二零零六年年報
Annual Report 2006
股份代號: 2628
二零零七年年報
Stock Code: 2628
Annual Report 2007
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Contents
Corporate Information
Company Profile
Financial Summary
Chairman’s Statement
Business Review
Management Discussion And Analysis
Embedded Value
Report of the Board of Directors
Report of the Supervisory Committee
Report of Corporate Governance
Directors, Supervisors and Senior Management
Connected Transactions
Awards
Auditor’s Report
Consolidated Balance Sheet
Balance Sheet
Consolidated Income Statement
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated Financial Statements
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Supplementary Information for ADS Holders
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Corporate Information
COMPANY NAME
China Life Insurance Company Limited
DIRECTORS
Executive Directors
Yang Chao
Wan Feng
Non-executive Directors
Shi Guoqing
Zhuang Zuojin
Independent Non-executive Directors
Long Yongtu
Sun Shuyi
Ma Yongwei
Chau Tak Hay
Cai Rang
Ngai Wai Fung
SUPERVISORS
Xia Zhihua
Wu Weimin
Qing Ge
Yang Hong
Tian Hui
BOARD SECRETARY
Liu Ting’an
SECURITIES REPRESENTATIVE
Lan Yuxi
COMPANY SECRETARY
Heng Kwoo Seng
QUALIFIED ACCOUNTANT
Yang Zheng
AUTHORIZED REPRESENTATIVES
Wan Feng
Heng Kwoo Seng
REGISTERED OFFICE
China Life Tower
16 Chaowai Avenue, Chaoyang District
Beijing 100020, China
Tel: 86(10) 8565 9999
Fax: 86(10) 8525 2232
Website: www.e-chinalife.com
PLACE OF BUSINESS IN HONG KONG
25th Floor, C.L.I. Building
313 Hennessy Road, Wanchai
Hong Kong
Tel: (852) 2919 2628
Fax: (852) 2919 2638
AUDITOR
PricewaterhouseCoopers
LEGAL ADVISERS
King & Wood
Allen & Overy
Debevoise & Plimpton LLP
H SHARE REGISTRAR AND TRANSFER OFFICE
Computershare Hong Kong Investor Services Limited
Room 1712-1716, 17th Floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
DEPOSITARY
JPMorgan Chase Bank
4 New York Plaza, New York
New York 10004
PLACES OF LISTING
H Share: The Stock Exchange of Hong Kong Limited
Stock code: 2628
A Share: Shanghai Stock Exchange
Stock code: 601628
AMERICAN DEPOSITORY SHARES
The New York Stock Exchange
Stock Code : LFC
Company Profi le
China Life Insurance Company Limited (the “Company”) is a life insurance company established in Beijing, China on
30 June 2003 according to the Company Law of the People’s Republic of China. The Company was successfully listed
on the New York Stock Exchange, The Stock Exchange of Hong Kong Limited (“Hong Kong Stock Exchange”) and the
Shanghai Stock Exchange on 17 and 18 December 2003, and 9 January 2007, respectively. The Company is the largest
life insurance company in China (for the purpose of this annual report, “China” refers to the People’s Republic of China,
but excludes the Hong Kong Special Administrative Region, Macau Special Administrative Region, and Taiwan region).
Our distribution network, comprising exclusive agents(Note), direct sales representatives, and dedicated and non-dedicated
agencies, is the most extensive one in China. The Company is one of the largest institutional investors in China, and
through its controlling shareholding in China Life Insurance Asset Management Company Limited (“AMC”), the
Company is the largest insurance asset management company in China.
Our products and services include individual life insurance, group life insurance, accident and health insurance. The
Company is a leading provider of annuity products and life insurance for both individuals and groups, and a leading
provider of accident and health insurance in China. As at 31 December 2007, we had over 93 million individual and
group life insurance policies and annuities, and long-term health insurance policies in force. We also provide both
individual and group accident and short-term health insurance policies as well as services.
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Note: include a small number of exclusive agents who have not yet obtained the valid agency qualifications. (same as below)
Financial Summary
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We set out below a financial summary of the Group (the “Group” refers to the Company and its subsidiaries) from 2003
to 2007.
Unless otherwise stated, all the financial data of the Group set out in this annual report is prepared in accordance with
Hong Kong Financial Reporting Standards (“HKFRS”).
For the year ended 31 December
RMB million (Except earnings per share)
2007
2006
2005
2004
Total revenues
Net profit (Note)
Basic and diluted earnings per share (RMB)
191,372
38,879
1.38
147,311
19,956
0.75
98,212
9,306
0.35
76,806
7,171
0.27
Note: Net profit refers to Net profit attributable to shareholders of the Company.
2003
(Proforma)
60,442
5,857
0.29
As at 31 December
RMB million
2007
2006
2005
2004
2003
Total assets
Investment assets (Note1)
Total shareholders’ equity (Note2)
933,704
850,209
205,500
764,395
686,804
139,665
559,219
494,356
80,378
433,671
374,890
66,530
328,720
279,248
62,436
Note 1:
Investment assets include debt securities, equity securities, term deposits, statutory deposits-restricted, loans, securities
purchased under agreements to resell and cash and cash equivalents.
Note 2: Total shareholders’ equity refers to equity attributable to the shareholders of the Company.
Financial Summary
TOTAL REVENUES
NET PROFIT
191,372
147,311
98,212
76,806
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,442
60,000
40,000
20,000
0
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,857
7,171
9,306
5,000
0
38,879
19,956
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2004
2005
2006
2007
2003
2004
2005
2006
2007
RMB million
RMB million
TOTAL ASSETS
TOTAL SHAREHOLDERS’ EQUITY
933,704
764,395
559,219
433,671
250,000
200,000
150,000
205,500
139,665
100,000
80,378
62,436
66,530
50,000
0
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
328,720
300,000
200,000
100,000
0
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
RMB million
RMB million
根
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Chairman’s Statement
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Yang Chao, Chairman
“to establish China Life as a first class
international life insurance company
with strong capital resources, advanced
corporate governance, well-established
management system, stringent internal
control, leading technologies, first class
team, superior service, outstanding
brand, balanced and harmonious
development”
Dear Shareholders,
I am pleased to present to you the Group’s (the “Group” refers to the
Company and its subsidiaries) operating results for the financial year
ended 31 December 2007 (the “reporting period”).
In 2007, the growth momentum of China’s insurance industry
remained strong, with investment yields on insurance funds reaching
the highest level in history. The Company continued to focus on
the sales of traditional and participating products and continual
improvement in profitability of the insurance business and products,
the sales of long-term regular premium products to optimize our
business structure and maintain a steady growth of our business,
the exclusive agents force as the core distribution channel while
exploring the group insurance channel and bancassurance channel,
and a combination of overall development strategy and local market
competitiveness tactics. During the reporting period, we achieved
steady business growth and maintained our leading market position,
optimized our business structure, significantly increased investment
income and profitability, further strengthened corporate governance,
and improved operational management and risk control to higher level.
We are the core member of the China Life group, which was among
“Fortune 500” announced by Fortune magazine and “World’s Top 500
Brands” released by World Brand Laboratory in 2007. In December
2007, the Company won the “Overall Winner Award for Corporate
Governance Excellence” in the first “The Hong Kong Corporate
Governance Excellence Awards 2007”.
Chairman’s Statement
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STEADY BUSINESS GROWTH AND CONTINUOUS BUSINESS STRUCTURE IMPROVEMENT
For the year ended 31 December 2007, the Group’s total revenues reached RMB191,372 million, an increase of 29.9%
from 2006. Gross written premiums and policy fees for 2007 were RMB111,886 million, an increase of 12.5% from
2006.
In 2007, the Company’s gross written premiums reached RMB104,195 million, an increase of 12.9% from 2006. The
first-year regular gross written premiums reached RMB24,356 million on growth of 12.9% over 2006, 2.1 percentage
points higher than the growth of first-year gross written premiums. First-year regular gross written premiums accounted
for 92.5% of first-year gross written premiums of long-term traditional insurance contracts.
As at 31 December 2007, the Group’s embedded value was RMB252,568 million, up 38.8% from the end of 2006. One
year new business value of the Company was RMB12,047 million for 2007, an increase of 14.9% from 2006.
In 2007, we achieved stable growth of our business as well as continual optimization of our business structure by
emphasizing on the sales of traditional and participating products. The Company maintained its leading position in the
life insurance market in China despite increasing competition pressure from new entrants in the market, the maturity
payout peak and discontinuation of renewal premium payment on expiration of premium-payment terms of a key regular
premium product. In accordance with the data released by the China Insurance Regulatory Commission (“CIRC”),
under PRC Generally Accepted Accounting Principles (“PRC GAAP”), the Company’s market share in 2007 was 39.7%.
SUBSTANTIAL INCREASE IN INVESTMENT INCOME AND ENHANCED PROFITABILITY
As at 31 December 2007, the Group’s investment assets were RMB850,209 million, an increase of RMB163,405
million, or 23.8%, from 2006. Net investment income reached RMB44,020 million, up 76.5% from 2006. The Group’s
net investment yield for 2007 reached 5.76%1 (investment assets included financial assets and cash and cash equivalents
but excluded accrued investment income), an increase of 1.49 percentage points from 2006. The gross investment yield
of 2007 was 10.24%2, an increase of 2.27 percentage points from 2006.
As at 31 December 2007, the Group’s total assets were RMB933,704 million, up 22.1% from 2006. Total shareholders’
equity (attributable to the shareholders of the Company) reached RMB205,500 million, an increase of 47.1% from
2006. The Company’s solvency margin was 5.25 times the minimum regulatory requirement at the end of 2007. During
the reporting period, the Group’s net profit (attributable to shareholders of the Company) was RMB38,879 million, up
94.8% from 2006. Basic and diluted earnings per share were RMB1.38, a record high for the Company.
1
2
The net investment yield = net investment income/((investment assets at the beginning of the period – securities sold under
agreements to repurchase at the beginning of the period + investment assets at the end of the period – securities sold under
agreements to repurchase at the end of the period)/2)
The gross investment yield = (net investment income + net realized gains on financial assets + net fair value gains at fair value
through income(held-for-trading))/((investment assets at the beginning of the period – securities sold under agreements to
repurchase at the beginning of the period + investment assets at the end of the period – securities sold under agreements to
repurchase at the end of the period)/2)
Chairman’s Statement
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ENHANCING DISTRIBUTION CHANNELS AND UPGRADING SERVICE STANDARD
As at 31 December 2007, the Company had over 15,500 field offices and around 638,000 exclusive agents. The
proportion of exclusive agents holding valid licenses was 97.9%, an increase of 3.2 percentage points over 2006. The
Company had over 13,000 direct sales representatives. In addition, the Company had more than 90,000 bancassurance
outlets intermediaries – including outlets of commercial bank branches, post savings and cooperative saving institutions
and with over 18,000 customer service managers. These three major sales channels remained stable during the year, and
we have started to reap the benefits of sharing customer resources and cross-selling.
In 2007, the Company held its first “China Life Customer Festival” and launched the “China Life 1+N”service brand for
the first time. The Company is committed to providing customers with differentiated, professional service. During the
year, the Company completed the largest maturity benefit payment in the history of China’s life insurance industry. The
Company paid over RMB50 billion in 2007 on matured policies and made payments against nearly 2.5 million policies,
which demonstrated the Company’s strong service capability and financial strength.
STRONGER INTERNAL CONTROLS AND PREVENTION OF OPERATIONAL RISK
In 2007, the Company completed the centralization of business management, customer services, financial management
and information technology functions at the provincial branch level. At the same time, it continued to improve its
internal control systems, compliance work to meet the requirements of Section 404 of the Sarbanes-Oxley Act, auditing
of key tasks and the Company’s ability to prevent operational risks.
To comply with certain securities legislation of the United States, management completed a self assessment on internal
control over financial reporting as of 31 December 2007, and confirmed such internal control was effective. The
Company has also received our registered independent auditor’s unqualified opinion on the effectiveness of our internal
control over financial reporting as of 31 December 2007. Management’s assessment and the report of our registered
independent auditor will be included in the Form 20-F (the US version of annual report) to be submitted to the U.S.
Securities and Exchange Commission (SEC).
FOCUSING ON THE VALUE OF PEOPLE AND IMPROVING THE QUALITY OF OUR TEAM
Focusing on the value of people is core to the Company’s human resource management. We aim to strengthen our
workforce and improve the quality of our staff. This principle is the foundation of our long-term sustainable growth. In
2007, the Company restructured the management teams of branches, resulting in younger, more professional and more
competitive management teams.
In 2007, the Company continued to commit itself to consolidating its internal and external educational resources to
establish a training system that can meet the Company’s future development requirements. Through setting up the
“China Life Online College”, strengthening the team building ability of exclusive agent trainers and increasing internal
and external training, the Company continued to improve on professional and management skills.
STRENGTHENING OUR BRAND AND FULFILLING SOCIAL RESPONSIBILITIES
In 2007, the Company continued to actively execute its brand strategy and stepped up brand promotion. Awareness of
the China Life brand and its impact has greatly improved, with the Company aiming to move its brand from well-known
to outstanding, from industrial to social and from domestic to international brand. In August 2007, the World Brand
Laboratory selected China Life – with brand value worth RMB58.867 billion – as one of the “World’s Top 500 Brands”
and “Top Ten Most Valuable Brands in China” for the fourth consecutive year.
Chairman’s Statement
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The Company actively contributed to building new socialist rural village communities in China. It placed strong
emphasis on developing the New Village Cooperative Medical Scheme (“New Type Rural Healthcare Scheme”).
This scheme now covers 84 counties (towns and communities) in 14 branches, an increase of 42 counties (towns and
communities) from 2006. In March 2007, the Company launched the “China Life New Simple Life Mutual Cooperative
Insurance” (New Simple Life Insurance), a product tailored to the rural market to meet the needs of farmers. The
Company continued to provide insurance services for ethnic minority regions and less-developed regions. The
Company’s Tibet branch was formally opened for business in May 2007.
In 2007 the Company donated over RMB17 million to various charitable causes. The 18 “China Life Long March
Primary Schools” were put into operation in succession. The Company donated RMB50 million to establish the “China
Life Charity Foundation” and launched the “Healthy New Village Project” and the “China Life Program for Rural
Medical Services and Poverty Relief”. The Foundation made a total donation of approximately RMB6.75 million to
various causes in 2007.
In early 2008, the Company donated RMB10 million to southern Chinese provinces hit by severe snowstorm damage.
The Company also offered complimentary short-term accident insurance to snowstorm fighting staff of National Grid
and Southern Grid and police officers of the Ministry of Public Security.
FINAL DIVIDEND
The Board of Directors recommended the payment of a final dividend of RMB0.42 per share for the year ended 31
December 2007 to shareholders of the Company. This will come into effect after shareholders’ approval at the Annual
General Meeting to be held on Wednesday, 28 May 2008.
OUTLOOK
In 2008, the Company will face further challenges in view of the keen competition in the insurance industry and the
uncertainty of the capital markets. Guided by the China Life group’s mission to build itself into a leading international
financial and insurance group, the Company will endeavor to develop life insurance business with our own unique
characteristics, continue to reform operational and management systems, transform the model of development, maintain
steady business growth, optimize our business structure, increase investment income, strengthen risk control and
promote the Company’s overall sustainable development. We will dedicate ourselves to building the Company into a
first-class international life insurance company and to creating greater value for our shareholders.
By order of the Board
Yang Chao
Chairman
Beijing, China
25 March 2008
以
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Business Review
GROSS WRITTEN PREMIUMS AND DEPOSITS
Individual life insurance
Gross written premiums
First-year gross written premiums
Single gross written premiums
First-year regular gross written premiums
Renewal gross written premiums
Deposits
First-year deposits
Single deposits
First-year regular deposits
Renewal deposits
Group life insurance
Gross written premiums
First-year gross written premiums
Single gross written premiums
First-year regular gross written premiums
Renewal gross written premiums
Deposits
First-year deposits
Single deposits
First-year regular deposits
Renewal deposits
Accident and short-term health insurance
Gross written premiums
Short-term accident insurance
Gross written premiums
Short-term health insurance
Gross written premiums
Total gross written premiums
Total deposits
For the year ended December 31
2006
RMB million
2007
RMB million
91,420
25,480
1,273
24,207
65,940
72,069
60,182
56,644
3,538
11,887
876
854
705
149
22
22,158
22,143
22,061
82
15
80,086
22,659
1,175
21,484
57,427
70,355
56,560
53,658
2,902
13,795
1,144
1,115
1,030
85
29
21,086
21,078
21,072
6
8
11,899
11,090
5,495
6,404
104,195
94,227
5,148
5,942
92,320
91,441
Business Review
INSURANCE BUSINESS
For the year ended 31 December 2007, the Company’s gross written premiums and policy fees were RMB111,886
million, an increase of 12.5% from 2006. The gross written premiums were RMB104,195 million, an increase of 12.9%
from 2006.
In 2007, the Company continued to pursue business restructuring and to improve the quality of business. As at 31
December 2007, the gross written premiums of long-term traditional insurance contracts were RMB92,296 million, and
the first-year gross written premiums of long-term traditional insurance contracts were RMB26,334 million, an increase
of 10.8% from 2006, of which the first-year regular gross written premium of was RMB24,356 million, an increase of
12.9% from 2006. The first-year regular gross written premiums accounted for 92.5% of the first-year gross written
premiums of long-term traditional insurance contracts, an increase of 1.8 percentage points from 2006.
In 2007, one-year new business value amounted to RMB12,047 million, an increase of 14.9% from 2006. This was
mainly attributable to the growth in new business for traditional insurance contracts and regular-premium contracts
especially the ten-year and longer regular-premium business, together with the increase in investment income.
98,484
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1,503
5,495
6,404
Individual life insurance business
Group life insurance business
Short-term accident insurance business
Short-term health insurance business
GROSS WRITTEN PREMIUMS AND POLICY FEES (RMB million)
(1) Individual Life Insurance Business
During the reporting period, the Company’s gross written premiums and policy fees attributable to individual life
insurance business were RMB98,484 million, representing 88.0% of the gross written premiums and policy fees
for the year 2007, an increase of RMB11,897 million or 13.7%, over RMB86,587 million in 2006.
The total gross written premiums attributable to individual life insurance business were RMB91,420 million,
an increase of RMB11,334 million, or 14.2% over RMB80,086 in 2006. The first-year gross written premiums
attributable to individual life insurance business were RMB25,480 million, which accounted for 27.9% of the
gross written premiums attributable to individual life insurance business. The first-year regular gross written
premiums attributable to the individual life insurance business were RMB24,207 million, accounted for 95.0% of
the first-year gross written premiums attributable to individual life insurance business.
The Company sells both participating and non-participating life insurance products. The gross written premiums
attributable to individual life insurance participating products and non-participating products for 2007 was
RMB46,974 million and RMB44,446 million respectively.
(2) Group Life Insurance Business
During the reporting period, the Company’s gross written premiums and policy fees attributable to group life
insurance business were RMB1,503 million, representing 1.3% of the gross written premiums and policy fees for
2007 and a decrease of RMB237 million, or 13.6%, over RMB1,740 million in 2006.
Business Review
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INSURANCE BUSINESS (Continued)
(3) Accident and Health Insurance Business
During the reporting period, the Company’s gross written premiums attributable to accident and health insurance
business (both of which comprise short-term business) were RMB11,899 million, representing an increase
of RMB809 million, or 7.3% over RMB11,090 million in 2006. In particular, the gross written premiums
attributable to accident insurance business amounted to RMB5,495 million, an increase of RMB347 million or
6.7% over RMB5,148 million in 2006. The gross written premiums attributable to health insurance business were
RMB6,404 million, an increase of RMB462 million or 7.8% over RMB5,942 million in 2006.
INVESTMENTS
In 2007, the Company continued to optimize the investment portfolio according to the changes of capital market. The
Company increased the investment proportion in equity securities while continuing to regard fix-income debt securities
as the most important category to improve the return on investments effectively. The Group’s net investment yield for
2007 reached 5.76% (investment assets included financial assets and cash and cash equivalents but excluded accrued
investment income), an increase of 1.49 percentage points from 2006. The gross investment yield of 2007 was 10.24%,
an increase of 2.27 percentage points from 2006.
As at 31 December 2007, the investment assets of the Group were as follows:
RMB million
443,181
195,703
241,382
6,096
195,147
176,133
19,014
168,594
5,773
7,144
5,053
25,317
Debt Securities
Held-to-maturity securities
Available-for-sale securities
At fair value through income (held-for-trading)
Equity Securities
Available-for-sale securities
At far value through income(held-for-trading)
Term deposits
Statutory deposits-restricted
Loans
Securities purchased under agreements to resell
Cash and cash equivalents
443,181
195,147
Debt securities
Equity securities
Term deposits
Statutory deposits-restricted
Loans
25,317
5,053
7,144
5,773
168,594
Cash and cash equivalents
Securities purchased under agreements to resell
COMPOSITION OF INVESTMENT ASSETS (RMB million)
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DISTRIBUTION CHANNELS
The Company has the largest and most extensive distribution force and network in the life insurance sector in China.
Our Tibetan branch was formally opened for business on 28 May 2007, which means the distribution network of the
Company has spread to all provinces, municipalities and autonomous regions of China.
Exclusive agents, direct sales force and intermediaries comprising mainly outlets of commercial banks, postal savings
and cooperative saving institutions are the three major distribution channels of the Company. In 2007, the Company’s
distribution channels remained steady.
Distribution channel
Exclusive agents
Direct sales force
Bancassurance sales outlets
(1) Exclusive Agents
As at 31 December As at 31 December
2006
2007
638,000
13,000
90,000
650,000
12,000
87,000
The exclusive agents are the Company’s core distribution channel for individual life, individual accident and
individual health insurance products. As at 31 December 2007, the Company had over 15,500 field offices and
approximately 638,000 exclusive agents. The percentage of certificate holders among our exclusive agents was
97.9%, an increase of approximately 3.2 percentage points from 2006. The number of exclusive agents decreased
moderately from the end of 2006. Nevertheless, the number of exclusive agents holding certificates increased
at a stable pace mainly because the Company further enhanced certificate management of exclusive agents, and
emphasized the overall quality improvement of exclusive agents. The productivity per individual insurance agent
increased over the same period of 2006, and the number of exclusive agents with high sales performance remained
stable.
(2) Direct Sales Representatives
The Company’s direct sales representatives are the primary distribution channel for its group life insurance,
group annuities, accident insurance, short-term health insurance and group long-term health insurance. As at 31
December 2007, the number of direct sales representatives of the Company was over 13,000.
In 2007, the Company continued to strengthen customer service and retention and strived to expand new sales
areas.
(3) Bancassurance Sales Outlets
The Company also sells insurance products through intermediaries such as commercial banks, postal savings and
cooperatives saving institutions. As at 31 December 2007, the Company had cooperated with more than 90,000
bancassurance sales outlets. There were over 18,000 customer service managers, an increase compared with the
number of customer service mangers over the same period of 2006.
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INTERNAL MANAGEMENT
In 2007, the Company completed provincial centralization of business management, customer service management,
financial management and information technology, realizing the national centralization of our main business systems.
The Company initially established a new back office operations support system as a strong base to expedite business
development, enhance operational efficiency and tighten risk control.
In 2007, the Company further strengthened comprehensive budget management and implemented more stricter cost
control. The comprehensive cost control rate of 2007 was 14.6%, a decrease of 0.3 percentage points over the same
period of 2006. In addition, the embedded value assessment system was tuned up under years of improvement and
advancement.
In 2007, based on market environment changes, the Company devoted more efforts to production development,
innovation, improvement and transformation. It completed development of more than 20 new products, and redesigned
many short-term insurance products. A few new products, namely China Life Jincaimingtian Endowment Insurance,
China Life Ruixiang Whole Life Insurance (Universal) and China Life Ruifeng Endowment Life Insurance (Universal),
were launched. Development of its first unit linked product was also completed and will be launched to the market when
the appropriate opportunity arises.
CUSTOMER SERVICE AND BRAND DEVELOPMENT
In 2007, the Company initiated a series of customer service activities with the theme “Creating a Harmonious Life with
China Life” across China. We successfully organized the first “China Life Customers Day”, and launched the “China
Life 1+N” service brand, committed to further enhancing its customer service quality through the establishment of a
well-developed customer service system to meet customers’ expectation. The Company’s centralized service platform
“95519” Call Centre was granted “2007 China’s Best Call Centre”, the fourth consecutive year of receiving such an
award. The Company was also awarded “2007 World’s Best Call Centre” and “2007 Ten Year Achievement Award for
China’s Call Centre”.
In 2007, the Company appointed internationally renowned basketball superstar Mr. Yao Ming as its global brand
ambassador to enhance its brand awareness socially and internationally. The brand value of the Company continued to
increase in 2007. It was named one of the “World’s Top 500 Brand” released by World Brand Laboratory in August
2007, and won the “China’s Top 10 Valuable Brands” for the fourth consecutive year with the brand value reaching
RMB58.867 billion.
CORPORATE ANNUITY BUSINESS
In August 2005, the Company and AMC, the Company’s subsidiary, obtained the licenses of “Corporate Annuity
Account Manager” and “Corporate Annuity Investment Manager” from the Ministry of Labour and Social Security, the
People’s Republic of China, respectively. China Life Pension Company Limited, the Company’s subsidiary, obtained the
license of “Corporate Annuity Trustee” and “Corporate Annuity Account Manager” in November 2007.
The Company highly emphasizes the development of corporate annuity business, and treats it as its long-term strategic
business. Fully leveraging on its own strengths, the Company endeavors to increase its share in corporate annuity market.
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Management Discussion And Analysis
From left to right:
Mr. Liu Ting’an, Ms. Shiu Wai Chung,
Mr. Liu Leifei, Ms. Liu Yingqi,
Mr. Wan Feng, Mr. Lin Dairen,
Mr. Liu Jiade, Mr. Su Hengxuan,
Mr. Liu Anlin
1. OPERATING RESULTS
Year Ended 31 December 2007 Compared with Year Ended 31 December 2006
NET PREMIUMS EARNED AND POLICY FEES
Net premiums earned and policy fees increased by RMB12,557 million, or 12.7%, to RMB111,404 million in
2007 from RMB98,847 million in 2006. This increase was primarily due to increases in net premiums earned
from the individual life insurance and accident and health insurance businesses and policy fees from the individual
life insurance business. Net premiums earned from participating products of long-term traditional insurance
contracts were RMB46,972 million in 2007, an increase of RMB5,971 million, or 14.6%, from RMB41,001
million in 2006. This increase was primarily due to our increased sales efforts for participating endowment
products. Of total net premiums earned in 2007, RMB1,978 million was attributable to single premium products
and RMB90,304 million was attributable to regular premium products (including both first-year and renewal
premiums). Of total net premiums earned in 2006, RMB2,205 million was attributable to single premium
products and RMB78,952 million was attributable to regular premium products (including both first-year end
renewal premiums).
Individual Life Insurance Business
Net premiums earned and policy fees from the individual life insurance business increased by RMB11,951 million,
or 13.8%, to RMB98,470 million in 2007 from RMB86,519 million in 2006. This increase was primarily due to
increases in renewal premiums, policy fees and new policy premiums.
Group Life Insurance Business
Net premiums earned and policy fees from the group life insurance business decreased by RMB232 million, or
13.4%, to RMB1,503 million in 2007 from RMB1,735 million in 2006. This decrease was primarily due to
changes in government policies and market conditions.
Accident and Health Insurance Business
Net premiums earned from the accident and health insurance business (both of which comprise short-term
products) increased by RMB838 million, or 7.9%, to RMB11,431 million in 2007 from RMB10,593 million
in 2006. Gross written premiums from the accident insurance business increased by RMB347 million, or 6.7%,
to RMB5,495 million in 2007 from RMB5,148 million in 2006 and gross written premiums from the health
insurance business increased by RMB462 million, or 7.8%, to RMB6,404 million in 2007 from RMB5,942
million in 2006. These increases were primarily due to our increased sales efforts for accident and health insurance
businesses.
Management Discussion And Analysis
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NET INVESTMENT INCOME
Net investment income increased by RMB19,078 million, or 76.5%, to RMB44,020 million in 2007 from
RMB24,942 million in 2006. This increase was primarily due to the growth in investment assets during 2007 and
an increase in investment yield.
As of 31 December 2007, total investment assets were RMB850,209 million, an increase of RMB163,405 million,
or 23.8%, from the end of 2006. The net investment yield for the year ended 31 December 2007 was 5.76%,
a 1.49 percentage point increase from the same period of 2006. This increase was primarily due to increased
investments in equity securities, favorable adjustment of our investment portfolio and favorable capital market
conditions.
NET REALISED GAINS ON FINANCIAL ASSETS
Net realised gains on financial assets increased by RMB13,790 million, or 8.65 times, to RMB15,385 million
in 2007 from RMB1,595 million in 2006. This increase was primarily due to an increase of the proportion of
equity securities, favorable capital market conditions and the Company realising gains on a portion of its equity
securities.
NET FAIR VALUE GAINS ON ASSETS AT FAIR VALUE THROUGH INCOME (HELD-
FOR-TRADING)
We reflect net fair value gains on assets at fair value through income (held-for-trading) in current year income.
Our net fair value gains on assets at fair value through income (held-for-trading) decreased by RMB1,201 million,
or 6.0%, to RMB18,843 million in 2007 from RMB20,044 million in 2006. In particular, net fair value gains
on assets at fair value through income (held-for-trading) of RMB366 million on debt securities, which increased
RMB61 million, or 20.0%, from RMB305 million in 2006. This increase was primarily due to an increase in
trading of short-term bonds taking advantage of a raise in interest rates. Net fair value gains on assets at fair value
through income (held-for-trading) of RMB18,477 million on equity securities decreased by RMB1,262 million,
or 6.4%, from RMB19,739 million in 2006. This decrease was primarily due to a decrease of the proportion of
financial assets held for trading.
OTHER INCOME
Other income decreased by RMB163 million, or 8.7%, to RMB1,720 million in 2007 from RMB1,883 million
in 2006. This was primarily due to a decrease in the fee income received from China Life Insurance (Group)
Company, or CLIC, for assisting CLIC to manage its non-transferred policies.
DEPOSITS AND POLICY FEES
Deposits are gross additions to long-term investment-type insurance contracts and investment contracts
(collectively, investment-type contracts). Total deposits increased by RMB2,786 million, or 3.0%, to RMB94,227
million in 2007 from RMB91,441 million in 2006. This increase was primarily due to an increase in business
volume. Policy fees increased by RMB594 million, or 8.4%, to RMB7,691 million in 2007 from RMB7,097
million in 2006. This increase was primarily due to an increase in the proportion of investment-type products with
higher policy fee charges. Total deposits from participating products increased by RMB1,432 million, or 1.8%,
to RMB83,181 million in 2007 from RMB81,749 million in 2006. Total policy fees from participating products
increased by RMB370 million, or 7.1%, to RMB5,563 million in 2007 from RMB5,193 million in 2006.
Management Discussion And Analysis
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Individual Life Insurance Business
Deposits in the individual life insurance business increased by RMB1,714 million, or 2.4%, to RMB72,069
million in 2007 from RMB70,355 million in 2006. This increase was primarily due to an increase in the sales of
investment-type contracts. Policy fees from the individual life insurance business increased by RMB563 million,
or 8.7%, to RMB7,064 million in 2007 from RMB6,501 million in 2006. This increase was primarily due to an
increase of the proportion of investment-type contracts with higher policy fee charges.
Group Life Insurance Business
Deposits in the group life insurance business increased by RMB1,072 million, or 5.1%, to RMB22,158 million
in 2007 from RMB21,086 million in 2006. This increase was primarily due to an increase in the sales volume
of investment-type contracts. Policy fees from the group life insurance business increased by RMB31 million, or
5.2%, to RMB627 million in 2007 from RMB596 million in 2006. This change was primarily due to an increase
of the proportion of investment-type contracts with higher policy fee charges.
Accident and Health Insurance Business
There are no deposits in our accident and health insurance business.
INSURANCE BENEFITS AND CLAIMS
Insurance benefits and claims, net of amounts ceded through reinsurance, increased by RMB7,868 million, or
11.5%, to RMB76,288 million in 2007 from RMB68,420 million in 2006. This increase was due to an increase in
insurance benefits and claims of individual life insurance business as a result of an increase in business volume and
the accumulation of liabilities. Life insurance death and other benefits increased by RMB6,633 million, or 61.4%,
to RMB17,430 million in 2007 from RMB10,797 million in 2006. This increase was primarily due to an increase
in the number of policies in force and the accumulation of liabilities. Life insurance death and other benefits as
a percentage of gross written premiums and policy fees were 15.6% and 10.9% in 2007 and 2006 respectively.
Interest credited to long-term investment-type insurance contracts increased by RMB795 million, or 12.4%, to
RMB7,181 million in 2007 from RMB6,386 million in 2006. This increase primarily reflected an increase in
the total policyholder account balance. Insurance benefits and claims, net of amounts ceded through reinsurance,
attributable to participating products increased by RMB4,411 million, or 13.1%, to RMB37,962 million in 2007
from RMB33,551 million in 2006. Of these insurance benefits and claims attributable to participating products,
life insurance death and other benefits increased by RMB4,596 million, or 98.8%, to RMB9,248 million in 2007
from RMB4,652 million in 2006; the increase in liability of long-term traditional insurance contracts decreased by
RMB797 million, or 3.4%, to RMB22,548 million in 2007 from RMB23,345 million in 2006; and the interest
credited to long-term investment-type insurance contacts increased by RMB612 million, or 11.0%, to RMB6,166
million in 2007 from RMB5,554 million in 2006.
Individual Life Insurance Business
Insurance benefits and claims for the individual life insurance business increased by RMB8,585 million, or
14.2%, to RMB68,990 million in 2007 from RMB60,405 million in 2006. This increase was due to an increase
in business volume and the accumulation of liabilities. Of these insurance benefits and claims, life insurance
death and other benefits increased by RMB6,338 million, or 62.6%, to RMB16,463 million in 2007 from
RMB10,125 million in 2006. This increase was primarily due to an increase in the number of policies in force,
the accumulation of liabilities and an increase in the number of insurance policies reaching maturity. The increase
in liability of long-term traditional insurance contracts increased by RMB1,455 million, or 3.3%, to RMB45,370
million in 2007 from RMB43,915 million in 2006. The increase in liability of long-term traditional insurance
contracts was primarily due to an increase in business volume and the accumulation of liabilities.
Management Discussion And Analysis
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Group Life Insurance Business
Insurance benefits and claims for the group life insurance business decreased by RMB61 million, or 6.0%, to
RMB955 million in 2007 from RMB1,016 million in 2006. This decrease was primarily due to a decrease in the
increment of long-term traditional insurance contracts liabilities but offset in part by an increase in life insurance
death and other benefits. Of these insurance benefits and claims, life insurance death and other benefits increased
by RMB295 million, or 43.9%, to RMB967 million in 2007 from RMB672 million in 2006 and the increase in
long-term traditional insurance contracts liabilities decreased by RMB359 million, to RMB -36 million in 2007
from RMB323 million in 2006. This decrease was primarily due to a decrease in the contracts in force.
Accident and Health Insurance Business
Insurance benefits and claims for the accident and health insurance business decreased by RMB656 million,
or 9.4%, to RMB6,343 million in 2007 from RMB6,999 million in 2006. This decrease was primarily due to
improvements in our insurance products structure.
INTEREST CREDITED TO INVESTMENT CONTRACTS
Interest credited to investment contracts increased by RMB142 million, or 14.3%, to RMB1,138 million in 2007
from RMB996 million in 2006. This increase primarily reflected an increase in the total policyholder account
balance. Interest credited to participating investment contracts increased by RMB138 million, or 14.5%, to
RMB1,089 million in 2007 from RMB951 million in 2006.
INCREASE IN DEFERRED INCOME
Increase in deferred income includes the deferred profit liability arising from long-term traditional insurance
contracts and the unearned revenue liability arising from long-term investment-type insurance contracts and
investment contracts. The increase in deferred income decreased by RMB1,748 million, or 15.1%, to RMB9,859
million in 2007 from RMB11,607 million in 2006. This decrease was primarily due to an increase in amortization
of deferred income resulting from the increase in investment yield.
POLICYHOLDER DIVIDENDS RESULTING FROM PARTICIPATION IN PROFITS
Policyholder dividends resulting from participation in profits increased by RMB11,634 million, or 66.0%, to
RMB29,251 million in 2007 from RMB17,617 million in 2006. This increase was primarily due to an increase in
investment yield for participating products, an increase in business volume, as well as an increase in our reserves
for participating products.
AMORTISATION OF DEFERRED POLICY ACQUISITION COSTS
Amortisation of deferred policy acquisition costs increased by RMB3,202 million, or 31.2%, to RMB13,461
million in 2007 from RMB10,259 million in 2006. This increase was primarily due to an increase in the number
of policies in force and overall amount of business and an increase in investment income in 2007.
UNDERWRITING AND POLICY ACQUISITION COSTS
Underwriting and policy acquisition costs primarily reflect the non-deferrable portion of underwriting and
policy acquisition costs. Underwriting and policy acquisition costs increased by RMB310 million, or 12.8%, to
RMB2,725 million in 2007 from RMB2,415 million in 2006. Underwriting and policy acquisition costs were
approximately 2.5% and 2.4% of net premiums earned and policy fees in 2007 and 2006, respectively.
Management Discussion And Analysis
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Of this amount, underwriting and policy acquisition costs in the individual life insurance business and group
life insurance business together increased by RMB157 million, or 8.4%, to RMB2,019 million in 2007 from
RMB1,862 million in 2006. This increase was primarily due to the increase in business volume during the period.
Underwriting and policy acquisition costs in the accident and health insurance business increased by RMB150
million, or 27.1%, to RMB703 million in 2007 from RMB553 million in 2006. This increase was primarily due
to the increase in business volume and increased market competition.
