CLIC reduces the rates of return payable on policies retained by CLIC or if CLIC is placed into receivership.
As our controlling shareholder, CLIC will be able to exert influence on our affairs and could cause us to make decisions or enter into transactions that may not be in your best interests.
We are controlled by CLIC, whose interests may conflict with those of our other shareholders. As of the date of this annual report, CLIC holds approximately 68.37%of our share capital. As a result of these factors, CLIC, which is wholly-owned by the PRC government, will, so long as it holds the majority of our shares, effectively be able to control the composition of our board of directors and, through the board, exercise a significant influence over our management and policies. In addition, subject to our articles of association and applicable laws, CLIC may, so long as it holds the majority of our shares, effectively be able to determine the timing and amount of our dividend payments and approve increases or decreases of our share capital, the issuance of new securities, amendments of our articles of association, mergers and acquisitions and other major corporate transactions. CLIC may also be able to prevent us effectively from taking actions to enforce or exercise our rights under agreements to which we are a party, including the agreements we entered into with CLIC in connection with the restructuring. See “Item 7. Major Shareholders and Related Party Transactions”. As a majority shareholder, CLIC may be able to take these actions without your approval. In addition, CLIC’s control could have the effect of deterring takeovers or delaying or preventing changes in control or changes in management that might be desirable to other shareholders.
CLIC may direct business opportunities elsewhere.
CLIC has other business interests, including therun-off of the insurance policies retained by it in the restructuring. Notwithstanding a general undertaking pursuant to anon-competition agreement with us not to compete with us in our principal areas of business in China, CLIC is permitted to sell riders to these retained policies and enter into other businesses, including life insurance businesses outside of China and property and casualty (other than businesses that compete with our accident and health businesses) and asset management businesses, both inside and outside of China. In 2006, we formed a property and casualty company with CLIC, in connection with which we granted a waiver to CLIC allowing it to engage in accident and short-term health businesses indirectly through the property and casualty company.
CLIC engages in insurance businesses inHong Kong, Macau and Singapore through China Life Insurance (Overseas) Co., Limited, or China Life Overseas, its wholly owned subsidiary.CLIC also may continue to engage in insurance business in other regions outside of China in the future. Although it is required under thenon-competition agreement to give us a right of first refusal over any business opportunities it develops in these areas, we may not be in a position to take advantage of these opportunities at that time, which could harm our business. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Continuing Related Party Transactions with CLIC”.
In addition, while we provide policy administration and other services to CLIC for the policies retained by CLIC in the restructuring, and provide investment management services to CLIC through our asset management subsidiary, these agreements can be terminated with notice or upon expiration. If CLIC were to terminate its policy administration and asset management arrangements with us and our asset management subsidiary, respectively, our loss of fees could materially and adversely affect us.
Risks Relating to the People’s Republic of China
China’s economic, political and social conditions, as well as government policies, could affect our business.
Substantially all of our assets are located in China and substantially all of our revenues are derived from our operations in China. Accordingly, our results of operations and prospects are subject, to a significant degree, to economic, political and legal developments in China. The economy of China differs from the economies of most developed countries in many respects, including, without limitation:
The economy of China has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industrial development. It also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
According to data released by the National Bureau of Statistics of China, China’s Gross Domestic Product, a key indicator of economic growth, was 7.4%6.9% in 2014, its slowest pace in 24 years.2017. In an effort to bolster the economy, the Chinese government may take certain measures, including market-oriented financial reforms. Some of the measures taken by the Chinese government to improve China’s economic performance may have a negative effect on our business. Forbusiness.For example, our operating results and financial condition could be materially and adversely affected by government monetary policies and changes in interest rate policies, tax regulations and policies and regulations affecting the capital markets and the asset management industry. A slowdown in Chinese growth rates could also adversely affect us by impacting sales of our products, reducing our investment returns, or otherwise.
The PRC legal system has inherent uncertainties that could limit the legal protections available to you.
We are organized under the laws of China and are governed by our articles of association. The Chinese legal system is based on written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited precedential value. Since 1979, the Chinese legislative bodies have promulgated laws and regulations dealing with such economic matters as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published decisions, the interpretation and enforcement of these laws and regulations involve uncertainties.
Holders of H shares and ADSs generally are required to resolve disputes with us, our senior management and holders of our A shares only through arbitration in Hong Kong or China.
In accordance with the rules applicable to Chinese overseas listed companies, our articles of association provide that, with certain limited exceptions, all disputes or claims based on our articles of association, PRC company law or other relevant laws or administrative rules, and concerning matters between holders of H shares and ADSs and holders of A shares, us, or our directors, supervisors, president, vice presidents or other senior officers, must be submitted for arbitration at either the China International Economic and Trade Arbitration Commission or the Hong Kong International Arbitration Center. If an applicant chooses to have the dispute arbitrated at the Hong Kong International Arbitration Center, either party may request that the venue be changed to Shenzhen, a city in China near Hong Kong. The governing law for any such disputes or claims is Chinese law, unless Chinese law itself provides otherwise. Pursuant to an arrangement of mutual enforcement of arbitration awards between the PRC courts and the Hong Kong courts, Hong Kong arbitration awards are enforceable in China, subject to the satisfaction of certain legal requirements. However, due to the limited number of actions that have been brought in China by holders of shares issued by a Chinese company to enforce an arbitral award, we are uncertain as to the outcome of any action brought in China to enforce a Hong Kong arbitral award made in favor of holders of H shares and ADSs.
The laws in China differ from the laws in the United States and may afford less protection to our minority shareholders.
Although Chinese company law provides that shareholders of a Chinese company may, under certain circumstances, sue the company’s directors, supervisors and senior management in the interests of the company, no detailed implementation rules or court interpretations have been issued in this regard. Also, class action lawsuits are generally uncommon in China. In addition, PRC company law imposes limited obligations on a controlling shareholder with respect to protection of the interests of minority shareholders, although overseas listed joint stock companies, such as ourselves, are required to adopt certain provisions in their articles of association that are designed to protect minority shareholder rights. These mandatory provisions provide, among other things, that the rights of any class of shares, including H shares, may not be varied without a resolution approved by holders of shares in the affected class holding no less thantwo-thirds of the shares of the affected class entitled to vote, and provide that in connection with a merger or division involving our company, a dissenting shareholder may require us to purchase the dissenters’ shares at a fair price. Disputes arising from these protective provisions would likely have to be resolved by arbitration. Seearbitration.See “—Holders of H shares and ADSs generally are required to resolve disputes with us, our senior management and holders of our A shares only through arbitration in Hong Kong or China”.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in the PRC based on U.S. or other foreign laws against us, our management and some of the experts named in the annual report.
We are a company incorporated under the laws of China, and substantially all of our assets are located in China. In addition, most of our directors, supervisors, executive officers and some of the experts named in this annual report reside within China, and substantially all of the assets of these persons are located within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon our directors, supervisors or executive officers or some of the experts named in this annual report, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Our PRC legal counsel, King & Wood, has advised us that China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom, Japan or many other countries. Our Hong Kong legal adviser, Latham & Watkins, has also advised us that Hong Kong has no statutory arrangement for the reciprocal enforcement of judgments with the United States although it may be possible for a civil action to be brought in Hong Kong based on a monetary judgment of the courts of the United States. As a result, recognition and enforcement in China or Hong Kong of judgments of a court in the United States and any of the other jurisdictions mentioned above in relation to any matter may be difficult or impossibleimpossible. Furthermore, an original action may be brought in the PRC against us, our directors, supervisors, executive officers or the experts named in this annual report only if the actions are not required to be arbitrated by PRC law and our articles of association, and only if the facts alleged in the complaint give rise to a cause of action under PRC law. In connection with any such original action, a PRC court may award civil liability, including monetary damages.
Holders of H shares may be subject to PRC taxation.
Under current PRC tax laws, regulations and rulings, dividends paid by us to individual holders of H shares outside of the PRC are subject to PRC individual income tax at rates ranging from 5% to 20% (usually 10%), depending on the applicable tax treaties between the home country of the individual holder of H shares and the PRC. When paying dividends tonon-resident enterprise holders of H shares outside of the PRC, such dividends are subject to an enterprise income tax, which is currently levied at a rate of 10%. Suchnon-resident enterprise holders of H shares may be entitled to tax reductions or exemptions according to applicable tax treaties. In addition, to date, relevant tax authorities have not collected capital gains tax on the gains realized by individuals upon the sale or other disposition of H shares. If relevant tax authorities promulgate implementation rules on the taxation of capital gains realized by individuals upon the sale or other disposition of H shares, individual holders of H shares may be required to pay capital gains tax. Seetax.See “Item 10. Additional Information—Taxation—The People’s Republic of China”.
Government control of currency conversion and the fluctuation of the Renminbi may materially and adversely affect our operations and financial results.
We receive substantially all of our revenues in Renminbi, which currently is not a freely convertible currency. A portion of these revenues must be converted into other currencies to allow us to make payments on declared dividends, if any, on our H shares.shares, and payments of interest and principal on our debt held in foreign currencies.
Under China’s existing foreign exchange regulations, we are able to pay dividends and interest and principal in foreign currencies without prior approval from the SAFE by complying with various procedural requirements. The Chinese government, however, may, at its discretion, restrict access in the future to foreign currencies for current account transactions. If this were to occur, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
The value of the Renminbi against the U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in China’s political and economic conditions. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. Since then,Under this system, the PRC government has made, and may in the future make, further adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity for the trading against the Renminbi on the following working day. On August 11, 2015, the PBOC adjusted the quotation mechanism of the Renminbi central parity to also consider demand and supply in foreign exchange markets and price movements of major currencies, in addition to the closing price on the previous working day. On May 26, 2017, the PBOC introduced the “counter-cyclical factor” into its formula that determines a central parity of Renminbi against the U.S. dollar. Under the current mechanism, the central parity of the Renminbi against the U.S. dollar is determined based on the closing price, changes in a basket of currency exchange rates and the counter-cyclical factor. From July 21, 2005 to April 17, 2015,13, 2018, the Renminbi appreciated by approximately 24.45%28.9% against the U.S. dollar. In 2013,2017, the Renminbi appreciated by approximately 2.83%6.36% against the U.S. dollar. In 2014, the Renminbi depreciated by approximately 2.55% against the U.S. dollar. In June 2014,A portion of our assets and liabilities are held in foreign currencies and may be subject to fund our overseas investments, we obtained a fixed-interest rate bank loan of 275 million British pounds sterling with a term of five years.foreign exchange gains and losses due to changes in exchange rates. We recorded RMB 268520 million (US$43 80 million) in foreign exchange gains for the year ended December 31, 2014,2017, resulting mainly from the depreciationincrease of our assets held in foreign currencies and the fluctuation of the British pound against the Renminbi.Renminbi exchange rate. Any future devaluationappreciation of the Renminbi may materially and adversely affect the value of, and any dividends payable on, our H shares in foreign currency terms. Our financial condition and results of operations also may be affected by changes in the value of certain currencies other than the Renminbi.
Payment of dividends is subject to restrictions under Chinese law.
Under Chinese law, dividends may be paid only out of distributable profits. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years. However, ordinarily we will not pay any dividends in a year in which we do not have any distributable profits.
Payment of dividends by us is also regulated by the PRC insurance law. See “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Policy on Dividend Distributions”.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
We were formed as a joint stock life insurance company pursuant to the PRC company law on June 30, 2003 under the corporate name of 中国人寿保险股份有限公司in connection with the restructuring.
General Information
Our principal executive offices are located at 16 Financial Street, Xicheng District, Beijing 100033, China. Our telephone number is(86-10) 6363-3333. Our official website address iswww.e-chinalife.com. The information on our website is not a part of this annual report. We have appointed CT Corporation System at 111 Eighth Avenue, New York, New York 10011 as our agent for service of process in the United States.
Our Restructuring
Upon the approval of the State Council and the CIRC, we were formed on June 30, 2003 as a joint stock company in connection with the restructuring by CLIC, our controlling shareholder. The restructuring was effected through a plan of restructuring, which was approved by the CIRC on August 21, 2003, and a restructuring agreement we entered into with CLIC on September 30, 2003, with retroactive effect to June 30, 2003, which we refer to in this annual report as the effective date. Pursuant to PRC law and the restructuring agreement, we enjoyed the rights and benefits and assumed the obligations and liabilities arising from the restructuring from and after the effective date.
In connection with the restructuring:
In connection with the restructuring, CLIC established, together with the MOF, a special purpose fund for the purpose of paying claims under thenon-transferred policies. TheUnder the administrative measures for the special purpose fund isas amended in May 2012, the special purpose fund will be funded by investment assets retained by CLIC; renewal premiums paid on thenon-transferred policies over time; a portion of the tax payments maderebates received by CLIC, China Life and AMC under the tax rebate mechanism described below; profitsCLIC; proceeds from the investments of the special purpose fund; shareholder dividends paid in cash to CLIC by China Life;its subsidiaries and shareholding enterprises; proceeds from the disposition of China Life shares by CLIC of its shares in its subsidiaries and shareholding enterprises over time; cash income from the disposition of assets by CLIC; financial assets owned by CLIC; long-term equity investment held by CLIC; and funds injected by the MOF in the event of a deficiency in the special purpose fund, as described below.fund. The special purpose fund isco-administered by CLIC and the MOF. The special purpose fund will be available to satisfy CLIC’s operating expenses, including the payment of benefits and claims obligations arising from thenon-transferred policies, as well as expenses incurred in operating the special purpose fund, including third-party management fees, and professional fees and such other purposes as the management committee of the special purpose fund may agree.agree, as well as capital expenses as approved by the MOF. A management committee of the special purpose fund comprised of threefour representatives from the MOF and three representatives from CLIC oversees the management of the fund, with specified material items subject to the approval of the MOF. The special purpose fund will be dissolved when all claims and benefits under thenon-transferred policies have been paid, or sooner if the management committee so agrees.
The MOF’s approval of the special purpose fund issued to CLIC provides that in the event there is any deficiency in the special purpose fund for so long as the fund is in existence as described above to meet any payment obligation arising out of thenon-transferred policies, the MOF will provide support through the injection of funds to ensure the payments of benefits and claims to the policyholders of thenon-transferred policies. We have been advised by our PRC legal counsel, King & Wood, that (1) the MOF has the authority to issue this approval regarding the special purpose fund, (2) the approval is valid and effective and (3) it has no reason to believe that the MOF will revoke the approval. We cannot assure you, however, that a court would decide in a manner consistent with King & Wood’s conclusions.
In accordance with generally applicable tax laws and regulations, CLIC, AMC and ourselves will file income tax returns and pay our respective income taxes as separate and independent taxpayers. In accordance with a circular issued by the MOF, a portion of the income tax payments made by CLIC and us during the period of January 1, 2003 to December 31, 2010 is required to be rebated to CLIC. All of the income tax payments made by AMC may also be rebated to CLIC, if the current shareholding structure of AMC remains unchanged. As of the date of this annual report,unchanged.In 2011 CLIC is in the process of applyingapplied for the extension of the period during which the income tax payments will be rebated.rebated, but no substantive progress had been made as of the date of this annual report.
We have been advised by our PRC legal counsel, King & Wood, that following the restructuring we would not have any continuing obligations to holders of thenon-transferred policies and that there is no legal basis on which holders of thenon-transferred policies can make a claim against China Life. King & Wood based its conclusion on, among other things, the following factors: (1) after the restructuring, China Life was established as a separate legal entity and China Life’s assets and liabilities should be regarded as distinct and separate from those of CLIC; (2) there is no contractual relationship, direct or indirect, between the holders of thenon-transferred policies and China Life; (3) the restructuring (including the transfer of the transferred policies to China Life) has been approved by the CIRC and has been conducted without infringing upon the rights of the holders ofnon-transferred policies; (4) the arrangements made under the restructuring agreement, in particular the MOF’s support as described above, are expected to enable CLIC to satisfy its obligations under thenon-transferred policies; and (5) PRC regulatory authorities have no legal power to direct China Life to assume CLIC’s obligations under thenon-transferred policies or to indemnify the holders of thenon-transferred policies.
See “Item 3. Key Information—Risk Factors—Risks Relating to the Restructuring”.
Developments After Restructuring
On November 23, 2003, we established an asset management company, AMC, with CLIC, in connection with the restructuring. AMC manages our investment assets and, separately, substantially all of those of CLIC. On December 30, 2006, we established a property and casualty company, CLPCIC, with CLIC. On January 15, 2007, we established a pension insurance company, China Life Pension, with CLIC and AMC. On September 3, 2013, we established a wholly owned subsidiary, China Life (Suzhou) Pension and Retirement Investment Company Limited, or Suzhou Pension Company. The registered capital of Suzhou Pension Company is RMB 300 million.
In December 2003, we successfully completed our initial public offering of H shares, including H shares in the form of American depositary shares, or ADSs, and raised approximately RMB 24,707 million in aggregate net proceeds. Upon completion of our initial public offering, our H shares became listed on the Hong Kong Stock Exchange and ADSs each representing 40 of our H shares became listed on the New York Stock Exchange. The ratio of ADSs to H shares was reduced from 40 H shares to 15 H shares on December 29, 2006.2006 and was further reduced from 15 H shares to 5 H shares on May 26, 2015.
In December 2006, we issued 1,500,000,000 new ordinary domestic shares through public offering on the SSE at the offering price of RMB 18.88 per share, raising RMB 28,320 million in aggregate gross proceeds. The A shares have been listed on the SSE since January 9, 2007. Prior to the offering, CLIC held 19,323,530,000 ordinary domestic shares, or CLIC A shares, which have been registered with the China Securities Depository and Clearing Corporation Limited as circulative A shares with restrictive trading following the A share offering. CLIC has undertaken that for a period of 36 months commencing on January 9, 2007 it will not transfer or put on trust the CLIC A shares held by it or allow such CLIC A shares to be repurchased by China Life. On January 11, 2010, 19,323,530,000 CLIC A shares were released from trading restrictions. Of this amount, 150,000,000 shares had remained frozen in accordance with relevant Chinese regulations until December 2010.
In July 2015,we issued Core Tier 2 Capital Securities of US$ 1,280 million to qualified investors who meet applicable regulatory requirements at an initial distribution rate of 4.00%.
We incurred capital expenditures of RMB 4,47217,055 million (US$721 million) 2,621million),RMB 4,5945,892 million and RMB 4,1663,615 million in 2014, 20132017, 2016 and 2012, respectively. These2015, respectively.These capital expenditures mainly comprised of the addition of properties for our own use and electronic equipment.use.
We are the leading life insurance company in China. We provide a broad range of insurance products, including individual and group life insurance, annuity, health insurance and accident insurance products. We had nearly 197268 million insurance policies in force as of December 31, 2017, including individual and group life insurance policies, annuity contracts, health insurance and accident insurance policies in force as of December 31, 2014.policies. As of December 31, 2014,2017, the average guaranteed rate of return for all of the products we offeredour long-term insurance policies in force was 2.49%2.62%. For the financial year ended December 31, 2014,2017, our lapse rate was approximately 5.46%4.13%. The policy persistency rate,rates, which measuresmeasure the ratio of the insurance policies that are still effective after a certain period, was 89%were 90.90% for 14 months after issuance and 86%85.70% for 26 months after issuance.
In response to favorable market opportunities for health insurance and accident insurance in recent years, we have increased our efforts in developing our health insurance and accident insurance businesses. As a result, our health insurance and accident insurance gross written premiums have increased gradually as a percentage of our total gross written premiums. Meanwhile, the gross written premiums derived from group life insurance and supplementary major medical insurance represented an insignificant percentage of our total gross written premiums. In order to better reflect the changes in our external environment and business structure, and the objectives of future development, as well as providing users of financial statements with more useful information, effective
Effective January 1, 2014, we realigned our previously reported individual life insurance, group life insurance, short term insurance, supplementary major medical insurance and other segments into four newly identified segments, namely life insurance, health insurance, accident insurance and other. Our management has conducted its analysis and evaluation of our operating results based on the new reporting segments. In connection with this realignment, segment operating results for the fiscal yearsyear ended December 31, 2013 and 2012 have been revised to conform to current year segment operating results presentation. For a detailed discussion, see our consolidated financial statements included elsewhere in this annual report.
The information below is organized in accordance with our newly identified segments.
Life Insurance
We offer life insurance and annuity products to individuals and groups. We market our individual life insurance and annuity products primarily through a distribution force comprised of approximately 743,000 exclusive1,578,000exclusive agents operating in approximately 17,367 field17,100field offices throughout China, as well as othernon-dedicated agencies located at branch offices of banks banking operations of post offices and other organizations. We offer group life insurance and annuity products to the employees of companies and institutions through approximately 19,000 direct100,000direct sales representatives, as well as insurance agencies and insurance brokerage companies. Gross written premiums generated by our life insurance and annuity products, totaled RMB 285,619 million (US$46,033429,822 million(US$ 66,062 million) for the year ended December 31, 2014, 2017,RMB 290,778361,905 million for the year ended December 31, 20132016 and RMB 294,405308,169 million for the year ended December 31, 2012,2015, constituting 86.29%, 89.12% and 91.22%83.96%,84.07% and84.67% of our total gross written premiums for those periods. The figure for 20142017 represented a 1.77% decrease18.77% increase from 2013.2016.
The following table sets forth selected financial and other data regarding our life insurance and annuity business as of the dates or for the periods indicated.
As of or for the year ended December 31, | Compound annual growth rate | As of or for the year ended December 31, | Compound annual growth rate | |||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2014 | (2012-2014) | 2015 | 2016 | 2017 | 2017 | (2015-2017) | |||||||||||||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | RMB | RMB | US$ | |||||||||||||||||||||||||||||||||
(in millions, except as otherwise indicated) | (in millions, except as otherwise indicated) | |||||||||||||||||||||||||||||||||||||||
Gross written premiums | 294,405 | 290,778 | 285,619 | 46,033 | (1.50 | )% | 308,169 | 361,905 | 429,822 | 66,062 | 18.10 | % | ||||||||||||||||||||||||||||
Liabilities of insurance contracts | 1,359,879 | 1,461,121 | 1,558,714 | 251,219 | 7.06 | % | 1,652,469 | 1,762,363 | 1,914,597 | 294,268 | 7.64 | % | ||||||||||||||||||||||||||||
Liabilities of investment contracts | 60,447 | 57,991 | 63,710 | 10,268 | 2.66 | % | 74,046 | 183,773 | 218,436 | 33,573 | 71.76 | % |
Products
We offer a wide variety of life insurance and annuity products to individuals, providing a wide range of coverage for the whole length of a policyholder’s life. Our individual life insurance and annuity products consist of whole life and term life insurance, endowment insurance annuities and universal life insurance.annuities. We also offer group annuity products and group whole life and term life insurance products to enterprises and institutions. We bundlemarket these products to serve as an important part of our group customers’ overall employee benefit plans. We also market each group product as an independent product. We believe we are the market leader in the development of group annuity products.
We offer bothnon-participating and participating products. There were approximately 130212 millionnon-participating policies and 6056 million participating policies as of December 31, 2014,2017, among which approximately 60107 millionnon-participating policies and 4039 million participating policies were sold to individuals.
The following table sets forth selected financial information regarding our life insurance and annuity products.
For the year ended December 31, | Compound annual growth rate | |||||||||||||||||||
2012 | 2013 | 2014 | 2014 | (2012-2014) | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
(in millions, except as otherwise indicated) | ||||||||||||||||||||
Gross written premiums | ||||||||||||||||||||
Whole life and term life insurance | 32,881 | 32,109 | 32,638 | 5,260 | (0.37 | )% | ||||||||||||||
Endowment | 223,660 | 209,034 | 217,662 | 35,081 | (1.35 | )% | ||||||||||||||
Annuities | 37,864 | 49,635 | 35,319 | 5,692 | (3.42 | )% |
Gross written premiums Whole life and term life insurance Endowment Annuities For the year ended December 31, Compound
annual
growth rate 2015 2016 2017 2017 (2015-2017) RMB RMB RMB US$ (in millions, except as otherwise indicated) 31,595 33,395 40,606 6,241 13.37 % 177,871 188,415 198,418 30,496 5.62 % 98,703 140,095 190,798 29,325 39.03 %
Whole Life and Term Life Insurance
Non-participating whole life and term life insurance
We offernon-participating whole life and term life insurance products.
Non-participating whole life insurance products provide a guaranteed benefit,pre-determined by the contract, upon the death of the insured, in return for the periodic payment of fixed premiums over apre-determined period. Premium payments may be required for the length of the contract period, to a specified age or for a specified period, and are typically level throughout the period.
Non-participating term life insurance products provide a guaranteed benefit upon the death of the insured within a specified time period in return for the periodic payment of fixed premiums. Specified coverage periods generally range from 5 to 30 years or expire at specified ages. Death benefits may be level over the period or increasing. Premiums are typically at a level amount for the coverage period. Term life insurance products are sometimes referred to as pure protection products, in that there are normally little or no savings or investment elements. Unlike endowment products, term life insurance policies expire without value at the end of the coverage period if the insured person is still alive.maturity benefits.
Participating whole life insurance
We also offer participating whole life insurance products, which, arein addition to the benefit payment of traditional whole life insurance policies, that also provide a participation feature in the form of dividends. The policyholder is entitled to share a portion of the distributable earnings from participating products, as determined by us based on formulas prescribed by the CIRC. UnderCIRC.Under guidelines issued by the CIRC, the dividends must be no less than 70% of the distributable earnings from participating products. Policyholdersproducts.Policyholders may receive dividends in cash or apply them to increase death benefits or cash values available upon surrender.
We offer participating whole life insurance products only to individual customers.
We have ceased offering participating whole life insurance since April 2017 in accordance with regulatory requirements. We continue to fulfill our obligations under the participating whole life insurance policies that are still in force.
Endowment
Non-participating endowment products
Non-participating endowment products provide to the insured various guaranteed benefits if the insured survives specified maturity dates or periods stated in the policy, and provide to a beneficiary designated by the insured guaranteed benefits upon the death of the insured within the coverage period, in return for the periodic payment of premiums. Specified coverage periods generally range from 5 to 30 years or end at specified ages. Premiums are typically at a level amount for the coverage period.
Participating endowment products
We also offer participating endowment products, which are endowment policies that also provide a participation feature in the form of dividends. Policyholders are entitled to share a portion of the distributable earnings from participating products, as determined by us based on formulas prescribed by the CIRC. UnderCIRC.Under guidelines issued by the CIRC, the dividends must be no less than 70% of the distributable earnings from participating products. Policyholdersproducts.Policyholders may receive dividends in cash or apply them to increase death benefits or cash values available upon surrender. Participating endowment products are among the most popular individual life insurance products in China.
China Life Fu Lu Shuang Xi Participating Endowment and China Life Xin Fu Lu Xin ZunYi Sheng Participating Endowment generated the most income for participating endowment products in 2014.2017. China Life Fu Lu Shuang Xi Participating Endowment had RMB 29,74919,659 million (US$4,795 3,022 million) of net premiums in 2014,2017, representing 10.42%4.58% of the net premiums of our life insurance business. China Life Xin Fu Lu Xin ZunYi Sheng Participating Endowment had RMB 21,33818,494 million (US$3,439 2,842 million) of net premiums in 2014,2017, representing 7.47%4.31% of the net premiums of our life insurance business. The net premiums earned from our participating endowment products decreased bydecreasedby RMB 54,10014,168 million (US$2,178million), or 27.95%10.69%, to RMB 139,479118,390 million (US$22,480 million) 18,196million) in 20142017 from RMB 193,579132,558 million in 2013.2016.
We offer endowment products only to individual customers.
Annuities
Annuities are used for both asset accumulation and asset distribution needs. Annuitants pay premiums into our accounts, and receive guaranteed level payments during the payoff period specified in the contracts. We offer bothnon-participating and participating annuities. Fornon-participating annuity products, risks associated with the investments are borne entirely by us. A significant portion of ournon-participating annuity products imposes charges upon an early surrender or withdrawal of the contract.
Participating annuity products are annuities that provide a participation feature in the form of dividends.dividends in addition to the guaranteed annuity benefits. The dividends are determined by us in the same manner as our life insurance policies. Annuitants may receive dividends in cash or apply them to increase annuity benefits or reduce the premiums or deposits required to maintain the contract in force. Likenon-participating annuities, a significant portion of our participating annuity products imposes charges upon an early surrender or withdrawal of the contract.
In ournon-participating group annuities, interest accrued on an annuitant’s deposits is credited to each participating employee’s personal account.
We also offer participating group annuities. In our participating group annuities, interest accrued on an annuitant’s deposits is either credited to the participating employee’s personal account or credited to the participating employee’s personal account as well as the employer’s group account. The annuitant is entitled to share a portion of our distributable earnings derived fromof our participating products, as determined by us based on formulas prescribed byin accordance with the requirements of the CIRC, in excess of the rate we guarantee to participating employees.
Universal Life Products
Universal life products are life insurance policies with flexible premium and benefit amounts.sum insured as well as transparency on costs. For each universal life policy, we establish a separate account and determine the interest credit rate, mortality and expense charges specifically for such account. The benefits of universal life products are linked to the account value of each separate account.
Marketing and Distribution
Individual
We have historically sold most of our individual life insurance and annuity products to the mass market and will continue to actively serve this market. However, we believe our core individual customer base will evolve as China’s economy develops. Wedevelops.We will seek to capitalize on the market opportunities in the growing affluent segment of China’s population by focusing our marketing efforts on large andmedium-sized cities with an aim to attract more medium- andhigh-end customers, as we believe that the demand for life insurance and annuity products in these areas is greater. Ingreater.In addition, we have been implementing a customer segmentation sales approach which targets individuals of various income and education levelsdifferent customers with different products. Under this sales approach, individuals in different periods of their lives are marketed with different life insurance and annuity products with these products in many cases supplemented by our individual accident and health products.
We distribute our individual life and annuity products nationwide through multiple channels. Our primary distribution system is comprised of approximately 743,000 exclusive1,578,000exclusive agents operating in approximately 17,367 field17,100field offices throughout China. In addition, we are implementing our customer-oriented market segmentation sales initiatives to all exclusive agents nationwide. Whilenationwide.While continuing to invest in our exclusive agent force, we have also expanded into other distribution channels, primarilynon-dedicated agencies located in approximately 61,000 outlets44,000outlets of commercial banks, and banking operations of post offices, to diversify our distribution channels and to achieve higher growth. See “—Distribution Channels”.
Group
We target our group life insurance and annuity products to large institutional customers in China, including branches of foreign companies, which we believe have a greater awareness of and need for group life insurance and annuity products. We have long-term customer relationships with many of China’s largest companies and institutions. We provide large group customers with products having flexible fee and dividend structures, as well as enhanced real-timeconvenient customer service. While continuing to focus on large institutional clients, we also target small- tomedium-sized companies in economically developed regions to supplement our growth and to increase our profits.
We market our group life insurance and annuity products primarily through our direct sales representatives. We also market our group life insurance and annuity products through commercial banks, banking operations of post offices, insurance agency companies and insurance brokerage companies. We believe our sales network has a geographic reach unmatached by any other life insurance company in China, serving almost every county in China. See “—Distribution Channels”.
Health Insurance
We offer a broad array of health insurance products and services to both individuals and groups, including disease-specific insurance, medical expense insurance and defined benefit insurance. Our health insurance gross written premiums totaled RMB 33,19267,708 million (US$5,350 million) 10,407million) for the year ended December 31, 2014,2017, RMB 24,71354,010 million for the year ended December 31, 20132016 and RMB 18,78942,041 million for the year ended December 31, 2012,2015, constituting 10.03%, 7.57%13.23%,12.55% and 5.82%11.55% of our total gross written premiums for those periods. The figure for 20142017 represented a 34.31%25.36% increase from 2013.2016.
Our health insurance business shares our nationwide life insurance sales force and distribution network of exclusive agents. Our policy review and claim adjustment processes are facilitated through a team of supporting personnel with medical training.
The following table sets forth selected financial and other data regarding our health insurance as of the dates or for the periods indicated. The financial results of both our long-term health insurance and short-term health insurance are reflected in the following table.
As of or for the year ended December 31, | Compound annual growth rate | As of or for the year ended December 31, | Compound annual growth rate | |||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2014 | (2012-2014) | 2015 | 2016 | 2017 | 2017 | (2015-2017) | |||||||||||||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | RMB | RMB | US$ | |||||||||||||||||||||||||||||||||
(in millions, except as otherwise indicated) | (in millions, except as otherwise indicated) | |||||||||||||||||||||||||||||||||||||||
Gross written premiums | 18,789 | 24,713 | 33,192 | 5,350 | 32.91 | % | 42,041 | 54,010 | 67,708 | 10,407 | 26.91 | % | ||||||||||||||||||||||||||||
Liabilities of insurance contracts | 20,497 | 28,229 | 38,872 | 6,265 | 37.71 | % | 57,024 | 77,837 | 102,190 | 15,706 | 33.87 | % | ||||||||||||||||||||||||||||
Liabilities of investment contracts | 6,157 | 7,096 | 8,565 | 1,380 | 17.94 | % | 10,060 | 11,933 | 14,064 | 2,162 | 18.24 | % |
Products
We offer health insurance products to both individuals and groups. We classify our health insurance products as short-term products, having policy terms of less than or up to one year, and long-term products, having policy terms longer than one year. We offer both short-term and long-term defined health benefit plans, medical expense reimbursement plans, care insurance plans and disease-specific plans to individuals and groups.
Defined health benefit plans
These plans provide a fixed payment based on the number of days of hospitalization for specific diseases or surgical operation. Policyholders either pay premiums in a single payment or on a periodic basis.
Medical expense reimbursement plans
These plans provide for the reimbursement of a portion of the participant’s outpatient or hospitalization treatment fees and expenses. Policyholders either pay premiums either in a single payment or on a periodic basis or, for certain group medical expense reimbursement plans, irregularly as determined by the policyholder.
Since 2003, we also started providing medical agency services for the basic social insurance plans carried out by the Chinese government. The agency services include checking and reimbursement of medical expenses and medical service investigation. We do not collect premiums but only charge a specified amount of handling fees for these services. As of December 31, 2017, we have carried out more than 400 medical agency services projects in over 20 provinces, providing services to more than 90 million people.
We also commenced our supplementary major medical insurance business in 2013. As part of the Chinese government’s overall medical insurance scheme, supplementary major medical insurance reimburses policyholders for a specified percentage of their high medical expenses caused by major illnesses which are in excess of the maximum amounts covered by the basic social medical insurance and will otherwise be borne by the individuals. The Chinese government has launched pilot supplementary major medical insurance programs beginning in various areas2013, and as of the date of this annual report, the Chinese government has implemented supplementary major medical insurance programs nationwide in China. Local governments in these pilot areas use a portion of the basic medical insurance funds to purchase supplementary major medical insurance service from qualified insurance companies through a government tender. Supplementary major medical insurance offers protection to all the policyholders covered by the basic social medical insurance in the pilot areas and policyholders do not need to pay any extra premium for the supplementary major medical insurance. In 2013,As of December 31, 2017, we won the bids for 76had carried out over 260 supplementary major medical insurance projects, providing services to approximately 420 million people.
Care insurance plans
These plans provide to individuals who have disabilities covered by the insurance contracts with a fixed allowance and reimbursement of expenses for their daily living and medical care. Premium payments are paid either in a single payment or on a periodic basis.
We commenced our care insurance business in 2015. The Chinese government launched pilot long-term care insurance programs beginning in 2016. Under these programs, local governments in pilot areas including Liaoning provinceraise funds through various channels to provide funds or protection services to people who have life disabilities for their daily living and Jilin province. In 2014,medical care. Some local governments purchase long-term care insurance services from qualified insurance companies through government tender procedures. As of December 31, 2017, we won the bids for 91 supplementary major medicalhad carried out nine long-term care insurance projects, in areas including Henan province and Jiangxi province.providing services to over 5 million people.
Disease-specific plans
These plans provide a fixed payment benefit for various diseases. Premium payments for disease-specific plans are paid either in a single payment or on a periodic basis.
Marketing and Distribution
We offer our health insurance products to both individuals and groups through the same distribution channels we use to market our life insurance products. We market our individual health insurance products through our exclusive agent sales force. We market our group health insurance products primarily through our direct sales representatives. See “—Distribution Channels”.
We use our individual and group product distribution channels to market our health insurance products either as primary products, as riders or as supplementary products packaged with our life, annuity or accident insurance products. We conduct extensive health insurance related training programs for our direct sales representatives and our exclusive agents.
Accident Insurance
We are the leading accident insurance provider in China. Our accident insurance gross written premiums totaled RMB 12,19914,436 million (US$1,966 2,219 million) for the year ended December 31, 2014,2017, RMB 10,79914,583 million for the year ended December 31, 2013 and RMB 9,5482016andRMB 13,761 million for the year ended December 31, 2012,2015, constituting 3.69%, 3.31% and 2.96%2.82%,3.39% and3.78% of our total gross written premiums for those periods. The figure for 20142017 represented a 12.96% increase1.01% decrease from 2013.2016.
The following table sets forth selected financial and other data regarding our accident insurance as of the dates or for the periods indicated. The financial results of both our long-term accident insurance and short-term accident insurance are reflected in the following table.
As of or for the year ended December 31, | Compound annual growth rate | As of or for the year ended December 31, | Compound annual growth rate | |||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2014 | (2012-2014) | 2015 | 2016 | 2017 | 2017 | (2015-2017) | |||||||||||||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | RMB | RMB | US$ | |||||||||||||||||||||||||||||||||
(in millions, except as otherwise indicated) | (in millions, except as otherwise indicated) | |||||||||||||||||||||||||||||||||||||||
Gross written premiums | 9,548 | 10,799 | 12,199 | 1,966 | 13.03 | % | 13,761 | 14,583 | 14,436 | 2,219 | 2.42 | % | ||||||||||||||||||||||||||||
Liabilities of insurance contracts | 4,161 | 5,147 | 5,860 | 944 | 18.67 | % | 6,492 | 7,786 | 8,346 | 1,283 | 13.38 | % | ||||||||||||||||||||||||||||
Liabilities of investment contracts | — | — | — | — | — |
Products
We offer a broad array of accident insurance products to both individuals and groups.
Individual accident insurance
Individual accident insurance products provide a benefit in the event of death or disability of the insured as a result of an accident, or a reimbursement of medical expenses to the insured in connection with an accident. Typically, a death benefit is paid if the insured dies as a result of the accident within 180 days of the accident, and a disability benefit is paid if the insured is disabled, with the benefit depending on the extent of the disability. If the insured receives medical treatment at a medical institution approved by us as a result of an accident, individual accident insurance products may also may provide coverage for such medical expenses. We offer a broad array of individual accident insurance products, such as insurance for students and infants against death and disability resulting from accidental injury and comprehensive coverage against accidental injury. We also offer products to individuals requiring special protection, such as accidental death and disability insurance for commercial air travel passengers and automobile passengers and drivers.
Group accident insurance
We offer a number of group accident insurance products and services to businesses, government agencies and other organizations of various sizes. We also offer group accident products targeted at specific industry groups, such as construction worker relatedsmall-value group accident injury insurance to construction companies, and law enforcement personnel accident insurance to various law enforcement agencies.low-income people in rural areas.
Marketing and Distribution
We market our individual accident insurance products through our direct sales force and our exclusive agent sales force, as well as intermediaries, such asnon-dedicated agencies located at outlets of commercial banks, banking operations of post offices, savings cooperatives, travel agencies, hotels and airline sales counters and insurance agency and insurance brokerage companies. We market our group accident insurance products primarily through our direct sales representatives and the same intermediaries we use to sell our individual accident products. See “—Distribution Channels”.
We use our individual and group product distribution channels to market our accident insurance products either as primary products, as riders or as supplementary products packaged with our life, annuity or health products. Our direct sales representatives market our individual accident products to employees of our institutional customers.
Product Development
In 2014,2017, in line with our general development strategy, we developed and introduced 26101 new products, including 2064 long-term insurance products consisting of 1214 life insurance products, five26 annuity products, two health insurance products and one accident insurance product;product and six23 health insurance products; and 37 short-term insurance products consisting of threetwo life insurance products, 12 accident insurance products two healthand 23health insurance products and one life insurance product with a term of one year.products.
With respect to long-term insurance products, we developed and introduced, among others:
With respect to short-term insurance products, we developed a series of insurance products for medical insurance accounts in some parts of the Yangtze River Delta region in order to improve the utilization efficiency of balances in personal basic medical insurance accounts and alleviate the pressure from self-paying medical expenses in some regions; developed seven products in the “Fu Pin Bao” series for registered poverty-stricken individuals based on the experiences of poverty relief work in Ningxia, which considers the needs for poverty relief and protections in various regions; developed two products including China Life An Xin Dai Accidental InjuryGroup Care Insurance to cater for Borrowers (Type A)care-related pilot policies introduced by the local governments; developed China Life Quan Jia Fu medical insurance to satisfymeet the medical protection needs of our local branches for calculating premiums of credit businesses on a daily basis. To meet particular customer needs, wefamily customers; and updated and developed several featured short-term insurance products such as China Life Compensatory Medical Insurancethe Tong Tai series to cater for In-flight Emergency Rescue Costs and China Life Comprehensive Accidental Injury Insurance for Chinese Residents Travellingthe needs of different segments in Taiwan. We also upgraded our travel insurance products.the market.
Distribution Channels
We believe we have the largest distribution force with the most extensive geographic reach compared with any of our competitors. Ourcompetitors.Our distribution network reaches almost every county in China. ThroughoutChina.Throughout China, we have approximately 743,000 exclusiveapproximately1,578,000exclusive agents operating in approximately 17,36717,100 field offices for our individual products and approximately 19,000 direct100,000direct sales representatives for group products. We have a multi-channel distribution network selling individual and group insurance products through intermediaries, primarilynon-dedicated agencies located in approximately 61,000 outlets44,000outlets of commercial banks and banking operations of post offices as of the end of 2014. Commission2017.Commission rates vary by product, based on such factors as the payment terms and period over which the premiums are paid for the product, as well as CIRC regulations. We support our agents and representatives through training programs, sales materials and information technology systems.
Exclusive agent force
Our exclusive agent force of approximately 743,000 agents, including those who are not qualified,approximately1,578,000agents is the primary distribution channel for our individual life, annuity, health and accident insurance products.
The following table sets forth information relating to our exclusive agent force as of the dates indicated.
As of December 31, | As of December 31, | |||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Number of exclusive agents (approximately) | 693,000 | 653,000 | 743,000 | 979,000 | 1,495,000 | 1,578,000 | ||||||||||||||||||
Number of field offices | 17,960 | 17,536 | 17,367 | 17,125 | 17,011 | 17,100 |
Our exclusive agent force is among our most valuable assets, allowing us to more effectively control our distribution and build and maintain long-term relationships with our individual customers. The number of our exclusive agents increased from 653,000 as1,495,000as of the end of 20132016 to 743,000 as1,578,000as of the end of 2014.2017. During 2014,2017, we attracted more new qualified agents by expanding our recruitment program, making further efforts in training new qualified agents and strengthening sales support. At the same time, we have continued carrying out performance reviews in 2014,2017, which have led to the departure of a number of exclusive agents with lower productivity. In addition, in August 2015, the market competitionCIRC canceled the qualification certificates requirements for qualifiedthe individual insurance agents, has increased duewhich helped to facilitate our recruitment process. However, we still adhere to our own standards for recruitment to ensure the new Sales Personnel Rules issued byquality and productivity of our exclusive agent force.See “Item 4. Information on the CIRC. SeeCompany—Business Overview—Regulatory and Related Matters—Regulation of Insurance Agencies, Insurance Brokers and Other Intermediaries” and “Item 3. Key Information—Risk Factors—Risks Relating to Our business—Our growth is dependent on our ability to attract and retain productive agents.”We believe that our customers and prospective customers prefer the personal approach of our exclusive agents and, therefore, we believe our exclusive agent force will continue to serve as our core distribution channel.
We also continued the development ofhave developed a special sales force targeting “orphan policies” (policies which were serviced by former individualexclusive agents who have since left the company) to improve our service for these policies.
Individual insurance agents, representatives of insurance agencies and insurance brokers are required to obtain qualification certificates issued by the CIRC. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Regulation of Insurance Agencies, Insurance Brokers and Other Intermediaries”. Under applicable CIRC regulations, we may face sanctions if we retain individual agents without CIRC qualification certificates, and policyholders who bought insurance policies through our unqualified agents are allowed to cancel the policies, under some circumstances. As of December 31, 2014, approximately 99.87% of our individual agents had obtained such a certificate. Under applicable CIRC regulations, after expiration of an individual agent’s qualification certificate, the agent must apply for a renewal of the qualification certificate or pass the qualification examination again in order to continue to practice.
We supervise and provide training to our exclusive agents through more than 2,480 full-time2,053full-time trainers and 35,900169,684 part time trainers. We set product management and customer service standards, and have developed risk warning and credit rating systems, which we require all of our field offices and agents to meet, and conduct field tests with a view to ensuring quality. We also have an extensive training program.
We compensate our exclusive agent force through a system of commissions and bonuses to reward performance. Our agents are compensated based on a commission rate that generally decreases over the premium period. For short-term insurance products, our exclusive agents are generally compensated with fixed agent fees. We provide group annuities, group commercial supplemental pension insurance, group life and medical insurance for our exclusive agents. We motivate our agents by rewarding them with performance-based bonuses and by organizing sales-related competitions among different field offices and sales units. We also try to increase the loyalty of our exclusive agents through other methods, such as through participation in sales conferences.
We believe we have the largest exclusive agent sales force in China. We intend to improve the quality and productivity of our individual exclusive agent force and reduce the attrition rate of our agents by taking the following actions:
Group distribution channel
Our group distribution channel is comprised of our direct sales force and intermediaries.
Direct sales force
Our direct sales force, which consists of approximately 19,000 direct100,000direct sales representatives, is our primary distribution system for our group life insurance and annuities, group accident insurance and group health insurance products, as well as our individual accident insurance and individual short-term health insurance products.
We believe The number of our direct sales force allows usrepresentatives increased rapidly from 86,000as of the end of 2016 to 104,000as of the end of 2017. During 2017, we attracted more effectively controldirect sales representatives by strengthening our distributionrecruitment program and buildmaking active efforts in recruiting and maintain long-term relationships with our group customers and, therefore, will continue to serve as our primary distribution system for our group products. training direct sales representatives.
We believe maintaining our leading position in the group insurance market depends on a professional and qualified direct sales force, and we have devoted substantial resources to the training and supervision of our direct sales force in recent years.force. We set product management and customer service standards which we require all of our branch offices and direct sales representatives to meet, and conduct field tests to centralize quality control and management. We also have an extensive training program.meet.
We motivate our direct sales representatives by rewarding them with performance-based bonuses and by organizing sales and services-related competitions among different branch offices and sales units.
Intermediaries
We also offer individual and group products through intermediaries.
We market group products through dedicated insurance agencies and insurance brokerage companies. Dedicated insurance agencies and insurance brokerage companies work with companies primarily to select group insurance providers and group products and services in return for commission fees. Currently, the market of dedicated insurance agencies and insurance brokerage companies in China generally remains underdeveloped. However, we expect that the dedicated insurance agencies and insurance brokerage companies will play a more important role in sales of our group products in the future.
We also sell short-term insurance products through othernon-dedicated agencies. Currently, we havenon-dedicated agencies operating at outlets of commercial banks, travel agencies, commercial banks, credit cooperatives, small loan companies and airline sales counters. We expectnon-dedicated agencies to become an increasingly important distribution channel for individual products.
Bancassurance channel
We have bancassurance arrangements with major commercial banks and banking operations of post offices in China, and currently generate a significant portion of our total sales through bancassurance. Ourbancassurance.Our distribution channels are primarily comprised ofnon-dedicated agencies located in approximately 61,000 outlets44,000outlets of commercial banks and banking operations of post offices. We will continue to dedicate substantial resources to develop our bancassurance business, with a focus on key cities.banks. We have established strategic alliances with many banks. We intend to improve the attractiveness of our products by providing new products andall-around services to each major bank and providing training and integrated systems support to our banking partners.
Other distribution channels
We also sell individual products through other newly developed distribution channels including telephone sales and internet-based sales.
The major products sold through our telephone sales channel are individual insurance and health insurance products. As a new sales channel developed in recent years, the sales generated by our telephone sales channel have been rapidly increasing and we believe that its growth will continue.
We sell short-term insurance products, including tourism, comprehensive accident, traffic, overseas travel, family, studentThe sales volume and juvenile insurance products, through our website atwww.e-chinalife.com. The number of customers and sales volume of our internet-based sales channel have been steadily increasing over the past several years due to the improvement of the process for internet-based sales business with respect to customer registration and inquiry, product purchase and information checks.business. We also sell products through the internet-based sales platforms of insurance brokerage companies insurance agencies and other qualified third-party websites.
Gross written premiums attributable to each distribution channel
The following table sets forth gross written premiums attributable to each distribution channel, as of the dates indicated.
For the year ended December 31 | ||||||||||||||||
2012 | 2013 | 2014 | 2014 | |||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||
(in millions) | ||||||||||||||||
Exclusive agent force | 179,761 | 197,698 | 205,417 | 33,107 | ||||||||||||
First-year business of long-term insurance | 32,197 | 31,815 | 34,455 | 5,553 | ||||||||||||
Single | 415 | 413 | 335 | 54 | ||||||||||||
First-year regular | 31,782 | 31,402 | 34,120 | 5,499 | ||||||||||||
Renewal business | 141,999 | 160,302 | 165,131 | 26,614 | ||||||||||||
Short-term insurance business | 5,565 | 5,581 | 5,831 | 940 | ||||||||||||
Group distribution channel | 13,562 | 17,658 | 17,440 | 2,811 | ||||||||||||
First-year business of long-term insurance | 2,165 | 4,720 | 2,989 | 482 | ||||||||||||
Single | 2,002 | 4,561 | 2,878 | 464 | ||||||||||||
First-year regular | 163 | 159 | 111 | 18 | ||||||||||||
Renewal business | 593 | 563 | 506 | 82 | ||||||||||||
Short-term insurance business | 10,804 | 12,375 | 13,945 | 2,247 | ||||||||||||
Bancassurance channel | 128,863 | 107,658 | 99,825 | 16,089 | ||||||||||||
First-year business of long-term insurance | 91,524 | 78,178 | 77,881 | 12,552 | ||||||||||||
Single | 78,151 | 69,695 | 65,918 | 10,624 | ||||||||||||
First-year regular | 13,373 | 8,483 | 11,963 | 1,928 | ||||||||||||
Renewal business | 37,283 | 29,387 | 21,815 | 3,516 | ||||||||||||
Short-term insurance business | 56 | 93 | 129 | 21 | ||||||||||||
Other distribution channels | 556 | 3,276 | 8,328 | 1,342 | ||||||||||||
First-year business of long-term insurance | 225 | 280 | 1,262 | 203 | ||||||||||||
Single | 8 | 18 | 889 | 143 | ||||||||||||
First-year regular | 217 | 262 | 373 | 60 | ||||||||||||
Renewal business | 324 | 475 | 638 | 103 | ||||||||||||
Short-term insurance business | 7 | 2,521 | 6,428 | 1,036 | ||||||||||||
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Total | 322,742 | 326,290 | �� | 331,010 | 53,349 | |||||||||||
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Exclusive agent force First-year business of long-term insurance Single First-year regular Renewal business Short-term insurance business Group distribution channel First-year business of long-term insurance Single First-year regular Renewal business Short-term insurance business Bancassurance channel First-year business of long-term insurance Single First-year regular Renewal business Short-term insurance business Other distribution channels First-year business of long-term insurance Single First-year regular Renewal business Short-term insurance business Total For the year ended December 31 2015 2016 2017 2017 RMB RMB RMB US$ (in millions) 225,957 282,136 353,668 54,358 47,974 74,813 90,629 13,929 495 283 389 60 47,479 74,530 90,240 13,870 171,632 199,826 253,586 38,975 6,351 7,497 9,453 1,453 20,107 24,915 26,207 4,028 3,571 5,430 4,368 671 3,372 4,571 3,425 526 199 859 943 145 553 703 999 154 15,983 18,782 20,840 3,203 106,028 108,256 113,505 17,445 87,222 85,882 80,731 12,408 73,508 68,047 59,777 9,188 13,714 17,835 20,954 3,221 18,558 21,813 31,880 4,900 248 561 894 137 11,879 15,191 18,586 2,857 1,209 811 1,064 164 701 90 80 12 508 721 984 151 864 1,160 1,641 252 9,806 13,220 15,881 2,441 363,971 430,498 511,966 78,688
Competition
Our nearest competitors are Ping An Life, China Pacific Life, New China Life and China PacificTaikang Life.
The following table sets forth market share information for the year ended December 31, 2013,2016, the most recent year for which official market information for separate business segments is available, in all segments of the life insurance market in which we do business.
Life premiums market share | Accident premiums market share | Health premiums market share | Total premiums market share | Life premiums market share | Accident premiums market share | Health premiums market share | Total premiums market share | |||||||||||||||||||||||||
China Life | 31 | % | 35 | % | 25 | % | 30 | % | 20 | % | 29 | % | 14 | % | 20 | % | ||||||||||||||||
Ping An Life Insurance Company of China, Ltd. (1) | 13 | % | 18 | % | 27 | % | 14 | % | 11 | % | 21 | % | 15 | % | 13 | % | ||||||||||||||||
China Pacific Life Insurance Co. Ltd. | 9 | % | 14 | % | 7 | % | 9 | % | ||||||||||||||||||||||||
New China Life Insurance Co. Ltd. | 11 | % | 4 | % | 8 | % | 10 | % | ||||||||||||||||||||||||
Tai Kang Life Insurance Co. Ltd. | 6 | % | 6 | % | 4 | % | 6 | % | ||||||||||||||||||||||||
China Pacific Life Insurance Co., Ltd. | 6 | % | 11 | % | 5 | % | 6 | % | ||||||||||||||||||||||||
New China Life Insurance Co., Ltd. | 5 | % | 3 | % | 6 | % | 5 | % | ||||||||||||||||||||||||
Taikang Life Insurance Co., Ltd. | 4 | % | 1 | % | 3 | % | 4 | % | ||||||||||||||||||||||||
Others(2) | 29 | % | 23 | % | 29 | % | 31 | % | 54 | % | 35 | % | 57 | % | 52 | % | ||||||||||||||||
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Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||
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(1) | For purposes of this annual report, the statistics for Ping An Life Insurance Company of China, Ltd. |
(2) | Others include: PICC Life Insurance Co., Ltd., PICC Health Insurance Co., Ltd., Taiping Life Insurance Co., Ltd., Taiping Pension Co., Ltd., Minsheng Life Insurance Co., Ltd., CPIC Allianz Health Insurance Co., Ltd., Ping An Health Insurance Company of China, Ltd., Ping An Annuity Insurance Company of China, Ltd., China United Life Insurance Co., Ltd., Sunshine Life Insurance Corporation Limited, Taikang Pension & Insurance Co., Ltd., Huatai Life Insurance Co., Ltd., Tianan Life Insurance |
Source: China Insurance Yearbook 20142017
We face competition not only from domestic life insurance companies, but also fromnon-life insurance companies and foreign-invested life insurers. There were 6775 licensed life insurance companies in China asinsurersas of December 31, 2012, 71 as of December 31, 2013 and2015, 77 as of December 31, 2014.2016 and 85 as of December 31, 2017. Property and casualty insurers were allowed to sell accident and short-term health insurance products with regulatory approval starting from January 2003, which we believe will lead to greater competition in the accident and health insurance sectors, especially in the group accident and group health insurance products. In addition, we believe that eliminationChina’s commitment to accelerate the opening of geographic limitationsits insurance sector to foreign investors, including the relaxation on market access requirements applicable to foreign-invested insurance companies and foreign ownership limits in its insurance sector, will further increase competition in China’s life insurance market.
See “Item 3. Key Information—Risk Factors—Risks Relating to the PRC Life Insurance Industry—We expect competition in the Chinese insurance industry to increase, which may materially and adversely affect the growth of our business”.
We also face increasing competition from other financial services providers, primarily licensed mutual fund companies, commercial banks providing personal banking services and operating business of various financial products, trust companies and brokerage houses licensed to manage separate accounts. These financial services providers may be permitted to manage employer-sponsored defined contribution pension plans, which we believe will compete directly with our group annuity products. We also face competition in the sale of our traditional life insurance savings policies, individual participating policies and annuities from financial institutions which offer investment products to the public.
Business Management
Customer Support Management
We seek to provide quality services to our customers and potential customers and to be responsive to their needs, both before and after a sale, through an extensive customer support network. Our customer service network is managed by specialized customer service departments, which are responsible for setting uniform standards and procedures for providing policy-related services to customers, handling inquiries and complaints from customers and training customer services personnel.
We deliver customer services primarily through customer service units operating in our branch offices and in field offices throughout China and a sophisticated telephone call center network. We take advantage of alternative customer services channels, such as cell phone messages and the Internet, complementing the customer services provided by our customer service units and the call center network.
Customer service units
We provide customer support through approximately 2,7002,600 customer service units nationwide. We provide several types of policy-related services to our customers, which include collecting regular premiums, renewing policies, purchasing supplemental policies,riders, reinstating lapsed policies, processing surrenders,termination of policies, increasing insured amounts, processing policy loans, paying benefits and updating information regarding holdersthe insureds and beneficiaries of policies. We require our customer service units to provide these policy-related services in accordance with procedures and standards that we implement on a nationwide basis, helping to ensure the quality of the services we provide. We also have uniform service standards for customer service units nationwide. We also have a specialized customer service department to further refine our customer services. The customer service department’s role is to provide service to our customers and supervise the quality of service provided by our customer service units.
Telephone call service centerContact centers
Our telephone call servicecontact centers allow customers to make product and service inquiries, file suggestions and complaints, report claims and losses, make appointments and updateapply for conservations. Our contact centers also allow the contact information regarding holders of policies.customers to access self-services through a smart voice navigation system and an interactive voice response system. They also provide call-back, greeting message and reminder call services to customers. With our dedicated, nationwide inquiry line, “95519”, our customers can reach us on a “24 hours/7 days” basis.
We believe our callcontact centers have become popular with our customers because of the quality of services we provide. From 2004 to 2014,We received the awards of “China’s Best Customer Contact Center of Year 2016-2017”, “Best Customer Contact Center for 11 consecutive years, weManagement Innovation”, “Best Customer Contact Center for Service Experience” and “China’s Best Customer Contact Center for Smart Service Application” from the Customer Relationship Management Committee of the China Federation of IT Promotion and Customer Contact Center Committee.We also received the “Best Call Centers in China Award”the World” award from the Professional Committee for the PromotionInternational Customer Management Institute in 2007, 2011 and Alliance of Customer Relationship Management of Information under the Ministry of Industry2015, respectively, and Information Technology. We have also obtained the authentication of Chinese national callcontact center operating performance standards. Westandards.We will continue to ensure that we have a sufficient number of lines and staff to service the increasing use of our callcontact centers.
We have established system-wide standards for our callcontact centers, which we monitor periodically through regular call quality monitoring and customer satisfaction surveys on the callcontact centers.
Cell phone message services
We utilize wireless telephone services to make instant contact with our customers and sales people. We may send short messages to our customers all over China, conveyingconvey such information as birthday and holiday greetings,renewal payment reminders, premium payment notices and premium payment confirmations.
Internet-based services
Our customers can utilize our Internet-based services for inquiries, complaints and service requests through our website (www.e-chinalife.com)(www.e-chinalife.com). We also use emails to send messages to our customers all over China, conveying such information as birthday and holiday greetings, premium payment notices and premium payment confirmations.
We have developed the “Chine Life E Bao” application, which can be used on both computers and cell phones. China Life E Bao offers 63 services, including customizing products, receiving policies, obtaining policy loans, reporting claims, consulting doctors by phone, checking on protections and checking dividends. As of December 31, 2017, the number of registered users of China Life E Bao had exceeded 37.9 million. During 2017, 57% of policy loans, 86% of the receipt of policies, and 50% of customer reviews for all new polices were handled through China Life E Bao.
Supplementary services
To allow our customers to benefit from superior service and enhance their service experience, we provide several types of supplementary services while continuing to provide quality basic insurance services.
Our service brand “China Life 1+N” covers all areas of services we provide to our customers, including several types of basic policy-relatedWe have further promoted the global VIP care services, and supplementaryimproved the services (including Health Good Helper,including the international travel and medical emergency services, domestic medical emergency services,12-hour health consultation hotlines and global VIP benefits. We also provide rescue platforms for approximately 70 million long-term customers. China Life Insurance Information Hub, China Life Lecture Hall, China Life Preferential Valueglobal VIP care services are widely recognized by customers and Featured Customer Service Activities). sales personnel.
We have also successfully held“Hand-in-Hand” customer service activities for 11 consecutive years. In 2017, our customer service activities included nearly 20,000 online andon-site activities with the themes of health, sports, and parent-child activities. We have always been concerned with the growth and development of children and adolescents and have held national painting activities for children and adolescents for seven consecutive years. On June 16, 2017, we held the “China Life Customer Festival” in order to promote the application of intelligent services and “Hand in Hand”upgrade our customer serviceexperience. These activities have helped to maintain a good interaction with customers and to satisfy the demands of customers for eight consecutive years.multi-layered and personalized services.
Underwriting and Pricing
Our individual and group insurance underwriting involves the evaluation of applications for life, accident and health insurance products by a professional staff of underwriters and actuaries, who determine the type and the amount of risk that we are willing to accept. We have established qualification requirements and review procedures for our underwriting professionals. We employ detailed underwriting policies, guidelines and procedures designed to assist our underwriters to assess and quantify risks before issuing a policy to qualified applicants.
We generally evaluate the risk characteristics of each prospective insured. Requests for coverage are reviewed on their merits, and a policy is not issued unless the particular risk or grouprisk portfolio has been examined and approved for underwriting.
We have different authorization limits and procedures depending on the amount of the claim. We also have authorization limits for personnel depending on their level of qualifications.
In order to maintain high standards of underwriting quality and consistency, we engage in periodic internal underwriting audits.
Individual and group product pricing reflects our insurance underwriting standards. Product pricing on insurance products is based on the expected payout of benefits, calculated through the use of mortality table, morbidity, expenses and investment returns. Those assumptions and other assumptions for calculating theexpected profit margin for expected profitability are based on our own experience, third party consultation, the experience of reinsurance companies and published data from other institutions. For more information on regulation of insurance products, see “—Regulatory and Related Matters—Insurance Company Regulation”.
We primarily offer products denominated in Renminbi.
Claims Management
We manage the claims from policyholders through our claims verification staff at our headquarters and branch offices. Typically, upon receiving a claim, a staff person will verify preliminarily if all materials supporting the claim have been submitted; if so, the claim and its materials will be forwarded to the liabilityclaim settlement department to confirm liability and to determine whether a claim investigation is needed. Upon confirming the validity of the claim and insurance liability, the amount payable to the policyholderinsured will be calculated, and the claim will be paid upon completion of approval procedure.
We manage claims management risk through organizational controls and computer systems controls. Our organizational controls include specific limits on authorization for branches at different levels; periodic case inspection and special inspections in particular situations by risk management bodiesdepartments at all levels of our organization; expense mechanisms linking payout ratios of short-term insurance policies and expense ratios of branches. Except for some health insurance claims below a certain amount, verification of claims by two staff members is also required. We also periodically provide training to our claims verification personnel and conduct appraisals of their performance. Our claims management is strictly processed with computers to streamline claims verification and handling.
Reinsurance
We have entered into various reinsurance agreements with China Life Reinsurance Company Limited,Ltd., or China Life Re, formerly known as China Reinsurance Company, for the reinsurance of individual risks and group risks. In general, individual and group risks are primarily reinsured either on a surplus basis, whereby we are reinsured for risks above a specified amount, or on a percentagequota share basis. Under our reinsurance policy, the specified amount above which the risks are reinsured varies among different types of insurance products. Our group risks are generally reinsured either on a surplus basis or on a percentage basis. In general, our reinsurance agreements with China Life Re do not have a definite term, but may be terminated with respect to new business thereunder by either party on a date agreed by both parties with three to six monthsmonths’ notice.
We have also entered into reinsurance agreements separately with other reinsurance companies including the Beijing branch of Munich Reinsurance Company, Mapfrethe Beijing Branch of SCOR, the Shanghai branch of Reinsurance Group of America, the Beijing branch of Swiss Reinsurance Company Limited, the Shanghai branch of Hannover Re, the Shanghai branch of General Re Corporation the Shanghai branch of Hannover Re and Aetna Life & Casualty (Bermuda) Ltd.
In May 2014,June 2017, we renewed our catastrophe reinsurance protection in order to reduce our catastrophe exposure.
These reinsurance agreements spread the risk and reduce the effect on us of potential losses. Under the terms of the reinsurance agreements, the reinsurer agrees to assume liabilities for the insured, or ceded amountbusiness in the event the claim is paid. However, we remain liable to our policyholders if the reinsurer fails to meet the obligations assumed by it.
We also accept external auditing of the reinsurance business by our reinsurers.
Reserves of Insurance Contracts
For all of our insurance contracts, we establish, and carry as liabilities, actuarially determined amounts that are calculated to meet our obligations to policyholders under our insurance contracts.
Financial statement reserves
Our reserves for financial reporting purposes are calculated based on the best estimated amounts required to be paid by us to fulfill the relevant obligations under insurance contracts. We have considered margin and time value on the reserve calculation for insurance contracts. We expect these reserve amounts, along with future premiums to be received on insurance contracts and investment earnings on these amounts, to be sufficient to meet our obligations to policyholders under our insurance contracts.
We establish the liabilities to meet our obligations under our insurance contracts based on the present value of reasonable estimates of future cash outflows less future cash inflows. We have considered margin in the establishment of such liabilities. Our assumptions for calculating reserve amounts include assumptions for mortality, morbidity, lapse rate, expenses and discount rate. These assumptions may deviate from our actual experiences and, as a result, we cannot determine precisely the amounts which we will ultimately pay to settle these liabilities or when these payments will need to be made. These amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future. The discount rate assumption is affected by certain factors, such as future macro-economy, monetary and exchange rate policies, capital market results and availability of investment channels to invest our insurance funds. We review these assumptions periodically, based on analysis of historical experiences and expectations of future developments. We evaluate our liabilities based on reviewed assumptions. To the extent that actual experiences deviate significantly from our assumptions used to establish these liabilities, and these deviations are expected to continue in the foreseeable future, we may be required to increase or decrease our liabilities. This increase or decrease could have a material effect on our profitability and, if significant, our financial condition.
Statutory reserves
We are required under China’s insurance law to report insurance reserves for regulatory purposes in the solvency reports. The minimum levels of these reserves are based on methodologies and assumptions mandated by the CIRC. We also maintain assets in excess of policy reserves to meet the solvency requirements under CIRC regulations.
See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Differences in future actual operating results from the assumptions used in pricing and establishing reserves for our insurance and annuity products may materially and adversely affect our earnings”.
Investments
As of December 31, 2014,2017, we had RMB 2,100,8702,591,652 million (US$338,599 398,330 million) of investment assets. Asassets.As provided by China’s insurance laws and regulations, we may invest insurance premiums and other insurance funds in five categories of investment assets, including liquidity assets, fixed income assets, equity assets, real properties and other financial assets, all as defined by the CIRC and subject to various limitations. Each category of investment assets is also divided into domestic assets and overseas assets. See “—Regulatory and Related Matters—Insurance Company Regulation—Regulation of investments”. As of December 31, 2014,2017, we have invested our insurance premiums and other insurance funds in term deposits, debt securities, loans, securities investment funds, stocks, resale agreements, investment properties, equity interests ofnon-listed enterprises and related financial products and other financial products.
We direct and monitor our investment activities through the application of investment management guidelines and investment plans. Our investment management guidelines and investment plans include: (1) performance goals for the investment fund; (2) specified asset allocations and investment scope based on regulatory provisions, level of indebtedness and market forecasts; (3) specified goals for investment duration and asset-liability matching requirements based on asset-liability matching strategies; (4) specified authorization levels required for approval of significant investment projects; and (5) specified risk management policies and prohibitions. The investment management guidelines and investment plans are reviewed and approved by the board of directors annually.
Investment proposals typically originate from our investment management department, which is in charge of all of our investment assets except for investment in real properties used by us, which is separately managed by ourown-use real property investment management department. Investment proposals are reviewed by our risk management department for risk assessment and submitted to the investment decision committee of our president office for final approval.
AMC, the asset management company that we established with CLIC, manages a substantial part of our Renminbi investments following the restructuring and, separately, substantially all of the investments retained by CLIC. See “—Asset Management Business”. IHC, a wholly owned subsidiary of CLIC, also manages our investments in unlisted equity interests, real propertyestate and related financial products and securitization financial products. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Continuing Related Party Transactions with IHC”. In August, 2014,As of December 31, 2017, we had also engaged 1528 domestic investment managers to manage RMB 20,00094,685 million (US$3,223 14,553 million) for investment in Chinese capital markets;open markets and in January 2015, we engaged eight13 investment managers to manage US$ 8001,600 million for investment in overseas capitalopen markets.
The following table summarizes information concerning our investment assets as of December 31, 2012, 20132015, 2016 and 2014.2017.
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||
Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | |||||||||||||||||||||||||||||||||||||
(RMB in millions, except as otherwise indicated) | (RMB in millions, except as otherwise indicated) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 69,452 | 3.9 | % | 21,330 | 1.2 | % | 47,034 | 2.2 | % | 76,096 | 3.3 | % | 67,046 | 2.7 | % | 48,586 | 1.9 | % | ||||||||||||||||||||||||||||||
Term deposits | 641,080 | 35.8 | % | 664,174 | 35.9 | % | 690,156 | 32.9 | % | 562,622 | 24.6 | % | 538,325 | 21.9 | % | 449,400 | 17.3 | % | ||||||||||||||||||||||||||||||
Statutory deposits—restricted | 6,153 | 0.3 | % | 6,153 | 0.3 | % | 6,153 | 0.3 | % | 6,333 | 0.3 | % | 6,333 | 0.3 | % | 6,333 | 0.2 | % | ||||||||||||||||||||||||||||||
Debt securities, held-to-maturity | 452,389 | 25.3 | % | 503,075 | 27.2 | % | 517,283 | 24.6 | % | 504,075 | 22.0 | % | 594,730 | 24.2 | % | 717,037 | 27.7 | % | ||||||||||||||||||||||||||||||
Debt securities, available-for-sale | 349,590 | 19.5 | % | 339,986 | 18.4 | % | 395,341 | 18.8 | % | 401,899 | 17.6 | % | 399,758 | 16.3 | % | 455,124 | 17.6 | % | ||||||||||||||||||||||||||||||
Debt securities, securities at fair value through profit or loss | 26,119 | 1.5 | % | 30,756 | 1.7 | % | 29,212 | 1.4 | % | 94,984 | 4.2 | % | 154,406 | 6.3 | % | 82,891 | 3.2 | % | ||||||||||||||||||||||||||||||
Debt securities | 828,098 | 46.3 | % | 873,817 | 47.3 | % | 941,836 | 44.8 | % | 1,000,958 | 43.8 | % | 1,148,894 | 46.8 | % | 1,255,052 | 48.5 | % | ||||||||||||||||||||||||||||||
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Loans | 80,419 | 4.5 | % | 118,626 | 6.4 | % | 166,453 | 7.9 | % | 207,267 | 9.0 | % | 226,573 | 9.3 | % | 383,504 | 14.8 | % | ||||||||||||||||||||||||||||||
Equity securities, available for sale | 156,826 | 8.8 | % | 151,541 | 8.2 | % | 212,190 | 10.1 | % | 368,617 | 16.1 | % | 366,665 | 14.9 | % | 355,610 | �� | 13.7 | % | |||||||||||||||||||||||||||||
Equity securities, securities at fair value through profit or loss | 7,916 | 0.4 | % | 3,416 | 0.2 | % | 23,840 | 1.1 | % | 43,006 | 1.9 | % | 54,718 | 2.2 | % | 53,918 | 2.1 | % | ||||||||||||||||||||||||||||||
Equity securities | 164,742 | 9.2 | % | 154,957 | 8.4 | % | 236,030 | 11.2 | % | 411,623 | 18.0 | % | 421,383 | 17.2 | % | 409,528 | 15.8 | % | ||||||||||||||||||||||||||||||
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Resale agreements | 894 | — | 8,295 | 0.4 | % | 11,925 | 0.6 | % | 21,503 | 0.9 | % | 43,538 | 1.8 | % | 36,185 | 1.4 | % | |||||||||||||||||||||||||||||||
Investment properties | — | — | 1,329 | 0.1 | % | 1,283 | 0.1 | % | 1,237 | 0.1 | % | 1,191 | 0.0 | % | 3,064 | 0.1 | % | |||||||||||||||||||||||||||||||
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Total investment assets | 1,790,838 | 100 | % | 1,848,681 | 100 | % | 2,100,870 | 100 | % | 2,287,639 | 100 | % | 2,453,283 | 100.0 | % | 2,591,652 | 100.0 | % | ||||||||||||||||||||||||||||||
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Average investment assets balance | 1,642,904 | 1,819,760 | 1,974,776 | 2,194,255 | 2,370,461 | 2,522,468 |
Risk management
Our primary investment objective is to pursue optimal investment yields while considering macroeconomic factors, risk control and regulatory requirements. We are exposed to five primary sources of investment risk:
Our investment assets are principally comprised of fixed income securities and term deposits, and therefore changes in interest rates have a significant impact on the rate of our investment return. Wereturn.We manage interest rate risk through adjustments to our portfolio mix and terms, and by managing, to the extent possible, the average duration and maturity of our assets and liabilities. However, because of the general lack of long-term fixed income securities in the Chinese financial markets, the duration of some of our assets is lower than our liabilities. We believe that with the development of China’s financial markets and the gradual easing of our investment restrictions, our ability to match our assets to our liabilities will improve. Although we have been approved to enter into interest rate swaps, it is still not an effective means for us to hedge our interest rate risk as the Chinese interest rate swap market is still in the early stages of development.
We believe we have a relatively low credit risk, because we are limitedmainly invest in the types of investments we may make.fixed income products with high credit ratings. We monitor our credit risk throughin-house fundamental analysis of the Chinese economy and the underlying obligors and transaction structures.
We are subject to market valuation risk, particularly because of the relative lack of stability of China’s bond and stock markets. We manage valuation risk through industry and issuer diversification and asset allocation.
Since substantially all of our investments are made in China, we are exposed to the effect of changes in the Chinese economy and other factors which affect the Chinese banking industry and securities markets.
We are also subject to market liquidity risk for many of the debt securities investments we make, due to the size of our investments in relation to the overall market. We manage liquidity risk through selection of liquid assets and through asset diversification. In addition, we view fundraising through repurchase agreements as a way of managing our short-term liquidity risk.
Our ability to manage our investment risks is limited by the investment restrictions placed on us and the lack of sophisticated investment vehicles for risk management in China’s capital markets. The CIRCmarkets.The CBIRC (formerly CIRC) allows insurance companies to invest in financial derivative products with the aim to hedge and reduce investment risks. We are considering these alternative ways of investing to further improve our risk management.
Our assets held in foreign currencies are subject to foreign exchange risks resulting from the fluctuations of the value of the Renminbi against the U.S. dollar and other foreign currencies. WeOur overseas investments are seeking methods to reduce our foreign exchange risks.
Under China’s existing foreign exchange control regulations, the conversion of foreign currencies into the Renminbi requires approval of relevant government agencies. We obtained an approval to settledenominated in U.S. dollar, and we have hedged a portion of our assetsinvestments held in foreignnon-US currencies into the Renminbi in 2005, which partially reduced the foreign exchange risks we are exposed to. Except for the aforementioned approval obtained in 2005, we have not obtained any approval to settle any portion of our assets held in foreign currencies into the Renminbi and there is no guarantee that we will be able to obtain any such approval in the future. If we do not obtain such approval, our ability to manage our foreign exchange risks may be limited. There are few financial products available in China to hedge foreign exchange risks, which substantially limits our ability to managereduce our foreign exchange risks.
As we are approved by the CIRC to invest our assets held in foreign currencies in overseas financial markets, the return from overseas investments could, to certain extent, reduce the foreign exchange risks we are exposed to.
For further information on our management of interest rate risk and market valuation risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.
Investment results
Our investment yields for the years ended December 31, 2014, 20132017, 2016 and 20122015 were 5.36%5.16%, 4.86%4.61% and 2.79%6.47%, respectively.respectively.Beginning in 2017, the formula to calculate our investment yield has been revised to consider the impact of repurchase transactions on our investment yield, and therefore investment yields for the fiscal years ended December 31, 2016 and December 31, 2015 have also been revised to conform to the revised formula.
The following table sets forth the yields on average assets for each major component of our investment portfolios for the periods indicated.
As of or for the years ended December 31, | As of or for the years ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||
Yield (1) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | Amount | |||||||||||||||||||||||||||||||||||||
(RMB in millions, except as otherwise indicated) | (RMB in millions, except as otherwise indicated) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash, cash equivalents, statutory deposits and term deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | 4.7 | % | 30,512 | 4.6 | % | 32,667 | 4.9 | % | 34,934 | 4.7 | % | 32,285 | 4.4 | % | 27,851 | 4.3 | % | 23,827 | ||||||||||||||||||||||||||||||
Ending assets: cash and cash equivalents | 69,452 | 21,330 | 47,034 | 76,096 | 67,046 | 48,586 | ||||||||||||||||||||||||||||||||||||||||||
Ending assets: statutory deposits—restricted | 6,153 | 6,153 | 6,153 | 6,333 | 6,333 | 6,333 | ||||||||||||||||||||||||||||||||||||||||||
Ending assets: term deposits | 641,080 | 664,174 | 690,156 | 562,622 | 538,325 | 449,400 | ||||||||||||||||||||||||||||||||||||||||||
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Ending assets | 716,685 | 691,657 | 743,343 | 645,051 | 611,704 | 504,319 | ||||||||||||||||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | 32,324 | 39,739 | 45,499 | 44,449 | 48,036 | 53,895 | ||||||||||||||||||||||||||||||||||||||||||
Net realised gains and impairment on financial assets | 1,243 | 385 | 142 | |||||||||||||||||||||||||||||||||||||||||||||
Net fair value gains/(losses) through profit or loss | 47 | (239 | ) | 2,272 | ||||||||||||||||||||||||||||||||||||||||||||
Net realized gains on financial assets | (4 | ) | 46 | (123 | ) | |||||||||||||||||||||||||||||||||||||||||||
Net fair value gains through profit or loss | 766 | (918 | ) | (1,542 | ) | |||||||||||||||||||||||||||||||||||||||||||
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Total | 4.5 | % | 33,614 | 4.7 | % | 39,885 | 5.3 | % | 47,913 | 4.7 | % | 45,211 | 4.4 | % | 47,164 | 4.3 | % | 52,230 | ||||||||||||||||||||||||||||||
Ending assets | 828,098 | 873,817 | 941,836 | 1,000,958 | 1,148,894 | 1,255,052 | ||||||||||||||||||||||||||||||||||||||||||
Loans: | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | 6.1 | % | 4,339 | 5.8 | % | 5,773 | 5.7 | % | 8,138 | 5.9 | % | 11,115 | 5.5 | % | 12,018 | 5.4 | % | 16,320 | ||||||||||||||||||||||||||||||
Ending assets | 80,419 | 118,626 | 166,453 | 207,267 | 226,573 | 383,504 | ||||||||||||||||||||||||||||||||||||||||||
Equity securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | 5,429 | 3,987 | 4,564 | 9,276 | 20,271 | 27,939 | ||||||||||||||||||||||||||||||||||||||||||
Net realised gains and impairment on financial assets | (28,119 | ) | 5,408 | 6,978 | ||||||||||||||||||||||||||||||||||||||||||||
Net fair value gains/(losses) through profit or loss | (88 | ) | 305 | 4,977 | ||||||||||||||||||||||||||||||||||||||||||||
Net realized gains on financial assets | 32,301 | 5,992 | 165 | |||||||||||||||||||||||||||||||||||||||||||||
Net fair value gains through profit or loss | 9,324 | (6,319 | ) | 8,179 | ||||||||||||||||||||||||||||||||||||||||||||
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Total | (13.1 | )% | (22,778 | ) | 6.1 | % | 9,700 | 8.4 | % | 16,519 | 15.7 | % | 50,901 | 4.8 | % | 19,944 | 8.7 | % | 36,283 | |||||||||||||||||||||||||||||
Ending assets | 164,742 | 154,957 | 236,030 | 411,623 | 421,383 | 409,528 | ||||||||||||||||||||||||||||||||||||||||||
Resale agreements: | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | 38.8 | % | 633 | 12.1 | % | 556 | 3.0 | % | 299 | 2.2 | % | 368 | 3.0 | % | 971 | 1.9 | % | 746 | ||||||||||||||||||||||||||||||
Ending assets | 894 | 8,295 | 11,925 | 21,503 | 43,538 | 36,185 | ||||||||||||||||||||||||||||||||||||||||||
Investments properties: | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | — | — | 2.1 | % | 14 | 3.8 | % | 50 | 5.7 | % | 72 | 4.9 | % | 60 | 3.2 | % | 69 | |||||||||||||||||||||||||||||||
Ending assets | — | 1,329 | 1,283 | 1,237 | 1,191 | 3,064 | ||||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase: | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (2.0 | %) | (784 | ) | (2.6 | %) | (1,460 | ) | (3.7 | %) | (3,144 | ) | ||||||||||||||||||||||||||||||||||||
Ending liabilities | 31,354 | 81,088 | 87,309 | |||||||||||||||||||||||||||||||||||||||||||||
Total investments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | 73,243 | 82,816 | 93,548 | 97,582 | 109,147 | 122,727 | ||||||||||||||||||||||||||||||||||||||||||
Net realised gains and impairment on financial assets | (26,876 | ) | 5,793 | 7,120 | ||||||||||||||||||||||||||||||||||||||||||||
Net fair value gains/(losses) through profit or loss | (313 | ) | 137 | 5,808 | ||||||||||||||||||||||||||||||||||||||||||||
Income of Investments properties | — | 14 | 50 | |||||||||||||||||||||||||||||||||||||||||||||
Business tax and extra charges for investment | (224 | ) | (230 | ) | (652 | ) | ||||||||||||||||||||||||||||||||||||||||||
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Total | 2.79 | % | 45,830 | 4.86 | % | 88,530 | 5.36 | % | 105,874 | |||||||||||||||||||||||||||||||||||||||
Ending assets | 1,790,838 | 1,848,681 | 2,100,870 | |||||||||||||||||||||||||||||||||||||||||||||
Net realized gains on financial assets | 32,297 | 6,038 | 42 | |||||||||||||||||||||||||||||||||||||||||||||
Net fair value gains through profit or loss | 10,209 | (7,094 | ) | 6,183 |
Income of Investments properties Interest expense of securities sold under agreements to repurchase Total Ending assets excluding securities sold under agreements to repurchase As of or for the years ended December 31, 2015 2016 2017 Yield (1) Amount Yield (1) Amount Yield (1) Amount 72 60 69 (784 ) (1,460 ) (3,144 ) 6.47 % 139,376 4.61 % 106,691 5.16 % 125,877 2,256,285 2,372,195 2,504,343
(1) | Yields for |
Term deposits
Term deposits consist principally of term deposits with Chinese commercial banking institutions and represented 32.9%17.3% of our total investment assets as of December 31, 2014, 35.9%2017, 21.9% of our total investment assets as of December 31, 20132016 and 35.8%24.6% of our total investment assets as of December 31, 2012.2015.
We generally make term deposits with state-owned commercial banks and large joint stock commercial banks. The terms of the term deposits vary. They typically allow us to renegotiate terms with the banks upon prepayment, including the methods for the calculation of accrued interest, if any. We make large term deposits to obtain higher yields than can ordinarily be obtained with regular deposits.
The following table sets forth term deposits by contractual maturity dates, as of the dates indicated.
As of December 31, | As of December 31, | |||||||||||||||||||||||
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Amortized cost | Amortized cost | Amortized cost | Amortized cost | Amortized cost | Amortized cost | |||||||||||||||||||
(RMB in millions) | (RMB in millions) | |||||||||||||||||||||||
Due in one year or less | 92,045 | 74,932 | 200,214 | 181,780 | 185,835 | 97,076 | ||||||||||||||||||
Due after one year and through five years | 548,435 | 579,242 | 463,442 | 380,842 | 344,790 | 349,524 | ||||||||||||||||||
Due after five years and through ten years | 600 | 10,000 | 26,500 | — | 7,700 | 2,800 | ||||||||||||||||||
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Total term deposits | 641,080 | 664,174 | 690,156 | 562,622 | 538,325 | 449,400 | ||||||||||||||||||
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The following table sets forth term deposits outstanding to Chinese banking institutions as of the dates indicated.
As of December 31, | As of December 31, | |||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||
Amortized cost | Amortized cost | Amortized cost | Amortized cost | Amortized cost | Amortized cost | |||||||||||||||||||
(RMB in millions) | (RMB in millions) | |||||||||||||||||||||||
Industrial & Commercial Bank of China | 13,409 | 19,644 | 20,821 | 21,341 | 21,210 | 10,819 | ||||||||||||||||||
Agriculture Bank of China | 109,666 | 135,504 | 144,856 | 133,409 | 110,242 | 50,819 | ||||||||||||||||||
Bank of China | 141,867 | 145,492 | 150,735 | 118,931 | 70,792 | 43,625 | ||||||||||||||||||
China Construction Bank | 34,750 | 18,518 | 19,337 | 24,212 | 42,750 | 26,070 | ||||||||||||||||||
Bank of Communications | 99,687 | 103,292 | 132,336 | 100,432 | 121,142 | 132,922 | ||||||||||||||||||
Other banks | 241,701 | 241,724 | 222,071 | 164,297 | 172,189 | 185,145 | ||||||||||||||||||
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Total term deposits | 641,080 | 664,174 | 690,156 | 562,622 | 538,325 | 449,400 | ||||||||||||||||||
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Debt securities
Debt securities in which we are permitted to invest mainly consist of the following categories:
Debt securities represented 44.8%48.5% of our total investment assets as of December 31, 2014, 47.3%2017, 46.8% of our total investment assets as of December 31, 20132016 and 46.2%43.8% of our total investment assets as of December 31, 2012.2015.
Based on estimated fair value, Chinese government bonds, Chinese government agency bonds, corporate bonds, subordinated bonds and debt and other debt securities comprised 6.7%5.4%, 35.0%34.7%, 52.2%43.3%, 5.8%3.0% and 0.3%13.6% of our total available-for-saleavailable–for-sale debt securities as of December 31, 2014, 9.3%2017, 5.4%, 35.2%36.6%, 48.5%47.1%, 6.9%4.2% and 0.1%6.7% of our totalavailable-for-sale debt securities as of December 31, 20132016 and 12.3%6.4%, 38.9%36.2%, 39.8%51.4%, 9.0%4.8% and 0%1.2% of our totalavailable-for-sale debt securities as of December 31, 2012.2015. Except for a small number of debt securities, which collectively had a carrying value of RMB 81945,352 million (US$132 million) 6,970million) as of December 31, 2014,2017, most of our debt securities are traded on stocksecurity exchanges or in the unlisted interbank market in China.
We mainly invest in secured bonds and unsecured bonds rated AA or above by the rating agencies recognized by the CIRC, such as China Chengxin International Credit Rating Co., Ltd, or Chengxin International, and Dagong Global Credit Rating Agency, or Dagong. We also invest in short-term financing bonds rated A-1.A-2 or above.
Chengxin International is a member of Moody’s Investors Service Inc., with Moody’s owning 49%30% equity interest in Chengxin International. Chengxin International created its own rating structures by making reference to the rating structures and experience of Moody’s and Fitch Ratings. AAA is the highest rating. Other approved rating agencies, such as Dagong, have similar rating structures. Ratings given by these entities are not directly comparable to ratings given by U.S. rating agencies.
The following table sets forth the amortized cost and estimated fair value of debt securities, as of the dates indicated.
As of December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | ||||||||||||||||||||||||||||||||||||||||||||||
Amortized cost | % of total | Estimated fair value | % of total | Amortized cost | % of total | Estimated fair value | % of total | Amortized cost | % of total | Estimated fair value | % of total | |||||||||||||||||||||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities, available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 42,004 | 5.0 | % | 42,946 | 5.2 | % | 33,519 | 3.7 | % | 31,435 | 3.8 | % | 25,885 | 2.8 | % | 26,328 | 2.8 | % | ||||||||||||||||||||||||||||||
Government agency bonds | 139,861 | 16.8 | % | 135,870 | 16.4 | % | 136,466 | 15.1 | % | 119,739 | 14.4 | % | 137,303 | 14.7 | % | 138,487 | 14.6 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 142,401 | 17.1 | % | 139,286 | 16.9 | % | 175,396 | 19.4 | % | 165,001 | 19.7 | % | 206,232 | 22.0 | % | 206,511 | 21.7 | % | ||||||||||||||||||||||||||||||
Subordinated bonds/debt | 30,821 | 3.7 | % | 31,488 | 3.8 | % | 24,664 | 2.7 | % | 23,579 | 2.8 | % | 22,304 | 2.4 | % | 22,798 | 2.4 | % | ||||||||||||||||||||||||||||||
Others | — | — | — | — | 238 | — | 232 | — | 1,221 | 0.1 | % | 1,217 | 0.1 | % | ||||||||||||||||||||||||||||||||||
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Total debt securities, available-for-sale | 355,087 | 42.6 | % | 349,590 | 42.3 | % | 370,283 | 40.9 | % | 339,986 | 40.7 | % | 392,945 | 42.0 | % | 395,341 | 41.6 | % | ||||||||||||||||||||||||||||||
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Debt securities, held to maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 96,097 | 11.5 | % | 97,794 | 11.8 | % | 97,702 | 10.8 | % | 91,220 | 10.9 | % | 88,843 | 9.5 | % | 91,000 | 9.6 | % | ||||||||||||||||||||||||||||||
Government agency bonds | 111,759 | 13.4 | % | 108,166 | 13.1 | % | 113,618 | 12.6 | % | 99,122 | 11.9 | % | 126,140 | 13.5 | % | 127,659 | 13.4 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 83,084 | 10.0 | % | 82,557 | 10.0 | % | 131,022 | 14.5 | % | 124,201 | 14.9 | % | 146,595 | 15.7 | % | 148,699 | 15.6 | % | ||||||||||||||||||||||||||||||
Subordinated bonds/debt | 161,449 | 19.4 | % | 162,348 | 19.6 | % | 160,733 | 17.7 | % | 150,453 | 17.9 | % | 155,705 | 16.6 | % | 159,168 | 16.7 | % | ||||||||||||||||||||||||||||||
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Total debt securities, held to maturity | 452,389 | 54.3 | % | 450,865 | 54.5 | % | 503,075 | 55.6 | % | 464,996 | 55.6 | % | 517,283 | 55.3 | % | 526,526 | 55.3 | % | ||||||||||||||||||||||||||||||
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Debt securities, securities at fair value through profit or loss | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 1,703 | 0.2 | % | 1,697 | 0.2 | % | 1,551 | 0.2 | % | 1,489 | 0.2 | % | 254 | — | 254 | — | ||||||||||||||||||||||||||||||||
Government agency bonds | 6,347 | 0.8 | % | 6,291 | 0.8 | % | 4,883 | 0.5 | % | 4,659 | 0.6 | % | 3,995 | 0.4 | % | 4,085 | 0.5 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 18,126 | 2.2 | % | 18,131 | 2.2 | % | 24,777 | 2.8 | % | 24,608 | 2.9 | % | 21,590 | 2.3 | % | 24,873 | 2.6 | % | ||||||||||||||||||||||||||||||
Total debt securities, securities at fair value through profit or loss | 26,176 | 3.2 | % | 26,119 | 3.2 | % | 31,211 | 3.5 | % | 30,756 | 3.7 | % | 25,839 | 2.7 | % | 29,212 | 3.1 | % | ||||||||||||||||||||||||||||||
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Total debt securities | 833,652 | 100 | % | 826,574 | 100 | % | 904,569 | 100 | % | 835,738 | 100 | % | 936,067 | 100.0 | % | 951,079 | 100.0 | % | ||||||||||||||||||||||||||||||
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As of December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | ||||||||||||||||||||||||||||||||||||||||||||||
Amortized cost | % of total | Estimated fair value | % of total | Amortized cost | % of total | Estimated fair value | % of total | Amortized cost | % of total | Estimated fair value | % of total | |||||||||||||||||||||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities,available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 23,750 | 2.5 | % | 25,713 | 2.5 | % | 20,173 | 1.8 | % | 21,653 | 1.8 | % | 24,818 | 2.0 | % | 24,632 | 2.0 | % |
Government agency bonds Corporate bonds Subordinated bonds/debt Others Total debt securities,available-for-sale Debt securities, held to maturity: Government bonds Government agency bonds Corporate bonds Subordinated bonds/debt Total debt securities, held to maturity Debt securities, securities at fair value through profit or loss Government bonds Government agency bonds Corporate bonds Others Total debt securities, securities at fair value through profit or loss Total debt securities As of December 31, 2015 2016 2017 Amortized
cost % of
total Estimated
fair value % of
total Amortized
cost % of
total Estimated
fair value % of
total Amortized
cost % of
total Estimated
fair value % of
total (RMB in millions) 134,021 13.9 % 145,399 13.9 % 140,444 12.4 % 146,310 12.5 % 164,331 13.0 % 157,765 12.8 % 196,408 20.4 % 206,767 19.7 % 183,408 16.1 % 188,337 16.1 % 199,613 15.7 % 197,133 16.1 % 17,771 1.9 % 19,298 1.8 % 15,948 1.4 % 16,708 1.4 % 13,588 1.1 % 13,495 1.1 % 4,723 0.5 % 4,722 0.5 % 26,773 2.3 % 26,750 2.3 % 62,651 4.9 % 62,099 5.0 % 376,673 39.2 % 401,899 38.4 % 386,746 34.0 % 399,758 34.1 % 465,001 36.7 % 455,124 37.0 % 79,438 8.3 % 87,340 8.3 % 97,196 8.6 % 102,595 8.7 % 125,866 9.9 % 123,712 10.0 % 126,097 13.1 % 136,927 13.1 % 169,001 14.9 % 173,036 14.7 % 241,808 19.1 % 223,313 18.2 % 146,405 15.2 % 159,223 15.2 % 178,444 15.7 % 184,461 15.7 % 200,869 15.9 % 196,536 16.0 % 152,135 15.8 % 167,354 16.0 % 150,089 13.2 % 159,060 13.6 % 148,494 11.7 % 149,423 12.1 % 504,075 52.4 % 550,844 52.6 % 594,730 52.4 % 619,152 52.7 % 717,037 56.6 % 692,984 56.3 % 401 0.0 % 603 0.1 % 381 0.0 % 380 0.0 % 2,139 0.2 % 2,081 0.2 % 5,262 0.6 % 5,689 0.5 % 6,800 0.6 % 6,762 0.6 % 9,463 0.7 % 9,084 0.7 % 74,359 7.8 % 88,291 8.4 % 144,596 12.7 % 144,131 12.3 % 68,401 5.4 % 66,915 5.4 % 394 0.0 % 401 0.0 % 3,133 0.3 % 3,133 0.3 % 4,819 0.4 % 4,811 0.4 % 80,416 8.4 % 94,984 9.0 % 154,910 13.6 % 154,406 13.2 % 84,822 6.7 % 82,891 6.7 % 961,164 100.0 % 1,047,727 100.0 %�� 1,136,386 100.0 % 1,173,316 100.0 % 1,266,860 100.0 % 1,230,999 100.0 %
The following table shows the amortized cost and estimated fair value of debt securities excluding securities at fair value through profit or loss by contractual maturity dates, as of the dates indicated.
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||
Amortized cost | Estimated fair value | Amortized cost | Estimated fair value | Amortized cost | Estimated fair value | Amortized cost | Estimated fair value | Amortized cost | Estimated fair value | Amortized cost | Estimated fair value | |||||||||||||||||||||||||||||||||||||
(RMB in millions) | (RMB in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Due in one year or less | 7,857 | 7,863 | 20,921 | 20,961 | 25,761 | 25,814 | 34,378 | 34,628 | 63,665 | 64,119 | 64,919 | 64,884 | ||||||||||||||||||||||||||||||||||||
Due after one year and through five years | 125,670 | 127,103 | 184,017 | 178,451 | 208,995 | 211,032 | 216,313 | 226,112 | 213,167 | 218,608 | 268,090 | 265,832 | ||||||||||||||||||||||||||||||||||||
Due after five years and through ten years | 229,469 | 229,995 | 235,299 | 222,004 | 268,882 | 275,236 | 271,887 | 294,941 | 341,479 | 355,984 | 460,372 | 452,122 | ||||||||||||||||||||||||||||||||||||
Due after ten years | 444,480 | 435,494 | 433,121 | 383,566 | 406,590 | 409,785 | 358,170 | 397,062 | 363,165 | 380,199 | 388,657 | 365,270 | ||||||||||||||||||||||||||||||||||||
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Total debt securities, excluding those at fair value through profit or loss | 807,476 | 800,455 | 873,358 | 804,982 | 910,228 | 921,867 | 880,748 | 952,743 | 981,476 | 1,018,910 | 1,182,038 | 1,148,108 | ||||||||||||||||||||||||||||||||||||
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Our investments in debt securities are subject to strict restrictions under relevant Chinese regulation. See “—Regulatory and Related Matters—Regulation of investments”. We diversify our corporate bonds by industry and issuer. Our corporate bond portfolio does not have significant exposure to a single industry or issuer.
Loans
We offer interest-bearing policy loans to our policyholders, who may borrow from us at totalin amounts up to 80% of the total cash surrender values of their policies. In general, the loans are secured by the policyholders’ rights under the policies. As of December 31, 2014,2017, the total amount of our policy loans was RMB 73,654107,957 million (US$11,871 million) 16,593million), and represented 3.51%4.17% of our total investment assets as of that date.
In addition to policy loans, our other loans mainly consist of our investment in debt investment plans and trust schemes. DuringAs of and for the year of 2012, we made investments in 15 debt investment plans with a total investment amount of RMB 9,456 million. We also increased our investment amount in the South-to-North Water Diversion (Phase II) debt investment plan, in which we made investments in 2011, from RMB 213 million to RMB 2,500 million. As ofended December 31, 2013,2015, the total amount of our investment in debt investment plans was RMB 55,10765,118 million, and we had total investment proceeds from such plans of approximately RMB 3,572 million. As of and for the year ended December 31, 2014,2016, the total amount of our investment in debt investment plans was RMB 59,89763,028 million, (US$9,654 million), and we had a total investment proceeds from such plans of approximately RMB 3,4713,532 million. As of and for the year ended December 31, 2017, the total amount of our investment in debt investment plans was RMB 73,668 million (US$559 11,323 million), and we had total investment proceeds from such plans of approximately RMB 3,605 million (US$ 554 million). We started to invest in trust schemes in 2013. As of and for the year ended December 31, 2013,2015, the total amount of our investment in trust schemes was RMB 2,64945,460 million, and we had total investment proceeds from such schemes of approximately RMB 2,692 million. As of and for the year ended December 31, 2014,2016, the total amount of our investment in trust schemes was RMB 27,25747,864 million, and we had total investment proceeds from such schemes of approximately RMB 3,066 million. As of and for the year ended December 31, 2017, the total amount of our investment in trust schemes was RMB 163,764 million (US$4,393 25,170 million), and we had a total investment proceeds from such plansschemes of approximately RMB 5866,343 million (US$94 975 million).
Securities investment funds
Securities investment funds consist of Chinese domestic investment funds and overseas investment funds that primarily invest in securities that are issued by Chinese companies and traded on China’s securities exchanges.securities. As of December 31, 2014,2017, our investment in securities investment funds was RMB 83,620101,236 million (US$13,477 15,560 million) and represented 3.98%3.91% of our total investment assets as of that date. Our investment in securities investment funds mainly consists of investment in Chinese domestic investment funds.
We invest in both “closed-end”“closed-end” securities investment funds, in which the number of shares is fixed and the share value depends on the trading value,prices, and “open-end”“open-end” securities investment funds, in which the number of shares issued by the fund fluctuates and the share value is set by the value of the assets held by the fund. Our investments in securities investment funds are subject to strict restrictions under relevant Chinese regulations. See “—Regulatory and Related Matters—Insurance Company Regulation—Regulation of investments”. Our holdings in securities investment funds comply with those restrictions.
The following table presents the carrying values of investments inopen-end andclosed-end securities investment funds as of the dates indicated.
