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SECURITIES AND EXCHANGE COMMISSION
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | 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 |
(Jurisdiction of incorporation or organization)
Xicheng District
Beijing 100033, China
(Address of principal executive offices)
16 Financial Street
Xicheng District
Beijing 100033, China
Tel: (86-10) 6363-1191
Fax: (86-10) 6657-5112
Email: liyh@e-chinalife.com
(Name, Telephone, Email and/or Facsimile Number and Address of Company Contact Person)
Title of each class | Name of each exchange on which registered | |
American depositary shares | New York Stock Exchange | |
H shares, par value RMB1.00 per share | 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 15 H shares. |
None.
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None.
(Title of Class)
Large accelerated filerþ | Accelerated filero | Non-accelerated filero |
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Exhibit 12.2 | ||||||||
Exhibit 13.1 |
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• | future developments in the insurance industry in China; |
• | the industry regulatory environment as well as the industry outlook generally; |
• | the amount and nature of, and potential for, future development of our business; |
• | the outcome of litigation and regulatory proceedings that we currently face or may face in the future; |
• | our business strategy and plan of operations; |
• | the prospective financial information regarding our business; |
• | our dividend policy; and |
• | information regarding our embedded value. |
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ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS. |
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE. |
ITEM 3. | KEY INFORMATION. |
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For the year ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
IFRS | RMB | RMB | RMB | US$ | ||||||||||||
Consolidated Statement of Comprehensive Income | (in millions except for per share data) | |||||||||||||||
Revenues | ||||||||||||||||
Gross written premiums | 265,656 | 275,970 | 318,229 | 48,217 | ||||||||||||
Less: premiums ceded to reinsurers | (156 | ) | (158 | ) | (177 | ) | (27 | ) | ||||||||
Net written premiums | 265,500 | 275,812 | 318,052 | 48,190 | ||||||||||||
Net change in unearned premium reserves | (323 | ) | (735 | ) | 36 | 5 | ||||||||||
Net premiums earned | 265,177 | 275,077 | 318,088 | 48,195 | ||||||||||||
Investment income | 44,946 | 38,890 | 48,872 | 7,405 | ||||||||||||
Net realized gains/(losses) on financial assets | (5,964 | ) | 21,244 | 15,841 | 2,400 | |||||||||||
Net fair value gains/(losses) through income | (7,194 | ) | 1,449 | 280 | 42 | |||||||||||
Other income | 3,420 | 2,630 | 2,757 | 418 | ||||||||||||
Total revenues | 300,385 | 339,290 | 385,838 | 58,460 | ||||||||||||
Benefits, claims and expenses | ||||||||||||||||
Insurance benefits and claims | ||||||||||||||||
Life insurance death and other benefits | (89,659 | ) | (74,858 | ) | (71,237 | ) | (10,793 | ) | ||||||||
Accident and health claims and claim adjustment expenses | (7,641 | ) | (7,808 | ) | (8,740 | ) | (1,324 | ) | ||||||||
Increase in insurance contracts liabilities | (134,649 | ) | (154,372 | ) | (199,655 | ) | (30,251 | ) | ||||||||
Investment contract benefits | (1,931 | ) | (2,142 | ) | (1,950 | ) | (295 | ) | ||||||||
Policyholder dividends resulting from participation in profits | (1,671 | ) | (14,487 | ) | (13,224 | ) | (2,004 | ) | ||||||||
Underwriting and policy acquisition costs | (24,200 | ) | (22,936 | ) | (27,256 | ) | (4,130 | ) | ||||||||
Administrative expenses | (16,652 | ) | (18,719 | ) | (20,285 | ) | (3,073 | ) | ||||||||
Other operating expenses | (3,409 | ) | (2,390 | ) | (3,655 | ) | (554 | ) | ||||||||
Statutory insurance fund contribution | (558 | ) | (537 | ) | (599 | ) | (91 | ) | ||||||||
Total benefits, claims and expenses | (280,370 | ) | (298,249 | ) | (346,601 | ) | (52,515 | ) | ||||||||
Share of results of associates | (56 | ) | 704 | 1,771 | 268 | |||||||||||
Profit before income tax | 19,959 | 41,745 | 41,008 | 6,213 | ||||||||||||
Income tax | (685 | ) | (8,709 | ) | (7,197 | ) | (1,090 | ) | ||||||||
Net profit | 19,274 | 33,036 | 33,811 | 5,123 | ||||||||||||
Attributable to: | ||||||||||||||||
- Equity holders of the Company | 19,137 | 32,881 | 33,626 | 5,095 | ||||||||||||
- Non-controlling interests | 137 | 155 | 185 | 28 | ||||||||||||
Basic and diluted earnings per share(1) | 0.68 | 1.16 | 1.19 | 0.18 | ||||||||||||
Other comprehensive income/(loss) | ||||||||||||||||
Fair value (losses)/gains on available-for-sale securities | (61,622 | ) | 39,470 | (13,666 | ) | (2,071 | ) | |||||||||
Amount transferred to net profit from other comprehensive income | 4,878 | (21,040 | ) | (15,763 | ) | (2,388 | ) | |||||||||
Portion of fair value (losses)/gains on available-for-sale securities attributable to participating policyholders | 11,702 | (3,999 | ) | 7,983 | 1,210 | |||||||||||
Share of other comprehensive income/(loss) of associates | 291 | (70 | ) | (131 | ) | (20 | ) | |||||||||
Others | (3 | ) | — | (1 | ) | (0.15 | ) | |||||||||
Income tax relating to components of other comprehensive income/(loss) | 11,260 | (3,607 | ) | 5,362 | 812 | |||||||||||
Other comprehensive income/(loss) for the year | (33,494 | ) | 10,754 | (16,216 | ) | (2,457 | ) | |||||||||
Total comprehensive income/(loss) for the year | (14,220 | ) | 43,790 | 17,595 | 2,666 | |||||||||||
Attributable to | ||||||||||||||||
- Equity holders of the Company | (14,316 | ) | 43,626 | 17,423 | 2,640 | |||||||||||
- Non-controlling interests | 96 | 164 | 172 | 26 |
(1) | Numbers for the years ended December 31, 2008, December 31, 2009 and December 31, 2010 are based on the weighted average number of 28,264,705,000 shares in issue during such years. |
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As of December 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
IFRS | RMB | RMB | RMB | US$ | ||||||||||||
Consolidated Statement of Financial Position | (in millions) | |||||||||||||||
Assets | ||||||||||||||||
Property, plant and equipment | 16,720 | 17,467 | 18,946 | 2,871 | ||||||||||||
Investments in associates | 7,891 | 8,470 | 20,892 | 3,165 | ||||||||||||
Held-to-maturity securities | 211,929 | 235,099 | 246,227 | 37,307 | ||||||||||||
Loans | 17,926 | 23,081 | 36,543 | 5,537 | ||||||||||||
Term deposits | 228,272 | 344,983 | 441,585 | 66,907 | ||||||||||||
Statutory deposits-restricted | 6,153 | 6,153 | 6,153 | 932 | ||||||||||||
Available-for-sale securities | 424,939 | 517,499 | 548,121 | 83,049 | ||||||||||||
Securities at fair value through income | 14,099 | 9,133 | 9,762 | 1,479 | ||||||||||||
Accrued investment income | 13,149 | 14,208 | 18,193 | 2,757 | ||||||||||||
Premiums receivable | 6,433 | 6,818 | 7,274 | 1,102 | ||||||||||||
Reinsurance assets | 940 | 832 | 830 | 126 | ||||||||||||
Other assets | 4,957 | 6,317 | 8,199 | 1,242 | ||||||||||||
Cash and cash equivalents | 34,085 | 36,197 | 47,854 | 7,251 | ||||||||||||
Total assets | 987,493 | 1,226,257 | 1,410,579 | 213,724 | ||||||||||||
Liabilities and equity | ||||||||||||||||
Liabilities | ||||||||||||||||
Insurance contracts | 662,865 | 818,164 | 1,018,135 | 154,263 | ||||||||||||
Investment contracts | 65,063 | 67,326 | 70,171 | 10,632 | ||||||||||||
Securities sold under agreements to repurchase | 11,390 | 33,553 | 23,065 | 3,495 | ||||||||||||
Policyholder dividends payable | 43,178 | 54,587 | 52,828 | 8,004 | ||||||||||||
Annuity and other insurance balances payable | 4,980 | 5,721 | 8,275 | 1,254 | ||||||||||||
Premiums received in advance | 1,811 | 1,804 | 1,880 | 285 | ||||||||||||
Other liabilities | 11,057 | 11,978 | 13,746 | 2,083 | ||||||||||||
Deferred tax liabilities | 10,344 | 16,361 | 11,776 | 1,784 | ||||||||||||
Current income tax liabilities | 1,668 | 3,850 | 34 | 5 | ||||||||||||
Statutory insurance fund | 266 | 137 | 194 | 29 | ||||||||||||
Total liabilities | 812,622 | 1,013,481 | 1,200,104 | 181,834 | ||||||||||||
Equity | ||||||||||||||||
Share capital | 28,265 | 28,265 | 28,265 | 4,283 | ||||||||||||
Reserves | 84,447 | 102,787 | 100,512 | 15,229 | ||||||||||||
Retained earnings | 61,235 | 80,020 | 79,933 | 12,111 | ||||||||||||
Attributable to equity holders of the Company | 173,947 | 211,072 | 208,710 | 31,623 | ||||||||||||
Non-controlling interests | 924 | 1,704 | 1,765 | 267 | ||||||||||||
Total equity | 174,871 | 212,776 | 210,475 | 31,890 | ||||||||||||
Total liabilities and equity | 987,493 | 1,226,257 | 1,410,579 | 213,724 | ||||||||||||
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RMB per US$ | HK$ per US$ | |||||||||||||||
High | Low | High | Low | |||||||||||||
October 2010 | 6.6912 | 6.6397 | 7.7648 | 7.7515 | ||||||||||||
November 2010 | 6.6892 | 6.6330 | 7.7656 | 7.7501 | ||||||||||||
December 2010 | 6.6745 | 6.6000 | 7.7833 | 7.7612 | ||||||||||||
January 2011 | 6.6364 | 6.5814 | 7.7978 | 7.7683 | ||||||||||||
February 2011 | 6.5965 | 6.5520 | 7.7957 | 7.7823 | ||||||||||||
March 2011 | 6.5743 | 6.5510 | 7.8012 | 7.7858 | ||||||||||||
April 2011 (through April 15, 2011) | 6.5477 | 6.5310 | 7.7784 | 7.7671 |
Period-end rate | Average rate | |||||||||||||||
RMB per | RMB per | |||||||||||||||
US$ | HK$ per US$ | US$ | HK$ per US$ | |||||||||||||
2006 | 7.8041 | 7.7771 | 7.9579 | 7.7685 | ||||||||||||
2007 | 7.2946 | 7.7984 | 7.6072 | 7.8008 | ||||||||||||
2008 | 6.8225 | 7.7499 | 6.9477 | 7.7814 | ||||||||||||
2009 | 6.8259 | 7.7536 | 6.8295 | 7.7513 | ||||||||||||
2010 | 6.6000 | 7.7810 | 6.7603 | 7.7692 | ||||||||||||
2011 (through April 15, 2011) | 6.5317 | 7.7733 | 6.5654 | 7.7868 |
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• | engaging in misrepresentation or fraudulent activities when marketing or selling insurance policies or annuity contracts to customers; |
• | hiding unauthorized or unsuccessful activities, resulting in unknown and unmanaged risks or losses; or |
• | otherwise not complying with laws or our control policies or procedures. |
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• | Property and casualty companies.Beginning on January 1, 2003, property and casualty insurance companies have been permitted to sell accident and short-term health insurance products, but only with regulatory approval. There were 53 property and casualty insurers as of December 31, 2010. We believe property and casualty insurers have the competitive advantage of being able to bundle, or cross-sell, accident and health products with the other non-life insurance products that they are currently selling to their existing and potential customers. We believe this will lead to greater competition in the accident and health insurance sectors, especially for the group accident and short-term health insurance products we offer. On December 30, 2006, we established a property and casualty joint venture, CLPCIC, with CLIC. While this joint venture mainly focuses on property insurance business, it also develops accident and short-term health insurance business. Its operations may have a negative impact on sales of accident and short-term health insurance products by our wholly-owned businesses in the future. |
• | Mutual fund companies, commercial banks and other financial services providers. We face 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 securities brokerage firms licensed to manage separate accounts. Recent changes in Chinese investment regulations relaxing rules on the formation of mutual funds and sales of securities have led to greater availability and variety of financial investment products. These products may prove to be attractive to the public and thereby adversely affect the sale of some products we offer, including participating life insurance policies and annuities. |
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• | the extent of government involvement; |
• | its level of development; |
• | its growth rate; and |
• | its control of foreign exchange. |
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ITEM 4. | INFORMATION ON THE COMPANY |
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• | 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 a 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 applicable reinsurance contracts specified in an annex to the restructuring agreement. We refer to these policies in this annual report as the “transferred policies”. All other insurance policies were retained by CLIC. We refer to these policies as the “non-transferred policies”. We assumed all obligations and liabilities of CLIC under the transferred policies. CLIC continues to be responsible for its liabilities and obligations under the non-transferred policies following the effective date. |
• | Cash, specified investment assets and various other assets were also transferred to us. |
• | CLIC agreed not to, directly or indirectly through its subsidiaries and affiliates, participate, operate or engage in life, accident and health insurance businesses and any other business in China which may compete with our insurance business. CLIC also undertook (1) to refer to us any corporate business opportunity that falls within our business scope and which may directly or indirectly compete with our business and (2) to grant us a right of first refusal, on the same terms and conditions, to purchase any new business developed by CLIC. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Continuing Related Party Transactions with CLIC”. |
• | Substantially all of the management personnel and employees who were employed by CLIC in connection with the transferred assets and business were transferred to us. Some management and personnel remained with CLIC. |
• | CLIC retained the trademarks used in our business, including the “China Life” name in English and Chinese and the “ball” logos, and granted us and our branches a royalty-free license to use these trademarks. CLIC and its subsidiaries and affiliates will be entitled to use these trademarks, but CLIC may not license or transfer these trademarks to any other third parties. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Continuing Related Party Transactions with CLIC”. |
• | CLIC’s contracts with its agents and other intermediaries were transferred to us. |
• | We entered into various agreements under which we provide policy administration services to CLIC for the non-transferred policies, manage CLIC’s investment assets and lease office space from CLIC for our branch and field offices. See “Item 7. Major Shareholders and Related Party Transactions”. |
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As of or for the year ended | Annual | |||||||||||||||||||
December 31, | growth rate | |||||||||||||||||||
2008 | 2009 | 2010 | 2010 | (2008-2010) | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
(in millions, except as otherwise indicated) | ||||||||||||||||||||
Individual life gross written premiums | 252,130 | 261,715 | 302,781 | 45,876 | 9.6 | % | ||||||||||||||
Individual life liabilities of insurance contracts | 654,037 | 808,591 | 1,008,201 | 152,758 | 24.2 | % | ||||||||||||||
Individual life liabilities of investment contracts | 10,928 | 14,579 | 15,664 | 2,373 | 19.7 | % |
For the year ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||
(in millions) | ||||||||||||||||
Gross written premiums | ||||||||||||||||
Whole life and term life insurance | 35,729 | 38,665 | 39,747 | 6,022 | ||||||||||||
Endowment | 188,099 | 184,841 | 220,505 | 33,410 | ||||||||||||
Annuities | 28,302 | 38,209 | 42,529 | 6,444 |
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As of or for the year ended | Annual | |||||||||||||||||||
December 31, | growth rate | |||||||||||||||||||
2008 | 2009 | 2010 | 2010 | (2008-2010) | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
(in millions, except as otherwise indicated) | ||||||||||||||||||||
Group life gross written premiums | 340 | 190 | 473 | 72 | 17.9 | % | ||||||||||||||
Group life liabilities of insurance contracts | 811 | 632 | 695 | 105 | (7.4 | )% | ||||||||||||||
Group life liabilities of investment contracts | 54,135 | 52,747 | 54,507 | 8,259 | 0.3 | % |
For the year ended December 31 | ||||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||
(in millions) | ||||||||||||||||
Gross written premiums: | ||||||||||||||||
Group annuities | 41 | 18 | 21 | 3 | ||||||||||||
Group whole life and term life insurance | 299 | 172 | 452 | 68 |
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As of or for the year ended | Annual | |||||||||||||||||||
December 31, | growth rate | |||||||||||||||||||
2008 | 2009 | 2010 | 2010 | (2008-2010) | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
(in millions, except as otherwise indicated) | ||||||||||||||||||||
Short-term accident insurance premiums | 6,221 | 7,076 | 7,657 | 1,160 | 10.9 | % | ||||||||||||||
Short-term health insurance premiums | 6,965 | 6,989 | 7,318 | 1,109 | 2.5 | % | ||||||||||||||
Accident and health reserves for claims and claim adjustment expenses (gross) | 2,780 | 2,944 | 3,304 | 501 | 9.0 | % | ||||||||||||||
Accident and health insurance unearned premium reserves (gross) | 5,237 | 5,997 | 5,935 | 899 | 6.5 | % |
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• | for individual insurance distribution channels, the Fu Lu Man Tang pension annuity product, which may meet diversified customer needs by allowing the customers to determine certain terms of this product, including the starting age of receiving the annuity payment, the annuity payment period and types of payment received; the Fu Lu Participating series, including Fu Lu Jin Zun Participating Endowment and Fu Lu Cheng Xiang Participating Endowment, with improved wealth management and protective functions; the Fu Man Yi Sheng Participating Endowment, which enhances the series of periodic return products; and the Xiang Tai series, including Xiang Tai Term Life and Xiang Tai Whole Life, which enhances the product’s protective function to satisfy a group of customers with particular needs for protection. In addition, we also developed and introduced our first general supplemental major disease product, China Life Supplemental Major Disease Insurance (Class A), which may be packaged with our major individual life insurance products to improve the attractiveness of these major insurance products; |
• | for bancassurance distribution channels, the upgraded and modified Hong Tai and Kang You products, including New Hong Tai Participating Endowment and Supplemental Kang You Major Disease Insurance (Version 2010). New Hong Tai increases the guaranteed rates paid to the customers and the embedded value of the product, and the upgraded Kang You (Version 2010) may be packaged with other major bancassurance products, which may enhance the protective function of bancassurance products; |
• | our first group investment-linked insurance product, Wen Ying Yi Sheng Group Annuity Investment-linked Insurance, to be marketed through group insurance channels; and |
• | the An Xin Endowment and the Supplemental An Xin Long-term Accident Insurance, which are expected to be particularly attractive for marketing through telephone sales. |
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As of December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Number of exclusive agents (approximately) | 716,000 | 777,000 | 706,000 | |||||||||
Number of field offices | 16,813 | 19,000 | 18,953 |
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• | improving the overall productivity of our exclusive agents by expanding our customer-oriented market segmentation sales approach and standardized sales services to all agents nationwide; |
• | motivating our exclusive agents with an improved performance-based compensation scheme; |
• | building a more professional exclusive agent force by improving our training programs and enhancing our training efforts and increasing the number of qualified exclusive agents; |
• | improving the quality of our exclusive agent force by expanding our recruitment program and standardizing our recruitment procedures and admission requirements; and |
• | improving the efficiency of our exclusive agents by providing sales support and equipments, including expanding the China Life E-Home sales support system nationwide and equipping our more productive exclusive agents with personal electronic devices to further enhance their marketing, time management and customer service capabilities. |
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• | In the individual life insurance market, Ping An, China Pacific Life and we collectively represented 63% of total individual life insurance premiums in 2009. We primarily compete based on the nationwide reach of our sales network and the level of services we provide, as well as our strong brand name. |
• | In the group life insurance market, Ping An, China Pacific Life and we collectively represented 61% of total group life insurance premiums in 2009. We primarily compete based on the nationwide reach of our sales network and the level of services we provide, as well as our relationships and reputation among large companies and institutions in China. |
• | In the accident insurance market, Ping An, China Pacific Life and we collectively represented 71% of total accident premiums in 2009. We primarily compete based on the nationwide reach of our sales network and the level of services we provide and our strong brand name, as well as our cooperative arrangements with other companies and institutions. |
• | In the health insurance market, Ping An, China Pacific Life and we collectively represented 58% of total health premiums in 2009. We primarily compete based on the nationwide reach of our sales network, the level of services we provide, our multi-layered managed care scheme and systems of policy review and claim management, as well as our strong brand name. |
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Individual | ||||||||||||||||||||
Life | Group life | Accident | Health | Total | ||||||||||||||||
Premiums | Premiums | Premiums | Premiums | Premiums | ||||||||||||||||
market share | market share | market share | market share | market share | ||||||||||||||||
China Life | 38 | % | 39 | % | 45 | % | 22 | % | 38 | % | ||||||||||
Ping An Insurance Company of China, Ltd. | 16 | % | 16 | % | 9 | % | 29 | % | 17 | % | ||||||||||
China Pacific Life Insurance Co. Ltd. | 9 | % | 6 | % | 17 | % | 7 | % | 8 | % | ||||||||||
New China Life Insurance Co. Ltd. | 8 | % | 0 | % | 4 | % | 7 | % | 8 | % | ||||||||||
Tai Kang Life Insurance Co. Ltd. | 8 | % | 16 | % | 4 | % | 6 | % | 9 | % | ||||||||||
Others(1) | 20 | % | 23 | % | 21 | % | 29 | % | 20 | % | ||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
(1) | Others include Taiping Life Insurance Co. Ltd., Minsheng Life Insurance Co., Ltd., Sino Life Insurance Co., Ltd., PICC Life Insurance Co., Ltd., PICC Health Insurance Co., Ltd., Hua Tai Life Insurance Co., Ltd., Union Life Insurance Co., Ltd., Greatwall Life Insurance Co., Ltd., Manulife-Sinochem Life Insurance Co. Ltd., Pacific-Antai Life Insurance Co. Ltd., AXA-Minmetals Assurance Co., Ltd., China CMG Life Insurance Co., Ltd., Citic-Prudential Life Insurance Co., Ltd., John Hancock-Tianan Life Insurance Co. Ltd., Generali China Life Insurance Co. Ltd., Sun Life Everbright Life Insurance Co. Ltd., ING Capital Life Insurance Co., Ltd., Haier New York Life Insurance Co., Ltd., Aviva-COFCO Life Insurance Co., Ltd., AEGON-CNOOC Life Insurance Co., Ltd., CIGNA — CMC Life Insurance Co., Ltd., Nissay-SVA Life Insurance Co., Ltd., Heng An Standard Life Insurance Co., Ltd., Skandia-BSM Life Insurance Co., Ltd., Sino-US Metlife Insurance Co., Ltd. and Shanghai, Guangdong, Shenzhen, Beijing, Jiangsu, Dongguan and Jiangmen branches of American International Assurance Co., Ltd., Cathay Life Insurance Co., Ltd., Met Life Insurance Co., Ltd., Allianz China Life Insurance Co., Ltd., Samsung Air China life Insurance Co., Ltd., Jiahe Life Insurance Co., Ltd., Dragon Life Insurance Co., Ltd., Zhongxin Grand Oriental Person’s Life Insurance Co., Ltd., Kunlun Health Insurance Co., Ltd., Huaxia Life Insurance Co., Ltd., Sinatay Life Insurance Co., Ltd., Yingda Taihe Life Insurance Co., Ltd., Happy Life Insurance Co., Ltd., Sino-French Life Insurance Co., Ltd., Sunshine Life Insurance Corporation Limited, Pingan Pension Co., Ltd., Pingan Health Insurance Co., Ltd., Guohua Life Insurance Co., Ltd., Hexie Health Insurance Co., Ltd., Aeon Life Insurance Co., Ltd., China Post Life Insurance Co., Ltd., King Dragon Life Insurance Co., Ltd., and Shin Kong — HNA Life Insurance Co., Ltd. |
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As of December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Carrying | % of | Carrying | % of | Carrying | % of | |||||||||||||||||||
value | total | value | total | value | total | |||||||||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||
Cash and cash equivalents | 34,085 | 3.6 | % | 36,197 | 3.1 | % | 47,854 | 3.6 | % | |||||||||||||||
Term deposits (excluding structured deposits) | 225,367 | 24.0 | % | 344,710 | 29.4 | % | 441,585 | 33.0 | % | |||||||||||||||
Structured deposits | 2,905 | 0.3 | % | 273 | 0.0 | % | — | 0.0 | % | |||||||||||||||
Statutory deposits—restricted | 6,153 | 0.7 | % | 6,153 | 0.5 | % | 6,153 | 0.5 | % | |||||||||||||||
Debt securities, held-to-maturity | 211,929 | 22.6 | % | 235,099 | 20.1 | % | 246,227 | 18.4 | % | |||||||||||||||
Debt Securities, available-for-sale | 356,220 | 38.0 | % | 340,825 | 29.1 | % | 354,452 | 26.5 | % | |||||||||||||||
Debt securities, securities at fair value through income (held-for-trading) | 7,736 | 0.8 | % | 6,391 | 0.5 | % | 7,513 | 0.6 | % | |||||||||||||||
Debt securities | 575,885 | 61.4 | % | 582,315 | 49.7 | % | 608,192 | 45.5 | % | |||||||||||||||
Loans | 17,926 | 1.9 | % | 23,081 | 2.0 | % | 36,543 | 2.7 | % | |||||||||||||||
Equity securities, available for sale | 68,719 | 7.3 | % | 176,674 | 15.1 | % | 193,669 | 14.5 | % | |||||||||||||||
Equity securities, securities at fair value through income (held-for-trading) | 6,363 | 0.7 | % | 2,742 | 0.2 | % | 2,249 | 0.2 | % | |||||||||||||||
Equity securities | 75,082 | 8.0 | % | 179,416 | 15.3 | % | 195,918 | 14.7 | % | |||||||||||||||
Resale agreements | — | — | — | — | — | — | ||||||||||||||||||
Total investment assets | 937,403 | 100 | % | 1,172,145 | 100 | % | 1,336,245 | 100 | % | |||||||||||||||
Average investment assets balance | 893,806 | 1,054,774 | 1,254,195 |
• | interest rate risk, relating to the market price and cash flow variability associated with changes in interest rates; |
• | credit risk, relating to the uncertainty associated with the continued ability of a given obligor to make timely payments of principal and interest; |
• | market valuation risk, relating to the changes in market value for our investments, particularly our securities investment fund holdings and shares listed on the Chinese securities exchanges, which are denominated and traded in Renminbi; |
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• | liquidity risk, relating to the lack of liquidity in many of the debt securities markets we invest in, due to contractual restrictions on transfer or the size of our investments in relation to the overall market; and |
• | currency exchange risk, relating to the impact of changes in the value of the Renminbi against the U.S. dollar and other currencies on the value of our investments. |
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As of or for the years ended December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Yield(1) | Amount | Yield(1) | Amount | Yield(1) | Amount | |||||||||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||
Cash, cash equivalents and term deposits: | ||||||||||||||||||||||||
Investment income | 4.9 | % | 11,378 | 3.3 | % | 10,805 | 3.7 | % | 16,363 | |||||||||||||||
Ending assets: cash and cash equivalents | 34,085 | 36,197 | 47,854 | |||||||||||||||||||||
Ending assets: statutory deposits—restricted | 6,153 | 6,153 | 6,153 | |||||||||||||||||||||
Ending assets: term deposits | 228,272 | 344,983 | 441,585 | |||||||||||||||||||||
Ending assets | 268,510 | 387,333 | 495,592 | |||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Investment income | 4.5 | % | 22,690 | 4.1 | % | 23,759 | 4.3 | % | 25,586 | |||||||||||||||
Net realized gains/(losses) | 2,445 | 3,346 | 584 | |||||||||||||||||||||
Net fair value gains/(losses) through income | 300 | (277 | ) | 403 | ||||||||||||||||||||
Total | 25,435 | 26,828 | 26,573 | |||||||||||||||||||||
Ending assets | 575,885 | 582,315 | 608,192 | |||||||||||||||||||||
Loans: | ||||||||||||||||||||||||
Investment income | 5.6 | % | 696 | 5.7 | % | 1,172 | 5.3 | % | 1,583 | |||||||||||||||
Ending assets | 17,926 | 23,081 | 36,543 | |||||||||||||||||||||
Equity securities: | ||||||||||||||||||||||||
Investment income | 7.5 | % | 10,093 | 2.5 | % | 3,146 | 2.8 | % | 5,251 | |||||||||||||||
Net realized gains/(losses) | (8,409 | ) | 17,898 | 15,257 | ||||||||||||||||||||
Net fair value gains/(losses) through income | (7,494 | ) | 1,726 | (486 | ) | |||||||||||||||||||
Total | (5,810 | ) | 22,770 | 20,022 | ||||||||||||||||||||
Ending assets | 75,082 | 179,405 | 195,918 | |||||||||||||||||||||
Resale and repurchase agreements: | ||||||||||||||||||||||||
Resale agreements: | ||||||||||||||||||||||||
Investment income | 3.0 | % | 89 | N/A | 8 | N/A | 89 | |||||||||||||||||
Total | 89 | 8 | 89 | |||||||||||||||||||||
Ending assets | — | — | — | |||||||||||||||||||||
Repurchase agreements: | ||||||||||||||||||||||||
Investment expense | (438 | ) | (111 | ) | (304 | ) | ||||||||||||||||||
Ending assets | 11,390 | 33,553 | 23,065 | |||||||||||||||||||||
Investments in associates: | ||||||||||||||||||||||||
Investment income/(losses) | (0.8 | %) | (56 | ) | 8.6 | % | 704 | 12.1 | % | 1,771 | ||||||||||||||
Ending assets | 7,891 | 8,470 | 20,892 |
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As of or for the years ended December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Yield(1) | Amount | Yield(1) | Amount | Yield(1) | Amount | |||||||||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||
Total investments: | ||||||||||||||||||||||||
Investment income | 3.48 | % | 44,946 | 5.78 | % | 38,890 | 5.11 | % | 48,872 | |||||||||||||||
Net realized gains/(losses) | (5,964 | ) | 21,244 | 15,841 | ||||||||||||||||||||
Net fair value gains/(losses) through income | (7,194 | ) | 1,449 | 280 | ||||||||||||||||||||
Business tax and extra charges for investment | (650 | ) | (662 | ) | (842 | ) | ||||||||||||||||||
Total | 31,138 | 60,921 | 64,151 | |||||||||||||||||||||
Ending assets | 937,403 | 1,172,145 | 1,336,245 |
(1) | Yields for 2008 2009 and 2010 are calculated by dividing the investment income for that year by the average of the ending balances of that year and the previous year. |
As of December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Amortized | Amortized | Amortized | ||||||||||
cost | cost | cost | ||||||||||
(RMB in millions) | ||||||||||||
