China Life Insurance Sector

Transcription

1 Percentage (%) 28 January 2015 Asia Pacific/China Equity Research Life Insurance (Financials) Research Analysts Arjan van Veen Frances Feng Significant contribution by: Craig Cao China Life Insurance Sector CHANNEL CHECK Agency survey 2015 Figure 1: Agents finding it easier to sell insurance products % of respondents who deem the current environment is tougher CN insure Datong Source: Credit Suisse Research, Pi Financial Services Intelligence Agency channel key to value growth. We expect the agency channel to be the key to long-term sustainable growth and value creation for insurers (click here for in-depth report), also providing some insulation from any macro-economic headwinds. As such, we have conducted, in conjunction with Pi Financial Services Intelligence, a survey of over 300 agents / agent leaders from major insurers and brokers to examine this channel in detail. Insurance sales easier / recruitment still tough. 34% of respondents thought the current sales environment was tougher than last year, down materially on 2013 (58%), with competing products (42%) no longer considered the main issue (down from 61% in 2013), with more (74%) citing economic conditions as the key issue. Some 75% of the agents who took part in our survey said that it was more difficult to recruit, with key difficulties being reputation, earnings ability and increased hiring standards. Insurance sales easier savings / critical illness key focus. 58% and 45% of the respondents said that insurers focus on saving and pension products, respectively, for open year sales, while 52% stated their companies have been pushing critical illness product in 2014, up from 44% last year. Company specifics. Our survey confirms Ping An, China Pacific, China agency forces as being of higher quality with higher productivity and training levels, longer-duration product and lower turnover. Around 57% of China Life agents thought they were paid below industry average. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

2 Percentage (%) Monthly income (Rmb) Percentage (%) Percentage (%) Percentage (%) Percentage (%) 28 January 2015 Focus charts Figure 2: Agents finding it easier to sell % of respondents who think the current environment is tougher 10 Figure 3: competing products much less of an issue Due to competing products (bank deposits / wealth management) CN insure Datong Figure 4: with weaker economy more of an issue Due to economic conditions Figure 5: and agent recruitment still difficult % of respondents who deem it more difficult to recruit 10 CN insure Datong CN insure Datong Figure 6: Open years sales focusing on saving & pension Products insurance companies are pushing 10 CNinsure Datong Figure 7: with average monthly salary up Average monthly commission, Rmb 30, , ,000 15, , ,000 CN insure Datong Traditional protection Critical illness Savings Pension A&H CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 2

3 Agency survey 2015 In association with Pi Financial Services Intelligence, we have conducted a survey of over 300 life insurance agents from seven life insurance companies and two brokers. Given that the agents surveyed have on average 40 agents in their team, the survey is representative of around 10,000 agents, but is still only a fraction of the ~2.7mn agents who are aligned to the insurance companies covered in this survey. Agency force profiles The typical agent captured in our survey is female (67%), middle aged (88% aged 30-50), educated (81% with tertiary education), experienced (9.2 years industry experience), a team leader (72%), with an average of 40 agents in his/her team. Agents are generally loyal (only 11% would consider moving) and have high regard for their own companies (competitiveness rated 4.5/5.0 on average), although both these measures deteriorated slightly from last year s survey. Remuneration/product differences Agents remuneration is usually mostly commission based (as a percentage of sales). 41% of the agents surveyed deemed their compensation structure to be in line with the industry average. China Life had the highest percentage of agents (57%) who thought their remuneration was below the industry average (next highest Ping An at 18%). Agents at smaller insurers such as New China Life and China thought their remuneration was higher or at least in line with the industry average. The average monthly income for agents that have taken part in our survey was Rmb17,270 (up 61% on 2013). China s agents had the highest monthly income in the industry, while China Life, NCI and PICC Life s were lowest. Although Ping An s commission rate was the lowest among peers, we see a higher satisfaction of the compensation (3.8/5.0) and monthly income, possibly driven by the cross-selling efforts. Insurance sales easier, savings / cancer key focus 34% of our respondents said that it is tougher to sell compared to the previous year (2013: 58%), with 74% saying this was due to weaker economic conditions (2014: 79%). Only 42% of the agents said it was due to the higher returns available for competing products (i.e., trust products), down significantly from 91% in According to our survey, insurers usually focus on savings product for open year sales and critical illness throughout the year. 58% and 45% of the respondents said that insurers focus on savings and pension products, respectively, for open year sales. We also saw continued focus of insurers pushing critical illness products during the year with 52% stating their companies have been pushing this product, up from 44% last year; and with >85% of agents saying there is client demand for this product. Recruitment remains difficult, continued higher attrition Some 75% of the agents in our survey thought that it was more difficult to recruit this year (64% in 2012). Of these, 5 thought that the difficulty in recruitment is due to the industry s poor reputation and 33% that company has higher standards (at least college degree to take part in the license exam). To encourage recruitment, we are seeing more insurers improving base salary with responsibilities. The average (13-month) attrition rate was 54% among the agents surveyed (with lowest), although agent poaching doesn t seem to be a big issue in China at present. Typical agent (leader) surveyed was a middleaged educated female 57% of China Life agents perceived remuneration to be below average Ping An agents have higher compensation satisfaction level, possibly driven by cross-selling efforts. Some 34% of agents said it is tougher to sell in 2014 but competing products much less of an issue We see insurers' focus on Critical Illness and savings' product Some 75% of agents said it was tougher to recruit this year China Life Insurance Sector 3

4 China Life Insurance Sector 4 Sector valuation matrix Figure 8: Asian insurance key financial metrics EPS P / BV ROE P / NTA ROTE P / EV* EV ROEV VNB Payout Div Yld Reporting Market Monthly Daily Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x) Growth (x) (%pa) (x) (%pa) P / EV (x) (x) growth (%pa) VNB (x) VNB* (x) growth ratio (%) (%pa) Price movement (%) Company Currency Cap Volume Volume Liquidity 28-Jan high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) 1wk 1mth 1qtr 1hy 1yr YTD US$m US$m US$m % local local % Dec Australia AMP.AX AMP AUD 13, % % OPFM 31-Dec 15.4x 16.3x 7% 2.0x 11.8% 3.9x 23.8% 1.4x 1.4x 7% 8.6% 13.8x 13.8x 4% 81% % 1.8% 0.9% 4.8% 34.1% 3.6% CGF.AX Challenger AUD 2, % % OPFM 30-Jun 10.2x 9.8x 3% 1.3x x 17. na na na na na na na 45% 4.9% 2.3% -5.4% -5.8% -23.3% 4.3% -3.8% CVW.AX Clearview AUD % na na NR 31-Dec 19.6x 19.6x 17% 1.5x 7.6% na na na na na na na na na 5 2.6% % -14.3% 12.5% 33.4% -2.2% TWR.AX Tower NZD % % NTRL 30-Sep 16.6x 16.6x 7% 1.3x 7.8% 1.4x 8.7% 0.5x 0.5x 6% x -44x 4% 112% 6.2% 1.9% 2.9% 21.4% 26.9% 31.3% 1.9% NHF.AX NIB Holdings AUD 1, % % UPFM 31-Dec 18.1x 18.1x 1 3.9x 21.6% 5.6x 30.7% na na na na na na na 72% % 1.9% 2.9% 1.5% 31.9% 2.2% MPL.AX Medibank Private AUD 8, % % UPFM 31-Dec 22.9x 22.9x 12% 4.5x 19.7% 5.4x 23.5% na na na na na na na 63% 2.8% % 10.2% -1.7% GMA.AX Genworth Australia AUD 1, % na na NR 31-Dec 8.1x 8.1x na 0.9x 10.7% 0.9x 10.7% na na na na na na na 59% 7.3% -0.9% -7.9% -8.6% -5.3% 28.3% -6.6% IAG.AX IAG AUD 12, % % UPFM 30-Jun 12.6x 14.7x -6% 2.2x 15.2% 4.3x 29.2% na na na na na na na 77% 5.1% % -0.2% 0.3% 14.2% 0.5% QBE.AX QBE USD 11, % NTRL 31-Dec 9.7x 9.5x 36% 0.9x 9.2% 1.3x 13.9% na na na na na na na 46% 4.3% -1.1% -6.3% -6.5% -4.3% -7.1% -5.8% SUN.AX Suncorp AUD 15, % % NTRL 30-Jun 13.3x 14.3x 4% 1.3x 9.4% 2.1x 15. na na na na na na na 105% 6.8% 2.4% 1.8% 0.6% 3.2% 18.8% 2.4% 69,603 3, % x 15.0x 1 1.9x 12.5% 3.2x 20.9% 0.9x 0.9x 6.2% 5.8% -15.8x -14.9x 4% 66% 4.5% 1.2% -1.1% -0.3% 0.1% 13.8% -0.3% China SS China Life (A) CNY 129,698 3, % UPFM 31-Dec 26.6x 21.7x 2% 3.4x 15.5% 3.4x 15.5% 2.2x 2.4x 14% 10.1% 25.5x 26.3x 17% 33% 1.1% -3.3% 15.3% 152.1% % 13.9% SS China Pacific (A) CNY 34,980 3, % % NTRL 31-Dec 21.7x 18.6x 7% 2.6x 13.8% 2.6x 13.9% 1.6x 1.5x 12% 8.4% 11.9x 6.6x 22% 35% 1.9% 4.9% 8.9% 78.3% 74.8% 109.7% 7.6% SS New China Life (A) CNY 17,533 1, % UPFM 31-Dec 19.5x 19.7x -5% 3.1x 15.5% 3.2x x 2.0x 13% 8.6% 13.1x 15.4x 21% 21% % 91.6% 115.2% 121.6% 6.2% SS Ping An (A) CNY 69,562 12, % % NTRL 31-Dec 13.2x 14.7x x 15.5% 2.7x 18.6% 1.3x 1.5x 18% 8.9% 6.8x 4.3x 24% 23% 1.6% -6.6% 1.8% 71.9% 64.6% 84.6% -3.2% 251,773 20,862 1, % -4.4% 20.3x 18.7x -4% 2.8x 15.1% 3.0x x 1.9x 14% x 13.2x 21% 28% 1.1% -2.9% % 118.7% 140.6% 7.8% Hong Kong 1299.HK AIA USD 83,474 2, % % OPFM 30-Nov 19.8x 22.8x -3% 2.5x 11.1% 2.7x 11.9% 2.0x 2.0x 11% 8.9% 22.5x 19.3x 17% 21% 1.1% 3.5% 5.8% 7.5% 11.8% 28.9% 7.4% 0945.HK Manulife CAD 4, % % OPFM 31-Dec 10.8x 14.0x x 9.6% 1.8x 12.6% 0.9x na na 6.1% -4.8x na na 37% 3.1% -0.8% -13.5% -10.1% -17.5% -10.3% -13.5% 2378.HK Prudential plc GBP 5, % OPFM 31-Dec 14.7x 14.6x 6% 3.4x 23.1% 3.9x 26.8% 1.3x 1.5x na 9.1% 8.5x 6.8x 2% 38% 2.6% 5.6% % 3.4% 1.1% 4.8% 2628.HK China Life (H) CNY 29,875 2, % % NTRL 31-Dec 17.2x 14.1x 1% 2.2x 15.6% 2.2x 15.6% 1.4x 1.6x 14% 10.1% 9.0x 10.7x 15% 33% 1.6% -1.7% 2.5% 36.8% 36.2% 46.4% 2.6% 2601.HK China Pacific (H) CNY 14, % % OPFM 31-Dec 19.1x 16.7x 6% 2.3x 13.9% 2.3x x 1.3x 12% 8.4% 8.5x 3.8x 21% 35% 2.1% -0.5% % 26.3% 40.5% -1.8% 0966.HK China HKD 9, % % OPFM 31-Dec 17.8x 20.4x x x 12.1% 1.2x 0.7x 2 5.8% 5.1x -6.5x 33% % 8.6% 45.5% 49.1% 85.7% 8.6% 1336.HK New China Life (H) CNY 6, % % NTRL 31-Dec 13.7x 13.4x -5% 2.1x 15.5% 2.2x 16.1% 1.2x 1.4x 13% 8.6% 3.0x 5.7x 2 21% 1.5% % 55.8% 58.1% 56.7% HK Ping An (H) CNY 34,260 3, % % OPFM 31-Dec 13.4x 13.9x -21% 2.2x 15.6% 2.6x 18.7% 1.2x 1.4x 18% x 3.0x 22% 23% 1.7% % 35.3% 27.8% 34.6% 7.3% 1339.HK PICC Group CNY 20, % % OPFM 31-Dec 10.9x 7.8x 1% 1.1x 14.5% 1.2x 15.3% 2.2x -2.1x 16% 28.2% 11.9x -32.1x -4% 7% % % 13.4% 9.8% 5.2% 2328.HK PICC P&C CNY 23, % % OPFM 31-Dec 11.8x 11.2x -16% 2.2x 19.3% 2.2x 19.3% na na na na na na na 64% % -4.7% % 0.1% 232,493 10, % 26.2% 14.9x 13.9x -6% 2.1x 15.2% 2.2x 15.9% 1.4x 0.7x 15% 11.7% 7.1x -2.6x 18% 26% 1.7% 0.9% 3.7% 20.6% 21.4% 35.1% 5. India RLCP.BO Reliance Capital INR 1, % na na NR 31-Mar 12.3x 12.3x 18% 0.8x 6.9% 0.8x 6.9% na na na na na na na 26% 2.1% 1.6% -4.3% 6.1% -19.2% 46.1% -3.9% MAXI.BO Max India INR 2, % % UPFM 31-Mar 38.0x 28.5x 53% 3.7x x 13.1% 1.8x 4.0x 3% 6.5% 22.1x 39.3x 15% 69% 0.2% 15.4% % 55.5% % 4, % -40.5% 25.1x 20.4x 35% 2.3x x x 4.0x 3% 6.5% 22.1x 39.3x 15% 48% 1.2% 8.9% 12.6% 24.1% 19.8% % Japan 8750.T Dai-Ichi Life JPY 16,491 1, % 1,637 1,331-1,883 2, % OPFM 31-Mar 14.4x 11.8x 43% 0.7x 5.8% 0.8x 6.6% 0.3x 0.5x 12% 2.9% -14.1x -10.7x 5% 25% 1.6% 4.1% % 12.5% 4.2% -11.1% 8729.T Sony Financial JPY 6, % 1,685 1,575-1,828 1, % NTRL 31-Mar 13.4x 12.1x 8% 1.3x 10.7% 1.4x 11.2% 0.5x 0.7x 7% 4.3% -12.1x -4.6x % 3.7% -6.1% % -1.9% -5.4% 8795.T T&D Holdings JPY 7, % 1,368 1,155-1,509 1, % NTRL 31-Mar 10.5x 8.7x 3% 0.7x 8.2% 0.7x 8.3% 0.4x 0.6x 8% 4.4% -15.9x -10.5x 1 18% 1.9% 4.5% -6.8% 4.7% 5.5% 5.2% -6.2% 8725.T MS&AD Insurance JPY 15, % 2,900 2,092-2,940 3, % OPFM 31-Mar 13.5x 14.4x 9% 0.7x 5.1% 0.8x 5.5% na na na na na na na 31% 2.1% 8.4% -0.9% 31.5% 23.3% % 8630.T NKSJ Holdings JPY 10, % 3,137 2,366-3,210 2, % NTRL 31-Mar 14.2x 13.3x 113% 0.9x 6.4% 0.9x 6.8% na na na na na na na 54% 1.9% % 17.5% 15.8% 2.8% 8766.T Tokio Marine JPY 26,538 1, % 4,121 2,835-4,116 4, % NTRL 31-Mar 12.7x 14.2x 2% 1.1x 7.5% 1.2x 8.4% na na na na na na na 26% 1.9% 7.9% 3.3% 24.1% 26.3% 34.1% 4.8% 82,776 5, % 15.9% 13.1x 12.4x 3 0.9x 7.3% 1.0x 7.8% 0.4x 0.6x 9.3% 3.9% -14.0x -8.6x 18% 31% % -2.7% 18.1% 17.9% 17.3% -1.2% Korea KS Samsung Life KRW 21, % 116,500 92, , , % OPFM 31-Mar 19.4x 19.4x -14% 1.0x 5.3% 1.0x 5.1% 0.8x 0.9x 7% 4.1% -5.6x -3.1x 7% 21% 1.8% 1.3% 1.3% % 17.1% KS Hanwha Life KRW 6, % 7,910 6,310-8,690 7, NTRL 31-Mar 13.1x 13.1x 12% 0.8x 6.3% 0.8x 6.3% 0.7x 0.9x 7% 5.3% -15.0x -6.2x 2% 16% 2.2% -0.6% -3.5% -2.8% 16.2% 13.8% -4.6% KS Tong Yang Life KRW 1, % 10,550 9,660-11,900 na na NR 31-Mar 8.4x 8.4x -15% 0.6x 7.6% 0.6x 7.6% na na na na na na na 33% 3.9% -2.8% -4.1% -5.8% 4.5% -3.2% -1.9% KS Dongbu KRW 3, % 51,800 48,700-63,300 54, % NTRL 31-Mar 7.3x 8.3x 14% 0.9x 12.6% 1.0x 11.4% 0.6x 0.5x 6% 7.4% -5.9x -7.6x 5% 2 3.1% -0.4% -6.7% -12.6% -9.9% % KS Hyundai M&F KRW 2, % 25,150 24,900-32,400 31, NTRL 31-Mar 6.8x 6.5x 31% 0.8x x 12.7% 0.4x 0.2x 8% 6.4% -7.3x -9.6x 5% 2 3.7% -0.8% -1.9% % -17.9% -3.3% KS LIG Insurance KRW 1, ,700 23,700-31,700 na na NR 31-Mar 5.3x 5.3x 42% 0.7x 12.4% 0.7x 12.4% na na na na na na na 22% 4.2% % -13.3% -15.2% -22.7% -13.5% KS Meritz F&M KRW 1, % 12,200 11,850-15,400 na na NR 31-Mar 7.4x 7.4x 32% 0.9x 11.9% 0.9x 11.9% na na na na na na na 26% 3.5% -1.2% % -5.8% -15.6% KS Samsung F&M KRW 13, % 316, , , , OPFM 31-Mar 13.8x 12.6x 16% 1.4x 10.1% 1.2x 9.3% 0.9x 0.9x 6% 7.3% -3.1x -3.0x 4% 29% 1.9% 9.3% 9.5% 9.7% 15.5% 30.5% KS Korean Re KRW 1, % 10,200 9,700-11,900 na na NR 31-Mar 6.2x 6.2x 12% 0.6x 9.7% na na na na na na na na na 3.6% -1.9% -3.8% -10.5% -10.5% -6.8% -5.6% 50,654 1, % 9.6% 10.2x 10.1x 15% 0.9x 9.8% 0.9x 9.6% 0.7x 0.7x 6% 6.1% -7.4x -5.9x 5% 24% % 1.7% 2.3% 9.6% 15.5% 1.6% South East Asia GELA.SI Great Eastern SGD 8, % OPFM 31-Dec 14.1x 13.3x -3% 1.7x 12.8% 1.7x 12.8% 1.1x 1.1x 7% 8.2% 2.2x 2.0x 8% 5 3.7% % 1.2% 5.1% 36.7% 0. AINM.KL Allianz Malaysia MYR % na na NR 31-Dec 7.9x 7.9x na 1.4x 11.8% na na na na na na na na na 2% 0.2% 0.7% 2.8% -1.8% -9.2% % LOND.KL Lonpac Insurance MYR 1, % na na NR 31-Dec 16.7x 16.7x na 2.4x 14.1% 2.4x 14.1% na na na na na na na 77% 4.6% 2.2% 2.8% 5.2% 5.2% 12.4% 2.4% TUNE.KL Tune Insurance MYR % % OPFM 31-Dec 15.5x 15.5x na 3.0x 19.1% 3.1x 20.1% na na na na na na na 39% 2.5% 9.5% 5.7% % % PNLF.JK Panin Financial IDR na na NR 31-Dec 6.5x 6.5x na 1.1x 14.1% 1.1x 14.1% na na na na na na na % -9.3% 5.8% 10.1% 28.8% -8.7% PNIN.JK Panin Insurance IDR % na na NR 31-Dec 3.9x 3.9x na 0.8x 14.7% na na na na na na na na na % 9.8% 13.2% 12.3% -2. SMMA.JK Sinar Mas IDR 1, ,000 2,700-4,285 na na NR 31-Dec 15.4x 15.4x na 2.3x 14.9% na na na na na na na na na % 33.3% 11.6% 21.4% 9.4% BLA.BK Bangkok Life THB 2, % % UPFM 31-Dec 16.5x 16.6x 103% 2.8x 16.7% 2.8x 16.7% 2.4x 2.4x 4% 14.2% 25.5x 33.7x -1 13% 1.8% 6.9% 5.2% -10.6% -24.8% 12.7% 9.8% BKI.BK Bangkok Insurance THB 1, % na na NR 31-Dec 15.4x 15.4x na 1.2x 11. na na na na na na na na na 67% 4.3% 2.2% 0.5% 0.3% 5.1% 39.6% 0.5% SCBLIF.BK SCB Life THB 2, % 1, na na NR 31-Dec 12.8x 12.8x na 5.0x 31.1% 5.0x 31.1% 2.2x 2.2x 13% 13.9% 8.2x 8.2x 18% 5 3.9% -0.2% -0.2% % 12.3% -0.2% 21, % 18.6% 9.9x 9.8x 5 1.8x 16.1% 1.9x 15.2% 1.9x 1.9x 8% 12.1% 11.9x 14.6x 6% 31% 3.5% 1.5% 2.2% 2.4% 0.7% 27.1% 2.6% Taiwan 2882.TW Cathay FHC TWD 18, % RSTR RSTR 31-Dec 14.6x 15.0x -19% 1.3x 8.7% 1.3x 8.8% 0.6x 1.1x 7% 4.3% -6.1x 1.1x 2% 2 1.3% 0.9% -2.2% -8.2% % -2.4% 2823.TW China Life TW TWD 2, % % OPFM 31-Dec 17.5x 14.1x -12% 1.0x 7.1% 1.0x 7.1% 0.6x 0.9x 6% 4.4% -3.7x -1.2x -9% 22% 1.7% 0.6% 0.4% 1.7% -1.2% 0.5% 0.6% 2881.TW Fubon FHC TWD 16, % % NTRL 31-Dec 10.4x 12.1x -25% 1.4x 11.3% 1.4x 11.7% 0.9x 1.5x 9% 7.5% -1.5x 5.5x 7% 4 3.3% 2.2% 1.2% 0.2% 5.6% 19.9% 1.2% 2888.TW Shin Kong FHC TWD 2, % % NTRL 31-Dec 9.7x 10.2x 3% 0.8x 7.9% 0.8x 7.9% 0.3x 0.9x 11% 3.3% -8.5x -0.8x -6% 6% 0.6% -0.3% -2.2% -3.4% -7.3% -8.2% -1.9% 40,913 1, % 7.5% 13.2x 13.0x -13% 1.2x 8.9% 1.1x 8.9% 0.6x 8% 4.9% -5.0x -1% 18% 1.4% 1.3% -0.6% -3.7% -2.8% 10.2% -0.7% NJA insurance 670,990 38,429 1, % 4% 17.8x 17.0x -3% 2.3x 13.7% 2.5x x 11% x 8.8x 13% 33% % 5.2% 50.6% 52.7% 69.6% 4.8% Asia insurance 753,766 44,047 2, % 17% 17.6x 16.9x 1% 2.2x 13.4% 2.4x 14.2% 1.2x 1 7.3% 8.8x 7.5x 12% 34% 2.1% 0.5% % 49.1% 64.1% 3.9% Notes: *Adjusted EV and VNB multiples have standardised assumptions and adjusted for non-life, Source: Reuters, Credit Suisse (*IBES consensus) 12mth forward rolling forecasts (non-rated stocks use consensus forecasts)

5 Table of contents Focus charts 2 Agency survey Agency force profiles 3 Remuneration/product differences 3 Insurance sales easier, savings / cancer key focus 3 Recruitment remains difficult, continued higher attrition 3 Sector valuation matrix 4 Agency force profiles 6 Remuneration/product differences 8 Insurance sales easier, more saving and critical illness focus 9 Recruitment remains difficult 15 China agent survey Agency force profiles 18 Industry experience 23 Company competitiveness 28 Customer profile 29 Product 30 Recruitment 45 Retention 48 Productivity 50 Training/back office 51 Cross-selling 53 Appendix A: Company profiles 54 China Life 59 Ping An 64 China Pacific 69 New China Life 74 PICC Life 79 Taikang 83 China 88 Appendix B: China Life Sector 93 Growth outlook strong watershed in terms of reforms? 97 Impact of pension system reforms 100 Assessing the impact of deferred tax pension 104 Health insurance with tax benefits? 105 Agency remains key value driver 106 Agency channel remains main value driver 106 Key drivers of value enhancement 110 Risk profile rising 115 (1) Increasing investment asset risks 116 (2) Increasing liability risk 119 (3) Price liberalisation 120 Retain OVERWEIGHT view 121 Credit Suisse risk-return profile assessment 123 Stock preferences: 124 China insurance: Key valuation metrics 125 Appendix B: Regional comparisons 127 Appendix C: Global peer valuations 129 Life insurance global comparisons 129 China Life Insurance Sector 5