As of December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | ||||||||||||||||||||||||||||||||||||||||
Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | (RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||||||||||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||||||||||||||||||||||||||
Open-end | 54,104 | 91.4 | % | 54,109 | 91.7 | % | 82,611 | 98.8 | % | 167,900 | 99.1 | % | 117,027 | 97.5 | % | 99,012 | 97.8 | % | ||||||||||||||||||||||||||||||
Closed-end | 5,103 | 8.6 | % | 4,882 | 8.3 | % | 1,009 | 1.2 | % | 1,585 | 0.9 | % | 2,946 | 2.5 | % | 2,224 | 2.2 | % | ||||||||||||||||||||||||||||||
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Total | 59,207 | 100 | % | 58,991 | 100 | % | 83,620 | 100 | % | 169,485 | 100.0 | % | 119,973 | 100.0 | % | 101,236 | 100.0 | % | ||||||||||||||||||||||||||||||
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Stocks
Investments in stocks consist of investment in publicly offered and listed equity securities that are denominated and traded in Renminbi and investment in stocks listed on specified overseas stock exchanges that are permitted by the CIRC. Our investments in stocks are subject to strict restrictions under relevant Chinese regulations. See “—Regulatory and Related Matters—Insurance Company Regulation—Regulation of investments”. As of December 31, 2014,2017, the total amount of our investment in common stocks was RMB 94,933173,450 million (US$15,300 26,659 million), and represented 4.5%6.7% of our total investment assets as of that date. As of December 31, 2013,2016, the total amount of our investment in common stocks was RMB 79,727140,166 million, and represented 4.3%5.7% of our total investment assets as of that date. As of December 31, 2012,2015, the total amount of our investment in common stocks was RMB 102,089111,516 million, and represented 5.7%4.9% of our total investment assets as of that date.
Resale agreements
We enter into resale agreements, which consist of securities resell activities in resell markets.
The securities purchased under agreements to resell were RMB 11,925 million (US$1,922 million)36,185 million(US$ 5,562million) as of December 31, 2014,2017, RMB 8,29543,538 million as of December 31, 20132016 and RMB 89421,503 million as of December 31, 2012.2015.
Equity interests innon-listed enterprises and related financial products
Insurance companies are allowed to invest, directly or indirectly, in equity interests innon-listed enterprises. These investments are categorized either as “direct investments”, for investments by an insurance company in its name, or as “indirect investments”, for investments through equity investment funds and other related financial products sponsored and established by an investment management institution. Our investments in equity interests innon-listed enterprises and related financial products are subject to strict restrictions under relevant Chinese regulations. See “—Regulatory and Related Matters—Insurance Company Regulation—Regulation of investments”.
We started to make investments in equity interests innon-listed enterprises in 2006. In November 2017, we entrusted IHC to invest in Ningbo Meishan Bonded Port Area Baishan Investment Management Partnership, or Baidu Fund Partnership. The total capital commitment in the Baidu Fund Partnership is RMB 7.011 billion, of which RMB 5.6 billion was subscribed by us and RMB 1.4 billion was subscribed by Ningbo Meishan Bonded Port Area Baidu Zhixin Asset Management Company, each as a limited partner. The Baidu Fund Partnership will primarily make middle-late-stage investments in the private equity deals in the Internet sector, including Internet, mobile Internet, artificial intelligence, Internet finance, consumption upgrade, and Internet+. As of the end of 2017, RMB 1.68 billion of our investment commitment had been paid by us.
The following table presents the carrying values of our major investments in equity interests innon-listed enterprises as of the dates indicated.
As of December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | ||||||||||||||||||||||
Carrying value | % of total | Carrying value | % of total | Carrying value | % of total | |||||||||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||
China Life Property and Casualty Insurance Company Limited | 2,947 | 13.7 | % | 3,267 | 13.0 | % | 6,757 | 20.0 | % | |||||||||||||||
China Guangfa Bank Co., Ltd. | 15,752 | 73.5 | % | 17,704 | 70.6 | % | 20,535 | 60.9 | % | |||||||||||||||
Bank of Hangzhou | 650 | 3.0 | % | 571 | 2.3 | % | 2,204 | 6.5 | % | |||||||||||||||
China UnionPay | 300 | 1.4 | % | 718 | 2.9 | % | 1,219 | 3.6 | % | |||||||||||||||
Bohai Industrial Investment Fund Management Co., Ltd | 5 | — | 5 | — | 5 | — | ||||||||||||||||||
China Life Yuantong Property Company Limited | 475 | 2.2 | % | 538 | 2.1 | % | 573 | 1.7 | % | |||||||||||||||
COFCO Futures Co., Ltd. | 1,340 | 6.2 | % | 1,401 | 5.6 | % | 1,434 | 4.3 | % | |||||||||||||||
Beijing Longxilijing Real Estate Development Co., Ltd. | — | — | 52 | 0.2 | % | 51 | 0.2 | % | ||||||||||||||||
Shanghai Poly Jianhao Commercial Investment Co., Ltd. | — | — | 835 | 3.3 | % | 932 | 2.8 | % | ||||||||||||||||
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Total | 21,469 | 100 | % | 25,091 | 100 | % | 33,710 | 100 | % | |||||||||||||||
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Since 2011, we have been permitted to make private equity investments without the CIRC approval for each investment as long as the total amount of our investments are below specified cap approved by the CIRC. We made our first private equity fund investment in 2011 in the second Renminbi fund sponsored by Hony Capital, a leading Chinese private equity firm, with a capital commitment of RMB 1.5 billion. In 2012, we made our second private equity fund investment in CITIC Private Equity Fund III sponsored by CITIC Private Equity Funds Management Co., Ltd., with a capital commitment of RMB 2 billion. In 2013, we invested in China Life (Suzhou) Urban Development Industry Investment Enterprise with a capital commitment of RMB 5 billion and China Life (Shanghai Jiading) Urban Development Industry Investment Enterprise with a capital commitment of RMB 1 billion. In 2014, we invested in China Life (Wuxi) Urban Development Industry Investment Enterprise, China Life (Guangzhou) Urban Development Industry Investment Enterprise, Ningbo China Life Cinda Investment Enterprise and a U.S. dollar-denominated logistics industry investment fund sponsored by Hopu Fund, with a capital commitment of RMB 5.5 billion, RMB 12.5 billion, RMB 2 billion and US$ 402 million, respectively.
As of December 31, | ||||||||||||
2015 | 2016 | 2017 | ||||||||||
Carrying value | Carrying value | Carrying value | ||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||
China Life Property and Casualty Insurance Company Limited | 7,812 | 7,929 | 8,185 | |||||||||
China Guangfa Bank Co., Ltd. | 22,553 | 50,299 | 53,459 | |||||||||
Sinopec Sales Co., Ltd. | 10,055 | 10,522 | 10,172 | |||||||||
Sinopec Sichuan to East China Gas Pipeline Co., Ltd. | — | 20,000 | 21,347 | |||||||||
Ningbo Meishan Bonded Port Area Baishan Investment Management Partnership | — | — | 1,680 |
Asset Management Business
On November 23, 2003, we established an asset management company, AMC, with CLIC, in connection with the restructuring for the purpose of operating the asset management business more professionally in a separate entity and to better attract and retain qualified investment management professionals. AMC manages our investment assets and, separately, substantially all of those of CLIC. For a description of our investment assets, see “—Investments”.
We own 60% and CLIC owns 40% of AMC. Directors of AMC are appointed by the shareholders at a general meeting. As the controlling shareholder, we effectively control the composition of AMC’s board of directors. In 2014, the registered capital of AMC was increased from RMB 3 billion to RMB 4 billion. The proportionate shareholding between CLIC and us remains unchanged.
As of and for the year ended December 31, 2014,2017, AMC had total assets of RMB 6,8199,237 million (US$1,099 1,420 million), net assets of RMB 5,8988,339 million (US$951 1,282 million) and net profit of RMB 7791,126 million (US$126 173 million).
Property and Casualty Business
In December 2006, we and CLIC established a property and casualty company, CLPCIC, with us owning 40% and CLIC owning the remaining 60%. In 2014, the registered capital of CLPCIC was increased from RMB 8 billion to RMB 15 billion, with us and CLIC contributing RMB 2.8 billion and 4.2 billion, respectively. The proportionate shareholding between CLIC and us remains unchanged.
As of and for the year ended December 31, 2014,2017, CLPCIC had total assets of RMB 52,76979,601 million (US$8,505 12,234 million), net assets of RMB 16,89320,463 million (US$2,723 3,145 million) and net profit of RMB 1,407820 million (US$227 126 million).
Pension Insurance Business
In January 2007, we, CLIC and AMC established a pension insurance company, China Life Pension, with us owning 55%, CLIC owning 25% and AMC owning the remaining 20%. In January 2015, the registered capital of China Life Pension was increased from RMB 2.5 billion to RMB 3.4 billion. China Life Pension is currently held 70.74%, 4.41%,4.41%, 3.53%, 1.33%, and 19.99% by us, CLIC, AMC, China Credit Trust Company Limited and AMP Life Limited, respectively.
China Life Pension has obtained qualifications to serve as investment manager, trustee and account manager of enterprise annuity funds.
As of and for the year ended December 31, 2014,2017, China Life Pension had total assets of RMB 3,2083,922 million (US$517million) 603 million), net assets of RMB 2,8113,086 million (US$453 474 million) and net lossprofit of RMB 16114 million (US$26 2 million).
Information Technology
Our computer systems provide support for many aspects of our businesses, including product development, sales and marketing, business management, cost control and risk control. Wecontrol.We have approximately 1,691 experienced2,000experienced engineers, technicians and specialists providing professional and flexible support for our business operations in various aspects, including the design, research and development and operation of our computer systems.
In 2014,2017, we continued to increasedevelop a new generation comprehensive business management system and took the following steps:
We also continue to attach importance to financial data security and have implemented projects including separation of internal and external network, cloud desktops, providing different levels of protection fitting to the various application systems, intelligent security monitoring and supervision platforms and anti-intrusion system. We have built a security protection system to cover assessment, protection, detection, response, recovery and other aspects of data protection. We have a visualization system to provide better service to our customers, we developedreal-time monitoring on cyber attacks. We also have internal rules on the procedures for reporting and promoted applicationshandling material accidents, including an intelligent platform for claims application, our official WeChat and “E BaoZhang”, a comprehensive electronic customer self-service platform.
In 2014, our data center in Shanghai was successfully launched for use. We continued the construction of our new research and development center in Beijing.cybersecurity incidents, occuring during business operations.
Trademarks
We conduct our business under the “China Life” brand name (in English and Chinese), the “ball” logos, the “C” mark and other business related slogans and logos. CLIC owns these trademarks and has registered them with the Trademark Office of the SAIC. CLIC has entered into a trademark license agreement with us, under which CLIC has agreed to grant us a royalty-free license to use these trademarks.the “China Life” brand name, the “ball” logos and the “C” mark. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Continuing Related Party Transactions with CLIC”.
Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934
Under Section 13(r) of the Exchange Act, which was added by the Iran Threat Reduction and Syrian Human Rights Act of 2012, we are required to disclose in our annual report filed with the SEC if we or any of our affiliates knowingly engaged in certain Iran-related activities, including transactions or dealings with the Government of Iran or relating to Iran during the period covered by the annual report, no matter whether these activities are material or not. Disclosure is required even when the activities were conducted outside of the U.S. bynon-U.S. entities and even when such activities were conducted in compliance with applicable law.
In June 2017, CLPCIC, a casualty and property insurance company in which we own 40% interest, provided marine hull insurance for a fleet of vessels managed by the National Iranian Tanker Company (“NITC”) as aco-insurer for the period from July 1, 2017 to June 30, 2018, and the lead insurer is Assuranceforeningen Skuld. These transactions were entered into in compliance with laws and regulations applicable to CLPCIC. We understand that NITC is affiliated with the Government of Iran and it is on the List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599. The total premiums that CLPCIC received from these transactions are approximately RMB 530,000 (US$ 81,460). We are unable to determine the net profits from these transactions prior to the expiration of the insurance coverage.
CLPCIC does not intend to continue providing insurance coverage to NITC upon the expiration of the insurance coverage.
Regulatory and Related Matters
Overview
The insurance industry is heavily regulated in the PRC. The applicable laws and regulations governing insurance activities undertaken within the territories of the PRC consist principally of the PRC Insurance Law and rules and regulations promulgated under that law. The CIRCCBIRC (formerly CIRC) is the authority authorized by the PRC State Council to regulate and supervise the insurance industry in the PRC.
The PRC Insurance Law, which provided the initial framework for regulating the PRC insurance industry, was enacted in 1995, and significantly amended on October 28, 2002, February 28, 2009, and August 31, 2014.2014 and April 24, 2015. Among other things, the major provisions of the PRC Insurance Law include: (1) licensing of insurance companies and insurance intermediaries, such as agents and brokers; (2) separation of property and casualty business and life insurance business; (3) regulation of market conduct by participants; (4) substantive regulation of insurance products; (5) regulation of the financial condition and performance of insurance companies; and (6) supervisory and enforcement powers of the CIRC.
The CIRC was established in 1998. It has extensive supervisory authority over the PRC insurance industry, including: (1) promulgation of regulations applicable to the insurance industry; (2) examinationapproval for establishment of insurance companies and their subsidiaries; (3) review of qualifications of senior management of insurance companies; (3)(4) supervision of insurance companies and their solvency and market activities; (5) establishment of investment regulations; (4)(6) approving the policy terms and premium rates for certain insurance products; (5)(7) setting standards for measuring the financial soundness of insurance companies; (6)(8) requiring insurance companies to submit reports concerning their business operations and condition of assets; and (7)(9) ordering the suspension of all or part of an insurance company’s business. Since its establishment, the CIRC has promulgated a series of regulations indicating a gradual shift in the regulatory approach to a more transparent regulatory process and a convergent movement toward international standards.
In March 2018, the National People’s Congress of the PRC approved the merger of China’s long-existing regulatory commissions of banking and insurance into a new administration called the China Banking and Insurance Regulatory Commission, or CBIRC. On April 8, 2018, the official sign of CBIRC was unveiled at what was previously the site of CBRC, which we understand marked the merger of CIRC and CBRC. The official website of CBIRC was formally launched on the same day. Guo Shuqing, formerly the head of CBRC, has been appointed as the chairman of CBIRC. The CIRC and the CBRC no longer exist after the completion of the merger. Some of their authorities, including drafting certain regulations to govern the insurance and banking industries, have been ceded to PBOC, China’s central bank. As of the date of this annual report, the regulations, rules and guidance previously issued by the CIRC still remain effective. This merger is intended to improve the efficiency and coordination of Chinese financial regulation.
Insurance Company Regulation
Licensing requirements
An insurance company is required to obtain a license from the CIRCCBIRC (formerly CIRC) in order to engage in an insurance business. In general, a license will be granted only if the company can meet prescribed registered capital requirements and other specified requirements, including requirements relating to its form of organization, the qualifications of its senior management and actuarial staff, the adequacy of its information systems and specifications relating to the insurance products to be offered.
The CIRCCBIRC (formerly CIRC) may grant a life insurer a license to offer all or part of the following products: accident insurance, term life insurance, whole life insurance, annuities, short-term and long-term health insurance, endowment insurance (for individuals only) and other personal insurance approved by the CIRC,CBIRC (formerly CIRC), as well as reinsurance relating to any of the foregoing.
An insurance company may seek approval for establishing branch offices to meet its business needs so long as it meets minimum capital and other requirements. Our headquarters and all of our branch offices have obtained the requisite insurance licenses.
Minimum capital requirements
The minimumpaid-in capital for an insurance company is RMB 200 million. For an insurance company whose registered capital is RMB 200 million, the minimum incremental capital for each first branch office in a province other than the province where its headquarter is located is RMB 20 million. No additional capital will be required when thepaid-in capital has reached RMB 500 million, and the insurer’s solvency is sound.
Restriction of ownership in joint stock insurance companies
Any acquisition of shares which results in the acquirer owning 5% or more of the registered capital of a joint stock insurance company, whether or not listed, requires the approval of the CIRC.CBIRC (formerly CIRC). A filing with the CIRCCBIRC (formerly CIRC) is required with respect to a change of equity interest of less than 5% in an insurance company, unless it is a listed insurance company. Unless otherwise approved by the CIRC, equityEquity interests held by a single shareholder, (includingincluding its related parties)parties and persons acting in concert, must not exceed 20%one-third of the total equityregistered capital of a single insurance company; however, subjectcompany. An exception to the fulfillmentone-third cap applies to insurance companies establishing or investing in other insurance companies for the purposes of certain conditionsinnovation and with the approvalspecialization of their business, or consolidating their operations under a single group management. Equity interests held by a single domestic limited partnership must not exceed 5% of the CIRC, the shareholding ratioregistered capital of a single shareholder (including its related parties) ininsurance company. The combined equity interests held by several domestic limited partnerships must not exceed 15% of the registered capital of a single insurance company, may be more than 20% but may never exceed 51%. Theand the combined equity interests held by foreign investors may not exceed 50% of the total equity of a single life insurance company.
On November 10, 2017, China announced that it will substantially relax foreign ownership limits in life insurance companies. On April 11, 2018, the Governor of the PBOC further clarified that regulations would be introduced within the next several months increasing the limit on foreign ownership in Chinese life insurance companies to 51% from the current 50%, and all foreign ownership restrictions in the Chinese life insurance sector will be removed in three years. Detailed implementation rules have not yet been issued.
Fundamental changes
Prior approval must be obtained from the CIRCCBIRC (formerly CIRC) before specified fundamental changes relating to a Chinese insurance company may occur. These include: a change of company name, organizational form, registered capital or address of registered officeexecutive offices of companies or executive offices;their subsidiaries; an expansion of business scope; an amendment to articles of association; a merger orspin-off; a change in a shareholder whose capital contribution accounts for 5% or more of the total capital of the company or a shareholder holdingchange in shareholding of 5% or more of the shares of the company; and a termination of a branch office. In addition, certain other changes relating to the insurance company must be reviewed by or filed with the CIRC.CBIRC (formerly CIRC).
Regulation of products
Regulation of ordinary personal insurance products.An ordinary personal insurance product is one whose insurance premiums and policy benefits are definite upon issuance of the insurance policy. Beginning from August 5, 2013, the CIRC removed the original 2.50% cap on the guaranteed interest rates of return of ordinary personal insurance products, and such guaranteed interest rates of return can be decided by insurance companies at their discretion in accordance with the principle of prudence. Meanwhile, the statutory valuation rates of ordinary personal insurance policies issued on and after August 5, 2013 have been increased from 2.50% to 3.50%. In addition, beginning from August 5, 2013, if the guaranteed interest rate of return of an ordinary personal insurance product developed by an insurance company is not higher than the maximum valuation rate set by the CIRC which varies depending on product, the insurance company must file the relevant information of the product with the CIRC.CBIRC (formerly CIRC). If such rate is higher than the maximum valuation rate set by the CIRC, the insurance company is required to obtain the CIRC’s approval of the CBRIC (formerly CIRC) on the product in advance, and during the approval process, the insurance company is not allowed to submit new insurance clauses and premium rates to the CIRCCBIRC (formerly CIRC) for approval. On September 2, 2016, the CIRC further required that policy loans provided by an insurer may not exceed 80% of the cash value or account value of the policy. From October 1, 2017, the first payment of survival insurance benefits for the ordinary endowment products and annuity products must occur only after five years since the policy becomes effective and the annual payment or partial payment must not exceed 20% of the paid premiums.
Regulation of participating products. A participating product is one which the policyholder or annuitant is entitled to share in the distributable earnings of the insurer through “policy dividends”. The participation dividend may be in the form of a cash payment or an increase in the insured amount. At least 70% of the distributable earnings is required to be distributed as dividends. Participating products may not be sold or modified without the prior approval ofIn September 2015, the CIRC and CIRC regulations govern disclosures that may be made regardingremoved the original 2.50% cap on the guaranteed interest rate of participating products. InsuranceFrom October 1, 2015, the guaranteed interest rate is to be decided by insurance companies offering participating products are required to file an annual reportat their discretion in accordance with the CIRC. The insurance company is also required to provide a performance report toprinciple of prudence. If the holders of its participating products at least once a year, setting forth specified financial and other information regarding the products. Under the relevant requirements of the CIRC, the assumedguaranteed interest rate of a participating product maydeveloped by an insurance company is not higher than 3.50%, the insurance company must file the specific information of such product with the CBIRC (formerly CIRC) for record. If such rate is higher than 3.50%, the insurance company is required to obtain the approval of the CBIRC (formerly CIRC) for the product. In addition, the valuation rate of unearned premium reserves of participating products equals to either the guaranteed interest rate or 3.00%, whichever is lower. Beginning from September 2, 2016, if the guaranteed interest rate of a life insurance product newly developed by an insurance company is lower than the maximum valuation rate set by the CIRC, which is 3.00% for participating products, the insurance company is only required to file specified information relating to the product with the CBIRC (formerly CIRC), and if such rates are higher than 3.00%, the insurance company is required to obtain the = approval of the CBIRC (formerly CIRC) for such products. From October 1, 2017, the first payment of survival insurance benefits for the participating endowment products and annuity products must occur only after five years since the policy becomes effective and the annual payment or partial payment must not exceed 2.50%.20% of the paid premiums.
Regulation of universal products. A universal product is one which offers the typical protection of life insurance with investment accounts providing a minimum yield. The premium payments and coverage of universal products are flexible, usually with a minimum guaranteed interest rate, and the investment yields are settled periodically. Beginning from February 16, 2015, the CIRC removed the original 2.50% cap on the minimum guaranteed interest rate of universal products, with the guaranteed interest rate to be decided by insurance companies at their discretion in accordance with the principle of prudence. Meanwhile, the maximum valuation rate of a universal product has been increased from a compound annual rate of 2.5%2.50% to a compound annual rate of 3.5%3.50%. Beginning from September 2, 2016, the CIRC changed the maximum valuation rate of a universal product from a compound annual rate of 3.50% to a compound annual rate of 3.00%. If the minimum guaranteed interest rate of a universal product developed by an insurance company is not higher than the maximum valuation rate set by the CIRC (i.e. a compound annual rate of 3.5%3.00%), the insurance company must file specified information relating to the product with the CIRC.CBIRC (formerly CIRC). If such rate is higher than the maximum valuation rate set by the CIRC, the insurance company is required to obtain the CIRC’s approval of the CBIRC (formerly CIRC) for the product. Any amendment to the insurance clauses, premium rates, insurance liabilities, types of insurance or pricing methods of universal products must be filed with or approved by the CIRC. From October 1, 2017, universal products must be designed to allow the flexibility to pay additional premiums from time to time and to adjust the insured amount. Insurance companies may not design the universal products in the form of riders.
Regulation of investment-linked products. An investment-linked product is one which insures the policyholder or annuitant against one or more separate risks and at the same time gives the policyholder or annuitant an interest in one or more separate investment accounts. Investment-linkedInsurance companies must complete the establishment of investment accounts before submitting the required information regarding their investment-linked products may not be soldto the CBIRC (formerly CIRC) for approval or amended withoutfiling. Insurance companies must report on the prior approvalestablishment, change, consolidation, division, close or settlement of the CIRC. The establishment of separate investment accounts is subject to the CIRC’s approval.CBIRC (formerly CIRC) within 10 business days after occurrence of these events. Transactions between a separate investment account and any other account of the insurance company, other than a transfer of cash to pay for operating expenses ofestablish the separate investment account, are prohibited. From October 1, 2017, investment-linked products must be designed to allow the flexibility to pay additional premiums from time to time and to adjust the insured amount. Insurance companies may not design investment-linked products in the form of riders. Other CIRC regulations govern the sale and disclosure terms of investment-linked products.
Regulation ofshort-to-medium term products. Beginning from March 21, 2016, CIRC’s new regulations on personal insurance products withshort-to-medium terms became effective. Under the new CIRC regulations, personal insurance products withshort-to-medium terms are defined as follows:
Under the CIRC regulations, an insurer’s annual premium income from personal insurance products withshort-to-medium terms may not exceed two times the amount of capital invested by or the net assets of such insurer at the end of the latest quarter, whichever is larger. Insurers are also required to immediately cease developing and selling personal insurance products with a term of less than one year. An insurer’s annual premium income from personal insurance products with a term more than one year but less than three years may not exceed 90% of the overall regulatory limitation in 2016, 70% of the overall regulatory limitation in 2017 and 50% of the overall regulatory limitation in 2018 and thereafter. Furthermore, the CIRC issued a new notice in September 2016, requiring that beginning from January 1, 2019, an insurer’s annual premium income from personal insurance products withshort-to-medium terms may not exceed 50% of its total premiums for 2019, 40% of its total premiums for 2020 and 30% of its total premiums for 2021 and thereafter.
Investment-linked products and variable annuity insurance must also be evaluated and reported according to the above requirements applicable to products withshort-to-medium terms. Whole life insurance products, annuity products and healthcare insurance products may not be designed as products withshort-to-medium terms. Supplementary insurance products, such as supplementary universal products and supplementary investment-linked products, must also be evaluated separately to determine whether they are products withshort-to-medium terms.
Regulation of variable annuity insurance. Variable annuity insurance is a type of insurance where the policy benefits are associated with the price of the investment unit in the linked investment account, and a minimum amount of policy benefits is guaranteed as stipulated in the insurance agreement. Under variable annuity insurance, the insurance company is obliged to pay an annuity or offer an option for the conversion of the insurance proceeds to be annuitized upon maturity. Variable annuity products may not be sold or amended without the prior approval of the CIRC.CBIRC (formerly CIRC). Variable annuity products must be sold and disclosed in accordance with the requirements of the CIRC.
Regulation of pension insurance. A life insurance company or a pension insurance company, as approved by the CIRC, may engage in individual and group pension insurance business. The pension insurance terms and premium rates determined by an insurance company must be filed with or approved by the CIRCCBIRC (formerly CIRC) in accordance with its regulatory provisions. Other CIRC regulations govern the sale and disclosure terms of pension insurance.insurance, as well as the investments by pension insurance funds.
Regulation of enterprise annuity funds. Subject to the approval of the PRC Ministry of Human Resources and Social Security, insurance companies may serve as the trustee, account manager and investment manager for enterprise annuity funds. China Life Pension has obtained qualifications to serve as investment manager, trustee and account manager of enterprise annuity fund.
Regulation of health insurance. Subject to approval by the CIRC,CBIRC (formerly CIRC), life insurance companies may engage in health insurance business. Other insurance companies may, subject to approval by the CIRC,CBIRC (formerly CIRC), engage in short-term health insurance business. Insurance companies engaged in health insurance business are required to submit an actuarial report or reserves assessment report for the preceding year in accordance with the relevant provisions of the CIRC. Insurance companies must also submit a pricing review report to the CIRCCBIRC (formerly CIRC) before March 15 of each year regarding the short-term health insurance products. Beginning on January 1, 2016, insurance companies may sell health insurance products eligible for preferential individual income tax policies in accordance with the CIRC’s relevant requirements in 31 pilot cities, including Beijing, Shanghai, Tianjin and Chongqing. The health insurance products may be offered to taxpayers who have reached the age of 16 but have not reached the statutory retirement age. The expenses incurred by individuals in the pilot cities for purchasing such health insurance products will be deductible from their individual income tax up to RMB 2,400 per year. From October 1, 2017, the survival benefits paid before the expiry of the policy term of a care insurance product may only be paid under the condition that the care required by the insured is caused by disability in activities of daily living as agreed in the insurance contract. Survival benefits paid before the expiry of the policy term of a disability income insurance product may only be paid under the condition that the loss of working ability of the insured is caused by a disease or an accidental injury as agreed in the insurance contract. All of the medical insurance premiums collected by insurance companies from their group medical insurance products must be used for the payment of insurance benefits under the medical insurance coverage, and the interest rates of products used for pricing must satisfy relevant regulatory requirements.
Regulation of short-term accidental injury insurance. AccidentalShort-term accidental injury insurance is a type of insurance that uses death or disability caused by accidents or physical injuries stipulated in the insurance agreement as a condition for paying insurance proceeds. AccidentalShort-term accidental injury insurance products must be developed and managed by the headquarters of the insurance company and filed with the CIRC.CBIRC (formerly CIRC). Insurance companies must also submit a pricing review report to the CIRCCBIRC (formerly CIRC) before March 15 of each year regarding the short-term accident insurance products they offer.
Regulation of foreign exchange denominated insurance. Insurance companies may seek approval from the CIRCCBIRC (formerly CIRC) and the SAFE to engage in foreign exchange denominated insurance and reinsurance businesses, allowing them to offer products tonon-Chinese policyholders or fornon-Chinese beneficiaries, as well as policies covering accidents and illnesses which occur outside China, together with related reinsurance.
Regulation of supplementary major medical insurance. As part of the Chinese government’s overall medical insurance scheme, supplementary major medical insurance reimburses policyholders for a specified percentage of their medical expenses which are in excess of the maximum amounts covered by the basic social medical insurance as long as such medical expenses are caused by the diseases covered by the basic social medical insurance. The Chinese government has launched pilot supplementary major medical insurance programs in specified areas in China. Local governments in these pilot areas use a portion of the basic medical insurance funds to purchase supplementary major medical insurance service from qualified insurance companies through a government tender. Insurance companies are required to apply to the CIRCCBIRC (formerly CIRC) for the qualification to engage in such business. Supplementary major medical insurance products must be filed with the CIRC.CBIRC (formerly CIRC).
Regulation of investments
Permitted investments.As a Chinese life insurance company, we are subject to restrictions under the PRC Insurance Law, the Measures for the Administration of the Utilization of Insurance Funds and other related rules and regulations on the asset categories and percentages in which we are permitted to invest. On January 23, 2014, the CIRC issued a notice classifying the assets that insurance companies may invest in five broad categories: current assets, fixed-income assets, equity assets, property assets and other financial assets. The notice further specifies the amounts in percentages that may be invested in each asset category, the percentages that correspond to concentration risks for investing in a single item and counter-party, and risk monitoring requirements and early warning mechanisms with respect to liquidity, financing scale and asset classes.
Asset categories, investment and concentration risk regulatory percentages. Currently, Chinese life insurance companies are allowed to invest their funds in the following asset categories, subject to the satisfaction of conditions prescribed for each form of investment.
Asset Category | Definition | Specific Items Included |
Regulatory Percentage (1) | |||||
Investment Regulatory Percentage | Concentration Risk Regulatory | |||||||
Current assets | Current assets refer to cash reserves, deposits payable on demand, and highly-liquid assets with shorter terms and less risk of changes in value that can be readily converted into a definite amount of cash. | Domestic items mainly include cash, current deposits, bank call deposits, insurance asset management products on the monetary market, and government bonds, quasi-government bonds and reverse repurchase agreements with residual maturities of one year or less. Overseas items mainly include bank current deposits, monetary market funds, overnight lending, commercial bills, bank bills, negotiable certificates of deposit, reverse repurchase agreements, short-term government bonds, government-backed bonds, bonds of international financial organizations, corporate bonds and convertible bonds with residual maturities of one year or less, as well as other tools or products recognized by the CIRC in this category. | None. | The total outstanding investments by an insurance company in a single legal person(2) must not exceed 20% of the total assets(3) of the insurance company as at the end of the last quarter (excluding, among others, investments in domestic central government bonds, quasi-government bonds, and equity investments in insurance enterprises with proprietary funds). |
Asset Category | Definition | Specific Items Included | Regulatory Percentage(1) | |||||
Investment Regulatory Percentage | Concentration Risk Regulatory Percentage | |||||||
Fixed-income assets | Fixed-income assets refer to assets characterized by a definite maturity date and payments of interest and principal according topre-determined interest rates and payment methods, as well as other assets whose main value is dependent on the changes in the value of the aforesaid assets. | Domestic items mainly include term deposits, negotiated deposits, bond funds, fixed-income insurance asset management products, financial institution (company) bonds,non-financial institution (company) bonds and government bonds and quasi-government bonds with residual maturities of more than one year. Overseas items mainly include term deposits, structured deposits with bank guaranteed commitments, securities investment funds with fixed-income commitments, government bonds, government-backed bonds, bonds of international financial organizations, corporate bonds and convertible bonds with residual maturities of more than one year, as well as other tools or products recognized by the CIRC in this category. | None. | The book balance of investment by an insurance company in a single fixed-income asset(4) must not exceed 5% of the total assets of the insurance company as at the end of the last quarter, excluding investments in domestic central government bonds, quasi-government bonds and bank deposits.
The total outstanding investment by an insurance company in a single legal person must not exceed 20% of the total assets of the insurance company as at the end of the last quarter (excluding, among others, investments in domestic central government bonds, quasi-government bonds and equity investments in insurance enterprises with proprietary funds). |
Asset Category | Definition | Specific Items Included |
Regulatory Percentage (1) | |||||
Investment Regulatory Percentage | Concentration Risk Regulatory | |||||||
Equity assets | Equity assets include both listed and unlisted equity assets.
Listed equity assets refer to the ownership certificate representing the equity or other residual income rights of enterprises that are publicly listed and traded on stock exchanges or financial asset markets, as well as other assets whose main value depends on the changes in the value of the aforesaid assets.
Unlisted equity assets refer to the equity or other residual income rights of enterprises that are established and registered but are not publicly listed on exchanges, as well as other assets whose main value depends on the changes in the value of the aforesaid assets. | Domestic items of listed equity assets mainly include shares(6), equity funds, hybrid funds and equity insurance asset management products. Overseas items of listed equity assets mainly include ordinary shares, preferred shares, global depositary receipts, American depositary receipts and equity securities investment funds, as well as other tools or products recognized by the CIRC in this category.
Domestic and overseas items of unlisted equity assets mainly include equities of unlisted companies, equity investment funds (including venture capital funds), asset backed securities, insurance private equity funds and other related financial products, as well as other tools or products recognized by the CIRC in this category. | The total book balance of investments by an insurance company in equity assets must not exceed 30%(5) of the total assets of the insurance company as at the end of the last quarter, and the book balance of significant equity investments must not be higher than the net assets of the insurance company as at the end of the last quarter. The book balance does not include the equity of any insurance enterprise as invested by the insurance company with its proprietary funds. | The book balance of investments by an insurance company in a single equity asset must not exceed 5%(5) of the total assets of the insurance company as at the end of the last quarter,
The total outstanding investments by an insurance company in a single legal person must not exceed 20% of the total assets of the insurance company as at the end of the last quarter (excluding, among others, investments in domestic central government bonds, quasi-government bonds, and equity investments in insurance enterprises with proprietary funds). |
Asset Category | Definition | Specific Items Included |
Regulatory Percentage (1) | |||||
Investment Regulatory Percentage | Concentration Risk Regulatory | |||||||
Property assets | Property assets refer to purchased or invested land, structures and other land attachments, as well as other assets whose main value depends on the changes in the value of the aforesaid assets. | Domestic items mainly include real estate, infrastructure investment schemes, property investment schemes, property insurance asset management products and other property related financial products. Overseas items mainly include commercial properties, office properties and real estate investment trusts (REITs), as well as other tools or products recognized by the CIRC in this category. | The total book balance of investments by an insurance company in property assets must not exceed 30%(5)of the total assets of the insurance company as at the end of the last quarter. The book balance does not include the properties purchased by the insurance company for its own use.
The book balance of the properties purchased by an insurance company for its own use must not exceed 50% of the net assets of the insurance company as at the end of the last quarter. | The book balance of investments by an insurance company in a single property asset must not exceed 5%(6) of the total assets of the insurance company as at the end of the last quarter, excluding properties purchased for its own use.
The total outstanding investments by an insurance company in a single legal person must not exceed 20% of the total assets of the insurance company as at the end of the last quarter (excluding, among others, investments in domestic central government bonds, quasi-government bonds and equity investments in insurance enterprises with proprietary funds). |
Asset Category | Definition | Specific Items Included |
Regulatory Percentage (1) | |||||
Investment Regulatory Percentage | Concentration Risk Regulatory | |||||||
Other financial assets | Other financial assets refer to other kinds of assets that are distinctively different from all the foregoing categories of assets, including in terms of risk-return characteristics, liquidity and other characteristics, and cannot be classified into any of the foregoing categories. | Domestic items mainly include financial products by commercial banks, asset-backed securities offered by banking financial institutions, trust schemes of collective funds offered by trust companies, special asset management schemes offered by securities companies, project asset-backed schemes offered by insurance asset management companies and other insurance asset management products. Overseas items mainly include structured deposits without bank guaranteed commitments, as well as other tools or products recognized by the CIRC in this category. | The total book balance of investments by an insurance company in other financial assets must not exceed 25% of the total assets of the insurance company as at the end of the last quarter. | The book balance of investments by an insurance company in a single other financial asset must not exceed 5% of the total assets of the insurance company as at the end of the last quarter, excluding purchase of insurance asset management products within its group.
The total outstanding investments by an insurance company in a single legal person must not exceed 20% of the total assets of the insurance company as at the end of the last quarter (excluding, among others, investments in domestic central government bonds, quasi-government bonds, and equity investments in insurance enterprises with proprietary funds). | ||||
Overseas investment | An insurance company is allowed to participate in overseas investments in 25 developed markets and 20 emerging markets in accordance with the relevant requirements of the CIRC. | As referred to in the investable overseas items listed in each of the above asset categories. | The total outstanding overseas investments by an insurance company must not exceed 15% of the total assets of the insurance company as at the end of the last quarter. | The total outstanding investments by an insurance company in a single legal person must not exceed 20% of the total assets of the insurance company as at the end of the last quarter (excluding, among others, equity investments in insurance enterprises with proprietary funds). |
(1) | When calculating the regulatory percentages for each asset category, an insurance company is required to combine its domestic and overseas investments in assets of the category on a consolidated basis. |
(2) | A single legal person refers to a single fund-raising party with legal person status that establishes a direct creditor-debtor or shareholder relationship with an insurance company due to the latter’s investment therein. |
(3) | Total assets exclude the balance of the funds raised from bond repurchases and the amount of assets under independent accounts (including investment-linked life insurance products, variable annuity products, health care entrusted management products, pension insurance entrusted management products and investment-orientednon-life insurance products withoutpre-agreed returns). |
(4) | Single asset investments refer to the investments in a single specific item under any category of investment assets. Where an investment product is issued in several phases, the book balance of the investment in a single asset is the sum of the investments in each phase. |
(5) | An insurance institution that has already taken advantage of relevant policies to increase its holdings of blue-chip stocks must adjust the percentage of investments within two years from January 24, 2017 or within the time limit otherwise provided by relevant regulatory authorities until the percentage requirements under applicable regulatory requirements are met, i.e. the total book balance of investments by an insurance company in equity assets must not exceed 30% of the total assets of the insurance company as at the end of the last quarter, and the book balance of investments by an insurance company in a single equity asset must not exceed 5% of the total assets of the insurance company as at the end of the last quarter. |
(6) | The CIRC classifies investments in stocks into three categories: (i) ordinary stock investment, which refers to investment in less than 20% of the total share capital of a listed company without control over the company, (ii) material stock investment, which refers to investment in 20% or more of the total share capital of a listed company without control over the company, and (iii) acquisition of a listed company, which refers to becoming the controlling shareholder or actual controller of a listed company or otherwise having control over a listed company. There is no regulatory restriction for ordinary stock investment that does not involve an acquisition in the secondary market of more than 5% of the share capital of a listed company. For ordinary stock investment that involves an acquisition in the secondary market of more than 5% of the share capital of a listed company, information disclosure and reporting after the investment are required. For a material stock investment, filing with the regulatory authorities after the investment is required. For acquisition of a listed company, prior regulatory approval is required. |
Investment risk monitoring percentagespercentages.. To alleviate the risks associated with liquidity and high volatility of assets, an insurance company that experiences any of the following circumstances is required to report to the CIRCCBIRC (formerly CIRC) in a timely manner, and the CIRCCBIRC (formerly CIRC) will closely monitor the operation of the insurance company and disclose the related information to the public when necessary:
Risk Classification of Insurance Assets.An insurance company must evaluate, at least once every half year, the quality of its insurance assets falling within the categories of fixed-income assets, equity assets and property assets, and divide such assets into five categories based on risk, namely “pass”, “special mention”, “substandard”, “doubtful” and “loss”, with the last three categories collectively referred to as “non-performing“non-performing assets”. Insurance assets that require risk classification include assets invested by the insurance company other than those subject to fair value measurement and changes to these assets are counted as gains or losses for the period in question or owners’ equity. An insurance company must establish and improve risk classification systems and working processes for its assets and file reports on such systems and processes with the CIRC.CBIRC (formerly CIRC). In addition, an insurance company is required to semiannually report to the CIRCCBIRC (formerly CIRC) the relevant information on the classification of its assets. An insurance company must also establish feasible plans for annual asset loss provisions and write-offs, as well as plans for the disposal ofnon-performing assets based on its actual operations and the quality of its assets. These plans must be approved by its board of directors and be filed with the CIRC.CBIRC (formerly CIRC).
Insurance private equity funds. Insurance companies are allowed to establish private equity funds that comply with the requirements of the CIRC, including growth funds, buyout funds, funds for strategic emerging industries, mezzanine funds, real estate funds, venture capital funds, and funds of funds (FoF) primarily investing in the aforementioned funds. Insurance companies must register the establishment of private equity funds with the CBIRC (formerly CIRC), and periodically submit quarterly reports, annual reports and other related information to the CBIRC (formerly CIRC) during the term of private equity funds.
Financial derivative products. Apart from the regulations on the five asset categories described above, the CIRC has separately issued a series of rules governing the operation of domestic and overseas trading of derivative products by an insurance company. Financial derivative products are financial contracts whose value is determined by one or more types of underlying assets, indices or certain events. Typical financial derivative products include forwards, futures, options and swaps.
Insurance companies may participate in derivatives transactions only for the purpose of hedging or averting risks, and not for the purpose of speculation. Legitimate purposes include hedging or averting risks of current assets and liabilities, or the company as a whole, and hedging the risk of assets scheduled to be bought within the next month, or locking in future transaction prices.
“Assets scheduled to be bought”, as used above, refers to assets that an insurance institution has decided to buy after going through its investment decision-making process. If the assets are not bought within one month of the decision date, or the plan was aborted within the aforementioned period, the insurance institution must terminate, liquidate or unwind the relevant derivative upon the expiration of the prescribed period or within five trading days of such decision.
For an insurer carrying out interest rate swaps, the notional principal may not exceed 10% of its fixed-income assets (including bank deposits, bonds and other debt instruments) as of the end of the previous quarter. The notional principal swapped with the same counterparty may not exceed 3% of such counterparty’s fixed-income assets as of the end of the previous quarter.
Solvency requirements
InSolvency I requirements
From March 2003 to December 31, 2015, we were required to calculate and report our solvency ratio, a standard developed by the CIRC introduced a new standard, the solvency ratio, to measure the financial soundness of life insurance companies to provide better policyholder protection under a system of corrective regulatory action. The standard for calculation of solvency ratio was further revised by the CIRC in September 2008. The solvency ratio of an insurance company isunder this standard was a measure of capital adequacy which is calculated by dividing the actual capital of the company (which is its admissiblethe admitted assets less admissibleadmitted liabilities, determined in accordance with relevant CIRC rules) by the minimum capital it is required to meet.
TheUnder this standard, the minimum capital of a life insurance company iswas the sum of its minimum capital for its short-term business (policies having a term of one year or less from the date of issuance) and the minimum capital for its long-term business (policies having a term of more than one year from the date of issuance). The standard for calculation of the minimum capital was further revised by the CIRC in January 2010. In January 2013, the CIRC issued the standard for calculation of the minimum capital for supplementary major medical insurance. In August 2013, the standard for calculation of the minimum capital with respect to the total sums at risk under long term life insurance policies was revised by the CIRC. In April 2014, the CIRC issued the standard for calculation of the minimum capital for high cash value products.
The minimum capital for a life insurance company’s short-term business iswas the sum of the minimum capital for supplementary major medical insurance and the higher of:
The minimum capital for its long-term business iswas the sum of:
An insurance company with a solvency ratio below 100% maycould be subject to a range of regulatory actions by the CIRC.CBIRC (formerly CIRC). The CIRCCBIRC (formerly CIRC) may in such situations require the insurance company to, among other things, raise additional share capital, limit paying dividends on its shares, limit the remuneration and expense accounts of its directors and senior management, restrict its advertising activities, restrict the establishment of branch offices and business operations, cease any new business development, transfer its insurance business to others or seek reinsurance of its insurance obligations, sell its assets or restrict the acquisition of fixed assets, limit the channels for using its capital, change its management team or put the insurer into receivership.
If the solvency ratio is between 100% and 150%,
C-ROSS requirements
On January 1, 2016, the CIRC may require an insurance company to submit and implement a plan on the prevention of inadequate solvency. Where there is any significant insolvency risk in an insurance company with a solvency ratio between 100% and 150% or higher than 150%, the CIRC may require the insurance company to take corrective actions or take other regulatory actions as the CIRC deems necessary.
Insurance companies are required to calculate and report annually and quarterly to the CIRC their solvency level. In addition, an insurance company must submit a report to the CIRC within five business days after becoming aware of the inadequacy of its solvency ratio, and must formulate a solvency ratio compliance program, take measures to return its solvency ratio to an adequate level, and submit the compliance program to the CIRC.
As of December 31, 2014, our solvency ratio was approximately 294.48%.
In February 2015, the CIRC issued the major technical standards forimplemented a new set of solvency regulations, the “China Risk Oriented Solvency System”, orC-ROSS, which replaced Solvency II, with the aim of replacing the current solvency requirements on Chinese insurance companies. Solvency III.
C-ROSS adopts the internationally accepted “three-pillar” regulatory system which includes quantitative capital requirements, qualitative regulatory requirements and market discipline mechanisms while its regulatory concept, models, methods and parameters are based on Chinese insurance market conditions. AsThe three pillars are:
UnderC-ROSS, the three indicators to measure the solvency ratio of an insurer include the following:
The core solvency adequacy ratio and comprehensive solvency adequacy ratio of an insurer reflect the capital adequacy for quantifiable risks of such insurer, and the integrated risk rating reflects the overall solvency risks of such insurer.
The actual capital of an insurer is admitted assets less admitted liabilities, determined in accordance with relevant rules underC-ROSS. The actual capital is classified into core capital and supplementary capital, depending on the loss absorbing capacity and features of such capital. The minimum capital of an insurer is the capital that the CIRC requires it to meet.
UnderC-ROSS, solvency risks are classified into inherent risk and control risk. Inherent risk refers to the risks that are unavoidable in the writing of insurance business. Control risk refers to the risks of failure to identify, evaluate and manage control inherent risk timely due to imperfections in the internal management and control process. Inherent risk includes both quantifiable risks and unquantifiable risks.
Quantifiable risks include the following:
Unquantifiable risks include the following:
The minimum capital requirement for quantifiable risks is determined using a value at risk approach. The minimum capital requirement for control risk is determined based on solvency aligned risk management requirements and assessment, or SARMRA.
The CIRC comprehensively evaluates the inherent risk and control risk of an insurer and determines an integrated risk rating of solvency risks. Insurers will then be classified into the following four supervision categories:
The CIRC applies different regulatory policies to each of the four supervision categories with respect to, among others, market access, product management, use of insurance funds andon-site inspection.
Category B insurer may be subject to a range of regulatory actions by the CBIRC (formerly CIRC), including, among others, risk alert, supervisory conversation, rectification of identified problems within a specified deadline,on-site inspection or request to submit and implement plans to prevent insolvency or improve risk management.
If a Category C insurer does not meet the solvency adequacy ratio required by the CBIRC (formerly CIRC), the CBIRC (formerly CIRC) may in such situations require the insurer to, in addition to the regulatory actions for category B, adjust its business structure, restrict business expansion and increase in assets, restrict the establishment of branch offices, restrict its commercial advertising activities, limit its business scope, transfer its insurance business to others or seek reinsurance of its insurance obligations, adjust investment portfolios or counterparties, limit its channels or percentages of investment, raise additional share capital, limit paying dividends on its shares, limit the remuneration of its directors and senior management or change its management team. If an insurer of category C meets the solvency adequacy ratio as required by the CBIRC (formerly CIRC) but its risk level is high for one or more of the four unquantifiable risks, the CBIRC (formerly CIRC) may take specific regulatory actions that target on the respective issues of each insurer.
For a Category D insurer the CBIRC (formerly CIRC) may, in addition to the regulatory actions for category C, require such insurer to rectify or cease part or all new business, put the insurer into receivership or take other regulatory actions as determined by the CBIRC (formerly CIRC).
Prior to the filing of this annual report, Solvency II has not been officially implemented by the CIRC, and Chinese insurance companies are required to follow the current solvency regulatory regime while simultaneously submitting a solvency report preparedwe became aware that, based on the requirements under Solvency II. Based onlatest comprehensive rating results regarding the testing results to be obtained by it during the transitional period, the CIRC will determine when the current solvency regulatory regime will be officially replaced by Solvency II. As Solvency II is still under preliminary testingrisks of insurers released by the CIRCCBIRC for the fourth quarter of 2017, we had been classified as a Category B insurer. Previously we were classified as a Category A insurer. It remains unclear whether the CBIRC will take any regulatory action with respect to our company or how these regulatory actions (if any) will affect our business or financial condition.
Our core solvency adequacy ratio as of December 31, 2017 was 277.61 %, and it is still unclear when it will be officially implemented, we are currently unable to assess the extent to which we will be affected if the complete setour comprehensive solvency adequacy ratio as of Solvency II regulations are finalized and officially implemented.December 31, 2017 was 277.65%.
Statutory deposits
Insurance companies in China are required to deposit an amount equal to 20% of their registered capital with at least two qualified commercial banks, each of which must, among other things, have net assets of no less than RMB 20 billion as of the end of the previous year and have no affiliated relationship with the insurance company. These funds may not be used for any purpose other than to pay off debts during a liquidation proceeding. Insurance companies must choose more than two qualified commercial banks as statutory deposit banks and the statutory deposit period must be for a minimum of one year. In addition, when an insurance company deposits the statutory funds for a business opening or capital increase, renews the deposit upon maturity or transfers the deposit to another bank, changes the nature of the deposit upon maturity or withdraws the deposit before maturity, the insurance company must file with the CBIRC (formerly CIRC) within 10 business days after these funds are duly deposited.
Statutory insurance fund
Chinese life insurance companies are required to contribute to a statutory insurance fund 0.15% of the business incomepremiums for life insurance with guaranteed earnings and 0.05% of the business incomepremiums for life insurance without guaranteed benefits; 0.8% of insurance premiums for short-term health insurance and 0.15% of insurance premiums for long-term health insurance; 0.8% of the premiums fornon-investment accident insurance, 0.08% of the business incomepremiums for investment accident insurance with guaranteed benefits, and 0.05% of the business incomepremiums for investment accident insurance without guaranteed benefits. Contributions are not required once the balance of the statutory insurance fund of a life insurance company reaches 1% of the company’s total assets.
Statutory reserves
In addition to the statutory deposit and the statutory insurance fund, insurance companies are required to provide for the statutory reserves in accordance with regulations established by the CIRC. These reserves are recorded as liabilities for purposes of determining an insurance company’s actual solvency in accordance with regulatory rules.
Statutory reinsurance
Insurance companies are required to reinsure, for any single risk, the excess of the maximum potential liability over an amount equal to 10% of the sum ofpaid-in capital and capital reserves.
Actuaries
Insurance companies are required to employ actuarial professionals and establish a system for actuarial reporting.
Regulation of corporate governance
Directors and senior management qualification and remuneration management requirements. Directors, supervisors and senior management of an insurance company are subject to qualification requirements implemented by the CIRC.CBIRC (formerly CIRC). In addition, the cash benefits, subsidies and allowances that an insurance company pays to its directors, supervisors and senior management annually must not exceed 10% of their respective base remuneration. Where an insurance company has inadequate solvency, the CIRCCBIRC (formerly CIRC) will place restrictions on the remuneration of its directors, supervisors and senior management in accordance with relevant regulatory rules on solvency. The senior management of an insurance company receivein-office audits once every three years. If any member of the senior management leaves due to a job change, promotion or any other reasons, a departure audit must be conducted.
Risk management. Insurance companies must establish and adopt procedures, organizational structures, systems and measures to identify, evaluate and control the risks involved in its insurance operation. Insurance companies must report to the CIRCregulatory authorities in a timely manner any major risks, and include in its annual reportsubmit an annual risk evaluationmanagement report reviewed by the board of directors. In addition, as required by the CIRC,CBIRC (formerly CIRC), an insurance company that conducts certain activities, such as direct share investments, equity investments, real estate investments, investments in unsecured bonds, development of infrastructure investment schemes and real estate investment schemes and use of derivatives, must have at least two qualified risk officers. Where an insurance company decides to change a risk officer, impose disciplinary sanctions on a risk officer, dismiss a risk officer or terminate the employment of a risk officer, the insurance company must replace such risk officer within 10 business days from the date of the decision, and report to the CIRCCBIRC (formerly CIRC) the reasons for such replacement.
Asset-liability management. On March 1, 2018, the CIRC issued a set of specific technical criteria and rules on the quantitative and competency assessments on insurers’ asset-liability management, as well as requirements on preparing and submitting asset-liability management reports. The new rules have been implemented on a pilot basis since their date of issue. Under the new rules, insurance companies must file quarterly reports on asset-liability management with the CBIRC (formerly CIRC) within 30 days after the end of each quarter, and file annual reports on asset-liability management with the CBIRC (formerly CIRC) no later than May 31 of each year. Both the quarterly reports and the annual reports must be prepared in accordance with specified guidelines. In addition, insurance companies must complete asset-liability management competency assessments and file such assessments with the CBIRC (formerly CIRC) by August 31, 2018. During the pilot period, the CBIRC (formerly CIRC) will review the reports and assessment results submitted by the insurers but it will not take regulatory action.
Compliance management. Insurance companies must prevent, identify, evaluate, report and manage compliance risks by taking measures such as setting up a compliance department, formulating and implementing compliance policies (which are required to be filed with the CBIRC (formerly CIRC)), exercising compliance monitoring and providing compliance trainings, so as to ensure compliance by the company, its staff and sales agents with the relevant laws and regulations, rules of regulatory authorities, industrial self-regulatory rules, internal management systems and codes of ethics. An annual compliance report must be submitted to the CIRCCBIRC (formerly CIRC) by April 30 each year. Each insurance company is required by the CIRCCBIRC (formerly CIRC) to appoint a compliance officer and establish a compliance management department in its head office. Starting from June 1, 2016, where the proposed compliance head of an insurance company for whom the insurance company has applied for approval of post-holding qualifications also serves in other senior management positions, the insurance company must submit a statement that the proposed compliance head will not also manage a business or financial department during his or her term of office. Beginning from July 1, 2017, the headquarter and provincial branches of an insurance company must each set up a compliance management department. Where the proposed compliance head of an insurance company for whom the insurance company has applied for approval of post-holding qualifications is to be served by a senior management person other than the general manager, the insurance company must submit a statement that the proposed compliance head will not also manage departments that may be in conflict with his or her responsibilities for compliance management, such as those for business, finance, fund use and internal audit during his or her term of office. As of the date of this annual report, we have set up a compliance management department, established compliance standards and appointed a compliance officer whose qualification has been approved by the CIRC.
Related party transactions.Insurance companies are required to establish a related party transaction control committee or designate their audit committee to be responsible for identifying related parties, managing, reviewing and approving related party transactions and controlling risks, and must update the records of related parties at least once every six months. According to applicable CIRC regulations, related party transactions between an insurance company and any of its related parties are classified as either “material related party transactions” or “ordinary related party transactions”. The term “material related party transactions” refers to any single transaction between an insurance company and a related party in which the trading volume accounts for 1% or more of the insurance company’s net assets as of the end of the previous year andor has a value of more than RMB 530 million, or transactions between an insurance company and a related party in which the accumulative trading volume within one fiscal year accounts for 10%5% or more of the insurance company’s net assets as of the end of the previous year and has a value of more than RMB 50 million.year. The term “ordinary related party transactions” refers to all related party transactions other than “material related party transactions”. A material related party transaction is subject to approval by the insurer’s board of directors (the related board resolutions must be adopted by at leasttwo-thirds of allnon-affiliated directors, except for any related party transactions between an insurance group (holding) company and its insurance subsidiaries, as well as between and among its insurance subsidiaries themselves) or shareholders, while an ordinary related party transaction must be reviewedis subject to review in accordance with the internal authorization process of the insurance company. An insurance company is required to maintain a system to manage related party transactions and file them with the CIRC.CBIRC (formerly CIRC). Companies must take effective measures to prevent their shareholders, directors, supervisors, senior management and other related parties from taking advantage of their positions and acting against the interests of the company or the insured through related party transactions. In addition, where an insurance company places bank deposits (excluding current deposits) with any of its related parties, or invests in the equity, real estate and other assets of any related parties, the financial products issued by any related parties or any financial products whose underlying assets include the assets of any related parties, the insurance company is required, within 10 business days after the conclusion of the transaction agreements (or within 10 business days from the occurrence of the relevant event if no transaction agreement is concluded), to publishreport to the CBIRC (formerly CIRC) and make an information disclosure announcement on its website and the website of the Insurance Association of China.China if it conducts certain related party transactions, including, among others, transactions relating to investments of insurance funds and related party transactions that involve transfers of assets or interests above a specified amount. In respect of any information that could not be publicly disclosed as it invovlesinvolves state secrets or commercial secrets or due to other relevant reasons, the insurance company must, at least five business days prior to the prescribed date of information disclosure, report this fact to the CIRCCBIRC (formerly CIRC) and refrain from disclosing such information as required by law.
Internal audit. Insurance companies are required to establish an independent department for internal audit purposes, staffed with sufficient internal audit personnel (the number of full-time internal audit personnel generally must not be less than 5‰ of the total number of the company’s employees), establish an audit committee, and designate an audit controller whose appointment and replacement must be filed with the CIRC.CBIRC (formerly CIRC). An internal audit report must be submitted to the CIRCCBIRC (formerly CIRC) by April 30 of each year and any major risk identified during the internal audit process must be reported to the CIRCCBIRC (formerly CIRC) in a timely manner.
Reporting and disclosure requirements. An insurance company must submit to the CIRCCBIRC (formerly CIRC) an operating report, an actuarial report, its financial statements, a solvency report and a compliance report, each prepared in accordance with applicable rules. By April 30 of each year, an insurance company must disclose on its website and a newspaper designated by the CIRCCBIRC (formerly CIRC) an annual report including, among other things, financial statements and solvency data for the previous year. In addition, within 10 business days after the occurrence of a material related party transaction or other material events, an insurance company must disclose information about such transactions and events on its website.
Internal control assessment. In January 2006, the CIRC issued tentative rules on internal control assessment of life insurance companies to facilitate and supervise the companies and improve their awareness of, and strengthen their controls over, matters such as corporate governance in management, internal controls and regulatory compliance in operations and risk management. Life insurance companies are required to submit to the CIRCCBIRC (formerly CIRC) an internal control assessment form and an annual internal control assessment report each year. The CIRCCBIRC (formerly CIRC) assesses the internal control of life insurance companies at least every three years, covering at least one third of all life insurance companies each year. InUnder the Basic Guidelines for Internal Controls in Insurance Companies issued by the CIRC in August 2010 and the Measures for Compliance Management of Insurance Companies issued by the CIRC issued new rules governing internal control of insurance companies. Under the new rules,in December 2016, which are effective from July 1, 2017, an insurance company must establish an internal control evaluation system in various operations including sales, operation, basic management and fund use, and by April 30 of each year, submit to the CIRCCBIRC (formerly CIRC) an evaluation report on its internal control. In addition, where the CBIRC (formerly CIRC) deems necessary, the CBIRC (formerly CIRC) may collect information reflecting the corporate governance of insurance companies, establish an information database of insurance companies’ governance, and conduct governance ratings for insurance companies throughon-site oroff-site investigations, media reports, assessments of independent rating agencies and public disclosure by insurance companies. The CBIRC (formerly CIRC) may take regulatory measures against insurance companies based on the rating results, including interviews, a risk warning in writing and rectifications within a specified period.
Custody of insurance assets. In October 2014, the CIRC and CBRC jointly issued a notice on regulating the insurance assets custody business. Under this notice, insurance companies are required to establish and improve mechanisms for the custody of insurance assets, select qualified commercial banks and other professional institutions, place various assets generated by the investment of insurance funds under third-party custody and oversight, and ensure that the revenue and expenditure concerning the use of insurance funds (except for expenditure of daily expenses) are primarily processed through the custody fund accounts. Insurance companies are required to submit implementing plans relating to the custody of their insurance assets to the CIRC.CBIRC (formerly CIRC).
Market conduct
Insurance companies are required to take steps to ensure that sales promotional materials used by their sales representatives and agents are objective, true and correct, with no material omissions or misleading information, contain no forecasts of benefits that are not guaranteed under the insurance or annuity product and do not exaggerate the benefits provided under the insurance or annuity product. The sales promotional materials must also highlight in an appropriate fashion any exclusions of coverage or liability in their products, as well as terms providing for policy or annuity surrenders and return of premiums. If any insurance policy or consulting service is provided through telephone sales, requisite office space, staff, facilities and adequate supervising must be furnished. In addition, the telephone sale must be conducted directly by the insurance company, and the terms and rates of the premiums of the insurance policy and geographic business area must be submitted to the CIRCCBIRC (formerly CIRC) for approval.
Insurance companies are subject to extensive regulation against any anti-competitive behavior or unfair dealing conduct. They may not pay insurance agents, the insured or the beneficiary any rebates or other illegal payments, nor may they pay their agents commissions over and above the industry norm.
Insurance companies are required to establish internal rules and procedures to protect the personal data of policyholders and insureds. Insurance companies are prohibited from illegal obtaining, using or selling of the personal data of policyholders and insureds.
Insurance companies are also required to comply with anti-money laundering regulations and establish internal operational procedures and anti-money laundering control systems. No insurance activity can be conducted for the purpose of illegal fundraising.
Regulation of issuance of subordinated debt
Beginning in September 2004, insurance companies that meet a series of qualification tests and are approved by the CIRCCBIRC (formerly CIRC) may issue subordinated debt with a fixed term of at least five years to certain qualified Chinese legal persons and foreign investors. The audited net asset value of the issuer must be at least RMB 500 million as of the end of the prior year and the total amount of unpaid debt at any given point after the issuance, including both principal and interest, must not exceed the issuer’s net asset value as of the end of the prior year. Proceeds from the issuance of subordinated debt may be recorded as supplementary capital of an issuance company, provided that the total amount that has been recorded as supplementary capital may not exceed 50% of the net assets of an insurance company. Proceeds from the issuance of subordinated debt may not be used to offset daily operating losses of an insurance company. The issuer must comply with certain disclosure obligations both at the time of the issuance and during the term of the debt. The issuer may repay the debt only if its solvency ratio would remain at least 100% after the repayment of both principal and the interest. Since March 15, 2013, a qualified insurance group (or holding) company is also allowed to issue subordinated debt in accordance with the relevant requirements of the CIRC.
Beginning in May 2012, publicly listed insurance companies that meet a series of qualification tests and are approved by the CIRCCBIRC (formerly CIRC) may issue subordinated convertible bonds. Subordinated convertible bonds refer to bonds issued by an insurance company in accordance with statutory procedures that satisfy the following conditions: the bonds have a maturity of five years or longer; the principal and interest of the bonds shall be repaid and paid after insurance policy liabilities and other general liabilities in the event of bankruptcy liquidation; and the bonds can be converted into shares of the insurance company in accordance with the agreed conditions within a certain period of time. An insurance company must submit an issuance application to the relevant securities regulatory authority within six months after the CIRCCBIRC (formerly CIRC) has approved the issuance of subordinated convertible bonds. An issuer must report the issuance information to the CIRCCBIRC (formerly CIRC) within ten working days after completion of the issuance of subordinated convertible bonds.
Regulation of merger and acquisition of insurance companies
An insurance company may apply to the CIRCCBIRC (formerly CIRC) for approval of the acquisition of control of another insurance company through the acquisition of equity or shares of the other insurance company. Except under special circumstances, such as a transfer between affiliated parties under common control or risk disposition, the acquiring party is not allowed to transfer the acquired equity or shares in the target insurance company within three years from the completion of the acquisition. Upon approval by the CIRC,CBIRC (formerly CIRC), the acquiring party may control two insurance companies engaging in the same type of business after the completion of acquisition. In addition, an insurance company may apply to the CIRCCBIRC (formerly CIRC) for approval for the merger with other insurance companies by absorption or establishing a new insurance company. The business scope of the insurance company subsequent to the merger is subject to there-approval by the CIRC.CBIRC (formerly CIRC). An insurance company must, during the twelve-month period after the completion of merger or acquisition, report the following information in writing to the CIRCCBIRC (formerly CIRC) within the first 30 days of each quarter: making investments in and purchases or sales of material assets, related party transactions, business transfers, notifications to insurance consumers, public announcements, changes of senior management personnel and employee placements.
Regulation of establishment and management ofnon-insurance subsidiaries
An insurance company may apply to the CIRCCBIRC (formerly CIRC) for approval for the direct or indirect establishment of domestic or overseasnon-insurance subsidiaries (excluding insurance companies, insurance asset management institutions, dedicated insurance agencies, insurance brokerage institutions and insurance assessment institutions), primarily including: (1) financial institutions that engage innon-insurance financial services; (2) service firms that provide various supporting services to insurance companies; (3) investment platform companies with a strong connection with an insurance business, project companies established for managing the investment of insurance funds in real properties, and companies formed as a result of the investment of insurance funds in the upstream and downstream industry chain of an insurance business; and (4) other types of companies without connection with an insurance business.companies. Unless otherwise prescribed by laws, administrative regulations and the CIRC,CBIRC (formerly CIRC), an insurance company is not allowed to guarantee the debts of itsnon-insurance subsidiaries, or lend funds to itsnon-insurance subsidiaries. An insurance company must build firewalls between itsnon-insurance subsidiaries in terms of personnel, capital, business and information to prevent risks spreading from itsnon-insurance subsidiaries. An insurance company must also cause itsnon-insurance subsidiaries to establish and improve their respective information disclosure systems, and submit to the CIRCCBIRC (formerly CIRC) an annual report on itsnon-insurance subsidiaries by April 30 of each year.
Regulation of establishment of overseas insurance institutions
An insurance company may apply to the CIRCCBIRC (formerly CIRC) for approval for the establishment of overseas branches, overseas insurance companies and overseas insurance intermediaries, or the acquisition of overseas insurance companies or intermediaries. In order to submit such an application, an insurance company must have an operating history of no less than two years, total assets of no less than RMB 5 billion as at the end of the prior year and foreign exchange funds of no less than US$ 15 million or its equivalent in other freely convertible currencies as at the end of the preceding year. The applicant insurance company must also comply with applicable solvency, risk management and other requirements as stipulated by the CIRC.CBIRC (formerly CIRC).
Compliance with regulatory requirements
Our management confirms that we have complied in all material respects with all applicable regulatory requirements set out above.
Regulation of Foreign-Invested Insurance Companies
China acceded to the WTO on December 11, 2001. As a result of China’s commitments in connection with the accession, the Chinese insurance market is gradually opening up to foreign insurers and insurance-related service providers. A foreign life insurer with total assets of no less than US$5,000 million and 30 years of industry experience in any WTO member country, and which has had a representative office for two years in China, is permitted to form a life insurance joint venture with a domestic partner of its choice. Foreign life insurers may own up toone-half of the joint venture. In addition, the geographic limitation on foreign life insurers, which were permitted to operate only in specified cities, has been lifted since December 11, 2004. Accordingly, foreign life insurers have been permitted to provide group life insurance, health insurance and annuity and other pension-like products since December 11, 2004. In addition, since December 11, 2006, foreign insurance brokers have been permitted to set up wholly owned subsidiaries in China.
Foreign-invested insurance companies, including Sino-foreign equity joint ventures, wholly foreign-owned insurance companies and branches of foreign insurance companies, are generally regulated in the same manner as domestic insurance companies. Foreign-investedWithout the approval of the CBIRC (formerly CIRC), foreign-invested insurance companies may not without the approval of the CIRC, engage in asset purchases and sales or other transactions with their affiliates, includingbut may engage in outward and inward reinsurance transactions and purchases and sales of assets.with their affiliates. In addition, where the foreign-invested insurance company is a branch of a foreign insurance company, it is required to notify the CIRCCBIRC (formerly CIRC) of fundamental events relating to the foreign insurance company within ten days following the occurrence of the event. Reportable events include: (1) a change of name, senior management or jurisdiction of incorporation of the foreign insurance company, (2) a change in the foreign insurance company’s share capital, (3) a change in any person beneficially owning 10% or more of the foreign insurance company’s shares, (4) a change in business scope, (5) the imposition of administrative sanctions by any applicable regulatory authority, (6) a material loss incurred by the foreign insurance company, (7) aspin-off, merger, dissolution, revocation of corporate franchise or bankruptcy involving the foreign insurance company and (8) other events specified by the CIRC.CBIRC (formerly CIRC). If the foreign insurance company is dissolved, or its corporate franchise is revoked or it is declared bankrupt, the Chinese branch of the foreign insurance company will be prohibited from conducting any new business.
Beginning in June 2012, the CIRC has delegated certain authorities with respect to foreign-invested insurance companies to its provincial and local branch offices: approving the change of place of business of branches and subsidiaries of foreign-invested insurance companies; approving the establishment of subsidiary agencies of foreign-invested insurance companies below the branch-office level; approving the opening of subsidiary agencies of foreign-invested insurance companies below the branch-office level; and approving the qualification of senior management personnel of subsidiary agencies of foreign-invested insurance companies below the branch-office level.
Regulation of Insurance Asset Management Companies
An insurance asset management company is a limited liability company or joint stock company that manages insurance funds on behalf of others. Insurance asset management companies are regulated by the CIRC.CBIRC (formerly CIRC).
Minimum capital requirements
The registered capital of an insurance asset management company may not be lower than RMB 100 million or the equivalent amount of other freely convertible currencies.
Business operations
An insurance asset management company may conduct the following businesses: (1) managing funds in Renminbi or other foreign currencies entrusted to it, including insurance funds, funds of pension, annuity and housing provident institutions, as well as funds of other qualified investors that are capable of identifying and undertaking corresponding risks; (2) managing and operating its own insurance funds in Renminbi or foreign currencies; (3) as trustee, carrying out asset management business appointed by and on behalf of the trustor, or developing asset management products for the interest of the beneficiary or for specific purposes and carrying out asset management business; (4) applying to relevant financial regulatory authorities to carry out publicly-raised asset management business in accordance with the law, provided that relevant conditions are met; (5) as approved by the CIRC,CBIRC (formerly CIRC), issuing relevant asset management products to domestic insurance groups or holding companies, insurance companies, insurance asset management companies and other qualified investors capable of identifying and bearing the applicable risk; and (6) other businesses approved by the CIRCCBIRC (formerly CIRC) or other departments of the State Council.
The investments of the insurance funds by insurance asset management companies are subject to the same requirements and limitations applicable to the investments by the insurance companies themselves. With the regulatory expansion of insurance company investment powers,channels, the investment powerschannels of insurance asset management companies over their own funds have been expanded as well to cover subordinated bonds issued by banks and insurance companies, and bank subordinated bonds.bonds and stock investments.
In connection with the funds being managed by an insurance asset management company, a custodian is required to be appointed. The custodian must be an independent commercial bank or financial institution satisfying applicable CIRC requirements.
Shareholding restrictions
At least 75% of the shares of an insurance asset management company must be owned by domestic insurance companies, and at least one of the shareholders of an insurance asset management company must be an insurance company or insurance holding company satisfying specified requirements.
Investment risk control
Both insurance companies and asset management companies must establish structures, arrangements and measures to recognize, assess, manage and control investment risks. Members of senior management may not be responsible for the management of departments in charge of investment decisions, investment transactions and risk controls at the same time. Branches of insurance companies may not manage insurance funds. Insurance asset management companies must arrange for separate investment managers to manage their own funds and the insurance funds from other insurance companies, as well as insurance funds from an insurance company that are of a different nature.
Major emergency response management
An insurance asset management company is required to establish a monitoring and precaution mechanism for major emergencies.
Regulation of Insurance Agencies, Insurance Brokers and Other Intermediaries
Insurance agents are business entities or individuals which or who act on behalf of an insurance company in respect of insurance matters. An insurance company is prohibited from using any agent not licensed by the CIRC to market its insurance products, and is responsible for the acts of its agents when the acts are within the scope of their agency. Licensed insurance agencies fall into threetwo groups: dedicated agencies andnon-dedicated agencies and individual agents. agencies.
A dedicated agency is a company (and its branches) organized under the PRC company law whose principal business is to act as an agent of insurance companies. Dedicated agencies are subject to minimum capital and other requirements, and their business is generally limited to insurance-related activities.
Anon-dedicated agency is a business entity whose principal business is other than as an insurance agency. To receive a license, the agency business must have a direct relationship with its principal business, which the CIRC has interpreted as permitting commercial banks and banking operations of post offices to act asnon-dedicated insurance agencies. Only employees of commercial banks who hold CIRC qualification certificates are permitted to sell insurance products at the outlets of commercial banks or banking operations of post offices. Sales representatives of insurance companies are prohibited from selling insurance products at the outletscommercial bank outlets. The bancassurance management personnel of commercial banks or banking operations of post offices.
An individual agent is an individual selling insurance products as agent for an insurer. Individual agents are required to meet the qualification requirements prescribed by the CIRC and obtain a qualification certificate from the CIRC and a practicing license from the employing insurance company or agency before practicing.
Approximately 99.87% of our individual agents hold a CIRC qualification certificate and a practicing license from us. On January 6, 2013, the CIRC issued the Regulatory Rules on Insurance Sales Personnel, effective from July 1, 2013. Under these regulations, insurance companies are prohibited from retainingresponsible for providing services (including training and the exchange of documents) to commercial banks and assisting commercial banks to provide related customer services, such as the payment of maturity benefits and handling of renewal fee after selling insurance products.
Prior to August 3, 2015, individual insurance agents, representatives of insurance agencies and insurance brokers were required to obtain qualification certificates issued by the CIRC. Under such CIRC regulations, we were subject to sanctions if we retained exclusive agents without CIRC qualification certificates, and policyholders who bought insurance policies through our unqualified agents were allowed to cancel the policies under some circumstances. On August 3, 2015, the CIRC issued a Notice on the Administration of Insurance Intermediary Personnel, effective on the same day. Under the new regulations, the CIRC canceled the requirements on qualification certificates or practice certificates as agents.for individual insurance agents, representatives of insurance agencies and insurance brokers, with the effect that insurance companies are now only required to complete registration for their individual insurance agents in the insurance intermediary regulatory information system maintained by the CIRC. In addition, qualification requirements for individual agents were further enhanced, including raising the minimum degree requirement from junior high school to college. Insuranceinsurance companies are required to assume management responsibilities fortake adequate measures to ensure the good conduct and professional competence of their individual agents. Insurance companies that retain individualinsurance agents, without CIRC qualification certificates to engage inrepresentatives of insurance sales activities will be subject to an order to correct their misconduct, warnedagencies and fined up to RMB 30,000, and the responsible individual agents will also be warned by the CIRC and fined up to RMB 10,000.insurance brokers.
All insurance agencies and agents are required to enter into agency agreements that specify the duration of the agency; the amount of the agency fee and the method of payment; the scope of the agency, including the insurance products to be marketed; and other relevant matters. Absent specific CIRCCBIRC (formerly CIRC) approval, insurance agents are prohibited from signing insurance and annuity products on behalf of the insurance companies they represent. None of our agents is authorized to sign insurance policies or annuity contracts for us.
Insurance agencies are required to open special accounts for the handling of funds that they hold or collect for the insurance companies they represent. They may not engage in the following activities: dealing with unauthorized insurers or insurance intermediaries, engaging in activities beyond their authorized business scope or geographical area, causing injury to the rights of the insurance companies they represent, spreading rumors or otherwise injuring the reputation of others in the insurance industry, misappropriating the funds of the insurance companies they represent, defrauding insurance customers through false or misleading representations or material omissions, using undue influence to induce insurance customers to purchase insurance, or defrauding the insurance companies they represent through collusion with the insured or the insurance beneficiary. In addition, dedicated insurance agencies are subject to various reporting requirements, including submission of annual financial reports, and are subject to supervision and examination by the CIRC.CBIRC (formerly CIRC).
Insurance brokers who represent individuals and companies purchasing insurance and other intermediaries are subject to similar regulatory requirements regarding their activities. Among other things, they are subject to supervision and examination by the CIRC,CBIRC (formerly CIRC), and fundamental corporate changes must be approved by the CIRC.CBIRC (formerly CIRC). Only companies organized under the PRC company law and meeting requirements set by the CIRCCBIRC (formerly CIRC) are authorized to act as insurance brokers. Insurance brokers are required to comply with qualification standards prescribed by the CIRC,CBIRC (formerly CIRC). Insurance brokerage agencies must provide training to their brokerage personnel regarding insurance laws and must have obtained a qualification certificate issuedprovide education on ethics and other matters.
Regulation of Internet Insurance Businesses
Insurance companies and intermediaries are allowed to carry out an Internet-based insurance business, including sales, underwriting, claims settlement, policy surrender, complaint handling, customer services and other insurance business activities, through proprietary network platforms or third-party network platforms that meet the relevant requirements prescribed by the CIRCCBIRC (formerly CIRC). Insurance companies and intermediaries that carry out an internet-based insurance business must set up an information disclosure column on their official websites, disclosing the related website names and addresses, internet insurance products, existing branches, customer services and ways for consumers to make complaints. The CBIRC (formerly CIRC) is required to carry out regulation andon-site inspection of an internet insurance business, and may take rectification measures against insurance companies and intermediaries that conduct operations in violation of the regulations. Insurance companies engaging in internet-based guaranteed insurance businesses, which use internet credit lending platforms as intermediaries to provide both the borrowers (i.e. insurance applicants) and the lenders (i.e. the insured) on such platforms with guaranteed insurance services, must comply with regulatory requirements on solvency, verify the qualifications of insurance applicants in a practicing license fromprudent manner, clarify the employing insurance brokerage before practicing.information disclosure obligations of the internet platforms, enhance product management and adhere to other compliance requirements stipulated by the CBIRC (formerly CIRC).
No.2 Interpretation of Accounting Standard for Business Enterprises
On August 7, 2008, the MOF issued the No.2 Interpretation of Accounting Standard for Business Enterprises, requiring listed companies which issue both H shares and A shares to adopt consistent accounting policies to recognize, calculate and report a particular transaction in their H share financial statements and A share financial statements, except for certain differences in relation to the reversal of impairment losses of long-term assets and disclosures in relation to related party transactions.
On January 5, 2009, the CIRC issued the Notification on the Implementation of the No.2 Interpretation of Accounting Standards for Business Enterprises in the Insurance Sector (No.1 [2009] of CIRC), which requires insurance companies to make appropriate changes to their accounting policies that cause differences between onshore and offshore financial statements when preparing their 2009 annual financial statements, such that the same accounting policies and estimates will apply to a particular transaction.
On December 22, 2009, the MOF issued the Notification on the Promulgation of the Regulations regarding the Accounting Treatment of Insurance Contracts, which regulates issues relating to, among other things, the unbundling of mixed insurance contracts, tests for significant insurance risks and the calculation of reserves for insurance contracts, and requires insurance companies to comply with these requirements beginning with the preparation of their financial statements for the year ended December 31, 2009. The accounting treatment of any transaction item adopted in previous year which differs from those set out in the MOF’s regulations must be retrospectively adjusted, unless any such adjustment is not practicable under the circumstances.
Implementation of VAT
Following the decision of the PRC State Council, the Value Added Tax, or VAT, has applied to the financial and insurance sector since May 1, 2016. Therefore, our primary business has been subject to 6% VAT from May 1, 2016 instead of the 5% business tax, or BT, which previously had applied to our business. The implementation of VAT has had an effect on our business and operations, including, among other things, our product development and pricing, finance management, management of receipts and IT systems. However, our management believes that the implementation of VAT has not had any known material impact on our overall operating results and financial conditions.
Audit by the PRC National Audit Office
In 2015, the National Audit Office of the People’s Republic of China, or the NAO, conducted a routine audit on the assets, liabilities and profits and losses of CLIC and its subsidiaries (including China Life) for the year of 2014. On June 29, 2016, the NAO released on its website the audit results. We believe that the issues identified in the audit have no material impact on our overall operating results, financial statements and internal control over financial reporting. We disclosed the audit results on Form6-K filed with the SEC on June 29, 2016.
The following is our simplified corporate structure as of the date of this annual report:
(1) | Wholly owned by CLIC |
(2) | Formerly known as China Life Asset Management (Hong Kong) Company Limited |
List of Significant Subsidiaries
Name of Subsidiary | Jurisdiction of Incorporation | Proportion of Ownership Interest Owned by China Life | ||
中国人寿资产管理有限公司 China Life Asset Management Company Limited | The People’s Republic of China | 60% (directly) | ||
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司 China Life Franklin Asset Management | Hong Kong | 50%(2) (indirectly through affiliate) | ||
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China Life Pension Company Limited | The People’s Republic of China | 74.27%(3) (directly and indirectly through affiliate) | ||
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China Life AMP Asset Management Co., | The People’s Republic of China | 85.03%(4) (indirectly through affiliate) | ||
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China Life | The People’s Republic of China | 100%(5)
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(1) | Formerly known as China Life Asset Management (Hong Kong) Company Limited |
(2) | AMC, which is 60% owned by us, owns 50% |
(3) | We own 70.74% and AMC, which is 60% owned by us, owns 3.53% |
(4) | AMC, which is 60% owned by us, owns 85.03% |
(5) | AMC, which is 60% owned by us, owns 48%, and China Life AMP, which is 85.03% owned by AMC, owns 52%. |
D. PROPERTY, PLANTS AND EQUIPMENT
As of December 31, 2014,2017, we owned and leased 3,9354,096 and 12,84213,194 properties, respectively, and had 94305 properties under construction. Among the 3,9354,096 properties owned by us, 1,9182,390 properties are leased to third parties (including partial leasing) while the remaining properties are mainly occupied by us as office premises. EightNine properties are recognized as investment properties.
On December 31, 2014,29, 2017, we entered into a new property leasing agreement with China Life Investment Holding Company Limited.Limited, or IHC. Under this property leasing agreement, which will expire on December 31, 2017, China Life Investment Holding Company Limited2020, IHC agreed to lease to us 1,8071,893 properties owned by it. The annual rent is determined by reference to market rent or, where there is no available comparison, by reference to the costs incurred by China Life Investment Holding Company LimitedIHC in holding and maintaining the properties, plus a margin of approximately 5%.
ITEM 4A. UNRESOLVED STAFF COMMENTS.
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
You should read the following discussion and analysis in conjunction with the audited consolidated financial statements and accompanying notes included elsewhere in this annual report.
Overview of Our Business
We are the leading life insurance company in China. We provide a broad range of insurance products, including individual and group life insurance, annuity contracts, health insurance and accident insurance products. We had nearly 197268 million insurance policies in force as of December 31, 2017, including individual and group life insurance policies, annuity contracts, health insurance and accident insurance policies in force as of December 31, 2014.
In response to favorable market opportunities for health insurance and accident insurance in recent years, we have increased our efforts in developing our health insurance and accident insurance businesses. As a result, our health insurance and accident insurance gross written premiums have increased gradually as a percentage of our total gross written premiums. Meanwhile, the gross written premiums derived from group life insurance and supplementary major medical insurance represented an insignificant percentage of our total gross written premiums. In order to better reflect the changes in our external environment and business structure, and the objectives of future development, as well as providing users of financial statements with more useful information, effective January 1, 2014, we realigned our previously reported individual life insurance, group life insurance, short term insurance, supplementary major medical insurance and other segments into four newly identified segments, namely life insurance, health insurance, accident insurance and other. Our management has conducted its analysis and evaluation of our operating results based on the new reporting segments. In connection with this realignment, segment operating results for the fiscal years ended December 31, 2013 and 2012 have been revised to conform to current year segment operating results presentation. For a detailed discussion, see our consolidated financial statements included elsewhere in this annual report.policies.
We report our financial results according to the following three principal business segments:
• | Life insurance, which offers participating andnon-participating life insurance and annuities to individuals and groups. |
• | Health insurance, which offers short-term and long-term health insurance to individuals and groups. The financial results of our supplementary major medical insurance are also reflected in our health insurance business segment. |
• | Accident insurance, which offers short-term and long-term accident insurance to individuals and groups. |
In addition, we have an “other” reporting segment, in which we primarily report the resultsincome and cost of the insurance policy management services that we provided toagency business in respect of transactions with CLIC and the sales agency services that we provided to CLPCIC, as well as the resultsother companies, net share of profit of associates and joint ventures, income and expenses of subsidiaries, and unallocated income and expenditure of our associates, joint ventures and subsidiaries. See Notecompany.SeeNote 5 to our consolidated financial statements included elsewhere in this annual report.
Financial Overview of Our Business
We had total gross written premiums of RMB 331,010511,966 million (US$53,349 78,688 million) and net profit of RMB 32,51432,752 million (US$5,240 5,034 million) for the year ended December 31, 2014.2017. Our principal business segments had the following results:
• | Life insurance had total gross written premiums of RMB |
• | Health insurance had total gross written premiums of RMB |
• | Accident insurance had total gross written premiums of RMB |
Our business has been characterized by growth of premium income over the past several years, together with a move towards an improved business structure which has been evidenced by ana rapid increase in first-year regular premiums, and an increase inwith the percentage of first-year regular premiums for products with regular premiums of ten years or more in first-year regular premiums.premiums being above 50% since 2013. At the same time, our business has also been affected by certain unfavorable factors, including the increasing cross-industry competition from companies in other financial industries, and the rapid development of the insurance companies owned or controlled by commercial banks and banking operations of post offices and some other small andmedium-sized insurance companies, which have secured an increasing market share, by offering products with relatively highas well as the changing economic and investment environment within China, including slowing economic growth and fluctuations in interest rates.
Factors Affecting Our Results of Operations
Revenues, Expenses and Profitability
We earn our revenues primarily from:
In addition, following the restructuring, we receive service fees for policy management services we provide to CLIC. AMC also receives asset management fees for asset management services provided to CLIC. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions”.
Our operating expenses primarily include:
In addition, weWe also pay rent to China Life Investment Holding Company LimitedIHC on the properties we lease from it.
Our profitability depends principally on our ability to price and manage risk on insurance and annuity products, our ability to maximize the return on investment assets, our ability to attract and retain customers, and our ability to manage expenses. In particular, factors affecting our profitability include:
In addition, other factors, such as competition, securities market conditions, taxes and general economic conditions, affect our profitability.
Interest Rates
For many of our long-term life insurance andproducts including annuity products, we are obligated to pay a minimum interest or crediting ratecontractual benefits to our policyholders or annuitants.the beneficiaries based on a guaranteed interest rate,which is established when the product is priced. These products expose us to the risk that changes in interest rates may reducechange our “spread”, or the difference between the rateamount of return we are able to earn on our investments intended to support our insurance obligations and the amounts thatamount of return we are required to pay under the policies. The minimumIn August 2013, February 2015 and September 2015, the CIRC removed the 2.50% cap on the guaranteed interest rates for the traditional participating insurance policies, universal life insurance policies, and participating life insurance policies, respectively. From October 1, 2015, the guaranteed interest rates of all long-term life insurance products are to be decided by insurance companies at their discretion in accordance with the principle of prudence, but CBIRC (formerly CIRC) approval is required for products with guaranteed interest rates above the maximum valuation rate we pay is established when the product is priced, subject to a cap set by the CIRC, and which may be adjusted from time to time. Currently, the CIRC cap for participating life insurance products is 2.50%, and the 2.50% cap has been removed for non-participating life insurance policies and universal life insurance policies issued on or after August 5, 2013 and February 16, 2015, respectively.varies by product. If the rates of return on our investments fall below the minimum rates we guarantee, our profitability would be adversely affected. During 2012, the PBOC reduced the interest rates twice, from 3.50% to 3.00%. In November 2014, the interest rate onone-year term deposits, a key benchmark rate, was reduced from 3.00% to 2.75%, and in March 2015, the interest rate was further reduced five times from 2.75% to 2.50%. If1.50%.As of the date of this annual report, this interest rate remained unchanged.If economic conditions change in the future, the Chinese government may adjust the interest rates accordingly. As of December 31, 2017, the average guaranteed rate of return for all of our long-term insurance policies in force was 2.62%, while our investment yields for the years ended December 31, 2017, 2016 and 2015 were 5.16%, 4.61% and6.47%, respectively.However, if the rates of return on our investments were to fall below the rates we guarantee, our profitability would be materially and adversely affected. If the interest rates were to be increased, but we did not raise the cap on the rate we may pay onguaranteed rates of our products, sales of some of our products including our non-participating products, could be adversely impacted. An increase in guaranteed rates caused by a rise in the CIRC cap may lead to an increase in surrenders and withdrawals of our existing products which offer rates lower than the new rates.
Interest rates also affect our returns on investment assets, a large proportion of which is held in negotiated bank deposits and debt securities. In a declining interest rate environment, interest rate changes expose us to reinvestment risks. In a rising interest rate environment, higher rates may yield greater interest income but also may generate unrealized capital losses for debt securities designated as trading, causing us to incur realized capital losses for securities we reinvest or requiring us to take an impairment if the market value of debt securities declines for an extended period.
Sustained levels of high or low interest rates also may affect the relative popularity of our various products. For example, the popularity of our participating endowment products is partially driven by the protracted comparatively low interest rate environment in China during the past several years and the 2.50% cap set by the CIRC on the guaranteed rates of return we may apply before August 5, 2013. The investment nature of the product, including the enhanced yield by means of dividends, has proven to be attractive to China’s insurance buyers.
For further information on our exposure to interest rate risk, see “Item 11 Quantitative and Qualitative Disclosure about Market Risk—Interest Rate Risk” and NoteandNote 4 to our consolidated financial statements included elsewhere in this annual report.
Investments
As an insurance company, we have been permitted to invest in five categories of investment assets, including liquidity assets, fixed income assets, equity assets, real properties and other financial assets. However, we are limited by Chinese lawlaws and regulations in the maximum amount that we may invest in each type of assets. See “Item 4. Information on the Company—Business Overview—Investments” and “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Regulation of investments”. Our material concentration risks relate to our investments in bank deposits and Chinese government securities.
The limitations on the maximum amount that weOur investments are subject to risks. Volatility or declines in Chinese and international financial markets may expose us to higher market and credit risks, such as when domestic and international economic conditions differ from market expectations. We may also invest in each type of asset affects thenew investment returns we are able to generate and subjectschannels, use new investment tools or engage new investment managers, which may expose us to various risks that we would not, or tonew risks. These factors could affect our investment income and the book value of our investment assets. In addition, as a lesser extent,portion of our investment assets are held in foreign currencies, our investment results may also be subject to if we were notforeign exchange gains and losses due to changes in exchange rates. Furthermore, our investments in associates are also affected by the operational conditions, financial risks and volatility in profits of these associates, which, in turn, will affect our profitability. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our investments are subject to those limitations. In particular, the limited availability of long-duration investment assets in the markets in which we invest has resulted in the duration of our assets being shorter than that of our liabilities. We believe that with development of China’s financial markets and the gradual easing of the investment restrictions imposed on insurance companies in China, such as the increase of the maximum amount that we may invest in equity interests and real properties, our ability to match the duration of our assets to that of our liabilities will improve. We also seek to reduce the risk of duration mismatch by focusing on product offerings whose maturity profiles are in line with the duration of investments available to us in the prevailing investment environment.risks”.
Our results can be materially affected by investment impairments. The following table sets forth impairment charges and reversal of impairment charges, which are included in net realisedrealized gains and impairment on financial assets, for the years ended December 31, 2012, 20132015, 2016 and 2014.2017.
Impairment (charge)/reversal | For the year ended December 31, | |||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2014 | |||||||||||||||||||||||||||||
Impairment | For the year ended December 31, | |||||||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2017 | |||||||||||||||||||||||||||||
(RMB in millions) | US$ | (RMB in millions) | US$ | |||||||||||||||||||||||||||||
Debt securities | 51 | — | — | — | — | (143 | ) | (114 | ) | (17.52 | ) | |||||||||||||||||||||
Equity securities | (31,094 | ) | (3,803 | ) | (1,149 | ) | (185 | ) | (321 | ) | (2,513 | ) | (2,643 | ) | (406.22 | ) | ||||||||||||||||
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Total | (31,043 | ) | (3,803 | ) | (1,149 | ) | (185 | ) | (321 | ) | (2,656 | ) | (2,757 | ) | (423.74 | ) | ||||||||||||||||
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During the year ended December 31, 2014,2017, we recognized an impairment expense of RMB 1,1492,643 million (US$185 million) 406million) foravailable-for-sale equity securities for which we determined that objective evidence of impairment existed. During the year ended December 31, 2013,2016, we recognized an impairment expense of RMB 3,8032,513 million foravailable-for-sale equity securities for which we determined that objective evidence of impairment existed. During the year ended December 31, 2012,2015, we recognized an impairment expense of RMB 31,094321 million foravailable-for-sale equity securities for which we determined that objective evidence of impairment existed. Our rationale for the impairment is based on a severe or prolonged decline in value. These securities were not impaired due to company-specific events such as bankruptcies.
During the yearsyear ended December 31, 20142017, we recognized an impairment expense of RMB 114 million (US$ 18 million) in debt securities. During the year ended December 31, 2016, we recognized an impairment expense of RMB 143 million in debt securities. During the year ended December 31, 2015, we did not recognize any impairment expense in debt securities, and 2013, no previously recognized impairment losses in debt securities were reversed. During the year ended December 31, 2012, RMB 51 million of previously recognized impairment losses in debt securities was reversed.
Available-for-sale securities comprised of the following asset classes as of December 31, 2014, 20132015, 2016 and 2012.2017.
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||
Cost or amortized cost | Estimated fair value | Cost or amortized cost | Estimated fair value | Cost or amortized cost | Estimated fair value | Cost or amortized cost | Estimated fair value | Cost or amortized cost | Estimated fair value | Cost or amortized cost | Estimated fair value | |||||||||||||||||||||||||||||||||||||
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Debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 42,004 | 42,946 | 33,519 | 31,435 | 25,885 | 26,328 | 23,750 | 25,713 | 20,173 | 21,653 | 24,818 | 24,632 | ||||||||||||||||||||||||||||||||||||
Government agency bonds | 139,861 | 135,870 | 136,466 | 119,739 | 137,303 | 138,487 | 134,021 | 145,399 | 140,444 | 146,310 | 164,331 | 157,765 | ||||||||||||||||||||||||||||||||||||
Corporate bonds | 142,401 | 139,286 | 175,396 | 165,001 | 206,232 | 206,511 | 196,408 | 206,766 | 183,408 | 188,337 | 199,613 | 197,133 | ||||||||||||||||||||||||||||||||||||
Subordinated bonds/debt | 30,821 | 31,488 | 24,664 | 23,579 | 22,304 | 22,798 | 17,771 | 19,298 | 15,948 | 16,708 | 13,588 | 13,495 | ||||||||||||||||||||||||||||||||||||
Other | — | — | 238 | 232 | 1,222 | 1,217 | 4,723 | 4,722 | 26,773 | 26,750 | 62,651 | 62,099 | ||||||||||||||||||||||||||||||||||||
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Subtotal | 355,087 | 349,590 | 370,283 | 339,986 | 392,946 | 395,341 | 376,673 | 401,898 | 386,746 | 399,758 | 465,001 | 455,124 | ||||||||||||||||||||||||||||||||||||
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Equity securities | ||||||||||||||||||||||||||||||||||||||||||||||||
Funds | 65,864 | 57,019 | 57,760 | 58,052 | 74,532 | 83,121 | 150,199 | 163,366 | 114,373 | 105,290 | 97,516 | 91,344 | ||||||||||||||||||||||||||||||||||||
Common stocks | 95,429 | 96,361 | 72,770 | 77,250 | 44,197 | 71,592 | 57,110 | 74,629 | 110,774 | 110,653 | 124,090 | 129,424 | ||||||||||||||||||||||||||||||||||||
Other | 3,614 | 3,446 | 16,026 | 16,239 | 55,271 | 57,477 | 124,016 | 130,623 | 143,161 | 150,722 | 127,689 | 134,842 | ||||||||||||||||||||||||||||||||||||
Subtotal | 164,907 | 156,826 | 146,556 | 151,541 | 174,000 | 212,190 | 331,325 | 368,618 | 368,308 | 366,665 | 349,295 | 355,610 | ||||||||||||||||||||||||||||||||||||
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Total | 519,994 | 506,416 | 516,839 | 491,527 | 566,946 | 607,531 | 707,998 | 770,516 | 755,054 | 766,423 | 814,296 | 810,734 | ||||||||||||||||||||||||||||||||||||
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We had gross unrealized gains of RMB 47,67325,120 million (US$7,683 3,861 million) and gross unrealized losses of RMB 5,58126,837 million (US$899 4,125 million) as of December 31, 2014.2017.We had gross unrealized gains of RMB 31,391 million and gross unrealized losses of RMB 18,064 million as of December 31, 2016. We had gross unrealized gains of RMB 14,04167,434 million and gross unrealized losses of RMB 35,1703,559 million as of December 31, 2013. We had gross unrealized gains of RMB 21,859 million and gross unrealized losses of RMB 12,061 million as of December 31, 2012.2015. The unrealized losses as of December 31, 20142017 related primarily to the unrealized losses ofavailable-for-sale bonds.
The following tables set forth the length of time that each class ofavailable-for-sale securities has continuously been in an unrealized loss position as of December 31, 2014, 20132017, 2016 and 2012.2015.
As of December 31, 2014 | 0-6 months | 7-12 months | More than 12 months | Total | ||||||||||||||||||||||||||||
As of December 31, 2017 | 0-6 months | 7-12 months | More than 12 months | Total | ||||||||||||||||||||||||||||
(RMB in millions) | (RMB in millions) | |||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
Unrealized losses | 503 | 94 | 4,358 | 4,955 | 3,670 | 2,128 | 5,274 | 11,072 | ||||||||||||||||||||||||
Carrying amounts | 52,214 | 1,310 | 82,408 | 135,932 | 181,504 | 52,795 | 45,788 | 280,087 | ||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 0.96 | % | 7.18 | % | 5.29 | % | 3.65 | % | 2.02 | % | 4.03 | % | 11.52 | % | 3.95 | % | ||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||
Unrealized losses | 595 | 31 | — | 626 | 12,342 | 3,391 | 32 | 15,765 | ||||||||||||||||||||||||
Carrying amounts | 11,666 | 129 | — | 11,795 | 132,893 | 25,982 | 786 | 159,661 | ||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 5.10 | % | 24.03 | % | — | 5.31 | % | 9.29 | % | 13.05 | % | 4.07 | % | 9.87 | % | |||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Total unrealized losses | 1,098 | 125 | 4,358 | 5,581 | 16,012 | 5,519 | 5,306 | 26,837 | ||||||||||||||||||||||||
Total carrying amounts | 63,880 | 1,439 | 82,408 | 147,727 | 314,397 | 78,777 | 46,574 | 439,748 | ||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 1.72 | % | 8.69 | % | 5.29 | % | 3.78 | % | 5.09 | % | 7.01 | % | 11.39 | % | 6.10 | % |
As of December 31, 2013 | 0-6 months | 7-12 months | More than 12 months | Total | ||||||||||||||||||||||||||||
As of December 31, 2016 | 0-6 months | 7-12 months | More than 12 months | Total | ||||||||||||||||||||||||||||
(RMB in millions) | (RMB in millions) | |||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
Unrealized losses | 8,777 | 4,444 | 17,301 | 30,522 | 1,222 | 40 | 200 | 1,462 | ||||||||||||||||||||||||
Carrying amounts | 161,296 | 38,911 | 112,752 | 312,959 | 48,144 | 1,040 | 3,104 | 52,288 | ||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 5.44 | % | 11.42 | % | 15.34 | % | 9.75 | % | 2.54 | % | 3.85 | % | 6.44 | % | 2.80 | % | ||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||
Unrealized losses | 3,681 | 967 | — | 4,648 | 12,023 | 4,579 | — | 16,602 | ||||||||||||||||||||||||
Carrying amounts | 54,306 | 4,023 | — | 58,329 | 121,106 | 23,443 | 1 | 144,550 | ||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 6.78 | % | 24.05 | % | — | 7.97 | % | 9.93 | % | 19.53 | % | — | 11.49 | % | ||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Total unrealized losses | 12,458 | 5,411 | 17,301 | 35,170 | 13,245 | 4,619 | 200 | 18,064 | ||||||||||||||||||||||||
Total carrying amounts | 215,602 | 42,934 | 112,752 | 371,288 | 169,250 | 24,483 | 3,105 | 196,838 | ||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 5.78 | % | 12.60 | % | 15.34 | % | 9.47 | % | 7.83 | % | 18.87 | % | 6.44 | % | 9.18 | % | ||||||||||||||||
As of December 31, 2015 | 0-6 months | 7-12 months | More than 12 months | Total | ||||||||||||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
Unrealized losses | 49 | 5 | 242 | 296 | ||||||||||||||||||||||||||||
Carrying amounts | 4,110 | 290 | 16,186 | 20,586 | ||||||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 1.19 | % | 1.72 | % | 1.50 | % | 1.44 | % | ||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||
Unrealized losses | 1,885 | 1,378 | — | 3,263 | ||||||||||||||||||||||||||||
Carrying amounts | 28,275 | 9,810 | — | 38,085 | ||||||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 6.67 | % | 14.05 | % | — | 8.57 | % | |||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||||||
Total unrealized losses | 1,934 | 1,383 | 242 | 3,559 | ||||||||||||||||||||||||||||
Total carrying amounts | 32,385 | 10,100 | 16,186 | 58,671 | ||||||||||||||||||||||||||||
Unrealized losses as a percentage of carrying amounts | 5.97 | % | 13.69 | % | 1.50 | % | 6.07 | % |
As of December 31, 2012 | 0-6 months | 7-12 months | More than 12 months | Total | ||||||||||||
(RMB in millions) | ||||||||||||||||
Debt securities | ||||||||||||||||
Unrealized losses | 2,150 | 644 | 7,002 | 9,796 | ||||||||||||
Carrying amounts | 128,425 | 17,930 | 83,477 | 229,832 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 1.67 | % | 3.59 | % | 8.39 | % | 4.26 | % | ||||||||
Equity securities | ||||||||||||||||
Unrealized losses | 1,751 | 514 | — | 2,265 | ||||||||||||
Carrying amounts | 12,738 | 9,165 | — | 21,903 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 13.74 | % | 5.61 | % | — | 10.34 | % | |||||||||
Total | ||||||||||||||||
Total unrealized losses | 3,901 | 1,158 | 7,002 | 12,061 | ||||||||||||
Total carrying amounts | 141,163 | 27,095 | 83,477 | 251,735 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 2.76 | % | 4.28 | % | 8.39 | % | 4.79 | % |
Financial assets other than those accounted for as at fair value through profit or loss are adjusted for impairments, where these are declines in value that are considered to be other than temporary.