Due in one year or less | 64,621 | 84,393 | 19,268 | |||||||||
Due after one year and through five years | 155,320 | 196,090 | 340,917 | |||||||||
Due after five years and through ten years | 6,759 | 64,500 | 81,400 | |||||||||
Due after ten years | 1,572 | — | — | |||||||||
Total term deposits and structured term deposits | 228,272 | 344,983 | 441,585 | |||||||||
As of December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Amortized | Amortized | Amortized | ||||||||||
cost | cost | cost | ||||||||||
(RMB in millions) | ||||||||||||
Industrial & Commercial Bank of China | 7,939 | 2,700 | — | |||||||||
Agriculture Bank of China | 18,354 | 16,883 | 29,300 | |||||||||
Bank of China | 5,137 | 70,400 | 108,200 | |||||||||
China Construction Bank | 18,200 | 21,000 | 18,200 | |||||||||
Other banks | 178,642 | 234,000 | 282,885 | |||||||||
Total term deposits and structured term deposits | 228,272 | 344,983 | 438,585 | |||||||||
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• | Chinese government bonds; | ||
• | government agency bonds (including local government bonds issued and repaid by the Ministry of Finance as agent, central bank notes, financial bonds issued by state-owned policy banks of the Chinese government, and RMB-denominated bonds issued by international development institutions); | ||
• | corporate bonds (including financial bonds issued by commercial banks, corporate bonds, convertible corporate bonds, short-term financing bonds and medium-term notes); and | ||
• | subordinated bonds and debt (including subordinated bonds issued by state-owned policy banks of the Chinese government, subordinated bonds issued by commercial banks, subordinated debt with fixed terms issued by commercial banks and subordinated debt with fixed terms issued by insurance companies). |
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As of December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||||||||||||||||||||||||||
Amortized | % of | Estimated | % of | Amortized | % of | Estimated | % of | Amortized | % of | Estimated | % of | |||||||||||||||||||||||||||||||||||||
cost | total | fair value | total | cost | total | fair value | total | cost | total | fair value | total | |||||||||||||||||||||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities, available —for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 73,130 | 13.2 | % | 80,006 | 13.5 | % | 50,623 | 8.6 | % | 51,996 | 8.9 | % | 57,727 | 9.5 | % | 57,871 | 9.5 | % | ||||||||||||||||||||||||||||||
Government agency bonds | 180,135 | 32.5 | % | 191,121 | 32.3 | % | 167,313 | 28,4 | % | 165,231 | 28.3 | % | 145,522 | 23.8 | % | 145,538 | 24.0 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 64,388 | 11.6 | % | 67,505 | 11.4 | % | 103,603 | 17.7 | % | 102,553 | 17.6 | % | 127,225 | 20.8 | % | 125,423 | 20.7 | % | ||||||||||||||||||||||||||||||
Subordinated bonds/debt | 17,265 | 3.1 | % | 17,588 | 3.0 | % | 21,198 | 3.6 | % | 21,045 | 3.6 | % | 26,541 | 4.3 | % | 25,620 | 4.2 | % | ||||||||||||||||||||||||||||||
Total debt securities, available-for-sale | 334,918 | 60.4 | % | 356,220 | 60.1 | % | 342,737 | 58.4 | % | 340,825 | 58.5 | % | 357,015 | 58.5 | % | 354,452 | 58.5 | % | ||||||||||||||||||||||||||||||
Debt securities, held to maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 102,688 | 18.5 | % | 112,681 | 19.0 | % | 103,980 | 17.8 | % | 107,432 | 18.4 | % | 105,006 | 17.2 | % | 105,720 | 17.4 | % | ||||||||||||||||||||||||||||||
Government agency bonds | 79,400 | 14.3 | % | 84,558 | 14.3 | % | 84,619 | 14.5 | % | 82,728 | 14.2 | % | 90,230 | 14.8 | % | 89,243 | 14.7 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 3,267 | 0.6 | % | 3,494 | 0.6 | % | 3,139 | 0.5 | % | 3,245 | 0.6 | % | 3,138 | 0.5 | % | 3,232 | 0.5 | % | ||||||||||||||||||||||||||||||
Subordinated bonds/debt | 26,574 | 4.8 | % | 27,865 | 4.7 | % | 43,361 | 7.4 | % | 42,264 | 7.3 | % | 47,853 | 7.8 | % | 46,109 | 7.6 | % | ||||||||||||||||||||||||||||||
Total debt securities, held to maturity | 211,929 | 38.2 | % | 228,598 | 38.6 | % | 235,099 | 40.2 | % | 235,669 | 40.4 | % | 246,227 | 40.3 | % | 244,304 | 40.3 | % | ||||||||||||||||||||||||||||||
Debt securities, securities at fair value through income (held-for-trading) | ||||||||||||||||||||||||||||||||||||||||||||||||
Government bonds | 1,404 | 0.3 | % | 1,428 | 0.2 | % | 2,483 | 0.4 | % | 2,438 | 0.4 | % | 898 | 0.1 | % | 883 | 0.1 | % | ||||||||||||||||||||||||||||||
Government agency bonds | 4,525 | 0.8 | % | 4,660 | 0.8 | % | 3,559 | 0.6 | % | 3,549 | 0.6 | % | 1,918 | 0.3 | % | 1,915 | 0.3 | % | ||||||||||||||||||||||||||||||
Corporate bonds | 1,614 | 0.3 | % | 1,648 | 0.3 | % | 403 | 0.1 | % | 404 | 0.1 | % | 4,415 | 0.7 | % | 4,715 | 0.8 | % | ||||||||||||||||||||||||||||||
Subordinated bonds/debt | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Total debt securities, securities at fair value through income (held-for-trading) | 7,543 | 1.4 | % | 7,736 | 1.3 | % | 6,445 | 1.1 | % | 6,391 | 1.1 | % | 7,231 | 1.2 | % | 7,513 | 1.2 | % | ||||||||||||||||||||||||||||||
Total debt securities | 554,583 | 100 | % | 592,554 | 100 | % | 580,623 | 100 | % | 582,834 | 100 | % | 610,473 | 100 | % | 606,269 | 100 | % | ||||||||||||||||||||||||||||||
As of December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Amortized | Estimated | Amortized | Estimated | Amortized | Estimated | |||||||||||||||||||
cost | fair value | cost | fair value | cost | fair value | |||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||
Due in one year or less | 31,757 | 32,294 | 8,844 | 8,886 | 22,688 | 22,962 | ||||||||||||||||||
Due after one year and through five years | 97,909 | 103,801 | 79,641 | 82,511 | 65,609 | 67,078 | ||||||||||||||||||
Due after five years and through ten years | 168,978 | 183,617 | 165,523 | 169,484 | 177,546 | 179,338 | ||||||||||||||||||
Due after ten years | 248,203 | 265,106 | 323,827 | 315,612 | 337,398 | 329,377 | ||||||||||||||||||
Total debt securities | 546,847 | 584,818 | 577,835 | 576,493 | 603,241 | 598,755 | ||||||||||||||||||
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As of December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Carrying | % of | Carrying | % of | Carrying | % of | |||||||||||||||||||
value | total | value | total | value | total | |||||||||||||||||||
(RMB in millions, except as otherwise indicated) | ||||||||||||||||||||||||
Open-end | 31,047 | 91.4 | % | 68,343 | 89.8 | % | 87,943 | 91.3 | % | |||||||||||||||
Closed-end | 2,906 | 8.6 | % | 7,779 | 10.2 | % | 8,384 | 8.7 | % | |||||||||||||||
Total | 33,953 | 100 | % | 76,122 | 100 | % | 96,327 | 100 | % | |||||||||||||||
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• | bank deposits; | ||
• | Chinese government bonds; | ||
• | government agency bonds; | ||
• | corporate bonds; | ||
• | stocks; | ||
• | securities investment funds; | ||
• | real property; | ||
• | equity interests of non-listed enterprises; | ||
• | interest rate swaps; | ||
• | overseas investments; and | ||
• | other investment channels as approved by the State Council. |
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• | currency market products such as commercial paper, negotiable deposits, repurchase and resale agreements and currency market funds; | ||
• | fixed income instruments such as bank deposits, structured deposits, bonds, convertible bonds, bond funds, securitization products and trust products, among which, the varieties of bonds in Hong Kong market are limited to bonds publicly issued in Hong Kong by companies listed on Main Board and large state-owned enterprises; | ||
• | equity investments such as stocks, stock investment funds, equity and equity-type products, which, in Hong Kong, are limited to stocks publicly offered and listed on Main Board; and | ||
• | other investments permitted by the PRC Insurance Law and the State Council. |
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• | 18% of the portion of net premium received in the most recent fiscal year net of business tax and other surcharges which is not in excess of RMB 100 million, plus 16% of the portion which are in excess of RMB 100 million; and | ||
• | 26% of the portion of the average annual claims payments during the most recent three fiscal years which is not in excess of RMB 70 million, plus 23% of the portion which is in excess of RMB 70 million. |
• | 4% of the period-end reserves for insurance risks after unbundling of mixed insurance contracts; | ||
• | 4% of the period-end reserves for insurance contracts; | ||
• | 1% of the liabilities for other risks after unbundling of investment-linked insurance contracts; | ||
• | 4% of the liabilities for other risks after unbundling of other mixed insurance contracts; | ||
• | 4% of the liabilities for insurance policies which do not pass the tests for significant insurance risks; | ||
• | 0.1% of the total sums at risk under term life policies, the coverage period of which expires within three years; | ||
• | 0.15% of the total sums at risk under term life policies, the coverage period of which expires within three to five years; | ||
• | 0.3% of the total sums at risk under term life policies, the coverage period of which will not expire within five years; | ||
• | 0.3% of the total sums at risk under whole life policies; and | ||
• | 0.3% of the sums at risk of all other insurance and annuity products with a coverage period longer than one year. |
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(1) | Wholly owned by CLIC | |
(2) | Formerly known as China Life Asset Management (Hong Kong) Company Limited |
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Proportion of Ownership Interest | ||||
Name of Subsidiary | Jurisdiction of Incorporation | Owned by China Life | ||
China Life Asset Management Company Limited | The People’s Republic of China | 60% (directly) | ||
China Life Franklin Asset Management Company Limited(1) | Hong Kong | 50%(2) (indirectly through affiliate) | ||
China Life Pension Company Limited(2) | The People’s Republic of China | 92.2%(3) (directly and indirectly through affiliate) |
(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 87.4% and AMC, which is 60% owned by us, owns 4.8% |
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ITEM 4A. | UNRESOLVED STAFF COMMENTS. |
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS. |
• | Individual life insurance, which offers participating and non-participating life insurance and annuities to individuals. The financial results of our individual long-term health and long-term accident insurance business are also reflected in our individual life insurance business segment. Our individual life insurance business comprises long-term products, including long-term health and long-term accident insurance products, meaning products having a term of more than one year at the date of their issuance. | ||
• | Group life insurance, which offers participating and non-participating life insurance and annuities products to companies and institutions. The financial results of our group long-term health and long-term accident insurance business are also reflected in our group life insurance business segment. Our group life insurance business comprises long-term products. | ||
• | Short-term insurance, which offers short-term accident insurance and health insurance to individuals and groups. Our short-term insurance businesses comprise short-term products, meaning products having a term of one year or less at the date of their execution. |
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• | Individual life insurancehad total gross written premiums of RMB 302,781 million (US$45,876 million) in 2010. | ||
• | Group life insurancehad total gross written premiums of RMB 473 million (US$72 million) in 2010. | ||
• | Short-term insurancehad total gross written premiums of RMB 14,975 million (US$2,269 million) in 2010. |
• | insurance premiums from the sale of life insurance policies and annuity contracts, including participating and non-participating policies and annuity contracts with life contingencies, as well as accident and health insurance products. Net premiums earned accounted for 82.4% of total revenues in 2010. | ||
• | investment income and realized and, in some cases, unrealized gains and losses from our investment assets. Investment income and net realized and unrealized gains and losses accounted for 16.8% of total revenues in 2010. |
• | insurance benefits provided to our policyholders, accident and health claims and claim adjustment expenses; |
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• | increase in insurance contracts liabilities; | ||
• | investment contract benefits; | ||
• | policyholder dividends resulting from participation in profits; | ||
• | underwriting and policy acquisition costs; and | ||
• | administrative and other expenses. |
• | our ability to design and distribute products and services and to introduce new products which gain market acceptance on a timely basis; | ||
• | our ability to price our insurance and investment products at levels that enable us to earn a margin over the costs of providing benefits and the expense of acquiring customers and administering those products; | ||
• | our returns on investment assets; | ||
• | our mortality and morbidity experience; | ||
• | our lapse experience, which affects our ability to recover the cost of acquiring new business over the lives of the contracts; | ||
• | our cost of administering insurance contracts and providing customer services; | ||
• | our ability to manage liquidity and credit risk in our investment portfolio and to manage duration risk in our asset and policy portfolios through asset-liability management; and | ||
• | changes in regulations. |
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For the year ended | ||||||||||||
December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(RMB in millions) | ||||||||||||
Debt securities | 2,023 | 200 | 76 | |||||||||
Equity securities | (15,744 | ) | (2,350 | ) | (1,771 | ) | ||||||
Total | (13,721 | ) | (2,150 | ) | (1,695 | ) | ||||||
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As of December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Cost or | Cost or | Cost or | ||||||||||||||||||||||
amortized | Estimated | amortized | Estimated | amortized | Estimated | |||||||||||||||||||
cost | fair value | cost | fair value | cost | fair value | |||||||||||||||||||
(RMB in millions) | ||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||
Government bonds | 73,130 | 80,006 | 50,623 | 51,996 | 57,727 | 57,871 | ||||||||||||||||||
Government agency bonds | 180,135 | 191,121 | 167,312 | 165,231 | 145,522 | 145,538 | ||||||||||||||||||
Corporate bonds | 64,388 | 67,505 | 103,603 | 102,553 | 127,225 | 125,423 | ||||||||||||||||||
Subordinated bonds/debt | 17,265 | 17,588 | 21,198 | 21,045 | 26,541 | 25,620 | ||||||||||||||||||
Subtotal | 334,918 | 356,220 | 342,736 | 340,825 | 357,015 | 354,452 | ||||||||||||||||||
Equity securities | ||||||||||||||||||||||||
Funds | 32,313 | 29,890 | 62,818 | 75,798 | 89,835 | 95,754 | ||||||||||||||||||
Common stocks | 38,132 | 38,829 | 72,740 | 100,876 | 92,695 | 97,915 | ||||||||||||||||||
Subtotal | 70,445 | 68,719 | 135,558 | 176,674 | 182,530 | 193,669 | ||||||||||||||||||
Total | 405,363 | 424,939 | 478,294 | 517,499 | 539,545 | 548,121 | ||||||||||||||||||
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0-6 | 7-12 | More than 12 | ||||||||||||||
As of December 31, 2010 | months | months | months | Total | ||||||||||||
(RMB in millions) | ||||||||||||||||
Debt securities | ||||||||||||||||
Unrealized losses | 4,818 | 310 | 3,337 | 8,465 | ||||||||||||
Carrying amounts | 151,936 | 3,857 | 36,120 | 191,913 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 3.17 | % | 8.03 | % | 9.24 | % | 4.41 | % | ||||||||
Equity securities | ||||||||||||||||
Unrealized losses | 3,643 | 4,003 | — | 7,646 | ||||||||||||
Carrying amounts | 52,058 | 14,632 | — | 66,690 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 7.00 | % | 27.36 | % | — | 11.47 | % | |||||||||
Total | ||||||||||||||||
Total unrealized losses | 8,461 | 4,313 | 3,337 | 16,111 | ||||||||||||
Total carrying amounts | 203,994 | 18,489 | 36,120 | 258,604 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 4.15 | % | 23.33 | % | 9.24 | % | 6.23 | % |
0-6 | 7-12 | More than 12 | ||||||||||||||
As of December 31, 2009 | months | months | months | Total | ||||||||||||
(RMB in millions) | ||||||||||||||||
Debt securities | ||||||||||||||||
Unrealized losses | (1,649 | ) | (5,106 | ) | (1,634 | ) | (8,389 | ) | ||||||||
Carrying amounts | 84,785 | 79,207 | 16,397 | 180,389 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 1.95 | % | 6.45 | % | 9.96 | % | 4.65 | % | ||||||||
Equity securities | ||||||||||||||||
Unrealized losses | (776 | ) | (4 | ) | — | (780 | ) | |||||||||
Carrying amounts | 13,350 | 104 | — | 13,454 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 5.81 | % | 3.63 | % | — | 5.80 | % | |||||||||
Total | ||||||||||||||||
Total unrealized losses | (2,425 | ) | (5,110 | ) | (1,634 | ) | (9,169 | ) | ||||||||
Total carrying amounts | 98,135 | 79,311 | 16,397 | 193,843 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 2.47 | % | 6.44 | % | 9.96 | % | 4.73 | % |
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0-6 | 7-12 | More than 12 | ||||||||||||||
As of December 31, 2008 | months | months | months | Total | ||||||||||||
(RMB in millions) | ||||||||||||||||
Debt securities | ||||||||||||||||
Unrealized losses | (748 | ) | (33 | ) | (60 | ) | (841 | ) | ||||||||
Carrying amounts | 21,627 | 2,414 | 3,236 | 27,277 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 3.46 | % | 1.37 | % | 1.85 | % | 3.08 | % | ||||||||
Equity securities | ||||||||||||||||
Unrealized losses | (5,943 | ) | (5,205 | ) | — | (11,148 | ) | |||||||||
Carrying amounts | 25,230 | 10,897 | — | 36,127 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 23.56 | % | 47.77 | % | — | 30.86 | % | |||||||||
Total | ||||||||||||||||
Total unrealized losses | (6,691 | ) | (5,238 | ) | (60 | ) | (11,989 | ) | ||||||||
Total carrying amounts | 46,857 | 13,311 | 3,236 | 63,404 | ||||||||||||
Unrealized losses as a percentage of carrying amounts | 14.28 | % | 39.35 | % | 1.85 | % | 18.91 | % |
• | loss of major contracts; | ||
• | breach of debt covenants; and | ||
• | bankruptcy. |
• | The market price of the equity securities was more than 50% below its cost at the balance sheet date; | ||
• | The market price of the equity securities was more than 20% below its cost for a period of at least six months at the balance sheet date; and | ||
• | The market price of the equity securities was below its cost for a period of more than one year. |
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for the years ended December 31, 2008 2009 and 2010 by type of product in our individual life
insurance business, group life insurance business and accident and health insurance business.
As of or for the year ended | Annual | |||||||||||||||||||
December 31, | growth rate | |||||||||||||||||||
2008 | 2009 | 2010 | 2010 | (2008-2010) | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
Individual life insurance business(1) | ||||||||||||||||||||
Whole life and term life insurance: | ||||||||||||||||||||
Gross written premiums | 35,729 | 38,665 | 39,747 | 6,022 | 5.5 | % | ||||||||||||||
Endowment: | ||||||||||||||||||||
Gross written premiums | 188,099 | 184,841 | 220,505 | 33,410 | 8.3 | % | ||||||||||||||
Annuities: | ||||||||||||||||||||
Gross written premiums | 28,302 | 38,209 | 42,529 | 6,444 | 22.6 | % | ||||||||||||||
Group life insurance business(1) | ||||||||||||||||||||
Whole life and term life insurance: | ||||||||||||||||||||
Gross written premiums | 299 | 172 | 452 | 68 | 23.0 | % |
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As of or for the year ended | Annual | |||||||||||||||||||
December 31, | growth rate | |||||||||||||||||||
2008 | 2009 | 2010 | 2010 | (2008-2010) | ||||||||||||||||
RMB | RMB | RMB | US$ | |||||||||||||||||
Annuities: | ||||||||||||||||||||
Gross written premiums | 41 | 18 | 21 | 3 | (28.4 | )% | ||||||||||||||
Short-term insurance business(2) | ||||||||||||||||||||
Accident gross written insurance premiums | 6,221 | 7,076 | 7,657 | 1,160 | 10.9 | % | ||||||||||||||
Health gross written insurance premiums | 6,965 | 6,989 | 7,318 | 1,109 | 2.5 | % |
(1) | Including long-term health and accident products. | |
(2) | Including short-term health and accident products. |
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• | 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 fulfill contractual obligations, consisting of the following: |
(i) | The guaranteed benefits based on contractual terms, including payments for deaths, disabilities, diseases, survivals, maturities and surrenders. | ||
(ii) | Additional non-guaranteed benefits, such as policyholder dividends. | ||
(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 estimate of future inflation and the likely impact of our cost management. |
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 residual margin are locked in at policy issuance and are not adjusted at each reporting date. We consider 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 note 4.1.3 on page F-29 in the 2010 Form 20-F provides a detailed analysis of impact of assumption changes on our operating results. |
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• | Margin has been taken into consideration while computing the reserve of insurance contracts, measured separately and recognized in the net profit in each period over the life of the contracts. At the inception of the contracts, we do not recognize Day 1 gain, whereas on the other hand, Day 1 loss is recognized as incurred. | ||
Margin consists of a 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 by us so that not to recognize any Day 1 gain. The residual margin is amortized over the life of the contracts. The subsequent measurement of residual margin is independent from the best estimate of future discounted cash flows and risk margin. The assumption changes have no effect on the subsequent measurement of residual margin. | |||
• | We have considered the impact of time value on the reserve calculation for insurance contracts. |
• | For the insurance contracts of which future returns are affected by the investment yields of corresponding investment portfolios, investment return assumptions are applied as discount rates to assess the time value impacts on reserve computation. In developing discount rate assumptions, we consider investment experience, current investment portfolio and trend of the yield curve. The discount rate reflects the future economic outlook as well as our investment strategy. The assumed discount rate with risk margin ranges from 3.50% to 5.00% as at December 31, 2008, ranges from 4.40% to 5.00% as at December 31, 2009 and ranges from 4.58% to 5.00% as at December 31, 2010. | ||
For the insurance contracts of which the future returns are not affected by the investment yields of the corresponding investment portfolios, we use discount rate assumption to assess the time value impacts based on the “yield curve of reserve computation benchmark for insurance contracts”, published on “China Bond” website, with the consideration includes the liquidity spreads, taxation impacts and other relevant factors. The assumed discount rate with risk margin ranges from 2.81% to 4.95% as at December 31, 2008, ranges from 2.69% to 5.32% as at December 31, 2009 and ranges from 2.61% to 5.66% as at December 31, 2010. | |||
The discount rate assumption is affected by certain factors, such as future macro-economy, fiscal policies, capital market results and availability of investment channels of our insurance funds. We determine discount rate assumption based on the information obtained at the end of each reporting period including consideration of risk margin. | |||
• | The mortality and morbidity assumptions are based on the historical mortality and morbidity experience. The assumed mortality rates and morbidity rates vary by age of the insured and contract type. | ||
We base our mortality assumptions on China Life Insurance Mortality Table (2000-2003), adjusted where appropriate to reflect our 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 liability. Similarly, continuing advancements in medical care and social conditions could result in improvements in longevity that exceed those allowed for in the estimates used to determine the liability for contracts where we are exposed to longevity risk. |
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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 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 expense assumption has been based on expected unit costs with the consideration of risk margin. Our expense assumption is effected by actual experience and certain factors, such as inflation, market competition and other factors. Components of expense assumptions include cost per policy and percentage of premium. We have estimated the percentage of premiums costs to be 1.59% to 1.74% of premiums for individual life products and 1.54% for group life products for as at December 31, 2008; 1.05% to 1.17% of premiums for individual life products and 1.01% for group life products for as at December 31, 2009; and 0.90% to 1.00% of premiums for individual life products and 0.86% for group life products for as at December 31, 2010, in each case plus a fixed per-policy expense. | ||
• | The lapse rates and other assumptions are effected by certain factors, such as future marco-economic trends, availability of financial substitutions, market competition and other factors, which bring uncertainty to lapse rates and other assumptions. The lapse rates and other assumptions are determined with reference to past experience where creditable, current conditions, future expectations and other information obtained at the end of each reporting period. |
• | Insurance components; and | ||
• | Non-insurance components. |
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• | whether there has been any trades within past 30 days of the reporting date; | ||
• | the volume of the trades within this 30 day period; and | ||
• | the degree which the implied yields for a debt security for observed transactions differs from our understanding of the current relevant market rates and information. |
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• | IFRS 3 (Revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and separate financial statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after July 1, 2009. The revised standard continues to apply the acquisition method to business combinations, with some significant changes, such as the recognition and measurement of the identifiable assets acquired, the liabilities assumed, the non-controlling interest in the acquiree and the acquisition-related costs. | ||
• | IAS 27 (Revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognized in profit or loss. |
For the year ended December 31, | ||||||||
2009 | 2010 | |||||||
Total Revenues | RMB | RMB | ||||||
(in millions) | ||||||||
Net premiums earned | 275,077 | 318,088 | ||||||
Individual life insurance business | 261,694 | 302,753 | ||||||
Group life insurance business | 189 | 468 | ||||||
Short-term insurance business | 13,194 | 14,867 | ||||||
Investment income | 38,890 | 48,872 | ||||||
Investment income from securities at fair value through income | 335 | 126 | ||||||
Investment income from available-for-sale securities | 16,688 | 20,173 | ||||||
Investment income from held-to-maturity securities | 9,882 | 10,538 | ||||||
Investment income from term deposits | 10,805 | 16,363 | ||||||
Investment income from loans | 1,172 | 1,583 | ||||||
Other investment income | 8 | 89 | ||||||
Net realized gains/(losses) on financial assets | 21,244 | 15,841 | ||||||
Net fair value gains/(losses) through income | 1,449 | 280 | ||||||
Other income | 2,630 | 2,757 | ||||||
Total | 339,290 | 385,838 |
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For the year ended December 31, | ||||||||
2009 | 2010 | |||||||
Benefits, Claims and Expenses | RMB | RMB | ||||||
(in millions) | ||||||||
Insurance benefits and claims | ||||||||
Life insurance death and other benefits | 74,858 | 71,237 | ||||||
Accident and health claims and claim adjustment expenses | 7,808 | 8,740 | ||||||
Increase in insurance contracts liabilities | 154,372 | 199,655 | ||||||
Investment contracts benefits | 2,142 | 1,950 | ||||||
Policyholder dividends resulting from participation in profits | 14,487 | 13,224 | ||||||
Underwriting and policy acquisition costs | 22,936 | 27,256 | ||||||
Administrative expenses | 18,719 | 20,285 | ||||||
Other operating expenses | 2,390 | 3,655 | ||||||
Statutory insurance fund contribution | 537 | 599 | ||||||
Total | 298,249 | 346,601 | ||||||
Segment information of insurance benefits and claims | ||||||||
Individual life insurance business | 228,968 | 270,341 | ||||||
Group life insurance business | 262 | 551 | ||||||
Short-term insurance business | 7,808 | 8,740 | ||||||
Total | 237,038 | 279,632 |
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For the year ended December 31, | ||||||||
2009 | 2010 | |||||||
Profit | RMB | RMB | ||||||
(in millions) | ||||||||
Profit before income tax | 41,745 | 41,008 | ||||||
Individual life insurance business | 39,769 | 37,690 | ||||||
Group life insurance business | 467 | 740 | ||||||
Short-term insurance business | 420 | 385 | ||||||
Other business | 1,089 | 2,193 | ||||||
Income tax | 8,709 | 7,197 | ||||||
Net profit attributable to equity holders of the company | 32,881 | 33,626 |
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As of December 31, | ||||||||
2009 | 2010 | |||||||
Major Assets | RMB | RMB | ||||||
(in millions) | ||||||||
Investment assets | 1,172,145 | 1,336,245 | ||||||
Term deposits | 344,983 | 441,585 | ||||||
Held-to-maturity securities | 235,099 | 246,227 | ||||||
Available-for-sale securities | 517,499 | 548,121 | ||||||
Securities at fair value through income | 9,133 | 9,762 | ||||||
Cash and cash equivalents | 36,197 | 47,854 | ||||||
Loans | 23,081 | 36,543 | ||||||
Statutory deposits-restricted | 6,153 | 6,153 | ||||||
Other assets | 54,112 | 74,334 | ||||||
Total | 1,226,257 | 1,410,579 |
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As of December 31, | ||||||||
2009 | 2010 | |||||||
Major Liabilities | RMB | RMB | ||||||
(in millions) | ||||||||
Liabilities | 1,013,481 | 1,200,104 | ||||||
Liabilities of insurance contracts | 818,164 | 1,018,135 | ||||||
Investment contracts | 67,326 | 70,171 | ||||||
Securities sold under agreements to repurchase | 33,553 | 23,065 | ||||||
Policyholder dividends payable | 54,587 | 52,828 | ||||||
Annuity and other insurance balances payable | 5,721 | 8,275 | ||||||
Deferred tax liabilities | 16,361 | 11,776 | ||||||
Other liabilities | 17,769 | 15,854 |
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For the year ended December 31, | ||||||||
2008 | 2009 | |||||||