6 Percentage (%) Percentage (%) 28 January 2015 Agency force profiles We interviewed more than 300 life insurance agents from life insurers including China Life, Ping An, China Pacific, New China Life, Taikang, PICC Life, and China, as well as life insurance brokers CNinsure and Datong, on a national basis. Our life insurance agency survey endeavours to cover as many aspects as possible relevant to the agency forces to form an investor point of view. This includes agency profile, industry experience, customer profile, overall competitiveness, product, remuneration, recruitment, retention, productivity, training/back office and cross-selling. We interviewed more than 300 life insurance agents Figure 9: Survey skewed to developed China Regional distribution survey Figure 10: relative to industry average Regional distribution all agents 33% 35% 29% 44% 23% 36% Source: CIRC, Credit Suisse research, Pi Financial Services Intelligence We interviewed at least 25 agents from each of the insurance companies/brokers. Of the agents we surveyed, around 88% were aged (with an overall average age of 40) and around 67% were female. A typical agent is a middleaged woman Figure 11: Average age around 40 years Age profile - 88% are in age group Figure 12: with around 67% being female Gender profile more than 67% are women CN insure Datong Male Female CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 6

7 Number of years Number of agents Percentage (%) Percentage (%) 28 January 2015 Of the agents surveyed, more than 8 had tertiary education, which at face value goes a little against the common view of the average Chinese insurance agent. However, given we largely interviewed the more successful agents; they are likely to have had greater levels of education. We highlight that under the new regulations, all new recruits must have tertiary education from 1 July More than 9 of the agents surveyed are full-time agents. Of those working part-time, we find, most are women taking care of their family at the same time. Some 8 have had tertiary education Figure 13: More than 8 have university degrees % of respondents with tertiary education 10 Figure 14: with more than 9 of agents working full time % of agents in full time employment CN insure Datong CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence On average, the life insurance agents we surveyed have been in this industry for slightly above nine years and have been in the same company for more than eight years. They do not seem to change companies very often and in general are quite happy with their current company, ranking their own company 4.5/5.0 for overall competitiveness. On average, the team size of the agents interviewed is around 40, although the range by company can vary a bit as highlighted in Figure 16. Figure 15: Average industry experience is 9 years Average industry experience/with current company 11.0 Figure 16: with the average number of agents in team ~40 Number of agents in team industry experience experience at current company CN insure Datong 0 CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 7

8 Percentage (%) Percentage (%) Percentage (%) Monthly income (Rmb) 28 January 2015 Remuneration/product differences The majority of agents are remunerated purely by commission as a percentage of sales. Over 4 of the agents surveyed responded that they thought their compensation was in line with the industry average. China Life had a highest percentage of agents (57%) who deemed their remuneration was below industry average (next highest and Ping An at 18%). Most agents at smaller insurers, such as New China Life (92%) and China (93%), thought their remuneration was higher or at least in line with the industry average. The average monthly income for all the agents in our survey was Rmb17,270, which was up 61% from Rmb10,700 in s agents had the highest monthly income in the industry, while China Life, NCI and PICC Life s agents incomes were the lowest. China Life's remuneration perception below average Monthly incomes of agents surveyed were up Figure 17: China Life agents income perception lowest Do you think your compensation is higher or lower than average? 10 Figure 18: with average incomes up in 2014/15 Monthly income (Rmb) 30, , ,000 15, , ,000 CN insure Datong Below Inline Above CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The average first-year commission rate given to agents that we surveyed was around 31% for protection products and 19% for savings-type products. The average first-year commission rates of Ping An came in lowest at 31% and 15%, respectively, for protection and savings products. China Life s commission rates are lower than industry average too, while the smaller insurers and insurance brokers have higher commission rates. Ping An s commission rates appear to be the lowest Ping An agents monthly income turned out to be quite competitive among its peers despite the lower commission rate, which either implies higher productivity (number of policies sold), or higher average premium size of policies sold and the cross-selling efforts. Figure 19: Commission rates equalising First-year commission, protection product (%) 4 35% Figure 20: for both savings and protection products First year commission, savings product (%) 4 35% 3 25% 3 25% % 15% 1 1 5% 5% CN insure Datong CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 8

9 First year premium (Rmb) First year premium (Rmb) Percentage (%) Percentage (%) 28 January 2015 Insurance sales easier, more savings and critical illness focus Most of the agents participating in our survey are quite satisfied with the products their companies provide and rarely report product gaps. They told us that among their customers, critical illness and savings products are the two mainstream offerings (62%/61% agents mentioned protection/savings respectively). Critical illness and savings are the two main products that the insurance companies are giving incentives for (52%/7 agents mentioned protection/savings respectively), although some insurers have a bias towards savings products (i.e., China Life and ). Agents are generally satisfied with their company s product offerings Critical illness and savings are the two main products that insures are pushing Figure 21: Savings, protection main customer choices Products that the customers like (%) 10 Figure 22: also with incentives by insurers Products that the companies are pushing (%) CN insure Datong Traditional protection Popular Critical product illness among Savings customers Pension A&H CN insure Datong Traditional protection Critical illness Savings Pension A&H Source: Credit Suisse research, Pi Financial Services Intelligence For protection policies, the average first-year premium is around Rmb7,400, with the difference between the lowest and the highest first-year premium being as wide as 45% for insurance companies; and with New China Life being the lowest at around Rmb6,500 and highest at Rmb9,400. Protection has much smaller average first-year premium The average first-year premium for savings policies is around Rmb19,000 which is materially higher than that of protection policies. The gap is similar between insurance companies, with the highest being at Rmb22,450, 46% above the lowest, New China Life, at Rmb15,3800. Figure 23: Average FYP is Rmb7,400 for protection Average first-year premium, protection policy 24,000 22,000 20,000 18,000 16,000 14,000 Figure 24: Average FYP is Rmb19,000 for savings Average first-year premium, savings policy 24,000 21,000 18,000 15,000 12,000 12,000 10,000 8,000 9,000 6,000 6,000 4,000 2,000 3, CN insure Datong CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence, FYP = First Year Premium China Life Insurance Sector 9

10 Percentage (%) Percentage (%) Percentage (%) Percentage (%) 28 January 2015 Our survey also highlights that protection policies generally have a longer premium duration (i.e., greater than ten years). China, Taikang and New China Life have longer duration policies with more than 85% their protection policies above a 20-year premium duration with the percentage for China Life and Ping An is also high. However, China Pacific, most of the protection policies are years. Protection policies generally have a longer premium duration Savings policies are shorter in premium duration than protection. In our survey, Taikang, China, NCI and CPIC have longer-term business as highlighted below. Figure 25: CPIC has shorter duration Duration mix of protection product, % 10 Figure 26: Taikang has the longest duration Duration mix of savings product, % <10 yrs yrs >20 yrs CN insure Datong <10 yrs yrs >20 yrs CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China generally had longer duration across both savings and protection business across all agents surveyed which reinforces what management have been consistently saying with regard to focus on longer duration products. On average, we see that the duration of savings policies in our 2015 survey decreased slightly compared with previous years'. While the sample size is small, we would expect this to some extent given the easier sales environment. Figure 27: Some change in protection duration Duration mix of protection product, % Figure 28: but savings decreased slightly Duration mix of savings product, % <10 yrs yrs >20 yrs <10 yrs yrs >20 yrs Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 10

11 VNB margin (% NB APE) Percentage (%) Percentage (%) 28 January 2015 Continued focus on protection throughout the year Given the tougher sales environment at the time, we saw the Chinese insurers focus more on selling higher margin protection product in 2012, which were generally packaged as a Critical Illness product, with the following key products launched at that time: May China Life ( Kang Ning / Healthy & Safe ) July Ping An ( Chang Qing Shu / Everbright ) Sept China Pacific ( Jin You Ren Sheng / Golden Bliss ) The increased focus on insurance came through strongly in the survey, with the percentage stating company was pushing critical illness products staying at 52% as highlighted below: Figure 29: Insurers pushing more Critical Illness more Products insurance companies are pushing There was a material pickup in the focus on Critical Illness in 2014/ Traditional protection Critical illness Savings Pension A&H Source: Credit Suisse research, Pi Financial Services Intelligence A key reason for focusing more on insurance is shown in Figure 30 below, with AIA s Chinese operations being able to double their margins in the months after listing through greater focus on selling insurance. This highlights that with a professional agency force, insurers are able to sell similar product mix (i.e., with higher protection focus) in China. Figure 30: Product focus doubled AIA China margins Value of new business margin (% NB APE) 7 F'casts Figure 31: with client demand for insurance Is there client demand for insurance focussed products? AIA China 8 4 Ping An China Pacific China Life China 1 New China Life 2 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14F Jun-15F CN insure Datong Source: Company data, Credit Suisse estimates Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 11

12 Percentage (%) Percentage (%) 28 January 2015 Of the agents surveyed, 85% believed that there is client demand for products with a pretty consistent response rate among agents. We again highlight that the agents surveyed are the higher-end agents and agent leaders, which (a) have higher levels of training and education; and (b) are likely to have a wealthier and more educated customer base. As such, the response rate is not likely indicative on the general agent population. Similarly, 73% of the agents believed that they were sufficiently trained to sell more insurance policies/products, and generally agents were of the view that commissions were high enough to compensate for the lower premiums that they received from more insurance oriented sales than they do from savings-type products, with 66% satisfied with the commission levels. Figure 32: Agents confident of insurance sales training Are you sufficiently trained to sell insurance? 10 Figure 33: with enough commissions paid Are commissions enough to allow for lower premiums? CN insure Datong CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence We highlight that a few of the insurance companies have indicated to us that a general cap on commission levels prevents them from selling more insurance at this point as they cannot pay as high commission rates on the pure protection component as other insurers do in the region. As such, this makes it difficult to line up the agents' remuneration with the profitability profile of the products and generally does not compensate the agent enough for the fall in premiums. However, this issue is not thought to be overly important to the agent (who is likely to still be savings-focussed anyway). The commission rates were made more flexible in August 2013, but we still see a lack of awareness amongst the Chinese on how to incentivise riders. Figure 34: What percentage of total VNB comes from riders? Source: Milliman Asia Rider Survey, March 2013 (pan-asia survey, excluding Japan and Korea) China Life Insurance Sector 12

13 Percentage (%) 28 January 2015 Saving focus for 2015 open year sales Figure 35: Insurers focusing on saving and pension products for open year sales Products insurance companies are pushing for open year sales CN insure Datong Traditional protection Critical illness Savings Pension A&H Source: Credit Suisse research, Pi Financial Services Intelligence 58% / 45% of the respondents said that insurers focussed on savings / pension products, respectively, for open year sales. The products insurers pushed in the open year sales at the beginning of 2015 were as follows China Life ( Xin Ru Yi" / " 鑫 如 意 ") Ping An ( Cai Fu Zun Chong / 财 富 尊 崇 ) &( Zun Yu Ren Sheng / 尊 御 人 生 ) New China Life: ( Jin Cai Yi Sheng / 金 彩 一 生 ) In terms of sales, 2015 started with a bang with recent press articles highlighting that first few days equalled last year's January volumes and Ping An sales were up 10 YoY midmonth. China Pacific stated in its Jan 2015 monthly newsletter, that sales in the first week of 2015 were up 102% YoY. China Life Insurance Sector 13

14 Percentage (%) Percentage (%) Percentage (%) 28 January 2015 Easier to sell Of the total agents surveyed, 34% said it was tougher to sell in 2014/15 than in the previous year. This was down from 58% in our survey in Instead, the two independent brokers CNinsure and Datong had the highest response rate (83% / 75%). Ping An is the highest amongst the insurers at around 4. 34% of agents said that it is tougher to sell in 2014/15 down from 58% in 2013 Figure 36: ~34% agents deem environment tougher to sell Is it tougher to sell this year in 2014 (Y/N) CN insure Datong Source: Company data, Credit Suisse estimates In 2011, almost all the agents who thought that it was a tougher selling environment have suggested it was due to the higher returns of competing products (91%), but in 2012 it was seen as a much lower problem (61%), followed by just 44% for 2013 and 42% for Instead, economic conditions are seen as a bigger problem, despite the fact that this year the percentage is lower, with the percentage of agents who thought it was a key driver of weaker sales at 74%, from 79% last year, 71% two years ago and 47% three years ago. Economy seen as bigger issue than Trust products Figure 37: Trust products seen as less of a problem If yes, is it due to higher deposit rate and return of WM? (Y/N) 10 Figure 38: the economy still a bigger problem If yes, is it due to economic conditions? (Y/N) CN insure Datong CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 14

15 Percentage (%) Percentage (%) Percentage (%) Percentage (%) 28 January 2015 Recruitment remains difficult Of the agents surveyed, 75% were of the view that it is more difficult to recruit now than previously. The main reasons for this view were: (1) Poor industry reputation (5); (2) Difficulty in making a living in the industry (26%); (3) Compensation not being competitive (39%); (4) Peer competition (11%), and (5) Company has higher standard (33%). Some 75% of agents said it is harder to recruit, up from 64% in 2012 Figure 39: 75% of agents said it is harder to recruit Is it more difficult to recruit compared to previously? (Y/N) 10 Figure 40: of which 5 blame industry s reputation If yes, is it due to industry reputation? (%) CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence When agents look to recruit new agents, around 54% look for good social connections, while education (43%) and work experience (34%) were key as well. Attrition rates were high at 54% for the first 13 months, albeit agent poaching does not appear to be a material issue, with strong company loyalty among agents. Figure 41: New agents with good connections preferable What is target agent attributes? connections / background 10 Figure 42: of attrition rates high at 54% Attrition rates of new agents (13 month) CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 15

16 Number of policies Number of months Percentage (%) Productivity (Rmb) 28 January 2015 Activity ratios and productivity Our survey also finds that on average, around 65% of the agents are actually active (i.e., meeting the minimum productivity requirement), but we would caution against drawing conclusions from this given the small sample size. China had the highest activity ratio of its agents (7) while CPIC and PICC life had the lowest (59%). PICC Life's average productivity (new business premium per agent per quarter) was the lowest in the sector, while Taikang's average productivity was the highest. CPIC and PICC life have the lowest active ratio Figure 43: Average active agent ratio high at 65% Active agent ratio, % 10 Figure 44: Average productivity was Rmb21,900 Average productivity - new business APE per quarter, Rmb 25, , , , ,000 CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence On average, the agent interviewed sold around six policies per quarter with average premium of around Rmb21,900, which is up from Rmb18,400 last year. Figure 45: Average policies sold per quarter around six Average number of policies sold per quarter Figure 46: with inactive agent terminated within four mths How long are inactive agents kept before letting go? CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 16

17 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 28 January 2015 China agent survey 2015 In conjunction with Pi Financial Services Intelligence, we interviewed more than 300 life insurance agents in December / January We focused on agents from the top-seven life insurers in China: China Life, Ping An, China Pacific, New China Life, Taikang, PICC Life, and China, as well two life insurance brokers: CNinsure and Datong. Our survey covers over 300 agents, covering the topseven insurers and two independent brokers Figure 47: Top-seven insurers have ~74% market share China Life insurance market share (% premiums) Top 5 = 65% Figure 48: and a similar market share of agents China Life insurance agents 1,000, , , , % 17.8% 21.8% 600, , , % 7.5% 6.1% 5.1% 4.8% 3.8% 300, , , China Life Source: CIRC Ping An Life New China Life China Pacific PICC Life Tai Kang Tai Ping Life Anbang Life Others Dec-07 Dec-10 Dec-13 Nov-14 - China Life Ping An China Pacific New China Life Taikang PICC Life China Fully authorised One licence expired Both expired Source: Pi Financial Services Intelligence Our sample size of over 300 (albeit representing over 10,000 agents given on average that the agents surveyed have 40 agents on average in their team) compares to a combined agency of 2.7 mn for the seven insurers. As such, we would caution investors to use our survey results as being representative. We also note that our survey is focused on the higher producing agents and as such, is more representative of this segment of the agency force rather than all agents. Our agency survey endeavours to identify the key areas of the insurers agency force including: Agency profile, industry experience, customer profile, overall employer competitiveness, product, remuneration, recruitment, retention, productivity, training and back office. Figure 49: Premium and agent market share differences in part due to bancassurance China life insurance premium vs agent market share (% ) 35% 3 25% 2 15% 1 5% China Life Ping An China Pacific Tai- kang New China Life PICC Life China Agent market share Premium market share Source: CIRC, Pi Financial Services Intelligence, Credit Suisse estimates China Life Insurance Sector 17

18 Percentage (%) 28 January 2015 Agency force profiles The first part of our survey focuses on the agency profile of each insurer, collecting the basic information from an agent such as age, gender, education and whether they are working part-time or full-time. Q1a: Age grouping Please indicate which age grouping you fall under: A B C D. 50+ Figure 50: 88% of all agents surveyed are aged China life insurance agency age profile (years) % of agents surveyed were aged 30-50, with an average age of CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Our survey response highlights that more than 88% of agents are in the age group 30-50, with an average age of around 40 (based on a company age range of 37 to 43). This compares to around 55% of the Chinese working population being in the age range (see Figure 54). New China Life has the highest percentage of agents in the age grouping with a 6 range and the youngest average age of 37 years. CNinsure has the most number of agents in the younger age category in our survey, with 33% in the age group and an average age of 38 years. Taikang has the oldest agency force in our survey with an average age of 42, with 9% of respondents in the 50-plus age category. We highlight that our limited sample size and skew to higher producing sales agents necessarily skew our results to older agents than would likely be the average age of the total agency force of each company. China Life Insurance Sector 18

19 Average age (years) 28 January 2015 Figure 51: 88% of all agents surveyed are aged China life insurance agency age profile (years) 45 Average agent age is 40 based on a company age range of CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence We highlight the average age of the Chinese population is around 33 years with the average age of the working population around 36, relative to 40 for our agent survey. Figure 52: Age distribution of agents surveyed relative to working population Agent survey (%) China working population (%) Source: CEIC, Credit Suisse research, Pi Financial Services Intelligence Figure 53: 88% of agents aged China life insurance agency age profile (years) 50+ 7% % Figure 54: relative to 55% of the working population China working age profile (years) % % % % % % Source: Credit Suisse research, Pi Financial Services Intelligence Source: CEIC China Life Insurance Sector 19

20 Percentage (%) 28 January 2015 Q1b: Gender mix A. Male B. Female Figure 55: Insurance agents skewed to females China life insurance agency gender mix (%) 10 Around 67% of life insurance agents surveyed are female Male Female CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The agents surveyed were predominantly female, making up 67% of the total. This compares to 48% of the working age population of China. New China Life had the highest percentage of female agents at 84%. China Life, Ping An, China Pacific and China has similar percentage of female agents at 61-64% of its agents surveyed being female, which we do think is likely to be a feature of its total sales force. Figure 56: 67% of agents female China life insurance agency gender profile (%) Figure 57: relative to 48% of the working population China working age gender profile (%) Male 33% Female 48% Male 52% Female 67% Source: Credit Suisse research, Pi Financial Services Intelligence Source: CEIC China Life Insurance Sector 20

21 Percentage (%) 28 January 2015 Q1c: Have you had tertiary education? A. Yes B. No Figure 58: More than 8 of agents surveyed had tertiary education % of agents with tertiary education 10 More than 8 of agents surveyed have had some form of tertiary education CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence More than 8 of the respondents stated that they have some form of tertiary education, which is a little contradictory to our previous impression that life insurance agents in China do not generally have good educational backgrounds. However, we highlight that our survey sample is skewed to the more successful agents, and as such, is likely to be biased to more highly educated agents. In a speech on 7 January 2012, the CIRC (China Insurance Regulatory Committee) chairman, Mr Xiang, lamented the poor industry image and lack of well-trained / educated agents. We highlight that the range by company was 73-89%, with the average at 81%. Ping An Taikang and PICC life has the lowest percentage of agents who have tertiary education (73%, 79% and 79%), to be a function of the fact that it also has the older agency profile and, in particular, a higher percentage of agents who are aged above 50 and female. China Life has the highest percentage of agents surveyed with tertiary education, with around 89% of respondents stating they had some form of tertiary education. China Life Insurance Sector 21

22 Percentage (%) 28 January 2015 Q1d: Would you consider yourself full-time or part-time employees? A. Full-time B. Part-time Figure 59: Over 9 of agents surveyed were full-time employees % of agents surveyed who deemed themselves to be full time employees 10 More than 9 agents surveyed considered themselves as full-time employees CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence More than 9 of the agents that we have surveyed are full-time agents; by company, this figure ranged from 81% to 10. Given that the average experience of the agents is high and many are team leaders, this is not unexpected and not likely to be indicative of the average agent profile. Quite nearly 10 of China, PICC Life and Datong agents participating in our survey stated they were full-time agents. Taikang had the lowest percentage of full-time agents (81%), which could be a function of the older age profile and higher female percentage of our sample for the company. China Life Insurance Sector 22

23 Number of years 28 January 2015 Industry experience Second, we focus on the agents surveyed experience, position and size of teams; and the level of income generated by the team. Q2a (1): How many years have you been an insurance agent? Q2a (2): How many years have you been in your current insurance company? Figure 60: Average experience of 9.2 years (with 8.3 years at current company) Years of industry experience and years in current company On average, the agents surveyed had 9.2 years of experience, with 8.3 years at the current company industry experience experience at current company CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence On average, the life insurance agents we have surveyed have been in this industry for 9.2 years and have been in the same company for around 8.3 years (or 91% of their careers; 72% had worked only for their current company during their entire career as an agent). If we examine the insurers alone, the average experience is 9.2 years, with 8.6 years at their current company (with 74% having worked only with their current company). China s agents have the highest experience levels, averaging 11.0 years, and have been in the same company for the longest 10.0 years). Taikang s agents have the second-longest industry experience (10.2 years with 9.1 years with the company). Not surprisingly, New China Life has the shortest experience (and time with company), given that its average age is the lowest in our survey, followed by China Pacific. The two insurance brokers generally have experienced agents, but they generally come from other companies. As we highlight later, the higher commission rates available at these brokers is likely to be a key attraction. China Life Insurance Sector 23

24 % career at current company % only worked for current company 28 January % of Ping An agents surveyed had only worked with Ping An during their careers as agents (with an average of 8.7 years with the company). Figure 61: 72% of agents surveyed had only worked for current company % of agents having only worked for current company 10 8 >7 of agents have only worked for their current company CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Less than half of the broker agents had only been with that particular firm, while those working for insurance companies had spent around 9 of their careers there. Figure 62: On average agents spent 91% of career at current company % of career at current company 10 and on average 91% of their career Source: Credit Suisse research, Pi Financial Services Intelligence CN insure Datong China Life Insurance Sector 24

25 Percentage (%) 28 January 2015 Q2b: Do you lead a team? A. Yes B. No Figure 63: Around 72% of the agents surveyed are team leaders % of respondents who are team leaders 10 72% of respondent were team leaders CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Of the agents that took part in our survey, 72% stated they were team leaders; by company, the response ranged from 5 to 86%. China Pacific stands out as the insurer with the highest percentage of team leaders picked up in our survey, with 86% of agents being team leaders. Despite having the oldest and one of the more experienced agency forces surveyed, Taikang had a lower percentage of agents that were team leaders. CNinsure had the lowest percentage of agents who were team leaders, with just 5, highlighting a likely key difference in operating models. China Life Insurance Sector 25

26 Number of agents Number of layers 28 January 2015 Number of agents in team We then asked the agents two further questions around their team structure: Q2c (1): How many agents do you have in your team? Q2c (2): How many layers of agents do you have in your team? Figure 64: Agents surveyed had 40 agents in a team Average number of agents in a team 100 Figure 65: with around three layers of agents Average layers of agents in a team CN insure Datong Source for both charts: Credit Suisse research, Pi Financial Services Intelligence On average, the team size of the agents we surveyed is around CN insure Datong Despite having the lowest percentage of agents who are team leaders, Taikang has one of the largest average team sizes of 42 agents. The largest insurer in terms of average team size is China with 82 agents. Average team size is slightly less than 38 agents CNinsure, the entity with the fewest team leaders (5), had one of the highest team size of 54 agents. The other companies have average team sizes of around agents. Most agents have told us that they have two or three layers of agents below them, while China and CNinsure have more layers. China Life Insurance Sector 26

27 Rmb mn Rmb mn 28 January 2015 Q2d (1): What is the annual new business APE (annual premium equivalent) for your team? Q2d (2): What is your own annual new business APE? Figure 66: Average new business premium per team was Rmb3.3 mn Average new business APE (Rmb mn) Average premium per team is Rmb3.3 mn Team APE Leader APE CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Average annual new business APE of all the agents surveyed was Rmb3.3 mn. The average new business APE of the team leader was Rmb0.6 mn, while the average per agent overall was Rmb0.083 mn. Figure 67: Average new business premium per leader was team was Rmb0.6 mn Average new business APE (Rmb mn) Average premium per leader was Rmb0.6 mn (and Rmb0.083 mn per agent) Team APE Leader APE CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 27