Our rationale for an other-than-temporary impairment is based on a severe or prolonged decline in value. We determine a severe or prolonged decline after considering both quantitative and qualitative factors.
The qualitative factors include specific information on the financial status and performance of the investee, including but not limited to:
The quantitative factors include the following:
When the decline in value is considered an impairment,held-to-maturity debt securities are written down to their present value of estimated future cash flows discounted at the securities’ effective interest rates, andavailable-for-sale debt securities and equity securities are written down to their fair value, and the change is recorded in net realisedrealized gains and impairment on financial assets in the period the impairment is recognized. The impairment loss is reversed through the net profit if in a subsequent period the fair value of a debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognized through net profit. The impairment losses recognized in net profit on equity investments are not reversed. See “—Critical Accounting Policies”.
As of December 31, 2014,2017, our total investment assets were RMB 2,100,8702,591,652 million (US$338,599 398,330 million) and the investment yield for the year ended December 31, 20142017 was 5.36%. The investment yield primarily reflected the increase in spread income, interest income and fair value gains/(losses), as well as the decrease in impairment losses of assets. As of December 31, 2013, our total investment assets were RMB 1,848,681 million and the investment yield for the year ended December 31, 2013 was 4.86%5.16%. The investment yield primarily reflected the increase in interest income and spread income, and the decrease in impairment losses. In response to this market weakness,fair value of stocks we made adjustments to the investment portfolio by decreasing the proportion of investments in equity securities and increasing the proportion of fixed-income assets.have invested in. As of December 31, 2012,2016, our total investment assets were RMB 1,790,8382,453,283 million and the investment yield for the year ended December 31, 20122016 was 2.79%4.61%.The investment yield primarily reflected the increase in interest income and the decrease in spread income. As of December 31, 2015, our total investment assets were RMB 2,287,639 million and the investment yield for the year ended December 31, 2015 was 6.47%. The investment yield primarily reflected the increase in impairment losses resulting from the continued weakness of the Chinese capital markets. In response to this market weakness, we made adjustments to the investment portfolio by decreasing the proportion of investments in equity securitiesspread income and increasing the proportion of fixed-income assets.interest income.
We calculate the investment yields for a given year by dividing the total investment income for that year by the average of the ending balance of investment assets of that year and the previous year. Beginning in 2017, the formula to calculate our investment yield has been revised to consider the impact of securities sold under agreements to repurchase on our investment yield, and therefore investment yields for the fiscal years ended December 31, 2016 and December 31, 2015 has also been revised to conform to the revised formula.
Mix of Products
The following table sets forth premium information as of or for the years ended December 31, 2014, 20132017, 2016 and 20122015 by type of product in our life insurance business, health insurance business and accident insurance business.
As of or for the year ended December 31, | Compound annual growth rate | As of or for the year ended December 31, | Compound annual growth rate | |||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2014 | (2012-2014) | 2015 | 2016 | 2017 | 2017 | (2015-2017) | |||||||||||||||||||||||||||||||
RMB | RMB | RMB | US$ | RMB | RMB | RMB | USD | |||||||||||||||||||||||||||||||||
Life insurance business | ||||||||||||||||||||||||||||||||||||||||
Whole life and term life insurance: | ||||||||||||||||||||||||||||||||||||||||
Gross written premiums | 32,881 | 32,109 | 32,638 | 5,260 | (0.37 | )% | 31,595 | 33,395 | 40,606 | 6,241.03 | 13.37 | % | ||||||||||||||||||||||||||||
Endowment: | ||||||||||||||||||||||||||||||||||||||||
Gross written premiums | 223,660 | 209,034 | 217,662 | 35,081 | (1.35 | )% | 177,871 | 188,415 | 198,418 | 30,496.29 | 5.62 | % | ||||||||||||||||||||||||||||
Annuities: | ||||||||||||||||||||||||||||||||||||||||
Gross written premiums | 37,864 | 49,635 | 35,319 | 5,692 | (3.42 | )% | 98,703 | 140,095 | 190,798 | 29,325.12 | 39.03 | % | ||||||||||||||||||||||||||||
Health insurance business(1) | ||||||||||||||||||||||||||||||||||||||||
Health insurance business(1) | ||||||||||||||||||||||||||||||||||||||||
Gross written insurance premiums | 18,789 | 24,713 | 33,192 | 5,350 | 32.91 | % | 42,041 | 54,010 | 67,708 | 10,406.53 | 26.91 | % | ||||||||||||||||||||||||||||
Accident insurance business(2) | ||||||||||||||||||||||||||||||||||||||||
Accident insurance business(2) | ||||||||||||||||||||||||||||||||||||||||
Gross written insurance premiums | 9,548 | 10,799 | 12,199 | 1,966 | 13.03 | % | 13,761 | 14,583 | 14,436 | 2,218.77 | 2.42 | % |
(1) | Including long-term and short-term health products. |
(2) | Including long-term and short-term accident products. |
Pursuant toUnder the guidelines issued by the CIRC, we are required to pay to our participating policyholders dividends which are no less than 70% of the distributable investment earnings and mortality gains on participating products. Participating products tend to present us with less market risk, since we have more flexibility to set the level of dividends and because participating products are subject to guaranteed interest rates which are generally lower than those ofnon-participating products. In addition, changes in interest rates have less of an impact on their lapse rates than on those ofnon-participating policies. Conversely, participating products tend to be less profitable for us thannon-participating products, largely because the terms of these contracts effectively commit us to sharing a portion of our earnings from participating products with our policyholders. However, participating products still provide us with attractive profit contributions given the growing level of sales volume they produce.
Products classified as investment contracts also affect our revenues, since only a portion of the payments we received under such products are recorded in our consolidated income statement as policy fees, and the majority of such payments are recorded as investment contracts under financial liabilities on our balance sheet.
Another factor affecting our revenue is the fact that a substantial amount of the premiums we receive on many individual and group life insurance products are made in single payments, rather than over the course of the policy. We believe that the popularity of single premium products is in line with purchasing patterns and demand in China. We have, however, adjusted our premium structure to focus more on sales of products with regular premiums, especially products with regular premiums for ten years or more, which has reduced the proportion of single written premiums of our total first-year gross written premiums. We believe that this strategy could contribute to a more steady development of our business and enhance the loyalty of our customers and the retention rate of our customers and sales agent force.
Regulation
We operate in a highly regulated industry. Changes in regulation can have a significant impact on our revenues, expenses and profitability. China’s insurance regulatory regime is undergoing significant changes toward a more transparent regulatory process and a convergent movement toward international standards. Amongstandards.Among other things, recent changes to permitted investment channels for insurance companies have impacted our investment portfolio and returns. Seereturns.See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters”.
Critical Accounting Policies
We prepared the consolidated financial statements under the historical cost convention, except for financial assets and financial liabilities at fair value through profit or loss,available-for-sale financial assets, insurance contract liabilities and certain property, plant and equipment at deemed cost during restructuring process. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires our management to exercise its judgmentjudgments in the process of applying our accounting policies. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our businesses and operations. The following sections discuss the accounting policies applied in preparing our consolidated financial statements that we believe are most dependent on the application of these judgments and estimates. However, uncertainty about these judgments and estimates could result in outcomes that require a material adjustment to the carrying amounts of assets and liabilities in the future periods.
ReservesLiability for Long-term Insurance Contracts
Long-term insurance contracts include whole life andinsurance, term life insurance, endowment insurance and annuitiesannuity policies with significant life contingency risk. Premiums are recognized as revenue when the insurance contracts are recognized and premiums are due from policyholders.
We use the discounted cash flow method to estimate the reserves forreserve of long-term insurance contracts. The reserve of long-term insurance contracts consists of a reasonable estimate of liability, a risk margin and a residual margin. The long-term insurance contracts liabilities are calculated using various assumptions, including assumptions on mortality rates, morbidity rates, lapse rates, discount rates and expensesexpense assumptions, and based on the following principles:
(i) |
(ii) | Additionalnon-guaranteed benefits, such as policyholder dividends; and |
(iii) | Reasonable expenses incurred to manage insurance contracts or to process claims, including maintenance expenses and claim settlement expenses. Future administration expenses are included in the maintenance expense. Expenses are determined based on expense analysis with consideration of future inflation and our expense |
On each reporting date, we review the assumptions for reasonable estimates of liability and risk margins, with consideration of all available information, and taking into account our historical experience and expectation of future events. Changes in assumptions are recognized in net profit. Assumptions for the amortization of residual margin are locked in at policy issuance date and are not adjusted at each reporting date. We considerincorporate the potential impact of future risk factors on our operating results and incorporates such potential impact in the determination of assumptions. The sensitivity analysis disclosed in the NotetheNote 4.1.3 on page F-35F-39 of this annual report provides a detailed analysis of impact of assumption changes on our operating results.
Margin comprises ofMargins comprise risk margin and a residual margin. Risk margin is the reserve accrued to compensate for the uncertain amount and timing of future cash flows. At the inception of the contract, the residual margin is calculated net of certain acquisition costs, mainly consist of underwriting and policy acquisition costs, by us representing Day 1One gain and will be amortized over the life of contracts. For insurance contracts inof which future returns are affected by investment yields of corresponding investment portfolios, their related residual margins are amortized based on estimated future participating dividends payable to the policyholders. For insurance contracts in which future returns are not affected by investment yields of corresponding investment portfolios, their related residual margins are amortized based on sum assured of outstanding policies. The subsequent measurement of residual margin is independent from the reasonable estimate of future discounted cash flows and risk margin. The assumption changes have no effect on the subsequent measurement of the residual margin.
We establish liabilities for long-term traditional insurance contracts based on the following assumptions:
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For the insurance contracts of which the future returnsinsurance benefits are not affected by the investment yields of the corresponding investment portfolios, we use athe discount rate assumption to assess the time value impactsis based on the “yield curve of reserve computation benchmark for insurance contracts”, published on “China Bond” website, with consideration includingof liquidity spreads, taxation impacts and other relevant factors.
The assumed spot discount raterates with risk margin ranged from 3.12%3.42% to 5.61%4.89% as at December 31, 2012,2015, from 3.47%3.23% to 5.74%4.68% as at December 31, 20132016, and from 3.52% to 5.96% 3.31% to4.86%as at December 31, 2014,2017, respectively.
TheThere is uncertainty on the discount rate assumption, which is affected by certain factors such as future macro-economy, fiscalmonetary and foreign exchange policies, capital market and availability of investment channels of our insurance funds. We determine the discount rate assumption based on the information obtained at the end of each reporting period, including consideration of risk margin.
We base our mortality assumptions on China Life Insurance Mortality Table (2000-2003), adjusted where appropriate to reflect our long-termrecent historical mortality experience. The main source of uncertainty with life insurance contracts is that epidemics and wide-ranging lifestyle changes could result in deterioration in future mortality experience, thus leading to an inadequate liability.reserve. Similarly, improvements in longevity due to continuing advancements in medical care and social conditions could expose us to longevity risk.
We base our morbidity assumptions for critical illness products on analysis of historical experience and expectations of future developments. There are two main sources of uncertainty. First, wide-ranging lifestyle changes could result in future deterioration in morbidity experience. Second, future development of medical technologies and improved coverage of medical facilities available to the policyholders may bring forward the timing of diagnosing critical illness, which demands earlier payment of the critical illness benefits. Both could ultimately result in an inadequate reserving of liability if current morbidity assumptions do not properly reflect such secular trends.
Risk margin is considered in our mortality and morbidity assumptions.
The method used to determine risk margin has been consistently applied. We consider risk margin for each of the discount rate, mortality and morbidity and expense assumptions to compensate for the uncertain amount and timing of future cash flow. When determining risk margin, we consider historical experience, future expectations and other factors. Risk margin is determined by us and does not include any elements imposed by regulators.
We adopted a consistent process to determine assumptions for the insurance contracts, which are detailed in NoteinNote 14 to our consolidated financial statements included elsewhere in this annual report. On each reporting date, we review the assumptions for reasonable estimates of liability and risk margin, with consideration of all available information, and taking into account our historical experience and expectation of future events.
Universal Life Contracts and Unit-linked Contracts
Universal life contracts and unit-linked contracts are unbundled into the following components:
The insurance components are accounted for as insurance contracts, and follow the existing reserves calculation methodology as allowed under IFRS 4Insurance Contracts for insurance contracts, and the non-insurance components are accounted for as investment contracts, which are recognizedstated in the investment contracts.contract liabilities.
Investment Contracts
Revenue from investment contracts with or without discretionary participating featuresfeature is recognized as policy fee income, which consists of various fee incomeincomes including, among others, policy fees, handling fees and management fees, during the period. Policy fee income net of certain acquisition cost areis deferred as unearned revenue and amortized over the expected life of the contracts.
Except for unit-linked contracts, of which the liabilities for transferred financial risks are carried at fair value, the liabilities of investment contracts with or without discretionary participating features are carried at amortized cost.
Valuation of Investments
Debt securities that we haveWe classify our financial assets into the ability and positive intent to hold to maturity are classified as held-to-maturity. These investments are carried at amortized cost. Debt securities and equity securities that we purchase with the intention to resell in the short term are classified asfollowing categories: securities at fair value through profit or loss. Debtloss,held-to-maturity securities, loans and equity securities other than those classified as held-to-maturity or securities at fair value through profit or loss are classified as receivables andavailable-for-sale securities. We regularly reviewManagement determines the carrying valueclassification of our investments. If there is objective evidence of impairment,financial assets at initial recognition which depends on the carrying value is reduced through a charge to income statement.purpose for which the assets are acquired. The following are the policies used:
Securities at fair value through profit or loss. This category has twosub-categories: securities held for trading and those designated as at fair value through profit or loss at inception. Securities are classified as held for trading at inception if acquired principally for the purpose of selling in the short-term or if they form part of a portfolio of financial assets in which there is evidence of short term profit-taking. Other financial assets are classified as at fair value through profit or loss if they meet certainthe criteria in IAS 39 and designated as such at inception by us.
Held-to-maturity securities securities.. Held-to-maturity securities arenon-derivative financial assets with fixed or determinable payments and fixed maturities that we have the positive intention and ability to hold to maturity and do not meet the definition of loans and receivables nor designated asavailable-for-sale securities or securities at fair value through profit or loss. These investments are carried at amortized cost.
Loans and receivablesreceivables.. Loans and receivables arenon-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that we intend to sell in the short term or held asavailable-for-sale. Loans and receivables mainly comprise term deposits, loans, securities purchased under agreements to resell, accrued investment income and premium receivables as presented separately in the statement of financial position. These investments are carried at amortized cost.
Available-for-sale securities securities.. Available-for-sale securities arenon-derivative financial assets that are either designated in this category or not classified in eitherany of the other categories.
SecuritiesImpairment of financial assets other than securities at fair value through profit or loss.Financial assets other than those accounted for as at fair value through profit or loss are adjusted for impairments, where there are declines in value that are considered to be an impairment. In evaluating whether a decline in value is an impairment for debt securities and equity securities,these financial assets, we consider several factors including, but not limited to, the following:
In evaluating whether a decline in value is impairment for equity securities, we also consider the extent or the duration of the decline. The quantitative factors include the following:
When the decline in value is considered impairment,held-to-maturity debt securities are written down to their present value of estimated future cash flows discounted at the securities effective interest rates;available-for-sale debt securities and equity securities are written down to their fair value, and the change is recorded in “Net realisednet realized gains and impairment on financial assets”assets in the period the impairment is recognized. The impairment loss is reversed through the net profit if in a subsequent period the fair value of a debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognized through the net profit. The impairment losses recognized in net profit on equity instruments are not reversed through the net profit.
As of December 31, 2014,2017, debt securities of RMB 201,719219,285 million (US$32,511 33,703 million) contain guarantees issued by third parties and, of those, 75.18%85.05% were guaranteed by either the Chinese government or a Chinese government controlled financial institution. Of the guarantees issued by government or government controlled financial institutions, 81.15%88.26% relates to a guarantee issued by a Chinese government ministry for debt securities issued by a government railway infrastructure entity. We monitor the credit worthiness of the third parties which have issued these guarantees using local Chinese credit ratings which are generally only utilized within China.
The methods and assumptions used by us in measuring the fair value of the financial assets and liabilities is determinedinstruments are as follows:
Debt securitiessecurities.. The fair values of debt securities are generally based on current bid prices. Where current bid prices are not readily available, fair values are estimated using either prices observed in recent transactions, values obtained from current bid prices of comparable investments or valuation techniques when the market is not active.
Equity securitiessecurities.. The fair values of equity securities are generally based on current bid prices. Where current bid prices are not readily available, fair values are estimated using either prices observed in recent transactions or commonly used market pricing model. Equity securities, for which fair values cannot be measured reliably, are recognized at cost less impairment.
TermSecurities purchased under agreements to resell, policy loans, term deposits, interest-bearing loans and borrowings, and securities purchased or sold under agreements to resell or repurchaserepurchase.. The carrying amounts of these assets in the consolidated statementsstatement of financial position approximate fair values.value. Fair values of other loans are obtained from valuation techniques.
Valuations are generally obtained from third party pricing services for identical or comparable assets, or through the use of valuation methodologies using observable market inputs, or recent quoted market prices. Valuation service providers typically gather, analyze and interpret information related to market transactions and other key valuation model inputs from multiple sources, and, through the use of widely accepted valuation models, provide a theoretical quote on various securities.
We utilize one pricing service for substantially all of our Chinese domestic debt securities. This pricing service provider is the only publicly-recognized pricing service provider in China, and its pricing information is used by the mutual fund industry and almost all companies in China. We utilize international pricing services for our overseas debt securities. These pricing service providers are internationally-recognized, and their pricing information is commonly used by international companies. The prices obtained from the pricing service arenon-binding. Our review and testing have shown the prices obtained from our pricing service to be appropriate. As such, during the year ended December 31, 2014,2017, we did not consider it necessary to adjust the prices obtained from our pricing service.
As at December 31, 2014,2017, RMB 247,321695,420 million of RMB 254,831million764,573 million debt securities with prices obtained from our pricing service were issued by the Chinese government and government controlled organizations. This pricing service utilized a discounted cash flow valuation model using market observable inputs, mainly interest rates, to determine a fair value. There are no other significant market inputs. As such, we have classified these debt securities as Level 2 in the fair value hierarchy.
Management subjects the fair values provided by valuation service providers to a number of validation procedures. These procedures include a review of the valuation models utilized, as well as our own test recalculation of the prices obtained from the pricing service at each reporting date.
We consider a combination of many factors in determining whether we believe a market for a financial instrument is active or inactive. Among these factors include:
Revenue Recognition
PremiumsPremiums.. Premiums from long-term life insurance contracts are recognized as revenue when due from the policyholders.
Premiums from the sale of short-term accident and health insurance contracts are recorded when written and are accreted to earnings on apro-rata basis over the term of the related policy coverage.
Policy fee income.Revenue from investment contracts is recognized as policy fee income, which consists of various fee income (including policy fees, handling fees and management fees) over the period during which service is provided. ExcessPolicy fee income over certainnet of acquisition costscost is deferred as unearned revenue and amortized over the expected life of the contracts. Policy fee income is presented as other income.
Investment income. Investment income is comprised of interest income from term deposits, cash and cash equivalents, debt securities, securities purchased under agreements to resell, loans and dividend income from equity securities. Interest income is recorded on an accrual basis using the effective interest rate method. Dividend income is recognized when the right to receive a dividend payment is established.
Deferred taxation
Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Substantively enacted tax rates are used in the determination of deferred income tax.
Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the reversal of temporary differences can be recognized.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and associatesjoint ventures except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Recently Issued Accounting Standards
The following standards and amendments are mandatoryadopted by us for the first time for the financial year beginning on January 1, 2014.2017.
Standards/Amendments | Content |
| Effective for annual periods beginning on or after | |||
IAS |
| 1 January | ||||
2017 | ||||||
IAS |
| 1 January | ||||
| ||||||
2017 | ||||||
IFRS Improvements to IFRSs 2014-2016 Cycle | 1 January | |||||
| ||||||
| ||||||
| ||||||
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IAS 7 Amendments – Disclosure Initiative
IAS 12 Amendments – Recognition of Deferred Tax Assets for Unrealized Losses
The amendments to IAS 12 clarify that an entity, when assessing whether taxable profits will be available against which it can utilize a deductible temporary difference, needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. The Group applied the amendments retrospectively. However, their application has no impact on the Group’s financial position and performance, as the accounting treatment of the Group for the previous period was consistent with the clarification in these amendments.
IFRS 12 Amendments – Disclosure of Interests in Other Entities
The amendments to IFRS 12 clarify that the disclosure requirements in IFRS 12, other than those disclosure requirements in paragraphs B10 to B16 of IFRS 12, apply to an entity’s interest in a subsidiary, a joint venture or an associate, or a portion of its interest in a joint venture or an associate that is classified as held for sale or included in a disposal group classified as held for sale. The amendments have had no impact on the Group’s consolidated financial statements as the Group has no interest in a subsidiary, a joint venture or an associate that is classified as held for sale.
The following standards and amendments are not yet effective and have not been early adopted by usthe Group for the financial year beginning on January 1, 2014.2017.
Standards/Amendments | Content | Effective for annual period beginning on or after | ||||
IFRS 2 Amendments |
Share-based Payment Transactions | 1 January 2018 | ||||
IFRS 9 | Financial Instruments | 1 January 2018 | ||||
IFRS 4 Amendments |
with IFRS 4 Insurance Contracts | |||||
1 January | ||||||
| ||||||
2018 | ||||||
IFRS 15 | Revenue from Contracts with Customers | 1 January | 2018 | |||
IFRS | Clarifications to IFRS 15 Revenue from Contracts with Customers | 1 January 2018 | ||||
IAS 40 Amendments | 1 January | |||||
IFRS 16 | Leases | 1 January 2019 | ||||
IFRS 17 | Insurance Contracts | 1 January 2021 | ||||
IFRS 10 and IAS 28 Amendments | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | No mandatory effective date yet determined but available for adoption |
For a detailed discussion of the recently issued accounting standards, see Note 2.1.1 toand Note 2.1.2to our consolidated financial statements included elsewhere in this annual report.
Inflation
According to the National Statistics Bureau of China, China’s overall national inflation rates, as represented by the general consumer price index, were approximately 1.6%, 2.0%, 2.6%1.4%, 2.6%, 5.4%2.0% and 3.3%2.6% in 2017, 2016, 2015, 2014 and 2013, 2012, 2011 and 2010, respectively. Inflationrespectively.Inflation has not had a significant effect on our business during the past three years.
Foreign Currency Fluctuation
See “Item 3. Key Information—Risk Factors—Risks Relating to the People’s Republic of China—Government control of currency conversion and the fluctuation of the Renminbi may materially and adversely affect our operations and financial results” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Risk”.
Year Ended December 31, 20142017 Compared with Year Ended December 31, 20132016
Total Revenues | For the year ended December 31, | For the year ended December 31, | ||||||||||||||
2013 | 2014 | 2016 | 2017 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Net premiums earned | 324,813 | 330,105 | 426,230 | 506,910 | ||||||||||||
Life insurance business | 290,738 | 285,574 | 361,649 | 429,267 | ||||||||||||
Health insurance business | 24,180 | 32,624 | 50,590 | 63,323 | ||||||||||||
Accident insurance business | 9,895 | 11,907 | 13,991 | 14,320 | ||||||||||||
Investment income | 82,816 | 93,548 | 109,147 | 122,727 | ||||||||||||
Investment income from securities at fair value through profit or loss | 1,542 | 1,677 | 6,210 | 4,538 | ||||||||||||
Investment income from available-for-sale securities | 19,596 | 23,029 | 37,243 | 46,627 | ||||||||||||
Investment income from held-to-maturity securities | 22,588 | 25,357 | 24,854 | 30,669 | ||||||||||||
Investment income from bank deposits | 32,667 | 34,934 | 27,851 | 23,827 | ||||||||||||
Investment income from loans | 5,773 | 8,138 | 12,018 | 16,320 | ||||||||||||
Other investment income | 650 | 413 | 971 | 746 | ||||||||||||
Net realised gains and impairment on financial assets | 5,793 | 7,120 | ||||||||||||||
Net fair value gains/(losses) through profit or loss | 137 | 5,808 | ||||||||||||||
Net realized gains on financial assets | 6,038 | 42 | ||||||||||||||
Net fair value gains through profit or loss | (7,094 | ) | 6,183 | |||||||||||||
Other income | 4,324 | 4,185 | 6,460 | 7,493 | ||||||||||||
|
|
|
| |||||||||||||
Total | 417,883 | 440,766 | 540,781 | 643,355 | ||||||||||||
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|
|
Net Premiums Earned
Net premiums earned increased by RMB 5,29280,680 million, or 1.6%18.9%, to RMB 330,105506,910 million in 20142017 from RMB 324,813426,230 million in 2013.2016.
Life Insurance Business
Net premiums earned from life insurance business decreasedincreased by RMB 5,16467,618 million, or 1.8%18.7%, to RMB 285,574429,267 in 2017 from RMB 361,649 million in 2014 from RMB 290,738 million in 2013.2016. This was primarily due to our proactive control of the volume of single premiums policiesa rapid increase in renewals and a decrease in the renewal premiums earned.first-year regular premiums.
Health Insurance Business
Net premiums earned from health insurance business increased by RMB 8,44412,733 million, or 34.9%,25.2 %, to RMB 32,62463,323 million in 20142017 from RMB 24,18050,590 million in 2013.2016. This was primarily due to our enhanced effortsrapid development in developing our health insurance business.protection-oriented businesses.
Accident Insurance Business
Net premiums earned from accident insurance business increased by RMB 2,012329 million, or 20.3%2.4%, to RMB 11,90714,320 million in 20142017 from RMB 9,89513,991 million in 2013. This was primarily due to our enhanced efforts in adjusting our business structure, implementing active financial policies, strengthening team building and motivating local branches in implementing initiatives in business expansion.2016.
Investment Income
Investment income increased by RMB 10,73213,580 million, or 13.0%12.4%, from RMB 109,147 million in 2016 to RMB 93,548122,727 million in 2014 from RMB 82,816 million in 2013.2017.
Investment Income from Securities at Fair Value through Profit or Loss
Investment income from securities at fair value through profit or loss increaseddecreased by RMB 1351,672 million, or 8.8%26.9%, to RMB 1,6774,538 million in 20142017 from RMB 1,5426,210 million in 2013.2016. This was primarily due to an increasea decrease in interest income resulting from debt securitiesa decrease in investments in commercial papers in bonds at fair value through profit or loss.
Investment Income fromAvailable-for-Sale Securities
Investment income fromavailable-for-sale securities increased by RMB 3,433 million,9,384million, or 17.5%25.2%, to RMB 23,02946,627 million in 20142017 from RMB 19,59637,243 million in 2013.2016. This was primarily due to an increase in dividend income fromavailable-for-sale funds and interest income from available-for-sale debt securities. equity investments.
Investment Income fromHeld-to-Maturity Securities
Investment income fromheld-to-maturity securities increased by RMB 2,7695,815 million, or 12.3%23.4%, to RMB 25,35730,669 million in 20142017 from RMB 22,588 million24,854million in 2013.2016. This was primarily due to an increase in interest income resulting from our increasedthe increase in the allocation in high-grade credit bonds and financial bonds in light of market conditions.bonds.
Investment Income from Bank Deposits
Investment income from bank deposits increaseddecreased by RMB 2,2674,024 million, or 6.9%14.4%, to RMB 34,93423,827 million in 20142017 from RMB 32,66727,851 million in 2013.2016. This was primarily due to a slight increasedecrease in ourinterest income resulting from the decrease in the allocation in ordinary term deposits.
Investment Income from Loans
Investment income from loans increased by RMB 2,3654,302 million, or 41.0%35.8%, to RMB 8,13816,320 million in 20142017 from RMB 5,77312,018 million in 2013.2016. This was primarily due to an increase in interest income from the increase in the allocation in trust schemes.
Net Realized Gains on Financial Assets
Net realized gains on financial assets decreased by RMB 5,996 million, or 99.3%, to gains of RMB 42 million in 2017 from gains of RMB 6,038 million in 2016. This was primarily due to a decrease in spread income of stocks and funds inavailable-for-sale securities.
Net Fair Value Gains through Profit or Loss
Net fair value gains through profit or loss increased by RMB 13,277 million to gains of RMB 6,183 million in 2017 from losses of RMB 7,094 million in 2016. This was primarily due to an increase in spread income and fair value of stocks in securities at fair value through profit or loss.
Other Income
Other income increased by RMB 1,033million, or 16.0%, to RMB 7,493million in 2017 from RMB 6,460million in 2016. This was primarily due to an increase in the volume of policy loans and our increased allocation in diversified investments such as the debt investment plans and trust schemes.commission fees earned from CLPCIC.
Net Realised Gains and Impairment on Financial Assets
Benefits, Claims and Expenses | For the year ended December 31, | |||||||
2016 | 2017 | |||||||
RMB | RMB | |||||||
(in millions) | ||||||||
Insurance benefits and claims expenses | ||||||||
Life insurance death and other benefits | 253,157 | 259,708 | ||||||
Accident and health claims and claim adjustment expenses | 27,269 | 33,818 | ||||||
Increase in insurance contracts liabilities | 126,619 | 172,517 | ||||||
Investment contracts benefits | 5,316 | 8,076 | ||||||
Policyholder dividends resulting from participation in profits | 15,883 | 21,871 | ||||||
Underwriting and policy acquisition costs | 52,022 | 64,789 | ||||||
Finance costs | 4,767 | 4,601 | ||||||
Administrative expenses | 31,854 | 35,953 | ||||||
Other expenses | 4,859 | 6,426 | ||||||
Statutory insurance fund contribution | 1,048 | 1,068 | ||||||
|
|
|
| |||||
Total | 522,794 | 608,827 | ||||||
|
|
|
| |||||
Segment information of insurance benefits and claims expenses | ||||||||
Life insurance business | 360,922 | 409,410 | ||||||
Health insurance business | 40,513 | 50,624 | ||||||
Accident insurance business | 5,610 | 6,009 | ||||||
|
|
|
| |||||
Total | 407,045 | 466,043 | ||||||
|
|
|
|
Net realised gains and impairment on financial assets increased by RMB 1,327 million, to gains of RMB 7,120 million in 2014 from gains of RMB 5,793 million in 2013. This was primarily due to a decrease in impairment losses of available-for-sale stocks and an increase in spread income from trading funds.
Net Fair Value Gains/(Losses) through Profit or Loss
Net fair value gains/(losses) through profit or loss increased by RMB 5,671 million to gains of RMB 5,808 million in 2014 from gains of RMB 137 million in 2013. This was primarily due to a significant increase in the allocation of securities at fair value through profit or loss and an increase in the market value of these securities.
Other Income
Other income decreased by RMB 139 million, or 3.2%, to RMB 4,185 million in 2014 from RMB 4,324 million in 2013, remaining stable.
Insurance benefits and claims expenses Life insurance death and other benefits Accident and health claims and claim adjustment expenses Increase in insurance contracts liabilities Investment contracts benefits Policyholder dividends resulting from participation in profits Underwriting and policy acquisition costs Finance costs Administrative expenses Other expenses Statutory insurance fund contribution Total Segment information of insurance benefits and claims expenses Life insurance business Health insurance business Accident insurance business Total Benefits, Claims and Expenses For the year ended December 31, 2013 2014 RMB RMB (in millions) 193,671 192,659 11,263 16,752 107,354 105,883 1,818 1,958 18,423 24,866 25,690 27,147 4,032 4,726 24,805 25,432 3,864 4,151 637 701 391,557 404,275 293,932 288,868 15,055 22,434 3,301 3,992 312,288 315,294
Insurance Benefits and Claims Expenses
Insurance benefits and claims, net of amounts ceded through reinsurance, increased by RMB 3,00658,998 million, or 1.0%14.5%, to RMB 315,294466,043 million in 20142017 from RMB 312,288407,045 million in 2013.2016.
Life insurance death and other benefits payouts decreasedincreased by RMB 1,0126,551 million, or 0.5%2.6%, to RMB 192,659259,708 million in 20142017 from RMB 193,671253,157 million in 2013.2016. This was primarily due to a decreasetoan increase in maturities payable of life insurance business.surrenders. Accident and health claims and claim adjustment expenses increased by RMB 5,4896,549 million, or 48.7%24.0%, to RMB 16,75233,818 million in 20142017 from RMB 11,26327,269 million in 2013.2016. This was primarily due to antoan increase in the volume of short-term health insurance and accident insurance business.business. Increase in insurance contracts liabilities decreasedincreased by RMB 1,47145,898 million, or 1.4%36.2%, to RMB 105,883172,517million in 2017 from RMB 126,619 million in 2014 from RMB 107,354 million2016. This was primarily due toan increase in 2013, remaining basically stable.the scale of insurance business.
Life Insurance Business
Insurance benefits and claims expenses attributable to life insurance business decreasedincreased by RMB 5,06448,488 million, or 1.7%13.4%, to RMB 288,868409,410 million in 20142017 from 293,932RMB 360,922 million in 2013.2016. This was primarily due to a decreasean increase in maturities payablethe scale of life insurance business.
Health Insurance Business
Insurance benefits and claims expenses attributable to health insurance business increased by RMB 7,37910,111 million, or 49.0%25.0%, to RMB 22,43450,624 million in 20142017 from RMB 15,05540,513 million in 2013.2016. This was primarily due to an increase in the volumescale of health insurance business.
Accident Insurance Business
Insurance benefits and claims expenses attributable to accident insurance business increased by RMB 691399 million, or 20.9%7.1%, to RMB 3,9926,009 million in 20142017 from RMB 3,3015,610 million in 2013.2016. This was primarily due to an increasefluctuation in the volumeclaims expenses of accident insurance business.certain businesses.
Investment Contract Benefits
Investment contract benefits increased by RMB 1402,760 million, or 7.7%51.9%, to RMB 1,9588,076 million in 20142017 from RMB 1,8185,316 million in 2013.2016. This was primarily due to an increase in the volumescale of certain investment contracts.
Policyholder Dividends Resulting from Participation in Profits
Policyholder dividends resulting from participation in profits increased by RMB 6,4435,988 million, or 35.0%37.7%, to RMB 24,86621,871 million in 2014 from2017 to RMB 18,42315,883 million in 2013.2016. This was primarily due to an increase in investment yields forfrom participating products.accounts.
Underwriting and Policy Acquisition Costs
Underwriting and policy acquisition costs increased by RMB 1,45712,767 million, or 5.7%24.5%, to RMB 27,14764,789 million in 20142017 from RMB 25,69052,022 million in 2013.2016. This was primarily due to an increase in underwriting costs for first-year regular premium business resulting from an improvement indue to the growth of our business and the optimization of our business structure.
Finance Costs
Finance costs increaseddecreased by RMB 694166 million, or 17.2%3.5%, to RMB 4,7264,601 million in 20142017 from RMB 4,0324,767 million in 2013.2016. This was primarily due to an increasea decrease in interest payments for securities sold under agreementspaid due to repurchase.redemptions of subordinated debts.
Administrative Expenses
Administrative expenses include employees’ remuneration and other administrative expenses. Administrative expenses increased by RMB 6274,099 million, or 2.5%12.9%, to RMB 25,43235,953 million in 20142017 from RMB 24,80531,854 million in 2013.2016. This was primarily due to an effective curb on the growth of administrative expenses resulting from our enhanced efforts in cost control.business.
Other Expenses
Other expenses increased by RMB 2871,567 million, or 7.4%32.2%, to RMB 4,1516,426 million in 20142017 from RMB 3,8644,859 million in 2013.2016. This was primarily due to an increase in business taxespayables to third party holders of consolidated structured entities and surcharges expenses resulting from an increase in taxable income from investment.the change of foreign exchange rates applicable to the currency for foreign assets and liabilities.
Profit | For the year ended December 31, | For the year ended December 31, | ||||||||||||||
2013 | 2014 | 2016 | 2017 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Profit before income tax | 29,451 | 40,402 | 23,842 | 41,671 | ||||||||||||
Life insurance business | 22,038 | 30,651 | 14,732 | 29,315 | ||||||||||||
Health insurance business | 2,739 | 3,252 | 2,093 | 3,246 | ||||||||||||
Accident insurance business | 608 | 1,546 | 852 | 528 | ||||||||||||
Other businesses | 4,066 | 4,953 | 6,165 | 8,582 | ||||||||||||
Income tax | 4,443 | 7,888 | 4,257 | 8,919 | ||||||||||||
Net profit attributable to equity holders of the company | 24,765 | 32,211 | 19,127 | 32,253 |
Profit before Income Tax
Our profit before income tax increased by RMB 10,95117,829 million, or 37.2%74.8%, to RMB 40,40241,671 million in 20142017 from RMB 29,45123,842 million in 2013.2016.
Life Insurance Business
Profit before income tax in the life insurance business increased by RMB 8,61314,583 million, or 39.1%99.0%, to RMB 30,65129,315 million in 20142017 from RMB 22,03814,732 million in 2013.2016. This was primarily due to ana relatively rapid increase in investment yield.income and the impact of the update of discount rate assumptions for reserves for traditional insurance contracts.
Health Insurance Business
Profit before income tax in the health insurance business increased by RMB 5131,153 million, or 18.7%55.1%, to RMB 3,2523,246 million in 20142017 from RMB 2,7392,093 million in 2013.2016. This was primarily due to an increase in business volume and investment yield.income.
Accident Insurance Business
Profit before income tax in the accident insurance business decreased by RMB 324 million, or 38.0%, to RMB 528 million in 2017 from RMB 852 million in 2016. This was primarily due to fluctuation in claims expenses of certain businesses.
Other Business
Profit before income tax in other business increased by RMB 9382,417 million, or 154.3%39.2%, to RMB 1,5468,582 million in 20142017 from RMB 6086,165 million in 2013.2016. This was primarily due to an increase in business volumenet share of profit of associates and an improvement in business quality.joint ventures.
Income Tax
We pay income tax according to applicable Chinese enterprise income tax regulations and rules. Income tax increased by RMB 3,4454,662 million or 109.5%, to RMB 7,8888,919 million in 20142017 from RMB 4,4434,257 million in 2013.2016. This was primarily due to the combined effectimpact of taxable income and deferred tax.
Net Profit Attributable to Equity Holders of the Company
For the reasons set forth above, net profit attributable to equity holders of the Company increased by RMB 7,44613,126 million, or 30.1%68.6%, to RMB 32,21132,253 million in 20142017 from RMB 24,76519,127 million in 2013.2016. This was primarily due to thean increase in the investment yieldincome and the changeimpact of the update of discount rate assumption ofassumptions for reserves of traditional insurance contracts.
Major Assets | As of December 31, | As of December 31, | ||||||||||||||
2013 | 2014 | 2016 | 2017 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Investment assets | 1,848,681 | 2,100,870 | 2,453,283 | 2,591,652 | ||||||||||||
Term deposits | 664,174 | 690,156 | 538,325 | 449,400 | ||||||||||||
Held-to-maturity securities | 503,075 | 517,283 | 594,730 | 717,037 | ||||||||||||
Available-for-sale securities | 491,527 | 607,531 | 766,423 | 810,734 | ||||||||||||
Securities at fair value through profit or loss | 34,172 | 53,052 | 209,124 | 136,809 | ||||||||||||
Securities purchased under agreements to resell | 8,295 | 11,925 | 43,538 | 36,185 | ||||||||||||
Cash and cash equivalents | 21,330 | 47,034 | 67,046 | 48,586 | ||||||||||||
Loans | 118,626 | 166,453 | 226,573 | 383,504 | ||||||||||||
Statutory deposits—restricted | 6,153 | 6,153 | 6,333 | 6,333 | ||||||||||||
Investment properties | 1,329 | 1,283 | 1,191 | 3,064 | ||||||||||||
Investment in associates and joint ventures | 119,766 | 161,472 | ||||||||||||||
Other assets | 124,260 | 145,697 | 123,902 | 144,467 | ||||||||||||
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| |||||||||||||
Total | 1,972,941 | 2,246,567 | 2,696,951 | 2,897,591 | ||||||||||||
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Investment Assets
Our total investment assets increased by RMB 252,189138,369 million, or 13.6%5.6%, to RMB 2,100,8702,591,652 million in 2014as of December 31, 2017 from RMB 1,848,6812,453,283 million in 2013.as of December 31, 2016.
Term Deposits
Term deposits increaseddecreased by RMB 25,98288,925 million, or 3.9%16.5%, to RMB 690,156449,400 million in 2014as of December 31, 2017 from RMB 664,174538,325 million in 2013.as of December 31, 2016. This was primarily due to our increased allocation in ordinarythe maturity of certain term deposits.
Held-to-Maturity Securities
Held-to-maturity securities increased by RMB 14,208122,307 million, or 2.8%20.6%, to RMB 517,283717,037 million in 2014as of December 31, 2017 from RMB 503,075594,730 million in 2013.as of December 31, 2016. This was primarily due to our increasedan increase in the allocation in high-grade credit bonds and financial bonds in light of market conditions.bonds.
Available-for-Sale Securities
Available-for-sale securities increased by RMB 116,004 million,44,311million, or 23.6%5.8%, to RMB 607,531810,734 million in 2014as of December 31, 2017 from RMB 491,527766,423 million in 2013.as of December 31, 2016. This was primarily due to our increasedan increase in the allocation in high-grade credit bonds and fundsstocks in light of market conditions.available-for-sale securities.
Securities at Fair Value Through Profit or Loss
Securities at fair value through profit or loss increaseddecreased by RMB 18,88072,315 million, or 55.2%34.6%, to RMB 53,052136,809 million in 2014as of December 31, 2017 from RMB 34,172209,124 million in 2013.as of December 31, 2016. This was primarily due to our increaseda decrease in the allocation in common stockscommercial papers in bonds at fair value through profit or loss.
Cash and Cash Equivalents
Cash and cash equivalents increaseddecreased by RMB 25,70418,460 million, or 120.5%27.5%, to RMB 47,03448,586 million in 2014as of December 31, 2017 from RMB 21,33067,046 million in 2013.as of December 31, 2016. This was primarily due to the demandneeds for liquidity management.
Loans
Loans increased by RMB 47,827156,931 million, or 40.3%69.3%, to RMB 166,453383,504 million in 2014as of December 31, 2017 from RMB 118,626226,573 million in 2013.as of December 31, 2016. This was primarily due to an increase in the volume of policy loans, as well as our increased allocation in diversified investments such as debt investment plans and trust schemes.schemes in loans.
Investment Properties
Investment properties decreasedincreased by RMB 461,873 million, or 3.5%157.3%, to RMB 1,2833,064 million in 2014as of December 31, 2017 from RMB 1,3291,191 million in 2013.as of December 31, 2016. This was primarily due to depreciation ofan increase in investment properties.
Investments in associates and joint ventures
Major Liabilities | As of December 31, | |||||||
2013 | 2014 | |||||||
RMB | RMB | |||||||
(in millions) | ||||||||
Liabilities | ||||||||
Insurance contracts | 1,494,497 | 1,603,446 | ||||||
Investment contracts | 65,087 | 72,275 | ||||||
Securities sold under agreements to repurchase | 20,426 | 46,089 | ||||||
Policyholder dividends payable | 49,536 | 74,745 | ||||||
Annuity and other insurance balances payable | 23,179 | 25,617 | ||||||
Interest-bearing loans and borrowings | — | 2,623 | ||||||
Bonds payable | 67,985 | 67,989 | ||||||
Deferred tax liabilities | 4,919 | 19,375 | ||||||
Other liabilities | 24,727 | 47,077 | ||||||
|
|
|
| |||||
Total | 1,750,356 | 1,959,236 | ||||||
|
|
|
|
Our investments in associates and joint ventures increased by RMB 41,706 million, or 34.8%, to RMB 161,472 million as of December 31, 2017 from RMB 119,766 million as of December 31, 2016. This primarily reflected our new investments in associates and joint ventures.
Major Liabilities | As of December 31, | |||||||
2016 | 2017 | |||||||
RMB | RMB | |||||||
(in millions) | ||||||||
Liabilities | ||||||||
Insurance contracts | 1,847,986 | 2,025,133 | ||||||
Investment contracts | 195,706 | 232,500 | ||||||
Securities sold under agreements to repurchase | 81,088 | 87,309 | ||||||
Policyholder dividends payable | 87,725 | 83,910 | ||||||
Annuity and other insurance balances payable | 39,038 | 44,820 | ||||||
Interest-bearing loans and borrowings | 16,170 | 18,794 | ||||||
Bonds payable | 37,998 | — | ||||||
Deferred tax liabilities | 7,768 | 4,871 | ||||||
Other liabilities | 75,824 | 74,944 | ||||||
|
|
|
| |||||
Total | 2,389,303 | 2,572,281 | ||||||
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|
|
|
Liabilities
Our total liabilities increased by RMB 208,880182,978 million, or 11.9%7.7%, to RMB 1,959,2362,572,281 million in 2014as of December 31, 2017 from RMB 1,750,3562,389,303 million in 2013.as of December 31, 2016.
Insurance Contracts
Liabilities of insurance contracts increased by RMB 108,949177,147 million, or 7.3%9.6%, to RMB 1,603,4462,025,133 million in 2014as of December 31, 2017 from RMB 1,494,4971,847,986 million in 2013.as of December 31, 2016. This was primarily due to the accumulation of insurance liabilities from new insurance business and renewal business. As at the balance sheet date of the statement of financial position, our insurance contracts reserves passed liability adequacy testing.
Investment Contracts
The account balance of investment contracts increased by RMB 7,18836,794 million, or 11.0%18.8%, to RMB 72,275232,500 million in 2014as of December 31, 2017 from RMB 65,087195,706 million in 2013.as of December 31, 2016. This was primarily due to an increase in the volumescale of certain investment contracts.
Securities Sold under Agreements to Repurchase
Securities sold under agreements to repurchase increased by RMB 25,6636,221 million, or 125.6%7.7%, to RMB 46,08987,309 million in 2014as of December 31, 2017 from RMB 20,42681,088 million in 2013.as of December 31, 2016. This was primarily due to the demandneeds for liquidity management.
Policyholder Dividends Payable
Policyholder dividends payable increaseddecreased by RMB 25,2093,815 million, or 50.9%4.3%, to RMB 74,74583,910 million in 2014as of December 31, 2017 from RMB 49,53687,725 million in 2013.as of December 31, 2016. This was primarily due to an increase in investment yields for participating products.dividends paid to policyholders.
Annuity and Other Insurance Balances Payable
Annuity and other insurance balances payable increased by RMB 2,4385,782 million, or 10.5%14.8%, to RMB 25,61744,820 million in 2014as of December 31, 2017 from RMB 23,17939,038 million in 2013.as of December 31, 2016. This was primarily due to an increase in maturities payable.
Interest-bearing Loans and Borrowings
In June 2014, to meet the needs of our overseas investment, we obtainedOur borrowings in foreign currency increased in 2017. Interest-bearing loans and other borrowings include a fixed-interest ratefive-year bank loan of 275GBP275 million British pounds sterling with a termmaturity date on June 17, 2019, a three-year bank loan of five years. As atUS$ 970 million with a maturity date on September 27, 2019, a three-year bank loan of US$ 940 million with a maturity date on September 30, 2019 and aone-month bank loan of EUR100 million with a maturity date on January 11, 2018, all of which are fixed rate loans, and a three-year loan of EUR400 million with a maturity date on December 31, 2014, the loan balance was RMB 2,623 million.6, 2020, which is a floating rate loan.
Bonds Payable
Bonds payable increased byas of December 31, 2016 were RMB 437,998 million, to RMB 67,989 millionand there were no bonds payable as of December 31, 2017.The reduction in 2014 from 67,985 million in 2013, remaining basically stable. Thisbonds payable was primarily due to the fact that noredemption of subordinated debt were issued by us in 2014.debts.
Deferred Tax Liabilities
Deferred tax liabilities increaseddecreased by RMB 14,4562,897 million, or 293.9%37.3%, to RMB 19,375 million in 20144,871million as of December 31, 2017 from RMB 4,9197,768 million in 2013.as of December 31, 2016. This was primarily due to an increasethe decrease in the fair value ofavailable-for-sale financial assets. securities.
Equity Attributable to Equity Holders of the Company
As of December 31, 2014,2017, equity attributable to our equity holders of the Company was RMB 284,121320,933 million, and increased byan increase of RMB 63,79017,312 million, or 29.0%5.7%, from RMB 220,331303,621 million as of December 31, 2013.2016. This was primarily due to the combined effect of an increase in the fair value of available-for-sale financial assetstotal comprehensive income and the profit gaineddistributions during the fiscal year.2017.
Year Ended December 31, 20132016 Compared with Year Ended December 31, 20122015
Total Revenues | For the year ended December 31, | For the year ended December 31, | ||||||||||||||
2012 | 2013 | 2015 | 2016 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Net premiums earned | 322,126 | 324,813 | 362,301 | 426,230 | ||||||||||||
Life insurance business | 294,374 | 290,738 | 308,081 | 361,649 | ||||||||||||
Health insurance business | 18,565 | 24,180 | 40,855 | 50,590 | ||||||||||||
Accident insurance business | 9,187 | 9,895 | 13,365 | 13,991 | ||||||||||||
Investment income | 73,243 | 82,816 | 97,582 | 109,147 | ||||||||||||
Investment income from securities at fair value through profit or loss | 1,567 | 1,542 | 1,708 | 6,210 | ||||||||||||
Investment income from available-for-sale securities | 20,992 | 19,596 | 27,476 | 37,243 | ||||||||||||
Investment income from held-to-maturity securities | 15,194 | 22,588 | 24,541 | 24,854 | ||||||||||||
Investment income from bank deposits | 30,512 | 32,667 | 32,285 | 27,851 | ||||||||||||
Investment income from loans | 4,339 | 5,773 | 11,115 | 12,018 | ||||||||||||
Other investment income | 639 | 650 | 457 | 971 | ||||||||||||
Net realised gains and impairment on financial assets | (26,876 | ) | 5,793 | |||||||||||||
Net fair value gains/(losses) through profit or loss | (313 | ) | 137 | |||||||||||||
Net realized gains on financial assets | 32,297 | 6,038 | ||||||||||||||
Net fair value gains through profit or loss | 10,209 | (7,094 | ) | |||||||||||||
Other income | 3,305 | 4,324 | 5,060 | 6,460 | ||||||||||||
|
|
|
| |||||||||||||
Total | 371,485 | 417,883 | 507,449 | 540,781 | ||||||||||||
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|
|
|
Net Premiums Earned
Net premiums earned increased by RMB 2,68763,929 million, or 0.8%17.6%, to RMB 324,813426,230 million in 20132016 from RMB 322,126362,301 million in 2012.2015.
Life Insurance Business
Net premiums earned from life insurance business decreasedincreased by RMB 3,63653,568 million, or 1.2%17.4%, to RMB 290,738361,649 million in 20132016 from RMB 294,374308,081 million in 2012.2015. This was primarily due to the adjustment of the bancassurance business structure.an increase in first-year regular premiums and renewals.
Health Insurance Business
Net premiums earned from health insurance business increased by RMB 5,6159,735 million, or 30.2%,23.8 %, to RMB 24,18050,590 million in 20132016 from RMB 18,56540,855 million in 2012.2015. This was primarily due to our increased efforts onin developing the health insurance business.business to meet market demand.
Accident Insurance Business
Net premiums earned from accident insurance business increased by RMB 708626 million, or 7.7%4.7%, to RMB 9,89513,991 million in 20132016 from RMB 9,18713,365 million in 2012.2015. This was primarily due to further optimization of our efforts on making adjustments to the business structure and motivating local branchesa decrease in acquiring new business.sales of certain products with high claim settlement ratios.
Investment Income
Investment income increased by RMB 9,57311,565 million, or 13.1%11.9%, to RMB 82,816109,147 million in 20132016 from RMB 73,24397,582 million in 2012.2015.
Investment Income from Securities at Fair Value through Profit or Loss
Investment income from securities at fair value through profit or loss decreasedincreased by RMB 254,502 million, or 1.6%263.6%, to RMB 1,5426,210 million in 20132016 from RMB 1,5671,708 million in 2012. This was primarily due to a decrease in dividend income from equity assets at fair value through profit or loss.
Investment Income from Available-for-Sale Securities
Investment income from available-for-sale securities decreased by RMB 1,396 million, or 6.7%, to RMB 19,596 million in 2013 from RMB 20,992 million in 2012. This was primarily due to a decrease in dividend income from available-for-sale equity assets.
Investment Income from Held-to-Maturity Securities
Investment income from held-to-maturity securities increased by RMB 7,394 million, or 48.7%, to RMB 22,588 million in 2013 from RMB 15,194 million in 2012.2015. This was primarily due to an increase in interest income resulting from our increased investments in trading bonds, principally commercial paper and corporate bonds.
Investment Income fromAvailable-for-Sale Securities
Investment income fromavailable-for-sale securities increased by RMB 9,767 million, or 35.5%, to RMB 37,243 million in 2016 from RMB 27,476 million in 2015. This was primarily due to an increase in dividend income fromavailable-for-sale equity investments.
Investment Income fromHeld-to-Maturity Securities
Investment income fromheld-to-maturity securities increased by RMB 313 million, or 1.3%, to RMB 24,854 million in 2016 from RMB 24,541 million in 2015. This was primarily due to an increase in the allocation in held-to-maturity securitiesbonds offset in part by a decrease in the rate of return on reinvested funds and new investments in high grade credit debt securities.the low interest rate environment.
Investment Income from Bank Deposits
Investment income from bank deposits increaseddecreased by RMB 2,1554,434 million, or 7.1%13.7%, to RMB 32,66727,851 million in 20132016 from RMB 30,51232,285 million in 2012.2015. This was primarily due to an increasea decrease in the volumeallocation of banknegotiated deposits, and marketa decrease in the rate of return for new investments in the low interest rates.rate environment.
Investment Income from Loans
Investment income from loans increased by RMB 1,434903 million, or 33.0%8.1%, to RMB 5,77312,018 million in 20132016 from RMB 4,33911,115 million in 2012.2015. This was primarily due to an increase in the volumeinvestments in other loans,which mainly consist of policy loans and debt investment plans.our investments in different types of asset management products.
Net RealisedRealized Gains and Impairment on Financial Assets
Net realisedrealized gains and impairment on financial assets increaseddecreased by RMB 32,66926,259 million, or 81.3%, to gains of RMB 5,7936,038 million in 20132016 from lossesgains of RMB 26,87632,297 million in 2012.2015. This was primarily due to a significant decrease in impairment lossesspread income of available-for-sale equity assets.stocks and securities investment funds resulting from fluctuations in the capital markets.
Net Fair Value Gains/(Losses)Gains through Profit or Loss
Net fair value gains/(losses)gains through profit or loss increaseddecreased by RMB 45017,303 million to losses of RMB 7,094 million in 2016 from gains of RMB 13710,209 million in 2013 from losses of RMB 313 million in 2012.2015. This was primarily due to an increasea significant decrease in spread income of stocks resulting from equity assets at fair value through profit or loss.fluctuations in the capital markets.
Other Income
Other income increased by RMB 1,0191,400 million, or 30.8%27.7%, to RMB 4,3246,460 million in 20132016 from RMB 3,3055,060 million in 2012.2015. This was primarily due to an increase in the commission fees earned from CLPCIC.
Benefits, Claims and Expenses | For the year ended December 31, | For the year ended December 31, | ||||||||||||||
2012 | 2013 | 2015 | 2016 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Insurance benefits and claims expenses | ||||||||||||||||
Life insurance death and other benefits | 107,674 | 193,671 | 221,701 | 253,157 | ||||||||||||
Accident and health claims and claim adjustment expenses | 7,898 | 11,263 | 21,009 | 27,269 | ||||||||||||
Increase in insurance contracts liabilities | 184,990 | 107,354 | 109,509 | 126,619 | ||||||||||||
Investment contracts benefits | 2,032 | 1,818 | 2,264 | 5,316 | ||||||||||||
Policyholder dividends resulting from participation in profits | 3,435 | 18,423 | 33,491 | 15,883 | ||||||||||||
Underwriting and policy acquisition costs | 27,754 | 25,690 | 35,569 | 52,022 | ||||||||||||
Finance costs | 2,575 | 4,032 | 4,320 | 4,767 | ||||||||||||
Administrative expenses | 23,283 | 24,805 | 27,458 | 31,854 | ||||||||||||
Other expenses | 3,304 | 3,864 | 7,428 | 4,859 | ||||||||||||
Statutory insurance fund contribution | 609 | 637 | 743 | 1,048 | ||||||||||||
|
|
|
| |||||||||||||
Total | 363,554 | 391,557 | 463,492 | 522,794 | ||||||||||||
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|
| |||||||||||||
Segment information of insurance benefits and claims expenses | ||||||||||||||||
Life insurance business | 287,550 | 293,932 | 313,612 | 360,922 | ||||||||||||
Health insurance business | 10,073 | 15,055 | 34,398 | 40,513 | ||||||||||||
Accident insurance business | 2,939 | 3,301 | 4,209 | 5,610 | ||||||||||||
|
| |||||||||||||||
Total | 300,562 | 312,288 | 352,219 | 407,045 | ||||||||||||
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Insurance Benefits and Claims Expenses
Insurance benefits and claims, net of amounts ceded through reinsurance, increased by RMB 11,72654,826 million, or 3.9%15.6%, to RMB 312,288407,045 million in 20132016 from RMB 300,562352,219 million in 2012.2015.
Life insurance death and other benefits payouts increased by RMB 85,99731,456 million, or 79.9%14.2%, to RMB 193,671253,157 million in 20132016 from RMB 107,674221,701 million in 2012.2015. This was primarily due to antoan increase in maturity paymentsmaturities payable of life insurance business and lapses.annuity benefits. Accident and health claims and claim adjustment expenses increased by RMB 3,3656,260 million, or 42.6%29.8%, to RMB 11,26327,269 million in 20132016 from RMB 7,89821,009 million in 2012.2015. This was primarily due to an increase in claims payment and reserves forthe volume of short-term health insurance and supplementary major medicalaccident insurance resulting from the increase in business volume.business. Increase in insurance contracts liabilities decreasedincreased by RMB 77,63617,110 million, or 42.0%15.6%, to RMB 107,354126,619 million in 20132016 from RMB 184,990109,509 million in 2012.2015. This was primarily the result of the release of reserves due to maturity payments and lapses.an increase in the scale of insurance business.
Life Insurance Business
Insurance benefits and claims expenses attributable to life insurance business increased by RMB 6,38247,310 million, or 2.2%15.1%, to 293,932360,922 million in 20132016 from RMB 287,550313,612 million in 2012, remaining basically stable.2015. This was primarily due to an increase in maturities payable and annuity payments in our life insurance business.
Health Insurance Business
Insurance benefits and claims expenses attributable to health insurance business increased by RMB 4,9826,115 million, or 49.5%17.8%, to RMB 15,05540,513 million in 20132016 from RMB 10,07334,398 million in 2012.2015. This was primarily due to an increase in business volume.the scale of health insurance business.
Accident Insurance Business
Insurance benefits and claims expenses attributable to accident insurance business increased by RMB 3621,401 million, or 12.3%33.3%, to RMB 3,3015,610 million in 20132016 from RMB 2,9394,209 million in 2012.2015. This was primarily due to anthe increase in business volume.of claims expenses for certain businesses.
Investment Contract Benefits
Investment contract benefits decreasedincreased by RMB 2143,052 million, or 10.5%134.8%, to RMB 1,8185,316 million in 20132016 from RMB 2,0322,264 million in 2012.2015. This was primarily due to an increase in the decreased volumescale of investment contracts and adjustment to settlement interest rates of certain products.contracts.
Policyholder Dividends Resulting from Participation in Profits
Policyholder dividends resulting from participation in profits increaseddecreased by RMB 14,98817,608 million, or 436.3%52.6%, to RMB 18,42315,883 million in 2013 from2016 to RMB 3,43533,491 million in 2012.2015. This was primarily due to an increasea decrease in investment yields for participating products.
Underwriting and Policy Acquisition Costs
Underwriting and policy acquisition costs decreasedincreased by RMB 2,06416,453 million, or 7.4%46.3%, to RMB 25,69052,022 million in 20132016 from RMB 27,75435,569 million in 2012.2015. This was primarily due to a decreasean increase in commission feesunderwriting costs for first-year regular premium business resulting from the decrease in first-year premiums.growth of our business and the optimization of our business structure.
Finance Costs
Finance costs increased by RMB 1,457447 million, or 56.6%10.3%, to RMB 4,0324,767 million in 20132016 from RMB 2,5754,320 million in 2012.2015. This was primarily due to an increase in interest payments for subordinated term debt.income from securities sold under agreements to repurchase.
Administrative Expenses
Administrative expenses include employees’ remuneration and other administrative expenses. Administrative expenses increased by RMB 1,5224,396 million, or 6.5%16%, to RMB 24,80531,854 million in 20132016 from RMB 23,28327,458 million in 2012.2015. This was primarily due to an increase in compensation paid to the employees.growth of our business.
Other Expenses
Other expenses increaseddecreased by RMB 5602,569 million, or 16.9%34.6%, to RMB 3,8644,859 million in 20132016 from RMB 3,3047,428 million in 2012.2015. This was primarily due to an increase in foreign exchange losses.the fact that our income from financial and insurance services has been subject to value-added tax instead of business taxes since May 1, 2016.
Profit | For the year ended December 31, | For the year ended December 31, | ||||||||||||||
2012 | 2013 | 2015 | 2016 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Profit before income tax | 10,968 | 29,451 | 45,931 | 23,842 | ||||||||||||
Life insurance business | 5,764 | 22,038 | 40,921 | 14,732 | ||||||||||||
Health insurance business | 971 | 2,739 | 557 | 2,093 | ||||||||||||
Accident insurance business | 690 | 608 | 1,753 | 852 | ||||||||||||
Other businesses | 3,543 | 4,066 | 2,700 | 6,165 | ||||||||||||
Income tax | (304 | ) | 4,443 | 10,744 | 4,257 | |||||||||||
Net profit attributable to equity holders of the company | 11,061 | 24,765 | 34,699 | 19,127 |
Profit before Income Tax
Our profit before income tax increaseddecreased by RMB 18,48322,089 million, or 168.5%48.1%, to RMB 29,45123,842 million in 20132016 from RMB 10,96845,931 million in 2012.2015.
Life Insurance Business
Profit before income tax in the life insurance business increaseddecreased by RMB 16,27426,189 million, or 282.3%64.0%, to RMB 22,03814,732 million in 20132016 from RMB 5,76440,921 million in 2012.2015. This was primarily due to an increasea decrease in gross investment yieldincome and the impact of the lifeupdate of discount rate assumptions for reserves for traditional insurance business segment.contracts.
Health Insurance Business
Profit before income tax in the health insurance business increased by RMB 1,7681,536 million, or 182.1%275.8%, to RMB 2,7392,093 million in 20132016 from RMB 971557 million in 2012.2015. This was primarily due to an increase in business volume and investment yieldthe improvement of the business structure of our health insurance business segment.insurance.
Accident Insurance Business
Profit before income tax in the accident insurance business decreased by RMB 82901 million, or 11.9%51.4%, to RMB 608852 million in 20132016 from RMB 6901,753 million in 2012.2015. This was primarily due to normalan increase in claims expenses.
Other Business
Profit before income tax in other business fluctuations.increased by RMB 3,465 million, or 128.3%, to RMB 6,165 million in 2016 from RMB 2,700 million in 2015. This was primarily due to an increase in net share of profit of associates and joint ventures.
Income Tax
We pay income tax according to applicable Chinese enterprise income tax regulations and rules. Income tax increaseddecreased by RMB 4,7476,487 million or 60.4%, to RMB 4,4434,257 million in 20132016 from benefit of RMB 30410,744 million in 2012.2015. This was primarily due to the combined effectimpact of taxable income and deferred tax.
Net Profit Attributable to Equity Holders of the Company
For the reasons set forth above, net profit attributable to equity holders of the Company increaseddecreased by RMB 13,704 million,15,572million, or 123.9%44.9%, to RMB 24,76519,127 million in 20132016 from RMB 11,06134,699 million in 2012.2015. This was primarily due to the increasedecrease in gross investment income and the relatively low base recorded in 2012.
Major Assets | As of December 31, | As of December 31, | ||||||||||||||
2012 | 2013 | 2015 | 2016 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Investment assets | 1,790,838 | 1,848,681 | 2,287,639 | 2,453,283 | ||||||||||||
Term deposits | 641,080 | 664,174 | 562,622 | 538,325 | ||||||||||||
Held-to-maturity securities | 452,389 | 503,075 | 504,075 | 594,730 | ||||||||||||
Available-for-sale securities | 506,416 | 491,527 | 770,516 | 766,423 | ||||||||||||
Securities at fair value through profit or loss | 34,035 | 34,172 | 137,990 | 209,124 | ||||||||||||
Securities purchased under agreements to resell | 894 | 8,295 | 21,503 | 43,538 | ||||||||||||
Cash and cash equivalents | 69,452 | 21,330 | 76,096 | 67,046 | ||||||||||||
Loans | 80,419 | 118,626 | 207,267 | 226,573 | ||||||||||||
Statutory deposits—restricted | 6,153 | 6,153 | 6,333 | 6,333 | ||||||||||||
Investment properties | — | 1,329 | 1,237 | 1,191 | ||||||||||||
Investment in associates and joint ventures | 47,175 | 119,766 | ||||||||||||||
Other assets | 108,078 | 124,260 | 113,501 | 123,902 | ||||||||||||
|
|
|
| |||||||||||||
Total | 1,898,916 | 1,972,941 | 2,448,315 | 2,696,951 | ||||||||||||
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|
|
Investment Assets
Our total investment assets increased by RMB 57,843165,644 million, or 3.2%7.2%, to RMB 1,848,6812,453,283 million in 2013as of December 31, 2016 from RMB 1,790,8382,287,639 million in 2012.as of December 31, 2015.
Term Deposits
Term deposits increaseddecreased by RMB 23,09424,297 million, or 3.6%4.3%, to RMB 664,174538,325 million in 2013as of December 31, 2016 from RMB 641,080562,622 million in 2012.as of December 31, 2015. This was primarily due to our increased allocationa decrease in ordinary termthe scale of negotiated deposits.
Held-to-Maturity Securities
Held-to-maturity securities increased by RMB 50,68690,655 million, or 11.2%18.0%, to RMB 503,075594,730 million in 2013as of December 31, 2016 from RMB 452,389504,075 million in 2012.as of December 31, 2015. This was primarily due to our increasedan increase in the allocation in held-to-maturity assets in light of market conditions.bonds.
Available-for-Sale Securities
Available-for-sale securities decreased by RMB 14,8894,093 million, or 2.9%0.5%, to RMB 491,527766,423 million in 2013as of December 31, 2016 from RMB 506,416770,516 million in 2012. This was primarily due to our decreased allocation in debt assets in lightas of market conditions.December 31, 2015.
Securities at Fair Value Through Profit or Loss
Securities at fair value through profit or loss increased by RMB 13771,134 million, or 0.4%51.6%, to RMB 34,172209,124 million in 2013as of December 31, 2016 from RMB 34,035137,990 million as of December 31, 2015. This was primarily due to increased investments in 2012, with the overall size remaining stable.listed bonds, principally commercial paper and corporate bonds.
Cash and Cash Equivalents
Cash and cash equivalents decreased by RMB 48,1229,050 million, or 69.3%11.9%, to RMB 21,33067,046 million in 2013as of December 31, 2016 from RMB 69,45276,096 million in 2012.as of December 31, 2015. This was primarily due to the demandneeds for liquidity management.
Loans
Loans increased by RMB 38,20719,306 million, or 47.5%9.3%, to RMB 118,626226,573 million in 2013as of December 31, 2016 from RMB 80,419207,267 million in 2012.as of December 31, 2015. This was primarily due to an increase in the volume ofinvestments in policy loans as well asand other loans, which mainly consist of our increased allocationinvestments in debt investment plans.different types of asset management products.
Investment PropertiePropertiess
We beganInvestment properties decreased by RMB 46 million, or 3.7%, to makeRMB 1,191 million as of December 31, 2016 from RMB 1,237 million as of December 31, 2015. This was primarily due to depreciation of investment properties.
Investments in investment propertiesassociates and joint ventures
Our investments in 2013.associates and joint ventures increased by RMB 72,591 million, or 153.9%, to RMB 119,766 million as of December 31, 2016 from RMB 47,175 million as of December 31, 2015. This primarily reflected our new investments in associates and joint ventures and an increase in interests in associates.
Major Liabilities | As of December 31, | As of December 31, | ||||||||||||||
2012 | 2013 | 2015 | 2016 | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Liabilities | ||||||||||||||||
Insurance contracts | 1,384,537 | 1,494,497 | 1,715,985 | 1,847,986 | ||||||||||||
Investment contracts | 66,639 | 65,087 | 84,106 | 195,706 | ||||||||||||
Securities sold under agreements to repurchase | 68,499 | 20,426 | 31,354 | 81,088 | ||||||||||||
Policyholder dividends payable | 44,240 | 49,536 | 107,774 | 87,725 | ||||||||||||
Annuity and other insurance balances payable | 16,890 | 23,179 | 30,092 | 39,038 | ||||||||||||
Interest-bearing loans and borrowings | 2,643 | 16,170 | ||||||||||||||
Bonds payable | 67,981 | 67,985 | 67,994 | 37,998 | ||||||||||||
Deferred tax liabilities | 7,834 | 4,919 | 16,953 | 7,768 | ||||||||||||
Other liabilities | 19,195 | 24,727 | 65,200 | 75,824 | ||||||||||||
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|
| |||||||||||||
Total | 1,675,815 | 1,750,356 | 2,122,101 | 2,389,303 | ||||||||||||
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Liabilities
Our total liabilities increased by RMB 74,541267,202 million, or 4.4%12.6%, to RMB 1,750,3562,389,303 million in 2013as of December 31, 2016 from RMB 1,675,8152,122,101 million in 2012.as of December 31, 2015.
Insurance Contracts
Liabilities of insurance contracts increased by RMB 109,960132,001 million, or 7.9%7.7%, to RMB 1,494,4971,847,986 million in 2013as of December 31, 2016 from RMB 1,384,5371,715,985 million in 2012.as of December 31, 2015. This was primarily due to the acquisition of new insurance business and the accumulation of insurance liabilities from new insurance business and renewal business. As at the balance sheet date of the statement of financial position, our insurance contracts reserves passed liability adequacy testing.
Investment Contracts
The account balance of investment contracts decreasedincreased by RMB 1,552111,600 million, or 2.3%132.7%, to RMB 65,087195,706 million in 2013as of December 31, 2016 from RMB 66,63984,106 million in 2012.as of December 31, 2015. This was primarily due to a decreasean increase in the account volumescale of certain investment contracts.
Securities Sold under Agreements to Repurchase
Securities sold under agreements to repurchase decreasedincreased by RMB 48,07349,734 million, or 70.2%158.6%, to RMB 20,42681,088 million in 2013as of December 31, 2016 from RMB 68,49931,354 million in 2012.as of December 31, 2015. This was primarily due to the demandneeds for liquidity management.
Policyholder Dividends Payable
Policyholder dividends payable increaseddecreased by RMB 5,29620,049 million, or 12.0%18.6%, to RMB 49,53687,725 million in 2013as of December 31, 2016 from RMB 44,240107,774 million in 2012.as of December 31, 2015. This was primarily due to an increasea decrease in investment yields forof participating products.
Annuity and Other Insurance Balances Payable
Annuity and other insurance balances payable increased by RMB 6,2898,946 million, or 37.2%29.7%, to RMB 23,17939,038 million in 2013as of December 31, 2016 from RMB 16,89030,092 million in 2012.as of December 31, 2015. This was primarily due to an increase in maturities payable.
Interest-bearing Loans and Borrowings
Our borrowings in foreign currency increased in 2016. Interest-bearing loans and other borrowings include a five-year bank loan of GBP 275 million with a maturity date of June 17, 2019, a three-year bank loan of US$948 million with a maturity date of September 27, 2019, a three-year bank loan of US$940 million with a maturity date of September 30, 2019 and asix-month bank loan of EUR100 million with a maturity date of June 9, 2017. All these loans are fixed rate loans.
Bonds Payable
Bonds payable increaseddecreased by RMB 429,996 million, or 44.1%, to RMB 67,98537,998 million in 2013as of December 31, 2016 from 67,981RMB 67,994 million in 2012, remaining basically stable.as of December 31, 2015. This was primarily due to the fact that noredemption of some of our subordinated term debt were issued by us in 2013.debts.
Deferred Tax Liabilities
Deferred tax liabilities decreased by RMB 2,9159,185 million, or 37.2%54.2%, to RMB 4,9197,768 million in 2013as of December 31, 2016 from RMB 7,83416,953 million in 2012.as of December 31, 2015. This was primarily due to athe decrease in the fair value ofavailable-for-sale securities.
Equity Attributable to Equity Holders of the Company
As of December 31, 2013,2016, equity attributable to our equity holders of the Company was RMB 220,331303,621 million, and decreased bya decrease of RMB 754 million,18,871million, or 0.3%5.9%, from RMB 221,085322,492 million as of December 31, 2012.2015. This was primarily due to the combined effect ofprofit distributions and the decrease ofin total comprehensive income during the fiscal year 2013 and the dividend distribution in the previous year.2016.
B. LIQUIDITY AND CAPITAL RESOURCES
Liquidity Sources
Our principal cash inflows come from insurance premiums, deposits from investment contracts, proceeds from sales and maturity of financialinvestment assets and investment income. The primary liquidity concernsrisks with respect to these cash inflows are the risksrisk of early withdrawalssurrenders by contract holders and policyholders, as well as the risks of default by debtors, interest rate changes and other market volatilities. We closely monitor and manage these risks. See “Item 4. Information on the Company—Business Overview—Investments”.
Our cash and bank deposits provide us with a source of liquidity to meet normal cash outflows. As of December 31, 2014,2017, the amount of cash and cash equivalents was RMB 47,03448,586 million. In addition, substantially all of our term deposits with banks allow us to withdraw funds on deposit, subject to a penalty interest charge. As of December 31, 2014,2017, the amount of term deposits was RMB 690,156449,400 million.
Our investment portfolio also provides us with a source of liquidity to meet unexpected cash outflows. We are also subject to market liquidity risk due to the large size of our investments in some of the markets in which we invest. From time to time,In some circumstances, some of our holdings of investment securities may be large enough to have an influence on the market value. These factors may limitadversely affect our ability to sell these investments at an adequate price, or at all.
Liquidity Uses
Our principal cash outflows primarily relate to the payables for the liabilities associated with our various life insurance, annuity, and accident insurance and health insurance products, dividends and interest payments on our insurance policies and annuity contracts, operating expenses, income taxes and dividends that may be declared and payablepaid to our shareholders. Cash outflows arising from our insurance activities primarily relate to benefit payments under these insurance products, as well as payments for policy surrenders, policy withdrawals and policy loans.
We believe that our sources of liquidity are sufficient to meet our current cash requirements.
Consolidated Cash Flows
We have established a cash flow testing system and conduct regular tests to monitor the cash inflows and outflows under various changing circumstances and adjust accordingly the asset portfolio to ensure sufficient sources of liquidity.
Net cash inflowflow from operating activities wasamounted to a net inflow of RMB 78,247200,990 million (US$ 30,892 million) in 2017. Net cash flow from operating activities amounted to a net inflow of RMB 89,098 million in 2014, an increase of RMB 9,955 million, or 14.6%, from RMB 68,292 million in 2013. This increase was primarily due to an increase in cash flows from policyholders’ investment.
Net cash outflow from investing activities was RMB 69,257 million in 2014, an increase of RMB 9,024 million, or 15.0%, from RMB 60,233 million in 2013. This increase2016. The change was primarily due to the demandchange in the scale of investment management.securities at fair value through profit or loss.
Net cash inflowflow from financinginvesting activities wasamounted to a net outflow of RMB 16,704173,676 million (US$ 26,694 million) in 2017. Net cash flow from investing activities amounted to a net outflow of RMB 104,703 million in 2014, an increase of RMB 72,809 million from net cash outflow of 56,105 million in 2013.2016. This increasechange was primarily due to the demandadjustment of investment asset structure and an increase in the allocation of bonds with long duration and debt-type financial products.
Net cash flow from financing activities amounted to net outflow of RMB 45,595 million (US$ 7,008 million) in 2017. Net cash flow from financing activities amounted to a net inflow of RMB 6,270 million in 2016. This change was primarily due to the change in account balance of securities sold under agreements to repurchase from time to time as a result of liquidity management.management activities.
Our global share offering in December 2003 provided cash proceeds of approximately RMB 24,707 million (US$3,062 million). As of the date of this annual report, a part of the cash proceeds from our global offering was held in bank deposit accounts denominated in foreign currencies in China, and part of the cash proceeds was invested in securities listed on overseas stock exchanges, multi-asset portfolios and part of the cash proceeds was invested in debt securities denominated in foreign currencies. We gradually converted approximately US$300 million of the cash proceeds into Renminbi to reduce foreign exchange risks.private equity funds. We invested approximately US$433 million, in addition to RMB 2,282 million, in Guangdong Development Bank in December 2006. We used a total of approximately HK$ 12 billion for investments in Sino-Ocean Land Holdings Limited in 2009, 2010 and 2013. In January 2015,2013.As of December 31, 2017, we had engaged eight13 investment managers to invest, operate and manage US$ 8001,600 million entrusted to them by us for investment in overseas capitalpublic markets.
Our A share offering in December 2006 provided cash proceeds of approximately RMB 27,810 million. As at the end of 2014,2017, the cash proceeds from our A share offering were used to increase our share capital.
Our issuance of subordinated term debtCore Tier 2 Capital Securities in June and November 2012July 2015 provided cash proceeds of approximately RMB 37,990US$ 1,274 million. As at the end of 2014,2017, cash proceeds from the issuance of subordinated term debtCore Tier 2 Capital Securities were used to replenish our supplementary capital and raise our solvency ratio in accordance with applicable laws and approvals by regulatory authorities.
Ratio of Assets and Liabilities
Our ratio of assets and liabilities (total liabilities divided by total assets) as at December 31, 2014, December 31, 20132017, 2016 and December 31, 20122015 are as follows:
As at December 31, 2012 | As at December 31, 2013 | As at December 31, 2014 | ||||||||||
Ratio of assets and liabilities | 88.25 | % | 88.72 | % | 87.21 | % |
As at December 31, 2015 | As at December 31, 2016 | As at December 31, 2017 | ||||||||||
Ratio of assets and liabilities | 86.68 | % | 88.59 | % | 88.77 | % |
Insurance Solvency Requirements
TheWe are required by CIRC regulation to maintain our solvency at a level in excess of minimum solvency levels. On January 1, 2016, the CIRC implemented a new set of solvency regulations, orC-ROSS, which replaced Solvency I. UnderC-ROSS, the core solvency adequacy ratio of an insurance company is a measure of capital adequacy, whichinsurer is calculated by dividing the actualcore capital of an insurer by the company (whichminimum capital it is its admissible assets less admissible liabilities, determined in accordance with relevant CIRC rules)required to meet, and the comprehensive solvency adequacy ratio of an insurer is calculated by dividing the sum of core capital and supplementary capital of an insurer by the minimum capital it is required to meet. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Solvency requirements”. The following table shows our solvency ratio as of December 31, 2012, 20132015, 2016 and 2014:2017:
As of December 31, 2012 | As of December 31, 2013 | As of December 31, 2014 | As of December 31, 2017 | As of December 31, 2016 | As of December 31, 2015 | |||||||||||||||||||
(RMB in millions, except percentage data) | (RMB in millions, except percentage data) | |||||||||||||||||||||||
Core capital | 706,516 | 639,396 | ||||||||||||||||||||||
Actual capital | 176,024 | 168,501 | 236,151 | 706,623 | 677,768 | 282,820 | (1) | |||||||||||||||||
Minimum capital | 74,718 | 74,485 | 80,193 | 254,503 | 228,080 | 85,676 | (1) | |||||||||||||||||
Solvency ratio | 235.58 | % | 226.22 | % | 294.48 | % | ||||||||||||||||||
Core solvency ratio | 277.61 | % | 280.34 | % | ||||||||||||||||||||
Comprehensive solvency ratio | 277.65 | % | 297.16 | % | 330.10 | %(2) |
Our
(1) | Calculated under Solvency I. |
(2) | Refers to solvency ratio under Solvency I. |
The decrease in our solvency ratio increased in 2014, which2017 was primarily due totothe growth of our insurance business and the redemptions of our subordinated debts.
In the second half of 2016, the CIRC conducted a significant increaseregulatory review under the new Solvency Aligned Risk Management Requirements and Assessment framework, or SARMRA, on the solvency and risk positions of life insurers andnon-life insurers in China. We understand we received one of the comprehensive income during 2014.highest scores among life insurers in China. In 2017, we were exempted from this regulatory review by the CIRC. The SARMRA score links the risk management practices of insurers with capital requirements.
We issued subordinated term debtCore Tier 2 Capital Securities of RMB 28 billion and RMB 10 billionUS$ 1,280 million in June and November 2012, respectively,July 2015 by taking advantage of favorable market opportunities, which effectively improved our solvency ratio. The subordinated term debt wasCore Tier 2 Capital Securities were issued to qualified investors who meet applicable regulatory requirements with a maturity termand have an initial distribution rate of ten years. With respect to the subordinated term debt of RMB 28 billion issued in June 2012, the coupon rate per annum for the first five years is 4.70%4.00%. We have the right to redeem at par value at the end of the fifth year. If we do not exercise the redemption right, the coupon rate per annum will be 6.70% for the second five years. With respect to the subordinated term debt of RMB 10 billion issued in November 2012, the coupon rate per annum for the first five years is 4.58%. We have the right to redeem at par value at the end of the fifth year. If we do not exercise the redemption right, the coupon rate per annum will be 6.58% for the second five years.
Contractual Obligations and Commitments
The following table sets out our contractual obligations and commitments as of December 31, 2014.2017.
As of December 31, 2014 | Not later than 1 year | Later than 1 year but not later than 3 years | Later than 3 years but not later than 5 years | Later than 5 years | Total | |||||||||||||||||||||||||||||||||||
(RMB in millions) | Not later than 1 year | Later than 1 year but not later than 3 years | Later than 3 years but not later than 5 years | Later than 5 years | Total | |||||||||||||||||||||||||||||||||||
As of December 31, 2017 | (RMB in millions) | |||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 46,089 | — | — | — | 46,089 | 87,309 | — | — | — | 87,309 | ||||||||||||||||||||||||||||||
Bonds payable | 3,424 | 73,198 | — | — | 76,622 | — | — | — | — | — | ||||||||||||||||||||||||||||||
Annuity and other insurance balances payable | 25,617 | — | — | — | 25,617 | 44,820 | — | — | — | 44,820 | ||||||||||||||||||||||||||||||
Insurance contracts | 60,896 | 118,434 | 22,634 | 2,463,567 | 2,665,531 | (16,319 | ) | (221,905 | ) | (47,109 | ) | 3,807,542 | 3,522,209 | |||||||||||||||||||||||||||
Investment contracts | 14,703 | 15,192 | 9,827 | 84,013 | 123,735 | 15,308 | 29,981 | 26,892 | 388,320 | 460,501 | ||||||||||||||||||||||||||||||
Off balance sheet operating leases | 549 | 622 | 131 | 10 | 1,312 | 784 | 855 | 246 | 44 | 1,929 | ||||||||||||||||||||||||||||||
Capital commitments | 24,537 | 3,898 | 445 | 5,023 | 33,903 | 64,731 | 20,878 | 5,694 | 481 | 91,784 | ||||||||||||||||||||||||||||||
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Total | 175,815 | 211,344 | 33,037 | 2,552,613 | 2,972,809 | 196,633 | (170,191 | ) | (14,277 | ) | 4,196,387 | 4,208,552 | ||||||||||||||||||||||||||||
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Capital commitments mainly represent our commitments with respect to the acquisition of property, plant and equipment, and our investments.
The amounts set forth in the table above for insurance contracts and investment contracts in each column are the cash flows representingrepresent expected future benefit paymentscash inflows and outflows on policies in force as at December 31, 2014, relating to premiums received through December 31, 2014. No consideration is given to future premiums payments and the cash flows resulting therefrom, even though in the case for traditional insurance policies and certain investment contracts, the receipt of such premiums is necessary for the policies to remain in full force.2017. The estimate is affected by numerous assumptions, (depending on the product type), including assumptions related to mortality, morbidity, lapses, withdrawals, credited rates, loss ratio, claim adjustment expensessurrenders and other assumptions which affect our estimates of future payments.expense assumptions. Many of these assumptionsestimates are inherently uncertain and outside our control. Accordingly, the actual experience may differ from our estimates.
Furthermore, as the benefit paymentsexpected future cashflows reported in the table above are not discounted from the date of payment back to December 31, 2014 and do not reflect the impact of future premiums,2017, the sum of these payment amountsthe expected future cashflows are different from the amount of corresponding liabilities in our consolidated balance sheet as of December 31, 2014.2017. Policyholder dividends will not become a contractual obligation until the applicable policy anniversary is reached and the dividend amount is credited to the policy benefit liability or paid to the policyholder, and hence are not included in the table above. Reinsurance recoveries have not been taken into account.
Other than as set forth under capital commitments, we had no material, individually or in the aggregate, purchase obligations as of December 31, 2014.2017.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
None.
Please refer to our discussion in each section under “—Overview of Our Business”, “—Factors Affecting Our Results of Operations”, “—Critical Accounting Policies” and “—Operating Results”.
We review assumptions used in establishing reserves for long term insurance contracts and the impact of changes in these assumptions on our net profit. Changes in these assumptions might have a significant impact on our operating results. The changesChanges in these assumptions resulted in an increasea decrease of RMB 4,1799,023 million in profit before income tax in 2014,2017, a decrease of RMB 1,49314,736 million in profit before income tax in 20132016 and an increasea decrease of RMB 3189,497 million in profit before income tax in 2012.2015. The sensitivity analysis of these assumptions is as follows:
See also NotealsoNote 4.1.3 and Note 14 to our consolidated financial statements included elsewhere in this annual report.
E.OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2014,2017, there were nooff-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
See “—Liquidity and Capital Resources—Contractual Obligations and Commitments”.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.DIRECTORSA. DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth information regarding our current directors and executive officers. Unless otherwise indicated, their business address is c/o China Life Insurance Company Limited, 16 Financial Street, Xicheng District, Beijing 100033, China.
Name |
| Position | ||
Yang Mingsheng | Chairman of the board of directors and executive director | |||
Lin Dairen | Executive director and president | |||
Executive director and vice president | ||||
Executive director and vice president | ||||
Non-executive director | ||||
Non-executive director | ||||
Non-executive director | ||||
Independent director | ||||
Independent director | ||||
Independent director | ||||
Independent director | ||||
Vice | ||||
Vice president | ||||
Vice president | ||||
Vice president | ||||
Ruan Qi | July 1966 | Vice president | ||
Zhan Zhong | April 1968 | Marketing director | ||
Yang | ||||
Directors
Yang Mingshenghas been our chairman and executive director since May 2012. He has been the chairman of CLIC and CLPCIC since March 2012, the chairman of China Life Insurance (Overseas) Company Limited since January 2013, and the chairman of AMC since December 2013.2013 and the chairman of China Guangfa Bank Co., Ltd. since September 2016. Mr. Yang has many years of experience in the financial industry. He served as a vice chairman of the CIRC from 2007 to 2012, and worked for the Agricultural Bank of China from 1980 to 2007, where he held various positions such as vice president of the Shenyang branch, head of the industrial credit department of the head office and president of the Tianjin branch. He was appointed as vice president of the Agricultural Bank of China in 1997 and was then promoted to president of the Agricultural Bank of China in 2003. Mr. Yang, a senior economist, graduated from the faculty of finance of Nankai University with a master’s degree in economics, majoring in monetary banking.
Lin Dairen has beenwas appointed as our president since Aprilby the board of directors in March 2014 and has been our executive director since October 2008. Mr. Lin also acts as thenon-executive director of CLPCIC, and China Life Pension.Pension and AMC. Mr. Lin served as the vice president of our company from 2003 to March 2014, and served as the executive director and president of China Life Pension from November 2006 to March 2014. Mr. Lin graduated in 1982 with a bachelor’s degree in medicine from Shandong Province Changwei Medical Institute. Mr. Lin, who is a senior economist, has over 30 years of experience in the operation of life insurance businesses and insurance management, and was awarded special allowance by the State Council, has worked in the life insurance industry for over 33 years and has accumulated extensive experience in operation and management.Council. He is currently the chairman of the China Life Foundation, the vice chairman of the Insurance Institute of China and the Insurance Association of China, andanon-executive director of China Insurance Security Fund Co., Ltd., the deputy director of the Life Insurance Committee of the Insurance Association of China and the director of the Insurance Institutional Investors Professional Committee of the Insurance Asset Management Association of China.
Su HengxuanXu Hengping has been an executive director of our company since July 2014,2015 and a vice president of our company since August 2008. Mr. Su served asNovember 2014. He has been the assistant to presidentchief operating officer of our company from January 2006 to July 2008. Mr. Su has acted as a director of CLPCIC since November 2006, a director of Insurance Professional College since December 2006 and a director of AMC since May 2014. He wasAugust 2010, the general manager of our individualFujian branch since April 2007, deputy general manager of our Fujian branch from December 2002, assistant to the general manager of our Fujian branch from September 1998, and chief of personal insurance division of our Fujian branch since July 1996. Mr. Xu previously served as general manager of sales department and general manager of Longyan branch of Fuzhou Life Insurance Company Limited. Mr. Xu graduated from Hunan University, majoring in finance. Mr. Xu, a senior economist, has over 35 years of experience in the operation of life insurance businesses and insurance management.
Xu Haifeng has been an executive director since July 2015 and has been a vice president of our company since November 2014. He has been anon-executive director of AMC since September 2015. Mr. Xu served as thenon-executive director of China LifeE-commerce Company Limited from January 2015 to January 2017. He served as the business controller of our company and general manager of our Hebei branch concurrently from February 2014 to November 2014. Mr. Xu served as the general manager of our Beijing branch and the general manager of our Hebei branch from 2006 to 2014. Prior to that, Mr. Xu served as the deputy general manager and general manager of our Linyi branch in Shandong Province and the general manager of the business management department from 2003 to 2006.in our Shandong branch, the general manager of our Jinan branch and the deputy general manager of our Beijing branch. Mr. SuXu graduated from Banking School, Henan Province in 1983, graduated from the department of finance and insurance of the school of economics of WuhanLinyi Foreign Language Normal University in 1998 with1982 and from Shandong Provincial Party School majoring in economic management in 1996, and obtained a bachelor’smaster degree in economics, majoring in insurance, and graduatedbusiness administration from the school of management ofZhongnan University of ScienceEconomics and Technology of ChinaLaw in July 2011 with a Ph.D in management, majoring in management science and engineering.2007. Mr. Su,Xu, a senior economist, has over 30 years of experience in the Chineseoperation of life insurance industrybusinesses and insurance management.
Yuan Changqing has been anon-executive director of our company since February 2018. He is currentlyserves as the vice chairman and president of CLIC and the deputy secretary to the party committee of CLIC. Mr. Yuan served as the chairman of the insurance marketingsupervisory committee and the vice chairmandeputy secretary to the party committee of Agricultural Bank of China Limited from April 2015 to May 2017. He served as the educationdeputy general manager and trainingthe secretary to the discipline inspection committee of China Everbright Group Corporation Limited from November 2014 to April 2015, the secretary to the discipline inspection committee of China Everbright Group Limited from December 2008 to August 2012, and an executive memberdirector, the deputy general manager and the secretary to the discipline inspection committee of China Everbright Group Limited from August 2012 to November 2014, during which he concurrently acted as the chairman of Everbright Securities Company Limited. During the period from 1995 to 2008, he served as the vice president, president and secretary to the party committee of Xinjiang branch, the president and secretary to the party committee of Henan branch, and the director of the organization department of the party committee and the general manager of the human resources development committeedepartment of the Insurance Associationhead office of Industrial and Commercial Bank of China Limited. During the period from 1981 to 1995, he held various professional and management positions in branch offices of the People’s Bank of China and Industrial and Commercial Bank of China. Mr. Yuan, a membersenior economist, graduated from the University of China Advisory Panel of the Financial Planning Standards Board.Hong Kong, majoring in international business administration with a master’s degree in business administration.
Miao PingLiu Huimin has been an executiveanon-executive director of our company since July 2014, and a2017. He has been the vice president of our companyCLIC since December 2009.September 2013. He served as the general managervice president of our Jiangsu branch since September 2006. Mr. Miao has served as the general manager of our Jiangxi branchAMC from September 2004, to September 2006, and has been a deputy general manager of our Jiangsu branch from April 2002 to September 2004. Mr. Miao graduated from the Correspondence College of Yangzhou University in 1996, majoring in economics and management. Mr. Miao, a senior economist, has over 31 years of experience in the operation of life insurance business and the management of insurance business.
Miao Jianmin has been a non-executivepresident and director of ourthe same company since October, 2008. Mr. Miao is the vice chairman and president of CLIC. Currentlyfrom 2006, during which he also servesconcurrently served as a director of AMC, the chairman of China Insurance PlazaLife Franklin Asset Management Company Limited and a directorthe chairman of China World Trade CenterLife AMP Asset Management Co., Ltd., etc. Mr. Miao also serves as the executive director of China Finance 40 Forum. He was awarded special allowance by the State Council. In 2009, he was named one of the “State-level Candidate for the New Century Talents Project” and one of the “60 People in China Insurance Industry in the 60-year History of New China”. Mr. MiaoLiu graduated from CentralPeking University of Finance and Economics with a doctor’sdoctoral degree in finance.international law. Before that, Mr. Miaohe graduated from the post-graduate divisionSchool of Social Sciences of the People’s BankUniversity of ChinaSussex in the United Kingdom with a master’s degree in moneydevelopment economics and banking and the CentralPeking University of Finance and Economics with a bachelor’s degree in insurance. He is a senior economist.national economic management.
Zhang XiangxianYin Zhaojun has been anon-executive director of our company since July 2012.2017. He became the secretary of commission for disciplinary inspection of CLIC in October 2006. He also served ashas been the vice president of CLIC from August 2008. Mr. Zhang has many yearssince October 2016. He joined the Bank of experienceCommunications in July 1990, and consecutively served as the insurance industryassistant to the president of Beijing branch and held various positions from 1993 to 2006, including, the directorvice president of Shanxi branch of the promotion divisionBank of Communications from 2005, and as the president of Shanxi branch, Hebei branch and Beijing branch of the general officeBank of Communications from 2011. Mr. Yin graduated from China University of Political Science and deputy general manager of the general office of the People’s Insurance Company of China, the office director of the CIRC, the deputy office director (in charge) of the Shenzhen office of the CIRC, and the director of the administrative department of representative agencies of the CIRC. Mr. Zhang is a senior editor and obtainedLaw with a master’s degree in business administration for senior management from Zhongnan University of Economics and Law.
Wang Sidong has been a non-executive director of our company since July 2012. He became the vice president of CLIC, the chairman of IHC and a director of China Life Pension in June 2004. Mr. Wang worked for the Ministry of Foreign Economic Relations and Trade, the Xinhua News Agency Hong Kong branch, and the Hong Kong Chinese Enterprises Association. He served as deputy director of the general office of China Life Insurance Company, deputy general manager of its Zhejiang branch and deputy director of the shares reform office of China Life Insurance Company from 2000. Mr. Wang was the director of the general office of CLIC in 2003. Mr. Wangpublic administration. Before that, he graduated from Shandong Universitythe Faculty of Accounting of Beijing College of Finance and Commerce with a bachelor’s degree of arts, majoring in Chinese language and literature.economics.
Bruce Douglas Moorehas been an independent director of our company since May 2009. From 2002 to 2007, Mr. Moore was partner-in-charge of Asian actuarial services for Ernst & Young, based in Beijing. Previously , he served in actuarial leadership roles with Ernst & Young in New York and Tokyo. From 1995 to 2000, he was the head of international actuarial services in New York with Ernst & Young. In 2000, Mr. Moore worked at Ernst & Young’s Beijing office where he was in charge of the business in Asian markets (including Japan). In 2001, he worked at Ernst & Young’s Tokyo office responsible for the actuarial services in Japan. Since 2002, Mr. Moore worked at Ernst & Young’s Beijing office overseeing the actuarial services in Asian markets (excluding Japan). From 1982 to 1995, Mr. Moore worked in various senior financial management positions at Prudential Life Insurance (U.S.). Mr. Moore graduated from Brown University in 1971, majoring in applied mathematics. Mr. Moore has obtained FSA, FCAS, MAAA and CFA qualifications. Mr. Moore has over 36 years of experience serving the insurance industry as an executive and a consultant.
Anthony Francis Neohhas been an independent director of our company since June 2010. Mr. Neoh currently serves as a member of the international consultation committee of the CSRC. Prior to that, he served as a chief advisor to the CSRC, a member of the basic law committee of the Hong Kong Special Administrative Region under the Standing Committee of the National People’s Congress of China and chairman of the Hong Kong Securities and Futures Commission. From 1996 to 1998, he was the chairman of the technical committee of the International Organization of Securities Commissions. He was appointed as Queen’s Counsel (now known as Senior Counsel) in Hong Kong in 1990. Mr. Neoh graduated from the University of London with a degree in law in 1976. He is a barrister of England and Wales and admitted to the State Bar of California. In 2003, he was conferred the degree of Doctor of Laws, honoris causa by the Chinese University of Hong Kong. He was elected as honorary fellow of the Hong Kong Securities Institute and Academician of the International Euro-Asian Academy of Sciences in 2009. Mr. Neoh was a non-executive director of Global Digital Creations Holdings Limited from November 2002 to December 2005, and an independent non-executive director of the Link Management Limited, manager of the Link Real Estate Investment Trust, from September 2004 to March 2006. He served as an independent non-executive director of Bank of China Limited from August 2004 to September 2013. Since December 2014, he has been an independent non-executive director of CITIC Limited.
Chang Tso TungStephenhas been an independent director of our company since October 2014. He served as the vice chairman of the Greater China Region of Ernst & Young, the managing partner for professional services and the chairman of auditing and consulting service of Ernst & Young until his retirement in 2004. From 2007 to 2013, Mr. Chang was an independentnon-executive director of China Pacific Insurance (Group) Co., Ltd., a company listed on the HKSE and the SSE. Mr. Chang is currently an independentnon-executive director of China Cinda Asset Management Co., Ltd., Kerry Properties Limited and Hua Hong Semiconductor Limited, all of which are listed on the Hong Kong Stock Exchange. Mr. Chang has been practicing as a certified public accountant in Hong Kong for approximately 30 years and has extensive experience in accounting, auditing and financial management. Mr. Chang holds a bachelorbachelor’s degree of science degree from the University of London, and is a fellow member of the Institute of Chartered Accountants in England and Wales.
Huang YipingRobinson Drake Pike has been an independent director of our company since October 2014. He is currently a professor of Economics and the deputy dean of the national school of development at Peking University. From August 2011 to June 2013, he was the managing director and chief economist of Emerging Asian Market of Barclays Capital. From May 2000 to February 2009, he held various positions at Citigroup including the vice president of the Asia Pacific region and economist of the Greater China region, as wellJuly 2015. Before his retirement from Goldman Sachs in 2014, Mr. Pike served as the managing director of Goldman Sachs and the chief economistrepresentative of the Beijing Representative Office of Goldman Sachs International Bank UK from August 2011 to May 2014, and the managing director of Goldman Sachs and a senior advisor and project coordinator seconded to the Industrial and Commercial Bank of China by Goldman Sachs from January 2007 to August 2011. From July 2000 to December 2006, he was Lehman Brothers’ senior vice president, deputy head and head of Asia Pacific region. From August 1993 to April 2000, he held various positions including researcherCredit Risk Management. He has over 30 years of experience in Asian financial industry with a focus on risk management and senior lecturerChina’s banking industry. He holds a bachelor’s degree of arts in Chinese Language and Literature from Yale University and a master’s degree of public affairs in development economics from Princeton University’s Woodrow Wilson School.