Total Revenues | RMB | RMB | ||||||
(in millions) | ||||||||
Net premiums earned | 265,177 | 275,077 | ||||||
Individual life insurance business | 252,133 | 261,694 | ||||||
Group life insurance business | 339 | 189 | ||||||
Short-term insurance business | 12,725 | 13,194 | ||||||
Investment income | 44,946 | 38,890 | ||||||
Investment income from securities at fair value through income | 902 | 335 | ||||||
Investment income from available-for-sale securities | 22,636 | 16,688 | ||||||
Investment income from held-to-maturity securities | 9,245 | 9,882 | ||||||
Investment income from term deposits | 11,378 | 10,805 | ||||||
Investment income from loans | 696 | 1,172 | ||||||
Net realized gains/(losses) on financial assets | (5,964 | ) | 21,244 | |||||
Debt securities | 2,445 | 3,346 | ||||||
Equity securities | (8,409 | ) | 17,898 | |||||
Net fair value gains/(losses) through income | (7,194 | ) | 1,449 | |||||
Debt securities | 300 | (277 | ) | |||||
Equity securities | (7,494 | ) | 1,726 | |||||
Other income | 3,420 | 2,630 | ||||||
Total | 300,385 | 339,290 |
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For the year ended December 31, | ||||||||
2008 | 2009 | |||||||
Benefits, Claims and Expenses | RMB | RMB | ||||||
(in millions) | ||||||||
Insurance benefits and claims | 231,949 | 237,038 | ||||||
Individual life insurance business | 223,805 | 228,968 | ||||||
Group life insurance business | 503 | 262 | ||||||
Short-term insurance business | 7,641 | 7,808 | ||||||
Investment contract benefits | 1,931 | 2,142 | ||||||
Policy dividends resulting from participation in profits | 1,671 | 14,487 | ||||||
Underwriting and policy acquisition costs | 24,200 | 22,936 | ||||||
Administrative expenses | 16,652 | 18,719 | ||||||
Other operating expenses | 3,409 | 2,390 |
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For the year ended December 31, | ||||||||
2008 | 2009 | |||||||
Profit | RMB | RMB | ||||||
(in millions) | ||||||||
Profit before income tax | 19,959 | 41,745 | ||||||
Individual life insurance business | 19,075 | 39,769 | ||||||
Group life insurance business | 81 | 467 | ||||||
Short-term insurance business | 596 | 420 | ||||||
Income tax | 685 | 8,709 | ||||||
Net profit attributable to equity holders of the company | 19,137 | 32,881 |
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As of December 31, | ||||||||
2008 | 2009 | |||||||
Major Assets | RMB | RMB | ||||||
(in millions) | ||||||||
Investment assets | 937,403 | 1,172,145 | ||||||
Term deposits | 228,272 | 344,983 | ||||||
Held-maturity investments | 211,929 | 235,099 | ||||||
Available-for-sale securities | 424,939 | 517,499 | ||||||
Securities at fair value through income | 14,099 | 9,133 | ||||||
Cash and cash equivalents | 34,085 | 36,197 | ||||||
Loans | 17,926 | 23,081 |
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As of December 31, | ||||||||
2008 | 2009 | |||||||
Major Liabilities | RMB | RMB | ||||||
(in millions) | ||||||||
Liabilities | 812,622 | 1,013,000 | ||||||
Liabilities of insurance contracts | 662,865 | 818,164 | ||||||
Financial liabilities | 76,453 | 100,879 | ||||||
Policyholder dividends payable | 43,178 | 54,587 | ||||||
Annuity and other insurance balance payable | 4,980 | 5,721 | ||||||
Deferred tax liabilities | 10,344 | 16,361 |
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As at December 31, 2008 | As at December 31, 2009 | As at December 31, 2010 | ||||||||||
Ratio of assets and liabilities | 82.29 | % | 82.65 | % | 85.08 | % |
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As of December 31, 2008 | As of December 31, 2009 | As of December 31, 2010 | ||||||||||
(RMB in millions, | ||||||||||||
except percentage data) | ||||||||||||
Actual capital | 124,561 | 147,119 | 123,769 | |||||||||
Minimum capital | 40,154 | 48,459 | 58,385 | |||||||||
Solvency ratio | 310.21 | % | 303.59 | % | 211.99 | % |
Later | ||||||||||||||||||||
than 3 | ||||||||||||||||||||
Not | Later than | years but | ||||||||||||||||||
later | 1 year but | not later | Later | |||||||||||||||||
than | not later | than 5 | than | |||||||||||||||||
As of December 31, 2010 | 1 year | than 3 years | years | 5 years | Total | |||||||||||||||
(RMB in millions) | ||||||||||||||||||||
Securities sold under agreements to repurchase | 23,065 | — | — | — | 23,065 | |||||||||||||||
Annuity and other insurance balances payable | 8,275 | — | — | — | 8,275 | |||||||||||||||
Insurance contracts | (12,805 | ) | 59,027 | 98,822 | 1,679,736 | 1,824,780 | ||||||||||||||
Investment contracts | 15,566 | 18,495 | 14,320 | 47,219 | 95,600 | |||||||||||||||
Off balance sheet operating leases | 338 | 365 | 88 | 42 | 833 | |||||||||||||||
Capital commitments | 4,847 | 235 | — | — | 5,082 | |||||||||||||||
Total | 39,286 | 78,122 | 113,230 | 1,726,997 | 1,957,635 |
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ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
Name | Age | Position | ||||
Yang Chao | 61 | Chairman of the board of directors and executive director | ||||
Wan Feng | 52 | President and executive director | ||||
Lin Dairen | 52 | Vice President and executive director | ||||
Liu Yingqi | 53 | Vice President, executive director and secretary of the board of directors | ||||
Miao Jianmin | 46 | Non-executive director | ||||
Shi Guoqing | 59 | Non-executive director | ||||
Zhuang Zuojin | 59 | Non-executive director | ||||
Ma Yongwei | 69 | Independent director | ||||
Sun Changji | 69 | Independent director | ||||
Bruce Douglas Moore | 62 | Independent director | ||||
Anthony Francis Neoh | 65 | Independent director | ||||
Liu Jiade | 48 | Vice president | ||||
Zhou Ying | 57 | Vice president | ||||
Su Hengxuan | 48 | Vice president | ||||
Miao Ping | 53 | Vice president | ||||
Shao Hwei-Chung | 57 | Chief actuary | ||||
Xu Hengping | 52 | Chief operating officer |
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Name | Age | Position | ||||
Xia Zhihua | 55 | Chairperson of board of supervisors | ||||
Shi Xiangming | 52 | Supervisor | ||||
Yang Hong | 44 | Employee representative supervisor | ||||
Wang Xu | 44 | Employee representative supervisor | ||||
Tian Hui | 59 | Supervisor |
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Compensation | ||||||||||||||||||||
for loss of | ||||||||||||||||||||
Inducement | Other(1) | office as | ||||||||||||||||||
Name | Salaries/Fees | Fees | Benefits | director | Total | |||||||||||||||
In RMB | ||||||||||||||||||||
Yang Chao | 774,600 | — | 385,900 | — | 1,160,500 | |||||||||||||||
Wan Feng | 734,400 | — | 361,200 | — | 1,095,600 | |||||||||||||||
Lin Dairen | 693,600 | — | 341,500 | — | 1,035,100 | |||||||||||||||
Liu Yingqi | 693,600 | — | 359,900 | — | 1,053,500 | |||||||||||||||
Miao Jianmin | — | — | — | — | — | |||||||||||||||
Shi Guoqing | — | — | — | — | — | |||||||||||||||
Zhuang Zuojin | — | — | — | — | — | |||||||||||||||
Sun Shuyi(2) | — | — | — | — | — | |||||||||||||||
Ma Yongwei | — | — | — | — | — | |||||||||||||||
Sun Changji | — | — | — | — | — | |||||||||||||||
Bruce Douglas Moore | 320,000 | — | — | — | 320,000 | |||||||||||||||
Anthony Francais Neoh | 175,000 | — | — | — | 175,000 | |||||||||||||||
Xia Zhihua | 693,600 | — | 341,800 | — | 1,035,400 | |||||||||||||||
Shi Xiangming | 587,800 | — | 291,900 | — | 879,700 | |||||||||||||||
Yang Hong | 562,200 | — | 289,800 | — | 852,000 | |||||||||||||||
Wang Xu | 562,200 | — | 272,500 | — | 834,700 | |||||||||||||||
Tian Hui | 150,000 | — | — | — | 150,000 | |||||||||||||||
Total | 5,947,000 | — | 2,644,500 | — | 8,591,500 | |||||||||||||||
(1) | Include benefits-in-kind, social insurance and housing fund to be paid by the employer. | |
(2) | Resigned as the independent director on June 30, 2010. |
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Name | Total | |||
In RMB | ||||
Liu Jiade | 1,054,400 | |||
Zhou Ying | 1,035,100 | |||
Su Hengxuan | 1,047,800 | |||
Miao Ping | 1,021,000 | |||
Hwei-Chung Shao | 3,381,800 | |||
Xu Hengping | 421,700 | |||
Total | 7,961,800 |
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As of December 31 | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Number | % | Number | % | Number | % | |||||||||||||||||||
of | of | of | of | of | of | |||||||||||||||||||
employees | total | employees | total | employees | total | |||||||||||||||||||
Management and administrative staff | 20,250 | 19.81 | % | 21,450 | 20.52 | % | 19,793 | 19.18 | % | |||||||||||||||
Financial and auditing staff | 7,663 | 7.50 | % | 7,967 | 7.62 | % | 7,432 | 7.20 | % | |||||||||||||||
Sales and marketing staff(1) | 25,473 | 24.92 | % | 26,320 | 25.18 | % | 26,298 | 25.48 | % | |||||||||||||||
Underwriters, claim specialists and customer service staff | 38,797 | 37.96 | % | 39,329 | 37.54 | % | 37,670 | 36.49 | % | |||||||||||||||
Other professional and technical staff(2) | 3,680 | 3.60 | % | 3,800 | 3.64 | % | 3,837 | 3.72 | % | |||||||||||||||
Other | 6,378 | 6.24 | % | 5,759 | 5.51 | % | 8,190 | 7.93 | % | |||||||||||||||
Total | 102,241 | 100 | % | 104,535 | 100 | % | 103,220 | 100 | % | |||||||||||||||
(1) | Includes direct sales representatives. | |
(2) | Includes actuaries, product development personnel, investment management personnel and information technology specialists. |
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. |
Percentage of | Percentage of Total | |||||||||||||||
Title of Class | Identity of Person or Group | Amount Owned | Class | Share Capital | ||||||||||||
A Shares | China Life Insurance (Group) Company | 19,323,530,000 (Long position) | 92.80 | % | 68.37 | % |
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The aggregate value for | ||||
the year ended | ||||
Transactions | December 31, 2010 | |||
(RMB in millions) | ||||
1. Policy management agreement | 1,154 | |||
2. Asset management agreement | ||||
(a) between CLIC and AMC | 123 | |||
(b) between AMC and us | 659 | |||
3. Property leasing agreement | 67 |
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1) | the transactions were entered into in the ordinary and usual course of our business; |
2) | the transactions were conducted either on normal commercial terms or on terms that are fair and reasonable so far as our independent shareholders are concerned; |
3) | the transactions were entered into in accordance with the agreements governing those transactions; and |
4) | the amounts of the transactions had not exceeded the relevant annual caps as announced by us. |
ITEM 8. | FINANCIAL INFORMATION. |
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• | our results of operations and cash flows; |
• | our financial position; |
• | statutory solvency requirements as determined under PRC GAAP with reference to CIRC rules; |
• | our shareholders’ interests; |
• | general business conditions; |
• | our future prospects; |
• | statutory and regulatory restrictions on the payment of dividends by us; and |
• | other factors that our board of directors deems relevant. |
• | recovery of accumulated losses, if any; |
• | allocations to the statutory common reserve fund equivalent to 10% of our after-tax income, as determined under PRC GAAP; and |
• | allocations to a discretionary common reserve fund as approved by the shareholders in a shareholders’ meeting. |
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• | Net assets, defined as assets less PRC solvency policy reserves and other liabilities; and |
• | Net-of-tax adjustments for relevant differences between the market value and the book value of assets, together with relevant net-of-tax adjustments to certain liabilities. |
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RMB million | ||||||||
ITEM | 2010 | 2009 | ||||||
A Adjusted Net Worth | 144,655 | 159,948 | ||||||
B Value of In-Force Business before Cost of Solvency Margin | 183,008 | 149,387 | ||||||
C Cost of Solvency Margin | (29,564 | ) | (24,106 | ) | ||||
D Value of In-Force Business after Cost of Solvency Margin (B+C) | 153,444 | 125,282 | ||||||
E Embedded Value (A + D) | 298,099 | 285,229 | ||||||
F Value of One Year’s Sales before Cost of Solvency Margin | 23,726 | 21,352 | ||||||
G Cost of Solvency Margin | (3,887 | ) | (3,638 | ) | ||||
H Value of One Year’s Sales after Cost of Solvency Margin (F+G) | 19,839 | 17,713 |
Notes:1) | Numbers may not be additive due to rounding. | |
2) | Taxable income is based on distributable earnings calculated using solvency reserves. |
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ITEM | RMB million | |||||||
A | Embedded Value at Start of Year | 285,229 | ||||||
B | Expected Return on Embedded Value | 23,922 | ||||||
C | Value of New Business in the Period | 19,839 | ||||||
D | Operating Experience Variance | (3 | ) | |||||
E | Investment Experience Variance | (9,297 | ) | |||||
F | Methodology, Model and Assumption Changes | 413 | ||||||
G | Market Value Adjustment | (1,937 | ) | |||||
H | Exchange Gains or Losses | (391 | ) | |||||
I | Shareholder Dividend Distribution | (19,785 | ) | |||||
J | Other | 109 | ||||||
K | Embedded Value as at 31 Dec 2010 (sum A through J) | 298,099 |
Notes:1) Numbers may not be additive due to rounding. | ||
2) Items B through J are explained below: |
B | Reflects unwinding of the opening value of in-force business and value of new business sales in 2010 plus the expected return on investments supporting the 2010 opening net worth. | ||
C | Value of new business sales in 2010. | ||
D | Reflects the difference between actual experience in 2010 (including lapse, mortality, morbidity, and expense etc.) and the assumptions. | ||
E | Compares actual with expected investment returns during 2010. | ||
F | Reflects the effect of projection method, model enhancements and assumption changes. | ||
G | Change in the market value adjustment from the beginning of 2010 to the end of 2010, and other related adjustments. | ||
H | Reflect the gains or losses due to change in exchange rate. | ||
I | Reflects dividends distributed to shareholders during 2010. | ||
J | Other miscellaneous items. |
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RMB million | ||||||||
VALUE OF | VALUE OF | |||||||
IN-FORCE | ONE YEAR’S | |||||||
BUSINESS | SALES | |||||||
AFTER COST | AFTER | |||||||
OF | COST OF | |||||||
SOLVENCY | SOLVENCY | |||||||
Sensitivity Results | MARGIN | MARGIN | ||||||
Base case scenario | 153,444 | 19,839 | ||||||
1.Risk discount rate of 11.5% | 145,375 | 18,794 | ||||||
2.Risk discount rate of 10.5% | 162,126 | 20,959 | ||||||
3.10% increase in investment return | 182,023 | 22,667 | ||||||
4.10% decrease in investment return | 125,022 | 17,040 | ||||||
5.10% increase in expenses | 151,002 | 18,014 | ||||||
6.10% decrease in expenses | 155,882 | 21,664 | ||||||
7.10% increase in mortality rate for non-annuity products and 10% decrease in mortality rate for annuity products | 151,791 | 19,757 | ||||||
8.10% decrease in mortality rate for non-annuity products and 10% increase in mortality rate for annuity products | 155,118 | 19,920 | ||||||
9.10% increase in lapse rates | 152,080 | 19,756 | ||||||
10.10% decrease in lapse rates | 154,857 | 19,916 | ||||||
11.10% increase in morbidity rates | 151,609 | 19,756 | ||||||
12.10% decrease in morbidity rates | 155,294 | 19,922 | ||||||
13.10% increase in claim ratio of short term business | 153,162 | 19,249 | ||||||
14.10% decrease in claim ratio of short term business | 153,725 | 20,429 | ||||||
15.Solvency margin at 150% of statutory minimum | 139,372 | 17,865 | ||||||
16.Using 2009 EV assumptions | 153,452 | 19,809 | ||||||
17.Taxable income based on accounting profit in accordance to “the Provisions on the Accounting Treatment Related to Insurance Contracts” | 148,722 | 19,990 | ||||||
Adjusted Net Worth | ||||||||
Base Case Scenario | 144,655 | |||||||
18.Taxable income based on accounting profit in accordance to “the Provisions on the Accounting Treatment Related to Insurance Contracts” | 137,155 |
Note: | Taxable income is based on distributable earnings calculated using solvency reserves for Scenarios 1 to 16. |
• | a review of the methodology used to develop the embedded value and value of one year’s sales as at 31 December 2010, in the light of the requirements of the “Life Insurance Embedded Value Reporting Guidelines” issued by the China Insurance Regulatory Commission (“CIRC”) in September 2005; |
• | a review of the economic and operating assumptions used to develop the embedded value and value of one year’s sales as at 31 December 2010; |
• | a review of the results of China Life’s calculation of the EV Results. |
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• | the embedded value methodology used by China Life is consistent with the requirements of the “Life Insurance Embedded Value Reporting Guidelines” issued by the CIRC. The methodology applied by China Life is a common methodology used to determine embedded values of life insurance companies in China at the current time; |
• | the economic assumptions used by China Life are internally consistent, have been set with regard to current economic conditions, and have made allowance for the company’s current and expected future asset mix and investment strategy; |
• | the operating assumptions used by China Life have been set with appropriate regard to past, current and expected future experience; |
• | no changes have been assumed to the treatment of tax, but some sensitivity results relating to tax have been shown by China Life; and |
• | the EV Results have been prepared, in all material respects, in accordance with the methodology and assumptions set out in the Embedded Value section. |
For and on behalf of Towers Watson |
Adrian Liu FIAA, FCAA |
15th March 2011 |
ITEM 9. | THE OFFER AND LISTING. |
Price per H Share | Price per ADS(2) | Price per A share | ||||||||||||||||||||||
(HK$) | (US$) | (RMB) | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Annual | ||||||||||||||||||||||||
2006 | 27.2000 | 7.0500 | 52.18 | 13.76 | — | — | ||||||||||||||||||
2007 | 52.0000 | 19.2600 | 106.56 | 36.70 | 75.0800 | (3) | 32.0400 | (3) | ||||||||||||||||
2008 | 39.8500 | 16.7000 | 76.75 | 33.57 | 58.9700 | 18.1500 | ||||||||||||||||||
2009 | 41.0000 | 19.9000 | 79.86 | 38.34 | 33.1800 | 18.6700 | ||||||||||||||||||
2010 | 39.3000 | 29.7000 | 76.14 | 57.36 | 31.4200 | 20.9000 | ||||||||||||||||||
Quarterly | ||||||||||||||||||||||||
First Quarter, 2009 | 26.4500 | 19.9000 | 51.56 | 38.34 | 24.0300 | 18.6700 | ||||||||||||||||||
Second Quarter, 2009 | 30.5000 | 25.4500 | 59.39 | 50.10 | 27.7500 | 22.6200 | ||||||||||||||||||
Third Quarter, 2009 | 36.1500 | 28.6000 | 70.09 | 54.83 | 34.0100 | 25.1000 | ||||||||||||||||||
Fourth Quarter, 2009 | 41.0000 | 32.8000 | 79.86 | 63.16 | 33.1800 | 28.3800 | ||||||||||||||||||
First Quarter, 2010 | 39.3000 | 32.6000 | 76.14 | 62.50 | 31.4200 | 26.6900 | ||||||||||||||||||
Second Quarter, 2010 | 38.2000 | 32.5500 | 74.79 | 62.68 | 28.4700 | 22.7300 | ||||||||||||||||||
Third Quarter, 2010 | 35.2000 | 29.7000 | 68.45 | 57.36 | 25.3300 | 20.9000 | ||||||||||||||||||
Fourth Quarter, 2010 | 36.6000 | 31.1000 | 70.50 | 59.78 | 27.8800 | 21.0400 | ||||||||||||||||||
First Quarter, 2011 | 32.6000 | 28.0000 | 62.93 | 53.66 | 22.3200 | �� | 20.7900 | |||||||||||||||||
Monthly | ||||||||||||||||||||||||
October 2010 | 36.3500 | 31.1000 | 70.35 | 59.78 | 27.8800 | 22.4400 | ||||||||||||||||||
November 2010 | 36.6000 | 33.3000 | 70.50 | 63.83 | 26.8400 | 22.2900 | ||||||||||||||||||
December 2010 | 33.7500 | 31.1500 | 65.62 | 60.73 | 23.5400 | 21.0400 | ||||||||||||||||||
January 2011 | 32.6000 | 30.3000 | 62.93 | 58.29 | 21.9200 | 20.7900 | ||||||||||||||||||
February 2011 | 30.4000 | 28.6500 | 58.72 | 55.81 | 22.2100 | 21.0200 | ||||||||||||||||||
March 2011 | 30.6500 | 28.0000 | 58.85 | 53.66 | 22.3200 | 20.8800 | ||||||||||||||||||
April 2011 (through April 15, 2010) | 30.4500 | 29.4500 | 58.43 | 56.84 | 22.1800 | 21.3300 |
(1) | Source: Yahoo! Finance (http://finance.yahoo.com) | |
(2) | Each ADS represented 40 H shares until December 29, 2006 when the ratio was altered such that each ADS represented 15 H shares. The market quotations shown in the table above have been restated for all periods to reflect the current ratio of 15 H shares per ADS. | |
(3) | From the date of listing: January 9, 2007. |
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ITEM 10. | ADDITIONAL INFORMATION. |
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• | varying the rights of existing classes of shares; |
• | voting rights; |
• | our power to purchase our own shares; |
• | rights of minority shareholders; and |
• | liquidation procedures. |
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• | recovery of accumulated losses, if any; |
• | allocations to the statutory common reserve fund equivalent to 10% of our after-tax income; and |
• | allocations to a discretionary common reserve fund as approved by the shareholders in a shareholders’ meeting. |
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• | where the number of directors is less than the number stipulated in the PRC company law or two-thirds of the number specified in our articles of association; |
• | where our unrecovered losses reach one-third of the total amount of our share capital; |
• | where shareholders, individually or jointly, holding 10% or more of our issued and outstanding voting shares so request in writing; |
• | whenever our board of directors deems necessary, or more than half of directors (including at least two independent directors) or our board of supervisors so requests; or |
• | any other event as maybe provided by applicable laws, rules, regulations or our articles of association. |
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• | an increase or decrease in our share capital or the issuance of shares, warrants, debentures and other similar securities; |
• | our division, merger, dissolution or liquidation (shareholders who object to a proposed merger are entitled to demand that either we or the shareholders who approved the merger purchase their shares at a fair price); |
• | amendments to our articles of association; |
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• | purchase or sale within any single year of any material assets exceeding 30% of our latest audited total assets; |
• | any equity-based incentive plan; and |
• | any other matters as provided under applicable laws or regulations or determined by a majority of shareholders at a general meeting to have a material impact on us and should be approved by two-thirds of the voting rights. |
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• | is necessary to enable them and the public to appraise the position of us and our subsidiaries; or |
• | is necessary to avoid the establishment of a false market in our securities; or |
• | might reasonably be expected to affect materially market activity in, and the price of, our securities. |
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• | is in a position to elect more than one-half of the board of directors; |
• | has the power to exercise, or to control the exercise of, 30% or more of our voting rights; |
• | holds 30% or more of our issued and outstanding shares; or |
• | has de facto control of us in any other way. |
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• | to relieve a director or supervisor from his or her duty to act honestly in our best interests; |
• | to approve the appropriation by a director or supervisor, for his or her own benefit or for the benefit of any other person, of our assets in any way, including without limitation opportunities which may be advantageous to us; or |
• | to approve the appropriation by a director or supervisor, for his or her own benefit or for the benefit of another person, of the individual rights of other shareholders, including without limitation rights to distributions and voting rights (except in accordance with a restructuring of our company which has been submitted for approval by the shareholders at a general meeting in accordance with our articles of association). |
• | to act honestly in our company’s best interests; |
• | not to exploit corporate assets for personal gains; and |
• | not to expropriate the rights of our shareholders. |
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• | the retirement or non-retirement of directors under any age limit requirement; |
• | directors’ borrowing power; or |
• | number of shares required for directors’ qualification. |
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• | convening shareholders’ meetings and reporting its work to shareholders at these meetings; |
• | implementing shareholders’ resolutions; |
• | determining the company’s business plans and investment proposals; |
• | formulating the company’s annual financial budgets and final accounts; |
• | formulating the company’s profit distribution plans and loss recovery plans; |
• | formulating proposals for the increase or decrease in the company’s registered capital and the issue of debentures; |
• | formulating major acquisition and disposal plans and plans for the merger, division or dissolution of the company; |
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• | to the extent authorized by the shareholders’ meeting, deciding on such matters as external investments, purchase or sale of assets, assets pledge and connected transactions of the company; |
• | deciding on the company’s internal management structure and formulating its basic management system; and |
• | appointing or removing the company’s principal executive officers; appointing and removing other senior officers based on the recommendation of the principal executive officer and deciding on the remuneration of the senior officers. |
• | examining the company’s financial affairs; |
• | monitoring compliance with laws, regulations, the articles of association of the company and the shareholders resolutions by the directors and officers of the company; and suggesting removing the directors and officers who violate these laws and regulations; |
• | requiring corrective action from directors and officers whose actions are contrary to the interests of the company; |
• | examining the financial information, including financial statements, operation reports and plans for profit distribution, to be submitted by the board of directors to the shareholders’ meetings; and authorizing, in the company’s name, public certified accountants or licensed auditors to assist in the re-examination of such information, should any doubt arise in respect thereof; |
• | proposing the holding of extraordinary shareholders’ meetings; |
• | proposing new items to be inserted in the agenda of the shareholders’ meeting. |
• | bringing lawsuits against directors or members of senior management, if they violate laws, regulations or articles of association of the company; and |
• | exercising and performing other powers and functions provided for in the company’s articles of association. |
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Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | value | ||||||||||||||||||||||||
(RMB in millions, except as otherwise stated) | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | ||||||||||||||||||||||||||||||||
Fixed rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 20,987 | 5,590 | 7,163 | 20,803 | 24,384 | 508,579 | 587,505 | 585,507 | ||||||||||||||||||||||||
Average interest rate | 4.72 | % | 4.76 | % | 4.57 | % | 4.75 | % | 4.58 | % | 4.37 | % | 4.41 | % | ||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
in HK$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Variable rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 1,708 | 765 | 2,101 | 3,044 | 255 | 3,288 | 11,160 | 11,235 | ||||||||||||||||||||||||
Average interest rate | 5.43 | % | 5.20 | % | 5.24 | % | 5.67 | % | 5.98 | % | 4.68 | % | 5.23 | % | ||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in RMB | 19,235 | 36,400 | 78,367 | 58,850 | 164,300 | 81,400 | 438,552 | 438,552 | ||||||||||||||||||||||||
Average interest rate | 4.36 | % | 4.20 | % | 4.35 | % | 4.14 | % | 4.38 | % | 4.46 | % | 4.34 | % | ||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 23,065 | — | — | — | — | — | 23,065 | 23,065 | ||||||||||||||||||||||||
Average interest rate | 6.02 | % | — | — | — | — | — | 6.02 | % | |||||||||||||||||||||||
Investment contracts | 2,359 | 918 | 1,349 | 2,536 | 800 | 62,209 | 70,171 | 69,432 | ||||||||||||||||||||||||
Average interest rate | 1.80 | % | 1.51 | % | 1.29 | % | 2.50 | % | 2.49 | % | 2.34 | % | 2.29 | % |
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Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | value | ||||||||||||||||||||||||
(RMB in millions, except as otherwise stated) | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | ||||||||||||||||||||||||||||||||
Fixed rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 4,206 | 32,650 | 5,521 | 7,824 | 20,552 | 480,981 | 551,734 | 550,128 | ||||||||||||||||||||||||
Average interest rate | 3.68 | % | 4.57 | % | 4.74 | % | 4.66 | % | 4.75 | % | 4.36 | % | 4.39 | % | ||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
in HK$ | — | — | — | — | — | 7 | 7 | 7 | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | 5.38 | % | 5.38 | % | |||||||||||||||||||||||
Variable rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 3,784 | 1,746 | 1,008 | 5,073 | 3,219 | 8,362 | 23,192 | 23,546 | ||||||||||||||||||||||||
Average interest rate | 4.76 | % | 5.33 | % | 5.10 | % | 4.98 | % | 5.62 | % | 4.68 | % | 4.96 | % | ||||||||||||||||||
in US$ | 854 | — | — | 2,048 | — | — | 2,902 | 2,902 | ||||||||||||||||||||||||
Average interest rate | 0.99 | % | — | — | 1.41 | % | — | — | 1.29 | % | ||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in RMB | 77,580 | 19,200 | 36,400 | 78,367 | 58,850 | 64,500 | 337,897 | 337,897 | ||||||||||||||||||||||||
Average interest rate | 2.69 | % | 4.34 | % | 3.78 | % | 4.06 | % | 3.64 | % | 3.76 | % | 3.60 | % | ||||||||||||||||||
in US$ | 6,813 | — | — | — | — | — | 6,813 | 6,813 | ||||||||||||||||||||||||
Average interest rate | 3.18 | % | — | — | — | — | — | 3.18 | % | |||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | 273 | — | — | — | 273 | 272 | ||||||||||||||||||||||||
Average interest rate | — | — | 0.95 | % | — | — | — | 0.95 | % | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 33,553 | — | — | — | — | — | 33,553 | 33,553 | ||||||||||||||||||||||||
Average interest rate | 1.84 | % | — | — | — | — | — | 1.84 | % | |||||||||||||||||||||||
Investment contracts | 2,035 | 1,043 | 1,118 | 657 | 2,144 | 60,329 | 67,326 | 66,184 | ||||||||||||||||||||||||
Average interest rate | 2.02 | % | 1.34 | % | 1.39 | % | 2.50 | % | 2.50 | % | 2.35 | % | 2.32 | % |
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Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | value | ||||||||||||||||||||||||
(RMB in millions, except as otherwise stated) | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Held-to-maturity and available-for-sale debt securities | ||||||||||||||||||||||||||||||||
Fixed rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 28,157 | 3,202 | 52,559 | 8,386 | 17,379 | 405,956 | 515,638 | 553,271 | ||||||||||||||||||||||||