28 Percentage (%) Rating (1-5) 28 January 2015 Company competitiveness Q3a: How would you rate your company s overall competitiveness? (1-5, 5 highest) Q3b: Would you consider moving companies? Q3c: Name companies that you deem are competitive? Figure 68: Agents ranked their companies 4.5/5.0 on average for competitiveness Average rating of company s overall competitiveness 5.0 Agents ranked their companies 4.5/5.0 on average for competitiveness CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Most of the agents we surveyed ranked their own company s competitiveness strongly with average rating of 4.5 out of 5.0 (down from 4.6 last year), with very few considering moving. Very few appeared to have awareness of competitors, with Taikang having the most mentions. Figure 69: Only 11% of agents surveyed would consider moving Would you consider moving companies? 25% Agents rarely consider moving (but percentage rising) 2 15% 1 5% CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 28

29 Percentage (%) 28 January 2015 Customer profile We then examined the customer profile of each insurance company to try to determine if there is an obvious bias towards a certain group of customers. We highlight that we have not attempted to prescribe the definition of each category. Q4a: What percentage of your customer base would you estimate in each category? A. Low end B. Middle class C. High end Figure 70: Ping An, and PICC Life have more high-end customers % of customer base by wealth category 10 Ping An, and PICC Life have more high-end customers Low end Middle class High end CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence On average, out of all the agents we surveyed, 3 of their customers are low-end customers, 48% middle-class customers and 18% high-end customers. China has the one of the highest percentage of high-end customers at 21%, the least low income customers at 22% and the most middle-class customers at 55%. Ping An has the highest percentage of high-end customers at 22%. PICC Life, China Pacific and New China Life have a higher percentage of low-income customers (i.e., more than 38%). China Life Insurance Sector 29

30 Mark (1-5) 28 January 2015 Product We next focused on the product suite offered by companies, how competitive the agents deemed them to be, what is popular and what companies were incentivising. Q5a: How would you rate your company s product competitiveness? (Range 1-5, 5 being the highest) Figure 71: Company competitiveness was ranked at 4.4 out of 5.0 Average rating of company product competitiveness 5.0 Agents generally find their own products competitive CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence We analysed each company s product competitiveness by asking the agents to rate whether the product suite offered by their companies caters to their customers needs. Our results highlight that most of the agents are very satisfied with the product suite provided to them to recommend to their clients and rarely raised any issues of any product gaps or lack of competitiveness. Most companies have an average response of greater than 4, with the range being quite tight averaging 4.4 and ranging from 3.9 to 4.7. New China Life, Ping An, CPIC, PICC Life and China scored the highest among the insurers. China Life received the lowest average mark from its agents. Ping An s agents were quite contented with regards to the company s financial conglomerate model because on top of the life insurance products, they are also able to offer other financial products including non-life insurance products, credit cards and trust products to meet their customers demand. We also note that agents who work for independent insurance agencies such as Datong and CNinsure are mostly very satisfied with their products because they have product supplies from various insurance companies, which enables customers to compare and select in terms of product feature and price. Ping An s agents were satisfied on the ability to offer an extended product range (i.e., non-life, trust and banking) China Life Insurance Sector 30

31 Percentage (%) Percentage (%) 28 January 2015 Next we attempted to examine the popularity of the mainstream products offered in China, namely: Traditional protection, critical illness, savings, pension and accident and health. In addition, we asked which products were currently being incentivised by their companies, and asked which products were popular with their customers. Q5b (1): What are the popular products viewed by customers? Q5b (2): What are the key products that the companies are pushing? A. Traditional protection B. Critical illness C. Savings D. Pension E. Accident and Health Figure 72: Popular products viewed by customers % of respondents stating customers found products popular 10 Figure 73: products that the companies are pushing % of respondents stating company was incentivising product CN insure Datong Traditional protection Popular Critical product illness among Savings customers Pension A&H CN insure Datong Traditional protection Critical illness Savings Pension A&H Source: Credit Suisse research, Pi Financial Services Intelligence Not surprisingly, we found critical illness and savings products to be the two most popular products among both customers and insurance companies. The agents surveyed stated that 61% (2014: 43%) and 62% (2014: 55%) of their customers prefer savings and critical illness products, respectively, while 7 (2014: 46%) and 52% (2014: 44%) told us that their companies were pushing savings and critical illness products, respectively. There was a major change in agent view of critical illness, with 62% of agents responding that critical illness is popular among their customers (2014: 55%, 2013: 64%, 2012: 35%) and 52% mentioned that the companies are pushing the critical illness products (2014: 44%). Highest response rates of client popularity of Critical illness (>6) were from New China Life, China, Taikang, China Pacific and PICC Life. While most companies emphasise on both protection product and savings products, China and Taikang are the two companies that appear to be pushing savings products the hardest, with less focus on traditional protection type of products. Critical illness and savings are the two most popular products Critical illness continued to be pushed in 2014/15 China Life Insurance Sector 31

32 First year premium (Rmb) 28 January 2015 The next question we asked was what the typical first year premium of the two most common products, protection and savings, was (which we can compare against the customer profile and product bias). Q5c (1): What is the typical first year premium for a protection product? Figure 74: Average FYP for protection is around Rmb7,400 Average first year premium for protection products (Rmb) 12,000 10,000 Average first year premium for protection is around Rmb7,400 8,000 6,000 4,000 2, CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence For protection policies, the average first-year premium was Rmb7,400 in the 2015 survey, up from Rmb5,200 in The difference between the lowest and the highest first-year premiums for insurance companies was as wide as 44%. New China Life was the lowest at Rmb6,476, followed by CPIC at Rmb6,659. The two insurance brokers had high average premiums: Datong being the highest at Rmb8,800 and CNinsure at Rmb6,700. China had the highest first year premium among insurance companies at Rmb9,355, followed by China Life at Rmb7,522 and Ping An at Rmb6,820. Although we do not exactly know the product features, such as coverage, benefit and duration, the average first year premium highlights the different demographic profiles of the insurers customer base and ties up with the results from question 4. China Life Insurance Sector 32

33 First year premium (Rmb) 28 January 2015 Q5c (2): What is the typical first year premium for savings product? Figure 75: Average FYP for savings products is around Rmb19,000 Average first year premium for savings products (Rmb) 24,000 21,000 18,000 Average first year premium for savings is Rmb19,000 (2.6x the protection average) 15,000 12,000 9,000 6,000 3, CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The average first year premium for savings policy is Rmb19,000, up from Rmb 14,100 in 2012, which is materially higher than that of protection policy. The gap is smaller between insurance companies as the difference between the highest and lowest is 47%. CNinsure has the lowest average at Rmb12,800, with New China Life having the lowest average among insurers at Rmb15,380. Ping An has the highest average with Rmb22,460; followed by China at Rmb21,650 among insurers and China Life at Rmb21,000 (albeit we note this is materially more skewed to shorter-term products). The results highlight that insurance brokers such as CNinsure are substantially more protection-focused than the sales force of the insurers, with companies such as PICC Life heavily skewed to savings type products. China Life Insurance Sector 33

34 Percentage (%) 28 January 2015 Next, we examine the premium payment duration of protection and savings product to see if there are any fundamental differences between companies. Q5d (1): What is the typical premium duration for protection product? A. Less than 10 years B. Between 10 and 20 years C. More than 20 years Figure 76: Protection products are skewed to longer durations (especially 20+ years) Duration mix for protection product (% in each grouping) 10 8 Protection policies are skewed in longer durations (especially 20+ years) <10 yrs yrs >20 yrs CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence For protection policies, none of the agents surveyed stated they sold any policies with a duration below ten years. The agents interviewed stated that 74% of their protection sales were for products with more than 20 years duration, while the remaining 26% was years duration. The vast majority of China, Taikang and New China Life s agents' protection sales are 20 years or higher in duration. China Life, Ping An and PICC Life have higher percentage in 20+ years category (above 7). China Pacific had the lowest percentages of high-duration products, with around 35% of the responses in the 20+ years category. China Life Insurance Sector 34

35 Percentage (%) 28 January 2015 Q5d (2): What is the typical premium duration for savings product? A. Less than 10 years B. Between 10 and 20 years C. More than 20 years Figure 77: Savings product duration materially lower than protection Duration mix for savings products (% in each grouping) 10 8 Premium payment duration for savings much lower than protection products <10 yrs yrs >20 yrs CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Premium payment duration for savings product is generally lower than protection products. Out of all responses, 34% are below ten years, 63% are between 10 and 20 years and only 3% are more than 20 years. China and Taikang were the standout among the insurers, with just 22% and 13% responses of duration below ten years for its investment products. At the other end of the scale, China Life, Ping An, China Pacific, PICC life, China and Taikang don t have any responses in the 20 years+ category. PICC Life and Ping An have the highest percentage of responses in category below ten years, and are hence likely to have the shortest average duration. Among insurance brokers, NCI has the highest percentage of response in the 20 years+ category. China Life Insurance Sector 35

36 Percentage (%) 28 January 2015 We then move on to ask whether the current sales environment is tougher than it was in the previous years for the insurance agent. Q5e (1): Is it tougher to sell insurance product in 2014? A. Yes B. No Figure 78: Only 34% of agents think the sales environment is tougher Is it tougher to sell (relative to last year)? 10 34% respondents said tougher sales in CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Of the agents interviewed, 34% said that it was tougher to sell in 2014/15 compared to the previous year, down from 58% in CNinsure and Datong had the highest percentage of agents who thought it was tougher this year, at 83% and 75% respectively. Ping An was by far the highest in the survey of three years' ago, noticing the impact of higher trust product margins given their HNW bias, but improved in the last two years. Taikang and China had lowest percentages of agents reporting a tougher selling environment in 2015, with 26% and 14%, respectively. China Life Insurance Sector 36

37 Percentage (%) Percentage (%) 28 January 2015 We then examine the reasons why the agents deemed the selling environment to be tougher. Q5e (2): If yes, is it due to higher bank deposit rate and/or returns of wealth management products? Q5e (3): If yes, is it due to the (potential) economic slowdown? Figure 79: 42% said due to rates on other products Due to higher rates on competing products (%) 10 Figure 80: 74% said it was due to economic conditions Due to economic slowdown (%) CN insure Datong CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence 14% (or 34% of those who deemed it to be a tougher sales environment) stated that the key reason for the tougher environment was competing rates from bank deposits and/or wealth management products. The 42% compared to 91% in 2012 s survey. The average response rate was 42% for the insurance companies (with a range of 33 55%) and 19% for the two insurance brokers. Respondents who thought the environment tougher said it was due to competing products being down from 44% last year to 34% 25% (or 34% of those who deemed it to be a tougher sales environment) also responded that the tougher sales were associated with a macro-economic slowdown/economic conditions. The 74% compared to 79% in last year s survey. The variance of responses to this question was quite high, ranging from 54% to 86%. Taikang (82%), PICC Life (86%) and China (83%) had the highest positive response rate to this question. China Life Insurance Sector 37

38 Percentage (%) Percentage (%) Percentage (%) 28 January 2015 Given that some companies have been having duration mix issues recently, we went on to ask if the premium payment duration was shortening recently. Q5f (1): Did you (your team) sell more shorter-term products this year? Figure 81: Around 44% of agent saw premium duration shortening Did you sell more shorter-term products this year? % respondents stated that they sold more shortterm products CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Overall, around 44% of the respondents indicated that they sold more short-term products in the current year than in the previous year. The highest response rate was from China (66%). Q5f (2): If yes, is it due to customer demand? Q5f (3): If yes, is it due to tighter liquidity? Figure 82: 36% said it was due to customer demand Yes due to customer demand (%) Figure 83: but just 13% said due to tighter liquidity Yes due to tighter liquidity (%) CN insure Datong CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence. China Life Insurance Sector 38

39 Rating (1-5) 28 January 2015 Remuneration We move on to examine the remuneration structures of life insurance agents and the differences (actual or perceived) among them. Q6a: How do you rate your company s remuneration competitiveness? (Range 1-5, 5 being highest) Figure 84: China Life and Ping An received low remuneration competitiveness scores Rating of remuneration competitiveness (1-5) 5.0 China Life and PICC Life scored low on remuneration CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The average rating given by the agents to their own company in terms of remuneration competitiveness is 3.6. China Life and PICC Life scored relatively poorly, at 2.7 and 3.2, respectively. Datong had the highest rating three years ago, with a perfect score of 5.0, but fell to below average two years ago, to 3.9, increased slightly to 4.0 last year and to 4.2 this year. Agents working for insurance brokers such as CNinsure and Datong have told us previously that they find their compensation quite competitive compared to agents working for insurance companies because in addition to the higher average compensation, the insurance brokers often give their agents more management control and flexibility in terms of expense allocation, as well as the base salary. China Life Insurance Sector 39

40 Percentage (%) 28 January 2015 Next we examine whether the agents think their sales commission was in line with the industry average, where (not surprisingly) we find the answers consistent with the result we have shown in the above question. Q6b: How do you think your compensation compared to industry peers? A. Below industry average B. In line with industry average C. Above industry average Figure 85: 42% of agents deemed their compensation structure above peers Agent view of compensation relative to peers (% per category) 10 42% of agents deemed they had above-average compensation Below Inline Above CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Of those that responded to this question, 42% (2013: 29%) thought they had above-peer compensation, 41% (2013: 55%) thought it was in line and only 17% (2014: 2) thought it was below. Consistent with the rating received from its agents, China Life scored poorly in these questions, with 57% of its agents responding that they thought their remuneration competitiveness was below peers (despite recent changes to the remuneration structure at the insurer) and none above peers. Some 57% of China Life agents thought they have compensation below average Ping An was the next worse, with 18% (2014: 29%) saying that their remuneration was below peers, which was similar to PICC Life. However, the ratio of Ping An agents who thought they got paid above average was also much higher than others (49%). The improvement in compensation may be driven by the cross-selling efforts in the last two years. China, and Taikang had higher ratings among the insurance companies. China Life Insurance Sector 40

41 Percentage (%) Percentage (%) 28 January 2015 Q6c (1): What is the typical first-year commission rate for protection product? Figure 86: Average FYP commission rate is ~31% for protection Average first year commission rate for protection products (%) 4 35% Average FYP commission rate is ~31% for protection 3 25% 2 15% 1 5% CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The average first-year commission rate given by the agents we surveyed was around 31% for protection type product. The average first-year commission rate of China Pacific, Taikang, PICC Life and Ping An s agents came in at 3-31%, while China had the highest commission rate at 33%. Q6c (2): What is the typical first-year commission for savings product? Figure 87: Average FYP commission rate is ~19% for savings Average first year commission rate for savings products (%) 4 and ~19% for savings 35% 3 25% 2 15% 1 5% CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 41

42 Percentage (%) 28 January 2015 The average first year commission rate for a savings product was 19%. The lowest average rate was again at Ping An, with an average first year commission rate of 15% and the highest was at China at 21%. Over-ride commission levels As team leaders, agents normally receive over-ride commission from the sales of their team as part of their total compensation to reflect their management and training responsibility. It is often a sliding scale system to take into account the team s sales, activity ratio, persistency ratio and some other factors. Q6d: What is your average over-ride commission? Figure 88: Average over-ride commission is a little under 5% Average over-ride commission for team sales (%) 14% Over-ride commission rate on team sales was 5. 12% 1 8% 6% 4% 2% CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The simple average over-ride commission rate on team sales was 5.. Ping An again was the lowest at just 3.8% while the agents from all the other insurers were around the 5% override commission level (with CNinsure materially higher). China Life Insurance Sector 42

43 Percentage (%) 28 January 2015 We go on to investigate other compensation and incentives that agents may receive from their companies. One major difference we noticed is that insurance agencies give a part of the operating expense to their agents to allocate as they see fit, while the insurance companies rarely do that (anecdotally some smaller insurers periodically have done the same to boost sales). Q6e: Do you receive any other incentives (e.g., trips)? Figure 89: Around 71% of agents received other incentives Do you receive any other incentives? 10 8 Some 71% of our respondents said they have received other incentives CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Holiday trips/seminars packaged with site visit tours are the most common incentives that the insurance companies use to reward their highly productive agents. When asked, 71% of our respondents said they have received some other incentive such as a holiday trip as a reward. 89% of China Pacific s agents that took part in our survey received such incentives. Insurance brokers focus more on this kind of bonus in the last two years. China Life Insurance Sector 43

44 Monthly income (Rmb) 28 January 2015 Q6f: What is your monthly income? Figure 90: Average monthly income is around Rmb17,270 Average monthly income (Rmb) 30,000 25,000 Average monthly income for agents in our survey was Rmb17,270 20,000 15,000 10,000 5, CN insure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The average monthly income for all the agents that have taken part in our survey was around Rmb17,270, up from Rmb10,700 in 2013 s survey. China s agents had the highest monthly income in the industry at Rmb25,320. PICC Life and China Life agents monthly income came out to be materially below the industry average at around Rmb9,850 and Rmb12,350, respectively. Ping An agents monthly income turned out to be quite competitive (Rmb17,260) among its peers despite the lower commission rate, which implies higher productivity (number of policies sold) or higher average premium size of policies sold and the cross-selling efforts. China Life Insurance Sector 44

45 Percentage (%) Percentage (%) Percentage (%) 28 January 2015 Recruitment We then move on to discuss the team performance, including recruitment, retention and productivity; starting with the ideal agent profile. Q7a: What is your target agent profile? A. Education B. Experience C. Connection Figure 91: Education is important for 43%... Education is important when recruiting (% of respondents) Figure 92: with 34% choose experience Experience is important when recruiting (% of respondents) CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Out of the three factors we asked the agents, social connection came out the most important factor, with 54% of agents deeming it important. Some 34% of respondents deemed experience an important factor, while 43% respondents thought education was an important factor. CNinsure Datong Figure 93: but social connections ranks highest at 54% Social connection is important when recruit (% of respondents) 10 8 Social connections deemed most important in recruitment CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 45

46 Percentage (%) Percentage (%) Percentage (%) Percentage (%) 28 January 2015 Given that we have seen agent number growth slow for a few insurers in the sector, we then asked what the agents have experienced in terms of recruitment. Q7b: Is it more difficult to recruit compared to one year ago? If yes, is it because of A. compensation not being competitive B. bad industry reputation C. peer competition D. hard to survive E. company has higher standard Figure 94: 75% of agents deemed it tougher to recruit Is it more difficult to recruit? 10 Figure 95: with 39% stating due to compensation levels Yes, because compensation not competitive CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence 75% of the agents that we surveyed told us that it was more difficult to recruit last year. The poor industry reputation was the most prevalent response as to why the agents thought that recruiting was tougher, with 5 of respondents noting this as a key reason. Figure 96: 5 due to poor industry image Yes, because of bad industry reputation 10 1 CNinsure Datong Figure 97: and 11% due to peer competition Yes, because of peer competition 10 Some 75% of agents thought recruitment was tougher, and of those, 5 thought it was due to poor industry image CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Datong s and CNinsure s agents thought that their companies had a higher standard of selecting qualified agents, as they rarely do mass recruitment unlike the insurers. China Life Insurance Sector 46

47 Figure 98: with 26% due to tougher environment Yes, because hard to survive Figure 99: 33% because company has raised standards Yes, because company has higher standard Percentage (%) Percentage (%) CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Anecdotally, some companies provided 3-12 months base salary for new recruits to encourage joining, with the amount level depending on policies they sold each month, which is called the base salary with responsibilities. 28% of the respondents said that the level the base salary increased in the last 12 months. However, the feedback we have got from our survey shows that most of the companies don t have base salary without responsibilities (can get salary without selling any products) for new recruits. Figure 100: 43% companies provide base salary Whether provided base salary for new recruits with responsibilities Figure 101: 28% increased base salary Has base salary increased in last 12mths for new recruits? Percentage (%) Percentage (%) CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 47

48 Percentage (%) 28 January 2015 Retention We next move on to study the success ratio of new recruits and the stability of a team by looking at retention/attrition ratio and agent poaching ratio. Q8a: What is the attrition rate in your team? (How many of your first-year agents leave after 13 months?) Figure 102: 54% of agents leave before 13 months Average attrition rate after 13 months for new recruits CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The average attrition ratio for most of the companies is quite high (around 54%). However, for China, the attrition rate is actually quite low, at 43%, and anecdotally the agents of have told us that they were more restrained in agent recruiting and had very systematic training for the new recruits to ensure relevant support to new agents, followed by China Pacific at 46%. Datong and CNinsure had lower attrition rates as well. However the rest, namely China Life, Ping An, New China Life, Taikang and PICC Life, have high attrition rates, i.e., 51-68%. Those who ceased to be agents after 13 months would normally have poor performance; hence, we deem they would leave the industry instead of changing to another company. China Life Insurance Sector 48

49 Percentage (%) 28 January 2015 Q8b: What is the agent poaching rate in your team? (What percentage of your agents have been poached?) Figure 103: China agent poaching levels remain low Average agent poaching rate (%) 2 18% 16% 14% 12% 1 8% 6% 4% 2% CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence In general, agent poaching is not as severe an issue in the China life insurance industry as we may have anticipated or compared with other countries in Asia. Indeed, in the earlier section (overall competitiveness), we have shown that agents generally rate their companies very highly and few agents actually told us they want to work for another insurance company. The average poaching ratio estimated by the agents that we interviewed was only 8.6%, China Life being the highest at 12.6% followed by at 11.7% which is consistent with our findings that China Life has the highest employees wanting to move companies at 19% and lower satisfaction of compensation. China Life Insurance Sector 49

50 Percentage (%) Number of months Productivity (Rmb) Productivity (Rmb) 28 January 2015 Productivity Q9a: What is the minimum productivity requirement? Q9b: What is average productivity? (first year premium per quarter) Figure 104: Min productivity is Rmb1,760 per quarter Minimum productivity requirement (Rmb) 6,000 Figure 105: with average productivity of Rmb21,860 Average productivity (Rmb) 25,000 5,000 20,000 4,000 15,000 3,000 2,000 10,000 1,000 5, CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The average minimum productivity requirement set by the insurance companies averages around Rmb1,760, down from Rmb3,600 in 2013 s survey. Ping An has the highest average minimum productivity requirement at Rmb2,380 while China Life had the lowest productivity requirement at Rmb1,540 on average. Average productivity the agents estimated for their team was Rmb21,860 with China the highest of the insurers at Rmb24,130 and PICC Life the lowest at Rmb19,190. Q9c: How many agents are active in your team? Q9d: How long are inactive agents kept before termination? Figure 106: 2/3 of team agents were considered active Average active agent ratio 10 Figure 107: with inactive agents getting ~3.8 months How long are inactive agents kept before termination? CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Our survey shows that on average around 65% of the agents are active (i.e., meeting the minimum productivity requirement). China and NCI had the highest percentage of active agents (71%), while Taikang and CPIC had the lowest (59%). On average, the inactive agents are kept for 3.8 months before termination. China Life kept inactive agents the longest at over five months. CNinsure Datong China Life Insurance Sector 50

51 Rating (1-5) Rating (1-5) Rating (1-5) Rank (1-5) 28 January 2015 Training/back office Q10a: Rate the quality of training received at your company (Rate 1-5)? Q10b: Rate the frequency of training received at your company (Rate 1-5)? Figure 108: Average quality of training score rated 4.0 Quality of training (Rating 1-5) 5.0 Figure 109: with frequency 4.1 Frequency of training (Rating 1-5) CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence The average rating for quality of training and frequency of training was 4.0 and 4.1, respectively. The highest scores were posted by Ping An with 4.7 for the quality of training and 4.6 for the frequency of training, respectively. Q10c: How do you rate the quality of software (mark 1-5)? Q10d: How do you rate the back office processing at your company (mark 1-5)? Figure 110: Quality of software rated 4.2 Quality of software 5.0 Figure 111:.and back office processing 4.3 Quality of back-office processing CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 51

52 Number of days 28 January 2015 Q10e: How many days does it take to process a policy application? Figure 112: Takes on average just under four days to process an application Average days taken to process application CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence Among the insurers, Ping An had the fastest turnaround with an average of around three days. The longest turnaround times were seen at PICC Life (5.8 days). China Life Insurance Sector 52

53 Percentage (%) Percentage (%) Percentage (%) Percentage (%) 28 January 2015 Cross-selling Q11a: Are you licensed to sell non-life products? Q11b: Do you refer it to non-life sales agents? Figure 113: 53% of respondents able to sell non-life Percentage with non-life license 10 Figure 114: with referral to non-life agents low Do you refer it to non-life sales agents? CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence On cross-selling of non-life, in particular auto insurance products, 53% of our respondents said they are qualified, i.e., they have the relevant licence, to sell. However, in general, the percentage of non-life insurance sales was not high, i.e., just around 5%, as a lot of companies didn t provide any incentive for the agents to sell non-life products and the average commission rate was low at 8%. Q11c: Do you receive any incentive selling non-life products? Q11d: What s the non-life commission? Figure 115: Incentives for non-life low Whether receive any incentive for non-life sales Figure 116: with commission level of ~8% Non-life product commission CNinsure Datong CNinsure Datong Source: Credit Suisse research, Pi Financial Services Intelligence China Life Insurance Sector 53

