transformation and development in a new … and development in a new environment november 28, 2013...

Transformation and Development in a

New Environment

November 28, 2013

China Life Insurance Company Limited

Agenda

Features of the Current Life Insurance

Industry in China Section I

Development Outlook of China’s Life

Insurance Industry Section II

Section III China Life’s Transformation &

Development Strategy

主要内容

Section I: Features of the Current Life

Insurance Industry in China

Over the past decade, the CAGR for premium income of China’s life insurance

industry was 24%, while Europe, the US and Japan’s CAGR was less than 7%. By

2012, China became the 5th largest life insurance market in the world.

Source: The China Insurance Yearbook and CIRC website. The annual premium data between 2003-2010 were recorded

before the implementation of the “No.2 Interpretation of Accounting Standards for Business Enterprises”

Feature I. Rapid Growth

4

872

10,501 9,958

59.7%

48.3%

28.9%

4.2%

0%

10%

20%

30%

40%

50%

60%

70%

0

2000

4000

6000

8000

10000

12000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Life Insurance Premiums Growth Rate

RMB 100 mn Industry Premiums between 1999-2012

872

10,501 9,958 99.7% 98.2%

82.9% 77.2%

0%

20%

40%

60%

80%

100%

120%

0

2000

4000

6000

8000

10000

12000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Premiums Top 6 Companies

Market Concentration

Top 6 Companies

99.7%

77.2%

Year 1999

Year 2012

Feature II. Relatively High Concentration

5 Source: The China Insurance Yearbook and Company annual reports and the CIRC website.

RMB 100 mn

Investment-oriented products emerged

in 2000, and have grown rapidly

In New

Premiums

2004 2012

85% 98%

In GWP 2000 2012

3% 80%

Feature III. Dominated by Investment-oriented

Products

6

85% 98%

3%

80%

0%20%40%

60%

80%

100%120%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Percentage of Investment-oriented Products

Percentage in New Premiums Percentage in GWP

Short-term Participating

Endowment

Universal Life

Unit-Linked

Investment-

oriented

Products

Source: The China Insurance Yearbook and the CIRC website

81% 77% 77%

79%

74% 73% 71% 68%

50%

55%

60%

65%

70%

75%

80%

85%

2004 2005 2006 2007 2008 2009 2010 2011

Percentage of Single Premiums in First-year Premiums

Feature IV. High Percentage of Single Premiums

7

During 2004-2012，while the percentage of single premiums in

first-year premiums has fallen from 81% to 68%, it remains at

a high level.


2000, full liberalization of bancassurance led to its rapid development.

2004-2009 bancassurance CAGR reached 38%.

2004-2010 bancassurance contribution in new premiums rose from 37% to 70%.

2010-2012, CAGR fell to -6%, and the percentage of bancassurance in new

premiums fell to 56%.

Feature V. Bancassurance is the Dominant Channel

8

37% 38%

46%

65% 66% 70%

65%

56%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2004 2005 2006 2008 2009 2010 2011 2012

Percentage of Bancassurance FYP in Company FYP


9 Source：Company Internl Research

Items 1999 2000 2001 2002

JPY: bn % JPY: bn % JPY: bn % JPY: bn %

Expense

Spread 1,143.3 50.55% 999.9 48.80% 789.7 39.95% 703.9 33.57%

Mortality

Spread 2,517.7 111.32% 2,519.5 122.97% 2,706.7 136.93% 2,690.6 128.33%

Investment

Spread -1,399.3 -61.87% -1,470.6 -71.78% -1,519.8 -76.89% -1,297.8 -61.90%

Total 2,261.7 100% 2,048.8 100% 1,976.7 100% 2,096.7 100%

Three Sources of Surplus and Contribution of Japan’s Life Insurance Industry, 1999—2002

76% 90% 85%

100% 114%

87% 86% 90% 101%

0%

20%

40%

60%

80%

100%

120%

140%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Percentage of Investment Spread in Three Sources of

Surplus(China Life only)

Feature VI. Profits Mostly Driven by Investment

Spread

主要内容

Section II: Development Outlook of China’s

Life Insurance Industry*

Note：Mainland China

02000400060008000

10000120001400016000

2003200420052006200720082009201020112012

Density

AVERAGE

CHINA

JAPAN

GERMANY

FRANCE

UK

USA

As of the end of 2012, the penetration and density of China’s life insurance market (1.7% and

US $102.9) were substantially lower than the world average (3.69% and US $ 372.6), offering

great potential for development.