ADMINISTRATIVE EXPENSES
Administrative expenses include the non-deferrable portion of policy acquisition costs, as well as employees’
remuneration and other administrative expenses. Administrative expenses increased by RMB2,459 million, or
26.3%, to RMB11,798 million in 2007 from RMB9,339 million in 2006. This increase primarily reflected
the increase in business volume and increased expenses in connection with improvements to company internal
management.
OTHER OPERATING EXPENSES
Other operating expenses, which primarily consist of foreign exchange losses and expenses for non-core business,
increased by RMB792 million, or 92.2%, to RMB1,651 million in 2007 from RMB859 million in 2006. This
increase primarily reflected an increase in foreign exchange losses due to the appreciation of the RMB and an
increase of policyholder dividend crediting interest.
INCOME TAX
We pay income tax according to applicable Chinese enterprise income tax regulations and rules. Income tax
expense, including current and deferred taxations, increased by RMB777 million, or 14.0%, to RMB6,331 million
in 2007 from RMB5,554 million in 2006. This increase was primarily due to the increase in our profit. Our
effective tax rate for 2007 was 13.9%, which decreased by 7.8% from an effective tax rate for 2006 of 21.7%. The
decrease was due to a decrease in the statutory tax rate from 33% for 2007 to 25% for 2008 with effect from 1
January 2008 which resulted in a decrease in our deferred tax liability.
NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY
For the reasons set forth above, net profit attributable to shareholders of the Company increased by RMB18,923
million, or 94.8%, to RMB38,879 million in 2007 from RMB19,956 million in 2006.
Individual Life Insurance Business
Net profit in the individual life insurance business increased by RMB17,539 million, or 74.1%, to RMB41,202
million in 2007 from RMB23,663 million in 2006. This increase was primarily due to the increases in investment
income and business volume.
Group Life Insurance Business
Net profit in the group life insurance business increased by RMB699 million, or 80.9%, to RMB1,563 million in
2007, from RMB864 million in 2006. This increase was primarily due to an increase in investment yield.
Accident and Health Insurance Business
Net profit in the accident and health insurance business increased by RMB1,347 million, or 133.5%, to
RMB2,356 million in 2007 from RMB1,009 million in 2006. The increase in profitability was primarily due to
favorable adjustment of our insurance products structure and increase in investment income.
Management Discussion And Analysis
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LIQUIDITY AND CAPITAL RESOURCES
Liquidity Sources
Our principal cash inflows come from insurance premiums, deposits, proceeds from sales and maturity of financial
assets, and net investment income. The primary liquidity concerns with respect to these cash inflows are the risk
of early withdrawals by contract holders and policyholders, as well as the risks of default by debtors, interest rate
changes and other market volatilities. We closely monitor and manage these risks.
Additional sources of liquidity to meet unexpected cash outflows are available from our investment portfolio. As of
31 December 2007, the amount of cash and cash equivalents was RMB25,317 million. In addition, substantially
all of our term deposits with banks allow us to withdraw funds on deposit, subject to a penalty interest charge. As
of 31 December 2007, the amount of term deposits was RMB168,594 million.
Our investment portfolio also provides us with a source of liquidity to meet unexpected cash outflows. As of 31
December 2007, investments in debt securities had a fair value of RMB439,067 million. As of 31 December 2007,
investments in equity securities had a fair value of RMB195,147 million. However, the PRC securities market is
still at an early stage of development, and we are subject to market liquidity risk because the market capitalization
and trading volumes of the public exchanges are much lower than those in more developed financial markets. We
also are subject to market liquidity risk due to the large size of our investments in some of the markets in which
we invest. From time to time some of our positions in our investment securities may be large enough to have an
influence on the market value. These factors may limit our ability to sell these investments at an adequate price, or
at all.
Liquidity Uses
Our principal cash outflows primarily relate to the liabilities associated with our various life insurance, annuity
and accident and health insurance products, dividend and interest payments on our insurance policies and annuity
contracts, operating expenses, income taxes and dividends that may be declared and payable to our shareholders.
Liabilities arising from our insurance activities primarily relate to benefit payments under these insurance
products, as well as payments for policy surrenders, withdrawals and loans.
We believe that our sources of liquidity are sufficient to meet our current cash requirements.
Consolidated Cash Flows
The following sets forth information regarding consolidated cash flows for the periods indicated.
Net cash provided by operating activities was RMB122,854 million in 2007, an increase of RMB42,502 million
from RMB80,352 million in 2006. This increase was primarily due to increased sales and the maturity of financial
assets at fair value through income (held-for-trading).
Net cash used in investment activities was RMB138,514 million in 2007, a decrease of RMB2,524 million from
RMB141,038 million in 2006. This decrease was primarily due to increased sales of debt securities.
Net cash provided by financing activities was RMB (8,729) million in 2007, a decrease of RMB92,042 million
from RMB83,313 million in 2006. This change was primarily due to large benefit payments under long-term
investment type insurance contracts and investment contracts.
Management Discussion And Analysis
Our global share offering in December 2003 provided cash proceeds of approximately RMB24,707 million
(US$3,062 million). As at the end of 2007, part of the cash proceeds from our global offering was held in bank
deposit accounts denominated in foreign currencies in China, part of which were held as structured deposits.
We gradually converted approximately US$300 million of the cash proceeds into Renminbi to reduce foreign
exchange risks. In addition, we used approximately US$250 million of the cash proceeds for investments in H
shares of China Construction Bank Corporation during its initial public offering in 2005, a portion of which
was sold early 2006, and approximately US$425 million for investments in foreign-currency dominated debts in
China. We used approximately HK$1,175 million for investments in H shares of Bank of China Limited during
its initial public offering in May 2006, approximately HK$2,000 million for investments in H shares of Industrial
and Commercial Bank of China Limited in its initial public offering in October 2006 and approximately US$433
million for investments in Guangdong Development Bank in December 2006. During the year of 2007, we used
approximately US$126 million for investments in H shares of China Molybdenum Co., Ltd, China CITIC Bank
Corporation Limited, China National Materials Company Limited and China Dongxiang (Group) Co., Ltd.
during their initial public offerings in 2007.
Our A share offering in December 2006 provided cash proceeds of approximately RMB27,810 million. We
received such cash proceeds on 29 December 2006. As at the end of 2007, the cash proceeds from our A share
offering was used to increase our capital.
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2.
INSURANCE SOLVENCY REQUIREMENTS
The solvency ratio of an insurance company is a measure of capital adequacy, which is calculated by dividing the
actual solvency margin of the company (which is its admissible assets less admissible liabilities, determined in
accordance with relevant rules) by the minimum solvency margin it is required to meet. The following table shows
the Company’s solvency ratio as of 31 December 2007:
Actual solvency margin
Minimum solvency margin
Solvency ratio
As of 31 December 2007
(RMB million,
except percentage data)
168,357
32,054
525%
Insurance companies are required to calculate and report annually to the CIRC their solvency margin and twelve
additional financial ratios to assist it in monitoring the financial condition of insurers. An “usual range” of results
for each of the twelve ratios is used as a benchmark. The departure from the “usual range” of four or more of the
ratios can lead to regulatory action being taken by the CIRC.
Our solvency margin as of 31 December 2007 was approximately 5.25 times the minimum regulatory requirement.
Among the twelve financial ratios, ten financial ratios were within their normal ranges as determined by CIRC.
Our actual solvency ratio was slightly higher than the normal range provided by the CIRC. The increase in our
actual solvency ratio was due to a change in relevant CIRC requirements regarding calculating solvency ratio and a
significant increase in our investment income. Our surrender rate was also higher than the normal range provided
by the CIRC, which was primarily due to the trend towards investments in capital markets and implementation of
enterprise annuity policies.
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Management Discussion And Analysis
3. DIFFERENCE IN ACCOUNTING STANDARDS
(1) Net profit reconciliation from PRC GAAP to HKFRS
Net profit attributable to shareholders of the Company under the PRC GAAP
Reconciling items:
Insurance related adjustments
– Deferred policy acquisition costs (a)
– Premiums, benefits and reserves of insurance
and investment contracts (b)
Reversal of property, plant and equipment revaluation
surplus and its related depreciation (c)
Deferred tax effects thereof
For the year ended For the year ended
31 December
2006
RMB million
31 December
2007
RMB million
28,116
14,384
10,486
4,019
6,467
112
165
8,223
5,653
2,570
93
(2,744)
Net profit attributable to shareholders of the Company under HKFRS
38,879
19,956
(2) Shareholders’ equity reconciliation from PRC GAAP to HKFRS
Shareholders’ equity attributable to shareholders of the Company
under the PRC GAAP
Reconciling items:
Insurance related adjustments
– Deferred policy acquisition costs (a)
– Premiums, benefits and reserves of insurance
and investment contracts (b)
Reversal of property, plant and equipment revaluation surplus
and its related depreciation (c)
Deferred tax effects thereof
As at
31 December
2007
RMB million
As at
31 December
2006
RMB million
170,213
115,557
48,393
40,852
37,438
39,230
7,541
(1,792)
(1,344)
(11,762)
(1,456)
(11,874)
Shareholders’ equity attributable to shareholders of the Company under HKFRS
205,500
139,665
Management Discussion And Analysis
Notes:
(a) Deferred policy acquisition costs (DAC)
Under the PRC GAAP, commission, brokerage and operating expenses are recorded in the income statement when
incurred. The actuarial reserving method employed under the PRC GAAP makes an implicit allowance for first year
expenses in excess of policy loadings. Under HKFRS, the costs of acquiring new and renewal business which vary with
and are primarily related to the production of new and renewal business, are deferred. DAC for long-term traditional
insurance contracts are amortised over the premium paying period as a constant percentage of expected premiums. DAC
for long-term investment type insurance contracts and investment contracts are amortised over the expected life of the
contracts as a constant percentage of the present value of estimated gross profits expected to be realised over the life of the
contracts.
(b)
Premiums, benefits and reserves of insurane and investment contracts
Under the PRC GAAP, the long-term products comprise life insurance and long-term health insurance, whose premiums
received and benefits paid are recognised in current period’s income statement. Under HKFRS, the long-term products
are classified into four categories: long-term traditional insurance contracts, long-term investment type insurance
contracts, investment contracts with DPF and investment contracts without DPF. For the last three categories, premiums
and interests earned are accounted as deposits to the related policy accounts while benefits as well as policy fees, mortality
and surrender charges are accounted as withdrawals from the related policy accounts. The reconciling item also includes
an amount resulting from differences in actuarial reserving methodologies. Under the PRC GAAP, unearned premium
reserve is provided for the future insurance obligations from insurance business with policy terms of no more than one
year. In accordance with HKFRS 4 – Insurance Contract, premiums from short-duration contracts ordinarily shall be
recognised as revenue over the period of the contract in proportion to the amount of insurance protection provided.
(c)
Reversal of property, plant and equipment revaluation surplus and its related depreciation
Under the PRC GAAP, the Group recognised capital surplus arising from assets revaluation (mainly property, plant and
equipment). Under Hong Kong Accounting Standard 16 – Property, Plant and Equipment, the Company has chosen the
cost model as its accounting policy and does not recognise any revaluation relating to property, plant and equipment. The
revaluation surplus and its related depreciation under the PRC GAAP are reversed under HKFRS.
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Management Discussion And Analysis
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4. RISK FACTORS WHICH MAY IMPACT ON THE STRATEGIC DEVELOPMENT AND
BUSINESS OBJECTIVES OF THE COMPANY
(1) Macro economic policy risk
The business development of the Company is affected to a great extent by macro economic factors such as
government policy, economic growth, changes in demographic structure, consumer spending and demand and
reform of social security system. In recent years, China’s economy has been persistently growing at high rate,
per capita disposable income has been constantly increasing and conditions for insurance funds application have
been improving. These factors foster the rapid development of the insurance sector in China, particularly life
insurance. The government’s continuous promotion of reform programmes on market economy in China and
the government’s measures of encouraging economic development and optimizing assets allocation have been
beneficial to the overall healthy development of China’s economy. However, we may not necessarily benefit from
all these measures. The operating results and financial situation of the Company may suffer from changes in the
government’s monetary policy, taxation policy, policy related to the capital market etc. In addition, periodic
fluctuations in economic growth may affect social economic development and China’s economic growth rate. If
the rate of economic development slows down in the future, the steady implementation of our business plans may
be affected and our business results, investment gains and profitability may be adversely affected.
(2) Investment risk
If there is a downturn in China’s economy, the investment income of the Company may be adversely affected.
If the issuers of the debt securities we hold fail to pay or otherwise default on their obligations, we may face the
risk of loss of our investment. The domestic securities market may experience substantial price fluctuations due
to cyclical factors, austerity measures, system reform and other factors, which may adversely affect our investment
income. The Company may invest some of the insurance funds in new investment channels. There is uncertainty
with these new investment channels, which may have a negative impact upon our investment income. Some of
our assets are held in foreign currencies. The value of our foreign currency denominated assets may be adversely
affected by exchange rate movements.
(3) Competition risk
With the presence of an ever-increasing number of insurance companies in China, more integrated operations,
accelerated pace of globalization as well as the penetration of the insurance business by financial institutions and
increasing innovation in financial products, the Company faces a more complicated competitive environment.
Competition in the Chinese insurance industry has been extended to include domestic and foreign invested
life insurance companies, property and casualty insurers and other financial institutions providing competitive
products.
The Company has always been in a leading position amid keen competition in the market. In 2007, our market
share (under PRC GAAP) was 39.7%. We have been adopting active development strategies and competitive
measures to solidify our market position. However, with the increasingly keen market competition, our business
growth and market position may face increasing competition pressure.
Management Discussion And Analysis
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5. DEVELOPMENT DIRECTION AND BUSINESS STRATEGIES OF THE COMPANY
In 2008, we will place our business on a new starting point, focusing on the three areas of development, reform
and control. Regarding business development, we will continue to place emphasis on developing traditional and
participating products, and developing derivatives products such as investment-linked products and universal
products with appropriate efforts. We will continue to focus on the sales of traditional and participating products
and long-term regular premium products to optimize our business structure and maintain a steady growth of our
business, the exclusive agents force as the core distribution channel while exploring the group insurance channel
and bancassurance channel, and a combination of overall development strategy and local market competitiveness
tactics. solidify our leading market position, optimize our business structure and devote great efforts to foster
interactive business development. At the same time, we will also make good use of the competitive advantages
of our strong asset backing to create positive interaction between business development and investment through
application of funds and capital market operation.
If there are no material changes in China’s macro-economy and no material changes in the insurance industry
policies, we shall strive to acheive our main business development objective of being the market leader. Adjusting
our business strategies in a timely manner according to external market developments, we shall endeavor to
maintain that the growth rate of gross written premiums (under PRC GAAP) shall not be lower than last year. We
will strive to achieve faster growth and strengthen our leading position in the market.
6.
FUNDING REQUIREMENT THAT MAY BE NECESSARY FOR OUR FUTURE
DEVELOPMENT AND APPLICATION OR FUNDS
We expect that the operating environment in 2008 will continue to be positive. Our own funds will suffice
to meet our insurance business expenditures and the needs for new investment projects in general. In order
to facilitate the implementation of our future development strategies, we will make the necessary funding
arrangements after taking into consideration of the market situation.
7. TRANSFER OF EQUITY INTEREST OF CHINA LIFE-CMG LIFE ASSURANCE
COMPANY LTD.
China Life-CMG Life Assurance Company Ltd., a subsidiary of China Life Insurance (Group) Company
(“CLIC”), is a sino-foreign joint venture established on 4 July 2000 and owned as to 51% by CLIC and as to
49% by CMG Group of Australia. The scope of operations of China Life-CMG Life Assurance Company Ltd. is
to conduct the following businesses (excluding statutory insurance business) within the administrative district of
Shanghai municipality and in the provinces, autonomous regions and municipalities directly under the Central
Government where it has established branches: (1) insurance business such as life insurance, health insurance
and accident and casualty insurance; (2) re-insurance of the above insurance businesses. CLIC has agreed that it
will, within 3 years of the listing of the Company on The Stock Exchange of Hong Kong Limited, dispose all of
its interests in this joint venture to any third party or otherwise eliminate any competition between China Life-
CMG Life Assurance Company Ltd. and the Company. The Company received written notice from CLIC that
as of the end of the reporting period, CLIC was working towards the transfer of its interest in China Life-CMG
Life Assurance Company Ltd. The Company will make timely disclosure according to the relevant listing rule
requirements of the place where the Company is listed.
Embedded Value
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BACKGROUND
China Life prepares financial statements to public investors in accordance with the Hong Kong Financial Reporting
Standards (“HKFRS”). An alternative measure of the value and profitability of a life insurance company can be provided
by the embedded value method. Embedded value is an actuarially determined estimate of the economic value of the life
insurance business of an insurance company based on a particular set of assumptions about future experience, excluding
the economic value of future new business. In addition, the value of one year’s sales represents an actuarially determined
estimate of the economic value arising from new life insurance business issued in one year.
China Life believes that reporting the Company’s embedded value and value of one year’s sales provides useful
information to investors in two respects. First, the value of the Company’s in-force business represents the total amount
of distributable earnings, in present value terms, which can be expected to emerge over time, in accordance with the
assumptions used. Second, the value of one year’s sales provides an indication of the value created for investors by new
business activity and hence the potential of the business. However, the information on embedded value and value of
one year’s sales should not be viewed as a substitute of financial measures under HKFRS or any other accounting basis.
Investors should not make investment decisions based solely on embedded value information and the value of one year’s
sales.
It is important to note that actuarial standards with respect to the calculation of embedded value are still evolving. There
is still no universal standard which defines the form, calculation methodology or presentation format of the embedded
value of an insurance company. Hence, differences in definition, methodology, assumptions, accounting basis and
disclosures may cause inconsistency when comparing the results of different companies.
Also, embedded value calculation involves substantial technical complexity and estimates can vary materially as key
assumptions are changed. Therefore, special care is advised when interpreting embedded value results.
The values shown below do not consider the future financial effect of the Policy Management Agreement between China
Life Insurance (Group) Company (“CLIC”) and China Life, the Non-competition Agreement between CLIC and China
Life, the Trademark License Agreement between CLIC and China Life and the Property Leasing Agreement between
CLIC and China Life, nor the future financial impact of transactions of China Life with China Life Insurance Asset
Management Company, China Life Pension Company, and China Life Property and Casualty Insurance Company.
Embedded Value
DEFINITIONS OF EMBEDDED VALUE AND VALUE OF ONE YEAR’S SALES
The embedded value of a life insurer is defined as the sum of the adjusted net worth and the value of in-force business
allowing for the cost of capital supporting a company’s desired solvency margin.
“Adjusted net worth” is equal to the sum of:
(cid:129)
(cid:129)
Net assets, defined as assets less policy reserves and other liabilities, all measured on a PRC statutory basis; and
Net-of-tax adjustments for relevant differences between the market value of assets and the value determined on a
PRC statutory basis, together with relevant net-of-tax adjustments to other liabilities.
According to the PRC accounting basis, some investment assets are not measured on market value. As the embedded
value is based on market value, it is necessary to make adjustments to the value of net assets under the PRC accounting
basis.
The market value of assets can fluctuate significantly over time due to the impact of the prevailing market environment.
Hence the adjusted net worth can fluctuate significantly between valuation dates.
The “value of in-force business” and the “value of one year’s sales” are defined here as the discounted value of the
projected stream of future after-tax distributable profits for existing in-force business at the valuation date and for one
year’s sales in the 12 months immediately preceding the valuation date. Distributable profits arise after allowance for
PRC statutory policy reserves and solvency margins at the required regulatory minimum level.
The value of in-force business and the value of one year’s sales have been determined using a traditional deterministic
discounted cash flow methodology. This methodology makes implicit allowance for the cost of investment guarantees
and policyholder options, asset/liability mismatch risk, credit risk and the economic cost of capital through the use of a
risk-adjusted discount rate.
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Embedded Value
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ASSUMPTIONS
Economic assumptions:
The calculations are based upon assumed corporate tax rate of 33% in 2007 and 25% thereafter. The investment returns
are assumed to be 5.5 % level throughout the projection period. An average of 25% in 2007, grading to 14 % in 2017
(remaining level thereafter) of the investment returns is assumed to be exempt from income tax. These returns and tax
exempt assumptions are based on the Company’s long term strategic asset mix and expected future returns. The risk-
adjusted discount rate used is 11.5%.
Other operating assumptions such as mortality, morbidity, lapses and expenses are based on the Company’s recent
operating experience and expected future outlook.
PREPARATION
The embedded value and the value of one year’s sales were prepared by China Life in accordance with “Life Insurance
Embedded Value Reporting Guidelines” issued by China Insurance Regulatory Commission. The Tillinghast insurance
consulting business of Towers Perrin (“Tillinghast”), an international firm of consulting actuaries performed a review
of China Life’s embedded value. The review statement from Tillinghast is contained in the “Embedded Value Review
Statement” section.
SUMMARY OF RESULTS
The embedded value as at 31 December 2007, the value of one year’s sales for the 12 months to 31 December 2007 and
their corresponding numbers in 2006 are shown below.
Table 1
Components of Embedded Value and Value of One Year’s Sales (RMB million)
ITEM
2007
2006
A
B
C
D
E
F
G
H
Adjusted Net Worth
Value of In-Force Business before Cost of Solvency Margin
Cost of Solvency Margin
Value of In-Force Business after Cost of Solvency Margin (B+C)
Embedded Value (A + D)
Value of One Year’s Sales before Cost of Solvency Margin
Cost of Solvency Margin
Value of One Year’s Sales after Cost of Solvency Margin (F+G)
Note: Numbers may not be additive due to rounding.
168,175
100,659
(16,266)
84,393
252,568
14,578
(2,531)
12,047
117,700
78,296
(14,006)
64,290
181,989
12,971
(2,489)
10,481
Embedded Value
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MOVEMENT ANALYSIS
The following analysis tracks the movement of the embedded value from the start to the end of the reporting period.
Table 2
Analysis of Embedded Value Movement in 2007 (RMB million)
ITEM
RMB MILLION
Embedded Value at Start of Year
Expected Return on Embedded Value
Value of New Business in the Period
Operating Experience Variance
Investment Experience Variance
Methodology, Model and Assumption Changes
A
B
C
D
E
F
G Market Value Adjustment
Exchange Gains or Losses
H
Shareholder Dividend Distribution
I
Other
J
Embedded Value as at 31 December 2007 (sum A through J)
K
Notes: 1) Numbers may not be additive due to rounding.
2) Items B through J are explained below:
181,989
12,736
12,047
1,075
51,923
3,269
(4,181)
(1,032)
(3,957)
(1,301)
252,568
B
Reflects 11.5% of the opening value of in-force business and value of new business sales in 2007 plus the expected
return on investments supporting the 2007 opening net worth.
Value of new business sales in 2007.
Reflects the difference between actual 2007 experience (including lapse, mortality, morbidity, and expense etc.) and
the assumptions.
Compares actual with expected investment returns during 2007.
Reflects the effect of projection method enhancements, model and assumption revisions.
Change in the market value adjustment from the beginning of year 2007 to the end of the year 2007.
Reflect the gains or losses due to change in exchange rate.
Reflects dividends distributed to shareholders during 2007.
Other miscellaneous items.
C
D
E
F
G
H
I
J
Embedded Value
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SENSITIVITY TESTING
Sensitivity testing was performed using a range of alternative assumptions. In each of the sensitivity tests, only the
assumption referred to was changed, with all other assumptions remaining unchanged. The results are summarized
below.
Table 3
Sensitivity Results (RMB million)
Base case scenario
Risk discount rate of 12.5%
Risk discount rate of 10.5%
10% increase in investment return
10% decrease in investment return
10% increase in expenses
10% decrease in expenses
10% increase in mortality rate for
non-annuity products and 10% decrease
in mortality rate for annuity products
10% decrease in mortality rate for
non-annuity products and 10% increase
in mortality rate for annuity products
10% increase in lapse rates
10% decrease in lapse rates
10% increase in morbidity rates
10% decrease in morbidity rates
Solvency margin at 150% of statutory minimum
10% increase in claim ratio of short term business
10% decrease in claim ratio of short term business
VALUE OF IN-FORCE VALUE OF ONE YEAR’S
BUSINESS AFTER COST SALES AFTER COST OF
SOLVENCY MARGIN
OF SOLVENCY MARGIN
84,393
76,252
93,750
99,478
69,314
83,254
85,532
12,047
10,706
13,606
14,186
9,884
11,214
12,815
83,362
11,909
85,437
82,863
86,010
83,238
85,557
77,373
84,208
84,578
12,185
11,776
12,335
11,895
12,200
10,712
11,674
12,420
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Embedded Value
EMBEDDED VALUE REVIEW STATEMENT
To:
The Directors
China Life Insurance Company Limited
China Life Insurance Company Limited (“China Life”) has engaged the Tillinghast insurance consulting business of
Towers Perrin (“Tillinghast”) to review China Life’s embedded value as at 31 December 2007 and the value of one year’s
sales in respect of business written in the 12 months to 31 December 2007.
Tillinghast’s scope of work covered:
(cid:129)
(cid:129)
(cid:129)
a review of the methodology used to develop the embedded value and value of one year’s sales;
a review of the economic and operating assumptions used to develop the embedded value and value of one year’s
sales;
a review of the results of the embedded value and value of one year’s sales, the results of the analysis of movement
of embedded value, and the sensitivity results of the value of in force business and value of one year’s sales.
Based on this review, Tillinghast has concluded that, in preparing the embedded value and value of one year’s sales as at
31 December 2007:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the embedded value methodology used by China Life is consistent with the requirements of the “Life Insurance
Embedded Value Reporting Guidelines” issued by China Insurance Regulatory Commission;
the economic assumptions used by China Life have made allowance for the company’s current and future asset mix
and investment strategy, and consistent with available market information and market environment;
the operating assumptions used by China Life have been set with appropriate regard to past, current and expected
future experience;
the results of China Life’s calculations have been determined in a manner consistent with the methodology and
assumptions described above.
Tillinghast’s opinion has relied on the general accuracy of audited and unaudited data and information provided by
China Life.
Tillinghast insurance consulting business of Towers Perrin
Adrian Liu, FIAA
Title: Senior Consultant
Lawrence Lee, FSA
Title: Consultant
21 March 2008
源
遠
流
長
Report of the Board of Directors
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From left to right:
Mr. Chau Tak Hey,
Mr. Shi Guoqing,
Mr. Ma Yongwei,
Mr. Long Yongtu,
Mr. Yang Chao,
Mr. Sun Shuyi,
Mr. Wan Feng,
Ms. Zhuang Zuojin,
Mr. Cai Rang,
Mr. Ngai Wai Fung
1. PRINCIPAL BUSINESS
The Company is the largest life insurance company in China, which possesses the most extensive distribution
network in China comprising exclusive agents, direct sales representatives, as well as dedicated and non-dedicated
agencies. The Company provides products and services such as individual and group life insurance, accident and
health insurance. The Company is one of the largest institutional investors in China, and has become China’s
largest insurance asset management company through its controlling shareholding in AMC.
Analysis of the Group’s operations by business segments during the year is set out in note 5 to the consolidated
financial statements.
2. RESULTS AND ALLOCATION
The results of the Group for the year are set out in the Group’s consolidated income statement on page 89.
3. DIVIDEND
The Board of Directors proposed a final cash dividend of RMB0.42 per share for the year ended 31 December
2007 to shareholders of the Company. This proposal is subject to consideration and approval at the annual general
meeting to be held on Wednesday, 28 May 2008.
4. RESERVES
Details of the reserves of the Company are set out in note 32 to the consolidated financial statements.
5. CHARITABLE DONATIONS
The total amount of charitable donations of the Company for the year were approximately RMB17.7 million.
6. PROPERTY, PLANT AND EQUIPMENT
Details of the movement in property, plant and equipment of the Company are set out in note 6 to the
consolidated financial statements.
7.
SHARE CAPITAL
Details of movement in share capital of the Company are set out in note 31 to the consolidated financial
statements.
Report of the Board of Directors
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8. BANK BORROWINGS
As at 31 December 2007, the Company did not have any bank borrowings.
9. PURCHASE, SALES OR REDEMPTION OF THE COMPANY’S SHARES
In December 2006, the Company completed its initial public offering of 1,500 million A Shares. On 9 January
2007, the A Shares commenced trading on the Shanghai Stock Exchange.
Apart from the foregoing, during the reporting period, the Company and its subsidiaries have not purchased, sold
or redeemed any of the Company’s securities.
10. STOCK APPRECIATION RIGHTS
On 5 January 2006, the Board of Directors of the Company approved in principle the proposal for the award of
the second batch of stock appreciation rights. The stock appreciation rights were awarded at a price equal to the
average closing price of the Company’s shares on the Hong Kong Stock Exchange for the 5 trading days preceding
1 January 2006. According to the proposal for the award of the second batch of stock appreciation rights approved
by the Board of Directors, the Company resolved in August 2006 to award the stock appreciation rights to the
following personnel: eligible personnel under the first batch of stock appreciation rights, departmental deputy
general managers in the head office, assistants to departmental general managers, senior managers and certain
eligible managers, and deputy general managers (including senior management at certain grades) at provincial
branches (including branches at cities under separate planning), assistants to general managers, officers-in-charge
of second tier provincial city branches, officers-in-charge of some city branches with outstanding performance and
some prominent individual agents etc.. A total of approximately 53 million shares were awarded under this batch
of stock appreciation rights, representing an equivalent of approximately 0.2% of the then issued share capital.
On 29 December 2006, the fifth meeting of the second session of the Board of Directors passed in principle the
proposal for the award of stock appreciation rights for 2007. Such stock appreciation rights would be awarded at
a price equal to the average closing price of the Company’s shares on the Hong Kong Stock Exchange for the 5
trading days preceding 1 January 2007. At the seventh meeting of the second session of the Board of Directors on
12 June 2007, the board considered and passed in principle the proposal for the award of the third batch of stock
appreciation rights. Apart from the eligible personnel in head office and provincial branches (including branches
at cities directly under State and planning) who were newly recruited during the period from 30 June 2006 to
1 January 2007, the range of personnel to be awarded also includes all of the general managers of prefecture-
level city branches (other than the personnel who were awarded with stock appreciation rights), deputy general
managers (personnel in certain senior management ranking), managers and deputy managers of county sub-
branches with outstanding performance in 2006, prominent exclusive agents and working model personnel.
The total number of the above personnel is approximately 2,600 with approximately 51 million shares awarded
representing approximately 0.19% of the issued share capital. As at 31 December 2007, this batch of stock
appreciation rights had not been granted.
The current stock appreciation rights scheme is based on the share price of the H Shares of the Company, and
mainly serves as an incentive scheme for senior management staff and key personnel. The award of the stock
appreciation rights did not involve any issue of new shares and did not have any dilution impact on shareholders of
the Company.
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11. BIOGRAPHICAL DETAILS OF DIRECTORS, SUPERVISORS AND MEMBERS OF THE
SENIOR MANAGEMENT
Brief descriptions of the Directors, Supervisors and members of the senior management of the Company are set
out in this annual report from pages 67 to 77.
12. DIRECTORS’ SERVICE CONTRACTS
The Company entered into “Service Contracts for Independent Non-executive Directors” with Mr. Long Yongtu,
Mr. Chau Tak Hay, Mr. Sun Shuyi and Mr. Cai Rang in 2003 and 2004, respectively. Following the re-election of
the Board of Directors, at the fourth meeting of the second session of the Board of Directors convened in Beijing
on 10 November 2006, the Company entered into service contracts with each of the Directors of the Company
(the service contract with Mr. Ngai Wai Fung, an independent non-executive Director, was entered into on 29
December 2006). The term of the appointment of each Director was three years, commencing from the date when
the shareholders of the Company elected them as members of the second session of the Board of Directors until
the expiration of the term of the second session of the Board of Directors or the early termination thereof for other
reasons. According to “The Rules and Procedures for the meeting of the Board of Directors”, Directors serve for a
term of three years and may be re-elected. However, independent directors may not be re-elected for more than six
years. These contracts are determinable by the Company within one year without payment of compensation (other
than statutory compensation).
13. DIRECTORS’ AND SUPERVISORS’ INTERESTS IN MATERIAL CONTRACTS
None of the Directors or Supervisors is or was materially interested, directly or indirectly, in any contracts of
significance entered into by the Company or its controlling shareholders or any of their respective subsidiaries at
any time during the reporting period.
14. DIRECTORS’ AND SUPERVISORS’ RIGHTS TO ACQUIRE SHARES
At no time during the reporting period had the Company authorised its Directors, Supervisors or their respective
spouses or children under the age of 18 to benefit by means of the acquisition of shares or debentures of the
Company or any of its other associated corporations, and no such rights for the acquisition of shares or debentures
were exercised by them.
15. DISCLOSURE OF DIRECTORS’ AND SUPERVISORS’ INTERESTS IN SHARES
As at 31 December, 2007, save as disclosed below, none of the Directors, Supervisors or chief executive of the
Company had any interests or short positions in the shares, underlying shares and debentures of the Company
or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter
571 of the Laws of Hong Kong) (the “SFO”)) that were recorded in the register of the Company required to be
kept pursuant to Section 352 of the SFO or which had to be notified to the Company and the Hong Kong Stock
Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, Appendix 10 to
the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “Listing Rules”).
Name of
director
Capacity
Nature of
interests
Type of
Shares
Number of
Shares held
Percentage of
the respective
type of Shares
Percentage of the
total number of
Shares in issue
Ngai Wai Fung
Beneficial owner
Personal
H Shares
2,000(L)
0.000026877
0.000007076
Name of company
China Life Insurance
Company Limited
The letter “L” denotes a long position.
Report of the Board of Directors
16. PRE-EMPTIVE RIGHTS AND ARRANGEMENTS ON OPTIONS OF SHARES
According to the Articles of Association of the Company (“Articles”) and the relevant PRC laws, there is no
provision for any pre-emptive rights of the shareholders of the Company. At present, the Company does not have
any arrangement on options of shares.
17. INTEREST OF SUBSTANTIAL SHAREHOLDERS OF THE COMPANY
(1) Shareholders’ Information
As at 31 December 2007, the number of our H Shareholders is 36,177, and the number of our A Shareholders is
212,276. The top ten Shareholders of the Company are as follows:
Name of Shareholder
Type of Shares
Number of
Shares held as at
31 December 2007
Percentage of the
total number of
Shares in issue (%)
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China Life Insurance (Group) Company
A Shares
19,323,530,000
HKSCC Nominees Limited
Richbo Investment Limited
Bao Steel Corporation Limited
H Shares
H Shares
A Shares
State Development and Investment Co., Ltd.
A Shares
China National Investment & Guaranty Co., Ltd.
A Shares
China National Offshore Oil Coproation
A Shares
Minmetals Investment & Development Co. Ltd.
A Shares
COFCO Limited
A Shares
China Guang Dong Nuclear Power Group
A Shares
6,881,723,153
428,358,620
50,000,000
50,000,000
40,000,000
40,000,000
40,000,000
40,000,000
40,000,000
68.37
24.35
1.52
0.18
0.18
0.14
0.14
0.14
0.14
0.14
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Report of the Board of Directors
(2)
So far as is known to any directors and chief executive of the Company, as at 31 December, 2007, the following
persons (other than the directors, supervisors and chief executive of the Company) had interests or short positions
in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the
provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept
by the Company pursuant to Section 336 of the SFO, or as otherwise notified to the Company and the Hong
Kong Stock Exchange:
Name of Substantial Shareholder
Capacity
Type of Shares
Number of Shares held
China Life Insurance (Group) Company
Beneficial owner
A Shares
19,323,530,000(L)
H Shares
428,358,620(L)
Lee Shau Kee (1)
Leeworld (Cayman) Limited (1)
Leesons (Cayman) Limited (1)
Lee Financial (Cayman)
Limited (1)
Shau Kee Financial Enterprises Limited (1)
Richbo Investment Limited (1)
Deutsche Bank Aktiengesellschaft (2)
HSBC Holdings plc (3)
JPMorgan Chase & Co. (4)
Founder of discretionary
trusts & interest of
controlled corporations
Trustee
Trustee
Interest of controlled
corporations
Interest of controlled
corporations
Beneficial owner
Beneficial owner, investment
manager and person having
a security interest in shares
Interest of corporation controlled
by HSBC Holdings plc
Beneficial owner, investment manager
and custodian corporation/
approved lending agent
H Shares
H Shares
H Shares
H Shares
H Shares
H Shares
H Shares
H Shares
KBC Group N.V. (5)
Interest of corporation controlled
H Shares
UBS AG (6)
by KBC Group N.V.
Beneficial owner, person having
a security interest in shares and
interest of corporation
controlled by UBS AG
H Shares
Percentage of
the respective
type of Shares
Percentage of the
total number of
Shares in issue
92.8
5.76
5.76
5.76
5.76
5.76
5.76
11.06
8.83
5.32
4.28
7.50
2.15
1.62
5.72
11.74
6.24
2.43
68.37
1.52
1.52
1.52
1.52
1.52
1.52
2.91
2.32
1.40
1.13
1.97
0.57
0.43
1.51
3.09
1.64
0.64
428,358,620(L)
428,358,620(L)
428,358,620(L)
428,358,620(L)
428,358,620(L)
823,329,255(L)
656,878,554(S)
395,996,237(L)
318,535,605(S)
558,219,608(L)
159,962,796(S)
120,660,766(P)
425,923,855(L)
873,593,764(S)
464,065,859(L)
180,639,179(S)
The letter “L” denotes a long position. The letter “S” denotes a short position. The letter “P” denotes interest in a
lending pool.
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Note:
Information hereby disclosed is based on the information available on the website of The Stock Exchange of Hong
Kong Limited (www.hkex.com.hk).