Tang Xin has been an independent director of our company since March 2016. He is a professor of the Asia-pacific economics and management college andSchool of Law of Tsinghua University, the deputy head of the commercial law research center of Tsinghua University, an associate editor of “Tsinghua Law Review”, a member of the listing committee of the Shanghai Stock Exchange, the chairman of the independent director committee of the China Economy Program atAssociation for Public Companies, and an independent director of each of Harvest Fund Management Co., Ltd., GF Securities Co., Ltd. and Oriza Holdings Co., Ltd. Mr. Tang was elected as a member of the Australian National University.first and second sessions of the merger, acquisition and reorganization review committee of the China Securities Regulatory Commission from 2008 to 2010. He served as an independent director of China Spacesat Co., Ltd. from 2008 to 2014, an independent director of each of SDIC Power Holdings Co., Ltd. and Changjiang Securities Company Limited from 2009 to 2013, and an independent director of Beijing Rural Commercial Bank Co., Ltd. from 2009 to 2015. Mr. Huang received his master of economicsTang graduated from Renmin University of China with bachelor’s, master’s and PhDdoctorate degrees in economicslaw.
LeungOi-Sie Elsie has been an independent director of our company since July 2016. She was previously the first Secretary for Justice of Hong Kong as well as a member of the Executive Council of Hong Kong. She is currently the deputy director of the Hong Kong Basic Law Committee of the Standing Committee of the National People’s Congress and a consultant of Iu, Lai & Li Solicitors & Notaries. Ms. Leung served as a member of the Social Welfare Advisory Committee and the Equal Opportunities Commission, an executive committee member and a council member of the Hong Kong Federation of Women, the Chairperson and President of the International Federation of Women Lawyers and the Honorary President of the Nanhai Worldwide Friendship Federation. She is a Justice of the Peace, a notary public and a China-appointed attesting officer. She has been awarded the “Grand Bauhinia Medal” and admitted as a solicitor by the Law Societies of Hong Kong and England. Ms. Leung graduated from the Australian National University.University of Hong Kong with a master’s degree in law, and is a fellow of the International Academy of Matrimonial Lawyers. She has been an independentnon-executive director of United Company RUSAL Plc since December 2009, an independentnon-executive director of China Resources Power Holdings Company Limited since April 2010. She has been an independentnon-executive director of PetroChina Company Limited since June 2017.
Supervisors
The following table sets forth information regarding our current supervisors.
Name |
| Position | ||
Miao Ping | Chairperson of the board of supervisors | |||
Shi Xiangming | Supervisor | |||
Supervisor | ||||
Wang Cuifei | January 1964 | Employee representative supervisor | ||
Employee representative supervisor | ||||
Xia ZhihuaMiao Ping has been the chairperson of our board of supervisors since March 2006. She was a deputy director of National Debt Bureau of the Ministry of Finance from July 1997 to June 1998, and a deputy director of National Debt and Finance Bureau of the Ministry of Finance from July 1998 to June 2000. Ms. Xia2015. He served as the State Council’s representative in the supervisory committee of important state-owned financial institutions, designated supervisor of assistant bureau-level official from July 2000 to October 2001, and the State Council’s representative in the board of supervisors of important state-owned financial institutions, designated supervisor of bureau-level official from November 2001 to December 2005. Ms. Xia graduated from Xiamen University, majoring in politics and economics at the department of economics, and majoring in world economics at the college of economics from February 1978 to November 1984, and received a bachelor’s degree and a master’s degree in economics respectively. Currently, Ms. Xia is an executive director of bothour company from July 2014 to May 2015 and a vice president of our company from December 2009 to May 2015. He served as the China Institutiongeneral manager of Internal Auditour Jiangsu branch since September 2006, the general manager of our Jiangxi branch from September 2004 and the Insurance Institutedeputy general manager of China,our Jiangsu branch since April 2002. Mr. Miao graduated from the Correspondence College of Yangzhou University in 1996, majoring in economics and the vice chairman of supervisory board committee of China Association for Public Companies. Ms. Xia,management. Mr. Miao, a senior economist, has obtainedover 30 years of experience in the qualificationoperation of Certified Internal Auditor (CIA)life insurance businesses and was awarded special allowance by the State Council.management of insurance businesses.
Shi Xiangming has been a supervisor of our company since May 2009 and the general manager of the supervisory department of our company since September 2008. Mr. Shi served as the deputy general manager of the human resources department and the office director of our company from September 2003 to September 2008. From March 2002 to August 2003, Mr. Shi served as the deputy general manager of the supervisory department of China Life Insurance Company. Mr. Shi graduated from the chemistry school of the first branch college of Beijing University, and received a bachelor’s degree in science.
Yang CuilianLuo Zhaohui has been a supervisor of our company since July 2012, and has been the general manager of the brand promotion department of our company since October 2014. Ms. Yang served as the general manager of the group business department of our company from January 2011 to September 2014. Ms. Yang joined our company in July 1984. She successively served as deputy general manager of the Jiangxi branch, general manager of the Pingxiang branch, manager of the group sales department of Jiangxi branch, and manager of the business management department of the Jiangxi branch. Ms. Yang, a senior economist, graduated from Party School of the Central Committee of C.P.C., majoring in economic management with a bachelor’s degree.
Li Xuejun has been a supervisor of our company since July 2012, and has been the general manager of the strategy and marketing department of our company since July 2014.February 2018. Mr. Li served as the general manager of the education and training department of our company from January 2011 to June 2014. Mr. Li joined our company in November 1997. He successively served as deputy general manager of the education and training department of our company (in charge), assistant general manager of the Shanghai branch, general manager of the Shanghai Songjiang sub-branch, and general manager of the human resources department of the Shanghai branch. Mr. Li worked for Shanghai Finance College (now known as Shanghai Finance University) from July 1994 to October 1997. Mr. Li, a senior economist, graduated from the department of insurance at Central Finance College (now known as Central University of Finance and Economics) in 1994, majoring in international insurance with a bachelor’s degree in economics.
Xiong Junhong has been a supervisor of our company since October 2014. She is a senior economist with a PhD in finance from Nankai University. From July 1993 to August 2003, Ms. XiongLuo worked at the banking department and trust department of China People’s Insurance Trust and Investment Company, and at the assetsrisk management department of China Life Insurance Company. Ms. Xiong served asCompany and the director of the assets management departmentgeneral office of CLIC from September 2003,August 2002 to August 2013, and was appointed as the senior manager of the strategic planning departmentcomprehensive information division of the general office of CLIC from August 2006, thein May 2009 and an assistant to the general manager of the strategic planning department of CLIC from September 2008,in August 2013. Mr. Luo was seconded to our Shijiazhuang branch in Hebei Province as the assistant to the general manager (equivalent to the level of departmental deputy general manager of CLIC) ofduring the Hebei branch of our companyperiod from December 2010,November 2013 to October 2015, and was then appointed as the deputy general manager of the strategic planning department of CLIC since June 2013. Ms. Xiongin July 2016. Mr. Luo has many years of experiencebeen long been involved in strategic management related work, with considerable working experience in such aspects as risk management, market analysis and investment study,research and life insurance operations, as well as strategic planning and management. Mr. Luo, a senior economist, graduated from Peking University, majoring in finance with a doctoral degree.
Wang Cuifei has been a supervisor of our company since July 2015, and has extensive experiencebeen serving as the general manager of the work department of the trade union of our company since January 2018. Ms. Wang served as the general manager of the customer service department of our company from September 2014 to February 2018 and the general manager of the sales inspection department of our company from March 2009 to August 2014. Ms. Wang joined our company in assets preservation, riskJuly 2001, and has served successively as theperson-in-charge (at the deputy division level) and the manager of the training management division of the brokerage agency department, the deputy general manager of the bancassurance department and the general manager of the sales inspection department of our company. Ms. Wang graduated from the Party School of the Central Committee of CPC with a bachelor’s degree in economic management.
Song Ping has been a supervisor of our company since March 2018. He has been serving as the general manager of the administration office of our company since January 2017. From 2006 to 2017, he successively served as an assistant to the general manager of the development and reform department, an assistant to the general manager of our Beijing branch, the deputy general manager of the legal and compliance department, the deputy general manager of the human resources department and the general manager of thee-commence department of our company. From 1999 to 2006, he successively served as the division chief of the agents management department, the individual insurance department and the group insurance department of retained assets, investment studyour company. Mr. Song graduated from Peking University in July 1987, majoring in Chinese language and strategic planning.literature with a bachelor’s degree of arts.
Senior Management
Lin Dairen,see “—Directors and Senior Management—Directors” for his profile.
Su HengxuanXu Hengping,see “—Directors and Senior Management—Directors” for his profile.
Miao PingXu Haifeng,see “—Directors and Senior Management—Directors” for his profile.
Liu Anlin has been a vice president of our company since March 2013. He has been a member of the party committee of our company since February 2013, and also served as the party secretary and general manager of our Beijing branch from February 2013 to November 2014. From December 2012 to February 2013, Mr. Liu was the person-in-charge (with equivalent level as assistant to the president of the Company) of our Beijing branch. From 2009 to 2012, he was the party secretary and general manager (with equivalent level as assistant to the president of the Company) of our Jiangsu branch. From 2006 to 2009, Mr. Liu was our chief information technology officer (with equivalent level as assistant to the president of the Company), and was also the party secretary and general manager of our Beijing research and development center in 2008. From 2003 to 2006, Mr. Liu was the general manager of our information technology department. Prior to that, Mr. Liu had assumed various positions as person-in-charge of our information technology department, deputy general manager of our human resources department, and assistant to the general manager and deputy head of the computer department (in charge of work) of our Gansu branch. Mr. Liu graduated from the Mathematics and Mechanics Department of Lanzhou University, majoring in computer mathematics, and obtained a bachelor’s degree in Science in 1985. He also obtained a master’s degree in business administration from Tsinghua University in 2006. Mr. Liu has over 25 years of experience in operation and management of life insurance business and in insurance administration, during which he gained extensive experience in operation and management. Mr. Liu was awarded special allowance by the State Council and is a senior engineer.
Xu Hengping has been a vice president of our company since November 2014. He has been the chief operating officer of our company since August 2010. Mr. Xu had been the general manager of our Fujian branch since April 2007, deputy general manager of our Fujian branch from December 2002, assistant to the general manager of our Fujian branch from September 1998, and director of personal insurance division of our Fujian branch since July 1996. Mr. Xu once served as general manager of sales department and general manager of Longyan branch of Fuzhou Life Insurance Company Limited. Mr. Xu graduated from Hunan University, majoring in finance. Mr. Xu, a senior economist, has over 34 years of experience in the operation of life insurance businesses and insurance management.
Xu Haifeng has been a vice president of our company since November 2014. He has been the business controller of our company and general manager of our Hebei branch concurrently since February 2014. Mr. Xu served as the general manager of our Beijing branch and the general manager of our Hebei branch from 2006 to 2014. Prior to that, Mr. Xu served as the deputy general manager and general manager of our Linyi branch in Shandong Province and the general manager of the business management department in our Shandong branch, the general manager of our Jinan branch and the deputy general manager of our Beijing branch. Mr. Xu graduated from Linyi Foreign Language Normal University in 1982, from Shandong Provincial Party School majoring in economic management in 1996, and obtained a master degree in business administration from Zhongnan University of Economics and Law in 2007. Mr. Xu, a senior economist, has over 30 years of experience in the operation of life insurance businesses and insurance management.
Li Mingguang has been a vice president of our company since November 2014, and our chief actuary since March 2012.2012 and our board secretary since June 2017. Mr. Li joined our company in 1996 and subsequently served as deputy director, director,division chief, division chief, assistant to the general manager of product development department, responsible actuary of our company and general manager of our actuarial department. Mr. Li graduated from Shanghai Jiao Tong University in computer science with a bachelor’s degree in computer science in 1991, Central University of Finance and Economics majoring in actuarial sciencemonetary banking (actuarial science) with a master’s degree in 1996 and Tsinghua University with an EMBA in 2010, and also studied at the University of Pennsylvania in the United States in 2011. Mr. Li is a fellow of the China Association of Actuaries (FCAA) and a fellow of the Institute and Faculty of Actuaries (FIA). He was the chairman of the first session of the China Actuarial WorkWorking Committee and the secretary-general of the first and the second session of the China Association of Actuaries. He is currently the executive director of the China Association of Actuaries, and a special executive of the board of directors of the Insurance Institute of China.China and a member of the China National Master of Insurance Education Supervisory Committee.
Yang ZhengZhao Lijun has been a vice president of our company since November 2014, and ourJuly 2016. He was the chief financial officer since April 2013. He served as the qualified accountant of our company since 2006, and as assistant to the general manager, deputy general manager and general manager of the finance department of CLIC from May 2014 to April 2016. From 2012 to 2014, Mr. Zhao successively served as the deputy general manager (responsible for daily operations) and general manager of the data center of our company since 2005.company. From 2010 to 2012, Mr. Yang has beenZhao served as the general manager of the legal and compliance department of our company. From 2008 to 2010, Mr. Zhao served as the deputy general manager of the Shandong branch of our company. From 2003 to 2008, Mr. Zhao successively served as an assistant to the general manager and the general manager of the finance department of our company. Prior to that, he served as a cadre in the finance and planning department of People’s Insurance Company of China, the director and deputy manager of AMC since 2009, a directorthe planning & finance department of Sino-Ocean Land HoldingsChina Reinsurance Corporation in Hong Kong, the deputy manager and manager of the planning and finance department of China Insurance H.K. (Holdings) Company Limited, since 2011the deputy division chief, the division chief and a directoran assistant to the general manager of the planning and finance department of China Life Franklin Asset Management Company Limited since 2014. From 2000 to 2005,Insurance Company. Mr. Yang was a senior financial analyst of MOLEX in the United States. Mr. YangZhao graduated from Beijing Universitythe Accounting Department of Technology in 1993Anhui Finance & Trade College with a bachelor’s degree in engineering. He obtainedindustrial accounting and finance in 1987 and from Tsinghua University with an MBA from Northeastern UniversityEMBA in the United States in 2000.2010. Mr. YangZhao is a member of the American Institute of Certified Public Accountants (AICPA) and the Association of Chartered Certified Accountants (ACCA). He is currently a director of the eighth session of the board of the Accounting Society of China, a member of the National Accounting Informatization and Standardization Technical Committee, a member of the China Insurance Solvency Regulatory Standard Committee, and a member of the China Accounting Standards Committee of the Ministry of Finance of the PRC, respectively.senior accountant.
Zheng YongXiao Jianyou has been the board secretarya vice president of our company since June 2013.October 2016. He previously held positionshas been an assistant to the president of our company since July 2015 and thenon-executive director of CLPCIC since September 2015. He served as department head at the Ministrygeneral manager of Justiceour Jiangsu branch from January 2014 and the deputy general manager (responsible for daily operations) of our Jiangsu branch from April 2013 to January 2014. From 2006 to 2013, he successively served as the PRC, a practicing lawyer at Beijing Long An Law Firm, China Legal Service Ltd. (Hong Kong),deputy general manager, an assistant to the general manager and Beijing De Heng Law Offices,the marketing director of Jiangsu branch and the general manager and the deputy general manager of Taizhou branch in Jiangsu Province. Before that, Mr. Xiao held various other positions at the our Jiangsu branch, including the deputy manager of the marketing department and management department, an assistant to the general manager, the deputy general manager (responsible for daily operations) and the general manager of legal affairs,the personal insurance department. Mr. Xiao, a senior economist, graduated from Jiangxi Traditional Chinese Medicine College in 1991 with a bachelor’s degree, and received double bachelor’s degrees in medicine and law from Jiangxi Traditional Chinese Medicine College and Nanjing University, respectively.
Zhao Penghas been a vice president of our company secretary,since March 2018. He served as an assistant to the president of our company since October 2017, and the general manager of our legalZhejiang branch since January 2015. From 2014 to 2015, he successively served as the deputy general manager (at the general manager level of the provincial branches) and compliancetheperson-in-charge of our Zhejiang branch. From 2003 to 2014, he successively held various positions in CLIC, including the division chief of the capital management division of the finance department, an assistant to the general manager and the division chief of the capital management division of the finance department, an assistant to the general manager, the deputy general manager and the general manager of the finance and accounting department, and an executive directorthe general manager of the finance department. From 1995 to 2003, Mr. Zhao successively served as a staff member of the capital division, a staff member of the financial management division, the deputy division chief and deputythe division chief of the capital division of the planning and finance department of China Life Insurance Company. Mr. Zhao graduated from Hunan College of Finance and Economics in July 1995, majoring in actuarial science with a bachelor’s degree in economics; from Central University of Finance and Economics in June 2002, majoring in finance with a master’s degree in economics; and from Tsinghua University in January 2007, majoring in business administration with a master’s degree in Business Administration.
Ruan Qiwas appointed as the vice president of China Guangfa Bank Co., Ltd. Mr. Zheng received his LL.B. degree from Peking University, and LL.M. degrees fromour company (whose qualification is subject to the China University of Political Science and Law and University of Essex (UK). Mr. Zheng was a visiting researcher at Harvard Law School and Harvard Kennedy School of Government in the United States from August 1996 to October 1997. Mr. Zheng currently serves as an arbitratorapproval of the CBIRC) at the meeting of the board of directors of our company held in March 2018. He has been the chief information technology officer of our company since October 2016 and the general manager (at the general manager level of the provincial branches) of the information technology department of our company since March 2016. He served as the general manager of China International EconomicLife Data Center and Trade Arbitration Commission,the general manager (at the general manager level of the provincial branches) of the information technology department of our company from 2014 to 2016, and the deputy general manager and the general manager of the information technology department of our company from 2004 to 2014. He successively served as the deputy division chief of the computer division of our Fujian branch, and the deputy manager (responsible for daily operations) and the manager of the information technology department of our company from 2000 to 2004. Mr. Ruan is a senior economist.engineer. He graduated from Beijing Institute of Posts and Telecommunications in August 1987, majoring in computer science and communications with a bachelor’s degree in engineering; and from Xiamen University with a master’s degree in business administration for senior management (EMBA) in December 2007.
Huang XiumeiZhan Zhong has been the financial controllermarketing director of our company since DecemberAugust 2017. He has been the general manager (at the general manager level of the provincial branches) of the individual insurance division of our company since July 2014. Mr. Zhan served as the deputy general manager (responsible for daily operations) and the general manager of our Qinghai branch from 2013 to 2014. From 2009 to 2013, Mr. Zhan successively served as the deputy general manager (responsible for daily operations) and the general manager of the individual insurance division of our company. From 2005 to 2009, he successively served as the general manager of the individual insurance division of our Guangdong branch and an assistant to the general manager of our Guangdong branch. From 1996 to 2005, he successively served as the director of the marketing department of the Chengdu High-techSub-branch of Zhongbao Life Insurance Company, an assistant to the manager and the manager of the marketing department of the Chengdu branch and the deputy general manager of the Chengdu branch of Taikang Life Insurance Company. Mr. Zhan graduated from Kunming Institute of Technology in July 1989, majoring in industrial electric automation with a bachelor’s degree in engineering.
Yang Hong has been the operating director of our company since March 2018. She has been the general manager of the operation service center of our Fujian branchcompany since October 2011. From 2005 to 2011, she held various positions at our Fujian branch, including assistant toJanuary 2018. Ms. Yang successively served as the general manager, deputy general manager and deputy general manager (responsible for daily operations). From 1999 to 2005, she held various positions at our Fujian branch, including as deputy director and general manager of the financialresearch and accountingdevelopment center, the general manager (at the general manager level of the provincial branches) of the business management department and the general manager (at the general manager level of the financial department. Ms. Huang was alsoprovincial branches) of the business process management department of our company from 2011 to 2018. From 2002 to 2011, she successively served as an assistant to the general manager and the deputy general manager of the business management department, and the general manager of the customer service department of our Fuzhou branch from 2004 to 2005.company. Ms. HuangYang graduated from Fujian Banking Schoolthe Computer Science Department of Jilin University in 1985,1989, majoring in insurance,system structure with a bachelor’s degree of science, and graduated from Fuzhouthe School of Economics and Management of Tsinghua University in 2005, majoring2013 with a master’s degree in accounting. Ms. Huang is abusiness administration for senior certified public accountant.management.
Compensation of Directors, Supervisors and Officers
Our directors, supervisors and executive officers receive compensation in the form of salaries, bonuses and otherbenefits-in-kind, including our contribution to the pension plan on behalf of our directors, supervisors and executive officers. As required by PRC regulations, we participate in various defined contribution retirement plans organized by provincial and municipal governments for our employees, including employees who are directors, supervisors and executive officers.
The following table sets forth the amounts of compensation paid to each of our directors and supervisors for the fiscal year ended December 31, 2014. The2017.The total compensation package for our chairman of the board of directors, executive directors and chairman of the board of supervisors for the year ended December 31, 20142017 has not yet been finalized in accordance with regulations of the relevant PRC authorities. The amount of the compensation not provided for is not expected to have a significant impact on our financial statements for the year ended December 31, 2014. We2017.We will make further disclosure of the amount of the final compensation when it is determined.
Name | Salaries/Fees | Inducement Fees | Other (1) Benefits | Compensation for loss of office as director | Total | |||||||||||||||
RMB in ten thousands | ||||||||||||||||||||
Yang Mingsheng | 44.55 | — | 40.29 | — | 84.84 | |||||||||||||||
Wan Feng(2) | 10.03 | — | 9.37 | — | 19.40 | |||||||||||||||
Lin Dairen(3) | 39.99 | — | 37.09 | — | 77.08 | |||||||||||||||
Su Hengxuan(4) | 39.65 | — | 37.15 | — | 76.80 | |||||||||||||||
Miao Ping(5) | 39.65 | — | 37.07 | — | 76.72 | |||||||||||||||
Liu Yingqi(6) | 9.91 | — | 9.31 | — | 19.22 | |||||||||||||||
Miao Jianmin | — | — | — | — | — | |||||||||||||||
Zhang Xiangxian | — | — | — | — | — | |||||||||||||||
Wang Sidong | — | — | — | — | — | |||||||||||||||
Sun Changji(7) | — | — | — | — | — | |||||||||||||||
Bruce Douglas Moore | 32.00 | — | — | — | 32.00 | |||||||||||||||
Anthony Francais Neoh | 30.00 | — | — | — | 30.00 | |||||||||||||||
Tang Jianbang(8) | — | — | — | — | — | |||||||||||||||
Chang Tso Tung(9) | 8.00 | — | — | — | 8.00 | |||||||||||||||
Huang Yiping(10) | 8.00 | — | — | — | 8.00 | |||||||||||||||
Xia Zhihua | 39.65 | — | 37.15 | — | 76.80 | |||||||||||||||
Shi Xiangming | 61.55 | — | 37.89 | — | 99.44 | |||||||||||||||
Luo Zhongmin(11) | 6.25 | — | — | — | 6.25 | |||||||||||||||
Yang Cuilian | 61.55 | — | 38.14 | — | 99.69 | |||||||||||||||
Li Xuejun | 58.98 | — | 37.40 | — | 96.38 | |||||||||||||||
Xiong Junhong(12) | — | — | — | — | — | |||||||||||||||
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Total | 489.76 | — | 320.86 | — | 810.62 | |||||||||||||||
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Name | Salaries/Fees | Inducement Fees | Other (1) Benefits | Compensation for loss of office as director | Total | |||||||||||||||
RMB in ten thousands | ||||||||||||||||||||
Yang Mingsheng | — | — | — | — | — | |||||||||||||||
Lin Dairen | 140.00 | — | 21.88 | — | 161.88 | |||||||||||||||
Miao Jianmin(2) | — | — | — | — | — | |||||||||||||||
Liu Jiade(3) | — | — | — | — | — | |||||||||||||||
Liu Huimin(4) | — | — | — | — | — | |||||||||||||||
Yin Zhaojun(5) | — | — | — | — | — | |||||||||||||||
Wang Sidong(6) | — | — | — | — | — | |||||||||||||||
Chang Tso Tung Stephen | 32.00 | — | — | — | 32.00 | |||||||||||||||
Xu Hengping | 113.40 | — | 21.66 | — | 135.06 | |||||||||||||||
Xu Haifeng | 113.40 | — | 21.66 | — | 135.06 | |||||||||||||||
Robinson Drake Pike | 32.00 | — | — | — | 32.00 | |||||||||||||||
Tang Xin | 32.00 | — | — | — | 32.00 | |||||||||||||||
LeungOi-Sie Elsie | 30.00 | — | — | — | 30.00 | |||||||||||||||
Miao Ping | 114.80 | — | 21.66 | — | 136.46 | |||||||||||||||
Shi Xiangming | 57.16 | 68.21 | 32.24 | — | 157.61 | |||||||||||||||
Xiong Junhong(7) | — | — | — | — | — | |||||||||||||||
Zhan Zhong(8) | 50.83 | 28.84 | 20.82 | — | 100.49 | |||||||||||||||
Wang Cuifei | 52.76 | 81.41 | 31.41 | — | 165.58 | |||||||||||||||
Li Guodong(9) | 21.07 | 16.85 | 11.47 | — | 49.39 | |||||||||||||||
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Total | 789.42 | 195.31 | 182.80 | — | 1,167.53 | |||||||||||||||
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(1) | Includebenefits-in-kind, social insurance, housing fund and enterprise annuity to be paid by the employer. |
(2) | Resigned as |
(3) |
(4) | Appointed as |
(5) | Appointed as |
(6) | Resigned as |
(7) | Resigned as |
(8) | Resigned as |
(9) | Appointed as |
The following table sets forth the amounts of compensation paid to each of our executive officers other than those disclosed in the table above, including vice presidents who are not our directors and our chief operating officer,assistant president, chief actuary, chief financial officer and board secretary, for the year ended December 31, 2014. The2017.The total compensation package for our executive officers for the year ended December 31, 20142017 has not yet been finalized in accordance with regulations of the relevant PRC authorities. The amount of the compensation not provided for is not expected to have a significant impact on our financial statements for the year ended December 31, 2014.2017. We will make further disclosure of the amount of the final compensation when it is determined.
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Name | Salaries/Fees | Inducement Fees | Other (1) Benefits | Compensation for loss of office as director | Total | |||||||||||||||
RMB in ten thousands | ||||||||||||||||||||
Li Mingguang | 113.40 | — | 21.84 | — | 135.24 | |||||||||||||||
Zhao Lijun | 113.40 | — | 21.71 | — | 135.11 | |||||||||||||||
Xiao Jianyou | 112.00 | — | 21.71 | — | 133.71 | |||||||||||||||
Zhao Peng(2) | 26.25 | — | 5.54 | — | 31.79 | |||||||||||||||
Zheng Yong(3) | 35.00 | — | 10.39 | — | 45.39 | |||||||||||||||
Ruan Qi | 98.00 | — | 29.94 | — | 127.94 | |||||||||||||||
Zhan Zhong(4) | 32.67 | — | 10.33 | — | 43.00 | |||||||||||||||
Total | 530.72 | — | 121.46 | — | 652.18 | |||||||||||||||
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(1) |
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(4) | Appointed as |
The aggregate amount of compensation we paid to our five highest paid individual employees, including one director one board secretary and threefour supervisors during the year ended December 31, 2014, 2017,was approximately RMB 4.667.5676 million (US$0.75 million) 1.16million). The amount of compensation we paid to our highest paid individual employee, during the year ended December 31, 20142017, was approximately RMB 1 million (US$0.16 million).1.6558 million.
Senior Management Compensation
Our senior management’s compensation consists of four components, including basic salaries, performance-based salaries, fringe benefits and mid to long-term incentive compensation.
We have set up a comprehensive performance management system. A performance appraisal method for our officers is used to appraise the performance of the officers annually. Measures for such appraisal include a business performance index based on our budget and targets as approved by our board of directors; as well as a management performance index based on the duties and functions of the office position, establishing a connection between the achievement of our major business targets and the office performance appraisal.
In accordance with relevant policies of the PRC government, no stock appreciation rights of our company were granted or exercised in 2014. For2017.For other details of the stock appreciation rights which were previously granted by us, please refer to Note 30 totoNote 30to our consolidated financial statements included elsewhere in this annual report.
General
Our board of directors consists of eleven members. Our directors are elected to serve a term of three years, which is renewable uponre-election. Our directors are elected at meetings of our shareholders, and, unless they resign at an earlier date, are deceased or removed, will serve three-year terms. The current term for our board of directors began in July 2012.May 2015. Our directors are not currently entitled to severance benefits other than benefits provided by law upon termination of employment. In the event our Company is acquired, including an acquisition of control by another person, and a director leaves employment or retires following the acquisition, the director may receive severance and other payments upon approval by the shareholders in general meeting.
We have identified various board members as being “independent”, in accordance with Hong Kong laws and regulations. These requirements vary in certain respects from independence requirements under U.S. law. The members of our audit committee are independent as defined by the rules of the Securities and Exchange Act and the New York Stock Exchange which are applicable to us.
The PRC company law requires a joint stock company with limited liability to establish a board of supervisors. Our board of supervisors is responsible for monitoring our financial matters and supervising the actions of our board of directors and our management personnel. Our board of supervisors consists of five members. One-thirdAt leastone-third of our board of supervisors must be elected by our employees. The remaining members must be elected by our shareholders in a general meeting. One member of our board of supervisors is designated as the chairman. Members of our board of supervisors may not serve as director or member of senior management. The term of office for our supervisors is three years, which is renewable uponre-election.The current term for our board of supervisors began in July 2012.May 2015.
Board Committees
We have established standing audit, nomination and remuneration, risk management and strategy and investment decision committees.
The primary duties of the audit committee are to review and supervise the financial reporting process, to assess the effectiveness of our internal control system, to supervise our internal audit system and its implementation and to implement and recommend the engagement or replacement of external auditors. Our audit committee is also responsible for communications between our internal and external auditors and our internal reporting system. Our audit committee is currently comprised of Bruce Douglas Moore,Robinson Drake Pike, Chang Tso Tung Stephen and Huang Yiping.Tang Xin. Mr. Bruce Douglas MooreRobinson Drake Pike serves as the chairman.
The primary duties of the nomination and remuneration committee are to review the structure and components of our board of directors, to formulate the appointment and successors to our board of directors and senior management, to review and recommend the nomination of our directors and senior officers, as well as to propose to our board of directors the remuneration policy for our directors, supervisors and senior management. Our nomination and remuneration committee is currently comprised of Chang Tso Tung Bruce Douglas MooreStephen, Robinson Drake Pike and Miao Jianmin.Yuan Changqing. Mr. Chang Tso Tung Stephen serves as the chairman.
The primary duties of the risk management committee are to formulate our risk control benchmark system, to assist the management in establishing and improving our risk management and internal control system, to review our risk preference and tolerance policy, to formulate our operational risk management policy, to review the assessment reports with respect to our operational risksrisk management and internal control, to conduct research on important findings from internal investigations with respect to risk management and internal control and management’s responses to such findings and to coordinate and handle disagreements on risk management and sudden and significant risks or crises. Our risk management committee is currently comprised of Anthony Francis Neoh , Zhang XiangxianLeungOi-Sie Elsie, Xu Hengping, Yin Zhaojun and Miao Ping. Mr. Anthony Francis NeohLiu Huimin.Ms. Leung-Oi-Sie Elsie serves as the chairman.
The primary duties of the strategy and investment decision committee are to formulate our long-term development strategies and significant investment and financing plans, to propose significant projects of capital operation and assets management, and to conduct research and make recommendations on other important matters that affect our development. Our strategy and investment decision committee is currently comprised of Huang Yiping,Tang Xin, Lin Dairen, Su Hengxuan, Wang SidongXu Haifeng and Anthony Francis Neoh. Mr. Huang YipingLeungOi-Sie Elsie.Mr. Tang Xin serves as the chairman.
As of December 31, 2012, 20132015, 2016 and 20142017 we had approximately 99,271, 99,23098,823, 99,739 and 101,972 employees,102,297employees, respectively. The following table sets forth the number of our employees by their functions as of December 31, 2012, 20132015, 2016 and 2014.2017.
As of December 31 | As of December 31 | |||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||
Number of | % of total | Number of | % of total | Number of employees | % of total | Number of | % of total | Number of employees | % of total | Number of employees | % of total | |||||||||||||||||||||||||||||||||||||
Management and administrative staff | 23,444 | 23.62 | % | 21,689 | 21.86 | % | 22,304 | 21.63 | % | 23,941 | 24.23 | % | 21,868 | 21.93 | % | 22,307 | 21.81 | % | ||||||||||||||||||||||||||||||
Financial and auditing staff | 7,034 | 7.09 | % | 6,852 | 6.91 | % | 6,287 | 6.10 | % | 5,373 | 5.44 | % | 5,225 | 5.24 | % | 5,122 | 5.01 | % | ||||||||||||||||||||||||||||||
Sales and marketing staff(1) | 31,115 | 31.34 | % | 31,204 | 31.45 | % | 34,783 | 33.73 | % | |||||||||||||||||||||||||||||||||||||||
Sales and sales management staff | 33,036 | 33.43 | % | 36,091 | 36.19 | % | 38,859 | 37.99 | % | |||||||||||||||||||||||||||||||||||||||
Underwriters, claim specialists and customer service staff | 32,511 | 32.75 | % | 31,080 | 31.32 | % | 31,291 | 30.34 | % | 29,330 | 29.68 | % | 28,420 | 28.49 | % | 27,960 | 27.33 | % | ||||||||||||||||||||||||||||||
Other professional and technical staff | 3,747 | 3.77 | % | 3,607 | 3.63 | % | 3,838 | 3.72 | % | 2,674 | 2.71 | % | 3,488 | 3.50 | % | 4,106 | 4.01 | % | ||||||||||||||||||||||||||||||
Other | 1,420 | 1.43 | % | 4,798 | 4.84 | % | 4,620 | 4.48 | % | 4,469 | 4.52 | % | 4,647 | 4.66 | % | 3,943 | 3.85 | % | ||||||||||||||||||||||||||||||
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Total | 99,271 | 100 | % | 99,230 | 100 | % | 103,123 | 100 | % | |||||||||||||||||||||||||||||||||||||||
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Total(2) | 98,823 | 100 | % | 99,739 | 100 | % | 102,297 | 100 | % | |||||||||||||||||||||||||||||||||||||||
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(1) |
Includes actuaries, product development personnel, investment management personnel and information technology specialists. |
(2) | Includes employees of our subsidiaries. |
As of December 31, 2012, 20132015, 2016 and 2014,2017, we had approximately 693,000, 653,000approximately979,000, and 743,000 exclusive1,495,000 and 1,578,000exclusive agents, respectively. During 2014,2017, we attracted more new qualified agents by expanding our recruitment program, making further efforts in training new qualified agents and strengthening sales support. At the same time, we have continued carrying out performance reviews in 2014, which have led to the departure of a number of exclusive agents with lower productivity. In addition, in August 2015, the market competitionCIRC cancelled the qualification certificates requirements for qualifiedthe individual insurance agents, has increased duewhich helped to facilitate our recruitment process. However, we still adhered to our own standards for recruitment to ensure the new Sales Personnel Rules issued byquality and productivity of our exclusive agent force.See “Item 4. Information on the CIRC. SeeCompany—Business Overview—Regulatory and Related Matters—Regulation of Insurance Agencies, Insurance Brokers and Other Intermediaries” and “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our growth is dependent on our ability to attract and retain productive agents”.
None of our employees is subject to collective bargaining agreements governing employment with us. We believe that our employee relations are satisfactory.
As of the date of this annual report, none of our directors, supervisors or senior managers is a legal or beneficial owner of any shares of our share capital.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
The table below sets forth information regarding the ownership of our share capital as of April 10, 20156, 2018 by all persons who are known to us to be the beneficial owners of 5% or more of each class of our share capital.
Title of Class | Identity of Person or Group | Amount Owned | Percentage of Class | Percentage of Total Share Capital | Identity of Person or Group | Amount Owned | Percentage of Class | Percentage of Total Share Capital | ||||||||||||||||
A Shares | China Life Insurance (Group) Company | 19,323,530,000 (Long position) | 92.80 | % | 68.37 | % | China Life Insurance (Group) Company | 19,323,530,000 (Long position) | 92.80 | % | 68.37 | % | ||||||||||||
H Shares | BlackRock, Inc(1) | 528,306,529 (Long position) | 7.10 | % | 1.87 | % | BlackRock, Inc(1) | 586,490,460 (Long position) 4,751,000 (Short position) | | 7.88 0.06 | % % | | 2.07 0.02 | % % | ||||||||||
H Shares | JPMorgan Chase & Co. (2) | 448,698,262 (Long position) 36,726,613 (Short position) 325,782,986 (Lending pool) |
| 6.02 0.49 4.37 | % % % |
| 1.59 0.13 1.15 | % % % | JPMorgan Chase & Co.(2) | 448,626,351 (Long position) 257,389,776 (Short position) 226,631,193 (Lending pool) | | 6.02 3.45 3.04 | % % % | | 1.59 0.91 0.80 | % % % |
Note (1): | BlackRock, Inc. was interested in a total of |
Note (2): | JPMorgan Chase & Co. was interested in a total of |
Included in the |
JPMorgan Chase & Co. held |
Our A shares and H shares generally vote together as a single class, including in the election of directors. Each A share and each H share is entitled to one vote. In addition, in certain matters which affect the rights of the holders of H shares or A shares, the H shares or A shares, as the case may be, are entitled to vote as a separate class.
CLIC converted and sold 676,470,000 domestic shares in the form of H shares or ADSs in connection with our global offering in December 2003.
Based on the information provided by Deutsche Bank Trust Company Americas, our depositary bank, as of December 31, 20142017 and April 10, 2015,6, 2018, there were, respectively, 9,346,784 ADRs28,125,962ADRs representing 140,201,760 H140,629,810H shares, with 67with58 registered holders, and 9,453,934 ADRs27,632,340ADRs representing 141,809,010 H138,161,700H shares, with 67 registered58registered holders. Since certain of the ADSs are held by nominees, the above number may not be representative of the actual number of U.S. beneficial holders of ADSs or number of ADSs beneficially held by U.S. persons.
CLIC, our controlling shareholder, is a wholly state-owned enterprise controlled by the PRC government. See “Item 4. Information on the Company—History and Development of the Company”. None of our major shareholders has voting rights that differ from the voting rights of other shareholders, except that in certain matters which affect the rights of the holders of H shares or A shares, holders of H shares or A shares, as the case may be, are entitled to vote as a separate class. We are not aware of any arrangement which may at a subsequent date result in a change of control of our company.
As at the date of this annual report, CLIC owns approximately 68.37% of our issued share capital, a 40% equity interest in AMC, a direct approximately 4.41%60% equity interest in CLPCIC, a 100% equity interest in China Life Pension and an indirect approximately 3.53% equity interest in China Life Pension through AMC, a 60% equity interest in CLPCIC andOverseas, a 100% equity interest in China Life Investment Holding Company Limited, or IHC.IHC, and a 100% equity interest in China LifeE-commerce Company Limited, or China LifeE-commerce. CLIC, AMC, CLPCIC, China Life Pension, CLPCICOverseas, IHC and IHCChina LifeE-commerce are therefore considered as our connected persons under the HKSE Listing Rules. AMC owns a direct 48% equity interest and an indirect 52% equity interest in China Life Wealth Management Company Limited, or China Life Wealth, and approximately 85.03% equity interest in China Life AMP Asset Management Co., Ltd., or AMP. China Life Wealth and AMP isare therefore also considered as our connected personpersons under the HKSE Listing Rules. Each of AMC, China Life Wealth and AMP is also a subsidiary of the Company. Chongqing International Trust Inc., or Chongqing Trust, is an associate of CLIC and CLPCIC by virtue of its acting as the trustee of a trust scheme of which CLPCIC is a beneficiary, and is therefore also a connected person of the Company under the HKSE Listing Rules. During the reporting period, we engaged in the following related party transactions with these companies:
We also continued to carry out certain other continuing related party transactions with CLIC, AMC China Life Pension, CLPCIC and IHCAMP in the reporting period. These transactions constitute connected transactions for us under the HKSE Listing Rules. Details of these transactions are set forth below.
As at the date of this annual report, we own a 20%43.686% equity interest in China Guangfa Bank, or CGB which was previously known as Guangdong Development Bank.and have become the largest shareholder of CGB. Our former vice president, Mr. Liu Jiade,chairman and executive director, Yang Mingsheng, serves as a directorthe chairman of CGB, and our former vice chairman and non-executive director, Mr. Wan Feng, served as a director of CGB during the 12 months prior to March 25, 2014.CGB. CGB is therefore considered as our related party under applicable PRC laws and regulations. On July 25, 2014,January 12, 2017, we entered into a new related party transaction framework agreement with CGB.CGB for daily related party transactions. We also continued to carry out continuing related party transactions with CGB in the reporting period. These transactions are not regarded as connected transactions for us under the HKSE Listing Rules. Details of these transactions are set forth below.
As at the date of this annual report, we own a 70.74% equity interest in China Life Pension. China Life Pension is not considered as our related party under the HKSE Listing Rules or applicable PRC laws and regulations. As our subsidiary, China Life Pension also continued to carry out continuing related party transactions with CLIC, AMC, AMP and China Life Wealth in the reporting period. These transactions are regarded as connected transactions for us under the HKSE Listing Rules. Details of these transactions are set forth below.
Continuing Related Party Transactions with CLIC
During the reporting period, we engaged in continuing related party transactions with CLIC. These transactions are governed by several agreements between CLIC and us, including a restructuring agreement, a policy management agreement, a trademark license agreement and anon-competition agreement. A detailed discussion of these agreements is set forth in Note 32 to our consolidated financial statements included elsewhere in this annual report and under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form20-F filed with the Securities and Exchange Commission on April 28, 2009.
Our policy management agreement with CLIC expired on December 31, 2014.
On December 29, 2014, we and CLIC entered into a new policy management agreement for a term of three years ending on December 31, 2017. Subject to compliance with HKSE Listing Rules, this new agreement will be automatically renewed for a successive term of three years unless terminated by either party by giving to the other party not less than 180 days’ prior written notice upon expiration of the then current term.years. Pursuant to the newthis policy management agreement, we continued to acceptaccepted CLIC’s entrustment to provide policy administration services relating tonon-transferred policies, and CLIC will pay a service fee to us in cash on a semi-annual basis, which, for each semi-annual payment period, equals the sum of (1) the number ofnon-transferred policies in force as of the last day of the period, multiplied by RMB 8.00; and (2) 2.5% of the actual premiums in respect of thenon-transferred policies collected during the period. The service feesfee paid by CLIC to us under policy management agreement for the year ended on December 31, 20142017 was RMB 987739.56 million (US$159 113.7 million). This agreement expired on December 31, 2017.
On December 26, 2017, we and CLIC entered into a new policy management agreement for a term of three years ending on December 31, 2020. During its term, this new agreement may be terminated by either party giving to the other party not less than 90 days’ prior written notice. Pursuant to this new policy management agreement, we will continue to accept CLIC’s entrustment to provide policy administration services relating tonon-transferred policies, and CLIC will pay a service fee to us in cash on a semi-annual basis. The terms on the determination of services fees remain the same as in the previous policy management agreement discussed above. The annual cap in respect of the service fees to be paid by CLIC to us under the new policy management agreement for each of the three years ending on December 31, 20172020 is RMB 1,037708 million.
Continuing Related Party Transactions with AMC
During the reporting period,Asset Management Agreement between AMC and Us
On December 29, 2015, we engaged in continuing related party transactions withand AMC underentered into an asset management agreement between AMC and us. The asset management agreement expiredfor a three-year term expiring on December 31, 2014. It has been automatically renewed for one more year ending on December 31, 2015 in accordance with its terms. A detailed discussion of the material terms of2018. Under the asset management agreement, between AMC agreed to invest and manage assets entrusted to it by us, on a discretionary basis, within the scope granted by us and in accordance with our investment guidelines. We retain the title of the entrusted assets and AMC is set forthauthorized to operate the accounts associated with the entrusted assets for and on behalf of us. We may add to or withdraw from the assets managed by AMC pursuant to the agreement. We have the right to establish, amend and change the investment guidelines and also have the right to monitor the investment management activities of AMC.
In consideration of AMC’s service in Note 32respect of investing and managing assets entrusted to our consolidated financial statements included elsewhere in this annual report andit by us under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form 20-F filed with the Securities and Exchange Commission on April 28, 2009. Theagreement, we agreed to pay service fees paidto AMC in cash, comprised of a fixed service fee and a variable service fee. The fixed service fee is payable monthly and is calculated according to the net asset value of the assets under management and a fixed management fee rate of 0.05% per annum. The variable service fee is payable annually and is determined after an appraisal has been conducted by us with respect to the assets under management and the relevant services provided by AMC each year. The variable service fee is calculated on the basis of 20% of the fixed service fee per annum, by multiplying a payment ratio determined by us based on the results of its annual appraisal of AMC. The services fees under the agreement were determined by us and AMC based on an analysis of the cost of service, market practice and the size and composition of the asset management agreement for the year ended December 31, 2014 was RMB 886 million (US$143 million).pool to be managed. The annual cap in respect of the service fees to be paid by us to AMC under the asset management agreement for each of the yearthree years ending on December 31, 20152018 is RMB 1,2001,500 million.
The annual cap has been determinedservice fees paid by referenceus to historical figures, the size and composition of the assets managed and to be managed by AMC, and the inherent volatility of the capital markets.
During the reporting period, CLIC engaged in continuing related party transactions with AMC under anthe asset management agreement for the year ended December 31, 2017 were RMB 1,153.58 million (US$ 177.3 million).
Asset Management Agreement between AMC and CLIC which expired on December 31, 2014. A detailed discussion of this agreement is set forth in Note 32 to our consolidated financial statements included elsewhere in this annual report and under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form 20-F filed with the Securities and Exchange Commission on April 28, 2009.
On December 31, 2014,30, 2015, AMC and CLIC entered into a newan asset management agreement for a three-year term expiring on December 31, 2015. Under2018, subject to a right of the parties to negotiate a renewal of this new agreement within 90 business days prior to its expiry. Under the asset management agreement, AMC continuedagreed to invest and manage assets entrusted to it by CLIC, which ison a discretionary basis, subject to the investment guidelines and instructions given by CLIC. CLIC retains the title of the entrusted assets and AMC is authorized to operate the accounts associated with the entrusted assets for and on behalf of CLIC. CLIC willmay add to or withdraw from the assets managed by AMC pursuant to the agreement. CLIC has the right to establish, amend and change the investment guidelines and also has the right to monitor the investment management activities of AMC.
In consideration of AMC’s service in respect of investing and managing assets entrusted to it by CLIC under the agreement, CLIC agreed to pay AMC a base service fee for asset management in cash at the rate of 0.05% per annum. Such service fee is calculated and payable on a monthly basis, by multiplying the average of book balance of the investmentsassets under management per annum. The service fee for investment in(after deducting the funds obtained and interests accrued from repurchase transactions, the principal and interest of debt investment plans, equity investment plans, project asset-backed planplans and customizednon-standard products) at the beginning and at the end of any given month by the rate of 0.05%, divided by 12. After the end of each fiscal year, CLIC will evaluate the investment performance with respect to the assets entrusted to AMC in the previous year, and adjust the base service fee for asset management by reference to the actual and targeted investment returns. The service fees for debt investment plans, equity investment plans, project asset-backed plans and customizednon-standard products will be determined separately by the parties. The services fees under the agreement were determined by CLIC and AMC based on an analysis of the cost of service, market practice and the size and composition of the asset pool to be managed. The annual cap in respect of the service fees to be paid by CLIC to AMC under the asset management agreement for the three years ending on December 31, 2018 is RMB 320 million, RMB 310 million and RMB 300 million, respectively.
The service fees paid by CLIC to AMC under the asset management agreement for the year ended on December 31, 2014 was2017 were RMB 128106.79 million (US$21 16.4 million). The annual cap in respect of the service fees to be paid by CLIC to AMC under the new asset management agreement for the year ending on December 31, 2015 is RMB 320 million.
Continuing Related Party Transactions with IHC
Property Leasing Agreement with IHC
During the reporting period, we engaged in continuing related party transactions with IHC under a property leasing agreement between IHC and us. The property leasing agreement expired on December 31, 2014.2017. A detailed discussion of the terms of this agreement is set forth in Note 32 to our consolidated financial statements included elsewhere in this annual report and under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form20-F filed with the Securities and Exchange Commission on April 28, 2009.24, 2015. On December 31, 2014,29, 2017, we entered into a new property leasing agreement with IHC under substantially the same terms for a three-year term expiring onfrom January 1, 2018 to December 31, 2017.2020. Under the new property leasing agreement, IHC agreed to lease to us 1,8071,893 properties owned by it. The annual rent is determined by reference to market rent or, where there is no available comparison, by reference to the costs incurred by IHC in holding and maintaining the properties, plus a margin of approximately 5%.
The rent paid by us to IHC under the property leasing agreement for the year ended December 31, 20142017 was RMB 8678 million (US$14 11.988 million).
Property Transfer Agreement with IHC
On June 27, 2012, we entered into a property transfer framework agreement with IHC for a term of three years. Pursuant to the framework agreement, we proposed to acquire from IHC certain properties for use by our branches as office premises, which consist of 1,198 properties with a total gross floor area of approximately 803,424.09 square meters. The properties will be transferred in batches pursuant to the standalone agreement to be entered into for each transfer. The purchase price for each property will be valued and determined by qualified intermediaries agreed upon by the parties with reference to prevailing market prices. The total consideration for the properties purchased is expected to be no more than RMB1,700 million. The parties are obligated to cooperate with each other to complete the transfer of title and deliver the properties if the standalone property transfer agreements in respect of such properties are signed prior to the expiration of the framework agreement. The parties cannot transfer any properties under the framework agreement if the standalone property transfer agreements in respect of the properties are not signed prior to the expiration of the framework agreement.
Asset Management Agreement with IHC
During the reporting period,On February 3, 2016, we engaged in continuing related party transactions with IHC underentered into an asset management agreement betweenwith IHC for a term starting from January 1, 2016 and us, which expiredending on December 31, 2014. A detailed discussion of this agreement is set forth in Note 32 to our consolidated financial statements included elsewhere in this annual report and under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form 20-F filed with the Securities and Exchange Commission on April 25, 2014. The basic service fee paid by us to IHC under this agreement for the year ended December 31, 2014 was RMB 89 million (US$14 million).
June 30, 2017. On December 31, 2014,June 30, 2017, we entered into a new asset management agreement with IHC for a term of one year startingIHC. The new agreement took effect from January 1, 2015.2017 retrospectively and will remain effective until December 31, 2018. Pursuant to the new asset management agreement, IHC continued to invest, operate and manage the assets entrusted to it by us for investment in real property, equity interests of unlisted companies, related financial products and securitization financial products on a discretionary basis, subject to the investment guidelines and instructions given by us.
In consideration of the services provided by IHC under the new asset management agreement, we agreed to pay IHC fees based on fixed return projects andnon-fixed return projects, respectively. With respect to the fixed return projects, we agreed to pay IHC a basic service fee.fee which is determined based on the investment rate of return of the projects. With respect to thenon-fixed return projects, we agreed to pay IHC a basic service fee and also pay a performance fee.performance-based fee at the time of exit from the projects with reference to the comprehensive rate of return of the projects. In addition, we will make adjustments to the basic service fee for fixed return projects andnon-fixed return projects based on the result of our annual business evaluation on IHC (such adjusted amount is referred to as floating management fee). The basic service fee is paid on a quarterly basis, calculated separately for the projects invested prior to the execution of the agreement and those newly invested during the term of the agreement. With respect to the projects invested prior to the execution of the agreement, the basic service fee is calculated by referencemultiplying the total amount of assets invested by the applicable management fee rate (which is set forth in the relevant entrusted investment and management agreements for alternative investments with insurance funds then in force when such projects were entrusted). With respect to the projects newly invested during the term of the agreement, the basic service fee is calculated by multiplying the total annual amount of assets newly invested andby the applicable management fee rate which is linked tostipulated in the new agreement and our investment return ratesguidelines (the management fee rate ranges from 0.05% to 0.6% for the fixed return projects; and the management fee rate is 0.3% for thenon-fixed return projects). The performancefloating management fee isand the performance-based fee are calculated and confirmed by both parties annually, and then paid by us to IHC upon confirmation. TheIn addition, the assets entrusted by us to IHC will also be partially used for the subscription of the related financial products established and issued by IHC or of which IHC has participated in the establishment and issuance, and such related financial products will be limited to infrastructure investment schemes and project asset-backed schemes. For each of the two years ending December 31, 2018, the annual cap on the amount of the basic service fee, floating management fee and performanceperformance-based fee payable by us to IHC will not exceedis RMB 500630 million during the one-year term of this agreement, and theRMB 990 million, respectively. The contractual amount of assets entrusted by us to IHC for investment and management willmay not exceed RMB 150550 billion or its equivalent in foreign currency as at the expiry of this agreement. For each of the two years ending December 31, 2018, the annual cap on the contractual amount of assets newly entrusted by us to IHC for investment and management is RMB 200 billion and RMB 200 billion, respectively. The basic service fee, floating management fee and performance-based fee paid by us to IHC under this new asset management agreement for the year ended December 31, 2017 was RMB 395.82 million (US$ 60.8 million). As at December 31, 2017, the contractual amount of the assets entrusted by us to IHC for investment and management was RMB 246,193.00 million (US$ 37,839.2 million), among which, for the year of 2017, the contractual amount of the assets newly entrusted by us was RMB 112,267.00 million (US$ 17,255.1 million).
Each of CLIC and CLPCIC has also entrusted IHC to invest and manage its assets, which may result in CLIC, CLPCIC and us investing in the same project. Pursuant to the new asset management agreement, the targeted assets forco-investments to be made by IHC and on behalf of us, CLIC and CLPCIC are limited to newly launched related financial products and securitization financial products, excluding any products acquired from the secondary market. The contractual amount of theco-investment by us to be entrusted during the term of this agreement will not exceed RMB 40 billion.100 billion or its equivalent in foreign currency.
Continuing Related Party Transaction with China Life Pension
On July 27, 2009, we, CLIC and AMC entered into an agreement for the entrustment of enterprise annuity funds and account management with China Life Pension. The agreement expired on December 1, 2012. On February 26, 2013, we, CLIC and AMC entered into a memorandum of understanding, which became effective retroactively on December 2, 2012, with China Life Pension to renew the agreement for a successiveone-year term ended on December 1, 2013. On March 22, 2014, we, CLIC and AMC entered into a new agreement for the entrustment of enterprise annuity funds and account management with China Life Pension, which became effective retroactively to December 2, 2013, for a fixed term ending2013. The agreement expired on December 31, 2016.
2016 and has been renewed for a successive three-year term. Under the new agreement, China Life Pension was entrusted to serve as the trustee and account manager and to provide entrusted management services and account management services for the enterprise annuity funds of the Company, CLIC and AMC. China Life Pension was further entrusted to serve as the investment manager and to provide investment management service for the enterprise annuity funds of the Company, CLIC and AMC. In consideration of the services provided by China Life Pension, we, CLIC and AMC agreed to pay China Life Pension entrusted management fees,fee, account management fees and investment management fees.fee.
Continuing Related Party Transactions with CLPCIC
On March 8, 2012,2015, we entered into an insurance sales framework agreement with CLPCIC for a three-year term which endedCLPCIC. This agreement expired on March 7, 2015. 2018. The service fees paid to us for the year ended December 31, 2017 was RMB 3,030.41 million (US$ 465.8 million).
On March 8, 2015,January 31, 2018, we entered into a new insurance sales framework agreement with CLPCIC for a term of twothree years ending onfrom March 8, 2018 to March 7, 2017, and this new agreement will be automatically renewed for one more year after its expiration unless terminated by either party by giving to the other party a written notice within 30 days prior to its expiration. Pursuant to2021. Under the new insurance sales framework agreement, CLPCIC continued to entrust us to act as its agent to sell certain specifiedselected insurance products within authorized regions, and agreed to pay us an agency service feesfee in cash on a monthly basis, in considerationwhich, includes sales management fee and sales service fee. The sales management fee will be calculated by the parties on the basis of the services provided.principles of equality and fairness. The sales service feesfee will be determined by referenceaccording to the cost incurred by us plus a marginal profit amount and market practice. Thestandard of service fees paid to us underfor specific insurance products as agreed by the insurance sales framework agreement forbranches of the year ended December 31, 2014 was RMB 1,013 million (US$163 million).parties based on market principles. The annual caps in respect of the agency service fees to be paid by CLPCIC to us under the new insurance sales framework agreement for the three years ending December 31, 20172020 are RMB 1,3864,260 million, RMB 1,7385,540 million and RMB 2,2227,050 million, respectively.
Framework Agreements with China Life Wealth
Framework Agreement between China Life Wealth and Us
On December 30, 2015, we entered into a framework agreement with China Life Wealth in relation to asset management services, sales agency services for asset management products and other daily transactions. The agreement expired on December 31, 2017. On December 28, 2017, we and China Life Wealth entered into a new framework agreement having a term of three years ending on December 31, 2020. Under the agreement, we will continue to enter into certain daily transactions with China Life Wealth, including asset management services and sales agency services for asset management products. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2020, the annual caps on the management fee payable by us for asset management services are RMB 240 million, RMB 240 million and RMB 240 million, respectively; the annual caps on the fees payable by China Life Wealth in connection with sales agency services (including the sales commission fee, client maintenance fee, handling fee and intermediary fee) are RMB 100 million, RMB 100 million and RMB 100 million, respectively, and the annual caps on the fees for other daily transactions are RMB 100 million, RMB 100 million and RMB 100 million, respectively.
For the year ended December 31, 2017, the fee payable by us for the asset management services was RMB 1.80 million (US$ 0.3 million), the fees in connection with the sales agency services payable by China Life Wealth (including the sales commission fee, client maintenance fee, handling fee and intermediary fee) were RMB 0 million, and the fees for other daily transactions were RMB 5.49 million (US$ 0.8million).
Framework Agreement between China Life Wealth and CLIC
On January 26, 2016, CLIC and China Life Wealth entered into a framework agreement for the subscription of asset management products. The agreement expired on December 31, 2017.On December 27, 2017, CLIC and China Life Wealth entered into a new framework agreement having a term of three years ending on December 31, 2020. Under the new agreement, CLIC and China Life Wealth will conduct certain daily transactions, including asset management services and advisory services. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending on December 31, 2020, the annual caps on the management fee payable by CLIC for asset management services are RMB 50 million, RMB 120 million and RMB 180 million, respectively, and the annual caps on the advisory fee payable by CLIC for the advisory services are RMB 50 million, RMB 80 million and RMB 120 million, respectively.
For the year ended December 31, 2017, the management fee payable by CLIC for the asset management services was RMB 0.73 million (US$ 0.1million).
Framework Agreement between China Life Wealth and CLPCIC
On March 9, 2016, CLPCIC entered into a framework agreement with China Life Wealth in relation to asset management services, sales agency services for asset management products and other daily transactions with China Life Wealth. The agreement expired on December 31, 2017. On December 29, 2017, CLPCIC and China Life Wealth entered into a new framework agreement having a term of three years ending on December 31, 2020. Under the new agreement, CLPCIC and China Life Wealth will conduct certain daily transactions, including asset management services, advisory services and other daily transactions permitted by laws and regulations. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2020, the annual caps on the management fee payable by CLPCIC for asset management services are RMB 50 million, RMB 150 million and RMB 240 million, respectively; the annual caps on the advisory fee payable by CLPCIC for the advisory services are RMB 40 million, RMB 80 million and RMB 120 million, respectively; and the annual caps on the fees for other daily transactions are RMB 150 million, RMB 400 million and RMB 700 million, respectively.
For the year ended December 31, 2017, the fee payable by CLPCIC for the asset management services was RMB 5.83 million (US$ 0.9million), the fees in connection with the sales agency services payable by China Life Wealth (including the sales commission fee, client maintenance fee, handling fee and intermediary fee) were RMB 0 million, and the fees for other daily transactions were RMB 40 thousand (US$ 6 thousand).
Framework Agreement between China Life Wealth and China Life Overseas
On December 30, 2015, China Life Overseas entered into a framework agreement with China Life Wealth in relation to asset management services, sales agency services for asset management products and other daily transactions with China Life Wealth. Under the agreement, China Life Overseas will enter into certain daily transactions with China Life Wealth, including asset management services, sales agency services for asset management products and other daily transactions permitted by laws and regulations. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2017, the annual caps on the management fee payable by China Life Overseas for the asset management services are RMB 10 million, RMB 30 million and RMB 50 million, respectively; the annual caps on fees payable by China Life Wealth in connection with sales agency services (including the sales commission fee, client maintenance fee, handling fee and intermediary fee) are RMB 5 million, RMB 5 million and RMB 10 million, respectively, and the annual caps on the fees for other daily transactions are RMB 5 million, RMB 5 million and RMB 10 million, respectively. The agreement expired on December 31, 2017.
For the year ended December 31, 2017, there were no payments made under the agreement.
Framework Agreement between China Life Wealth and IHC
On February 3, 2016, IHC entered into a framework agreement with China Life Wealth in relation to asset management services, sales agency services for asset management products and other daily transactions with China Life Wealth. The agreement expired on December 31, 2017. On December 20, 2017, IHC and China Life Wealth entered into a new framework agreement having a term of three years ending on December 31, 2020. Under the new agreement, IHC and China Life Wealth will conduct certain daily transactions, including asset management services, advisory services and other daily transactions permitted by laws and regulations. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2020, the annual caps on the management fee for the asset management services are RMB 40 million, RMB 80 million and RMB 120 million, respectively; the annual caps on the advisory fee for the advisory services are RMB 40 million, RMB 80 million and RMB 120 million, respectively; and the annual caps on the fees for other daily transactions are RMB 20 million, RMB 80 million and RMB 160 million, respectively.
For the year ended December 31, 2017, the fee payable by IHC for the asset management services was RMB 1.15 million (US$ 0.2million), the fees in connection with the sales agency services payable by China Life Wealth (including the sales commission fee, client maintenance fee, handling fee and intermediary fee) were RMB 0 million, and the fees for other daily transactions were RMB 0 million.
Framework Agreement between China Life Wealth and China LifeE-commerce
On December 29, 2017, China LifeE-commerce and China Life Wealth entered into a framework agreement in relation to asset management services, advisory services and other daily transactions permitted by laws and regulations. The agreement has a term from January 1, 2018 to December 31, 2020. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2020, the annual caps on the management fee for the asset management services are RMB 5 million, RMB 10 million and RMB 15 million, respectively; the annual caps on the advisory fee for the advisory services payable by China LifeE-commerce for the advisory services are RMB 5 million, RMB 10 million and RMB 15 million, respectively; and the annual caps on the fees for other daily transactions are RMB 200 million, RMB 300 million and RMB 400 million, respectively.
Framework Agreement between China Life Wealth and China Life Pension
On March 26, 2018, China Life Pension and China Life Wealth entered into a framework agreement in relation to asset management services, advisory services and other daily transactions permitted by laws and regulations. The agreement has a term from January 1, 2018 to December 31, 2020. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2020, the annual caps on the management fee payable by China Life Pension for asset management services are RMB 100 million, RMB 150 million and RMB 200 million, respectively; the annual caps on the advisory fee payable by China Life Pension for the advisory services are RMB 40 million, RMB 80 million and RMB 90 million, respectively; and the annual caps on the fees for other daily transactions are RMB 90 million, RMB 180 million and RMB 270 million, respectively.
Framework Agreements with AMP
Framework Agreement between AMP and Us
On MayDecember 30, 2014,2016, we and AMP entered into a framework agreement, with AMP for the subscriptiona term starting from January 1, 2017 and redemption of fund products, sale of funds, asset management and other daily transactions. The agreement became effective upon signing by the parties and will expireending on December 31, 2016.2019. Under the agreement, we will enter into certain daily transactions with AMP, including subscription and redemption of fund products, sales agency services, asset management for specific clients and other daily transactions permitted by laws and regulations. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2016,2019, the annual caps on the subscription price and corresponding subscription fee for the subscription of fund products are RMB 30,00072,600 million, RMB 66,00072,600 million and RMB 72,600 million, respectively; the annual caps on the redemption price and corresponding redemption fee for the redemption of fund products are RMB 30,00072,600 million, RMB 66,00072,600 million and RMB 72,600 million, respectively; the annual caps on the sales commission fee and client maintenance fee payable by AMP are RMB 100700 million, RMB 300800 million and RMB 400900 million, respectively; the annual caps on the management fee and performance-based fee payable by us for the asset management for specific clients are RMB 10300 million, RMB 20400 million and RMB 20500 million, respectively; and the annual caps on the fees for other daily transactions are RMB 50100 million, RMB 100 million and RMB 100 million, respectively.
For the year ended December 31, 2014,2017, the subscription price and corresponding subscription fee for the subscription of fund products was RMB 11,46010,310.12 million (US$1,847 million) 1,584.6million), the redemption price and corresponding redemption fee for the redemption of fund products was RMB 4,41512,017.20 million (US$712 million) 1,847.0million), the sales commission fee and client maintenance fee paid by AMP was zero,RMB 0 million, the management fee and performance-based fee paid by us for the asset management for specific clients was zero,RMB 23.45 million (US$ 3.6million) and the fees for other daily transactions waswere RMB 0.47million0.68 million (US$0.08 million) 0.1million).
Framework Agreement between AMP and China Life Pension
On September 4, 2014,December 23, 2016, China Life Pension and AMP entered into a framework agreement, for the subscriptiona term starting from January 1, 2017 and redemption of fund products, sales of funds and other daily transactions. The agreement became effective upon signing by the parties and will expireending on December 31, 2016.2019. Under the agreement, China Life Pension and AMP will enter into certain daily transactions with AMP, including subscription and redemption of fund products, sales agency services, asset management for specific clients and other daily transactions permitted by laws and regulations. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending on December 31, 2016,2019, the annual caps on the subscription price and corresponding subscription fee for the subscription of fund products are RMB 5,00010,000 million, RMB 10,000 million and RMB 10,000 million, respectively; the annual caps on the redemption price and corresponding redemption fee for the redemption of fund products are RMB 5,00010,000 million, RMB 10,000 million and RMB 10,000 million, respectively; the annual caps on the sales commission fee and client maintenance fee payable by AMP are RMB 50100 million, RMB 100 million and RMB 100 million, respectively; the annual caps on the management fee and performance-based fee payable by China Life Pension for the asset management for specific clients are RMB 100 million, RMB 100 million and RMB 100 million, respectively; and the annual caps on the fees for other daily transactions are RMB 50100 million, RMB 100 million and RMB 100 million, respectively.
For the year ended December 31, 2014,2017, the subscription price and corresponding subscription fee for the subscription of fund products was RMB 534.07 million (US$ 82.1million), the redemption price and corresponding redemption fee for the redemption of fund products was RMB 1,750.70 million (US$ 269.1million), the sales commission fee and client maintenance fee paid by AMP was RMB 0 million , the management fee and performance-based fee paid by China Life Pension for the asset management for specific clients was RMB 0 million and the fees for other daily transactions were each zero.RMB 0 million.
Framework Agreement between AMP and CLIC
On May 30, 2014, December 16, 2016,CLIC and AMP entered into a framework agreement, for a term starting from January 1, 2017 and ending on December 31, 2019. Under the agreement, CLIC will enter into certain daily transactions with AMP, including subscription and redemption of fund products. The agreement became effective upon signing by the partiesproducts and will expire on December 31, 2016. Under the agreement, CLIC and AMP will enter into transactionsasset management for the subscription and redemption of fund products.specific clients. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2016,2019, the annual caps on the subscription price and corresponding subscription fee for the subscription of fund products are RMB 5,00010,000 million, RMB 10,000 million and RMB 10,000 million, respectively; and the annual caps on the redemption price and corresponding redemption fee for the redemption of fund products are RMB 5,00010,000 million, RMB 10,000 million and RMB 10,000 million, respectively; and the annual caps on the management fee and performance-based fee payable by CLIC for the asset management for specific clients are RMB 100 million, RMB 100 million and RMB 100 million, respectively.
For the year ended December 31, 2014,2017, the subscription price and corresponding subscription fee for the subscription of fund products was RMB 4,3804,082.23 million (US$706 627.4 million), and the redemption price and corresponding redemption fee for the redemption of fund products was RMB 3,9277,617.19million (US$ 1,170.7million) and the management fee and performance-based fee payable by CLIC for the asset management for specific clients were RMB 20.41 million (US$633 3.1 million).
Framework Agreement between AMP and CLPCIC
On June 6, 2014,December 22, 2016, CLPCIC and AMP entered into a cooperation framework agreement. The agreement, became effective upon signing by the partiesfor a term starting from January 1, 2017 and will endending on December 31, 2016.2019. Under the agreement, CLPCIC and AMP will enter into certain daily transactions with AMP, including subscription and redemption of fund products, sales agency services, asset management for specific clients and other daily transactions permitted by laws and regulations. Pricing of the transactions under the agreement will be determined by the parties through arm’s length negotiations with reference to the industry practices. For the three years ending December 31, 2016,2019, the annual caps on the subscription price for the fund products are RMB 5,00010,000 million, RMB 10,000 million and RMB 10,000 million, respectively; the annual caps on the redemption price for the fund products are RMB 5,00010,000 million, RMB 10,000 million and RMB 10,000 million, respectively; the annual caps onfor the subscription fee for the fund products are RMB 50100 million, RMB 100 million and RMB 100 million, respectively; the annual caps onfor the redemption fee for the fund products are RMB 50100 million, RMB 100 million and RMB 100 million, respectively; the annual caps on the sales commission fee and client maintenance fee payable by AMP are RMB 50100 million, RMB 100 million and RMB 100 million, respectively; the annual caps on the management fee and performance-based fee payable by CLPCIC for the asset management for specific clients are RMB 100 million, RMB 100 million and RMB 100 million, respectively; and the annual caps on the fees for other daily transactions are RMB 50100 million, RMB 100 million and RMB 100 million, respectively.
For the year ended December 31, 2014,2017, the subscription price for the fund products was RMB 7200 million, (US$116 million), the redemption price for the fund products was RMB 72666.61 million (US$117 10.2 million), the subscription fee for the fund products was zero,RMB 0 million, the redemption fee for the fund products was zero,RMB 0.1 million (US$ 0.02 million), the sales commission fee and client maintenance fee paid by AMP was zero,RMB 0 million , the management fee and performance-based fee payable by CLPCIC for the asset management for specific clients was RMB 2.3 million (US$ 0.4 million) and the fees for other daily transactions were RMB 0.07 million (US$ 0.01 million).
Framework Agreement between AMP and IHC
On December 20, 2017, AMP and IHC entered into a framework agreement which became effective upon signing and will end on December 31, 2019. Under this agreement, IHC will enter into certain daily transactions with AMP, including subscription and redemption of fund products, asset management for specific clients and other daily transactions permitted by laws and regulations. Pricing of the transactions under the framework agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2019, the annual caps on the subscription price and corresponding subscription fee for the subscription of fund products are RMB 5 billion, RMB 7 billion and RMB 7 billion, respectively; the annual caps on the redemption price and corresponding redemption fee for the redemption of fund products are RMB 5 billion, RMB 7 billion and RMB 7 billion, respectively; the annual caps on the management fee and performance-based fee payable by IHC for the asset management for specific clients are RMB 50 million, RMB 50 million and RMB 50 million, respectively; and the annual caps on the fees for other daily transactions are RMB 50 million, RMB 50 million and RMB 50 million, respectively.
For the year ended December 31, 2017, the subscription price and corresponding subscription fee for the subscription of fund products was RMB 0.02688.02 million (US$0.003 105.7 million)., the redemption price and corresponding redemption fee for the redemption of fund products was RMB 0 million, the management fee and performance-based fee payable by IHC for the asset management for specific clients was RMB 0 million, and the fees for other daily transactions were RMB 0 million.
Subscription forAgreements with Chongqing Trust Scheme
Framework Agreement between Chongqing Trust and Us
On October 28, 2014, our board of directors approvedJune 21, 2017, we entered into a framework agreement with Chongqing Trust in relation to the subscription and redemption of trust products and other daily transactions. The framework agreement became effective upon signing by the parties and will expire on December 31, 2019. Under the framework agreement, we and Chongqing Trust will enter into transactions including subscription and redemption of trust products and other daily transactions permitted by laws and regulations. Pricing of the transactions under the framework agreement will be determined by the parties through arm’s length negotiations with reference to industry practices. For the three years ending December 31, 2019, the annual caps on the subscription amount for together with CLIC and CLPCIC and through AMC,the subscription of trust products, including the trustee’s remuneration to be received by Chongqing Trust from the trust unitsassets, are RMB 50 billion, RMB 50 billion and RMB 50 billion, respectively; the annual caps on the redemption amount for the redemption of trust products are RMB 4.5 billion, RMB 4.5billion and RMB 4.5 billion, respectively; and the annual caps on the fees for other daily transactions are RMB 100 million, RMB 100 million and RMB 100 million, respectively.
For the year ended December 31, 2017, the subscription amount for the subscription of trust products was RMB 8,174.00 million (US$ 1,256.3 million), the redemption amount for the redemption of trust products was RMB 0 million and the fees for other daily transactions were RMB 0 million.
Framework Agreement between Chongqing Trust and China Life Wealth
On December 29, 2017, China Life Wealth entered into a framework agreement with Chongqing Trust, pursuant to which China Life Wealth and Chongqing Trust will conduct certain daily transactions, mainly including the subscription of trust products, asset management services, advisory services and other daily transactions. The framework agreement has a term from January 1, 2018 to December 31, 2019. Pricing of the transactions under the trust scheme establishedframework agreement will be determined by Shanghai Trust. CLIC and CLPCIC agreedthe parties through arm’s length negotiations with reference to subscribe for 3 billion and 1 billion trust units of RMB 1 each issued by Shanghai Trust under Phase Iindustry practices. For the two years ending December 31, 2019, the annual caps on the subscription amount of the trust scheme at a price ofproducts (including the trustee’s remuneration to be received by Chongqing Trust from the trust assets) are RMB 310 billion and RMB 110 billion, respectively, while we agreed to subscriberespectively; the annual caps on the management fee for the trust units ofasset management services are RMB 1 each issued by Shanghai Trust under Phase II of150 million and RMB 150 million, respectively, the trust scheme at a price of not more thanannual caps on the advisory fee for advisory services are RMB 6 billion. As of December 31, 2014, we had made our subscription through AMC by installments150 million and RMB 150 million, respectively; and the annual caps on the fees for a total amount ofother daily transactions are RMB 5.96 billion.
The trust funds under the trust scheme will not be more than100 million and RMB 10 billion. The trust funds will be used for the provision of loans to China Huarong Asset Management Co., Ltd., or Huarong Asset, and such loans will only be applied to Huarong Asset’snon-performing assets business that is operated within the business scope of Huarong Asset and in compliance with applicable laws and regulations. Idle funds will only be deposited into banks.100 million, respectively.
Shanghai Trust will distribute trust benefits to the beneficiaries out of the trust assets after deduction of trust costs and other liabilities. The trust benefits to be distributed by Shanghai Trust are mainly derived from the principal of the loan and any interest accrued thereon to be repaid by Huarong Asset.
The trust scheme is expected to have a term of not more than 72 months.
Continuing Related Party Transactions with CGB
During the reporting period, we engaged in continuing related party transactions with CGB pursuant to several negotiated deposit agreements between CGB and us. A detailed discussion of these agreements is set forth in Note 32 to our consolidated financial statements included elsewhere in this annual report and under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual reports on Form20-F filed with the Securities and Exchange Commission on April 26, 2011, April 26, 2012 and April 26, 2013, respectively.
On July 20, 2012, we entered into a strategic cooperation agreement with CGB, pursuant to which we agreed to cooperate with CGB in various areas, including, among others, insurance business, bank cards business, deposit and funds, assets custody, e-commerce, client resources sharing, information technology, product development and brand promotion. With regard to cooperation in the insurance business, CGB undertook to provide bancassurance and corporate group insurance business services on our behalf. Subject to relevant laws and regulations, we undertook to offer our insurance products to CGB under certain preferential terms, while CGB agreed to purchase our products in priority under the same terms and conditions. The term of this agreement is three years.
On April 19, 2012,August 12, 2016, we entered into an insurance products cooperation agreement with CGB, pursuant to which CGB will sell our individual insurance products suitable for sale through banks, as jointly selected by CGB and us. Under this agreement, CGB will act as an intermediary to sell such products and will also act on our behalf to receive premiums and pay insurance benefits.premiums. In return, we will pay CGB a commission fee for each such product sold by it, calculated and paid on a monthly basis, by multiplying (a) total new premiums received in such month minus the premiums for the policies cancelled during thecooling-off period in such month and (b) a fixed commission rate, which ranges from 1.8%1.5% to 25%30%. This agreement has a term of threetwo years. Upon expiration of the three-yeartwo-year term, this agreement will be automatically renewed for successiveone-year terms, provided that no objection has been raised by CGB and we have respectively obtained any required internal approvals.or us.
On June 14, 2013, we entered into a related party transaction framework agreement with CGB. Under this agreement, which has a term of three years ending on December 31, 2015, we and CGB will carry out various deposit andnon-deposit related party transactions. On July 25, 2014, we entered into a revised agreement with CGB, towhich further
A detailed discussion of this related party transaction framework agreement is set forth in Note 32 to our consolidated financial statements included elsewhere in this annual report and under the heading “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” in our annual report on Form20-F filed with the Securities and Exchange Commission on April 25, 2014.2014 and April 22, 2016, respectively. On January 12, 2017, we entered into a new framework agreement with CGB for daily related party transactions, for a term starting from January 1, 2017 and ending on December 31, 2019. Compared to the original agreement, the new framework agreement adjusted the scope of transactions and the classification of transaction types, and also increased the cap of the transaction amounts. A detailed discussion of this new agreement is set forth in our report on Form6-K filed with the Securities and Exchange Commission on November 10, 2016.
As at December 31, 2014,2017, the total amount of our depositsdeposit balance at CGB was RMB 16,287 million (US$2,625 million). The total amount of non-depositfor deposit related party transactions between CGBwas RMB 33,583.74 million and usthe interest incomes arising from these transactions were RMB 1,381.51 million, and the amount of the balance for financial market and peer related party transactions was RMB 0 million and the relevant fees or incomes arising from these transactions were RMB 101.00 million. For the year ended December 31, 20142017, the amount of the financing related party transactions was RMB 8540 million, (US$138 million).
Capital Injection to CLPCIC
On June 9, 2014, we entered into a capital injection agreement with CLICthe amount of investment and CLPCIC, pursuant to which we injected RMB 2,800 million (US$451 million) and CLIC injected RMB 4,200 million into CLPCIC. Prior to the capital injection, the registered capital of CLPCICwealth management related party transactions was RMB 8,0004,330.00 million, and was held 40% by us and 60% by CLIC. Upon completionthe amount of the capital injection, CLPCIC’s registered capitalco-investment related party transactions was increased to RMB 15,0000 million, the scale of entrusted funds under enterprise annuity related party transactions was RMB 0 million and the shareholding proportion between CLICamount of transaction fees related to enterprise annuity related party transactions (including management fee, entrustment fee, account management fee and us remained unchanged. On July 7, 2014, the capital injection was approved by the CIRC.
Capital Injection to China Life Pension
On October 30, 2014, we entered into a capital injection agreement with AMP Life Limited and China Life Pension, pursuant to which we injected approximately RMB 441 million (US$71 million) and AMP Life Limited injected approximately RMB 1,359 million into China Life Pension. Prior to the capital injection, the registered capital of China Life Pensionperformance-based fee) incurred was RMB 2.5 billion0 million, the amount of transaction fees related to asset management related party transactions (including management fee, service fee and handling fee) incurred was held 87.4%, 6%, 4.8%RMB 0 million, the amount of transactions fees related to entrustment related party transactions (including entrustment fee, service fee and 1.8% by us, CLIC, AMChandling fee) incurred was RMB 0 million, the amount of transaction fees related to agency related party transactions (including agency fee, service fee and China Credit Trust Co., Ltd., or CCT, respectively. Upon completionhandling fee) incurred was RMB 91.96 million and the amount of the capital injection, China Life Pension’s registered capitalother daily related party transactions was increased to RMB 3.4 billion and was held 70.74%, 4.41%, 3.53%, 1.33% and 19.99% by us, CLIC, AMC, CCT and AMP Life Limited, respectively. On December 31, 2014, the capital injection was approved by the CIRC.56.92 million.
Compliance with HKSE Listing Rules
The policy management agreement between CLIC and us, the asset management agreement between AMC and us, and the insurance sales framework agreement between CLPCIC and us, the framework agreements between China Life Wealth and each of us, CLIC, CLPCIC, China Life Overseas, IHC, China Life Pension and China LifeE-commerce, the framework agreement entered into by AMP with IHC, and the framework agreement entered into by China Life Wealth with Chongqing Trust are only subject to reporting, announcement and annual review requirements under the HKSE Listing Rules and are exempt from independent shareholders’ approval requirements. In compliance with applicable HKSE Listing Rules requirements, we made announcements disclosing these transactions on December 15, 2011,19, 2014, December 27, 2012, March 8, 2012, January 4, 2013 and22, 2015, August 25, 2016, October 26, 2017, December 19, 2014,2017, respectively.
The property purchase frameworknew asset management agreement entered into between IHC and us on June 30, 2017 is subject to reporting, announcement, annual review and announcementindependent shareholders’ approval requirements only under the HKSE Listing Rules and is exempt from independent shareholders’ approval. In compliance with applicable HKSE Listing Rules requirements, we made an announcement disclosing this transaction on June 27, 2012.
The subscription by CLIC, CLPCIC and us for the trust units under the trust scheme established by Shanghai Trust is subject to reporting and announcement requirements only under the HKSE Listing Rules and is exempt from independent shareholders’ approval. In compliance with applicable HKSE Listing Rules requirements, we made an announcement disclosing this transaction on October 28, 2014.
The capital injection by us into CLPCIC is subject to reporting and announcement requirements only and is exempt from independent shareholders’ approval under the HKSE Listing Rules. However, the transaction is subject to approval by the shareholders’ general meeting of our company under the SSE Listing Rules. We made an announcement disclosing this transaction on March 25, 201423, 2017 and obtained the approval of the shareholders’ general meeting of our company on May 29, 2014.
The new asset management agreement entered into between IHC and us on December 31, 2014 is subject to reporting, announcement and annual review requirements only and is exempt from independent shareholders’ approval under the HKSE Listing Rules. However, the transaction is subject to approval by the shareholders’ general meeting of our company under the SSE Listing Rules. We made an announcement disclosing this transaction on October 28, 2014 and obtained the approval of the shareholders’ general meeting of our company on December 29, 2014.2017.
The framework agreements entered into by AMP with us, China Life Pension, CLIC and CLPCIC, respectively, are subject to reporting, announcement, annual review and independent shareholders’ approval requirements under the HKSE Listing Rules. In compliance with applicable HKSE Listing Rules requirements, we made an announcement disclosing these transactions on April 25, 2014October 27, 2016 and obtained the approval of the shareholders’ general meeting of our company on December 27, 2016.
The framework agreement entered into between us and Chongqing Trust on June 21, 2017 in relation to the subscription and redemption of trust products and other daily transactions is subject to reporting, announcement, annual review and independent shareholders’ approval requirements under the HKSE Listing Rules. In compliance with applicable HKSE Listing Rules requirements, we made an announcement disclosing this transaction on March 23, 2017 and obtained the approval of the shareholders’ general meeting of our company on May 29, 2014.31, 2017.
The remaining related party transactions discussed above, other than the transactions with CGB, are exempt from reporting, announcement and independent shareholders’ approval requirements under the HKSE Listing Rules. The related party transactions with CGB are not regarded as connected transactions for us under the HKSE Listing Rules.
Confirmation of IndependentNon-executive Directors:
Our independentnon-executive directors have reviewed the policy management agreement between CLIC and us, the asset management agreement between AMC and us, the insurance sales framework agreement between CLPCIC and us, the framework agreements between China Life Wealth and each of us, CLIC, CLPCIC, China Life Overseas, IHC, China Life Pension and China LifeE-commerce, the asset management agreement between us and IHC, and the framework agreements between AMP and each of us, China Life Pension, CLIC, CLPCIC, and CLPCIC,IHC, the framework agreement between Chongqing Trust and us, and the framework agreement between China Life Wealth and Chongqing Trust, and which were subject to reporting, announcement, annual review and/or independent shareholders’ approval requirements under the HKSE Listing Rules and confirmed that:
1) | the transactions were entered into in the ordinary and usual course of our business; |
2) | the transactions were conducted |
3) | the transactions were |
4) | the amounts of the transactions had not exceeded the relevant annual caps as announced by us. |
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION.
A. CONSOLIDATEDA.CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION
Our audited consolidated financial statements are set forth beginning on pageF-1.
Legal and Regulatory Proceedings
We are involved in litigation and arbitration proceedings involving our insurance operations on an ongoing basis. In addition, the CIRC,CBIRC (formerly CIRC), as well as other PRC governmental agencies, including tax, commerce and industrial administration and audit bureaus, from time to time make inquiries and conduct examinations, audits or investigations concerning our compliance with PRC laws and regulations. These litigation, arbitration and administrative proceedings have in the past resulted in damage awards, settlements or administrative sanctions, including fines, which have not been material to us. While we cannot predict the outcome of any pending or future litigation, arbitration, examination or investigation, we do not believe that any pending legal matter will have a material adverse effect on our business, financial condition or results of operations. However, we cannot assure you that any future litigation, arbitration or regulatory proceeding will not have an adverse outcome, which could have a material adverse effect on our operating results or cash flows.
We currently have control procedures in place to monitor our litigation, arbitration and regulatory exposure. We have established a systematic prevention system whereby our management at each corporate level is responsible for compliance with laws, regulations and internal codes of conduct within their individual territories or departments. Our branches at the provincial level are required to report material litigation, arbitration and regulatory matters to our corporate headquarters on a timely basis. We plan to continue to improve our control and compliance policies in the future.
We may penalize or punish our employees or individualexclusive agents who commit misconduct or fraud, breach the terms of their employment or agency agreements, exceed their authorization limits or fail to follow prescribed procedures in delivering insurance policies and premium payments, in each case having regard to the severity of the offense. Employees or individualexclusive agents are required to reimburse us for any losses suffered by us resulting from their misconduct or fraud. In serious cases, we may terminate their employment or agency agreements. We report criminal offenses to the PRC authorities and may also bring concurrent civil actions against employees or individualexclusive agents. We have experienced agent and employee misconduct that has resulted in litigation, arbitration and administrative actions against us and these agents and employees, and in some cases criminal proceedings and convictions against the agent or employee in question. None of these actions has resulted in material losses, damages, fines or other sanctions against us. We cannot assure you, however, that agent or employee misconduct will not lead to a material adverse effect on our business, results of operations or financial condition.
Policy on Dividend Distributions
Our board of directors has passed a resolution on March 24, 201522, 2018 to propose for approval at the annual general meeting of the declaration of final dividends of RMB 0.40 per0.40per share, totaling approximately RMB 11,306 million (US$1,822 million) 1,738million), for the year ended December 31, 2014.2017. The proposed dividends have not been provided in our consolidated financial statements for the year ended December 31, 2014.2017.
The payment of any dividend by us must be approved by shareholders in a shareholders’ meeting. Our board of directors intends to make its recommendations regarding the declaration of cash dividends to the shareholders in general meeting. Themeeting.The decision to make a recommendation for the payment of any dividend and the amount of the dividend will depend on:
We will pay dividends out of ourafter-tax profits only after we have made the following allowances and allocations:
When the statutory common reserve fund reaches and is maintained at or above 50% of our registered capital, as determined under PRC GAAP, no further allocations to this fund will be required.
Under Chinese law, dividends may be paid only out of distributable profits. Anyprofits.Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years. However, ordinarily we will not pay any dividends in a year in which we do not have any distributable profits.
Payment of dividends by us is also regulated by the PRC insurance law. If we do not meet the minimum solvency margin required by the CIRC,CBIRC (formerly CIRC), we may be prohibited from paying dividends. See “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Solvency requirements”.
We paid dividends of RMB 0.14 per0.30per share in respect of 2006,2013, RMB 0.40per share in respect of 2014, RMB 0.42 per share in respect of 2007,2015 and RMB 0.230.24 per share in respect of 2008, RMB 0.70 per share in respect 2009, RMB 0.40 per share in respect of 2010, RMB 0.23 per share in respect of 2011, RMB 0.14 per share in respect of 2012 and RMB 0.30 per share in respect of 2013.2016. Our board of directors has recommended the declaration of final dividends of RMB0.40 perRMB 0.40per share in respect of 2014.2017. We expect to continue to pay dividends in line with our financial performance thereafter. We will declare dividends, if any, in Renminbi with respect to the H shares on a per share basis and will pay such dividends in Hong Kong dollars.
B. SIGNIFICANTB.SIGNIFICANT CHANGES
We are not awareAs of anythe date of this annual report, there was no significant changeschange since the date of the consolidated financial statements included infiled as part of this annual report.report that has or is reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Background
China Life prepares financial statements to public investors in accordance with the relevant accounting standards. An alternative measure of the value and profitability of a life insurance company can be provided by the embedded value method. Embedded value is an actuarially determined estimate of the economic value of the life insurance business of an insurance company based on a particular set of assumptions about future experience, excluding the economic value of future new business. In addition, the value of one year’s sales represents an actuarially determined estimate of the economic value arising from new life insurance business issued in one year based on a particular set of assumptions about future experience.
China Life believes that reporting our embedded value and value of one year’s sales provides useful information to investors in two respects. First, the value of ourin-force business represents the total amount of shareholders’ interest in distributable earnings, in present value terms, which can be expected to emerge over time, in accordance with the assumptions used. Second, the value of one year’s sales provides an indication of the value created for investors by new business activity based on the assumptions used and hence the potential of the business. However, the information on embedded value and value of one year’s sales should not be viewed as a substitute of financial measures under the relevant accounting basis. Investors should not make investment decisions based solely on embedded value information and the value of one year’s sales.
It is important to note that actuarial standards with respect to the calculation of embedded value are still evolving. There is still no universal standard which defines the form, calculation methodology or presentation format of the embedded value of an insurance company. Hence, differences in definition, methodology, assumptions, accounting basis and disclosures may cause inconsistency when comparing the results of different companies.
Also, the calculation of embedded value and value of one year’s sales involves substantial technical complexity and estimates can vary materially as key assumptions are changed. Therefore, special care is advised when interpreting embedded value results.
The values shown below do not consider the future financial impact of transactions between China Life and CLIC, IHC, AMC, China Life Pension, CLPCIC, and etc.
Definitions of Embedded Value and Value of One Year’s Salesyear’s sales
The embedded value of a life insurer is defined as the sum of the adjusted net worth and the value ofin-force business allowing for the cost of required capital supporting a company’s desired solvency margin.
“Adjusted net worth” is equal to the sum of:
The market value of assets can fluctuate significantly over time due to the impact of the prevailing market environment. Hence the adjusted net worth can fluctuate significantly between valuation dates.
The “value ofin-force business” and the “value of one year’s sales” are defined here as the discounted value of the projected stream of future after-taxshareholders’ interest in distributable profitsearnings for existingin-force business at the valuation date and for one year’s sales in the 12 months immediately preceding the valuation date. Distributable profits arise after allowance for PRC solvency reserves and solvency margins at the required regulatory minimum level.
The value ofin-force business and the value of one year’s sales have been determined using a traditional deterministic discounted cash flow methodology. This methodology makes implicit allowance for the cost of investment guarantees and policyholder options, asset/liability mismatch risk, credit risk, the risk of operating experience’s fluctuation and the economic cost of capital through the use of a risk-adjusted discount rate.
Preparation and Review
The embedded value and the value of one year’s sales were prepared by China Life in accordance with “Life Insurancethe “CAA Standards of Actuarial Practice: Appraisal of Embedded Value Reporting Guidelines”Value” issued by the CIRC.China Association of Actuaries (“CAA”) in November 2016. Willis Towers Watson, an international firm of consultants, performed a review of China Life’s embedded value. The review statement from Willis Towers Watson is contained in the “Towers“Willis Towers Watson’s review opinion report on embedded value” section.
On 15 May 2012, the MOF and SAT issued the “Notice on Corporate Income Tax Deduction of Reserves for Insurance Companies” (Cai Shui [2012] No. 45), requiring the taxation basis to be based on accounting profits. Based on the above regulation, in preparing the 2014 embedded value report, the adjusted net worth has reflected the tax treatment in accordance with accounting profits. When calculating the value of in-force business and value of one year’s sales, as there is uncertainty in the accounting liability assumptions in future valuation periods (such as valuation interest rates), correspondingly, numerous scenarios could be possible as to future accounting profits. Consequently, we have adopted the profits based on the solvency liability in projecting future tax payable in the base scenario. We also disclose the value of in-force business and value of one year’s sales calculated using tax payable based on the accounting profits in accordance to the “Provisions on the Accounting Treatment Related to Insurance Contracts” under one possible scenario in the table 4 of “Sensitivity Results”.
Assumptions
Economic assumptions:
The calculations are based upon assumed corporate tax rate of 25% for all years. The investment returns arereturn is assumed to be grading from 5.1% to 5.5% by 0.1% every year (remaining level thereafter)5%. 12%13% grading to 17% by 1% every year (remaining level thereafter) of the investment return is assumed to be exempt from income tax. These investment return and tax exempt assumptions are based on our strategic asset mix and expected future returns. The risk-adjusted discount rate used is 11%10%.
Other operating assumptions such as mortality, morbidity, lapses and expenses are based on our recent operating experience and expected future outlook.
Summary of Results
The embedded value as at 31 December 20142017 and the value of one year’s sales for the 12 months toended 31 December 2014, and their2017, the corresponding results as at 31 December 20132016 are shown below:
Table 1
Components of Embedded Value and Value of One Year’s Sales | Components of Embedded Value and Value of One Year’s Sales | RMB million | Components of Embedded Value and Value of One Year’s Sales | RMB million | ||||||||||||||||
ITEM | December 31, 2014 | December 31, 2013 | ITEM | 31 December, 2017 | 31 December, 2016 | |||||||||||||||
A | Adjusted Net Worth | 194,236 | 107,522 | Adjusted Net Worth | 370,500 | 349,528 | ||||||||||||||
B | Value of In-Force Business before Cost of Solvency Margin | 300,712 | 271,837 | Value ofIn-Force Business before Cost of Required Capital | 398,723 | 332,317 | ||||||||||||||
C | Cost of Solvency Margin | (40,042 | ) | (37,135 | ) | Cost of Required Capital | (35,050 | ) | (29,787 | ) | ||||||||||
D | Value of In-Force Business after Cost of Solvency Margin (B+C) | 260,670 | 234,702 | Value ofIn-Force Business after Cost of Required Capital (B+C) | 363,673 | 302,530 | ||||||||||||||
E | Embedded Value (A + D) | 454,906 | 342,224 | Embedded Value (A + D) | 734,172 | 652,057 | ||||||||||||||
F | Value of One Year’s Sales before Cost of Solvency Margin | 26,633 | 24,421 | Value of One Year’s Sales before Cost of Required Capital | 64,627 | 53,952 | ||||||||||||||
G | Cost of Solvency Margin | (3,380 | ) | (3,120 | ) | Cost of Required Capital | (4,510 | ) | (4,641 | ) | ||||||||||
H | Value of One Year’s Sales after Cost of Solvency Margin (F + G) | 23,253 | 21,300 | Value of One Year’s Sales after Cost of Required Capital (F + G) | 60,117 | 49,311 |
NotesNote: Numbers may not be additive due to rounding.:
Value of One Year’s Sales by Channel
The value of one year’s sales for the 12 months ended 31 December 2017 by channel is shown below:
Table 2
Value of One Year’s Sales by Channel | RMB million | |||||||
Channel | 31 December, 2017 | 31 December, 2016 | ||||||
Exclusive Individual Agent Channel | 53,170 | 46,326 | ||||||
Bancassurance Channel | 6,536 | 2,610 | ||||||
Group Insurance Channel | 410 | 375 | ||||||
|
|
|
| |||||
Total | 60,117 | 49,311 | ||||||
|
|
|
|
Note: Numbers may not be additive due to rounding.
The new business margin of one year’s sales for the 12 months ended 31 December 2017 by channel is shown below:
Table 23
Value
New Business Margin of One Year’s Sales by Channel | ||||||||||||||||
By FYP | By APE | |||||||||||||||
Channel | 31 December, 2017 | 31 December, 2016 | 31 December, 2017 | 31 December, 2016 | ||||||||||||
Exclusive Individual Agent Channel | 47.2 | % | 51.1 | % | 47.3 | % | 51.2 | % | ||||||||
Bancassurance Channel | 8.0 | % | 3.0 | % | 23.2 | % | 10.2 | % | ||||||||
Group Insurance Channel | 1.1 | % | 1.0 | % | 1.1 | % | 1.1 | % |
Note: FYP (First Year Premium) is the written premium used for calculation of One Year’s Sales by Channelthe value of one year’s sales and APE (Annual Premium Equivalent) is calculated as the sum of 100 percent of first year regular premiums and 10 percent of single premiums.
RMB million | ||||||||
Value of One Year’s Sales | ||||||||
Channel | 2014 | 2013 | ||||||
Exclusive Individual Agent Channel | 21,740 | 19,639 | ||||||
Group Insurance Channel | 464 | 532 | ||||||
Bancassurance Channel | 1,048 | 1,129 | ||||||
|
|
|
| |||||
Total | 23,253 | 21,300 | ||||||
|
|
|
|
Notes:
Movement Analysisanalysis
The following analysis tracks the movement of the embedded value from the start to the end of 2014.the reporting period:
Table 34
Analysis of Embedded Value Movement in 2014
Analysis of Embedded Value Movement in 2017 | RMB million | |||||
ITEM | ||||||
A | Embedded Value at the Start of Year | |||||
B | Expected Return on Embedded Value | |||||
C | Value of New Business in the Period | |||||
D | Operating Experience Variance | |||||
E | Investment Experience Variance | ) | ||||
F | Methodology, Model and Assumption Changes | ( | ) | |||
G | Market Value and Other Adjustments | ) | ||||
H | Exchange Gains or Losses | ) | ||||
I | Shareholder Dividend Distribution and Capital Injection | ( | ) | |||
J | Other | ( | ) | |||
K | Embedded Value as at 31 December |
Notes:
1) | Numbers may not be additive due to rounding. |
2) | Items B through J are explained below: |
B | Reflects expected impact of covered business, and the expected return on investments supporting the |
C | Value of |
D | Reflects the difference between actual operating experience in |
E | Compares actual with expected investment returns during |
F | Reflects the |
G | Change in the market value adjustment from the beginning of year |
H | Reflects the gains or losses due to changes in exchange rate. |
I | Reflects dividends distributed to shareholders during |
J | Other miscellaneous items. |
Sensitivity Results
Sensitivity testing wastests were performed using a range of alternative assumptions. In each of the sensitivity tests, only the assumption referred to was changed, with all other assumptions remaining unchanged. The results are summarized below:
Table 45
Sensitivity Results
RMB million | ||||||||||
Value of in-force business after cost of solvency | Value of one year’s sales after cost of solvency margin | |||||||||
Base case scenario | 260,670 | 23,253 | ||||||||
1. | Risk discount rate of 11.5% | 248,363 | 21,962 | |||||||
2. | Risk discount rate of 10.5% | 273,875 | 24,640 | |||||||
3. | 10% increase in investment return | 301,993 | 26,555 | |||||||
4. | 10% decrease in investment return | 219,647 | 19,971 | |||||||
5. | 10% increase in expenses | 257,909 | 21,435 | |||||||
6. | 10% decrease in expenses | 263,431 | 25,070 | |||||||
7. | 10% increase in mortality rate for non-annuity products and 10% decrease in mortality rate for annuity products | 258,517 | 23,128 | |||||||
8. | 10% decrease in mortality rate for non-annuity products and 10% increase in mortality rate for annuity products | 262,860 | 23,378 | |||||||
9. | 10% increase in lapse rates | 259,675 | 22,863 | |||||||
10. | 10% decrease in lapse rates | 261,613 | 23,585 | |||||||
11. | 10% increase in morbidity rates | 258,351 | 23,118 | |||||||
12. | 10% decrease in morbidity rates | 263,013 | 23,388 | |||||||
13. | 10% increase in claim ratio of short term business | 260,316 | 22,045 | |||||||
14. | 10% decrease in claim ratio of short term business | 261,024 | 24,460 | |||||||
15. | Solvency margin at 150% of statutory minimum | 241,056 | 21,519 | |||||||
16. | Using 2013 EV assumptions | 263,638 | 23,274 | |||||||
17. | Taxable income based on the accounting profit in accordance to the Provisions on the Accounting Treatment Related to Insurance Contracts under one possible scenario | 262,577 | 22,894 |
Note: Taxable income is based on earnings calculated using solvency reserves for Scenarios 1 to 16.