54 Appendix A: Company profiles Given the likely stronger growth profiles of and China, we believe positioning by region will be a key determinant of a company s future growth potential. As highlighted in Figure 117, growth rates have already been lower in China relative to the rest of the country. We highlight that growth rates by company reflect this (Figure 118), with growth rates of the smaller companies stronger in non- China with bancassurance allowing them to penetrate more remote parts of China, which was previously not accessible to them. Figure 117: China growth rate varies by region Life insurance premium 5-yr CAGR (% p.a.) by region to % Figure 118: so does company growth by region Life company growth (5-yr CAGR % p.a.) by region to % % 5. Source: CIRC Inner Mongolia National 0. Source: CIRC As a result, we highlight that China Life s erosion of market share is in fact not in China as you would expect, but mainly in and China. From 2008 to 2013, China Life s market share has reduced from 4 to 3, but in China, its market share reduced from 45% to 31%. Market China Life Ping An China Pacific New China Life Tai- kang PICC Life China Figure 119: Market shares vary by region Market share by region % 4 35% 3 25% 2 15% 1 5% Figure 120: with peers gain on the erosion of China Life Market share by region % 4 35% 3 25% 2 15% 1 5% China Life Ping An China Pacific New China Life Tai- kang PICC Life China China Life Ping An China Pacific New China Life Tai- kang PICC Life China Source: CIRC Source: CIRC China Life Insurance Sector 54

55 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q3 28 January 2015 Agent number growth more difficult The key pressures in this channel are coming from wage inflationary pressures, coupled with a tougher selling environment; which are causing lower recruitment rates and a higher turnover of lower productive agents. We highlight that while agent numbers are not growing as fast, the faster transformation to more professional agency forces should continue to underpin growth (albeit execution is key) longer term. With uncertainty over bancassurance, we believe growth in agency force will be more front of mind for investors. The new bancassurance regulations should help develop more mutually beneficial long-term partnerships between insurers and banks, rather than the current non-exclusive free-for-all, which is not very beneficial for the insurance industry. However, we highlight that agency force growth is proving to be much tougher than it has been in the past, as highlighted by large reductions in agency forces of China Life, with key issues being attracting new agents and the level of productivity needed for comparable earnings to average wages (more pronounced in larger cities). Figure 121: Life insurance agent growth has been slowing China Life insurance agent (number) and growth (%) Life agents Dec-09 Dec-11 Dec-12 Dec-13 Jun-14 % HY % FY 5-year CAGR % China Life 777, , , , ,000-2% -6% -2.9% Ping An 416, , , , ,780 9% 11% 9.1% China Pacific 254, , , , ,000 5% 7% 4.1% New China Life 226, , , , ,000-12% -8% -3.5% China 60,781 46,064 57, , ,674 3% 15.1% Source: Company data We do highlight that the insurers are placing greater focus (and rightly so) on the development of more productive agency forces and, as such, a large proportion of the departing agents have very low productivity. We have independently checked claims by the likes of China Life that their overall active agents have grown in recent years, while the headline agent numbers have been flat as highlighted above (Figure 121). Figure 122 shows a clear trend in increase across fully licensed agents (proxy for active agents) and a reduction on partially licensed agent. Figure 122: China fully authorised agency growth stronger than headlines China life insurance agent numbers by licensing state 1,000, , , , , , , , , ,000 - China Life Ping An China Pacific New China Life Taikang PICC Life China Source: Pi Financial Services Intelligence Fully authorised One licence expired Both expired China Life Insurance Sector 55

56 These trends validate the claims made by the insurance companies to some extent, but given that most companies are gradually reducing partially licensed agents, this indicates to us that there has likely been some regulatory enforcement on this. China agent licensing regime We highlight that Chinese insurance agents need two licenses to operate legally, which are tri-annually renewable, namely: Qualification Certificate issued by the CIRC, and is a personal licence for the agent enabling them to sell insurance. Passing an exam, satisfying some personal qualification criteria and the payment of licence fee are required for this certificate, and Business Licence issued by their company, and enables them to sell that company's products and receive remuneration from that company. Each of these licences can be in one of three states: valid, expired (i.e. after three years) or not valid. For the purposes of the agent data in Figure 121 and Figure 122, invalid licences are ignored and the states can be any of the following: Fully authorised both licences active, and compared to other states, the agent is more likely to be active in a productivity sense. We do note that rookies will be fully valid for three years irrespective of activity levels, so data can be distorted by high recruitment levels. One expired one of the two licences expired (almost always it will be the Business Licence that has expired). These are experienced agents, but most probably inactive/unproductive, which is why their licence has been allowed to lapse. However, they are still attached to that company, and are possibly acting in a selling role. Both expired both licences expired and most likely inactive. China Life Insurance Sector 56

57 Agency productivity improving We highlight that the insurers have made good improvements in agency productivity recently, which we expect to be on-going. However, we believe productivity improvement takes time and needs to be combined with underlying (productive) agent growth. Figure 123: Productivity per agent improving again China insurance First Year Premium (FYP) per agent (Rmb) 12,000 10,000 F'casts Agent productivity improving, especially more recently 8,000 6,000 4,000 2,000 0 Dec-14 Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 China Life Ping An China Pacific New China Life China Source: Company data, Credit Suisse estimates While agent productivity will be a function of average income (and wealth), we highlight below that despite strong improvements, agency productivity levels can improve materially further and variances by company by country are not uncommon. Figure 124: with substantial improvements still possible AIA vs. Prudential plc agency productivity (NB APE / agent US$ 000), ,000 70,000 70,000 60,000 China productivity remains well below more developed Asia 60,000 50,000 50,000 40,000 40,000 30,000 30,000 20,000 20,000 10,000 10, Vietnam Philippines Indonesia India Malaysia Thailand China NZ Australia Taiwan Korea Singapore Hong Kong AIA Prudential Market average Source: Prudential presentation May 2010 China Life Insurance Sector 57

58 China Life Insurance Sector 58 Figure 125: China Life insurance market market share by administrative region market share (%) 2008 market share (%) New New New Region Capital Segment Prem-ium China Life Ping An China Pacific China Life Tai- kang PICC Life China AIA China Life Ping An China Pacific China Life Taikang PICC Life China AIA China Life Ping An China Pacific China Life Taikang PICC Life China Rmb mn mn mn mn mn mn mn mn mn % % % % % % % % % % % % % % % East 53,308 6,950 9,544 2,249 5,474 3,611 1,149 1,062 2, % 4.2% 10.3% 6.8% 2.2% % 16.2% 19.6% 6.9% 8.9% 6.5% 1.1% 2.1% East 69,354 7,274 12,419 3,965 8,557 3,940 4,879 3,386 1, % 17.9% 5.7% 12.3% 5.7% % 2.3% 15.2% 19.5% 7.5% 12.6% % 3.4% East 17,452 4,560 4, , , % 23.7% 4.5% 10.7% 4.6% 7.8% 4.4% % 21.1% 4.8% 8.9% 5.4% 5.5% 3.7% Guangzhou South Central 96,370 29,593 16,758 4,595 8,449 3,254 3,526 4,807 3, % 17.4% 4.8% 8.8% 3.4% 3.7% % 42.1% 14.8% 4.2% 7.2% 4.8% 2.9% 3.7% Hangzhou East 50,927 18,298 7,116 5,352 3,156 1,775 3,537 1, % % 6.2% 3.5% 6.9% 2.8% % 13.8% 7.9% 3.8% 4.1% 3.9% 1.1% Nanjing East 92,747 32,459 9,300 10,000 4,193 3,277 4,908 4, % 4.5% 3.5% 5.3% 4.6% 0.8% 43.2% 12.3% 10.8% 4.1% % 2.8% Shenyang Northeast 28,138 8,022 4, ,454 1,981 1,073 1, % 17.4% 2.6% 8.7% % 4.8% % 10.4% 3.1% 6.4% % 4.2% Jinan East 62,880 21,872 6,543 6,896 7,347 4,779 7,481 4, % 10.4% % 7.6% 11.9% 7.4% % 10.9% 11.1% % 3.7% 3.1% Changchun Northeast 17,535 5,189 2,384 2,109 2, , % 13.6% % 12.3% % 16.2% 9.9% 9.4% 5.3% 9.3% 1. Shijiazhuang North 52,732 21,914 4,305 5,717 3,345 2,074 4,891 1, % 8.2% 10.8% 6.3% 3.9% 9.3% 3.3% % 9.7% 10.1% 7.1% % 2.2% Harbin Northeast 27,069 8,486 3,730 2,512 2, ,952 2, % 13.8% 9.3% 8.4% 3.1% 7.2% 8.4% % 13.7% 7.3% 5.1% 5.3% 6.1% 3.3% Fuzhou East 30,590 11,426 5,859 2,523 3, ,813 1, % 19.2% 8.2% 10.1% 2.5% 5.9% % 18.3% 9.7% 2.2% 2.5% 3.7% 1.2% Inner Mongolia Hohhot North 14,496 5,909 1, , % 10.8% 1.4% 19.4% 4.2% 5.9% 1.7% % 14.4% % 3.1% 5.1% 0.1% Taiyuan North 26,420 9,597 1,926 4,516 2,981 1,299 3, % 7.3% 17.1% 11.3% 4.9% 11.8% 3.7% % 5.1% 17.1% 7.7% 7.5% 3.2% 0.7% Haikou South Central 4, % 24.2% 8.4% 15.5% 3.8% 11.1% 2.4% % 9.4% 14.3% % 0. Zhengzhou South Central 67,298 20,791 3,681 8,671 8,416 5,691 4,932 2, % 5.5% 12.9% 12.5% 8.5% 7.3% 4.4% % 10.5% 11.5% 13.9% 2.8% 2.6% Wuhan South Central 41,805 10,269 4,225 4,371 5,784 3,286 3,964 1, % 10.1% 10.5% 13.8% 7.9% 9.5% 4.6% % 10.5% 10.6% 12.6% % 2.7% Central 24,558 7,531 4,055 2,247 2,832 2,134 1, % 16.5% 9.1% 11.5% 8.7% 6.7% 1.2% % 15.2% 10.5% 10.4% 11.4% 4.8% 0.6% Changsha South Central 33,255 12,572 3,475 2,341 4,259 1,827 3,160 1, % 10.4% % 5.5% 9.5% % 9.5% 6.8% 9.7% 8.3% 8.5% 0.8% Nanning South 15,660 7,575 1,273 1,559 1, , % 8.1% % 5.3% 8.3% 6.2% % % 5.2% 5.1% 5.6% 0.8% Ürümqi Northwest 16,026 5,058 2,092 2,402 1,886 1, % 13.1% % 7.2% 3.5% % 13.2% 12.3% 6.8% % 0.5% Xi'an Northwest 28,008 9,450 2,232 2,860 3,803 1,728 1, % % 13.6% 6.2% 6.6% 1.8% % 9.9% 9.7% 8.2% 9.4% 5.7% 0.7% Yinchuan Central 4,129 1,272 1, % 25.9% % 3.1% 4.1% % 34.8% 0.8% 15.7% Chengdu Southwest 60,129 15,370 4,884 4,310 5,916 4,355 4,270 5, % 8.1% 7.2% 9.8% 7.2% 7.1% 9.9% % 8.6% 11.6% 8.6% 9.6% 5.7% 5.2% Nanchang East 20,176 7,271 1,010 1,675 1,731 1,210 2,546 1, % 8.6% % 6.1% % 4.1% 8.5% 6.2% 3.2% Hefei East 27,917 9,560 2,610 2,332 1,637 2,291 2,272 1, % 9.3% 8.4% 5.9% 8.2% 8.1% 5.6% % 10.2% 8.3% 4.6% 12.1% 3.6% 3.1% Xining Northwest 1, % 23.4% 1.6% 16.6% % 37.9% % Kunming Southwest 16,902 5,363 1,413 1,733 1,865 1,488 1, % 8.4% 10.3% % 6.9% 4.1% % 11.4% 14.2% 5.6% 13.6% 5.6% 0.7% Lanzhou Northwest 11,181 4,853 2,066 1, % 18.5% 10.4% % 3.6% % 18.4% 13.1% 1.4% 3.6% 6.4% 0.4% Guiyang Southwest 9,266 2,873 1,131 1, % % 8.7% 7.7% 6.1% % 16.5% Lhasa West ,088, , ,091 95, ,640 61,124 75,273 51,853 9, % 8.7% 9.5% 5.6% 6.9% 4.8% 0.9% 39.8% 13.6% 8.9% 7.5% 7.8% 3.9% 2.5% 418, ,267 70,141 30,301 32,300 18,203 20,755 18,293 9, % 16.8% 7.2% 7.7% 4.4% % 2.3% 32.7% 16.8% 7.5% % 2.8% 2.8% 287,698 98,250 39,286 27,015 29,001 15,104 24,803 14, % 13.7% 9.4% 10.1% 5.2% 8.6% 5.1% % 14.2% 9.1% 6.8% % 2.5% 382, ,766 36,664 37,786 42,339 27,818 29,715 18, % 9.6% 9.9% 11.1% 7.3% 7.8% 4.9% % 9.5% 10.4% 8.7% 10.1% 4.8% 2.3% % 8.7% 9.5% 5.6% 6.9% 4.8% 0.9% 39.8% 13.6% 8.9% 7.5% 7.8% 3.9% 2.5% Source: CIRC

59 China Life China Life is the largest life insurer in China with 24.8% market share as at 30 October It is a national franchise with 849,000 agents as at 30 September 2014, with market share stronger in the less developed regions in China. Figure 126: China Life market share by region (% 2013) Figure 127: China Life is the largest life insurer in China Market share by region Figure 128: but losing ground across the board Market share by region % % % % 1 1 5% Inner Mongolia Inner Source for all charts: CIRC China Life Insurance Sector 59

60 Market positioning China Life Figure 129: Regional GDP skew even China GDP by region (%) Figure 130: so is China Life s market share Market share by region (%) % 34% 37% 33% 3 3 Source: CEIC Source: CIRC Figure 131: Market share strong across nation In-force market share by region (%) Figure 132: similarly for new business New business market share by region (%) % % % 25% % % Inner Inner Source for both charts: CIRC Figure 133: Agency network strong across nation Agent market share by region (%) Figure 134: with more agents in regions Agent market share by region (%) % % 2 1 Inner Mongolia 34% Source for both charts: Pi Financial Services Intelligence China Life Insurance Sector 60

61 Growth rate by region China Life China Life's growth rate has lagged the market in the past five years, with average growth of 2% p.a.; growth has been higher in central regions of China, as highlighted below: Figure 135: China Life s growth rate by region (five-year CAGR % p.a.) Source: CIRC Figure 136: market share dropped faster Market share by region vs Figure 137: growth rate higher in China Growth rate by region (5yr CAGR % p.a.) - to % 45% % 3 15% 25% % 1 5% 2. 5% Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 61

62 Market share progression China Life Figure 138: China Life growth remained stable recently Premiums (Rmb mn) and growth (% p.a.) 350, , , , , ,000 50,000 growth (%pa) Figure 139: but market share keeps going down Premiums (Rmb mn) and market share (%) 350, , , , , ,000 50, Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Premiums (Rmb mn) Growth (%pa) Premiums (Rmb mn) Market share (%) Figure 140: Growth has picked up in recent months Premiums monthly (Rmb mn) and growth (% p.a.) 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - Apr-08 growth (%pa) Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Mthly prem (Rmb mn) MoM growth (%) Figure 142: Premium growth slowed Rolling 12mth premiums (Rmb mn) and growth (% p.a.) 400, , , , , , ,000 growth (%pa) Oct-13 Apr-14 Oct % 1 5% -5% Figure 141: with monthly market share trending down Premiums monthly (Rmb mn) and market share (%) 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Mthly prem (Rmb mn) Mkt Share - mthly (%) Figure 143: with market share slowly falling Rolling 12mth premiums (Rmb mn) and market share (%) 400, , , , , , ,000 Oct-13 Apr-14 Oct % 4 35% 3 25% 2 15% 1 50, ,000 5% - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14-15% - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 12m rolling prem (Rmb mn) 12m prem growth (%) 12m rolling prem (Rmb mn) Mkt Share - 12m prem (%) Source for all charts: CIRC, Company data, Credit Suisse estimates (Universal Life added back for Ping An) China Life Insurance Sector 62

63 Agency trends China Life Figure 144: Agent numbers skewed to population Agents by region (2013) 90,000 Figure 145: with agents growing recently Agents numbers and market share (2Q12 to 3Q14) 900, ,000 70, , , , ,000 40, , , ,000 10, , Inner Mongolia Source: Pi Financial Services Intelligence 650,000 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Source: Pi Financial Services Intelligence, Company data 0. Figure 146: Premium per agent differs across regions In-force premium per agent by region (Rmb 000) ,200 Figure 147: similar pattern for new business per agent New business premium per agent by region (Rmb 000) , Inner Mongolia - Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence Figure 148: Agents correlated to premium market share Agent vs. in-force premium market share by region (%) Figure 149: with distortion from bancassurance Agent vs. new business market share by region (%) In-force Premium Agents NB Premium Agents Inner Mongolia Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence China Life Insurance Sector 63

64 Ping An Ping An is the second-largest life insurer in China with 17.8% market share as at 30 October 2014, including its universal life product, which is excluded from CIRC data (from 2010). It is a national franchise with 660,000 agents as at 30 September 2014, with market share stronger in the more developed regions in China (especially eastern coast). Figure 150: Ping An s market share by region (% 2013) Figure 151: Ping An stronger in China Market share by region Figure 152: with 2013 data distorted by removal of UL Market share by region % % 25% % 2 15% 13.4% 15% 1 1 5% 5% Inner Mongolia Inner Source for all charts: CIRC China Life Insurance Sector 64

65 Market positioning Ping An Figure 153: Regional GDP skew even China GDP by region (%) Figure 154: with Ping An skewed to China Market share by region (%) % 36% 34% 48% Source: CEIC 3 Source: CIRC 27% Figure 155: Market share skewed to China In-force market share by region (%) Figure 156: similar pattern for new business New business market share by region (%) % 25% % 15% 13.4% 10.2% 1 1 5% 5% Inner Inner Source for both charts: CIRC Figure 157: Agency force more uniform nationally Agent market share by region (%) Figure 158: much different from premium mix Agent market share by region (%) % 2 34% 33% 15% 10.2% 1 5% Inner Source for both charts: Pi Financial Services Intelligence 33% China Life Insurance Sector 65

66 Growth rate by region Ping An Ping An s growth rate has been above market at 7.6% p.a. over the past five years. Figure 159: Ping An s growth rate by region (five-year CAGR % p.a.) Source: CIRC Figure 160: Ping An market share remains stable Market share by region vs % Figure 161: also impacting growth rates Growth rate by region (5-year CAGR %p.a.) - to % 16% 14% 2 12% 1 15% 8% 6% 1 7.6% 4% 5% 2% Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 66

67 Market share progression Ping An (universal life included) Figure 162: Ping An growth picking up recently Premiums (Rmb mn) and growth (% p.a.) 250, , ,000 growth (%pa) 35% 3 25% 2 15% Figure 163: and market share stabilising Premiums (Rmb mn) and market share (%) 250, , , , % 100, ,000-5% 50, Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Premiums (Rmb mn) Growth (%pa) Premiums (Rmb mn) Market share (%) Figure 164: Growth stable more recently Premiums monthly (Rmb mn) and growth (% p.a.) Figure 165: with monthly market share volatile Premiums monthly (Rmb mn) and market share (%) 50, , ,000 45,000 40, , ,000 growth (%pa) 35,000 30, , ,000 25,000 20, , ,000 15,000 10,000 10, ,000 5,000 - Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Mthly prem (Rmb mn) MoM growth (%) Figure 166: Ping An growth picked up from late 2012 Rolling 12mth premiums (Rmb mn) and growth (% p.a.) 250, ,000 growth (%pa) 4 35% 3 Mthly prem (Rmb mn) Mkt Share - mthly (%) Figure 167: with market share fairly stable Rolling 12mth premiums (Rmb mn) and market share (%) 250, , % 16% 14% 150,000 25% 150,000 12% ,000 50,000 15% 1 100,000 50,000 8% 6% 4% 5% 2% - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 12m rolling prem (Rmb mn) 12m prem growth (%) 12m rolling prem (Rmb mn) Mkt Share - 12m prem (%) Source for all charts: CIRC, Company data, Credit Suisse estimates (Universal Life added back for Ping An) China Life Insurance Sector 67

68 Agency trends Ping An Figure 168: Agent number skewed to population Agents by region (2013) 100,000 Figure 169: with agent number picking up Agents numbers and market share (2Q12 to 3Q14) 700, , ,000 80, , ,000 60,000 50, , , , ,000 20, , , ,000 - Inner Mongolia 0 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 0. Source: Pi Financial Services Intelligence Figure 170: Premium per agent more uniform In-force premium per agent by region (Rmb 000) Source: Pi Financial Services Intelligence, Company data Figure 171: similar pattern for new business New business premium per agent by region (Rmb 000) Inner Mongolia - Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence Figure 172: Agents correlated to premium market share Agent vs. in-force premium market share by region (%) Figure 173: the same trend on new businesses Agent vs. new business market share by region (%) In-force Premium Agents NB Premium Agents Inner Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence China Life Insurance Sector 68

69 China Pacific China Pacific is the fourth-largest life insurer in China with 7.5% market share as at 30 October 2014 (third largest in APE terms). It is a national franchise with 408,000 agents as at 30 September 2014, with a very strong Central North China and costal footprint as highlighted below. Figure 174: China Pacific s market share by region (%) Figure 175: China Pacific weaker in China Market share by region Figure 176: and strong in less developed China Market share by region % % % % % 8. 8% 6. 6% 4. 4% 2. 2% 0. Inner Mongolia Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 69

70 Market positioning China Pacific Figure 177: Regional GDP skew even China GDP by region (%) Figure 178: CPIC less exposed to developing regions Market share by region (%) % 34% 4 32% Source: CEIC 3 Source: CIRC 28% Figure 179: Market share skew to less developed China In-force market share by region (%) Figure 180: and the same trend for NB share New business market share by region (%) % 14% 16% 12% 14% 12% % 8% 7.9% 8% 6% 6% 4% 4% 2% 2% Inner Mongolia Source for both charts: CIRC Inner Mongolia Figure 181: China Pacific underweight China Agent market share by region (%) Figure 182: and overweight China Agent market share by region (%) % 2 45% 15% 1 5% Inner Mongolia 35% Source for both charts: Pi Financial Services Intelligence China Life Insurance Sector 70

71 Growth rate by region China Pacific China Pacific s growth rate has been in line with the market at 7.6% p.a. over the past five years, with growth higher in central regions of China, as highlighted below. Figure 183: China Pacific s growth rate by region (five-year CAGR % p.a.) Source: CIRC Figure 184: China Pacific s market share increased Market share by region vs % Figure 185: with growth higher in China Growth rate by region (five-year CAGR % p.a.) - to % 16% 1 14% 8% 12% 1 6% 8% 7.6% 4% 6% 4% 2% 2% Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 71

72 Market share progression China Pacific Figure 186: China Pacific growth picking up recently Premiums (Rmb mn) and growth (% p.a.) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - Dec-04 growth (%pa) Dec-05 Dec-06 Dec-07 Premiums (Rmb mn) Dec-08 Dec-09 Dec-10 Growth (%pa) Dec-11 Dec-12 Oct % 3 25% 2 15% 1 5% -5% -1-15% Figure 187: but market share decreased slightly Premiums (Rmb mn) and market share (%) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - Oct-14 Dec-12 Dec-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Premiums (Rmb mn) Market share (%) Figure 188: Growth slowing since late 2009 Premiums monthly (Rmb mn) and growth (% p.a.) Figure 189: with monthly market share volatile Premiums monthly (Rmb mn) and market share (%) 16, , ,000 12,000 10,000 growth (%pa) ,000 12,000 10, ,000 8, , , ,000 2,000 4,000 2, Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Mthly prem (Rmb mn) MoM growth (%) Mthly prem (Rmb mn) Mkt Share - mthly (%) Figure 190: China Pacific premiums stabilising Rolling 12mth premiums (Rmb mn) and growth (% p.a.) 120,000 5 Figure 191: leading to slow market share decline Rolling 12mth premiums (Rmb mn) and market share (%) 120, ,000 growth (%pa) 4 100,000 9% 8% 80, ,000 7% 6% 60, ,000 5% 4% 40, ,000 3% 20,000 20,000 2% 1% - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 12m rolling prem (Rmb mn) 12m prem growth (%) 12m rolling prem (Rmb mn) Mkt Share - 12m prem (%) Source for all charts: CIRC, Company data, Credit Suisse estimates (Universal Life added back for Ping An) China Life Insurance Sector 72

73 Agency trends China Pacific Figure 192: Agent numbers skewed to population Agents by region (2013) 50,000 Figure 193: with agents up in 2014 Agents numbers and market share (2Q12 to 3Q14) 450, , , , ,000 35, , , , ,000 20, , , , ,000 5, ,000 50, Inner Mongolia 0 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 0. Source: Pi Financial Services Intelligence Figure 194: Premium per agent divergent In-force premium per agent by region (Rmb 000) Source: Pi Financial Services Intelligence, Company data Figure 195: new business the same trend New business premium per agent by region (Rmb 000) Inner Mongolia - Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence Figure 196: Agents correlated to premium market share Agent vs. in-force premium market share by region (%) Figure 197: with new business the same trend Agent vs. new business market share by region (%) % 25% In-force Premium Agents NB Premium Agents % 15% 1 1 5% 5% Inner Mongolia Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence China Life Insurance Sector 73