Note (1):
These references to 428,358,620 H Shares relate to the same block of shares in the Company.
These 428,358,620 H shares were held by Richbo Investment Limited (“Richbo”), an indirect wholly-owned
subsidiary of Shau Kee Financial Enterprises Limited (“Shau Kee Financial”). Lee Financial (Cayman) Limited
(“Lee Financial”) as trustee of a unit trust (the “Unit Trust”) owned all the issued shares of Shau Kee Financial.
Leeworld (Cayman) Limited (“Leeworld”) and Leesons (Cayman) Limited (“Leesons”), as trustees of respective
discretionary trusts, held units in the Unit Trust. Mr. Lee Shau Kee owned the entire issued share capital of Lee
Financial, Leeworld and Leesons. Accordingly, Mr. Lee Shau Kee, Lee Financial, Leeworld, Leesons, Shau Kee
Financial and Richbo were taken to have an interest in these 428,358,620 H shares.
Note (2):
Deutsche Bank Aktiengesellschaft was interested in a total of 823,329,255 H shares in accordance with the
provisions of Part XV, SFO. Of these shares, Deutsche Asset Management (Asia) Limited, Deutsche Asset
Management International GmbH, Deutsche Asset Management Investmentgesellschaft mbH, Deutsche
Vermogensbildungsgesellschaft mit beschrankter Haftung, DWS Investment S.A. Luxemburg, Deutsche Bank AG
Frankfurt, Deutsche Bank (Suisse) S.A., Deutsche Bank AG Singapore Branch, Deutsche Investment Management
Americas Inc. and Deutsche Bank AG London Branch were interested in 12,360,000 H shares, 485,000 H shares,
479,490 H shares, 3,000,000 H shares, 470,000 H shares, 12,830,000 H shares, 18,000 H shares, 118,000 H
shares, 350,000 H shares, 2,782,500 H shares and 610,500 H shares respectively. All of these entities are either
controlled or indirectly controlled subsidiaries of Deutsche Bank Aktiengesellschaft.
Deutsche Bank Aktiengesellschaft held by way of attribution a “short position” as defined under Part XV, SFO in
656,878,554 H shares (8.83%).
Note (3):
HSBC Holdings plc was interested in a total of 395,996,237 H shares in accordance with the provisions of Part
XV, SFO. Of these shares, HSBC Financial Products (France), The Hongkong and Shanghai Banking Corporation
Limited, Hang Seng Bank Trustee International Limited and Hang Seng Bank (Trustee) Limited were interested in
107,110,582 H shares, 279,826,199 H shares, 9,015,456 H shares and 44,000 H shares respectively. All of these
entities are controlled subsidiaries of HSBC Holdings plc.
HSBC Holdings plc held by way of attribution a “short position” as defined under Part XV, SFO in 318,535,605
H shares (4.28%).
Note (4):
JPMorgan Chase & Co. was interested in a total of 558,219,608 H shares in accordance with the provisions of Part
XV, SFO. Of these shares, JPMorgan Chase Bank, N.A., J.P. Morgan Investment Management Inc., JPMorgan
Asset Management (UK) Limited, JF Asset Management (Singapore) Limited – Co Reg #:197601586K, JF Asset
Management Limited, JF International Management Inc., J.P. Morgan Securities Ltd., J.P. Morgan Whitefriars
Inc., JPMorgan Asset Management (Japan) Limited, J.P. Morgan International Derivatives Ltd. and China
International Fund Management Ltd were interested in 121,287,766 H shares, 5,934,612 H shares, 7,244,409
H shares, 25,046,000 H shares, 208,122,000 H shares, 2,325,000 H shares, 3,647,146 H shares, 150,041,675
H shares, 6,156,000 H shares, 7,075,000 H shares and 21,340,000 H shares respectively. All of these entities are
either controlled or indirectly controlled subsidiaries of JPMorgan Chase & Co.
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Included in the 558,219,608 H shares are 120,660,766 H shares (1.62%) which are held in the “lending pool”,
as defined under Section 5(4) of the Securities and Futures (Disclosure of Interests – Securities Borrowing and
Lending) Rules.
In addition, JPMorgan Chase & Co. held by way of attribution a “short position” as defined under Part XV, SFO
in 159,962,796 H shares (2.15%).
Note (5):
KBC Group N.V. was interested in a total of 425,923,855 H shares in long position and 873,593,764 H shares
in short position in accordance with the provisions of Part XV, SFO. These H shares interests were held by
KBC Investments Hong Kong, a wholly-owned subsidiary of KBC Bank N.V.. KBC Group N.V. is the indirect
controlling shareholder of KBC Bank N.V.
Note (6):
UBS AG was interested in a total of 464,065,859 H shares in accordance with the provisions of Part XV, SFO.
Of these shares, UBS Global Asset Management (UK) Limited, UBS Fund Services (Luxembourg) SA, UBS
Global Asset Management (Americas) Inc., UBS Global Asset Management (Australia) Inc., UBS Global Asset
Management (Canada) Inc., UBS Global Asset Management (Hong Kong) Ltd, UBS Global Asset Management
(Japan) Ltd, UBS Global Asset Management (Singapore) Ltd, UBS Securities LLC and UBS Bank (Canada) were
interested in 3,758,000 H shares, 2,097,000 H shares, 425,714 H shares, 57,518 H shares, 315,000 H shares,
8,471,500 H shares, 1,710,000 H shares, 12,369,000 H shares, 7,415,435 H shares and 88 H shares respectively.
All of these entities are either controlled or indirectly controlled subsidiaries of UBS AG.
In addition, UBS AG held by way of attribution a “short position” as defined under Part XV, SFO in 180,639,179
H shares (2.43%).
Save as disclosed above, the Directors, Supervisors and chief executives of the Company are not aware that there is
any party who, as at 31 December, 2007, had an interest or short positions in the shares and underlying shares of
the Company which are recorded in the register required to be kept under Section 336 of the SFO.
18. INFORMATION OF TAX DEDUCTION
Items for tax deduction while calculating the 2007 enterprise income tax of the Company are as follows:
Gross wages before tax:
Interest income received from government bonds
Dividend income from funds:
RMB3,656 million
RMB6,053 million
RMB14,042 million
19. MANAGEMENT CONTRACTS
No management or administration contracts for the whole or substantial part of any business of the Company
were entered into during the reporting period.
20. CONNECTED TRANSACTIONS
Details of the connected transactions of the Company are set out in the section “Connected Transactions” and
note 30 to the consolidated financial statements.
21. GUARANTEES
During the reporting period, the Company did not provide any guarantee.
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22. REMUNERATION OF THE DIRECTORS, SUPERVISORS AND MEMBERS OF THE
SENIOR MANAGEMENT
Details of the remuneration of the Directors, Supervisors and members of the senior management for the year
ended 31 December 2007 are set out in note 36 to the consolidated financial statements.
23. BOARD COMMITTEES
The Company has established the Audit Committee, Nomination and Remuneration Committee, Risk
Management Committee and Strategy Committee.
The Audit Committee is responsible for the review and supervision of the Company’s financial reporting
procedures and internal control system. The Audit Committee currently comprises Mr. Sun Shuyi, Mr. Chau
Tak Hay, Mr. Cai Rang and Mr. Ngai Wai Fung. Mr. Sun Shuyi, an independent non-executive Director, is the
chairman of the committee.
The Nomination and Remuneration Committee is mainly responsible for reviewing the structure of the Board
of Directors, drawing up plans for the appointment and succession of directors and senior management and
formulating training and remuneration policies for senior management of the Company. The Nomination and
Remuneration Committee comprises Mr. Cai Rang, Mr. Sun Shuyi and Mr. Shi Guoqing. Mr. Cai Rang, an
independent non-executive Director, is the chairman of the committee.
The Risk Management Committee is mainly responsible for assisting the management to manage internal and
external risks. The Risk Management Committee currently comprises Mr. Ma Yongwei, Mr. Wan Feng and Ms.
Zhuang Zuojin. Mr. Ma Yongwei, an independent non-executive Director, is the chairman of the committee.
The Strategy Committee is mainly responsible for the formulation of the overall development plan and decision-
making procedures of investment. The Strategy Committee comprises Mr. Long Yongtu, Mr. Wan Feng and Mr.
Shi Guoqing. Mr. Long Yongtu, an independent non-executive Director, is the chairman of the committee.
24. MAJOR LITIGATION
Class Action Litigation
The Company and certain of its past directors (the “defendants”) have been named in nine putative class action
lawsuits filed in the United States District Court for the Southern District of New York between 16 March 2004
and 14 May 2004. The lawsuits have been ordered to be consolidated and restyled In re China Life Insurance
Company Limited Securities Litigation, NO.04 CV 2112 (TPG). Plaintiffs filed a consolidated amended
complaint on 19 January 2005, which names the Company, Wang Xianzhang (past director), Miao Fuchun
(past director) and Wu Yan (past director) as defendants. The consolidated amended compliant alleges that the
defendants named therein violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule
10b-5 promulgated thereunder. The Company has engaged U.S. counsel to contest vigorously on the lawsuits.
The defendants jointly moved to dismiss the consolidated amended complaint on 21 March 2005. Plaintiffs then
further amended their complaint. Defendants moved to dismiss the second amended complaint on 18 November
2005. That motion has been fully briefed and is pending before the court.
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25. MAJOR CUSTOMERS
During the reporting period, the premium income and policy fee of the Company’s five largest customers
accounted for less than 30% of the Company’s total premium income and policy fees for the year. None of the
Directors of the Company or any of their associates or any shareholders (which to the best knowledge of the
Directors, with more than 5% of the Company’s issued share capital) had any beneficial interest in the Company’s
five largest customers.
26. SUFFICIENCY OF PUBLIC FLOAT
Based on the information that is publicly available to the Company and within the knowledge of the Directors, as
at the latest practicable date prior to the printing of this annual report, being 25 March 2008, not less than 25% of
the issued share capital of the Company (being the minimum public float applicable to the shares of the Company)
was held in public hands.
27. COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
Save as disclosed in the Report of Corporate Governance, the Directors of the Company are not aware of any
information that would reasonably indicate that the Company did not meet the applicable code provisions under
the Code on Corporate Governance Practices contained in Appendix 14 to the Listing Rules during the reporting
period. Details are set out in the “Report of Corporate Governance” from pages 50 to 66 of this annual report.
28. AUDITORS
PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian Certified Public Accountants Co., Ltd.
were the international and PRC auditors to the Company respectively for the year ended 31 December
2007. A resolution for the re-appointment of PricewaterhouseCoopers as the international auditors and
PricewaterhouseCoopers Zhong Tian Certified Public Accountants Co., Ltd. as the PRC auditors to the Company
will be proposed at the forthcoming Annual General Meeting to be held on 28 May 2008.
By Order of the Board of Directors
Yang Chao
Chairman
Beijing, China
25 March 2008
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Report of the Supervisory Committee
From left to right:
Ms. Yang Hong, Mr. Tian Hui,
Ms. Xia Zhihua, Mr. Wu Weimin
During the year of 2007, all members of the Supervisory Committee have, in strict accordance with the provisions of
the Company Law of the PRC and the Articles of Association, duly performed their supervisory duties and effectively
protected the interests of the shareholders and the Company. In doing so, they have been guided by their responsibility
towards the shareholders and strict principles of integrity.
(1) MEETINGS CONVENED BY THE SUPERVISORY COMMITTEE
1. On 17 April 2007, the fifth meeting of the second session of the Supervisory Committee was held at Ocean
Spring Resort. Five supervisors or proxies attended the meeting, complying with the requirements of the
Company Law of the PRC and the Articles of Association. During the meeting, the Supervisory Committee
reviewed and approved the 2006 H-share Annual Report, the 2006 A-share Annual Report and its summary,
the 2006 H-share Report of the Supervisory Committee, the 2006 A-share Report of the Supervisory
Committee, the Report on the Profit Distribution and Cash Dividend Policy for 2006, the Resolution on
Financial Report and Internal Control Report for 2006, the Report on Self-evaluation of the Company’s
Internal Control System for 2006, the Resolution on the Adoption of New Accounting Standards by
China Life Insurance Company Limited, the Resolution on the Adoption of New Accounting Principles,
Accounting Standards and Accounting Estimation Changes, the Resolution on Amending 2007 Financial
Budget Report, the Highlight on the Work of the Company’s Supervisory Committee for 2007 and the
Standards for Governing the Investigation and Examination by the Supervisory Committee (the standards
have been adopted since 17 April 2007).
2. On 27 August 2007, the sixth meeting of the second session of the Supervisory Committee was held at the
Conference Room on the 29/F of the Company. Five supervisors or proxies attended the meeting, complying
with the requirements of the Company Law of the PRC and the Articles of Association. During the meeting,
the Supervisory Committee reviewed and approved the 2007 A-share Interim Report, the 2007 H-share
Interim Report, the Resolution on Purchasing Part of the Assets of China Life Insurance (Group) Company,
the Rules for Implementing the Measures on Resolution Management by the Supervisory Committee
(interim) (the measures have been enforced since 27 August 2007) and the Minutes of the Seminar on
A-share Regulation held by the Supervisory Committee.
3. On 27 November 2007, the seventh meeting of the second session of the Supervisory Committee was held at
Nanjing Dongjiao State Guest House, Jiangsu. Five supervisors or proxies attended the meeting, complying
with the requirements of the Company Law of the PRC and the Articles of Association. During the
meeting, the Supervisory Committee reviewed and approved the Resolution on the 2008 Financial Budget,
the Resolution on the Compliance Management Measures of China Life Insurance Company Limited. It
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also reviewed and approved the 2007 Comprehensive Report on Investigation and Examination by the
Supervisory Committee, and decided to submit this report to the Board of Directors and the management of
the Company. It also discussed the Standards for Governing the Supervision by the Supervisory Committee
(draft).
(2) ACTIVITIES OF THE SUPERVISORY COMMITTEE
1.
It formulated the Highlight on the Work of the Company’s Supervisory Committee for 2007. In the
beginning of 2007, in accordance with the duty requirement of the Supervisory Committee and for the
purpose of promoting corporate governance, the Supervisory Committee formulated the Highlight on the
Work of the Company’s Supervisory Committee for 2007 after discussion and revision by all supervisors.
It laid down a good foundation for commencing the monitoring work and performing supervisory duties
by the Supervisory Committee, representing new progress for standardization of duties performed by the
Supervisory Committee in 2007.
48
2.
It formulated and improved the regulations and measures of the Supervisory Committee. In order to form a legal
and regulatory basis and adhere to the principle of following systems and procedures, the Supervisory Committee
formulated 3 policy systems, namely the Standards for Governing the Investigation and Examination by the
Supervisory Committee, the Rules for Implementing the Measures on Resolution Management by the Supervisory
Committee and the Standards for Governing the Supervision by the Supervisory Committee in accordance
with the requirement for self-regulation. The fi rst two systems have been enforced from the date of review and
approval by the Supervisory Committee. The third system has been submitted to the Supervisory Committee
for discussion, and will be submitted to the Supervisory Committee for review and approval after completion of
amendments and improvements.
3.
4.
It held a seminar on supervisory duties of the Supervisory Committee. 2007 was the first year that the
Company was listed on the A-share stock market. To expedite and deepen the understanding of all
supervisors on A-share regulations to ensure their compliance, the Supervisory Committee of the Company
held the Supervisory Committee A-share Regulation Seminar in Beijing on 18 July 2007. All supervisors
attended the seminar. Relevant officials from the China Insurance Regulatory Commission, external legal
counsel and the person-in-charge of the relevant departments had been invited to attend the seminar.
Through discussion, the seminar was immensely helpful in reaching a conceptual consensus and establishing
the role and implementation method of the Supervisory Committee.
It began independent investigation and examination in lower levels of the Company. In order deepen
the understanding of the supervisors on the Company’s operational decision-making process and policy
implementation so as to effectively fulfill its monitoring role during the review and approval process of all
material matters of the Company. The Supervisory Committee investigated and examined the provincial
branches’ implementation of the operational goals set by the management in 2007, system establishment
and decision-making process of the provincial branches and the risk management and control. From 15
August to 12 October 2007, three investigation and examination teams have been deployed to branches
in Jiangsu, Henan and Shandong to start detailed investigation and examination work. The teams listened
to the comprehensive reports by the leaders of the three provincial branches and thematic reports by
various departments such as the internal control and compliance department, the audit department and
the operational management department. The teams also conducted site visits to the city and county sub-
branches, held thematic seminars and inspected the local branches. Through investigation and examination,
the supervisors had a more thorough understanding on aspects such as operational management, business
operations and risk control of the lower levels of the Company, which was extremely beneficial to the
exercise of authority and the performance of obligations by the Supervisory Committee. After completion of
Report of the Supervisory Committee
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the investigation and examination, the Supervisory Committee will submit the comprehensive investigation
and examination report to the Board of Directors and the management so as to promote further
development of all management duties of the Company.
(3) INDEPENDENT OPINION OF THE SUPERVISORY COMMITTEE REGARDING
CERTAIN MATTERS
During the reporting period, the Supervisory Committee of the Company performed its duties in a stringent
manner in accordance with the terms of reference prescribed by the Company Law of the PRC and the Company’s
Articles of Association.
1.
2.
The Company operations’ compliance with the law. During the reporting period, the Company’s operations
were in compliance with the law. The Company’s operations and decision-making procedures were in
compliance with the relevant provisions of the Company Law of the PRC and the Articles of Association. All
directors and senior management of the Company maintained strict principles of diligence and integrity, and
the Supervisory Committee is not aware of any of them having violated any law, regulation, or any provision
in the Articles of Association of the Company or harmed the interests of the Company and shareholders in
the course of discharging their duties.
The verity of the Financial Report. The Company’s annual Financial Report truly reflects the state of
the Company’s financial position and operating results. PricewaterhouseCoopers has issued standard
independent auditor’s report with unqualified opinions on the consolidated financial statements based on
their audits conducted in accordance with Hong Kong Standards on Auditing.
3. Use of proceeds. The recent use of the proceeds has been consistent with the use stated in the IPO
prospectus.
4.
5.
6.
Acquisition and sale of assets. During the reporting period, the prices for acquisition and sale of assets were
fair and reasonable. The Supervisory Committee is not aware of any insider trading or any acts harming the
interests of the shareholders or incurring any loss to the Company’s assets.
Connected transactions. During the reporting period, the connected transactions of the Company were fair
and reasonable. The Supervisory Committee is not aware of any acts harming the interests of the Company
and the shareholders.
Internal control system. During the reporting period, the Company has established a complete, reasonable
and effective internal control system.
Finally, I would like to take this opportunity to express my sincere thanks to each and every Supervisor for his/her
tireless efforts, to the Company’s Board of Directors and management for their support to and cooperation with
the Supervisory Committee.
By order of the Supervisory Committee
Xia Zhihua
Chairperson of the Supervisory Committee
Beijing, China
25 March 2008
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The Company, China’s largest life insurance company, provides insurance services to over 100 million long-term
policy holders. The Company strives to maximize shareholder value, and at the same time is committed to meeting the
increasing insurance needs of our customers by providing a broad range of products and services.
Meanwhile we implement good corporate governance policies and strongly believe that through fostering sound
corporate governance, the Company can further enhance its transparency and accountability. This also helps the
Company to achieve the goals mentioned above, operate in a more efficient manner and boost the confidence of
investors.
During the year 2007, the Company complied with all the code provisions under the Code on Corporate Governance
Practices (the “Code”) published by The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange” or
“HKSE”). The Company also adopted certain recommended best practices under applicable circumstances. Of particular
noteworthiness, the Company complies with and exceeds the exacting standards of the Code in the following ways:
(cid:129)
(cid:129)
(cid:129)
Currently the board of directors of the Company (the “Board of Directors”) consists of 10 members and 6 of
them are independent non-executive directors. This is over half of the Board of Directors and complies with the
minimum requirements of Rules Governing the Listing of Securities on the Hong Kong Stock Exchange relating to
the appointment of at least 3 independent non-executive directors and also exceeds the recommended best practice
under the Code that one third of the board be represented by independent non-executive directors.
In order to further enhance the Company’s corporate governance framework, the Company further defines the
duties and powers of the Board of Directors, and formulates deliberation processes and working procedures of
the Board of Directors and the board committees, to ensure the Board of Directors and board committees can
effectively implement the duties and responsibilities conferred by the shareholders. The Board of Directors also
adopted and implemented the Work System of the Independent Directors, revised the Rules and Procedures
for Meetings of the Strategy Committee and the Rules and Procedures for Meetings of the Risk Management
Committee, which provides clear procedural guidelines for the effective functioning of the Board of Directors and
the board committees.
In order to ensure better compliance with certain recommended best practices under the Code, to improve the
corporate governance structure and to further the function of independent non-executive directors and non-
executive directors, the Company held a special meeting for the independent non-executive directors and the non-
executive directors in Nanjing, Jiangsu on 27 November 2007.
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Report of Corporate Governance
CORPORATE GOVERNANCE STRUCTURE
Shareholders’
General Meeting
Board of
Directors
Supervisory
Committee
Company Secretary/
Secretary to the
Board of Directors/
Board Secretariat
Audit
Committee
Nomination and
Remuneration
Committee
Risk Management
Committee
Strategy
Committee
BOARD OF DIRECTORS
The main duties of the Board of Directors include the following: convening shareholders’ general meetings,
implementing resolutions passed at such meetings, approving the Company’s development strategies and operation
plans, formulating and supervising the Company’s financial policies and annual budgets, providing an objective
evaluation on the Company’s operating results in its financial reports and other disclosure documents, dealing with
senior management related matters, reviewing internal control systems and implementing the corporate governance
policies of the Company. The responsibilities of non-executive directors include, without limitation, regular attendance
at meetings of the Board of Directors and of board committees of which they are members, provision of independent
opinions at meetings of the Board of Directors and other board committees, resolution of any potential conflict of
interest, serving on the Audit Committee, Nomination and Remuneration Committee and other board committees and
inspecting, supervising and reporting on the performance of the Company. The Board of Directors is accountable to the
shareholders of the Company and reports to them.
The Board of Directors is collectively responsible for preparing the consolidated financial statements of the Group,
which are prepared on a going concern basis, set out on pages 85 to 172 of this annual report. The Company Auditor’s
statement about the reporting responsibility in relation to the accounts is set out on the Independent Auditor’s Report
on page 84 of this annual report. The Board of Directors currently consists of ten members, with two executive directors,
two non-executive directors and six independent non-executive directors. Details of the chairman, executive directors,
non-executive directors, independent non-executive directors, president, supervisors and other senior management
personnel are set out on pages 67 to 77 of this annual report. As far as the Company is aware, no financial, business,
family or other material relationship exists among board members, supervisory members or senior management including
between the Chairman, Mr. Yang Chao and the President, Mr. Wan Feng.
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During the year 2007, all independent non-executive directors of the Company were professionals with extensive
experience in various aspects, such as economics, insurance, management and financial accounting matters. The
Company complies with the requirement of the Listing Rules that at least one of its independent non-executive directors
has appropriate professional qualifications or accounting or related financial management expertise. As required under
the Listing Rules, the Company has obtained a written confirmation from each of its independent non-executive
directors in respect of his independence, and the Company is of the opinion that all of its independent non-executive
directors are independent of the Company. Pursuant to the Articles of Association, directors shall be elected at the
shareholders’ general meeting for a term of three years and may be re-elected on expiry of the three-year term. The Board
of Directors of the Company was re-elected at the shareholder’s annual general meeting on 16 June 2006. All directors
of the second session of the Board of Directors were appointed for a term of three years commencing from 16 June 2006.
Mr. Ngai Wai Fung was elected as an independent non-executive director at the third shareholder’s general meeting of
the year 2006 on 29 December 2006. He was appointed with a term commencing from 29 December 2006 until the
term of the second session of Board of Directors expires.
Meetings of the Board of Directors are held both on a regular and ad hoc basis. Regular meetings are convened by the
Chairman at least four times a year, at approximately quarterly intervals and 14 days’ notice is given to all directors
before such meetings. Agendas and related documents are sent to directors at least three days prior to such meetings.
During the year 2007, all notices, agendas and related documents in respect of such regular board meetings were sent in
compliance with the above requirements.
Regular board meetings are held mainly to review the interim or annual reports of the Company and to deal with other
related matters. Board meetings held at the year-end are to evaluate the report on work done during the year, to review
Management’s status of implementing the financial budget and work arrangements for the forthcoming year. Regular
board meetings do not apply the practice of obtaining board consent through the circulation of written resolutions.
Upon requisition by the board, the president or more than one-third of the members of the Board of Directors, the
Chairman may convene an ad hoc board meeting. If the resolution to be considered at such ad hoc board meetings has
been circulated to all the directors and more than half of the directors having voting rights sign and consent to such
resolution, the board meeting need not be convened and such resolution in writing shall become an effective resolution.
If a director is materially interested in a matter to be considered by the board, the director having such conflict of
interest shall have no voting right on the matter to be considered and shall not be counted as quorum for the board
meeting.
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All directors shall have access to the advice and services of the company secretary and the Board of Directors’ secretary.
Detailed minutes of board meetings are kept by the board secretary regarding matters considered by the board and
decisions reached, including any concerns raised by directors or dissenting views expressed. Minutes of board meetings
are open upon reasonable notice for inspection and for comments by any director of the Company. In 2007, six board
meetings were held to discuss matters relating to amendment to the Rules of Procedures, financial and investment related
matters. Attendance records of board meetings are as follows:
Attendees
Meetings Attended
Attendance Rate
Independent non-executive Directors
Long Yongtu
Sun Shuyi
Ma Yongwei
Chau Tak Hay
Cai Rang
Ngai Wai Fung
Non-executive Directors
Shi Guoqing
Zhuang Zuojin
Executive Directors
Yang Chao (Chairman)
Wan Feng (President)
4/6 (Note 1)
6/6
5/6 (Note 2)
4/6 (Note 3)
5/6 (Note 4)
5/6 (Note 5)
5/6 (Note 6)
4/6 (Note 7)
6/6
6/6
66.7%
100%
83.3%
66.7%
83.3%
83.3%
83.3%
66.7%
100%
100%
Note1:
At the first extraordinary meeting of the second session of the Board of Directors held on 31 January 2007 in Beijing, Mr.
Long Yongtu gave written authorization for Mr. Sun Shuyi to act as his proxy to attend and vote in the meeting. At the
seventh meeting of the second session of the Board of Directors held on 29 May 2007 in Shenzhen, Mr. Long Yongtu gave
written authorization for Mr. Ma Yongwei to act as his proxy to attend and vote in the meeting.
Note2:
At the first extraordinary meeting of the second session of the Board of Directors held on 31 January 2007 in Beijing, Mr. Ma
Yongwei gave written authorization for Mr. Cai Rang to act as his proxy to attend and vote in the meeting.
Note3:
At the first extraordinary meeting of the second session of the Board of Directors held on 31 January 2007 in Beijing, Mr.
Chau Tak Hay gave written authorization for Mr. Sun Shuyi to act as his proxy to attend and vote in the meeting. At the
second extraordinary meeting of the second session of the Board of Directors held on 26 September 2007 in Beijing, Mr.
Chau Tak Hay gave written authorization for Mr. Sun Shuyi to act as his proxy to attend and vote in the meeting.
Note4:
At the eighth meeting of the second session of the Board of Directors held on 13 August 2007 in Beijing, Mr. Cai Rang gave
written authorization for Mr. Sun Shuyi to act as his proxy to attend and vote in the meeting.
Note5:
At the eighth meeting of the second session of the Board of Directors held on 13 August 2007 in Beijing, Mr. Ngai Wai Fung
gave written authorization for Mr. Sun Shuyi to act as his proxy to attend and vote in the meeting.
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Note6:
At the second extraordinary meeting of the second session of the Board of Directors held on 26 September 2007 in Beijing,
Mr. Shi Guoqing gave written authorization for Mr. Long Yongtu to act as his proxy to attend and vote in the meeting.
Note7:
At the eighth meeting of the second session of the Board of Directors held on 13 August 2007 in Beijing, Ms. Zhuang
Zuojin gave written authorization for Mr. Shi Guoqing to act as his proxy to attend and vote in the meeting. At the second
extraordinary meeting of the second session of the Board of Directors held on 26 September 2007 in Beijing, Ms. Zhuang
Zuojin gave written authorization for Mr. Yang Chao to act as his proxy to attend and vote in the meeting.
In respect of year 2008 up to the latest practicable date, one board meeting was held to discuss matters in relation to
the 2007 annual report and the 2008 RMB investment plan and other related matters. Attendance records of the board
meeting are as follows:
Attendees
Meeting Attended
Attendance Rate
Independent non-executive Directors
Long Yongtu
Sun Shuyi
Ma Yongwei
Chau Tak Hay
Cai Rang
Ngai Wai Fung
Non-executive Directors
Shi Guoqing
Zhuang Zuojin
Executive Directors
Yang Chao (Chairman)
Wan Feng (President)
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
CHAIRMAN AND PRESIDENT
In 2007, Mr. Yang Chao was the Chairman of the Company while Mr. Wu Yan was the President of the Company for
the period from 1 January to 31 January 2007. At the first extraordinary general meeting of the second session of the
Board of Directors held on 31 January 2007, the Board authorised Mr. Wan Feng to manage the daily operations of
the Company. At the second extraordinary general meeting of the second session of the Board of Directors held on 26
September 2007, it was resolved that Mr. Wan Feng be appointed as the President of the Company. The Chairman is
the legal representative of the Company, who is primarily responsible for convening and presiding over board meetings,
inspecting the implementation of board resolutions, attending annual general meetings and arranging attendance by
chairpersons of other board committees at general meetings in order to answer questions raised by shareholders, signing
securities issued by the Company and other important documents, and exercising other rights conferred on by the Board
of Directors. The Chairman is responsible to and reports to the Board of Directors. The President is responsible for the
day-to-day operations of the Company, including mainly implementing strategies and policies, the Company’s operation
plans and investment schemes approved by the Board of Directors, formulating the Company’s internal control structure
and fundamental management policies, drawing up basic rules and regulations of the Company, submitting to the Board
of Directors for appointment or removal of senior management and exercising other rights granted under the Articles of
Association and by the Board of Directors. The President is fully responsible to the Board of Directors in respect of the
operations of the Company.
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In 2007, apart from Mr. Ngai Wai Fung, the independent non-executive director, who held 2,000 H Shares of the
Company, none of the directors and supervisors of the Company had any interests in the shares, underlying shares of
derivatives or debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities
and Futures Ordinance of Chapter 571 of the Laws of Hong Kong) that were required to be recorded in the registers of
the Company required to be kept pursuant to Section 352 of the Securities and Futures Ordinance, or which had to be
notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions
by Directors of Listed Companies (the “Model Code”), in Appendix 10 of the Listing Rules. Furthermore, the Board of
Directors has established a code of conduct on no less exacting terms than the Model Code, to govern the dealings in
the securities of the Company by the directors and supervisors of the Company. Upon specific enquiries made by the
Company, all directors and supervisors of the Company confirmed that they have complied with the required standards
set out in the Model Code and code of conduct for the year 2007.
SUPERVISORY COMMITTEE
Pursuant to the Company Law of the PRC and the Articles of Association, the Company has established a Supervisory
Committee. The Supervisory Committee is empowered by law to perform the following duties: to examine the finances
of the Company, to monitor whether the directors, president, vice presidents and other senior management act in
contravention of the laws, administrative regulations, the Articles of Association and the resolutions of the shareholder’s
general meetings, to demand rectification from the above officers when their acts are detrimental to the interests of the
Company, to review the financial information such as the financial report, results report and plans for distribution of
profits to be submitted by the Board of Directors to the shareholders’ general meetings and if considered necessary by
the Supervisory Committee, to request a re-examination by certified public accountants and practising auditors of the
Company in the name of the Company, to propose the convening of a shareholders’ extraordinary general meeting and
propose resolutions at shareholders’ meetings, to represent the Company in negotiations with, or bringing an action
against, a director, and to perform other duties required by laws, regulations and rules imposed by national and overseas
supervisory bodies.
The Supervisory Committee is accountable to the shareholders. Each year, the Supervisory Committee presents the
Report of the Supervisory Committee and reports their work performed according to the law at the shareholders’ general
meetings. The Supervisory Committee also evaluates the diligence in the carrying out of duties and the integrity of
the directors, president, vice presidents and other senior management, and reviews the auditor’s reports issued by the
auditors in accordance with the generally acceptable auditing standards.
The Supervisory Committee consists of five members, one of whom is the chairperson. A supervisor has a term of three
years, and may be re-elected. The Supervisory Committee comprises of two shareholders’ representatives, two employees’
representatives and one external supervisor. The shareholders’ representatives and the external Supervisor will be elected
by the shareholders in general meeting, and the employees’ representatives will be democratically elected by the staff and
workers of the Company.
The Supervisory Committee currently consists of Ms. Xia Zhihua, Mr. Wu Weimin, Mr. Qing Ge, Ms. Yang Hong
and Mr. Tian Hui, of whom Ms. Xia Zhihua and Mr. Wu Weimin are shareholder representative supervisors, Mr. Qing
Ge and Ms. Yang Hong are employee representative supervisors, and Mr. Tian Hui is an external supervisor. Ms. Xia
Zhihua was nominated as supervisor by the Supervisory Committee on 5 January 2006. She was approved by poll at the
shareholders’ meeting held on 16 March 2006 and Ms Xia Zhihua was unanimously appointed the chairperson of the
committee by members of the Supervisory Committee on the same day.
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Meetings of the Supervisory Committee shall be convened by the Chairperson of the Supervisory Committee. According
to the Articles of Association, the Company established the rules and procedures for meetings of the Supervisory
Committee. Meetings of the Supervisory Committees include both regular and ad hoc meetings with at least two regular
meetings each year, mainly to review financial reports, the annual report, to examine the financial situation and internal
control of the Company. Where necessary, ad hoc meetings are convened.
In 2007, three meetings were held by the Supervisory Committee. Details are set out in the Report of the Supervisory
Committee in this annual report. Attendance records of individual supervisors are as follows:
Attendees
Xia Zhihua
Wu Weimin
Qing Ge
Yang Hong
Tian Hui
Meetings Attended
Attendance Rate
3/3
3/3
2/3 (note)
3/3
3/3
100%
100%
67%
100%
100%
Note: At the seventh meeting of the second session of the Supervisory Committee held on 27 November 2007, Qing Ge gave written
authorization for Yang Hong to act as his proxy to attend and vote in the meeting.
For the year 2008 and up to the latest practicable date, the Supervisory Committee convened a meeting on 25 March 2008
to review matters such as the 2007 annual report and the Consolidated Work Report of the Supervisory Committee for
2007 and Highlight on the Work of the Company’s Supervisory Committee for 2008. Attendance records of individual
supervisors at meetings of the Supervisory Committee are as follows:
Attendees
Xia Zhihua
Wu Weimin
Qing Ge
Yang Hong
Tian Hui
Meetings Attended
Attendance Rate
1/1
1/1
1/1
1/1
1/1
100%
100%
100%
100%
100%
AUDIT COMMITTEE
The Company established the Audit Committee on 30 June 2003. For the year 2007, the Audit Committee was
comprised of all independent non-executive Directors of the Company, with Mr. Sun Shuyi as the chairman. Other
members included Mr. Cai Rang, Mr. Chau Tak Hay and Mr. Ngai Wai Fung.
All members of the Audit Committee have broad experience in financial matters. Mr. Ngai Wai Fung is the financial
expert of the Audit Committee. The principal duties of the Audit Committee are to review and supervise the Company’s
financial report, to assess the effectiveness of the Company’s internal control system, to supervise the Company’s
internal audit system and to implement the recommended engagement or replacement of external auditors. The Audit
Committee is also responsible for communications between the internal and the external auditors.
Report of Corporate Governance
Four meetings were held by the Audit Committee during the year 2007. Attendance records of individual members are as
follows:
Position
Name
Meetings Attended
Attendance Rate
Chairman
Member
Member
Member
Sun Shuyi
Cai Rang
Chau Tak Hay
Ngai Wai Fung
4/4
3/4 (note)
4/4
4/4
100%
75%
100%
100%
Note: At the seventh meeting of the second session of the Audit Committee held on 26 August 2007, Mr. Cai Rang gave written
authorization for Mr. Sun Shuyi to act as his proxy to attend and vote in the meeting.
During the year 2007, the principal work performed by the Audit Committee were as follows:
1.
2.
3.
Reviewing the financial reports for the year ended 31 December 2007 and the six months ended 30 June 2007;
Reviewing the financial reports of the Company for the first quarter and third quarter in 2007;
Reviewing the results of internal audit on the work performed by all divisions and departments of the Company
and the performance of the Company’s services and products, and the recommendations made;
Examining the effectiveness of the internal control systems; reviewing the report on internal control appraisal that
covers all the substantial aspects of control, including financial control, operative control, regulatory compliance
control and risk management control;
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4.
Reviewing external auditors’ statutory auditing arrangements and status;
5.
Reviewing and approving the audit costs for the year 2007;
6.
Leading the Company towards compliance with matters related to Section 404 of Sarbanes-Oxley Act of the U.S.
For the year 2008 and up to the latest practicable date, the Audit Committee has convened one meeting. Attendance
records of individual members are as follows:
Position
Name
Meeting Attended
Attendance Rate
Chairman
Member
Member
Member
Sun Shuyi
Cai Rang
Chau Tak Hay
Ngai Wai Fung
1/1
1/1
1/1
1/1
100%
100%
100%
100%
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CHANGES IN AND COMPOSITION OF THE NOMINATION AND REMUNERATION
COMMITTEE
The Company established the Management Training and Remuneration Committee on 30 June 2003. On 16 March
2006, the Board of Directors has resolved to change the name of the Management Training and Remuneration
Committee to the Nomination and Remuneration Committee, and majority of the members of the committee are
independent non-executive Directors. The Nomination and Remuneration Committee is mainly responsible for
reviewing the structure of the Board of Directors, drawing up plans for the appointment and succession of directors and
senior management. The committee is also responsible for formulating training and remuneration policies for the senior
management officers of the Company. The committee is comprised of Messrs. Cai Rang and Sun Shuyi, both of whom
are independent non-executive Directors and Mr. Shi Guoqing, a non-executive Director. Mr. Cai Rang, an independent
non-executive Director, is the chairman of the committee.