In 2012, China’s life insurance penetration was 7 percentage points lower than the UK and

Japan, 2 percentage points lower than the US and Germany. China’s life insurance density was

only 3% of that of the UK and Japan, and 5% of that of the US and France. China’s share in the

global life insurance market was 15 percentage points lower than the United States and Japan.

11

I. Still Has Great Potential for Development

0

2

4

6

8

10

12

14

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

% Penetration

USA

UK

FRANCE

GERMANY

JAPAN

CHINA

AVERAGE

Source: Sigma

US $

China’s GDP Growth Rate from 2013 to 2020 (Forecast)（%）

Steady economic growth has laid the foundation for the development

of China’s life insurance industry.

According to China’s “12th Five-Year Plan", the average annual GDP growth rate is

expected to reach 7% over the next five years.

Per capita disposable income of urban residents and per capita net income of rural

residents are expected to increase by more than 7% annually.

China will further promote economic transformation and gradually release “reform

dividends”.

12

II. Expected to Maintain Rapid Growth

Mid-to-Long-term Trend GDP

Source: the National Bureau of Statistics

On 5 August, 2013, the CIRC released measures on the adjustment of pricing rates of

insurance products(The last adjustment occurred on June 10, 1999).

One

deregulation

The CIRC removed pricing interest rate cap for traditional life policies. Life insurers are

expected to set product pricing interest rate prudently.

The Statutory reserve

valuation rates for traditional

life policies was lifted from

2.5% to 3.5%.

For pension and long-term (10

years and above) annuity

business, the statutory reserve

valuation rate cap was further

raised to 4.025%.

Changes in the cap of

agent commission rates.

Commission rates can be set

by insurers within the range

of expense loading.

Reduced minimum capital

requirement for pure risk

components. The minimum

capital requirement is determined

by risk category, instead of

insurance period previously.

13

Now Past

Health：0.24%

Death：0.15%

Accident：0.06%

Less than 3-year

term death：0.1%

3-5 year term death

0.15%

Others：0.3%

III. May Experience Structural Changes

Three Adjustments

Changes in market

players

Changes in premium

payment duration

There will be fewer participating products and more

fixed-income products in the market. Priority will be

given to protection products (pension, critical illness,

and medical insurance.)

Single premiums will decrease, whereas regular and

renewal premiums will gradually increase. Premium

payment duration will be lengthened.

Bank-affiliated insurers will maintain rapid

expansion with increased market share.

Changes in product

mix

14

III. May Experience Structural Changes

Government policies will facilitate the development of pension and health insurance products

CIRC and relevant government authorities started to

research on tax-deferred policy for pension insurance

2006

2007

2009

2010

2011

2012

By 2020, a social security system will be established to cover all Chinese citizens.

Accelerated the building of social security system that covers both urban and

rural residents

The government may purchase insurance services to further promote

the “New Rural Pension” Program

Laid down the guiding principle of “Coverage that is wide,

basic, multi-leveled and sustainable”

Proactively promoted commercial health insurance; improved supplementary medical insurance system; encouraged social capital to

establish nursing homes for the seniors;

Under the premise of fund security and effective supervision, the government can purchase medical care management services from

qualified insurers.

Allow qualified insurers to operate the Supplementary Major Medical Insurance

for urban and rural residents

2013

September, “Opinions on Accelerating the Development of Senior Citizens Service Industry”. Encourage senior service organizations

to buy liability insurance, seniors to buy health, long-term care and accident insurance; advance connection between commercial senior

insurance and senior service industry; encourage and support insurance funds to invest in senior citizens real estate and other senior

service sectors.