Sensitivity Results | RMB million | |||||||||
Value of In-Force Business after Cost of Required Capital | Value of One Year’s Sales after Cost of Required Capital | |||||||||
Base case scenario | 363,673 | 60,117 | ||||||||
1. | Risk discount rate +50bps | 347,884 | 57,470 | |||||||
2. | Risk discount rate -50bps | 380,622 | 62,964 | |||||||
3. | Investment return +50bps | 425,453 | 68,690 | |||||||
4. | Investment return -50bps | 302,186 | 51,558 | |||||||
5. | 10% increase in expenses | 358,884 | 56,878 | |||||||
6. | 10% decrease in expenses | 368,460 | 63,356 | |||||||
7. | 10% increase in mortality rate fornon-annuity products and 10% decrease in mortality rate for annuity products | 361,113 | 59,400 | |||||||
8. | 10% decrease in mortality rate fornon-annuity products and 10% increase in mortality rate for annuity products | 366,227 | 60,835 | |||||||
9. | 10% increase in lapse rates | 363,021 | 59,149 | |||||||
10. | 10% decrease in lapse rates | 364,137 | 61,030 | |||||||
11. | 10% increase in morbidity rates | 358,936 | 58,997 | |||||||
12. | 10% decrease in morbidity rates | 368,448 | 61,235 | |||||||
13. | Using 2016 EV appraisal assumptions | 357,052 | 60,114 |
Willis Towers Wastson’sWatson’s Review Opinion Report on Embedded Value
To The Directors of China Life Insurance Company Limited
China Life Insurance Company Limited (“China Life”) has prepared embedded value results for the financial year endedas at 31 December 20142017 (“EV Results”). The disclosure of these EV Results, together with a description of the methodology and assumptions that have been used, are shown in the Embedded Value section.
China Life has engaged Towers Watson Management Consulting (Shenzhen) Co. Ltd. Beijing Branch (“Willis Towers Watson”) to review its EV Results. This report is addressed solely to China Life in accordance with the terms of our engagement letter, and sets out the scope of our work and our conclusions. To the fullest extent permitted by applicable law, we do not accept or assume any responsibility, duty of care or liability to anyone other than China Life for or in connection with our review work, the opinions we have formed, or for any statement set forth in this report.
Scope of work
Our scope of work covered:
In carrying out our review, we have relied on the accuracy of audited and unaudited data and information provided by China Life.
Opinion
Based on the scope of work above, we have concluded that:
For and on behalf of Willis Towers Watson
Michael Freeman Benjamin Chen
24th22 March 20152018
ITEM 9. THE OFFER AND LISTING.
In connection with our initial public offering, our American depositary shares, or ADSs, each representing 40 H shares, were listed and commenced trading on New York Stock Exchange on December 17, 2003 under the symbol “LFC”. Our H shares were listed and commenced trading on the Hong Kong Stock Exchange on December 18, 2003 under the stock code “2628”. Prior to these listings, there was no public market for our equity securities. The New York Stock Exchange and the Hong Kong Stock Exchange are the principal trading markets for our ADSs and H shares, which are not listed on any other exchanges in or outside the United States.
On December 29, 2006, the ratio of ADSs to H shares was reduced from 40 H shares to 15 H shares. On May 26, 2015, the ratio of ADSs to H shares was further reduced from 15 H shares to 5 H shares. Our A shares were listed and commenced trading on the Shanghai Stock Exchange on January 9, 2007 under the stock code “601628”.
The high and low closing sale prices of the H shares on the HKSE, the ADSs on the NYSE and the A shares on the SSE for the periods indicated are as follows(1):
Price per H Share (HK$) | Price per ADS (2) (US$) | Price per A share (RMB) | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Annual | ||||||||||||||||||||||||
2010 | 39.3000 | 29.7000 | 76.14 | 57.36 | 31.4200 | 20.9000 | ||||||||||||||||||
2011 | 32.6000 | 17.2400 | 62.93 | 33.52 | 22.3200 | 14.8100 | ||||||||||||||||||
2012 | 25.3000 | 17.0600 | 49.69 | 33.47 | 21.4000 | 15.8700 | ||||||||||||||||||
2013 | 27.2000 | 17.5000 | 52.62 | 34.27 | 21.9200 | 12.9100 | ||||||||||||||||||
2014 | 30.5000 | 19.7800 | 58.84 | 38.59 | 34.1500 | 13.0700 | ||||||||||||||||||
Quarterly | ||||||||||||||||||||||||
First Quarter, 2013 | 27.2000 | 20.1000 | 52.62 | 39.42 | 21.9200 | 17.0400 | ||||||||||||||||||
Second Quarter, 2013 | 22.3000 | 17.7200 | 43.56 | 34.54 | 17.6700 | 13.4200 | ||||||||||||||||||
Third Quarter, 2013 | 21.4500 | 17.5000 | 41.42 | 34.27 | 15.0100 | 12.9100 | ||||||||||||||||||
Fourth Quarter, 2013 | 25.7000 | 19.6200 | 49.50 | 38.06 | 16.4600 | 13.4300 | ||||||||||||||||||
First Quarter, 2014 | 24.2500 | 20.1500 | 45.37 | 39.00 | 15.1300 | 13.0700 | ||||||||||||||||||
Second Quarter, 2014 | 22.7500 | 19.7800 | 43.63 | 38.59 | 14.8100 | 13.4200 | ||||||||||||||||||
Third Quarter, 2014 | 23.9500 | 20.2500 | 46.95 | 39.38 | 15.9100 | 13.6200 | ||||||||||||||||||
Fourth Quarter, 2014 | 30.5000 | 21.2500 | 58.84 | 40.92 | 34.1500 | 14.8400 | ||||||||||||||||||
First Quarter, 2015 | 34.0500 | 29.6000 | 67.24 | 56.60 | 40.6300 | 31.9800 | ||||||||||||||||||
Monthly | ||||||||||||||||||||||||
October 2014 | 23.2000 | 21.2500 | 44.75 | 40.92 | 16.1600 | 14.8400 | ||||||||||||||||||
November 2014 | 27.0000 | 22.6500 | 52.39 | 43.86 | 22.6000 | 15.7800 | ||||||||||||||||||
December 2014 | 30.5000 | 25.6500 | 58.84 | 49.49 | 34.1500 | 21.7900 | ||||||||||||||||||
January 2015 | 32.5500 | 29.6000 | 63.51 | 56.60 | 40.6300 | 31.9800 | ||||||||||||||||||
February 2015 | 33.2500 | 29.9000 | 64.28 | 58.40 | 38.7600 | 33.6800 | ||||||||||||||||||
March 2015 | 34.0500 | 30.4000 | 67.24 | 58.52 | 38.4500 | 34.9200 | ||||||||||||||||||
April 2015 (through April 22, 2015) | 40.0000 | 34.7500 | 78.53 | 68.14 | 41.1900 | 37.4800 |
Price per H Share (HK$) | Price per ADS (2) (US$) | Price per A share (RMB) | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Annual | ||||||||||||||||||||||||
2013 | 27.2000 | 17.5000 | 52.62 | 34.27 | 21.9200 | 12.9100 | ||||||||||||||||||
2014 | 30.5000 | 19.7800 | 58.84 | 38.59 | 34.1500 | 13.0700 | ||||||||||||||||||
2015 | 40.0000 | 24.3000 | 78.53 | 15.14 | 41.1900 | 21.3500 | ||||||||||||||||||
2016 | 23.8000 | 16.2800 | 15.22 | 10.23 | 26.9200 | 19.6600 | ||||||||||||||||||
2017 | 27.7000 | 20.6000 | 17.76 | 13.29 | 34.7000 | 23.8100 | ||||||||||||||||||
Quarterly | ||||||||||||||||||||||||
First Quarter, 2016 | 23.8000 | 16.3200 | 15.22 | 10.33 | 26.9200 | 19.6600 | ||||||||||||||||||
Second Quarter, 2016 | 19.7400 | 16.2800 | 12.89 | 10.23 | 24.0400 | 20.2600 | ||||||||||||||||||
Third Quarter, 2016 | 21.5000 | 16.3200 | 13.83 | 10.51 | 22.4000 | 20.5700 | ||||||||||||||||||
Fourth Quarter, 2016 | 22.7000 | 19.0600 | 14.63 | 12.22 | 26.2200 | 21.3100 | ||||||||||||||||||
First Quarter, 2017 | 25.2000 | 20.6000 | 16.23 | 13.29 | 26.8600 | 24.4300 | ||||||||||||||||||
Second Quarter, 2017 | 25.6000 | 22.5000 | 16.51 | 14.33 | 29.0000 | 23.8100 | ||||||||||||||||||
Third Quarter, 2017 | 25.8000 | 23.1500 | 16.53 | 14.82 | 30.0100 | 26.7200 | ||||||||||||||||||
Fourth Quarter, 2017 | 27.7000 | 23.7500 | 17.76 | 15.08 | 34.7000 | 27.4000 | ||||||||||||||||||
First Quarter, 2018 | 26.9500 | 21.6000 | 17.21 | 13.83 | 31.9500 | 25.4100 | ||||||||||||||||||
Monthly | ||||||||||||||||||||||||
October 2017 | 25.8000 | 23.7500 | 16.67 | 15.08 | 31.4000 | 27.4000 | ||||||||||||||||||
November 2017 | 27.7000 | 25.3500 | 17.76 | 16.36 | 34.7000 | 30.9800 | ||||||||||||||||||
December 2017 | 25.4500 | 23.9500 | 16.12 | 15.38 | 32.1900 | 30.1400 | ||||||||||||||||||
January 2018 | 26.9500 | 24.3500 | 17.21 | 15.55 | 31.8300 | 29.6500 | ||||||||||||||||||
February 2018 | 26.5500 | 22.7500 | 16.65 | 14.60 | 31.9500 | 26.2300 | ||||||||||||||||||
March 2018 | 23.5000 | 21.6000 | 14.98 | 13.83 | 27.5600 | 25.4100 | ||||||||||||||||||
April 2018 (through April 18, 2018) | 22.0500 | 21.2500 | 14.04 | 13.55 | 25.7500 | 24.1100 |
(1) | Source: Yahoo! Finance (http://finance.yahoo.com). |
(2) | Each ADS |
ITEM 10. ADDITIONAL INFORMATION.
Not applicable.
The following is a brief summary of certain provisions of our current articles of association, the PRC company law and certain other laws and regulations applicable to us. Such summary is not purported to be complete. For further information, you should refer to the full text of our articles of association and to the texts of applicable laws and regulations.
Objects and Purposes
We are organized under the PRC company law as a joint stock company. We are registered with the SAIC in Beijing, China and our business license carries the registration number 100000000037965.
Our business scope, set forth in Article 10 of our articles of association, is to engage in life, accident and health insurance businesses; reinsurance business relating to the foregoing; fund investment businesses authorized by laws, regulations or the State Council; agency business, consulting business and provision of services, in each case relating to life insurance; fund sales business; and other business as approved by the insurance regulatory authority of the PRC.
Sources of Shareholders’ Rights
The primary sources of shareholders’ rights are the PRC company law, our articles of association, Special Rules applicable to overseas listed joint stock companies promulgated by the State Council, or Special Rules, relevant CSRC regulations, the Shanghai Stock Exchange Listing Rules,and the Hong Kong Stock Exchange Listing Rules that, among other things, impose certain standards of conduct, fairness and disclosure on us, our directors and CLIC, our controlling shareholder. The PRC company law was enacted in December 1993 and serves as the primary body of law regulating corporate actions of companies organized in the PRC and its directors and shareholders.
Our articles of association have incorporated the provisions set forth in the Mandatory Provisions for the Articles of Association of Companies Listed Overseas, or the Mandatory Provisions, adopted in 1994 pursuant to the requirements of the CSRC and the provisions set forth in the Guidelines on the Articles of Association of Listed Companies, or the Guidelines, as amended in 20062014 by the CSRC. Any amendment to the relevant mandatory provisions will only become effective after approval by the relevant governmental departments authorized by the State Council and the CSRC. The Hong Kong Stock Exchange Listing Rules require a number of provisions in addition to the Mandatory Provisions to be included in our articles of association.
According to the HKSE Listing Rules, we may not amend certain provisions of our articles of association that have been mandated by the Hong Kong Stock Exchange. These provisions include, among others:
In addition, upon the listing of the H shares and for so long as the H shares are listed on the Hong Kong Stock Exchange, we are subject to the relevant ordinances, rules and regulations applicable to companies listed on the Hong Kong Stock Exchange, including, among other things, the Hong Kong Stock Exchange Listing Rules, the Securities and Futures Ordinance and the Hong Kong Codes on Takeovers and Mergers and Share Repurchases.
Unless otherwise specified, all rights, obligations and protections discussed below are derived from our articles of association and the PRC company law.
Enforceability of Shareholders’ Rights
Enforceability of our shareholders’ rights may be limited.
In accordance with the rules applicable to Chinese overseas listed companies, our articles of association provide that, with certain limited exceptions, all disputes or claims based on our articles of association, the PRC company law or other relevant laws or administrative rules, and concerning matters between holders of H shares and holders of A shares, us, or our directors, supervisors, president, vice presidents or other senior officers, must be submitted for arbitration at either the China International Economic and Trade Arbitration Commission or the Hong Kong International Arbitration Center. If an applicant chooses to have the dispute arbitrated at the Hong Kong International Arbitration Center, either party may request that venue be changed to Shenzhen, a city in mainland China near Hong Kong. The governing law for the above-mentioned disputes or claims is Chinese law unless otherwise provided by Chinese law. Any such arbitration will be final and conclusive.
In June 1999, an arrangement was made between the People’s Courts of the PRC and the courts of Hong Kong for mutual enforcement of arbitration rewards rendered in the PRC and Hong Kong according to their respective laws. This arrangement was approved by the Supreme Court of the PRC and the Hong Kong Legislative Council and became effective on February 1, 2000.
There has not been any published report of judicial enforcement in the PRC by H shareholders of their rights under charter documents of PRC joint stock companies or the PRC company law or in the application or interpretation of the PRC or Hong Kong regulatory provisions applicable to PRC joint stock companies.
The PRC company law allows shareholders to sue, on behalf of the corporation, against persons, including corporate officers, directors, who have allegedly wronged the corporation, where the corporation itself has failed to enforce such claim against such persons directly. Class action lawsuits based on violations of securities laws are generally not available.
We are subject to the Hong Kong Exchange Listing Rules, the Hong Kong Securities and Futures Ordinance, or Securities and Futures Ordinance, and the Hong Kong Codes on Takeovers and Mergers and Share Repurchases. However, holders of H shares will not be able to bring actions on the basis of violations of the Hong Kong Stock Exchange Listing Rules and must instead rely on the Hong Kong Stock Exchange to enforce its rules. The Hong Kong Codes on Takeovers and Mergers and Share Repurchases do not have the force of law and are only standards of commercial conduct considered acceptable for takeover and merger transactions and share repurchases in Hong Kong as established by the Securities and Futures Commission of Hong Kong and the securities and futures industry in Hong Kong. The Securities and Futures Ordinance establishes various obligations in relation to disclosure of shareholders’ interests in Hong Kong listed companies, the violation of which is subject to prosecution by the Securities and Futures Commission of Hong Kong.
See “Item 3. Key Information—Risk Factors—Risks Relating to the People’s Republic of China—The laws in China differ from the laws in the United States and may afford less protection to our minority shareholders” and “Item 3. Key Information—Risk Factors—Risks Relating to the People’s Republic of China—You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in the PRC based on U.S. or other foreign laws against us, our management and some of the experts named in the annual report”.
Dividends
Our board of directors may propose dividend distributions. A distribution of dividends for any fiscal year is subject to shareholders’ approval. Dividends may be distributed in the form of cash or shares or a combination of both. The H shares rank equally with A shares with regard to dividend rights. A distribution of shares must be approved by special resolution of the shareholders’ meeting.
We may only distribute dividends after allowance has been made for:
Under Chinese law, dividends may be paid only out of distributable profits. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years. However, we will ordinarily not pay any dividends in a year when we do not have any distributable profits.
Payment of dividends by us is also regulated by the PRC insurance law. If we do not meet the solvency margin required by the CIRC,CBIRC (formerly CIRC), we will be prohibited from paying dividends. See “Item 4. Information on the Company—Business Overview—Regulation and Related Matters—Insurance Company Regulation—Solvency requirements”.
Our articles of association require us to appoint, on behalf of the holders of H shares, a receiving agent that is registered as a trust corporation under the Trustee Ordinance of Hong Kong to receive dividends declared by us in respect of the H shares on behalf of such shareholders. Our articles of association require that cash dividends in respect of H shares be declared in Renminbi and paid by us in Hong Kong dollars. The depositary will convert these proceeds into U.S. dollars and will remit the converted proceeds to holders of our ADSs.
Subject to the requirements under applicable PRC laws and rules of the securities regulatory authorities of the PRC, Hong Kong and United States, we may exercise the power to forfeit unclaimed dividends, provided that such power cannot be exercised until after the expiration of applicable limitation period.
We anticipate that our controlling shareholder, CLIC, may incur future operating losses arising in part from the runoff of policies retained by it in connection with the restructuring. Dividends received from us may become one of CLIC’s principal means of funding these losses. Althoughlosses.Although we believe that the reserves held by CLIC and other financial resources available to it will fund substantially all of any future operating shortfalls arising out of these policies, which should reduce CLIC’s reliance on dividends from us, subject to the relevant provisions of the PRC company law and our articles of association as described above and in “Item 8. Financial Information—Consolidated Financial Statements and Other Financial Information—Policy on Dividend Distributions”, CLIC may seek to increase the amount of dividends we pay in order to satisfy its cash flow requirements. See “Item 3. Key Information—Risk Factors—Risks Relating to the Restructuring”.
Dividend payments may be subject to Chinese withholding tax. See “—Taxation—The People’s Republic of China—Taxation of Dividends”.
Voting Rights and Shareholders’ Meetings
Our board of directors will convene a shareholders’ annual general meeting once every year within six months from the end of the preceding fiscal year. Our board of directors must convene an interim meeting within two months of the occurrence of any of the following events:
All shareholders’ meetings must be convened by our board of directors by written notice given to shareholders no less than 45 days before the meeting. Shareholders holding at leastone-half of our total voting shares will constitute a quorum for a shareholders’ meeting. If a quorum is not reached, we are required to notify our shareholders within five days by public announcement of the agenda, the date and the venue of the adjourned meeting. After the notice, we may conduct the shareholders’ meeting. The accidental omission by us to give notice of a meeting to, or thenon-receipt of notice of a meeting by, a shareholder will not invalidate the proceedings at that shareholders’ meeting.
Shareholders at meetings have the power, among other matters, to approve or reject our profit distribution plans, annual budget, financial statements, increases or decreases in share capital, issuances of debentures, mergers, liquidation, any equity-based incentive plan and any amendment to our articles of association. In addition, the rights of a class of shareholders may not be modified or abrogated, unless approved by a special resolution of shareholders at a general shareholders’ meeting and by a special resolution of shareholders of that class of shares at a separate meeting. Our articles of association enumerate various amendments which would be deemed to be a modification or abrogation of the rights of a class of shareholders, including, among others, increasing or decreasing the number of shares of a class disproportionate to increases or decreases of other classes of shares, removing or reducing rights to receive dividends in a particular currency or creating shares with voting or equity rights superior to those of shares of that class. There are no restrictions under PRC law or our articles of association on the ability of investors that are not Chinese residents to hold H shares and exercise voting rights, except that holders of H shares are unable to vote online and the prior approval of the CIRCCBIRC (formerly CIRC) is required in respect of any acquisition which results in the acquirer holding more than 5% of the outstanding share capital of our company and the other restrictions set out under “Item 4. Information on the Company—Business Overview—Regulatory and Related Matters—Insurance Company Regulation—Restriction of ownership in joint stock insurance companies”.
Each of our ordinary shares, whether it be an A share or an H share, is entitled to one vote on all matters submitted for vote at all shareholders’ meetings, except for meetings of a special class of shareholders where only holders of shares of the affected class are entitled to vote on the basis of one vote per share of the affected class.
Shareholders are entitled to attend and vote at meetings either in person or by proxy. Proxies must be in writing and deposited at our legal address or such other place as is specified in the meeting notice, no less than 24 hours before the time for holding the meeting at which the proxy proposes to vote or the time appointed for the passing of the relevant resolution.
Resolutions on any of the following matters must be approved by more thantwo-thirds of the voting rights held by shareholders who are present in person or by proxy:
An amendment of shareholders’ rights of any class of shares must be approved by more thantwo-thirds of the voting rights held by holders of shares in the affected class who are present in person or by proxy.
All other actions taken by the shareholders will be approved by a majority of the voting rights held by shareholders who are present in person or by proxy at the shareholders’ meeting.
Any shareholder resolution that is in violation of any laws or regulations of China or the articles of association will be null and void.
Liquidation Rights
We are organized as a joint stock company with limited liability of indefinite duration, but must pass the annual inspection with the SAIC. In the event of our liquidation, the H shares will rank equally with the A shares, and payment of debts out of our remaining assets is required to be made in the order of priority prescribed by applicable laws and regulations or, if no such standards exist, in accordance with such procedures as the liquidation committee that has been appointed either by us or the People’s Courts of China may consider to be fair and reasonable. After payment of debts, we are required to distribute the remaining property to shareholders in proportion to the number of shares they hold.
Information Rights
Our shareholders may, subject to reasonable fees and costs, obtain a copy of our articles of association and inspect and copy all parts of our register of shareholders, personal particulars of the directors, supervisors, president and other senior officers, reports on the state of our share capital, reports showing the aggregate par value, highest and lowest price paid in respect of each class of shares repurchased by us since the end of the last accounting year and the aggregate amount paid by us for this purpose, minutes of shareholders’ general meetings, and counterfoils of company debt securities, resolutions of board meetings, resolutions of board of supervisors.
Our fiscal year is the calendar year ending December 31. We must send to holders of H shares, no more than four months after the end of the relevant financial year, our annual report (including our annual accounts, together with a copy of the auditors’ report thereon). Further, we must publish a preliminary results announcement no later than three months after the end of the relevant fiscal year. The results announcement in respect of the relevant financial year is required to be published on the HKSE’s website no later than the time that is 30 minutes before the earlier of the commencement of the morning trading session or anypre-opening session on the next business day after approval by or on behalf of our board of directors. These and any interim financial statements must be prepared in accordance with HKFRS, IFRS or PRC GAAP in the case of a PRC issuer that has adopted PRC GAAP for the preparation of its annual financial statements. The annual financial statements must be approved by a majority of our shareholders who are present in person or by proxy at the annual general meeting.
The HKSE Listing Rules also require us to send to holders of H shares an interim report no later than three months after the end of the first six months of each fiscal year. Further, we must publish a preliminary results announcement no later than two months after the end of thesix-month period. The results announcement in respect of the relevantsix-month period is required to be published on the HKSE’s website no later than the time that is 30 minutes before the earlier of the commencement of the morning trading session or anypre-opening session on the next business day after approval by or on behalf of our board of directors.
According to the HKSE Listing Rules, where in the view of the HKSE there is or there is likely to be a false market in our securities, we must, as soon as reasonably practicable after consultation with the HKSE, announce the information necessary to avoid a false market in our securities. In addition, according to the provisions of inside information under the Securities and Futures Ordinance of Hong Kong, we must, as soon as reasonably practicable after any inside information has come to our knowledge, disclose the information to the public. Inside information, in relation to a listed corporation, means specific information that—
Restrictions on Transferability and the Share Register
Unless otherwise permitted by relevant PRC rules or regulations or approved by relevant PRC authorities, H shares may be traded only among investors who are legal or natural persons resident outside of China, and may not be sold to investors resident within the PRC. There are no restrictions under PRC law or our articles of association on the ability of investors who are not PRC residents to hold H shares. However, under relevant PRC law, a legal person resident outside of China is only allowed to hold not more than 20% of our issued share capital and legal persons resident outside of China are only allowed to hold in aggregate not more than 25% of our issued share capital, unless otherwise approved by competent authorities.
We are required to keep a register of our shareholders comprised of various parts, including one part which is to be maintained in Hong Kong in relation to holders of H shares. Shareholders have the right to inspect and, for a reasonable charge, to copy the share register. No transfers of ordinary shares will be recorded in our share register within thirty days prior to the date of a shareholders’ general meeting or within five days prior to the record date established for the purpose of distributing a dividend.
We have appointed Computershare Hong Kong Investor Services Limited to act as the registrar of our H shares. This registrar maintains our register of holders of H shares and enters transfers of H shares in such register upon the presentation of the documents described above.
Increases in Share Capital
Under our articles of association, issuance of new securities, including ordinary shares, securities convertible into ordinary shares, options, warrants or similar rights to subscribe for any ordinary shares or convertible securities, must be approved by at leasttwo-thirds of the shareholders who attend the shareholders meeting in person or by proxy. In addition, the issuance of A shares or H shares must be approved bytwo-thirds of the class of domestic shares or H shares, as the case may be, unless the number of shares to be issued shall not exceed 20% of the number of shares of the same class then outstanding in any12-month period.
A special resolution was passed at the shareholders’ annual general meeting held on May 29, 201431, 2017 to authorize our board of directors to issue additional shares, and amend the articles of association accordingly, in a nominal amount of no more than 20% of each of the aggregate nominal amount of our domestic shares and H shares in issue as at the date of such resolution, by the conclusion of next shareholders’ annual general meeting, or the expiration of the12-month period following the passing of this resolution, or the date on which the resolution is otherwise revised or revoked by a special resolution of our shareholders, whichever is the earliest.
Shareholders are not liable to make any further contribution to the share capital other than according to the terms that were agreed upon by the subscriber of the relevant shares at the time of subscription. New issues of shares must also be approved by relevant Chinese authorities.
Decreases in Share Capital and Repurchases
We may reduce our registered share capital only upon obtaining the approval of at leasttwo-thirds of the shareholders who attend the shareholders meeting in person or by proxy and, in certain circumstances, of relevant Chinese authorities. The number of H shares that may be repurchased is subject to the Hong Kong Codes on Takeovers and Mergers and Share Repurchases.
Restrictions on Ownership
No individual legal entity or other organization (including any associated party thereof) that investsEquity interests held by a single shareholder, including its related parties and persons acting in an insurance company, other than an insurance holding company or an insurance company approved by the CIRC, may hold in excess of 20%concert, must not exceedone-third of the sharesregistered capital of a single insurance company. An exception to theone-third cap applies to insurance companies establishing or investing in other insurance companies for the insurance company.purposes of innovation and specialization of their business, or consolidating their operations under a single group management. See “Item 4. Information on the Company—Business Overview—Regulation and Related Matters—Insurance Company Regulation—Restriction of ownership in joint stock insurance companies”.
Restrictions on Large or Controlling Shareholders
Our articles of association define a controlling shareholder as any person who acting alone or in concert with others:
As of the date of this annual report, CLIC, a wholly state-owned enterprise, is our only controlling shareholder.
Our articles of association provide that, in addition to any obligation imposed by laws and administrative regulations or required by the Hong Kong Stock Exchange Listing Rules, a controlling shareholder shall not exercise its voting rights in a manner prejudicial to the interests of other shareholders:
Our articles of association also provide that a controlling shareholder or an actual controlling person shall not exploit its affiliated relation in a manner prejudicial to the interest of our company, and shall be liable for any losses suffered by us as a result thereof. The controlling shareholder or actual controlling person shall have fiduciary duties to both our company and our public shareholders. The controlling shareholder shall exercise its rights as a capital contributor of our company in strict compliance with the law. The controlling shareholder shall not cause any damage to the lawful rights and interest of our company and our public shareholders through, among others, any connected transactions, profit distribution, asset restructuring, external investment, fund appropriation and loan guarantee, or impair the interest of our company and our public shareholders through its controlling position.
Board of Directors
Ournon-employee directors are elected by our shareholders at shareholders’ general meetings, and employee directors are elected by our employees or other democratic means at the employee representative conference. Directors are elected for a term of three years and may serve consecutive terms ifre-elected.
Article 23 of Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies provides that directors, supervisors, and senior officers of a company owe duties of honesty, care and diligence to their company.
Our articles of association provide that, in exercising their duties and powers, our directors, supervisors and senior officers will act with the care, diligence and skills that are expected of a reasonable person under similar circumstances, observe fiduciary principles and not place themselves in a situation where their interests conflict with the duties they are charged with performing. In addition to these fiduciary duties to our company, each director, supervisor and officer is obligated to each shareholder:
If directors, supervisors or officers are found to have misappropriated our company’s assets or misused their position for personal gain, the PRC company law provides that any misappropriated or misused property be returned and any illegal proceeds received by such director, supervisor or officer be confiscated, and allows us to impose punishment on them. In serious cases, criminal liability may also be imposed. According to our articles of association, our shareholders may bring a derivative suit against any director, supervisor or officer who has breached his fiduciary duties. Most disputes between H shareholders and directors, supervisors and officers are required to be resolved by final and binding arbitration.
Moreover, our articles of association provide that our directors, supervisors and senior officers must not enter into transactions or contracts with us or agree to make corporate loans to any persons or provide guarantees for loans of any shareholder or any other person with corporate assets. In particular, our directors, supervisors and senior officers have obligations to disclose to the board of directors any direct or indirect material interest they may have in any contracts or transactions with us. They may not vote on any contracts, transactions or arrangements in which they have any material interest. Further, we may not make loans or provide guarantees to directors, supervisors or senior officers, unless such loans or guarantees are approved at a shareholders’ meeting or made in the ordinary course of business and to the extent permitted by applicable laws. All decisions relating to the compensation of directors are made at shareholders’ meetings.
There are no provisions under our articles of association or PRC law which relate to:
Subject to all relevant laws and administrative regulations, the shareholders may remove any director before the expiration of his or her term of office by a majority vote of the shareholders present in person or by proxy at shareholders’ general meetings. A director, supervisor, president, vice president or other senior officer may be relieved of liability for a specific breach of his or her duties by the consent of shareholders so long as specified conditions are met.
Board of Supervisors
Our board of supervisors consists of five supervisors. At leastone-third of our board of supervisors must be employee representatives elected by our employees. The remaining members must be elected by our shareholders in a general meeting. One member of our board of supervisors is designated as the chairman. Members of the board of supervisors may not serve as director, president, vice president or other senior management of our company. The term of office for our supervisors is three years, which is renewable uponre-election.
The primary duty of the board of supervisors is to monitor our financial matters and management. The board of supervisors’ powers are generally limited to carrying out investigations and reporting to shareholders, the China Securities Regulatory Commission and other relevant governmental authorities having jurisdiction over our affairs and to convening shareholders’ interim meetings. Reasonable expenses incurred by the board of supervisors in carrying out its duties will be paid by us.
Our supervisors owe fiduciary duties to our company and our shareholders. Please see the discussion of the duties and the nature of recourse our shareholders may have against supervisors in breach of these duties in the subsection entitled “—Board of Directors”.
The board of supervisors is accountable, and will report, to the shareholders at the shareholders’ general meetings.
Certain Differences Between PRC Company Law and Delaware Corporate Law
The PRC company law and other laws applicable to us differ in a number of respects from laws generally applicable to United States corporations and their shareholders. The description set forth below includes a summary of certain provisions of the PRC company law, Special Rules, Mandatory Provisions and the Guidelines applicable to companies listed both in the PRC and overseas, such as us, which differ from provisions of the corporate law of the State of Delaware.
General
We are a PRC joint stock company, which is a corporate entity organized under the PRC company law. Under the PRC company law, the registered capital of a joint stock company is divided into shares of equal par value. These shares are commonly called domestic ordinary shares. Each share of a joint stock company ranks equally with all other shares in its class as to voting rights (except for specified class voting rights) and rights to dividends and other distributions. Upon receiving approval from the relevant authorities, a joint stock company may offer its shares for sale to the public and seek to be listed on a stock exchange. The State Council may formulate separate regulations for the issuance of other classes of shares, including H shares. All of our issued shares are fully paid and nonassessable. Holders of H shares may transfer their shares without the approval of other shareholders. Among other things, a joint stock company must have (1) a board of directors of not fewer than five and not more than 19 members, and (2) a board of supervisors of not fewer than three members.
The shareholders’ meeting of a joint stock company is the highest authority of the company and exercises the powers of the company with respect to significant matters, subject to applicable law and the articles of association of the company. The business of a joint stock company is under the overall management of a board of directors, subject to the PRC company law, other applicable laws and regulations (which in our case include the PRC insurance law and regulations), the company’s articles of association and duly adopted resolutions of its shareholders. Theday-to-day operations of a joint stock company are under the direction of its general manager or president, subject to applicable laws and regulations, the company’s articles of association and duly adopted resolutions of the directors and shareholders. In addition, the PRC company law provides for the establishment of a board of supervisors for each joint stock company. The supervisors perform and exercise the functions and powers described below, including examination of the joint stock company’s affairs and monitoring the actions of the directors and officers of the company. The directors, supervisors and officers are not required to hold any qualifying shares in the joint stock company.
A joint stock company may be liquidated involuntarily due to insolvency or voluntarily in accordance with the terms of its articles of association or duly adopted shareholders’ resolutions. The property of a joint stock company remaining after full payment of its liquidation expenses, wages, labor insurance premiums of its employees and statutory compensations, outstanding taxes and debts, is distributed in proportion to the holdings of its shareholders.
Meetings of shareholders
Under PRC law, shareholders are given the power to approve specified matters. See “—Voting Rights and Shareholders’ Meetings”. In addition, the Mandatory Provisions provide that at shareholders’ meetings shareholders are entitled to consider any proposals made by shareholders holding in the aggregate at least 3% of voting power over the company’s shares. These proposals must fall within the scope of powers of the shareholder’s meeting, have a clear agenda and specific matters and comply with laws, administrative regulations and articles of association of the company.
Under Delaware law, the business and affairs of a Delaware corporation are, in general, managed by or under the direction of its board of directors. Only certain fundamental matters regarding the corporation are reserved by statute to be exercised by the shareholders. These matters include, in general, election or removal of directors, retention or dismissal of the corporation’s independent auditors, mergers or other business combinations involving the corporation, amendment of the corporation’s certificate of incorporation and liquidation or dissolution of the corporation.
Shareholders’ approval by written consent
PRC law does not provide shareholders of overseas listed joint stock companies with rights to approve corporate matters by written consent. Under Delaware law, unless otherwise provided in the certificate of incorporation, any action which is required or permitted to be taken at any shareholders’ meeting may be taken without a meeting, subject to various conditions.
Amendments of articles of association
Under PRC law, an amendment of the articles of association must be approved by an affirmative vote oftwo-thirds of shareholders attending a shareholders’ meeting. Under the Mandatory Provisions, proposed amendment to the articles is required to be approved by the board of directors, as well as the shareholders. Amendments with respect to the Mandatory Provisions only become effective after approval by the relevant governmental department authorized by the State Council and the China Securities Regulatory Commission.
Under Delaware law, with certain exceptions, shareholder approvals must be obtained for any amendment to the certificate of incorporation. Board approvals are also required for any amendment to the certificate of incorporation, but no governmental approval is generally required.
Powers and responsibilities of directors
Under PRC law, the board of directors is responsible for specified actions, including the following functions and powers of a joint stock company:
In addition, the Mandatory Provisions provide that the board has the authority to formulate any proposal to amend the articles of association and to exercise any other power conferred by a decision of the shareholders’ meeting.
Under Delaware law, the business and affairs of a Delaware corporation are managed by or under the direction of its board of directors. Their powers include fixing the remuneration of directors, except as otherwise provided by statute or in the certificate of incorporation orby-laws of the corporation.
Powers and responsibilities of supervisors
Under PRC law, a PRC joint stock company must have a board of supervisors consisting of shareholder representatives and one or more employee representatives. Supervisors attend board meetings asnon-voting observers. Directors, officers and company personnel in charge of financial matters may not serve as supervisors. The supervisors perform and exercise the following functions and powers:
In addition, the Mandatory Provisions provide that supervisors of overseas listed joint stock companies are entitled to retain auditors in the name of the company to examine any financial or business reports or profit distribution proposals to be submitted by the directors to a meeting of the shareholders which the supervisors consider questionable, and negotiate or take legal action against any director or the directors in the name of the company. The fees and expenses of attorneys and other professionals incurred by the supervisors in connection with the discharge of their duties are to be paid by the company.
Delaware law makes no provision for a comparable corporate institution.
Duties of directors, supervisors and officers
Under PRC law, directors, supervisors and officers of a joint stock company are required to comply with relevant laws and regulations and the company’s articles of association. A director, supervisor or officer who contravenes any law, regulation or the company’s articles of association in the performance of his duties shall be personally liable to the company for any loss incurred by the company. Directors, supervisors and officers are required to carry out their duties honestly and diligently, and protect the interests of the company. They are also under a duty of confidentiality to the company and prohibited from divulging confidential information concerning the company, except as permitted by relevant laws and regulations or by a decision of a shareholders’ meeting. They may not use their position and authority in the company to seek personal gain. Directors and officers may not directly or indirectly engage in the same business as the company or in any other business detrimental to the interests of the company, and they are required to forfeit any profits from these activities to the company.
Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders.
Limitations on transactions with interested directors, supervisors and officers
Under PRC law, directors and officers of a joint stock company may not enter into any contracts or transactions with the company unless permitted by the articles of association or approved by the shareholders. A company may not provide any guarantees to shareholders or any de facto control person of the company unless such guarantees are approved by a majority of shareholders present at the shareholders’ meeting, excluding the shareholder who will be provided such guarantees. Under the Mandatory Provisions, a director, supervisor or officer is required to disclose to the board any transaction with the company in which he has a direct or indirect interest or in which there is a material conflict of interest between the company and himself. A director is not entitled to vote or be counted for quorum purposes in any board decision on any such transaction. A company may set aside any interested transaction which did not comply with these requirements, unless the other party to such transaction was honestly unaware of the breach of obligations by the interested director, supervisor or officer. A company may not loan or provide any guarantees to directors, supervisors or officers (including persons related to them), except for the loans made in accordance with employment contracts approved by the shareholders, or unless the company’s business scope allows for the provision of loans and guarantees and such loans or guarantees are made under regular commercial terms.
Under Delaware law, an interested transaction is not voidable if (1) the material facts as to the interested director’s relationship or interests are disclosed or are known to the board of directors and the board in good faith authorizes the transaction by the affirmative vote of a majority of the disinterested directors, (2) such material facts are disclosed or are known to the shareholders entitled to vote on such transaction and the transaction is specifically approved in good faith by vote of the majority of shares entitled to vote thereon or (3) the transaction is fair as to the corporation as of the time it is authorized, approved or ratified. Under Delaware law, the interested director could be held liable for a transaction in which such a director derived an improper personal benefit.
Election and removal of directors
Under PRC law, the term of office of directors of a joint stock company must be specified in the articles of association, but may not exceed three years. Directors may bere-elected. No director may be removed from office without cause by shareholders prior to the expiration of the director’s term. PRC law does not contemplate a classified board of directors.
Under Delaware law, directors of a Delaware corporation can be removed from office with or without cause by the holders of a majority of shares then entitled to vote at an election of directors, provided that except where the certificate of incorporation of the Delaware corporation otherwise provides, a member of a classified board may be removed by shareholders only for cause, and in a corporation with cumulative voting, if less than all of the directors are removed, no director may be removed if the votes cast against the director’s removal is sufficient to elect the director if cumulatively voted at an election of directors. The Court of Chancery may remove a director who has been convicted of a felony or found by a court to have committed a breach of the duty of loyalty in connection with his or her duties to the corporation following application by the corporation or derivatively in the right of the corporation by any shareholder. The court may order the removal only if it determines that the director did not act in good faith in performing the acts resulting in the prior conviction or judgment and that removal is necessary to avoid irreparable harm to the corporation.
Dividend payments
Under PRC law, proposals for distribution of profits are formulated by the board of directors and submitted for shareholder approval at a shareholders’ meeting. Dividends may be distributed in the form of cash or shares.
Under Delaware law, the board of directors of a Delaware corporation may declare dividends out of distributable earnings and profits without the approval of the shareholders.
Amalgamations and business combinations; appraisal rights
Under PRC law, amalgamations and divisions involving joint stock companies are required to be approved by shareholders voting at a shareholders’ meeting. The Mandatory Provisions require an amalgamation or division involving the company to be approved by an affirmative vote oftwo-thirds of the votes present at the shareholders’ meeting called to consider the transaction. Any opposing shareholder may request the company or the consenting shareholders to purchase its shares at a fair price. In addition, a sale of fixed assets having a value exceeding 33% of the total fixed assets ofas shown on the companycompany’s latest balance sheet most recently reviewed by the shareholders’ meeting requires the approval of at least one third of shareholders at the meeting where a quorum presents.shareholders’ meeting.
Under Delaware law, with certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and holders of a majority of the outstanding shares entitled to vote. A shareholder objecting to the merger is entitled to appraisal rights pursuant to which the shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration the shareholder would otherwise receive in the transaction.
Transactions with significant shareholders
Under Delaware law, a business combination between a Delaware corporation and an interested shareholder which takes place at any time during a period of three years commencing with the date the interested shareholder became an interested shareholder would need prior approval from the board of directors or a supermajority of the shareholders of the corporation, unless the corporation opted out of the relevant Delaware business combination statute. Under Delaware law, an interested shareholder of a corporation is someone who, together with its affiliates and associates, owns more than 15% of the outstanding common shares of the corporation. No such business combination statute or regulation applies to PRC joint stock companies.
Shareholders’ lawsuits
The PRC law provides that most disputes involving an H shareholder are to be resolved by final and binding arbitration.
Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law.
Limitations on liability and indemnification of directors and officers
PRC law does not provide for any specific limitations on liability or indemnification of directors and officers.
Under Delaware law, a corporation may indemnify a current director or officer of the corporation against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if (1) the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and (2) with respect to any criminal action or proceeding, the director or officer had no reasonable cause to believe that his conduct was unlawful. Personsunlawful.Persons serving at the request of the corporation as directors, officers, employees or agents of another entity such as a subsidiary or an employee stock trust may receive advancement of expenses from the corporation. Acorporation.A corporation may not retroactively impair or eliminate indemnification or advancement rights by amending the corporation’s certificate of incorporation or bylaws after the occurrence of the act or omission that gives rise to indemnification or advancement rights, unless the provision contains, at the time of the act or omission, an explicit authorization of such elimination or limitation.
Shareholders’ rights of inspection of corporate records
Under PRC law, shareholders are entitled to inspect the articles of association, register of shareholders, corporate bond counter foils, minutes of shareholders’ meetings and board meetings and reports of the financial accounts of the company. In addition, the Mandatory Provisions provide that, after paying reasonable fees, shareholders are entitled to inspect the company’s shareholder list, certain personal information on the directors, supervisors and officers, the company’s capital position and certain information regarding share repurchases conducted by the company during the most recent fiscal year.
Delaware law permits any shareholder of a Delaware corporation to examine or obtain copies of or extracts from the corporation’s shareholder list and its other books and records for any purpose reasonably related to such person’s interest as a shareholder.
See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions” for certain arrangements we have entered into with CLIC, AMC, China Life Pension, CLPCIC, IHC, China Life Wealth, CGB, AMP and AMP.Chongqing Trust.
The Renminbi currently is not a freely convertible currency. The SAFE, under the authority of the PBOC, controls the conversion of Renminbi into foreign currency. Until July 20, 2005, the PBOC had been setting and publishing daily a base exchange rate with reference primarily to the supply and demand of Renminbi against the U.S. dollar in the market during the prior day. The PBOC also took into account other factors, such as the general conditions existing in the international foreign exchange markets. From 1994 to July 20, 2005, the official exchange rate for the conversion of Renminbi to U.S. dollars was generally stable. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. OnUnder this system, the same day, the value of the Renminbi appreciated by 2.0% against the U.S. dollar. Since then, the PRC government has made, and may in the future make, further adjustments to the exchange rate system. The PBOC announces the closing price of a foreign currency traded against the Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, and makes it the central parity for the trading against the Renminbi on the following working day. On August 11, 2015, the PBOC adjusted the quotation mechanism of the Renminbi central parity to also consider demand and supply in foreign exchange markets and price movements of major currencies, in addition to the closing price on the previous working day. On May 26, 2017, the PBOC introduced the “counter-cyclical factor” into its formula that determines a central parity of the Renminbi against the U.S. dollar. Under the current mechanism, the central parity of the Renminbi against the U.S. dollar is determined based on the closing price, changes in a basket of currencies and the counter-cyclical factor. See “Item 3. Key Information—Risk Factors—Risks Relating to the People’s Republic of China—Government control of currency conversion and the fluctuation of the Renminbi may materially and adversely affect our operations and financial results”.
Although PRC governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the SAFE and other relevant authorities. Althoughauthorities.Although experimental policies were recently introduced in certain pilot areas such as the Shanghai free trade zone to reduce foreign exchange control, restrictions on the convertibility of Renminbi into foreign currency still remain in force in most parts of China.
In the event of shortages of foreign currencies, we may be unable to convert sufficient Renminbi into foreign currency to meet our foreign currency obligations or to pay dividends in foreign currency.
Our H shares are traded on the Hong Kong Stock Exchange. There are no limitations on the right ofnon-resident or foreign owners to remit dividends or capital including capital gains imposed by Hong Kong law.
The taxation of income and capital gains of holders of H shares or ADSs is subject to the laws and practices of China and of jurisdictions in which holders of H shares or ADSs are resident or otherwise subject to tax. The following summary of certain relevant taxation provisions is based on current law and practice, is subject to change and does not constitute legal or tax advice. The discussion does not deal with all possible tax consequences relating to an investment in the H shares or ADSs. In particular, the discussion does not address the tax consequences under state, local and other laws, such asnon-U.S. federal laws other than the laws of the PRC and Hong Kong. Accordingly, you should consult your own tax adviser regarding the tax consequences of an investment in the H shares and ADSs. The discussion is based upon laws and relevant interpretations in effect as of the date of this annual report, all of which are subject to change.
The People’s Republic of China
The following is a discussion of the material Chinese tax provisions relating to the ownership and disposition of H shares or ADSs held by the investors as capital assets. This discussion does not address all of the tax considerations that may be relevant to specific investors in light of their particular circumstances or to other investors subject to special treatment under the tax laws of the PRC. This discussion is based on the tax laws of China as in effect as of the date of this annual report, as well as on the Agreement between the United States of America and the People’s Republic of China for the Avoidance of Double Taxation, or the Treaty,“China-U.S. Tax Treaty”, all of which are subject to change (or changes in interpretation), possibly with retroactive effect.
This discussion does not address any aspects of Chinese taxation other than income taxation, capital taxation, stamp taxation and estate taxation. Prospective investors are urged to consult their tax advisers regarding Chinese and other tax consequences of owning and disposing of H shares.
Taxation of Dividends
Individual investors. According to the PRC Individual Income Tax Law, as amended, dividends paid by Chinese companies are ordinarily subject to a Chinese withholding tax levied at a flat rate of 20%. For a foreign individual who is not a resident of China, the receipt of dividends from a company in China is normally subject to a withholding tax of 20% unless reduced pursuant to an applicable tax treaty. According to a notice issued by the Chinese State Administration of Taxation, or the SAT, on June 28, 2011, if the withholding tax rate under applicable tax treaties is 10% or less, the receipt of dividends will be subject to 10% withholding tax; and if the withholding tax rate under applicable tax treaties is between 10% and 20%, the receipt of dividends will be subject to the actual tax rate as agreed under such tax treaties.
Enterprises. According to the PRC Enterprise Income Tax Law and its implementation rules, effective on January 1, 2008, and the Circular on Issues Relating to the Withholding of Enterprise Income Tax for Dividends Distributed by Resident Enterprises in China toNon-resident Enterprises HoldingH-shares of the Enterprises, issued by the SAT on November 6, 2008, resident enterprises in China are required to, in distributing dividends for 2008 or any year hereafter tonon-resident enterprises holding Overseas Shares includingH-shares and ADSs of the enterprises, withhold enterprise income tax for such dividends at a tax rate of 10%.Non-resident enterprises holding H-sharesH shares of any resident enterprise can, after receiving dividends due to them, apply for preferential tax treatment with competent tax authorities in accordance with tax treaties.
Tax treaties.Investors who do not reside in China and reside in countries that have entered into treaties for the avoidance of double-taxation with China may be entitled to a reduction of the withholding tax imposed on the payment of dividends to our investors who do not reside in China. China currently has treaties for the avoidance of double-taxation with a number of other countries, which include Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands, Singapore, the United Kingdom and the United States.
Under the treaty between China and the United States, the China-USChina-U.S. Tax Treaty, China may tax a dividend paid by us to an Eligible U.S. Holder up to a maximum of 10% of the gross amount of the dividend. For the purposes of this discussion, an “Eligible U.S. Holder” is a U.S. holder that (i) is a resident of the United States for the purposes of the China-USChina-U.S. Tax Treaty, (ii) does not maintain a permanent establishment or fixed base in China to which H shares are attributable and through which the beneficial owner carries on or has carried on business (or, in the case of an individual, performs or has performed independent personal services) and (iii) is not otherwise ineligible for benefits under the China-USChina-U.S. Tax Treaty with respect to income and gains derived in connection with the H shares.shares.
Taxation of Capital Gains
According to the PRC Enterprise Income Tax Law and its implementation rules, effective on January 1, 2008, capital gains realized by foreign enterprises which have no establishment or residence in China or whose capital gains from China do not relate to their establishment or residence in China, are ordinarily subject to enterprise income tax at the rate of 10% with respect to the gains realized within China, unless reduced pursuant to an applicable tax treaty.
According to the Interim Administrative Measures on the Source Withholding of Income Tax ofNon-resident Enterprise issued by the SAT on January 9, 2009, where both parties to an equity transfer transaction arenon-resident enterprises and where the transfer occurs outside of China, thenon-resident enterprise receiving income shall pay taxes to the tax authority in the locality of the resident enterprise whose equity was transferred, either directly or by a representative. The resident enterprise whose equity was transferred shall assist the tax authority with the collection of taxes from thenon-resident enterprise.
According to the PRC Individual Income Tax Law, as amended, capital gains realized by individuals upon the transfer of shares, including Overseas Shares, are subject to capital gains tax levied at a flat rate of 20%; and relevant tax authorities are authorized to promulgate implementation rules in this regard. To date, the relevant tax authorities have not promulgated any implementation rules on the taxation of capital gains realized by individuals upon the transfer of shares, including Overseas Shares. If the relevant tax authorities promulgate such implementation rules in the future, a 20% tax may be levied on capital gains realized by foreign individuals in accordance with the PRC Individual Income Tax Law, as amended, unless reduced pursuant to an applicable tax treaty. To date, the relevant tax authorities have not collected capital gains tax on the income from the transfer of shares.
Additional Chinese Tax Considerations
Chinese stamp duty.Chinese stamp duty imposed on the transfer of shares of Chinese publicly traded companies under the Provisional Regulations of China Concerning Stamp Duty should not apply to the acquisition and disposal bynon-Chinese investors of H shares or ADSs outside of China by virtue of the Provisional Regulations of China Concerning Stamp Duty, which became effective on October 1, 1988 and which provide that Chinese stamp duty is imposed only on documents executed or received within China that are legally binding in China and are protected under Chinese law.
Estate tax.No liability for estate tax under Chinese law will arise fromnon-Chinese nationals holding H shares.
Investors under the Shanghai-Hong Kong Stock Connect Program. According to the Notice on Tax Policies for the Shanghai-Hong Kong Stock Connect Pilot Program, jointly issued by the MOF, SAT and CSRC which became effective on November 17, 2014, between November 17, 2014 to November 16, 2017, gains realized by Chinese individual investors upon a transfer of H shares through the Shanghai-Hong Kong Stock Connect program were exempted from individual income tax. Gains realized by Chinese enterprise investors upon a transfer of H shares through the Shanghai-Hong Kong Stock Connect program must be included in their gross income and subject to enterprise income tax. For dividends received by Chinese individual investors and securities investment funds from investing in H shares through the Shanghai-Hong Kong Stock Connect program, the Chinese issuer of such H shares must withhold income tax at a tax rate of 20%. Dividends received by Chinese enterprise investors from investing in H shares through the Shanghai-Hong Kong Stock Connect program must be included in their gross income and subject to enterprise income tax, and the Chinese issuer of such H shares will not withhold income tax for the dividends. The enterprise investors in these circumstances must make tax filings by themselves. According to the Notice on Continuation of the Tax Policies for the Shanghai-Hong Kong Stock Connect Pilot Program, which was jointly issued by the MOF, SAT and CSRC and became effective on November 17, 2017, gains realized by Chinese individual investors upon a transfer of H shares through the Shanghai-Hong Kong Stock Connect Program are further exempted from individual income tax for the period from November 17, 2017 to December 4, 2019.
Hong Kong
The following is a discussion of the material Hong Kong tax provisions relating to the ownership and disposition of H shares or ADSs held by the investors as capital assets. This discussion does not address all of the tax considerations that may be relevant to specific investors in light of their particular circumstances or to investors subject to special treatment under the tax laws of Hong Kong. This discussion is based on the tax laws of Hong Kong as in effect on the date of this annual report, which are subject to change (or changes in interpretation), possibly with retroactive effect. This discussion does not address any aspects of Hong Kong taxation other than income taxation, capital taxation, stamp taxation and estate taxation. Prospective investors are urged to consult their tax advisers regarding Hong Kong and other tax consequences of owning and disposing of H shares.
Tax Treaties
There is no relevant tax treaty in effect between Hong Kong and the United States.
Tax on Dividends
Under current practice, no tax is payable in Hong Kong in respect of dividends paid by us.
Tax on Gains from Sale
No tax is imposed in Hong Kong in respect of capital gains from the sale of property. However, trading gains from the sale of property by persons carrying on a trade, profession or business in Hong Kong where the gains are derived from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong profits tax, which is currently imposed at the rate of 16.5% on corporations and at a maximum rate of 15% on individuals. Certain categoriesunincorporated businesses for the year of taxpayers are likelyassessment 2008/09 onwards. Commencing from the year of assessment 2018/19 (i.e. on or after 1 April 2018), the profits tax rate for the first HK$2,000,000 of profits of corporations will be lowered to 8.25% while the remaining profits will continue to be regarded as deriving trading gains rather than capital gains (for example, financial institutions, insurance companiestaxed at the rate of 16.5%; and securities dealers) unless these taxpayers could prove that the investment securities are heldprofits tax rate for long-term investment purpose.the first HK$2,000,000 of profits of unincorporated businesses will be lowered to 7.5%, while the remaining profits will continue to be taxed at the rate of 15%.
Trading gains from sales of H shares effected on the Hong Kong Stock Exchange will be considered to be derived from or arise in Hong Kong. Liability for Hong Kong profits tax would thus arise in respect of trading gains from sales of H shares effected on the Hong Kong Stock Exchange realized by persons carrying on a business of trading or dealing in securities in Hong Kong.
There will be no liability for Hong Kong profits tax in respect of profits from the sale of ADSs, where purchases and sales of ADSs are effected outside Hong Kong, for example, on the New York Stock Exchange.
Stamp Duty
Hong Kong stamp duty, currently charged at thead valorem rate of 0.1% on the higher of the consideration for, or the market value of, the H shares, will be payable by the purchaser on every purchase and by the seller on every sale of H shares (in other words, a total of 0.2% is currently payable on a typical sale and purchase transaction involving H shares). In addition, a fixed duty of HK$5.00 is currently payable on any instrument of transfer of H shares. Where one of the parties to a transfer is resident outside Hong Kong and does not pay thead valorem duty due by it, the duty not paid will be assessed on the instrument of transfer (if any) and will be payable by the transferee. If stamp duty is not paid on or before the due date, a penalty of up to ten times the duty payable may be imposed.
The withdrawal of H shares upon the surrender of ADRs, and the issuance of ADRs upon the deposit of H shares, will also attract stamp duty at the rate described above for sale and purchase transactions unless such withdrawal or deposit does not result in a passing of the beneficial interest in the H shares under Hong Kong law, in which case only a fixed duty of HK$5.00 is payable on the transfer.law. The issuance of the ADRs upon the deposit of H shares issued directly to the depositary of the ADSs, or for the account of the depositary, will not be subject to any stamp duty. No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong Kong.
Estate Duty
The Revenue (Abolition of Estate Duty) Ordinance 2005 came into effect on February 11, 2006 in Hong Kong. No Hong Kong estate duty is payable and no estate duty clearance papers are needed for an application for a grant of representation in respect of holders of H shares whose deaths occur on or after February 11, 2006.
United States of America
The following is a discussion of the material United States federal income tax consequences relating to the purchase, ownership and disposition of H shares or ADSs by U.S. Holders (as defined below) that acquire H shares or ADSs for cash and hold them as capital assets. This discussion is based on the Internal Revenue Code of 1986, as amended, or “the Code”, Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the tax considerations that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as banks, insurance companies,tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, partnerships, dealers in securities, brokers,or other U.S. expatriates,Holders that generally mark their securities to market for U.S. federal income tax purposes, certain former citizens or residents of the United States, persons who have acquired our H shares or ADSs as part of a straddle, hedge, conversion, or other integrated investment, persons who own, directly or by attribution, 10% or more of the combined voting power or value of all classes of stock of China Life or persons that have a “functional currency” other than the U.S. dollar). This discussion does not address any U.S. state or local or any U.S. federal estate, gift or alternative minimum tax considerations.
As used in this discussion, the term “U.S. Holder” means a beneficial owner of H shares or ADSs that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation created or organized in or under the laws of the United States or of any state or political subdivision thereof, or therein, including the District of Columbia or (iii) an estate or trust the income of which is subject to U.S. federal income tax regardless of the source thereof.
Investors are urged to consult their own tax advisers as to the particular tax considerations applicable to them relating to the purchase, ownership and disposition of H shares or ADSs in their individual circumstances, including the applicability of U.S. federal, state and local tax laws, any changes in applicable tax laws and any pending or proposed legislation or regulations.
Taxation of Dividends
Subject to the discussion below under “—Special Rules”, cash distributions with respect to the H shares or ADSs owned by a U.S. Holder will, upon receipt, be includible in the gross income of such U.S. Holder as ordinary dividend income to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent that the amount of any such cash distribution exceeds our current and accumulated earnings and profits as so computed, it will be treated first as anon-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in such H shares or ADSs and, to the extent the amount of such cash distribution exceeds adjusted tax basis, will be treated as gain from the sale of such H shares or ADSs. Dividends paid by us generally will constitute income from sources outside the United States for foreign tax credit limitation purposes and will not be eligible for the “dividends received” deduction.
Dividends received by individuals from “qualified foreign corporations” are generally subject to a maximum U.S. federal income tax rate of 20%, so long as certain holding period requirements are met. Anon-U.S. corporation (other than a passive foreign investment company) generally will be considered to be a qualified foreign corporation (i) if it is eligible for the benefits of a comprehensive income tax treaty with the United States which the Secretary of the Treasury determines is satisfactory for purposes of the relevant provision and which includes an exchange of information program or (ii) with respect to any dividend it pays on stock which is readily tradable on an established securities market in the United States. The Treasury Department has determined that the U.S.-China income tax treatyChina-U.S. Tax Treaty as currently in effect meets the requirements described in clause (i) above. In addition, the ADSs are readily tradable on the New York Stock Exchange, an established securities market in the United States. Each U.S. Holder that is an individual is urged to consult his or her tax adviser regarding the applicability of this reduced rate to dividends received with respect to the H shares or ADSs in his particular circumstance.
The U.S. dollar value of any distribution made by us in Hong Kong dollars (or other currency that is not the U.S. dollar, or a “foreign currency”), should be calculated by reference to the exchange rate in effect on the date of receipt of such distribution by Deutsche Bank Trust Company Americas, as depositary, in the case of ADSs, or by the U.S. Holder, in the case of H shares held directly by such U.S. Holder regardless of whether the Hong Kong dollars (or such other foreign currency) so received are converted into U.S. dollars on the date of receipt. If the Hong Kong dollars (or such other foreign currency) so received are converted into U.S. dollars on the date of receipt, such U.S. Holder generally should not recognize foreign currency gain or loss on such conversion. If the Hong Kong dollars (or such other foreign currency) are not converted into U.S. dollars on the date of receipt, such U.S. Holder will have a basis in the Hong Kong dollars (or such other foreign currency) equal to their U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the Hong Kong dollars (or such other foreign currency) generally will be treated as ordinary income or loss from sources within the United States for foreign tax credit limitation purposes.
Subject to certain limitations, the Chinese tax withheld from dividends paid with respect to H shares or ADSs and paid over to China, as described above under “—The People’s Republic of China—Taxation of Dividends,” may be creditable against a U.S. Holder’s U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 20% U.S. federal income tax rate. A U.S. Holder of H shares or ADSs that does not elect to claim a U.S. foreign tax credit may instead claim a deduction for such withheld tax, but only for a taxable year in which the U.S. Holder elects to do so with respect to allnon-U.S. income taxes paid or accrued in such taxable year. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and U.S. Holders are urged to consult their own U.S. tax advisers with respect to foreign tax credit considerations in their individual circumstances.
Sale or other Disposition of H Shares or ADSs
Subject to the discussion below under “—Special Rules”, a U.S. Holder generally will recognize gain or loss for U.S. federal income tax purposes upon a sale or other disposition of H shares or ADSs that it owns in an amount equal to the difference, if any, between the amount realized from the sale or disposition and thesuch U.S. Holder’s adjusted tax basis in such H shares or ADSs. The gain or loss generally will be a capital gain or loss and will be long-term capital gain (taxable at a reduced rate for individuals) or loss if, on the date of sale or disposition, such H shares or ADSs were held by the U.S. Holder for more than one year and will generally be U.S. source gain or loss. The claim of a deduction in respect of a capital loss may be subject to limitations.
A U.S. Holder that receives Hong Kong dollars (or other foreign currency) from the sale or disposition generally will realize an amount equal to the U.S. dollar value of the Hong Kong dollars (or such other foreign currency) on the settlement date of the sale or disposition if (i) the U.S. Holder is a cash basis or electing accrual basis taxpayer and our H shares or ADSs, as the case may be, are treated as being “traded on an established securities market” for this purpose or (ii) the settlement date is the date of the sale or disposition. If the Hong Kong dollars (or such other foreign currency) so received are converted into U.S. dollars on the settlement date, the U.S. Holder should not recognize foreign currency gain or loss on the conversion. If the Hong Kong dollars (or such other foreign currency) so received are not converted into U.S. dollars on the settlement date, the U.S. Holder will have a basis in the Hong Kong dollars (or such other foreign currency) equal to the U.S. dollar value on the settlement date. Any gain or loss on a subsequent conversion or other disposition of the Hong Kong dollars (or such other foreign currency) generally will be treated as ordinary income or loss from sources within the United States for foreign tax credit limitation purposes. A U.S. Holder should consult its own tax adviser regarding the U.S. federal income tax consequences of receiving Hong Kong dollars (or other currency) from a sale or disposition of the H shares or ADSs in cases not described in this paragraph.
A U.S. Holder that is anon-resident enterprise may be subject to Chinese tax on the gain realized upon the sale or other disposition of H shares or ADS. See “—The People’s Republic of China—Taxation of Capital Gains” above. Holders should consult their own tax advisers concerning their ability to credit such Chinese taxes against their U.S. federal income tax liability in their particular situation.
Special Rules
Related Person Insurance Income. Certain adverse U.S. income and tax reporting rules may apply to U.S. shareholders who, directly or indirectly, own stock of anon-U.S. corporation that earns “related person insurance income” (“RPII”), if 25% or more of thenon-U.S. corporation’s direct or indirect shareholders are U.S. persons. RPII is generally defined as insurance income derived from the insurance (or reinsurance) of insureds who are U.S. shareholders in thenon-U.S. corporation or who are related to such U.S. shareholders. If applicable, these rules would require U.S. Holders to include in taxable income each year their pro rata share of any RPII incurred by us for the year, regardless of whether such income is distributed, and also to file I.R.S.IRS Form 5471, disclosing certain information regarding their direct or indirect ownership of China Life. Special rules apply for purposes of determining each U.S. shareholder’s pro rata share of any RPII. For organizations that are otherwise exempt from U.S. federal income tax under section 501(a) of the Code, any such income would constitute “unrelated business taxable income”. These rules could also apply to convert some or all of the gain recognized from the sale or disposition of H shares or ADSs from capital gain to ordinary income and to require such gain to be reported on I.R.S.IRS Form 5471.
Under a statutory exception, these rules do not apply if less than 20% of thenon-U.S. corporation’s insurance income is RPII or if less than 25% of thenon-U.S. corporation’s stock is owned by U.S. shareholders. Because CLIC holds approximately 68.37% of our share capital, and because we do not offer or intend to offer our products and services in the United States, it is highly unlikely that the RPII rules will apply. If more of our shares are sold to the public in the future, it is possible that such rules could apply at a later date.
Passive Foreign Investment Company. In general, anon-U.S. corporation will be a passive foreign investment company, or a “PFIC”, if 75% or more of its gross income constitutes “passive income” or 50% or more of its assets produce “passive income” or are held for the production of “passive income”. In determining whether we are a PFIC, we will be treated as if we directly owned our proportionate share of the assets and received our proportionate share of the income of any other corporation in which we own 25% or more of the shares by value.
For the purpose of determining whether anon-U.S. corporation is a PFIC, “passive income” is defined to include income of the kind which would be foreign personal holding company income under section 954(c) of the Code, and generally includes interest, dividends, annuities and other investment income. Passive income does not include interest income or dividends received from controlled subsidiaries or certain other related persons, to the extent properly allocable to income of such related person that is not passive income. In addition, theThe PFIC provisions specifically exclude from the definition of “passive income” any income “derived in the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business and which would be subject to tax under subchapter L if it were a domestic corporation” (the “active insurance business exception”). ThisThe active insurance business exception is intended to ensure that income derived by a bona fide insurance company is not treated as passive income. Thus, to the extent that income is attributable to financial reserves in excess of the reasonable needs of the insurance business, it may be treated as passive income.
The PFIC provisions also exclude from the definition of “passive income” any income derived in the active conduct of a banking trade or business. We believe that we were in 2014, and we anticipate that we will continue to be, predominantly engaged in an insurance business and we believe that we did not in 2014, and will not, have financial reserves in excess of the reasonable needs of our insurance business. As a result, our income derived and assets held in the active conduct of our insurance business should not be passive income and passive assets, and we do not expect to be classified as a PFIC for any tax year.in 2017. However, there is little guidance on the circumstances under which anon-U.S. company will be treated as predominantly engaged in an insurance business or engaged in the active conduct of a banking trade or business for purposes of determining PFIC status. Accordingly, there is no assurance that the U.S. Internal Revenue ServiceIRS will not take a contrary position and assert that we are a PFIC. Furthermore, an actual determination of PFIC status is inherently factual in nature and cannot be made until the close of each applicable tax year and, accordingly, no assurances can be given that we will not become a PFIC at some point in the future. The IRS has issued proposed regulations regarding the application of the PFIC provisions to insurance companies and banks, and final regulations or pronouncements interpreting or clarifying these rules may be forthcoming. We cannot predict what impact, if any, such guidance would have on the determination of our status as a PFIC. In addition, the recently enacted “Tax Cuts and Jobs Act,” or the “TCJA”, modifies the active insurance business exception for taxable years beginning after December 31, 2017, such that it applies only to a foreign corporation if (i) loss and loss adjustment expenses and certain reserves constitute more than 25% of the foreign corporation’s gross assets for the relevant year or (ii) a U.S. Holder makes an election to apply an alternative facts and circumstances test that applies only in certain runoff-related or ratings-related circumstances involving the insurance business. There is significant uncertainty as to the interpretation of the active insurance business exception as modified by the TCJA. As a result, China Life cannot presently determine whether it will be a PFIC for taxable years beginning after December 31, 2017.
In general, a U.S. shareholder of a PFIC is subject to a special tax and an interest charge at the time of the sale of (or receipt of an “excess distribution” with respect to) its shares in the PFIC. In general, a shareholder is treated as having received an “excess distribution” if the amount of the distribution was more than 125% of the average distribution with respect to its shares during the three preceding taxable years (or shorter period during which the taxpayer held the shares). The special tax is computed by assuming that the excess distribution or, in the case of a sale, the gain with respect to the shares was earned in equal portions throughout the holder’s period of ownership. The portion allocable to each year prior to the year of sale is taxed at the maximum marginal tax rate applicable for each such period. The interest charge is determined based on the applicable rate imposed on underpayments of U.S. federal income tax for the period. The special tax and the interest charge generally will not apply to a U.S. shareholder that validly makes a “qualified electing fund” election under section 1295 of the Code with respect to the shares of the PFIC. We do not intend to comply with the requirements necessary to permit a U.S. Holder to make such an election with respect to H shares or ADSs.
The above results may also be avoided if a “mark-to-market”“mark-to-market” election is available and a U.S. Holder validly makes such an election. If the election is made, such U.S. Holder generally will be required to take into account the difference, if any, between the fair market value of, and its adjusted tax basis in, its H shares or ADSs at the end of each taxable year as ordinary income or ordinary loss (to the extent of any netmark-to-market gain previously included in income), and to make corresponding adjustments to the tax basis of such H shares or ADSs. In addition, any gain from a sale or other disposition of H shares or ADSs will be treated as ordinary income, and any loss will be treated as ordinary loss (to the extent of any netmark-to-market gain previously included in income). Amark-to-market election is available to a U.S. Holder only if our H shares or ADSs are considered “marketable stock” for these purposes. Generally, stock will be considered marketable stock if it is “regularly traded” on a “qualified exchange” within the meaning of applicable U.S. Treasury regulations. A class of stock is regularly traded during any calendar year during which such class of stock is traded, other than inde minimis quantities, on at least 15 days during each calendar quarter. Anon-U.S. securities exchange will constitute a qualified exchange if it is regulated or supervised by a governmental authority of the country in which the market is located and meets certain trading, listing, financial disclosure and other requirements set forth in the Treasury Regulations. We do not know whether our H shares or ADSs will be treated as marketable stock for these purposes.
If we are a PFIC in any taxable year during which a U.S. Holder owns H Shares or ADSs, such U.S. Holder (i) may also suffer adverse tax consequences under the PFIC rules described above with respect to any other PFIC in which we have a direct or indirect equity interest and (ii) generally will be required to file annually a statement with its U.S. federal income tax returns. U.S. Holders should consult their own tax advisers regarding the U.S. federal income tax consequences of a direct or indirect investment in a PFIC.
Medicare Taxes
Certain U.S. Holders that are individuals, estates or trusts are subject to an additional tax at the rate of 3.8% on all or a portion of their “net investment income”, which may include all or a portion of their income arising from a distribution with respect to an ADS or an H Share and gain upon the sale, exchange or other disposition of such ADS or H Share.
Information Reporting and Backup Withholding
Under certain circumstances, information reporting and/or backup withholding may apply to U.S. Holders with respect to payments made on or proceeds from the sale, exchange or other disposition of ADSs or H Shares, unless an applicable exemption is satisfied. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.
Reportable Transactions
U.S. Holders that participate in “reportable transactions” (as defined in Treasury Regulations) must attach to their federal income tax returns a disclosure statement on Form 8886. We urge U.S. Holders to consult their own tax advisers as to the possible obligation to file Form 8886 with respect to the ownership or disposition of any Hong Kong dollars (or other foreign currency) received as a dividend or as proceeds from the sale of H shares or ADSs, or any other aspect of the purchase, ownership or disposition of H shares or ADSs.
Disclosure Requirements for Specified Foreign Financial Assets
Individual U.S. Holders (and certain U.S. entities to the extent specified in future IRS guidance) who, during any taxable year, hold any interest in any “specified foreign financial asset” generally will be required to file with their U.S. federal income tax returns Form 8938, setting forth certain information with respect to such asset, if the aggregate value of all such assets exceeds the applicable reporting threshold. “Specified foreign financial asset” generally includes any financial account maintained with anon-U.S. financial institution and may also include H Shares or ADSs if they are not held in an account maintained with a U.S. financial institution. Substantial penalties may be imposed for a failure to comply. U.S. Holders should consult their own tax advisers as to the possible application to them of these filing requirements.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
Not applicable.
You may read and copy documents referred to in this annual report on Form20-F that have been filed with the U.S. Securities and Exchange Commission, or SEC, at its public reference room located at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The SEC also maintains a website athttp://www.sec.gov that contains reports, proxy statements and other information regarding the registrations that file electronically with the SEC.
The SEC allows us to “incorporate by reference” the information we filed with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report on Form20-F.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to financial market risks relates primarily to changes in interest rates, equity prices and exchange rates.
The following discussions and tables, which constitute “forward-looking statements” that involve risks and uncertainties, summarize our market-sensitive financial instruments including fair value and maturity. Such discussions address market risk only and do not present other risks which we face in the normal course of business.
For further information on our management of market risk, including the objectives and general strategies of risk management, see “Item 4 Information on the Company—Business Overview—Investments—Risk Management” and NoteandNote 4 to our consolidated financial statements included elsewhere in this annual report.
Interest Rate Risk
Our profitability is affected by changes in interest rates. WeInterest rates are currently experiencing a comparatively low interesthighly sensitive to many factors, including economic growth rate, environment in general. The PBOC reduced the benchmark deposit rate twice during 2012. In November 2014, the interest rate on one-year term deposits was reduced from 3.00% to 2.75%,inflation, governmental monetary and in March 2015, the interest rate was further reduced from 2.75% to 2.50%.tax policies, domestic and international economic and political conditions, financial regulatory requirements and other factors beyond our control. If interest rates were to declineincrease in the future, the income we realize from our investments may decline, affecting our profitability. In addition, as instruments in our investment portfolio mature, we might have to reinvest the funds we receive in investments bearing a lower interest rate. However, if interest rates were to increase, surrenders and withdrawals of life insurance and annuity policies and contracts may increase as policyholderspolicy holders may seek other investments with higher perceived returns. This process may result in cash outflows requiring that we sell investment assets at a time when the prices of those assets are adversely affected by the increase in market interest rates, which may result in realized investment losses. In addition,However, if interest rates were to increase, butdecline in the future, the income we did not raiserealize from our investments may decrease, affecting our profitability. In addition, as instruments in our investment portfolio mature, we might have to reinvest the cap set by us on thefunds we receive in investments bearing low interest rates, we guarantee for non-participating insurance products, sales of some ofwhich may also affect our products, including our non-participating investment type products, could be adversely affected.profitability.
For the years ended December 31, 2014, 20132017, 2016 and 2012,2015, our investment yield was 5.36%5.16%, 4.86%4.61% and 2.79% 6.47%,respectively. Investment contracts are generally priced with guaranteed interest rates, subject to a cap on guaranteed rates set by the CIRC, which is currently 2.50% for participating insurance products. Dividendsrates.Dividends on participating policies are required to be at least 70% of distributable earnings attributable to such policies.
The following tables set forth selected assets and liabilities with exposure to interest rates as of December 31, 2014, 20132017, 2016 and 2012.2015.
Expected Maturity Date | Expected Maturity Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(RMB in millions, except as otherwise stated) | (RMB in millions, except as otherwise stated) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 25,058 | 31,133 | 65,401 | 60,497 | 50,428 | 674,872 | 907,389 | 916,640 | 59,591 | 52,756 | 59,967 | 56,044 | 93,085 | 786,998 | 1,108,441 | 1,084,377 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.87 | % | 4.85 | % | 4.93 | % | 4.22 | % | 5.26 | % | 4.76 | % | 4.77 | % | 4.82% | 5.23% | 4.91% | 4.59% | 4.79% | 4.56% | 4.65% | |||||||||||||||||||||||||||||||||||||||||||
in US$ | 6 | 260 | — | — | — | 48 | 314 | 319 | 1,229 | — | 13 | 32 | — | 110 | 1,384 | 1,393 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.74 | % | 10.25 | % | — | — | — | 6.33 | % | 9.54 | % | 0.98% | — | 5.50% | 6.15% | — | 5.25% | 1.48% | ||||||||||||||||||||||||||||||||||||||||||||||
Variable rate bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 696 | 1,811 | 447 | 204 | 148 | 1,615 | 4,921 | 4,908 | 209 | — | 28 | — | — | — | 237 | 237 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 5.65 | % | 5.40 | % | 6.21 | % | 4.67 | % | 6.95 | % | 3.99 | % | 5.06 | % | 4.66% | — | 5.35% | — | — | — | 4.74% | |||||||||||||||||||||||||||||||||||||||||||
Term deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 191,439 | 153,100 | 173,685 | 88,157 | 48,500 | 26,501 | 681,382 | 681,382 | 89,332 | 149,833 | 77,441 | 33,300 | 88,950 | 2,800 | 441,656 | 441,656 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.17 | % | 5.05 | % | 5.20 | % | 4.94 | % | 5.99 | % | 5.30 | % | 4.90 | % | 4.90% | 4.50% | 5.17% | 3.90% | 4.54% | 5.20% | 4.66% | |||||||||||||||||||||||||||||||||||||||||||
in US$ | 8,774 | — | — | — | — | — | 8,774 | 8,774 | 7,744 | — | — | — | — | — | 7,744 | 7,744 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 2.53 | % | — | — | — | — | — | 2.53 | % | 1.96% | — | — | — | — | — | 1.96% | ||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 46,089 | — | — | — | — | — | 46,089 | 46,089 | 87,309 | — | — | — | — | — | 87,309 | 87,309 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 5.39 | % | — | — | — | — | — | 5.39 | % | 5.39% | — | — | — | — | — | 5.39% | ||||||||||||||||||||||||||||||||||||||||||||||||
Long-term borrowings | — | — | — | — | 2,623 | — | 2,623 | 2,623 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in British pound | — | 2,413 | — | — | — | — | 2,413 | 2,413 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | 3.54% | — | — | — | — | 3.54% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | — | 12,480 | — | — | — | — | 12,480 | 12,480 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | 2.35% | — | — | — | — | 2.35% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in Euro | 780 | — | 3,121 | — | — | — | 3,901 | 3,901 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | 3.54 | % | — | 3.54 | % | 1.50% | — | 3.80% | — | — | — | 3.34% | ||||||||||||||||||||||||||||||||||||||||||||||||
Investment contracts | 2,070 | 1,841 | 1,681 | 610 | 498 | 65,575 | 72,275 | 70,694 | 2,765 | 1,922 | 2,259 | 591 | 953 | 224,010 | 232,500 | 229,222 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.74 | % | 1.07 | % | 0.96 | % | 2.49 | % | 2.42 | % | 2.53 | % | 2.44 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Average guaranteed interest rate | 1.42% | 0.80% | 1.32% | 2.12% | 1.69% | 2.49% | 2.44% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term insurance contracts | 105,760 | 140,904 | 117,175 | 138,251 | 22,911 | 1,063,899 | 1,588,900 | 107,665 | 23,963 | 23,861 | 25,615 | 81,730 | 1,736,232 | 1,999,066 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Average guaranteed interest rate | 2.47 | % | 2.50 | % | 2.52 | % | 2.94 | % | 2.64 | % | 2.43 | % | 2.49 | % | 2.52% | 2.58% | 2.57% | 2.68% | 3.24% | 2.61% | 2.63% |
Expected Maturity Date | Expected Maturity Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | Fair value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(RMB in millions, except as otherwise stated) | (RMB in millions, except as otherwise stated) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 17,393 | 27,861 | 27,794 | 65,558 | 57,199 | 640,030 | 835,835 | 797,837 | 63,466 | 71,709 | 53,115 | 44,127 | 46,853 | 714,000 | 993,270 | 1,017,685 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.84 | % | 4.84 | % | 4.64 | % | 4.85 | % | 4.09 | % | 4.69 | % | 4.67 | % | 4.87% | 4.59% | 5.25% | 4.85% | 4.58% | 4.56% | 4.64% | |||||||||||||||||||||||||||||||||||||||||||
in US$ | — | 6 | 266 | — | — | 33 | 305 | 307 | — | — | — | 13 | 34 | 117 | 164 | 170 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | 5.38 | % | 10.25 | % | — | — | 5.85 | % | 9.68 | % | — | — | — | 5.50% | 6.15% | 5.25% | 5.46% | ||||||||||||||||||||||||||||||||||||||||||||||
Variable rate bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 3,476 | 550 | 1,221 | — | 175 | 1,499 | 6,921 | 6,838 | 409 | 207 | 10 | 28 | — | 400 | 1,054 | 1,055 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 5.58 | % | 5.60 | % | 5.00 | % | — | 4.56 | % | 3.75 | % | 5.06 | % | 5.66% | 4.65% | 3.80% | 5.29% | — | 4.60% | 5.03% | ||||||||||||||||||||||||||||||||||||||||||||
Term deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 64,532 | 164,300 | 153,100 | 173,685 | 88,157 | 10,000 | 653,774 | 653,774 | 179,729 | 88,157 | 149,833 | 70,500 | 36,300 | 7,700 | 532,219 | 532,219 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.33 | % | 4.58 | % | 5.24 | % | 5.26 | % | 4.94 | % | 5.70 | % | 4.95 | % | 5.00% | 4.94% | 5.00% | 5.29% | 3.90% | 3.80% | 4.94% | |||||||||||||||||||||||||||||||||||||||||||
in US$ | 10,400 | — | — | — | — | — | 10,400 | 10,400 | 6,106 | — | — | — | — | — | 6,106 | 6,106 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 3.13 | % | — | — | — | — | — | 3.13 | % | 1.51% | — | — | — | — | — | 1.51% | ||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 20,426 | — | — | — | — | — | 20,426 | 20,426 | 81,088 | — | — | — | — | — | 81,088 | 81,088 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 6.29 | % | — | — | — | — | — | 6.29 | % | 3.64% | — | — | — | — | — | 3.64% | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in British pound | — | — | 2,339 | — | — | — | 2,339 | 2,339 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | 3.54% | — | — | — | 3.54% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | — | — | 13,100 | — | — | — | 13,100 | 13,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | 2.35% | — | — | — | 2.35% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in Euro | 731 | — | — | — | — | — | 731 | 731 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.50% | — | — | — | — | — | 1.50% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment contracts | 6,312 | 1,478 | 1,585 | 605 | 599 | 54,508 | 65,087 | 63,772 | 2,632 | 1,872 | 1,882 | 543 | 585 | 188,192 | 195,706 | 192,373 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average guaranteed interest rate | 2.17 | % | 1.44 | % | 0.97 | % | 2.53 | % | 2.53 | % | 2.61 | % | 2.50 | % | 1.60% | 1.24% | 0.78% | 2.30% | 2.26% | 2.37% | 2.34% | |||||||||||||||||||||||||||||||||||||||||||
Long-term insurance contracts | 86,866 | 87,473 | 148,122 | 124,840 | 101,108 | 934,537 | 1,482,946 | 143,140 | 72,636 | 24,073 | 25,257 | 58,264 | 1,502,586 | 1,825,956 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Average guaranteed interest rate | 2.44 | % | 2.47 | % | 2.50 | % | 2.52 | % | 2.50 | % | 2.41 | % | 2.44 | % | 2.53% | 2.51% | 2.60% | 2.62% | 3.17% | 2.59% | 2.60% |
Expected Maturity Date | Expected Maturity Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(RMB in millions, except as otherwise stated) | (RMB in millions, except as otherwise stated) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 3,940 | 15,263 | 22,780 | 19,390 | 63,071 | 665,209 | 789,653 | 788,098 | 30,816 | 63,843 | 61,139 | 51,973 | 44,020 | 647,267 | 899,058 | 945,831 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.78 | % | 4.84 | % | 4.57 | % | 3.90 | % | 4.79 | % | 4.55 | % | 4.56 | % | 4.84% | 4.94% | 4.23% | 5.26% | 4.86% | 4.79% | 4.79% | |||||||||||||||||||||||||||||||||||||||||||
in US$ | — | — | — | 266 | — | — | 266 | 266 | 266 | — | — | — | 12 | 57 | 335 | 340 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | — | 10.25 | % | — | — | 10.25 | % | 10.25% | — | — | — | 6.47% | 5.88% | 9.36% | ||||||||||||||||||||||||||||||||||||||||||||||||
in HK$ | — | — | 6 | — | — | 30 | 36 | 39 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | 5.38 | % | — | — | 6.12 | % | 5.99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable rate bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 2,035 | 3,638 | 483 | 1,140 | — | 2,842 | 10,138 | 10,166 | 3,516 | 684 | 204 | 160 | 28 | 1,989 | 6,581 | 6,572 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 5.21 | % | 5.58 | % | 5.57 | % | 5.00 | % | — | 4.36 | % | 5.10 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 1,886 | — | — | — | — | — | 1,886 | 1,886 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.59 | % | — | — | — | — | — | 1.59 | % | 4.21% | 5.62% | 4.67% | 6.52% | 5.81% | 4.09% | 4.40% | ||||||||||||||||||||||||||||||||||||||||||||||||
Term deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in RMB | 82,367 | 58,850 | 164,300 | 151,600 | 173,685 | 600 | 631,402 | 631,402 | 176,350 | 173,684 | 88,157 | 48,500 | 70,500 | — | 557,191 | 557,191 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.49 | % | 4.39 | % | 4.57 | % | 5.25 | % | 5.26 | % | 5.25 | % | 4.89 | % | 4.54% | 5.14% | 4.94% | 5.99% | 4.63% | — | 4.93% | |||||||||||||||||||||||||||||||||||||||||||
in US$ | 9,678 | — | — | — | — | — | 9,678 | 9,678 | 5,431 | — | — | — | — | — | 5,431 | 5,431 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.81 | % | — | — | — | — | — | 1.81 | % | 1.87% | — | — | — | — | — | 1.87% | ||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 68,499 | — | — | — | — | — | 68,499 | 68,499 | 31,354 | — | — | — | — | — | 31,354 | 31,354 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.45 | % | — | — | — | — | — | 4.45 | % | 2.34% | — | — | — | — | — | 2.34% | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | — | — | — | — | 2,643 | — | 2,643 | 2,643 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | 3.54% | — | 3.54% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment contracts | 1,760 | 5,509 | 1,260 | 591 | 599 | 56,920 | 66,639 | 65,074 | 2,736 | 1,772 | 1,447 | 573 | 564 | 77,014 | 84,106 | 82,644 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.69 | % | 1.94 | % | 1.22 | % | 2.54 | % | 2.55 | % | 2.58 | % | 2.48 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Average guaranteed interest rate | 1.43% | 1.17% | 1.11% | 2.16% | 2.31% | 2.20% | 2.14% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term insurance contracts | 164,129 | 112,595 | 117,163 | 23,291 | 20,247 | 1,261,348 | 1,698,773 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average guaranteed interest rate | 2.49% | 2.53% | 2.88% | 2.54% | 2.50% | 2.50% | 2.53% |
Equity Price Risk
Our investments in securities investment funds or equity securities expose us to changes in equity prices. We manage this risk on an integrated basis with other risks through our asset-liability management strategies. We also manage equity price risk through industry and issuer diversification and asset allocation techniques.
The following table sets forth our exposure to equity securities as of December 31, 2014, 20132017, 2016 and 2012.2015.
As of December 31, | As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | Carrying amount | Fair value | Carrying amount | Fair value | Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||||||||||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 164,742 | 164,742 | 154,957 | 154,957 | 236,030 | 236,030 | 411,623 | 411,623 | 421,383 | 421,383 | 409,528 | 409,528 | ||||||||||||||||||||||||||||||||||||
Securities at fair value through profit or loss | 7,916 | 7,916 | 3,416 | 3,416 | 23,840 | 23,840 | 43,006 | 43,006 | 54,718 | 54,718 | 53,918 | 53,918 | ||||||||||||||||||||||||||||||||||||
Available-for-sale | 156,826 | 156,826 | 151,541 | 151,541 | 212,190 | 212,190 | 368,617 | 368,617 | 366,665 | 366,665 | 355,610 | 355,610 |
A hypothetical 10% decline in the December 31, 2014, 20132017, 2016 and 20122015 value of the securities at fair value through profit or loss equity securities would result in a chargean unrealized loss charged to the income statement of approximately RMB 2,3845,392 million, RMB 3425,472 million and RMB 7924,301 million, respectively.
A hypothetical 10% decline in the December 31, 2014, 20132017, 2016 and 20122015 value of theavailable-for-sale equity securities would result in an unrealized loss charged to the income statement of approximately RMB 21,21935,561 million,, RMB 15,15436,667 million and RMB 15,68336,862 million, respectively.
The selection of a 10% immediate change in the value of equity securities should not be construed as a prediction by us of future market events but rather as an illustration of the potential impact of such an event.
Foreign Exchange Risk
Our exposure to fluctuations in foreign currency exchange rates against RMB results primarily from our holdings innon-RMB denominated term deposits and our foreign currency-denominated loans. Our debts and capital expenditures are predominantly in RMB and the principal currencies which create foreign currency exchange rate risk in our deposits are the U.S. dollar and Hong Kong dollar. The principal currencycurrencies which exposesexpose us to foreign currency exchange risk in our loans isare the British pound. In June 2014, to fund our overseas investments, we obtainedpound, U.S. dollar and Euro.Our borrowings in foreign currencies include a fixed-interest ratefive-year bank loan of 275GBP275 million British pounds sterling with a termmaturity date on June 17, 2019, a three-year bank loan of five years. WeUS$ 970 million with a maturity date on September 27, 2019, a three-year bank loan of US$ 940 million with a maturity date on September 30, 2019 and aone-month bank loan of EUR100 million with a maturity date on January 11, 2018, all of which are fixed rate loans, and a three-year loan of EUR400 million with a maturity date on December 6, 2020, which is a floating rate loan.We recorded RMB 26852 million (US$43 8 million) in foreign exchange gains for the year ended December 31, 2014,2017, resulting mainly from an increase in our allocation in assests held in foreign currencies and the depreciationfluctuation of the British pound against the Renminbi. FutureRenminbi exchange rate.Future movements in the exchange rate of RMB against the U.S. dollar and other foreign currencies may adversely affect our results of operations and financial condition.
The following tables set forth assets denominated in currencies other than RMB as of December 31, 2014, 20132017, 2016 and 2012.2015.
Expected Maturity Date | Expected Maturity Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 6 | 260 | — | — | — | 48 | 314 | 319 | 1,587 | 1 | 17 | 33 | — | 181 | 1,819 | 1,828 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.74 | % | 10.25 | % | — | — | — | 6.33 | % | 9.54 | % | 0.77% | 0.13% | 4.12% | 5.95% | — | 3.79% | 1.20% | ||||||||||||||||||||||||||||||||||||||||||||||
Other | — | 1 | — | — | — | 26 | 27 | 27 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | 0.14% | — | — | — | 1.02% | 0.98% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Term deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 7,744 | — | — | — | — | — | 7,744 | 7,744 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.96% | — | — | — | — | — | 1.96% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 8,774 | — | — | — | — | — | 8,774 | 8,774 | — | — | — | — | — | 952 | 952 | 952 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 2.53 | % | — | — | — | — | — | 2.53 | % | — | — | — | — | — | 4.00% | 4.00% | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 3,662 | — | — | — | — | — | 3,662 | 3,662 | 1,246 | — | — | — | — | — | 1,246 | 1,246 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 0.05 | % | — | — | — | — | — | 0.05 | % | 0.09% | — | — | — | — | — | 0.09% | ||||||||||||||||||||||||||||||||||||||||||||||||
in HK$ | 68 | — | — | — | — | — | 68 | 68 | 185 | — | — | — | — | — | 185 | 185 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 0.01 | % | — | — | — | — | — | 0.01 | % | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
in British pound | 54 | — | — | — | — | — | 54 | 54 | 282 | — | — | — | — | — | 282 | 282 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 0.05 | % | — | — | — | — | — | 0.05 | % | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
in Euro | 128 | 128 | 128 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 3 | — | — | — | — | — | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in British pound | — | — | — | — | 2,623 | — | 2,623 | 2,623 | — | 2,413 | — | — | — | — | 2,413 | 2,413 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | 3.54 | % | — | 3.54 | % | — | 3.54% | — | — | — | — | 3.54% | ||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | — | 12,480 | — | — | — | — | 12,480 | 12,480 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | 2.35% | — | — | — | — | 2.35% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in Euro | 780 | — | 3,121 | — | — | — | 3,901 | 3,901 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.50% | — | 3.80% | — | — | — | 3.34% |
Expected Maturity Date | Expected Maturity Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | — | 6 | 266 | — | — | 33 | 305 | 307 | 288 | — | 1 | 13 | 34 | 176 | 512 | 518 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | 0.12% | 5.50% | 6.15% | 3.82% | 1.87% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | — | — | 3 | — | — | 26 | 29 | 29 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | 5.38 | % | 10.25 | % | — | — | 5.85 | % | 9.68 | % | — | — | 1.05% | — | — | 1.26% | 1.24% | ||||||||||||||||||||||||||||||||||||||||||||||
Term deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 10,400 | — | — | — | — | — | 10,400 | 10,400 | 6,106 | — | — | — | — | — | 6,106 | 6,106 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 3.13 | % | — | — | — | — | — | 3.13 | % | 1.51% | — | — | — | — | — | 1.51% | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Cash equivalents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 1,823 | — | — | — | — | — | 1,823 | 1,823 | 2,685 | — | — | — | — | — | 2,685 | 2,685 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 0.05 | % | — | — | — | — | — | 0.05 | % | 0.53% | — | — | — | — | — | 0.53% | ||||||||||||||||||||||||||||||||||||||||||||||||
in HK$ | 222 | — | — | — | — | — | 222 | 222 | 2,083 | — | — | — | — | — | 2,083 | 2,083 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 0.01 | % | — | — | — | — | — | 0.01 | % | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
in British pound | 145 | — | — | — | — | — | 145 | 145 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 15 | — | — | — | — | — | 15 | 15 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in British pound | — | — | 2,339 | — | — | — | 2,339 | 2,339 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | 3.54% | — | — | — | 3.54% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | — | — | 13,100 | — | — | — | 13,100 | 13,100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | 2.35% | — | — | — | 2.35% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in Euro | 731 | — | — | — | — | — | 731 | 731 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.50% | — | — | — | — | — | 1.50% |
Expected Maturity Date | Expected Maturity Date | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 597 | 4 | — | — | 12 | 92 | 705 | 711 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 4.51% | 0.13% | — | — | 6.47% | 4.18% | 4.48% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Term deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 5,431 | — | — | — | — | — | 5,431 | 5,431 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.87% | — | — | — | — | — | 1.87% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 300 | — | — | 42 | — | — | 342 | 342 | 3,743 | — | — | — | — | — | 3,743 | 3,743 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.59 | % | — | — | 10.25 | % | — | — | 2.66 | % | 0.03% | — | — | — | — | — | 0.03% | |||||||||||||||||||||||||||||||||||||||||||||||
in HK$ | — | — | 8 | — | — | 36 | 44 | 49 | 636 | — | — | — | — | — | 636 | 636 | ||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | — | — | 5.38 | % | — | — | 6.12 | % | 5.99 | % | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Term deposits | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 1,540 | — | — | — | — | — | 1,540 | 1,540 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in British pound | 132 | — | — | — | — | — | 132 | 132 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 1.81 | % | — | — | — | — | — | 1.81 | % | 0.01% | — | — | — | — | — | 0.01% | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash and Cash equivalents | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in US$ | 40 | — | — | — | — | — | 40 | 40 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
in British pound | — | — | — | 2,643 | — | — | 2,643 | 2,643 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 0.05 | % | — | — | — | — | — | 0.05 | % | — | — | — | 4.02% | — | — | 4.02% | ||||||||||||||||||||||||||||||||||||||||||||||||
in HK$ | 3,319 | — | — | — | — | — | 3,319 | 3,319 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average interest rate | 0.01 | % | — | — | — | — | — | 0.01 | % |
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
Not applicable.
Not applicable.
Not applicable.
The table below sets forth all fees and charges that a holder of our ADRs may have to pay to the depositary bank of our ADR program, either directly or indirectly.
Category | Depositary Actions | Associated Fee | ||
(a) Depositing or substituting the underlying shares | Each person to whom ADRs are issued against deposits of shares, including deposits and issuances in respect of:
share distributions, rights, merger
exchange of securities or any other transaction or event or other distribution affecting the ADSs or the deposited securities | US$5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered | ||
(b) Receiving or distributing dividends | Distribution of dividends | US$0.02 or less per ADS | ||
(c) Selling or exercising rights | Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities | US$5.00 for each 100 ADSs (or portion thereof) | ||
(d) Withdrawing an underlying security | Acceptance of ADRs surrendered for withdrawal of deposited securities | US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered | ||
(e) Transferring, splitting or grouping receipts | Transfers, combining or grouping of depositary receipts | US$1.50 per ADS | ||
(f) Expenses of the depositary | Expenses incurred on behalf of ADR holders in connection with:
compliance with foreign exchange control regulations or any law or regulation relating to foreign investment;
the depositary’s or its custodian’s compliance with applicable law, rule or regulation;
stock transfer or other taxes and other governmental charges;
cable, telex, facsimile transmission and delivery;
expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency); and
any other charge payable by depositary or its agents. | Expenses payable at the sole discretion of the depositary by billing ADR holders or by deducting charges from one or more cash dividends or other cash distributions. |
Deutsche Bank Trust Company Americas, or Deutsche Bank, has served as the depositary bank of our ADR program since January 4, 2010. Deutsche Bank has agreed to reimburse certain reasonable company expenses related to our ADR program and incurred by us in connection with our ADR program. The table below sets forth the amounts reimbursed from January 1, 20142017 to April 10, 2015.6, 2018.
Category of Expenses | Amount Reimbursed January 1, April | |||
NYSE listing fees | US$ | |||
Legal fees | US$ | |||
Investor | US$ | |||
Broker | US$ | |||
|
| |||
Total | US$ | |||
|
|
(1) | Includes expenses related to announcement of results, ADR training programs,non-deal roadshows and investor relations activities. |
(2) | Broker reimbursements are fees payable to Broadridge and other service providers for the distribution of hard copy material to beneficial ADR holders holding in the Depositary Trust Company. Corporate material includes information related to shareholders’ meetings and related voting instruction cards. These fees are SEC approved. |
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
A. MATERIAL MODIFICATION TO THE RIGHTS OF SECURITY HOLDERS
See “Item 10. Additional Information—Articles of Association”.
The following use of proceeds information relates to our registration statement on FormF-1 (FileNo. 333-110615), filed by us in connection with our initial public offering of H shares in the United States. In connection with the registration of the H shares, a registration statement on FormF-6 (FileNo.333-110622) was also filed for ADSs representing such H shares. Each of these two registration statements was declared effective by the SEC on December 11, 2003. Our H shares commenced trading on the Hong Kong Stock Exchange on December 18, 2003 and the ADSs on the New York Stock Exchange on December 17, 2003.
The net proceeds from the initial public offering of our shares, after deduction of fees and expenses, amounted to RMB 24,707 million and were held in either H.K. dollars or U.S. dollars. Asdollars.As of the date of this annual report, a part of the cash proceeds from our global offering was held in bank deposit accounts denominated in foreign currencies in China, and part of the cash proceeds was invested in securities listed on overseas stock exchanges, multi-asset portfolios and part of the cash proceeds was invested in debt securities denominated in foreign currencies. We gradually converted approximately US$300 million of the cash proceeds into Renminbi to reduce foreign exchange risks.private equity funds. We invested approximately US$433 million, in addition to 2,282 billionmillion in Renminbi, in Guangdong Development Bank in December 2006. We used approximately HK$12 billion for investments in Sino-Ocean Land Holdings Limited in 2009, 2010 and 2013. In January 2015,As of December 31, 2017, we had engaged eight13 investment managers to invest, operate and manage US$ 8001,600 million entrusted to them by us for investment in overseas capitalpublic markets.
ITEM 15. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
As required by Rule13a-15(b) of the Securities Exchange Act of 1934, we have carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2014,2017, the end of the period covered by this annual report. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2014.2017.
Management’s Report on Internal Control Overover Financial Reporting
Management of China Life Insurance Company Limited (together with its consolidated subsidiaries, the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014.2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013 framework). Based on this assessment, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2014.2017.
The Company’s internal control over financial reporting as of December 31, 20142017 has been audited by Ernst & Young Hua Ming LLP, an independent registered public accounting firm, as stated in their report which is on pages F-2F-3 and F-3F-4 of this annual report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014.2017.
Changes in Internal Control over Financial Reporting
There were no changes to the Company’s internal control over financial reporting as defined in Exchange Act Rule13a-15(f) during the year ended December 31, 20142017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
Our board of directors has determined that Mr. Bruce Douglas Moore qualifiesChang Tso Tung Stephenqualifies as an audit committee financial expert as defined in Item 16A of Form20-F. Mr. MooreChang Tso Tung Stephen is “independent” in accordance with the applicable requirements of Rule10A-3 of the Securities Exchange Act of 1934. Mr. MooreChang was appointed as an independentnon-executive director and a member of the audit committee of our Company in May 2009.October 2014. For Mr. Moore’s biographicalChang’sbiographical information, see “Item 6. Directors, Senior Management and Employees”.
At the board of directors meeting held on June 29, 2004, we adopted a code of business conduct and ethics that applies to our chief executive officer, chief financial officer, controller and other senior officers of our company. We have filed the adopted code of business conduct and ethics as an exhibit to our annual report on Form20-F for the fiscal year ended December 31, 2004, as filed on May 27, 2005.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the aggregate audit fees, audit-related fees, tax fees and all other fees paid to our principal accountants for the fiscal years of 20142017 and 2013.2016.