74 New China Life New China Life is the third-largest life insurer in China with 8.2% market share as at 30 October It is a national franchise with about 243,000 agents as at 30 September 2014, with market share stronger in the less developed regions in China. Figure 198: New China Life s market share by region (% 2013) Figure 199: New China Life weaker in China Market share by region Figure 200: but stronger in China Market share by region % % % % 0. Inner Mongolia Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 74

75 Market positioning New China Life Figure 201: Regional GDP skew even China GDP by region (%) Figure 202: so is New China Life s market share Market share by region (%) % 34% 41% 31% 3 28% Source: CEIC Source: CIRC Figure 203: Market share skewed to China In-force market share by region (%) Figure 204: developed strong in NB due to bancassurance New business market share by region (%) % 16% 25% 14% 2 12% 1 15% 8% 7.7% 1 9.5% 6% 4% 5% 2% Inner Mongolia Inner Mongolia Source for both charts: CIRC Figure 205: Agency strong in China Agent market share by region (%) Figure 206: with China share low Market share by region (%) % 2 19% 15% 1 48% 5% Inner Mongolia 33% Source for both charts: Pi Financial Services Intelligence China Life Insurance Sector 75

76 Growth rate by region New China Life New China Life s growth rate has exceeded the market with 13.2% p.a. growth in the past five years, with growth in China even higher, as highlighted below. Figure 207: New China Life s growth rate by region (five-year CAGR % p.a.) Source: CIRC Figure 208: New China Life growing share nationally Market share by region vs % Figure 209: but growth rate higher in China Growth rate by region (five-year CAGR % p.a.) - to % 4 6% 3 4% % 2% Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 76

77 Market share progression New China Life Figure 210: New China Life growth picking up recently Premiums (Rmb mn) and growth (% p.a.) 120, ,000 80,000 60,000 40,000 growth (%pa) Figure 211: with market share also sliding Premiums (Rmb mn) and market share (%) 120, ,000 80,000 60,000 40, , , Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Premiums (Rmb mn) Growth (%pa) Premiums (Rmb mn) Market share (%) Figure 212: Growth slowing down more recently Premiums monthly (Rmb mn) and growth (% p.a.) Figure 213: but market share picking up Premiums monthly (Rmb mn) and market share (%) 30, , , , ,000 15,000 10,000 growth (%pa) ,000 15,000 10, ,000 5, Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Mthly prem (Rmb mn) MoM growth (%) Mthly prem (Rmb mn) Mkt Share - mthly (%) Figure 214: Growth momentum slowed recently Rolling 12mth premiums (Rmb mn) and growth (% p.a.) 140,000 6 Figure 215: with market share stabilising Rolling 12mth premiums (Rmb mn) and market share (%) 140,000 12% 120,000 growth (%pa) 5 120, ,000 80,000 60,000 40,000 20, ,000 80,000 60,000 40,000 20,000 8% 6% 4% 2% - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 12m rolling prem (Rmb mn) 12m prem growth (%) 12m rolling prem (Rmb mn) Mkt Share - 12m prem (%) Source for all charts: CIRC, Company data, Credit Suisse estimates (Universal Life added back for Ping An) China Life Insurance Sector 77

78 Agency trends New China Life Figure 216: Agent numbers skewed to population Agents by region (2013) 35,000 Figure 217: with agents trending down Agents numbers and market share (2Q12 to 3Q14) 350, , , , , , , , ,000 10, , ,000 50, Inner Mongolia 0 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 0. Source: Pi Financial Services Intelligence Figure 218: Premium per agent strong in SH In-force premium per agent by region (Rmb 000) ,500 Source: Pi Financial Services Intelligence, Company data Figure 219: new business shows similar pattern New business premium per agent by region (Rmb 000) ,500 1,300 2,000 1,100 1, , Inner Mongolia -100 Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence Figure 220: Agents correlated to premium market share Agent vs. in-force premium market share by region (%) % Figure 221: with some distortion from bancassurance Agent vs. new business market share by region (%) % 2 2 In-force Premium Agents NB Premium Agents 15% 15% 1 1 5% 5% Inner Mongolia Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence China Life Insurance Sector 78

79 PICC Life PICC Life, the fifth-largest life insurer in China, had 6.3% market share as at 30 October It is a national franchise with 119,000 agents as at 30 September 2014, with market share stronger in the less developed regions in China. Figure 222: PICC Life s market share by region (% 2013) Figure 223: PICC Life skewed to less developed China Market share by region Figure 224: the same trend in terms of new business Market share by region % 9. 12% % 6.9% 4. 6% 3. 4% % 0. Inner Mongolia Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 79

80 Market positioning PICC Life Figure 225: Regional GDP skew even China GDP by region (%) Figure 226: underweight China Market share by region (%) % 34% 39% 28% 3 Source: CEIC, Credit Suisse estimates Source: CIRC, Credit Suisse estimates 33% Figure 227: Market share skewed to China In-force market share by region (%) % Figure 228: even skewed more in terms of new business New business market share by region (%) % 25% 1 2 8% 6.9% 15% 15.9% 6% 1 4% 2% 5% Inner Mongolia Inner Mongolia Source for both charts: CIRC Figure 229: PICC Life more agents in less developed Agent market share by region (%) Figure 230: with agent skew higher than premiums Market share by region (%) % 16% 12% 1 8% 45% 6% 4% 2% Inner Mongolia 39% Source for both charts: Pi Financial Services Intelligence China Life Insurance Sector 80

81 Market share progression PICC Life Figure 231: PICC Life growth picked up in 2014 Premiums (Rmb mn) and growth (% p.a.) 90,000 80,000 70,000 60,000 growth (%pa) Figure 232: losing market since 2010 Premiums (Rmb mn) and market share (%) 90,000 80,000 70,000 60, , , ,000 30,000 20, ,000 30,000 20, , , Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Premiums (Rmb mn) Growth (%pa) Premiums (Rmb mn) Market share (%) Figure 233: Growth slowed down after new bancassurance rule in 2014 Premiums monthly (Rmb mn) and growth (% p.a.) Figure 234: with monthly market share volatile Premiums monthly (Rmb mn) and market share (%) 35, , , , ,000 growth (%pa) 10 25, ,000 20, , , ,000 10, , , Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Mthly prem (Rmb mn) MoM growth (%) Mthly prem (Rmb mn) Mkt Share - mthly (%) Source for both charts: CIRC Figure 235: PICC Life has grown from zero base Rolling 12mth premiums (Rmb mn) and growth (% p.a.) 120, Figure 236: and losing market share more recently Rolling 12mth premiums (Rmb mn) and market share (%) 120,000 9% 100,000 growth (%pa) 8 100,000 8% 7% 80, ,000 6% 60, ,000 5% 4% 40,000 20, ,000 20,000 3% 2% 1% - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 12m rolling prem (Rmb mn) 12m prem growth (%) 12m rolling prem (Rmb mn) Mkt Share - 12m prem (%) Source for all charts: CIRC, Company data, Credit Suisse estimates (Universal Life added back for Ping An) China Life Insurance Sector 81

82 Agency trends PICC Life Figure 237: Agent numbers strong in several regions Agents by region (2013) 14,000 Figure 238: with agents growing Agents numbers and market share (2Q12 to 3Q14) 140, % 12, , % 10, , ,000 80, % 6,000 60, ,000 40, % 1. 2,000 20, % - 0 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 0. Inner Mongolia Source: Pi Financial Services Intelligence Figure 239: Premium per agent more uniform In-force premium per agent by region (Rmb 000) ,000 Source: Pi Financial Services Intelligence, Company data Figure 240: new business skewed by bancassurance New business premium per agent by region (Rmb 000) ,000 6,000 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 - Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence - Inner Mongolia Figure 241: Agents share lower than premiums Agent vs. in-force premium market share by region (%) % Figure 242: due to heavy bancassurance mix Agent vs. new business market share by region (%) % In-force Premium Agents 25% 1 2 NB Premium Agents 8% 15% 6% 4% 1 2% 5% Inner Mongolia Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence China Life Insurance Sector 82

83 Taikang Taikang, the sixth-largest life insurer in China, had 5.1% market share as at 30 October It is a national franchise with 273,000 agents as at 30 September 2014, with market share stronger in China. Figure 243: Taikang s market share by region (% 2013) Figure 244: Taikang s weaker franchise in 2008 Market share by region Figure 245: strong footprint in China Market share by region % 8% 12. 7% 10. 6% 5.6% 8. 5% 6. 4% 4. 3% 2% 2. 1% 0. Inner Mongolia Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 83

84 Market positioning Taikang Figure 246: Regional GDP skew even China GDP by region (%) Figure 247: with heavy exposure to China Market share by region (%) % 34% 3 45% 3 25% Source: CEIC Source: CIRC Figure 248: Market share skewed to China In-force market share by region (%) Figure 249: less so for new business New business market share by region (%) % 9% 14% 8% 7% 12% 6% 5.6% 1 5% 8% 4% 6% 5.9% 3% 2% 4% 1% 2% Inner Mongolia Inner Mongolia Source for both charts: CIRC Figure 250: Taikang agency more spread out nationally Agent market share by region (%) Figure 251: with less in developed regions Market share by region (%) % 6% 19% 5% 4% 44% 3% 2% 1% Inner Mongolia 37% Source for both charts: Pi Financial Services Intelligence China Life Insurance Sector 84

85 Growth rate by region Taikang Taikang s growth rate has been well below the market with 1.1% p.a. growth in the past five years; its growth is higher in the central provinces. Figure 252: Taikang s growth rate by region (five-year CAGR % p.a.) Source: CIRC Figure 253: Losing market share over the years Market share by region vs % Figure 254: with strong growth in emerging China Growth rate by region (five-year CAGR % p.a.) to % 1 12% 8% 1 8% 6% 6% 4% 4% 2% 2% 13.2% Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 85

86 Market share progression Taikang Figure 255: Taikang growth picked up recently Premiums (Rmb mn) and growth (% p.a.) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - Dec-04 growth (%pa) Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Figure 256: with market share falling since 2010 Premiums (Rmb mn) and market share (%) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Premiums (Rmb mn) Growth (%pa) Premiums (Rmb mn) Market share (%) Figure 257: Growth slowing since late 2010 Premiums monthly (Rmb mn) and growth (% p.a.) Figure 258: with monthly market share volatile Premiums monthly (Rmb mn) and market share (%) 14, , , , ,000 growth (%pa) 10 10, ,000 6, ,000 6, ,000 4, , , Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Mthly prem (Rmb mn) MoM growth (%) Mthly prem (Rmb mn) Mkt Share - mthly (%) Figure 259: Growth picked up since end of 2011 Rolling 12mth premiums (Rmb mn) and growth (% p.a.) 100,000 7 Figure 260: and market share picking up in 2014 Rolling 12mth premiums (Rmb mn) and market share (%) 100, ,000 80,000 growth (%pa) ,000 80,000 9% 8% 70, ,000 7% 60, ,000 6% 50, ,000 5% 40, ,000 4% 30,000 30,000 3% 20, ,000 2% 10, ,000 1% - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 12m rolling prem (Rmb mn) 12m prem growth (%) 12m rolling prem (Rmb mn) Mkt Share - 12m prem (%) Source for all charts: CIRC, Company data, Credit Suisse China Life Insurance Sector 86

87 Agency trends Taikang Figure 261: Agent number skewed to population Agents by region (2013) 7% Figure 262: with agent number up recently Agents numbers and market share (2Q12 to 3Q14) 300, % 250, % 200, % 150, % 4. 2% 100, % 50, Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 0. Inner Mongolia Source: Pi Financial Services Intelligence Figure 263: Premium per agent varies more In-force premium per agent by region (Rmb 000) ,000 Source: Pi Financial Services Intelligence, Company data Figure 264: given skew from bancassurance New business premium per agent by region (Rmb 000) ,000 3,500 3,500 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1, Inner Mongolia - Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence Figure 265: Agents correlated to premium market share Agent vs. in-force premium market share by region (%) % Figure 266: with distortion from bancassurance Agent vs. new business market share by region (%) % 2 In-force Premium Agents 2 NB Premium Agents 15% 15% 1 1 5% 5% Inner Mongolia Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence China Life Insurance Sector 87

88 China, the seventh-largest life insurer in China, had 4.7% market share as at 30 October It is a national franchise with 140,000 agents as at 30 September 2014, with market share stronger in the Eastern part of China. Figure 267: s market share by region (% 2013) Figure 268: more local before bancassurance Market share by region Figure 269: now a more national franchise Market share by region % % 3. 6% 4.8% 2. 4% 1. 2% 0. Inner Mongolia Source for all charts: CIRC Inner China Life Insurance Sector 88

89 Market positioning China Figure 270: Regional GDP skew even China GDP by region (%) Figure 271: so is s market share Market share by region (%) % 34% 36% 35% 3 29% Source: CEIC Source: CIRC Figure 272: Market share varies by province In-force market share by region (%) Figure 273: with a slight skew to China New business market share by region (%) % 14% 1 12% 8% 1 8% 6% 4.8% 6% 6. 4% 4% 2% 2% Inner Inner Source for both charts: CIRC, Credit Suisse estimates Figure 274: agency stronger in China Agent market share by region (%) Figure 275: and underweight China Agent market share by region (%) % 16% 17% 14% 12% 1 8% 44% 6% 4% 2% Inner Mongolia Source for both charts: Pi Financial Services Intelligence 39% China Life Insurance Sector 89

90 Growth rate by region China China s growth rate has been well above market at 22% p.a. over the past five years, with bancassurance being a key contributor. While the map below shows growth coming from the Eastern coast, we note that it did not have a presence in other Western provinces five years ago. Figure 276: s growth rate by region (five-year CAGR % p.a.) Source: CIRC Figure 277: Gained most ground in non- China Market share by region vs Figure 278: with highest growth rate in China Growth rate by region (five-year CAGR % p.a.) - to % % 8 4% 7 6 3% 5 4 2% % 1% Inner Mongolia Source for all charts: CIRC China Life Insurance Sector 90

91 Market share progression China Figure 279: s growth increased in 2014 Premiums (Rmb mn) and growth (% p.a.) 60,000 50,000 growth (%pa) 5 4 Figure 280: and market share also up Premiums (Rmb mn) and market share (%) 60,000 50, % 4. 40, , % 3. 30,000 20, ,000 20, % % 10,000 10, % - Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Oct Premiums (Rmb mn) Growth (%pa) Premiums (Rmb mn) Market share (%) Figure 281: Growth has picked up since mid-2013 Premiums monthly (Rmb mn) and growth (% p.a.) Figure 282: with monthly market share volatile Premiums monthly (Rmb mn) and market share (%) 16, , ,000 12,000 10,000 8,000 6,000 4,000 2,000 growth (%pa) ,000 12,000 10,000 8,000 6,000 4,000 2, Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Mthly prem (Rmb mn) MoM growth (%) Mthly prem (Rmb mn) Mkt Share - mthly (%) Figure 283: s recent growth up Rolling 12mth premiums (Rmb mn) and growth (% p.a.) 70,000 7 Figure 284: but market share also increasing Rolling 12mth premiums (Rmb mn) and market share (%) 70,000 6% 60,000 growth (%pa) 6 60,000 5% 50,000 40,000 30,000 20,000 10, ,000 40,000 30,000 20,000 10,000 4% 3% 2% 1% - Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 12m rolling prem (Rmb mn) 12m prem growth (%) 12m rolling prem (Rmb mn) Mkt Share - 12m prem (%) Source for all charts: CIRC, Company data, Credit Suisse estimates (Universal Life added back for Ping An) China Life Insurance Sector 91

92 Agency trends China Figure 285: Agent number skewed to population Agents by region (2013) 18% Figure 286: with agent number fluctuating Agents numbers and market share (2Q12 to 3Q14) 160, % 140, % 120,000 12% 100, , % 6% 60,000 40, % 20, % Inner Mongolia 0 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 0. Source: Pi Financial Services Intelligence Source: Pi Financial Services Intelligence, Company data Figure 287: Premium per agent more uniform In-force premium per agent by region (Rmb 000) Figure 288: new business skewed by bancassurance New business premium per agent by region (Rmb 000) ,000 2,000 1,800 1,800 1,600 1,600 1,400 1,400 1,200 1,200 1,000 1, Inner Mongolia - Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence Figure 289: Agents higher than premium market share Agent vs. in-force premium market share by region (%) % Figure 290: with distortion from bancassurance Agent vs. new business market share by region (%) % 16% 16% 14% 12% In-force Premium Agents 14% 12% NB Premium Agents 1 1 8% 8% 6% 6% 4% 4% 2% 2% Inner Inner Mongolia Source for both charts: CIRC, Pi Financial Services Intelligence China Life Insurance Sector 92

93 Life insurance protection gap (%) 28 January 2015 Appendix B: China Life Sector Growth outlook strong Please see our full report, China Life Insurance Sector How high will the elephants fly in the strong wind?, 8 January 2015 (188pp), for a full discussion of the sector and points discussed in this appendix. China is the most under-insured country in Asia (after Vietnam) in terms of life insurance, according to Swiss Re's "protection gap" analysis (see Figure 291), with just 4% of the country's life insurance needs actually covered, with the gap totalling US$18.7 tn (representing around US$56 bn in insurance premiums). In addition, we highlight that within China, there is a big difference by region in terms of insurance density (insurance premiums per capita see Figure 302), with most well below the levels in more developed countries. Figure 291: Life insurance protection gap (% of amount needed) China is the most underinsured country in Asia (after Vietnam) in terms of life insurance Hong Kong Singapore South Korea Taiwan Australia New Zealand China Thailand Malaysia India Indonesia Philippines Vietnam NJA Source: Swiss Re Protection Gap report, 2012 With an increased focus on the sale of "insurance"/protection (as highlighted by various regulatory changes in 2014 and statements by regulators and government), we expect life insurance growth to continue to pick up in 2015 and beyond, with mid-teen growth over the next decade or so easily achievable. Figure 292: China's protection gap the largest in Asia Protection Gap Working with GDP per Premium per Sum Life Penetrati Protection Multiple p/working % total Population dependants capita capita insured GDP premiums on % Gap current % needed population Premium* premiums mn mn US$ US$ US$bn US$bn US$bn % US$bn US$ US$bn % Hong Kong ,593 3, % x 21% 253, % Singapore ,117 1, % x 33% 219, South Korea ,591 1, , % 3, x 11% 290, % Taiwan ,458 2, % x 75% 31, % Australia ,590 1,712 1,579 1, % x 61% 168, % New Zealand , % China 1, , , % 18, x 4% 47, % Thailand , % x 12% 27, Malaysia , % x 17% 61, % India 1, , , % 6, x 7% 28, % Indonesia , % x 7% 12, % Philippines , % Vietnam , % x 2% 15, % Asia ,350 1,864 2,860 3, % 5, x 34% 196, % 1, , , % 19, x 4% 46, % 1, , , % 7, x 7% 23, % NJA 3, , ,233 12, % 32, x 27% 42, % Source: UN, Swiss Re Protection Gap report, 2012, Credit Suisse Research, 2010 data used China Life Insurance Sector 93

94 VNB growth (% p.a.) 28 January 2015 Growth rates picking up again The China insurance market grew to Rmb2.1 tn in premiums as at the end of December 2014, a compound growth rate of 17.1% p.a. over the past decade, when premiums were just Rmb431 bn. Within this, life insurance represents around two thirds of total insurance premiums (mainly savings-type policies), and the industry has grown at a compound rate of 15.5% p.a. over the past decade. P&C insurance remains mainly motor insurance in China and has grown at 20.9% p.a. over the same period, as highlighted below: China s life insurance sector has grown at 15.5% p.a. for the past decade Figure 293: China insurance premiums (Rmb mn/cagr %) (Rmb mn) Dec-03 Dec-04 Dec-09 Dec-11 Dec-13 Dec-14* CAGR 10 yr (%) 5 yr (%) 3 yr (%) 1 yr (%) Life 301, , ,418 1,017,814 1,138,124 1,348, % 10.6% 9.8% 18.5% P&C 86, , , , , , % 20.3% 16.4% 16.2% 388, ,813 1,113,708 1,495,720 1,786,228 2,101, % 13.5% % Credit Suisse estimates *2014 pro-rata, based on data to Oct 2014 Source: CIRC Excluding the past few years, growth rates have generally been well above 1 p.a., with improvement more recently (see Figure 11) due to the relatively lower base in 2013 and strong open year sales driven by the high cash value products, despite new bancassurance policies (implemented in April 2014) which require 2 of the "pure insurance" product. In addition, we highlight that the quality of the business written in recent years is much better, given the lower reliance on lower-quality bancassurance sales. Figure 294: Life growth continued to recover in China Life insurance premiums (Rmb mn) and growth (% p.a.) Figure 295: with VNB growth recovering China Life insurance value of new business growth (% p.a.) 1,400,000 1,200,000 Driven by bancassurance (mainly single premiums) China F'casts 1,000, , , , China Pacific China Life 200, Premiums (Rmb mn) Growth 10yr CAGR (%pa) 2013 to Oct Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Ping An Dec-11 Jun-11 Jun-12 Dec-12 New China Life Jun-14 Dec-13 Jun-13 Dec-14F Jun-15F Sources for both charts: CIRC, company data, Credit Suisse estimates As highlighted in Figure 12, the franchises with the highest bancassurance dependence had some of the weakest growth, since the introduction of the bancassurance bans in late However, insurers with low levels of bancassurance sales, such as Ping An, were not immune due to the higher yields available on other competing products (such as bank deposits and trust products), but have recovered much quicker. In terms of market structure, we highlight that the Chinese life insurance market is fairly consolidated, with the top-five companies controlling ~65% of the market and the top ten having a 83% market share, as shown in Figure 11. The main types of products sold are participating savings-style products with limited levels of insurance coverage. As such, we are encouraged by recent regulatory initiatives to increase the levels of insurance coverage both through allowing greater commission flexibility and having minimum levels of insurance in bancassurance sales (we discuss these changes in more detail in later sections of this report). China Life Insurance Sector 94

95 Market share (%) Market share (%) 28 January 2015 Some companies do sell some traditional business (guaranteed returns) in more rural areas, although the maximum guarantee has been limited to 2.5% in China since June 1999, and raised for the first time in August 2013 to 3.5%. Other segments of the life insurance market remain small for now (such as health insurance and pensions/annuities), though many of the insurers do participate in these segments, but we have seen policy support from the regulator with the Deferred tax pension pilot in and Health insurance tax concession in 2015 highly likely (we discuss these changes in more detail in later sections of this report). With foreign insurers growth strictly controlled (through licensing), the impact of foreign insurers in China has been limited, with AIA the largest with <1% market share. Figure 296: Top five life insurers control 65% of market... China Life insurance market share by company (%) 50. Top 5 = 65% Figure 297: with bancassurance growth the weakest China Life insurance growth rate by company (CAGR % p.a.) 55% CAGR (%pa) Top 5 = 65% % 1yr 3yr 5yr % 17.8% 21.9% 35% 25% % 7.5% 6.3% 5.1% 4.7% 3.7% 15% 5% 0. China Life Ping An Life New China Life China Pacific PICC Life Tai Kang Tai Ping Life Anbang Life Others Dec-07 Dec-10 Dec-13 Oct-14-5% China Life Ping An Life New China Life China PICC Life Tai Kang Tai Ping Anbang Pacific Life Life Sino Life China Others Post Life Market Note: Ping An market share adjusted to include Universal Life from 2010 onwards (which is excluded from CIRC data) Sources for both charts: CIRC, company data, Credit Suisse estimates We highlight that the highest-growth companies in the past few years have been quite heavily dependent on bancassurance distribution, namely PICC Life, New China Life and Taikang. As highlighted in Figure 299, these franchises have also exhibited some of the weakest growth since Figure 298: China Life has been ceding market share China Life insurance market share by company (%) 60. Figure 299: with bancassurance driving a lot of growth China Life insurance market share by company (%) China Life 20. Ping An New China Life China Pacific Dec-04 Dec-03 Dec-05 Dec-06 Dec-07 Ping An Dec-08 Dec-09 Dec-10 China TaiPing Dec-12 Dec-11 Dec-13 Oct China Pacific New China Life Tai Kang PICC Life China TaiPing China Life Ping An Life China Pacific Tai Ping Life New China Life Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Oct-14 Note: Ping An market share adjusted to include Universal Life from 2010 onwards (which is excluded from CIRC data) Sources for both charts: CIRC, company data, Credit Suisse Research The state council published "New Nation Ten" objectives in August 2014, targeting insurance penetration to reach 5% of GDP and insurance density to reach Rmb3,500 per person by 2020, implying a 16.5% p.a. CAGR. China Life Insurance Sector 95