Two meetings were held by the Nomination and Remuneration Committee for the year 2007. Attendance records of
individual members are as follows:
Position
Name
Meetings Attended
Attendance Rate
Chairman
Member
Member
Cai Rang
Sun Shuyi
Shi Guoqing
2/2
2/2
2/2
100%
100%
100%
During the year 2007, the principal work performed by the Nomination and Remuneration Committee was as follows:
1.
2.
Reviewing and approving the Resolution on Award of the Stock Appreciation Rights in 2007 and putting the same
to the Board of Directors for review and approval;
Reviewing and approving the Resolution on appointing Mr. Wan Feng as President of the Company and putting
the same to the Board of Directors for review and approval;
3.
Reviewing and approving the report on Self-evaluation of the Audit Committee;
4.
Reviewing and approving the Corporate Annuity Plan and approving that the same be put to the Board of
Directors for review and approval.
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RISK MANAGEMENT COMMITTEE
The Company established the Risk Management Committee on 30 June 2003. During the year 2007, the Committee
comprised of Mr. Ma Yongwei, an independent non-executive director, Mr. Wan Feng, an executive director and Ms.
Zhuang Zuojin, a non-executive director. Mr. Ma Yongwei, an independent non-executive director, is the Chairman of
the Committee.
At the second meeting of the second session of the Risk Management Committee held on 27 November 2007, the
previously Rules of Procedures for the Meetings of the Risk Management Committee were amended. The amended
Rules of Procedures were reviewed and approved in the ninth meeting of the second session of the Board of Directors
held on the same day. The Risk Management Committee is mainly responsible for studying the State’s macro-economic
financial policy, analyzing market changes, formulating industry risk management proposals, proposing company risk
control standard system, studying laws and regulations, policies and regulatory standards promulgated by the regulatory
authority, proposing effective implementation measures, assisting the Management in establishing and improving the
internal control system, formulating the business risk management policy of the Company, presiding over the feasibility
and risk assessment of important business activities, reviewing assessment reports of the Company in relation to
business risks and internal control status, identifying risks or potential risks in the day-to-day operations and making
recommendations to the Management, dealing with sudden and significant risks or crises, and performing and exercising
other duties or powers delegated to or granted by the Board of Directors.
STRATEGY COMMITTEE
The Company established the Strategy Committee on 30 June 2003. For the period from the beginning of 2007 to
31 January 2007, the Committee comprised of Long Yongtu, an independent non-executive director, Wu Yan, an
executive director and Shi Guoqing, a non-executive director. For the period from 31 January 2007 to 16 April 2007,
the Committee comprised of Mr. Long Yongtu, an independent non-executive director and Mr. Shi Guoqing, a non-
executive director. For the period from 16 April 2007 to 31 December 2007, the Committee comprised of Mr. Long
Yongtu, an independent non-executive director, Mr. Shi Guoqing, a non-executive director and Mr. Wan Feng, an
executive director. Mr. Long Yongtu, an independent non-executive director, is Chairman of the Committee.
At the second meeting of the second session of the Strategy Committee held on 27 November 2007, the previous
Rules of Procedures for the Meetings of the Strategy Committee were amended and improved. The amended Rules of
Procedures were reviewed and approved in the ninth meeting of the second session of the Board of Directors held on
the same day. The principal duties of the Strategy Committee include drawing up long-term development strategies
and significant investment or financing plans of the Company, proposing significant capital investment for operation
projects, and conducting studies and making recommendations on other important matters affecting the development of
the Company.
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AUDITORS’ REMUNERATION
PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian Certified Public Accountants Co., Ltd. were the
international auditors and the PRC auditors of the Company for the year ended 31 December 2007. During the year
2007, the external auditors (including any entity that is under the common control, ownership or management with the
auditors which a reasonable and informed third party, having knowledge of all relevant information, would reasonably
conclude as being part of the auditors nationally or internationally) provided the Group with audit and audit related
services at fees detailed below:
Name/Nature of Services
Audit and audit related services
Fee (in RMB million)
66
The Audit Committee has resolved to appoint PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian
Certified Public Accountants Co., Ltd., as auditors for the statutory and internal auditing for the financial year 2008.
The resolution has been approved by the Board of Directors, pending the approval and authorization by shareholders at
the annual general meeting to be held on 28 May 2008.
INTERNAL CONTROL
The Company has at all times attached great importance to internal control and risk management. The Company’s
internal control and risk management team comprises the Board of Directors, the Audit Committee and the Risk
Management Committee formed under the Board of Directors, the Supervisory Committee of the Company and
the Internal Control and Risk Management Committee formed by the Management, and the internal control
implementation and supervision department of the Company. Strictly based on the corporate governance structure, the
Company commenced much work on aspects such as internal control establishment, system implementation and risk
management to enhance the internal control of the Company.
The internal control environment established by the Company has standardized basic principles for the structural
framework of internal control and management control, and provided a solid foundation for establishing a complete,
effective and reasonable internal control. The Company has improved its corporate governance structure, and established
a check and balance mechanism between the Board of Directors, the Supervisory Committee and the operational
management. The Company, under the guidance of corporate culture philosophy, has established corporate development
and employees’ ethical culture in accordance with the most recent international experience. Through establishing
employees’ conduct standards and various policies and systems, risk control procedures for prevention of fraud and staff
conduct guidelines and model code of ethics, internal control and business development were effectively integrated and
promoting each other. It enhanced the operations of the Company which were in compliance with laws and regulations,
and its sustainable development. The Company has set up a special system to highlight the independent status of the
internal audit department in the corporate structure, the terms of reference of the audit department and the reporting
relationship between the Audit Committee under the Board of Directors and the Supervisory Committee.
The Company has been devoted to promoting internal control and establishing policies related to internal control. It
formulated internal control standards based on the experience from compliance with Section 404 of the Sarbanes-Oxley
Act. The application of the methods and techniques in compliance with Section 404 of the Sarbanes-Oxley Act was
expanded from the effective control of financial reporting to each aspects of the Company’s operational management,
covering various operational management processes, from product development to investment management.
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An audit committee has been established under the Board of Directors. It worked together with the Company’s
management to review and discuss about the information disclosure mechanism and procedure and the internal
control mechanism for financial reporting, to ensure management fulfills its obligation for implementing an effective
information disclosure mechanism and procedure and the internal control mechanism for financial reporting. It also
monitored and examined the Company’s financial control, information disclosure mechanism and procedure, internal
control and risk management system. The Board of Directors also reviews the self-assessment of internal control report,
risk assessment report and compliance report.
The Company commenced supervision and investigation work on internal control by various means. It monitored
and examined the execution of the internal control system related to preparation of the financial statements, ensuring
thorough implementation of the internal control system. The audit department and the related departments conduct
various kinds of auditing, accounting and basic accounting appraisal such as economic liability auditing, financial
revenue and expenditure auditing and insurance business management auditing independently or jointly every year.
This is beneficial to further safeguarding the thorough implementation of the regulations and systems of the Company,
reducing operational risk exposure, strengthening internal control, optimizing resource allocation and improving
operational management of the Company.
In accordance with certain securities legislation of the United States, the management has completed a self assessment
on internal control over financial reporting as of 31 December 2007, and confirmed such internal control was effective.
The Company had also received our registered independent auditor’s unqualified opinion on the effectiveness of our
internal control over financial reporting as of 31 December 2007. Management’s assessment report and the report of our
registered independent auditor will be included in Form 20-F (the US version of annual report) to be submitted to the
U.S. Securities and Exchange Commission (SEC).
During the process of enhancing and optimizing its internal control systems, the Company identified and addressed
certain issues that need to be amended and has actively sought measures for their improvement. The Company believes
that the continued improvement and effective operation of its internal control systems is beneficial for its prevention and
mitigation of operational risk to better protect the interests of its customers and shareholders.
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STOCK APPRECIATION RIGHTS
For further details, see page 39, “Stock Appreciation Rights”, paragraph 10 of “Report of the Board of Directors”.
EMPLOYEE INCENTIVE SCHEME IN RELATION TO A SHARES
The Company proposes to establish an employee incentive scheme in relation to A Shares, and has drawn up a “China
Life Insurance Company Limited Employee Share Incentive Proposal” (draft). Such proposal has been approved by
the Board of Directors on 10 November 2006, and will be effective pending authorization from relevant governmental
bodies and the shareholders in general meeting.
SHAREHOLDERS’ INTEREST
To safeguard shareholders’ interests, shareholders have the right to participate in the Company’s affairs by attending
general meetings in addition to the right of convening extraordinary general meetings under certain circumstances.
Where the number of directors falls below the minimum, the loss incurred reaches one third of the Company’s total
share capital, or the Board of Directors or the Supervisory Committee deems necessary, or where shareholders of 10%
or more make a requisition, the Board of Directors shall convene an extraordinary general meeting within two months
of the date of such requisition. Where shareholders of 10% or more requests for an extraordinary general meeting, such
shareholders shall make a request in writing to the Board of Directors with a clear agenda. The Board of Directors shall
upon receipt of such a written request, convene a meeting as soon as possible. If the Board of Directors fails to convene a
meeting within thirty days after the receipt of such a written request, shareholders making such a request may convene a
meeting by themselves at the cost of the Company within four months after the receipt by the Board of Directors of such
a written request.
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Shareholders may put forward enquiries to the Board of Directors through the company secretary or the Board of
Directors’ secretary, or put forward proposals at shareholders’ meetings through their proxies. The Company has made
available its contact details in its correspondence to enable shareholders to direct their views and proposals to the relevant
responsible person.
The Company formulated rules and procedures of shareholders’ meetings in 2006.
INVESTOR RELATIONS
In December 2006, the Company successfully completed the initial public offering of A Shares, and the A Shares
were officially listed on the Shanghai Stock Exchange on 9 January 2007. As at 31 December 2006, the Company had
28,264,705,000 shares in total, of which there were 7,441,175,000 H Shares and 20,823,530,000 A Shares. Please refer
to page 164 of the annual report for details of the Company’s share capital, and to pages 41 to 44 for the substantial
shareholders of the Company and their shareholding details.
The Company convened general meetings in 2007 including the 2007 Annual General Meeting on 12 June 2007.
Results of shareholder votes at such general meetings have been published in newspapers and on the website of the Hong
Kong Stock Exchange.
The Company has taken a series of measures to enhance its relationship with investors, which mainly includes the
Chairman attending annual general meetings and having chairpersons of other board committees attending to answer
questions at such meetings, encouraging investors to attend general meetings, publication of interim and annual
financial reports, holding press conferences for business results announcements, conference meetings with investors,
meeting investment analysts, attending investors’ meetings, publication of latest news concerning the Company on the
Company’s website and provision of communication channels between investors and the Company, printing marketing
materials, establishing the Investor Relations Department responsible for the investors’ relations.
In 2007, the Company communicated with more than 1,400 investors and analysts in all kinds of manners, including
holding a successful reception at the Company with 146 groups of investors and analysts attending, 582 persons in
total, communicating with about 500 investors by participating in 10 investor’s meetings held in and out of China, and
meeting or visiting 400 investors in the results release conference and road shows. In addition, we kept close contact with
investors’ groups by phone and email, and had more than 2,000 emails with investors’ groups, and answered and replied
more than 2,300 calls and emails.
In 2007, the Company successfully organized activities such as the “Corporate Day for Global Analysts/Investors”,
the “Presentation on Equity Market Valuation” and the “Global Media Open Day”, to further deepen shareholders’,
investors’ and analysts’ understanding of the Company.
In December 2007, the Company was awarded “Best Corporate Governance Merit Award (State-owned Enterprise)” in
the “2007 IR Magazine Chinese Investor Relations Meeting and Award Ceremony” held by the IR (Investor Relations)
Magazine.
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SIGNIFICANT DIFFERENCES IN CORPORATE GOVERNANCE PRACTICES FOR
PURPOSES OF SECTION 303A.11 OF NYSE LISTED COMPANY MANUAL
As a Chinese company with H shares, ADSs and A shares publicly traded on the Hong Kong Stock Exchange (“HKSE”),
New York Stock Exchange (“NYSE”) and Shanghai Stock Exchange (“SSE”), respectively, the Company must comply
with the corporate governance standards provided by PRC company law and other laws, as well as the securities laws
and regulations in Hong Kong, United States and the listing requirements of the HKSE, the NYSE and the SSE that
are applicable to the Company. The description set forth below includes, for purpose of Section 303A.11 of the NYSE
Listed Company Manual, a summary of the significant ways in which the Company’s corporate governance practices
differ from those followed by U.S. domestic companies under NYSE rules.
Board Independence
The Company identifies its independent non-executive directors in accordance with the qualifications provided by
relevant PRC and Hong Kong regulations, which prohibit independent directors from having, among other things,
specified interests in the Company’s securities or business, relationships with the management and financial dependence
on the Company. These tests vary in certain respects with those set forth under Section 303A.02 of the NYSE Listed
Company Manual.
Section 303A.02 of the NYSE Listed Company Manual also requires the board of directors to affirmatively determine
that a director has no material relationship with the company (either directly or as a partner, shareholder or officer
of an organization that has a relationship with the company), and requires companies to identify which directors are
independent and disclose the basis for that determination. Under the HKSE Listing Rules, each independent non-
executive director must provide an annual confirmation of his independence to the listed company. Under the Tentative
Guidelines on Corporate Governance of Insurance Companies issued by the CIRC in 2006 (the “Chinese Insurance
Company Corporate Governance Guidelines”), each independent director must make a public announcement of the
director’s independence and commitment to duties.
Section 303A.01 of the NYSE Listed Company Manual provides that a U.S. domestic issuer must have a majority of
independent directors, unless more than 50% of such issuer’s voting power is controlled by an individual, a group or
another company (a “controlled company”). Because more than 60% of the Company’s voting power is controlled
by CLIC, the Company, as with controlled U.S. domestic companies, would not be required to comply with this
independent board requirement. Nevertheless, a majority of the Company’s directors are independent non-executive
directors as construed under PRC or Hong Kong regulations.
Non-management directors of U.S. domestic companies are required by Section 303A.03 of the NYSE Listed Company
Manual to meet at regularly scheduled executive sessions without management. The Company is not required by any
PRC laws or requirements to hold such sessions. Under the HKSE Code on Corporate Governance Practices, the
chairman of the board of directors should hold meetings with the non-executive directors (including independent non-
executive directors) without the executive directors present at least annually, as one of the recommended best practices.
In November 2007, the Company organized a special meeting in Nanjing, Jiangsu province, which was only attended by
the independent non-executive directors and non-executive directors.
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Nominating/Corporate Governance Committee and Compensation Committee
Under Section 303A.04 of the NYSE Listed Company Manual, a U.S. domestic company must have a nominating/
corporate governance committee composed entirely of independent directors with a written charter that addresses
certain specified responsibilities, unless it is a “controlled company”. Section 303A.05 of the NYSE Listed Company
Manual requires a U.S. domestic company to have a compensation committee composed entirely of independent
directors with a written charter that addresses certain specified duties, unless it is a “controlled company”. The
Company, as with controlled U.S. domestic companies, is not required under NYSE rules to have such a nominating/
corporate governance committee or compensation committee. The Company has established a nominating and
remuneration committee in accordance with the HKSE Listing Rules, comprised of a majority of independent non-
executive directors as construed under those rules. The nominating and remuneration committee is mainly responsible
for the review and recommendation of the nomination of directors and senior officers of the Company, as well as the
formulation of training and remuneration policy for the senior management of the Company. The Chinese Insurance
Company Corporate Governance Guidelines require that nominating and remuneration committees of Chinese
insurance companies be comprised entirely of non-executive directors with an independent director as the Chairman.
The Company has complied with the composition requirements of the nomination and remuneration committee as
prescribed under the Chinese Insurance Company Corporate Governance Guidelines.
Audit Committee
The NYSE rules set forth two levels of audit committee standards for U.S. domestic companies and foreign issuers. As a
foreign issuer, the Company is required to comply with the audit committee requirements under Section 303A.06 of the
NYSE Listed Company Manual, such as audit committee independence and certain functions and powers of the audit
committee, but is not subject to the additional qualifications, independence, function and other requirements for U.S.
domestic companies provided under Section 303A.07 of the NYSE Listed Company Manual.
The Company has established an audit committee in accordance with the requirements of Section 303A.06 of the
NYSE Listed Company Manual, the HKSE Listing Rules and the Chinese Insurance Company Corporate Governance
Guidelines. The audit committee is mainly responsible for the review and supervision of the Company’s financial
reporting procedures, internal control systems, risk management procedures and compliance matters.
Corporate Governance Guidelines
Under Section 303A.09 of the NYSE Listed Company Manual, a U.S. domestic company must adopt and disclose
corporate governance guidelines that addresses specified key subjects. The Company is not required by Chinese or
Hong Kong laws or requirements to, and currently does not, have such corporate governance guidelines. However,
the Company addresses several of the key subjects required by the NYSE Listed Company Manual to be included in
the corporate governance guidelines in its articles of association, Rules of Procedures for Board of Directors, Rules of
Internal Control and other internal corporate regulations.
In addition, under the HKSE Listing Rules, the Company is expected to comply with, but may choose to deviate
from, the provisions of the Code, which sets out the principles of good corporate governance for issuers. However, the
Company should disclose the reasons for deviation, if any, in its interim and annual reports.
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The Company is required by the China Securities Regulatory Commission (“CSRC”) to disclose in its annual report
filed with the CSRC the actual corporate governance practice of the Company as compared with CSRC’s rules on
corporate governance of listed companies. Under such rules, the Company is required to disclose the differences between
its actual practices and the requirements under such rules, if any. Accordingly, the Company has disclosed in its annual
report for year 2007 filed with the CSRC that it had established comparatively proper and sound corporate governance
strictly in accordance with the PRC Company Law and PRC Securities Law as well as relevant rules and regulations,
and that there were no significant differences between the Company’s actual corporate governance practices and relevant
provisions and requirements under CSRC’s rules.
Code of Business Conduct and Ethics
Section 303A.10 of the NYSE Listed Company Manual requires U.S. domestic companies to adopt and disclose a code
of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for
directors or executive officers. The Company has adopted a Code of Business Conduct and Ethics for Directors and
Senior Officers and Code of Conduct for Employees. The Company has disclosed the Code of Business Conduct and
Ethics for Directors and Senior Officers in its annual report under Form 20-F for fiscal year ended 31 December 2004
and is required to disclose in the annual report under Form 20-F any waivers of the code for directors or executive
officers. In addition, according to the HKSE Listing Rules, all directors of the Company must comply with the Model
Code for Securities Transactions by Directors of Listed Companies that sets forth the required standards with which
the directors of a listed company must comply in securities transactions of the listed company. Under the Listing Rules
of the Shanghai Stock Exchange, any of the directors, supervisors or senior management of the listed company shall
not transfer any shares of such company held by him/her within one year of the listing of the company or six months
after leaving such company. During his/her tenure at the company, he/she shall not transfer more than 25% of his/her
shareholdings in the company within any given year, and shall not purchase or sell any shares of the company within six
months of disposing of or purchasing, respectively any shares of the company.
Certification Requirements
Under Section 303A.12(a) of the NYSE Listed Company Manual, each U.S. domestic company Chief Executive Officer
must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate
governance listing standards. There are no similar requirements under PRC or Hong Kong laws or requirements.
ENHANCING CORPORATE GOVERNANCE
With a view to further fostering the coporate governance practices of the Company, the Company will continue to
provide training to Management, as and when appropriate, in order to keep them abreast of the regulatory requirements
in China and the locations where the Company is listed. The Company will regularly assess and enhance its corporate
governance measures and practices to ensure that they are on par with the development of international governance
structures and in light of the changing regulatory requirements and investors’ needs. This will also help ensure long term
and continuous development of the Company, enhance corporate value and generate returns for shareholders.
Directors, Supervisors and Senior Management
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DIRECTORS
Mr. Yang Chao, born in 1950
Mr. Yang became the Chairman of the Company in July 2005 and the President of China Life
Insurance (Group) Company in May 2005. Between May 2005 and January 2006, he was the
President of the Company. Between 2000 and 2005, Mr. Yang was the Chairman and President
of both China Insurance (Holdings) Company Limited and China Insurance H.K. (Holding)
Company Limited. Between 1996 and 2000, Mr. Yang was the Chairman and President of CIC
Holding (Europe) Limited. Between 1977 and 1996, Mr. Yang had been a staff member of Bank
of China, Shanghai branch, a staff member, Deputy Division Chief, Assistant to General Manager
and Deputy General Manager of The People’s Insurance Company of China, Shanghai branch,
the General Manager of The People’s Insurance Company of China, Shanghai Pudong branch,
the General Manager of the Sales Department of The People’s Insurance Company of China
and the General Manager of the Sales Department of The People’s Insurance (Group) Company
of China. Mr. Yang graduated from Shanghai International Studies University and Middlesex
University in the United Kingdom, majored in English and Business Administration, and had
obtained a Master’s degree in Business Administration. Mr. Yang, a Senior Economist, has more
than 30 years of experience in the insurance and banking industries.
Mr. Wan Feng, born in 1958
Mr. Wan became the President of the Company in September 2007, and at the same time Vice
President of China Life Insurance (Group) Company and Chairman of China Life Pension
Company Limited. He became an Executive Director of the Company from June 2006 and
served as a Vice President of the Company from 2003. On 31 January 2007, it was resolved by
the Board of Directors to authorize Mr. Wan Feng to be responsible for the usual operations
and management of the Company. He became a Director of China Life Property and Casualty
Insurance Company Limited from November 2006, and became a Director of China Life
Insurance Asset Management Company Limited from January 2006. From 1999, Mr. Wan
was the Vice President of former China Life Insurance Company and General Manager of its
Shenzhen branch and Director of China Life-CMG. From 1997 to 1999, Mr. Wan was the
General Manager of PICC Life Company Limited, Shenzhen branch. Prior to this, Mr. Wan
was the Director and Senior Vice President of the Hong Kong branch of Tai Ping Life Insurance
Company, Assistant Vice President of former China Life Insurance Company, Hong Kong branch
and Deputy Division Chief of The People’s Insurance Company of China, Jilin branch. Mr.
Wan received a BA degree in Economics from Jilin College of Finance and Trade, MBA from
Open University of Hong Kong, and Doctorate in Finance from Nankai University in Tianjin.
Mr. Wang, a Senior Economist, has 26 years of experience in the life insurance industry, and was
awarded special allowance by the State Council.
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Mr. Shi Guoqing, born in 1952
Mr. Shi became a Non-Executive Director of the Company in 2004. Mr. Shi is also the Vice
President of China Life Insurance (Group) Company from August 2003, and the Chairman of
China Life Insurance (Overseas) Co., Ltd., Director of China Life-CMG, Director of Beijing
Oriental Plaza Company Limited, Director of Hong Kong Huiyen Holding Company Limited,
Director of China World Trade Center Limited, Director of China World Trade Center
Company Limited, Director of China World Trade Investments Limited, Chairman of Shanghai
PICC Tower Limited, and Director of Shanghai Lujiazui Finance & Trade Zone United
Development Co., Ltd. Prior to this, Mr. Shi served as the Assistant President of former China
Life Insurance Company from 1999 to 2003 and, the Vice President of PICC Life Company
Limited from 1995 to 1999. From 1976 to 1995, Mr. Shi acted as the Executive Deputy General
Manager of the International Department of The People’s Insurance Company of China, General
Manager and Deputy General Manager of China Insurance Co. Ltd., Macao Branch, and
Deputy Chief of Overseas Business Division 1, Section Chief and Section Member of Overseas
Business Division 2 of The People’s Insurance Company of China. Mr. Shi, a Senior Economist,
graduated from Foreign Trade and Business College of Beijing in 1976. Mr. Shi has over 30 years
of experiences in the insurance industry, and has accumulated extensive experiences both in the
operation and management of insurance businesses.
Ms. Zhuang Zuojin, born in 1951
Ms. Zhuang became a Non-Executive Director of the Company from June 2006, and served
as the Vice President of China Life Insurance (Group) Company from August 2003, Director
of China Life Insurance Asset Management Company Limited from June 2004. She acted as a
Director of China Life Insurance Asset Management (Hong Kong) Company Limited (renamed
as China Life Franklin Asset Management Company Limited) from May 2006 and a Director
of China Life-CMG from June 2000. Ms. Zhuang was the Assistant to the General Manager of
the former China Life Insurance Company from March 1999 to August 2003, Deputy General
Manager of Zhejiang Branch and General Manager of the Hangzhou Branch of China Life
Insurance Company respectively from March 1999 to October 2000, General Manager of PICC
Trust & Investment Company from June 1999 to October 2000, Deputy General Manager of
Zhejiang Branch and General Manager of Hangzhou Branch of PICC Life, respectively from July
1996 to March 1999. Ms. Zhuang was the Accountant, Deputy Division Chief, Division Chief,
Chief Accountant of Auditing Division of The People’s Insurance Company of China, Zhejiang
Branch from 1981 to 1996. Ms. Zhuang graduated from Correspondence College of CCP
School, majored in Economics and Management, and studied Probability and Statistics (major in
Insurance Actuary) in Zhejiang University from September 1998 to January 2000. Ms. Zhuang, a
Senior Accountant, has worked in the insurance industry for over 27 years, and has accumulated
extensive experiences both in the operation and management of insurance businesses. She is
currently the Vice President of Financial Accounting Society of China.
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Mr. Long Yongtu, born in 1943
Mr. Long became an Independent Non-Executive Director of the Company in 2003 and is
also the Secretary General of Boao Asian Forum. Before leaving government in early 2003, Mr.
Long served as the Vice Minister and Chief Negotiation Representative of MOFTEC (now
the Ministry of Commerce) from 1997 onwards. Mr. Long also served as the Assistant to the
Minister, Director of International Trade and Economic Affairs, and as Director of International
Communication in the same ministry. Between 1980 and 1991, Mr. Long served as the Senior
Officer with the Regional Project Department of UNDP, Deputy Representative of the UNDP
North Korean Delegate Office and Deputy Director of China International Center for Economic
and Technical Exchanges. A 1965 graduate of the Foreign Language Department of Guizhou
University, Mr. Long studied at the London School of Economics between 1973 and 1974 and
received a Honorary Doctorate of Economics from the London School of Economics and Political
Science in 2005.
Mr. Sun Shuyi, born in 1940
Mr. Sun became an Independent Non-Executive Director of the Company in 2004. He is the
Executive Vice President of China Federation of Industrial Economics, Vice Chairman of United
China Enterprise Association, Executive Vice President of China Enterprise Association, Deputy
Supervisor of China Brand Promotion Committee, Member of the 10th Chinese People’s Political
Consultative Conference. From 1993 to 2001, Mr. Sun acted as the Deputy General Manager
of General Office of the Central Steering Committee of Financial Affairs of China, Deputy
Minister of Ministry of Labour, Deputy Party Secretary of Central Government Enterprise
Working Committee. From 1988 to 1993, he was the Deputy Head of the Finance Management
Department and the Deputy Head and Head of the Production System Department （生產體
制司） of the State System Reform Commission （國家體改委）. Mr. Sun graduated from the
University of Science and Technology of China in 1963 and is a Senior Engineer and Certified
Public Accountant.
Mr. Ma Yongwei, born in 1942
Mr. Ma became an Independent Non-Executive Director of the Company in 2006. Mr. Ma has
been a member of the Standing Committee of National Committee of Chinese People’s Political
Consultative Conference since 2003. He was the Chairman of China Insurance Regulatory
Commission from 1998 to 2002. From 1996 to 1998, he served as the Chairman and President
of former China Insurance Group Company. From 1994 to 1996, he served as the Chairman and
President of former People’s Insurance Company of China. From 1982 to 1984, Mr. Ma served
as the Deputy Chief of Agricultural Credit Division and Vice Governor of Agricultural Bank of
China, Anhui branch, and from 1984 to 1994, Vice Governor of Anhui branch, Vice Governor
and Governor of Agricultural Bank of China. Mr. Ma graduated from Finance Department of
Liaoning Finance and Economic University in 1966. Mr. Ma is a Researcher. Mr. Ma has over 37
years of experience in the banking industry and the insurance industry.
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Mr. Chau Tak Hay, born in 1943
Mr. Chau became an Independent Non-Executive Director of the Company in 2003. Prior to
this, Mr. Chau occupied a number of important positions in the Hong Kong Government. They
include Secretary for Commerce and Industry, Secretary for Broadcasting, Culture and Sport,
Director General of Trade, and Secretary for Health and Welfare. Mr. Chau graduated from the
University of Hong Kong in 1967.
Mr. Cai Rang, born in 1957
Mr. Cai became an Independent Non-Executive Director of the Company in 2004. He is the
Party Secretary and Deputy General Manager of China Steel Research Technology Group,
and the Vice Chairman of Advanced Technology & Materials Company Limited, Committee
Member of Chinese People’s Political Consultative Conference of Beijing and Com mittee
Member of Chinese People’s Political Consultative Conference. Prior to this, Mr. Cai Rang was
the Chief of the Central Iron and Steel Research Institute in China, Deputy Chief Economist,
Assistant to Director and Deputy Director of CISRI from 1987 to 2001, and the President of
Advanced Technology & Materials Company Limited from 1998 to March 2007. In 1982,
Mr. Cai graduated from the Machinery Faculty of the Northeastern Industry University with
a Bachelor’s degree in Machinery Architecture. He pursued post graduate studies at New York
State University from 1984 to 1986 to obtain a MBA degree. He pursued on-the-job studies in
the School of Business Administration of Remin University of China from 1997 to 2001 and
obtained a Doctor’s Degree in Business Administration. From 1997 to 1998, Mr. Cai Rang was a
visiting professor of the Cambridge University in the UK. Mr. Cai Rang is a professor-level Senior
Engineer, and was awarded special allowance by the State Council.
Mr. Ngai Wai Fung, born in 1962
Mr. Ngai became an Independent Non-Executive Director of the Company on 29 December 2006.
He is the Non-executive Chairman of Top Orient Group of Companies, Director and head of
listing services of KCS Limited (formally the commercial division of KPMG and GT), vice president
of the Hong Kong Institute of Chartered Secretaries, and the Chairman of its China Affairs
Committee and Membership Committee. He has held many senior management positions, e.g.,
executive Director, chief fi nancial offi cer and company secretary of a number of listed companies in
Hong Kong, including COSCO, China Unicom Limited and Industrial and Commercial Bank of
China (Asia) Ltd.. Mr. Ngai has over 18 years of senior management experience, most of which is
in the areas of fi nance, accounting, internal control and regulatory compliance for issuers including
major H share and red chip companies. Mr. Ngai played a leading role or took part in important
corporate fi nance projects, e.g. listing, acquisitions and mergers and bond issuance. He provided
professional services and support in regulatory compliance, corporate governance and secretarial
services to various state-owned enterprises and red chip companies. He is a fellow of The Association
of Chartered Certifi ed Accountants, Hong Kong Institute of Certifi ed Public Accountants, fellow
member of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute
of Company Secretaries, and member of The Hong Kong Institute of Directors and Hong Kong
Securities Institute. Mr. Ngai graduated from Andrews University of Michigan in 1992, and
obtained a Masters Degree in Business Administration, and graduated from Hong Kong Polytechnic
University in 2002, and obtained a Masters Degree in Finance. He is currently studying for a
doctorate in Finance at the Shanghai University of Finance and Economics.
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SUPERVISORS
Ms. Xia Zhihua, born in 1955
Ms. Xia became the Chairperson of the Supervisors Committee of the Company in March 2006.
Ms. Xia served as the State Council’s representative in China Life Insurance (Group) Company,
Designated Supervisor of bureau level grade official and Office Director of the Supervisory
Committee of China Export & Credit Insurance Corporation from August 2003 to December
2005, Designated Supervisor of bureau level grade official and Office Director of the Supervisory
Committee of China Great Wall Asset Management Corporation from November 2001 to July
2003 and Designated Supervisor of deputy bureau level grade official and Deputy Office Director
of the Supervisory Committee of China Great Wall Asset Management Corporation and China
Economic Development Trust & Investment Corporation from July 2000 to November 2001. In
December 1984, Ms. Xia joined in the State Ministry of Finance and served in several positions,
including the Assistant Inspector of the Treasury Department of the Ministry of Finance in June
2000, Deputy Department Chief of the Treasury Bond Finance Department of the Ministry of
Finance from July 1998 to June 2000, Deputy Department Chief in the National Debt Finance
Department of the Ministry of Finance from July 1997 to June 1998, Chief of the Training,
Administration and Finance Department of the Ministry of Finance, and Section Chief, Deputy
Chief, Division Chief of the Debt Management Department from December 1984 to June 1997.
Ms. Xia graduated from Xiamen University. From February 1978 to November 1984, she studied
Politics and Economics and undertook postgraduate research in world economics at Xiamen
University, and received a BA in Politics and Economics and a MA in World Economics.
Mr. Wu Weimin, born in 1951
Mr. Wu became a Supervisor of the Company from 2003, and is currently the General Manager
of Compliance Department. Mr. Wu served as Deputy Secretary of Disciplinary Committee,
Director of the Supervision Office, Deputy Department Head of the Organisation Department,
and Deputy General Manager of the Personnel and Education Department in the former China
Life Insurance Company from 1998. Prior to this, from 1995 to 1998, Mr. Wu served as Deputy
General Manager of Human Resources Department and Head of Staff Salaries Division of The
People’s Insurance (Group) Company. Before participating in the insurance industry, Mr. Wu
held a position in the Staff Salaries Division of the Ministry of Communications. In 1997, he
studied insurance at China Insurance Management Staff Institute. He is a Senior Economist.
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Mr. Qing Ge, born in 1950
Mr. Qing became a Supervisor of the Company in June 2006. He is currently the person in-
charge of the project team of the Beijing IT Center of the Company. He was the general manager
of the Trade Union Department and the Deputy Director for the Committee of the Trade Union
of the Company from September 2005 to October 2007. Mr. Qing was the deputy general
manager of the Beijing branch of the Company from September 2003 to September 2005. From
1999 to September 2003, he was the general manager of the Inner Mongolia branch and the
deputy general manager of the Beijing branch of the former China Life Insurance Company.
From July 1996 to April 1999, he was the general manager of the Inner Mongolia office of PICC
Life. From 1993 to 1996, he was the Deputy General Manager of the Inner Mongolia branch of
the People’s Insurance Company of China. Mr. Qing Ge, a Senior Economist, graduated from the
South China University of Technology with bachelor degree.
Ms. Yang Hong, born in 1967
Ms. Yang became a Supervisor of the Company in October 2006, and is currently the General
Manager of the Customer Service Department of the Company. From October 1998 to October
2006, Ms. Yang served as a staff member of the Deed Division, Head of Customer Service
Division, Deputy Division Chief of Customer Service Division, Assistant General Manager of
Business Management Division and Division Chief of Customer Service Division, Assistant
General Manager and Deputy General Manager of the Business Management Department. From
December 1995 to October 1998, Ms. Yang worked as a staff member of the Equipment Division
and Network Division of IT Department of PICC Life. From August 1989 to December 1995,
Ms. Yang worked for the Development Division of Computer Department of The People’s
Insurance Company of China and the Marketing Department II of China Life Electronic
Company Limited. Ms. Yang graduated in the Computer Department of Jilin University with
bachelor degree.
Mr. Tian Hui, born in 1951
Mr. Tian became a Supervisor of the Company in June 2004. He is currently the Director and
Party Secretary of China Coal International Engineering Research Institute. He was the Director
and Party Secretary of China Coal International Engineering Research Institute, from June 2006
to January 2007, Director and Deputy Party Secretary of China Coal International Engineering
Research Institute from 2000 to 2006. From 1998 to 2000, he was the Director and Deputy Party
Secretary of the Beijing Coal Design Institute (Group). From 1982 to 1998, Mr. Tian was the
Deputy Division Chief, Division Chief and Deputy Director of Shenyang Design Institute of the
Ministry of Coal Industry. He became Deputy Chairman of the China Coal Industry Association
from 2003. Mr. Tian obtained Bachelor’s and Doctor’s degrees from Fuxin Minery School and
China University of Mining & Technology Beijing respectively. Mr. Tian is a professor-level
Senior Engineer and a Master of China Construction Design, and was awarded special allowance
by the State Council.
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SENIOR MANAGEMENT
Mr. Wan Feng, please see the section of “Directors” for his profile.
Mr. Lin Dairen, born in 1958
Mr. Lin became a Vice President of the Company in 2003. Mr. Lin served as the Executive
Director and President of China Life Pension Company Limited from November 2006. He was
the General Manager of former China Life Insurance Company, Jiangsu branch from 2001 to
2003 and Deputy General Manager of former China Life Insurance Company, Jiangsu branch
from 1999 to 2001. From 1996 to 1999, he was the Deputy General Manager of former PICC
Life. From 1994 to 1996, he was the Division Chief of the Life Insurance Division of former
PICC’s Jiangsu branch, and Deputy General Manager of Nanjing Life Insurance Company
Limited. From 1989 to 1994, he was the Deputy Division Chief of Life Insurance Division of
former PICC, Jiangsu branch. From 1982 to 1989, he was the Deputy Manager, Section Chief,
Deputy Section Chief and Section Member of Domestic Sales Department of former PICC,
Jiangsu branch. Mr. Lin graduated in 1982 with a Bachelor’s degree in Medicine from Shandong
Province Changwei Medical Institute. Mr. Lin, a Senior Economist, has 27 years of experience
in insurance industry in China and has accumulated extensive experience in operation and
management.