October, "Opinions on the Promotion of Health Services "Health insurance services should be further improved; variety of commercial

health insurance products should be enriched; the number of people covered by commercial health insurance should substantially

increase; the proportion of commercial health insurance premiums to overall health expenses should be significantly increased; a solid

health insurance regime should be established with support from fiscal policies and preferential tax.

The18th session of the CPC Central Committee: Tax exemption, deferred taxes and other incentives to accelerate the development of

enterprise annuity, occupational pension and commercial insurance, deepening medical and health system reform, accelerating

urbanization.

The 6th Plenary

Session of the 16th

Central Committee

The 17th National Congress

The State Council's " New Rural Pension"

pilot programs

Social Insurance Law

12th Five-year Plan

The six ministries,

“Guidance on

Supplementary Major

Medical Insurance for

Urban and Rural

Residents”

15

IV. Pension and Health Insurance Will Become Leading

Products in Life Insurance Industry

* According to CIRC regulation, critical illness

products belongs to health insurance

Pension Assets of Major Countries from 2002-2012

China’s pension

market lags far

behind

The per capita

long-term life

policy in China

is 0.1, far below

the average level

of 1.5 in

developed

countries

A promising

prospect for

China’s pension

insurance

16 Source: Global Pension Assets Study

China 181 2,078 2.52% 27.6%

Country Total Assets（USD 100 mn）

Proportion of pension

assets to GDP by the

end of 2012 (in local

currencies)

CAGR in the

past 10 years

2002 year end 2012 year end

AUSTRALIA 2,920 15,550 101% 18.2%

BRAZIL 530 3,400 14% 20.4%

CANADA 7,540 14,830 84% 7.0%

FRANCE 1,070 1,680 7% 4.6%

GERMANY 1,860 4,980 15% 10.3%

HONG KONG 270 1,040 40% 14.4%

IRELAND 340 1,130 55% 12.7%

JAPAN 22,890 37,210 62% 5.0%

NETHERLANDS 5,030 11,990 156% 9.1%

SOUTH AFRICA 730 2,520 64% 13.2%

SWITZERLAND 3,330 7,320 118% 8.2%

UK 1,120 27,360 112% 9.3%

USA 89,680 168,510 108% 6.5%

Total 147,400 297,540 78%1 7.3%

1.Calculated with all currencies converted to USD



Compared to developed countries, China’s overall health expenses

to GDP ratio is substantially lower.

The Proportion of National Health Expenses to GDP and Government

Expenditure to National Health Expenses

A bright future

for China’s

health

insurance

17 Source: World Health Statistics

17.6

9.6 11.4 11.7 11.5 9.2 5.0

48.2

83.2

71.1 76.9 76.8

80.3

54.3

0

10

20

30

40

50

60

70

80

90

USA UK CANADA FRANCE GERMANY JAPAN CHINA

Health Expenses/GDP Government Expenditure on Health Care/Health Expenses

（%）



8.2

14.8 12.9

10.1

3.5

40.8

1.2

7.2

14.9

23.8

10.3

3.5

40.6

1.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

UK CANADA AUSTRALIA GERMANY JAPAN USA CHINA

2009

2010

2011

Less than 2% of the medical expenses are covered by commercial

health insurance, lower than the average of developed countries and

the average of countries offering free medical services.

Percentage of Medical Expenses Covered by Commercial Health Insurance

A bright future

for China’s

health

insurance

18 Source: World Health Statistics

（%）



Supporting polices for

pension insurance

Encourage government to

purchase pension insurance

service

Insurance fund investment in

senior citizen real estate

and related services

Pilot launch of reverse mortgage

endowment products and progress

of tax deferred pension insurance

Supporting policies for

health insurance

Encourage government to purchase medical protection services

Entrust insurers to handle medical care management services

Encourage the development of commercial health insurance that is linked to basic medical insurance

Advance the progress of commercial insurers undertaking Supplementary Major Medical Insurance for urban and rural residents

19



In 2012, the trustee-administered funds amounted to

RMB 12.98 billion, premium income RMB 11.3

billion, compensation paid RMB 18 billion, and

claims and compensation paid over 34.7 million

person/times.