96 Life premium per capita (Rmb) Premium per capita (US$) 28 January 2015 Structural growth to continue medium term We expect the China insurance market to likely experience growth rates above 15% p.a. over the next decade despite little population growth, powered by the New national ten, deferred tax pension and tax break for health insurance. As highlighted in Figure 300 below, most regions in China have insurance density (premiums per capita) well below the levels in and even those with relatively high GDP per capita, such as. Figure 300: Most of China has low insurance density China GDP per capita by region (Rmb) ,000 Figure 301: with even below developed NJA China GDP per capita by region (US$) ,000 3,500 4,500 Hong Kong 4,000 3,000 2,500 Growth potential 3,500 3,000 Taiwan UK Japan Singapore 2,000 1,500 See chart below for detail 1, Inner Mongolia ,000 40,000 60,000 80, , ,000 GDP per capita (Rmb) 2,500 2,000 1,500 1, China South Korea Asia Italy Growth potential France USA Germany Canada New Zealand Australia 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 GDP per capita (US$) Source: CEIC, CIRC, Credit Suisse estimates Source: Swiss Re, CEIC, CIRC, Credit Suisse estimates When we then examine where and sit relative to more developed regions globally as highlighted in Figure 301, these two municipalities still have materially lower insurance density and GDP per capita. However, while we expect the more developed/penetrated regions such as and to grow above global rates, we do expect these to slow relative to the rest of China. As highlighted in Figure 303, the China regions have grown well below the national rate, albeit still at an average of above 5% p.a. Figure 302: China has the highest density China insurance premium per capita by region (Rmb mn) ,000 Figure 303: and lowest corresponding growth rate China life insurance premium growth (5-year CAGR % p.a.) to % 2, ,000 15% 1, , % 0 Inner Mongolia Source: CEIC, CIRC, Credit Suisse estimates Inner Mongolia Source: CEIC, CIRC, Credit Suisse estimates As such, companies that have the best positioning in the regions likely to experience the next phase of development (i.e., Tier 2 and Tier 3 cities, and the central region) are expected to experience stronger medium-term growth. National China Life Insurance Sector 96

97 2015 watershed in terms of reforms? We have summarised below the key regulatory initiatives being undertaken or considered by the CIRC. There are other initiatives the CIRC has been focusing on that we have not listed in detail here, which are mainly around producing better quality and more full-time agents and reducing mis-selling. We also outline the potential timeline (if any) and make some assessment of the possible impact. (1) Insurance New National ten Impact: Positive, Timing: five-year period between mid-2014 and 2020 The State Council published a ten-point plan for the insurance industry in August 2014, which included targeting 5% penetration, Rmb3,500 density, building insurance safety net, improving social management through insurance, financial compensation mechanism / disaster relief, developing rural insurance, expanding insurance services, promoting reform and opening up insurance industry, strengthening regulation, defusing risks, strengthening infrastructure, improving services to develop modern insurance policies. State Council's ten-point plan: The State Council s new national ten objectives imply 16.5% p.a. growth until 2020 General requirements market-oriented, fair competitive environment, improved supervision, target 5% of GDP Build insurance safety net commercial insurance should become the main protection scheme, important provider of pension & health. Improve social management through insurance promote commercial insurance to carry out all types of pension, medical and help improve social management efficiency. Improve financial compensation mechanism / disaster relief improve use of commercial insurance for catastrophe risk, actively develop commercial property, homeowner insurance etc. Develop rural insurance, especially agriculture expand depth and breadth Expand insurance services use long-term investment funds to allocation efficiency for national projects, funds management pilots, cultivate alternative investment market, promote credit insurance etc. Promote reform and open up insurance industry deepen reform, deregulate life and commercial auto, encourage innovation, accelerate development of reinsurance market, reduce homogenous inefficient competition, Strengthen regulation, defuse risks modernise regulation and supervision, riskoriented regulation system, promote rights of consumers, strengthen risk management Strengthen infrastructure strengthen insurance credit information system, allow differentiated premium rates. Establish various risk insurance databases (i.e., life table, disease tales) Improve services to develop modern insurance policies promote commercial insurance and social security effective convergence, establish information sharing mechanism, government to encourage purchase of insurance services, study and improve tax policies (health insurance, tax deferred pension, agricultural) China Life Insurance Sector 97

98 (2) Abolishing the double track pension system Impact: Positive, Timing: Approved by the state council, expect to implement in the next one to three years The State council has approved the party organ and state-owned institution pension reform plan at the end of 2014, which will merge the double track pension system between the party organ, SOE and normal enterprise. The staff of party organ and state owned institution would have lower welfare, but higher salary. As such, we expect a higher need for the supplementary commercial pension policies. (3) Commercial tax deferral pension Impact: Positive, Timing: Pilot before Dec 2015, national implementation medium term The tax deferral pension product was much discussed since 2012, with the pilot launch in much anticipated. In Nov 2014, the SH government confirmed the time schedule of Tax-Deferred Pension pilot, to be launched before Dec We discuss the potential impact of the commercial tax deferral pension scheme in detail in the next section, which will be a useful supplement to the current pension system, to meet the ageing challenge and the existing gap in social welfare. The tax deferral amount is likely to be low, and as such, its impact will take time to emerge. (4) Tax breaks for health insurance Impact: Positive, Timing: Uncertain CIRC has also proposed three new policies including tax breaks for purchasing the commercial health insurance, urban and rural critical illness insurance guarantee fund and the sales tax break for basic medical insurance. We view this as positive for health insurance although the starting point is still very small in terms of industry size; but has strong long-term potential. (5) Guarantee rate liberalisation Impact: Negative, Timing: Not likely near term (likely post RBC solvency introduction) In June 1999, the CIRIC introduced the maximum rate guarantee of 2.5% (with guarantees at the time averaging around 6-6.5%). There has been much speculation about reforms of this regime, and it was finally increased to 3.5% in August 2013 for traditional products only. Higher guarantees are allowed for products on individual approval from the CIRC, with Ping An launching a 4% product recently. We would not expect full-price liberalisation until the new RBC solvency regime is fully rolled out. (6) New risk based solvency regime Impact: Neutral, Timing: Pilot in 2015 and fully implemented by the end of 2015 to 2016 The CIRC issued a plan to build the "Second Generation Solvency Supervision System". The plan states that over the next three to five years, CIRC will set up a solvency supervision system, which is in line with international practices and China's current state of development. The new system will further classify different risks, calculate different risks accurately, line up the solvency capability with risk situation closely, increase sensitivity to risks and adequately represent insurance companies' risk situations. The new system will adopt the international "Three Pillar" outline, with capital adequacy requirements, risk management requirements and information disclosure requirements as the three pillars. We would expect the first-phase release not to lead to a material increase in the capital required, but would expect ensuing tightening as we have seen elsewhere in Asia. We analyse the potential impact of tax-deferred pension in next section We do not expect full-rate liberalisation until after the introduction of RBC solvency standards New risk-based capital (RBC) regime will be Neutral initially, but may require additional capital over time China Life Insurance Sector 98

99 Initial statements from the CIRC were that the total life industry capital would decrease a little, but we would expect this regime to demand more capital over time as criteria are tightened and any grandfathering is removed. (7) Investment liberalisation Impact: Positive (but not material near term), Timing: Being introduced The regulator has relaxed restrictions on investments of insurance companies, including: (1) allowing insurers to invest in hybrid and convertible bonds and (2) raising the ceiling for investment in equity, unsecured bonds, private equity, infrastructure-related debt and real estate. These changes help the insurers to better match the duration of their assets and liabilities, and benefit from improved earnings stability and higher yields. However, given the limitation of asset classes available in China, the impact on the investment yield will take some time to flow through (and introduce some higher risk). Investment liberalisation should lead to higher returns over time but also higher risk profile China Life Insurance Sector 99

100 Impact of pension system reforms China's pension system is based on three pillars, supplemented by the government's minimum-living-standard guarantee, personal savings and family support. Pillar 1 Mandatory social insurance The first pillar, China's mandatory social security system, has two tiers a (tax-exempted) social pension, which is funded on a pay-as-you-go basis, and an individual pension. China had started to build up its total social security system more than 20 years ago with Rmb4.6 tn in accumulated balances as at the end of 2013, which has witnessed a CAGR of 28% over the past 20 years. Despite the rapid accumulation, the social security system is not sufficient for the entire population, averaging at a little below Rmb 3 per capita. The withdrawals from accumulated balances have been growing almost at the same pace as the contributions (see Figure 305) i.e., the new social security fund contributed by the working population has been quickly consumed by the old generation: a situation that will continue to deteriorate as China's population ages. First pillar: The social security system Figure 304: social security at Rmb4.6 tn social security outstanding balance, Rmb bn and growth % Figure 305: Withdrawal in line with contribution social security, revenue and expense, Rmb bn and growth % 5, , ,500 4,000 3,500 3,000 2,500 2,000 1,500 1, ,500 3,000 2,500 2,000 1,500 1, Social security Growth (%pa) Contribution Withdrawal Growth (%pa) Source: CEIC Source: CEIC It is reported (Xinhua News) that in 2013, a total of 38 mn population, around 1 of the urban working population, has stopped contributing to the tax-exempted social security system. As such, the government has publicly encouraged the private sector (insurance companies) to participate in the social security system to provide extra coverage. There are currently five classes in the social security system pension, medical, unemployment, injury and fertility with pension the largest single class, 7 of total. Figure 306: Pension the biggest social security class social security by class, % Figure 307: Other classes rather small social security by class, Rmb bn and growth % 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Source: CEIC, Credit Suisse Pension Medical Unemployment Injury Fertility Social security - pension Social security - medical Social security - unemployment Social security - injury Social security - fertility Growth (%pa) Source: CEIC, Credit Suisse China Life Insurance Sector 100

101 Pillar 2 Enterprise annuity The second pillar is the enterprise annuity or the so-called group pension scheme, which is a voluntary scheme first introduced in 2004 but has seen very little development so far. Around 72,000 companies had enterprise annuity schemes as at 30 Sep 2014, with a total Rmb709 bn volume. number of employees that were enrolled in the system was 22.1 mn, less than 1 of the total working population in China. The companies are mainly central and local SOEs, and large private and foreign companies. It is estimated that the employer contribution is around 5-1 (people.com.cn) of the salary, while the employee contribution is lower at around 3-5% of the salary. Currently, the tax benefit applies to both the employer contribution, up to 5% of salary, and the employee contribution, up to 4% of the salary. The gap between economically developed areas and less developed areas is large, with relatively high penetration in urban areas (such as and ), but very low penetration in rural areas. Second pillar: The enterprise annuity, with tax enhancement from 1 January 2014 Figure 308: enterprise annuity premium Rmb59 bn enterprise annuity premium, Rmb mn and growth % Figure 309: with entrusted assets of Rmb295 bn Enterprise annuity entrusted and investment assets (Rmb mn, %pa) 70, , ,000 50,000 40,000 30,000 20, , , , , ,000 50, , /2014 3/ Entrusted assets Investment assets Growth (%pa) 9/2014 Series6 Series3 Source: CEIC Source: CEIC Five insurance companies have their own pension companies, namely China Life Pension, Ping An Pension, Changjiang Pension owned by China Pacific, China Pension and Taikang Pension with enterprise annuity the main business. The total enterprise annuity premium was Rmb59 bn in 2013 by the five pension companies, while the total entrusted assets and investment assets were Rmb295 bn and Rmb260 bn, respectively at the end of September Figure 310: China Life / Ping An have 8 of the market Pension company premium, Rmb mn and growth % Figure 311: with market shares stable recently Pension company market share, % 35, ,000 25, ,000 15, ,000 5, /2014 6/2014 3/ / Source: CEIC China Life Pension Ping An Pension Pension Changjiang Pension Taikang Pension Growth Source: CEIC China Life Pension Ping An Pension Pension Changjiang Pension Taikang Pension China Life Insurance Sector 101

102 The margin for insurance companies on enterprise annuity business is rather small as they mainly act just as investment. The fees the insurance companies charge include: (1) an account management fee of Rmb5 per account per month; (2) a custodian fee of 0.2 and (3) an investment management fee of 1.2. We understand that currently the insurance companies barely make money, given the lack of economies of scale. Tax benefit increased since January 2014 In December 2013, the Ministry of Finance (MOF), the Ministry of Human Resources and Social Security (MOHRSS), had announced the tax deferral scheme for enterprise pension, applicable from 1 January Under the new scheme, the employee contribution will also be tax deferred until the withdrawal stage, up to 4% of salary, note the employer contribution is already tax exempted. Enterprise annuity employer contributions are tax deferred up to 5% of salary Pillar 3 Commercial individual pension There is hardly any commercial individual pension in China with no statistics available, given the lack of tax benefit. As such, we see the introduction of the much talked about tax-deferred pension scheme as likely to lead a significant voluntary market - to be launched before Dec 2015 as announced by the SH government in Nov 2014 as a pilot programme in. We examine the impact in the following section. China currently has 182 mn working population employed by SOEs, urban collective ownership companies and other ownership companies. This is a rather small number compared to the 1.4 tn population given the large rural population. 36% employees work for SOEs, while 61% work for other ownership types mainly private companies and foreign companies. Due to the economic reform in China, SOE employment has dropped from 110 mn at the peak in the 1990s to just 66 mn in At the same time, the private sector has developed very quickly from just 3 mn employees in 1992 to 110 mn in Figure 312: Just 182 mn employees in China number of employees, mn and growth % Figure 313: with private sector now biggest segment number of employees by sector, mn and growth % % % % 1 5% -5% % 1 5% -5% -1-15% % /2014 6/2014 9/ Number of employee Series /2014 6/2014 9/ SOE Urban Collective Owned Other Ownership Series3 Source: CEIC Source: CEIC The average wage for the working population was around Rmb51,000 (i.e. close to Rmb4,300 per month) in 2013, with similar average wage for SOE employees and private sector employees. China Life Insurance Sector 102

103 Figure 314: Average wage was Rmb4,300 per month Average wage, Rmb and growth % 60,000 4 Figure 315: Similar wage for SOE and private sector Average wage by sector, Rmb 60,000 50,000 35% 50,000 40, % 40,000 30,000 30,000 20, % 1 20,000 10,000 10,000 5% Average wage Growth (%pa) SOE Urban Collective Owned Other Ownership Source: CEIC Source: CEIC Pilot scheme details While the details for the pilot is not officially out yet, we highlight that it is suggested that the pilot will allow Rmb600 individual pension per person to be tax deferred every month (Rmb7,200 per annum, Caijing.com.cn, 17 January 12). We estimate that initially the scale would be limited but with great development potential. The tax-free threshold in China is Rmb 3,500. For income more than the tax-free threshold, the applicable tax rate is as given in the below table. Figure 316: Current tax rates in China For income > tax-free threshold Tax rate <1,500 3% between 1,500 and 4,500 1 between 4,500 and 9,000 2 between 9,000 and 35,000 25% between 35,000 and 55,000 3 between 55,000 and 80,000 35% > 80,000 45% Source: State Administration of Taxation of the People's Republic of China For example, for a person with taxable income of Rmb5,000, the income tax is Rmb45 = (Rmb5,000-Rmb3,500)*3%. If this person further buys individual pension, the income tax will further reduce to Rmb27 = (Rmb5,000-Rmb3,500-Rmb600) *3%. We highlight that the commercial individual pension is above the enterprise annuity contribution (tax exempt up to 4% of salary) and a material 'grey' income market exists in China. As such, take-up rates of such a scheme may be quite modest, especially in the early years. China Life Insurance Sector 103

104 Assessing the impact of deferred tax pension In 2013, the working population in was 6.2 mn, with an average wage of Rmb91,000 (Rmb7,600 per month). We understand that the wage distribution is more skewed towards the low to mid end with 50-6 earnings less than the average wage, where the extent of any tax benefit is less beneficial. Assuming a 1 take-up ratio, the total individual pension premium in could potentially be ~Rmb4.5 bn (Rmb6.2 mn*rmb7,200*1 = working population*annual premium* take-up ratio), which equates to almost 8% of the total life insurance premium. Figure 317: 6.2 mn working population in SH Working population in SH, mn and growth % Figure 318: SH average wage Rmb7,600 per month Average wage in SH, Rmb ,000 25% % 2 90,000 80,000 70, % 60,000 15% % 50,000 40, % 30,000 20,000 10,000 5% Source: CEIC, Credit Suisse Series6 Growth (%pa) SH: average wage Source: CEIC, Credit Suisse If we apply the same criteria on a national basis, the total new business premium from commercial individual pensions could reach Rmb131 bn (total life insurance market premium Rmb1.1 tn), or Rmb10 bn value of new business assuming 8% insurance margin. We highlight the sensitivity below to various take-up rates below: Growth Assuming 1 take-up rate, new business addition could be Rmb131 bn p.a.... Figure 319: Potential VNB from tax deferred pension product (national roll-out) Rmb mn Take-up ratio 3% 5% 8% 1 13% 15% VNB margin (%) 3% 1,179 1,966 3,145 3,931 5,111 5,897 5% 1,966 3,276 5,242 6,552 8,518 9,828 8% 3,145 5,242 8,387 10,483 13,628 15, ,931 6,552 10,483 13,104 17,035 19,656 13% 5,111 8,518 13,628 17,035 22,146 25,553 15% 5,897 9,828 15,725 19,656 25,553 29,484 Source: Credit Suisse estimates, VNB = value of new business In terms of addition to VNB growth, we estimate 10-2 VNB upside for main insurers, assuming their share is similar to current market share. We highlight that this impact would likely be at least two to three years after national introduction. Figure 320: Potential VNB uplift for the Chinese insurers Rmb mn Pension VNB VNB before VNB after VNB uplift % pension pension China Life 4,707 21,300 26,007 18% Ping An 3,312 18,163 21,475 15% China Pacific 1,080 7,499 8,579 13% China 818 3,148 3,966 21% Source: Company data, Credit Suisse estimates and lead to 13-2 uplift in VNB growth rates for larger insurers China Life Insurance Sector 104

105 Premium (Rmb mn) Growth (%pcp) 28 January 2015 Health insurance with tax benefits? The health insurance in China is under-developed representing just 7.9% of total insurance premium in the first eleven months of 2014 with penetration (% of GDP) just 0.015% and density (of population) just Rmb 7. It has been a fast growing segment with CAGR of 44% in PICC Health is the biggest health insurance company with 65% market share followed by China Pacific and Ping An. It was reported (in Securities, ) that the Ministry of Finance was likely to introduce tax benefits in health insurance to promote health insurance in China to improve social welfare and increase health protection. Figure 321: Health insurance up 44% annually in the past eight years since 2005 Health insurance premium Rmb bn and growth % Figure 322: PICC Health premium growth quite volatile and volume low PICC Health premium Rmb mn and growth % 12, ,500 10,000 8, ,000 3,500 3, , , ,000 1, ,000 1, , Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14-4 Source: CEIC, Credit Suisse Premium (Rmb mn) Growth (%pa) 5 yr CAGR Source: CEIC, Credit Suisse Premium (Rmb mn) Growth (%pcp) PICC Health has 65% market share compared to overall just 34% market share in the insurance industry while it has dominant position in many regions except first tier cities such as and where the market is more fragmented. We expect PICC Health will be the main beneficiary followed by Ping An and China Pacific if the tax benefit is introduced in health insurance segment. Figure 323: PICC has the highest market share of 65% followed by China Pacific and Ping An Health insurance market share vs. total market share, % 70. Figure 324: PICC market share highest in emerging China PICC Health market share by region % PICC Ping An China Pacific China United CCIC Sun-shine China Life Tian an China Bohai Health - Ningbo* Inner Mongolia Source: CEIC, Credit Suisse Source: CEIC, Credit Suisse China Life Insurance Sector 105

106 VNB margin (% NB APE) VNB margin (% NB APE) % agency channel (new business PAE) % bancassurance channel (new business APE) 28 January 2015 Agency remains key value driver Agency channel remains main value driver The agency channel is the most significant channel for life insurers in terms of both new business premium and value of new business, while bancassurance generates materially less value for life insurers due to the non-exclusive nature of this channel in China and as such, higher commissions and greater price competition. Agency channel is the main driver of value for the listed insurers After rapid growth in bancassurance sales from , bancassurance rose as high as 60-7 of new business APE (annual premium equivalent) in 2010 for Chinese insurers (with the exception of Ping An). However, due to the new bancassurance regulation impact and higher rates on competing products (bank deposits and wealth management products), this channel experienced sharp declines from 2011 to 2014 (Figure 326). The contribution from bancassurance to new business APE has reduced to On the other hand, agency contribution has risen to 60-7 of new business APE (Figure 325). Figure 325: Agency % of new business rising since 2010 Agency % of new business APE, % 9 8 Ping An F'casts Figure 326: bancassurance % of new business falling Bancassurance % of new business APE, % 9 8 PICC Group F'casts 7 China Pacific China 7 6 China New China Life 6 New China Life 5 China Pacific China Life 3 China Life Ping An 2 Jun-15 Dec-14 Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Jun-15 Dec-14 Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Note: APE = annual premium + 1 single premium; Source for both charts: Company data, Credit Suisse estimates Margins for the agency channel are significantly higher than those for bancassurance (in some cases, as high as ten-fold), with margins quite stable in the agency channel, but continuously falling in the bancassurance channel due to the impact of competition. Agency margins are much higher Figure 327: Agency margins much higher Agency value of new business (VNB) margins (% NB APE) Figure 328: with bancassurance low for those with scale Bancassurance value of new business (VNB) margins (% NB APE) 8 F'casts 8 F'casts 7 China Life AIA China China Pacific New China Life Ping An China 3 Ping An China Pacific China Life New China Life Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14F Jun-15F Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 China Dec-12 Jun-13 Dec-13 Jun-14 Dec-14F Jun-15F Note: APE = annual premium + 1 single premium; Source for both charts: Company data, Credit Suisse estimates China Life Insurance Sector 106

107 Tied agency forces can be trained (and incentivised) to sell higher-margin products, with much longer product duration and higher levels of 'protection' possible. Figure 329: Which distribution channels are best suited to selling riders? Tied agents are much better suited to sell (higher margin) riders Source: Milliman Asia Rider Survey, March 2013 (pan-asia survey, excluding Japan and Korea) Agency volumes are significantly more stable, in our view, with a much lower impact from macro-economic factors. The problem is that agency channels are very difficult and costly to build and maintain. The key advantage of the bancassurance channel is the distribution power of the bank distribution network and lower breakeven point in terms of scale, and as such, it is especially attractive to smaller insurers, or those wishing to break into a market. We expect bancassurance to evolve in China over time (i.e. more exclusive deals). We are also encouraged by the new bancassurance regulations, which require at least 2 of their sales to be 'protection' type. Given the large margin differential, in terms of value of new business, agency channel contribution is materially higher than the 6 contribution in terms of new business APE. Based on public disclosures and statements from the companies, we estimate that the agency channel represented around 85% (range: 66-98%) of the new business value for the insurers due to their much higher margin. Agency channel accounts for >8 of VNB for most listed insurers Figure 330: Agency channel 50 8 of new business APE New business APE by channel (%), 1H14 10 Figure 331: but the majority of value of new business Value of new business (VNB) by channel (%), 1H China Life Ping An China Pacific New China Life PICC Group China China Life Ping An China Pacific New China Life PICC Group China Agency Bancassurance Group Agency Bancassurance Group Note: APE = annual premium + 1 single premium. Source for both charts: Company data, Credit Suisse estimates We do not see any reason why Chinese insurers' margins should be so low relative to other countries'; AIA China shows that achieving higher margin business in China is possible, as highlighted below. Chinese insurers have plenty of room for margin expansion China Life Insurance Sector 107

108 VNB margin (% NB APE) 28 January 2015 Figure 332: AIA shows much higher VNB margins attainable in China Value of new business (VNB) margins (% NB APE) 7 F'casts 6 5 AIA China 4 3 Ping An China Pacific 2 China Life New China Life 1 China 1H15F 2H14F 1H14 2H13 1H13 2H12 1H12 2H11 1H11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Source: Company data, Credit Suisse estimates Agency channel undergoing fundamental change Agency channel sales volumes have seen a significant slowdown since 2011 and are also facing one of the most challenging periods since its inception due to a combination of the following factors: (1) Lack of competitiveness of savings products, (2) Difficulties in agency recruitment and retention due to lower wages and unstable income compared to other industries and a tighter labour force (new recruits from 1 July 2013 also need tertiary education), (3) Previous lack of flexibility to pay higher commission on pure protection products (with changes made in August 2013, but still contain total caps) and (4) Regulatory intervention on mis-selling and better agency training coupled with potential agency employment reform. Given the above changes, the agency channel is having to adapt and change more than any other period in its history, in our view. As such, we are seeing very divergent trends among companies in recent years, driven to a large extent by insurers' ability to change. In our view, a key issue for the Chinese insurance industry is the lack of focus and urgency in transforming their agency forces to greater reliance on underwriting profit rather than relay on 'investment spread' as their main source of earnings. Figure 333: China Life source of earnings / surplus from 'investment spread' Chinese insurers are still heavily reliant on 'investment spread' for their earnings generation Source: China Life investor day presentation, November 2013 The problem with reliance on 'investment spread' is that this is highly reliant on both prevailing earnings rates (as asset and liabilities cannot be matched, with liabilities much China Life Insurance Sector 108

109 longer in duration) and the level of crediting rates to customers, which can be impacted by rates available on competing products. As such, insurance companies with greater reliance on underwriting profits are more immune to investment market fluctuations, and as such, have much more stable and 'higher quality' earnings, in our view. Figure 334: What percentage of total VNB comes from riders? Mortality and other sources of profit much larger for insurers outside China Source: Milliman Asia Rider Survey, March 2013 (pan-asia survey, excluding Japan and Korea) China Life Insurance Sector 109