Average interest rate | 4.23 | % | 4.50 | % | 4.57 | % | 4.33 | % | 4.59 | % | 4.34 | % | 4.37 | % | ||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||
Variable rate bonds | ||||||||||||||||||||||||||||||||
in RMB | 3,600 | 3,845 | 1,861 | 1,216 | 6,557 | 11,224 | 28,303 | 28,641 | ||||||||||||||||||||||||
Average interest rate | 6.06 | % | 4.94 | % | 4.86 | % | 5.04 | % | 4.87 | % | 4.90 | % | 5.05 | % | ||||||||||||||||||
in US$ | — | 854 | — | — | 2,050 | — | 2,905 | 2,905 | ||||||||||||||||||||||||
Average interest rate | — | 3.15 | % | — | — | 3.49 | % | — | 3.39 | % | ||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in RMB | 59,700 | 18,080 | 19,200 | 39,400 | 78,367 | 5,699 | 220,446 | 220,446 | ||||||||||||||||||||||||
Average interest rate | 3.95 | % | 4.13 | % | 4.34 | % | 3.79 | % | 4.06 | % | 3.97 | % | 4.01 | % | ||||||||||||||||||
in US$ | 4,921 | — | — | — | — | — | 4,921 | 4,921 | ||||||||||||||||||||||||
Average interest rate | 6.00 | % | — | — | — | — | — | 6.00 | % | |||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | — | 273 | — | 2,632 | 2,905 | 2,887 | ||||||||||||||||||||||||
Average interest rate | — | — | — | 3.65 | % | — | 8.09 | % | 7.67 | % | ||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Securities sold under agreements to repurchase | 11,390 | — | — | — | — | — | 11,390 | 11,390 | ||||||||||||||||||||||||
Average interest rate | 1.14 | % | — | — | — | — | — | 1.14 | % | |||||||||||||||||||||||
Investment contracts | 2,258 | 947 | 1,088 | 783 | 1,274 | 46,879 | 53,229 | 51,212 | ||||||||||||||||||||||||
Average interest rate | 2.31 | % | 2.15 | % | 1.58 | % | 2.50 | % | 2.50 | % | 2.47 | % | 2.44 | % |
(1) | assuming the interest rates are within the specified ranges and the deposits are not terminated earlier by the banks. |
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As of December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
(RMB in millions) | Carrying amount | Fair value | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||||||||
Equity securities | 75,082 | 75,082 | 179,416 | 179,416 | 195,918 | 195,918 | ||||||||||||||||||
Securities at fair value through income (held for trading) | 6,363 | 6,363 | 2,742 | 2,742 | 2,249 | 2,249 | ||||||||||||||||||
Available-for-sale | 68,719 | 68,719 | 176,674 | 176,674 | 193,669 | 193,669 |
Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | value | ||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
in US$ | — | — | 300 | — | — | — | 300 | 300 | ||||||||||||||||||||||||
Average interest rate | — | — | 1.11 | % | — | — | — | 1.11 | % | |||||||||||||||||||||||
in HK$ | — | — | — | — | 8 | 23 | 31 | 31 | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | 5.38 | % | 5.94 | % | 5.79 | % | ||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in US$ | 33 | — | — | — | — | — | 33 | 33 | ||||||||||||||||||||||||
Average interest rate | 3.26 | % | — | — | — | — | — | 3.26 | % | |||||||||||||||||||||||
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Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | value | ||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Cash and Cash equivalents | ||||||||||||||||||||||||||||||||
in US$ | 1 | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||
Average interest rate | 0.00 | % | — | — | — | — | — | 0.00 | % | |||||||||||||||||||||||
in HK$ | 230 | — | — | — | — | — | 230 | 230 | ||||||||||||||||||||||||
Average interest rate | 0.00 | % | — | — | — | — | — | 0.00 | % |
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Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | value | ||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
in US$ | — | 125 | — | — | 300 | — | 425 | 425 | ||||||||||||||||||||||||
Average interest rate | — | 3.15 | % | — | — | 3.49 | % | — | 3.39 | % | ||||||||||||||||||||||
in HK$ | — | — | — | — | — | 8 | 8 | 8 | ||||||||||||||||||||||||
Average interest rate | — | — | — | — | — | 5.38 | % | 5.38 | % | |||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in US$ | 998 | — | — | — | — | — | 998 | 998 | ||||||||||||||||||||||||
Average interest rate | 3.18 | % | — | — | — | — | — | 3.18 | % | |||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | 40 | — | — | — | 40 | 40 | ||||||||||||||||||||||||
Average interest rate | — | — | 0.95 | % | — | — | — | 0.95 | % | |||||||||||||||||||||||
Cash and Cash equivalents | ||||||||||||||||||||||||||||||||
in US$ | 5 | — | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||
Average interest rate | 1.95 | % | — | — | — | — | — | 1.95 | % | |||||||||||||||||||||||
in HK$ | 341 | — | — | — | — | — | 341 | 341 | ||||||||||||||||||||||||
Average interest rate | 0.00 | % | — | — | — | — | — | 0.00 | % |
(1) | assuming the interest rates are within the specified range and the deposits are not terminated earlier by the banks. |
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Expected Maturity Date | ||||||||||||||||||||||||||||||||
Fair | ||||||||||||||||||||||||||||||||
As of December 31, 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | value | ||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Debt securities | ||||||||||||||||||||||||||||||||
in US$ | — | 125 | — | — | 300 | — | 425 | 425 | ||||||||||||||||||||||||
Average interest rate | — | 3.15 | % | — | — | 3.49 | % | — | 3.39 | % | ||||||||||||||||||||||
Term deposits (excluding structured deposits) | ||||||||||||||||||||||||||||||||
in US$ | 720 | — | — | — | — | — | 720 | 720 | ||||||||||||||||||||||||
Average interest rate | 6.00 | % | — | — | — | — | — | 6.00 | % | |||||||||||||||||||||||
Structured deposits(1) | ||||||||||||||||||||||||||||||||
in US$ | — | — | — | 40 | — | 385 | 425 | 425 | ||||||||||||||||||||||||
Average interest rate | — | — | — | 3.65 | % | — | 8.09 | % | 7.67 | % | ||||||||||||||||||||||
Cash and Cash equivalents | ||||||||||||||||||||||||||||||||
in US$ | 1,205 | — | — | — | — | — | 1,205 | 1,205 | ||||||||||||||||||||||||
Average interest rate | 3.57 | % | — | — | — | — | — | 3.57 | % | |||||||||||||||||||||||
in HK$ | 579 | — | — | — | — | — | 579 | 579 | ||||||||||||||||||||||||
Average interest rate | 0.10 | % | — | — | — | — | — | 0.10 | % |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. |
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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$1.50 per ADS | ||
(f) Expenses of the depositary | Expenses incurred on behalf of ADR holders in connection with: • compliance with foreign exchange control regulations or any law or regulation relating to foreign investment; • the depositary’s or its custodian’s compliance with applicable law, rule or regulation; • stock transfer or other taxes and other governmental charges; • cable, telex, facsimile transmission and delivery; • expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency); and • any other charge payable by depositary or its agents. | Expenses payable at the sole discretion of the depositary by billing ADR holders or by deducting charges from one or more cash dividends or other cash distributions. |
Category of Expenses | Amount Reimbursed from January 4, 2010 to April 10, 2011 | ||
NYSE listing fees | US$ | 38,000.00 | |
Legal fees | US$ | 409,620.55 | |
Investor relations(1) | US$ | 1,369,933.05 | |
Broker reimbursements(2) | US$ | 71,440.20 | |
Total | US$ | 1,888,993.80 |
(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. |
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ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. |
ITEM 15. | CONTROLS AND PROCEDURES. |
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• | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets and liabilities of the Company; | ||
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with the applicable 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 | ||
• | 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. |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT. |
ITEM 16B. | CODE OF ETHICS. |
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ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Audit Fees(1) | Audit-Related Fees | Tax Fees | All Other Fees | |||||||||||||
(RMB in millions) | ||||||||||||||||
2010 | 63.90 | — | — | — | ||||||||||||
2009 | 69.50 | — | — | — |
(1) | Audit fees include fees billed for professional services rendered for audits of the consolidated financial statements, review of interim financial statements, statutory audits of China Life. |
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. |
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. |
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT. |
ITEM 16G. | CORPORATE GOVERNANCE. |
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ITEM 17. | FINANCIAL STATEMENTS. |
ITEM 18. | FINANCIAL STATEMENTS. |
ITEM 19. | EXHIBITS. |
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No. | Description of Exhibit | |||
1.1 | Amended and Restated Articles of Association of the Registrant | |||
2.1 | Form of H share certificate(1) | |||
2.2 | Form of Deposit Agreement, including the Form of American Depositary Receipt(2) | |||
4.1 | Restructuring Agreement(1) | |||
4.2 | Trademark License Agreement(1) | |||
4.3 | Policy Management Agreement(4) | |||
4.4 | Asset Management Agreement between China Life Insurance Company Limited and China Life Asset Management Company Limited | |||
4.5 | Asset Management Agreement between China Life Insurance (Group) Company and China Life Asset Management Company Limited(5) | |||
4.6 | Property Leasing Agreement(6) | |||
4.7 | Non-Competition Agreement(1) | |||
4.8 | Confirmation Letter to Renew Policy Management Agreement(5) | |||
4.9 | Agreement for Assignment of Rights and Obligations under Property Leasing Agreement(5) | |||
4.10 | Capital Injection Agreement among China Life Insurance Company Limited, China Life Insurance (Group) Company and China Life Asset Management Company Limited(5) | |||
4.11 | Entrustment and Account Management Agreement for Corporate Annuity Fund(6) | |||
8.1 | List of subsidiaries of the Registrant | |||
11.1 | Code of Business Conduct and Ethics(3) | |||
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 |
(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), filed with the Commission on January 4, 2010. | |
(3) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2004, filed with the Commission on May 27, 2005. | |
(4) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2005, filed with the Commission on May 30, 2006. | |
(5) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2008, filed with the Commission on April 28, 2009. | |
(6) | Incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2009, filed with the Commission on April 29, 2010. |
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China Life Insurance Company Limited | ||||
By: | /s/ Wan Feng | |||
Name: | Wan Feng | |||
Title: | President and Executive Director | |||
Table of Contents
F-2 | ||
F-3 | ||
F-5 | ||
F-7 | ||
F-10 | ||
F-12 |
F-1
Table of Contents
China Life Insurance Company Limited
Hong Kong, March 22, 2011
F-2
Table of Contents
As at 31 December 2010
As at 31 | As at 31 | |||||||||||
December | December | |||||||||||
2010 | 2009 | |||||||||||
Note | RMB million | RMB million | ||||||||||
ASSETS | ||||||||||||
Property, plant and equipment | 6 | 18,946 | 17,467 | |||||||||
Investments in associates | 7 | 20,892 | 8,470 | |||||||||
Held-to-maturity securities | 8.1 | 246,227 | 235,099 | |||||||||
Loans | 8.2 | 36,543 | 23,081 | |||||||||
Term deposits | 8.3 | 441,585 | 344,983 | |||||||||
Statutory deposits — restricted | 8.4 | 6,153 | 6,153 | |||||||||
Available-for-sale securities | 8.5 | 548,121 | 517,499 | |||||||||
Securities at fair value through income | 8.6 | 9,762 | 9,133 | |||||||||
Accrued investment income | 8.7 | 18,193 | 14,208 | |||||||||
Premiums receivable | 10 | 7,274 | 6,818 | |||||||||
Reinsurance assets | 11 | 830 | 832 | |||||||||
Other assets | 12 | 8,199 | 6,317 | |||||||||
Cash and cash equivalents | 47,854 | 36,197 | ||||||||||
Total assets | 1,410,579 | 1,226,257 | ||||||||||
F-3
Table of Contents
As at 31 December 2010
As at 31 | As at 31 | |||||||||||
December | December | |||||||||||
2010 | 2009 | |||||||||||
Note | RMB million | RMB million | ||||||||||
LIABILITIES AND EQUITY | ||||||||||||
Liabilities | ||||||||||||
Insurance contracts | 13 | 1,018,135 | 818,164 | |||||||||
Investment contracts | 14 | 70,171 | 67,326 | |||||||||
Securities sold under agreements to repurchase | 15 | 23,065 | 33,553 | |||||||||
Policyholder dividends payable | 52,828 | 54,587 | ||||||||||
Annuity and other insurance balances payable | 8,275 | 5,721 | ||||||||||
Premiums received in advance | 1,880 | 1,804 | ||||||||||
Other liabilities | 16 | 13,746 | 11,978 | |||||||||
Deferred tax liabilities | 24 | 11,776 | 16,361 | |||||||||
Current income tax liabilities | 34 | 3,850 | ||||||||||
Statutory insurance fund | 17 | 194 | 137 | |||||||||
Total liabilities | 1,200,104 | 1,013,481 | ||||||||||
Equity | ||||||||||||
Share capital | 30 | 28,265 | 28,265 | |||||||||
Reserves | 31 | 100,512 | 102,787 | |||||||||
Retained earnings | 79,933 | 80,020 | ||||||||||
Attributable to equity holders of the Company | 208,710 | 211,072 | ||||||||||
Non-controlling interests | 1,765 | 1,704 | ||||||||||
Total equity | 210,475 | 212,776 | ||||||||||
Total liabilities and equity | 1,410,579 | 1,226,257 | ||||||||||
F-4
Table of Contents
For the year ended 31 December 2010
2010 | 2009 | 2008 | ||||||||||||||
RMB | RMB | RMB | ||||||||||||||
Note | million | million | million | |||||||||||||
REVENUES | ||||||||||||||||
Gross written premiums | 318,229 | 275,970 | 265,656 | |||||||||||||
Less: premiums ceded to reinsurers | (177 | ) | (158 | ) | (156 | ) | ||||||||||
Net written premiums | 318,052 | 275,812 | 265,500 | |||||||||||||
Net change in unearned premium reserves | 36 | (735 | ) | (323 | ) | |||||||||||
Net premiums earned | 318,088 | 275,077 | 265,177 | |||||||||||||
Investment income | 18 | 48,872 | 38,890 | 44,946 | ||||||||||||
Net realised gains on financial assets | 19 | 15,841 | 21,244 | (5,964 | ) | |||||||||||
Net fair value gains through income | 20 | 280 | 1,449 | (7,194 | ) | |||||||||||
Other income | 2,757 | 2,630 | 3,420 | |||||||||||||
Total revenues | 385,838 | 339,290 | 300,385 | |||||||||||||
BENEFITS, CLAIMS AND EXPENSES | ||||||||||||||||
Insurance benefits and claims expenses | ||||||||||||||||
Life insurance death and other benefits | 21 | (71,237 | ) | (74,858 | ) | (89,659 | ) | |||||||||
Accident and health claims and claim adjustment expenses | 21 | (8,740 | ) | (7,808 | ) | (7,641 | ) | |||||||||
Increase in insurance contracts liabilities | 21 | (199,655 | ) | (154,372 | ) | (134,649 | ) | |||||||||
Investment contract benefits | 22 | (1,950 | ) | (2,142 | ) | (1,931 | ) | |||||||||
Policyholder dividends resulting from participation in profits | (13,224 | ) | (14,487 | ) | (1,671 | ) | ||||||||||
Underwriting and policy acquisition costs | (27,256 | ) | (22,936 | ) | (24,200 | ) | ||||||||||
Administrative expenses | (20,285 | ) | (18,719 | ) | (16,652 | ) | ||||||||||
Other operating expenses | (3,655 | ) | (2,390 | ) | (3,409 | ) | ||||||||||
Statutory insurance fund contribution | 17 | (599 | ) | (537 | ) | (558 | ) | |||||||||
Total benefits, claims and expenses | (346,601 | ) | (298,249 | ) | (280,370 | ) | ||||||||||
Share of results of associates | 7 | 1,771 | 704 | (56 | ) | |||||||||||
Profit before income tax | 23 | 41,008 | 41,745 | 19,959 | ||||||||||||
Income tax | 24 | (7,197 | ) | (8,709 | ) | (685 | ) | |||||||||
Net profit | 33,811 | 33,036 | 19,274 | |||||||||||||
Attributable to: | ||||||||||||||||
- equity holders of the Company | 33,626 | 32,881 | 19,137 | |||||||||||||
- non-controlling interests | 185 | 155 | 137 | |||||||||||||
Basic and diluted earnings per share | 26 | RMB | 1.19 | RMB | 1.16 | RMB | 0.68 | |||||||||
F-5
Table of Contents
For the year ended 31 December 2010
2010 | 2009 | 2008 | ||||||||||||||
Note | RMB million | RMB million | RMB million | |||||||||||||
Other comprehensive income/(loss) | ||||||||||||||||
Fair value (losses)/gains on available-for-sale securities | (13,666 | ) | 39,470 | (61,622 | ) | |||||||||||
Amount transferred to net profit from other comprehensive income | (15,763 | ) | (21,040 | ) | 4,878 | |||||||||||
Portion of fair value (losses)/gains on available-for-sale securities allocated to participating policyholders | 7,983 | (3,999 | ) | 11,702 | ||||||||||||
Share of other comprehensive loss of associates | (131 | ) | (70 | ) | 291 | |||||||||||
Others | (1 | ) | — | (3 | ) | |||||||||||
Income tax relating to components of other comprehensive income/(loss) | 24 | 5,362 | (3,607 | ) | 11,260 | |||||||||||
Other comprehensive (loss)/income for the year | (16,216 | ) | 10,754 | (33,494 | ) | |||||||||||
Total comprehensive income for the year | 17,595 | 43,790 | (14,220 | ) | ||||||||||||
Attributable to: | ||||||||||||||||
- equity holders of the Company | 17,423 | 43,626 | (14,316 | ) | ||||||||||||
- non-controlling interests | 172 | 164 | 96 | |||||||||||||
F-6
Table of Contents
For the year ended 31 December 2010
Attributable to equity holders | ||||||||||||||||||||
of the Company | Non- | |||||||||||||||||||
Retained | controlling | |||||||||||||||||||
Share capital | Reserves | earnings | interests | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Note 29) | (Note 30) | |||||||||||||||||||
As at 1 January 2008 | 28,265 | 111,276 | 60,593 | 876 | 201,010 | |||||||||||||||
Net profit | — | — | 19,137 | 137 | 19,274 | |||||||||||||||
Other comprehensive loss for the year | — | (33,453 | ) | — | (41 | ) | (33,494 | ) | ||||||||||||
Total comprehensive income/(loss) | — | (33,453 | ) | 19,137 | 96 | (14,220 | ) | |||||||||||||
Transactions with owners | ||||||||||||||||||||
Capital contribution | — | — | — | 45 | 45 | |||||||||||||||
Appropriation to reserve | — | 6,624 | (6,624 | ) | — | — | ||||||||||||||
Dividends paid | — | — | (11,871 | ) | — | (11,871 | ) | |||||||||||||
Dividends to minority interests | — | — | (93 | ) | (93 | ) | ||||||||||||||
Total transactions with owners | — | 6,624 | (18,495 | ) | (48 | ) | (11,919 | ) | ||||||||||||
As at 31 December 2008 | 28,265 | 84,447 | 61,235 | 924 | 174,871 | |||||||||||||||
F-7
Table of Contents
For the year ended 31 December 2010
Attributable to equity holders | ||||||||||||||||||||
of the Company | Non- | |||||||||||||||||||
Retained | controlling | |||||||||||||||||||
Share capital | Reserves | earnings | interests | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Note 30) | (Note 31) | |||||||||||||||||||
As at 1 January 2009 | 28,265 | 84,447 | 61,235 | 924 | 174,871 | |||||||||||||||
Net profit | — | — | 32,881 | 155 | 33,036 | |||||||||||||||
Other comprehensive income for the year | — | 10,745 | — | 9 | 10,754 | |||||||||||||||
Total comprehensive income | — | 10,745 | 32,881 | 164 | 43,790 | |||||||||||||||
Transactions with owners | ||||||||||||||||||||
Capital contribution | — | — | — | 720 | 720 | |||||||||||||||
Appropriation to reserve (Note 31) | — | 7,595 | (7,595 | ) | — | — | ||||||||||||||
Dividends paid | — | — | (6,501 | ) | — | (6,501 | ) | |||||||||||||
Dividends to non-controlling interests | — | — | — | (104 | ) | (104 | ) | |||||||||||||
Total transactions with owners | — | 7,595 | (14,096 | ) | 616 | (5,885 | ) | |||||||||||||
As at 31 December 2009 | 28,265 | 102,787 | 80,020 | 1,704 | 212,776 | |||||||||||||||
F-8
Table of Contents
For the year ended 31 December 2010
Attributable to equity holders | ||||||||||||||||||||
of the Company | Non- | |||||||||||||||||||
Retained | controlling | |||||||||||||||||||
Share capital | Reserves | earnings | interests | Total | ||||||||||||||||
RMB million | RMB million | RMB million | RMB million | RMB million | ||||||||||||||||
(Note 30) | (Note 31) | |||||||||||||||||||
As at 1 January 2010 | 28,265 | 102,787 | 80,020 | 1,704 | 212,776 | |||||||||||||||
Net profit | — | — | 33,626 | 185 | 33,811 | |||||||||||||||
Other comprehensive income for the year | — | (16,203 | ) | — | (13 | ) | (16,216 | ) | ||||||||||||
Total comprehensive income | — | (16,203 | ) | 33,626 | 172 | 17,595 | ||||||||||||||
Appropriation to reserve (Note 31) | — | 13,928 | (13,928 | ) | — | — | ||||||||||||||
Dividends paid | — | — | (19,785 | ) | — | (19,785 | ) | |||||||||||||
Dividends to non-controlling interests | — | — | — | (111 | ) | (111 | ) | |||||||||||||
Total transactions with owners | — | 13,928 | (33,713 | ) | (111 | ) | (19,896 | ) | ||||||||||||
As at 31 December 2010 | 28,265 | 100,512 | 79,933 | 1,765 | 210,475 | |||||||||||||||
F-9
Table of Contents
For the year ended 31 December 2010
2010 | 2009 | 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Profit before income tax: | 41,008 | 41,745 | 19,959 | |||||||||
Adjustments for: | ||||||||||||
Investment income | (48,872 | ) | (38,890 | ) | (44,946 | ) | ||||||
Net realised and unrealised gains on financial assets | (16,121 | ) | (22,693 | ) | 13,158 | |||||||
Insurance contracts | 199,978 | 155,252 | 135,284 | |||||||||
Depreciation and amortisation | 1,802 | 1,560 | 1,363 | |||||||||
Amortisation of premiums and discounts | (5 | ) | 10 | (156 | ) | |||||||
Loss on foreign exchange | 392 | 28 | 907 | |||||||||
Share of results of associates | (1,771 | ) | (704 | ) | — | |||||||
Changes in operating assets and liabilities: | ||||||||||||
Securities at fair value through income | (809 | ) | 6,435 | 3,977 | ||||||||
Receivables and payables | 13,056 | 9,917 | 4,484 | |||||||||
Income tax paid | (10,236 | ) | (3,995 | ) | (8,583 | ) | ||||||
Interest received | 135 | 291 | 101 | |||||||||
Dividends received | 43 | 40 | 529 | |||||||||
Net cash inflow from operating activities | 178,600 | 149,700 | 126,077 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Sales and maturities: | ||||||||||||
Sales of debt securities | 38,245 | 95,197 | 19,594 | |||||||||
Maturities of debt securities | 8,199 | 25,730 | 4,187 | |||||||||
Sales of equity securities | 133,111 | 101,112 | 59,855 | |||||||||
Property, plant and equipment | 240 | 420 | 247 | |||||||||
Purchases: | ||||||||||||
Debt securities | (74,324 | ) | (148,559 | ) | (119,989 | ) | ||||||
Equity securities | (171,379 | ) | (149,523 | ) | (49,480 | ) | ||||||
Property, plant and equipment | (4,849 | ) | (3,261 | ) | (2,950 | ) | ||||||
Additional capital contribution to associates | (2,999 | ) | — | (1,200 | ) | |||||||
Increase in term deposits, net | (96,602 | ) | (116,711 | ) | (60,095 | ) | ||||||
Decrease in securities purchased under agreements to resell, net | 89 | 8 | 5,142 | |||||||||
Interest received | 38,873 | 34,139 | 30,378 | |||||||||
Dividends received | 5,321 | 3,159 | 9,563 | |||||||||
Increase in policy loan, net | (10,146 | ) | (5,155 | ) | — | |||||||
Other | 284 | (307 | ) | (11,162 | ) | |||||||
Net cash outflow from investing activities | (135,937 | ) | (163,751 | ) | (115,910 | ) | ||||||
F-10
Table of Contents
For the year ended 31 December 2010
2010 | 2009 | 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
(Decrease)/increase in investment in securities sold under agreements to repurchase, net | (10,488 | ) | 22,163 | 11,290 | ||||||||
Interest paid | (297 | ) | (111 | ) | (437 | ) | ||||||
Contribution from non-controlling interests | — | 720 | — | |||||||||
Dividends paid to the Company’s equity holders | (19,785 | ) | (6,501 | ) | (11,871 | ) | ||||||
Dividends paid to non-controlling interests | (111 | ) | (104 | ) | (93 | ) | ||||||
Net cash (outflow)/ inflow from financing activities | (30,681 | ) | 16,167 | (1,111 | ) | |||||||
Foreign currency losses on cash and cash equivalents | (325 | ) | (4 | ) | (288 | ) | ||||||
Net increase in cash and cash equivalents | 11,657 | 2,112 | 8,768 | |||||||||
Cash and cash equivalents Beginning of year | 36,197 | 34,085 | 25,317 | |||||||||
End of year | 47,854 | 36,197 | 34,085 | |||||||||
Analysis of balance of cash and cash equivalents | ||||||||||||
Cash at bank and in hand | 45,143 | 23,640 | 20,841 | |||||||||
Short-term bank deposits | 2,711 | 12,557 | 13,244 |
F-11
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
1 | ORGANIZATION AND PRINCIPAL ACTIVITIES |
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. | ||
2.1 | Basis of preparation | |
The Group adopted International Financial Reporting Standards (“IFRS”) in 2009. The Group prepared these consolidated financial statements in accordance with IFRS, its amendments 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 the Stock Exchange Limited and the requirements of the Hong Kong Company’s Ordinance. The Group prepared the consolidated financial statements under the historical cost convention, as modified by financial assets and financial liabilities at fair value through income, available-for-sale secutities, insurance contract liabilities and certain property, plant and equipment at deemed cost. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. | ||
2.1.1 | Changes in accounting policy and disclosures | |
(a) | New and amended standards adopted by the Group | |
The following revised standards are mandatory for the first time for the financial year beginning 1 January 2010. |
• | IFRS 3 (Revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and separate financial statements’, IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. The revised standard continues to apply the acquisition method to business combinations, with some significant changes, such as the recognition and measurement of the identifiable assets acquired, the liabilities assumed, the non-controlling interest in the acquire and the acquisition-related costs. | ||
IAS 27 (Revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. |
F-12
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.1 | Basis of preparation (continued) | |
2.1.1 | Changes in accounting policy and disclosures (continued) | |
(b) | New and revised standards, amendments and interpretations mandatory for the first time for the financial year beginning 1 January 2010 but not currently relevant to the Group | |
The following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2010 or later periods but not currently relevant to the Group’s operation. |
Standard/Amendment | Applicable for financial years | |||
/Interpretation | Content | beginning on/after | ||
IFRIC 17 | Distribution of non-cash assets to owners | 1 July 2009 | ||
IFRIC 18 | Transfers of assets from customers | 1 July 2009 | ||
IFRIC 9 | Reassessment of embedded derivatives | 1 July 2009 | ||
IFRIC 16 | Hedges of a net investment in a foreign operation | 1 July 2009 | ||
IAS 39 | Eligible hedge items | 1 July 2009 | ||
IAS 1 (Amendment) | Presentation of financial statements | 1 January 2010 | ||
IAS 17 (Amendment) | Leases | 1 January 2010 | ||
IAS 36 (Amendment) | Impairment of assets | 1 January 2010 | ||
IFRS 2 (Amendments) | Group cash-settled share-based payment transactions | 1 January 2010 | ||
IFRS 5 (Amendment) | Non-current assets held for sale and discontinued operations | 1 July 2009 |
F-13
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.1 | Basis of preparation (continued) | |
2.1.1 | Changes in accounting policy and disclosures (continued) | |
(c) | New standards, amendments and interpretations have been issued but are not effective for the financial year beginning 1 January 2010. |
• | IFRS 9 and IFRS 9 (Amendment), ‘Financial instruments’, issued in November 2009 and October 2010 respectively. This standard is the first step in the process to replace IAS 39, ‘Financial instruments: recognition and measurement’. IFRS 9 and IFRS 9 (Amendment) introduce new requirements for classifying, measuring and derecognizing financial assets and financial liabilities and are likely to affect the group’s accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group is in the process of making an assessment of the impact of the standard and is considering the timing of adoption. | ||
• | Revised IAS 24 (Revised), ‘Related party disclosures’, issued in November 2009. It supersedes IAS 24, ‘Related party disclosures’, issued in 2003. IAS 24 (revised) is mandatory for periods beginning on or after 1 January 2011. The Group early adopted IAS 24 Related Party Disclosures (Revised) since 2009. The adoption of IAS 24 Related Party Disclosures (Revised) only affected disclosure and did not have any impact on the Group’s financial position and comprehensive income. | ||
• | ‘Classification of rights issues’ (Amendment to IAS 32), issued in October 2009. The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 ‘Accounting policies, changes in accounting estimates and errors’. The Group will apply the amended standard from 1 January 2011. The Group will make an assessment of the impact of the standard when applicable. | ||
• | IFRIC — Int 19, ‘Extinguishing financial liabilities with equity instruments’, effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). It requires a gain or loss to be recognised in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished. The Group will apply the interpretation from 1 January 2011. It is not expected to have any impact on the Group’s financial position and comprehensive income. | ||
• | ‘Prepayments of a minimum funding requirement’ (Amendments to IFRIC — Int 14). The amendments correct an unintended consequence of IFRIC — Int 14, ‘IAS 19 — The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC — Int 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The Group will apply these amendments for the financial reporting period commencing on 1 January 2011. It is not expected to have any impact on the Group’s financial position and comprehensive income. | ||
• | ‘Improvements to IFRS 2009’ and ‘Annual Improvements 2010’ were issued in April 2009 and May 2010 respectively, containing numerous technical and conforming amendments to IFRS, which the IASB consider non-urgent but necessary. These amendments comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual IFRS standards. Apart from the early adoption of the amendments to IFRS 1 and IFRS 7 from ‘Annual Improvements 2010’, no other amendments effective for annual periods after 1 January 2010 was early adopted by the Group and no material changes to accounting policies were made in 2010 or are expected in 2011 as a result of these amendments. |
F-14
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2.2 | Consolidation | |
Subsidiaries | ||
The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 31 December. Subsidiaries are those entities in which the Company controls more than one half of the voting power; has the power to govern the financial and operating policies; to appoint or remove the majority of the members of the Board of Directors; or to cast majority votes at the meetings of the Board of Directors. | ||
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 interests 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 an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. | ||
The investments in subsidiaries are accounted for in the company only 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 dividend and receivable. | ||