Ms. Liu Yingqi, born in 1958
Ms. Liu became a Vice President of the Company in January 2006. Ms. Liu was the Chairperson
of the Board of Supervisors of the Company between August 2003 and January 2006. Ms. Liu
became the General Manager of Group Insurance Department of former China Life Insurance
Company, Deputy General Manager of former China Life Insurance Company, Anhui branch
and Deputy General Manager of former China Life Insurance Company, Hefei Branch (General
Manager rank) from 1997. Prior to this, Ms. Liu worked with former PICC’s Anhui branch,
where she served as both Division Chief of the Accident Insurance Division and Deputy Division
Chief of the Life Insurance Division. Ms. Liu graduated with a BA in Economics from Anhui
University in 1982, Ms. Liu has over 21 years of experience in operation and management of the
life insurance business and insurance administration. Ms. Liu, a Senior Economist, has extensive
experience in operation and management.
Mr. Liu Jiade, born in 1963
Mr. Liu became a Vice President of the Company in 2003 and a Director of China Life Insurance
Asset Management Company Limited from June 2004. Mr. Liu served as Director of China
Life Franklin Asset Management Company Limited from May 2006, and became the Director
of Guangdong Development Bank in December 2006. He was the Vice Director of the Finance
Bureau of the Ministry of Finance since 2000, and the Division Chief in the Treasury Bond
Finance Bureau of the Ministry of Finance from 1998 to 2000. Prior to this, Mr. Liu was the
Deputy County Chief of the People’s Government of Guan Tao County in Hebei Province, and
Deputy Division Chief and Division Chief in the Commercial Finance Bureau of Ministry of
Finance. During his tenure at the Ministry of Finance, Mr. Liu gained extensive experience in
the administration of assets, finance and taxation of insurance companies, banks, trust companies
and securities institutions. Mr. Liu is a graduate of Central Finance College in 1984 (now Central
University of Finance and Economics), with a bachelor degree in Finance and Economics.
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Mr. Zhou Ying, born in 1954
Mr. Zhou became the secretary of the commission for disciplinary inspection of the Company in
November 2006. Mr. Zhou served as Director of the Fifth Office (at Deputy Bureau level) and
as a Designated Director in Beijing State-owned Enterprise Supervisory Committee (at Deputy
Bureau level) from May 2004 to November 2006. He was the Party Commission Member, Team
Leader of Discipline Inspection Group, Deputy Party Secretary, Secretary of the Disciplinary
Committee of Hua Xia Bank from January 1998 to May 2004. He was the Deputy Director
of Central Office for Taiwan Affairs of Beijing Municipal Government from August 1992 to
January 1998. From February 1981 to August 1992, he held various positions including the Vice
President of the Propaganda Department, Deputy Office Director, Office Director, Committee
Member and Office Director, Committee Member and Secretary, and Deputy Party Secretary of
Beijing Municipal Committee of China Communist Youth League. Mr. Zhou graduated from
University of Science and Technology of China with a MBA.
Mr. Su Hengxuan, born in 1963
Mr. Su became the Assistant President of the Company from January 2006. Mr. Su acted as
Director of China Life Property and Casualty Insurance Company Limited from November 2006,
and became the Director of Insurance Professional College from December 2006 and Director
of China Life Security Insurance Agency Company Limited from December 2007. He was the
General Manager of the Company’s Individual Life Insurance Business Department from 2003 to
2006. From 1998 to 2003, Mr. Su served as Deputy General Manager, Division Chief of Agency
Management Office and Manager of Sales Department of former China Life Insurance Company,
Henan branch, and General Manager of Individual Business Department of former China Life
Insurance Company. Prior to this, Mr. Su served as the Division Chief of Life Insurance Division
and Division Chief of Sales Division of PICC Life, Henan branch from 1996 to 1998. From
1983 to 1996, Mr. Su served as Deputy Chief and Section Chief of Life Insurance Division of
PICC, Henan Branch. Mr. Su graduated from Banking School, Henan Province in 1983 and
graduated from Wuhan University in 1998 with a Bachelor’s degree in Insurance and Finance,
majoring in Insurance. Mr. Su, a Senior Economist, has over 25 years of experience in the
Chinese life insurance industry and insurance management.
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Mr. Liu Lefei, born in 1973
Mr. Liu became the Chief Investment Officer of the Company and the General Manager of
Investment Management Department of the Company from July 2006 and August 2004,
respectively. Mr. Liu became the Director of Guangdong Development Bank from December
2006. He became a director of China Life Franklin Asset Management Company from October
2007. He was the General Manager of Investment Management Department of China Galaxy
Securities Company Limited, and General Manager of Beijing Galaxy Investment Advisers
Company from 2003 to 2004. Mr. Liu acted as Deputy General Manager of Zhongye Anxin
Industrial Corporation under the Ministry of Metallurgy of the State, and Executive Director
of Capital Securities Company from 1998 to 2003. During the period from 1995 to 1998, Mr.
Liu worked for the General Department of the Ministry of Finance. Mr. Liu was the Member of
the 9th and the 10th Sessions of All China Youth Federation, and served as a Member of Xinhua
FTSE Index Committee and a Member of Reuters China Pension Index Advisory Committee.
Mr. Liu graduated from Renmin University of China with a Bachelor’s degree in Economics in
1995, Graduate School of the Chinese Academy of Social Sciences in 1998, and China Europe
International Business School with a Master’s degree in Business Administration majoring in
Finance in 2006.
Mr. Liu Anlin, born in 1963
Mr. Liu became the Chief Information Technology Officer of the Company in July 2006. Mr.
Liu was the Deputy Head and General Manager of Information Technology Department of
the Company from November 2002 to July 2006, and General Manager of Human Resources
Department of former China Life Insurance Company from November 2001 to November
2002. Prior to this, he was the Deputy Division Chief of Company Division of former China
Life Insurance Company, Gansu Branch, and Assistant General Manager of former China Life
Insurance Company, Gansu Branch from April 1999 to November 2001, Assistant Deputy
Chief and Deputy Division Chief of Computer Division of PICC Life, Gansu Branch from
June 1996 to April 1999, Manager of Technology Division of Computer Center of PICC,
Gansu Branch, and Manager of Technology Development Division of PICC Technology and
Electronics Company Limited in Gansu from January 1995 to June 1996. Mr. Liu graduated
from Mathematics and Mechanics Department of Lanzhou University and majored in Computer
Mathematics, with a Bachelor’s degree in Science in 1985 and obtained a Master’s degree in
Business Administration from Tsinghua University in 2006. He is studying the doctorate in Risk
Management in Beijing Normal University.
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Mr. Liu Ting’an, born in 1962
Mr. Liu became the Secretary of the Board of Directors of the Company in 2003 and the
Spokesman of the Company from November 2007. From 2000 to 2004, he acted as the General
Manager of Investment Department of former China Life Insurance Company. From 1995 to
2000, he served as the Assistant to Head of former Hainan Development Bank. From 1997 to
2000, he served as the Head of former Hainan Development Bank, Guangzhou Branch. Prior
to this, he was the Division Chief and Deputy Division Chief of the Planning Division and
Integrated Planning and Pilot Division of the State Restructuring and Reform Commission.
Mr. Liu graduated from Jiangxi Finance and Economic College, Remin University of China and
obtained Bachelor’s and Master’s degrees in Economics respectively. From 1990 to 1991, he
studied in St. Edmund School of Oxford University in Britain. Mr. Liu is a Senior Economist.
Ms. Shiu Wai Chung, born in 1954
Ms. Shiu served as the Chief Actuary of the Company since March 2007. Ms. Shiu had been
the Senior Deputy President and Chief Actuary of subsidiaries under Prudential Financial
Group of the United States, and has accumulated extensive working experience in insurance
companies. She acted as the President and Senior Officer of many actuary societies, and obtained
the qualifications of CFA (Chartered Financial Consultant), CEBS (Certified Employee Benefit
Specialist), CHFC (Chartered Financial Consultant), CLU (Chartered Life Underwriter), MAAA
(Member of the American Academy of Actuaries), FSA, etc.. Ms. Shiu obtained a Bachelor’s
degree from National Chengchi University in Taiwan and a Master’s degree from University of
Iowa, US.
Directors, Supervisors and Senior Management
COMPANY SECRETARY
Mr. Heng Kwoo Seng, born in 1948
Mr. Heng is the Company Secretary of the Company. Mr. Heng has been a practising accountant
in Hong Kong since 1983 and is currently the Managing Partner of Morison Heng. Prior to
that, he served as the Manager of the Finance Department of Ka Wah Bank Ltd. and as an
Audit Supervisor of Peat Matwick Mitchell & Co. in the United Kingdom. Mr. Heng is a fellow
member of the Institute of Chartered Accountants in England and Wales, and has over 17 years
of experience in serving as company secretary of listed companies in Hong Kong.
QUALIFIED ACCOUNTANT
Mr. Yang Zheng, born in 1970
Mr. Yang became the Qualified Accountant of the Company in 2006. Mr. Yang has been the
Deputy General Manager of the Finance Department of the Company since October 2006 and
was the Assistant General Manager of the Finance Department of the Company from 2005
to October 2006. Mr. Yang was the Senior Financial Analyst of MOLEX in America between
2000 and 2005. From 1993 to 1998, Mr. Yang served as the Manager for Trading of China
Northern Industries Corporation. Mr. Yang graduated from Beijing University of Technology in
Electric Manufacturing in 1993 and obtained a Bachelor’s degree in Engineering. He obtained a
MBA from Northeastern University in 2000, and received the qualification of Certified Public
Accountants of Illinois in America in 2004. He became a member of American Institute of
Certified Public Accountants in 2005.
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Connected Transactions
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CONTINUING CONNECTED TRANSACTIONS
During 2007, the following continuing connected transactions were carried out by the Company pursuant to Rule
14A.34 of the Listing Rules of the Hong Kong Stock Exchange. These connected transactions were subject to reporting
and announcement but were exempt from independent shareholders’ approval requirements under the Listing Rules.
To ensure the normal business operation of the Company after the restructuring, the Company entered into several
agreements with CLIC before its listing in Hong Kong and the U.S., so as to define clearly the relationship between both
parties after the restructuring. In order to strengthen its capital deployment, the Company and CLIC each entered into
an asset management agreement with AMC, a non-wholly owned asset management subsidiary of the Company. The
asset management agreement between the Company and AMC expired on 31 December 2007, and the Company has
renewed the agreement.
(1) Policy Management Agreement
As part of the restructuring, CLIC transferred its entire branch services network to the Company. In order to
capitalize on the large customer base of CLIC and to, increase the utilization of our customer service network and
increase our revenue sources, CLIC engaged the Company to provide policy administration services relating to the
retained policies (“non-transferred policies”) after the restructuring. The policy management agreement entered
into between the Company and CLIC on 30 September 2003 expired on 31 December 2005. The Company and
CLIC entered into a renewed policy management agreement (“Renewed Policy Management Agreement”) on
24 December 2005. Pursuant to the Renewed Policy Management Agreement, the Company agreed to provide
policy administration services to CLIC relating to the non-transferred policies, including day-to-day insurance
administration services, customer services, statistics and file management, invoice and receipt management,
reinstatement of non-transferred policies, applications for and renewal of additional coverage to the non-
transferred policies, reinsurance, and handling of disputes relating to the non-transferred policies. The Company
acts as a service provider under the agreement and does not acquire any rights or assume any obligations as an
insurer under the non-transferred policies. As in the policy management agreement entered into in September
2003, CLIC will pay the Company a service fee based on the estimated cost of providing the services, to which
a profit margin is added. The service fee is equal to, for each semi-annual payment period, the sum of (1) the
number of non-transferred policies in force as of the last day of the period, multiplied by RMB8.0 per policy; (2)
2.50% of the actual premiums and deposits in respect of such policies collected during the period. The Renewed
Policy Management Agreement is valid for a period of 3 years, effective from 1 January 2006 to 31 December
2008. Unless terminated by either party by giving to the other party not less than 180 days’ written notice prior to
the expiry of the agreement, the agreement shall be renewed for a further period of 3 years, subject to compliance
with the requirements under the Listing Rules.
For the year ended 31 December 2007, the service fee paid by CLIC to the Company amounted to RMB1,426
million.
(2) Asset Management Agreements
(a)
Asset Management Agreement with AMC
The asset management agreement entered into between the Company and AMC, effective on 30 November
2003 and expired on 31 December 2005. The Company and AMC entered into a renewed company asset
management agreement (the “Renewed Company Asset Management Agreement”) on 29 December 2005.
In accordance with the Renewed Company Asset Management Agreement, AMC agreed to invest and
manage assets entrusted to it by the Company, on a discretionary basis, subject to the investment guidelines
Connected Transactions
given by the Company. The Company retains the title of the entrusted assets and AMC is authorized to
operate the accounts associated with the entrusted assets for and on behalf of the Company. All investment
incomes and losses (as the case may be) relating to the assets managed by AMC pursuant to the agreement
will be retained and borne by the Company. In consideration of AMC’s services in respect of investing and
managing various categories of assets entrusted to it by the Company under the agreement, the Company
agrees to pay 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
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 AMC based on an analysis of the cost of service, market practice
and the size and composition of the asset pool to be managed. The Renewed Company Asset Management
Agreement is for a term of two years effective from 1 January 2006 and expiring on 31 December 2007, and
subject to compliance with the requirements of the Listing Rules, will be renewed for another year, unless
terminated by either party giving to the other party not less than 90 days’ prior written notice to terminate
the agreement at the expiration of the current term. The Company has renewed the agreement. The term
of the renewed agreement is from 1 January 2008 to 31 December 2008. In addition, due to the substantial
increase in the market activity of the capital market in PRC and the value of the A Share market in the PRC
in 2007, assets managed by the AMC increased accordingly. The Company therefore raised the cap for 2007
from RMB360 million to RMB450 million. The Company has also set the cap amount at RMB700 million
for the year 2008. Given that the revised cap represents less than 2.5% of the applicable percentage ratios as
defined in the Listing Rules, the Company announced such revision on cap on 20 December 2007 pursuant
to Rule 14A.34 of the Listing Rules.
For the year ended 31 December 2007, the Company paid AMC an asset management fee of RMB390
million.
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(b)
Asset Management Agreement between CLIC and AMC
The asset management agreement entered into between CLIC and AMC, effective on 30 November 2003
and expired on 31 December 2005. CLIC and AMC entered into a renewed CLIC asset management
agreement (“Renewed CLIC Asset Management Agreement”) on 27 December 2005. In accordance with
the Renewed CLIC Asset Management Agreement, AMC agreed to manage assets entrusted to it by CLIC
and invest in securities on behalf of CLIC, on a discretionary basis, subject to the investment guidelines
and investment given by CLIC. CLIC retains the title of the entrusted assets and AMC, is authorized to
operate the accounts associated with the entrusted assets for and on behalf of CLIC. In consideration of
AMC’s investment management services, CLIC agreed to pay AMC a service fee at the rate of 0.05% per
annum. Such service fee is calculated and payable on a monthly basis, by multiplying the average of balance
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. Although the service fee rates under the Renewed Company Asset Management Agreement
and the Renewed CLIC Asset Management Agreement are presented differently, the ultimate comprehensive
service fee rate calculated under each of these two agreements is basically the same. The Renewed CLIC
Asset Management Agreement is for a term of three years, effective from 1 January 2006 and expiring on
31 December 2008. The parties will negotiate the terms of renewal of the agreement 90 days prior to its
termination. The Company will comply with the relevant Listing Rules requirements in respect of such
renewal.
Connected Transactions
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Due to the substantial increase in the market activity of the capital market in the PRC and the value of
the A Share market in the PRC for 2007, and a change in the valuation method under the PRC enterprise
accounting standards (2006), for the year ended 31 December 2007, CLIC paid AMC an asset management
fee of RMB104 million, which has slightly exceeded the cap amount of the transaction as announced by
the Company on 30 December 2005 by RMB2 million. The Company therefore set the cap at RMB280
million for 2008. The Company has complied with relevant requirements of the Listing Rules and has made
disclosure on the exceeded cap for 2007 and the revised cap for 2008. Given that the revised cap for 2008
represents less than 2.5% of the applicable percentage ratios as defined in the Listing Rules, the Company
announced such revision on cap on 25 March 2008 pursuant to Rule 14A.34 of the Listing Rules.
(3) Property Leasing Agreement
The Company entered into a renewed property leasing agreement (“Renewed Property Leasing Agreement”) with
CLIC on 23 December 2005 to renew the property leasing agreement in respect of 963 properties owned by CLIC
(“CLIC Owned Properties”) and 707 properties which CLIC leases (“CLIC Leased Properties”). The Renewed
Property Leasing Agreement is effective from 1 January 2006 and expiring on 31 December 2006. In relation
to the CLIC Leased Properties, the term of such properties would expire at the expiration of the respective head
leases, and in any event, would expire no later than 31 December 2006. Pursuant to the Renewed Property Leasing
Agreement, CLIC agrees to lease the CLIC Owned Properties and the CLIC Leased Properties to the Company.
The annual rent payable by the Company to CLIC in relation to the CLIC Owned Properties is determined by
reference to market rent or, where there is no available comparison, by reference to the costs incurred by CLIC
in maintaining the properties, plus a margin of approximately 5%. The rent in respect of the CLIC Owned
Properties was determined by reference to prevailing market rate contained in the valuation report prepared by
an independent professional property valuer on 5 December 2005. The annual rent payable by the Company to
CLIC in relation to the CLIC Leased Properties will be determined by reference to the rent payable under the head
lease plus the actual costs incurred by CLIC in connection with the subletting of the properties. The Company
and CLIC entered into a new property leasing agreement on 4 January 2007 for a period of 3 years, commencing
on 1 January 2007 and expiring on 31 December 2009. There was no material change to the terms of the renewed
agreement. This transaction is exempt from reporting, announcement and independent shareholders’ approval
requirements under the Listing Rules.
The rent paid by the Company to CLIC for the year ended 31 December 2007 was RMB66 million.
CONFIRMATION BY AUDITOR
The Board of Directors has received a comfort letter from the auditor of the Company with respect to the above
continuing connected transactions for the year ended 31 December 2007 which were subject to the reporting and
announcement requirements, and the letter stated that:
(1)
such continuing connected transactions have been approved by the Board of Directors;
(2)
for transactions involving provision of services by the Group, they are in accordance with the pricing policies of
the Company;
(3)
the transactions have been entered into in accordance with the relevant agreements governing the transactions; and
(4) Except for the amount of asset management fee earned from CLIC, the remaining transactions have not exceeded
the relevant caps. The asset management fee earned from CLIC amounted to RMB104 million for the year ended
31 December 2007, while the relevant cap of such transaction as disclosed in the announcement of the Company
dated 30 December 2005 was RMB102 million.
Connected Transactions
CONFIRMATION BY INDEPENDENT NON-EXECUTIVE DIRECTORS
The Company’s independent non-executive Directors have reviewed the above continuing connected transactions which
were subject to reporting and announcement requirements, and confirmed that:
(1)
the transactions were entered into in the ordinary and usual course of business of the Company;
(2)
the transactions were conducted either on normal commercial terms or on terms that are fair and reasonable so far
as the Company’s independent shareholders are concerned;
(3)
the transactions were entered into in accordance with the agreements governing those continuing connected
transactions; and
(4)
except for the amount of asset management fee earned from CLIC, the amounts of the transactions have not
exceeded the annual caps announced by the Company.
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Awards
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Since 2007, the Company has obtained the following awards and honours:
“Most Reliable Life Insurer of China Insurance Industry”
In January 2008, we were awarded the prize of “Most Reliable Life Insurer of the China Insurance Industry” in the large
scale online poll of “2007 Top Financial Entities” organized by Hexun Communications, which was the fifth consecutive
year we obtained this prize since the launch of the poll.
“The Best Corporate Public Profile Award”
In January 2008, in the “2007 Best Corporate Public Profile Election” jointly organized by the Enterprise Research
Centre of the Development Research Centre of the State Council, Sohu Finance, the Chinese Credit Research Centre of
Beijing University and Guang Hua Communication, we were awarded the “2007 Best Corporate Public Profile Award”
for our excellent performance in the areas of corporate governance, investor relations, consumer relations and corporate
social responsibility.
“100 Most Respected Listed Companies in China”
In January 2008, we were named one of the 2007 “100 Most Respected Listed Companies in China” in the election
of “100 Most Respected Listed Companies in China” jointly organized by the World Executive Group, World
Entrepreneur Magazine, World Finance Laboratory and Wallstreet Telecom Website. We ranked sixth among all listed
companies in the Shanghai Stock Exchange and Shenzhen Stock Exchange, and were the only insurance company within
the top 10 places.
Fourth place in the “Annual Ranking of the Best Brand in China”
In December 2007, in the second “Annual Ranking of the Best Brand in China” released by leading international brand
consultancy firm InterBrand, China Life ranked fourth with its brand value of USD8.6 billion, ranking first in the
Chinese insurance industry.
“Overall Winner Award for Corporate Governance Excellence”
In December 2007, in the first Overall Winner Award for Corporate Governance Excellence organized jointly by
the Chamber of Hong Kong Listed Companies and the School of Business of the Hong Kong Baptist University, the
Company was awarded the Overall Winner Award for Corporate Governance Excellence.
“Mundell - World Executive Award for Achievement in Business and Economy”
In September 2007, in the 2007 election of “Mundell - World Executive Award for Achievement in Business and
Economy” organized jointly by 50 mainstream finance medium such as “World Executive Weekly”, “Mundell” magazine
and “US Columbia News Commentary”, our Chairman, Mr. Yang Chao obtained this award for his outstanding
performance in the areas such as leadership, business results, management strategies and social contributions.
Awards
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“The Best Call Centre in the World”
In September 2007, in the Annual World Call Centre Exhibition and World Call Centre Conference held in San Diego
of the USA, our 95519 telephone service centre was recommended by the Customer Relations Management Committee
of the Alliance for the Promotion of the Digitisation of China, and reviewed and announced by the most influential call
centre organization in the world, ICIM (International Customer Management Institute) as “The Best Call Centre in the
World”. We were one of the first two recipients of the award in China and the only one in China’s insurance industry.
“China Red Cross Medal”
In September 2007, during the commencement ceremony of a large scale charity project “Healthy New Village Project”
jointly organized by China Red Cross Fund and China Life Charity Fund, China Life Charity Fund donated RMB10
million for the establishment of 100 China Life Charity Clinics (stations) in poverty-stricken areas, training of 200
village doctors and provision of medical assistance to impoverished farmers suffering from serious diseases. Accordingly,
we were awarded the “China Red Cross Medal” by the China Red Cross.
“Double top 500 in the world”
In June 2007, China Life Group was elected in “Fortune 500” of US “Fortune” magazine and “Top 500 Brands in the
World” of World Brand Laboratory respectively, and became the only insurance brand in China honoured with “double
top 500 in the world”. So far, China Life Group has been consecutively elected in “Fortune 500” of US “Fortune”
magazine for 5 years, and its ranking jumped from 290th in 2003 to 192nd in 2007. For 4 consecutive years, “China Life”
has been in China’s Top 10 Most Valuable Brands, the value of the brand amounted to RMB58.867 billion.
“2007 Favorite Company Brand among Consumers in China”
In June 2007, in the election of “Favorite Brand” among consumers in China organized by institutions such as the
China Enterprise Reputation & Credibility Association (Overseas) and the Asia Brand Research Centre, China Life
was awarded the “2007 Favorite Company Brand among Consumers in China” and was the only insurance company
receiving this honour.
“Influencing China – 2007 best insurance product award”
In 2007, our insurance products such as “Kang Ning Insurance”, “China Life Hong Shou Annuity Insurance
(participating type)”, “Rui Xiang Whole Life Product (universal type)” obtained good comments in the market. Among
them, “Kang Ning Insurance” was awarded “The Most Recognized Health Insurance by the General Public”, “China Life
Hong Shou Annuity Insurance (participating type)” was awarded “The Most Recognized Pension Product by the General
Public”, “Rui Xiang Whole Life Product (universal type)” was awarded “Influencing China – 2007 Best Insurance
Product Award”.
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Auditor’s Report
羅兵咸永道會計師事務所
PricewaterhouseCoopers
22nd Floor, Prince’s Building
Central, Hong Kong
Telephone : (852) 2289 8888
Facsimile : (852) 2810 9888
www.pwchk.com
Independent auditor’s report
To the shareholders of China Life Insurance Company Limited
(incorporated in the People’s Republic of China with limited liability)
We have audited the consolidated financial statements of China Life Insurance Company Limited (the “Company”)
and its subsidiaries (together, the “Group”) set out on pages 85 to 172, which comprise the consolidated and company
balance sheets as at 31 December 2007, and the consolidated income statement, the consolidated statement of changes
in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting
policies and other explanatory notes.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated
financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute
of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This
responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the
true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report
our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept
liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of
Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and true and fair presentation of the financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the
overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
OPINION
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and
of the Group as at 31 December 2007 and of the Group’s profit and cash flows for the year then ended in accordance
with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure
requirements of the Hong Kong Companies Ordinance.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 25 March 2008
Consolidated Balance Sheet
As at 31 December 2007
ASSETS
Property, plant and equipment
Deferred policy acquisition costs ("DAC")
Investments in associates
Financial assets
Debt securities
– held-to-maturity securities
– available-for-sale securities
– at fair value through income (held-for-trading)
Equity securities
– available-for-sale securities
– at fair value through income (held-for-trading)
Term deposits
Statutory deposits-restricted
Loans
Securities purchased under agreements to resell
Accrued investment income
Premiums receivables
Reinsurance assets
Other assets
Cash and cash equivalents
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As at
31 December
2007
RMB million
As at
31 December
2006
RMB million
16,771
40,851
6,450
443,181
195,703
241,382
6,096
195,147
176,133
19,014
168,594
5,773
7,144
5,053
9,857
6,218
966
2,382
25,317
14,565
39,230
6,071
357,898
176,559
176,868
4,471
95,493
62,595
32,898
175,476
5,353
2,371
–
8,461
6,066
986
2,212
50,213
Note
6
7
8
9.1
9.2
9.3
9.2
9.3
9.5
9.6
9.7
9.8
9.9
11
12
13
Total Assets
933,704
764,395
The notes on pages 93 to 172 form an integral part of these consolidated financial statements.
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Consolidated Balance Sheet
As at 31 December 2007
LIABILITIES AND EQUITY
Liabilities
Insurance contracts
Long-term traditional insurance contracts
Long-term investment type insurance contracts
Short-term insurance contracts
– reserves for claims and claim adjustment expenses
– unearned premium reserves
Deferred income
Financial Liabilities
Investment contracts
– with Discretionary Participation Feature (“DPF”)
– without DPF
Securities sold under agreements to repurchase
Policyholder dividends payable
Annuity and other insurance balances payable
Premiums received in advance
Other liabilities
Deferred tax liabilities
Current income tax liabilities
Statutory insurance fund
Total liabilities
Shareholders’ equity
Share capital
Reserves
Retained earnings
Total shareholders’ equity
Minority interest
Total equity
Total liabilities and equity
As at
31 December
2007
RMB million
As at
31 December
2006
RMB million
Note
14
14
14
14
15
16
16
17
18
25
19
31
32
218,165
284,588
2,391
5,728
48,308
49,068
2,234
100
58,344
14,111
2,201
8,870
24,786
8,312
122
172,875
282,672
2,498
5,346
41,371
45,998
2,614
8,227
26,057
8,891
2,329
5,333
19,022
843
114
727,328
624,190
28,265
114,825
62,410
28,265
77,368
34,032
205,500
139,665
876
540
206,376
140,205
933,704
764,395
Approved and authorized for issue by the Board of Directors on 25 March 2008
Yang Chao
Director
Wan Feng
Director
The notes on pages 93 to 172 form an integral part of these consolidated financial statements.
Balance Sheet
As at 31 December 2007
ASSETS
Property, plant and equipment
Deferred policy acquisition costs (“DAC”)
Investments in subsidiaries
Investments in associates
Financial assets
Debt securities
– held-to-maturity securities
– available-for-sale securities
– at fair value through income (held-for-trading)
Equity securities
– available-for-sale securities
– at fair value through income (held-for-trading)
Term deposits
Statutory deposits - restricted
Loans
Securities purchased under agreements to resell
Accrued investment income
Premiums receivables
Reinsurance assets
Other assets
Cash and cash equivalents
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As at
31 December
2007
RMB million
As at
31 December
2006
RMB million
16,427
40,851
930
6,071
442,545
195,703
240,988
5,854
194,683
175,693
18,990
168,594
5,653
7,144
4,673
9,848
6,218
966
2,344
24,808
14,235
39,230
600
6,071
357,359
176,559
176,409
4,391
95,267
62,369
32,898
175,476
5,353
2,371
-
8,454
6,066
986
2,073
49,735
Note
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7
35
8
9.1
9.2
9.3
9.2
9.3
9.5
9.6
9.7
9.8
9.9
11
12
13
Total assets
931,755
763,276
The notes on pages 93 to 172 form an integral part of these consolidated financial statements.
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Balance Sheet
As at 31 December 2007
LIABILITIES AND EQUITY
Liabilities
Insurance contracts
Long-term traditional insurance contracts
Long-term investment type insurance contracts
Short-term insurance contracts
– reserves for claims and claim adjustment expenses
– unearned premium reserves
Deferred income
Financial liabilities
Investment contracts
– with Discretionary Participation Feature (“DPF”)
– without DPF
Securities sold under agreements to repurchase
Policyholder dividends payable
Annuity and other insurance balances payable
Premiums received in advance
Other liabilities
Deferred tax liabilities
Current income tax liabilities
Statutory insurance fund
Total liabilities
Shareholders’ equity
Share capital
Reserves
Retained earnings
Total shareholders’ equity
As at
31 December
2007
RMB million
As at
31 December
2006
RMB million
Note
14
14
14
14
15
16
16
17
18
25
19
31
32
218,165
284,588
2,391
5,728
48,308
49,068
2,234
100
58,344
14,111
2,201
8,716
24,743
8,258
122
172,875
282,672
2,498
5,346
41,371
45,998
2,614
8,027
26,057
8,891
2,329
5,287
18,991
752
114
727,077
623,822
28,265
113,656
62,757
28,265
76,207
34,982
204,678
139,454
Total liabilities and shareholders’ equity
931,755
763,276
Approved and authorized for issue by the Board of Directors on 25 March 2008
Yang Chao
Director
Wan Feng
Director
The notes on pages 93 to 172 form an integral part of these consolidated financial statements.
Consolidated Income Statement
For the year ended 31 December 2007
REVENUES
Gross written premiums and policy fees
(including gross written premiums and policy fees from insurance contracts
2007: RMB111,286million, 2006: RMB98,840 million)
Less: premiums ceded to reinsurers
Net written premiums and policy fees
Net change in unearned premium reserves
Net premiums earned and policy fees
Net investment income
Net realised gains on financial assets
Net fair value gains on assets at fair value through income (held-for-trading)
Other income
Total revenues
BENEFITS, CLAIMS AND EXPENSES
Insurance benefits and claims
Life insurance death and other benefits
Accident and health claims and claim adjustment expenses
Increase in long-term traditional insurance contracts liabilities
Interest credited to long-term investment type insurance contracts
Interest credited to investment contracts
Increase in deferred income
Policyholder dividends resulting from participation in profits
Amortisation of deferred policy acquisition costs
Underwriting and policy acquisition costs
Administrative expenses
Other operating expenses
Statutory insurance fund
Total benefits, claims and expenses
Share of results of associates
Net profit before income tax expenses
Income tax expenses
Net profit
Attributable to:
– shareholders of the Company
– minority interest
Basic and diluted earnings per share
Dividends
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Note
2007
RMB million
2006
RMB million
111,886
(85)
111,801
(397)
111,404
44,020
15,385
18,843
1,720
99,417
(140)
99,277
(430)
98,847
24,942
1,595
20,044
1,883
191,372
147,311
(17,430)
(6,343)
(45,334)
(7,181)
(1,138)
(9,859)
(29,251)
(13,461)
(2,725)
(11,798)
(1,651)
(219)
(10,797)
(6,999)
(44,238)
(6,386)
(996)
(11,607)
(17,617)
(10,259)
(2,415)
(9,339)
(859)
(194)
(146,390)
(121,706)
409
45,391
(6,331)
39,060
38,879
181
–
25,605
(5,554)
20,051
19,956
95
RMB 1.38
RMB 0.75
11,871
3,957
20
21
22
23
23
23
23
7
8
24
25
27
29
The notes on pages 93 to 172 form an integral part of these consolidated financial statements.
Consolidated Statement Of Changes In Equity
For the year ended 31 December 2007
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Attributable to shareholders
of the Company
Minority
Interest
Total
Share
capital
RMB million
(Note 31)
Reserves
RMB million
(Note 32)
Retained
earnings
RMB million
RMB million
RMB million
As at 1 January 2006
26,765
37,225
16,388
431
80,809
Net profit
Issue of shares
Share issue expenses
Dividends paid
Dividends to minority interest
Appropriation to reserve
Unrealised gains, net of tax
–
1,500
–
–
–
–
–
–
26,820
(510)
–
–
974
12,859
19,956
–
–
(1,338)
–
(974)
–
95
–
–
–
(8)
–
22
20,051
28,320
(510)
(1,338)
(8)
–
12,881
As at 31 December 2006
28,265
77,368
34,032
540
140,205
As at 1 January 2007
Net profit
Dividends paid
Dividends to minority interest
Appropriation to reserve
Unrealised gains, net of tax
Capital contribution
Others
28,265
–
–
–
–
–
–
–
77,368
–
–
–
6,544
30,913
–
–
34,032
38,879
(3,957)
–
(6,544)
–
–
–
540
181
–
(42)
–
21
179
(3)
140,205
39,060
(3,957)
(42)
–
30,934
179
(3)
As at 31 December 2007
28,265
114,825
62,410
876
206,376
The notes on pages 93 to 172 form an integral part of these consolidated financial statements.
Consolidated Cash Flow Statement
For the year ended 31 December 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit before income tax expenses:
Adjustments for:
Net investment income
Net realised and unrealised gains on financial assets
Amortisation of deferred policy acquisition costs
Increase in deferred income
Interest credited to long-term investment type insurance
contracts and investment contracts
Policy fees
Depreciation and amortisation
Amortisation of premiums and discounts
Loss on foreign exchange and impairments
Changes in operational assets and liabilities:
Deferred policy acquisition costs
Financial assets at fair value through income (held-for-trading)
Receivables and payables
Reserves for claims and claim adjustment expenses
Unearned premium reserves
Long-term traditional insurance contracts
Income tax paid
Interest received
Dividends received
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2007
RMB million
2006
RMB million
45,391
25,605
(45,803)
(34,228)
13,461
9,859
8,319
(7,691)
1,070
(648)
641
(17,480)
31,187
28,626
(107)
382
45,344
(1,261)
26,392
19,400
(23,495)
(21,639)
10,259
11,614
7,382
(7,097)
912
(267)
642
(15,914)
8,943
15,412
714
199
44,263
(535)
18,939
4,415
Net cash inflow from operating activities
122,854
80,352
CASH FLOWS FROM INVESTING ACTIVITIES
Sales and maturities:
Sales of debt securities
Maturities of debt securities
Sales of equity securities
Property, plant and equipment
Purchases:
Debt securities
Equity securities
Property, plant and equipment
Acquisition of associate
Term deposits, net
Securities purchased under agreements to resell, net
Other
26,891
8,548
46,829
207
(134,205)
(80,322)
(3,388)
–
6,572
(5,053)
(4,593)
6,635
4,129
43,363
53
(122,246)
(52,050)
(2,742)
(6,071)
(10,719)
–
(1,390)
Net cash outflow from investing activities
(138,514)
(141,038)
The notes on pages 93 to 172 form an integral part of these consolidated financial statements.
Consolidated Cash Flow Statement
For the year ended 31 December 2007
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from investment in securities sold under agreements to repurchase, net
Deposits in long-term investment type insurance contracts and investment contracts
Withdrawals from long-term investment type insurance contracts and investment contracts
Net proceeds from shares issued
Contribution from minority shareholders
Dividends paid to the Company's shareholders
Dividends paid to minority interest
Cash flow from other financing activities
2007
RMB million
2006
RMB million
(8,127)
94,227
(90,904)
–
29
(3,957)
(42)
45
3,496
91,441
(38,088)
27,810
–
(1,338)
(8)
–
Net cash inflow/(outflow) from financing activities
(8,729)
83,313
Net increase/(decrease) in cash and cash equivalents
(24,389)
22,627
Cash and cash equivalents
Beginning of year
Foreign currency losses on cash and cash equivalents
End of year
Analysis of balance of cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
50,213
(507)
28,051
(465)
25,317
50,213
18,536
6,781
45,130
5,083
The notes on pages 93 to 172 form an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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1 ORGANIZATION AND PRINCIPAL ACTIVITIES
China Life Insurance Company Limited (the “Company”) was established in the People’s Republic of China
(“China” or “PRC”) on 30 June 2003 as a joint stock company with limited liability as part of a group
restructuring of China Life Insurance (Group) Company (formerly China Life Insurance Company) (“CLIC”)
and its subsidiaries (the “Restructuring”). The Company and its subsidiaries are hereinafter collectively referred to
as the “Group”. The Group’s principal activity is the writing of life insurance business, providing life, annuities,
accident and health insurance products in China.
The Company is a limited liability company incorporated and located in China. The address of its registered office
is: 16 Chaowai Avenue, Chaoyang District, Beijing, PRC. The Company is listed on the Stock Exchange of Hong
Kong, the New York Stock Exchange and the Shanghai Stock Exchange.