110 Agent numbers Agent number growth (%pa) 28 January 2015 Key drivers of value enhancement The main drivers of agency value of new business, in our view, are as follows: 1) Number of (active) agents; 2) Agent productivity (i.e., average first-year premium or APE per agent); 3) Margins of products sold (mainly a function of the duration of product and the amount of protection included). The key drivers of agency value enhancement are: agent growth, productivity growth and margin enhancement We view the number of agents in China as reasonably close to the saturation point in the more developed urban areas, thereby see future growth as more driven by productivity and margin enhancement. As highlighted below, the actual growth of agency force new business growth has been substantially different among the listed insurers: Figure 335: Large divergence in agency channel growth among Chinese insurers ( ) Agency NB growth (five-year CAGR % p.a.) Agency Current VNB* Agents Productivity NB APE % VNB multiple China Life -2.9% 3.7% 0.8% 97% 9.0x Ping An 9.1% 4.7% 13.7% 94% 1.7x China Pacific 4.1% 15.3% 19.4% 84% 5.3x New China Life -3.5% 5.6% 2.1% 97% 0.7x China 15.1% 18.7% 33.8% 96% 0.3x Source: Company data, Credit Suisse estimates, *VNB (value of new business multiple) calculated using 2x book for P&C and 1x book for bank Agent number growth slowing Agent number growth has averaged 3.5% p.a. over the last five years for the listed Chinese life insurers, with just 1% growth over the last year. Given difficulties in recruitment (given the lack of competitiveness with average wages and new rules requiring higher levels of education) and poor retention rates, we expect industry growth to be below 5% p.a. going forward, but we highlight that Ping An expects 1 p.a. agent CAGR for the next five years to 1 mn agents in We expect <5% p.a. agent number growth going forward Figure 336: Agent number growth weaker China life agent number growth Figure 337: we expect <5% p.a. going forward China life agent number growth (% p.a. / E) 900,000 F'casts 2 F'casts 800, ,000 China Life 15% 600, ,000 Ping An 1 5% China Pacific Ping An 400, , , ,000 China Pacific New China Life China -5% -1 China Life New China Life 0-15% Jun-15F Dec-14F Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Jun-15F Dec-14F Jun-14 Dec-13 Jun-13 Dec-12 Jun-12 Dec-11 Jun-11 Dec-10 Jun-10 Dec-09 Jun-09 Dec-08 Jun-08 Dec-07 Jun-07 Source for both charts: Company data, Credit Suisse estimates China Life Insurance Sector 110

111 Substantial upside in agent productivity Agency productivity has continued to improve, even despite the added pressures from some reduction in overall volumes in We expect growth to continue to return to healthy levels above 1 in coming years (even as insurers focus on better margin products). We see significant further potential in agent productivity We note that measuring productivity by premium volume can be deceptive as a switch to lower premium but higher margin 'protection' type insurance, will show up as productivity reductions given premiums are lower. As such, looking at growth in value of new business is better, but this has only been disclosed by select insurers (Ping An and China Pacific) for a limited time by channel. As highlighted in Figure 339, average productivity levels in China remain just a fraction of those in more developed Asian markets. As such, we see significant room for improvement as average wages in China continue to rise and agency forces slowly become more professional. Figure 338: Agent productivity increasing Agency productivity APE per agent (Rmb, monthly) 10,000 8,000 F'casts Figure 339: with China still well below developed Asia NJA regional agent productivity (NB APE US$) 70,000 60,000 50,000 6,000 40,000 4,000 30,000 2,000 20,000 10,000 0 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Ping An Jun-10 Dec-10 Jun-12 Dec-11 Jun-11 China Life Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 0 Hong Kong Singapore Korea Taiwan Australia NZ China Thailand Malaysia India Indonesia Philippines Vietnam Source: Company data, Credit Suisse estimates Source: Pi Financial Services Intelligence Plenty of margin improvement capacity As highlighted earlier in Figure 332, AIA China's new business margins are now double those of the Chinese insurers, but were similar back in The key drive of improvement was to change its products to include much higher levels of insurance (as it does in other countries in Asia) and made possible by a better trained and more professional agency force relative to the larger Chinese insurers. Margins for Chinese insurers should be double current levels The key drivers of margin enhancement for the insurers can be categorised as follows: Channel mix: The bancassurance channel in China currently has much lower margins than the agency channel. Given the decline in bancassurance sales, business mix has re-weighted towards the higher-margin agency channel for most insurers. Higher protection mix: Chinese insurers have been trying to increase the share of protection by: (1) increasing sales of protection products, including critical illness products and non-participating term life insurance; and (2) adding protection riders/protection coverage in bundled products. Progress has been painfully slow, but remains a key focus for better quality insurers, with recent enhanced commission flexibility (August 2013 regulation change) also key to improving this. Product mix: Chinese insurers have also been lengthening the premium payment duration in order to improve the margin. Companies like China Life have been especially guilty in getting their agency channel to sell shorter-term products to boost new business sales volumes for market share purposes. China Life Insurance Sector 111

112 We see the key driver of margin improvement to be a greater percentage of 'protection' type (i.e., insurance) business sold in China. However, the ability of the agents to increase the amount of protection business sold is limited by their training and sales skills in this area. Even very successful agents in China may not have focussed on selling such protection products, noting also that the more protection is added to a savings product, the lower the future total return to the client will be, as you need to deduct the charge of the insurance. As such, we have seen new product launch momentum fade after a few months, as agents struggle to consistently sell such products, despite increased efforts from company managements to launch new products with additional 'protection' cover. We are of the view that the agency transformation needed to successfully increase the product mix takes many years to execute. In addition, Chinese insurers have been constrained in their ability to sell more 'protection' type / riders by the lack of incentivisation for such sales. Typical commissions for 'savings' type products are 30-4 of the first-year premium. However, in many markets, the commission rate available for pure protection rider is well above 10. Skewing commission rates to encourage higher 'protection' sales was not possible in China until regulatory changes in August 2013, but remains limited. Insurers can also incentivise these sales in other ways, but we are of the view that these need to be incentivised adequately, which is confirmed by a recent Milliman Asia Rider survey. Figure 340: What are the major impediments to selling more riders? Sales incentive and training key to adding more 'protection' type insurance / riders Source: Milliman Asia Rider Survey, March 2013 (pan-asia survey, excluding Japan and Korea) New bancassurance rules under our expectation The bancassurance channel in China is currently struggling from the point of view of insurance companies, as: Products sold are mostly savings-type, with little by way of 'insurance' / protection component, and as such, are low margin. In addition, these products can be directly compared to other competing savings products such as bank deposits or trust / wealth management products, and as such, do not compare favourably at this point in time. Bancassurance channel in China currently struggling in terms of volume and has very low margin No exclusive bancassurance deals exist (even for joint ventures with banks) as such, the ability for insurers to try to sell higher-margin products is limited. Agents have been banned from branches since late 2001, which makes it more difficult to sell insurance products in bank branches. China Life Insurance Sector 112

113 Bank staff selling insurance must be licenced, which takes time to undertake and is likely not worth the investment. Each branch limited to no more than three insurers, which in theory is positive for insurers in terms of lowering competition per branch, but in practice has led to increased competition to be one of the three providers (i.e., bancassurance margin has further declined). Due to these factors, insurance companies have been struggling with both volumes and margins through the bancassurance channel. We believe that the proposed bancassurance regulation changes will go some way to improve both the margins and volumes in this channel. Background Impact of 2010 bancassurance regulations In early November 2010, the China Banking Regulatory Commission (CBRC) issued a directive, which: Banned insurance companies sales agents from bank branches (to sell insurance products), Bancassurance regulation changes in 2010 had major impact on growth rates Allowed only bank employees with insurance sales certificates to conduct bancassurance sales and Limited every branch to more than three insurance companies. In administrative regions where this directive was enforced, strong declines in sales volumes through bancassurance were witnessed. Given the above directive was low on detail, the China Insurance Regulatory Commission (CIRC) and the CBRC jointly issued more detailed bancassurance regulations on 7 March The stated key objective of the regulation is reduced mis-selling and improved customer service. These regulation changes also coincided with the reduced competitiveness of the pure 'savings' insurance product relative to both bank deposits and trust / wealth management products. This led to a huge slowdown in insurance sales in the bank channel, as can be seen in Figure 341. Figure 341: Bancassurance growth slowed sharply Bancassurance new business APE growth (% p.a.) F'casts Figure 342: whilst agency growth recovered Agency channel new business premium (APE*) growth (% p.a.) F'casts Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 China Life Ping An China Pacific New China Life China Average -2 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 China Life Ping An China Pacific New China Life China Average Sources for both charts: Company data, Credit Suisse estimates, APE = annual premium + 1 single premium China Life Insurance Sector 113

114 New bancassurance rules to drive margin while volumes uncertain CIRC has released new bancassurance rules (effective 1 April 2014), which: Require insurance companies / banks to sell right products to right people (needs / risk analysis), 2 of the premium collected must be protection type premium collected by banks and postal agencies from the sale of accident insurance, health insurance, term life insurance, whole life insurance and pension annuities should be not less than 2 of total premium they receive. Key omission The draft version had insurance staff allowed back into bank branches (but required to wear identity tags that clearly indicate that they are not employees of the bank nor the post office) We view the new bancassurance draft regulations positive for margins (2 of premiums must come from the sale of 'insurance'), but uncertain for volumes as Life market growth slowed since April 2014 due to the new policy. Figure 343: Most listed insurers have 25-4 of their sales from bancassurance % of new business premium (APE) by channel China Life Ping An China Pacific New China Life PICC Group China Agency 46% 82% 78% 47% 3 61% Bancassurance 22% 4% 17% % Group 32% 14% 5% 13% 2 % of group earnings from life insurance Source: Company data, Credit Suisse estimates, APE = annual premium + 1 single premium We see the new bancassurance rules positive for margin but uncertain for volumes China Life Insurance Sector 114

115 Risk profile rising We believe the risk profile of Chinese insurers has increased over the past few years (especially since 2010) and will continue to do so due to the following key factors: (1) Increasing investment asset risks. Despite a reduction in equity market exposure, we have seen a significant increase in asset risks, with a material rise in corporate bonds and more recently debt schemes, trust investments and wealth management products, as insurers chase higher yields while investment asset class restrictions are lifted. (2) Increasing liability risk. We have seen a worrying trend in increased balance sheet exposure taken on by insurers, with (1) pay-outs above earned investment returns for some time, (2) higher guarantee levels, higher return products and more recently, (3) the launch of higher risk products, such as 'high cash value' products, which have effectively low surrender penalties. (3) Guarantee rate liberalisation. We expect total deregulation of the maximum guarantee rate within the next year or two (given it is a State Council directive to deregulate), which will further accentuate the issues above. Whilst the insurers reacted to the traditional product maximum guarantee increase (from 2.5% to 3.5%), we have of late seen higher guarantees become mainstream. We expect this to continue on full liberalisation. (4) Additional new capital requirements. We expect the new risk-based solvency (RBC) and G-SIFI (and D-SIFI) standards to lead to an increase in capital requirements in the medium term especially for life insurers. We examine the key risk profiles of the listed Chinese insurers below, where we see PICC P&C and China Pacific as having the lowest risk profile, followed by China Life. Figure 344: Credit Suisse China insurers' risk profile assessment China Life Ping An China Pacific New China Life China PICC P&C PICC Group We see PICC P&C and China Pacific as having the lowest risk profile of the Chinese insurers Solvcency position Medium Medium Strong Weak Weak Medium Weak B/sheet leverage Medium High Low High High Low Medium Investment asset risk Low High Medium High Medium Low High Product risk Medium Low Low High Medium Low High Non-insurance risk Low High Low Low Low Low Medium Overall Medium High Low High Medium Low High Source: Credit Suisse China Life Insurance Sector 115

116 (1) Increasing investment asset risks The insurers' investment assets have changed over the years from predominantly very 'safe' fixed income portfolios, to a more diversified portfolio driven by (1) regulatory liberalisation of investment asset classes, and (2) insurers chasing higher yielding classes to attract higher returns on their products. A large variance exists amongst the Chinese insurers in terms of asset mix. China Life has the highest percentage of 'lower risk' assets, with 64% of its assets in cash, term deposits, government bonds, government agency bonds and finance bonds. This is followed by PICC P&C (63%), China (57%) and China Pacific (53%). Ping An has the lowest, with just 34% in 'lower risk' assets (51% for Ping An Insurance). Ping An's debt scheme and wealth management product exposure is also the highest among its peers, at 15% of its total investment assets. Investment mix has changed materially in the past few years Figure 345: Large divergence in investment assets mix China insurers' asset mix (%) 30 June China Life Ping An Group Ping An Insurance China Pacific New China Life China PICC P&C PICC Group Cash Term deposits Govt bonds Govt agency bonds Finance bonds Corporate bonds Loans Debt schemes WMP / Trust repos Other Equities Source: Company data, Credit Suisse Figure 346: with China Life highest in 'lower risk' assets China insurers' asset mix (%) 30 June 2014 low/mid/high risk Ping An Group Ping An Insurance China Pacific New China Life China PICC Group 30-Jun-14 China Life PICC P&C Lower risk assets Cash 2.2% 6.5% 5.6% 3.1% 5.3% 6.5% 11.8% 7.1% Term deposits 35.1% % 21.6% 27.3% 13.6% 22.7% 21.1% Govt bonds 6.5% 4.9% 9.3% 8.7% 7.8% 12.1% 7.9% 2.9% Govt agency bonds 13.2% Finance bonds 6.7% 9.3% 17.7% 19.9% 5.6% 24.3% 20.3% 17.7% 63.7% 33.6% % 45.9% 56.6% 62.8% 48.9% Mediumr risk assets Corporate bonds 18.9% 12.9% 24.8% % 17.2% 15.8% 16.7% Loans 6.9% 29.6% 1.7% % na na Debt schemes % 8.7% 5.7% na na na 11.3% 25.8% % 31.7% 14.4% 30.6% 15.8% 28. Higher risk assets WMP / Trust % % na na 4.1% Equities 7.6% 5.2% 9.8% 10.9% 7.1% % 10.6% Other 2.9% 3.9% % 5.8% 8.7% 8.5% 10.5% 15.4% 13.8% % 12.8% 21.4% 23.2% < 1yr 16.1% 7.5% na na 10.5% 4.6% 25.5% na 1-5 yrs 39.8% 78.8% na na 47.1% 35.1% 41.8% na 5-10 yrs 14.6% 3.6% na na 42.4% 58.9% 32.6% na >10 yrs 29.5% 0. na na na 0. na na Held to maturity 48.6% 69.6% na 60.3% % na 43.6% Available for sale 48.6% 24.8% na 35.7% 18.5% 35.2% na 50.4% Held for trading 2.9% 5.6% na % 1. na 6. Source: Company data, Credit Suisse The main risk with some of the 'higher-risk' investments being undertaken by the Chinese insurers is the potential default risk associated with these and a potential lack of higher enough yield to compensate for these risks (as well as concentration of risk/systemic risk absorbed). In our view, asset classes that carry higher default/asset value risks include: The debt schemes, trust and WMPs, loans and corporate bonds are the main concerns Equities: Insurers typically try to invest in higher-yielding stocks, which tends to imply that they are overweight the commercial banks. Corporate bonds: Bonds issued by corporations. About three-fourths of Chinese insurers' corporate bonds are non-listed (i.e., obtained through the interbank market). Debt schemes: Structured debt schemes ranging from government-backed infrastructure projects to RMBS-type structures; these investments are often originated by trust companies and guaranteed by commercial banks. Trust/wealth management products: The main risk with this category is these entities are generally lending to entities that cannot get straight bank financing and as such need to borrow at higher rates thus likely being higher risk. There can also be a mismatch between duration of underlying loans and investment product duration. China Life Insurance Sector 116

117 Based on our discussions with the insurers, we highlight that the investment quality of the insurers' investment portfolios is typically with larger corporates/soes for corporate bonds and most of the assets generally carry high credit rating, strong collateral, cash flow backup, or have some form of government backing (i.e., with certain infrastructure projects). Unfortunately, none of the companies provide any disclosure about these exposures by industry, geography or credit rating, which would back up this information and as such, it is difficult to make any comment on the veracity of these claims. We discuss disclosure inadequacies in more detail later in this report. Our key concern at this point is systemic risks in an environment of economic slowdown, which could cause asset quality issues for the insurers. New risk classification: NPLs for insurers The China Insurance Regulatory Commission (CIRC) recently issued a draft guideline on five-category risk classification of insurance assets, with the aim of strengthening the overall risk management of insurance institutions, improving the efficiency of insurance asset management, and enhancing asset quality. According to the draft, CIRC will evaluate insurance institutions asset quality and classify the assets into five categories, similar to the current banking regulation by adopting a riskbased classification method. This new regulation means non-performing assets/loans (NPLs) and NPL ratios would become a standard disclosure for insurance companies, similar to the banks (as opposed to no disclosure now) and also enable investors to differentiate between insurance companies on their risk management capabilities. The exercise will be carried out at least once every half year once implemented. Investment asset liberalisation Since late 2010, the CIRC has been opening up the investment asset options for insurers, which were previously very restrictive. Insurers were not allowed to invest directly into property and infrastructure projects prior to 2010, when these restrictions were relaxed. The opening up of investment channels was further enhanced in the past 12 months, where various increases in thresholds were announced, and also new investments classes such as investment trusts and other alternative asset classes. Given the higher yield available on these assets and more stable equity markets, the average investment return for insurers has also improved more recently. Investment asset liberalisation has led to higher asset risk profiles Figure 347: Net investment yield rising China insurers net investment yield, % 8. Figure 348: with gross yields impacted by markets China insurers gross investment yield, % China Pacific Ping An 6. China Life PICC Group 9. China Life China Pacific New China Life 5. PICC Group New China Life 3. Ping An China 2. China Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Source: Company data Source: Company data China Life Insurance Sector 117

118 China insurers' investment asset mix over time The charts below show the change in investment asset mix over time by listed insurers, which highlight general reduction in 'lower risk' asset classes, into corporate bonds especially, and more recently into other types of 'higher risk' asset classes. Figure 349: China Life asset mix stable China Life asset mix , % Figure 350: whilst Ping An deteriorated the most Ping An asset mix , % Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Cash Term deposits Govt bonds Govt agency bonds Finance bonds Corporate bonds Loans Debt schemes WMP / Trust repos Other Equities Source: Company data Figure 351: China Pacific asset mix reasonably stable China Pacific asset mix , % Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Cash Term deposits Govt bonds Govt agency bonds Finance bonds Corporate bonds Loans Debt schemes WMP / Trust repos Other Equities Source: Company data Figure 353: PICC P&C reducing from a very high base PICC P&C asset mix , % Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Dec-09 Jun-09 Cash Term deposits Govt bonds Govt agency bonds Finance bonds Corporate bonds Loans Debt schemes WMP / Trust repos Other Equities Source: Company data Jun-10 Jun-11 Dec-09 Dec-10 Jun-10 Dec-11 Dec-10 Jun-11 Jun-12 Jun-11 Dec-11 Dec-11 Jun-12 Dec-12 Jun-12 Dec-12 Jun-13 Dec-12 Jun-13 Jun-13 Dec-13 Dec-13 Dec-13 Jun-14 Jun-14 Jun-14 1 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Cash Term deposits Govt bonds Govt agency bonds Finance bonds Corporate bonds Loans Debt schemes WMP / Trust repos Other Equities Source: Company data Figure 352: with New China Life deteriorating recently New China Life asset mix , % Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Cash Term deposits Govt bonds Govt agency bonds Finance bonds Corporate bonds Loans Debt schemes WMP / Trust repos Other Equities Source: Company data Figure 354: with China reasonably stable China asset mix , % Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Cash Term deposits Govt bonds Govt agency bonds Finance bonds Corporate bonds Loans Debt schemes WMP / Trust repos Other Equities Source: Company data Jun-10 Jun-10 Dec-11 Dec-10 Dec-10 Jun-12 Jun-11 Jun-11 Dec-11 Dec-11 Dec-12 Jun-12 Jun-12 Jun-13 Dec-12 Dec-12 Jun-13 Jun-13 Dec-13 Dec-13 Dec-13 Jun-14 Jun-14 Jun-14 China Life Insurance Sector 118

119 (2) Increasing liability risk The CIRC increased the maximum guarantee rate on traditional products in August 2013, the first time it has adjusted the maximum 2.5% guarantee since introduction in June Whilst the increase to 3.5% is modest and only applies to a small section of the market, we believe the CIRC will likely extend this to all products by the end of 2014 and expect removal of the cap altogether not long thereafter. Whilst we do not expect a sudden explosion in very high guarantees offered, we see this as a negative medium-term development. Whilst still mainly featured in the bancassurance channel, we have started to see these higher guarantee products roll out in 2014 by most companies; so we would not expect particular rationality from insurers in the medium term. High cash value products A more worrying development recently however is the emergence of 'high cash value products. 'High cash value' products were a major contributor to the strength of life insurance sales in 1Q14, with 46 out of 70 insurers selling these products, according to the CIRC. The high cash value product sales were high in 1Q14 The products effectively remove most of the surrender penalties by offering consumers back their premiums plus interest after the first year. These products were first just sold in the bancassurance channel (as banks were forcing insurers to waive surrender penalties anyway), but have also extended into agency channel for some companies. These products expose insurers heavily to surrender or lapse risk, with break-even point for insurers on these contracts being well after the customer can get their money back. Many insurers have admitted that these products have negative margins, given high policy costs (i.e., return to customers ~4%) and commission of 2-3% paid. The CIRC recently published new rules to regulate/curtail high cash value products due to their rapid development (nine companies sold 64% of all cash value products and for 25 companies it represented more than half of their new business). The new minimum capital requirement was increased to 6% of reserve (as opposed to 4% currently) and maximum volume limited to 2x of the company's net assets. The severity and speed of regulatory reaction highlights the severity of the risk that insurers were taking on, highlighting the lack of balance sheet focus relative to market share focus. We are already seeing changes in product design to offer similar products to circumvent these new regulations. The severity and speed of CIRC reaction to high cash value products underscores their inherent risk Figure 355: China Life / NCI surrenders highest Surrender rate (% reserves) New China Life Figure 356: with persistency level falling 13-month persistency rate, % Ping An China China Life China Pacific China Life New China Life 2. China Pacific Ping An Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Source: Company data China Life Ping An China Pacific New China Life Source: Company data China Life Ping An China Pacific China New China Life China Life Insurance Sector 119

120 (3) Price liberalisation Given the high level State Council directive, the deregulation of both life (removal of maximum guarantee) and P&C (motor price de-tarrification) remains a key focus for the CIRC, where we expect a timetable to be announced (and reasonably fast implementation) in Life insurance guarantee rate liberalisation The CIRC capped the maximum guaranteed interest rate for life insurers at 2.5% in June 1999, with the average guarantee around that time above 6%. The key issue for insurers with offering guarantees is that they cannot buy long-dated assets to match the duration of their liabilities and as such run re-investment risks, which can be material. In addition, if they choose to move into riskier asset classes to potentially generate higher yields, their capital risk is further enhanced by such guarantees. We believe that the Chinese life insurance industry would have likely been insolvent by now had it not for been for this cap (noting the China Life negative spread portfolio was not included as part of IPO), with plenty of examples regionally (and globally) of high guarantees causing significant issues (i.e., Japan, Taiwan and Korea). However, given the high level State Council directive to deregulate industries and pressure from insurers to allow them to offer more competitive products, the CIRC increased the minimum guarantee rate to 3.5% for traditional business (around 15-2 of the market) in August On the positive side, many companies did not launch the higher guarantee products, and some have still not launched them in their agency channels. However, we see the main reason for this apparent rationality that the products still do not stack up well next to competing savings products; so why sacrifice margin for little additional growth. Now that a few insurers have launched these products, most are following suit. Higher guarantees are potentially allowed, but need individual approval from the CIRC. For example, Ping An launched a 4% guarantee product, but required a higher level of insurance cover (effectively charging consumers for the higher guarantee). We expect the CIRC to roll out the guarantee reform in participating products and universal products before the end of this year. Impact (medium-term negative). Whilst we do not see an immediate rush for insurers to offer higher guarantees, we see this as a key medium-term risk for the sector as once higher guarantees are introduced, we expect this to be a continuing feature. Additionally, whilst we expect a new risk-based capital solvency regime to start by the end of 2015, there is no additional capital charge for guarantees in the current draft as we understand it, so little by way of disincentive to not offer guarantees from a capital perspective up to the assumed discount rate. CIRC has previously protected the industry from itself by introducing maximum guarantees of 2.5% in 1999 We expect the CIRC to further liberalise the maximum guarantee rate by end 2014 China Life Insurance Sector 120