The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired 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 difference is recognised directly in the statement of comprehensive income. | ||
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provided evidence of impairment of the assets transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. | ||
Transactions with non-controlling interests | ||
The Group treats transactions with non-controlling interests as transactions with equity holders of the Group. For purchases from non-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 disposals to non-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 other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income 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 other comprehensive income are reclassified to profit or loss where appropriate. |
F-15
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.2 | Consolidation (continued) | |
Associates | ||
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognized at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. | ||
The Group’s share of its associates’ post-acquisition profit or loss is recognized in the net profit, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses unless it has obligations or made payments on behalf of the associate. | ||
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Associates’ 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 associate at the date of acquisition. Goodwill on acquisitions of associates is included in investments in associates and is tested annually for impairment as part of the overall balance. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity take into consideration the carrying amount of goodwill relating to the entity sold. | ||
The investment in associates is stated at cost less impairment in the company only statement of financial position. The results of associates are accounted for by the Company on the basis of dividends received and receivable. | ||
2.3 | Segment reporting | |
The Group’s operating segments are presented in a manner consistent with the internal management reporting provided to the president office for deciding how to allocate resources and for assessing performance. | ||
Operating segment refers to the segment within the Group that satisfies following conditions: i) the segment generates income and incurs costs from daily operating activities; ii) management evaluate the operating results of the segment to make resource allocation decision and to evaluate the business performance; iii) the Group can obtain relevant financial information of the segment, including financial condition, operating results, cash flow and other financial performance indicators. | ||
2.4 | Foreign currency translation | |
The functional currencies of the Group’s operations are RMB. Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange ruling at the end of the reporting period. Exchange differences arising in these cases are recognized in the net profit. |
F-16
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.5 | Property, plant and equipment | |
Property, plant and equipment are stated at historical costs less accumulated depreciations and any accumulated impairment losses, except for those acquired prior to 30 June 2003, which are stated at deemed cost less accumulated depreciations and any accumulated impairment losses. | ||
The historical costs of property, plant and equipment comprise its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. The cost of a major renovation is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. | ||
Assets under construction represent buildings and fixtures under construction and are stated at costs or deemed costs. Costs include construction and acquisition costs. No provision for depreciation is made on assets under construction until such time as the relevant assets are completed and ready for use. | ||
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 life as follows: |
Estimated useful life | ||
Buildings | 15 to 35 years | |
Office equipment, furniture and fixtures | 5 to 10 years | |
Motor vehicles | 4 to 8 years | |
Leasehold improvements | Over the lesser of the remaining term of the lease or the useful life |
F-17
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.6 | Financial assets | |
2.6.a | Classification | |
The Group classifies its financial assets into the following categories: held-to-maturity securities, securities at fair value through income, available-for-sale securities and loans and receivables. Management determines the classification of its financial assets at initial recognition and depend on the purpose for which the assets are acquired. Loans and receivables are non-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 term or held as available for sale. Loans and receivables mainly comprise term deposits, loans, securities purchased under agreements to resell, accrued investment income and receivables arising from the insurance contracts as presented separately in the statement of financial position. The Group’s investments in securities are mainly in the below three categories: |
(i) | Held-to-maturity securities | ||
Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed maturities other than those that meet the definition of loans and receivables 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 as available-for-sale securities or securities at fair value through income. | |||
(ii) | Securities at fair value through income | ||
This category has two sub-categories: securities held for trading and those designated at fair value through income 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. The Group may classify other financial assets as at fair value through income if they meet certain criteria and designated as such at inception. | |||
(iii) | Available-for-sale securities | ||
Available-for-sale securities are non-derivative financial assets that are either designated in this category or not classified in either of the other categories. |
2.6.b | Recognition and measurement | |
Purchases and sales of investments are recognized on trade date, when the Group commits to purchase or sell assets. Investments are initially recognized at fair value plus, in the case of all financial assets not carried at fair value through income, transaction costs that are directly attributable to their acquisition. Investments are derecognized 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. | ||
Available-for-sale securities and securities at fair value through income are carried at fair value. 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 income” category, and the change of available-for-sale debt securities’ fair value due to foreign exchange impact on the amortized cost are included in the net profit in the period in which they arise. The remaining unrealised gains and losses arising from changes in the fair value of available for sale debt securities and unrealised gains and losses arising from changes in the fair value of available for sale equity securities are recognized in other comprehensive income. When securities classified as available-for-sale securities are sold or impaired, the accumulated fair value adjustments are included in the net profit as realised gains or losses on financial assets. | ||
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active, the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models. |
F-18
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.6 | Financial assets (continued) | |
2.6.c | Term deposits | |
Term deposits primarily represent traditional bank deposits which have fixed maturity date and are stated at amortised cost. | ||
2.6.d | Loans | |
Loans originated by the Group are carried at amortised cost, net of allowance for impairment. | ||
2.6.e | Securities purchased under agreements to resell | |
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 cost plus accrued interest 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. Sales or transfers of the securities are not permitted by the respective clearing house on which they are registered while the loan 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. | ||
2.6.f | Impairment of securities other than at fair value through income | |
Securities other than those accounted for as at fair value through income 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, the Group considers several factors including, but not limited to. |
• | Significant financial difficulty of the issuer or debtor; | ||
• | A breach of contract, such as a default or delinquency in payments; | ||
• | It becomes probable that the issuer or debtor will enter into bankruptcy or other financial reorganisation; | ||
• | The disappearance of an active market for that financial asset because of financial difficulties; |
In evaluating whether a decline in value is impairment for equity securities, the Group also considers the extent or the duration of the decline. 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/(losses) 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 the net profit. The impairment losses recognised in net profit on equity instruments are not reversed through the net profit. | ||
2.7 | 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. |
F-19
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.8 | Insurance contracts and investment contracts | |
2.8.1 | 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 contacts. 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 features (“DPF”). This feature entitles the policyholders to receive additional benefits or bonuses that are, at least in part, discretionary to the Group. | ||
2.8.2 | Insurance contracts | |
2.8.2.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 a pro-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 the 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 claim expenses with respect to insured events. In developing these reserves, the Group considered the nature and distribution of the risks, claims cost development, and experiences in deriving the best estimated amount and the applicable margins. The methods used for reported claims include average cost per claim method, chain ladder method, etc. The Group calculated the reserves for claim expenses based on the best estimates of the future payments for claim expenses. | |||
(ii) | Long-term insurance contracts | ||
Long-term insurance contracts include whole life and term life insurance, endowment insurance and annuities policies with significant life contingency risk. Premiums are recognized as revenue when due from policyholders. | |||
The Company uses the discounted cash flow method to estimate the liabilities for 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 expenses assumption, and based on the following principles: |
(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: |
• | The guaranteed benefits based on contractual terms, including payments for deaths, disabilities, diseases, survivals, maturities and surrenders. | ||
• | Additional non-guaranteed benefits, such as policyholder dividends. | ||
• | 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 expenses. Expenses are determined based on expense analysis with consideration of estimate of future inflation and the likely impact of Company’s expense management. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.8.2 | Insurance contracts (continued) | |
2.8.2.a | Recognition and measurement (continued) |
(ii) | Long-term insurance contracts (continued) |
Various assumptions for the estimates will be reviewed at the end of each reporting period and any changes will be recognized in the net profit. | |||
On each reporting date, the Company reviews the assumptions for reasonable estimates of liability and risk margins, with consideration of all available information, and taking into account the Company’s historical experience and expectation of future events. Changes in assumptions are recognized in net profit. Assumptions for 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 recognized in the net profit in each period over the life of the contracts. At the inception of the contracts, the Group doesn’t recognize Day 1 gain, whereas on the other hand, Day 1 loss is recognized in the net profit as incurred. | ||
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 by the Group representing Day 1 gain and will be amortized over the life of the contracts. The subsequent measurement of residual margin is independent from best estimate of future discounted cash flows and risk margin. The assumption changes have no effect on the subsequent measurement of residual margin. | |||
(c) | The Group has considered the impact of time value on the reserve calculation for insurance contracts. |
(iii) | Universal life contracts and unit-linked contracts | ||
Universal life contracts and unit-linked contracts are unbundled into the following components: |
• | Insurance components | ||
• | Non-insurance components |
2.8.2.b | Liability adequacy test | |
The Group assesses the adequacy of insurance contract reserves using the current estimate of future cash flow 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 the 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 recognized in the net profit. | ||
2.8.2.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 recognized 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 recognized as an expense when due. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.8 | Insurance contracts and investment contracts (continued) | |
2.8.2.c | Reinsurance contracts held (continued) | |
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 recognizes that impairment loss in the net profit. | ||
2.8.3 | Investment contracts | |
Revenue from investment contracts with or without DPF is recognized as policy fee income, which consists of various charges (policy fees, handling fees and management fees, etc.) during the period. Excess charges over certain acquisition cost are deferred as unearned revenue and amortized 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. | ||
2.8.4 | 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 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 from available-for-sale securities affect the surplus owed to policyholders, shadow adjustments are recognized in other comprehensive income. The surplus owed to policyholders is recognized as policyholder dividend payable whether they are declare or not. The amount and timing of distribution to individual policyholders of participating contracts are subject to future declarations by the Group. | ||
2.9 | Securities sold with agreements to repurchase | |
Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature within 180 days from the transaction date. 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. | ||
2.10 | Derivative instruments | |
Derivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. The resulting gain or loss of derivative financial instruments is recognized in net profit. Fair values are obtained from quoted market prices in active markets, taking into consideration recent market transactions or valuation techniques, including discounted cash flow models and options pricing models, as appropriate. The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. 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 relate 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). |
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Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.11 | Employee benefits | |
Pension benefits | ||
The 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 formulas. These government agencies are responsible for the pension liability to these retired employees. 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 plan pursuant to the relevant laws and regulations in the PRC, whereby the Group are 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 is re-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 vesting period is included in net fair value gains/(losses) through income in the consolidated statement of comprehensive income. The related liability is included in other liabilities. | ||
2.12 | Share capital | |
Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds. | ||
2.13 | Revenue recognition | |
Turnover of the Group represents the total revenues which include the following: | ||
Premiums | ||
Premiums from long-term insurance contracts are recognized 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 a pro-rata basis over the term of the related policy coverage. Contracts for which the period of risk differs significantly from the contract period recognize premiums over the period of risk in proportion to the amount of insurance protection provided. | ||
Policy fee income | ||
Revenue from investment contracts is recognized as policy fee income, which consists of various charges (policy fees, handling fees and management fees, etc.) over period service is provided. Excess charges over certain acquisition costs are deferred as unearned revenue and amortized over the expected life of the contracts. Policy fee income is recognised in revenue as part of 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 dividend payment is established. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) | |
2.14 | Current and deferred income taxation | |
The tax expense for the period comprises current and deferred tax. Tax is recognized in the net profit, except to the extent that it relates to items recognized directly in other comprehensive income where the tax is recognized in other comprehensive income. | ||
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the 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 is subject to interpretation. | ||
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 financial statements. Substantively enacted tax rates are used in the determination of deferred income tax. | ||
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be recognized. | ||
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates 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. | ||
2.15 | Operating leases | |
Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments under operating leases are charged to the net profit on a straight-line basis over the lease periods. | ||
2.16 | 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 or non-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 recognized because it is not probable that outflow of resources will be required or the amount of obligation cannot be measured reliably. | ||
A contingent liability is not recognized in the statement of financial position but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable and can be reliably measured, it will then be recognized as a provision. | ||
2.17 | Dividend distribution | |
Dividend distribution to the Company’s equity holders is recognized as a liability in the Group’s financial statements in the year in which the dividends are approved by the Company’s equity holders. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
3 | CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES |
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgments 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 assumption 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 amortized 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 various assumptions are described in Note 13. | ||
3.2 | Investments | |
The Group’s principal investments are debt securities, equity securities, term deposits and loans. The critical estimates and judgments are those associated with the recognition of impairment and the determination of fair value. | ||
The Group considers a wide range of factors in the impairment assessment as described in Note 2.6.f. | ||
Fair value is defined as the amount at which the financial assets and liabilities could be exchanged in a current transaction between knowledgeable willing parties in an arm’s length transaction, rather than in a forced or liquidation sale. The methods and assumptions used by the Group in estimating the fair value of the financial assets are as follows: |
• | Debt securities: fair values are generally based upon 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 securities: fair values are generally based upon 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. | ||
• | Term deposits (excluding structured deposits), loans and securities purchased or sold under agreements to resell or repurchase: the carrying amounts of these assets in the statement of financial position approximate fair value. | ||
• | Structured deposits: the market for structured deposits is not active and the Group establishes fair value by using discounted cash flow analysis and option pricing models as the valuation technique. The Group uses the US dollar swap rate (the benchmark rate) to determine the fair value of financial instruments. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
3.3 | Income tax | |
The Group is subjected to income tax in various localities. During the normal course of business, certain transaction and activity for which the ultimate tax determination is uncertain. The Group needs to exercise significant judgment when determining the income tax. If the final settlement result of the tax matters are different from the amount booked, these differences will impact the final income tax expense and deferred tax for the period. | ||
4 | Risk Management | |
Risk management is carried out by the Risk Management Committee under policies approved by the 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 there is 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 pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of 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 about 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 type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. The Group manages insurance risk through underwriting strategy, 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. 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 reinsurances 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 credit risk associated with the failure of reinsurance companies to fulfil their responsibilities. | ||
4.1.2 | Concentration of insurance risks | |
The Group offers life insurance, annuity, accident and health insurance products. All operations of the Group are located in the PRC. There are no significant differences among the regions where the Group underwrites insurance contracts. |
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Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
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: |
2010 | 2009 | |||||||||||||||
Product name | RMB million | % | RMB million | % | ||||||||||||
Premiums | ||||||||||||||||
Hong Ying Endowment (a) | 68,612 | 22.63 | % | — | 0.00 | % | ||||||||||
Hong Fu Endowment (b) | 44,320 | 14.61 | % | 54,919 | 20.97 | % | ||||||||||
Hong Feng Endowment (c) | 29,868 | 9.85 | % | 59,229 | 22.61 | % | ||||||||||
Kang Ning Whole Life (d) | 28,853 | 9.51 | % | 30,151 | 11.51 | % | ||||||||||
Hong Tai Endowment (2003) (e) | 7,419 | 2.45 | % | 11,300 | 4.31 | % | ||||||||||
Others (f) | 124,182 | 40.95 | % | 106,306 | 40.60 | % | ||||||||||
Total | 303,254 | 100.00 | % | 261,905 | 100.00 | % | ||||||||||
Insurance benefits expenses | ||||||||||||||||
Hong Ying Endowment (a) | 27 | 0.06 | % | — | 0.00 | % | ||||||||||
Hong Fu Endowment (b) | 146 | 0.32 | % | 36 | 0.07 | % | ||||||||||
Hong Feng Endowment (c) | 28,869 | 63.39 | % | 464 | 0.90 | % | ||||||||||
Kang Ning Whole Life (d) | 2,879 | 6.32 | % | 2,772 | 5.38 | % | ||||||||||
Hong Tai Endowment (2003) (e) | 1,980 | 4.35 | % | 29,173 | 56.59 | % | ||||||||||
Others (f) | 11,640 | 25.56 | % | 19,111 | 37.06 | % | ||||||||||
Total | 45,541 | 100.00 | % | 51,556 | 100.00 | % | ||||||||||
Liabilities of long-term insurance contracts | ||||||||||||||||
Hong Ying Endowment (a) | 62,538 | 6.20 | % | — | 0.00 | % | ||||||||||
Hong Fu Endowment (b) | 100,375 | 9.95 | % | 58,369 | 7.21 | % | ||||||||||
Hong Feng Endowment (c) | 260,896 | 25.85 | % | 265,270 | 32.78 | % | ||||||||||
Kang Ning Whole Life (d) | 104,800 | 10.39 | % | 85,260 | 10.54 | % | ||||||||||
Hong Tai Endowment (2003) (e) | 31,479 | 3.12 | % | 28,757 | 3.55 | % | ||||||||||
Others (f) | 448,808 | 44.49 | % | 371,567 | 45.92 | % | ||||||||||
Total | 1,008,896 | 100.00 | % | 809,223 | 100.00 | % | ||||||||||
(a) | Hong Ying is long-term individual endowment insurance contract with options for premium term of single, 3 years, 5 years and 10 years, designed for healthy policyholders of age between 30 days and 70 years old. Maturity benefit for lump sum premium is paid at 100% of basic sum insured. Maturity benefit for regular premium is paid at basic sum insured multiplied by number of year of premium payments. Disease Death benefit incurred within one year after contract effective date is paid at premium received (without interest). Disease death benefits incurred exceed one year after contract effective date are paid at basic sum insured and basic sum insured multiplied by number of year of premium payments for lump sum premium and regular premium respectively. For accident death occurs on train, ship or flight, accident death benefit is paid at 300% of basic sum insured and 300% of basic sum insured multiplied by number of year of premium payments for lump sum premium and regular premium respectively. For accident death not on train, ship and flight, accident death benefit is paid at 200% of basic sum insured and 200% of basic sum insured multiplied by number of year of premium payments for lump sum premium and regular premium respectively. | |
(b) | Hong Fu is long-term individual endowment insurance contract with options for premium term of single and 3 year, designed for healthy policyholders of age between 30 days and 60 years old. Maturity benefit for lump sum premium is paid at 100% of basic sum insured. Maturity benefit for regular premium is paid at basic sum insured multiplied by number of year of premium payments. Disease Death benefit incurred within one year after contract effective date is paid at premium received (without interest). Disease death benefits incurred exceed one year after contract effective date are paid at basic sum insured and basic sum insured multiplied by number of year of premium payments for lump sum premium and regular premium respectively. Accident death benefit is paid at 300% of basic sum insured and 300% of basic sum insured multiplied by number of year of premium payments for lump sum premium and regular premium respectively. |
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Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.1 | Insurance risk (continued) | |
4.1.2 | Concentration of insurance risks (continued) |
(c) | Hong Feng is long-term individual endowment insurance contract with options for premium term of single. Insured period can be 5 years or 10 years. The insured can be benefited up to age of 65. Maturity benefit is paid at 100% of basic sum insured. Disease Death benefit incurred within one year after contract effective date is paid at premium received (without interest). Disease death benefit incurred exceed one year after contract effective date is paid at basic sum insured. Accident death benefit is paid at 300% of basic sum insured. | |
(d) | Kang Ning Whole Life is long-term individual whole life insurance contract with options for premium term of single, 10 years or 20 years. Its critical illness benefit accounts for 200% of basic sum insured. Both death and disability benefit are paid at 300% of basic sum insured less any paid critical illness benefit. | |
(e) | Hong Tai (2003) is long-term individual endowment insurance contract with options for premium term of single and 5 years, 10 years, 15 years and 20 years, designed for healthy policyholders of age between 30 days and 60 years old. Maturity benefit for lump sum premium is paid at 100% of basic sum insured. Maturity benefit for regular premium is paid at basic sum insured multiplied by number of year of premium payments. Disease death benefit incurred within one year after contract effective date is paid at premium received (without interest). Disease death benefits incurred exceed one year after contract effective date are paid at basic sum insured and basic sum insured multiplied by number of year of premium payments for lump sum premium and regular premium respectively. | |
(f) | Others consist of various long-term insurance contracts with no significant concentration. |
4.1.3 | Sensitivity Analysis | |
Sensitive 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 current best estimate by 10%, pre-tax profit for the year would have been RMB 9,993 million or RMB 10,435 million (2009: RMB 8,899 million or RMB 9,290 million) lower or higher, respectively. | ||
Holding all other variables constant, if lapse rates were to increase or decrease from current best estimate by 10%, pre-tax profit for the year would have been RMB 5,862 million or RMB 6,221 million (2009: RMB 5,426 million or RMB 5,802 million) lower or higher, respectively. | ||
Holding all other variables constant, if the discount rates were 50 basis points higher or lower than current best estimate, pre-tax profit for the year would have been RMB 26,858 million or RMB 31,084 million (2009: RMB 23,429 million or RMB 27,157 million) higher or lower, respectively. | ||
Sensitive 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 loss ratios are 100 basis points higher or lower than current assumption, pre-tax profit is expected to be RMB 149 million lower or higher, respectively (2009: RMB 132 million). Management believes that the 100 basis points deviation used in the sensitivity analysis represents a deviation in the expected level of claims that could be reasonably expected for this type of business. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.1 | Insurance risk (continued) | |
4.1.3 | Sensitivity Analysis (continued) | |
The following table indicates the claim development for short-term insurance contracts without taking account of reinsurance impacts: |
Short-term insurance contracts (accident year) | ||||||||||||||||||||||||
Estimated claims expenses | 2006 | 2007 | 2008 | 2009 | 2010 | Total | ||||||||||||||||||
Current year | 6,771 | 7,082 | 7,725 | 8,102 | 8,826 | |||||||||||||||||||
1 year later | 6,074 | 6,891 | 7,591 | 8,291 | ||||||||||||||||||||
2 years later | 6,168 | 6,990 | 7,411 | |||||||||||||||||||||
3 years later | 6,168 | 6,990 | ||||||||||||||||||||||
4 years later | 6,168 | |||||||||||||||||||||||
Estimated claims expenses | 6,168 | 6,990 | 7,411 | 8,291 | 8,826 | 37,686 | ||||||||||||||||||
Accumulated claims expenses paid | (6,168 | ) | (6,990 | ) | (7,411 | ) | (7,854 | ) | (5,959 | ) | (34,382 | ) | ||||||||||||
Unpaid claims expenses | — | — | — | 437 | 2,867 | 3,304 | ||||||||||||||||||
Short-term insurance contracts (accident year) | ||||||||||||||||||||||||