These consolidated financial statements are presented in millions of Renminbi (“RMB million”) unless otherwise
stated. These consolidated financial statements have been approved for issue by the Board of Directors on 25
March 2008.
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
These consolidated financial statements have been prepared in accordance with Hong Kong Financial
Reporting Standards and Hong Kong Accounting Standards (“HKFRS”), under the historical cost
convention, as modified by the revaluation of available-for-sale financial assets and financial assets at fair
value through income.
The preparation of financial statements in conformity with HKFRS requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying the
Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated financial statements are disclosed in
Note 3.
The Hong Kong Institute of Certified Public Accountants has issued the following standards, amendments
and interpretations which were effective for accounting periods beginning on or after 1 January 2007.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of preparation (continued)
(a)
Standards, amendments and interpretations to published standards effective in 2007
‧ HKFRS 7, Financial Instruments: Disclosures, and a complementary Amendment to HKAS
1, Presentation of Financial Statements – Capital Disclosures. HKFRS 7 introduces new
disclosures relating to financial instruments. HKFRS 7 also amends HKFRS 4 requiring that
insurance contracts issued and reinsurance contracts held are considered as if they were in
the scope of HKFRS 7 for disclosures in relation to credit, liquidity and market risk. This
standard does not have any impact on the classification and valuation of the Group’s financial
instruments.
‧ HK(IFRIC)-Int 8, Scope of HKFRS2. HK(IFRIC)-Int 8 requires consideration of transactions
involving the issuance of equity instruments – where the identifiable consideration received is
less than the fair value of the equity instruments issued – to establish whether or not they fall
within the scope of HKFRS 2. This standard does not have any impact on the Group’s financial
statements.
‧ HK(IFRIC)-Int 9, Reassessment of Embedded Derivatives. HK(IFRIC)-Int 9 requires an entity
to assess whether an embedded derivative is required to be separated from the host contract and
accounted for as a derivative when the entity first becomes a party to the contract. Subsequent
reassessment is prohibited unless there is a change in the terms of the contract that significantly
modifies the cash flows that otherwise would be required under the contract, in which case
reassessment is required. This standard does not have any impact on the Group’s financial
statements.
‧ HK(IFRIC)-Int 10, Interim Financial Reporting and Impairment. HK(IFRIC)-Int 10 prohibits
the impairment losses recognised in an interim period on goodwill and investments in equity
instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet
date. This standard does not have any impact on the Group’s financial statements.
(b)
Standards, amendments and interpretations to published standards effective in 2007 but not relevant to the
Group’s operations
‧ HK(IFRIC)-Int 7, Applying the Restatement Approach under HKAS 29 Financial Reporting in
Hyperinflationary Economies.
(c)
Standards, amendments and interpretations to published standards that are not yet effective and have not been
early adopted by the Group
The following have been published that are mandatory for the Group’s accounting periods beginning
on or after 1 January 2008 or later periods but that the Group has not early adopted. The Group
is in the process of making an assessment of the impact of these new and revised standards and
interpretations.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of preparation (continued)
(c)
Standards, amendments and interpretations to published standards that are not yet effective and have not been
early adopted by the Group (continued)
‧ HKFRS 8, Operating Segments (effective from 1 January 2009). HKFRS 8 replaces HKAS
14. The new standard requires a “management approach”, under which segment information
is presented on the same basis as that used for internal reporting purposes. The group will
apply HKFRS 8 from 1 January 2009. The expected impact is still being assessed in detail by
management.
(d)
Interpretations to published standards that are not yet effective and not relevant for the Group’s operations
‧ HKAS 23 (Revised), Borrowing Costs.
‧ HK(IFRIC)-Int 11, HKFRS2 – Group and Treasury Share Transactions.
‧ HK(IFRIC)-Int 12, Service Concession Arrangements.
‧ HK(IFRIC)-Int 13, Customer Loyalty Programmes.
‧ HK(IFRIC)-Int 14, HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction.
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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 the majority of votes at the meetings of the
Board of Directors.
Inter-company transactions and balances within the Group are eliminated on consolidation. Minority
interest represents the interest of outside shareholders in the operating results and net assets of subsidiaries.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income
statement from the date of acquisition or up to the date of disposal, as appropriate. The gains or losses
on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s
share of its net assets together with any goodwill which was not previously charged or recognised in the
consolidated income statement.
In the Company only balance sheet the investments in subsidiaries is stated at cost less provision for
impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends
received and receivable.
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 recognised at cost. The Group’s
investment in associates includes goodwill (net of any accumulated impairment loss) identified on
acquisition. Equity investment other than subsidiaries and associates are classified as available-for-sale
securities when they are not designated to be measured at fair value through income.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 Consolidation (continued)
Associates (continued)
The Group’s share of its associates’ post-acquisition profits or losses is recognised in the consolidated income
statement, and its share of post-acquisition movements in reserves is recognised 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 recognise further losses unless it has incurred 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 include the
carrying amount of goodwill relating to the entity sold.
In the Company only balance sheet the investments in associates is stated at cost less provision for
impairment losses. The results of associates are accounted for by the Company on the basis of dividends
received and receivable.
2.3 Segment reporting
Business segments provide products or services that are subject to risks and returns that are different from
those of other business segments. Geographical segments provide products or services within a particular
economic environment that is subject to risks and returns that are different from those of components
operating in other economic environments. In accordance with the Group’s internal financial reporting,
the Group has determined that business segments be presented as the primary reporting format. All assets
and operations of the Group are located in the PRC, which is considered as one geographical location in an
economic environment with similar risks and returns. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies. Details of the segment information are
presented in Note 5.
2.4 Foreign currency translation
The functional currency of the Group’s operations is 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 balance sheet date. Exchange differences arising in
these cases are recognised in the income statement.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5 Property, plant and equipment
Property, plant and equipment are stated at historical costs less accumulated depreciation and any
accumulated impairment losses.
The initial cost of property, plant and equipment comprises 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 major renovations 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 cost.
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
Office equipment, furniture and fixtures
Motor vehicles
Leasehold improvements
15 to 35 years
5 to 10 years
4 to 8 years
Over the remaining term of the lease
The useful life and depreciation method is reviewed periodically to ensure that the method and period of
depreciation are consistent with the expected pattern of economic benefits from items of property, plant and
equipment.
Impairment and gain or loss on sales
Property, plant and equipment are reviewed for impairment losses whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised
in the income statement for the amount by which the carrying amount of the asset exceeds its recoverable
amount, which is the higher of an asset’s net selling price and value in use.
The gain or loss on disposal of a property, plant and equipment is the difference between the net sales
proceeds and the carrying amount of the relevant asset, and is recognised in the income statement.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.6 Financial assets
2.6.a Classification
The Group classifies its investments in securities into the following categories: held-to-maturity securities,
financial assets at fair value through income and available-for-sale securities. The classification depends
on the purpose for which the investments were acquired. Management determines the classification of
its investments at initial recognition. Financial assets other than investment in securities are loans and
receivables which 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 available for sale.
Loans and receivables mainly comprise term deposits, loans, securities purchased under agreements to resell
and accrued investment income as presented separately in the balance sheet.
(i) Held-to-maturity securities
Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments
and debt securities that the Group has the positive intention and ability to hold to maturity.
(ii)
Financial assets at fair value through income
This category has two sub-categories: financial assets held for trading and those designated at fair value
through income at inception. A financial asset is classified as held for trading at inception if acquired
principally for the purpose of selling in the short term or if it forms part of a portfolio of financial
assets in which there is evidence of short term profit-taking. Any other additional financial assets may
be designated at fair value through income at inception by the Group. The Group presently has no
financial assets designated at fair value through income 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.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.6 Financial assets (continued)
2.6.b Recognition and measurement
Purchases and sales of investments are recognised on trade date, on which the Group commits to purchase or
sell assets. Investments are initially recognised at fair value plus, in the case of all financial assets not carried
at fair value through income, transaction costs that are directly attributable to their acquisition. Investments
are derecognised when the rights to receive cash flows from the investments have expired or when they have
been transferred and the Group has also transferred substantially all risks and rewards of ownership.
Available-for-sale securities and financial assets 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 “financial assets at fair value through income”
category are included in the income statement in the period in which they arise. Unrealised gains and
losses arising from changes in the fair value of financial assets classified as available-for-sale securities are
recognised in equity. When securities classified as available-for-sale securities are sold or impaired, the
accumulated fair value adjustments are included in the income statement as realised gains/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.
2.6.c Term deposits
Term deposits include both traditional bank deposits and structured deposits. Term deposits have fixed
maturity dates and are stated at amortised cost.
2.6.d Loans
Loans originated by the Group are carried at amortised cost, net of provision for impairment in value.
2.6.e Securities purchased under agreements to resell
The Group enters into purchases of securities under agreements to resell substantially identical securities.
These agreements are classified as secured loans. Securities purchased under agreements to resell are recorded
at amortised cost, i.e. their cost plus accrued interest at the balance sheet date, which approximates fair
value. The amounts advanced under these agreements are reflected as assets in the consolidated balance
sheet. 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.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.6 Financial assets (continued)
2.6.f Impairment of financial assets other than at fair value through income
Financial assets 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 other than temporary. In evaluating whether a
decline in value is other than temporary for equity securities, the Group considers several factors including,
but not limited to the following: (1) the extent and the duration of the decline; (2) the financial condition
of and near-term prospects of the issuer; and (3) the Group’s ability and intent to hold the investment
for a period of time to allow for a recovery of value. When the decline in value is considered other than
temporary, relevant financial assets are written down to their net realised value and the charge is recorded in
“Net realised gains/(losses) on financial assets” in the period the impairment is recognised. The impairment
loss is reversed through the income statement if in a subsequent period the fair value of a debt security
increases and the increase can be objectively related to an event occurring after the impairment loss was
recognised through income statement.
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.
2.8 Insurance contracts and investment contracts
2.8.1 Insurance contracts and investment contracts with DPF
2.8.1.a Recognition and measurement
The Group issues contracts that transfer insurance risk or financial risk or both. 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 with no significant insurance risk. A number
of insurance and investment contracts contain a DPF. This feature entitles the holder to receive, as
a supplement to benefits under the contracts, additional benefits or bonuses that are, at least in part,
discretionary to the Group. Insurance contracts and investment contracts with DPF are classified into three
main categories.
(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.
The unearned premium reserve represents the portion of the premiums written relating to the
unexpired terms of coverage.
Reserves for claims and claim adjustment expenses represent liabilities for claims arising under short
duration accident and health insurance contracts. Claims and claim adjustment expenses are charged
to the income statement as incurred. Unpaid claims and claim adjustment expense reserves represent
the accumulation of estimates for ultimate losses and include provisions for claims incurred but not
yet reported. The reserves represent estimates of future payments of reported and unreported claims
for losses and related expenses with respect to insured events that have occurred. Reserving is a
complex process dealing with uncertainty, requiring the use of informed estimates and judgements.
The Group does not discount its claims reserves, other than for settled claims with fixed payment
terms. Any changes in estimates are reflected in results of operations in the period in which estimates
are changed.
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.8 Insurance contracts and investment contracts (continued)
2.8.1 Insurance contracts and investment contracts with DPF (continued)
2.8.1.a Recognition and measurement (continued)
(ii)
Long-term traditional insurance contracts
Long-term traditional insurance contracts include whole life and term life insurance, endowment
insurance and annuities policies with significant life contingency risk. Premiums are recognised
as revenue when due from policyholders. Benefits and expenses are provided against such revenue
to recognise profits over the estimated life of the policies. Hence, for single premium and limited
payment contracts, premiums are recorded as income when due with the percent-of-premium profit
margin deferred and recognised in income in a constant relationship to the amount of insurance in-
force for life insurance contracts and the amount of expected benefit payments for annuities.
Liabilities arising from long-term traditional insurance contracts comprise a policyholder reserve based
on the net level premium valuation method and actuarial assumptions as to mortality, persistency,
expenses, withdrawals, and investment return including, where appropriate a provision for adverse
deviation, and a deferred profit liability for the deferred percent-of-premium profit margin, as
described in Note 2.9. The assumptions are established at policy issue and remain unchanged unless
adverse experience causes a deficiency in liability adequacy test as described in Note 2.8.1.b.
(iii) Long-term investment type insurance contracts and investment contracts with DPF
Long-term investment type insurance contracts include life insurance and annuity contracts with
significant investment features but with sufficiently significant insurance risk to still be considered
insurance contracts under HKFRS 4.
The liabilities for long-term investment type insurance contracts and investment contracts with DPF
are recognised as accumulation of deposits received less charges plus interest credited. Revenue from
a contract consists of various charges (policy fees, handling fees, management fees, surrender charges)
made against the contract for the cost of insurance, expenses and early surrender. Excess first year
charges are deferred as an unearned revenue liability and are recognised in income over the life of the
contracts in a constant relationship to estimated gross profits (as defined below in Note 2.8.3). To
the extent unrealised gains or losses from available-for-sale securities affect the estimated gross profits,
shadow adjustments are recognised in equity. Policy benefits and claims that are charged to expenses
include benefit claims incurred in the year in excess of related contract balances and interest credited
to these contracts.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.8 Insurance contracts and investment contracts (continued)
2.8.1 Insurance contracts and investment contracts with DPF (continued)
2.8.1.b Liability adequacy test
At each balance sheet date, liability adequacy tests are performed to ensure the adequacy of the contract
liabilities net of related DAC. In performing these tests, current best estimates of future cash flows for each
category of contracts are used to determine any deficiency for those contracts. Any deficiency is immediately
charged to the income statement initially by writing off DAC and by subsequently establishing a provision
for losses arising from the liability adequacy tests.
Any DAC written off as a result of the liability adequacy test cannot be subsequently reinstated.
2.8.1.c Reinsurance contracts held
Contracts with reinsurers under which the Group is compensated for losses on one or more contracts
issued by the Group and that meet the classification requirements for insurance contracts are classified as
reinsurance contracts held. Contracts with reinsurers that do not meet these classification requirements are
classified as financial assets. Insurance contracts entered into by the Group under which the contract holder
is another insurer (inwards reinsurance) are included with insurance contracts.
The benefits to which the Group is entitled under its reinsurance contracts held are recognised as
reinsurance assets. Amounts recoverable from or due to reinsurers are measured consistently with the
amounts associated with the reinsured insurance contracts and in accordance with the terms of each
reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and
are recognised as an expense when due. In certain cases a reinsurance contract is entered into for existing in-
force business. Where the premium due to the reinsurer differs from the liability established by the Group
for the related business, the difference is amortised over the estimated remaining settlement period.
The Group assesses its reinsurance assets for impairment as at the balance sheet date. If there is objective
evidence that the reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance
asset to its recoverable amount and recognises that impairment loss in the income statement. If a reinsurer is
unable to satisfy its obligation under the reinsurance contracts, the liability becomes the responsibility of the
Group.
2.8.1.d 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 at 70% of distributable surplus, or at the rate specified in the contracts when higher. The
distributable surplus mainly arises from net investment income, gains and losses arising from the assets
supporting these contracts; if this surplus has not been declared and paid, it is included in the policyholder
dividends payable.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.8 Insurance contracts and investment contracts (continued)
2.8.2 Investment contracts without DPF
Investment contracts without DPF are not considered to be insurance contracts and are accounted for as a
financial liability. The liability for investment contracts without DPF is recognised as the accumulation of
deposits received less charges plus interest credited.
Revenue from these contracts consists of various charges (policy fees, handling fees, management fees and
surrender charges) made against the contract for the cost of insurance, expenses and early surrender. Excess
first year charges are deferred as an unearned revenue liability and are recognised in income over the life of
the contracts in a constant relationship to estimated gross profits (defined in Note 2.8.3).
2.8.3 Deferred policy acquisition costs (“DAC”)
The costs of acquiring new and renewal business including commissions, underwriting and policy issue
expenses, which vary with and are primarily related to the production of new and renewal business, are
deferred. DAC are subject to recoverability testing at the time of policy issue and at the end of each
accounting period. Future investment income is taken into account in assessing recoverability.
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DAC for long-term traditional insurance contracts are amortised over the premium paying period as a
constant percentage of expected premiums. Expected premiums are based upon assumptions defined at the
date of policy issue. These assumptions are consistently applied throughout the premium paying period
unless adverse experience causes a deficiency in liability adequacy test as described in Note 2.8.1.b.
DAC for long-term investment type insurance contracts and investment contracts are amortised over the
expected life of the contracts as a constant percent of the present value of estimated gross profits expected
to be realised over the life of the contract. To the extent unrealised gains or losses from available-for-sale
securities affect the estimated gross profits, shadow adjustments are recognised in the shareholders’ equity.
Estimated gross profits include expected amounts to be assessed for mortality, administration, investment
and surrender less benefit claims in excess of policyholder balances, administrative expenses and interest
credited. Estimated gross profits are revised regularly and the future interest rate used to compute the
present value of revised estimates of expected gross profits is the latest revised rate applied to the remaining
benefit periods. Deviations of actual results from estimated experience are reflected in the income statement.
2.9 Deferred income
Deferred income includes the deferred profit liability arising from long-term traditional insurance contracts
and the unearned revenue liability arising from long-term investment type insurance contracts and
investment contracts. Both are described in Note 2.8.1.a and Note 2.8.2. Both deferred income amounts
will be released to income statement over the remaining lifetime of the business.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.10 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 balance sheet date. 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
balance sheet.
2.11 Derivative instruments
Derivatives are initially recognised 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 income statement. Fair values are obtained from quoted market prices in active markets,
including recent market transactions and 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 options to surrender
insurance contracts for a fixed amount (or an amount based on a fixed amount and an interest rate). All the
other embedded derivatives held by the Group are deemed either to be closely related to the host contracts
or measured at fair value with changes in fair value recognised in the income statement.
2.12 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. Under these plans, the Group has no legal or constructive obligation
for retirement benefits beyond the contributions made. Contributions to these plans are expensed as
incurred.
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.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.13 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.
2.14 Revenue recognition
Turnover of the Group represents the total revenues.
Premiums and policy fees
Premiums from long-term traditional life insurance contracts are recognised as revenue when due from
the policyholders. Revenue from long-term investment type insurance contracts and investment contracts
consists of policy fees, handling fees, management fees and surrender charges assessed for the cost of
insurance, expenses and early surrenders during the year which are recognised when due.
Premiums from the sale of short-term accident and health insurance contracts 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 recognise premiums over the period of risk in
proportion to the amount of insurance protection provided.
Net investment income
Net 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 less interest expense from securities sold under agreements to repurchase and investment expenses.
Interest income is recorded on an accrual basis using the effective interest rate method. Dividend income is
recognised when the right to receive dividend payment is established.
2.15 Deferred taxation
Deferred income tax is provided in full, 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 recognised to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be recognised.
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.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.16 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 income statement
on a straight-line basis over the lease periods.
2.17 Contingencies
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 recognised
because it is not probable that outflow of economic resources will be required or the amount of obligation
cannot be measured reliably.
A contingent liability is not recognised in the balance sheet 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 recognised as a provision.
2.18 Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial
statements in the year in which the dividends are approved by the Company’s shareholders.
2.19 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 remeasured at each balance sheet date to its
fair value until settlement with all changes included in administrative expenses in the consolidated income
statement. The related liability is included in other liabilities.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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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.
3.1 Estimate of future benefit payments and premiums arising from long-term traditional
insurance contracts and related deferred policy acquisition costs
The determination of the liabilities under long-term traditional insurance contracts is dependent on
estimates made by the Group. For the long-term traditional insurance contracts, estimates are made
in two stages. Assumptions about mortality rates, morbidity rates, lapse rates, investment returns, and
administration and claim settlement expenses are made at inception of the contract. A provision for adverse
deviation in experience is added to the assumptions, where appropriate. Assumptions are “locked in” for the
duration of the contract. New estimates are made each subsequent year in order to determine whether the
previous liabilities are adequate in the light of these latest estimates. If the liabilities are considered adequate,
the assumptions are not altered. If they are not adequate, the assumptions are altered (“unlocked”) first by
reducing the provision for adverse deviation and then by reflecting current best estimate assumptions. A
key feature of the adequacy testing for these contracts is that the effects of changes in the assumptions on
the measurement of the liabilities and related assets are not symmetrical. Any improvements in experience
will have no impact on the value of the liabilities and related assets until the liabilities are derecognised.
However, significant deterioration in experience can lead to an immediate increase in the liabilities.
The assumed lapse rates, mortality rates and morbidity rates are described in Note 14. Investment return
assumptions are based on estimates of future yields on the Group’s investments as described in Note 14. The
assumption for policy administration expenses has been based on expected unit costs plus, where applicable,
a margin for adverse deviation as described in Note 14.
3.2 Liability adequacy test
At each balance sheet date, liability adequacy tests are performed to ensure the adequacy of the insurance
contract liabilities net of related DAC. Liability adequacy testing is performed by portfolio of contracts that
are subject to broadly similar risks. In performing these tests, current best estimates of future cash flows
under the contracts are used. As set out in Note 3.1 above, liability assumptions for long-term traditional
insurance contracts are defined at the inception of the contract. When the liability adequacy test requires the
adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are
used for the subsequent measurement of these liabilities. Any DAC written off as a result of this test cannot
subsequently be reinstated.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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3 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING
ACCOUNTING POLICIES (continued)
3.3 Investments
The Group’s principal investments are debt securities, equity securities and term deposits. 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 and liabilities are:
–
–
–
–
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 and 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 applicable price/earnings or price/cash flow ratios
refined to reflect the specific circumstances of the issuer. Equity securities, for which fair values cannot
be measured reliably, are recognised 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 balance sheet
approximate fair values.
Structured deposits: the market for structured deposits is not active, the Group establishes fair
value by using discounted cash flow analysis and option pricing models as the valuation technique.
The Group uses the US$ swap rate (the benchmark rate) to determine the fair value of financial
instruments. Due to the complexity of structured deposits, significant judgement and estimates
are involved in the absence of quoted market values. These estimates are based on valuation
methodologies and assumptions deemed appropriate in the circumstances.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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4 MANAGEMENT OF INSURANCE AND FINANCIAL RISK
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
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, health insurance, and risk liability embedded annuity or death, disability, accident, illness and
assistance in terms of product category or function respectively. The Group has entered into six reinsurance
agreements. 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.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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4 MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued)
4.1 Insurance risk (continued)
The Group offers life insurance, annuity, accident and health insurance products. All operations of the
Group are located in the PRC. The table below presents the Group’s major products of long-term traditional
insurance contracts:
Product name
2007
2006
RMB million
%
RMB million
%
Premium
Kang Ning Whole Life (a)
Hong Xin Endowment (b)
Meiman Yisheng Annunity (d)
Others
29,850
21,673
10,322
30,451
32.3%
23.5%
11.2%
33.0%
26,079
26,781
1,359
27,011
32.0%
33.0%
1.7%
33.3%
Total
92,296
100.0%
81,230
100.0%
Insurance benefits
Kang Ning Whole Life (a)
Hong Xin Endowment (b)
Qian Xi Endowment (c)
Others
3,184
3,961
3,706
6,579
18.3%
22.7%
21.3%
37.7%
2,498
1,368
2,454
4,477
23.1%
12.7%
22.7%
41.5%
Total
17,430
100.0%
10,797
100.0%
Liabilities of long-term traditional
insurance contracts
Kang Ning Whole Life (a)
Hong Xin Endowment (b)
Qian Xi Endowment (c)
Others
73,405
48,868
25,022
70,870
33.6%
22.4%
11.5%
32.5%
57,406
37,647
23,700
54,122
33.2%
21.8%
13.7%
31.3%
Total
218,165
100.0%
172,875
100.0%
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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4 MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued)
4.1 Insurance risk (continued)
(a) Kang Ning Whole Life is long-term individual whole life traditional 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.
(b) Hong Xin Endowment is long-term individual endowment traditional insurance contract with options
for premium term of single, 3 years, 5 years or 10 years. The insured can be benefited up to age of 80.
Its endowment benefit accounts for 9% of basic sum insured every three years. Death and maturity
benefit are paid at 200% and 150% of basic sum insured, respectively.
(c) Qian Xi Endowment is long-term individual endowment traditional insurance contract with
options for premium term of single, 10 years, 20 years or 30 years. The benefit term is whole life.
Its endowment benefit accounts for 5% of basic sum insured every three years and death benefit is
increased by 5% of basic sum insured every year that renewal premium is paid.
(d) Meiman Yisheng Annuity is long-term individual participating traditional insurance contract with
options for premium term of 3 years, 5 years, 8 years or 12 years. The insured can be benefited up
to age of 75. Its endowment benefit accounts for 1% of basic sum insured multiplied by number of
premium payments every year. Death and maturity benefit are paid at 110% and 100% of basic sum
insured multiplied by number of premium payments, respectively.
For long-term investment type insurance contracts, Hong Feng Endowment is the major product with
RMB48,430 million of deposits in 2007 (2006: RMB47,742 million), representing 66.8% (2006: 67.7%) of
total received deposits for long-term investment type insurance contracts.
Participating contracts for the year ended 31 December 2007 represented approximately 53% of gross and
net life insurance premium and policy fees, respectively (2006: 52%). The net investment income, net
realised gains on financial assets and net fair value gains on assets at fair value through income (held-for-
trading) attributable to participating contracts in 2007 are RMB29,133 million, RMB10,673 million and
RMB11,125 million respectively (2006: RMB16,600 million, RMB849 million and RMB16,149 million).
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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4 MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued)
4.1 Insurance risk (continued)
Sensitivity Analysis
For liabilities under long-term traditional insurance contracts and long-term investment type insurance
contracts, changes in mortality rates, morbidity rates will not cause a change to the carrying amount of the
liabilities, unless the change is severe enough to trigger a liability adequacy test adjustment. If the actual
mortality rates or morbidity rates increase/decrease from current assumptions by 10%, there will be no
impact to the Group’s consolidated financial statements as the deviation will not trigger a liability adequacy
test adjustment.
For liabilities under long-term traditional insurance contracts, long-term investment type insurance
contracts and investment contracts with DPF, changes in investment returns will not cause a change to
the carrying amount of the liabilities, unless the change is severe enough to trigger a liability adequacy test
adjustment. If the investment returns are 50 basis points lower or higher than current assumptions, there
will be no impact to the Group’s consolidated financial statements since the variance will not trigger a
liability adequacy test adjustment.
As disclosed in Note 2.8.3 and Note 2.8.1.a, DAC and unearned revenue liability (“URL”) for long-
term investment type insurance contracts and investment contracts are amortised and recognised in
income respectively over the expected life of the contracts as a constant percent of the present value of
estimated gross profits expected to be realised over the life of the contract. Although the Group measures
the expected gross profits based on an investment return assumption updated on an annual basis, change
in the investment return assumption will not cause material impact on the Group’s consolidated financial
statements since the net amount of DAC amortization and change of URL is not material.
Short-term insurance contract liabilities are not directly sensitive to the level of investment returns, as they
are undiscounted and contractually non-interest-bearing. Investment contracts without DPF are accounted
for at amortised cost and their carrying amounts are not sensitive to changes in the level of investment
returns.
For liabilities under short-term insurance contracts, if the loss ratio had increased/decreased by 100 basis
points with all other variables held constant, pre-tax profit for the year would have been RMB114 million
(2006: RMB106 million) lower/higher.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
4 MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued)
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.
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 seen in Note 9 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 values).
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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 can 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 reporting date.
At 31 December 2007, if market interest rates had been 50 basis points higher/lower with all other
variables held constant, pre-tax profit for the year would have been RMB527 million (2006: RMB664
million) higher/lower, mainly as a result of higher/lower interest income on floating rate cash and cash
equivalents, term deposits, statutory deposits-restricted and debt securities and the fair value losses/
gains on debt securities assets at fair value through income (held-for-trading), net of impact thereof
on undistributed participating policyholders’ dividends. Pre-tax available-for-sale reserve in equity
would have been RMB6,489 million (2006: RMB4,068 million) lower/higher as a result of a decrease/
increase in the fair value of available-for-sale securities, net of impact thereof on undistributed
participating policyholders’ dividends and other shadow adjustments.
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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 market 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 2007, if all the Group’s equity securities’ prices had increased/decreased by 10%
with all other variables held constant, pre-tax profit for the year would have been RMB1,072 million
(2006: RMB1,548 million) higher/lower, mainly as a result of an increase/decrease in fair value
of equity securities excluding available-for-sale securities, net of impact thereof on undistributed
participating policyholders’ dividends. Pre-tax available-for-sale reserve in equity would have been
RMB12,079 million higher/lower (2006: RMB4,244 million) as a result of an increase/decrease in
fair value of available-for-sale equity securities, net of impact thereof on undistributed participating
policyholders’ dividends and other shadow adjustments.
(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 stock denominated in US dollar (“US$”) or HK dollar (“HK$”).
The Group holds shares traded on the HK stock market which are traded in HK dollars. Investment
income from H share holdings have offset the adverse impact of the appreciation of the Renminbi and
thus spread the risk indirectly.
The following table summaries financial assets denominated in currencies other than RMB as at 31
December 2007 and 2006.
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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 2007
US$
RMB million
HK$
RMB million
Total
RMB million
Equity securities
Debt securities
Term deposits (excluding structured deposits)
Structured deposits
Cash and cash equivalents
–
3,119
219
4,346
6,844
8,476
–
–
–
45
8,476
3,119
219
4,346
6,889
Total
14,528
8,521
23,049
As at 31 December 2006
US$
RMB million
HK$
RMB million
Total
RMB million
Equity securities
Debt securities
Term deposits (excluding structured deposits)
Structured deposits
Cash and cash equivalents
–
3,334
3,358
4,646
5,083
6,884
–
–
–
82
6,884
3,334
3,358
4,646
5,165
Total
16,421
6,966
23,387
Monetary assets are exposed to currency risk whereas non-monetary assets, such as equity securities,
expose themselves to price risk. As at 31 December 2007, if RMB had strengthened/weakened by 10%
against USD and HK dollar with all other variables held constant, pre-tax profit for the year would
have been RMB1,457 million (2006: RMB1,650 million) lower/higher, mainly as a result of foreign
exchange losses/gains on translation of USD and HK dollar denominated financial assets other than
the equity securities included in the table above.
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
4 MANAGEMENT OF INSURANCE AND FINANCIAL RISK (continued)
4.2 Financial risk (continued)
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 exposure
The carrying amount of financial assets included on the consolidated balance sheet represents the maximum
credit exposure without taking account of any collateral held or other credit enhancements attached. The
Group has no credit risk exposures relating to off-balance sheet items as at 31 December 2007 and 2006.
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.
Credit quality
The Group’s debt securities investment includes government bonds, government agency bonds, corporate
bonds and subordinated bonds/debts. As at 31 December 2007, 98.9% (as at 31 December 2006: 99.9%)
of the corporate bonds held by the Group have credit rating of AA/A-2 or above. As at 31 December 2007,
99.1% (as at 31 December 2006: 99.1%) of the subordinated bonds/debts held by the Group either have
credit rating of AA/A-2 or above, or were issued by national commercial banks. The bond/debt’s credit
rating is assigned by a qualified appraisal institution in the PRC at the time of its issuance.
As at 31 December 2007, 94.8% (as at 31 December 2006: 96.8%) of the Group’s bank deposits are with
the four largest state-owned commercial banks and other national commercial banks 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 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 2007 and 2006.
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 2007
and 2006.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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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 investment assets to the
maturity of insurance liabilities.
The following tables set forth the contractual undiscounted cash flows for financial liabilities excluding
investment contracts as well as expected undiscounted cash flows for insurance contracts and investment
contracts.
Contractual and expected cash flows
(undiscounted)
Carrying
amount
Later than
1 year but
not later
than 3 years
(RMB million)
Not later
than 1 year
Later than
3 years
but not
later than
5 years
Later than
5 years
8,119
5,564
–
–
–
218,165
(43,182)
(52,962)
(24,852)
717,464
284,588
67,012
85,571
79,443
123,878
As at 31 December 2007
Financial and insurance liabilities
Expected cash flows out/(in)
Short-term insurance contracts
Long-term traditional insurance
contracts
Long-term investment type
insurance contracts
Investment contracts
51,302
14,345
15,450
8,910
37,279
Contractual cash flows out
Securities sold under agreements
to repurchase
Annuity and other insurance
balances payable
100
100
14,111
14,111
–
–
–
–
–
–
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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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)
Carrying
amount
Later than
1 year but
not later
than 3 years
(RMB million)
Not later
than 1 year
Later than
3 years
but not
later than
5 years
Later than
5 years
As at 31 December 2006
118
Financial and insurance liabilities
Expected cash flows out/(in)
Short-term insurance contracts
Long-term traditional insurance
contracts
Long-term investment type insurance
contracts
7,844
5,438
–
–
–
172,875
(36,803)
(45,574)
(25,033)
561,609
282,672
52,614
105,460
83,673
109,851
Investment contracts
48,612
12,897
15,842
10,546
20,956
Contractual cash flows out
Securities sold under agreements
to repurchase
Annuity and other insurance
balances payable
8,227
8,227
8,891
8,891
–
–
–
–
–
–
The amounts set forth in the tables above for insurance and investment contracts in each column are the
cash flows representing expected future benefit payments taking into consideration of future premiums
payments or deposits from policyholders. The estimate is affected by assumptions related to mortality,
morbidity, lapses, withdrawals, credited rates, loss ratio, claim adjustment expenses and other assumptions.
Actual experience may differ from estimates.
As at 31 December 2007, declared dividends of RMB26,238 million (as at 31 December 2006: RMB9,018
million) included in policyholder dividends payable have a maturity not later than one year. For the
remaining policyholder dividends payable, the amount and timing of the cash flows are indeterminate due to
the uncertainty of future experiences including investment returns and are subject to future declarations by
the Group.
Another maturity analysis assuming all long-term insurance contracts and investment contracts were
surrendered immediately would have been RMB571,465 million at 31 December 2007 (at 31 December
2006: RMB512,353 million), payable within one year. Although contractually these options can be exercised
immediately by all policyholders, at once, the Group’s expected cash flows are as shown in the above tables
based on its experience and future expectations.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
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 are to comply with the insurance capital requirements
required by the CIRC to meet the minimum solvency margin and safeguard the Group’s ability to continue
as a going concern so that it can continue to provide returns for shareholders and benefits for other
stakeholders.
The Group is also subject to other local capital requirements, such as Statutory deposits–restricted
requirement and Statutory reserve fund requirement, discussed in detail under Note 9.6 and Note 32,
respectively.
The Group ensures its continuous and full compliance with the regulations mainly through monitoring
quarterly and annual static solvency margin, as well as the dynamic solvency margin, which predicts the
solvency margin for the next three years based on different scenarios. It has complied with all the local
capital requirements.
The table below summarises the solvency ratio of the Company, the regulatory capital held (represented by
actual solvency margin) against the minimum required capital (represented by minimum solvency margin).
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Actual solvency margin
Minimum solvency margin
Solvency ratio
As at 31 December
2007
RMB million
2006
RMB million
168,357
32,054
525%
96,297
27,549
350%
According to CIRC Order [2003] No.1, all insurance companies have to report their actual solvency margin
(i.e. admitted statutory capital and surplus) to the CIRC at the end of each fiscal year. The solvency ratio is
computed by dividing the actual solvency margin by the minimum solvency margin (i.e. minimum statutory
capital and surplus necessary to satisfy regulatory requirement). CIRC will closely monitor those insurance
companies with solvency ratio less than 100% and may, depending on the individual circumstances,
undertake certain regulatory measures, including but not limited to restricting the payment of dividends.
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
5
SEGMENT INFORMATION
5.1 Business segments
The Group has the following main business segments:
(i)
Individual life insurance business
Individual life insurance business relates primarily to the sale of insurance contracts and investment
contracts to individuals and comprises participating and non-participating business. Participating
life insurance business relates primarily to the sale of participating contracts, which provides the
policyholder with a participation in the profits arising from the invested assets relating to the policy
and mortality gains, as described in Note 2.8.1.d. Non-participating insurance business relates
primarily to non-participating life insurance and annuity products, which provides guaranteed benefits
to the insured without a participation in the profits.
(ii) Group life insurance business
Group life insurance business relates primarily to the sale of insurance contracts and investment
contracts to group entities and comprises participating and non-participating business as described
above.
(iii) Accident and health insurance business
Accident and health insurance business relates primarily to the sale of accident and health insurance
and accident only products.
(iv) Corporate and other
Corporate and other business relates primarily to income and expenses in respect of the provision of
the services to CLIC, as described in Note 30, share of results of associates and unallocated income
taxes.
5.2 Basis of allocating net investment income, realised and unrealised gains or losses and
administrative and other operating expenses
Net investment income, net realised gains or losses on financial assets, net fair value gains or losses on assets
at fair value through income (held-for-trading) and foreign exchange losses within other operating expenses
are allocated among segments in proportion to each respective segment’s average statutory policyholder
reserve and claims provision at the beginning and end of the year. Administrative and other operating
expenses are allocated among segments in proportion to the unit cost of products in the respective segments.