Annual commercial health insurance premium income

totaled RMB 86.3 billion and 29.8 billion was paid

for claims.

By the end of June 2013, nine insurance companies

are carrying out the Supplementary Major Medical

Insurance plan for urban and rural residents in the 84

regions across 21 provinces nationwide, covering

more than 200 million people. 20

Pension

insurance

Health

insurance

Undertake basic

pension program,

enterprise annuity

business and

individual pension

insurance products

In 2012, the insurance industry gained 18

qualifications for operating enterprise annuity.

Entrusted assets accounted for 70% of corporate

trustee services and investment management assets

accounted for 47% of market share.

Annual annuity insurance premiums totaled RMB

131.9 billion.

Participate in New

Rural Health Care

program, Basic

Medical Insurance for

Urban Residents, and

Supplementary Major

Medical Insurance that

is being rolled out

nationwide.



Investment channels for insurance funds have been fully liberalized

and asset allocation options further broadened

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Term deposits

Treasury bonds

Large state-owned

enterprises bonds

+ + + + + + + + Negotiated

Deposits

Mutual funds

Investment in

Affiliated

Enterprises

Before

1999

AA-rated

Corporate

Bonds

Stocks

Foreign

Currency

Investment

Infrastructure

Commercial Bank

Equity

Medium Term Note

Overseas

Investment

PE

Real estate

Trust

Unsecured Debt

Financial Derivatives

Fixed Income Alternative

Investments

Cash and

Equivalents Equities

Improve asset liability matching. Stabilize and enhance long-

term investment returns. Leader of cross-class investment

21

V. Insurance Asset Management Will Gradually Become The

Major Part of Life Insurance Business

22 Source: The China Insurance Yearbook and CIRC website



Investment income not only was the main source of earnings,

but also had direct impact on business development

59.7%

31.1%

7.2%

14.0% 11.4%

21.9%

48.3%

11.0%

28.9%

6.9% 4.2%

3.1% 2.7% 2.9%

3.6%

5.8%

12.2%

1.9%

6.4%

4.8%

3.6% 3.4%

0%

2%

4%

6%

8%

10%

12%

14%

0%

10%

20%

30%

40%

50%

60%

70%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Industry Premium Growth Rate Industry Investment Yield

Infrastructure debt plan

Infrastructure equity plan

Local construction fund

Quasi-loan financial products

Deregulated overseas investment restrictions, foreign investment has

been extended to the money market, fixed income, equity and real

estate, and markets have been expanded from Hong Kong to 25

developed markets and 20 emerging markets. The overseas

investment quota has been raised from 2% to 15% of total assets.

China Insurance

Regulatory Commission

August 27, “Guiding

Opinions on Supporting

Economic Restructuring and

Transformation and

Upgrading of the Insurance

Industry”

23



主要内容

Section III：China Life’s Transformation

& Development Strategy

From policy centered to customer centered

From premium-driven to value & efficiency-driven

From resource-driven to innovation-driven

From FYP-driven to Renewals-driven

From investment-oriented to protection-oriented while

offering diversified products

Operating Philosophy

I. China Life's Transformation and Development

25

Development Mode: From Equally Emphasizing on Scale & Value to

Prioritizing Value & Efficiency

Life Insurance Products

Operating Goals

Growth Pattern

Development Drivers

Focus on the development of long-

term regular payment business to

optimize business structure steadily.

Focus on the development of

traditional products, with moderate

development of investment-oriented

products.

Agents, bancassurance and group

insurance as the main sales channels,

actively expand into telemarketing,

internet sales and service counter

direct sales.

Align overall development goals

with individual growth targets to

achieve a rapid, coordinated and

sustainable business development.

II. Business Development Strategy

26

III. Product Development Trend

27

Short-term Participating

Universal

Unit-Linked

Enterprise

Individual

Term

Whole Life

Inpatient

Outpatient

Investment-oriented

Pension

Critical Illness

Health

With the most extensive

distribution network

across China, we have

established a flat and

specialized management

system in our branches.