Estimated claims expenses | 2006 | 2007 | 2008 | 2009 | 2010 | Total | ||||||||||||||||||
Current year | 6,703 | 7,036 | 7,671 | 8,018 | 8,741 | |||||||||||||||||||
1 year later | 6,013 | 6,847 | 7,538 | 8,205 | ||||||||||||||||||||
2 years later | 6,106 | 6,945 | 7,360 | |||||||||||||||||||||
3 years later | 6,106 | 6,945 | ||||||||||||||||||||||
4 years later | 6,106 | |||||||||||||||||||||||
Estimated accumulated claims | 6,106 | 6,945 | 7,360 | 8,205 | 8,741 | 37,357 | ||||||||||||||||||
Accumulated claims expenses paid | (6,106 | ) | (6,945 | ) | (7,360 | ) | (7,772 | ) | (5,902 | ) | (34,085 | ) | ||||||||||||
Unpaid claims expenses | — | — | — | 433 | 2,839 | 3,272 | ||||||||||||||||||
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 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. |
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Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.2 | Financial risk (continued) | |
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 8 to the consolidated financial statements. | ||
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 (for example, change in interest rate and change in market price). | ||
4.2.1 | Market risk | |
(i) | Interest rate risk | |
Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Group’s financial assets are principally comprised of term deposits and debt securities. 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. | ||
At 31 December 2010, 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 RMB 1,066 million (2009: RMB 823 million) higher or lower, respectively, mainly as a result of higher or lower interest income on floating rate cash and cash equivalents, term deposits, statutory deposits-restricted and debt securities and the fair value losses or gains on debt securities assets at fair value through income, net of portion attributable to participating policyholders. Pre-tax available-for sale reserve in equity would have been RMB 8,771 million (2009: RMB 7,583 million) lower or higher respectively as a result of a decrease or increase in the fair value of available-for-sale securities, net of portion attributable to participating policyholders. |
F-30
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.2 | Financial risk (continued) | |
4.2.1 | Market risk (continued) | |
(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 stock 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. | ||
At 31 December 2010, if all the Group’s equity securities’ prices had increased or decreased by 10% with all other variables held constant, pre-tax profit for the year would have been RMB113 million (2009: RMB 127 million) higher or lower, respectively, mainly as a result of an increase or decrease in fair value of equity securities excluding available-for-sale securities, net of portion attributable to participating policyholders. Pre-tax available-for-sale reserve in equity would have been RMB 11,942 million higher or lower (2009: RMB 11,470 million) as a result of an increase or decrease in fair value of available-for-sale equity securities, net of portion attributable to participating policyholders. | ||
(iii) | Currency risk | |
Currency risk is volatility of fair value or future cash flows of financial instruments resulting from changes in foreign currency exchange rates. The Group operates principally in the PRC except for limited exposure to foreign exchange rate risk arising primarily with respect to structured deposits, debt securities and common stocks denominated in US dollar or HK dollar. | ||
The Group holds shares traded on the HK stock market, which are traded in HK dollars. Investment income from H share holdings partially compensates adverse impact of appreciation of Renminbi. | ||
The following table summarizes financial assets denominated in currencies other than RMB as at 31 December 2010 and 2009, expressed in RMB equivalent: |
As at 31 December 2010 | US dollars | HK dollars | Total | |||||||||
Equity securities | ||||||||||||
- Available-for-sale securities | — | 5,845 | 5,845 | |||||||||
Debt securities | ||||||||||||
- Held-to-maturity securities | 1,987 | 6 | 1,993 | |||||||||
- Available-for-sale securities | — | 20 | 20 | |||||||||
Term deposits (excluding structured deposits) | 33 | — | 33 | |||||||||
Structured deposits | — | — | — | |||||||||
Cash and cash equivalents | 8,855 | 1,458 | 10,313 | |||||||||
Total | 10,875 | 7,329 | 18,204 | |||||||||
F-31
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.2 | Financial risk (continued) | |
4.2.1 | Market risk (continued) | |
(iii) | Currency risk (continued) |
As at 31 December 2009 | US dollars | HK dollars | Total | |||||||||
Equity securities | ||||||||||||
- Available-for-sale securities | — | 13,570 | 13,570 | |||||||||
Debt securities | ||||||||||||
- Held-to-maturity securities | 2,048 | 7 | 2,055 | |||||||||
- Available-for-sale securities | 854 | — | 854 | |||||||||
Term deposits (excluding structured deposits) | 6,814 | — | 6,814 | |||||||||
Structured deposits | 273 | — | 273 | |||||||||
Cash and cash equivalents | 1,911 | 1,538 | 3,449 | |||||||||
Total | 11,900 | 15,115 | 27,015 | |||||||||
Monetary assets are exposed to currency risk whereas non-monetary assets, such as equity securities, are exposed to price risk. As at 31 December 2010, if RMB had strengthened or weakened by 10% against US dollars and HK dollar with all other variables held constant, pre-tax profit for the year would have been RMB 1,236 million (2009: RMB 1,345 million) lower or higher, respectively, mainly as a result of foreign exchange losses or gains on translation of US dollar and HK dollar denominated financial assets other than the equity securities included in the table above. The actual exchange loss in year 2010 is RMB 392 million. | ||
4.2.2 | Credit risk | |
Credit risk is the risk that one party to a financial transaction or the issuer of a financial instrument will fail to discharge an obligation and cause another party to incur a financial loss. Because the Group is limited in the types of investments as permitted by China Insurance Regulatory Commission (“CIRC”) 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 through in-house fundamental 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. | ||
Credit risk exposure | ||
The carrying amount of financial assets included on the consolidated statement of financial position represents the maximum credit risk exposure 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 2010 and 2009. | ||
Collateral and other credit enhancements | ||
Securities purchased under agreements to resell are pledged by counterpart’s debt securities or term deposits of which the Group could take the ownership should the owner of the collateral default. Policy loans and premium receivables are collateralized by their policies’ cash value according to the terms and conditions of policy loan contracts and policy contracts respectively signed by the Group together with policyholders. |
F-32
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.2 | Financial risk (continued) | |
4.2.2 | Credit risk (continued) | |
Credit quality | ||
The Group’s debt securities investment 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 a Chinese government controlled financial institution. As at 31 December 2010, 100% (as at 31 December 2009: 100%) of the corporate bonds held by the Group have credit rating of AA/A-2 or above. As at 31 December 2010, 99.1% (as at 31 December 2009: 99.5%) of the subordinated bonds or debts held by the Group either have credit rating of AA/A-2 or above, or were issued by national commercial banks. The bond or debt’s credit rating is assigned by a qualified appraisal institution in the PRC at the time of its issuance. | ||
As at 31 December 2010, 100% (as at 31 December 2009: 100%) 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, and almost all of the reinsurance agreements of the Group are with a state-owned reinsurance company. The Group believes these commercial banks, CSDCC and the reinsurance company have a high credit quality. As a result, the Group concludes credit risk associated with term deposits and accrued investment income thereof, statutory deposits-restricted, cash equivalents and reinsurance assets will not cause material impact on the Group’s consolidated financial statements as at 31 December 2010 and 2009. | ||
The credit risk associated with securities purchased under agreements to resell, policy loans and premium receivables will not cause a material impact on the Group’s consolidated financial statements taking into consideration of their collateral held and maturity term of no more than one year as at 31 December 2010 and 2009. |
F-33
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.2 | Financial risk (continued) | |
4.2.3 | Liquidity risk | |
Liquidity risk is the risk that the Group will not have access to sufficient funds to meet its liabilities as they become due. | ||
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, insurance and financial liabilities: |
Contractual and expected cash flows | ||||||||||||||||||||||||
(undiscounted) | ||||||||||||||||||||||||
Not | Later than 1 | Later than 3 | ||||||||||||||||||||||
later | year but not | years but not | Later | |||||||||||||||||||||
Carrying | Without | than 1 | later than 3 | later than 5 | than 5 | |||||||||||||||||||
As at 31 December 2010 | amount | maturity | year | years | years | years | ||||||||||||||||||
Financial assets | ||||||||||||||||||||||||
Contractual cash inflows/(outflows) | ||||||||||||||||||||||||
Equity securities | 195,899 | 195,899 | — | — | — | — | ||||||||||||||||||
Debt securities | 608,142 | — | 42,602 | 68,533 | 97,955 | 733,144 | ||||||||||||||||||
Loans | 36,543 | — | 24,754 | 1,602 | 3,330 | 13,689 | ||||||||||||||||||
Term deposits | 441,585 | — | 30,097 | 152,241 | 246,050 | 85,383 | ||||||||||||||||||
Statutory deposits-restricted | 6,153 | — | 522 | 5,913 | 214 | — | ||||||||||||||||||
Accrued investment income | 18,193 | — | 17,537 | 656 | — | — | ||||||||||||||||||
Premiums receivable | 7,274 | — | 7,274 | — | — | — | ||||||||||||||||||
Cash and cash equivalent | 47,839 | — | 47,839 | — | — | — | ||||||||||||||||||
Subtotal | 1,361,628 | 195,899 | 170,625 | 228,945 | 347,549 | 832,216 | ||||||||||||||||||
Financial and insurance liabilities | ||||||||||||||||||||||||
Expected cash outflows/(inflows) | ||||||||||||||||||||||||
Insurance contracts | 1,018,135 | — | (12,805 | ) | 59,027 | 98,822 | 1,679,736 | |||||||||||||||||
Investment contracts | 70,087 | — | 15,566 | 18,495 | 14,320 | 47,219 | ||||||||||||||||||
Contractual cash outflows/(inflows) | ||||||||||||||||||||||||
Securities sold under agreements to repurchase | 23,065 | — | 23,065 | — | — | — | ||||||||||||||||||
Annuity and other insurance balances payable | 8,275 | — | 8,275 | — | — | — | ||||||||||||||||||
Subtotal | 1,119,562 | — | 34,101 | 77,522 | 113,142 | 1,726,955 | ||||||||||||||||||
Net cash inflows/(outflows) | 242,066 | 195,899 | 136,524 | 151,423 | 234,407 | (894,739 | ) | |||||||||||||||||
F-34
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.2 | Financial risk (continued) | |
4.2.3 | Liquidity risk (continued) |
Contractual and expected cash flows | ||||||||||||||||||||||||
(undiscounted) | ||||||||||||||||||||||||
Not | Later than 1 | Later than 3 | ||||||||||||||||||||||
later | year but not | years but not | Later | |||||||||||||||||||||
Carrying | Without | than 1 | later than 3 | later than 5 | than 5 | |||||||||||||||||||
As at 31 December 2009 | amount | maturity | year | years | years | years | ||||||||||||||||||
Financial assets | ||||||||||||||||||||||||
Contractual cash inflows/(outflows) | ||||||||||||||||||||||||
Equity securities | 179,390 | 179,390 | — | — | — | — | ||||||||||||||||||
Debt securities | 582,285 | — | 27,803 | 91,257 | 85,720 | 686,923 | ||||||||||||||||||
Loans | 23,081 | — | 14,448 | 1,234 | 1,234 | 12,746 | ||||||||||||||||||
Term deposits | 344,983 | — | 91,552 | 79,100 | 149,936 | 65,405 | ||||||||||||||||||
Statutory deposits-restricted | 6,153 | — | 191 | 2,319 | 4,406 | — | ||||||||||||||||||
Accrued investment income | 14,208 | — | 14,208 | — | — | — | ||||||||||||||||||
Premiums receivable | 6,818 | — | 6,818 | — | — | — | ||||||||||||||||||
Cash and cash equivalent | 36,176 | — | 36,176 | — | — | — | ||||||||||||||||||
Subtotal | 1,193,094 | 179,390 | 191,196 | 173,910 | 241,296 | 765,074 | ||||||||||||||||||
Financial and insurance liabilities | ||||||||||||||||||||||||
Expected cash outflows/(inflows) | ||||||||||||||||||||||||
Insurance contracts | 818,164 | — | (7,558 | ) | 34,103 | 118,673 | 1,335,276 | |||||||||||||||||
Investment contracts | 67,274 | — | 18,386 | 20,121 | 13,595 | 34,352 | ||||||||||||||||||
Contractual cash outflows/(inflows) | ||||||||||||||||||||||||
Securities sold under agreements to repurchase | 33,553 | — | 33,553 | — | — | — | ||||||||||||||||||
Annuity and other insurance balances payable | 5,721 | — | 5,721 | — | — | — | ||||||||||||||||||
Subtotal | 924,712 | — | 50,102 | 54,224 | 132,268 | 1,369,628 | ||||||||||||||||||
Net cash inflows/(outflows) | 268,382 | 179,390 | 141,094 | 119,686 | 109,028 | (604,554 | ) | |||||||||||||||||
F-35
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.2 | Financial risk (continued) | |
4.2.4 | Capital management | |
The Group’s objectives when managing capital, which is actual capital, calculated as the difference between admitted assets (defined by CIRC) and the admitted liabilities (defined by CIRC), are to comply with the insurance capital requirements required by the CIRC to meet the minimum capital 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 is also subject to other local capital requirements, such as statutory deposits-restricted requirement, statutory reserve fund requirement and discretionary reserve fund requirement, discussed in detail under Note 8.4 and Note 31, respectively. | ||
The Group ensures its continuous and full compliance with the regulations mainly through monitoring its quarterly and annual solvency margin, as well as the solvency margin based on Dynamic Solvency Testing. The Group has complied with all the local capital requirements during the year ended, 31 December 2010. | ||
The table below summarises the solvency ratio of the Company, the actual capital held against the minimum required capital: |
As at 31 | As at 31 | |||||||
December 2010 | December 2009 | |||||||
RMB million | RMB million | |||||||
Actual capital | 123,769 | 147,119 | ||||||
Minimum capital | 58,385 | 48,459 | ||||||
Solvency ratio | 212 | % | 304 | % |
F-36
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (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. | ||
Level 2 fair value is based on valuation technique using significant inputs, other than Level 1 quoted price, 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 value provided by pricing services providers are subject to a number of validation procedures by management. These procedures include a review of the valuation models utilized 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 received price from independent third party pricing services. In this instance, the Group may choose to apply internally developed values to the assets being measured. In such cases, the valuations are generally classified as Level 3. 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. | ||
At 31 December 2010, investments classified as Level 1 comprise approximately 42.33% of financial 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 inter-bank market. 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. | ||
At 31 December 2010, investments classified as Level 2 comprise approximately 57.37% of financial 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, analyze 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. | ||
At 31 December 2010, investments classified as Level 3 comprise approximately 0.30% of financial assets measured at fair value on a recurring basis. They primarily include subordinated debts, certain corporate and government agency bonds and certain equity securities. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques. Determinations to classify fair value measures within Level 3 of the valuation hierarchy are generally based on the significance of the unobservable factors to the overall fair value measurement, and valuation methodologies such as discounted cash flow models and other similar techniques. | ||
For the years ended 31 December 2010 and 2009, most of these prices obtained from the pricing services are for debt securities issued by the Chinese government and government controlled organizations. These pricing services utilize a discounted cash flow valuation model using market observable inputs, mainly interest rates, to determine a fair value. These debt securities are classified as Level 2. |
F-37
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.3 | Fair value hierarchy (continued) | |
For the accounting policies regarding the determination of the fair values of financial assets and financial liabilities, see Note 3.2. | ||
The following table presents the Group’s assets and liabilities measured at fair value at 31 December 2010: |
Level 1 | Level 2 | Level 3 | Total balance | |||||||||||||
Assets | ||||||||||||||||
Available-for-sale securities | ||||||||||||||||
–Equity securities | 189,600 | 2,685 | 1,384 | 193,669 | ||||||||||||
–Debt securities | 39,141 | 315,010 | 301 | 354,452 | ||||||||||||
Securities at fair value through income | ||||||||||||||||
–Equity securities | 2,249 | — | — | 2,249 | ||||||||||||
–Debt securities | 5,182 | 2,331 | — | 7,513 | ||||||||||||
Total assets | 236,172 | 320,026 | 1,685 | 557,883 | ||||||||||||
Liabilities | ||||||||||||||||
Investment contracts at fair value through income | (84 | ) | — | — | (84 | ) | ||||||||||
Total liabilities | (84 | ) | — | — | (84 | ) | ||||||||||
Securities at | ||||||||||||||||
fair value | ||||||||||||||||
Available-for-sale Securities | through income | |||||||||||||||
Debt | Equity | Equity | Total | |||||||||||||
securities | securities | securities | assets | |||||||||||||
Opening balance | 301 | 1,238 | — | 1,539 | ||||||||||||
Total gains or losses recognized in | ||||||||||||||||
– Profit or loss | — | — | — | — | ||||||||||||
– Other comprehensive income/(loss) | — | 1 | — | 1 | ||||||||||||
Transfer into Level 3 | — | 17 | — | 17 | ||||||||||||
Purchases | — | 128 | — | 128 | ||||||||||||
Settlements | — | — | — | — | ||||||||||||
Closing balance | 301 | 1,384 | — | 1,685 | ||||||||||||
Total gains or losses for 2010 included in income for assets and liabilities held at 31 December 2010 | — | — | — | — | ||||||||||||
F-38
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
4 | MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued) | |
4.3 | Fair value hierarchy (continued) | |
The following table presents the Group’s assets and liabilities measured at fair value at 31 December 2009: |
Level 1 | Level 2 | Level 3 | Total balance | |||||||||||||
Assets | ||||||||||||||||
Available-for-sale securities | ||||||||||||||||
–Equity securities | 172,383 | 3,053 | 1,238 | 176,674 | ||||||||||||
–Debt securities | 42,308 | 298,216 | 301 | 340,825 | ||||||||||||
Securities at fair value through income | ||||||||||||||||
–Equity securities | 2,704 | 38 | — | 2,742 | ||||||||||||
–Debt securities | 2,628 | 3,763 | — | 6,391 | ||||||||||||
Total assets | 220,023 | 305,070 | 1,539 | 526,632 | ||||||||||||
Liabilities | ||||||||||||||||
Investment contracts at fair value through income | (52 | ) | — | — | (52 | ) | ||||||||||
Total liabilities | (52 | ) | — | — | (52 | ) | ||||||||||
Securities at | ||||||||||||||||
fair value | ||||||||||||||||
Available-for-sale Securities | through income | |||||||||||||||
Debt | Equity | Equity | Total | |||||||||||||
securities | securities | securities | assets | |||||||||||||
Opening balance | 385 | 1,007 | 15 | 1,407 | ||||||||||||
Total gains or losses recognized in | ||||||||||||||||
– Profit or loss | 3 | — | 15 | 18 | ||||||||||||
– Other comprehensive income/(loss) | (3 | ) | 127 | — | 124 | |||||||||||
Transfer out of Level 3 | — | (617 | ) | (30 | ) | (647 | ) | |||||||||
Purchases | — | 721 | — | 721 | ||||||||||||
Sales | — | — | — | — | ||||||||||||
Issues | — | — | — | — | ||||||||||||
Settlements | (84 | ) | — | — | (84 | ) | ||||||||||
Closing balance | 301 | 1,238 | — | 1,539 | ||||||||||||
Total gains or losses for 2009 included in income for assets and liabilities held at 31 December 2009 | — | — | — | — | ||||||||||||
F-39
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
5 | SEGMENT INFORMATION | |
5.1 | Operating segments | |
The Group operates in four operating segments: | ||
(i) | Individual life insurance business (Individual life) | |
Individual life insurance business relates primarily to the sale of long-term life insurance contracts and universal life contracts which are mainly term life, whole life, endowment and annuity products, to individuals and assumed individual reinsurance contracts. | ||
(ii) | Group life insurance business (Group life) | |
Group life insurance business relates primarily to the sale of insurance contracts and investment contracts, which are mainly term life, whole life and annuity products, to group entities. | ||
(iii) | Short-term insurance business (Short-term) | |
Short-term insurance business relates primarily to the sale of short-term insurance contracts, which are mainly the short-term accident and health insurance contracts. | ||
(iv) | Corporate and other business (Corporate and other) | |
Corporate and other business relates primarily to income and allocated costs of insurance agency business in respect of the provision of services to CLIC, as described in Note 29, share of results of associates, income and expenses of subsidiaries, unallocated income and expenditure of the Group. | ||
5.2 | Allocation basis of income and expenses | |
Investment income, net realised gains or losses on financial assets, net fair value gains or losses through income and foreign exchange losses within other operating expenses are allocated among segments in proportion to each respective segment’s average liabilities of insurance contracts and investment contracts at the beginning and end of the year. Administrative expenses and certain other operating expenses are allocated among segments in proportion to the unit cost of respective products in the different segments. Except for those arising from investment contracts which can be allocated to the corresponding segments above, other income and other operating expenses are presented in the “Corporate & Other” 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 each respective segment’s average liabilities of insurance contracts and investment contracts at the beginning and end of the year. Insurance liabilities are presented under the respective segments. The remaining assets and liabilities are not allocated. |
F-40
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
5 | SEGMENT INFORMATION (continued) |
For the year ended 31 December 2010 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Gross written premiums | 302,781 | 473 | 14,975 | — | — | 318,229 | ||||||||||||||||||
- Term Life | 1,964 | 287 | — | — | — | |||||||||||||||||||
- Whole Life | 37,783 | 165 | — | — | — | |||||||||||||||||||
- Endowment | 220,505 | — | — | — | — | |||||||||||||||||||
- Annuity | 42,529 | 21 | — | — | — | |||||||||||||||||||
Net premiums earned | 302,753 | 468 | 14,867 | — | — | 318,088 | ||||||||||||||||||
Investment income | 45,535 | 2,691 | 448 | 198 | — | 48,872 | ||||||||||||||||||
Net realised gains on financial assets | 14,738 | 871 | 145 | 87 | — | 15,841 | ||||||||||||||||||
Net fair value gains through income | 247 | 14 | 2 | 17 | — | 280 | ||||||||||||||||||
Other income | 614 | 244 | — | 2,583 | (684 | ) | 2,757 | |||||||||||||||||
Including: inter-segment revenue | — | — | — | 684 | (684 | ) | — | |||||||||||||||||
Segment revenues | 363,887 | 4,288 | 15,462 | 2,885 | (684 | ) | 385,838 | |||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||
Insurance benefits and claims | ||||||||||||||||||||||||
Life insurance death and other benefits | (70,872 | ) | (365 | ) | — | — | — | (71,237 | ) | |||||||||||||||
Accident and health claims and claim adjustment expenses | — | — | (8,740 | ) | — | — | (8,740 | ) | ||||||||||||||||
Increase in insurance contracts liabilities | (199,469 | ) | (186 | ) | — | — | — | (199,655 | ) | |||||||||||||||
Investment contract benefits | (1,264 | ) | (686 | ) | — | — | — | (1,950 | ) | |||||||||||||||
Policyholder dividends resulting from participation in profits | (12,277 | ) | (947 | ) | — | — | — | (13,224 | ) | |||||||||||||||
Underwriting and policy acquisition costs | (24,182 | ) | (88 | ) | (2,794 | ) | (192 | ) | — | (27,256 | ) | |||||||||||||
Administrative expenses | (14,927 | ) | (429 | ) | (2,952 | ) | (1,977 | ) | — | (20,285 | ) | |||||||||||||
Other operating expenses | (2,717 | ) | (833 | ) | (495 | ) | (294 | ) | 684 | (3,655 | ) | |||||||||||||
Including: Inter-segment expenses | (640 | ) | (38 | ) | (6 | ) | — | 684 | — | |||||||||||||||
Statutory insurance fund contribution | (489 | ) | (14 | ) | (96 | ) | — | — | (599 | ) | ||||||||||||||
Segment benefits, claims and expenses | (326,197 | ) | (3,548 | ) | (15,077 | ) | (2,463 | ) | 684 | (346,601 | ) | |||||||||||||
Share of results of associates | — | — | — | 1,771 | — | 1,771 | ||||||||||||||||||
Segment results | 37,690 | 740 | 385 | 2,193 | — | 41,008 | ||||||||||||||||||
Attributable to | ||||||||||||||||||||||||
- equity holders of the Company | 33,626 | |||||||||||||||||||||||
- non-controlling interests | 185 | |||||||||||||||||||||||
Unrealised losses from Available-for-sale securities included in equity holder’s equity | (15,088 | ) | (892 | ) | (148 | ) | (75 | ) | — | (16,203 | ) | |||||||||||||
Depreciation and amortisation | 1,418 | 40 | 283 | 61 | — | 1,802 |
F-41
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
5 | SEGMENT INFORMATION (continued) |
As at 31 December 2010 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Financial assets (including cash and cash equivalents) | 1,263,081 | 73,241 | 12,185 | 5,931 | — | 1,354,438 | ||||||||||||||||||
Other | 719 | — | 89 | 20,892 | — | 21,700 | ||||||||||||||||||
Segment assets | 1,263,800 | 73,241 | 12,274 | 26,823 | — | 1,376,138 | ||||||||||||||||||
Unallocated | ||||||||||||||||||||||||
Property, plant and equipment | 18,946 | |||||||||||||||||||||||
Other | 15,495 | |||||||||||||||||||||||
Total | 1,410,579 | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Insurance contracts | 1,008,201 | 695 | 9,239 | — | — | 1,018,135 | ||||||||||||||||||
Investment contracts | 15,664 | 54,507 | — | — | — | 70,171 | ||||||||||||||||||
Securities sold under agreements to repurchase | 21,199 | 1,253 | 208 | 405 | — | 23,065 | ||||||||||||||||||
Other | 331 | 223 | — | — | — | 554 | ||||||||||||||||||
Segment liabilities | 1,045,395 | 56,678 | 9,447 | 405 | — | 1,111,925 | ||||||||||||||||||
Unallocated | ||||||||||||||||||||||||
Other | 88,179 | |||||||||||||||||||||||
Total | 1,200,104 | |||||||||||||||||||||||
F-42
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
5 | SEGMENT INFORMATION (continued) |
For the year ended 31 December 2009 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Gross written premiums | 261,715 | 190 | 14,065 | — | — | 275,970 | ||||||||||||||||||
- Term Life | 805 | 112 | — | — | — | |||||||||||||||||||
- Whole Life | 37,860 | 60 | — | — | — | |||||||||||||||||||
- Endowment | 184,841 | — | — | — | — | |||||||||||||||||||
- Annuity | 38,209 | 18 | — | — | — | |||||||||||||||||||
Net premiums earned | 261,694 | 189 | 13,194 | — | — | 275,077 | ||||||||||||||||||
Investment income | 35,693 | 2,614 | 408 | 175 | — | 38,890 | ||||||||||||||||||
Net realised gains on financial assets | 19,522 | 1,430 | 222 | 70 | — | 21,244 | ||||||||||||||||||
Net fair value gains through income | 1,330 | 97 | 16 | 6 | — | 1,449 | ||||||||||||||||||
Other income | 283 | 331 | — | 2,586 | (570 | ) | 2,630 | |||||||||||||||||
Including: inter-segment revenue | — | — | — | 570 | (570 | ) | — | |||||||||||||||||
Segment revenues | 318,522 | 4,661 | 13,840 | 2,837 | (570 | ) | 339,290 | |||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||
Insurance benefits and claims | ||||||||||||||||||||||||
Life insurance death and other benefits | (74,416 | ) | (442 | ) | — | — | — | (74,858 | ) | |||||||||||||||
Accident and health claims and claim adjustment expenses | — | — | (7,808 | ) | — | — | (7,808 | ) | ||||||||||||||||
Increase in insurance contracts liabilities | (154,552 | ) | 180 | — | — | — | (154,372 | ) | ||||||||||||||||
Investment contract benefits | (560 | ) | (1,582 | ) | — | — | — | (2,142 | ) | |||||||||||||||
Policyholder dividends resulting from participation in profits | (13,181 | ) | (1,306 | ) | — | — | — | (14,487 | ) | |||||||||||||||
Underwriting and policy acquisition costs | (20,881 | ) | (113 | ) | (1,877 | ) | (65 | ) | — | (22,936 | ) | |||||||||||||
Administrative expenses | (13,057 | ) | (779 | ) | (3,236 | ) | (1,647 | ) | — | (18,719 | ) | |||||||||||||
Other operating expenses | (1,702 | ) | (131 | ) | (387 | ) | (740 | ) | 570 | (2,390 | ) | |||||||||||||
Including: Inter-segment expenses | (504 | ) | (37 | ) | (6 | ) | (23 | ) | 570 | — | ||||||||||||||
Statutory insurance fund contribution | (404 | ) | (21 | ) | (112 | ) | (537 | ) | ||||||||||||||||
Segment benefits, claims and expenses | (278,753 | ) | (4,194 | ) | (13,420 | ) | (2,452 | ) | 570 | (298,249 | ) | |||||||||||||
Share of results of associates | — | — | — | 704 | — | 704 | ||||||||||||||||||
Segment results | 39,769 | 467 | 420 | 1,089 | — | 41,745 | ||||||||||||||||||
Attributable to | ||||||||||||||||||||||||
- equity holders of the Company | 32,881 | |||||||||||||||||||||||
- non-controlling interests | 155 | |||||||||||||||||||||||
Unrealised gains/(losses) from Available-for-sale securities included in equity holder’s equity | 9,953 | 729 | 113 | (50 | ) | — | 10,745 | |||||||||||||||||
Depreciation and amortisation | 1,169 | 69 | 289 | 33 | — | 1,560 |
F-43
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
5 | SEGMENT INFORMATION (continued) |
As at 31 December 2009 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Financial assets (including cash and cash equivalents) | 1,089,127 | 78,752 | 12,250 | 6,224 | — | 1,186,353 | ||||||||||||||||||
Other | 701 | — | 114 | 8,470 | — | 9,285 | ||||||||||||||||||
Segment assets | 1,089,828 | 78,752 | 12,364 | 14,694 | — | 1,195,638 | ||||||||||||||||||
Unallocated | ||||||||||||||||||||||||
Property, plant and equipment | 17,467 | |||||||||||||||||||||||
Other | 13,152 | |||||||||||||||||||||||
Total | 1,226,257 | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Insurance contracts | 808,591 | 632 | 8,941 | — | — | 818,164 | ||||||||||||||||||
Investment contracts | 14,579 | 52,747 | — | — | — | 67,326 | ||||||||||||||||||
Securities sold under agreements to repurchase | 30,250 | 2,215 | 345 | 743 | — | 33,553 | ||||||||||||||||||