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
5
SEGMENT INFORMATION (continued)
Revenues
Gross written premiums and policy fees
Gross written premiums
– Term Life
– Whole Life
– Endowment
– Annuity
Policy fees
Net premiums earned and policy fees
Net investment income
Net realised gains on financial assets
Net fair value gains on assets at fair value
through income (held–for–trading)
Other income
Segment revenues
Benefits, claims and expenses
Insurance benefits and claims
Life insurance death and other benefits
Accident and health claims and claim
adjustment expenses
Increase/decrease in long-term traditional
insurance contracts liabilities
Interest credited to long-term investment
type insurance contracts
Interest credited to investment contracts
Increase in deferred income
Policyholder dividends resulting from
participation in profits
Amortisation of deferred policy acquisition costs
Underwriting and policy acquisition costs
Administrative expenses
Other operating expenses
Statutory insurance fund
Individual life
For the year ended 31 December 2007
Group life
Accident
& Health
(RMB million)
Corporate
& other
Total
98,484
91,420
175
31,943
40,278
19,024
7,064
98,470
39,489
13,801
16,904
–
168,664
1,503
876
9
678
–
189
627
1,503
3,902
1,364
1,670
–
8,439
11,899
11,899
–
–
–
–
–
11,431
629
220
269
–
12,549
(16,463)
(967)
–
–
(45,370)
(7,157)
–
(9,828)
(25,729)
(12,182)
(2,013)
(7,214)
(1,343)
(163)
–
36
(24)
(1,138)
(31)
(3,522)
(485)
(6)
(606)
(132)
(1)
(6,343)
–
–
–
–
–
(794)
(703)
(2,192)
(106)
(55)
–
–
–
–
–
–
–
–
–
–
–
1,720
1,720
–
–
–
–
–
–
–
–
(3)
(1,786)
(70)
–
111,886
111,404
44,020
15,385
18,843
1,720
191,372
(17,430)
(6,343)
(45,334)
(7,181)
(1,138)
(9,859)
(29,251)
(13,461)
(2,725)
(11,798)
(1,651)
(219)
Segment benefits, claims and expenses
(127,462)
(6,876)
(10,193)
(1,859)
(146,390)
Share of results of associates
–
–
–
Segment results
Income tax expenses
Net profit/(loss)
Attributable to
– shareholders of the Company
– minority interest
Unrealised gains/(losses) included in
shareholders’ equity
409
270
409
45,391
41,202
1,563
2,356
–
–
–
(6,331)
(6,331)
41,202
1,563
2,356
(6,061)
39,060
41,202
–
1,563
–
2,356
–
(6,242)
181
38,879
181
27,758
2,743
442
(30)
30,913
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
122
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
5
SEGMENT INFORMATION (continued)
As at 31 December 2007
Individual life
Group life
Accident &
Health
(RMB million)
Corporate
& other
Total
Assets
Financial assets
Deferred policy acquisition costs
Cash and cash equivalents
748,831
39,037
22,711
73,988
764
2,244
11,930
1,050
362
Segment assets
810,579
76,996
13,342
Unallocated
Property, plant and equipment
Other assets
Total
Liabilities
Insurance contracts
Long-term traditional insurance contracts
Long-term investment type insurance contracts
Short-term insurance contracts
– reserves for claims and claim adjustment expenses
– unearned premium reserves
Deferred income
Financial liabilities
Investment contracts
– with DPF
– without DPF
Securities sold under agreements to repurchase
216,280
283,520
–
–
47,761
–
–
90
1,885
1,068
–
–
547
49,068
2,234
9
–
–
2,391
5,728
–
–
–
1
Segment liabilities
547,651
54,811
8,120
Unallocated
Other liabilities
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
834,749
40,851
25,317
900,917
16,771
16,016
933,704
218,165
284,588
2,391
5,728
48,308
49,068
2,234
100
610,582
116,746
727,328
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
123
Total
99,417
98,847
24,942
1,595
20,044
1,883
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
5
SEGMENT INFORMATION (continued)
For the year ended 31 December 2006
Individual life
Group life
Accident &
Health
(RMB million)
Corporate &
other
Revenues
Gross written premiums and policy fees
Gross written premiums
– Term Life
– Whole Life
– Endowment
– Annuity
Policy fees
Net premiums earned and policy fees
Net investment income
Net realised gains on financial assets
Net fair value gains on assets at fair value
through income (held-for-trading)
Other income
Segment revenues
Benefits, claims and expenses
Insurance benefits and claims
Life insurance death and other benefits
Accident and health claims and claim
adjustment expenses
Increase in long-term traditional insurance
contracts liabilities
Interest credited to long-term investment
type insurance contracts
Interest credited to investment contracts
Increase in deferred income
Policyholder dividends resulting from
participation in profits
Amortisation of deferred policy acquisition costs
Underwriting and policy acquisition costs
Administrative expenses
Other operating expenses
Statutory insurance fund
86,587
80,086
177
28,079
43,583
8,247
6,501
86,519
22,215
1,421
17,852
–
128,007
1,740
1,144
26
886
–
232
596
1,735
2,462
157
1,979
–
6,333
11,090
11,090
–
–
–
–
–
10,593
265
17
213
–
–
–
–
–
–
–
–
–
–
–
–
1,883
11,088
1,883
147,311
(10,125)
(672)
–
–
–
(6,999)
(43,915)
(6,365)
–
(11,307)
(15,536)
(9,391)
(1,822)
(5,109)
(629)
(145)
(323)
(21)
(996)
(300)
(2,081)
(265)
(40)
(699)
(71)
(1)
–
–
–
–
–
(603)
(553)
(1,855)
(21)
(48)
–
–
–
–
–
–
–
–
–
(1,676)
(138)
–
(10,797)
(6,999)
(44,238)
(6,386)
(996)
(11,607)
(17,617)
(10,259)
(2,415)
(9,339)
(859)
(194)
Segment benefits, claims and expenses
(104,344)
(5,469)
(10,079)
(1,814)
(121,706)
Segment results
Income tax expenses
Net profit/(loss)
Attributable to
– shareholders of the Company
– minority interest
23,663
–
23,663
23,663
–
864
–
864
864
–
Unrealised gains included in shareholders’ equity
11,452
1,270
1,009
69
25,605
–
(5,554)
(5,554)
1,009
(5,485)
20,051
1,009
–
137
(5,580)
95
19,956
95
–
12,859
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
124
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
5
SEGMENT INFORMATION (continued)
As at 31 December 2006
Individual life
Group life
Accident &
Health
(RMB million)
Corporate &
other
Assets
Financial assets
Deferred policy acquisition costs
Cash and cash equivalents
574,503
37,591
44,721
63,685
845
4,958
6,864
794
534
Segment assets
656,815
69,488
8,192
Unallocated
Property, plant and equipment
Other assets
Total
Liabilities
Insurance contracts
Long-term traditional insurance contracts
Long-term investment type insurance contracts
Short-term insurance contracts
– reserves for claims and claim adjustment expenses
– unearned premium reserves
Deferred income
Financial liabilities
Investment contracts
– with DPF
– without DPF
Securities sold under agreements to repurchase
170,954
281,847
–
–
40,744
–
–
7,327
1,921
825
–
–
627
45,998
2,614
812
–
–
2,498
5,346
–
–
–
88
Segment liabilities
500,872
52,797
7,932
Unallocated
Other liabilities
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
645,052
39,230
50,213
734,495
14,565
15,335
764,395
172,875
282,672
2,498
5,346
41,371
45,998
2,614
8,227
561,601
62,589
624,190
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
6
PROPERTY, PLANT AND EQUIPMENT
Group:
2007
Office
equipment,
furniture
and fixtures
RMB
million
Buildings
RMB
million
Motor Assets under
vehicles
RMB
million
Leasehold
construction improvements
RMB
million
RMB
million
Cost
As at 1 January 2007
Additions
Disposals
Transfers upon completion
12,925
1,014
(51)
614
3,210
789
(151)
–
1,815
310
(98)
–
2,160
1,190
(142)
(614)
218
122
(7)
–
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
125
Total
RMB
million
20,328
3,425
(449)
–
As at 31 December 2007
14,502
3,848
2,027
2,594
333
23,304
Accumulated depreciation
and impairment
As at 1 January 2007
Charges for the year
Disposals
(2,509)
(408)
13
(1,800)
(446)
146
(1,337)
(124)
91
As at 31 December 2007
(2,904)
(2,100)
(1,370)
–
–
–
–
(117)
(42)
–
(5,763)
(1,020)
250
(159)
(6,533)
Net book value
As at 1 January 2007
10,416
1,410
As at 31 December 2007
11,598
1,748
478
657
2,160
101
14,565
2,594
174
16,771
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
126
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
6
PROPERTY, PLANT AND EQUIPMENT (continued)
Group:
Office
equipment,
furniture
and fixtures
RMB
million
Buildings
RMB
million
2006
Motor
vehicles
RMB
million
Assets under
construction
RMB
million
Leasehold
improvements
RMB
million
Cost
As at 1 January 2006
Additions
Disposals
Transfers upon completion
12,144
152
(41)
670
2,746
561
(119)
22
1,711
212
(108)
–
1,086
1,773
–
(699)
152
61
(2)
7
Total
RMB
million
17,839
2,759
(270)
–
As at 31 December 2006
12,925
3,210
1,815
2,160
218
20,328
Accumulated depreciation
and impairment
As at 1 January 2006
Charges for the year
Impairment loss
Disposals
(2,164)
(345)
(3)
3
(1,540)
(373)
–
113
(1,325)
(112)
–
100
As at 31 December 2006
(2,509)
(1,800)
(1,337)
–
–
–
–
–
(100)
(18)
–
1
(5,129)
(848)
(3)
217
(117)
(5,763)
Net book value
As at 1 January 2006
9,980
1,206
As at 31 December 2006
10,416
1,410
386
478
1,086
52
12,710
2,160
101
14,565
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
6
PROPERTY, PLANT AND EQUIPMENT (continued)
Company:
2007
Office
equipment,
furniture
and fixtures
RMB
million
Buildings
RMB
million
Motor Assets under
vehicles
RMB
million
Leasehold
construction improvements
RMB
million
RMB
million
Cost
As at 1 January 2007
Additions
Disposals
Transfers upon completion
12,925
1,014
(48)
299
3,179
772
(150)
–
1,811
307
(98)
–
1,852
1,160
(125)
(299)
218
122
(7)
–
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
127
Total
RMB
million
19,985
3,375
(428)
–
As at 31 December 2007
14,190
3,801
2,020
2,588
333
22,932
Accumulated depreciation
and impairment
As at 1 January 2007
Charges for the year
Disposals
(2,509)
(396)
13
(1,789)
(442)
145
(1,335)
(124)
91
As at 31 December 2007
(2,892)
(2,086)
(1,368)
–
–
–
–
(117)
(42)
–
(5,750)
(1,004)
249
(159)
(6,505)
Net book value
As at 1 January 2007
10,416
1,390
As at 31 December 2007
11,298
1,715
476
652
1,852
101
14,235
2,588
174
16,427
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
128
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
6
PROPERTY, PLANT AND EQUIPMENT (continued)
Company:
Office
equipment,
furniture
and fixtures
RMB
million
Buildings
RMB
million
2006
Motor
vehicles
RMB
million
Assets under
construction
RMB
million
Leasehold
improvements
RMB
million
Cost
As at 1 January 2006
Additions
Disposals
Transfers upon completion
12,144
152
(41)
670
2,733
543
(119)
22
1,708
211
(108)
–
834
1,717
–
(699)
152
61
(2)
7
Total
RMB
million
17,571
2,684
(270)
–
As at 31 December 2006
12,925
3,179
1,811
1,852
218
19,985
Accumulated depreciation
and impairment
As at 1 January 2006
Charges for the year
Impairment loss
Disposals
(2,164)
(345)
(3)
3
(1,537)
(370)
–
118
(1,324)
(111)
–
100
As at 31 December 2006
(2,509)
(1,789)
(1,335)
–
–
–
–
–
(100)
(18)
–
1
(5,125)
(844)
(3)
222
(117)
(5,750)
Net book value
As at 1 January 2006
9,980
1,196
As at 31 December 2006
10,416
1,390
384
476
834
52
12,446
1,852
101
14,235
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
7 DEFERRED POLICY ACQUISITION COSTS
Group and Company
Gross
As at 1 January
Acquisition costs deferred
Amortisation charged through income
Amortisation charged through equity
As at 31 December
Ceded
As at 1 January
Acquisition costs deferred
Amortisation charged through income
As at 31 December
Net
As at 1 January
Acquisition costs deferred
Amortisation charged through income
Amortisation charged through equity
As at 31 December
DAC excluding unrealised gains
DAC recorded in unrealised gains
Total
Current
Non-current
Total
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
129
2007
RMB million
2006
RMB million
39,245
17,490
(13,476)
(2,398)
37,841
15,929
(10,359)
(4,166)
40,861
39,245
(15)
(10)
15
(10)
39,230
17,480
(13,461)
(2,398)
(100)
(15)
100
(15)
37,741
15,914
(10,259)
(4,166)
40,851
39,230
47,862
(7,011)
43,843
(4,613)
40,851
39,230
1,050
39,801
794
38,436
40,851
39,230
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
130
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
8
INVESTMENTS IN ASSOCIATES
As at 1 January
Acquisition of Guangdong Development Bank (“GDB”) (a)
Investment in China Life Property & Casualty Insurance
Company Limited (“CLP&C”) (b)
Share of results
Other equity movements (Note 32)
2007
RMB million
2006
RMB million
6,071
–
–
409
(30)
–
5,671
400
–
–
As at 31 December
6,450
6,071
(a) The Group acquired 20% of the share capital of GDB on 18 December 2006 for a cash consideration of
RMB5,671 million.
(b) As approved by CIRC, the Company entered into an agreement with CLIC to establish CLP&C with total
paid-in capital of RMB1,000 million in 2006. The Company and CLIC own 40% and 60% of CLP&C,
respectively. CLP&C obtained its business license and commenced operation on 30 December 2006.
The Group’s share in investments in associates is as follows:
Country of
incorporation
Assets
Liabilities
Revenues
Profit/(Loss)
Interest held
(RMB million)
GDB
CLP&C
PRC
PRC
77,901
400
72,230
–
Total as at 31 December 2006
78,301
72,230
59
–
59
–
–
–
GDB
CLP&C
PRC
PRC
90,584
641
84,419
356
2,534
81
544
(135)
Total as at 31 December 2007
91,225
84,775
2,615
409
20%
40%
20%
40%
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
131
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS
9.1 Held-to-maturity securities
Amortised
cost
RMB million
Gross
unrealised gains
RMB million
Gross
unrealised losses
RMB million
Estimated
fair value
RMB million
96,786
71,273
3,272
24,372
195,703
94,999
53,935
3,257
24,368
1,228
1,110
171
62
2,571
7,791
2,642
296
1,282
(1,780)
(4,303)
(40)
(562)
96,234
68,080
3,403
23,872
(6,685)
191,589
(26)
(244)
–
(8)
102,764
56,333
3,553
25,642
Group and Company
As at 31 December 2007
Debt securities
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
Total
Group and Company
As at 31 December 2006
Debt securities
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
Total
176,559
12,011
(278)
188,292
Contractual maturity schedule
Amortised cost
Estimated fair value
Group and Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
Maturing:
Within one year
After one year but within five years
After five years but within ten years
After ten years
2,896
50,059
52,508
90,240
2,974
51,483
37,295
84,807
2,921
50,861
52,835
84,972
3,008
54,345
40,279
90,660
Total
195,703
176,559
191,589
188,292
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
132
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.2 Available-for-sale securities
Amortised
cost/Cost
RMB million
Gross
unrealised gains
RMB million
Gross
unrealised losses
RMB million
Estimated
fair value
RMB million
83,137
111,906
46,464
10,462
183
686
120
156
(2,732)
(5,438)
(2,842)
(720)
80,588
107,154
43,742
9,898
Group
As at 31 December 2007
Debt securities
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
Subtotal
251,969
1,145
(11,732)
241,382
Equity securities
Funds
Common stocks
Subtotal
Total
Company
As at 31 December 2007
Debt securities
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
37,513
51,714
23,328
64,115
(217)
(320)
60,624
115,509
89,227
87,443
(537)
176,133
341,196
88,588
(12,269)
417,515
83,137
111,503
46,464
10,462
183
686
120
156
(2,732)
(5,429)
(2,842)
(720)
80,588
106,760
43,742
9,898
Subtotal
251,566
1,145
(11,723)
240,988
Equity securities
Funds
Common stocks
Subtotal
Total
37,295
51,654
23,210
64,071
(217)
(320)
60,288
115,405
88,949
87,281
(537)
175,693
340,515
88,426
(12,260)
416,681
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
133
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.2 Available-for-sale securities (continued)
Amortised
cost/Cost
RMB million
Gross
unrealised gains
RMB million
Gross
unrealised losses
RMB million
Estimated
fair value
RMB million
60,058
78,300
31,001
7,068
863
664
238
12
(569)
(243)
(487)
(37)
60,352
78,721
30,752
7,043
Group
As at 31 December 2006
Debt securities
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
Subtotal
176,427
1,777
(1,336)
176,868
Equity securities
Funds
Common stocks
Warrants
Subtotal
Total
Company
As at 31 December 2006
Debt securities
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
20,535
15,876
–
12,437
13,882
1
36,411
26,320
(103)
(33)
–
(136)
32,869
29,725
1
62,595
212,838
28,097
(1,472)
239,463
59,599
78,300
31,001
7,068
862
664
238
12
(568)
(243)
(487)
(37)
59,893
78,721
30,752
7,043
Subtotal
175,968
1,776
(1,335)
176,409
Equity securities
Funds
Common stocks
Warrants
Subtotal
Total
20,394
15,876
–
12,352
13,882
1
36,270
26,235
(103)
(33)
–
(136)
32,643
29,725
1
62,369
212,238
28,011
(1,471)
238,778
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
134
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.2 Available-for-sale securities (continued)
Debt securities
– contractual maturity schedule
Group
Amortised cost
Estimated fair value
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
Maturing:
Within one year
After one year but within five years
After five years but within ten years
After ten years
616
23,139
89,493
138,721
4,544
26,664
60,261
84,958
612
22,672
87,615
130,483
4,561
27,016
59,995
85,296
Total
251,969
176,427
241,382
176,868
Debt securities
– contractual maturity schedule
Company
Amortised cost
Estimated fair value
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
Maturing:
Within one year
After one year but within five years
After five years but within ten years
After ten years
616
22,887
89,342
138,721
4,399
26,350
60,261
84,958
612
22,424
87,469
130,483
4,416
26,702
59,995
85,296
Total
251,566
175,968
240,988
176,409
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.3 Financial assets at fair value through income (held-for-trading)
Group
Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
693
4,583
513
307
6,096
9,145
9,842
27
148
1,915
2,083
325
4,471
12,382
20,460
56
693
4,383
471
307
5,854
9,145
9,818
27
148
1,915
2,003
325
4,391
12,382
20,460
56
19,014
32,898
18,990
32,898
25,110
37,369
24,844
37,289
Debt securities
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
Subtotal
Equity securities
Funds
Common stocks
Warrants
Subtotal
Total
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
135
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
136
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.4 Listed and unlisted investments at carrying value
Group
Listed debt securities in PRC
Government bonds
Corporate bonds
Subtotal
Unlisted debt securities in PRC
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
Subtotal
Listed equity securities in PRC
Common stocks
– listed in HK, PRC
– listed in mainland, PRC
Funds-listed in mainland, PRC
Warrants-listed in mainland, PRC
Subtotal
Unlisted equity securities in PRC
Funds
Common stocks
Subtotal
Total
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
51,296
6,571
64,562
6,839
57,867
71,401
126,771
183,010
40,956
34,577
90,937
134,571
29,253
31,736
385,314
286,497
8,476
116,873
17,677
27
6,884
43,301
12,861
57
143,053
63,103
52,092
2
32,390
–
52,094
32,390
638,328
453,391
As at 31 December 2007, the amount of unlisted debt securities, traded in the inter-bank market, is
RMB323,058 million (as at 31 December 2006: RMB260,289 million).
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.4 Listed and unlisted investments at carrying value (continued)
Company
Listed debt securities in PRC
Government bonds
Corporate bonds
Subtotal
Unlisted debt securities in PRC
Government bonds
Government agency bonds
Corporate bonds
Subordinated bonds/debts
Subtotal
Listed equity securities in PRC
Common stocks
– listed in Hong Kong, PRC
– listed in mainland, PRC
Funds-listed in mainland, PRC
Warrants-listed in mainland, PRC
Subtotal
Unlisted equity securities in PRC
Funds
Common Stocks
Subtotal
Total
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
137
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
51,296
6,529
64,103
6,759
57,825
70,862
126,771
182,416
40,956
34,577
90,937
134,571
29,253
31,736
384,720
286,497
8,465
116,756
17,342
27
6,882
43,303
12,633
57
142,590
62,875
52,091
2
32,392
–
52,093
32,392
637,228
452,626
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.5 Term deposits
Maturing:
Within one year
After one year but within five years
After five years but within ten years
After ten years
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
138
Total
Group and Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
46,706
93,372
26,434
2,082
57,930
111,901
3,421
2,224
168,594
175,476
Included in term deposits are structured deposits of RMB4,346 million (31 December 2006: RMB4,646
million). The interest rate on these deposits fluctuates based on changes in interest rate indexes. The Group
uses structured deposits primarily to enhance the returns on investments. Structured deposits are stated at
amortised cost.
9.6 Statutory deposits - restricted
Group
Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
Contractually maturing:
Within one year
After one year but within five years
Total
5,353
420
5,773
–
5,353
5,353
5,353
300
5,653
–
5,353
5,353
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.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.7 Loans
Group and Company
Policy loans
Other loans
Total
Maturing:
Within one year
After five years but within ten years
Total
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
139
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
5,944
1,200
7,144
2,371
–
2,371
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
5,944
1,200
7,144
2,371
–
2,371
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
9
FINANCIAL ASSETS (continued)
9.8 Securities purchased under agreements to resell
Group
Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
Maturing:
With 30 days
Total
5,053
5,053
–
–
4,673
4,673
–
–
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
140
9.9 Accrued investment income
Group
Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
3,700
6,014
143
9,857
3,259
5,008
194
8,461
3,696
6,011
141
9,848
3,259
5,001
194
8,454
Group
Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
9,824
33
9,857
8,439
22
8,461
9,815
33
9,848
8,432
22
8,454
Bank deposits
Debt securities
Others
Total
Current
Non-current
Total
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
10 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The estimates and judgments to determine the fair value of financial assets are described in Note 3.3.
The fair value of long-term investment type insurance contracts and investment contracts are determined by using
valuation techniques, with consideration of the surrender value before surrender charges that the Group is required
to pay if such payment is immediately demanded by the holders of investment contracts.
The table below presents the estimated fair value and carrying value of financial assets and liabilities.
Carrying value
As at 31
As at 31
December 2007 December 2006 December 2007 December 2006
RMB million
RMB million
RMB million
RMB million
As at 31
As at 31
Estimated fair value
Debt securities
Equity securities
Term deposits (excluding structured deposits)
Structured deposits
Statutory deposits-restricted
Securities purchased under agreements to resell
Loans
Cash and cash equivalents
Long-term investment type insurance contracts
(excluding universal life insurance contracts)
Investment contracts with DPF
Investment contracts without DPF
Securities sold under agreements to repurchase
443,181
195,147
164,248
4,346
5,773
5,053
7,144
25,317
(282,645)
(49,068)
(2,234)
(100)
357,898
95,493
170,830
4,646
5,353
–
2,371
50,213
(282,520)
(45,998)
(2,614)
(8,227)
439,067
195,147
164,248
4,281
5,773
5,053
7,144
25,317
(271,523)
(39,551)
(2,315)
(100)
369,631
95,493
170,830
4,419
5,353
–
2,371
50,213
(276,129)
(39,575)
(2,459)
(8,227)
11 PREMIUMS RECEIVABLES
The aging of premiums receivables is within 12 months.
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
141
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
142
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
12 REINSURANCE ASSETS
Claims recoverable from reinsurers (Note 14)
Ceded unearned premiums (Note 14)
Long-term traditional insurance contracts ceded (Note 14)
Due from reinsurance companies
Total
Current
Non-current
Total
Group and Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
24
45
707
190
966
15
60
704
207
986
Group and Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
259
707
966
282
704
986
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
143
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
13 OTHER ASSETS
Group
Company
Due from CLIC (Note 30(c))
Deposits on fund units pending issuance/receivable on
funds redeemed
Advances
Others
Total
Current
Non–current
Total
As at 31
As at 31
December 2007 December 2006 December 2007 December 2006
RMB million
RMB million
RMB million
RMB million
As at 31
As at 31
739
500
206
937
996
135
102
979
730
500
206
908
989
135
102
847
2,382
2,212
2,344
2,073
Group
Company
As at 31
As at 31
December 2007 December 2006 December 2007 December 2006
RMB million
RMB million
RMB million
RMB million
As at 31
As at 31
2,297
85
1,650
562
2,266
78
1,637
436
2,382
2,212
2,344
2,073
14
INSURANCE CONTRACTS
(a) Process used to decide on assumptions
(i)
Investment return assumptions are based on estimates of future yields on the Group’s investments.
In determining interest rate assumptions, the Group considers expectations about future economic
conditions and company’s investment strategy. The assumed rate of investment return and provision
for adverse deviation used for the past five years are as follows:
Year of policy issue
Interest rate assumptions
Provision for adverse deviation
2003
2004
2005
2006
2007
3.65% – 5.00%
3.70% – 5.17%
4.00% – 5.20%
4.60% – 5.40%
5.50%
0.25% –0.50%
0.25% – 0.50%
0.25% – 0.50%
0.25% – 0.60%
0.50%
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
144
14
INSURANCE CONTRACTS (CONTINUED)
(a) Process used to decide on assumptions (continued)
(ii) Estimates are made for mortality and morbidity rates in each of the years that the Group is exposed to
risk. The assumed mortality rates and morbidity rates, varying by age of the insured and contract type,
are based upon expected experience at the date of contract issue plus, where applicable, a margin for
adverse deviation.
The Group bases its mortality assumptions on China Life Insurance Mortality Table (1990-1993) and
China Life Insurance Mortality Table (2000-2003), adjusted where appropriate to reflect the Group’s
recent historical mortality experience. Appropriate but not excessively prudent allowance is made for
future mortality improvement on contracts that insure the risk of longevity, such as annuities. The
main source of uncertainty with life insurance contracts is that epidemics such as Avian Flu, AIDS,
SARS 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 the Group is exposed to longevity risk.
The Group bases its morbidity assumptions for critical illness products on Taiwanese experience in
the critical illness market, as the best proxy for the China’s market adjusted where appropriate to
reflect the Group’s recent historical and projected future experience. 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
liability if current morbidity assumptions do not properly reflect such secular trends.
(iii) The assumption for policy administration expenses has been based on expected unit costs plus,
where applicable, a margin for adverse deviation. Unit costs have been based on an analysis of actual
experience. The unit cost factors are expressed on both a per-policy and a percent-of-premium basis
for the past five years, as follows:
Year of policy issue RMB Per Policy % of Premium
RMB Per Policy
% of Premium
Individual Life
Group Life
2003
2004
2005
2006
2007
12.5
10.0 – 17.5
14.5 – 19.5
15.0 – 22.0
15.0 – 22.0
1.75%
1.65% – 2.55%
1.50% – 1.80%
1.60% – 1.85%
1.60% – 1.85%
12.5
17.5
4.0
6.5
6.5
1.75%
1.65%
1.30%
1.50%
1.50%
(iv) Lapse rates and other assumptions are determined with reference to past experience where creditable,
current conditions and future expectations.
The Group did not change its process used to decide on assumptions for the insurance contracts disclosed in
this note.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
14
INSURANCE CONTRACTS (CONTINUED)
(b) Net liabilities of insurance contracts and investment contracts
Group and Company
Gross
Long-term traditional insurance contracts
Long-term investment type insurance contracts
Short-term insurance contracts
– claims and claim adjustment expenses
– unearned premiums
Investment contracts
– with DPF
– without DPF
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
145
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
218,165
284,588
2,391
5,728
49,068
2,234
172,875
282,672
2,498
5,346
45,998
2,614
Total, gross
562,174
512,003
Recoverable from reinsurers
Long-term traditional insurance contracts (Note 12)
Short-term insurance contracts
– claims and claim adjustment expenses (Note 12)
– unearned premiums (Note 12)
Total, ceded
Net
Long-term traditional insurance contracts
Long-term investment type insurance contracts
Short-term insurance contracts
– claims and claim adjustment expenses
– unearned premiums
Investment contracts
– with DPF
– without DPF
(707)
(24)
(45)
(776)
217,458
284,588
2,367
5,683
49,068
2,234
(704)
(15)
(60)
(779)
172,171
282,672
2,483
5,286
45,998
2,614
Total, net
561,398
511,224
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
14
INSURANCE CONTRACTS (CONTINUED)
(c) Claims incurred ratio
Group and Company
Claims incurred-net
Claims incurred ratio
2007
RMB million
2006
RMB million
6,343
55%
6,999
66%
(d) Movements in liabilities of short-term insurance contracts
The table below presents movement of reserves of claims and claim adjustment expenses:
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
146
Group and Company
– Notified claims
– Incurred but not reported
Total as at 1 January-Gross
Cash paid for claims settled in year
– Cash paid for current year claims
– Cash paid for prior year claims
Claims incurred in year
– Claims arising in current year
– Claims arising in prior year
Total as at 31 December-Gross
Notified claims
Incurred but not reported
Total as at 31 December-Gross
2007
RMB million
2006
RMB million
487
2,011
2,498
(4,750)
(1,790)
7,082
(649)
2,391
368
2,023
2,391
638
1,146
1,784
(4,346)
(2,149)
6,771
438
2,498
487
2,011
2,498
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
147
14
INSURANCE CONTRACTS (CONTINUED)
(d) Movements in liabilities of short-term insurance contracts (continued)
The table below presents movement of unearned premium reserves:
Group and Company
At as 1 January
Increase in the period
Release in the period
2007
RMB million
Ceded
Net
Gross
2006
RMB million
Ceded
(60)
(45)
60
5,286
5,683
(5,286)
5,147
5,346
(5,147)
(291)
(60)
291
Gross
5,346
5,728
(5,346)
Net
4,856
5,286
(4,856)
At as 31 December
5,728
(45)
5,683
5,346
(60)
5,286
(e) Movements in liabilities for long-term traditional insurance contracts
The table below presents movement in the liabilities of long-term traditional insurance contracts:
Group and Company
As at 1 January
Valuation premiums
Liabilities released for death or other termination and related expenses
Accretion of interest
Other movements
2007
RMB million
2006
RMB million
172,875
57,979
(20,598)
7,511
398
124,656
54,764
(13,169)
5,634
990
As at 31 December
218,165
172,875
Valuation premiums are the premiums that would be required to meet the benefits and administration
expenses based on the valuation assumptions used.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
148
14
INSURANCE CONTRACTS (CONTINUED)
(f) Movements in liabilities of long-term investment type insurance contracts
The table below presents movement in the liabilities of Long-term investment type insurance contracts:
Group and Company
As at 1 January
Deposits received
Deposits withdrawn and paid on death and other benefits
Fees deducted from account balances
Interest credited
2007
RMB million
2006
RMB million
282,672
72,516
(70,690)
(7,091)
7,181
237,001
70,472
(24,667)
(6,520)
6,386
As at 31 December
284,588
282,672
15 DEFERRED INCOME
The table below presents movement of deferred income:
Group and Company
As at 1 January
Income deferred
Amortisation charged through income
Amortisation charged through equity
As at 31 December
Deferred income excluding unrealised gains
Deferred income recognised in unrealised gains
Total deferred income
2007
RMB million
2006
RMB million
41,371
21,867
(12,011)
(2,919)
34,631
18,234
(6,620)
(4,874)
48,308
41,371
56,586
(8,278)
46,730
(5,359)
48,308
41,371
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
16 LIABILITIES OF INVESTMENT CONTRACTS
The table below presents movement of investment contracts:
Group and Company
As at 1 January
Deposits received
Deposits withdrawn and paid on death and other benefits
Policy fees deducted from account balances
Interest credited
As at 31 December
Investment contracts
– with DPF
– without DPF
Total
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
149
2007
RMB million
2006
RMB million
48,612
21,711
(19,559)
(600)
1,138
44,102
20,969
(16,878)
(577)
996
51,302
48,612
49,068
2,234
45,998
2,614
51,302
48,612
17 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Group
Company
As at 31
As at 31
December 2007 December 2006 December 2007 December 2006
RMB million
RMB million
RMB million
RMB million
As at 31
As at 31
Maturing:
Within thirty days
After thirty but within ninety days
Total
100
–
100
8,202
25
8,227
100
–
100
8,002
25
8,027
The carrying values of debt securities pledged as collateral are as follows:
Group
Company
As at 31
As at 31
December 2007 December 2006 December 2007 December 2006
RMB million
RMB million
RMB million
RMB million
As at 31
As at 31
Debt securities pledged
Total
99
99
8,351
8,351
99
99
8,151
8,151
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
150
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
18 OTHER LIABILITIES
Group
Company
As at 31
As at 31
December 2007 December 2006 December 2007 December 2006
RMB million
RMB million
RMB million
RMB million
As at 31
As at 31
Salary and welfare payable
Commission and brokerage payable
Agent deposits
Tax payable
Payable to constructors
Stock appreciation rights(Note 28)
Others
1,973
1,134
602
739
293
1,290
2,839
1,805
1,025
554
299
249
444
957
1,855
1,131
602
732
285
1,290
2,821
1,743
1,025
554
296
247
444
978
Total
8,870
5,333
8,716
5,287
Group
Company
As at 31
As at 31
December 2007 December 2006 December 2007 December 2006
RMB million
RMB million
RMB million
RMB million
As at 31
As at 31
Current
Non-current
Total
8,870
–
5,248
85
8,716
–
8,870
5,333
8,716
5,202
85
5,287
19 STATUTORY INSURANCE FUND
As required by CIRC Order [2004] No. 16, all insurance companies have to pay statutory insurance fund
contribution to the CIRC. The Group is subject to statutory insurance fund contribution at 1%, 0.15% and
0.05% of net premium from accident and short-term health policies; long-term life policies with guaranteed
return and long-term health policies and Long-term life policies without guaranteed return, respectively. When
the accumulated statutory insurance fund contributions reach 1% of the Group’s total assets, no additional
contribution to the statutory insurance fund contribution is required.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
20 NET INVESTMENT INCOME
Debt securities
– held-to-maturity securities
– available-for-sale securities
– at fair value through income (held-for-trading)
Equity securities
– available-for-sale securities
– at fair value through income (held-for-trading)
Bank deposits
Loans
Securities purchased under agreements to resell
Other
Subtotal
Securities sold under agreements to repurchase
Investment expenses
Total
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
151
For the year ended
31 December
2006
RMB million
2007
RMB million
16,678
8,305
7,881
492
19,400
15,728
3,672
9,094
248
206
2
12,384
7,341
4,825
218
4,662
3,591
1,071
8,207
80
23
–
45,628
25,356
(1,281)
(327)
(270)
(144)
44,020
24,942
The interest income of impaired assets for the year ended as at 31 December 2007 is RMB463 million (2006: Nil).
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
152
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
21 NET REALISED GAINS/(LOSSES) ON FINANCIAL ASSETS
Debt securities
Gross realised gains
Gross realised losses
Impairments
Subtotal
Equity securities
Gross realised gains
Gross realised losses
Subtotal
Total
For the year ended
31 December
2006
RMB million
2007
RMB million
388
(1,256)
(3,403)
(4,271)
19,868
(212)
19,656
15,385
20
(26)
–
(6)
1,601
–
1,601
1,595
The proceeds from sales and maturities of available-for-sale securities and the gross realised gains/(losses) for the
years ended 31 December 2007 and 2006 were as follows:
Proceeds from sales and maturities of available-for-sale securities
Gross realised gains
Gross realised losses
2007
RMB million
2006
RMB million
79,287
20,256
(1,468)
49,902
1,621
(26)
22 NET FAIR VALUE GAINS ON ASSETS AT FAIR VALUE THROUGH INCOME (HELD-
FOR-TRADING)
Debt securities
Equity securities
Total
For the year ended
31 December
2006
RMB million
2007
RMB million
366
18,477
305
19,739
18,843
20,044
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
153
Notes to the Consolidated Financial Statements
For the year ended 31 December 2007
23
INSURANCE BENEFITS AND CLAIMS
Gross
RMB million
Ceded
RMB million
Net
RMB million
For the year ended 31 December 2007
Life insurance death and other benefits
Accident and health claims and claim adjustment expenses
Increase in long-term traditional insurance contracts
Interest credited to long-term investment type insurance contracts
17,444
6,433
45,337
7,181
(14)
(90)
(3)
–
17,430
6,343
45,334
7,181
Total insurance benefits and claims
76,395
(107)
76,288
For the year ended 31 December 2006
Life insurance death and other benefits
Accident and health claims and claim adjustment expenses
Increase in long-term traditional insurance contracts
Interest credited to long-term investment type insurance contracts
10,814
7,209
44,264
6,386
(17)
(210)
(26)
–
10,797
6,999
44,238
6,386
Total insurance benefits and claims
68,673
(253)
68,420
24 NET PROFIT BEFORE INCOME TAX EXPENSES
Net profit before income tax expenses is stated after charging the following:
Employee salary and welfare cost
Housing benefits
Contribution to the defined contribution pension plan
Depreciation
Exchange loss
Auditor’s remuneration
For the year ended 31 December
2007
RMB million
2006
RMB million
5,766
272
575
1,020
1,032
66
4,197
256
358
848
639
76
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
154
25 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 consolidated income statement represents:
Current taxation – Enterprises income tax
Deferred taxation
Taxation charges
For the year ended 31 December
2006
RMB million
2007
RMB million
8,730
(2,399)
6,331
858
4,696
5,554
(b) The reconciliation between the Group’s effective tax rate and the statutory tax rate of 33% in the PRC is as
follows:
For the year ended 31 December
2006
RMB million
2007
RMB million
Net profit before income tax expenses
45,391
25,605
Tax computed at the statutory tax rate of 33%
Non-taxable income
Additional tax liability from expenses not deductible for tax purposes
Effect on change in statutory tax rate
(i)
(i)
(ii)
14,979
(6,802)
1,310
(3,156)
8,450
(3,250)
354
–
Income taxes at effective tax rate
6,331
5,554
(i) Non-taxable income mainly includes interest income from government bonds and fund distribution.