After a period of rapid

growth, our sales force

and number of outlets in

agent channel, group

insurance channel,

bancassurance channel

and telemarketing

channel are growing

steadily.

Appendix I. Organization, Outlets and Personnel

29

Year 2012

Provincial Branches 36

City Level Branches 324

County Level Sub-branches 2,690

Field offices 17,960

Bancassurance outlets 96,000

Exclusive individual agents 693,000

Direct sales representatives 16,000

Bancassurance sales 46,000

Account managers 25,000

Financial advisors 21,000

Telemarketing agents 5,204

Employees 99,271

30

Appendix II. Organizational Chart

Pro

fit Cen

tre R

even

ue C

enter

Revenue Center

（Sales Unit）

Cost Center

（Non-sales Unit）

Agent Direct Sales Bancassurance Customer

Service Accounting …… Business

Processing

Service Counters

Headquarters

Provincial

Branches

City Level

Branches

County Level

Sub-branches

Business

Processing

Units after

provincial

centralization

(horizontal)

became cost

centers

All branches below city

level (include) became

revenue centers

All Service

Counters

became cost

control

centers

First-tier profit

center

Provincial Sales

Units(horizontal) became

revenue centers

Second-

tier profit

center

Each sales channel

（vertical）is a

revenue center

All Non-sales

Units（vertical）

are cost centers

Customer

Service Accounting

…… Business

Processing

Service Counters

1315

18989

38.3%

19.9%

0%

10%

20%

30%

40%

50%

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Total Assets Growth Rate

Total Assets between 1996-2012 The Company has

maintained a rapid

growth of total assets.

By the end of September 2013,

the Company’s total assets

reached RMB 1.96 trillion.

Appendix III. Total Assets

Source: The China Insurance Yearbook and company annual reports 31

CAGR：25.1%

1996-2012

Increased 35 times in 16 years

RMB: 100 mn

32

192

3227 102.6%

1.4%

-20%

0%

20%

40%

60%

80%

100%

120%

0

500

1000

1500

2000

2500

3000

3500

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

GWP GWP Growth%

Gross Written Premiums between 1996-2012 The Company’s

gross written

premiums

continue to

grow rapidly.

Premium Income in 2012

RMB 322.7 billion

Appendix IV. Premium Income

Source: The China Insurance Yearbook and CIRC website

CAGR：19.3%

1996-2012

Increased 16 times in 16 years

RMB: 100 mn

33

65.6% 70.9%

32.2%

0%

20%

40%

60%

80%

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Change in the Company’s Market Share between

1996-2012

The Company continues

to maintain its leading

position in spite of an

increased number of

competitors and

increasingly fierce

competition.

Number of Life Insurers

Year 1996 7

Year 2012 69

As of September 2013,

the Company’s market

share was 32.2%.

Appendix V. Market Share

Source: The China Insurance Yearbook and CIRC website

34

Appendix VI. Business Mix

2003-2013 Business Mix of China Life

70%

36%

23%

57%

8% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013.9

FYP of Long Term Policy Renewal Short-Term Policy

83% 66%

17%

34%

0%

20%

40%

60%

80%

100%

Single Premiums First Year Regular Premiums

42% 46% 45% 45%

50%

34% 40% 41%

52%

0%

10%

20%

30%

40%

50%

60%

2005 2006 2007 2008 2009 2010 2011 2012 2013.9

Percentage of 10 year or longer regular

premiums

2010- 2012 Premium Income by Channels (%)

Appendix VII. Premium Income from Channels

Note: Other channels mainly refer to telemarketing channel 35

47.3% 50.5% 55.7%

47.9% 45.4% 39.9%

4.3% 4.0% 4.2% 0.5% 0.2% 0.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012

Other

Direct Sales

Bancassurance

Agent

36

9.6

338.1

238.9

0

100

200

300

400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013.9.30

Net Profits between 2004-2013.9

Appendix VIII. Net Profits

RMB: 100 mn

transformation and development in a new … and development in a new environment november 28, 2013...

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