Audit Fees(1) | Audit-Related Fees | Tax Fees | All Other Fees | |||||
(RMB in millions) | ||||||||
2014 | 55 | — | — | — | ||||
2013 | 52 | — | — | — |
Audit Fees(1) | Audit-Related Fees | Tax Fees | All Other Fees(2) | |||||||||||||
(RMB in millions) | ||||||||||||||||
2017 | 59 | — | — | 1 | ||||||||||||
2016 | 58 | — | — | 2 |
(1) | Audit fees include fees billed for professional services rendered for audits of the consolidated financial statements and review of interim financial statements of China |
(2) | All other fees include fees billed for advisory services which do not affect the independence of our principal accountants. |
According to our current internal rules, before our principal accountants are engaged by us to render audit ornon-audit services, the engagement must be approved by our audit committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
As of December 31, 2014,2017, China Life and its subsidiaries had not purchased, sold or redeemed any of China Life’s shares.
On December 21, 2012, our board of directors resolved, as recommended by our audit committee, to propose to appoint Ernst & Young as the Company’s independent registered certified public accountant. At the first extraordinary general meeting of the Company held on February 19, 2013, the shareholders of the Company approved the appointment of Ernst & Young as the Company’s independent registered certified public accountant effective for the fiscal year ending December 31, 2013. PricewaterhouseCoopers was responsible for the audit work of the Company for the fiscal year ended December 31, 2012. We reported the change in our independent registered certified public accountant on Form 6-K filed with the SEC on February 19, 2013. The change was made due to relevant PRC rules issued by the MOF limiting the term of service of audit firms continuously engaged by a PRC financial institution.
The reports of PricewaterhouseCoopers on our consolidated financial statements for the two fiscal years ended December 31, 2011 and 2012 contain no adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles.Not Applicable.
During the two fiscal years ended December 31, 2011 and 2012, and the subsequent interim period through June 5, 2013, the date of resignation of PricewaterhouseCoopers, there have been no disagreements with PricewaterhouseCoopers on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers, would have caused it to make reference thereto in their reports on the consolidated financial statements for such years.ITEM 16G. CORPORATE GOVERNANCE.
During the two fiscal years ended December 31, 2011 and 2012, and the subsequent interim period through June 5, 2013, there have been no reportable events requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F.
We provided a copy of the above disclosure under this Item 16F to PricewaterhouseCoopers and requested that PricewaterhouseCoopers furnish a letter addressed to the SEC stating whether it agrees with the above statements, and if not, stating the respects in which it does not agree. A copy of the letter from PricewaterhouseCoopers addressed to the SEC, dated April 25, 2014, was filed as Exhibit 15.1 to the Form 20-F for the fiscal year ended December 31, 2013 which we filed with the SEC on April 25, 2014.
During the two fiscal years ended December 31, 2011 and 2012, and the subsequent interim period prior to our engagement of Ernst & Young, neither we nor anyone on our behalf consulted Ernst & Young regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, or (ii) any matter that was either the subject of a disagreement with Ernst & Young or a reportable event. Also, during the two fiscal years ended December 31, 2011 and 2012, and the subsequent interim period prior to our engagement of Ernst & Young, we have not obtained any written report or oral advice that Ernst & Young concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue.
As used herein, the term “reportable event” means any of the items listed in paragraphs (a)(1)(v)(A)-(D) of Item 16F of Form 20-F, and the term “disagreement” shall be interpreted in accordance with Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16-F of Form 20-F.
As a Chinese company with H shares, ADSs and A shares publicly traded on the HKSE, the NYSE and the SSE, respectively, we must comply with the corporate governance standards provided by PRC company law and other laws, as well as the securities laws and regulations in Hong Kong, United States and the listing requirements of the HKSE, the NYSE and the SSE that are applicable to us. The description set forth below includes, for purpose of Section 303A.11 of the NYSE Listed Company Manual, a summary of the significant ways in which our corporate governance practices differ from those followed by U.S. domestic companies under NYSE rules.
Board Independence
We identify our independentnon-executive directors in accordance with the qualifications provided by relevant PRC and Hong Kong regulations, which prohibit independent directors from having, among other things, specified interests in our securities or business, relationships with the management and financial dependence on us. These tests vary in certain respects with those set forth under Section 303A.02 of the NYSE Listed Company Manual.
Section 303A.02 of the NYSE Listed Company Manual also requires the board of directors to affirmatively determine that the director has no material relationship with the company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company). Under the HKSE Listing Rules, each independentnon-executive director must provide an annual confirmation of his independence to the listed company. Under the Tentative Guidelines on Corporate Governance of Insurance Companies issued by the CIRC in 2006 (the “Chinese Insurance Company Corporate Governance Guidelines”), each independent director must make a public announcement of the director’s independence and commitment to duties.
Section 303A.01 of the NYSE Listed Company Manual provides that a U.S. domestic issuer must have a majority of independent directors, unless more than 50% of such issuer’s voting power for the election of directors is controlled by an individual, a group or another company (a “controlled company”). Because more than 60% of our voting power is controlled by CLIC, we, as with controlled U.S. domestic companies, would not be required to comply with this independent board requirement. As of the date of this annual report, our board of directors comprised eleven directors, including four executive directors, threenon-executive directors and four independentnon-executive directors.
Section 303A.03 of the NYSE Listed Company Manual requires a U.S. domestic company to have itsnon-management directors meet at regularly scheduled executive sessions without management and hold an executive session including only independent directors at least once a year, or hold regular executive sessions of independent directors. Under the HKSE corporate governance rules effective since April 1, 2012, the chairman of our board of directors is required to have a meeting withnon-executive directors (including independentnon-executive directors) only without the executive directors present at least once a year. On October 28, 2014, the chairman of our board convened a meeting of non-executive directors to discuss the operational management and development reform of the Company.
Nominating/Corporate Governance Committee and Compensation Committee
Under Section 303A.04 of the NYSE Listed Company Manual, a U.S. domestic company must have a nominating/corporate governance committee composed entirely of independent directors with a written charter that addresses certain specified responsibilities, unless it is a “controlled company”. Section 303A.05 of the NYSE Listed Company Manual requires a U.S. domestic company to have a compensation committee composed entirely of independent directors with a written charter that addresses certain specified duties, unless it is a “controlled company”. We, as with controlled U.S. domestic companies, are not required under NYSE rules to have such a nominating/corporate governance committee or compensation committee. We have established a nominating and remuneration committee in accordance with the HKSE Listing Rules, comprised of a majority of independentnon-executive directors as construedrequired under those rules. Therules.The primary duties of the nomination and remuneration committee are to review the structure and components of our board of directors, to formulate the appointment and successors to our board of directors and senior management, to review and recommend the nomination of our directors and senior officers, as well as to propose to our board of directors the remuneration policy for our directors, supervisors and senior management.
The ChineseGuiding Opinions on Regulating Governance Structure of Insurance Company Corporate Governance GuidelinesCompanies require that nominating and remuneration committees of Chinese insurance companies be comprised entirely ofnon-executive directors with the independent directors as the Chairmen. In 2014,2017, our nominating and remuneration committee comprised two independentnon-executive directors and onenon-executive director with one of the independentnon-executive directors serving as the Chairman.chairman. We have complied with the composition requirements of the nomination and remuneration committee as prescribed under the Chinese Insurance Company Corporate Governance Guidelines.
Audit Committee
The NYSE rules set forth two levels of audit committee standards for U.S. domestic companies and foreign private issuers. Asissuers.As a foreign private issuer, we are required to comply with the audit committee requirements under Section 303A.06 of the NYSE Listed Company Manual, such as audit committee independence and certain functions and powers, but are not subject to the additional qualifications, independence, function and other requirements for U.S. domestic companies provided under Section 303A.07 of the NYSE Listed Company Manual.
We have established an audit committee in accordance with the requirements of Section 303A.06 of the NYSE Listed Company Manual, the HKSE Listing Rules and the Chinese Insurance Company Corporate Governance Guidelines. In 2014,Guidelines.In 2017, our audit committee comprised three independentnon-executive directors with one of them serving as the Chairman. Thechairman.The primary duties of the audit committee are to review and supervise the financial reporting process, to assess the effectiveness of our risk management and internal control system, to supervise our internal audit system and its implementation and to implement and recommend the engagement or replacement of external auditors. Our audit committee is also responsible for communications between our internal and external auditors and our internal reporting system.
Corporate Governance Guidelines
Under Section 303A.09 of the NYSE Listed Company Manual, a U.S. domestic company must adopt and disclose corporate governance guidelines that address specified key subjects. We are not required by Chinese or Hong Kong laws or requirements to, and currently do not, have such corporate governance guidelines. However, we address several of the key subjects required by the NYSE Listed Company Manual to be included in the corporate governance guidelines in our articles of association, Rules of Procedures for Board of Directors, Rules of Internal Control and other internal corporate documents.
In addition, under the HKSE Listing Rules, we are expected to comply with, but may choose to deviate from, the provisions of the Code on Corporate Governance PracticesCode in the HKSE Listing Rules, which sets out the principles of good corporate governance for issuers. However, we are required to disclose the reasons for deviation, if any, in our interim and annual reports.
We are required by the CSRC to disclose in our annual report filed with the CSRCShanghai Stock Exchange our actual corporate governance practice as compared with CSRC’s rules on corporate governance of listed companies. Under such rules, we are required to disclose the differenceswhether there is any material difference between our actual practices and the requirements under such rules, and explain the details and reasons for such differences, if any. Accordingly, we have disclosed in our annual report for the year of 20142017 filed with the CSRCShanghai Stock Exchange that we had established a corporate governance structure with well-defined duties and responsibilities strictly in accordance with the PRC Company Law and PRC Securities Law as well as relevant rules and regulations, and that our actual corporate governance practices are generally in compliance with the applicable regulatory rules and requirements of the jurisdictions where we are listed.
Code of Business Conduct and Ethics
Section 303A.10 of the NYSE Listed Company Manual requires U.S. domestic companies to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. We have adopted a Code of Business Conduct and Ethics for Directors and Senior Officers and Code of Conduct for Employees. We have disclosed the Code of Business Conduct and Ethics for Directors and Senior Officers in our annual report under Form20-F for fiscal year ended December 31, 2004 and are required to disclose in the annual report under Form20-F any waivers of the code for directors or executive officers. In addition, according to the HKSE Listing Rules, all of our directors must comply with the Model Code for Securities Transactions by Directors of Listed Companies that sets forth the required standards with which the directors of a listed company must comply in securities transactions of the listed company. Under the Listing Rules of the Shanghai Stock Exchange, any of the directors, supervisors or senior management of the listed company may not transfer any shares of such company held by him/her within one year of the listing of the company or six months after leaving the company. During his/her tenure at the company, the number of shares transferred each year must not exceed 25% of the total number of shares of the company held by him/her, provided, however, if the directors, supervisors or senior management leave the company before the expiration of his/her tenure, during the term of his/her original tenure determined at the time of his/her appointment, the number of shares transferred each year must not exceed 25% of the total number of shares of the company held by him/her and may not transfer any shares within half a year after the expiration of the term of his/her original tenure determined at the time of his/her appointment. During his/her tenure at the company, he/she must file with the Shanghai Stock Exchange for record in advance any proposed transaction in the shares of the company in accordance with the relevant rules and regulations. In case of changes in shareholdings in the company, he/she shall report the changes on a timely basis to the company, which must then make relevant announcements on the website of the Shanghai Stock Exchange.
Certification Requirements
Under Section 303A.12(a) of the NYSE Listed Company Manual, each U.S. domestic company Chief Executive Officer must certify to the NYSE each year that he or she is not aware of any violation by the listed company of NYSE corporate governance listing standards. There are no similar requirements under PRC or Hong Kong laws or requirements.
ITEM 16H. MINE SAFETYDISCLOSURE.
Not applicable.
ITEM 17. FINANCIAL STATEMENTS.
We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.
ITEM 18. FINANCIAL STATEMENTS.
See Index to Consolidated Financial Statements for a list of all financial statements filed as part of this annual report.
(a) See Item 18 for a list of the financial statements filed as part of this annual report.
(b) Exhibits to this annual report.
EXHIBIT INDEX
No. | Description of Exhibit | |
8.1 | List of subsidiaries of the Registrant | |
11.1 | Code of Business Conduct and Ethics | |
12.1 | Certification pursuant to Rule 13a-14(a) | |
12.2 | Certification pursuant to Rule 13a-14(a) | |
13.1 | Certification pursuant to Rule 13a-14(a) and Section 1350 of Chapter 63 of Title 18 of the United States Code | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) | Incorporated by reference to the Registration Statement on Form F-1 (File No. 333-110615), filed with the Commission on December 9, 2003. |
(2) | Incorporated by reference to the Registration Statement on Form F-6 (File No. 333-164005) |
(3) | Incorporated by reference to the Post-Effective Amendment No. 1 to Form F-6 (File No. 333-164005), filed with the Commission on January |
(4) | Incorporated by reference to the |
(5) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, |
(6) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2014, filed with the Commission on April |
(7) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2015, filed with the Commission on April 22, 2016. |
(8) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2016, filed with the Commission on April 21, 2017. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
China Life Insurance Company Limited | ||
By: | /s/ Lin Dairen | |
Name: Lin Dairen | ||
Title: President and Executive Director |
Date: April 24, 2015April25, 2018
CHINA LIFE INSURANCE COMPANY LIMITED
(Incorporated in the People’s Republic of China with limited liability)
Audited Consolidated Financial Statements
For the year ended 31 December 2014
2017
CHINA LIFE INSURANCE COMPANY LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Historical Consolidated Financial Statements
| ||||
F-2 | ||||
Consolidated Statement of Financial Position as of December 31, | F-6 | |||
F-8 | ||||
F-10 | ||||
F-13 | ||||
F-15 |
Report of Independent Registered Public Accounting Firm
TheTo the Shareholders and the Board of Directors and Shareholders of China Life Insurance Company Limited
Opinion on the Financial Statements
We have audited the accompanying consolidated statementstatements of financial position of China Life Insurance Company Limited (the “Company”) as of December 31, 20142017 and 2013, and2016, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2014. These2017, and the related notes (collectively referred to as the “consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Life Insurancethe Company Limited at December 31, 20142017 and 2013,2016, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2014,2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), China Life Insurance Company Limited’sthe Company’s internal control over financial reporting as of December 31, 2014,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 24, 201525, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young Hua Ming LLP
Hong KongWe have served as the Company’s auditor since 2013.
Beijing, People’s Republic of China
April 24, 201525, 2018
Report of Independent Registered Public Accounting Firm
TheTo the Shareholders and the Board of Directors and Shareholders of China Life Insurance Company Limited
Opinion on Internal Control over Financial Reporting
We have audited China Life Insurance Company Limited’s internal control over financial reporting as of December 31, 2014,2017, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”)COSO criteria). In our opinion, China Life Insurance Company Limited’sLimited (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Company as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2017, and the related notes, and our report dated April 25, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on China Life Insurance Company Limited’sthe Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Report of Independent Registered Public Accounting Firm (continued)
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young Hua Ming LLP
Beijing, People’s Republic of China
April 25, 2018
Report of Independent Registered Public Accounting Firm (continued)
In our opinion, China Life Insurance Company Limited maintained, in all material respects, effective internal control over financial reporting asThe Board of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial positionDirectors and Shareholders of China Life Insurance Company Limited as of December 31, 2014 and 2013, and
We have audited the related consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the two years in the period ended December 31, 2014 and our report dated April 24, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young
Hong Kong
April 24, 2015
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
China Life Insurance Company Limited
In our opinion, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended December 31, 2012 present fairly, in all material respects, the result of operations and cash flows of China Life Insurance Company Limited and its subsidiaries (hereinafter - “the Group”(the “Company”) for the year ended December 31, 2012, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.2015. These financial statements are the responsibility of the Group’sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, andas well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopersIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows for the year ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ Ernst & Young
Hong Kong
27 March 2013, except for the change in the composition of reportable segments discussed in Note 5, as to which the date is 24 April 201522, 2016
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Financial Position
As at 31 December 20142017
Notes | As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | ||||||||||||||||||
Notes | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | ||||||||||||||||||
ASSETS | ||||||||||||||||||||
Property, plant and equipment | 6 | 25,348 | 23,393 | 6 | 42,707 | 30,389 | ||||||||||||||
Investment properties | 7 | 1,283 | 1,329 | 7 | 3,064 | 1,191 | ||||||||||||||
Investments in associates and joint ventures | 8 | 44,390 | 34,775 | 8 | 161,472 | 119,766 | ||||||||||||||
Held-to-maturity securities | 9.1 | 517,283 | 503,075 | 9.1 | 717,037 | 594,730 | ||||||||||||||
Loans | 9.2 | 166,453 | 118,626 | 9.2 | 383,504 | 226,573 | ||||||||||||||
Term deposits | 9.3 | 690,156 | 664,174 | 9.3 | 449,400 | 538,325 | ||||||||||||||
Statutory deposits – restricted | 9.4 | 6,153 | 6,153 | 9.4 | 6,333 | 6,333 | ||||||||||||||
Available-for-sale securities | 9.5 | 607,531 | 491,527 | 9.5 | 810,734 | 766,423 | ||||||||||||||
Securities at fair value through profit or loss | 9.6 | 53,052 | 34,172 | 9.6 | 136,809 | 209,124 | ||||||||||||||
Securities purchased under agreements to resell | 9.7 | 11,925 | 8,295 | 9.7 | 36,185 | 43,538 | ||||||||||||||
Accrued investment income | 9.8 | 44,350 | 34,717 | 9.8 | 50,641 | 55,945 | ||||||||||||||
Premiums receivable | 11 | 11,166 | 9,876 | 11 | 14,121 | 13,421 | ||||||||||||||
Reinsurance assets | 12 | 1,032 | 1,069 | 12 | 3,046 | 2,134 | ||||||||||||||
Other assets | 13 | 19,411 | 20,430 | 13 | 33,952 | 22,013 | ||||||||||||||
Cash and cash equivalents | 47,034 | 21,330 | 48,586 | 67,046 | ||||||||||||||||
|
|
|
| |||||||||||||||||
Total assets | 2,246,567 | 1,972,941 | 2,897,591 | 2,696,951 | ||||||||||||||||
|
|
|
|
The notes on pages 1415 to 8997 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Financial Position (continued)
As at 31 December 20142017
Notes | As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | ||||||||||||||||||
Notes | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | ||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||
Insurance contracts | 14 | 1,603,446 | 1,494,497 | 14 | 2,025,133 | 1,847,986 | ||||||||||||||
Investment contracts | 15 | 72,275 | 65,087 | 15 | 232,500 | 195,706 | ||||||||||||||
Policyholder dividends payable | 74,745 | 49,536 | 83,910 | 87,725 | ||||||||||||||||
Interest-bearing loans and borrowings | 16 | 2,623 | — | 16 | 18,794 | 16,170 | ||||||||||||||
Bonds payable | 17 | 67,989 | 67,985 | 17 | — | 37,998 | ||||||||||||||
Financial liabilities at fair value through profit or loss | 10,890 | — | 2,529 | 2,031 | ||||||||||||||||
Securities sold under agreements to repurchase | 18 | 46,089 | 20,426 | 18 | 87,309 | 81,088 | ||||||||||||||
Annuity and other insurance balances payable | 25,617 | 23,179 | 44,820 | 39,038 | ||||||||||||||||
Premiums received in advance | 15,850 | 6,305 | 18,505 | 35,252 | ||||||||||||||||
Other liabilities | 19 | 20,062 | 18,233 | 19 | 47,430 | 36,836 | ||||||||||||||
Deferred tax liabilities | 28 | 19,375 | 4,919 | 28 | 4,871 | 7,768 | ||||||||||||||
Current income tax liabilities | 52 | 5 | 6,198 | 1,214 | ||||||||||||||||
Statutory insurance fund | 20 | 223 | 184 | 20 | 282 | 491 | ||||||||||||||
|
|
|
| |||||||||||||||||
Total liabilities | 1,959,236 | 1,750,356 | 2,572,281 | 2,389,303 | ||||||||||||||||
|
| |||||||||||||||||||
|
| |||||||||||||||||||
Equity | ||||||||||||||||||||
Share capital | 33 | 28,265 | 28,265 | 33 | 28,265 | 28,265 | ||||||||||||||
Other equity instruments | 34 | 7,791 | 7,791 | |||||||||||||||||
Reserves | 34 | 145,919 | 97,029 | 35 | 145,675 | 145,007 | ||||||||||||||
Retained earnings | 109,937 | 95,037 | 139,202 | 122,558 | ||||||||||||||||
|
|
|
| |||||||||||||||||
Attributable to equity holders of the Company | 284,121 | 220,331 | 320,933 | 303,621 | ||||||||||||||||
|
| |||||||||||||||||||
|
| |||||||||||||||||||
Non-controlling interests | 3,210 | 2,254 | 4,377 | 4,027 | ||||||||||||||||
|
|
|
| |||||||||||||||||
Total equity | 287,331 | 222,585 | 325,310 | 307,648 | ||||||||||||||||
|
| |||||||||||||||||||
|
| |||||||||||||||||||
Total liabilities and equity | 2,246,567 | 1,972,941 | 2,897,591 | 2,696,951 | ||||||||||||||||
|
|
|
|
Approved and authorizedauthorised for issue by the Board of Directors on 2422 March 2015.2018.
The notes on pages 1415 to 8997 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
2017 | 2016 | 2015 | ||||||||||||||
Notes | RMB million | RMB million | RMB million | |||||||||||||
REVENUES | ||||||||||||||||
Gross written premiums | 511,966 | 430,498 | 363,971 | |||||||||||||
Less: premiums ceded to reinsurers | (3,661 | ) | (1,758 | ) | (978 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net written premiums | 508,305 | 428,740 | 362,993 | |||||||||||||
Net change in unearned premium reserves | (1,395 | ) | (2,510 | ) | (692 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net premiums earned | 506,910 | 426,230 | 362,301 | |||||||||||||
|
|
|
|
|
| |||||||||||
Investment income | 21 | 122,727 | 109,147 | 97,582 | ||||||||||||
Net realised gains on financial assets | 22 | 42 | 6,038 | 32,297 | ||||||||||||
Net fair value gains through profit or loss | 23 | 6,183 | (7,094 | ) | 10,209 | |||||||||||
Other income | 7,493 | 6,460 | 5,060 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total revenues | 643,355 | 540,781 | 507,449 | |||||||||||||
|
|
|
|
|
| |||||||||||
BENEFITS, CLAIMS AND EXPENSES | ||||||||||||||||
Insurance benefits and claims expenses | ||||||||||||||||
Life insurance death and other benefits | 24 | (259,708 | ) | (253,157 | ) | (221,701 | ) | |||||||||
Accident and health claims and claim adjustment expenses | 24 | (33,818 | ) | (27,269 | ) | (21,009 | ) | |||||||||
Increase in insurance contract liabilities | 24 | (172,517 | ) | (126,619 | ) | (109,509 | ) | |||||||||
Investment contract benefits | 25 | (8,076 | ) | (5,316 | ) | (2,264 | ) | |||||||||
Policyholder dividends resulting from participation in profits | (21,871 | ) | (15,883 | ) | (33,491 | ) | ||||||||||
Underwriting and policy acquisition costs | (64,789 | ) | (52,022 | ) | (35,569 | ) | ||||||||||
Finance costs | 26 | (4,601 | ) | (4,767 | ) | (4,320 | ) | |||||||||
Administrative expenses | (35,953 | ) | (31,854 | ) | (27,458 | ) | ||||||||||
Other expenses | (6,426 | ) | (4,859 | ) | (7,428 | ) | ||||||||||
Statutory insurance fund contribution | 20 | (1,068 | ) | (1,048 | ) | (743 | ) | |||||||||
|
|
|
|
|
| |||||||||||
Total benefits, claims and expenses | (608,827 | ) | (522,794 | ) | (463,492 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Share of profit of associates and joint ventures, net | 8 | 7,143 | 5,855 | 1,974 | ||||||||||||
|
|
|
|
|
| |||||||||||
Profit before income tax | 27 | 41,671 | 23,842 | 45,931 | ||||||||||||
Income tax | 28 | (8,919 | ) | (4,257 | ) | (10,744 | ) | |||||||||
|
|
|
|
|
| |||||||||||
Net profit | 32,752 | 19,585 | 35,187 | |||||||||||||
|
|
|
|
|
| |||||||||||
Attributable to: | ||||||||||||||||
- Equity holders of the Company | 32,253 | 19,127 | 34,699 | |||||||||||||
-Non-controlling interests | 499 | 458 | 488 | |||||||||||||
Basic and diluted earnings per share | 29 | RMB1.13 | RMB0.66 | RMB1.22 | ||||||||||||
|
|
|
|
|
|
The notes on pages 15 to 97 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Comprehensive Income (continued)
For the year ended 31 December 20142017
2014 | 2013 | 2012 | ||||||||||||
Notes | RMB million | RMB million | RMB million | |||||||||||
REVENUES | ||||||||||||||
Gross written premiums | 331,010 | 326,290 | 322,742 | |||||||||||
Less: premiums ceded to reinsurers | (515 | ) | (556 | ) | (384 | ) | ||||||||
|
|
|
|
|
| |||||||||
Net written premiums | 330,495 | 325,734 | 322,358 | |||||||||||
Net change in unearned premium reserves | (390 | ) | (921 | ) | (232 | ) | ||||||||
|
|
|
|
|
| |||||||||
Net premiums earned | 330,105 | 324,813 | 322,126 | |||||||||||
|
|
|
|
|
| |||||||||
Investment income | 21 | 93,548 | 82,816 | 73,243 | ||||||||||
Net realised gains and impairment on financial assets | 22 | 7,120 | 5,793 | (26,876 | ) | |||||||||
Net fair value gains/(losses) through profit or loss | 23 | 5,808 | 137 | (313 | ) | |||||||||
Other income | 4,185 | 4,324 | 3,305 | |||||||||||
|
|
|
|
|
| |||||||||
Total revenues | 440,766 | 417,883 | 371,485 | |||||||||||
|
|
|
|
|
| |||||||||
BENEFITS, CLAIMS AND EXPENSES | ||||||||||||||
Insurance benefits and claims expenses | ||||||||||||||
Life insurance death and other benefits | 24 | (192,659 | ) | (193,671 | ) | (107,674 | ) | |||||||
Accident and health claims and claim adjustment expenses | 24 | (16,752 | ) | (11,263 | ) | (7,898 | ) | |||||||
Increase in insurance contract liabilities | 24 | (105,883 | ) | (107,354 | ) | (184,990 | ) | |||||||
Investment contract benefits | 25 | (1,958 | ) | (1,818 | ) | (2,032 | ) | |||||||
Policyholder dividends resulting from participation in profits | (24,866 | ) | (18,423 | ) | (3,435 | ) | ||||||||
Underwriting and policy acquisition costs | (27,147 | ) | (25,690 | ) | (27,754 | ) | ||||||||
Finance costs | 26 | (4,726 | ) | (4,032 | ) | (2,575 | ) | |||||||
Administrative expenses | (25,432 | ) | (24,805 | ) | (23,283 | ) | ||||||||
Other expenses | (4,151 | ) | (3,864 | ) | (3,304 | ) | ||||||||
Statutory insurance fund contribution | 20 | (701 | ) | (637 | ) | (609 | ) | |||||||
|
|
|
|
|
| |||||||||
Total benefits, claims and expenses | (404,275 | ) | (391,557 | ) | (363,554 | ) | ||||||||
|
|
|
|
|
| |||||||||
Share of profit of associates and joint ventures | 8 | 3,911 | 3,125 | 3,037 | ||||||||||
|
|
|
|
|
| |||||||||
Profit before income tax | 27 | 40,402 | 29,451 | 10,968 | ||||||||||
Income tax | 28 | (7,888 | ) | (4,443 | ) | 304 | ||||||||
|
|
|
|
|
| |||||||||
Net profit | 32,514 | 25,008 | 11,272 | |||||||||||
|
|
|
|
|
| |||||||||
Attributable to: | ||||||||||||||
- Equity holders of the Company | 32,211 | 24,765 | 11,061 | |||||||||||
- Non-controlling interests | 303 | 243 | 211 | |||||||||||
|
|
|
|
|
| |||||||||
Basic and diluted earnings per share | 29 | RMB | 1.14 | RMB | 0.88 | RMB | 0.39 | |||||||
|
|
|
|
|
|
Note | 2017 RMB million | 2016 RMB million | 2015 RMB million | |||||||||||||
Other comprehensive income | ||||||||||||||||
Other comprehensive income that may be reclassified to profit or loss in subsequent periods: | ||||||||||||||||
Fair value gains/(losses) onavailable-for-sale securities | (15,003 | ) | (44,509 | ) | 54,080 | |||||||||||
Amount transferred to net profit from other comprehensive income | (42 | ) | (6,038 | ) | (32,297 | ) | ||||||||||
Portion of fair value changes onavailable-for-sale securities attributable to participating policyholders | 5,605 | 17,372 | (12,767 | ) | ||||||||||||
Share of other comprehensive income of associates and joint ventures under the equity method | 20 | (864 | ) | 353 | ||||||||||||
Exchange differences on translating foreign operations | (865 | ) | 21 | 10 | ||||||||||||
Income tax relating to components of other comprehensive income | 28 | 2,359 | 8,242 | (2,242 | ) | |||||||||||
|
|
|
|
|
| |||||||||||
Other comprehensive income that may be reclassified to profit or loss in subsequent periods | (7,926 | ) | (25,776 | ) | 7,137 | |||||||||||
|
|
|
|
|
| |||||||||||
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods | — | — | — | |||||||||||||
|
|
|
|
|
| |||||||||||
Other comprehensive income for the year, net of tax | (7,926 | ) | (25,776 | ) | 7,137 | |||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income for the year, net of tax | 24,826 | (6,191 | ) | 42,324 | ||||||||||||
|
|
|
|
|
| |||||||||||
Attributable to: | ||||||||||||||||
- Equity holders of the Company | 24,341 | (6,647 | ) | 41,775 | ||||||||||||
-Non-controlling interests | 485 | 456 | 549 | |||||||||||||
|
|
|
|
|
|
The notes on pages 1415 to 8997 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Comprehensive IncomeChanges in Equity
For the year ended 31 December 20142017
2014 | 2013 | 2012 | ||||||||||||
Note | RMB million | RMB million | RMB million | |||||||||||
Other comprehensive income | ||||||||||||||
Other comprehensive income that may be reclassified to profit or loss in subsequent periods: | ||||||||||||||
Fair value gains/(losses) on available-for-sale securities | 70,342 | (25,135 | ) | 8,864 | ||||||||||
Amount transferred to net profit from other comprehensive income | (7,120 | ) | (5,793 | ) | 26,876 | |||||||||
Portion of fair value changes on available-for-sale securities attributable to participating policyholders | (11,035 | ) | 2,635 | (2,635 | ) | |||||||||
Share of other comprehensive income of associates and joint ventures under the equity method | 120 | (332 | ) | 167 | ||||||||||
Income tax relating to components of other comprehensive income | 28 | (13,023 | ) | 7,050 | (8,265 | ) | ||||||||
|
|
|
|
|
| |||||||||
Other comprehensive income that may be reclassified to profit or loss in subsequent periods | 39,284 | (21,575 | ) | 25,007 | ||||||||||
|
|
|
|
|
| |||||||||
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods | — | — | — | |||||||||||
|
|
|
|
|
| |||||||||
Other comprehensive income for the year, net of tax | 39,284 | (21,575 | ) | 25,007 | ||||||||||
|
|
|
|
|
| |||||||||
Total comprehensive income for the year, net of tax | 71,798 | 3,433 | 36,279 | |||||||||||
|
|
|
|
|
| |||||||||
Attributable to: | ||||||||||||||
- Equity holders of the Company | 71,443 | 3,203 | 36,056 | |||||||||||
- Non-controlling interests | 355 | 230 | 223 | |||||||||||
|
|
|
|
|
|
Non- controlling interests | ||||||||||||||||||||||||
Attributable to equity holders of the Company | Total | |||||||||||||||||||||||
Share capital RMB million | Other equity instruments RMB million | Reserves RMB million | Retained earnings RMB million | RMB million | RMB million | |||||||||||||||||||
(Note 33) | (Note 34) | (Note 35) | ||||||||||||||||||||||
As at 1 January 2015 | 28,265 | — | 145,919 | 109,937 | 3,210 | 287,331 | ||||||||||||||||||
Net profit | — | — | — | 34,699 | 488 | 35,187 | ||||||||||||||||||
Other comprehensive income | — | — | 7,076 | — | 61 | 7,137 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income | — | — | 7,076 | 34,699 | 549 | 42,324 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Transactions with owners | ||||||||||||||||||||||||
Capital paid in bynon-controlling interests | — | — | — | — | 80 | 80 | ||||||||||||||||||
Capital paid in by other equity instruments holders | — | 7,791 | — | — | — | 7,791 | ||||||||||||||||||
Appropriation to reserves (Note 35) | — | — | 10,090 | (10,090 | ) | — | — | |||||||||||||||||
Dividends paid (Note 31) | — | — | — | (11,491 | ) | — | (11,491 | ) | ||||||||||||||||
Dividends tonon-controlling interests | — | — | — | — | (117 | ) | (117 | ) | ||||||||||||||||
Others | — | — | 296 | — | — | 296 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total transactions with owners | — | 7,791 | 10,386 | (21,581 | ) | (37 | ) | (3,441 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2015 | 28,265 | 7,791 | 163,381 | 123,055 | 3,722 | 326,214 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The notes on pages 1415 to 8997 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014
Attributable to equity holders of the Company | Non- controlling interests | Total | ||||||||||||||||||
Share capital | Reserves | Retained earnings | ||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Note 33) | (Note 34) | |||||||||||||||||||
As at 1 January 2012 | 28,265 | 83,424 | 79,841 | 1,858 | 193,388 | |||||||||||||||
Net profit | — | — | 11,061 | 211 | 11,272 | |||||||||||||||
Other comprehensive income | — | 24,995 | — | 12 | 25,007 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income | — | 24,995 | 11,061 | 223 | 36,279 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Transactions with owners | ||||||||||||||||||||
Appropriation to reserves (Note 34) | — | 4,090 | (4,090 | ) | — | — | ||||||||||||||
Dividends paid (Note 31) | — | — | (6,501 | ) | — | (6,501 | ) | |||||||||||||
Dividends to non-controlling interests | — | — | — | (65 | ) | (65 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total transactions with owners | — | 4,090 | (10,591 | ) | (65 | ) | (6,566 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As at 31 December 2012 | 28,265 | 112,509 | 80,311 | 2,016 | 223,101 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
The notes on pages 14 to 89 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Changes in Equity (continued)
For the year ended 31 December 20142017
Attributable to equity holders of the Company | Non- controlling | Total | Attributable to equity holders of the Company | Non- controlling interests | Total | |||||||||||||||||||||||||||||||||||||||
Share capital RMB million | Reserves RMB million | Retained earnings RMB million | RMB million | RMB million | Share capital | Other equity instruments | Reserves | Retained earnings | ||||||||||||||||||||||||||||||||||||
(Note 33) | (Note 34) | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||||||||||
(Note 33) | (Note 34) | (Note 35) | ||||||||||||||||||||||||||||||||||||||||||
As at 1 January 2013 | 28,265 | 112,509 | 80,311 | 2,016 | 223,101 | |||||||||||||||||||||||||||||||||||||||
As at 1 January 2016 | 28,265 | 7,791 | 163,381 | 123,055 | 3,722 | 326,214 | ||||||||||||||||||||||||||||||||||||||
Net profit | — | — | 24,765 | 243 | 25,008 | — | — | — | 19,127 | 458 | 19,585 | |||||||||||||||||||||||||||||||||
Other comprehensive income | — | (21,562 | ) | — | (13 | ) | (21,575 | ) | — | — | (25,774 | ) | — | (2 | ) | (25,776 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total comprehensive income | — | (21,562 | ) | 24,765 | 230 | 3,433 | — | — | (25,774 | ) | 19,127 | 456 | (6,191 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Transactions with owners | ||||||||||||||||||||||||||||||||||||||||||||
Capital paid in | — | — | — | 88 | 88 | |||||||||||||||||||||||||||||||||||||||
Appropriation to reserves (Note 34) | — | 6,082 | (6,082 | ) | — | — | ||||||||||||||||||||||||||||||||||||||
Appropriation to reserves (Note 35) | — | — | 7,367 | (7,367 | ) | — | — | |||||||||||||||||||||||||||||||||||||
Dividends paid (Note 31) | — | — | (3,957 | ) | — | (3,957 | ) | — | — | — | (12,257 | ) | — | (12,257 | ) | |||||||||||||||||||||||||||||
Dividends to non-controlling interests | — | — | — | (80 | ) | (80 | ) | — | — | — | — | (151 | ) | (151 | ) | |||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||
Others | — | — | 33 | — | — | 33 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Total transactions with owners | — | 6,082 | (10,039 | ) | 8 | (3,949 | ) | — | — | 7,400 | (19,624 | ) | (151 | ) | (12,375 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
As at 31 December 2016 | 28,265 | 7,791 | 145,007 | 122,558 | 4,027 | 307,648 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
As at 31 December 2013 | 28,265 | 97,029 | 95,037 | 2,254 | 222,585 | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
The notes on pages 1415 to 8997 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Changes in Equity (continued)
For the year ended 31 December 2017
Attributable to equity holders of the Company | Non- controlling interests | Total | ||||||||||||||||||||||
Share capital RMB million | Other equity instruments RMB million | Reserves RMB million | Retained earnings RMB million | RMB million | RMB million | |||||||||||||||||||
(Note 33) | (Note 34) | (Note 35) | ||||||||||||||||||||||
As at 1 January 2017 | 28,265 | 7,791 | 145,007 | 122,558 | 4,027 | 307,648 | ||||||||||||||||||
Net profit | — | — | — | 32,253 | 499 | 32,752 | ||||||||||||||||||
Other comprehensive income | — | — | (7,912 | ) | — | (14 | ) | (7,926 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income | — | — | (7,912 | ) | 32,253 | 485 | 24,826 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Transactions with owners | ||||||||||||||||||||||||
Appropriation to reserves (Note 35) | — | — | 8,445 | (8,445 | ) | — | — | |||||||||||||||||
Dividends paid (Note 31) | — | — | — | (7,164 | ) | — | (7,164 | ) | ||||||||||||||||
Dividends tonon-controlling interests | — | — | — | — | (135 | ) | (135 | ) | ||||||||||||||||
Others | — | — | 135 | — | — | 135 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total transactions with owners | — | — | 8,580 | (15,609 | ) | (135 | ) | (7,164 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2017 | 28,265 | 7,791 | 145,675 | 139,202 | 4,377 | 325,310 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The notes on pages 15 to 97 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
2017 RMB million | 2016 RMB million | 2015 RMB million | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Profit before income tax | 41,671 | 23,842 | 45,931 | |||||||||
Adjustments for: | ||||||||||||
Investment income | (122,727 | ) | (109,147 | ) | (97,582 | ) | ||||||
Net realised and unrealised (gains)/losses on financial assets | (6,225 | ) | 1,056 | (42,506 | ) | |||||||
Insurance contracts | 176,148 | 131,354 | 112,142 | |||||||||
Depreciation and amortisation | 2,240 | 2,083 | 2,036 | |||||||||
Foreign exchange (gains)/losses | (52 | ) | (582 | ) | (812 | ) | ||||||
Share of profit of associates and joint ventures, net | (7,143 | ) | (5,855 | ) | (1,974 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Securities at fair value through profit or loss | 76,378 | (76,318 | ) | (100,089 | ) | |||||||
Financial liabilities at fair value through profit or loss | 931 | 1,539 | 403 | |||||||||
Receivables and payables | 38,967 | 124,466 | 70,482 | |||||||||
Income tax paid | (4,473 | ) | (9,331 | ) | (8,380 | ) | ||||||
Interest received—securities at fair value through profit or loss | 4,497 | 5,465 | 1,225 | |||||||||
Dividends received—securities at fair value through profit or loss | 778 | 526 | 313 | |||||||||
|
|
|
|
|
| |||||||
Net cash inflows/(outflows) from operating activities | 200,990 | 89,098 | (18,811 | ) | ||||||||
|
|
|
|
|
| |||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Disposals and maturities: | ||||||||||||
Disposals of debt investments | 30,540 | 10,447 | 11,546 | |||||||||
Maturities of debt investments | 142,845 | 50,101 | 41,806 | |||||||||
Disposals of equity investments | 506,306 | 508,476 | 400,451 | |||||||||
Property, plant and equipment | 103 | 114 | 199 | |||||||||
Purchases: | ||||||||||||
Debt investments | (516,051 | ) | (173,628 | ) | (53,340 | ) | ||||||
Equity investments | (500,737 | ) | (537,012 | ) | (522,787 | ) | ||||||
Property, plant and equipment | (9,619 | ) | (5,310 | ) | (8,384 | ) | ||||||
Capital contribution to associates and joint ventures | (37,304 | ) | (65,158 | ) | (766 | ) | ||||||
Decrease/(increase) in term deposits, net | 92,148 | 37,515 | 124,838 | |||||||||
Decrease/(increase) in securities purchased under agreements to resell, net | 6,981 | (22,035 | ) | (9,602 | ) | |||||||
Interest received | 98,012 | 78,891 | 81,688 | |||||||||
Dividends received | 29,014 | 20,390 | 8,828 | |||||||||
Decrease/(increase) in policy loans, net | (15,515 | ) | (7,483 | ) | (11,305 | ) | ||||||
Cash paid/(received) related to other investing activities | (399 | ) | (11 | ) | 3,875 | |||||||
|
|
|
|
|
| |||||||
Net cash inflows/(outflows) from investing activities | (173,676 | ) | (104,703 | ) | 67,047 | |||||||
|
|
|
|
|
|
The notes on pages 15 to 97 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Changes in EquityCash Flows (continued)
For the year ended 31 December 20142017
Attributable to equity holders of the Company | Non- controlling | Total | ||||||||||||||||||
Share capital RMB million | Reserves RMB million | Retained earnings RMB million | RMB million | RMB million | ||||||||||||||||
(Note 33) | (Note 34) | |||||||||||||||||||
As at 1 January 2014 | 28,265 | 97,029 | 95,037 | 2,254 | 222,585 | |||||||||||||||
Net profit | — | — | 32,211 | 303 | 32,514 | |||||||||||||||
Other comprehensive income | — | 39,232 | — | 52 | 39,284 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income | — | 39,232 | 32,211 | 355 | 71,798 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Transactions with owners | ||||||||||||||||||||
Capital paid in | — | 826 | — | 692 | 1,518 | |||||||||||||||
Appropriation to reserves (Note 34) | — | 8,832 | (8,832 | ) | — | — | ||||||||||||||
Dividends paid (Note 31) | — | — | (8,479 | ) | — | (8,479 | ) | |||||||||||||
Dividends to non-controlling interests | — | — | — | (91 | ) | (91 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total transactions with owners | — | 9,658 | (17,311 | ) | 601 | (7,052 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As at 31 December 2014 | 28,265 | 145,919 | 109,937 | 3,210 | 287,331 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
2017 RMB million | 2016 RMB million | 2015 RMB million | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Increase/(decrease) in securities sold under agreements to repurchase, net | 6,228 | 49,999 | (13,757 | ) | ||||||||
Cash received from issuing other equity instruments | — | — | 7,791 | |||||||||
Interest paid | (5,671 | ) | (4,891 | ) | (4,471 | ) | ||||||
Dividends paid to equity holders of the Company | (7,164 | ) | (12,257 | ) | (11,491 | ) | ||||||
Dividends paid tonon-controlling interests | (135 | ) | (151 | ) | (117 | ) | ||||||
Cash received from borrowings | 3,121 | 13,831 | — | |||||||||
Capital injected into subsidiaries bynon-controlling interests | 4,034 | 2,939 | 2,630 | |||||||||
Cash repaid to lenders | (38,000 | ) | (30,000 | ) | — | |||||||
Cash paid related to other financing activities | (8,008 | ) | (13,200 | ) | — | |||||||
|
|
|
|
|
| |||||||
Net cash inflows/(outflows) from financing activities | (45,595 | ) | 6,270 | (19,415 | ) | |||||||
|
|
|
|
|
| |||||||
Foreign exchange gains/(losses) on cash and cash equivalents | (179 | ) | 285 | 241 | ||||||||
Net decrease in cash and cash equivalents | (18,460 | ) | (9,050 | ) | 29,062 | |||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents | ||||||||||||
Beginning of the year | 67,046 | 76,096 | 47,034 | |||||||||
|
|
|
|
|
| |||||||
End of the year | 48,586 | 67,046 | 76,096 | |||||||||
|
|
|
|
|
| |||||||
Analysis of balances of cash and cash equivalents | ||||||||||||
Cash at banks and in hand | 47,444 | 64,364 | 74,135 | |||||||||
Short-term bank deposits | 1,142 | 2,682 | 1,961 |
The notes on pages 1415 to 8997 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Cash Flows
For the year ended 31 December 2014
2014 RMB million | 2013 RMB million | 2012 RMB million | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Profit before income tax | 40,402 | 29,451 | 10,968 | |||||||||
Adjustments for: | ||||||||||||
Investment income | (93,548 | ) | (82,816 | ) | (73,243 | ) | ||||||
Net realised and unrealised gains and impairment on financial assets | (12,928 | ) | (5,930 | ) | 27,189 | |||||||
Amount of investment cost below the fair value for identifiable net assets of an associate | — | (683 | ) | — | ||||||||
Insurance contracts | 108,955 | 109,843 | 185,106 | |||||||||
Depreciation and amortisation | 2,124 | 2,026 | 1,949 | |||||||||
Foreign exchange losses/(gains) | (268 | ) | 437 | 49 | ||||||||
Share of profit of associates and joint ventures | (3,911 | ) | (3,125 | ) | (3,037 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Securities at fair value through profit or loss | (13,698 | ) | (449 | ) | (10,152 | ) | ||||||
Financial liabilities at fair value through profit or loss | 9,704 | — | — | |||||||||
Receivables and payables | 41,330 | 23,300 | (4,434 | ) | ||||||||
Income tax paid | (1,923 | ) | (5,343 | ) | (3,675 | ) | ||||||
Interest received - securities at fair value through profit or loss | 1,902 | 1,002 | 833 | |||||||||
Dividends received - securities at fair value through profit or loss | 106 | 579 | 629 | |||||||||
|
|
|
|
|
| |||||||
Net cash inflow from operating activities | 78,247 | 68,292 | 132,182 | |||||||||
|
|
|
|
|
| |||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Disposals and maturities: | ||||||||||||
Disposals of debt securities | 21,242 | 20,623 | 51,281 | |||||||||
Maturities of debt securities | 22,407 | 15,244 | 5,277 | |||||||||
Disposals of equity securities | 285,647 | 231,864 | 105,519 | |||||||||
Property, plant and equipment | 437 | 159 | 218 | |||||||||
Purchases: | ||||||||||||
Debt securities | (115,808 | ) | (122,952 | ) | (228,296 | ) | ||||||
Equity securities | (312,544 | ) | (223,449 | ) | (70,557 | ) | ||||||
Property, plant and equipment | (5,048 | ) | (3,724 | ) | (5,293 | ) | ||||||
Additional capital contribution to associates and joint ventures | (5,671 | ) | (2,386 | ) | (1,339 | ) | ||||||
Increase in term deposits, net | (25,972 | ) | (23,456 | ) | (120,287 | ) | ||||||
Increase/(decrease) in securities purchased under agreements to resell, net | (3,630 | ) | (7,401 | ) | 1,476 | |||||||
Interest received | 78,903 | 72,667 | 61,410 | |||||||||
Dividends received | 4,258 | 2,861 | 4,768 | |||||||||
Increase in policy loans, net | (13,478 | ) | (20,283 | ) | (7,572 | ) | ||||||
Others | — | — | (409 | ) | ||||||||
|
|
|
|
|
| |||||||
Net cash outflow from investing activities | (69,257 | ) | (60,233 | ) | (203,804 | ) | ||||||
|
|
|
|
|
|
The notes on pages 14 to 89 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
Consolidated Statement of Cash Flows
For the year ended 31 December 2014
2014 RMB million | 2013 RMB million | 2012 RMB million | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Increase/(decrease) in securities sold under agreements to repurchase, net | 25,663 | (48,073 | ) | 55,499 | ||||||||
Cash received from borrowings | 2,881 | — | — | |||||||||
Cash repaid to lenders | (10 | ) | — | — | ||||||||
Interest paid | (4,618 | ) | (4,083 | ) | (1,832 | ) | ||||||
Dividends paid to equity holders of the Company | (8,479 | ) | (3,957 | ) | (6,501 | ) | ||||||
Dividends paid to non-controlling interests | (91 | ) | (80 | ) | (65 | ) | ||||||
Proceeds from issuance of subordinated debts | — | — | 37,988 | |||||||||
Capital injected into a subsidiary by non-controlling interests | 1,358 | 88 | — | |||||||||
|
|
|
|
|
| |||||||
Net cash inflow/(outflow) from financing activities | 16,704 | (56,105 | ) | 85,089 | ||||||||
|
|
|
|
|
| |||||||
Foreign exchange gains/(losses) on cash and cash equivalents | 10 | (76 | ) | — | ||||||||
Net increase/(decrease) in cash and cash equivalents | 25,704 | (48,122 | ) | 13,467 | ||||||||
|
|
|
|
|
| |||||||
Cash and cash equivalents | ||||||||||||
Beginning of the year | 21,330 | 69,452 | 55,985 | |||||||||
|
|
|
|
|
| |||||||
End of the year | 47,034 | 21,330 | 69,452 | |||||||||
|
|
|
|
|
| |||||||
Analysis of balances of cash and cash equivalents | ||||||||||||
Cash at banks and in hand | 45,439 | 20,036 | 69,448 | |||||||||
Short-term bank deposits | 1,595 | 1,294 | 4 | |||||||||
|
|
|
|
|
|
The notes on pages 14 to 89 form an integral part of these consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
1 | ORGANIZATION AND PRINCIPAL ACTIVITIES |
China Life Insurance Company Limited (the “Company”) was established in the People’s Republic of China (“China” or the “PRC”) on 30 June 2003 as a joint stock company with limited liability as part of a group restructuring of China Life Insurance (Group) Company (“CLIC”, formerly China Life Insurance Company) and its subsidiaries (the “Restructuring”). The Company and its subsidiaries are hereinafter collectively referred to as the “Group”. The Group’s principal activity isactivities are the writing of life, insurance business, providing life, annuity,health, accident and healthother types of personal insurance products in China.business; reinsurance business for personal insurance business; fund management business permitted by national laws and regulations or approved by the State Council of the People’s Republic of China, etc.
The Company is a joint stock company incorporated in the PRC with limited liability. The address of its registered office is:is 16 Financial Street, Xicheng District, Beijing, the PRC. The Company is listed on the New York Stock Exchange, the Stock Exchange of Hong Kong Limited, and the Shanghai Stock Exchange.
These consolidated financial statements are presented in millions of Renminbi (“RMB million”) unless otherwise stated. These consolidated financial statements have been approved and authorised for issue by the Board of Directors on 2422 March 2015.2018.
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 | Basis of preparation |
The Group has prepared these consolidated financial statements in accordance with International Financial Reporting Standards (“IFRSs”), amendments to IFRSs and interpretations issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on theThe Stock Exchange of Hong Kong Limited (the “Listing Rules”) and the applicable disclosure requirements of the Hong Kong Companies Ordinance relating to the preparation of consolidated financial statements, which for this financial year and the comparative period continue to be those of the predecessor Companies Ordinance (Cap. 32), in accordance with transitional and saving arrangements for Part 9 of the Hong Kong Companies Ordinance (Cap. 622), “Accounts and Audit”, which are set out in sections 76 to 87 of Schedule 11 to that Ordinance. The Group has prepared the consolidated financial statements under the historical cost convention, except for financial assets and liabilities at fair value through profit or loss,available-for-sale securities, insurance contract liabilities and certain property, plant and equipment at deemed cost as part of the Restructuring process. The preparation of financial statements in conformitycompliance with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
2.1.1 | New accounting standards and amendments adopted by the Group for the first time for the financial year beginning on 1 January |
Standards/Amendments | Content | Effective for annual periods | ||
IAS | 1 January 2017 | |||
IAS | ||||
IFRS included inAnnual Improvements to IFRSs 2014-2016 Cycle | ||||
IAS 32 Amendment –Financial Instruments: Presentation–Offsetting Financial Assets and Financial Liabilities
The amendment to IAS 32 clarifies the meaning of “currently has a legally enforceable right to set-off” and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting. The amendment has no impact on the Group’s consolidated financial statements.
IAS 36 Amendment –Recoverable Amount Disclosures for Non-Financial Assets
The amendment to IAS 36 removes the unintended consequences of IFRS 13Fair Value Measurement on the disclosures required under IAS 36Impairment of Assets. In addition, the amendment requires disclosure of the recoverable amounts for the assets or each cash-generating unit for which impairment loss has been recognised or reversed during the period, and expands the disclosure requirements regarding the fair value measurement for these assets or units if their recoverable amounts are based on fair value less costs of disposal. The Group will provide the required disclosures once an impairment loss for non-financial assets exists.
IAS 39 Amendment –Novation of Derivatives and Continuing of Hedge Accounting
The amendment to IAS 39 provides relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The amendment is not relevant to the Group, since the Group has not applied hedge accounting during the current period.
IFRS 10, IFRS 12 and IAS 27 (Revised)7 Amendments –Investment EntitiesDisclosure Initiative
These amendmentsAmendments to IAS 7Statement of Cash Flows require an entity to provide an exceptiondisclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows andnon-cash changes. Disclosure of the changes in liabilities arising from financing activities is provided in Note 36 to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10Consolidated Financial Statements. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments are not relevant to the Group, since the Group does not qualify to be an investment entity under IFRS 10.financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.1 | Basis of preparation (continued) |
2.1.1 | New accounting standards and amendments adopted by the Group for the first time for the financial year beginning on 1 January |
IFRS 2 AmendmentIAS 12 Amendments –DefinitionRecognition of Vesting ConditionDeferred Tax Assets for Unrealised Losses
The amendmentAmendments to IFRS 2 clarifies various issues relating to the definitions of performance condition and service condition which are vesting conditions, including (i) a performance condition must contain a service condition; (ii) a performance target must be met while the counterparty is rendering service; (iii) a performance target may relate to the operations or activities ofIAS 12 clarify that an entity, orwhen assessing whether taxable profits will be available against which it can utilise a deductible temporary difference, needs to thoseconsider whether tax law restricts the sources of anothertaxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the same group; (iv) a performance condition may be a market or non-market condition; and (v) ifrecovery of some assets for more than their carrying amount. The Group applied the counterparty, regardless of the reason, ceases to provide service during the vesting period, the service condition is not satisfied. The amendmentamendments retrospectively. However, their application has no impact on the Group.Group’s financial position and performance, as the accounting treatment of the Group for the previous period was consistent with the clarification in these amendments.
IFRS 3 Amendment12 Amendments –Accounting for Contingent ConsiderationDisclosure of Interests in Other Entities
Amendments to IFRS 12 clarify that the disclosure requirements in IFRS 12, other than those disclosure requirements in paragraphs B10 to B16 of IFRS 12, apply to an entity’s interest in a Business Combination
The amendment to IFRS 3 clarifiessubsidiary, a joint venture or an associate, or a portion of its interest in a joint venture or an associate that contingent consideration arrangements arising from a business combination that are notis classified as equity should be subsequently measured at fair value through profitheld for sale or loss whether or not they fall within the scope of IFRS 9 or IAS 39.included in a disposal group classified as held for sale. The amendment hasamendments have had no impact on the Group.
IFRS 13 Amendment – Short-term Receivables and Payables
The amendment to IFRS 13 clarifies that short-term receivables and payables with no stated interest rates can be measured at invoice amounts whenGroup’s consolidated financial statements as the effect of discounting is immaterial. The amendmentGroup has no impact on the Group.
IFRS 1 Amendment –Meaning of Effective IFRSs
The amendment clarifies thatinterest in a subsidiary, a joint venture or an entity may choose to apply either a current standard or a new standardassociate that is not yet mandatory, but permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first IFRSs financial statements. The amendment has no impact on the Group, since the Group is an existing IFRSs preparer.classified as held for sale.
2.1.2 | New accounting standards and amendments that are not yet effective and have not been early adopted by the Group for the financial year beginning on 1 January |
Standards/Amendments | Content | Effective for annual period
| ||
|
| 1 January | ||
IFRS 9 | Financial Instruments | 1 January 2018 | ||
IFRS 4 Amendments | Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts | 1 January 2018 | ||
IFRS 15 | Revenue from Contracts with Customers | 1 January 2018 | ||
IFRS 15 Amendments | Clarifications to IFRS 15 Revenue from Contracts with Customers | 1 January 2018 | ||
IAS 40 Amendments | Transfers of Investment Property | 1 January 2018 | ||
IFRS 16 | Leases | 1 January 2019 | ||
IFRS 17 | Insurance Contracts | 1 January 2021 | ||
IFRS 10 and IAS 28 Amendments | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | |||
|
| |||
|
| |||
|
|
IAS 27 Amendment –Equity Method in Separate Financial Statements
The Group has not early adopted any standard, interpretation or amendment to IAS 27 will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The amendment is effective for annual periods beginning on or after 1 January 2016, with early adoption permitted. The amendmentthat has been issued but is not expected to have any impact on the Group’s consolidated financial statements since the Group has no intention to apply the equity method in the separate financial statements.yet effective.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.1 | Basis of preparation (continued) |
2.1.2 | New accounting standards and amendments that are not yet effective and have not been early adopted by the Group for the financial year beginning on 1 January |
IFRS 10 and IAS 282 Amendments –Sale or ContributionClassification and Measurement of Assets between an Investor and its Associate or Joint VentureShare-based Payment Transactions
TheseIn June 2016, the IASB issued amendments eliminateto IFRS 2Share-based Payment that address three main areas: the inconsistency betweeneffects of vesting conditions on the requirementsmeasurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding a certain amount in IFRS 10 and those in IAS 28Investments in Associates and Joint Ventures with regardorder to dealingmeet an employee’s tax obligation associated with the contribution or saleshare-based payment; and accounting where a modification to the terms and conditions of assets betweena share-based payment transaction changes its classification from cash-settled to equity-settled. The amendments clarify that the approach used to account for vesting conditions when measuring equity-settled share-based payments also applies to cash-settled share-based payments. The amendments introduce an investorexception so that a share-based payment transaction with net share settlement features for withholding a certain amount in order to meet the employee’s tax obligation is classified in its entirety as an equity-settled share-based payment transaction when certain conditions are met. Furthermore, the amendments clarify that if the terms and its associate or joint venture. Theseconditions of a cash-settled share-based payment transaction are modified, with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as an equity-settled transaction from the date of the modification. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if they elect to adopt for all three amendments and other criteria are effective for annual periods beginning on or aftermet. The Group will adopt the amendments from 1 January 2016, with early adoption permitted.2018. The amendments are not expected to have materialany significant impact on the Group’s consolidated financial statements.
IFRS 11 Amendment9 –Accounting for Acquisitions of Interests in Joint OperationsFinancial Instruments
The amendment toIn July 2014, the IASB issued the final version of IFRS 11 requires that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity9, bringing together all phases of the joint operation constitutes a business, must apply the relevantfinancial instruments project to replace IAS 39 and all previous versions of IFRS 3 principles9. The standard introduces new requirements for business combinationsclassification and measurement, impairment, and hedge accounting. The amendment also clarifies that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. The amendmentIFRS 9 is effective for annual periods beginning on or after 1 January 2016,2018, with early adoption permitted. It is not expectedBased on the current assessment, the Group expects the adoption of IFRS 9 will have a material impact on the Group’s consolidated financial statements.
Classification and measurement
IFRS 9 requires that the amendmentGroup classifies debt instruments based on the combined effect of application of business model (hold to collect contractual cash flows, hold to collect contractual cash flows and sell financial assets or other business models) and contractual cash flow characteristics (sole payments of principal and interest on the principal amount outstanding or not). Debt instruments not giving rise to cash flows that are sole payments of principal and interest on the principal amount outstanding would be relevantmeasured at fair value through profit and loss. Other debt instruments giving rise to cash flows that are sole payments of principal and interest on the principal amount outstanding would be measured at amortised cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”), based on their respective business model. The Group is in the process of analysing the contractual cash flow characteristics of financial assets and assessing the application of the business model.
Equity instruments would generally be measured at fair value through profit or loss unless the Group sinceelects to measure at FVOCI for certain equity investments not held for trading. This will result in unrealised gains and losses on equity instruments currently classified asavailable-for-sale securities being recorded in income going forward. Currently, these unrealised gains and losses are recognised in other comprehensive income (“OCI”). If the Group elect to record equity investments at FVOCI, gains and losses would never be recognised in income except for the received dividends which do not represent a recovery of part of the investment cost.
Impairment
IFRS 9 replaces the “incurred loss” model with the “expected credit loss” model which is designed to include forward-looking information. The Group is in the process of developing and testing the key models required under IFRS 9 and analysing the impact on the expected loss provision; the Group believed the provision for debt instruments of the Group under the “expected credit loss” model would be larger than that under the previous “incurred loss” model.
Hedge accounting
The Group does not apply the hedge accounting currently, so the new hedge accounting model under IFRS 9 has no joint operationimpact on the Group’s consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.1 | Basis of preparation (continued) |
2.1.2 | New accounting standards and amendments that are not yet effective and have not been early adopted by the Group for the financial year beginning on 1 January 2017 (continued) |
IFRS 4 Amendments –Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
Amendments to IFRS 4 address issues arising from the different effective dates of IFRS 9 and IFRS 17. The amendments introduce two alternative options that allow entities issuing contracts within the scope of IFRS 4 for the adoption of IFRS 9, notably a temporary exemption and an overlay approach. The temporary exemption enables eligible entities to defer the implementation date of IFRS 9 until the effective date of IFRS 17. The amendments clarify that an insurer may apply the temporary exemption from IFRS 9 if: (i) it has not previously applied any version of IFRS 9, other than only the requirements for the presentation of gains and losses on financial liabilities designated as FVTPL; and (ii) its activities are predominantly connected with insurance on its annual reporting date that immediately precedes 1 April 2016. The overlay approach allows entities applying IFRS 9 from 2018 onwards to remove from profit or loss the effects arising from the adoption of IFRS 9 and reclassify the amounts to OCI for designated financial assets. An entity can apply the temporary exemption from IFRS 9 for annual periods beginning on or after 1 January 2018, or apply the overlay approach when it applies IFRS 9 for the first time.
During 2016, the Group performed an assessment of the amendments and reached the conclusion that its activities are predominantly connected with insurance as at 31 December 2014.2015. There had been no significant change in the activities of the Group since then that requires reassessment, and the Group considered that it continues to meet the criteria of applying the temporary exemption. The Group decides to apply the temporary exemption from IFRS 9 and, therefore, continue to apply IAS 39 to its financial assets and liabilities in its reporting period starting on 1 January 2018.
IFRS 15 –Revenue from Contracts with CustomersandIFRS 15 Amendments
IFRS 15, issued in May 2014, establishes a new five-step model that will apply to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach tofor measuring and recognising revenue. IFRS 15The standard also introduces extensive qualitative and quantitative disclosure requirements, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. The standard will supersede all current revenue recognition requirements under IFRSs. Either a full retrospective application or a modified retrospective adoption is effective for annual periods beginningrequired on or after 1 January 2017, with early adoption permitted. IFRS 15 is not applied to the insurance contracts and financial instruments, which are the main sourceinitial application of the Group’s revenue. The Group is currently assessing the impact on the Group’s consolidated financial statements.
IFRS 9 –Financial Instruments
standard. In July 2014,April 2016, the IASB issued amendments to IFRS 15 to address the final versionimplementation issues on identifying performance obligations, application guidance on principal-versus-agent consideration, licences of intellectual property, and transition. The amendments are also intended to help ensure a more consistent application when entities adopt IFRS 9Financial Instruments which reflects all phases15 and decrease the cost and complexity of applying the financial instruments projectstandard. IFRS 15 and replaces IAS 39Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 isthe amendments are effective for annual periods beginning on or after 1 January 2018, withand early adoption is permitted.
The Group will adopt IFRS 15 from 1 January 2018 and plans to adopt the modified retrospective approach. Given insurance contracts are scoped out of IFRS 15, the main impact of the new standard is currently assessingon the accounting treatment of income from administrative and investment management services. The Group does not expect any significant impact on the Group’s consolidated financial statement.
IAS 40 Amendments –Transfers of Investment Property
Amendments to IAS 40, issued in December 2016, clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. The amendments are to be applied prospectively, and shall be applied to the changes that occurred, during or after the financial year when it applies amendments for the first time. An entity should reassess the classification of property held at the date that it first applies the amendments and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application is only permitted if it is possible without the use of hindsight. The Group expects to adopt the amendments from 1 January 2018. The amendments are not expected to have any significant impact on the Group’s consolidated financial statements.
Except for those described in Note 2.1.1,Annual Improvements 2010-2012 Cycle andAnnual Improvements 2011-2013 Cycle issued in December 2013, andAnnual Improvements 2012-2014 Cycle issued in September 2014 set out amendments to other standards. These annual improvements were established to make non-urgent but necessary amendments to IFRSs. No material changes to the accounting policies of the Group are expected as a result of these annual improvements.
In addition, the new Hong Kong Companies Ordinance (Cap. 622) will affect the presentation and disclosure of certain information in the consolidated financial statements for the year ending 31 December 2015. The Group is in the process of making an assessment of the impact of these changes.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.1 | Basis of preparation (continued) |
2.1.2 | New accounting standards and amendments that are not yet effective and have not been early adopted by the Group for the financial year beginning on 1 January 2017 (continued) |
IFRS 16 –Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17Leases, IFRS Interpretations Committee Interpretation No.4 Determining whether an Arrangement contains a Lease, Standing Interpretations Committee (“SIC”) Interpretation No.15Operating Leases-Incentives andSIC-27Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a singleon-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees- leases oflow-value assets and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., theright-of-use asset). Theright-of-use asset is subsequently measured at cost less accumulated depreciation and any impairment losses unless theright-of-use asset meets the definition of investment property in IAS 40, or relates to a class of property, plant and equipment to which the revaluation model is applied. The lease liability is subsequently increased to reflect the interest on the lease liability and reduced for the lease payments. Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on theright-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to theright-of-use asset. Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs. The Group is assessing the impact of IFRS 16 on its consolidated financial statements.
IFRS 17 –Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure, which replaces IFRS 4Insurance Contracts.
In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies for measurement purposes, IFRS 17 provides a comprehensive model (the general model) for insurance contracts, supplemented by the variable fee approach for contracts with direct participation features and the premium allocation approach mainly for short-duration which typically applies to certainnon-life insurance contracts.
The main features of the new accounting model for insurance contracts are, as follows:
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.1 | Basis of preparation (continued) |
2.1.2 | New accounting standards and amendments that are not yet effective and have not been early adopted by the Group for the financial year beginning on 1 January 2017 (continued) |
IFRS 17 –Insurance Contracts(continued)
IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2021, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. Retrospective application is required. However, if full retrospective application for a group of insurance contracts is impracticable, then the entity is required to choose either a modified retrospective approach or a fair value approach. The Group is currently assessing the impact of the standard upon adoption.
IFRS 10 and IAS 28 Amendments –Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments to IFRS 10 and IAS 28 address an inconsistency between the requirements in IFRS 10 and IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to IFRS 10 and IAS 28 was removed and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for adoption now.
In addition, besides the amendments to IFRS 12, which are effective for annual periods beginning on or after 1 January 2017, theAnnual Improvements 2014-2016 Cycle issued in December 2016 set out amendments to IFRS 1 and IAS 28, which are effective for annual periods beginning on or after 1 January 2018. TheAnnual Improvements 2015-2017 Cycle issued in December 2017 set out amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23, which are effective for annual periods beginning on or after 1 January 2019. There is no material impact on the accounting policies of the Group as a result of these amendments.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.2 | Consolidation |
The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2014.2017. Subsidiaries are those entities which are controlled by the Group (including the structured entities controlled by the Group). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
The Groupre-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.
Profit or loss and each component of other comprehensive income (“OCI”)OCI are attributed to the equity holders of the Company and to thenon-controlling interests, even if this results in thenon-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full upon consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.2 | Consolidation (continued) |
The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interestsinterest issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. On anacquisition-by-acquisition basis, the Group recognises anynon-controlling interest in the acquiree either at fair value or at thenon-controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the aggregate of the consideration transferred, the fair value of anynon-controlling interest in the acquiree, and the fair value of any previous equity interest in the acquiree at the acquisition date over the fair value of the net identifiable assets acquired and liabilities assumed is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the Groupre-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed, and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If there-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. If there is any indication that goodwill is impaired, recoverable amount is estimated and the difference between carrying amount and recoverable amount is recognised as an impairment charge. Impairment losses on goodwill are not reversed in subsequent period.periods. Gains andor losses on the disposal of an entity take into consideration the carrying amount of goodwill relating to the entity sold.
The investments in subsidiaries are accounted for only in the Company’s statement of financial position at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Company on the basis of dividenddividends received and receivable.
Transactions withnon-controlling interests
The Group treats transactions withnon-controlling interests that do not result in loss of controls as equity transactions. For shares purchased fromnon-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposal of shares tonon-controlling interests are also recorded in equity.
When the Group ceases to have control or significant influence, any retained interest in the entity is re-measured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in OCI in respect of that entity are accounted for as if the groupGroup had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in OCI are reclassified to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in OCI is reclassified to profit or loss as appropriate.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.3 | Associates and joint ventures |
Associates are entities over which the Group has significant influence, generally accompanying a shareholding of between 20% and 50% of the voting rightrights of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.
Joint ventures are the type of joint arrangements whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
Investments in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost.
The Group’s share of post-acquisition profit or loss of its associates and joint ventures is recognised in net profit, and its share of post-acquisition movements in OCI is recognised in the consolidated statement of comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including any other unsecured receivables, the Group does not recognise further losses unless it has obligations to make payments on behalf of the associate or joint venture.
Unrealised gains on transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group’s interests in the associates or joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Associates and joint ventures’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of acquired associates or joint ventures at the date of acquisition. Goodwill on acquisitions of associates and joint ventures is included in investments in associates and joint ventures and is tested annually for impairment as part of the overall balance. Impairment losses on goodwill are not reversed. Gains andor losses on the disposal of an entity take into consideration the carrying amount of goodwill relating to the entity sold.
The Group determines at each reporting date whether there is any objective evidence that the investmentinvestments in the associates and joint ventures isare impaired. If this is the case, an impairment loss is recognised for the amount by which the investment’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the investment’s fair value less costs to dispose of disposal and value in use. The impairment of investmentinvestments in the associates and joint ventures is reviewed for possible reversal at each reporting date.
The investments in associates and joint ventures are stated at cost less impairment in the Company’s statement of financial position. The results of associates and joint ventures are accounted for by the Company on the basis of dividends received and receivable.
2.4 | Segment reporting |
The Group’s operating segments are presented in a manner consistent with the internal management reporting provided to the operating decision maker - president office for deciding how to allocate resources and for assessing performance.
Operating segment refers to the segment within the Group that satisfies the following conditions: i) the segment generates income and incurs costs from daily operating activities; ii) management evaluates the operating results of the segment to make resource allocation decision and to evaluate the business performance; and iii) the Group can obtain relevant financial information of the segment, including financial condition, operating results, cash flows and other financial performance indicators.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.5 | Foreign currency translation |
Except for China Life Franklin Asset Management Company Limited (“AMC HK”), theThe Company’s functional currency ofis RMB. Each entity in the Group is RMB.determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The reporting currency of the consolidated financial statements of the Group is RMB. Transactions in foreign currencies are translated at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the end of the reporting period. Exchange differences arising in these cases are recognised in net profit.
2.6 | Property, plant and equipment |
Property, plant and equipment, are stated at historical costs less accumulated depreciation and any accumulated impairment losses, except for those acquired prior to 30 June 2003, which are stated at deemed cost less accumulated depreciation and any accumulated impairment losses.
The historical costs of property, plant and equipment comprise its purchase price, including import duties andnon-refundable purchase taxes, and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after terms of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of comprehensive income in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the assets as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.
Depreciation
Depreciation is computed on a straight-line basis to write down the cost of each asset to its residual value over its estimated useful lives as follows:
Estimated useful lives | ||
Buildings | 15 to 35 years | |
Office equipment, furniture and fixtures | ||
Motor vehicles | 4 to 8 years | |
Leasehold improvements | Over the shorter of the remaining term of the lease and the useful lives |
The residual values, depreciation method and useful lives are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment.
Assets under construction mainly represent buildings under construction, which are stated at cost less any impairment losses and are not depreciated, except for those acquired prior to 30 June 2003, which are stated at deemed cost less any accumulated impairment losses. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Assets under construction are reclassified to the appropriate category of property, plant and equipment, investment properties or other assets when completed and ready for use.
Impairment and gains or losses on disposals
Property, plant and equipment are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in net profit for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price and value in use.
The gain or loss on disposal of aan item of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in net profit.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.7 | Investment properties |
Investment properties are interests in land and buildings that are held to earn rental income and/or for capital appreciation, rather than for the supply of services or for administrative purposes.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and any impairment loss.
Depreciation is computed on the straight-line basis over the estimated useful lives. The estimated useful lives of investment properties are 15 to 35 years.
Overseas investment properties that are held by the Group in the formsform of property ownership, equity investment, or other forms, have expected useful lives ofnot longer than 50 years, determined based on the usage in their locations.
The useful lives and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from the individual investment properties.
An investment property is derecognised when either it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of comprehensive income in the year of retirement or disposal. A transfer to, or from, an investment property is made when, and only when, there is evidence of a change in use.
2.8 | Financial assets |
2.8.a | Classification |
The Group classifies its financial assets into the following categories: securities at fair value through profit or loss,held-to-maturity securities, loans and receivables andavailable-for-sale securities. Management determines the classification of its financial assets at initial recognition which depends on the purpose for which the assets are acquired. The Group’s investments in securities fall into the following four categories:
(i) | Securities at fair value through profit or loss |
This category has twosub-categories: securities held for trading and those designated as at fair value through profit or loss at inception. Securities are classified as held for trading at inception if acquired principally for the purpose of selling in the short termshort-term or if they form part of a portfolio of financial assets in which there is evidence of short term profit-taking.taking short-term profit. The Group may classify other financial assets as at fair value through profit or loss if they meet certainthe criteria in IAS 39 and designated as such at inception.
(ii) | Held-to-maturity securities |
Held-to-maturity securities arenon-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intention and ability to hold to maturity and do not meet the definition of loans and receivables nor designated asavailable-for-sale securities or securities at fair value through profit or loss.
(iii) | Loans and receivables |
Loans and receivables arenon-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group intends to sell in the short termshort-term or held asavailable-for-sale. Loans and receivables mainly comprise term deposits, loans, securities purchased under agreements to resell, accrued investment income and premium receivables as presented separately in the statement of financial position.
(iv) | Available-for-sale securities |
Available-for-sale securities arenon-derivative financial assets that are either designated in this category or not classified in any of the other categories.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.8 | Financial assets (continued) |
2.8.b | Recognition and measurement |
Purchase and sale of investments are recognised on the trade date, when the Group commits to purchase or sell assets. Investments are initially recognised at fair value plus, in the case of all financial assets not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Investments are derecognised when the rights to receive cash flows from the investments have expired or when they have been transferred and the Group has also transferred substantially all risks and rewards of ownership.
Securities at fair value through profit or loss andavailable-for-sale securities are carried at fair value. Equity investments that do not have a quoted price in an active market and whose fair value cannot be reliably measured are carried at cost, net of allowance for impairments.Held-to-maturity securities are carried at amortised cost using the effective interest method. Investment gains and losses on sales of securities are determined principally by specific identification. Realised and unrealised gains and losses arising from changes in the fair value of the securities at fair value through profit or loss category, and the change of fair value ofavailable-for-sale debt securities due to foreign exchange impact on the amortised cost are included in net profit in the period in which they arise. The remaining unrealised gains and losses arising from changes in the fair value ofavailable-for-sale securities are recognised in OCI. When securities classified asavailable-for-sale securities are sold or impaired, the accumulated fair value adjustments are included in net profit as realised gains or losses and impairment on financial assets.
Term deposits primarily represent traditional bank deposits which have fixed maturity dates and are stated at amortised cost.
Loans are carried at amortised cost, net of allowance for impairment.
The Group purchases securities under agreements to resell substantially identical securities. These agreements are classified as secured loans and are recorded at amortised cost, i.e., their costs plus accrued interests at the end of the reporting period, which approximates fair value. The amounts advanced under these agreements are reflected as assets in the consolidated statement of financial position. The Group does not take physical possession of securities purchased under agreements to resell. Sale or transfer of the securities is not permitted by the respective clearing house on which they are registered while the loanlended money is outstanding. In the event of default by the counterparty, to repay the loan, the Group has the right to the underlying securities held by the clearing house.
2.8.c | Impairment of financial assets other than securities at fair value through profit or loss |
Financial assets other than those accounted for as at fair value through profit or loss are adjusted for impairment, where there are declines in value that are considered to be impairment. In evaluating whether a decline in value is an impairment for these financial assets, the Group considers several factors including, but not limited to, the following:
In evaluating whether a decline in value is impairment for equity securities, the Group also considers the extent or the duration of the decline. The quantitative factors include the following:
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.8 | Financial assets (continued) |
2.8.c | Impairment of financial assets other than securities at fair value through profit or loss (continued) |
When the decline in value is considered impairment,held-to-maturity debt securities are written down to their present value of estimated future cash flows discounted at the securities’ effective interest rates;available-for-sale debt securities and equity securities are written down to their fair value, and the change is recorded in net realised gains and impairment on financial assets in the period the impairment is recognised. The impairment loss is reversed through net profit if in a subsequent period the fair value of a debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised through net profit. The impairment losses recognised in net profit on equity instruments are not reversed through net profit.
2.9 | Fair value measurement |
The Group measures financial instruments, such as securities at fair value through profit or loss andavailable-for-sale securities, at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement of assets and liabilities is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
The principal or the most advantageous market must be accessible to by the Group at the measurement date.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of anon-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorizedcategorised within the fair value hierarchy, described in Notes 4.3, 7, and 10 based on the lowest level input that is significant to the fair value measurement as a whole.
For assets and liabilities that are measured at fair value on a recurring basis, the Group determines whether transfers have occurred between each level in the hierarchy byre-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.10 | Cash and cash equivalents |
Cash amounts represent cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments with original maturities of 90 days or less, whose carrying value approximates fair value.
2.11 | Insurance contracts and investment contracts |
2.11.1 | Classification |
The Group issues contracts that transfer insurance risk or financial risk or both. The contracts issued by the Group are classified as insurance contracts and investment contracts. Insurance contracts are those contracts that transfer significant insurance risk. They may also transfer financial risk. Investment contracts are those contracts that transfer financial risk without significant insurance risk. A number of insurance and investment contracts contain a discretionary participating feature (“DPF”). This feature entitles the policyholders to receive additional benefits or bonuses that are, at least in part, at the discretion of the Group.
2.11.2 | Insurance contracts |
2.11.2.a | Recognition and measurement |
(i) | Short-term insurance contracts |
Premiums from the sale of short duration accident and health insurance products are recorded when written and are accreted to earnings on apro-rata basis over the term of the related policy coverage. Reserves for short duration insurance products consist of unearned premium reserve and expected claims and claim adjustment expenses reserve. Actual claims and claim adjustment expenses are charged to net profit as incurred.
The unearned premium reserve represents the portion of the premiums written net of certain acquisition costs relating to the unexpired terms of coverage.
Reserves for claims and claim adjustment expenses consist of the reserves for reported and unreported claims and reserves for claimclaims expenses with respect to insured events. In developing these reserves, the Group considers the nature and distribution of the risks, claims cost development, and experiences in deriving the reasonable estimated amount and the applicable margins. The methods used for reported and unreported claims include the case-by-case estimation method, average cost per claim method, chain ladder method, etc. The Group calculates the reserves for claimclaims expenses based on the reasonable estimates of the future payments for claimclaims expenses.
(ii) | Long-term insurance contracts |
Long-term insurance contracts include whole life andinsurance, term life insurance, endowment insurance and annuity policies with significant life contingency risk. Premiums are recognised as revenue when due from policyholders.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
The Group uses the discounted cash flow method to estimate the reserve of long-term insurance contracts. The reserve of long-term insurance contracts consists of a reasonable estimate of liability, a risk margin and a residual margin. The long-term insurance contract liabilities are calculated using various assumptions, including assumptions on mortality rates, morbidity rates, lapse rates, discount rates, and expenses assumption,expense assumptions, and based on the following principles:
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
2.11 | Insurance contracts and investment contracts (continued) |
2.11.2 | Insurance contracts (continued) |
2.11.2.a | Recognition and measurement (continued) |
(ii) | Long-term insurance contracts (continued) |
(a) | The reasonable estimate of liability for long-term insurance contracts is the present value of reasonable estimates of future cash outflows less future cash inflows. The expected future cash inflows include cash inflows of future premiums arising from the undertaking of insurance obligations, with consideration of decrement mostly from death and surrenders. The expected future cash outflows are cash outflows incurred to fulfil contractual obligations, consisting of the following: |
On each reporting date, the Group reviews the assumptions for reasonable estimates of liability and risk margins, with consideration of all available information, taking into account the Group’s historical experience and expectation of future events. Changes in assumptions are recognised in net profit. Assumptions for the amortizationamortisation of residual margin are locked in at policy issuance and are not adjusted at each reporting date.
(b) | Margin has been taken into consideration while computing the reserve of insurance contracts, measured separately and recognised in net profit in each period over the life of the contracts. At the inception of the contracts, the Group does not recognise Day 1 gain, whereas on the other hand, Day 1 loss is recognised in net profit immediately. |
Margin comprises of risk margin and residual margin. Risk margin is the reserve accrued to compensate for the uncertain amount and timing of future cash flows. At the inception of the contract, the residual margin is calculated net of certain acquisition costs, mainly consist of underwriting and policy acquisition costs, by the Group representing Day 1 gain and will be amortised over the life of the contracts. For insurance contracts of which future returns are affected by investment yields of corresponding investment portfolios, their related residual margins are amortised based on estimated future participating dividends payable to policyholders. For insurance contracts of which future returns are not affected by investment yields of corresponding investment portfolios, their related residual margins are amortised based on sum assured of outstanding policies. The subsequent measurement of the residual margin is independent from the reasonable estimate of future discounted cash flows and risk margin. The assumption changes have no effect on the subsequent measurement of the residual margin.
(c) | The Group has considered the impact of time value on the reserve calculation for insurance contracts. |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.11 | Insurance contracts and investment contracts (continued) |
2.11.2 | Insurance contracts (continued) |
2.11.2.a | Recognition and measurement (continued) |
(iii) | Universal life contracts and unit-linked contracts |
Universal life contracts and unit-linked contracts are unbundled into the following components:
The insurance components are accounted for as insurance contracts; and thenon-insurance components are accounted for as investment contracts (Note 2.11.3), which are stated in the investment contract liabilities.
2.11.2.b | Liability adequacy test |
The Group assesses the adequacy of insurance contract reserves using the current estimate of future cash flows with available information at the end of each reporting period. If that assessment shows that the carrying amount of its insurance liabilities (less related intangible assets, if applicable) is inadequate in light of the estimated future cash flows, the insurance contract reserves will be adjusted accordingly, and any changes of the insurance contract liabilities will be recognised in net profit.
2.11.2.c | Reinsurance contracts held |
Contracts with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Contracts with reinsurers that do not meet these classification requirements are classified as financial assets. Insurance contracts entered into by the Group under which the contract holder is another insurer (inwards reinsurance) are included with insurance contracts.
The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as expenses when due.
The Group assesses its reinsurance assets for impairment as at the end of reporting period. If there is objective evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in net profit.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.11 | Insurance contracts and investment contracts (continued) |
2.11.3 | Investment contracts |
Revenue from investment contracts with or without DPF is recognised as policy fee income, which consists of various fee incomes (policy fees, handling fees and management fees, etc.) during the period. Policy fee income net of certain acquisition cost is deferred as unearned revenue and amortised over the expected life of the contracts.
Except for unit-linked contracts, of which the liabilities are carried at fair value, the liabilities of investment contracts are carried at amortised cost.
2.11.4 | DPF in long-term insurance contracts and investment contracts |
DPF is contained in certain long-term insurance contracts and investment contracts. These contracts are collectively called participating contracts. The Group is obligated to pay to the policyholders of participating contracts as a group at the higher of 70% of accumulated surplus available and the rate specified in the contracts. The accumulated surplus available mainly arises from net investment income and gains and losses arising from the assets supporting these contracts. To the extent unrealised gains or losses fromavailable-for-sale securities are attributable to policyholders, shadow adjustments are recognised in OCI. The surplus owed to policyholders is recognised as policyholder dividend payable whether it is declared or not. The amount and timing of distribution to individual policyholders of participating contracts are subject to future declarations by the Group.
2.12 | Financial liabilities at fair value through profit or loss |
Financial liabilities at fair value through profit or loss are the portions owned by the external investors in the consolidated structured entities (open-ended funds). Such financial liabilities are designated at fair value upon initial recognition, and all realised or unrealised gains or losses are recognised in net profit.
2.13 | Securities sold under agreements to repurchase |
The Group retains substantially all the risk and rewards of ownership of securities sold under agreements to repurchase which generally mature within 180 days from the transaction date. Therefore, securities sold under agreements to repurchase are classified as secured borrowings. The Group may be required to provide additional collateral based on the fair value of the underlying securities. Securities sold under agreements to repurchase are recorded at amortised cost, i.e., their cost plus accrued interest at the end of the reporting period. It is the Group’s policy to maintain effective control over securities sold under agreements to repurchase which includes maintaining physical possession of the securities. Accordingly, such securities continue to be carried on the consolidated statement of financial position.
2.14 | Bonds payable |
Bonds payable primarily include subordinated debts. Subordinated debts are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any discount or premium at acquisition and transaction costs.
2.15 | Derivative instruments |
Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequentlyre-measured at their fair value. The resulting gain or loss of derivative financial instruments is recognised in net profit. Fair values are obtained from quoted market prices in active market, taking into consideration of recent market transactions or valuation techniques, including discounted cash flow models and optionsoption pricing models, as appropriate. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.
Embedded derivatives that are not closely related to their host contracts and meet the definition of a derivative are separated and fair valued through profit or loss. The Group does not separately measure embedded derivatives that meet the definition of an insurance contract or embedded derivatives that are closely relaterelated to host insurance contracts including embedded options to surrender insurance contracts for a fixed amount (or an amount based on a fixed amount and an interest rate).
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2.16 | Employee benefits |
Pension benefits
Full-time employees of the Group are covered by various government-sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulae. These government agencies are responsible for the pension liability to these employees upon retirement. The Group contributes on a monthly basis to these pension plans. In addition to the government-sponsored pension plans, the Group established an employee annuity fund pursuant to the relevant laws and regulations in the PRC, whereby the Group is required to contribute to the schemes at fixed rates of the employees’ salary costs. Contributions to these plans are expensed as incurred. Under these plans, the Group has no legal or constructive obligation for retirement benefit beyond the contributions made.
Housing benefits
All full-time employees of the Group are entitled to participate in various government-sponsored housing funds. The Group contributes on a monthly basis to these funds based on certain percentages of the salaries of the employees. The Group’s liability in respect of these funds is limited to the contributions payable in each year.
Stock appreciation rights
Compensation under the stock appreciation rights is measured based on the fair value of the liabilities incurred and is expensed over the vesting period. Valuation techniques including option pricing models are used to estimate fair value of relevant liabilities. The liability isre-measured at the end of each reporting period to its fair value until settlement. Fair value changes in the vesting period is included in administrative expenses and changes after the vesting period is included in net fair value gains/(losses)gains through profit or loss in net profit. The related liability is included in other liabilities.
2.17 | Share capital |
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction, net of tax, from the proceeds.
2.18 | Other equity instruments |
Other equity instruments are Core Tier 2 Capital Securities issued by the Group. These securities contain no contractual obligation to deliver cash or another financial asset; or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; or to be settled in the Group’s own equity instruments. Therefore, the Group classifies these securities as other equity instruments. Fees, commissions and other transaction costs of these securities’ issuance are deducted from equity. The distributions of the securities are recognised as profit distribution at the time of declaration.
2.19 | Revenue recognition |
Turnover of the Group represents the total revenues which include the following:
Premiums
Premiums from long-term insurance contracts are recognised as revenue when due from the policyholders.
Premiums from the sale of short duration accident and health insurance products are recorded when written and are accreted to earnings on apro-rata basis over the term of the related policy coverage.
PolicyPolicy fee income
Revenue from investment contracts is recognised as policy fee income, which consists of various fee incomes (policy fees, handling fees and management fees, etc.) over the period of which the service is provided. Policy fee income net of certain acquisition costs areis deferred as unearned revenue and amortised over the expected life of the contracts. Policy fee income is recognised in revenue as part of other income.
Investment income
Investment income comprises interest income from term deposits, cash and cash equivalents, debt securities, securities purchased under agreements to resell, loans and dividend income from equity securities. Interest income is recorded on an accrual basis using the effective interest rate method. Dividend income is recognised when the right to receive dividend payment is established.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Finance costs |
Interest expenses for bonds payable, securities sold under agreements to repurchase and interest-bearing loans and borrowings are recognised within finance costs in net profit using the effective interest rate method.
Current and deferred income taxation |
Income tax expense for the period comprises current and deferred tax. Income tax is recognised in net profit, except to the extent that it relates to items recognised directly in OCI where the income tax is recognised in OCI.
Current income tax assets and liabilities for the current period are calculated on the basis of the tax laws enacted or substantively enacted at the end of each reporting period in the jurisdictions where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken with respect to situations in which applicable tax regulation isregulations are subject to interpretation.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Substantively enacted tax rates are used in the determination of deferred income tax.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and associatesjoint ventures except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reversebe reversed in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed by the end of each reporting period and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realizedrealised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally enforceable right exists to set off current tax assets againstand current tax liabilities and the deferred taxestax assets and deferred tax liabilities relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the same taxation authority.assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
Operating leases |
Leases where substantially all the risks and rewards of ownership of assets remain with the lessor company are accounted for as operating leases.
Where the Group is the lessor, assets leased by the Group under operating leases are included in investment properties and rentals receivable under such operating leases are credited to the consolidated statement of comprehensive income on the straight-line basis over the lease terms.
Where the Group is the lessee, rentals payable under operating leases are charged to the consolidated statement of comprehensive income on the straight-line basis over the lease terms. The aggregate benefit of incentives provided by the lessor is recognised as a reduction in rental expenses over the lease terms on the straight-line basis.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Provisions and contingencies |
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence ornon-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.
A contingent liability is not recognised in the consolidated statement of financial position but is disclosed in the notes to the consolidated financial statements. When a change in the probability of an outflow occurs so that such outflow is probable and can be reliably measured, it will then be recognised as a provision.
Dividend distribution |
Dividend distribution to the Company’s equity holders is recognised as a liability in the Group’s consolidated financial statements in the year in which the dividends are approved by the Company’s equity holders.
3 | CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS |
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group exercises significant judgement in making appropriate assumptions.
Areas susceptible to changes in critical estimates and judgements, which affect the carrying value of assets and liabilities, are set out below. It is possible that actual results may be different from the estimates and judgements referred to below.
3.1 | Estimate of future benefit payments and premiums arising from long-term insurance contracts |
The determination of the liabilities under long-term insurance contracts is based on estimates of future benefit payments, premiums and relevant expenses made by the Group and the margins. Assumptions about mortality rates, morbidity rates, lapse rates, discount rates, and expenses assumptionexpense assumptions are made based on the most recent historical analysis and current and future economic conditions. The liability uncertainty arising from uncertain future benefit payments, premiums and relevant expenses is reflected in the risk margin.
The residual margin relating to the long-term insurance contracts is amortised over the expected life of the contracts, based on the assumptions (mortality rates, morbidity rates, lapse rates, discount rates, and expenses assumption) that are determined at inception of the contracts and remain unchanged for the duration of the contracts.
The judgements exercised in the valuation of insurance contract liabilities (including contracts with DPF) affect the amounts recognised in the consolidated financial statements as insurance contract benefits and insurance contract liabilities.
The impact of the various assumptions and their changes are described in Note 14.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
3 | CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS |
3.2 |
The Group’s principal financial instrumentsinvestments are debt securities, equity securities, term deposits and loans. The critical estimates and judgements are those associated with the recognition of impairment and the measurement of fair value.
The Group considers a wide range of factors in the impairment assessment as described in Note 2.8.c.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When the fair values of financial assets and liabilities recorded in the consolidated statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques which require a degree of considerations.judgements. The methods and assumptions used by the Group in measuring the fair value of financial instruments are as follows:
For the description of valuation techniques, please refer to Note 4.3. Using different valuation techniques and parameter assumptions may lead to some differences of fair value estimations.
3.3 | Impairment of investments in associates and joint ventures |
The Group assesses whether there are any indicators of impairment for investments in associates and joint ventures at the end of each reporting period. Investments in associates and joint ventures are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of investments in associates and joint ventures exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of investments in associates and joint ventures. When value in use calculations are undertaken, the Group must estimate the expected future cash flows from investments in associates and joint ventures and choose a suitable discount rate in order to calculate the present value of those cash flows.
3.4 | Income tax |
The Group is subject to income tax in numerous jurisdictions. During the normal course of business, certain transactions and activities for which the ultimate tax determination is uncertain, the Group needs to exercise significant judgement when determining the income tax. If the final settlement results of the tax matters are different from the amounts recorded, these differences will impact the final income tax expense and deferred tax for the period.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) |
3.5 | Determination of control over investee |
The Group applies its judgmentjudgement to determine whether the control indicators set out in Note 2.2 indicate that the Group controls structured entities such as funds and asset management products.
The Group sponsorsissues certain structured entities (e.g. funds)funds and asset management plans), and acts as a manager for such entities according to the contracts. In addition, the Group may be exposed to variability of returns as a result of holding shares of the structured entities. Determining whether the Group controls such structured entities usually focuses on the assessment of the aggregate economic interests of the Group in the entities (including any carried interests and expected management fees) and the decision-making rights on the entity. As at 31 December 2014,2017, the Group has consolidated fivesome fund products issued and managed by the Company’s subsidiary, China Life AMP Asset Management Company (“CL AMP”), some debt investment schemes issued and managed by the Company’s subsidiary, China Life Asset Management Company Limited (“CL AMC”) and some trust schemes and debt investment schemes issued and managed by third parties in the consolidated financial statements.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
4 | RISK MANAGEMENT |
Risk management is carried out by the Group’sCompany’s Risk Management Committee under policies approved by the Group’sCompany’s Board of Directors.
The Group issues contracts that transfer insurance risk or financial risk or both. This section summarises these risks and the way the Group manages them.
4.1 | Insurance risk |
4.1.1 | Types of insurance risks |
The risk under any one insurance contract is the possibility that an insured event occurs and the uncertainty about the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to the pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments are less favourable than the underlying assumptions used in establishing the insurance liabilities. This occurs when the frequency or severity of claims and benefits exceeds the estimates. Insurance events are random, and the actual number of claims and the amount of benefits paid will vary each year from estimates established using statistical techniques.
Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability of the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Group has developed its insurance underwriting strategy to diversify the types of insurance risks accepted and within each of these categories to achieve a sufficiently large population to reduce the variability of the expected outcome. The Group manages insurance risk through underwriting strategy,strategies, reinsurance arrangements and claims handling.
The Group manages insurance risks through two types of reinsurance agreements, ceding on a quota share basis or a surplus basis, to cover insurance liability risk. Reinsurance contracts cover almost all products, which contain risk liabilities. The products reinsured include: life insurance, accident and health insurance or death, disability, accident, illness and assistance in terms of product category or function, respectively. These reinsurancesreinsurance agreements spread insured risk to a certain extent and reduce the effect of potential losses to the Group. However, the Group’s direct insurance liabilities to the policyholder are not eliminated because of the credit risk associated with the failure of reinsurance companies to fulfil their responsibilities.
4.1.2 | Concentration of insurance risks |
All insurance operations of the Group are located in the PRC. There are no significant differences among the regions where the Group underwrites insurance contracts.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.1 | Insurance risk (continued) |
4.1.2 | Concentration of insurance risks (continued) |
The table below presents the Group’s major products of long-term insurance contracts:
2014 | 2013 | |||||||||||||||||||||||||||||||
Product name | RMB million | % | RMB million | % | For the year ended 31 December | |||||||||||||||||||||||||||
2017 RMB million | % | 2016 RMB million | % | |||||||||||||||||||||||||||||
Premiums of long-term insurance contracts | ||||||||||||||||||||||||||||||||
New Xin Feng Endowment (Type A) (a) | 62,635 | 20.56 | % | 92 | 0.03 | % | 59,636 | 12.83 | % | 38,059 | 9.75 | % | ||||||||||||||||||||
Kang Ning Whole Life (b) | 24,623 | 8.08 | % | 25,672 | 8.40 | % | ||||||||||||||||||||||||||
Hong Ying Participating Endowment (c) | 16,293 | 5.35 | % | 29,235 | 9.56 | % | ||||||||||||||||||||||||||
Mei Man Yi Sheng Participating Annuity (d) | 12,367 | 4.06 | % | 18,881 | 6.18 | % | ||||||||||||||||||||||||||
Hong Fu Participating Endowment (e) | 149 | 0.05 | % | 631 | 0.21 | % | ||||||||||||||||||||||||||
Xin Fu Ying Jia Annuity (b) | 40,588 | 8.73 | % | 1,626 | 0.42 | % | ||||||||||||||||||||||||||
Kang Ning Whole Life (c) | 21,435 | 4.61 | % | 22,420 | 5.74 | % | ||||||||||||||||||||||||||
Hong Ying Participating Endowment (d) | 3,019 | 0.65 | % | 4,968 | 1.27 | % | ||||||||||||||||||||||||||
Hong Tai Endowment (e) | 166 | 0.04 | % | 203 | 0.05 | % | ||||||||||||||||||||||||||
Others (f) | 188,610 | 61.90 | % | 231,209 | 75.62 | % | 340,054 | 73.14 | % | 323,162 | 82.77 | % | ||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 464,898 | 100.00 | % | 390,438 | 100.00 | % | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Insurance benefits of long-term insurance contracts | ||||||||||||||||||||||||||||||||
New Xin Feng Endowment (Type A) (a) | 78 | 0.05 | % | 67 | 0.04 | % | ||||||||||||||||||||||||||
Xin Fu Ying Jia Annuity (b) | 7,956 | 4.79 | % | 277 | 0.15 | % | ||||||||||||||||||||||||||
Kang Ning Whole Life (c) | 4,197 | 2.52 | % | 3,949 | 2.20 | % | ||||||||||||||||||||||||||
Hong Ying Participating Endowment (d) | 49,796 | 29.96 | % | 73,261 | 40.72 | % | ||||||||||||||||||||||||||
Hong Tai Endowment (e) | 41,271 | 24.83 | % | 25,093 | 13.95 | % | ||||||||||||||||||||||||||
Others (f) | 62,926 | 37.85 | % | 77,255 | 42.94 | % | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | 304,677 | 100.00 | % | 305,720 | 100.00 | % | 166,224 | 100.00 | % | 179,902 | 100.00 | % | ||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Insurance benefits of long-term insurance contracts | ||||||||||||||||||||||||||||||||
As at 31 December 2017 | As at 31 December 2016 | |||||||||||||||||||||||||||||||
RMB million | % | RMB million | % | |||||||||||||||||||||||||||||
Liabilities of long-term insurance contracts | ||||||||||||||||||||||||||||||||
New Xin Feng Endowment (Type A) (a) | 56 | 0.06 | % | — | — | 69,280 | 3.47 | % | 43,794 | 2.40 | % | |||||||||||||||||||||
Kang Ning Whole Life (b) | 3,556 | 3.74 | % | 3,339 | 2.59 | % | ||||||||||||||||||||||||||
Hong Ying Participating Endowment (c) | 482 | 0.51 | % | 432 | 0.34 | % | ||||||||||||||||||||||||||
Mei Man Yi Sheng Participating Annuity (d) | 2,659 | 2.79 | % | 2,719 | 2.11 | % | ||||||||||||||||||||||||||
Hong Fu Participating Endowment (e) | 10,255 | 10.77 | % | 300 | 0.23 | % | ||||||||||||||||||||||||||
Xin Fu Ying Jia Annuity (b) | 19,771 | 0.99 | % | 987 | 0.05 | % | ||||||||||||||||||||||||||
Kang Ning Whole Life (c) | 268,708 | 13.44 | % | 244,112 | 13.37 | % | ||||||||||||||||||||||||||
Hong Ying Participating Endowment (d) | 70,506 | 3.53 | % | 117,946 | 6.46 | % | ||||||||||||||||||||||||||
Hong Tai Endowment (e) | 16,730 | 0.84 | % | 57,356 | 3.14 | % | ||||||||||||||||||||||||||
Others (f) | 78,170 | 82.13 | % | 122,102 | 94.73 | % | 1,554,071 | 77.73 | % | 1,361,761 | 74.58 | % | ||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | 95,178 | 100.00 | % | 128,892 | 100.00 | % | 1,999,066 | 100.00 | % | 1,825,956 | 100.00 | % | ||||||||||||||||||||
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|
|
As at 31 December 2014 | As at 31 December 2013 | |||||||||||||||
RMB million | % | RMB million | % | |||||||||||||
Liabilities of long-term insurance contracts | ||||||||||||||||
New Xin Feng Endowment (Type A) (a) | 63,701 | 4.01 | % | 91 | 0.01 | % | ||||||||||
Kang Ning Whole Life (b) | 191,865 | 12.08 | % | 172,055 | 11.60 | % | ||||||||||
Hong Ying Participating Endowment (c) | 187,274 | 11.79 | % | 179,258 | 12.09 | % | ||||||||||
Mei Man Yi Sheng Participating Annuity (d) | 124,381 | 7.83 | % | 114,531 | 7.72 | % | ||||||||||
Hong Fu Participating Endowment (e) | 92,985 | 5.85 | % | 107,477 | 7.25 | % | ||||||||||
Others (f) | 928,694 | 58.44 | % | 909,534 | 61.33 | % | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,588,900 | 100.00 | % | 1,482,946 | 100.00 | % | ||||||||||
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|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.1 | Insurance risk (continued) |
4.1.2 | Concentration of insurance risks (continued) |
(a) | New Xin Feng is an endowment insurance contract with single premium. Its insured period is 5 years. This product is applicable to healthy policyholders between18-year-old and70-year-old. Both maturity and death benefits are paid at the basic sum insured. Accident death benefit is paid at 300% of the basic sum insured. |
(b) | Xin Fu Ying Jia Annuity is an annuity insurance contract with the options for regular premium of 3 years, 5 years or 10 years. Its insured period extends from the effective date of Xin Fu Ying Jia Annuity to the corresponding date when policyholders reach the age of 88. This product is applicable to healthy policyholders between28-day-old and70-year-old. From the effective date to the contractual date starting to claim of Xin Fu Ying Jia Annuity, the annuity payment of first policy year is paid at 20% of the first premium of the product, the following annuity payments are paid at 20% of the basic sum insured by Xin Fu Ying Jia Annuity. From the first corresponding date after the contractual date starting to claim of annuity, to the corresponding date when the policyholders reach the age of88-year-old, annuity is paid at 3% of the basic sum insured during the insured period if policyholders live to the annual corresponding effective date; annuity is paid at the premium received (without interest) during the insured period if policyholders live to the contractual date starting to claim of annuity; the contract terminates and death benefit is paid at the premium received (without interest) or the cash value of the contract, whichever greater when death incurred before the contractual date starting to claim of annuity; the contract terminates and death benefit is paid at the cash value of the contract when death incurred after contractual date starting to claim of annuity; the contract terminates and accidental death benefit is paid at the premium received (without interest) less any death benefit paid when accidents occurred and due to which death incurred within 180 days. |
(c) | Kang Ning is a whole life insurance contract with the options for single premium or regular premium of 10 years or 20 years. This product is applicable to healthy policyholders under70-year-old. The critical illness benefit is paid at 200% of the basic sum insured. Both death and disability benefits are paid at 300% of the basic sum insured less any critical illness benefits paid. |
Hong Ying is a participating endowment insurance contract with the options for single premium or regular premium of 3 years, 5 years or 10 years. Its insured period can be 6 years, 10 years or 15 years. This product is applicable to healthy policyholders between30-day-old and70-year-old. Maturity benefit of a single premium policy is paid at the basic sum insured, while that of a regular premium policy is paid at the basic sum insured multiplied by the number of years of the premium payments. Disease death benefit incurred within the first policy year is paid at the premium received (without interest). Disease death benefit incurred after the first policy year is paid at the basic sum insured for a single premium policy or the basic sum insured multiplied by the number of years of premium payments for a regular premium policy. |
(f) | Others consist of various long-term insurance contracts with no significant concentration. |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.1 | Insurance risk (continued) |
4.1.3 | Sensitivity analysis |
Sensitivity analysis of long-term insurance contracts
Liabilities for long-term insurance contracts and liabilities unbundled from universal life insurance contracts and unit-linked insurance contracts with insurance risk are calculated based on the assumptions on mortality rates, morbidity rates, lapse rates and discount rates. Changes in insurance contract reserve assumptions reflect the Company’s actual operating results and changes in its expectation of future events. The Company considers the potential impact of future risk factors on its operating results and incorporates such potential impact in the determination of assumptions.