Expenses not deductible for tax purposes mainly include salary, commission, brokerage and donation
expenses in excess of deductible amounts as allowed by relevant tax regulations.
(ii) On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the
People’s Republic of China (the new “CIT Law”). The new CIT Law reduces the domestic corporate
income tax rate from 33% to 25% with effect from 1 January 2008.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
25 TAXATION (continued)
(c) As at 31 December 2007, deferred income taxation is calculated in full on temporary differences under the
liability method using a principal taxation rate of 25% (as at 31 December 2006 : 33%).
The movement on the deferred income tax liabilities account is as follows:
As at 1 January
Deferred taxation charged to income statement
Deferred taxation charged to equity
Group
2007
RMB million
2006
RMB million
19,022
(2,399)
8,163
7,982
4,696
6,344
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
As at 31 December
24,786
19,022
155
As at 1 January
Deferred taxation charged to income statement
Deferred taxation charged to equity
As at 31 December
Company
2007
RMB million
2006
RMB million
18,991
(2,401)
8,153
7,982
4,694
6,315
24,743
18,991
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
156
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
25 TAXATION (continued)
(d) The movement in deferred tax assets and liabilities during the year is as follows:
Deferred tax
Group
Long-term
insurance
contracts and
investment
contracts
Short-term
insurance
contracts
Total
RMB million RMB million RMB million RMB million RMB million RMB million
Investments
Others
DAC
As at 1 January 2006
(Charged)/credited to
income statement
(Charged)/credited to equity
3,615
1,900
536
158
500
–
389
(12,454)
310
(7,982)
(5,097)
(8,255)
(1,865)
1,375
(134)
–
(4,696)
(6,344)
As at 31 December 2006
6,051
658
(12,963)
(12,944)
176
(19,022)
As at 1 January 2007
(Charged)/credited to
income statement
(Charged)/credited to equity
6,051
658
(12,963)
(12,944)
176
(19,022)
(5,247)
1,902
(304)
–
5,238
(10,295)
2,502
230
210
–
2,399
(8,163)
As at 31 December 2007
2,706
354
(18,020)
(10,212)
386
(24,786)
Group
Deferred tax assets:
– deferred tax asset to be recovered after more than 12 months
– deferred tax asset to be recovered within 12 months
Subtotal
Deferred tax liabilities:
– deferred tax liability to be settled after more than 12 months
– deferred tax liability to be settled within 12 months
Subtotal
As at 31 December
2007
RMB million
2006
RMB million
8,042
1,027
9,069
8,094
1,405
9,499
(33,504)
(351)
(28,169)
(352)
(33,855)
(28,521)
Total net deferred income tax liabilities
(24,786)
(19,022)
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
25 TAXATION (continued)
(d) The movement in deferred tax assets and liabilities during the year is as follows (continued):
Deferred tax
Company
Long-term
insurance
contracts and
investment
contracts
Short-term
insurance
contracts
Total
RMB million RMB million RMB million RMB million RMB million RMB million
Investments
Others
DAC
As at 1 January 2006
(Charged)/credited to
income statement
(Charged)/credited to equity
3,615
1,900
536
158
500
–
389
(12,454)
310
(7,982)
(5,095)
(8,226)
(1,865)
1,375
(134)
–
(4,694)
(6,315)
157
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
As at 31 December 2006
6,051
658
(12,932)
(12,944)
176
(18,991)
At 1 January 2007
(Charged)/credited to
income statement
(Charged)/credited to equity
6,051
658
(12,932)
(12,944)
176
(18,991)
(5,247)
1,902
(304)
–
5,240
(10,285)
2,502
230
210
–
2,401
(8,153)
As at 31 December 2007
2,706
354
(17,977)
(10,212)
386
(24,743)
Company
Deferred tax assets:
– deferred tax asset to be recovered after more than 12 months
– deferred tax asset to be recovered within 12 months
Subtotal
Deferred tax liabilities:
– deferred tax liability to be settled after more than 12 months
– deferred tax liability to be settled within 12 months
Subtotal
As at 31 December
2007
RMB million
2006
RMB million
8,045
1,027
9,072
8,094
1,405
9,499
(33,464)
(351)
(28,138)
(352)
(33,815)
(28,490)
Total net deferred income tax liabilities
(24,743)
(18,991)
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
C
h
i
n
a
L
i
f
e
I
n
s
u
r
a
n
c
e
C
o
m
p
a
n
y
L
m
i
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
7
158
26 NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY
The net profit attributable to shareholders of the Company is dealt with in the financial statements of the
Company to the extent of RMB38,276 million (2006: RMB19,945 million).
27 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 2007 are based on the weighted average number of 28,264,705,000 ordinary shares
(for the year ended 31 December 2006: 26,777,033,767).
28 STOCK APPRECIATION RIGHTS
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. The
exercise price of stock appreciation rights will be 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.
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. No unit of the stock appreciation rights was exercised, forfeited or
expired in 2007. As at 31 December 2007, there are 55.71 million units outstanding (as at 31 December 2006:
55.71 million) and 36.62 million units exercisable (as at 31 December 2006: 17.05 million). As at 31 December
2007, the amount of intrinsic value for the vested stock appreciation rights is RMB1,152 million (as at 31
December 2006: RMB356 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 37% to 47%, an expected dividend yield of no higher than
0.5% and risk-free interest rates from 1.8% to 1.9%.
As at 31 December 2007, the Company recognised compensation cost of RMB846 million (as at 31 December
2006: RMB444 million) which was included in administrative expenses. RMB1,277 million and RMB13
million were included in other liabilities (Note 18) for the units not exercised and exercised but not paid as at 31
December 2007 (as at 31 December 2006: RMB431 million and RMB13 million respectively). The unrecognised
compensation cost of outstanding units is approximately RMB471 million as at 31 December 2007 (as at 31
December 2006: RMB761 million), which is expected to be recognised within the next year (as at 31 December
2006: within the next 2 years).
On 12 June 2007, another award of stock appreciation rights was approved by the Board of Directors of the
Company. The exercise price of the award was HK$25.71, the average closing price of shares in the five trading
days prior to 1 January 2007. As at 31 December 2007, the stock appreciation rights had not been granted.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
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29 DIVIDENDS
Pursuant to the shareholders’ approval at the Annual General Meeting in June 2007, a final dividend of RMB0.14
per ordinary share totalling RMB3,957 million in respect of the year ended 31 December 2006 was declared and
was paid in July 2007. These dividends have been recorded in the consolidated financial statements for the year
ended 31 December 2007.
Pursuant to a resolution passed at the meeting of the Board of Directors on 25 March 2008, a final dividend of
RMB0.42 per ordinary share totalling approximately RMB11,871 million for the year ended 31 December 2007
was proposed for shareholders’ approval at the Annual General Meeting. The dividend has not been provided in
the consolidated financial statements for the year ended 31 December 2007.
30 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 2007:
Significant related party
Relationship with the Company
China Life Insurance (Group) Company (“CLIC”)
China Life Insurance Asset Management
Company Limited (“AMC”)
Guangdong Development Bank (“GDB”)
China Life Property & Casualty Insurance
Company Limited (“CLP&C”)
China Life Pension Company Limited
(“Pension Company”)
Beijing Zhongbaoxin Real Estate Development
Co., Limited (“Zhongbaoxin”)
China Life Insurance (Overseas) Co., Limited
(“China Life Overseas”)
China Life Franklin Asset Management
Co., Limited (“AMC HK”)
The ultimate holding company
A subsidiary of the Company
An associate of the Company
An associate of the Company
A subsidiary of the Company
A subsidiary of a subsidiary of the ultimate
holding company
Under common control of the ultimate
holding company
A subsidiary of a subsidiary of
the Company
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
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30 SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)
(b) 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 2007.
Note
For the year ended 31 December
2006
RMB million
2007
RMB million
Transactions with CLIC and its subsidiaries
Policy management fee income earned from CLIC
Asset management fee earned from CLIC
Rewards from CLIC for non-transferred policies
Dividends to CLIC
Property, plant and equipment purchased from CLIC
Property leasing expense charged by CLIC
Dividends to CLIC from AMC
Pre-operating salary expenses paid on behalf of Pension
Company by CLIC
Asset management fee earned from China Life Overseas
Asset management fee earned from CLP&C
Property Insurance payments to CLP&C
Rentals, deposits and project payments to Zhongbaoxin
Transaction with AMC
Asset management fee expense charged to the Company by AMC
Asset management fee expense charged to Pension Company by AMC
Dividends to the Company
Transaction with Pension Company
Pre-operating salary expenses paid on behalf of Pension Company
Transaction with GDB
Brokerage fee charged by GDB
Interest income earned from GDB
Notes:
(i)
(ii)
(iii)
(iv)
(v)
(ii)
(ii)
(vi)
(ii)
(ii)
(vii)
1,426
104
70
2,705
495
66
42
9
15
4
24
16
390
2
62
8
7
140
1,555
84
177
966
–
168
–
–
–
–
–
36
283
–
–
–
–
–
(i)
As part of the restructuring, CLIC transferred its entire branch services network to the Company. CLIC and the
Company have entered into an agreement 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 service fee based on the estimated cost of providing the
services, to which a profit margin is added. The service 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 policy management fee income is included in other income in
consolidated income statement.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
30 SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)
(b) Transactions with significant related parties (continued)
Notes: (continued)
(ii) CLIC and the AMC have 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 is calculated and payable on a monthly basis, by multiplying the average
of balance 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.
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
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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
161
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.
Although the description of the service fee rates under the two agreements are different, the ultimate
comprehensive service fee rate calculated under each of these two agreements is basically the same.
In March 2007, P&C and the AMC have entered into an agreement, whereby CLP&C agreed to pay the AMC
a fixed service fee and a variable service fee. The fixed service fee is payable monthly and the service fee is
calculated and payable on a monthly basis, by multiplying the average of balance of book value of the assets under
management at the beginning and at the end of any given month by the rate of 0.2%, divided by 12. The variable
service fee equals to 10% of the excess return per annum payable annually.
In September 2007, China Life Overseas and the AMC HK have entered into an agreement, whereby China Life
Overseas agreed to pay the AMC HK a management service fee at a basis rate and calculated based on annual net
investment return yield.
In April 2007, Pension Company and the AMC have entered into an agreement, whereby Pension Company agreed
to pay the AMC a fixed service fee and a bonus for excess return per annum. The fixed service fee is calculated and
payable on a monthly basis, by multiplying the average of balance 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 bonus equals to 10% of
the excess return per annum payable annually.
The asset management fee charged to the Company and Pension Company by AMC is eliminated through the
consolidated income statement.
(iii) The Company assisted CLIC to mitigate business risk arising from non-transferred policies, and received in 2007
a fee income of RMB70 million (2006: RMB177 million) from CLIC as the reward for such non-transferrable
policies.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
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30 SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)
(b) Transactions with significant related parties (continued)
Notes: (continued)
(iv) On 4 January 2007, the Company and CLIC entered into an agreement on purchasing part of CLIC’s buildings,
construction in progress, rights to the use of the land, motor vehicles and equipments etc. The purchase price
was based on the valuation of China Enterprise Appraisals’ assets appraisal report issued on 8 December 2006,
which totalling RMB488 million. On 28 September 2007, the Company and CLIC established a supplementary
agreement on the above business under the same purchase price. The purchase price was based on the valuation of
China Enterprise Appraisals’ assets appraisal report issued on 8 December 2006, which totalling RMB21 million.
(v)
The Company has entered into a property leasing agreement with CLIC, pursuant to which CLIC agreed to lease
to the Company some of its owned and leased buildings. The annual rent payable by the Company to CLIC in
relation to the CLIC owned properties is determined by reference to market rent or, the costs incurred by CLIC
in holding and maintaining the properties, plus a margin of approximately 5%. The annual rent payable by the
Company to CLIC in relation to the CLIC leased properties is determined by reference to the rent payable under
the head lease plus the actual costs incurred by CLIC arising in connection with the subletting of the properties.
The Company has directly paid the relevant rental expenses raised from CLIC leased properties to the third-party
instead of CLIC.
(vi) The Group made certain project payments to third parties through Zhongbaoxin and paid other miscellaneous
expenditures mainly comprised of rentals and deposits to Zhongbaoxin.
(vii) On 29 April 2007, the Company and GDB entered into a five year individual bank insurance agency agreement.
All insurance products suitable for delivery through bank channels are involved in the agreement. GDB will
provide services, including selling insurance products, receiving premiums, 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 and a fixed commission rate. 2) A monthly commission fee, calculated on a monthly basis,
by multiplying number of policy being handled and fixed commission rate which is not more than RMB1 per
policy, where GDB handles premiums receipts and benefits payments.
(c) 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.
Amount due from CLIC (Note 13)
Amount due to CLIC
Amount due from China Life Overseas
Amount due from CLP&C
Amount due from Zhongbaoxin
Amount due to Zhongbaoxin
As at 31 December As at 31 December
2006
RMB million
2007
RMB million
739
(40)
13
5
1
(5)
996
(3)
–
–
1
–
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
30 SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)
(d) Key management compensation
Salaries and other short-term employee benefits
Termination benefits
Post-employment benefits
Other long-term benefits
Total
For the year ended 31 December
2006
RMB million
2007
RMB million
27
–
–
–
27
17
–
–
–
17
(e) Transactions with state-owned enterprises
Under HKAS 24, business transactions between state-owned enterprises controlled by the PRC government
are within the scope of related party transactions. CLIC, the ultimate holding company of the Group, is a
state-owned enterprise. The Group’s key business 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.
As at 31 December 2007, more than 68% (as at 31 December 2006: more than 70%) of bank deposits were
with state-owned banks; approximately 96% (as at 31 December 2006: approximately 95%) of the issuers
of corporate bonds and subordinated bonds held by the Group were state-owned enterprises. For the year
ended 31 December 2007, more than 74% (for the year ended 31 December 2006: more than 71%) of the
group insurance business of the Group were with state-owned enterprises; approximately 83% (for the year
ended 31 December 2006: approximately 89%) of bank assurance brokerage charges of RMB2,085 million
(for the year ended 31 December 2006: RMB1,989 million) were paid to state-owned banks and post office;
almost all of the reinsurance agreements of the Group are entered into with a state-owned reinsurance
company; more than 68% (for the year ended 31 December 2006: more than 70%) of bank deposit interest
income were from state-owned banks.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
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31 SHARE CAPITAL
Registered, authorised, issued
and fully paid
Ordinary shares of RMB1 each
As at 31 December 2007
As at 31 December 2006
No. of shares
RMB million
No. of shares
RMB million
28,264,705,000
28,265
28,264,705,000
28,265
As at 31 December 2007, the Company’s share capital is as follows:
Owned by CLIC
Owned by other shareholders
Including: domestic listed
overseas listed
Total
As at 31 December 2007
No. of shares
RMB million
19,323,530,000
8,941,175,000
1,500,000,000
7,441,175,000
19,324
8,941
1,500
7,441
28,264,705,000
28,265
Overseas listed shares are traded on the Stock Exchange of Hong Kong and the New York Stock Exchange.
600,000,000 shares of the domestic listed shares may only be traded on the Shanghai Stock Exchange since 9
January 2008. The shares owned by CLIC are not transferable until 11 January 2010.
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
32 RESERVES
Group
Additional paid
Unrealised
in capital gains/(losses)
Reserve
fund
General
reserve
Total
RMB million RMB million RMB million RMB million RMB million
(a)
(b)
As at 1 January 2006
Issue of shares
Share issue expenses
Unrealised gains
– arising from available-for-sale
securities during the period
– reclassification adjustment for gains
included in income statement
– impact from available-for-sale securities
on other assets and liabilities
Subtotal
– tax on unrealised gains
Appropriation to reserve
34,776
26,820
(510)
687
–
–
1,762
–
–
–
–
–
–
–
–
25,093
(115)
(5,785)
19,193
(6,334)
–
Change in the year
26,310
12,859
As at 31 December 2006
61,086
13,546
2,736
Unrealised gains
– arising from available-for-sale
securities during the period
– reclassification adjustment for gains
included in income statement
– impact from available-for-sale securities
on other assets and liabilities
Subtotal
– tax on unrealised gains
– arising from share of results of associates
Appropriation to reserve
Change in the year
–
–
–
–
–
–
–
–
64,328
(14,658)
(10,568)
39,102
(8,159)
(30)
–
–
–
–
–
–
974
974
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,225
26,820
(510)
25,093
(115)
(5,785)
19,193
(6,334)
974
40,143
77,368
64,328
(14,658)
(10,568)
39,102
(8,159)
(30)
6,544
–
–
3,752
–
–
2,792
30,913
3,752
2,792
37,457
As at 31 December 2007
61,086
44,459
6,488
2,792
114,825
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
32 RESERVES (continued)
Company
Additional paid
Unrealised
in capital gains/(losses)
Reserve
fund
General
reserve
Total
RMB million RMB million RMB million RMB million RMB million
(a)
(b)
As at 1 January 2006
Issue of shares
Share issue expenses
Unrealised gains
– arising from available-for-sale
securities during the period
– reclassification adjustment for gains
included in income statement
– impact from available-for-sale securities
on other assets and liabilities
Subtotal
– tax on unrealised gains
Appropriation to reserve
33,697
26,820
(510)
686
–
–
1,728
–
–
–
–
–
–
–
–
25,036
(110)
(5,785)
19,141
(6,315)
–
Change in the year
26,310
12,826
As at 31 December 2006
60,007
13,512
2,688
Unrealised gains
– arising from available-for-sale
securities during the period
– reclassification adjustment for gains
included in income statement
– impact from available-for-sale securities
on other assets and liabilities
Subtotal
– tax on unrealised gains
Appropriation to reserve fund
Change in the year
–
–
–
–
–
–
–
64,222
(14,596)
(10,568)
39,058
(8,153)
–
–
–
–
–
–
960
960
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36,111
26,820
(510)
25,036
(110)
(5,785)
19,141
(6,315)
960
40,096
76,207
64,222
(14,596)
(10,568)
39,058
(8,153)
6,544
–
3,752
–
2,792
30,905
3,752
2,792
37,449
As at 31 December 2007
60,007
44,417
6,440
2,792
113,656
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
32 RESERVES (continued)
(a) Under relevant PRC law, the Company is required to transfer 10% of its net profit to statutory reserve fund.
The Company appropriated 10% of net profit which is RMB2,792 million to statutory reserve fund for
the year ended 31 December 2007. At 12 June 2007, approved by Annual General Meeting, the Company
appropriated 10% of net profit for the year ended 31 December 2006 which is RMB960 million to
discretionary welfare fund. The total appropriation to statutory reserve fund and discretionary welfare fund
in 2007 is RMB3,752 million.
(b) Pursuant to “Financial Standards of Financial Enterprises-Implementation Guide” issued by Ministry of
Finance of People’s Republic of China on 30 March 2007, the Company appropriated 10% of net profit
which is RMB2,792 million to general reserve for future uncertain disasters, which can not 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 HKFRS, whichever is lower, less any recovery of accumulated losses and allocations to statutory funds 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 is RMB31,881 million as at 31 December 2007.
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33 CONTINGENCIES
The following is a summary of the significant contingent liabilities:
Group
Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
Pending lawsuits (b)
66
54
66
54
(a) The Company and certain of its past directors (the “defendants”) have been named in nine putative class
action lawsuits filed in the United States District Court for the Southern District of New York between
16 March 2004 and 14 May 2004. The lawsuits have been ordered to be consolidated and restyled In re
China Life Insurance Company Limited Securities Litigation, NO.04 CV 2112 (TPG). Plaintiffs filed a
consolidated amended complaint on 19 January 2005, which names the Company, Wang Xianzhang (past
director), Miao Fuchun (past director) and Wu Yan (past director) as defendants. The consolidated amended
compliant alleges that the defendants named therein violated Section 10(b) and 20(a) of the Securities
Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The Company has engaged U.S. counsel
to contest vigorously on the lawsuits. The defendants jointly moved to dismiss the consolidated amended
complaint on 21 March 2005. Plaintiffs then further amended their complaint. Defendants moved to
dismiss the second amended complaint on 18 November 2005. That motion has been fully briefed and is
pending before the Court. The likelihood of an unfavourable outcome is still uncertain. No provision has
been made with respect to these lawsuits.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
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33 CONTINGENCIES (continued)
(b) The Group has been named in a number of lawsuits arising in the ordinary course of business. Provision has
been made for the probable losses to the Group on those claims when management can reasonably estimate
the outcome of the lawsuits taking into account the legal advice. No provision has been made for pending
lawsuits when the outcome of the lawsuits cannot be reasonably estimated or management believes a loss is
not probable.
34 COMMITMENTS
(a) Capital commitments
(i)
Capital commitments for property, plant and equipment
Group
Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
Contracted but not provided for
310
990
300
987
(ii) Capital commitments to acquire Bohai Venture Capital Fund
The Group committed to contribute RMB500 million to Bohai Venture Capital Fund and RMB5
million to Bohai Venture Capital Fund Management Company of which RMB152 million had been
paid at 31 December 2007. The remaining RMB353 million will be paid when called.
(b) Operating lease commitments
The future minimum lease payments under non-cancelable operating leases are as follows:
Group
Company
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
As at 31
December 2007
RMB million
As at 31
December 2006
RMB million
Land and buildings
Not later than one year
Later than one year but not later
than five years
Later than five years
Total
206
316
29
551
242
386
50
678
202
314
29
545
242
386
50
678
The operating lease payments charged to the consolidated income statement for the year ended 31 December
2007 was RMB391 million (for the year ended 31 December 2006: RMB391 million).
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
35
INVESTMENTS IN SUBSIDIARIES
Company
As at 31 December
2007
RMB million
2006
RMB million
Unlisted investments at cost:
930
600
Name
Place of incorporation
and operation
Principal activities
Percentage of equity
interest held
China Life Asset Management
Company Limited
China Life Franklin Asset Management
Co., Limited
China Life Pension Company Limited
People’s Republic of China
Asset management
60% directly
Hong Kong
Asset management
50% indirectly
People’s Republic of China
Pension and annuity
75% directly
and indirectly
36 DIRECTORS’, SUPERVISORS’ AND SENIOR MANAGEMENT’S REMUNERATION
(a) Directors’ emoluments
The aggregate amounts of emoluments paid to directors of the Company for the year ended 31 December
2007 are as follows:
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i
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a
L
i
f
e
I
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s
u
r
a
n
c
e
C
o
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a
n
y
L
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Discretionary
bonuses
RMB
Salaries
RMB
Inducement
fees
RMB
Employer’s Compensation
Other contribution to for loss of office
as director
RMB
benefits pension scheme
RMB
RMB
640,000
53,333
613,625
–
–
–
–
–
–
–
–
1,325,333
1,105,722
1,248,425
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21,164
1,640
21,164
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
RMB
1,986,497
1,160,695
1,883,214
–
–
250,000
270,000
250,000
270,000
270,000
270,000
Fee
RMB
–
–
–
–
–
250,000
270,000
250,000
270,000
270,000
270,000
Name
Yang Chao
Wu Yan (a)
Wan Fen
Shi Guoqing
Zhuang Zuojin
Long Yongtu
Sun Shuyi
Ma Yongwei
Chau Tak Hay
Cai Rang
Ngai Waifung
Notes:
(a)
Resigned on 26 January 2007
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Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
36 DIRECTORS’, SUPERVISORS’ AND SENIOR MANAGEMENT’S REMUNERATION
(continued)
(a) Directors’ emoluments (continued)
The aggregate amounts of emoluments paid to directors of the Company for the year ended 31 December
2006 are as follows:
Employer’s Compensation
Other contribution to for loss of office
as director
RMB
benefits pension scheme
RMB
RMB
–
–
–
–
–
–
–
–
–
–
–
–
19,016
17,598
10,663
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
RMB
1,410,516
882,931
906,806
–
–
220,000
220,000
183,333
220,000
220,000
–
–
Discretionary
bonuses
RMB
Salaries
RMB
Inducement
fees
RMB
590,000
540,833
312,813
–
–
–
–
–
–
–
–
–
801,500
324,500
583,330
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fee
RMB
–
–
–
–
–
220,000
220,000
183,333
220,000
220,000
–
–
Name
Yang Chao
Wu Yan (a)
Wan Feng (b)
Shi Guoqing
Zhuang Zuojin
Long Yongtu
Sun Shuyi
Ma Yongwei (c)
Chau Tak Hay
Cai Rang
Ngai Waifung (d)
Miao Fuchun (e)
Notes:
(a)
Emoluments paid starting from 1 February 2006.
(b)
Appointed on 16 June 2006.
(c)
Appointed on 16 March 2006.
(d)
Appointed on 29 December 2006.
(e)
Resigned on 16 June 2006.
In addition to the directors’ emoluments disclosed above, certain directors of the Company receive
emoluments from CLIC, amount of which has not been apportioned between their services to the Company
and their services to CLIC.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
36 DIRECTORS’, SUPERVISORS’ AND SENIOR MANAGEMENT’S REMUNERATION
(continued)
(b) Supervisors’ emoluments
The aggregate amounts of emoluments paid to supervisors of the Company for the year ended 31 December
2007 are as follows:
Name
Xia Zhihua
Wu Weimin
Qing Ge
Yang Hong
Tian Hui
Discretionary
bonuses
RMB
Salaries
RMB
Inducement
fees
RMB
533,500
331,500
334,208
344,500
–
1,095,367
499,900
500,775
463,417
–
–
–
–
–
–
Employer’s
contribution
to pension
scheme
RMB
21,164
21,164
21,164
21,164
–
Other
benefits
RMB
–
–
–
–
120,000
Total
RMB
1,650,031
852,564
856,147
829,081
120,000
The aggregate amounts of emoluments paid to supervisors of the Company for the year ended 31 December
2006 are as follows:
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a
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Discretionary
bonuses
RMB
Salaries
RMB
Inducement
fees
RMB
–
407,917
312,000
143,000
169,000
67,979
–
–
–
200,250
469,050
202,263
266,328
91,415
–
–
–
–
–
–
–
–
–
–
Employer’s
contribution
to pension
scheme
RMB
–
16,181
19,016
8,353
10,663
4,101
–
–
Other
benefits
RMB
–
–
–
–
–
–
–
100,000
Total
RMB
–
624,348
800,066
353,616
445,991
163,495
–
100,000
Name
Liu Yingqi (a)
Xia Zhihua (b)
Wu Weimin
Jia Yuzeng (c)
Qing Ge (d)
Yang Hong (e)
Ren Hongbin (f)
Tian Hui
Notes:
(a)
Resigned on 5 January 2006.
(b)
Appointed on 16 March 2006.
(c)
Resigned on 15 June 2006.
(d)
Appointed on 15 June 2006.
(e)
Appointed on 16 October 2006.
(f)
Resigned on 16 June 2006.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2006
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36 DIRECTORS’, SUPERVISORS’ AND SENIOR MANAGEMENT’S REMUNERATION
(continued)
(c) Five highest paid individuals
The five individuals whose emoluments were the highest in the Company include two (2006: two) directors
whose emoluments are reflected in the analysis presented above.
Details of remuneration of the remaining three (2006: three) highest paid individuals are as follows:
Fees
Basic salaries, housing allowances, and
other allowances and benefits in kind
The emoluments fell within the following bands:
RMB1,500,000 – RMB2,000,000
RMB6,000,000 – RMB6,500,000
2007
RMB
–
2006
RMB
–
9,619,666
4,888,148
9,619,666
4,888,148
Number of individuals
2007
2006
2
1
3
–
No emoluments have been paid by the Company to the directors or any of the five highest paid individuals
as an inducement to join or upon joining the Company or as compensation for loss of office.
37 ULTIMATE HOLDING COMPANY
The directors regard China Life Insurance (Group) Company, a company incorporated in the PRC, as being the
ultimate holding company.
Supplementary Information for ADS Holders
R E C O N C I L I A T I O N O F H K F R S A N D U N I T E D S T A T E S G E N E R A L L Y A C C E P T E D
ACCOUNTING PRINCIPLES (“US GAAP”)
(a) The consolidated financial statements of the Group have been prepared in accordance with HKFRS, which differs
in certain significant respects from US GAAP. Difference between HKFRS and US GAAP, which may have
significant impacts on consolidated net profit/(loss) and consolidated shareholders’ equity, are described below.
Deferred Taxes and Tax Reversal
The tax rate changes as disclosed in Note 25(b)(ii) are accounted for consistently with the accounting for the
transaction itself. Therefore, if the underlying temporary difference and related deferred taxes have been recorded
in equity, a change due to tax law/tax rates is recorded in equity as well. Under US GAAP, the impact of changes
in tax rate/tax law included in net income even if the original deferred taxes have been recognised in equity. For
the year ended 31 December 2007, this difference results in a RMB4,746 million increase in the US GAAP net
profit and a corresponding RMB4,746 million decrease to the US GAAP equity reserves balance.
There are no material differences between HKFRS and US GAAP that had an effect on shareholders’ equity as at
31 December 2007 and 2006 and net profit for the year ended 31December 2006.
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Supplementary Information for ADS Holders
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(b) Disclosures about available-for-sale securities held continuously in an unrealised loss position for the time
periods.
As at 31 December 2007
More than
6 months but
less than 12
months
RMB million
More
than 12
months
RMB million
Less
than
6 months
RMB million
Total
RMB million
Debt securities
Government
bonds
Government
agency bonds
Corporate
bonds
Subordinate
bonds/debts
Equity securities
Fair value
Unrealised losses
Fair value
Unrealised losses
Fair value
Unrealised losses
Fair value
Unrealised losses
Fair value
Unrealised losses
15,596
(300)
31,872
(1,366)
21,308
(1,498)
5,852
(626)
4,324
(537)
29,715
(2,432)
21,289
(4,072)
11,340
(1,344)
415
(94)
1
–
Total temporarily
impaired securities
Fair value
78,952
62,760
Unrealised losses
(4,327)
(7,942)
–
–
–
–
–
–
–
–
–
–
–
–
45,311
(2,732)
53,161
(5,438)
32,648
(2,842)
6,267
(720)
4,325
(537)
141,712
(12,269)
Supplementary Information for ADS Holders
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ACCOUNTING PRINCIPLES (“US GAAP”) (continued)
(b) Disclosures about available-for-sale securities held continuously in an unrealised loss position for the time periods
(continued)
As at 31 December 2006
More than
6 months but
less than 12
months
RMB million
More
than 12
months
RMB million
Less
than
6 months
RMB million
Total
RMB million
Fair value
Unrealised losses
Fair value
Unrealised losses
Fair value
Unrealised losses
Fair value
Unrealised losses
Fair value
Unrealised losses
22,050
(362)
15,471
(180)
13,502
(240)
2,329
(37)
1,273
(136)
1,198
(15)
1,265
(41)
6,605
(234)
–
–
–
–
7,149
(192)
1,497
(22)
566
(13)
–
–
–
–
30,397
(569)
18,233
(243)
20,673
(487)
2,329
(37)
1,273
(136)
Fair value
54,625
9,068
9,212
72,905
Unrealised losses
(955)
(290)
(227)
(1,472)
Debt securities
Government
bonds
Government
agency bonds
Corporate
bonds
Subordinate
bonds/debts
Equity securities
Total temporarily
impaired securities
Available-for-sale securities have generally been identified as temporarily impaired if their amortised cost as at 31
December 2007 was greater than their fair value, resulting in an unrealised loss. Unrealised losses in respect of
financial assets at fair value through income have been included in net income and have been excluded from the
above table. Unrealised losses from debt securities are largely due to interest rate fluctuations. Based on a review
of these financial assets, it is believed that the contractual terms of these available-for-sale securities will be met.
A total 218 debt securities positions and 77 equity securities positions were in an unrealised loss position at 31
December 2007 of which 100 debt securities and 76 equity securities positions were in a continuous loss position
for less than 6 months, 172 debt securities and 1 equity security positions for more than 6 months but less than 12
months.
Supplementary Information for ADS Holders
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ACCOUNTING PRINCIPLES (“US GAAP”) (continued)
(c) Comprehensive income
Net profit attributable to shareholders of the Company
Total other comprehensive income, unrealised gains, net of tax
Total comprehensive income
(d) Recently issued accounting standards
2007
RMB million
2006
RMB million
43,625
26,167
19,956
12,859
69,792
32,815
In September 2005, the AICPA issued Statement of Position 05-1, “Accounting by Insurance Enterprises for
Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts” (SOP 05-1).
SOP 05-1 provides guidance on accounting for DAC on internal replacements of insurance and investment
contracts other than those specifically described in FAS 97. SOP 05-1 defines an internal replacement as a
modification in product benefits, features, rights, or coverage that occurs by the exchange of a contract for a new
contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within
a contract. The Group adopted this guidance on 1 January 2007 and it did not have a material effect on the
Group’s consolidated financial position or results of operations.
In February 2006, the FASB issued FAS 155, “Accounting for Certain Hybrid Financial Instruments” (FAS 155),
an amendment of FAS 140 and FAS 133. FAS 155 allows the Group to include changes in fair value in earnings
on an instrument-by-instrument basis for any hybrid financial instrument that contains an embedded derivative
that would otherwise be required to be bifurcated and accounted for separately under FAS 133. FAS 155 is
effective for the Group’s fiscal year ending 31 December 2007. The Group adopted this guidance on 1 January
2007 and it did not have a material effect on the Group’s consolidated financial position or results of operations.
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income
tax positions. FIN 48 prescribes a recognition threshold and measurement attributable for the financial statement
recognition and measurement of an income tax position taken or expected to be taken in a tax return. FIN 48
also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and
additional disclosures. In May 2007, the FASB issued FSP 48-1,”Definition of Settlement in FASB Interpretation
No. 48,” which amended FIN 48, to provide guidance on how an enterprise should determine whether a tax
position is effectively settled for the purpose of recognizing previously unrecognized tax benefits, effective upon
the initial adoption of FIN 48. The Group adopted FIN 48 on 1 January 2007 and it did not have a material
effect on the Group’s consolidated financial position or results of operations.
Supplementary Information for ADS Holders
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ACCOUNTING PRINCIPLES (“US GAAP”) (continued)
(d) Recently issued accounting standards (continued)
In September 2006, the FASB issued FAS 157, “Fair Value Measurements” (FAS 157). FAS 157 defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
In February 2008, the FASB issued FSP 157-1, “Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13”. Also in February 2008, the FASB issued FSP 157-2,
“Effective Date of FASB Statement No. 157”, which defers the effective date of FAS 157 to fiscal years beginning
after 15 November 2008, and interim periods within those fiscal years. The Group is currently assessing the
impact of FAS 157 on the Group’s consolidated financial position and results of operations.
In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial
Liabilities” (FAS 159). FAS 159 permits entities to choose to measure at fair value many financial instruments and
certain other items that are not currently required to be measured at fair value. Subsequent changes in fair value
for designated items will be required to be reported in earnings in the current period. FAS 159 also establishes
presentation and disclosure requirements for similar types of assets and liabilities measured at fair value. FAS 159
is effective for financial statements issued for accounting periods beginning on or after 15 November 2007. The
Group is currently assessing the impact of FAS 159 on the Group’s consolidated financial position and results of
operations.
In April 2007, the FASB issued FSP FIN 39-1, “Amendment of FASB Interpretation No. 39.” FSP FIN 39-1
modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts,” and permits companies to offset cash
collateral receivables or payables with net derivative positions under certain circumstances. This FSP is effective
for fiscal years beginning after 15 November 2007 and is required to be applied retrospectively to financial
statements for all periods presented. The Group is currently assessing the impact of FSP FIN 39-1 on the Group’s
consolidated financial position and results of operations.
In December 2007, the FASB issued FAS 160, “Noncontrolling Interests in Consolidated Financial Statements.”
FAS 160 will change the accounting for minority interests, which will be recharacterized as noncontrolling
interests and classified by the parent company as a component of equity. The noncontrolling interests’ share of
subsidiary income should be reported as a part of consolidated net income with disclosure of the attribution of
consolidated net income to the controlling and noncontrolling interests on the face of the consolidated statement
of income. This statement is effective for fiscal years beginning on or after 15 December 2008, with early adoption
prohibited. Upon adoption, FAS 160 requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests and prospective adoption for all other requirements. The Group is currently
assessing the impact of FAS 160 on the Group’s consolidated financial position and results of operations.
Supplementary Information for ADS Holders
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ACCOUNTING PRINCIPLES (“US GAAP”) (continued)
(d) Recently issued accounting standards (continued)
In December 2007, the FASB issued FAS 141R, “Business Combinations.” This statement addresses the
accounting for business acquisitions with a number of changes. Among other things, the new standard broadened
the transactions or events that are considered business combinations. It requires that all acquisition-related costs
be expensed as incurred, and that all restructuring costs related to acquired operations be expensed as incurred.
This new standard also addresses the current and subsequent accounting for assets and liabilities arising from
contingencies acquired or assumed and, for acquisitions both prior and subsequent to 31 December 2008, requires
the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a
business combination either in income from continuing operations in the period of the combination or directly
in contributed capital, depending on the circumstances. This statement is effective for fiscal years beginning on or
after 15 December 2008, with early adoption prohibited, and generally applies to business acquisitions completed
after 31 December 2008. The Group is currently assessing the impact of FAS 141R on the Group’s consolidated
financial position and results of operations.
In February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase
Financing Transactions.” FSP FAS 140-3 provides guidance on accounting for a transfer of a financial asset and
a repurchase financing and presumes that an initial transfer of a financial asset and a repurchase financing are
considered part of the same arrangement (linked transaction) under Statement 140. However, if certain criteria
are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be
evaluated separately under Statement 140. This FSP is effective for fiscal years beginning after 15 November 2008,
and interim periods within those fiscal years. Earlier application is not permitted. The Group is currently assessing
the impact of this FSP on the Group’s consolidated financial position and results of operations.
Stock Code: 2628
Annual Report 2007
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