Other | 120 | 436 | — | — | — | 556 | ||||||||||||||||||
Segment liabilities | 853,540 | 56,030 | 9,286 | 743 | — | 919,599 | ||||||||||||||||||
Unallocated | ||||||||||||||||||||||||
Other | 93,882 | |||||||||||||||||||||||
Total | 1,013,481 | |||||||||||||||||||||||
F-44
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
5 | SEGMENT INFORMATION (continued) |
For the year ended 31 December 2008 | ||||||||||||||||||||||||
Individual | Group | Short- | Corporate | |||||||||||||||||||||
life | life | term | & other | Elimination | Total | |||||||||||||||||||
(RMB million) | ||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||
Gross written premiums | 252,130 | 340 | 13,186 | — | — | 265,656 | ||||||||||||||||||
- Term Life | 308 | 25 | — | — | — | |||||||||||||||||||
- Whole Life | 35,421 | 274 | — | — | — | |||||||||||||||||||
- Endowment | 188,099 | — | — | — | — | |||||||||||||||||||
- Annuity | 28,302 | 41 | — | — | — | |||||||||||||||||||
Net premiums earned | 252,113 | 339 | 12,725 | — | 265,177 | |||||||||||||||||||
Investment income | 40,407 | 3,699 | 524 | 316 | — | 44,946 | ||||||||||||||||||
Net realised losses on financial assets | (5,355 | ) | (490 | ) | (69 | ) | (50 | ) | — | (5,964 | ) | |||||||||||||
Net fair value losses on assets at fair value through income | (6,382 | ) | (584 | ) | (83 | ) | (145 | ) | — | (7,194 | ) | |||||||||||||
Other income | 605 | 683 | 2,513 | (381 | ) | 3,420 | ||||||||||||||||||
including: inter-segment revenue | — | — | — | 381 | (381 | ) | — | |||||||||||||||||
Segment revenues | 281,388 | 3,647 | 13,097 | 2,634 | (381 | ) | 300,385 | |||||||||||||||||
Benefits, claims and expenses | ||||||||||||||||||||||||
Insurance benefits and claims | ||||||||||||||||||||||||
Life insurance death and other benefits | (88,507 | ) | (1,152 | ) | — | — | — | (89,659 | ) | |||||||||||||||
Accident and health claims and claim adjustment expenses | — | — | (7,641 | ) | — | — | (7,641 | ) | ||||||||||||||||
Increase in insurance contracts liabilities | (135,298 | ) | 649 | — | — | — | (134,649 | ) | ||||||||||||||||
Investment contract benefits | (224 | ) | (1,707 | ) | — | — | — | (1,931 | ) | |||||||||||||||
Policyholder dividends resulting from participation in profits | (1,589 | ) | (82 | ) | — | — | — | (1,671 | ) | |||||||||||||||
Underwriting and policy acquisition costs | (22,127 | ) | (212 | ) | (1,848 | ) | (13 | ) | — | (24,200 | ) | |||||||||||||
Administrative expenses | (11,347 | ) | (761 | ) | (2,614 | ) | (1,930 | ) | — | (16,652 | ) | |||||||||||||
Other operating expenses | (2,826 | ) | (273 | ) | (263 | ) | (428 | ) | 381 | (3,409 | ) | |||||||||||||
including: Inter-segment expenses | (212 | ) | (19 | ) | (3 | ) | (147 | ) | 381 | — | ||||||||||||||
Statutory insurance fund | (395 | ) | (28 | ) | (135 | ) | — | — | (558 | ) | ||||||||||||||
Segment benefits, claims and expenses | (262,313 | ) | (3,566 | ) | (12,501 | ) | (2,371 | ) | 381 | (280,370 | ) | |||||||||||||
Share of results of associates | — | — | — | (56 | ) | — | (56 | ) | ||||||||||||||||
Segment results | 19,075 | 81 | 596 | 207 | — | 19,959 | ||||||||||||||||||
Attributable to | ||||||||||||||||||||||||
- equity holders of the Company | 19,137 | |||||||||||||||||||||||
- minority interests | 137 | |||||||||||||||||||||||
Unrealised gains/(losses) included in equity holder’s equity | (30,457 | ) | (2,788 | ) | (395 | ) | 188 | — | (33,452 | ) | ||||||||||||||
Depreciation and amortisation | 1,014 | 68 | 248 | 28 | — | 1,358 |
F-45
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
6 | PROPERTY, PLANT AND EQUIPMENT |
2010 | ||||||||||||||||||||||||
Office | ||||||||||||||||||||||||
equipment | Assets | |||||||||||||||||||||||
furniture and | Motor | under | Leasehold | |||||||||||||||||||||
Buildings | fixtures | vehicles | construction | improvements | Total | |||||||||||||||||||
(RMB Million) | ||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||
As at 1 January 2010 | 14,072 | 4,635 | 1,846 | 3,536 | 792 | 24,881 | ||||||||||||||||||
Transfers upon completion | 2,975 | 104 | — | (3,147 | ) | 68 | — | |||||||||||||||||
Additions | 484 | 871 | 194 | 2,030 | 20 | 3,599 | ||||||||||||||||||
Disposals | (60 | ) | (251 | ) | (231 | ) | (339 | ) | (16 | ) | (897 | ) | ||||||||||||
As at 31 December 2010 | 17,471 | 5,359 | 1,809 | 2,080 | 864 | 27,583 | ||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
As at 1 January 2010 | (3,276 | ) | (2,587 | ) | (1,149 | ) | — | (372 | ) | (7,384 | ) | |||||||||||||
Charge for the year | (627 | ) | (680 | ) | (179 | ) | — | (141 | ) | (1,627 | ) | |||||||||||||
Disposals | 8 | 188 | 191 | — | 17 | 404 | ||||||||||||||||||
As at 31 December 2010 | (3,895 | ) | (3,079 | ) | (1,137 | ) | — | (496 | ) | (8,607 | ) | |||||||||||||
Impairment | ||||||||||||||||||||||||
As at 1 January 2010 | (30 | ) | — | — | — | — | (30 | ) | ||||||||||||||||
Charge for the year | — | — | — | — | — | — | ||||||||||||||||||
Disposals | — | — | — | — | — | — | ||||||||||||||||||
As at 31 December 2010 | (30 | ) | — | — | — | — | (30 | ) | ||||||||||||||||
Net book value | ||||||||||||||||||||||||
As at 1 January 2010 | 10,766 | 2,048 | 697 | 3,536 | 420 | 17,467 | ||||||||||||||||||
As at 31 December 2010 | 13,546 | 2,280 | 672 | 2,080 | 368 | 18,946 | ||||||||||||||||||
F-46
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
6 | PROPERTY,PLANT AND EQUIPMENT (Continued) |
2009 | ||||||||||||||||||||||||
Office | ||||||||||||||||||||||||
equipment | ||||||||||||||||||||||||
furniture and | Motor | Assets under | Leasehold | |||||||||||||||||||||
Buildings | fixtures | vehicles | construction | improvements | Total | |||||||||||||||||||
(RMB Million) | ||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||
As at 1 January 2009 | 13,397 | 4,092 | 1,853 | 3,024 | 691 | 23,057 | ||||||||||||||||||
Transfers upon completion | 560 | 6 | — | (607 | ) | 41 | — | |||||||||||||||||
Additions | 190 | 750 | 157 | 1,520 | 78 | 2,695 | ||||||||||||||||||
Disposals | (75 | ) | (213 | ) | (164 | ) | (401 | ) | (18 | ) | (871 | ) | ||||||||||||
As at 31 December 2009 | 14,072 | 4,635 | 1,846 | 3,536 | 792 | 24,881 | ||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||
As at 1 January 2009 | (2,789 | ) | (2,157 | ) | (1,116 | ) | — | (243 | ) | (6,305 | ) | |||||||||||||
Charge for the year | (502 | ) | (598 | ) | (175 | ) | — | (139 | ) | (1,414 | ) | |||||||||||||
Disposals | 15 | 168 | 142 | — | 10 | 335 | ||||||||||||||||||
As at 31 December 2009 | (3,276 | ) | (2,587 | ) | (1,149 | ) | — | (372 | ) | (7,384 | ) | |||||||||||||
Impairment | ||||||||||||||||||||||||
As at 1 January 2009 | (32 | ) | — | — | — | — | (32 | ) | ||||||||||||||||
Charge for the year | (1 | ) | — | — | — | — | (1 | ) | ||||||||||||||||
Disposals | 3 | — | — | — | — | 3 | ||||||||||||||||||
As at 31 December 2009 | (30 | ) | — | — | — | — | (30 | ) | ||||||||||||||||
Net book value | ||||||||||||||||||||||||
As at 1 January 2009 | 10,576 | 1,935 | 737 | 3,024 | 448 | 16,720 | ||||||||||||||||||
As at 31 December 2009 | 10,766 | 2,048 | 697 | 3,536 | 420 | 17,467 | ||||||||||||||||||
F-47
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
7 | INVESTMENTS IN ASSOCIATES |
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
As at 1 January | 8,470 | 7,891 | ||||||
Additional capital contribution to associates (i) (iii) | 5,777 | — | ||||||
Transfer in associates (ii) | 5,123 | — | ||||||
Share of results | 1,771 | 704 | ||||||
Other equity movements | (131 | ) | (70 | ) | ||||
Dividend received | (118 | ) | (55 | ) | ||||
As at 31 December | 20,892 | 8,470 | ||||||
Country of | Interest | |||||||||||||||
Name | incorporation | held | Assets | Liabilities | ||||||||||||
RMB million | RMB million | |||||||||||||||
Guangdong Development Bank (“GDB”) | PRC | 20 | % | 165,979 | 154,356 | |||||||||||
China Life Property & Casualty Insurance Company Limited (“CLP&C”) | PRC | 40 | % | 6,042 | 4,870 | |||||||||||
Sino-Ocean Land Holdings Limited (“Sino-Ocean”) (ii)(iii) | Hong Kong | 24.07 | % | 22,409 | 14,312 | |||||||||||
Total as at 31 December 2010 | 194,429 | 173,547 | ||||||||||||||
GDB | PRC | 20 | % | 136,344 | 128,859 | |||||||||||
CLP&C | PRC | 40 | % | 4,855 | 3,876 | |||||||||||
China Life Insurance Brokers (“CIB”) | PRC | 49 | % | 6 | — | |||||||||||
Total as at 31 December 2009 | 141,205 | 132,735 | ||||||||||||||
Profit /(loss) | ||||||||
Name | Revenue | after tax | ||||||
RMB million | RMB million | |||||||
GDB | 4,392 | 1,237 | ||||||
CLP&C | 3,558 | 245 | ||||||
Sino-Ocean | 3,303 | 289 | ||||||
Total for the year ended 31 December 2010 | 11,252 | 1,771 | ||||||
GDB | 3,023 | 673 | ||||||
CLP&C | 2,946 | 32 | ||||||
CIB | — | (1 | ) | |||||
Total for the year ended 31 December 2009 | 5,969 | 704 |
F-48
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
7 | INVESTMENTS IN ASSOCIATES (continued) |
(i) | In July 2010, the Group injected additional capital of RMB 2,999 million in cash, at a price of RMB 4.38 per share to GDB, representing shares offered to all existing owners of GDB on a pro-rata basis. The Group holds 3.08 billion shares of GDB and its interest in GDB remains at 20% of GDB’s registered capital. | |
(ii) | On December 27, 2009, the Group purchased 934 million shares of Sino-Ocean at the total cost of HKD 5,819 million. As a result of this acquisition, the Group held 16.57% of the total outstanding shares of Sino-Ocean as at 31 December 2009. | |
On January 12, 2010, the Group exchanged certain of its Hong Kong listed equity investments at their market value on the transaction date of RMB 2,784 million for additional 423 million shares of Sino-Ocean. As a result of this acquisition, the Group held 24.08% equity interest of Sino-ocean and recognized it as an associate. In 2010, the ESOP (Employee Stock Option Plan) of Sino-Ocean was partially exercised. As at December 31 2010, the Company’s ownership in Sino-Ocean was diluted to 24.07%. |
F-49
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
8 | FINANCIAL ASSETS | |
8.1 | Held-to-maturity securities |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Debt securities | ||||||||
Government bonds | 105,006 | 103,980 | ||||||
Government agency bonds | 90,230 | 84,619 | ||||||
Corporate bonds | 3,138 | 3,139 | ||||||
Subordinated bonds/debts | 47,853 | 43,361 | ||||||
Total | 246,227 | 235,099 | ||||||
Debt securities | ||||||||
Listed in mainland, PRC | 15,785 | 17,872 | ||||||
Unlisted | 230,442 | 217,227 | ||||||
Total | 246,227 | 235,099 | ||||||
The estimated fair value of listed held-to-maturity securities was RMB 16,250 million as at 31 December 2010 (31 December 2009: RMB 18,683 million). | ||
The unlisted debt securities refer to debt securities not traded on stock exchanges and include both debt securities traded on the interbank market in China and debt securities not publicly traded. |
Debt securities | As at 31 December 2010 | As at 31 December 2009 | ||||||
- Contractual maturity schedule | RMB million | RMB million | ||||||
Maturing | ||||||||
Within one year | 18,891 | 5,937 | ||||||
After one year but within five years | 25,696 | 34,903 | ||||||
After five years but within ten years | 47,897 | 43,792 | ||||||
After ten years | 153,743 | 150,467 | ||||||
Total | 246,227 | 235,099 | ||||||
8.2 | Loans |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Policy loans | 23,977 | 13,831 | ||||||
Other loans | 12,566 | 9,250 | ||||||
Total | 36,543 | 23,081 | ||||||
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Maturing | ||||||||
Within one year | 23,977 | 13,831 | ||||||
After one year but within five years | 1,770 | — | ||||||
After five years but within ten years | 10,796 | 1,200 | ||||||
After ten years | — | 8,050 | ||||||
Total | 36,543 | 23,081 | ||||||
F-50
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
8 | FINANCIAL ASSETS (continued) | |
8.3 | Term deposits |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Maturing | ||||||||
Within one year | 19,268 | 84,393 | ||||||
After one year but within five years | 340,917 | 196,090 | ||||||
After five years but within ten years | 81,400 | 64,500 | ||||||
Total | 441,585 | 344,983 | ||||||
8.4 | Statutory deposits-restricted |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Contractual maturity schedule | ||||||||
Within one year | 400 | 100 | ||||||
After one year but within five years | 5,753 | 6,053 | ||||||
Total | 6,153 | 6,153 | ||||||
Insurance companies in China are required to deposit an amount equal to 20% of their registered capital with banks designated by CIRC. These funds may not be used for any purpose, other than to pay off debts during a liquidation proceeding. |
F-51
Table of Contents
FOR THE YEAR ENDED 31 DECEMBER 2010
8 | FINANCIAL ASSETS (continued) |
8.5 | Available-for-sale securities |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Debt securities | ||||||||
Government bonds | 57,871 | 51,996 | ||||||
Government agency bonds | 145,538 | 165,231 | ||||||
Corporate bonds | 125,423 | 102,553 | ||||||
Subordinated bonds/debts | 25,620 | 21,045 | ||||||
Subtotal | 354,452 | 340,825 | ||||||
Equity securities | ||||||||
Funds | 95,754 | 75,798 | ||||||
Common stocks | 97,915 | 100,876 | ||||||
Subtotal | 193,669 | 176,674 | ||||||
Total | 548,121 | 517,499 | ||||||
Debt securities | ||||||||
Listed in mainland, PRC | 29,618 | 28,086 | ||||||
Listed in Hong Kong, PRC | 13 | — | ||||||
Unlisted | 324,821 | 312,739 | ||||||
Subtotal | 354,452 | 340,825 | ||||||
Equity securities | ||||||||
Listed in mainland, PRC | 104,100 | 97,803 | ||||||
Listed in Hong Kong, PRC | 5,845 | 13,570 | ||||||
Unlisted | 83,724 | 65,301 | ||||||
Subtotal | 193,669 | 176,674 | ||||||
Total | 548,121 | 517,499 | ||||||
The unlisted securities refer to equtiy securities not traded on stock exchanges and include both debt securities traded on the interbank market in China and debt securities not publicly traded. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
8 | FINANCIAL ASSETS (continued) |
8.5 | Available-for-sale securities(continued) |
Group debt securities | As at 31 December 2010 | As at 31 December 2009 | ||||||
- contractual maturity schedule | RMB million | RMB million | ||||||
Maturing | ||||||||
Within one year | 3,804 | 2,912 | ||||||
After one year but within five years | 40,401 | 45,607 | ||||||
After five years but within ten years | 129,977 | 123,719 | ||||||
After ten years | 180,270 | 168,587 | ||||||
Total | 354,452 | 340,825 | ||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
8 | FINANCIAL ASSETS (continued) | |
8.6 | Securities at fair value through income |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Debt securities | ||||||||
Government bonds | 883 | 2,438 | ||||||
Government agency bonds | 1,915 | 3,549 | ||||||
Corporate bonds | 4,715 | 404 | ||||||
Subtotal | 7,513 | 6,391 | ||||||
Equity securities | ||||||||
Funds | 575 | 569 | ||||||
Common stocks | 1,665 | 2,162 | ||||||
Warrants | 9 | 11 | ||||||
Subtotal | 2,249 | 2,742 | ||||||
Total | 9,762 | 9,133 | ||||||
Debt securities | ||||||||
Listed in mainland, PRC | 3,497 | 672 | ||||||
Unlisted | 4,016 | 5,719 | ||||||
Subtotal | 7,513 | 6,391 | ||||||
Equity securities | ||||||||
Listed in mainland, PRC | 1,697 | 2,201 | ||||||
Unlisted | 552 | 541 | ||||||
Subtotal | 2,249 | 2,742 | ||||||
Total | 9,762 | 9,133 | ||||||
The unlisted securities refer to equity securities not traded on stock exchanges and include both debt securities traded on the interbank market in China and debt securities not publicly traded. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
8 | FINANCIAL ASSETS (continued) | |
8.7 | Accrued investment income |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Bank deposits | 9,537 | 5,987 | ||||||
Debt securities | 8,363 | 8,030 | ||||||
Others | 293 | 191 | ||||||
Total | 18,193 | 14,208 | ||||||
Current | 18,193 | 14,208 | ||||||
Non-current | — | — | ||||||
Total | 18,193 | 14,208 | ||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
9 | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
The table below presents the carrying value and estimated fair value of major financial assets and liabilities: |
Carrying value | Estimated fair value | |||||||||||||||
As at 31 | As at 31 | As at 31 | As at 31 | |||||||||||||
December | December | December | December | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
RMB million | RMB million | RMB million | RMB million | |||||||||||||
Held-to-maturity securities | 246,227 | 235,099 | 244,304 | 235,668 | ||||||||||||
Loans | 36,543 | 23,081 | 36,543 | 23,081 | ||||||||||||
Term deposits (excluding structured deposits) | 441,585 | 344,710 | 441,585 | 344,710 | ||||||||||||
Structured deposits | — | 273 | — | 272 | ||||||||||||
Statutory deposits-restricted | 6,153 | 6,153 | 6,153 | 6,153 | ||||||||||||
Available-for-sale securities | 548,121 | 517,499 | 548,121 | 517,499 | ||||||||||||
Securities at fair value through income | 9,762 | 9,133 | 9,762 | 9,133 | ||||||||||||
Cash and cash equivalents | 47,854 | 36,197 | 47,854 | 36,197 | ||||||||||||
Investment contracts (ii) | (70,171 | ) | (67,326 | ) | (69,432 | ) | (66,184 | ) | ||||||||
Securities sold under agreements to repurchase | (23,065 | ) | (33,553 | ) | (23,065 | ) | (33,553 | ) |
(i) | The estimates and judgments to determine the fair value of financial assets are described in Note 3.2. | |
(ii) | The fair value of investment contracts are 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 risk free rate available on valuation date, the own credit risk and risk margin associated with the future cash flows. |
10 | PREMIUMS RECEIVABLE |
The aging of premiums receivable is within 12 months. |
11 | REINSURANCE ASSETS |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Long-term insurance contracts ceded (Note 13) | 719 | 701 | ||||||
Due from reinsurance companies | 22 | 17 | ||||||
Ceded unearned premiums (Note 13) | 57 | 83 | ||||||
Claims recoverable from reinsurers (Note 13) | 32 | 31 | ||||||
Total | 830 | 832 | ||||||
Current | 111 | 131 | ||||||
Non-current | 719 | 701 | ||||||
Total | 830 | 832 | ||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
12 | OTHER ASSETS |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Land use rights | 3,609 | 3,279 | ||||||
Due from CLIC (Note 29(f)) | 598 | 646 | ||||||
Advances | 219 | 302 | ||||||
Others | 3,773 | 2,090 | ||||||
Total | 8,199 | 6,317 | ||||||
Current | 4,573 | 2,471 | ||||||
Non-current | 3,626 | 3,846 | ||||||
Total | 8,199 | 6,317 | ||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
13 | INSURANCE CONTRACTS |
Discount rate assumptions | ||||
As at 31 December 2010 | 4.58%~5.00 | % | ||
As at 31 December 2009 | 4.40%~5.00 | % |
Discount rate assumptions | ||||
As at 31 December 2010 | 2.61%~5.66 | % | ||
As at 31 December 2009 | 2.69%~5.32 | % |
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FOR THE YEAR ENDED 31 DECEMBER 2010
13 | INSURANCE CONTRACTS (continued) |
Individual Life | Group Life | |||||||||||
RMB Per Policy | % of Premium | RMB Per Policy | % of Premium | |||||||||
As at 31 December 2010 | 30.4~44.6 | 0.90%~1.00% | 13.1 | 0.86 | % | |||||||
As at 31 December 2009 | 26.3~38.5 | 1.05%~1.17% | 11.3 | 1.01 | % |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Gross | ||||||||
Long-term insurance contracts | 1,008,896 | 809,223 | ||||||
Short term insurance contracts | ||||||||
- claims and claim adjustment expenses | 3,304 | 2,944 | ||||||
- unearned premiums | 5,935 | 5,997 | ||||||
Total, gross | 1,018,135 | 818,164 | ||||||
Recoverable from reinsurers | ||||||||
Long-term insurance contracts (Note 11) | (719 | ) | (701 | ) | ||||
Short-term insurance contracts | ||||||||
- claims and claim adjustment expenses (Note 11) | (32 | ) | (31 | ) | ||||
- unearned premiums (Note 11) | (57 | ) | (83 | ) | ||||
Total, ceded | (808 | ) | (815 | ) | ||||
Net | ||||||||
Long-term insurance contracts | 1,008,177 | 808,522 | ||||||
Short-term insurance contracts | ||||||||
- claims and claim adjustment expenses | 3,272 | 2,913 | ||||||
- unearned premiums | 5,878 | 5,914 | ||||||
Total, net | 1,017,327 | 817,349 | ||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
13 | INSURANCE CONTRACTS (continued) |
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
- Notified claims | 228 | 352 | ||||||
- Incurred but not reported | 2,716 | 2,428 | ||||||
Total as at 1 January — Gross | 2,944 | 2,780 | ||||||
Cash paid for claims settled in year | ||||||||
- Cash paid for current year claims | (5,959 | ) | (5,478 | ) | ||||
- Cash paid for prior year claims | (2,516 | ) | (2,274 | ) | ||||
Claims incurred in year | ||||||||
- Claims arising in current year | 8,826 | 7,951 | ||||||
- Claims arising in prior year | 9 | (35 | ) | |||||
Total as at 31 December — Gross | 3,304 | 2,944 | ||||||
- Notified claims | 326 | 228 | ||||||
- Incurred but not reported | 2,978 | 2,716 | ||||||
Total as at 31 December — Gross | 3,304 | 2,944 | ||||||
2010 | 2009 | |||||||||||||||||||||||
RMB million | RMB million | |||||||||||||||||||||||
Gross | Ceded | Net | Gross | Ceded | Net | |||||||||||||||||||
As at 1 January | 5,997 | (83 | ) | 5,914 | 5,237 | (58 | ) | 5,179 | ||||||||||||||||
Increase | 5,935 | (57 | ) | 5,878 | 5,997 | (83 | ) | 5,914 | ||||||||||||||||
Release | (5,997 | ) | 83 | (5,914 | ) | (5,237 | ) | 58 | (5,179 | ) | ||||||||||||||
As at 31 December | 5,935 | (57 | ) | 5,878 | 5,997 | (83 | ) | 5,914 | ||||||||||||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
As at 1 January | 809,223 | 654,848 | ||||||
Premiums | 303,254 | 261,905 | ||||||
Release of liabilities (i) | (138,159 | ) | (127,472 | ) | ||||
Accretion of interest | 38,298 | 26,834 | ||||||
Change in assumptions | (6,382 | ) | (8,085 | ) | ||||
Other movements | 2,662 | 1,193 | ||||||
As at 31 December | 1,008,896 | 809,223 | ||||||
(i) | The release of liabilities mainly consists of payments for death or other termination and related expenses, release of residual margin and change of reserves for claims and claim adjustment expenses. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
14 | INVESTMENT CONTRACTS |
As at 31 | As at 31 | |||||||
December 2010 | December 2009 | |||||||
RMB million | RMB million | |||||||
Investment contracts with DPF | 50,839 | 50,219 | ||||||
Investment contracts without DPF | ||||||||
- At amortised cost | 19,248 | 17,055 | ||||||
- Designated as at fair value through income | 84 | 52 | ||||||
Total | 70,171 | 67,326 | ||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
As at 1 January | 50,219 | 51,676 | ||||||
Deposits received | 9,459 | 10,061 | ||||||
Deposits withdrawn and paid on death and other benefits | (9,990 | ) | (12,488 | ) | ||||
Policy fees deducted from account balances | (95 | ) | (221 | ) | ||||
Interest credited | 1,246 | 1,191 | ||||||
As at 31 December | 50,839 | 50,219 | ||||||
15 | SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE |
As at 31 | As at 31 | |||||||
December 2010 | December 2009 | |||||||
RMB million | RMB million | |||||||
Maturing: | ||||||||
Within thirty days | 23,065 | 25,326 | ||||||
After thirty but within ninety days | — | 8,227 | ||||||
Total | 23,065 | 33,553 | ||||||
As at 31 | As at 31 | |||||||
December 2010 | December 2009 | |||||||
RMB million | RMB million | |||||||
Debt securities pledged | 24,377 | 34,306 | ||||||
Total | 24,377 | 34,306 | ||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
16 | OTHER LIABILITIES |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Salary and staff welfare payable | 3,780 | 2,892 | ||||||
Commission and brokerage payable | 1,944 | 1,320 | ||||||
Agent deposits | 656 | 659 | ||||||
Tax payable | 378 | 356 | ||||||
Payable to constructors | 372 | 317 | ||||||
Stock appreciation rights (Note 27) | 1,192 | 1,555 | ||||||
Others | 5,424 | 4,879 | ||||||
Total | 13,746 | 11,978 | ||||||
Current | 13,746 | 11,978 | ||||||
Non-current | — | — | ||||||
Total | 13,746 | 11,978 | ||||||
17 | STATUTORY INSURANCE FUND |
As required by CIRC Order [2008] No. 2, all insurance companies have to pay statutory insurance fund contribution to the CIRC from 1 January 2009. The Group is subject to 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 the Group’s total assets, no additional contribution to the statutory insurance fund is required. |
18 | INVESTMENT INCOME |
For the year ended 31 December | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Debt securities | ||||||||||||
– held-to-maturity securities | 10,538 | 9,882 | 9,245 | |||||||||
– available-for-sale securities | 14,962 | 13,580 | 13,074 | |||||||||
– at fair value through income | 86 | 297 | 371 | |||||||||
Equity securities | ||||||||||||
– available-for-sale securities | 5,211 | 3,108 | 9,563 | |||||||||
– at fair value through income | 40 | 38 | 530 | |||||||||
Bank deposits | 16,363 | 10,805 | 11,378 | |||||||||
Loans | 1,583 | 1,172 | 696 | |||||||||
Securities purchased under agreements to resell | 89 | 8 | 89 | |||||||||
Total | 48,872 | 38,890 | 44,946 | |||||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
19 | NET REALISED GAINS ON FINANCIAL ASSETS |
For the year ended 31 December | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Debt securities | ||||||||||||
Net realised gains | 508 | 3,146 | 422 | |||||||||
Reversal of impairment | 76 | 200 | 2,023 | |||||||||
Subtotal | 584 | 3,346 | 2,445 | |||||||||
Equity securities | ||||||||||||
Net realised gains | 17,028 | 20,248 | 7,335 | |||||||||
Impairment | (1,771 | ) | (2,350 | ) | (15,744 | ) | ||||||
Subtotal | 15,257 | 17,898 | (8,409 | ) | ||||||||
Total | 15,841 | 21,244 | (5,964 | ) | ||||||||
Net realised gains on financial assets are from available-for-sale securities. | ||
During the year ended 31 December 2010, the Group recognized impairment expense of RMB 1,771 million (2009: RMB 2,350 million, 2008: RMB 15,744 million) of available-for-sale securities for which the Group determined that objective evidence of impairment existed. |
20 | NET FAIR VALUE GAINS THROUGH INCOME |
For the year ended 31 December | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Debt securities | 403 | (250 | ) | 300 | ||||||||
Equity securities | (486 | ) | 1,726 | (7,494 | ) | |||||||
Stock appreciation rights | 363 | (27 | ) | — | ||||||||
Total | 280 | 1,449 | (7,194 | ) | ||||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
21 | INSURANCE BENEFITS AND CLAIMS EXPENSES |
Gross | Ceded | Net | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
For the year ended 31 December 2010 | ||||||||||||
Life insurance death and other benefits | 71,255 | (18 | ) | 71,237 | ||||||||
Accident and health claims and claim adjustment expenses | 8,835 | (95 | ) | 8,740 | ||||||||
Increase in insurance contracts liabilities | 199,673 | (18 | ) | 199,655 | ||||||||
Total insurance benefits and claims expenses | 279,763 | (131 | ) | 279,632 | ||||||||
For the year ended 31 December 2009 | ||||||||||||
Life insurance death and other benefits | 74,876 | (18 | ) | 74,858 | ||||||||
Accident and health claims and claim adjustment expenses | 7,909 | (101 | ) | 7,808 | ||||||||
Increase in insurance contracts liabilities | 154,374 | (2 | ) | 154,372 | ||||||||
Total insurance benefits and claims expenses | 237,159 | (121 | ) | 237,038 | ||||||||
For the year ended 31 December 2008 | ||||||||||||
Life insurance death and other benefits | 89,677 | (18 | ) | 89,659 | ||||||||
Accident and health claims and claim adjustment expenses | 7,703 | (62 | ) | 7,641 | ||||||||
Increase in insurance contracts liabilities | 134,690 | (41 | ) | 134,649 | ||||||||
Total insurance benefits and claims expenses | 232,070 | (121 | ) | 231,949 | ||||||||
22 | INVESTMENT CONTRACT BENEFITS |
Benefits of investment contract are mainly the interest credited to investment contracts and universal life contracts. |
23 | PROFIT BEFORE INCOME TAX |
Profit before income tax is stated after charging the following: |
For the year ended 31 December | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Employee salary and welfare cost | 8,240 | 7,773 | 5,089 | |||||||||
Housing benefits | 507 | 472 | 336 | |||||||||
Contribution to the defined contribution pension plan | 1,344 | 1,182 | 873 | |||||||||
Depreciation and amortisation | 1,802 | 1,560 | 1,358 | |||||||||
Interest expenses on securities sold under the agreements to repurchase | 304 | 111 | 438 | |||||||||
Exchange loss | 392 | 28 | 907 | |||||||||
Auditor’s remuneration | 65 | 71 | 64 | |||||||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
24 | 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 relate to the same fiscal authority. | ||
(a) | The amount of taxation charged to the net profit represents |
2010 | 2009 | 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Current taxation — Enterprise income tax | 6,420 | 6,299 | 2,078 | |||||||||
Deferred taxation | 777 | 2,410 | (1,393 | ) | ||||||||
Taxation charges | 7,197 | 8,709 | 685 | |||||||||
(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 2009: 25%) is as follows: |
2010 | 2009 | 2008 | ||||||||||||||
RMB million | RMB million | RMB million | ||||||||||||||
Profit before income tax | 41,008 | 41,745 | 19,959 | |||||||||||||
Tax computed at the statutory tax rate | 10,252 | 10,436 | 4,990 | |||||||||||||
Non-taxable income | (i | ) | (3,413 | ) | (2,627 | ) | (4,524 | ) | ||||||||
Additional tax liability from expenses not deductible for tax purposes | (i | ) | 317 | 520 | 196 | |||||||||||
Unused tax losses | 41 | 25 | 23 | |||||||||||||
Other | — | 355 | — | |||||||||||||
Income taxes at effective tax rate | 7,197 | 8,709 | 685 | |||||||||||||
(i) | Non-taxable income mainly includes interest income from government bonds and fund. Expenses not deductible for tax purposes mainly include commission, brokerage and donation expenses that do not meet the criteria for deduction set by relevant tax regulations. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
24 | TAXATION (continued) |
(c) | As at 31 December 2010, deferred income taxation was calculated in full on temporary differences under the liability method using a principal taxation rate of 25%. The movements in deferred tax assets and liabilities during the year are as follows: |
Deferred tax |
Insurance | Investment | Others | Total | |||||||||||||
RMB | RMB | RMB | RMB | |||||||||||||
million | million | million | million | |||||||||||||
(i) | (ii) | (iii) | ||||||||||||||
As at 1 January 2009 | (9,452 | ) | (1,473 | ) | 581 | (10,344 | ) | |||||||||
(Charged) / credited to net profit | (79 | ) | (2,404 | ) | 73 | (2,410 | ) | |||||||||
(Charged) / credited to other comprehensive income | ||||||||||||||||
- Available-for-sale securities | — | (4,607 | ) | — | (4,607 | ) | ||||||||||
- Portion of fair value gains on available-for-sale securities allocated to participating policyholders | 1,000 | — | — | 1,000 | ||||||||||||
Subtotal | 1,000 | (4,607 | ) | — | (3,607 | ) | ||||||||||
As at 31 December 2009 | (8,531 | ) | (8,484 | ) | 654 | (16,361 | ) | |||||||||
As at 1 January 2010 | (8,531 | ) | (8,484 | ) | 654 | (16,361 | ) | |||||||||
(Charged) / credited to net profit | (604 | ) | (376 | ) | 203 | (777 | ) | |||||||||