Holding all other variables constant, if mortality rates and morbidity rates were to increase or decrease from the current best estimate by 10%,pre-tax profit for the year would have been RMB12,971RMB19,731 million or RMB13,554RMB20,559 million (as at 31 December 2013: RMB12,1202016: RMB16,746 million or RMB12,660RMB17,492 million) lower or higher, respectively.
Holding all other variables constant, if lapse rates were to increase or decrease from the current best estimate by 10%,pre-tax profit for the year would have been RMB5,191RMB1,940 million or RMB5,478RMB1,989 million ( as(as at 31 December 2013: RMB5,4602016: RMB2,823 million or RMB5,765RMB2,953 million) lower or higher, respectively.
Holding all other variables constant, if the discount rates were 50 basis points higher or lower than the current best estimate,pre-tax profit for the year would have been RMB41,300RMB70,732 million or RMB46,868RMB80,152 million ( as(as at 31 December 2013: RMB39,8332016: RMB57,591 million or RMB45,292RMB65,427 million) higher or lower, respectively.
Sensitivity analysis of short-term insurance contracts
The assumptions of reserves for claims and claim adjustment expenses may be affected by other variables such as claims payment of short-term insurance contracts, which may result in the synchronous changes to reserves for claims and claim adjustment expenses.
Holding all other variables constant, if claim ratios are 100 basis points higher or lower than the current assumption,pre-tax profit is expected to be RMB258RMB445 million (as at 31 December 2016: RMB372 million) lower or higher, respectively ( as at 31 December 2013: RMB193 million).respectively.
The following table indicates the claim development for short-term insurance contracts without taking into account the impacts of reinsurance impacts:ceded business:
Short-term insurance contracts (accident year) | Short-term insurance contracts (accident year) | |||||||||||||||||||||||||||||||||||||||||||||||
Estimated claims expenses | 2010 | 2011 | 2012 | 2013 | 2014 | Total | 2013 | 2014 | 2015 | 2016 | 2017 | Total | ||||||||||||||||||||||||||||||||||||
Current year | 8,826 | 8,002 | 8,056 | 11,476 | 16,499 | |||||||||||||||||||||||||||||||||||||||||||
Year end | 11,476 | 16,499 | 20,497 | 27,120 | 33,926 | |||||||||||||||||||||||||||||||||||||||||||
1 year later | 8,967 | 8,279 | 8,164 | 11,872 | 11,872 | 17,265 | 21,427 | 27,303 | ||||||||||||||||||||||||||||||||||||||||
2 years later | 8,640 | 8,090 | 8,123 | 11,775 | 16,726 | 21,422 | ||||||||||||||||||||||||||||||||||||||||||
3 years later | 8,640 | 8,090 | 11,775 | 16,726 | ||||||||||||||||||||||||||||||||||||||||||||
4 years later | 8,640 | 11,775 | ||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Estimated accumulated claims expenses | 8,640 | 8,090 | 8,123 | 11,872 | 16,499 | 53,224 | 11,775 | 16,726 | 21,422 | 27,303 | 33,926 | 111,152 | ||||||||||||||||||||||||||||||||||||
Accumulated claims expenses paid | (8,640 | ) | (8,090 | ) | (8,123 | ) | (11,419 | ) | (9,636 | ) | (45,908 | ) | (11,775 | ) | (16,726 | ) | (21,422 | ) | (26,047 | ) | (21,404 | ) | (97,374 | ) | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Unpaid claims expenses | — | — | — | 453 | 6,863 | 7,316 | — | — | — | 1,256 | 12,522 | 13,778 | ||||||||||||||||||||||||||||||||||||
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CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.1 | Insurance risk (continued) |
4.1.3 | Sensitivity analysis (continued) |
The following table indicates the claim development for short-term insurance contracts taking into account the impacts of reinsurance impacts:ceded business:
Short-term insurance contracts (accident year) | Short-term insurance contracts (accident year) | |||||||||||||||||||||||||||||||||||||||||||||||
Estimated claims expenses | 2010 | 2011 | 2012 | 2013 | 2014 | Total | 2013 | 2014 | 2015 | 2016 | 2017 | Total | ||||||||||||||||||||||||||||||||||||
Current year | 8,741 | 7,889 | 7,916 | 11,331 | 16,379 | |||||||||||||||||||||||||||||||||||||||||||
Year end | 11,331 | 16,379 | 20,359 | 26,897 | 33,700 | |||||||||||||||||||||||||||||||||||||||||||
1 year later | 8,879 | 8,161 | 8,035 | 11,743 | 11,743 | 17,127 | 21,262 | 27,107 | ||||||||||||||||||||||||||||||||||||||||
2 years later | 8,557 | 7,977 | 7,997 | 11,645 | 16,589 | 21,259 | ||||||||||||||||||||||||||||||||||||||||||
3 years later | 8,557 | 7,977 | 11,645 | 16,589 | ||||||||||||||||||||||||||||||||||||||||||||
4 years later | 8,557 | 11,645 | ||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Estimated accumulated claims expenses | 8,557 | 7,977 | 7,997 | 11,743 | 16,379 | 52,653 | 11,645 | 16,589 | 21,259 | 27,107 | 33,700 | 110,300 | ||||||||||||||||||||||||||||||||||||
Accumulated claims expenses paid | (8,557 | ) | (7,977 | ) | (7,997 | ) | (11,292 | ) | (9,553 | ) | (45,376 | ) | (11,645 | ) | (16,589 | ) | (21,259 | ) | (25,860 | ) | (21,273 | ) | (96,626 | ) | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Unpaid claims expenses | — | — | — | 451 | 6,826 | 7,277 | — | — | — | 1,247 | 12,427 | 13,674 | ||||||||||||||||||||||||||||||||||||
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4.2 | Financial risk |
The Group’s activities are exposed to a variety of financial risks. The key financial risk is that proceeds from the sale of financial assets will not be sufficient to fund the obligations arising from the Group’s insurance and investment contracts. The most important components of financial risk are market risk, credit risk and liquidity risk.
The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Risk management is carried out by a designated department under policies approved by management. The responsible department identifies, evaluates and manages financial risks in close cooperation with the Group’s operating units. The Group provides written principles for overall risk management, as well as written policies covering specific areas, such as managing market risk, credit risk, and liquidity risk.
The Group manages financial risk by holding an appropriately diversified investment portfolio as permitted by laws and regulations designed to reduce the risk of concentration in any one specific industry or issuer. The structure of the investment portfolio held by the Group is disclosed in Note 9 to the consolidated financial statements.9.
The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur, and changes in some of the assumptions may be correlated, such as change in interest rate and change in market price.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.2 | Financial risk (continued) |
4.2.1 | Market risk |
(i) | Interest rate risk |
Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Group’s financial assets are principally composed of term deposits, debt securities and loans which are exposed to interest rate risk. Changes in the level of interest rates could have a significant impact on the Group’s overall investment return. Many of the Group’s insurance policies offer guaranteed returns to policyholders. These guarantees expose the Group to interest rate risk.
The Group manages interest rate risk through adjustments to portfolio structure and duration, and, to the extent possible, by monitoring the mean duration of its assets and liabilities.
The sensitivity analysis for interest rate risk illustrates how changes in interest income and the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the end of the reporting period.
As at 31 December 2014,2017, if market interest rates were 50 basis points higher or lower with all other variables held constant,pre-tax profit for the year would have been RMB883RMB35 million lower or higher (as at 31 December 2013: RMB934 million)2016: RMB160 million higher or lower,lower), respectively, mainly as a result of higher or lower interest income on floating rate cash and cash equivalents, term deposits, statutory deposits - restricted, debt securities and loans and the fair value losses or gains on debt securities assets at fair value through profit or loss. Pre-tax available-for-salePre-taxavailable-for-sale reserve in equity would have been RMB6,675RMB11,463 million or RMB8,306 million (as at 31 December 2013: RMB10,7202016: RMB6,948 million or RMB6,948 million) lower or higher, respectively, as a result of a decrease or increase in the fair value ofavailable-for-sale securities.
(ii) | Price risk |
Price risk arises mainly from the volatility of prices of equity securities held by the Group. Prices of equity securities are determined by market forces. The Group is subject to increased price risk largely because China’s stockcapital markets are relatively volatile.
The Group manages price risk by holding an appropriately diversified investment portfolio as permitted by laws and regulations designed to reduce the risk of concentration in any one specific industry or issuer.
As at 31 December 2014,2017, if the prices of all the Group’s equity securities’ pricessecurities had increased or decreased by 10% with all other variables held constant,pre-tax profit for the year would have been RMB1,054RMB3,341 million or RMB5,393 million (as at 31 December 2013: RMB1642016: RMB3,263 million or RMB3,400 million) higher or lower, respectively, mainly as a result of an increase or decrease in fair value of equity securities excludingavailable-for-sale securities.Pre-taxavailable-for-sale reserve in equity would have been RMB12,881RMB23,423 million or RMB32,651 million (as at 31 December 2013: RMB15,1542016: RMB24,999 million or RMB28,153 million) higher or lower, respectively, as a result of an increase or decrease in fair value ofavailable-for-sale equity securities. If prices decreased to the extent that the impairment criteria were met, a portion of such decrease of theavailable-for-sale equity securities would reducepre-tax profit through impairment.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
(iii) | Currency risk |
Currency risk is the volatility of fair value or future cash flows of financial instruments resulted from changes in foreign currency exchange rates. The Group operates principally in the PRC except for limitedGroup’s currency risk exposure to foreign exchange rate risk arising primarily with respect to financial assetsmainly arises from cash and financial liabilitiescash equivalents, term deposits, debt investments, equity investments, interest-bearing loans and borrowings denominated in currencies other than the functional currency, such as US dollar, or HK dollar, or GB pound.pound and EUR, etc.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
4 | RISK MANAGEMENT (CONTINUED) |
4.2 | Financial risk (continued) |
4.2.1 | Market risk (continued) |
(iii) | Currency risk (continued) |
The following table summarizessummarises financial assets and financial liabilities denominated in currencies other than RMB as at 31 December 20142017 and 2013,2016, expressed in RMB equivalent:
As at 31 December 2014 | US dollar | HK dollar | GB pound | Total | ||||||||||||||||||||||||||||||||||||
As at 31 December 2017 | US dollar | HK dollar | GB pound | EUR | Others | Total | ||||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||||||||||
- Available-for-sale securities | — | 8,303 | — | 8,303 | 8,697 | 28,859 | — | — | — | 37,556 | ||||||||||||||||||||||||||||||
- Securities at fair value through profit or loss | 4,707 | 146 | 1,088 | 2,690 | 1,198 | 9,829 | ||||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||||||||||
- Held-to-maturity securities | 54 | — | — | 54 | 155 | — | — | — | — | 155 | ||||||||||||||||||||||||||||||
- Loans | 952 | — | — | — | — | 952 | ||||||||||||||||||||||||||||||||||
- Available-for-sale securities | 260 | — | — | 260 | 1,229 | — | — | — | — | 1,229 | ||||||||||||||||||||||||||||||
- Securities at fair value through profit or loss | 435 | — | 18 | 5 | 5 | 463 | ||||||||||||||||||||||||||||||||||
Term deposits | 8,774 | — | — | 8,774 | 7,744 | — | — | — | — | 7,744 | ||||||||||||||||||||||||||||||
Cash and cash equivalents | 3,662 | 68 | 54 | 3,784 | 1,246 | 185 | 282 | 128 | 3 | 1,844 | ||||||||||||||||||||||||||||||
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|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total | 25,165 | 29,190 | 1,388 | 2,823 | 1,206 | 59,772 | ||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | 12,480 | — | 2,413 | 3,901 | — | 18,794 | ||||||||||||||||||||||||||||||||||
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|
|
|
| |||||||||||||||||||||||||||||||||||
Total | 12,750 | 8,371 | 54 | 21,175 | 12,480 | — | 2,413 | 3,901 | — | 18,794 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and borrowings | — | — | 2,623 | 2,623 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
As at 31 December 2016 | US dollar | HK dollar | GB pound | EUR | Others | Total | ||||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||||||||||
-Available-for-sale securities | 6,968 | 12,791 | — | — | 148 | 19,907 | ||||||||||||||||||||||||||||||||||
- Securities at fair value through profit or loss | 3,906 | 128 | 1,115 | 2,475 | 1,135 | 8,759 | ||||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||||||||||
-Held-to-maturity securities | 164 | — | — | — | — | 164 | ||||||||||||||||||||||||||||||||||
- Securities at fair value through profit or loss | 348 | — | 14 | 3 | 13 | 378 | ||||||||||||||||||||||||||||||||||
Term deposits | 6,106 | — | — | — | — | 6,106 | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 2,685 | 2,083 | 145 | 39 | 9 | 4,961 | ||||||||||||||||||||||||||||||||||
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|
|
|
| |||||||||||||||||||||||||||||||||||
Total | — | — | 2,623 | 2,623 | 20,177 | 15,002 | 1,274 | 2,517 | 1,305 | 40,275 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
As at 31 December 2013 | US dollar | HK dollar | GB pound | Total | ||||||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||
Equity securities | ||||||||||||||||||||||||||||||||||||||||
- Available-for-sale securities | — | 2,985 | — | 2,985 | ||||||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||||||||||
- Held-to-maturity securities | 39 | — | — | 39 | ||||||||||||||||||||||||||||||||||||
- Available-for-sale securities | 266 | — | — | 266 | ||||||||||||||||||||||||||||||||||||
Term deposits | 10,400 | — | — | 10,400 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 1,823 | 222 | — | 2,045 | ||||||||||||||||||||||||||||||||||||
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Financial liabilities | ||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | 13,100 | — | 2,339 | 731 | — | 16,170 | ||||||||||||||||||||||||||||||||||
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Total | 12,528 | 3,207 | — | 15,735 | 13,100 | — | 2,339 | 731 | — | 16,170 | ||||||||||||||||||||||||||||||
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As at 31 December 2014,2017, if RMB had strengthened or weakened by 10% against US dollar, HK dollar, and GB pound, EUR and other foreign currencies, with all other variables held constant,pre-tax profit for the year would have been RMB1,025RMB308 million (as at 31 December 2013: RMB1,2752016: RMB420 million) lower or higher, respectively, mainly as a result of foreign exchange losses or gains on translation of US dollar, HK dollar, and GB pound, EUR and other foreign currencies denominated financial assets and financial liabilities other than theavailable-for-sale equity securities included in the table above.Pre-taxavailable-for-sale reserve in equity would have been RMB830RMB3,541 million (as at 31 December 2013: RMB2992016: RMB1,743 million) lower or higher, respectively, as a result of foreign exchange losses or gains on translation of theavailable-for-sale equity securities.securities at fair value. The actual exchange gaingains in 2014 was RMB2682017 were RMB52 million (2013:(2016: exchange lossgains of RMB437RMB582 million).
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.2 | Financial risk (continued) |
4.2.2 | Credit risk |
Credit risk is the risk that one party of a financial transaction or the issuer of a financial instrument will fail to discharge its obligation and cause another party to incur a financial loss. Because the Group’s investment portfolio is restricted to the types of investments as permitted by the China Banking and Insurance Regulatory Commission (“CBIRC”) which was merged of China Insurance Regulatory Commission (“CIRC”) and China Banking Regulatory Commission, and a significant portion of the portfolio is in government bonds, government agency bonds and term deposits with the state-owned commercial banks, the Group’s overall exposure to credit risk is relatively low.
Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. The Group manages credit risk throughin-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. Where appropriate, the Group obtains collateral in the form of rights to cash, securities, property and equipment.equipment to lower the credit risk.
Credit risk exposure
The carrying amount of financial assets included on the consolidated statement of financial position represents the maximum credit risk exposure at the reporting date without taking account of any collateral held or other credit enhancements attached. The Group has no credit risk exposure relating to off-balance sheet items as at 31 December 20142017 and 2013.2016.
Collateral and other credit enhancements
Securities purchased under agreements to resell are pledged by counterpart’scounterparties’ debt securities or term deposits of which the Group could take the ownership if the owner of the collateral default.defaults. Policy loans and most of premium receivables are collateralizedcollateralised by their policies’ cash value according to the terms and conditions of policy loan contracts and policy contracts, respectively.
Credit quality
The Group’s debt securities investment mainly includes government bonds, government agency bonds, corporate bonds and subordinated bonds or debts, and most of the debt securities are guaranteed by either the Chinese government or Chinese government controlled financial institutions. As at 31 December 2014, 99.1%2017, 99.9% (as at 31 December 2013: 99.1%2016: 99.0%) of the corporate bonds held by the Group or the issuers of these corporate bonds had credit ratingratings ofAA/A-2 or above. As at 31 December 2014, 99.6%2017, 99.9% (as at 31 December 2013: 99.7% 2016: 99.9%) of the subordinated bonds or debts held by the Group either havehad credit ratingratings ofAA/A-2 or above, or were issued by national commercial banks. The bonds, debts or debts’their issuers’ credit rating isratings are assigned by a qualified appraisal institution in the PRC at the time of its issuance and updated at each reporting date.
As at 31 December 2014, 99.7%2017, 99.8% (as at 31 December 2013: 99.6%2016: 99.5%) of the Group’s bank deposits are with the four largest state-owned commercial banks, other national commercial banks and China Securities Depository and Clearing Corporation Limited (“CSDCC”) in the PRC. The Group believes these commercial banks, and CSDCC have a high credit quality. The Group’s most other loans excluding policyholder loans, are guaranteed by third parties or with pledge, or have the nationalfiscal annual budget income as the source of repayment, or have higher credit rating borrowers. As a result, the Group concludes that the credit risk associated with term deposits and accrued investment income thereof, statutory deposits - restricted, other loans, and cash and cash equivalents will not cause a material impact on the Group’s consolidated financial statements as at 31 December 20142017 and 2013.2016.
The credit risk associated with securities purchased under agreements to resell, policy loans and most of premium receivables will not cause a material impact on the Group’s consolidated financial statements taking into consideration their collateral held and maturity termterms of no more than one year as at 31 December 20142017 and 2013.2016.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.2 | Financial risk (continued) |
4.2.3 | Liquidity risk |
Liquidity risk is the risk that the Group is unable to obtain funds at a reasonable funding cost when required to meet a repayment obligation and fund its asset portfolio within a certain time.
In the normal course of business, the Group attempts to match the maturity of financial assets to the maturity of insurance and financial liabilities.
The following tables set forth the contractual and expected undiscounted cash flows for financial assets and liabilities and insurance liabilities:
Contractual and expected cash flows (undiscounted) | Contractual and expected cash flows (undiscounted) | |||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2014 | Carrying amount | Without maturity | Not later than 1 year | Later than 1 year but not later than 3 years | Later than 3 years but not later than 5 years | Later than 5 years | ||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2017 | Carrying value | Without maturity | Not later than 1 year | Later than 1 year but not later than 3 years | Later than 3 years but not later than 5 years | Later than 5 years | ||||||||||||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Contractual cash inflows | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 236,030 | 236,030 | — | — | — | — | 409,528 | 409,528 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Debt securities | 941,836 | — | 72,234 | 186,342 | 186,285 | 982,202 | 1,255,052 | — | 127,830 | 240,582 | 271,538 | 1,240,465 | ||||||||||||||||||||||||||||||||||||
Loans | 166,453 | — | 85,652 | 27,423 | 44,344 | 36,144 | 383,504 | — | 141,679 | 105,063 | 64,386 | 128,753 | ||||||||||||||||||||||||||||||||||||
Term deposits | 690,156 | — | 212,356 | 367,662 | 155,236 | 26,621 | 449,400 | — | 104,976 | 252,571 | 133,013 | 2,823 | ||||||||||||||||||||||||||||||||||||
Statutory deposits - restricted | 6,153 | — | 182 | 2,620 | 4,434 | — | 6,333 | — | 4,084 | 734 | 2,106 | — | ||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 11,925 | — | 11,925 | — | — | — | 36,185 | — | 36,185 | — | — | — | ||||||||||||||||||||||||||||||||||||
Accrued investment income | 44,350 | — | 31,928 | 8,413 | 4,009 | — | 50,641 | — | 44,789 | 5,602 | 250 | — | ||||||||||||||||||||||||||||||||||||
Premiums receivable | 11,166 | — | 11,166 | — | — | — | 14,121 | — | 14,121 | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 47,034 | — | 47,034 | — | — | — | 48,586 | — | 48,586 | — | — | — | ||||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||
Subtotal | 2,155,103 | 236,030 | 472,477 | 592,460 | 394,308 | 1,044,967 | 2,653,350 | 409,528 | 522,250 | 604,552 | 471,293 | 1,372,041 | ||||||||||||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Financial and insurance liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Expected cash outflows | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance contracts | 1,603,446 | — | (60,896 | ) | (118,434 | ) | (22,634 | ) | (2,463,567 | ) | 2,025,133 | — | 16,319 | 221,905 | 47,109 | (3,807,542 | ) | |||||||||||||||||||||||||||||||
Investment contracts | 72,275 | — | (14,703 | ) | (15,192 | ) | (9,827 | ) | (84,013 | ) | 232,500 | — | (15,308 | ) | (29,981 | ) | (26,892 | ) | (388,320 | ) | ||||||||||||||||||||||||||||
Contractual cash outflows | ||||||||||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 46,089 | — | (46,089 | ) | — | — | — | 87,309 | — | (87,309 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss | 10,890 | (10,890 | ) | — | — | — | — | 2,529 | (2,529 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||
Annuity and other insurance balances payable | 25,617 | — | (25,617 | ) | — | — | — | 44,820 | — | (44,820 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
Interest-bearing loans and borrowings | 2,623 | — | (106 | ) | (213 | ) | (2,783 | ) | — | |||||||||||||||||||||||||||||||||||||||
Bonds payable | 67,989 | — | (3,424 | ) | (73,198 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | 18,794 | — | (1,240 | ) | (18,557 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||
|
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|
|
| |||||||||||||||||||||||||||||||||||||||||||
Subtotal | 1,828,929 | (10,890 | ) | (150,835 | ) | (207,037 | ) | (35,244 | ) | (2,547,580 | ) | 2,411,085 | (2,529 | ) | (132,358 | ) | 173,367 | 20,217 | (4,195,862 | ) | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Net cash inflows/(outflows) | 326,174 | 225,140 | 321,642 | 385,423 | 359,064 | (1,502,613 | ) | 242,265 | 406,999 | 389,892 | 777,919 | 491,510 | (2,823,821 | ) | ||||||||||||||||||||||||||||||||||
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|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.2 | Financial risk (continued) |
4.2.3 | Liquidity risk (continued) |
Contractual and expected cash flows (undiscounted) | Contractual and expected cash flows (undiscounted) | |||||||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2013 | Carrying amount | Without Maturity | No later than 1 year | Later than 1 year but not later than 3 years | Later than 3 years but not later than 5 years | Later than 5 years | ||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2016 | Carrying value | Without maturity | Not later than 1 year | Later than 1 year but not later than 3 years | Later than 3 years but not later than 5 years | Later than 5 years | ||||||||||||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Contractual cash inflows | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 154,957 | 154,957 | — | — | — | — | 421,383 | 421,383 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Debt securities | 873,817 | — | 67,013 | 142,017 | 201,242 | 994,360 | 1,148,894 | — | 210,589 | 214,105 | 188,740 | 1,014,074 | ||||||||||||||||||||||||||||||||||||
Loans | 118,626 | — | 63,142 | 16,740 | 26,382 | 29,326 | 226,573 | — | 119,247 | 47,606 | 41,697 | 55,106 | ||||||||||||||||||||||||||||||||||||
Term deposits | 664,174 | — | 87,700 | 355,944 | 295,967 | 10,050 | 538,325 | — | 199,657 | 260,065 | 117,012 | 8,858 | ||||||||||||||||||||||||||||||||||||
Statutory deposits - restricted | 6,153 | — | 378 | 891 | 6,253 | — | 6,333 | — | 1,909 | 4,720 | 209 | — | ||||||||||||||||||||||||||||||||||||
Securities purchased under agreements to resell | 8,295 | — | 8,295 | — | — | — | 43,538 | — | 43,538 | — | — | — | ||||||||||||||||||||||||||||||||||||
Accrued investment income | 34,717 | — | 28,358 | 32 | 6,327 | — | 55,945 | — | 44,722 | 11,100 | 123 | — | ||||||||||||||||||||||||||||||||||||
Premiums receivable | 9,876 | — | 9,876 | — | — | — | 13,421 | — | 13,421 | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | 21,330 | — | 21,330 | — | — | — | 67,046 | — | 67,046 | — | — | — | ||||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||
Subtotal | 2,521,458 | 421,383 | 700,129 | 537,596 | 347,781 | 1,078,038 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Financial and insurance liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Expected cash outflows | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance contracts | 1,847,986 | — | (43,322 | ) | 97,236 | 35,088 | (3,229,394 | ) | ||||||||||||||||||||||||||||||||||||||||
Investment contracts | 195,706 | — | (15,880 | ) | (34,147 | ) | (33,128 | ) | (259,905 | ) | ||||||||||||||||||||||||||||||||||||||
Contractual cash outflows | ||||||||||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 81,088 | — | (81,088 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss | 2,031 | (2,031 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Annuity and other insurance balances payable | 39,038 | — | (39,038 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Interest-bearing loans and other borrowings | 16,170 | — | (1,138 | ) | (16,159 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||
Bonds payable | 37,998 | — | (39,032 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Subtotal | 1,891,945 | 154,957 | 286,092 | 515,624 | 536,171 | 1,033,736 | 2,220,017 | (2,031 | ) | (219,498 | ) | 46,930 | 1,960 | (3,489,299 | ) | |||||||||||||||||||||||||||||||||
|
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|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Financial and insurance liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Expected cash outflows | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance contracts | 1,494,497 | — | (30,721 | ) | (120,270 | ) | (109,561 | ) | (2,237,733 | ) | ||||||||||||||||||||||||||||||||||||||
Investment contracts | 65,087 | — | (14,692 | ) | (11,642 | ) | (8,564 | ) | (77,315 | ) | ||||||||||||||||||||||||||||||||||||||
Contractual cash outflows | ||||||||||||||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 20,426 | — | (20,426 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Annuity and other insurance balances payable | 23,179 | — | (23,179 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Bonds payable | 67,985 | — | (3,424 | ) | (36,848 | ) | (39,774 | ) | — | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Subtotal | 1,671,174 | — | (92,442 | ) | (168,760 | ) | (157,899 | ) | (2,315,048 | ) | ||||||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||||||||
Net cash inflows/(outflows) | 220,771 | 154,957 | 193,650 | 346,864 | 378,272 | (1,281,312 | ) | 301,441 | 419,352 | 480,631 | 584,526 | 349,741 | (2,411,261 | ) | ||||||||||||||||||||||||||||||||||
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The amounts set forth in the tables above for insurance and investment contracts in each column are the cash flows representing expected future benefit payments taking into consideration of future premiums payments or deposits from policyholders. The excess cash inflows from matured financial assets will be reinvested to cover any future liquidity exposures. The estimate is subject to assumptions related to mortality, morbidity, the lapse rate, the loss ratio andof short-term insurance contracts, expense and other assumptions. Actual experience may differ from estimates.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.2 | Financial risk (continued) |
4.2.3 | Liquidity risk (continued) |
The liquidity analysis above does not include policyholder dividends payable amounting to RMB74,745RMB83,910 million as at 31 December 20142017 (as at 31 December 2013: RMB49,5362016: RMB87,725 million). AtAs at 31 December 2014,2017, declared dividends of RMB44,515RMB68,731 million (as at 31 December 2013: RMB33,6712016: RMB64,623 million) included in policyholder dividends payable have a maturity not later than one year. For the remaining policyholder dividends payable, the amount and timing of the undiscounted cash flows are indeterminate due to the uncertainty of future experiences including investment returns and are subject to future declarations by the Group.
Although all investment contracts with DPF and investment contracts without DPF contain contractual options to surrender that can be exercised immediately by all policyholders at any time, the Group’s expected cash flows as shown in the above tables are based on past experience and future expectations. Should these contracts were surrendered immediately, it would cause a cash outflow of RMB47,589RMB56,709 million and RMB24,064RMB173,557 million, respectively for the year ended 31 December 2014 (2013: RMB46,1962017 (2016: RMB53,271 million and RMB18,364RMB140,565 million, respectively), payable within one year.
4.2.4 | Capital management |
The Group’s objectives for managing capital which is actual capital calculated as the difference between admitted assets (defined by the CIRC) and the admitted liabilities (defined by the CIRC), are to comply with the insurance capital requirements based on the minimum capital and actual capital required by the CIRC to meet the minimum capitalCBIRC (formerly CIRC), prevent risk in operation and safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for equity holders and benefits for other stakeholders. The Group replenishes capital to improve the solvency ratio by issuing subordinated bonds and Core Tier 2 Capital Securities according to the relevant laws and the approval of the relevant authorities.
The Group is also subject to other local capital requirements, such as statutory deposits - restricted requirement, statutory insurance fund requirement, statutory reserve fund requirement and general reserve requirement and statutory insurance fund requirement discussed in detail in Note 9.4, Note 3420 and Note 20,35, respectively.
The Group ensuresmanages capital to ensure its continuous and full compliance with the regulations mainly through monitoring its quarterly and annual solvency ratio,ratios, as well as the solvency ratio based on dynamic solvencyannual stress testing.
The table below summarises the core and comprehensive solvency ratio, core capital, actual capital and minimum capital of the Company the actual capital held against the minimum required capital:underInsurance Institution Solvency Regulations (No.1 - No.17):
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||
Core capital | 706,516 | 639,396 | ||||||||||||||
Actual capital | 236,151 | 168,501 | 706,623 | 677,768 | ||||||||||||
Minimum capital | 80,193 | 74,485 | 254,503 | 228,080 | ||||||||||||
Solvency ratio | 294 | % | 226 | % | ||||||||||||
Core solvency ratio | 278% | 280% | ||||||||||||||
Comprehensive solvency ratio | 278% | 297% |
According to “Solvency Regulations of Insurance Companies”, the solvency ratio is computed by dividing the actual capital by the minimum capital. The CIRC closely monitors those insurance companies with a solvency ratio less than 100% and may, depending on the individual circumstances, undertakes certain regulatory measures, including but not limited to restriction of payment of dividends. Insurance companies with a solvency ratio between 100% and 150% will be required to submit and implement plans preventing capital deterioration to an inadequate level. Insurance companies with a solvency ratio above 100% but with significant solvency risk identified would be required to take necessary rectifying actions.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT (CONTINUED) |
4.2 | Financial risk (continued) |
4.2.4 | Capital management (continued) |
According to the solvency ratios results mentioned above, and the unquantifiable evaluation results of operational risk, strategic risk, reputational risk and liquidity risk of insurance companies, the CBIRC (formerly CIRC) evaluates the comprehensive solvency of insurance companies and supervises insurance companies by classifying them into four categories:
(i) | Category A: solvency ratios meet the requirements, and the operational risk, strategic risk, reputational risk and liquidity risk are very low; |
(ii) | Category B: solvency ratios meet the requirements, and the operational risk, strategic risk, reputational risk and liquidity risk are low; |
(iii) | Category C: solvency ratios do not meet the requirements or solvency ratios meet the requirements but one or several risks in operation, strategy, reputation and liquidity are high; |
(iv) | Category D: solvency ratios do not meet the requirements or solvency ratios meet the requirements but one or several risks in operation, strategy, reputation and liquidity are severe. |
According to Cai Kuai Bu Han [2017] No.1510Notification of the Evaluation Results of Integrated Risk Rating (Classification Regulation) for the Third Quarter of 2017, released by the CIRC, the latest Integrated Risk Rating result of the Company was Category A.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
4 | RISK MANAGEMENT (CONTINUED) |
4.3 | Fair value hierarchy |
Level 1 fair value is based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can obtain at the measurement date.
Other than Level 1 quoted prices, Level 2 fair value is based on valuation techniques using significant inputs, that are observable for the asset being measured, either directly or indirectly, for substantially the full term of the asset through corroboration with observable market data. Observable inputs generally used to measure the fair value of securities classified as Level 2 include quoted market prices for similar assets in active markets; quoted market prices in markets that are not active for identical or similar assets and other market observable inputs. This level includes the debt securities for which quotations are available from pricing services providers. Fair valuevalues provided by pricing services providers are subject to a number of validation procedures by management. These procedures include a review of the valuation models utilised and the results of these models, and as well as the recalculation of prices obtained from pricing services at the end of each reporting period.
Under certain conditions, the Group may not receive a price quote from independent third party pricing services. In this instance, the Group’s valuation team may choose to apply internally developed valuation method to the assets or liabilities being measured, determine the main inputs for valuation, and analyse the change of the valuation and report it to management. Key inputs involved in internal valuation services are not based on observable market data. They reflect assumptions made by management based on judgements and experiences .Theexperiences. The assets or liabilities valued by this method are generally classified as Level 3.
As at 31 December 2014,2017, assets classified as Level 1 accounted for approximately 33.91%32.93% of assets measured at fair value on a recurring basis. Fair value measurements classified as Level 1 include certain debt securities, equity securities that are traded in an active exchange market or interbank market and open-ended funds.funds with public market price quotation. The Group considers a combination of certain factors to determine whether a market for a financial instrument is active, including the occurrence of trades within the specific period, the respective trading volume, and the degree which the implied yields for a debt security for observed transactions differs from the Group’s understanding of the current relevant market rates and information. Trading prices from the Chinese interbank market are determined by both trading counterparties and can be observed publicly. The Company adopted this price of the debt securities traded on the Chinese interbank market at the reporting date as their fair market value and classified the investments as Level 1. Open-ended funds also have active markets. Fund management companies publish the net asset value of these funds on their websites on each trade date. Investors subscribe for and redeem units of these funds in accordance with the fundfunds’ net asset value published by the fund management companies on each trade date. The Company adopted the unadjusted net asset value of the funds at the reporting datesdate as their fair market value and classified the investments as Level 1.
As at 31 December 2014,2017, assets classified as Level 2 accounted for approximately 62.58%51.20% of assets measured at fair value on a recurring basis. They primarily include certain debt securities and equity securities. Valuations are generally obtained from third party pricing services for identical or comparable assets, or through the use of valuation methodologies using observable market inputs, or recent quoted market prices. Valuation service providers typically gather, analyzeanalyse and interpret information related to market transactions and other key valuation model inputs from multiple sources, and through the use of widely accepted internal valuation models, provide a theoretical quote on various securities. Debt securities are classified as Level 2 when they are valued at recent quoted prices from the Chinese interbank market or from valuation service providers.
At 31 December 2014,2017, assets classified as Level 3 accounted for approximately 3.51%15.87% of assets measured at fair value on a recurring basis. They primarily include unlisted equity securities and unlisted debt securities. Fair values are determined using valuation techniques, including discounted cash flow valuations, the market comparison approach, etc.
For the accounting policies regarding the determination of fair values of financial assets and liabilities, see Note 3.2.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.3 | Fair value hierarchy (continued) |
The following table presents the Group’s quantitative disclosures of fair value measurement hierarchy for assets and liabilities measured at fair value as at 31 December 2014:2017:
��
Fair value measurement using | Total | |||||||||||||||||||||||||||||||
Fair value measurement using | Quoted prices in active markets | Significant observable inputs | Significant unobservable inputs | |||||||||||||||||||||||||||||
Quoted prices in active market Level 1 RMB million | Significant observable inputs Level 2 RMB million | Significant unobservable inputs Level 3 RMB million | Total RMB million | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||
Assets measured at fair value | ||||||||||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||
- Equity securities | 151,817 | 23,479 | 21,635 | 196,931 | 196,673 | 48,989 | 89,111 | 334,773 | ||||||||||||||||||||||||
- Debt securities | 25,437 | 369,403 | 501 | 395,341 | 46,898 | 350,893 | 57,333 | 455,124 | ||||||||||||||||||||||||
Securities at fair value through profit or loss | ||||||||||||||||||||||||||||||||
- Equity securities | 22,716 | 582 | 542 | 23,840 | 52,300 | 963 | 655 | 53,918 | ||||||||||||||||||||||||
- Debt securities | 18,805 | 10,407 | — | 29,212 | 9,301 | 73,590 | — | 82,891 | ||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 218,775 | 403,871 | 22,678 | 645,324 | 305,172 | 474,435 | 147,099 | 926,706 | ||||||||||||||||||||||||
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|
|
| |||||||||||||||||||||||||||||
|
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|
| |||||||||||||||||||||||||||||
Liabilities measured at fair value | ||||||||||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss | (10,890 | ) | — | — | (10,890 | ) | (2,529 | ) | — | — | (2,529 | ) | ||||||||||||||||||||
Investment contracts at fair value through profit or loss | (21 | ) | — | — | (21 | ) | (12 | ) | — | — | (12 | ) | ||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | (10,911 | ) | — | — | (10,911 | ) | (2,541 | ) | — | — | (2,541 | ) | ||||||||||||||||||||
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|
|
|
|
|
|
The following table presents the changes in Level 3 assets for the year ended 31 December 2014:2017:
Available-for-sale securities | Securities at fair value through profit or loss | Available-for-sale securities | Securities at fair value through profit or loss | Total | ||||||||||||||||||||||||||||
Debt securities RMB million | Equity securities RMB million | Equity securities RMB million | Total RMB million | Debt securities | Equity securities | Equity securities | ||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||
Opening balance | 301 | 13,588 | — | 13,889 | 13,733 | 76,445 | 1,061 | 91,239 | ||||||||||||||||||||||||
Purchases | 200 | 5,935 | — | 6,135 | 47,909 | 15,197 | — | 63,106 | ||||||||||||||||||||||||
Transferred into Level 3 | — | 363 | 473 | 836 | — | 2,842 | 695 | 3,537 | ||||||||||||||||||||||||
Transferred out of Level 3 | — | (377 | ) | — | (377 | ) | — | (5,598 | ) | (1,059 | ) | (6,657 | ) | |||||||||||||||||||
Total gains/(losses) recorded in profit or loss | — | — | 69 | 69 | — | — | (42 | ) | (42 | ) | ||||||||||||||||||||||
Total gains/(losses) recorded in other comprehensive income | — | 2,126 | — | 2,126 | (519 | ) | 315 | — | (204 | ) | ||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||
Disposals | — | (90 | ) | — | (90 | ) | ||||||||||||||||||||||||||
Maturity | (3,790 | ) | — | — | (3,790 | ) | ||||||||||||||||||||||||||
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|
|
| |||||||||||||||||||||||||||||
Closing balance | 501 | 21,635 | 542 | 22,678 | 57,333 | 89,111 | 655 | 147,099 | ||||||||||||||||||||||||
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|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
4 | RISK MANAGEMENT |
4.3 | Fair value hierarchy (continued) |
The following table presents the Group’s quantitative disclosures of fair value measurement hierarchy for assets and liabilities measured at fair value as at 31 December 2013:2016:
Fair value measurement using | Total | |||||||||||||||||||||||||||||||
Fair value measurement using | Quoted prices in active markets | Significant observable inputs | Significant unobservable inputs | |||||||||||||||||||||||||||||
Quoted prices in active market Level 1 RMB million | Significant observable inputs Level 2 RMB million | Significant unobservable inputs Level 3 RMB million | Total RMB million | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||
Assets measured at fair value | ||||||||||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||
- Equity securities | 134,085 | 3,868 | 13,588 | 151,541 | 183,222 | 86,161 | 76,445 | 345,828 | ||||||||||||||||||||||||
- Debt securities | 34,020 | 305,665 | 301 | 339,986 | 28,562 | 357,463 | 13,733 | 399,758 | ||||||||||||||||||||||||
Securities at fair value through profit or loss | ||||||||||||||||||||||||||||||||
- Equity securities | 3,416 | — | — | 3,416 | 52,790 | 867 | 1,061 | 54,718 | ||||||||||||||||||||||||
- Debt securities | 9,333 | 21,423 | — | 30,756 | 37,172 | 117,234 | — | 154,406 | ||||||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | 301,746 | 561,725 | 91,239 | 954,710 | ||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||
Liabilities measured at fair value | ||||||||||||||||||||||||||||||||
Financial liabilities at fair value through profit or loss | (2,031 | ) | — | — | (2,031 | ) | ||||||||||||||||||||||||||
Investment contracts at fair value through profit or loss | (12 | ) | — | — | (12 | ) | ||||||||||||||||||||||||||
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|
|
| |||||||||||||||||||||||||||||
Total | 180,854 | 330,956 | 13,889 | 525,699 | (2,043 | ) | — | — | (2,043 | ) | ||||||||||||||||||||||
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|
|
|
|
|
| |||||||||||||||||||||||||
Liabilities measured at fair value | ||||||||||||||||||||||||||||||||
Investment contracts at fair value through profit or loss | (25 | ) | — | — | (25 | ) | ||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||
Total | (25 | ) | — | — | (25 | ) | ||||||||||||||||||||||||||
|
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|
|
The following table presents the changes in Level 3 assets for the year ended 31 December 2013:2016:
Available-for-sale securities | Securities at fair value through profit or loss | Available-for-sale securities | Securities at fair value through profit or loss | Total | ||||||||||||||||||||||||||||
Debt securities RMB million | Equity securities RMB million | Equity securities RMB million | Total RMB million | Debt securities | Equity securities | Equity securities | ||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||||||||||||||||||
Opening balance | 301 | 3,649 | 85 | 4,035 | 501 | 62,343 | 1,884 | 64,728 | ||||||||||||||||||||||||
Purchases | — | 9,349 | — | 9,349 | 13,533 | 12,499 | — | 26,032 | ||||||||||||||||||||||||
Transferred into Level 3 | — | 362 | — | 362 | — | 1,326 | 1,128 | 2,454 | ||||||||||||||||||||||||
Transferred out of Level 3 | — | (205 | ) | (85 | ) | (290 | ) | — | (2,054 | ) | (1,884 | ) | (3,938 | ) | ||||||||||||||||||
Total gains/(losses) recorded in profit or loss | — | (144 | ) | — | (144 | ) | — | — | (67 | ) | (67 | ) | ||||||||||||||||||||
Total gains/(losses) recorded in other comprehensive income | — | 577 | — | 577 | — | 2,331 | — | 2,331 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||
Maturity | (301 | ) | — | — | (301 | ) | ||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||
Closing balance | 301 | 13,588 | — | 13,889 | 13,733 | 76,445 | 1,061 | 91,239 | ||||||||||||||||||||||||
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|
|
|
|
|
|
The assets whose fair value measurements are classified under Level 3 above do not have any material impact on the profit or loss of the Group.
For the assets and liabilities measured at fair value, during the year ended 31 December 2014, RMB22,4362017, RMB19,275 million (2013: RMB10,194(2016: RMB8,932 million) debt securities were transferred from Level 1 to Level 2 within the fair value hierarchy, whereas RMB10,344RMB9,652 million (2013: RMB13,368(2016: RMB8,668 million) debt securities were transferred from Level 2 to Level 1. No material equity securities were transferred between Level 1 and Level 2.
For the years ended 31 December 20142017 and 2013,2016, there were no significant changes in the business or economic circumstances that affected the fair value of the Group’s financial assets and liabilities. There were also no reclassifications of financial assets.
As at 31 December 20142017 and 2013,2016, unobservable inputs such as the weighted average cost of capital and liquidity discount were used in the valuation of assets at fair value classified as Level 3 of fair value.3. The fair value was not significantly sensitive to reasonable changes in these unobservable inputs.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
5 | SEGMENT INFORMATION |
5.1 | Operating segments |
The Group operates in four operating segments:
(i) Life insurance business (Life)
Life insurance business relates primarily to the sale of life insurance policies, including those life insurance policies without significant insurance risk transferred.
(ii) Health insurance business (Health)
Health insurance business relates primarily to the sale of health insurance policies, including those health insurance policies without significant insurance risk transferred.
(iii) Accident insurance business (Accident)
Accident insurance business relates primarily to the sale of accident insurance policies.
(iv) Other businesses (Others)
Other businesses relate primarily to income and allocated cost of insurancethe agency business in respect of services totransactions with CLIC, etc., as described in Note 32, net share of resultsprofit of associates and joint ventures, income and expenses of subsidiaries, and unallocated income and expenditure of the Group.
In order to better reflect the changes in the Group’s external environment and business structure, and the objectives of future development, as well as providing users of financial statements with more useful information, the Group has adjusted its internal reporting method of segments in 2014, and realigned the composition of its reporting segments by changing the previously reported individual life insurance, group life insurance, short-term insurance, supplementary major medical insurance and other segments into four newly identified segments, namely life insurance, health insurance, accident insurance and others. The Group’s management has conducted analysis and evaluation on the operating results based on the new reporting segments.
The Group has restated prior year’s comparative amounts based on the adjusted operating segments as follows.
5.2 | Allocation basis of income and expenses |
Investment income, net realised gains and impairment on financial assets, net fair value gains /(losses) through profit or loss and foreign exchange gains/(losses) within other expenses are allocated among segments in proportion to the respective segment’ssegments’ average liabilities of insurance contracts and investment contracts at the beginning and end of the year. Administrative expenses are allocated among segments in proportion to the unit cost of respective products in the different segments. Unallocated other income and other expenses are presented in the “Others” segment directly. Income tax is not allocated.
5.3 | Allocation basis of assets and liabilities |
Financial assets and securities sold under agreements to repurchase are allocated among segments in proportion to the respective segment’ssegments’ average liabilities of insurance contracts and investment contracts at the beginning and end of the year. Insurance and investment contractscontract liabilities are presented under the respective segments. The remaining assets and liabilities are not allocated.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
5 | SEGMENT INFORMATION |
For the year ended 31 December 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
Life | Health | Accident | Others | Elimination | Total | For the year ended 31 December 2017 | ||||||||||||||||||||||||||||||||||||||||||
RMB million | Life | Health | Accident | Others | Elimination | Total | ||||||||||||||||||||||||||||||||||||||||||
RMB million | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Gross written premiums | 285,619 | 33,192 | 12,199 | — | — | 331,010 | 429,822 | 67,708 | 14,436 | — | — | 511,966 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
- Term life | 2,871 | — | — | — | — | 4,110 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Whole life | 29,767 | — | — | — | — | 36,496 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Endowment | 217,662 | — | — | — | — | 198,418 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Annuity | 35,319 | — | — | — | — | 190,798 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Net premiums earned | 285,574 | 32,624 | 11,907 | — | — | 330,105 | 429,267 | 63,323 | 14,320 | — | — | 506,910 | ||||||||||||||||||||||||||||||||||||
Investment income | 89,814 | 2,236 | 315 | 1,183 | — | 93,548 | 115,316 | 5,454 | 456 | 1,501 | — | 122,727 | ||||||||||||||||||||||||||||||||||||
Net realised gains and impairment on financial assets | 6,970 | 174 | 24 | (48 | ) | — | 7,120 | |||||||||||||||||||||||||||||||||||||||||
Net fair value gains/(losses) through profit or loss | 6,179 | 154 | 22 | (547 | ) | — | 5,808 | |||||||||||||||||||||||||||||||||||||||||
Net realised gains on financial assets | 41 | 2 | — | (1 | ) | — | 42 | |||||||||||||||||||||||||||||||||||||||||
Net fair value gains through profit or loss | 5,690 | 269 | 23 | 201 | — | 6,183 | ||||||||||||||||||||||||||||||||||||||||||
Other income | 898 | 67 | — | 4,148 | (928 | ) | 4,185 | 1,276 | 75 | — | 7,268 | (1,126 | ) | 7,493 | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Including: inter-segment revenue | — | — | — | 928 | (928 | ) | — | — | — | — | 1,126 | (1,126 | ) | — | ||||||||||||||||||||||||||||||||||
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Segment revenues | 389,435 | 35,255 | 12,268 | 4,736 | (928 | ) | 440,766 | 551,590 | 69,123 | 14,799 | 8,969 | (1,126 | ) | 643,355 | ||||||||||||||||||||||||||||||||||
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Benefits, claims and expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance benefits and claims expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance death and other benefits | (191,291 | ) | (1,355 | ) | (13 | ) | — | — | (192,659 | ) | (257,300 | ) | (2,383 | ) | (25 | ) | — | — | (259,708 | ) | ||||||||||||||||||||||||||||
Accident and health claims and claim adjustment expenses | — | (12,883 | ) | (3,869 | ) | — | — | (16,752 | ) | — | (27,992 | ) | (5,826 | ) | — | — | (33,818 | ) | ||||||||||||||||||||||||||||||
Increase in insurance contract liabilities | (97,577 | ) | (8,196 | ) | (110 | ) | — | — | (105,883 | ) | (152,110 | ) | (20,249 | ) | (158 | ) | — | — | (172,517 | ) | ||||||||||||||||||||||||||||
Investment contract benefits | (1,806 | ) | (152 | ) | — | — | — | (1,958 | ) | (7,798 | ) | (278 | ) | — | — | — | (8,076 | ) | ||||||||||||||||||||||||||||||
Policyholder dividends resulting from participation in profits | (24,742 | ) | (124 | ) | — | — | — | (24,866 | ) | (21,748 | ) | (123 | ) | — | — | — | (21,871 | ) | ||||||||||||||||||||||||||||||
Underwriting and policy acquisition costs | (18,126 | ) | (4,770 | ) | (3,354 | ) | (897 | ) | — | (27,147 | ) | (48,781 | ) | (8,494 | ) | (4,565 | ) | (2,949 | ) | — | (64,789 | ) | ||||||||||||||||||||||||||
Finance costs | (4,451 | ) | (111 | ) | (16 | ) | (148 | ) | — | (4,726 | ) | (3,967 | ) | (187 | ) | (16 | ) | (431 | ) | — | (4,601 | ) | ||||||||||||||||||||||||||
Administrative expenses | (16,677 | ) | (4,092 | ) | (2,576 | ) | (2,087 | ) | — | (25,432 | ) | (24,286 | ) | (5,615 | ) | (3,423 | ) | (2,629 | ) | — | (35,953 | ) | ||||||||||||||||||||||||||
Other expenses | (3,608 | ) | (204 | ) | (705 | ) | (562 | ) | 928 | (4,151 | ) | (5,508 | ) | (376 | ) | (147 | ) | (1,521 | ) | 1,126 | (6,426 | ) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Including: inter-segment expenses | (903 | ) | (22 | ) | (3 | ) | — | 928 | — | (1,071 | ) | (51 | ) | (4 | ) | — | 1,126 | — | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Statutory insurance fund contribution | (506 | ) | (116 | ) | (79 | ) | — | — | (701 | ) | (777 | ) | (180 | ) | (111 | ) | — | — | (1,068 | ) | ||||||||||||||||||||||||||||
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Segment benefits, claims and expenses | (358,784 | ) | (32,003 | ) | (10,722 | ) | (3,694 | ) | 928 | (404,275 | ) | (522,275 | ) | (65,877 | ) | (14,271 | ) | (7,530 | ) | 1,126 | (608,827 | ) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Share of profit of associates and joint ventures | — | — | — | 3,911 | — | 3,911 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Share of profit of associates and joint ventures, net | — | — | — | 7,143 | — | 7,143 | ||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Segment results | 30,651 | 3,252 | 1,546 | 4,953 | — | 40,402 | 29,315 | 3,246 | 528 | 8,582 | — | 41,671 | ||||||||||||||||||||||||||||||||||||
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Income tax | (7,888 | ) | (8,919 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||
Net profit | 32,514 | 32,752 | ||||||||||||||||||||||||||||||||||||||||||||||
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Attributable to | ||||||||||||||||||||||||||||||||||||||||||||||||
- Equity holders of the Company | 32,211 | 32,253 | ||||||||||||||||||||||||||||||||||||||||||||||
- Non-controlling interests | 303 | 499 | ||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income attributable to equity holders of the Company | 38,270 | 951 | 134 | (123 | ) | — | 39,232 | (7,838 | ) | (370 | ) | (31 | ) | 327 | — | (7,912 | ) | |||||||||||||||||||||||||||||||
Depreciation and amortisation | 1,427 | 324 | 221 | 152 | — | 2,124 | 1,513 | 351 | 216 | 160 | — | 2,240 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
5 | SEGMENT INFORMATION |
As at 31 December 2014 | ||||||||||||||||||||||||
Life | Health | Accident | Others | Elimination | Total | |||||||||||||||||||
RMB million | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Financial assets (including cash and cash equivalents) | 2,059,641 | 50,013 | 6,961 | 27,421 | — | 2,144,036 | ||||||||||||||||||
Others | 7,881 | 3,985 | 312 | 44,390 | — | 56,568 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Segment assets | 2,067,522 | 53,998 | 7,273 | 71,811 | — | 2,200,604 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Unallocated | ||||||||||||||||||||||||
Property, plant and equipment | 25,348 | |||||||||||||||||||||||
Others | 20,615 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total | 2,246,567 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Insurance contracts | 1,558,714 | 38,872 | 5,860 | — | — | 1,603,446 | ||||||||||||||||||
Investment contracts | 63,710 | 8,565 | — | — | — | 72,275 | ||||||||||||||||||
Securities sold under agreements to repurchase | 43,310 | 1,076 | 152 | 1,551 | — | 46,089 | ||||||||||||||||||
Others | 90,703 | 2,732 | 372 | 13,513 | — | 107,320 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Segment liabilities | 1,756,437 | 51,245 | 6,384 | 15,064 | — | 1,829,130 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Unallocated | ||||||||||||||||||||||||
Others | 130,106 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total | 1,959,236 | |||||||||||||||||||||||
|
|
As at 31 December 2017 | ||||||||||||||||||||||||
Life | Health | Accident | Others | Elimination | Total | |||||||||||||||||||
RMB million | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Financial assets (including cash and cash equivalents) | 2,478,739 | 114,045 | 9,390 | 38,422 | — | 2,640,596 | ||||||||||||||||||
Others | 8,402 | 8,149 | 552 | 161,472 | — | 178,575 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Segment assets | 2,487,141 | 122,194 | 9,942 | 199,894 | — | 2,819,171 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Unallocated | ||||||||||||||||||||||||
Property, plant and equipment | 42,707 | |||||||||||||||||||||||
Others | 35,713 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total | 2,897,591 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Insurance contracts | 1,914,597 | 102,190 | 8,346 | — | — | 2,025,133 | ||||||||||||||||||
Investment contracts | 218,436 | 14,064 | — | — | — | 232,500 | ||||||||||||||||||
Securities sold under agreements to repurchase | 81,163 | 3,832 | 321 | 1,993 | — | 87,309 | ||||||||||||||||||
Others | 41,888 | 3,123 | 224 | 21,323 | — | 66,558 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Segment liabilities | 2,256,084 | 123,209 | 8,891 | 23,316 | — | 2,411,500 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Unallocated | ||||||||||||||||||||||||
Others | 160,781 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total | 2,572,281 | |||||||||||||||||||||||
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
5 | SEGMENT INFORMATION |
For the year ended 31 December 2013 (restated) | ||||||||||||||||||||||||||||||||||||||||||||||||
Life | Health | Accident | Others | Elimination | Total | For the year ended 31 December 2016 | ||||||||||||||||||||||||||||||||||||||||||
RMB million | Life | Health | Accident | Others | Elimination | Total | ||||||||||||||||||||||||||||||||||||||||||
RMB million | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Gross written premiums | 290,778 | 24,713 | 10,799 | — | — | 326,290 | 361,905 | 54,010 | 14,583 | — | — | 430,498 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
- Term life | 2,327 | — | — | — | — | 3,871 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Whole life | 29,782 | — | — | — | — | 29,524 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Endowment | 209,034 | — | — | — | — | 188,415 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Annuity | 49,635 | — | — | — | — | 140,095 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Net premiums earned | 290,738 | 24,180 | 9,895 | — | — | 324,813 | 361,649 | 50,590 | 13,991 | — | — | 426,230 | ||||||||||||||||||||||||||||||||||||
Investment income | 80,640 | 1,665 | 253 | 258 | — | 82,816 | 103,723 | 4,122 | 403 | 899 | — | 109,147 | ||||||||||||||||||||||||||||||||||||
Net realised gains and impairment on financial assets | 5,679 | 117 | 18 | (21 | ) | — | 5,793 | |||||||||||||||||||||||||||||||||||||||||
Net fair value gains/(losses) through profit or loss | 149 | 3 | — | (15 | ) | — | 137 | |||||||||||||||||||||||||||||||||||||||||
Net realised gains on financial assets | 5,823 | 231 | 23 | (39 | ) | — | 6,038 | |||||||||||||||||||||||||||||||||||||||||
Net fair value gains through profit or loss | (6,436 | ) | (255 | ) | (25 | ) | (378 | ) | — | (7,094 | ) | |||||||||||||||||||||||||||||||||||||
Other income | 870 | 66 | — | 4,266 | (878 | ) | 4,324 | 1,345 | 86 | — | 5,919 | (890 | ) | 6,460 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Including: inter-segment revenue | — | — | — | 878 | (878 | ) | — | — | — | — | 890 | (890 | ) | — | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Segment revenues | 378,076 | 26,031 | 10,166 | 4,488 | (878 | ) | 417,883 | 466,104 | 54,774 | 14,392 | 6,401 | (890 | ) | 540,781 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance benefits and claims expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance death and other benefits | (192,621 | ) | (1,047 | ) | (3 | ) | — | — | (193,671 | ) | (251,155 | ) | (1,977 | ) | (25 | ) | — | — | (253,157 | ) | ||||||||||||||||||||||||||||
Accident and health claims and claim adjustment expenses | — | (8,027 | ) | (3,236 | ) | — | — | (11,263 | ) | — | (21,958 | ) | (5,311 | ) | — | — | (27,269 | ) | ||||||||||||||||||||||||||||||
Increase in insurance contract liabilities | (101,311 | ) | (5,981 | ) | (62 | ) | — | — | (107,354 | ) | (109,767 | ) | (16,578 | ) | (274 | ) | — | — | (126,619 | ) | ||||||||||||||||||||||||||||
Investment contract benefits | (1,749 | ) | (69 | ) | — | — | — | (1,818 | ) | (5,091 | ) | (225 | ) | — | — | — | (5,316 | ) | ||||||||||||||||||||||||||||||
Policyholder dividends resulting from participation in profits | (18,369 | ) | (54 | ) | — | — | — | (18,423 | ) | (15,787 | ) | (96 | ) | — | — | — | (15,883 | ) | ||||||||||||||||||||||||||||||
Underwriting and policy acquisition costs | (17,529 | ) | (4,408 | ) | (3,012 | ) | (741 | ) | — | (25,690 | ) | (38,459 | ) | (6,906 | ) | (4,441 | ) | (2,216 | ) | — | (52,022 | ) | ||||||||||||||||||||||||||
Finance costs | (3,931 | ) | (81 | ) | (12 | ) | (8 | ) | — | (4,032 | ) | (4,395 | ) | (174 | ) | (17 | ) | (181 | ) | — | (4,767 | ) | ||||||||||||||||||||||||||
Administrative expenses | (16,968 | ) | (3,384 | ) | (2,581 | ) | (1,872 | ) | — | (24,805 | ) | (22,248 | ) | (4,373 | ) | (2,899 | ) | (2,334 | ) | — | (31,854 | ) | ||||||||||||||||||||||||||
Other expenses | (3,090 | ) | (149 | ) | (577 | ) | (926 | ) | 878 | (3,864 | ) | (3,666 | ) | (256 | ) | (467 | ) | (1,360 | ) | 890 | (4,859 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Including: inter-segment expenses | (857 | ) | (18 | ) | (3 | ) | — | 878 | — | (853 | ) | (34 | ) | (3 | ) | — | 890 | — | ||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Statutory insurance fund contribution | (470 | ) | (92 | ) | (75 | ) | — | — | (637 | ) | (804 | ) | (138 | ) | (106 | ) | — | — | (1,048 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Segment benefits, claims and expenses | (356,038 | ) | (23,292 | ) | (9,558 | ) | (3,547 | ) | 878 | (391,557 | ) | (451,372 | ) | (52,681 | ) | (13,540 | ) | (6,091 | ) | 890 | (522,794 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Share of profit of associates and joint ventures | — | — | — | 3,125 | — | 3,125 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Share of profit of associates and joint ventures, net | — | — | — | 5,855 | — | 5,855 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Segment results | 22,038 | 2,739 | 608 | 4,066 | — | 29,451 | 14,732 | 2,093 | 852 | 6,165 | — | 23,842 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Income tax | (4,443 | ) | (4,257 | ) | ||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Net profit | 25,008 | 19,585 | ||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Attributable to | ||||||||||||||||||||||||||||||||||||||||||||||||
- Equity holders of the Company | 24,765 | 19,127 | ||||||||||||||||||||||||||||||||||||||||||||||
- Non-controlling interests | 243 | 458 | ||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income attributable to equity holders of the Company | (20,696 | ) | (428 | ) | (66 | ) | (372 | ) | — | (21,562 | ) | (23,433 | ) | (930 | ) | (91 | ) | (1,320 | ) | — | (25,774 | ) | ||||||||||||||||||||||||||
Depreciation and amortisation | 1,392 | 271 | 221 | 142 | — | 2,026 | 1,490 | 257 | 196 | 140 | — | 2,083 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
5 | SEGMENT INFORMATION |
As at 31 December 2013 (restated) | ||||||||||||||||||||||||||||||||||||||||||||||||
Life | Health | Accident | Others | Elimination | Total | As at 31 December 2016 | ||||||||||||||||||||||||||||||||||||||||||
RMB million | Life | Health | Accident | Others | Elimination | Total | ||||||||||||||||||||||||||||||||||||||||||
RMB million | ||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||
Financial assets (including cash and cash equivalents) | 1,831,849 | 38,363 | 5,578 | 6,279 | — | 1,882,069 | 2,379,782 | 92,220 | 8,906 | 27,392 | — | 2,508,300 | ||||||||||||||||||||||||||||||||||||
Others | 7,991 | 2,609 | 303 | 34,863 | — | 45,766 | 8,165 | 6,776 | 491 | 119,766 | — | 135,198 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Segment assets | 1,839,840 | 40,972 | 5,881 | 41,142 | — | 1,927,835 | 2,387,947 | 98,996 | 9,397 | 147,158 | — | 2,643,498 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Unallocated | ||||||||||||||||||||||||||||||||||||||||||||||||
Property, plant and equipment | 23,393 | 30,389 | ||||||||||||||||||||||||||||||||||||||||||||||
Others | 21,713 | 23,064 | ||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,972,941 | 2,696,951 | ||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance contracts | 1,461,121 | 28,229 | 5,147 | — | — | 1,494,497 | 1,762,363 | 77,837 | 7,786 | — | — | 1,847,986 | ||||||||||||||||||||||||||||||||||||
Investment contracts | 57,991 | 7,096 | — | — | — | 65,087 | 183,773 | 11,933 | — | — | — | 195,706 | ||||||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 19,592 | 404 | 62 | 368 | — | 20,426 | 77,649 | 3,081 | 302 | 56 | — | 81,088 | ||||||||||||||||||||||||||||||||||||
Others | 89,003 | 2,318 | 322 | — | — | 91,643 | 73,277 | 3,563 | 338 | 18,194 | — | 95,372 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Segment liabilities | 1,627,707 | 38,047 | 5,531 | 368 | — | 1,671,653 | 2,097,062 | 96,414 | 8,426 | 18,250 | — | 2,220,152 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Unallocated | ||||||||||||||||||||||||||||||||||||||||||||||||
Others | 78,703 | 169,151 | ||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total | 1,750,356 | 2,389,303 | ||||||||||||||||||||||||||||||||||||||||||||||
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
5 | SEGMENT INFORMATION |
For the year ended 31 December 2012 (restated) | ||||||||||||||||||||||||||||||||||||||||||||||||
Life | Health | Accident | Others | Elimination | Total | For the year ended 31 December 2015 | ||||||||||||||||||||||||||||||||||||||||||
RMB million | Life | Health | Accident | Others | Elimination | Total | ||||||||||||||||||||||||||||||||||||||||||
RMB million | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
Gross written premiums | 294,405 | 18,789 | 9,548 | — | — | 322,742 | 308,169 | 42,041 | 13,761 | — | — | 363,971 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
- Term life | 1,980 | — | — | — | — | 3,476 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Whole life | 30,901 | — | — | — | — | 28,119 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Endowment | 223,660 | — | — | — | — | 177,871 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
- Annuity | 37,864 | — | — | — | — | 98,703 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Net premiums earned | 294,374 | 18,565 | 9,187 | — | — | 322,126 | 308,081 | 40,855 | 13,365 | — | — | 362,301 | ||||||||||||||||||||||||||||||||||||
Investment income | 71,418 | 1,301 | 212 | 312 | — | 73,243 | 93,819 | 2,983 | 344 | 436 | — | 97,582 | ||||||||||||||||||||||||||||||||||||
Net realised gains and impairment on financial assets | (26,196 | ) | (477 | ) | (78 | ) | (125 | ) | — | (26,876 | ) | |||||||||||||||||||||||||||||||||||||
Net realised gains/(losses) on financial assets | 31,259 | 992 | 115 | (69 | ) | — | 32,297 | |||||||||||||||||||||||||||||||||||||||||
Net fair value gains/(losses) through profit or loss | (312 | ) | (6 | ) | (1 | ) | 6 | — | (313 | ) | 9,863 | 313 | 36 | (3 | ) | — | 10,209 | |||||||||||||||||||||||||||||||
Other income | 706 | 39 | — | 3,356 | (796 | ) | 3,305 | 1,074 | 61 | — | 5,006 | (1,081 | ) | 5,060 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Including: inter-segment revenue | — | — | — | 796 | (796 | ) | — | — | — | — | 1,081 | (1,081 | ) | — | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Segment revenues | 339,990 | 19,422 | 9,320 | 3,549 | (796 | ) | 371,485 | 444,096 | 45,204 | 13,860 | 5,370 | (1,081 | ) | 507,449 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Insurance benefits and claims expenses | ||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance death and other benefits | (106,929 | ) | (744 | ) | (1 | ) | — | — | (107,674 | ) | (219,944 | ) | (1,737 | ) | (20 | ) | — | — | (221,701 | ) | ||||||||||||||||||||||||||||
Accident and health claims and claim adjustment expenses | — | (4,975 | ) | (2,923 | ) | — | — | (7,898 | ) | — | (16,858 | ) | (4,151 | ) | — | — | (21,009 | ) | ||||||||||||||||||||||||||||||
Increase in insurance contract liabilities | (180,621 | ) | (4,354 | ) | (15 | ) | — | — | (184,990 | ) | (93,668 | ) | (15,803 | ) | (38 | ) | — | — | (109,509 | ) | ||||||||||||||||||||||||||||
Investment contract benefits | (1,898 | ) | (134 | ) | — | — | — | (2,032 | ) | (2,076 | ) | (188 | ) | — | — | — | (2,264 | ) | ||||||||||||||||||||||||||||||
Policyholder dividends resulting from participation in profits | (3,409 | ) | (26 | ) | — | — | — | (3,435 | ) | (33,328 | ) | (163 | ) | — | — | — | (33,491 | ) | ||||||||||||||||||||||||||||||
Underwriting and policy acquisition costs | (19,945 | ) | (4,457 | ) | (2,739 | ) | (613 | ) | — | (27,754 | ) | (24,921 | ) | (5,528 | ) | (3,813 | ) | (1,307 | ) | — | (35,569 | ) | ||||||||||||||||||||||||||
Finance costs | (2,518 | ) | (45 | ) | (8 | ) | (4 | ) | — | (2,575 | ) | (4,054 | ) | (129 | ) | (15 | ) | (122 | ) | — | (4,320 | ) | ||||||||||||||||||||||||||
Administrative expenses | (15,641 | ) | (3,459 | ) | (2,339 | ) | (1,844 | ) | — | (23,283 | ) | (18,293 | ) | (3,811 | ) | (3,136 | ) | (2,218 | ) | — | (27,458 | ) | ||||||||||||||||||||||||||
Other expenses | (2,824 | ) | (158 | ) | (536 | ) | (582 | ) | 796 | (3,304 | ) | (6,345 | ) | (327 | ) | (840 | ) | (997 | ) | 1,081 | (7,428 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Including: inter-segment expenses | (780 | ) | (14 | ) | (2 | ) | — | 796 | — | (1,044 | ) | (33 | ) | (4 | ) | — | 1,081 | — | ||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Statutory insurance fund contribution | (441 | ) | (99 | ) | (69 | ) | — | — | (609 | ) | (546 | ) | (103 | ) | (94 | ) | — | — | (743 | ) | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||||||||
Segment benefits, claims and expenses | (334,226 | ) | (18,451 | ) | (8,630 | ) | (3,043 | ) | 796 | (363,554 | ) | (403,175 | ) | (44,647 | ) | (12,107 | ) | (4,644 | ) | 1,081 | (463,492 | ) | ||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Share of profit of associates and joint ventures | — | — | — | 3,037 | — | 3,037 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Share of profit of associates and joint ventures, net | — | — | — | 1,974 | — | 1,974 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Segment results | 5,764 | 971 | 690 | 3,543 | — | 10,968 | 40,921 | 557 | 1,753 | 2,700 | — | 45,931 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
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|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Income tax | 304 | (10,744 | ) | |||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Net profit | 11,272 | 35,187 | ||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
Attributable to | ||||||||||||||||||||||||||||||||||||||||||||||||
- Equity holders of the Company | 11,061 | 34,699 | ||||||||||||||||||||||||||||||||||||||||||||||
- Non-controlling interests | 211 | 488 | ||||||||||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income attributable to equity holders of the Company | 24,419 | 445 | 72 | 59 | �� | — | 24,995 | 6,359 | 202 | 23 | 492 | — | 7,076 | |||||||||||||||||||||||||||||||||||
Depreciation and amortisation | 1,368 | 308 | 213 | 60 | — | 1,949 | 1,388 | 263 | 240 | 145 | — | 2,036 | ||||||||||||||||||||||||||||||||||||
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|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
6 | PROPERTY, PLANT AND EQUIPMENT |
Buildings | Office equipment, furniture and fixtures | Motor vehicles | Assets under construction | Leasehold improvements | Total | |||||||||||||||||||
RMB million | ||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||
As at 1 January 2017 | 25,362 | 6,837 | 1,424 | 10,548 | 1,553 | 45,724 | ||||||||||||||||||
Transfers upon completion | 7,073 | 49 | — | (7,520 | ) | 312 | (86 | ) | ||||||||||||||||
Additions | 70 | 450 | 174 | 15,747 | 13 | 16,454 | ||||||||||||||||||
Transfers into investment properties | — | — | — | (1,931 | ) | — | (1,931 | ) | ||||||||||||||||
Disposals | (48 | ) | (463 | ) | (195 | ) | (148 | ) | (48 | ) | (902 | ) | ||||||||||||
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|
|
|
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| |||||||||||||
As at 31 December 2017 | 32,457 | 6,873 | 1,403 | 16,696 | 1,830 | 59,259 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
As at 1 January 2017 | (8,311 | ) | (4,934 | ) | (998 | ) | — | (1,068 | ) | (15,311 | ) | |||||||||||||
Charge for the year | (953 | ) | (632 | ) | (144 | ) | — | (181 | ) | (1,910 | ) | |||||||||||||
Disposals | 16 | 444 | 187 | — | 46 | 693 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2017 | (9,248 | ) | (5,122 | ) | (955 | ) | — | (1,203 | ) | (16,528 | ) | |||||||||||||
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Impairment | ||||||||||||||||||||||||
As at 1 January 2017 | (24 | ) | — | — | — | — | (24 | ) | ||||||||||||||||
Charge for the year | — | — | — | — | — | — | ||||||||||||||||||
Transfers into investment properties | — | — | — | — | — | — | ||||||||||||||||||
Disposals | — | — | — | — | — | — | ||||||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2017 | (24 | ) | — | — | — | — | (24 | ) | ||||||||||||||||
|
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|
|
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|
|
|
|
|
|
| |||||||||||||
Net book value | ||||||||||||||||||||||||
As at 1 January 2017 | 17,027 | 1,903 | 426 | 10,548 | 485 | 30,389 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2017 | 23,185 | 1,751 | 448 | 16,696 | 627 | 42,707 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
Buildings | Office equipment furniture and fixtures | Motor vehicles | Assets under construction | Leasehold improvements | Total | |||||||||||||||||||
RMB million | ||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||
As at 1 January 2014 | 19,949 | 6,730 | 1,448 | 6,125 | 1,166 | 35,418 | ||||||||||||||||||
Transfers upon completion | 2,781 | 268 | — | (3,194 | ) | 100 | (45 | ) | ||||||||||||||||
Additions | 175 | 361 | 2 | 3,614 | 13 | 4,165 | ||||||||||||||||||
Disposals | (128 | ) | (683 | ) | (58 | ) | (212 | ) | (33 | ) | (1,114 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2014 | 22,777 | 6,676 | 1,392 | 6,333 | 1,246 | 38,424 | ||||||||||||||||||
|
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|
|
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|
|
|
|
|
|
| |||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
As at 1 January 2014 | (5,910 | ) | (4,349 | ) | (883 | ) | — | (858 | ) | (12,000 | ) | |||||||||||||
Charge for the year | (788 | ) | (778 | ) | (167 | ) | — | (111 | ) | (1,844 | ) | |||||||||||||
Disposals | 58 | 654 | 54 | — | 26 | 792 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2014 | (6,640 | ) | (4,473 | ) | (996 | ) | — | (943 | ) | (13,052 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Impairment | ||||||||||||||||||||||||
As at 1 January 2014 | (25 | ) | — | — | — | — | (25 | ) | ||||||||||||||||
Charge for the year | — | — | — | — | — | — | ||||||||||||||||||
Disposals | 1 | — | — | — | — | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2014 | (24 | ) | — | — | — | — | (24 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net book value | ||||||||||||||||||||||||
As at 1 January 2014 | 14,014 | 2,381 | 565 | 6,125 | 308 | 23,393 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As at 31 December 2014 | 16,113 | 2,203 | 396 | 6,333 | 303 | 25,348 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
6 | PROPERTY, PLANT AND EQUIPMENT |
Buildings | Office equipment furniture and fixtures | Motor vehicles | Assets under construction | Leasehold improvements | Total | |||||||||||||||||||||||||||||||||||||||||||
RMB million | Buildings | Office equipment, furniture and fixtures | Motor vehicles | Assets under construction | Leasehold improvements | Total | ||||||||||||||||||||||||||||||||||||||||||
RMB million | ||||||||||||||||||||||||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 1 January 2013 | 19,247 | 6,282 | 1,531 | 5,126 | 1,080 | 33,266 | ||||||||||||||||||||||||||||||||||||||||||
As at 1 January 2016 | 24,253 | 6,616 | 1,387 | 7,565 | 1,308 | 41,129 | ||||||||||||||||||||||||||||||||||||||||||
Transfers upon completion | 1,263 | 18 | — | (1,389 | ) | 108 | — | 1,176 | — | — | (1,438 | ) | 256 | (6 | ) | |||||||||||||||||||||||||||||||||
Additions | 127 | 822 | 155 | 3,373 | — | 4,477 | 37 | 653 | 177 | 4,896 | 16 | 5,779 | ||||||||||||||||||||||||||||||||||||
Transfer to investment properties | (624 | ) | — | — | (811 | ) | — | (1,435 | ) | |||||||||||||||||||||||||||||||||||||||
Disposals | (64 | ) | (392 | ) | (238 | ) | (174 | ) | (22 | ) | (890 | ) | (104 | ) | (432 | ) | (140 | ) | (475 | ) | (27 | ) | (1,178 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
As at 31 December 2013 | 19,949 | 6,730 | 1,448 | 6,125 | 1,166 | 35,418 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2016 | 25,362 | 6,837 | 1,424 | 10,548 | 1,553 | 45,724 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 1 January 2013 | (5,265 | ) | (3,973 | ) | (932 | ) | — | (736 | ) | (10,906 | ) | |||||||||||||||||||||||||||||||||||||
As at 1 January 2016 | (7,446 | ) | (4,738 | ) | (1,005 | ) | — | (942 | ) | (14,131 | ) | |||||||||||||||||||||||||||||||||||||
Charge for the year | (744 | ) | (727 | ) | (169 | ) | — | (138 | ) | (1,778 | ) | (901 | ) | (622 | ) | (130 | ) | — | (148 | ) | (1,801 | ) | ||||||||||||||||||||||||||
Transfer to investment properties | 83 | — | — | — | — | 83 | ||||||||||||||||||||||||||||||||||||||||||
Disposals | 16 | 351 | 218 | — | 16 | 601 | 36 | 426 | 137 | — | 22 | 621 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
As at 31 December 2013 | (5,910 | ) | (4,349 | ) | (883 | ) | — | (858 | ) | (12,000 | ) | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2016 | (8,311 | ) | (4,934 | ) | (998 | ) | — | (1,068 | ) | (15,311 | ) | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Impairment | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 1 January 2013 | (25 | ) | — | — | — | — | (25 | ) | ||||||||||||||||||||||||||||||||||||||||
As at 1 January 2016 | (24 | ) | — | — | — | — | (24 | ) | ||||||||||||||||||||||||||||||||||||||||
Charge for the year | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Transfer to investment properties | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Disposals | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
As at 31 December 2013 | (25 | ) | — | — | — | — | (25 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2016 | (24 | ) | — | — | — | — | (24 | ) | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Net book value | ||||||||||||||||||||||||||||||||||||||||||||||||
As at 1 January 2013 | 13,957 | 2,309 | 599 | 5,126 | 344 | 22,335 | ||||||||||||||||||||||||||||||||||||||||||
As at 1 January 2016 | 16,783 | 1,878 | 382 | 7,565 | 366 | 26,974 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
As at 31 December 2016 | 17,027 | 1,903 | 426 | 10,548 | 485 | 30,389 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
As at 31 December 2013 | 14,014 | 2,381 | 565 | 6,125 | 308 | 23,393 | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
As at 31 December 2017, the net book value of buildings above which are in process to obtain title certificates is RMB6,209 million (31 December 2016: Not significant).
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
7 | INVESTMENT PROPERTIES |
Buildings RMB million | |||||
Cost | |||||
As at 1 January | 1,435 | ||||
Additions | |||||
|
| ||||
As at 31 December | 3,366 | ||||
Accumulated depreciation | |||||
As at 1 January 2017 | (244 | ) | |||
Charge for the year | (58 | ) | |||
As at 31 December 2017 | (302 | ) | |||
Net book value | |||||
As at 1 January 2017 | 1,191 | ||||
As at 31 December 2017 | 3,064 | ||||
Fair value | |||||
As at 1 January 2017 | 2,201 | ||||
As at 31 December 2017 | 4,629 | ||||
Buildings RMB million | |||||
Cost | |||||
As at 1 January 2016 | 1,435 | ||||
Additions | — | ||||
As at 31 December 2016 | 1,435 | ||||
|
| ||||
Accumulated depreciation | |||||
As at 1 January | ( | ) | |||
Charge for the year | (46 | ) | |||
|
| ||||
As at 31 December | ( | ) | |||
|
| ||||
Net book value | |||||
| |||||
| |||||
| |||||
| |||||
| |||||
| |||||
As at 1 January | |||||
| |||||
| |||||
|
| ||||
As at 31 December | 1,191 | ||||
|
| ||||
| |||||
As at 1 January | |||||
| |||||
| |||||
|
| ||||
As at 31 December | |||||
| |||||
| |||||
| |||||
| |||||
| |||||
| |||||
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
7 | INVESTMENT PROPERTIES |
The Company leases part of its investment properties to its subsidiaries and charges rentals based on the areas occupied by the respective entities. These properties are categorizedcategorised as property, plant and equipment of the Group in the consolidated statement of financial position.
The Group has no restrictions on the reliabilityuse of its investment properties and no contractual obligations to each investment property purchased, constructed or developed or for repairs, maintenance and enhancements.
There were no investment properties without title certificates asAs at 31 December 2014.2017, the net book value of investment properties which are in process to obtain title certificates is RMB1,872 million (31 December 2016: Nil).
The fair value of investment properties of the Group as at 31 December 20142017 amounted to RMB2,080RMB4,629 million (as at 31 December 2013: RMB2,0452016: RMB2,201 million), which was estimated by the CompanyGroup having regards to valuations performed by an independent appraiser. The investment properties were classified as Level 3 in the fair value hierarchy.
The Group uses the market comparison approach as its primary method to estimate the fair value of its investment properties. Under the market comparison approach, the estimated fair value of a property is based on the average sale price of comparable properties recently sold, with consideration of the comprehensive adjustment coefficient, which is composed of a number of adjusting factors, including the time and the conditions of sale, the geographical location, age, decoration, floor area, lot size of the property and other factors.
Under the market comparison approach, an increase (decrease) in the comprehensive adjustment coefficient will result in an increase (decrease) in the fair value of investment properties.
8 | INVESTMENTS IN ASSOCIATES AND JOINT VENTURES |
2017 RMB million | 2016 RMB million | |||||||
As at 1 January | 119,766 | 47,175 | ||||||
Change of the cost | 37,110 | 68,387 | ||||||
Share of profit or loss | 7,143 | 5,855 | ||||||
Declared dividends | (1,862 | ) | (820 | ) | ||||
Other equity movements | (685 | ) | (831 | ) | ||||
|
|
|
| |||||
As at 31 December | 161,472 | 119,766 | ||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
8 | INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED) |
2014 RMB million | 2013 RMB million | |||||||
As at 1 January | 34,775 | 28,991 | ||||||
Investments in associates and joint ventures (i) | 5,671 | 2,506 | ||||||
Amount of additional investment cost below the fair value for identifiable net assets | — | 683 | ||||||
Scrip dividend (ii) | 268 | 81 | ||||||
Share of profit | 3,911 | 3,125 | ||||||
Other equity movements | 280 | (332 | ) | |||||
Dividend received (ii) | (515 | ) | (279 | ) | ||||
|
|
|
| |||||
As at 31 December | 44,390 | 34,775 | ||||||
|
|
|
|
Movement | ||||||||||||||||||||||||||||||||||||||||||||
Accounting method | Cost | As at 31 December | Change of the cost | Share of profit or loss | Declared dividends | Other equity movements | Provision of impairment | As at 31 December 2017 | Percentage of equity | Accumulated amount of impairment | ||||||||||||||||||||||||||||||||||
Associates | ||||||||||||||||||||||||||||||||||||||||||||
China Guangfa Bank Co., Ltd. (“CGB”) (i) | Equity Method | 32,162 | 50,229 | — | 4,186 | — | (956 | ) | — | 53,459 | 43.686 | % | — | |||||||||||||||||||||||||||||||
Sino-Ocean Group Holding Limited (“Sino-Ocean”) (ii) | Equity Method | 11,245 | 12,680 | — | 1,201 | (553 | ) | 298 | — | 13,626 | 29.79 | % | (1,010 | ) | ||||||||||||||||||||||||||||||
China Life Property & Casualty Insurance Company Limited (“CLP&C”) | Equity Method | 6,000 | 7,929 | — | 328 | (69 | ) | (3 | ) | — | 8,185 | 40.00 | % | — | ||||||||||||||||||||||||||||||
COFCO Futures Company Limited (“COFCO Futures”) | Equity Method | 1,339 | 1,419 | — | 47 | — | — | — | 1,466 | 35.00 | % | — | ||||||||||||||||||||||||||||||||
Sinopec Sichuan to East China Gas Pipeline Co., Ltd. (“Pipeline Company”) | Equity Method | 20,000 | 20,000 | — | 1,351 | (20 | ) | 16 | — | 21,347 | 43.86 | % | — | |||||||||||||||||||||||||||||||
China United Network Communications Limited (“China Unicom”) (iii) | Equity Method | 21,829 | — | 21,829 | (Note) | (18 | ) | — | (28 | ) | — | 21,783 | 10.56 | % | — | |||||||||||||||||||||||||||||
Others (iv) | Equity Method | 9,948 | 10,407 | — | 567 | (776 | ) | (466 | ) | — | 9,732 | — | ||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Subtotal | 102,523 | 102,664 | 21,829 | 7,662 | (1,418 | ) | (1,139 | ) | — | 129,598 | (1,010 | ) | ||||||||||||||||||||||||||||||||
|
|
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|
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| |||||||||||||||||||||||||||
Joint ventures | ||||||||||||||||||||||||||||||||||||||||||||
China Life (Sanya) Health Investments Co., Ltd (“Sanya Company”) | Equity Method | 306 | 301 | — | (10 | ) | — | — | — | 291 | 51.00 | % | — | |||||||||||||||||||||||||||||||
Others (iv) | Equity Method | 33,349 | 16,801 | 15,281 | (509 | ) | (444 | ) | 454 | — | 31,583 | — | ||||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Subtotal | 33,655 | 17,102 | 15,281 | (519 | ) | (444 | ) | 454 | — | 31,874 | — | |||||||||||||||||||||||||||||||||
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | 136,178 | 119,766 | 37,110 | 7,143 | (1,862 | ) | (685 | ) | — | 161,472 | (1,010 | ) | ||||||||||||||||||||||||||||||||
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|
Note: Including the amount originally held by the Company.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
8 | INVESTMENT IN ASSOCIATES AND JOINT VENTURES (CONTINUED) |
(i) |
On 20 June 2014, King Phoenix Tree Limited, a subsidiary of the Company, invested GBP275 million to establish 10 Upper Bank Street Separate Limited Partnership (“10 Upper Bank Street SLP”), holding 70% of the total partnership interest. According to the partnership agreement, King Phoenix Tree Limited, as a limited partner, cannot control 10 Upper Bank Street SLP on its own, but has joint control with the general partner. Therefore, 10 Upper Bank Street SLP was accounted for as a joint venture of the Group.
(ii) |
2014 interim dividend of HKD0.075 per ordinary share was approved and declared in the board meeting of Sino-Ocean on 19 September 2014, and each shareholder could elect to receive the 2014 interim dividend in cash or in scrip shares. The Company elected the cash option and received cash dividend amounting to RMB131 million.
The Group’s investments in associates and joint ventures are unlisted except for Sino-Ocean, which is listed in Hong Kong. As at 31 December 2014, the stock price of Sino-Ocean was HKD4.41
Sino-Ocean, the Group’s associate is listed in Hong Kong. On 29 December 2017 (the last trading day in 2017), the stock price of Sino-Ocean was HKD5.39 per share. As at 31 December 2017, an impairment loss of RMB1.01 billion for the investment in Sino-Ocean had been made by the Group. The Group performed an impairment test to this investment on 31 December 2017. The recoverable amount of this investment valued by the Group approximated to the carrying amount and therefore no impairment loss was made for this investment in 2017. |
(iii) | On 16 August 2017, the Company entered into an agreement to acquire 3,177,159,590non-public offering of A ordinary shares of China Unicom, with a total consideration of RMB21.7 billion to participate into the Mixed Ownership Reform of China Unicom. Upon the completion of the transaction as at 31 October 2017, the Group’s share percentage of China Unicom increased from 0.08% to 10.56%, making the Company the second largest shareholder of China Unicom. In accordance with the articles of China Unicom, the Company is entitled to nominate candidates for the Board of Directors and Supervisors. The candidate of Board of Directors nominated by the Company was approved in the General Meeting of China Unicom on 8 February 2018. The management considered that the Group can exert significant influence upon China Unicom, and therefore accounted for it as an associate. On 29 December 2017 (the last trading day in 2017), the stock price of China Unicom was RMB6.33 per share. As at 31 December 2017, the Company had not yet completed the valuation for fair value of the identifiable net assets of China Unicom. |
(iv) | The Group invested in real estate, industrial logistics assets and other industries through these enterprises. |
(v) | Except for a36-month restricted period of the investment in China Unicom, as mentioned in (iii), the Group has no restrictions to transact other investments in associates and joint ventures. |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
8 | INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED) |
As at 31 December 2014,2017, the Group owned the followingmajor associates and joint venture:venture of the Group are as follows:
Name | Country of incorporation | Percentage of equity interest held | ||||||
Associates | ||||||||
| PRC | % | ||||||
Sino-Ocean | Hong Kong, PRC | 29.79 | % | |||||
CLP&C | PRC | 40.00 | % | |||||
| ||||||||
COFCO Futures | PRC | 35.00 | % | |||||
Pipeline Company | PRC | 43.86 | % | |||||
China Unicom | PRC | 10.56 | % | |||||
Joint venture | ||||||||
| % |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
As at 31 December 2013,2016, the major associates and joint venture of the Group owned the following associates:are as follows:
Name | Country of incorporation | Percentage of equity interest held | ||||||
Associates | ||||||||
CGB | PRC | % | ||||||
Sino-Ocean | Hong Kong, PRC | 29.991 | % | |||||
CLP&C | PRC | 40.00 | % | |||||
| ||||||||
COFCO Futures | PRC | 35.00 | % | |||||
Pipeline Company | PRC | 43.86 | % | |||||
Joint venture | ||||||||
Sanya Company | PRC | 51.00 | % |
The following table illustrates the summarised financial information of the Group’s major associates and joint venture as at 31 December 20142017 and for the year ended 31 December 2014:2017:
CGB RMB million | CLP&C RMB million | Sino-Ocean RMB million | COFCO Futures RMB million | 10 Upper Bank Street SLP RMB million | ||||||||||||||||||||||||||||||||||||||||||||
CGB RMB million | Sino-Ocean RMB million | CLP&C RMB million | COFCO Futures RMB million | Pipeline Company RMB million | China Unicom RMB million | Sanya Company RMB million | ||||||||||||||||||||||||||||||||||||||||||
Total assets | 1,648,056 | 52,769 | 132,212 | 9,784 | 8,199 | 2,072,915 | 191,894 | 79,601 | 10,651 | 36,243 | 573,617 | 888 | ||||||||||||||||||||||||||||||||||||
Total liabilities | 1,560,607 | 35,876 | 87,829 | 7,245 | 4,450 | 1,959,069 | 133,166 | 59,138 | 8,020 | 934 | 266,599 | 317 | ||||||||||||||||||||||||||||||||||||
Total equity | 87,449 | 16,893 | 44,383 | 2,539 | 3,749 | 113,846 | 58,728 | 20,463 | 2,631 | 35,309 | 307,018 | 571 | ||||||||||||||||||||||||||||||||||||
Total equity attributable to equity holders of the associates and joint ventures | 87,449 | 16,893 | 40,491 | 2,539 | 3,749 | 113,846 | 48,502 | 20,463 | 2,631 | 35,309 | 135,393 | 571 | ||||||||||||||||||||||||||||||||||||
Total adjustments (i) | — | — | 984 | — | (209 | ) | 2,267 | (2,617 | ) | — | — | 676 | — | — | ||||||||||||||||||||||||||||||||||
Total equity attributable to equity holders of the associates and joint ventures after adjustments | 87,449 | 16,893 | 41,475 | 2,539 | 3,540 | 116,113 | 45,885 | 20,463 | 2,631 | 35,985 | 135,393 | 571 | ||||||||||||||||||||||||||||||||||||
Proportion of the Group’s ownership | 20.00 | % | 40.00 | % | 29.46 | % | 35.00 | % | 70.00 | % | 43.686 | % | 29.79 | % | 40.00 | % | 35.00 | % | 43.86 | % | 10.56 | % | 51.00 | % | ||||||||||||||||||||||||
Carrying amount of the investments | 20,535 | 6,757 | 13,186 | 1,434 | 2,478 | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
Gross carrying value of the investments | 53,459 | 14,636 | 8,185 | 1,466 | 21,347 | 21,783 | 291 | |||||||||||||||||||||||||||||||||||||||||
Impairment | — | (1,010 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Net carrying value of the investments | 53,459 | 13,626 | 8,185 | 1,466 | 21,347 | 21,783 | 291 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
Total revenues | 44,644 | 36,522 | 40,411 | 3,306 | 241 | 50,531 | 49,236 | 61,142 | 399 | 5,644 | 274,829 | — | ||||||||||||||||||||||||||||||||||||
Net profit | 12,037 | 1,407 | 4,606 | 84 | 142 | |||||||||||||||||||||||||||||||||||||||||||
Net profit/(loss) | 10,204 | 6,259 | 820 | 135 | 3,055 | 1,684 | (20 | ) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 2,120 | 318 | (19 | ) | 8 | (299 | ) | (2,332 | ) | 912 | (35 | ) | — | — | (230 | ) | — | |||||||||||||||||||||||||||||||
Total comprehensive income | 14,157 | 1,725 | 4,587 | 92 | (157 | ) | 7,872 | 7,171 | 785 | 135 | 3,055 | 1,454 | (20 | ) | ||||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
8 | INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (CONTINUED) |
The Group had no contingent liabilities or capital commitments withfollowing table illustrates the financial information of the Group’s major associates and joint venture as at 31 December 2014.
The following table illustrates the summarised financial information of the Group’s associates as at 31 December 20132016 and for the year ended 31 December 2013:2016:
CGB RMB million | CLP&C RMB million | Sino-Ocean RMB million | COFCO Futures RMB million | |||||||||||||||||||||||||||||||||||||
CGB RMB million | Sino-Ocean RMB million | CLP&C RMB million | COFCO Futures RMB million | Pipeline Company RMB million | Sanya Company RMB million | |||||||||||||||||||||||||||||||||||
Total assets | 1,469,850 | 37,359 | 137,869 | 8,486 | 2,047,592 | 151,265 | 72,773 | 11,287 | 37,231 | 799 | ||||||||||||||||||||||||||||||
Total liabilities | 1,396,558 | 29,192 | 94,424 | 6,039 | 1,941,618 | 101,935 | 52,950 | 8,710 | 5,014 | 208 | ||||||||||||||||||||||||||||||
Total equity | 73,292 | 8,167 | 43,445 | 2,447 | 105,974 | 49,330 | 19,823 | 2,577 | 32,217 | 591 | ||||||||||||||||||||||||||||||
Total equity attributable to equity holders of the associates | 73,292 | 8,167 | 37,525 | 2,445 | ||||||||||||||||||||||||||||||||||||
Total equity attributable to equity holders of the associates and joint ventures | 105,974 | 43,999 | 19,823 | 2,496 | 32,217 | 591 | ||||||||||||||||||||||||||||||||||
Total adjustments (i) | — | — | 1,877 | — | 3,163 | (1,576 | ) | — | — | — | — | |||||||||||||||||||||||||||||
Total equity attributable to equity holders of the associates after adjustments | 73,292 | 8,167 | 39,402 | 2,445 | ||||||||||||||||||||||||||||||||||||
Total equity attributable to equity holders of the associates and joint ventures after adjustments | 109,137 | 42,423 | 19,823 | 2,496 | 32,217 | 591 | ||||||||||||||||||||||||||||||||||
Proportion of the Group’s ownership | 20.00 | % | 40.00 | % | 29.02 | % | 35.00 | % | 43.686 | % | 29.991 | % | 40.00 | % | 35.00 | % | 43.86 | % | 51.00 | % | ||||||||||||||||||||
Carrying amount of the investments | 17,704 | 3,267 | 12,403 | 1,401 | ||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||
Gross carrying value of the investments | 50,229 | 13,690 | 7,929 | 1,419 | 20,000 | 301 | ||||||||||||||||||||||||||||||||||
Impairment | — | (1,010 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||
Net carrying value of the investments | 50,229 | 12,680 | 7,929 | 1,419 | 20,000 | 301 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Total revenues | 34,477 | 28,054 | 32,386 | 1,483 | 55,276 | 37,748 | 55,728 | 375 | 2,339 | 1 | ||||||||||||||||||||||||||||||
Net profit | 11,583 | 535 | 4,661 | 169 | ||||||||||||||||||||||||||||||||||||
Net profit/(loss) | 9,504 | 4,446 | 1,157 | 66 | 631 | (9 | ) | |||||||||||||||||||||||||||||||||
Other comprehensive income | (1,820 | ) | 253 | 46 | 9 | (1,070 | ) | (164 | ) | (526 | ) | — | — | — | ||||||||||||||||||||||||||
Total comprehensive income | 9,763 | 788 | 4,707 | 178 | 8,434 | 4,282 | 631 | 66 | 631 | (9 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The Group had no contingent liabilities or capital commitments with the associates and joint ventures as at 31 December 2013.2017 and 31 December 2016. The Group had a capital contribution commitment of RMB20.996 billion with a joint venture as at 31 December 2017 (31 December 2016: RMB2,991 million). The capital contribution commitment amount has been included in the capital commitments in Note 38.
(i) | Including adjustments for the difference of accounting policies, fair value and others. |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
9 | FINANCIAL ASSETS |
9.1 | Held-to-maturity securities |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | As at 31 December 2017 | As at 31 December 2016 | |||||||||||||
RMB million | RMB million | |||||||||||||||
Debt securities | ||||||||||||||||
Government bonds | 88,843 | 97,702 | 125,866 | 97,196 | ||||||||||||
Government agency bonds | 126,140 | 113,618 | 241,808 | 169,001 | ||||||||||||
Corporate bonds | 146,595 | 131,022 | 200,869 | 178,444 | ||||||||||||
Subordinated bonds/debts | 155,705 | 160,733 | 148,494 | 150,089 | ||||||||||||
|
|
|
| |||||||||||||
Total | 517,283 | 503,075 | 717,037 | 594,730 | ||||||||||||
|
|
|
| |||||||||||||
Debt securities | ||||||||||||||||
Listed in mainland, PRC | 68,199 | 49,159 | ||||||||||||||
Listed in Mainland, PRC | 91,631 | 64,192 | ||||||||||||||
Listed in Hong Kong, PRC | 37 | 21 | 136 | 144 | ||||||||||||
Listed in Singapore | 23 | 23 | 19 | 20 | ||||||||||||
Unlisted | 449,024 | 453,872 | 625,251 | 530,374 | ||||||||||||
|
|
|
| |||||||||||||
Total | 517,283 | 503,075 | 717,037 | 594,730 | ||||||||||||
|
|
|
|
The estimated fair value of allheld-to-maturity securities was RMB526,526RMB692,984 million as at 31 December 2014
(as2017 (as at 31 December 2013: RMB464,9962016: RMB619,152 million).
