China. A company authorised by China Insurance Regulatory Commission ( CIRC ) to carry on property, casualty and short-term health insurance business

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1 China International Comparison of Insurance * May 2009 China General Insurance Definition Definition of property and casualty insurance company Commercial Accounts/Tax and Regulatory Returns Basis for the company s commercial accounts Regulatory return A company authorised by China Insurance Regulatory Commission ( CIRC ) to carry on property, casualty and short-term health insurance business Adopted new China Standards ( CAS ) in 2006 beginning 1 January Insurance Supervision Report: monthly report, quarterly report, semi-year report and annual report to CIRC Long form annual financial statements to CIRC Not defined by tax legislation. Based on statutory accounts. Tax return Business Tax ( BT ): monthly return. Technical Reserves/ Equalisation Reserves Corporate Income Tax ( CIT ): quarterly provisional return and annual return Unearned premiums reserve (UPR) Calculated by time apportionment, e.g. 1/24, 1/365 and other more prudential and actuarial methods. Unpaid claims reported Calculated on a case-by-case basis. Allowable deduction cannot exceed the total actual claim for the current period. Claims incurred but not reported (IBNR) Calculated based on experience or statistical method (currently based on statistical experience). Allowable deduction cannot exceed 4% of the actual claim paid during the year. Unexpired risks Recognised under the heading of UPR. General contingency/solvency reserves Not Allowed. Equalisation reserves Expenses/Refunds Not Allowed. Acquisition expenses Loss adjustment expenses on unsettled claims (claims handling expenses) Experience-rated refunds Fully charged in year incurred. Both direct and indirect claims settlement costs should be accounted for (recognised under the heading of unpaid claims reported ). Not allowed to recognise. Allowable deduction cannot exceed 15% of the total premium minus the returned premium. Allowable deduction cannot exceed the total actual claim for the current period. Note: The deductibility of various insurance reserves under the new Corporate Income Tax regime effective since 1 January 2008 has not been clarified yet. *connectedthinking

2 China - General Insurance (continued) Investments Gains and losses on investments Realised gains are taken to the P&L. on nature of investment. HTM and loan - not recognised AFS - recognise in equity Trading - recognise in P/L Realised gains included as taxable income; Investment reserves Impairment loss is assessed and recognised annually comparing with the fair market value. In principle not allowed. Investment income Realised gains are taken to the P&L. on nature of investment. HTM and loan - not recognised AFS - recognise in equity Trading - recognise in P/L Realised gains included as taxable income; Reinsurance Reinsurance premiums and claims Ceded premium paid/payable are deducted from gross premiums, ceded claims recoveries netted in P/L against claims paid/payable. Mutual Companies Mutual companies (All profits returned to members) China General Insurance - Other Tax Features Further corporate tax features Loss carry-overs Loss carry forward for f5 years but no carry-back and no group relief. Foreign branch income Domestic branch income Taxable in China subject to foreign tax credit relief. Combined with head office s income be taxed on a combined basis. Corporate tax rate 25% Other tax features Premium taxes Capital taxes and taxes on securities Captive insurance companies BT is at 5% of gross premiums received. BT at 5% on capital gain sourced from trading of securities and stamp at 0.1% on trading of stocks for seller only.

3 China Life Insurance Definition Definition of Life Assurance companies A company authorised by China Insurance Regulatory Commission ( CIRC ) to carry on life, casualty and short-term health insurance business. Not defined by tax legislation. Commercial Accounts/Tax and Regulatory Returns Basis for the company s commercial accounts Regulatory return Adopted new China Standards in 2006 which began 1 January Insurance Supervision Report: monthly report, quarterly report, semi-year report and annual report to CIRC. Long form annual financial statements to CIRC. Based on statutory accounts Tax return General approach to calculation of income BT: monthly return CIT: quarterly provisional return and annual return Allocation of income between shareholders and policyholders Calculation of investment return At least 70% of Participation product net gain should be allocated to policyholders of Participation product. No other blocked surplus. Calculation of investment income and capital gains Investment income/realised gains are taken to the P&L. on nature of investment: HTM and loan - not recognised AFS - recognised in equity Trading - recognised in P/L Realised gains included as taxable income. adjustment Calculation of underwriting profits or total income Actuarial reserves Acquisition expenses Gains and losses on investments Reserves against market losses on investments Zillmer is allowed. The CAS 30 requires gross premium presentation format. Fully charged in year incurred. Realised gains are taken to the P&L. Treatment of unrealised gains on nature of investment: HTM and loan - not recognised AFS - recognise in equity Trading - recognise in P/L Impairment loss is assessed and recognised annually comparing with the fair market value Follow PRC accounting treatment. Allowable deduction cannot exceed 10% of the total premium minus the returned premium. Realised gain included as taxable income; Unrealised gain arising from mark-to-market In principle not allowed.

4 China Life Insurance (continued) Calculation of underwriting profits or total income [Continued] Dividend income [Continued] Included in investment income. [Continued] Non-taxable if received from China. Taxable if received from overseas and subject to foreign tax credit relief. Policyholder bonuses Deducted from net profit before tax. Included in actuarial reserves/ as bonus payables. Other special deductions None. Reinsurance Reinsurance premiums and claims Ceded premium paid/payable are deducted from gross premiums, ceded claims recoveries netted in P/L against claims paid/payable. Mutual companies/stock companies Mutual Companies China Life Insurance - Other Tax Features Further corporate tax features Loss carry-overs Foreign branch income Domestic branch income Loss carry forward for five years but no carry-back and no group relief. Taxable in China subject to foreign tax credit relief. Combined with the head office s income, it can be taxed on a combined basis. Corporate tax rate 25% Policyholder taxation Deductibility of premiums Interest build-up Proceeds during lifetime Proceeds on death Generally not deductible. Other tax features Premium taxes Capital taxes and taxes on securities Captive insurance companies Exempted. BT at 5% on capital gain sourced from trading of securities and stamp at 0.1% on trading of stocks for seller only.

5 China International Comparison of Insurance * May 2009 Contact information Matthew Wong Tax Partner 11/F PricewaterhouseCoopers Center 202 Hu Bin Road Shanghai , PRC Tel: +86 (21) matthew.mf.wong@cn.pwc.com *connectedthinking