(Charged) / credited to other comprehensive income | ||||||||||||||||
- Available-for-sale securities | — | 7,358 | — | 7,358 | ||||||||||||
- Portion of fair value losses on available-for-sale securities allocated to participating policyholders | (1,996 | ) | — | — | (1,996 | ) | ||||||||||
Subtotal | (1,996 | ) | 7,358 | — | 5,362 | |||||||||||
As at 31 December 2010 | (11,131 | ) | (1,502 | ) | 857 | (11,776 | ) | |||||||||
(i) | The deferred tax arising from the insurance category is mainly related to the temporary difference of short duration insurance contracts liabilities and policyholder dividend payables; | |
(ii) | The deferred tax arising from the investment category is mainly related to the temporary difference of unrealised gains/(losses) of available-for-sale securities and securities at fair value through income; | |
(iii) | The deferred tax arising from the other category is mainly related to the temporary difference of employee salary and welfare cost payables. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
24 | TAXATION (continued) |
(d) | The analysis of deferred tax assets and deferred tax liabilities is as follows: |
As at 31 | As at 31 | |||||||
December 2010 | December 2009 | |||||||
RMB million | RMB million | |||||||
Deferred tax assets: | ||||||||
- deferred tax assets to be recovered after more than 12 months | 3,217 | 6,063 | ||||||
- deferred tax assets to be recovered within 12 months | 617 | 592 | ||||||
Subtotal | 3,834 | 6,655 | ||||||
Deferred tax liabilities: | ||||||||
- deferred tax liabilities to be settled after more than 12 months | (15,262 | ) | (22,668 | ) | ||||
- deferred tax liabilities to be settled within 12 months | (348 | ) | (348 | ) | ||||
Subtotal | (15,610 | ) | (23,016 | ) | ||||
Total net deferred income tax liabilities | (11,776 | ) | (16,361 | ) | ||||
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FOR THE YEAR ENDED 31 DECEMBER 2010
25 | EARNINGS PER SHARE |
There is no difference between basic and diluted earnings per share. The basic and diluted earnings per share for the year ended 31 December 2010 are based on the weighted average number of 28,264,705,000 ordinary shares (for the year ended 31 December 2009: 28,264,705,000). |
26 | 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 HK$5.33 and HK$6.83, 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 price of stock appreciation rights was 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 date of award and will not be exercisable before the fourth anniversary of the date of award unless specified market or other conditions have been met. On 26th February 2010, the Board of Directors of the Company extended the exercise period of all stock appreciation rights and the exercise period will depend on the government policy. | ||
No stock appreciation right was exercised, forfeited or expired in 2010. As at 31 December 2010, there are 55.71 million units outstanding (as at 31 December 2009: 55.71 million) and 55.71 million units exercisable (as at 31 December 2009: 55.71 million). As at 31 December 2010, the amount of intrinsic value for the vested stock appreciation rights is RMB 1,185 million (as at 31 December 2009: RMB 1,551 million). | ||
The fair value of the stock appreciation rights is estimated on the date of valuation using lattice-based option valuation models based on expected volatility from 60% to 70%, an expected dividend yield of no higher than 0.5% and risk-free interest rate from 0.2% to 0.3%. | ||
All the stock appreciation rights awarded were fully vested as at 31 December 2010. The Company recognized a gain of RMB 363 million in the fair value gain in the consolidated comprehensive income representing the fair value change of the rights for the year ended 31 December 2010. For the year ended 31 December 2009, the Company charged compensation cost of RMB 839 million representing the fair value change of the rights before they are fully vested. RMB 1,179 million and RMB 13 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 2010 (as at 31 December 2009, RMB 1,542 million and RMB 13 million respectively). No unrecognized compensation cost due to the stock appreciation rights as at 31 December 2010. |
27 | DIVIDENDS |
Pursuant to the equity holders’ approval at the Annual General Meeting in April 2010, a final dividend of RMB 0.70 per ordinary share totalling RMB 19,785 million in respect of the year ended 31 December 2009 was declared and was paid in 2010. These dividends have been recorded in the consolidated financial statements for the year ended 31 December 2010. | ||
Pursuant to a resolution passed at the meeting of the Board of Directors on 22 March 2011, a final dividend of RMB 0.40 per ordinary share totalling approximately RMB 11,306 million for the year ended 31 December 2010 was proposed for equity holders’ approval at the Annual General Meeting. The dividend has not been provided in the consolidated financial statements for the year ended 31 December 2010. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS |
(a) | Related parties | |
Related parties are those parties which have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The table set forth below summarises the names of significant related parties and nature of relationship with the Company as at 31 December 2010: |
Significant related party | Relationship with the Company | |
CLIC | The ultimate holding company | |
China Life Asset Management Company Limited (“AMC”) | A subsidiary of the Company | |
China Life Pension Company Limited (“Pension Company”) | A subsidiary of the Company | |
Sino-Ocean | An associate of the Company | |
GDB | An associate of the Company | |
CLP&C | An associate of the Company and under common control of the ultimate holding company | |
China Life Real Estate Co., Limited (“CLRE”) | A subsidiary of a subsidiary of the ultimate holding company | |
China Life Insurance (Overseas) Co., Limited (“China Life Overseas”) | Under common control of the ultimate holding company | |
China Life Franklin Asset Management Co, Limited (“AMC HK”) | A subsidiary of a subsidiary of the Company | |
China Life Investment Holding Company Limited (“IHC”) | Under common control of the ultimate holding company | |
China Life Enterprise Annuity Fund (“EAP”) | A pension fund operated for the benefit of employees in the Company and AMC |
(b) | Information of the parent company is as follows: |
Relationship | Legal | |||||||||
Location of | with the | Nature of | Represent | |||||||
Name | registration | Principal business | company | economic | ative | |||||
CLIC | Beijing, China | Life, health and accident insurance and other types of personal insurance and reinsurance. Funds management business permitted by national laws and regulations or by State Council of the People’s Republic of China. Provision of various types of personal insurance services, consulting and agency services. Other business approved by CIRC and other regulatory department | Immediate and ultimate holding company | State owned | Chao Yang |
Refer to Note 34 for basic and related information of subsidiaries. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) | |
(c) | Registered capital of related parties with control relationship and changes during the year |
As at 31 December | As at 31 December | |||||||||||||||
2009 | Increase | Decrease | 2010 | |||||||||||||
Name of related party | RMB million | RMB million | RMB million | RMB million | ||||||||||||
CLIC | 4,600 | — | — | 4,600 | ||||||||||||
AMC | 3,000 | — | — | 3,000 | ||||||||||||
Pension Company | 2,500 | — | — | 2,500 | ||||||||||||
HK AMC | HK dollar 60 million | — | — | HK dollar 60 million |
(d) | Percentage of holding and changes during the year |
As at 31 December 2009 | As at 31 December 2010 | |||||||||||||||||||||||
Amount | Percentage of | Increase | Decrease | Amount | Percentage of | |||||||||||||||||||
Equity holder | RMB million | holding | RMB million | RMB million | RMB million | holding | ||||||||||||||||||
CLIC (i) | 19,324 | 68.40 | % | — | — | 19,324 | 68.40 | % | ||||||||||||||||
As at 31 December 2009 | As at 31 December 2010 | |||||||||||||||||||||||
Amount | Percentage of | Increase | Decrease | Amount | Percentage of | |||||||||||||||||||
Subsidiaries | RMB million | holding | RMB million | RMB million | RMB million | holding | ||||||||||||||||||
AMC (ii) | 1,680 | 60.00% directly | — | — | 1,680 | 60.00% directly | ||||||||||||||||||
Pension Company(ii) | 2,305 | 92.20% directly and indirectly | — | — | 2,305 | 92.20% directly and indiretly | ||||||||||||||||||
AMC HK (ii) | HK dollar 30 million | 50.00% indirectly | — | — | HK dollar 30 million | 50.00% indirectly |
(i) | CLIC holds 68.40% of the Company’s registered capital and has the power to control the Company. | |
(ii) | They are subsidiaries and have been controlled by the Company. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) | |
(e) | Transactions with significant related parties | |
The following table summarises significant transactions carried out by the Group with its significant related parties for the year ended 31 December 2010. |
For the year ended 31 December | ||||||||||||||
2010 | 2009 | 2008 | ||||||||||||
Note | RMB million | RMB million | RMB million | |||||||||||
Transactions with CLIC and its subsidiaries | ||||||||||||||
Policy management fee income earned from CLIC | (i) | 1,154 | 1,193 | 1,298 | ||||||||||
Asset management fee earned from CLIC | (ii) | 123 | 112 | 243 | ||||||||||
Additional capital contribution to AMC from CLIC | — | 720 | — | |||||||||||
Dividends to CLIC | 13,526 | 4,444 | 8,116 | |||||||||||
Dividends to CLIC from AMC | 111 | 104 | 93 | |||||||||||
Asset management fee earned from China Life Overseas | (ii) | 27 | 15 | 15 | ||||||||||
Asset management fee earned from CLP&C | (ii) | 5 | 3 | 2 | ||||||||||
Property insurance payments to CLP&C | 44 | 37 | 29 | |||||||||||
Claim payment and others to the Company from CLP&C | 38 | 41 | 46 | |||||||||||
Brokerage fee from CLP&C | (iii) | 216 | 129 | 79 | ||||||||||
Rentals and policy management fee income earned from CLP&C | 23 | 36 | — | |||||||||||
Rentals, project payments and others to CLRE | (iv) | 14 | 8 | 18 | ||||||||||
Property leasing expense charged by IHC | (v) | 67 | 64 | 33 | ||||||||||
Asset management fee earned from IHC | 6 | 7 | 21 | |||||||||||
Services fee and other income earned from IHC | 14 | 30 | — | |||||||||||
Asset purchase payments to Chengdu Insurance Institution | — | 19 | — | |||||||||||
Transaction with GDB | ||||||||||||||
Additional capital contribution to GDB | 2,999 | — | — | |||||||||||
Interest income earned from GDB | 376 | 309 | 361 | |||||||||||
Brokerage fee charged by GDB | (vi) | 16 | 20 | 25 | ||||||||||
Interest income earned from GDB of additional capital contribution | 13 | — | — | |||||||||||
Dividends from GDB | — | 55 | — | |||||||||||
Transaction with Sino-Ocean | ||||||||||||||
Dividends from Sino-Ocean | 118 | — | — | |||||||||||
Transaction with EAP | ||||||||||||||
Payment to EAP | 210 | 298 | — | |||||||||||
Transaction with AMC | ||||||||||||||
Asset management fee expense charged to the Company by AMC | (ii) | 659 | 540 | 362 | ||||||||||
Dividends to the Company | 167 | 156 | 140 | |||||||||||
Payments of insurance policies by AMC to the Company | 1 | 1 | 1 | |||||||||||
Brokerage fee to the Company | — | 5 | 1 | |||||||||||
Additional capital contribution to AMC | — | 1,080 | — | |||||||||||
Transaction with Pension Company | ||||||||||||||
Expenses paid on behalf of Pension Company | 134 | 86 | 79 | |||||||||||
Promote fee of Annuity to the Company | 8 | — | — | |||||||||||
Brokerage fee to the Company | (vii) | 7 | 3 | 1 | ||||||||||
Investment brokerage fee charged by the Company | 5 | 2 | — | |||||||||||
IT services fee income earned from Pension Company | 2 | 2 | — | |||||||||||
Surcharge on building sold to Pension Company | — | 244 | — | |||||||||||
Transaction with AMC HK | ||||||||||||||
Investment management fee expense charged to the Company by AMC HK | (ii) | 8 | 8 | 7 |
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FOR THE YEAR ENDED 31 DECEMBER 2010
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) | |
(e) | Transactions with significant related parties (continued) | |
Note: |
(i) | As part of the restructuring, CLIC transferred its entire branch services network to the Company. CLIC and the Company entered into an agreement on 24 December 2005 to engage the Company to provide policy administration services to CLIC relating to the non-transferred policies. The Company, as a service provider, does not acquire any rights or assume any obligations as an insurer under the non-transferred policies. In consideration of the services provided under the agreement, CLIC will pay the Company a policy management fee based on the estimated cost of providing the services, to which a profit margin is added. The policy management fee is equal to, for each semi-annual payment period, the sum of (1) the number of non-transferred policies in force that were within their policy term as at the last day of the period, multiplied by RMB8.00 per policy and (2) 2.50% of the actual premiums and deposits in respect of such policies collected during the period. The agreement would be automatically renewed for a three year term subject to compliance with the Stock Exchange regulations unless a written notice of non renewal is issued by the Company or the Group 180 days prior to the expiration of the contract or the renewed term. The Company and the Group could modify term of policy management fee based on the current market terms when renewing the contract. Otherwise, the original fee term would apply. On 30 December 2008, the Company and CLIC signed a renewal agreement to extend the contract signed on 24 December 2005 to 31 December 2011, with all the terms unchanged. The policy management fee income is included in other income in consolidated statement of comprehensive income. | |
(ii) | In December 2005, CLIC and AMC entered into an agreement, whereby CLIC agreed to pay the AMC a service fee at the rate of 0.05% per annum. The service fee was calculated and payable on a monthly basis, by multiplying the average of book value of the assets under management (after deducting the funds obtained and interests accrued from repurchase transactions) at the beginning and at the end of any given month by the rate of 0.05%, divided by 12. Such rate was determined with reference to the applicable management fee rate pre-determined for each specified category of assets managed by the AMC to arrive at a comprehensive service fee rate. On 30 December 2008, CLIC and AMC signed a renewal agreement, which extended the expiry date of the original agreement to 31 December 2011. The service fee is calculated in the same way of original agreement and could be adjusted according to the performance. |
In December 2005, the Company and the AMC have entered into a separate agreement, whereby the Company agreed to pay the AMC a fixed service fee and a variable service fee. The fixed service fee is payable monthly and is calculated with reference to the net asset value of the assets in each specified category managed by the AMC and the applicable management fee rates pre-determined by the parties on an arm’s length basis. The variable service fee equals to 10% of the fixed service fee per annum payable annually. The service fees were determined by the Company and the AMC based on an analysis of the cost of service, market practice and the size and composition of the asset pool to be managed. On 30 December 2008, the Company and AMC signed a renewal agreement, which extended the expiry date of the original agreement to 31 December 2010. The variable service fee was changed to 20% of the fixed service fee per annum payable annually and could be adjusted according to the performance. | ||
In March 2007, CLP&C and the AMC entered into an agreement, whereby CLP&C agreed to pay the AMC a fixed service fee and a variable service fee. The agreement expired in December 2008. In 2009, CLP&C and the AMC signed a new agreement, with effective period to 31 December 2010. The agreement is subject to an automatic renewal for one year if there was no objection by both parities upon expiring. According to the agreement, the fixed service fee is calculated and payable on a monthly basis, by multiplying the average of book value of the assets under management at the beginning and at the end of any given month by the rate of 0.05%, divided by 12. The variable service fee is calculated based on investment performance. | ||
In September 2007, China Life Overseas and the AMC HK entered into an agreement, whereby China Life Overseas agreed to pay AMC HK a management service fee at a rate calculated based on actual net investment return yield. In December 2009, China Life Overseas and the AMC HK signed a renewal agreement, which extended the expiry date of the original agreement to 31 December 2010. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) | |
(e) | Transactions with significant related parties (continued) | |
Note: (continued) | ||
In 2009, Pension Company and AMC signed an agreement with effective period to 31 December 2009. The agreement was subject to an automatic renewal for one year if there was no objection by both parties upon expiring. According to the agreement, the fixed service fee is calculated and payable on a monthly basis, by multiplying the average of book value of the assets under management at the beginning and at the end of any given month by the rate of 0.05%, divided by 12. There is a performance portion based on 10% of the excess return which is payable annually. | ||
In September 2009, the Company and AMC HK renewed the agreement of Offshore Investment Management Service Agreement. In accordance with the agreement, the Company agreed to pay AMC HK asset management fee calculated and collected based the annual investment instruction and related terms and conditions. In accordance with the 2009 annual instruction and related terms and conditions, asset management fees were calculated at a fixed rate of 0.45% of portfolio asset value and a performance element of 2% of portfolio returns for assets managed on a discretionary basis, together with a fixed rate of 0.05% of portfolio asset value for assets managed on a non-discretionary basis. In accordance with the 2010 annual instruction and related terms and conditions, asset management fees were calculated at a fixed rate of 0.4% of portfolio asset value and a performance element capped at 0.15% of portfolio asset value for assets managed on a discretionary basis. Management fees on assets managed on a non-discretionary basis maintained unchanged at 0.05% of portfolio asset value for 2010. Management fees at fixed rates are calculated based on the portfolio asset value at the end of each month based on the monthly report provided by AMC HK and payable quarterly. Performance elements are calculated and payable on an annual basis. | ||
Asset management fees charged to the Company and Pension Company by AMC and AMC HK is eliminated in the Consolidated Statement of Comprehensive Income. | ||
(iii) | In November 2008, the Company and CLP&C entered into an agreement, whereby CLP&C entrusted the Company to act as an agent to sell selected insurance products in jurisdiction. The service fee is determined according to cost (tax included) added marginal profit. The agreement term is two year, and the agreement was subject to an automatic renewal for one year if there was no objection by both parties upon expiring. | |
(iv) | The Group made certain project payments to third parties through CLRE and paid other miscellaneous expenditure mainly comprised rentals and deposits to CLRE. | |
(v) | On 22 February 2010, the Company entered into a property leasing agreement with IHC, pursuant to which IHC agreed to lease to the Company certain of its owned and leased buildings. Annual rental payable by the Company to IHC in relation to the IHC owned properties is determined by reference to market rent or, the costs incurred by IHC in holding and maintaining the properties, plus a margin of approximately 5%. The rental was paid on a semi annual basis. Rental of buildings subleased by IHC was paid directly by the Company to the owner. The agreement expires on 31 December 2012. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) | |
(e) | Transactions with significant related parties (continued) | |
Note: (continued) | ||
(vi) | On 29 April 2007, the Company and GDB entered into an individual bank insurance agency agreement. All insurance products suitable for distribution through bank network are included in the agreement. GDB will provide services, including selling of insurance products, receiving premiums and paying benefits. The Company has agreed to pay commission fees as follows: 1) A monthly service fee, calculated on a monthly basis, by multiplying total premium received at a fixed commission rate; or 2) A monthly commission fee, calculated on a monthly basis, by multiplying the number of policy being handled at fixed commission rate which is not more than RMB1 per policy, where GDB handles premiums receipts and benefits payments. The agreement has a term of five years. | |
(vii) | In November 2007, the Company and Pension Company entered into an agreement, whereby Pension Company entrusted the Company to distribute enterprise annuity funds and provide customer service. The service fee is calculated at a rate of 80%. The agreement term was one year and subject to an automatic renewal for one year. On 30 December 2010, the Company and Pension Company signed a renewal agreement, The agreement term was one year, and the agreement was subject to an automatic renewal for one year if there was no objection by both parties upon expiring. |
(f) | Amounts due from / to significant related parties | |
The following table summarises the resulting balance due from and to significant related parties. The balance is non-interest bearing, unsecured and has no fixed repayment terms except for the deposits in GDB. |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
The Group | ||||||||
Amount due from CLIC (Note 12) | 598 | 646 | ||||||
Amount due to CLIC | (1 | ) | — | |||||
Amount due from China Life Overseas | 22 | 15 | ||||||
Amount due from CLP&C | 37 | 22 | ||||||
Amount due to CLP&C | (4 | ) | (2 | ) | ||||
Amount deposited with GDB | 11,667 | 7,098 | ||||||
Amount due from IHC | 17 | 34 | ||||||
Amount due to IHC | (33 | ) | (64 | ) | ||||
The Company | ||||||||
Amount due from Pension Company | 91 | 56 | ||||||
Amount due to Pension Company | (3 | ) | — | |||||
Amount due to AMC | (62 | ) | (43 | ) | ||||
Amount due to AMC HK | (2 | ) | (1 | ) |
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FOR THE YEAR ENDED 31 DECEMBER 2010
28 | SIGNIFICANT RELATED PARTY TRANSACTIONS (continued) | |
(g) | Key management compensation |
For the year ended 31 December | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
RMB million | RMB million | RMB million | ||||||||||
Salaries and other benefits | 17 | 23 | 24 | |||||||||
The total compensation package for the Company’s key managements for the year ended 31 December 2010 has not yet been finalised in accordance with regulations of the PRC relevant authorities. The final compensation will be disclosed in a separate announcement when determined. The compensation of 2009 has been approved by relevant authorities which includes delay in payment about RMB 4 million. | ||
(h) | Transactions with state-owned enterprises | |
Under IAS 24 (Amendment), 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 relevant 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 applied IAS 24 (Amendment) exemption and disclose only qualitative information. | ||
As at 31 December 2010 and 2009, most of bank deposits 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 2010, a large portion of its group insurance business of the Group were with state-owned enterprises; the majority of bancassurance brokerage charges were paid to state-owned banks and postal office; almost all of the reinsurance agreements of the Group were entered into with a state-owned reinsurance company; most of bank deposit interest income were from state-owned banks. | ||
29 | SHARE CAPITAL |
As at 31 | As at 31 | |||||||||||||||
December 2010 | December 2009 | |||||||||||||||
No. of shares | RMB million | No. of shares | RMB million | |||||||||||||
Registered, authorized, issued and fully paid Ordinary shares of RMB1 each | 28,264,705,000 | 28,265 | 28,264,705,000 | 28,265 | ||||||||||||
As at 31 December 2010 | ||||||||
No. of shares | RMB million | |||||||
Owned by CLIC (i) | 19,323,530,000 | 19,324 | ||||||
Owned by other equity holders | 8,941,175,000 | 8,941 | ||||||
Including: Domestic listed | 1,500,000,000 | 1,500 | ||||||
Overseas listed | 7,441,175,000 | 7,441 | ||||||
Total | 28,264,705,000 | 28,265 | ||||||
Overseas listed shares are traded on the Stock Exchange of Hong Kong and the New York Stock Exchange. | ||
(i) | All shares owned by CLIC are A shares. |
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FOR THE YEAR ENDED 31 DECEMBER 2010
30 | RESERVES |
Unrealised | ||||||||||||||||||||||||||||
gains/ | Exchange | |||||||||||||||||||||||||||
(losses) | differences | |||||||||||||||||||||||||||
from | Statutory | on | ||||||||||||||||||||||||||
Additional | available- | reserve | Discretionary | General | translating | |||||||||||||||||||||||
paid in | for-sale | fund | reserve fund | reserve | foreign | |||||||||||||||||||||||
capital | securities | RMB million | RMB million | RMB million | operations | Total | ||||||||||||||||||||||
RMB million | RMB million | (a) | (b) | (c) | RMB million | RMB million | ||||||||||||||||||||||
As at 1 January 2008 | 53,860 | 43,509 | 7,639 | 1,841 | 4,427 | — | 111,276 | |||||||||||||||||||||
Other comprehensive loss for the year | — | (33,452 | ) | — | — | — | (1 | ) | (33,453 | ) | ||||||||||||||||||
Appropriation to reserve | — | — | 1,916 | 2,792 | 1,916 | — | 6,624 | |||||||||||||||||||||
As at 31 December 2008 | 53,860 | 10,057 | 9,555 | 4,633 | 6,343 | (1 | ) | 84,447 | ||||||||||||||||||||
Other comprehensive income for the year | — | 10,745 | — | — | — | — | 10,745 | |||||||||||||||||||||
Appropriation to reserves | — | — | 3,293 | 1,009 | 3,293 | — | 7,595 | |||||||||||||||||||||
As at 31 December 2009 | 53,860 | 20,802 | 12,848 | 5,642 | 9,636 | (1 | ) | 102,787 | ||||||||||||||||||||
Other comprehensive loss for the year | — | (16,202 | ) | — | — | — | (1 | ) | (16,203 | ) | ||||||||||||||||||
Appropriation to reserves | — | — | 3,368 | 7,192 | 3,368 | — | 13,928 | |||||||||||||||||||||
As at 31 December 2010 | 53,860 | 4,600 | 16,216 | 12,834 | 13,004 | (2 | ) | 100,512 | ||||||||||||||||||||
(a) | Under the relevant PRC law, the Company is required to appropriate 10% of its net profit under CAS to statutory reserve fund. The Company appropriated 10% of net profit to the statutory reserve for the year ended 31 December 2010 and 2009 amounting to RMB 3,368 million and RMB 3,293 million respectively. | |
(b) | Approved by Annual General Meeting In June 2010, the Company appropriated RMB 3,293 million to discretionary reserve fund for the year ended 31 December 2009 based on the net profit under A share financial statement and RMB 3,899 million to discretionary reserve fund retrospectively reflected at 31 December 2008 due to change of accounting policy. (2009: RMB 1,009 million). | |
(c) | Pursuant to “Financial Standards of Financial Enterprises — Implementation Guide” issued by Ministry of Finance of People’s Republic of China on 30 March 2007, for the year ended 31 December 2010 and 2009, the Company appropriated 10% of net profit under CAS which is RMB 3,368 million and RMB 3,293 million respectively to general reserve for future uncertain disasters, which cannot be used for dividend distribution or share capital increment. | |
Under related PRC law, dividends may be paid only out of distributable profits. Distributable profits generally means the Company’s after-tax profits as determined under accounting standards generally accepted in PRC or IFRS, whichever is lower, less any accumulated losses and allocations to statutory reserve that the Company is required to make, subject to further regulatory restrictions. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years. The amount of distributable retained earnings based on the above was RMB 76,832 million as at 31 December 2010 (as at 31 December 2009: RMB 78,491 million). |
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FOR THE YEAR ENDED 31 DECEMBER 2010
31 | PROVISIONS AND CONTINGENCIES | |
The following is a summary of the significant contingent liabilities: |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Pending lawsuits | 139 | 113 | ||||||
The Group has been involved in certain lawsuits arising from ordinary course of businesses. In order to accurately disclose the contingent liabilities for pending lawsuits, the Group analyzed all pending lawsuits at the end of each fiscal year. A provision will only be recognized if the management determines, based on third-party legal advice, that we have 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 if the amount of the obligation could be reliably estimated. As at December 31, 2010 and 2009, the Company had additional contingent liabilities the disclosure of which was not practicable, since the amount of the obligations could not be reliably estimated. As at 31 December 2010, the Group didn’t recognize any provision for such certain lawsuits. | ||
32 | COMMITMENTS | |
(a) | Capital commitments |
i) | Capital commitments for property, plant and equipment |
As at 31 December 2010 | As at 31 December 2009 | |||||||
RMB million | RMB million | |||||||
Contracted but not provided for | 5,082 | 488 | ||||||
ii) | Capital commitments to acquire Bohai Venture Capital Fund |
The Group committed to contribute RMB 500 million to Bohai Venture Capital Fund of which RMB 374 million had been paid at 31 December 2010. The remaining RMB 126 million will be paid when called. |
iiii) | Capital commitments in relation to the China South to North Water Diversion Project |
The Group committed to contribute RMB 380 million to the China South to North Water Diversion Project RMB 76 million of the amount had been paid at 31 December 2010 with the remaining RMB 304 million payable when called. |
(b) | Operating lease commitments | |
The future minimum lease payments under non-cancellable operating leases are as follows : |
As at 31 December | As at 31 December | |||||||
2010 | 2009 | |||||||
RMB million | RMB million | |||||||
Land and buildings | ||||||||
Not later than one year | 338 | 297 | ||||||
Later than one year but not later than five years | 453 | 478 | ||||||
Later than five years | 42 | 49 | ||||||
Total | 833 | 824 | ||||||
The operating lease payments charged to profit before income tax for the year ended 31 December 2010 was RMB 606 million (for the year ended 31 December 2009: RMB 593 million). |
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