Unlisted debt securities include those traded on the Chinese interbank market.
Debt securities- Contractual maturity schedule | As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | ||||||||||||||
Debt securities - Contractual maturity schedule | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | ||||||||||||||
Maturing: | ||||||||||||||||
Within one year | 11,823 | 12,905 | 22,496 | 30,615 | ||||||||||||
After one year but within five years | 70,592 | 64,878 | 112,932 | 71,661 | ||||||||||||
After five years but within ten years | 149,986 | 109,334 | 288,496 | 231,608 | ||||||||||||
After ten years | 284,882 | 315,958 | 293,113 | 260,846 | ||||||||||||
|
|
|
| |||||||||||||
Total | 517,283 | 503,075 | 717,037 | 594,730 | ||||||||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
9 | FINANCIAL ASSETS |
9.2 | Loans |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Policy loans | 73,654 | 60,176 | 107,957 | 92,442 | ||||||||||||
Other loans (i) | 92,799 | 58,450 | 275,547 | 134,131 | ||||||||||||
|
|
|
| |||||||||||||
Total | 166,453 | 118,626 | 383,504 | 226,573 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Maturing: | ||||||||||||||||
Within one year | 80,214 | 60,315 | 128,856 | 112,592 | ||||||||||||
After one year but within five years | 53,894 | 26,192 | 132,575 | 70,978 | ||||||||||||
After five years but within ten years | 32,345 | 32,119 | 90,556 | 25,503 | ||||||||||||
|
| |||||||||||||||
After ten years | 31,517 | 17,500 | ||||||||||||||
|
| |||||||||||||||
Total | 166,453 | 118,626 | 383,504 | 226,573 | ||||||||||||
|
|
|
|
(i) | Other loans mainly consisted of different types of asset management products. As at 31 December |
During the year ended 31 December 2014,2017, the Group’s investment income from the above asset management products was RMB4,137RMB10,150 million (2013: RMB2,894(2016: RMB6,820 million), and the related asset management fee received by AMC (including its subsidiaries) for all asset management products it issued was RMB171RMB222 million (2013: RMB106(2016: RMB236 million).
9.3 | Term deposits |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Maturing: | ||||||||||||||||
Within one year | 200,214 | 74,932 | 97,076 | 185,835 | ||||||||||||
After one year but within five years | 463,442 | 579,242 | 349,524 | 344,790 | ||||||||||||
After five years but within ten years | 26,500 | 10,000 | 2,800 | 7,700 | ||||||||||||
|
|
|
| |||||||||||||
Total | 690,156 | 664,174 | 449,400 | 538,325 | ||||||||||||
|
|
|
|
As at 31 December 2017, term deposits of RMB16.691 billion (2016: RMB13.2 billion) deposited in banks for overseas borrowings backed by domestic deposits business are restricted to use.
In September 2016, CL Hotel Investor, L.P. and Glorious Fortune Forever Limited, subsidiaries of the Company, entered into a loan agreement with the New York and Seoul branches of the Agricultural Bank of China, respectively. In December 2016, Sunny Bamboo Limited and Golden Bamboo Limited, subsidiaries of the Company, entered into a loan agreement with the Hong Kong branch of the Agricultural Bank of China. As at 31 December 2017, the Company arranged overseas borrowings backed by domestic term deposit transactions with the Beijing Xicheng branch of the Agricultural Bank of China with amounts of RMB6,861 million, RMB7,080 million and RMB750 million, respectively.
On 6 December 2017, New Fortune Wisdom Limited and New Capital Wisdom Limited, subsidiaries of the Company’s subsidiary, Ningbo Meishan Bonded Port Area Guo Yang Guo Sheng Investment Partnership (“Guo Yang Guo Sheng”), entered into a loan agreement with a subsidiary of the Agricultural Bank of China. Guo Yang Guo Sheng arranged overseas borrowings backed by domestic deposit transactions with the Beijing Xicheng branch of the Agricultural Bank of China. As at 31 December 2017, the amounts of term deposits and current deposits are RMB2,000 million and RMB1,247 million, respectively.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
9 | FINANCIAL ASSETS |
9.4 | Statutory deposits - restricted |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||
Contractual maturity schedule | ||||||||||||||||
Contractual maturity schedule: | ||||||||||||||||
Within one year | — | — | 3,933 | 1,720 | ||||||||||||
After one year but within five years | 6,153 | 6,153 | 2,400 | 4,613 | ||||||||||||
|
|
|
| |||||||||||||
Total | 6,153 | 6,153 | 6,333 | 6,333 | ||||||||||||
|
|
|
|
Insurance companies in China are required to deposit an amount equal tothat equals 20% of their registered capital with banks in conformitycompliance with regulations of the CIRC.CBIRC (formerly CIRC). These funds may not be used for any purpose other than to payfor paying off debts during liquidation proceedings.
9.5 | Available-for-sale securities |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Available-for-sale securities, at fair value | ||||||||||||||||
Debt securities | ||||||||||||||||
Government bonds | 26,328 | 31,435 | 24,632 | 21,653 | ||||||||||||
Government agency bonds | 138,487 | 119,739 | 157,765 | 146,310 | ||||||||||||
Corporate bonds | 206,511 | 165,001 | 197,133 | 188,337 | ||||||||||||
Subordinated bonds/debts | 22,798 | 23,579 | 13,495 | 16,708 | ||||||||||||
Wealth management products | 430 | 11,321 | ||||||||||||||
Others (i) | 1,217 | 232 | 61,669 | 15,429 | ||||||||||||
|
|
|
| |||||||||||||
Subtotal | 395,341 | 339,986 | 455,124 | 399,758 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Equity securities | ||||||||||||||||
Funds | 83,121 | 58,052 | 91,344 | 105,290 | ||||||||||||
Common stocks | 71,592 | 77,250 | 129,424 | 100,131 | ||||||||||||
Preferred stocks | 3,000 | — | 31,651 | 27,880 | ||||||||||||
|
| |||||||||||||||
Wealth management products | 40,327 | 81,854 | ||||||||||||||
Others (i) | 39,218 | 16,239 | 42,027 | 30,673 | ||||||||||||
|
|
|
| |||||||||||||
Subtotal | 196,931 | 151,541 | 334,773 | 345,828 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Available-for-sale securities, at cost | ||||||||||||||||
Equity securities | ||||||||||||||||
Others (i) | 15,259 | — | 20,837 | 20,837 | ||||||||||||
|
|
|
| |||||||||||||
Total | 607,531 | 491,527 | 810,734 | 766,423 | ||||||||||||
|
|
|
|
(i) | Otheravailable-for-sale securities mainly include |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
9 | FINANCIAL ASSETS |
9.5 | Available-for-sale securities (continued) |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Debt securities | ||||||||||||||||
Listed in mainland, PRC | 46,137 | 37,652 | ||||||||||||||
Listed in Singapore | 260 | 266 | ||||||||||||||
Listed in Mainland, PRC | 44,929 | 37,163 | ||||||||||||||
Unlisted | 348,944 | 302,068 | 410,195 | 362,595 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Subtotal | 395,341 | 339,986 | 455,124 | 399,758 | ||||||||||||
|
|
|
| |||||||||||||
Equity securities | ||||||||||||||||
Listed in mainland, PRC | 71,553 | 80,638 | ||||||||||||||
Listed in Mainland, PRC | 93,384 | 91,011 | ||||||||||||||
Listed in Hong Kong, PRC | 8,303 | 2,985 | 41,507 | 25,034 | ||||||||||||
Listed overseas | 132 | 232 | ||||||||||||||
Unlisted | 132,334 | 67,918 | 220,587 | 250,388 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Subtotal | 212,190 | 151,541 | 355,610 | 366,665 | ||||||||||||
|
|
|
| |||||||||||||
Total | 607,531 | 491,527 | 810,734 | 766,423 | ||||||||||||
|
|
|
|
Unlisted debt securities include those traded on the Chinese interbank market and those not publicly traded. Unlisted equity securities include those not traded on stock exchanges, which are mainly open-ended funds with public market price quotation and wealth management products.
Debt securities - Contractual maturity schedule | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | ||||||
Maturing: | ||||||||
Within one year | 42,410 | 33,261 | ||||||
After one year but within five years | 153,630 | 144,443 | ||||||
After five years but within ten years | 167,552 | 113,779 | ||||||
After ten years | 91,532 | 108,275 | ||||||
|
|
|
| |||||
Total | 455,124 | 399,758 | ||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
9 | FINANCIAL ASSETS (CONTINUED) |
9.6 | Securities at fair value through profit or loss |
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||
Debt securities | ||||||||
Government bonds | 2,081 | 380 | ||||||
Government agency bonds | 9,084 | 6,762 | ||||||
Corporate bonds | 66,915 | 144,131 | ||||||
Others | 4,811 | 3,133 | ||||||
|
|
|
| |||||
Subtotal | 82,891 | 154,406 | ||||||
|
|
|
| |||||
Equity securities | ||||||||
Funds | 9,892 | 14,683 | ||||||
Common stocks | 44,026 | 40,035 | ||||||
|
|
|
| |||||
Subtotal | 53,918 | 54,718 | ||||||
|
|
|
| |||||
Total | 136,809 | 209,124 | ||||||
|
|
|
| |||||
Debt securities | ||||||||
Listed in Mainland, PRC | 26,776 | 19,512 | ||||||
Listed overseas | 292 | 89 | ||||||
Unlisted | 55,823 | 134,805 | ||||||
|
|
|
| |||||
Subtotal | 82,891 | 154,406 | ||||||
|
|
|
| |||||
Equity securities | ||||||||
Listed in Mainland, PRC | 39,442 | 37,614 | ||||||
Listed in Hong Kong, PRC | 79 | 74 | ||||||
Listed overseas | 7,187 | 6,284 | ||||||
Unlisted | 7,210 | 10,746 | ||||||
|
|
|
| |||||
Subtotal | 53,918 | 54,718 | ||||||
|
|
|
| |||||
Total | 136,809 | 209,124 | ||||||
|
|
|
|
Unlisted debt securities include those traded on the Chinese interbank market and those not publicly traded. Unlisted equity securities include those not traded on stock exchanges, which are mainly open-ended funds with public market price quotation.
Debt securities- Contractual maturity schedule | As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | ||||||
Maturing: | ||||||||
Within one year | 13,939 | 7,964 | ||||||
After one year but within five years | 139,737 | 115,636 | ||||||
After five years but within ten years | 120,284 | 117,242 | ||||||
After ten years | 121,381 | 99,144 | ||||||
|
|
|
| |||||
Total | 395,341 | 339,986 | ||||||
|
|
|
|
9.7 | Securities purchased under agreements to resell |
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||
Maturing: | ||||||||
Within 30 days | 36,055 | 43,518 | ||||||
After 30 but within 90 days | 130 | 20 | ||||||
|
|
|
| |||||
Total | 36,185 | 43,538 | ||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
9 | FINANCIAL ASSETS |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||
Debt securities | ||||||||
Government bonds | 254 | 1,489 | ||||||
Government agency bonds | 4,085 | 4,659 | ||||||
Corporate bonds | 24,873 | 24,608 | ||||||
|
|
|
| |||||
Subtotal | 29,212 | 30,756 | ||||||
|
|
|
| |||||
Equity securities | ||||||||
Funds | 499 | 939 | ||||||
Common stocks | 23,341 | 2,477 | ||||||
|
|
|
| |||||
Subtotal | 23,840 | 3,416 | ||||||
|
|
|
| |||||
Total | 53,052 | 34,172 | ||||||
|
|
|
| |||||
Debt securities | ||||||||
Listed in mainland, PRC | 5,920 | 5,375 | ||||||
Unlisted | 23,292 | 25,381 | ||||||
|
|
|
| |||||
Subtotal | 29,212 | 30,756 | ||||||
|
|
|
| |||||
Equity securities | ||||||||
Listed in mainland, PRC | 23,488 | 2,484 | ||||||
Unlisted | 352 | 932 | ||||||
|
|
|
| |||||
Subtotal | 23,840 | 3,416 | ||||||
|
|
|
| |||||
Total | 53,052 | 34,172 | ||||||
|
|
|
|
Unlisted debt securities include those traded on the Chinese interbank market and those not publicly traded. Unlisted equity securities include those not traded on stock exchanges, which are mainly open-ended funds with public market price quotation.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||
Maturing: | ||||||||
Within 30 days | 11,925 | 8,295 | ||||||
After 30 days but within 90 days | — | — | ||||||
|
|
|
| |||||
Total | 11,925 | 8,295 | ||||||
|
|
|
|
9.8 | Accrued investment income |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||
Bank deposits | 27,084 | 20,210 | ||||||
Debt securities | 15,667 | 13,402 | ||||||
Others | 1,599 | 1,105 | ||||||
|
|
|
| |||||
Total | 44,350 | 34,717 | ||||||
|
|
|
| |||||
Current | 31,928 | 28,358 | ||||||
Non-current | 12,422 | 6,359 | ||||||
|
|
|
| |||||
Total | 44,350 | 34,717 | ||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||
Bank deposits | 24,942 | 35,763 | ||||||
Debt securities | 21,423 | 17,642 | ||||||
Others | 4,276 | 2,540 | ||||||
|
|
|
| |||||
Total | 50,641 | 55,945 | ||||||
|
|
|
| |||||
Current | 44,789 | 44,722 | ||||||
Non-current | 5,852 | 11,223 | ||||||
|
|
|
| |||||
Total | 50,641 | 55,945 | ||||||
|
|
|
|
10 | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
The table below presents the carrying value and estimated fair value of major financial assets and liabilities, and investment contracts:
Carrying value | Estimated fair value (i) | |||||||||||||||||||||||||||||||
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | Carrying value | Estimated fair value (i) | |||||||||||||||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||||||||||||||||
Held-to-maturity securities (ii) | 517,283 | 503,075 | 526,526 | 464,996 | 717,037 | 594,730 | 692,984 | 619,152 | ||||||||||||||||||||||||
Loans | 166,453 | 118,626 | 166,453 | 118,626 | ||||||||||||||||||||||||||||
Loans (iii) | 383,504 | 226,573 | 375,899 | 231,005 | ||||||||||||||||||||||||||||
Term deposits | 690,156 | 664,174 | 690,156 | 664,174 | 449,400 | 538,325 | 449,400 | 538,325 | ||||||||||||||||||||||||
Statutory deposits - restricted | 6,153 | 6,153 | 6,153 | 6,153 | 6,333 | 6,333 | 6,333 | 6,333 | ||||||||||||||||||||||||
Available-for-sale securities, at fair value | 592,272 | 491,527 | 592,272 | 491,527 | 789,897 | 745,586 | 789,897 | 745,586 | ||||||||||||||||||||||||
Securities at fair value through profit or loss | 53,052 | 34,172 | 53,052 | 34,172 | 136,809 | 209,124 | 136,809 | 209,124 | ||||||||||||||||||||||||
Securities purchased under agreements to resell | 11,925 | 8,295 | 11,925 | 8,295 | 36,185 | 43,538 | 36,185 | 43,538 | ||||||||||||||||||||||||
Cash and cash equivalents | 47,034 | 21,330 | 47,034 | 21,330 | 48,586 | 67,046 | 48,586 | 67,046 | ||||||||||||||||||||||||
Investment contracts (iii) | (72,275 | ) | (65,087 | ) | (70,694 | ) | (63,772 | ) | (232,500 | ) | (195,706 | ) | (229,222 | ) | (192,373 | ) | ||||||||||||||||
Financial liabilities at fair value through profit or loss | (10,890 | ) | — | (10,890 | ) | — | (2,529 | ) | (2,031 | ) | (2,529 | ) | (2,031 | ) | ||||||||||||||||||
Securities sold under agreements to repurchase | (46,089 | ) | (20,426 | ) | (46,089 | ) | (20,426 | ) | (87,309 | ) | (81,088 | ) | (87,309 | ) | (81,088 | ) | ||||||||||||||||
Bonds payable (iii) | (67,989 | ) | (67,985 | ) | (68,370 | ) | (65,486 | ) | — | (37,998 | ) | — | (38,204 | ) | ||||||||||||||||||
Interest-bearing loans and borrowings | (18,794 | ) | (16,170 | ) | (18,794 | ) | (16,170 | ) | ||||||||||||||||||||||||
(i) | The estimates and judgements to determine the fair value of financial assets are described in Note 3.2. |
(ii) | The fair value ofheld-to-maturity securities |
(iii) | Investment contracts at fair value through profit or loss have quoted prices in active markets, |
The fair value of policy loans approximated its carrying value. The fair values of other loans, investment contracts at amortised cost and bonds payable were determined by using valuation techniques, with consideration of the present value of expected cash flows arising from contracts using a risk-adjusted discount rate, allowing for the risk-free rate available on the valuation date, credit risk and risk margin associated with the future cash flows. The fair valuevalues of other loans and investment contracts at amortised cost, and bonds payable were classified as Level 3.
As at 31 December 2014, the carrying value of premiums receivable within one year was RMB11,143 million (as at 31 December 2013: RMB9,871 million).
As at 31 December 2014 million | As at 31 December 2013 RMB million | |||||||
Long-term insurance contracts ceded (Note 14) | 908 | 846 | ||||||
Due from reinsurance companies | 20 | 42 | ||||||
Ceded unearned premiums (Note 14) | 65 | 121 | ||||||
Claims recoverable from reinsurers (Note 14) | 39 | 60 | ||||||
|
|
|
| |||||
Total | 1,032 | 1,069 | ||||||
|
|
|
| |||||
Current | 124 | 223 | ||||||
Non-current | 908 | 846 | ||||||
|
|
|
| |||||
Total | 1,032 | 1,069 | ||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
11 | PREMIUMS RECEIVABLE |
As at 31 December 2017, the carrying value of premiums receivable within one year was RMB14,079 million (as at 31 December 2016: RMB13,346 million).
12 | REINSURANCE ASSETS |
As at 31 December 2017 million | As at 31 December 2016 RMB million | |||||||
Long-term insurance contracts ceded (Note 14) | 2,351 | 1,783 | ||||||
Due from reinsurance companies | 64 | 123 | ||||||
Ceded unearned premiums (Note 14) | 527 | 125 | ||||||
Claims recoverable from reinsurers (Note 14) | 104 | 103 | ||||||
|
|
|
| |||||
Total | 3,046 | 2,134 | ||||||
|
|
|
| |||||
Current | 695 | 351 | ||||||
Non-current | 2,351 | 1,783 | ||||||
|
|
|
| |||||
Total | 3,046 | 2,134 | ||||||
|
|
|
|
13 | OTHER ASSETS |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||
Investments receivable | 15,466 | 911 | ||||||||||||||
Land use rights | 6,137 | 6,183 | 6,201 | 5,855 | ||||||||||||
Automated policy loans | 3,050 | 2,814 | ||||||||||||||
Disbursements | 2,705 | 1,718 | ||||||||||||||
Due from related parties | 684 | 656 | 987 | 927 | ||||||||||||
Automated policy loans | 2,281 | 2,056 | ||||||||||||||
Tax refundable | 2,449 | 8,175 | ||||||||||||||
Fund subscription and redemption fees receivable | 4,104 | — | ||||||||||||||
Prepaid to constructors | 403 | 6,571 | ||||||||||||||
Others | 3,756 | 3,360 | 5,140 | 3,217 | ||||||||||||
|
|
|
| |||||||||||||
Total | 19,411 | 20,430 | 33,952 | 22,013 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Current | 12,956 | 14,092 | 25,933 | 15,665 | ||||||||||||
Non-current | 6,455 | 6,338 | 8,019 | 6,348 | ||||||||||||
|
|
|
| |||||||||||||
Total | 19,411 | 20,430 | 33,952 | 22,013 | ||||||||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
14 | INSURANCE CONTRACTS |
(a) | Process used to decide on assumptions |
(i) | For the insurance contracts of which future insurance benefits are affected by investment yields of the corresponding investment portfolios, the discount rate assumption is based on expected investment returns of the asset portfolio backing these liabilities, considering the impacts of time value on reserves. |
In developing discount rate assumptions, the Group considers investment experience, the current investment portfolio and trend of the relevant yield curves. The assumed discount rates reflect the future economic outlook as well as the Group’s investment strategy. The assumed discount rates with risk margin for the past two years are as follows:
Discount rate assumptions | ||||
As at 31 December | 4.85% | |||
As at 31 December | 4.45%~ | |||
For the insurance contracts of which future insurance benefits are not affected by investment yields of the corresponding investment portfolios, the discount rate assumption is based on the “Yield curve of reserve computation benchmark for insurance contracts”, published on the “China Bond” website with consideration of liquidity spreads, taxation and other relevant factors. The assumed spot discount rates with risk margin for the past two years are as follows:
Discount rate assumptions | ||||
As at 31 December | 3.31%~ | |||
As at 31 December | 3.23%~ | |||
There is uncertainty on the discount rate assumption, which is affected by factors such as future macro-economy, monetary and foreign exchange policies, capital market and availability of investment channels of insurance funds. The Group determines the discount rate assumption based on the information obtained at the end of each reporting period including consideration of risk margin.
(ii) | The mortality and morbidity assumptions are based on the Group’s historical mortality and morbidity experience. The assumed mortality rates and morbidity rates vary |
The Group bases its mortality assumptions on China Life Insurance Mortality Table (2000-2003), adjusted where appropriate to reflect the Group’s recent historical mortality experience. The main source of uncertainty with life insurance contracts is that epidemics and wide-ranging lifestyle changes could result in deterioration in future mortality experience, thus leading to an inadequate reserving of liability. Similarly, improvements in longevity due to continuing advancements in medical care and social conditions may expose the Group to longevity risk.
The Group bases its morbidity assumptions for critical illness products on analysis of historical experience and expectations of future developments. There are two main sources of uncertainty. First,Firstly, wide-ranging lifestyle changes could result in future deterioration in morbidity experience. Second,Secondly, future development of medical technologies and improved coverage of medical facilities available to policyholders may bring forward the timing of diagnosing critical illness, which demands earlier payment of the critical illness benefits. Both could ultimately result in an inadequate reserving of liability if current morbidity assumptions do not properly reflect such trends.
Risk margin is considered in the Group’s mortality and morbidity assumptions.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
14 | INSURANCE CONTRACTS |
(a) | Process used to decide on assumptions (continued) |
(iii) | Expense assumptions are based on expected unit costs with the consideration of previous expense studies and future trends. Expense assumptions are affected by certain factors such as future inflation and market competition which bring uncertainty to these assumptions. The Group considers risk margin for expense assumptions based on information obtained at the end of each reporting period. Components of expense assumptions include the cost per policy and percentage of premium as follows: |
Individual Life | Group Life | |||||||||||
RMB Per Policy | % of Premium | RMB Per Policy | % of Premium | |||||||||
As at 31 December 2014 | 37.00~45.00 | 0.85%~0.90% | 14.00 | 0.90 | % | |||||||
As at 31 December 2013 | 37.00~45.00 | 0.85%~0.90% | 14.00 | 0.90 | % |
Individual Life | Group Life | |||||||||||||||
RMB Per Policy | % of Premium | RMB Per Policy | % of Premium | |||||||||||||
As at 31 December 2017 | 45.00 | 0.85%~0.90% | 25.00 | 0.90 | % | |||||||||||
As at 31 December 2016 | 37.00~45.00 | 0.85%~0.90% | 15.00 | 0.90 | % | |||||||||||
|
|
|
|
|
|
|
|
(iv) | The lapse rates and other assumptions are affected by certain factors, such as future |
(v) | The Group applied a consistent method to determine risk margin. The Group considers risk margin for discount rate, mortality and morbidity and expense assumptions to compensate for the uncertain amount and timing of future cash flow. When determining risk margin, the Group considers historical experience, future expectations and other factors. The Group determines the risk margin level by itself as the regulations have not imposed any specific requirement on it. |
The Group adopted a consistent process to decide on assumptions for the insurance contracts disclosed in this note. On each reporting date, the Group reviews the assumptions for reasonable estimates of liability and risk margin, with consideration of all available information, and taking into account the Group’s historical experience and expectation of future events.
(b) | Net liabilities of insurance contracts |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | As at 31 December 2017 | As at 31 December 2016 | |||||||||||||
RMB million | RMB million | |||||||||||||||
Gross | ||||||||||||||||
Long-term insurance contracts | 1,588,900 | 1,482,946 | 1,999,066 | 1,825,956 | ||||||||||||
Short-term insurance contracts | ||||||||||||||||
- Claims and claim adjustment expenses | 7,316 | 4,655 | 13,778 | 11,538 | ||||||||||||
- Unearned premiums | 7,230 | 6,896 | 12,289 | 10,492 | ||||||||||||
|
|
|
| |||||||||||||
Total, gross | 1,603,446 | 1,494,497 | 2,025,133 | 1,847,986 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Recoverable from reinsurers | ||||||||||||||||
Long-term insurance contracts (Note 12) | (908 | ) | (846 | ) | (2,351 | ) | (1,783 | ) | ||||||||
Short-term insurance contracts | ||||||||||||||||
- Claims and claim adjustment expenses (Note 12) | (39 | ) | (60 | ) | (104 | ) | (103 | ) | ||||||||
- Unearned premiums (Note 12) | (65 | ) | (121 | ) | (527 | ) | (125 | ) | ||||||||
|
|
|
| |||||||||||||
Total, ceded | (1,012 | ) | (1,027 | ) | (2,982 | ) | (2,011 | ) | ||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Net | ||||||||||||||||
Long-term insurance contracts | 1,587,992 | 1,482,100 | 1,996,715 | 1,824,173 | ||||||||||||
Short-term insurance contracts | ||||||||||||||||
- Claims and claim adjustment expenses | 7,277 | 4,595 | 13,674 | 11,435 | ||||||||||||
- Unearned premiums | 7,165 | 6,775 | 11,762 | 10,367 | ||||||||||||
|
|
|
| |||||||||||||
Total, net | 1,602,434 | 1,493,470 | 2,022,151 | 1,845,975 | ||||||||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
14 | INSURANCE CONTRACTS |
(c) | Movements in liabilities of short-term insurance contracts |
The table below presents movements in claims and claim adjustment expense reserve:
2014 RMB million | 2013 RMB million | 2017 | 2016 | |||||||||||||
RMB million | RMB million | |||||||||||||||
Notified claims | 835 | 202 | 2,085 | 1,748 | ||||||||||||
Incurred but not reported | 3,820 | 2,876 | 9,453 | 7,520 | ||||||||||||
|
|
|
| |||||||||||||
Total as at 1 January - Gross | 4,655 | 3,078 | 11,538 | 9,268 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Cash paid for claims settled | ||||||||||||||||
- Cash paid for current year claims | (9,636 | ) | (7,106 | ) | (21,404 | ) | (16,364 | ) | ||||||||
- Cash paid for prior year claims | (4,557 | ) | (2,712 | ) | (10,460 | ) | (8,877 | ) | ||||||||
Claims incurred | ||||||||||||||||
- Claims arising in current year | 16,499 | 11,476 | 33,926 | 27,120 | ||||||||||||
- Claims arising in prior years | 355 | (81 | ) | 178 | 391 | |||||||||||
|
|
|
| |||||||||||||
Total as at 31 December - Gross | 7,316 | 4,655 | 13,778 | 11,538 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Notified claims | 2,135 | 835 | 2,672 | 2,085 | ||||||||||||
Incurred but not reported | 5,181 | 3,820 | 11,106 | 9,453 | ||||||||||||
|
|
|
| |||||||||||||
Total as at 31 December - Gross | 7,316 | 4,655 | 13,778 | 11,538 | ||||||||||||
|
|
|
|
The table below presents movements in unearned premium reserves:
2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||
RMB million | RMB million | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||
Gross | Ceded | Net | Gross | Ceded | Net | RMB million | RMB million | |||||||||||||||||||||||||||||||||||||||||
Gross | Ceded | Net | Gross | Ceded | Net | |||||||||||||||||||||||||||||||||||||||||||
As at 1 January | 6,896 | (121 | ) | 6,775 | 5,955 | (101 | ) | 5,854 | 10,492 | (125 | ) | 10,367 | 7,944 | (87 | ) | 7,857 | ||||||||||||||||||||||||||||||||
Increase | 7,230 | (65 | ) | 7,165 | 6,896 | (121 | ) | 6,775 | 12,289 | (527 | ) | 11,762 | 10,492 | (125 | ) | 10,367 | ||||||||||||||||||||||||||||||||
Release | (6,896 | ) | 121 | (6,775 | ) | (5,955 | ) | 101 | (5,854 | ) | (10,492 | ) | 125 | (10,367 | ) | (7,944 | ) | 87 | (7,857 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
As at 31 December | 7,230 | (65 | ) | 7,165 | 6,896 | (121 | ) | 6,775 | 12,289 | (527 | ) | 11,762 | 10,492 | (125 | ) | 10,367 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
14 | INSURANCE CONTRACTS |
(d) | Movements in liabilities of long-term insurance contracts |
The table below presents movements in the liabilities of long-term insurance contracts:
2014 RMB million | 2013 RMB million | |||||||||||||||
2017 RMB million | 2016 RMB million | |||||||||||||||
As at 1 January | 1,482,946 | 1,375,504 | 1,825,956 | 1,698,773 | ||||||||||||
Premiums | 304,677 | 305,720 | 464,898 | 390,438 | ||||||||||||
Release of liabilities (i) | (265,137 | ) | (264,175 | ) | (379,262 | ) | (353,048 | ) | ||||||||
Accretion of interest | 69,214 | 64,478 | 78,232 | 73,644 | ||||||||||||
Change in assumptions | ||||||||||||||||
-Change in discount rates | (4,599 | ) | 1,222 | |||||||||||||
-Change in other assumptions (ii) | 420 | 271 | ||||||||||||||
- Change in discount rates | 6,599 | 14,262 | ||||||||||||||
- Change in other assumptions (ii) | 2,424 | 474 | ||||||||||||||
Other movements | 1,379 | (74 | ) | 219 | 1,413 | |||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
As at 31 December | 1,588,900 | 1,482,946 | �� | 1,999,066 | 1,825,956 | |||||||||||
|
|
|
|
(i) | The release of liabilities mainly consists of release due to death or other termination and related expenses, release of residual margin and change of reserves for claims and claim adjustment expenses. |
(ii) | For the year ended 31 December |
For the year ended 31 December 2013, change in other assumptions was mainly caused by change in lapse rate assumptions of certain products, which increased insurance contract liabilities by RMB337 million. This change reflected the Group’s most recent experience and future expectations about lapse rate as at the reporting date. Changes in assumptions other than lapse rates decreased insurance contract liabilities by RMB66 million.
For the year ended 31 December 2016, the change in other assumptions was mainly caused by the change in morbidity rate assumptions of certain products, which increased insurance contract liabilities by RMB464 million. This change reflected the Group’s most recent experience and future expectations about the morbidity rates as at the reporting date. Changes in assumptions other than morbidity rates increased insurance contract liabilities by RMB10 million. |
15 | INVESTMENT CONTRACTS |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Investment contracts with DPF at amortised cost | 47,962 | 46,555 | 57,153 | 53,688 | ||||||||||||
Investment contracts without DPF | ||||||||||||||||
- At amortised cost | 24,292 | 18,507 | 175,335 | 142,006 | ||||||||||||
- At fair value through profit or loss | 21 | 25 | 12 | 12 | ||||||||||||
|
|
|
| |||||||||||||
Total | 72,275 | 65,087 | 232,500 | 195,706 | ||||||||||||
|
|
|
|
The table below presents movements of investment contracts with DPF:
2014 RMB million | 2013 RMB million | |||||||||||||||
2017 RMB million | 2016 RMB million | |||||||||||||||
As at 1 January | 46,555 | 47,977 | 53,688 | 50,295 | ||||||||||||
Deposits received | 3,486 | 2,622 | 4,829 | 4,680 | ||||||||||||
Deposits withdrawn, payments on death and other benefits | (3,334 | ) | (5,315 | ) | (2,510 | ) | (2,357 | ) | ||||||||
Policy fees deducted from account balances | (33 | ) | (13 | ) | (37 | ) | (36 | ) | ||||||||
Interest credited | 1,288 | 1,284 | 1,183 | 1,106 | ||||||||||||
|
|
|
| |||||||||||||
As at 31 December | 47,962 | 46,555 | 57,153 | 53,688 | ||||||||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
16 | INTEREST-BEARING LOANS AND BORROWINGS |
Maturity date | Interest rate | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||
Guaranteed loans | 17 June 2019 | 3.54% | 2,413 | 2,339 | ||||||||||||
Guaranteed loans | 27 September 2019 | 2.30% | 6,338 | 6,579 | ||||||||||||
Guaranteed loans | 30 September 2019 | 2.40% | 6,142 | 6,521 | ||||||||||||
Guaranteed loans | 9 June 2017 | 1.50% | — | 731 | ||||||||||||
Guaranteed loans | 11 January 2018 | 1.495% | 780 | — | ||||||||||||
Credit loans | 6 December 2020 | EURIBOR + 3.8% | (i) | 3,121 | — | |||||||||||
|
|
|
| |||||||||||||
Total | 18,794 | 16,170 | ||||||||||||||
|
|
|
|
Maturity date | Interest rate | As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||
Guaranteed loans | 17 June 2019 | 3.54 | % | 2,623 | — |
(i) | 3.8% when EURIBOR is negative. |
17 | BONDS PAYABLE |
As at 31 December 2014, all bonds payable were subordinated bonds with a total2017, the carrying value of RMB67,989 millionbonds payable is nil (as at 31 December 2013: RMB67,985 million)2016: the carrying value and the par value of RMB68,000are RMB37,998 million (as at 31 December 2013: RMB68,000 million)and RMB38,000 million, respectively).
Par value | ||||||||||||||||||||||||||||||
Issue date | Maturity date | Interest rate p.a. | As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | Maturity date | Interest rate p.a. | As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | ||||||||||||||||||||||
Par Value | ||||||||||||||||||||||||||||||
26 October 2011 | 26 October 2021 | 5.50 | % | 30,000 | 30,000 | |||||||||||||||||||||||||
29 June 2012 | 29 June 2022 | 4.70 | % | 28,000 | 28,000 | 29 June 2022 | 4.70 | % | — | 28,000 | ||||||||||||||||||||
5 November 2012 | 5 November 2022 | 4.58 | % | 10,000 | 10,000 | 5 November 2022 | 4.58 | % | — | 10,000 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||
Total | 68,000 | 68,000 | — | 38,000 | ||||||||||||||||||||||||||
|
|
|
|
The Company issued the above threetwo subordinated bonds with a maturity term of 10 years to qualified investors who met the relevant regulatory requirements. The coupon rates per annum for the first 5 years are 5.50%, 4.70%, 4.58%, respectively, for bonds issued on 26 October 2011, 29 June 2012 and 5 November 2012. The Company has the right to call the subordinated bonds at par at the end of the fifth year after issuance. If the Company does not exercise the call option, the coupon rate per annum for the remaining five years are 6.70% and 6.58%, respectively. On 29 June 2017 and 6 November 2017, the Company exercised the option right to redeem the subordinated bonds issued on 29 June 2012 and 5 years will be raised by 200 basis points.November 2012, and redeemed all of the subordinated bonds registered on the record dates of redemption, with the amounts of RMB28,000 million and RMB10,000 million, respectively.
Subordinated bonds are measured at amortised cost as described in Note 2.14.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
18 | SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Interbank market | 41,477 | 13,862 | 75,002 | 65,479 | ||||||||||||
Stock exchange market | 4,612 | 6,564 | 12,307 | 15,609 | ||||||||||||
|
|
|
| |||||||||||||
Total | 87,309 | 81,088 | ||||||||||||||
|
| |||||||||||||||
Maturing: | ||||||||||||||||
Within 30 days | 87,309 | 81,088 | ||||||||||||||
|
| |||||||||||||||
Total | 46,089 | 20,426 | 87,309 | 81,088 | ||||||||||||
|
|
|
| |||||||||||||
Maturing: | ||||||||||||||||
Within 30 days | 42,971 | 17,426 | ||||||||||||||
After 30 but within 90 days | 118 | 3,000 | ||||||||||||||
After 90 days | 3,000 | — | ||||||||||||||
|
| |||||||||||||||
Total | 46,089 | 20,426 | ||||||||||||||
|
|
As at 31 December 2014,2017, bonds with a carrying value of RMB42,177RMB79,543 million (as at 31 December 2013: RMB14,3382016: RMB76,207 million) were pledged as collateral for financial assets sold under agreements to repurchase resulting from repurchase transactions entered into by the Group in the interbank market.
For debt repurchase transactions through the stock exchange, the Group is required to deposit certain exchange-traded bonds into a collateral pool with fair value converted at a standard rate pursuant to the stock exchange’s regulation which should be no less than the balance of the related repurchase transaction. As at 31 December 2014,2017, the carrying value of securities deposited in the collateral pool was RMB49,963RMB139,727 million (as at 31 December 2013: RMB35,6772016: RMB81,280 million). The collateral is restricted from trading during the period of the repurchase transaction.
19 | OTHER LIABILITIES |
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||
Salary and welfare payable | 10,129 | 7,234 | ||||||
Interest payable to policyholders | 9,614 | 8,006 | ||||||
Payable to third party holders of consolidated trust schemes and debt investment schemes | 6,252 | 5,488 | ||||||
Brokerage and commission payable | 5,659 | 3,713 | ||||||
Payable to constructors | 2,668 | 1,032 | ||||||
Agent deposits | 1,906 | 1,611 | ||||||
Stock appreciation rights (Note 30) | 833 | 654 | ||||||
Tax payable | 689 | 657 | ||||||
Interest payable of debt instruments | 127 | 813 | ||||||
Others | 9,553 | 7,628 | ||||||
|
|
|
| |||||
Total | 47,430 | 36,836 | ||||||
|
|
|
| |||||
Current | 47,430 | 36,836 | ||||||
Non-current | — | — | ||||||
|
|
|
| |||||
Total | 47,430 | 36,836 | ||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||
Salary and welfare payable | 4,589 | 4,792 | ||||||
Interest payable to policyholders | 5,008 | 4,014 | ||||||
Commission and brokerage payable | 1,919 | 1,630 | ||||||
Interest payable of subordinated debts | 1,044 | 1,039 | ||||||
Stock appreciation rights (Note 30) | 1,025 | 770 | ||||||
Payable to constructors | 783 | 1,708 | ||||||
Agent deposits | 761 | 682 | ||||||
Tax payable | 717 | 377 | ||||||
Others | 4,216 | 3,221 | ||||||
|
|
|
| |||||
Total | 20,062 | 18,233 | ||||||
|
|
|
| |||||
Current | 20,062 | 18,233 | ||||||
Non-current | — | — | ||||||
|
|
|
| |||||
Total | 20,062 | 18,233 | ||||||
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
20 | STATUTORY INSURANCE FUND |
As required by the CIRC Order [2008] No. 2, “Measures for Administration of Statutory Insurance Fund”, all insurance companies have to pay the statutory insurance fund contribution to the CIRC from 1 January 2009. The Group is subject to the statutory insurance fund contribution, (i) at 0.15% and 0.05% of premiums and accumulated policyholder deposits from life policies with guaranteed benefits and life policies without guaranteed benefits, respectively; (ii) at 0.8% and 0.15% of premiums from short-term health policies and long-term health policies, respectively; (iii) at 0.8% of premiums from accident insurance contracts, at 0.08% and 0.05% of accumulated policyholder deposits from accident investment contracts with guaranteed benefits and without guaranteed benefits, respectively. When the accumulated statutory insurance fund contributions reach 1% of total assets, no additional contribution to the statutory insurance fund is required.
21 | INVESTMENT INCOME |
For the year ended 31 December | For the year ended 31 December | |||||||||||||||||||||||
2014 RMB million | 2013 RMB million | 2012 RMB million | 2017 | 2016 | 2015 | |||||||||||||||||||
RMB million | RMB million | RMB million | ||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
- held-to-maturity securities | 25,357 | 22,588 | 15,194 | 30,669 | 24,854 | 24,541 | ||||||||||||||||||
- available-for-sale securities | 18,571 | 16,188 | 16,219 | 19,608 | 17,499 | 18,526 | ||||||||||||||||||
- at fair value through profit or loss | 1,571 | 963 | 911 | 3,618 | 5,683 | 1,382 | ||||||||||||||||||
Equity securities | ||||||||||||||||||||||||
- available-for-sale securities | 4,458 | 3,408 | 4,773 | 27,019 | 19,744 | 8,950 | ||||||||||||||||||
- at fair value through profit or loss | 106 | 579 | 656 | 920 | 527 | 326 | ||||||||||||||||||
Bank deposits | 34,934 | 32,667 | 30,512 | 23,827 | 27,851 | 32,285 | ||||||||||||||||||
Loans | 8,138 | 5,773 | 4,339 | 16,320 | 12,018 | 11,115 | ||||||||||||||||||
Securities purchased under agreements to resell | 299 | 556 | 633 | 746 | 971 | 368 | ||||||||||||||||||
Others | 114 | 94 | 6 | — | — | 89 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | 93,548 | 82,816 | 73,243 | 122,727 | 109,147 | 97,582 | ||||||||||||||||||
|
|
|
|
|
|
For the year ended 31 December 2014,2017, the interest income included in investment income was interest income of RMB88,984RMB94,788 million (2013: RMB78,829(2016: RMB88,876 million, 2012: RMB67,8142015: RMB88,306 million). All interest income was accrued using the effective interest method.
The investment income
22 | NET REALISED GAINS ON FINANCIAL ASSETS |
For the year ended 31 December | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Debt securities | ||||||||||||
Realised gains | (9 | ) | 189 | (4 | ) | |||||||
Impairment | (114 | ) | (143 | ) | — | |||||||
Subtotal | (123 | ) | 46 | (4 | ) | |||||||
Equity securities | ||||||||||||
Realised gains | 2,808 | 8,505 | 32,622 | |||||||||
Impairment | (2,643 | ) | (2,513 | ) | (321 | ) | ||||||
Subtotal | 165 | 5,992 | 32,301 | |||||||||
Total | 42 | 6,038 | 32,297 | |||||||||
|
|
|
|
|
|
Net realised gains on financial assets are from listed debt and equity securities foravailable-for-sale securities.
During the year ended 31 December 2014 was RMB6,4492017, the Group recognised an impairment charge of RMB619 million (2013: RMB6,395(2016: RMB1,615 million, 2012: RMB6,0092015: RMB147 million). The investment income from unlisted ofavailable-for-sale funds, an impairment charge of RMB2,024 million (2016: RMB898 million, 2015: RMB174 million) ofavailable-for-sale common stocks, and an impairment charge of RMB114 million (2016: RMB143 million, 2015: Nil) ofavailable-for-sale debt and equity securities, for which the year ended 31 December 2014 was RMB43,614 million (2013: RMB37,331 million, 2012: RMB31,744 million).Group determined that objective evidence of impairment existed.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
For the year ended 31 December | ||||||||||||
2014 RMB million | 2013 RMB million | 2012 RMB million | ||||||||||
Debt securities | ||||||||||||
Net realised gains | 142 | 385 | 1,192 | |||||||||
Reversal of impairment | — | — | 51 | |||||||||
|
|
|
|
|
| |||||||
Subtotal | 142 | 385 | 1,243 | |||||||||
|
|
|
|
|
| |||||||
Equity securities | ||||||||||||
Net realised gains | 8,127 | 9,211 | 2,975 | |||||||||
Impairment | (1,149 | ) | (3,803 | ) | (31,094 | ) | ||||||
|
|
|
|
|
| |||||||
Subtotal | 6,978 | 5,408 | (28,119 | ) | ||||||||
|
|
|
|
|
| |||||||
Total | 7,120 | 5,793 | (26,876 | ) | ||||||||
|
|
|
|
|
|
Net realised gains and impairment on financial assets are from available-for-sale securities.
During the year ended 31 December 2014, the Group recognised impairment charge of RMB146 million (2013: RMB142 million, 2012: RMB14,950 million) of available-for-sale funds, RMB1,003 million (2013: RMB3,517 million, 2012: RMB15,980 million) of available-for-sale common stocks, and no impairment charge (2013: RMB144 million, 2012: RMB164 million) of other available-for-sale securities, for which the Group determined that objective evidence of impairment existed.
23 | NET FAIR VALUE GAINS |
For the year ended 31 December | ||||||||||||
2014 RMB million | 2013 RMB million | 2012 RMB million | ||||||||||
Debt securities | 2,272 | (239 | ) | 47 | ||||||||
Equity securities | 4,977 | 305 | (88 | ) | ||||||||
Stock appreciation rights | (255 | ) | 71 | (272 | ) | |||||||
Financial liabilities at fair value through profit or loss | (1,186 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Total | 5,808 | 137 | (313 | ) | ||||||||
|
|
|
|
|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
For the year ended 31 December | ||||||||||||
2017 RMB million | 2016 RMB million | 2015 RMB million | ||||||||||
Debt securities | (1,542 | ) | (918 | ) | 766 | |||||||
Equity securities | 8,179 | (6,319 | ) | 9,324 | ||||||||
Stock appreciation rights | (179 | ) | 191 | 180 | ||||||||
Financial liabilities at fair value through profit or loss | (275 | ) | (48 | ) | (61 | ) | ||||||
|
|
|
|
|
| |||||||
Total | 6,183 | (7,094) | 10,209 | |||||||||
|
|
|
|
|
|
24 | INSURANCE BENEFITS AND CLAIMS EXPENSES |
Gross RMB million | Ceded RMB million | Net RMB million | Gross RMB million | Ceded RMB million | Net RMB million | |||||||||||||||||||
For the year ended 31 December 2014 | ||||||||||||||||||||||||
For the year ended 31 December 2017 | ||||||||||||||||||||||||
Life insurance death and other benefits | 192,863 | (204 | ) | 192,659 | 260,853 | (1,145 | ) | 259,708 | ||||||||||||||||
Accident and health claims and claim adjustment expenses | 16,854 | (102 | ) | 16,752 | 34,101 | (283 | ) | 33,818 | ||||||||||||||||
Increase in insurance contract liabilities | 105,945 | (62 | ) | 105,883 | 173,085 | (568 | ) | 172,517 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 315,662 | (368 | ) | 315,294 | 468,039 | (1,996 | ) | 466,043 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
For the year ended 31 December 2013 | ||||||||||||||||||||||||
For the year ended 31 December 2016 | ||||||||||||||||||||||||
Life insurance death and other benefits | 193,755 | (84 | ) | 193,671 | 253,824 | (667 | ) | 253,157 | ||||||||||||||||
Accident and health claims and claim adjustment expenses | 11,392 | (129 | ) | 11,263 | 27,519 | (250 | ) | 27,269 | ||||||||||||||||
Increase in insurance contract liabilities | 107,442 | (88 | ) | 107,354 | 127,156 | (537 | ) | 126,619 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 408,499 | (1,454 | ) | 407,045 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
For the year ended 31 December 2015 | ||||||||||||||||||||||||
Life insurance death and other benefits | 221,949 | (248 | ) | 221,701 | ||||||||||||||||||||
Accident and health claims and claim adjustment expenses | 21,166 | (157 | ) | 21,009 | ||||||||||||||||||||
Increase in insurance contract liabilities | 109,847 | (338 | ) | 109,509 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | 312,589 | (301 | ) | 312,288 | 352,962 | (743 | ) | 352,219 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
For the year ended 31 December 2012 | ||||||||||||||||||||||||
Life insurance death and other benefits | 107,688 | (14 | ) | 107,674 | ||||||||||||||||||||
Accident and health claims and claim adjustment expenses | 8,011 | (113 | ) | 7,898 | ||||||||||||||||||||
Increase in insurance contracts liabilities | 185,018 | (28 | ) | 184,990 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total | 300,717 | (155 | ) | 300,562 | ||||||||||||||||||||
|
|
|
25 | INVESTMENT CONTRACT BENEFITS |
Benefits of investment contracts are mainly the interest credited to investment contracts.
For the year ended 31 December | ||||||||||||
2014 RMB million | 2013 RMB million | 2012 RMB million | ||||||||||
Interest expenses for bonds payable | 3,433 | 3,423 | 2,394 | |||||||||
Interest expenses for securities sold under agreements to repurchase | 1,234 | 609 | 181 | |||||||||
Interest expenses for interest-bearing loans and borrowings | 59 | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | 4,726 | 4,032 | 2,575 | |||||||||
|
|
|
|
|
|
Profit before income tax is stated after charging the following:
For the year ended 31 December | ||||||||||||
2014 RMB million | 2013 RMB million | 2012 RMB million | ||||||||||
Employee salaries and welfare cost | 11,564 | 10,789 | 9,699 | |||||||||
Housing benefits | 787 | 740 | 643 | �� | ||||||||
Contribution to the defined contribution pension plan | 1,553 | 1,932 | 1,743 | |||||||||
Depreciation and amortisation | 2,124 | 2,026 | 1,949 | |||||||||
Exchange loss/(gain) | (268 | ) | 437 | 49 | ||||||||
Auditors’ remuneration | 55 | 52 | 65 |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
26 | FINANCE COSTS |
For the year ended 31 December | ||||||||||||
2017 RMB million | 2016 RMB million | 2015 RMB million | ||||||||||
Interest expenses for bonds payable | 1,033 | 3,126 | 3,430 | |||||||||
Interest expenses for securities sold under agreements to repurchase | 3,144 | 1,460 | 784 | |||||||||
Interest expenses for interest-bearing loans and borrowings | 424 | 181 | 106 | |||||||||
Total | 4,601 | 4,767 | 4,320 | |||||||||
|
|
|
|
|
|
27 | PROFIT BEFORE INCOME TAX |
Profit before income tax is stated after charging/(crediting) the following:
For the year ended 31 December | ||||||||||||
2017 RMB million | 2016 RMB million | 2015 RMB million | ||||||||||
Employee salaries and welfare costs | 18,741 | 15,955 | 13,045 | |||||||||
Housing benefits | 933 | 838 | 824 | |||||||||
Contribution to the defined contribution pension plan | 2,357 | 1,798 | 1,678 | |||||||||
Depreciation and amortisation | 2,240 | 2,083 | 2,036 | |||||||||
Foreign exchange (gains)/losses | (52 | ) | (582 | ) | (812 | ) | ||||||
Remuneration in respect of audit services provided by auditors | 59 | 58 | 60 | |||||||||
|
|
|
|
|
|
28 | TAXATION |
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax relates to the same fiscaltax authority.
(a) | The amount of taxation charged to net profit represents: |
For the year ended 31 December | ||||||||||||||||||||||||
2014 RMB million | 2013 RMB million | 2012 RMB million | For the year ended 31 December | |||||||||||||||||||||
2017 RMB million | 2016 RMB million | 2015 RMB million | ||||||||||||||||||||||
Current taxation - Enterprise income tax | 6,455 | 428 | 1,581 | 9,457 | 5,200 | 15,408 | ||||||||||||||||||
Deferred taxation | 1,433 | 4,015 | (1,885 | ) | (538 | ) | (943 | ) | (4,664 | ) | ||||||||||||||
Total tax charges | 8,919 | 4,257 | 10,744 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Taxation charges | 7,888 | 4,443 | (304 | ) | ||||||||||||||||||||
|
|
|
(b) | The reconciliation between the Group’s effective tax rate and the statutory tax rate of 25% in the PRC |
For the year ended 31 December | ||||||||||||||||||||||||
2014 RMB million | 2013 RMB million | 2012 RMB million | For the year ended 31 December | |||||||||||||||||||||
2017 RMB million | 2016 RMB million | 2015 RMB million | ||||||||||||||||||||||
Profit before income tax | 40,402 | 29,451 | 10,968 | 41,671 | 23,842 | 45,931 | ||||||||||||||||||
Tax computed at the statutory tax rate | 10,101 | 7,363 | 2,742 | 10,418 | 5,961 | 11,483 | ||||||||||||||||||
Non-taxable income (i) | (3,434 | ) | (3,172 | ) | (3,462 | ) | (7,847 | ) | (6,080 | ) | (3,324 | ) | ||||||||||||
Expenses not deductible for tax purposes (i) | 1,190 | 200 | 364 | 6,105 | 4,259 | 2,655 | ||||||||||||||||||
Unused tax losses | 19 | 51 | 49 | 6 | 58 | 1 | ||||||||||||||||||
Tax losses utilised from previous periods | (15 | ) | (49 | ) | (41 | ) | ||||||||||||||||||
Others | 12 | 1 | 3 | 252 | 108 | (30 | ) | |||||||||||||||||
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| ||||||||||||||||||||||
Income tax at the effective tax rate | 7,888 | 4,443 | (304 | ) | 8,919 | 4,257 | 10,744 | |||||||||||||||||
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|
|
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
28 | TAXATION (CONTINUED) |
(b) | The reconciliation between the Group’s effective tax rate and the statutory tax rate of 25% in the PRC (2016: 25%, 2015: 25%) is as follows (continued): |
(i) | Non-taxable income mainly includes interest income from government bonds, and dividend income from applicable equity securities, etc. Expenses not deductible for tax purposes mainly include |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
(c) | As at 31 December |
Deferred tax assets / (liabilities)
Insurance RMB million | Investments RMB million | Others RMB million | Total RMB million | |||||||||||||
(i) | (ii) | (iii) | ||||||||||||||
As at 1 January 2013 | (11,787 | ) | 3,061 | 892 | (7,834 | ) | ||||||||||
(Charged) / credited to net profit | 820 | (5,024 | ) | 189 | (4,015 | ) | ||||||||||
(Charged) / credited to other comprehensive income | ||||||||||||||||
- Available-for-sale securities | — | 7,731 | — | 7,731 | ||||||||||||
- Portion of fair value changes on available-for-sale securities attributable to participating policyholders | (660 | ) | — | — | (660 | ) | ||||||||||
- Others | — | (21 | ) | — | (21 | ) | ||||||||||
Others | — | (120 | ) | — | (120 | ) | ||||||||||
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| |||||||||
As at 31 December 2013 | (11,627 | ) | 5,627 | 1,081 | (4,919 | ) | ||||||||||
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As at 1 January 2014 | (11,627 | ) | 5,627 | 1,081 | (4,919 | ) | ||||||||||
(Charged) / credited to net profit | 552 | (1,940 | ) | (45 | ) | (1,433 | ) | |||||||||
(Charged) / credited to other comprehensive income | ||||||||||||||||
- Available-for-sale securities | — | (15,805 | ) | — | (15,805 | ) | ||||||||||
- Portion of fair value changes on available-for-sale securities attributable to participating policyholders | 2,759 | — | — | 2,759 | ||||||||||||
- Others | — | 23 | — | 23 | ||||||||||||
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As at 31 December 2014 | (8,316 | ) | (12,095 | ) | 1,036 | (19,375 | ) | |||||||||
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Deferred | tax assets/(liabilities) |
Insurance RMB million | Investments RMB million | Others RMB million | Total RMB million | |||||||||||||
(i) | (ii) | (iii) | ||||||||||||||
As at 1 January 2016 | (1,451 | ) | (16,686 | ) | 1,184 | (16,953 | ) | |||||||||
(Charged)/credited to net profit | (614 | ) | 1,126 | 431 | 943 | |||||||||||
(Charged)/credited to other comprehensive income | ||||||||||||||||
-Available-for-sale securities | — | 12,639 | — | 12,639 | ||||||||||||
- Portion of fair value changes on available-for-sale securities attributable to participating policyholders | (4,343 | ) | — | — | (4,343 | ) | ||||||||||
- Others | — | (54 | ) | — | (54 | ) | ||||||||||
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| |||||||||
As at 31 December 2016 | (6,408 | ) | (2,975 | ) | 1,615 | (7,768 | ) | |||||||||
|
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| |||||||||
As at 1 January 2017 | (6,408 | ) | (2,975 | ) | 1,615 | (7,768 | ) | |||||||||
(Charged)/credited to net profit | 1,072 | (1,279 | ) | 745 | 538 | |||||||||||
(Charged)/credited to other comprehensive income | ||||||||||||||||
-Available-for-sale securities | — | 3,759 | — | 3,759 | ||||||||||||
- Portion of fair value changes on available-for-sale securities attributable to participating policyholders | (1,401 | ) | — | — | (1,401 | ) | ||||||||||
- Others | — | 1 | — | 1 | ||||||||||||
|
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|
|
|
|
|
| |||||||||
As at 31 December 2017 | (6,737 | ) | (494 | ) | 2,360 | (4,871 | ) | |||||||||
|
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|
|
|
|
|
|
(i) | The deferred tax liabilities arising from the insurance category |
(ii) | The deferred tax arising from the investments category is mainly related to the temporary differences of unrealised gains/(losses) |
(iii) | The deferred tax arising from the |
Unrecognised deductible tax losses of the Group amounted to RMB879RMB607 million as at 31 December 2014 (as2017(as at 31 December 2013: RMB8632016: RMB807 million). Unrecognised deductible temporary differences of the Group amounted to RMB166RMB243 million as at 31 December 20142017 (as at 31 December 2013: RMB1242016: RMB219 million).
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
28 | TAXATION |
(d) | The analysis of deferred tax assets and deferred tax liabilities is as follows: |
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Deferred tax assets: | ||||||||||||||||
- deferred tax assets to be recovered after 12 months | 4,219 | 7,084 | 1,980 | 3,024 | ||||||||||||
- deferred tax assets to be recovered within 12 months | 2,027 | 1,827 | 4,493 | 3,626 | ||||||||||||
|
|
|
| |||||||||||||
Subtotal | 6,246 | 8,911 | 6,473 | 6,650 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Deferred tax liabilities: | ||||||||||||||||
- deferred tax liabilities to be settled after 12 months | (24,130 | ) | (13,557 | ) | (9,131 | ) | (13,037 | ) | ||||||||
- deferred tax liabilities to be settled within 12 months | (1,491 | ) | (273 | ) | (2,213 | ) | (1,381 | ) | ||||||||
|
|
|
| |||||||||||||
Subtotal | (25,621 | ) | (13,830 | ) | (11,344 | ) | (14,418 | ) | ||||||||
|
| |||||||||||||||
|
| |||||||||||||||
Net deferred tax liabilities | (19,375 | ) | (4,919 | ) | (4,871 | ) | (7,768 | ) | ||||||||
|
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|
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29 | EARNINGS PER SHARE |
There is no difference between the basic and diluted earnings per share. The basic and diluted earnings per share for the year ended 31 December 20142017 are calculated based on the net profit for the year attributable to ordinary equity holders of the Company and the weighted average number of 28,264,705,000 ordinary shares (2013 and 2012:(2016: 28,264,705,000 ordinary shares).
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
30 | STOCK APPRECIATION RIGHTS |
The Board of Directors of the Company approved, on 5 January 2006, an award of stock appreciation rights of 4.05 million units and on 21 August 2006, another award of stock appreciation rights of 53.22 million units to eligible employees. The exercise prices of the two awards were HKD5.33 and HKD6.83, respectively, the average closing price of shares in the five trading days prior to 1 July 2005 and 1 January 2006, the dates for vesting and exercise price setting purposes of this award. The exercise prices of stock appreciation rights were the average closing price of the shares in the five trading days prior to the date of the award. Upon the exercise of stock appreciation rights, exercising recipients will receive payments in RMB, subject to any withholding tax, equal to the number of stock appreciation rights exercised times the difference between the exercise price and market price of the H shares at the time of exercise.
Stock appreciation rights have been awarded in units, with each unit representing the value of one H share. No shares of common stock will be issued under the stock appreciation rights plan. According to the Company’s plan, all stock appreciation rights will have an exercise period of five years from the date of award and will not be exercisable before the fourth anniversary of the date of award unless specific market or other conditions have been met. On 26 February 2010, the Board of Directors of the Company extended the exercise period of all stock appreciation rights, which is also subject to government policy.
All the stock appreciation rights awarded were fully vested as at 31 December 2014.2017. As at 31 December 2014,2017, there were 55.01 million units outstanding and exercisable (as at 31 December 2013:2016: 55.01 million)million units). As at 31 December 2014,2017, the amount of intrinsic value for the vested stock appreciation rights was RMB1,012RMB820 million (as at 31 December 2013: RMB7572016: RMB641 million).
The fair value of the stock appreciation rights is estimated on the date of valuation at each reporting date using lattice-based option valuation models based on expected volatility from 25%20% to 45%32%, an expected dividend yield of no higher than 2%3% and a risk-free interest rate ranging from 0.1%0.51% to 0.2%1.02%.
The Company recognised a loss of RMB255RMB179 million in the net fair value through profit or loss in the consolidated comprehensive income representing the fair value change of the rights during the year ended 31 December 2014 (2013:2017 (2016: fair value gaingains of RMB71RMB191 million, 2012:2015: fair value lossgains of RMB272RMB180 million). RMB1,012RMB820 million and RMB13 million were included in salary and staff welfare payable included under other liabilities for the units not exercised and exercised but not paid as at 31 December 20142017 (as at 31 December 2013: RMB7572016: RMB641 million and RMB13 million), respectively. There was no unrecognised compensation cost for the stock appreciation rights as at 31 December 20142017 (as at 31 December 2013:2016: Nil).
31 | DIVIDENDS |
Pursuant to the shareholders’ approval at the Annual General Meeting inon 31 May 2014,2017, a final dividend of RMB0.30RMB0.24 (inclusive of tax) per ordinary share totalling RMB8,479RMB6,784 million in respect of the year ended 31 December 20132016 was declared and paid in 2014.2017. The dividend has been recorded in the consolidated financial statements for the year ended 31 December 2014.2017.
Pursuant to the shareholders’ approval at the Annual General Meeting in June 2013,on 30 May 2016, a final dividend of RMB0.14RMB0.42 (inclusive of tax) per ordinary share totalling RMB3,957RMB11,871 million in respect of the year ended 31 December 20122015 was declared and paid in 2013.2016. The dividend has been recorded in the consolidated financial statements for the year ended 31 December 2013.2016.
Pursuant to the shareholders’ approval at the Annual General Meeting inon 28 May 2012,2015, a final dividend of RMB0.23RMB0.40 (inclusive of tax) per ordinary share totalling RMB6,501RMB11,306 million in respect of the year ended 31 December 20112014 was declared and paid in 2012.2015. The dividend has been recorded in the consolidated financial statements for the year ended 31 December 2012.2015.
A distribution of RMB380 million (inclusive of tax) to the holders of Core Tier 2 Capital Securities was approved by management in 2017 according to the authorisation by the Board of Directors, which was delegated by the General Meeting.
A distribution of RMB386 million (inclusive of tax) to the holders of Core Tier 2 Capital Securities was approved by management in 2016 according to the authorization by the Board of Directors, which was delegated by the General Meeting.
A distribution of RMB185 (inclusive of tax) million to the holders of Core Tier 2 Capital Securities was approved by the management in 2015 according to the authorization by the Board of Directors, , which was delegated by the General Meeting.
Pursuant to a resolution passed at the meeting of the Board of Directors on 2422 March 2015,2018, a final dividend of RMB0.40 (inclusive of tax) per ordinary share totalling approximately RMB11,306 million for the year ended 31 December 20142017 was proposed for shareholders’ approval at the forthcoming Annual General Meeting. The dividend has not been recorded in the consolidated financial statements for the year ended 31 December 2014.2017.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS |
(a) |
The table set forth below summarises the names of significant related parties and nature of relationship with the Company as at 31 December 2014:
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Related parties with control relationship |
Information of the parent company is as follows:
Name | Location of
| Principal business | Relationship the | Nature of
| Legal
| |||||
CLIC | Beijing, China | Insurance services including receipt of premiums and payment of benefits in respect of thein-force life, health, accident and other types of personal insurance business, and the reinsurance business; holding or investing in domestic and overseas insurance companies or other financial insurance institutions; fund management business permitted by national laws and regulations or approved by the State Council of the People’s Republic of China; and other businesses approved by insurance regulatory agencies. | Immediate and ultimate holding company | Yang Mingsheng |
(b) | Subsidiaries |
Refer to Note 32(f) for the basic and related information of subsidiaries.
(c) | Associates and joint ventures |
Refer to Note 8 for the basic and related information of associates and joint ventures.
(d) | Other related parties |
Significant related parties | Relationship with the Company | |
China Life Real Estate Co., Limited (“CLRE”) | Under common control of CLIC | |
China Life Insurance (Overseas) Company Limited (“CL Overseas”) | Under common control of CLIC | |
China Life Investment Holding Company Limited (“CLI”) | Under common control of CLIC | |
China Life Ecommerce Company Limited (“CL Ecommerce”) | Under common control of CLIC | |
China Life Enterprise Annuity Fund (“EAP”) | A pension fund jointly set up by the Company and others |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS |
Registered capital of related parties with control relationship and changes during the year |
Name of related party | As at 31 December 2013 RMB million | Increase RMB million | Decrease RMB million | As at 31 December 2014 RMB million | ||||||||||||
CLIC | 4,600 | — | — | 4,600 | ||||||||||||
AMC | 3,000 | 1,000 | — | 4,000 | ||||||||||||
Pension Company (i) | 2,500 | — | — | 2,500 | ||||||||||||
Suzhou Pension Company | 300 | — | — | 300 | ||||||||||||
CL AMP | 588 | — | — | 588 | ||||||||||||
CL Wealth | — | 200 | — | 200 |
Name of related party | As at 31 December 2016 million | Increase million | Decrease million | As at 31 December 2017 million | ||||||||||||
CLIC | RMB4,600 | — | — | RMB4,600 | ||||||||||||
AMC | RMB4,000 | — | — | RMB4,000 | ||||||||||||
China Life Pension Company Limited (“Pension Company”) | RMB3,400 | — | — | RMB3,400 | ||||||||||||
China Life (Suzhou) Pension and Retirement Investment Company Limited (“Suzhou Pension Company”) (i) | RMB1,060 | RMB931 | — | RMB1,991 | ||||||||||||
CL AMP | RMB588 | — | — | RMB588 | ||||||||||||
CL Wealth | RMB200 | — | — | RMB200 | ||||||||||||
Shanghai Rui Chong Investment Co., Limited (“Rui Chong Company”) (ii) | RMB6,800 | — | — | RMB6,800 | ||||||||||||
China Life (Beijing) Health Management Co., Limited (“CL Health”) | RMB1,730 | — | — | RMB1,730 | ||||||||||||
China Life Franklin (Shenzhen) Equity Investment Fund Management Co., Limited (“Franklin Shenzhen Company”) | USD2 | — | — | USD2 |
(i) |
(ii) |
(iii) | For those subsidiaries which were |
Shareholder | As at 31 December 2013 | As at 31 December 2014 | ||||||||||||||||||||||
Amount million | Percentage of holding | Increase million | Decrease million | Amount million | Percentage of holding | |||||||||||||||||||
CLIC | RMB | 19,324 | 68.37 | % | — | — | RMB | 19,324 | 68.37 | % |
Subsidiaries | As at 31 December 2013 | As at 31 December 2014 | ||||||||||||||||||||
Amount million | Percentage of holding | Increase million | Decrease million | Amount million | Percentage of holding | |||||||||||||||||
AMC | RMB | 1,680 | 60.00% directly | — | — | RMB | 1,680 | 60.00% directly | ||||||||||||||
Pension Company | RMB | 2,305 | 92.20% directly and indirectly | RMB | 441 | — | RMB | 2,746 |
| 74.27% directly and indirectly |
| |||||||||||
AMC HK | HKD | 30 | 50.00% indirectly | — | — | HKD | 30 | 50.00% indirectly | ||||||||||||||
Suzhou Pension Company | RMB | 300 | 100.00% directly | — | — | RMB | 300 | 100.00% directly | ||||||||||||||
CL AMP | RMB | 500 | 85.03% indirectly | — | — | RMB | 500 | 85.03% indirectly | ||||||||||||||
CL Wealth | — | — | RMB | 200 | — | RMB | 200 | 100.00% indirectly | ||||||||||||||
Golden Phoenix Tree Limited | — | — | — | — | — | 100.00% directly | ||||||||||||||||
King Phoenix Tree Limited | — | — | — | — | — | 100.00% indirectly |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS |
Percentages of holding of related parties with control relationship and changes during the year |
Shareholder | As at 31 December 2016 | As at 31 December 2017 | ||||||||||||||||||||||
Amount million | Percentage of holding | Increase million | Decrease million | Amount million | Percentage of holding | |||||||||||||||||||
CLIC | RMB19,324 | 68.37% | — | — | RMB19,324 | 68.37% | ||||||||||||||||||
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Subsidiaries | As at 31 December 2016 | As at 31 December 2017 | ||||||||||||||||||||||
Amount million | Percentage of holding | Increase million | Decrease million | Amount million | Percentage of holding | |||||||||||||||||||
AMC | RMB1,680 | 60.00% directly | — | — | RMB1,680 | 60.00% directly | ||||||||||||||||||
Pension Company | RMB2,746 | | 74.27% directly and indirectly |
| — | — | RMB2,746 | | 74.27% directly and indirectly |
| ||||||||||||||
China Life Franklin Asset Management Company Limited (“AMC HK”) | HKD130 | 50.00% indirectly | — | — | HKD130 | 50.00% indirectly | ||||||||||||||||||
Suzhou Pension Company | RMB1,326 | 100.00% directly | RMB260 | — | RMB1,586 | 100.00% directly | ||||||||||||||||||
CL AMP | RMB500 | 85.03% indirectly | — | — | RMB500 | 85.03% indirectly | ||||||||||||||||||
CL Wealth | RMB200 | 100.00% indirectly | — | — | RMB200 | 100.00% indirectly | ||||||||||||||||||
Golden Phoenix Tree Limited | — | 100.00% directly | — | — | — | 100.00% directly | ||||||||||||||||||
King Phoenix Tree Limited | — | 100.00% indirectly | — | — | — | 100.00% indirectly | ||||||||||||||||||
Rui Chong Company | RMB6,199 | 100.00% directly | RMB601 | — | RMB6,800 | 100.00% directly | ||||||||||||||||||
New Aldgate Limited | RMB1,167 | 100.00% directly | — | — | RMB1,167 | 100.00% directly | ||||||||||||||||||
Glorious Fortune Forever Limited | — | 100.00% directly | — | — | — | 100.00% directly | ||||||||||||||||||
CL Hotel Investor, L.P. | — | 100.00% directly | — | — | — | 100.00% directly | ||||||||||||||||||
Golden Bamboo Limited | RMB1,734 | 100.00% directly | — | — | RMB1,734 | 100.00% directly | ||||||||||||||||||
Sunny Bamboo Limited | RMB1,632 | 100.00% directly | — | — | RMB1,632 | 100.00% directly | ||||||||||||||||||
Fortune Bamboo Limited | RMB2,176 | 100.00% directly | — | — | RMB2,176 | 100.00% directly | ||||||||||||||||||
China Century Core Fund Limited (“Century Core Fund”) | USD894 | 100.00% indirectly | USD2 | — | USD896 | 100.00% indirectly | ||||||||||||||||||
CL Health | RMB1,730 | 100.00% directly | — | — | RMB1,730 | 100.00% directly | ||||||||||||||||||
Franklin Shenzhen Company | USD0.6 | 100.00% indirectly | — | — | USD0.6 | 100.00% indirectly |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED) |
(f) | Percentages of holding of related parties with control relationship and changes during the year (continued) |
Subsidiaries (continued) | As at 31 December 2016 | As at 31 December 2017 | ||||||||||||||||||||||
Amount million | Percentage of holding | Increase million | Decrease million | Amount million | Percentage of holding | |||||||||||||||||||
Guo Yang Guo Sheng(i) | — | — | RMB3,250 | — | RMB3,250 | 99.997% directly | ||||||||||||||||||
New Capital Wisdom Limited (i) | — | — | — | — | — | 100.00% indirectly | ||||||||||||||||||
New Fortune Wisdom Limited (i) | — | — | — | — | — | 100.00% indirectly | ||||||||||||||||||
Wisdom Forever Limited Partnership (i) | — | — | USD447 | — | USD447 | 100.00% indirectly | ||||||||||||||||||
Shanghai Yuan Shu Yuan Jiu Investment Management Partnership (Limited Partnership) (“Yuan Shu Yuan Jiu”) (i) | — | — | RMB606 | — | RMB606 | 99.98% directly | ||||||||||||||||||
Shanghai Yuan Shu Yuan Pin Investment Management Partnership (Limited Partnership) (“Yuan Shu Yuan Pin”) (i) | — | — | RMB606 | — | RMB606 | 99.98% directly | ||||||||||||||||||
Shanghai Wansheng Industry Partnership (Limited Partnership) (“Wan Sheng”) (i) | — | — | RMB3,900 | — | RMB3,900 | 99.998% directly | ||||||||||||||||||
Ningbo Meishan Bonded Port Area Bai Ning Investment Partnership (“Bai Ning”) (i) | — | — | RMB1,680 | — | RMB1,680 | 99.98% directly |
(i) | Guo Yang Guo Sheng, New Capital Wisdom Limited, New Fortune Wisdom Limited, Wisdom Forever Limited Partnership, Yuan Shu Yuan Jiu, Yuan Shu Yuan Pin, Wan Sheng, and Bai Ning are new subsidiaries set up or invested by the Company in 2017. |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED) |
(g) | Transactions with significant related parties |
The following table summarises significant transactions carried out by the Group with its significant related parties.parties:
For the year ended 31 December | For the year ended 31 December | |||||||||||||||||||||||||||||
Notes | 2014 RMB million | 2013 RMB million | 2012 RMB million | 2017 | 2016 | 2015 | ||||||||||||||||||||||||
�� | Notes | RMB million | RMB million | RMB million | ||||||||||||||||||||||||||
Transactions with CLIC and its subsidiaries | ||||||||||||||||||||||||||||||
Policy management fee received from CLIC | (i)(vii) | 987 | 1,022 | 1,063 | (i) (viii) | 740 | 869 | 950 | ||||||||||||||||||||||
Asset management fee received from CLIC | (ii.a) | 128 | 133 | 133 | (ii.a) | 107 | 124 | 133 | ||||||||||||||||||||||
Investment in the Group’s consolidated fund products from CLIC | 718 | — | — | |||||||||||||||||||||||||||
Payment of dividends from the Company to CLIC | 5,797 | 2,705 | 4,444 | 4,638 | 8,116 | 7,729 | ||||||||||||||||||||||||
Distribution of profits from AMC to CLIC | 91 | 80 | 65 | 125 | 143 | 106 | ||||||||||||||||||||||||
Asset management fee received from CL Overseas | (ii.b) | 30 | 28 | 20 | (ii.b) | 119 | 74 | 39 | ||||||||||||||||||||||
Capital contribution to CLP&C | (viii) | 2,800 | — | — | ||||||||||||||||||||||||||
Asset management fee received from CLP&C | (ii.c) | 11 | 10 | 12 | (ii.c) | 14 | 36 | 26 | ||||||||||||||||||||||
Payment of insurance premium to CLP&C | 50 | 53 | 58 | 44 | 49 | 51 | ||||||||||||||||||||||||
Claim and other payments received from CLP&C | 18 | 24 | 19 | 16 | 18 | 17 | ||||||||||||||||||||||||
Agency fee received from CLP&C | (iii)(vii) | 1,013 | 852 | 648 | (iii) (viii) | 3,030 | 2,337 | 1,464 | ||||||||||||||||||||||
Payment of an agency fee to CLP&C | (iii) | 4 | 16 | 16 | (iii) | 1 | 2 | 4 | ||||||||||||||||||||||
Rental and a service fee received from CLP&C | 41 | 28 | 28 | 59 | 43 | 49 | ||||||||||||||||||||||||
Payment of rental, project fee and others expenses to CLRE | 35 | 27 | 38 | |||||||||||||||||||||||||||
Investment in the Group’s consolidated fund products from CLRE | 81 | — | — | |||||||||||||||||||||||||||
Cash dividend from CLP&C (Note 8) | 69 | 135 | — | |||||||||||||||||||||||||||
Payment of rental, project fee and other expenses to CLRE | 50 | 44 | 38 | |||||||||||||||||||||||||||
Property leasing expenses charged by CLI | (iv) | 86 | 87 | 63 | (iv) | 78 | 81 | 84 | ||||||||||||||||||||||
Asset management fee received from CLI | 14 | 6 | 5 | 9 | 13 | 17 | ||||||||||||||||||||||||
Payment to CLI for purchase of fixed assets | (viii) | 79 | 78 | 61 | — | 141 | 97 | |||||||||||||||||||||||
Payment of an asset management fee to CLI | (ii.d) | 89 | 8 | — | (ii.d) (viii) | 396 | 298 | 167 | ||||||||||||||||||||||
Property leasing income received from CLI | 29 | 24 | 23 | 37 | 38 | 38 | ||||||||||||||||||||||||
Additional capital contribution to China Life Yuantong | — | — | 361 | |||||||||||||||||||||||||||
Investment in Group’s consolidated fund products from CL Ecommerce | 478 | — | — | |||||||||||||||||||||||||||
Payment of a business management service fee to CL Ecommerce | (vi) | 64 | 56 | 29 | ||||||||||||||||||||||||||
Transactions between CGB and the Group | ||||||||||||||||||||||||||||||
Interest on deposits received from CGB | 838 | 683 | 733 | 1,382 | 685 | 524 | ||||||||||||||||||||||||
Commission expenses charged by CGB | (v) | 8 | 6 | 9 | (v) | 92 | 42 | 15 | ||||||||||||||||||||||
Premiums received from CGB | 6 | 9 | 2 | |||||||||||||||||||||||||||
Claim payment to CGB | 2 | 5 | — | |||||||||||||||||||||||||||
Transactions between Sino-Ocean and the Group | ||||||||||||||||||||||||||||||
Capital contribution to Sino-Ocean | — | 2,387 | — | |||||||||||||||||||||||||||
Scrip dividend from Sino-Ocean (Note 8) | 268 | 81 | 182 | |||||||||||||||||||||||||||
Cash dividend from Sino-Ocean (Note 8) | 131 | 198 | — | 553 | 248 | 422 | ||||||||||||||||||||||||
Interest payment of subordinated debts received from Sino-Ocean | 25 | 25 | 26 | |||||||||||||||||||||||||||
Interest payment of corporate bonds received from Sino-Ocean | 27 | 38 | 34 | |||||||||||||||||||||||||||
Project management fee paid to Sino-Ocean | 34 | 30 | 61 | 55 | 60 | 59 | ||||||||||||||||||||||||
Transactions between EAP and the Group | ||||||||||||||||||||||||||||||
Contribution to EAP | 286 | 262 | 261 | 700 | 337 | 303 | ||||||||||||||||||||||||
Transaction between other associates and joint ventures and the Group | ||||||||||||||||||||||||||||||
Distribution of profits from other associates and joint ventures to the Group | 1,240 | 437 | — | |||||||||||||||||||||||||||
Transactions between AMC and the Company | ||||||||||||||||||||||||||||||
Payment of an asset management fee to AMC | (ii.e)(vii) | 886 | 846 | 761 | (ii.e) (viii) | 1,154 | 1,081 | 1,020 | ||||||||||||||||||||||
Distribution of profits from AMC | 137 | 121 | 97 | 187 | 215 | 158 | ||||||||||||||||||||||||
Transactions between Pension Company and the Company | ||||||||||||||||||||||||||||||
Capital contribution to Pension Company | 441 | — | — | |||||||||||||||||||||||||||
Rental received from Pension Company | 23 | 17 | 16 | 43 | 34 | 24 | ||||||||||||||||||||||||
Agency fee received from Pension Company for entrusted sales of annuity funds | (vi) | 12 | 11 | 7 | (vii) | 42 | 31 | 20 | ||||||||||||||||||||||
Marketing fee income for promotion of annuity business from Pension Company | 19 | 23 | 18 | 10 | 14 | 14 | ||||||||||||||||||||||||
Transactions between AMC HK and the Company | ||||||||||||||||||||||||||||||
Payment of an investment management fee to AMC HK | (ii.f) | 11 | 8 | 8 | (ii.f) | 14 | 14 | 14 | ||||||||||||||||||||||
Transactions between Suzhou Pension Company and the Company | ||||||||||||||||||||||||||||||
Capital contribution to Suzhou Pension Company | 260 | 526 | 500 | |||||||||||||||||||||||||||
Transactions between Rui Chong Company and the Company | ||||||||||||||||||||||||||||||
Capital contribution to Rui Chong Company | 601 | — | — | |||||||||||||||||||||||||||
Transaction between other associates and joint ventures and the Company | ||||||||||||||||||||||||||||||
Distribution of profits from other associates and joint ventures to the Company | 203 | 134 | — | |||||||||||||||||||||||||||
Transactions between the consolidated structured entities/other subsidiaries and the Company | ||||||||||||||||||||||||||||||
Distribution of profits from the consolidated structured entities to the Company | 3,944 | 443 | 187 | |||||||||||||||||||||||||||
Distribution of profits from the Group’s other subsidiaries to the Company | 70 | — | — |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS |
Transactions with significant related parties (continued) |
Notes:
(i) | On |
(ii.a) | On |
(ii.b) | On |
(ii.c) | In |
(ii.d) | On |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS |
Transactions with significant related parties (continued) |
Notes (continued):
(ii.e) | On |
(ii.f) | On |
(iii) |
On 8 March |
On 8 April 2012, the Company and CLP&C signed a 2-year framework insurance agency agreement, whereby the Company entrusted CLP&C to act as an agent to sell designated life insurance products in certain authorised jurisdictions. The brokerage fee was determined based on cost (tax included) plus a margin. The agreement was subject to an automatic one-year renewal if no objections were raised by both parties upon expiry. The agreement was automatically renewed for another year from 8 April 2014.
(iv) | On 31 December |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED) |
(g) | Transactions with significant related parties (continued) |
Notes (continued):
(v) | On |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
On 23 March 2016, the Company and CGB signed another insurance agency agreement to distribute group insurance products. The group insurance products suitable for distribution through bancassurance channels are included in the agreement. CGB provides agency services, including the sale of group insurance products, collecting premiums and paying benefits, and so on. The Company paid the agency commission by multiplying the net amount of total premiums received from the sale of each category group insurance product after deducting the withdrawn policy premiums in the hesitation period, by the responding fixed commission rate. The commission rates for various insurance products sold by CGB are agreed by referring to comparable quoted market prices of independent third-parties. The commissions are payable on a monthly basis. The agreement is effective on 1 January 2016 for two years and is subject to an automaticone-year renewal if no objections were raised by either party upon expiry. |
(vi) |
(vii) | On 28 November 2016, the Company and Pension Company signed |
On 27 November 2014, the Company and Pension Company renewed the agency agreement for the distribution and customer service of enterprise annuity funds, pension management business and occupation annuity. The agreement was effective for one year starting from 28 November 2014, and was subject to an automatic one-year renewal if no objections were raised by both parties upon expiry. In the renewed agreement, the charge clause for the entrusting service of enterprise annuity fund management, which is the core business of Pension Company, was consistent with that in the prior year. The calculation base, method and charge rate for the agency fee of occupation annuity refer to enterprise annuity funds. The charge rate for the agency fee of group pension plan is in line with that of the investment management fee of enterprise annuity funds. The agency fee of personal pension plan is 30% of daily management fee of personal pension plan annually.
These transactions constitute continuing connected transactions which are subject to reporting and announcement requirements but are exempt from independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Company has complied with the disclosure requirements in accordance with Chapter 14A of the Listing Rules. |
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
32 | SIGNIFICANT RELATED PARTY TRANSACTIONS |
Amounts due |
The following table summarises the balances due from and to significant related parties. The balances are non-interest bearing,non-interest-bearing, unsecured and have no fixed repayment dates except for the deposits with CGB, interbank certificates of deposits of CGB, wealth management product of CGB and the subordinated debtscorporate bonds issued by Sino-Ocean.
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | As at 31 December 2017 | As at 31 December 2016 | |||||||||||||
RMB million | RMB million | |||||||||||||||
The resulting balance due from and to significant related parties of the Group | ||||||||||||||||
The resulting balances due from and to significant related parties of the Group | ||||||||||||||||
Amount due from CLIC | 541 | 549 | 420 | 529 | ||||||||||||
Amount due to CLIC | (1 | ) | (1 | ) | ||||||||||||
Amount due from CL Overseas | 15 | 16 | 122 | 47 | ||||||||||||
Amount due from CLP&C | 114 | 76 | 428 | 332 | ||||||||||||
Amount due to CLP&C | (6 | ) | — | (6 | ) | — | ||||||||||
Amount due from CLI | 12 | 14 | 9 | 12 | ||||||||||||
Amount due to CLI | (49 | ) | (32 | ) | (265 | ) | (206 | ) | ||||||||
Amount due from CLRE | 2 | 1 | 2 | 2 | ||||||||||||
Amount deposited with CGB | 16,287 | 15,051 | 33,385 | 26,342 | ||||||||||||
Interbank certificates of deposits of CGB | 199 | — | ||||||||||||||
Wealth management products of CGB | 330 | — | ||||||||||||||
Amount due from CGB | 296 | 284 | 1,041 | 365 | ||||||||||||
Amount due to CGB | (1 | ) | — | (31 | ) | (17 | ) | |||||||||
Subordinated debts of Sino-Ocean | 260 | 266 | ||||||||||||||
The resulting balance due from and to subsidiaries of the Company | ||||||||||||||||
Corporate bonds of Sino-Ocean | 592 | 643 | ||||||||||||||
Amount due fromSino-Ocean | 8 | 8 | ||||||||||||||
Amount due from CL Ecommerce | 6 | 5 | ||||||||||||||
Amount due to CL Ecommerce | (78 | ) | (66 | ) | ||||||||||||
The resulting balances due from and to subsidiaries of the Company | ||||||||||||||||
Amount due from Pension Company | 48 | 46 | 57 | 47 | ||||||||||||
Amount due to Pension Company | (5 | ) | (3 | ) | (19 | ) | (17 | ) | ||||||||
Amount due to AMC | (225 | ) | (73 | ) | (207 | ) | (604 | ) | ||||||||
Amount due to AMC HK | (3 | ) | (2 | ) | (4 | ) | (8 | ) |
Key management personnel compensation |
For the year ended 31 December | ||||||||||||
2014 RMB million | 2013 RMB million | 2012 RMB million | ||||||||||
Salaries and other benefits | 13 | 26 | 23 | |||||||||
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|
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|
For the year ended 31 December | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Salaries and other benefits | 18 | 28 | 25 | |||||||||
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|
|
|
|
The total compensation package for the Company’s key management personnel for the year ended 31 December 20142017 has not yet been finalised in accordance with regulations of the relevant PRC authorities. The final compensation will be disclosed in a separate announcement when determined. The compensation of 20132016 has been approved by the relevant authorities. The total compensation of 20132016 was RMB26RMB28 million, including a deferred payment about RMB5RMB6 million.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED) |
(j) | Transactions with state-owned enterprises |
Under IAS 24Related Party Disclosures (“IAS 24”), business transactions between state-owned enterprises controlled by the PRC government are within the scope of related party transactions. CLIC, the ultimate holding company of the Group, is a state-owned enterprise. The Group’s key business is insurance and investment related and therefore the business transactions with other state-owned enterprises are primarily related to insurance and investment activities. The related party transactions with other state-owned enterprises were conducted in the ordinary course of business. Due to the complex ownership structure, the PRC government may hold indirect interests in many companies. Some of these interests may, in themselves or when combined with other indirect interests, be controlling interests which may not be known to the Group. Nevertheless, the Group believes that the following captures the material related parties and has applied IAS 24 exemption and disclosed only qualitative information.
As at and during the year ended 31 December 2014,2017, most of the bank deposits of the Group were with state-owned banks; the issuers of corporate bonds and subordinated bonds held by the Group were mainly state-owned enterprises. For the year ended 31 December 2014,2017, a large portion of its group insurance business of the Group were with state-owned enterprises; the majority of bancassurance commission charges were paid to state-owned banks and postal office;offices; and almost allthe majority of the reinsurance agreements of the Group were entered into with a state-owned reinsurance company.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
33 | SHARE CAPITAL |
As at 31 December 2014 | As at 31 December 2013 | |||||||||||||||||||||||||||||||
No. of shares | RMB million | No. of shares | RMB million | As at 31 December 2017 | As at 31 December 2016 | |||||||||||||||||||||||||||
No. of shares | RMB million | No. of shares | RMB million | |||||||||||||||||||||||||||||
Registered, authorised, issued and fully paid | ||||||||||||||||||||||||||||||||
Ordinary shares of RMB1 each | 28,264,705,000 | 28,265 | 28,264,705,000 | 28,265 | 28,264,705,000 | 28,265 | 28,264,705,000 | 28,265 | ||||||||||||||||||||||||
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As at 31 December 2014,2017, the Company’s share capital was as follows:
As at 31 December 2014 | ||||||||||||||||
No. of shares | RMB million | As at 31 December 2017 | ||||||||||||||
No. of shares | RMB million | |||||||||||||||
Owned by CLIC (i) | 19,323,530,000 | 19,324 | 19,323,530,000 | 19,324 | ||||||||||||
Owned by other equity holders | 8,941,175,000 | 8,941 | 8,941,175,000 | 8,941 | ||||||||||||
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| |||||||||||||||
Including: Domestic listed | 1,500,000,000 | 1,500 | 1,500,000,000 | 1,500 | ||||||||||||
Overseas listed (ii) | 7,441,175,000 | 7,441 | 7,441,175,000 | 7,441 | ||||||||||||
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Total | 28,264,705,000 | 28,265 | 28,264,705,000 | 28,265 | ||||||||||||
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|
(i) | All shares owned by CLIC are domestic listed shares. |
(ii) | Overseas listed shares are traded on the Stock Exchange of Hong Kong Limited and the New York Stock Exchange. |
34 |
Share premium | Other reserves | Unrealised gains/ (losses) from available-for- | Share of other comprehensive income of investees under the equity method | Statutory reserve fund | Discretionary reserve fund | General reserve | Exchange differences on translating foreign operations | Total | ||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||||||||||||||
(a) | (b) | (c) | ||||||||||||||||||||||||||||||||||
As at 1 January 2012 | 53,860 | (9 | ) | (19,454 | ) | (141 | ) | 18,064 | 16,202 | 14,905 | (3 | ) | 83,424 | |||||||||||||||||||||||
Other comprehensive income for the year | — | — | 24,828 | 167 | — | — | — | — | 24,995 | |||||||||||||||||||||||||||
Appropriation to reserves | — | — | — | — | 1,107 | 1,848 | 1,135 | — | 4,090 | |||||||||||||||||||||||||||
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As at 31 December 2012 | 53,860 | (9 | ) | 5,374 | 26 | 19,171 | 18,050 | 16,040 | (3 | ) | 112,509 | |||||||||||||||||||||||||
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As at 1 January 2013 | 53,860 | (9 | ) | 5,374 | 26 | 19,171 | 18,050 | 16,040 | (3 | ) | 112,509 | |||||||||||||||||||||||||
Other comprehensive income for the year | — | — | (21,209 | ) | (353 | ) | — | — | — | — | (21,562 | ) | ||||||||||||||||||||||||
Appropriation to reserves | — | — | — | — | 2,470 | 1,107 | 2,505 | — | 6,082 | |||||||||||||||||||||||||||
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As at 31 December 2013 | 53,860 | (9 | ) | (15,835 | ) | (327 | ) | 21,641 | 19,157 | 18,545 | (3 | ) | 97,029 | |||||||||||||||||||||||
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As at 1 January 2014 | 53,860 | (9 | ) | (15,835 | ) | (327 | ) | 21,641 | 19,157 | 18,545 | (3 | ) | 97,029 | |||||||||||||||||||||||
Other comprehensive income for the year | — | — | 39,089 | 143 | — | — | — | — | 39,232 | |||||||||||||||||||||||||||
Appropriation to reserves | — | — | — | — | 3,160 | 2,470 | 3,202 | — | 8,832 | |||||||||||||||||||||||||||
Capital paid in | — | 826 | — | — | — | — | — | — | 826 | |||||||||||||||||||||||||||
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As at 31 December 2014 | 53,860 | 817 | 23,254 | (184 | ) | 24,801 | 21,627 | 21,747 | (3 | ) | 145,919 | |||||||||||||||||||||||||
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(a) | Basic information |
As at 31 December 2016 | Increase | Decrease | As at 31 December 2017 | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
Core Tier 2 Capital Securities | 7,791 | — | — | 7,791 | ||||||||||||
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Total | 7,791 | — | — | 7,791 | ||||||||||||
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The Company issued Core Tier 2 Capital Securities at par with the nominal value of USD1,280 million on 3 July 2015, and obtained an approval to list such securities on the Stock Exchange of Hong Kong Limited, effective on 6 July 2015. The Securities are issued in the specified denomination of USD200,000 and integral multiples of USD1,000 in excess thereof. After a deduction of the issue expense, the total amount of the proceeds raised from this issuance was USD1,274 million or RMB7,791 million. The issued capital securities have a term of 60 years, extendable upon expiry. The initial distribution rate for the first five interest-bearing years is 4.00%, and the Company may redeem the securities at its option at the end of the fifth year after issuance. If the Company does not exercise this option, the rate of distribution will be reset based on comparable US treasury yield plus a margin of 2.294% at the end of the fifth year and every five years thereafter.
(b) | Equity attributable to equity holders |
As at 31 December 2017 | As at 31 December 2016 | |||||||
RMB million | RMB million | |||||||
Equity attributable to equity holders of the Company | 320,933 | 303,621 | ||||||
Equity attributable to ordinary equity holders of the Company | 313,142 | 295,830 | ||||||
Equity attributable to other equity instruments holders of the Company | 7,791 | 7,791 | ||||||
Equity attributable tonon-controlling interests | 4,377 | 4,027 | ||||||
Equity attributable to ordinary equity holders ofnon-controlling interests | 4,377 | 4,027 | ||||||
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Refer to Note 31 for the information of distribution to other equity instruments holders of the Company for the year ended 31 December 2017. As at 31 December 2017, there were no accumulated distributions unpaid attributable to other equity instrument holders of the Company.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 20142017
RESERVES |
Share premium | Other reserves | Unrealised (losses) from -sale | Share of other comprehensive | Statutory reserve fund | Discretionary reserve fund | General reserve | Exchange differences on translating foreign operations | Total | ||||||||||||||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||||||||||||||
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| (a) | (b) | (c) |
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As at 1 January 2015 | 53,860 | 817 | 23,254 | (184 | ) | 24,801 | 21,627 | 21,747 | (3 | ) | 145,919 | |||||||||||||||||||||||||
Other comprehensive income for the year | — | — | 6,709 | 364 | — | — | — | 3 | 7,076 | |||||||||||||||||||||||||||
Appropriation to reserves | — | — | — | — | 3,438 | 3,160 | 3,492 | — | 10,090 | |||||||||||||||||||||||||||
Others | — | 296 | — | — | — | — | — | — | 296 | |||||||||||||||||||||||||||
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As at 31 December 2015 | 53,860 | 1,113 | 29,963 | 180 | 28,239 | 24,787 | 25,239 | — | 163,381 | |||||||||||||||||||||||||||
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As at 1 January 2016 | 53,860 | 1,113 | 29,963 | 180 | 28,239 | 24,787 | 25,239 | — | 163,381 | |||||||||||||||||||||||||||
Other comprehensive income for the year | — | — | (24,863 | ) | (918 | ) | — | — | — | 7 | (25,774 | ) | ||||||||||||||||||||||||
Appropriation to reserves | — | — | — | — | 1,927 | 3,438 | 2,002 | — | 7,367 | |||||||||||||||||||||||||||
Others | — | 33 | — | — | — | — | — | — | 33 | |||||||||||||||||||||||||||
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As at 31 December 2016 | 53,860 | 1,146 | 5,100 | (738 | ) | 30,166 | 28,225 | 27,241 | 7 | 145,007 | ||||||||||||||||||||||||||
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As at 1 January 2017 | 53,860 | 1,146 | 5,100 | (738 | ) | 30,166 | 28,225 | 27,241 | 7 | 145,007 | ||||||||||||||||||||||||||
Other comprehensive income for the year | — | — | (7,086 | ) | 21 | — | — | — | (847 | ) | (7,912 | ) | ||||||||||||||||||||||||
Appropriation to reserves | — | — | — | — | 3,218 | 1,927 | 3,300 | — | 8,445 | |||||||||||||||||||||||||||
Others | — | 135 | — | — | — | — | — | — | 135 | |||||||||||||||||||||||||||
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As at 31 December 2017 | 53,860 | 1,281 | (1,986 | ) | (717 | ) | 33,384 | 30,152 | 30,541 | (840 | ) | 145,675 | ||||||||||||||||||||||||
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(a) | Pursuant to the relevant PRC laws, the Company appropriated 10% of its net profit under Chinese Accounting Standards (“CAS”) to statutory reserve which amounted to |
(b) | Approved |
(c) | Pursuant to |
Under related PRC law, dividends may be paid only out of distributable profits. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS |
Changes in liabilities arising from financing activities
Interest- bearing loans and borrowings RMB million | Bonds payable RMB million | Securities sold under agreements to repurchase RMB million | Other liability- payable to third party holders of consolidated trust schemes and debt investment schemes RMB million | Other liability -interest payable related to financing activities RMB million | Total RMB million | |||||||||||||||||||
At 1 January 2017 | 16,170 | 37,998 | 81,088 | 5,488 | 813 | 141,557 | ||||||||||||||||||
Changes from financing cash flows | 3,121 | (38,000 | ) | 6,228 | 764 | (5,671 | ) | (33,558 | ) | |||||||||||||||
Foreign exchange movement | (497 | ) | — | — | — | — | (497 | ) | ||||||||||||||||
Changes arising from losing control of consolidated structured entities | — | — | (7 | ) | — | — | (7 | ) | ||||||||||||||||
Interest expense | — | 2 | — | — | 4,985 | 4,987 | ||||||||||||||||||
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At 31 December 2017 | 18,794 | — | 87,309 | 6,252 | 127 | 112,482 | ||||||||||||||||||
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37 | PROVISIONS AND CONTINGENCIES |
The following is a summary of the significant contingent liabilities:
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||
Pending lawsuits | 389 | 215 |
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||
Pending lawsuits | 493 | 588 | ||||||
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The Group involves in certain lawsuits arising from the ordinary course of businesses.business. In order to accurately disclose the contingent liabilities for pending lawsuits, the Group analyzedanalysed all pending lawsuits case by case at the end of each reporting period. A provision will only be recognised if management determines, based on third-party legal advice, that the Group has present obligations and the settlement of which is expected to result in an outflow of the Group’s resources embodying economic benefits, and the amount of such obligations could be reasonably estimated. Otherwise, the Group will disclose the pending lawsuits as contingent liabilities. As at 31 December 20142017 and 2013,2016, the Group had other contingent liabilities but disclosure of such was not practical because the amounts of liabilities could not be reliably estimated.
CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
COMMITMENTS |
(a) | Capital commitments |
The Group had the following capital commitments relating to property development projects and investments:
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Contracted, but not provided for | ||||||||||||||||
Investments | 23,929 | 7,690 | 86,582 | 39,616 | ||||||||||||
Property, plant and equipment | 9,887 | 7,830 | 5,202 | 5,462 | ||||||||||||
Others | 87 | 65 | — | 1 | ||||||||||||
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Total | 33,903 | 15,585 | 91,784 | 45,079 | ||||||||||||
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Authorized, but not contracted for | ||||||||||||||||
Investments | — | 5,834 | ||||||||||||||
Property, plant and equipment | 65 | 87 | ||||||||||||||
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Total | 65 | 5,921 | ||||||||||||||
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CHINA LIFE INSURANCE COMPANY LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
38 | COMMITMENTS (CONTINUED) |
(b) | Operating lease commitments - as lessee |
The future minimum lease payments undernon-cancellable operating leases are as follows :
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Not later than one year | 549 | 480 | 784 | 632 | ||||||||||||
Later than one year but not later than five years | 753 | 472 | 1,101 | 764 | ||||||||||||
Later than five years | 10 | 18 | 44 | 27 | ||||||||||||
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Total | 1,312 | 970 | 1,929 | 1,423 | ||||||||||||
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The operating lease payments charged to profit before income tax for the year ended 31 December 20142017 were RMB774RMB1,204 million (2013: RMB736(2016: RMB994 million).
(c) | Operating lease commitments - as lessor |
The future minimum rentals receivable undernon-cancellable operating leases are as follows:
As at 31 December 2014 RMB million | As at 31 December 2013 RMB million | |||||||||||||||
As at 31 December 2017 RMB million | As at 31 December 2016 RMB million | |||||||||||||||
Not later than one year | 207 | 144 | 254 | 186 | ||||||||||||
Later than one year but not later than five years | 361 | 247 | 411 | 267 | ||||||||||||
Later than five years | 17 | 57 | 76 | 10 | ||||||||||||
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Total | 585 | 448 | 741 | 463 | ||||||||||||
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F-89F-97