121 Implied VNB (x) 28 January 2015 Retain OVERWEIGHT view We retain our OVERWEIGHT sector stance, despite the recent strong rally, as we believe valuations have substantial further upside if growth continues to improve, with further regulatory initiatives in 2015, in our view, to boost growth. Our stock preferences are biased towards sustainable (agency biased) franchises with good momentum and robust capital positions. As such, our preferred exposures remain Ping An (best insurance franchise, best momentum, but bank exposure remains key concern), China Pacific (with the best capital position, good momentum and good exposure to bancassurance changes), China for its strong operating trends and PICC group (better P&C outlook given the price deregulation in the next few years) Figure 357: China Life trading on premium to peers Value of 1yr new business (VNB) multiple (x) Figure 358: but overall valuations not stretched Value of 1yr new business (VNB) multiple (x) x 20.0x VNB (x) VNB (x)* H-shares A-share discount (%) 45% x 10.0x 36% 3% std dev 10yr average NB slowdown from late x 15% yr average 0.0x std dev Global Financial Crisis -5.0x China Ping An Life (H) (H) China Pacific (H) New China Life (H) China PICC Group (H) AIA China Ping An Life (A) (A) China Pacific (A) New China Life (A) - Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Note: VNB = value of one-year new business; VNB* adjusted for bank division at 1x book value and P&C at 2x book value; Source: Reuters, Company data, Credit Suisse estimates New business momentum remains key Whilst China Life is more leveraged to the impact of the new bancassurance rules and now trading at 1.3x P/EV (12-month forward) and ~7.1x value of new business, which is the highest among peers despite its lower growth profile. As such, we see Ping An (current momentum) and China Pacific (good current momentum plus leverage to bancassurance) as the best way to gain exposure to both thematics, with an additional reassurance that both companies are focused on quality growth. We see by far the greatest leverage from China. If we look at the medium-term performance of China Life, we highlight that its agency channel has grown at -2.9% p.a. over the past five years and losing market share to smaller insurers, yet the stock is trading at a higher multiple to peers which we do not think is fully justified. Figure 359: Large divergence in agency channel growth amongst Chinese insurers ( ) Agency NB growth (5yr CAGR % p.a.) Agency Current VNB* Agents Productivity NB APE % VNB multiple China Life -2.9% 3.7% 0.8% 97% 9.0x Ping An 9.1% 4.7% 13.7% 94% 1.7x China Pacific 4.1% 15.3% 19.4% 84% 5.3x New China Life -3.5% 5.6% 2.1% 97% 0.7x China 15.1% 18.7% 33.8% 96% 0.3x Source: Company data, Credit Suisse estimates, *VNB (value of new business multiple) calculated using 2x book for P&C and 1x book for bank China Life Insurance Sector 121

122 Investor days highlights Chinese insurers have generally shielded away from hosting investor days in the last few years given slowing growth rates. China kicked off the investor day on 13 November 2014 in Hong Kong, with key focus on agency momentum, capital and investment portfolio. Agency momentum remains very strong in 2H14; with agency FYP up 83% YoY (vs. 66% in 1H14) implying at least 35-4 VNB growth in 2H14 vs. 25% consensus estimate Chinese insurers investor days in late 2014 highlighted strong ongoing life trends China Pacific (CPIC) hosted an investor day on 21 November 2014 in focusing on its P&C business improvement initiatives. It highlighted that the P&C insurance division is likely to report an underwriting loss in 2014 (99.5% in 1H14) given a one-off reserve top-up (3% impact). However, it is quite confident about the combined ratio in 2015 given that the underlying trends have improved while various management initiatives have been undertaken. Life trends remained strong with new business growth of 28% in 3Q14. China Life held an investor day in Ningbo on 26 November 2014, focusing its life insurance strategy. Management re-iterated (1) key focus on value, agency channel, regular business (previously more on market share); (2) de-emphasize bancassurance channel; (3) KPI focus on value (3), agency (3) and regular business (2). New China Life hosted an investor day on 4 December 2014 in, highlighting that 9M14 FYP (first year premium) was up 103% YoY (1H 138%) with agency up 38% (1H 44%), bancassurance up 161% (1H 213%). agents were down 4% YoY, but new agents up 29%, seeing improvement in productivity. Ping An hosted an investor day in Sanya, on 11 December 2014 with focus on life insurance business development and strategy. Ping An is confident it can grow at 15% p.a. new business value and profit growth target in mid to long term; targeting 1 p.a. agent growth the next five years; with higher productive agent 15% p.a. and agent leader 2 p.a. Valuation sensitivity still not overly expensive We believe the sector will continue to re-rate driven by policy support such as the new national ten, the introduction of the (tax incentivised) commercial individual pension and tax break for health insurance should also lead to multiple expansion in anticipation for higher future growth. Medium term, another key driver of life insurance new business sales will be due to any improvement in the relative attractiveness of insurance, driven by: (1) Reduction competing product rates (bank deposit / wealth management products), (2) Higher yields on longer-term securities (including better equity market performance) and (3) Greater consumer awareness of the default risk in wealth management products. While the timing of macro-economic improvements is uncertain, the main near-term driver is likely to be led by regulatory initiatives. Stocks valuation has the capacity to increase by over 5 should the VNB multiple return returning to the 10-15x range. As such, we see current prices as not excessive, and highlight in Figure 360 the valuation sensitivity to various new business multiples. Figure 360: Valuation upside to varying VNB multiples China Life Ping An China Pacific New China Life China 5x VNB -17% 15% -22% 31% 10x VNB 1% 37% 2-3% 77% 15x VNB 19% 59% 4 16% 123% 20x VNB 37% 81% 6 36% 169% Source: Company data, Credit Suisse estimates China Life Insurance Sector 122

123 Credit Suisse risk-return profile assessment We highlight below our framework for assessing the Chinese insurers' risk profile below and show how we see them ranking relative to each other in each category: Solvency position. Based on disclosed solvency ratios and buffer above minimum ratios "Strong" implies little risk of capital raising medium term based on current view of growth rates and risk profile. "Weak" implies high chance of equity capital raising. Balance sheet leverage. This is the ratio of liabilities (or assets) to net assets. Higher balance sheet leverage simply means higher risk as small changes in reserve estimates can more quickly wipe out the net assets of the company. Investment asset risk. As discussed in detail earlier in this report, this simply assesses the risk profile of the investment assets in their portfolio Product mix. This assesses the risk to the company from products sold. We are wary especially of investment guarantees and excessive exposure to adverse surrender, mortality, morbidity or other key risks. Non-insurance risk. This highlights risk to the group from any other non-insurance business or off-balance sheet activity, such as banking operations, securities or trust operations. Figure 361: Credit Suisse risk-return profile assessment China Life Ping An China Pacific New China Life China PICC P&C PICC Group AIA Group Balance sheet Solvcency position Medium Medium Strong Medium Medium Medium Weak Strong B/sheet leverage Medium High Low High High Low Medium Low We see CPIC and PICC P&C as the lower risk exposures Investment asset risk Low High Medium High Medium Low High Low Product risk Medium Low Low High Medium Low High Low Non-insurance risk Low High Low Low Low Low Medium Low OVERALL Medium High Low High Medium Low High Low Operational (2H14E) Life VNB growth 5-15% 15-25% % >3 na -ve? Agency mix 47% 81% 74% 73% 78% na 25% and CPIC and Ping An as having best operating momentum P&C growth na 28% 13.5% na 24% P&C margin na 94.4% 99.5% na 99.7% 94.4% 94.4% Strategy risk Medium Medium Low High Medium Low High Source: Company data, Credit Suisse estimates China Life Insurance Sector 123

124 Stock preferences: Our preference within the sector is for the following stocks: China Pacific (OUTPERFORM), continues to deliver strong life operating momentum, with P&C result in 2014 to turn around in 2015 after remedial actions taken. It has the strongest capital position (with a low probability of any capital raising in the next two years). We also have an NEUTRAL rating on the A-share (6% premium). Ping An (OUTPERFORM) remains one of our preferred insurance exposure due to its strong insurance business momentum (well above peers) and improved capital position post the private placement (and Ping An Bank raising in 2015). The bank exposure continues to be the Achilles heel for the stock, which detracts from what would otherwise be a very simple story. We have a NEUTRAL rating on the A-share given its 11% share price premium. China (OUTPERFORM) has sought to aggressively grow during 2013/14, doubling its agency force as well as increase volumes in the bancassurance channel. Key concerns around quality of this growth is subsiding as business mix improves and agent retention strong. There will be substantial upside if it can deliver continued growth. PICC Group (OUTPERFORM) remains mainly a P&C insurance exposure. We believe that the discount in the share price for the lower quality life insurance franchise is priced into the stock, with the spread opening up further given the recent share price rally in its peers. China Life (NEUTRAL) is already trading at a premium to peers despite its slower growth profile. We appreciate the higher margin focus, but will take some time to stimulate agency further and the company still needs to be able to reduce its bancassurance dependence. We have an UNDERPERFORM rating on the A-share given its 55% share price premium. New China Life (NEUTRAL) new business premium picked up in 2014, but new business margin decreased driven by the reliance on the bancassurance channel. It has the highest risk profile among the insurers and valuation discount is no longer there. We have an UNDERPERFORM rating on the A-share given its 46% premium. Figure 362: China insurance earnings mix by segment (%) China Life New China Life Only China Life and New China Life are pure life insurance exposures China China Pacific Ping An PICC Group PICC P&C Life P&C Bank Other Source: Company data, Credit Suisse estimates China Life Insurance Sector 124

125 China insurance: Key valuation metrics Figure 363: China Insurance key financial metrics 12mth fwd Mkt Cap ADT^ P/E Earnings CS vs P/BV BV ROE P/EV* EV VNB* VNB Dividend Price CS TP Return 31-Dec-15 US$bn US$mn (x) Growth Consensus (x) Growth (%) (x) Growth (x) Growth Yield CS rating Ticker HK$ HK$ % China Life (H) 29, x 8% 23% 2.2x 11% 16% 1.6x 13% 10.8x 17% 1.6% NEUTRAL 2628.HK % Ping An (H) 34, x -6% -4% 2.2x 1% 16% 1.4x 18% 4.6x 24% 1.7% OUTPERFORM 2318.HK % China Pacific (H) 14, x 12% 15% 2.3x 14% 1.4x 11% 5.7x 22% 2.1% OUTPERFORM 2601.HK % New China Life (H) 5, x 9% 2% 2.1x 14% 16% 1.2x 13% 3.6x 21% 1.6% NEUTRAL 1336.HK % China 9, x 1-12% 2.4x 14% 12% 1.1x 2 1.7x 33% 0. OUTPERFORM 0966.HK % PICC Group 3, x 9% 39% 1.1x 17% 15% 0.9x 17% -4.4x -3% 1. OUTPERFORM 1339.HK PICC P&C 8, x -2% 5% 2.2x -9% 19% na na na na 4. OUTPERFORM 2328.HK % AIA 83, x 11% -13% 2.5x 1 11% 2.1x 11% 20.1x 17% 1.1% OUTPERFORM 1299.HK % China Life (A) 129, x 8% 22% 3.4x 11% 16% 2.4x 13% 16.6x 17% 0.8% UNDERPERFORM SS % Ping An (A) 62, x -6% x 1% 16% 1.5x 18% 4.8x 24% 1.3% NEUTRAL SS % China Pacific (A) 34, x 12% 17% 2.6x 14% 1.6x 11% 6.4x 22% 1.5% NEUTRAL SS % New China Life (A) 17, x 9% -1% 3.1x 14% 16% 2.2x 13% 21.1x 21% 0.9% UNDERPERFORM SS % Arithmetic average 434,513 1, x 6% 2.4x 7% 15% 1.6x 14% 8.3x 2 1.5% Weighted average 18.8x 6% 2.7x 7% 15% 1.9x 14% 12.5x 2 1.2% Source: Company data, Credit Suisse estimates Notes: *adjusted for non-life operations (1.2x book for P&C, 1x for bank), ^average daily trading volume for last 12mths Figure 364: China Life trading at premium to peers Value of 1yr new business (VNB) multiple (x) 25.0x 20.0x VNB (x) VNB (x)* H-shares A-share discount (%) 55% 46% Figure 365: with Ping An on discount Price to embedded value multiple (x) 2.75x 2.50x 2.25x P/EV (x) P/EV (x)* H-shares A-share premium (%) 55% 46% 2.00x 15.0x 11% 1.75x 6% 11% 1.50x 10.0x 6% 1.25x 1.00x 5.0x 0.75x 0.0x 0.50x 0.25x -5.0x China Life (H) Ping An (H) China Pacific (H) New China Life (H) China PICC Group (H) AIA China Life (A) Ping An (A) China Pacific (A) New China Life (A) 0.00x China Life (H) Ping An (H) China Pacific (H) New China Life (H) China PICC Group (H) AIA China Life (A) Ping An (A) China Pacific (A) New China Life (A) Note: VNB = value of one-year new business; Source: Company data, Reuters, Credit Suisse estimates Figure 366: PICC Group on big book value discount Price to book (x) and return on equity(%) Figure 367: as well as P/E Price to earnings (x) 12mth forward 4.0x 3.5x 3.0x H-shares A-shares 35% 3 25% 25.0x 22.5x 20.0x 17.5x H-shares A-shares 2.5x x 2.0x 12.5x 1.5x 15% 10.0x 1.0x 0.5x 1 5% 7.5x 5.0x 2.5x 0.0x China Ping An China Life (H) (H) Pacific (H) New China China Life (H) PICC Group (H) AIA China Ping An China Life (A) (A) Pacific (A) New China Life (A) PICC P&C 0.0x China Ping An China Life (H) (H) Pacific (H) New China Life (H) China PICC Group (H) AIA China Ping An China Life (A) (A) Pacific (A) New China Life (A) PICC P&C Source: Company data, Reuters, Credit Suisse estimates China Life Insurance Sector 125

126 P/EV (x) Implied VNB (x) P/BV (x) P/NTA (x) PE (x) PE premium (%) 28 January 2015 China insurance key valuation charts Figure 368: Sector P/E still low despite recent rally China insurance P/E ratio (x)12-mth forward (consensus) 35.0 Figure 369: back to average relative to market China insurance P/E (x) premium to market (HSI) std dev std dev yr average NB slowdown late yr average yr average 5yr average std dev Global Financial Crisis 2-1 std dev 5.0 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14-2 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Figure 370: P/B recovering but still below average China insurance price to book ratio (x) 4.5 Figure 371: similarly for price to NTA China insurance price to NTA (x) ratio std dev std dev yr average yr average 3.0 Average std dev std dev 1.0 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Figure 372: P/EV still relatively low China insurance price to EV (x) ratio 3.5 Figure 373: and similarly for spot VNB multiple China insurance implied VNB multiplier (x) ratio std dev std dev yr average NB slowdown from late yr average 5yr average yr average std dev std dev Global Financial Crisis 1.0 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 - Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 Dec-08 Sep-08 Jun-08 Mar-08 Dec-07 Sep-07 Jun-07 Mar-07 Dec-06 Sep-06 Jun-06 Mar-06 Dec-05 Sep-05 Jun-05 Mar-05 Dec-04 Source for all charts: Company data, Credit Suisse estimates China Life Insurance Sector 126

127 Price / Embedded Value (P / EV x) Price / Book Value (P / BV) 28 January 2015 Appendix B: Regional comparisons NJA insurance/financials valuation metrics Figure 374: Chinese insurers no longer trading at higher price to book relative to ROE NJA insurance price to book value (x) vs. return on equity (% p.a.) 3.5x 3.0x Expensive P P E - = - / - E BV BV Max India PER = 20x New China Life (A) China Life (A) PER = 15.5x Chinese insurers no longer trading at higher price to book relative to ROE generation 2.5x 2.0x AIA Bangkok Life China Pacific (A) Ping An (A) China Life (H) China China Pacific (H) IAG PICC P&C Ping An (H) AMP New China Life (H) PER = 10x Great Eastern 1.5x Cathay FHC 1.0x Samsung Life Tokio Marine QBE NKSJ Holdings Hanwha Life Shin Kong FHC MS&AD Insurance Dai-Ichi Life T&D Holdings Tong Yang Life Manulife Suncorp Sony Financial Challenger Samsung F&M Fubon FHC Bangkok Insurance China Life TW Meritz F&M Dongbu Hyundai M&F LIG Insurance PICC Group Inexpensive 0.5x 2.5% % % % 20. Return on Equity (% EPS / BV) Source: Company data, Credit Suisse estimates Figure 375: Chinese insurers also no longer at higher-end of P/EV relative to ROEV Price to embedded value (x) vs return on embedded value(%p.a.) 3.0x 2.5x Expensive with P/EV valuation also no longer at top end of peer range SCB Life 2.0x AIA China Life (A) Bangkok Life 1.5x 1.0x 0.5x Dai-Ichi Life Samsung Life China Life TW China Manulife Hanwha Life Cathay FHC Sony Financial T&D Holdings Shin Kong FHC New China Life (A) China Pacific (A) China Pacific (H) China Life (H) AMP Ping An (A) Pru Asia Samsung F&M Fubon FHC Dongbu Hyundai M&F Ping An (H) New China Life (H) Prudential plc Great Eastern Inexpensive 0.0x % % % % Return on EV (EPS / EV %) Source: Company data, Credit Suisse estimates, China Life Insurance Sector 127

128 China Life Insurance Sector 128 Figure 376: Asia insurance key financial metrics EPS P / BV ROE P / NTA ROTE P / EV* EV ROEV VNB Payout Div Yld Reporting Market Monthly Daily Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x) Growth (x) (%pa) (x) (%pa) P / EV (x) (x) growth (%pa) VNB (x) VNB* (x) growth ratio (%) (%pa) Price movement (%) Company Currency Cap Volume Volume Liquidity 28-Jan high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) 1wk 1mth 1qtr 1hy 1yr YTD US$m US$m US$m % local local % Dec Australia AMP.AX AMP AUD 13, % % OPFM 31-Dec 15.4x 16.3x 7% 2.0x 11.8% 3.9x 23.8% 1.4x 1.4x 7% 8.6% 13.8x 13.8x 4% 81% % 1.8% 0.9% 4.8% 34.1% 3.6% CGF.AX Challenger AUD 2, % % OPFM 30-Jun 10.2x 9.8x 3% 1.3x x 17. na na na na na na na 45% 4.9% 2.3% -5.4% -5.8% -23.3% 4.3% -3.8% CVW.AX Clearview AUD % na na NR 31-Dec 19.6x 19.6x 17% 1.5x 7.6% na na na na na na na na na 5 2.6% % -14.3% 12.5% 33.4% -2.2% TWR.AX Tower NZD % % NTRL 30-Sep 16.6x 16.6x 7% 1.3x 7.8% 1.4x 8.7% 0.5x 0.5x 6% x -44x 4% 112% 6.2% 1.9% 2.9% 21.4% 26.9% 31.3% 1.9% NHF.AX NIB Holdings AUD 1, % % UPFM 31-Dec 18.1x 18.1x 1 3.9x 21.6% 5.6x 30.7% na na na na na na na 72% % 1.9% 2.9% 1.5% 31.9% 2.2% MPL.AX Medibank Private AUD 8, % % UPFM 31-Dec 22.9x 22.9x 12% 4.5x 19.7% 5.4x 23.5% na na na na na na na 63% 2.8% % 10.2% -1.7% GMA.AX Genworth Australia AUD 1, % na na NR 31-Dec 8.1x 8.1x na 0.9x 10.7% 0.9x 10.7% na na na na na na na 59% 7.3% -0.9% -7.9% -8.6% -5.3% 28.3% -6.6% IAG.AX IAG AUD 12, % % UPFM 30-Jun 12.6x 14.7x -6% 2.2x 15.2% 4.3x 29.2% na na na na na na na 77% 5.1% % -0.2% 0.3% 14.2% 0.5% QBE.AX QBE USD 11, % NTRL 31-Dec 9.7x 9.5x 36% 0.9x 9.2% 1.3x 13.9% na na na na na na na 46% 4.3% -1.1% -6.3% -6.5% -4.3% -7.1% -5.8% SUN.AX Suncorp AUD 15, % % NTRL 30-Jun 13.3x 14.3x 4% 1.3x 9.4% 2.1x 15. na na na na na na na 105% 6.8% 2.4% 1.8% 0.6% 3.2% 18.8% 2.4% 69,603 3, % x 15.0x 1 1.9x 12.5% 3.2x 20.9% 0.9x 0.9x 6.2% 5.8% -15.8x -14.9x 4% 66% 4.5% 1.2% -1.1% -0.3% 0.1% 13.8% -0.3% China SS China Life (A) CNY 129,698 3, % UPFM 31-Dec 26.6x 21.7x 2% 3.4x 15.5% 3.4x 15.5% 2.2x 2.4x 14% 10.1% 25.5x 26.3x 17% 33% 1.1% -3.3% 15.3% 152.1% % 13.9% SS China Pacific (A) CNY 34,980 3, % % NTRL 31-Dec 21.7x 18.6x 7% 2.6x 13.8% 2.6x 13.9% 1.6x 1.5x 12% 8.4% 11.9x 6.6x 22% 35% 1.9% 4.9% 8.9% 78.3% 74.8% 109.7% 7.6% SS New China Life (A) CNY 17,533 1, % UPFM 31-Dec 19.5x 19.7x -5% 3.1x 15.5% 3.2x x 2.0x 13% 8.6% 13.1x 15.4x 21% 21% % 91.6% 115.2% 121.6% 6.2% SS Ping An (A) CNY 69,562 12, % % NTRL 31-Dec 13.2x 14.7x x 15.5% 2.7x 18.6% 1.3x 1.5x 18% 8.9% 6.8x 4.3x 24% 23% 1.6% -6.6% 1.8% 71.9% 64.6% 84.6% -3.2% 251,773 20,862 1, % -4.4% 20.3x 18.7x -4% 2.8x 15.1% 3.0x x 1.9x 14% x 13.2x 21% 28% 1.1% -2.9% % 118.7% 140.6% 7.8% Hong Kong 1299.HK AIA USD 83,474 2, % % OPFM 30-Nov 19.8x 22.8x -3% 2.5x 11.1% 2.7x 11.9% 2.0x 2.0x 11% 8.9% 22.5x 19.3x 17% 21% 1.1% 3.5% 5.8% 7.5% 11.8% 28.9% 7.4% 0945.HK Manulife CAD 4, % % OPFM 31-Dec 10.8x 14.0x x 9.6% 1.8x 12.6% 0.9x na na 6.1% -4.8x na na 37% 3.1% -0.8% -13.5% -10.1% -17.5% -10.3% -13.5% 2378.HK Prudential plc GBP 5, % OPFM 31-Dec 14.7x 14.6x 6% 3.4x 23.1% 3.9x 26.8% 1.3x 1.5x na 9.1% 8.5x 6.8x 2% 38% 2.6% 5.6% % 3.4% 1.1% 4.8% 2628.HK China Life (H) CNY 29,875 2, % % NTRL 31-Dec 17.2x 14.1x 1% 2.2x 15.6% 2.2x 15.6% 1.4x 1.6x 14% 10.1% 9.0x 10.7x 15% 33% 1.6% -1.7% 2.5% 36.8% 36.2% 46.4% 2.6% 2601.HK China Pacific (H) CNY 14, % % OPFM 31-Dec 19.1x 16.7x 6% 2.3x 13.9% 2.3x x 1.3x 12% 8.4% 8.5x 3.8x 21% 35% 2.1% -0.5% % 26.3% 40.5% -1.8% 0966.HK China HKD 9, % % OPFM 31-Dec 17.8x 20.4x x x 12.1% 1.2x 0.7x 2 5.8% 5.1x -6.5x 33% % 8.6% 45.5% 49.1% 85.7% 8.6% 1336.HK New China Life (H) CNY 6, % % NTRL 31-Dec 13.7x 13.4x -5% 2.1x 15.5% 2.2x 16.1% 1.2x 1.4x 13% 8.6% 3.0x 5.7x 2 21% 1.5% % 55.8% 58.1% 56.7% HK Ping An (H) CNY 34,260 3, % % OPFM 31-Dec 13.4x 13.9x -21% 2.2x 15.6% 2.6x 18.7% 1.2x 1.4x 18% x 3.0x 22% 23% 1.7% % 35.3% 27.8% 34.6% 7.3% 1339.HK PICC Group CNY 20, % % OPFM 31-Dec 10.9x 7.8x 1% 1.1x 14.5% 1.2x 15.3% 2.2x -2.1x 16% 28.2% 11.9x -32.1x -4% 7% % % 13.4% 9.8% 5.2% 2328.HK PICC P&C CNY 23, % % OPFM 31-Dec 11.8x 11.2x -16% 2.2x 19.3% 2.2x 19.3% na na na na na na na 64% % -4.7% % 0.1% 232,493 10, % 26.2% 14.9x 13.9x -6% 2.1x 15.2% 2.2x 15.9% 1.4x 0.7x 15% 11.7% 7.1x -2.6x 18% 26% 1.7% 0.9% 3.7% 20.6% 21.4% 35.1% 5. India RLCP.BO Reliance Capital INR 1, % na na NR 31-Mar 12.3x 12.3x 18% 0.8x 6.9% 0.8x 6.9% na na na na na na na 26% 2.1% 1.6% -4.3% 6.1% -19.2% 46.1% -3.9% MAXI.BO Max India INR 2, % % UPFM 31-Mar 38.0x 28.5x 53% 3.7x x 13.1% 1.8x 4.0x 3% 6.5% 22.1x 39.3x 15% 69% 0.2% 15.4% % 55.5% % 4, % -40.5% 25.1x 20.4x 35% 2.3x x x 4.0x 3% 6.5% 22.1x 39.3x 15% 48% 1.2% 8.9% 12.6% 24.1% 19.8% % Japan 8750.T Dai-Ichi Life JPY 16,491 1, % 1,637 1,331-1,883 2, % OPFM 31-Mar 14.4x 11.8x 43% 0.7x 5.8% 0.8x 6.6% 0.3x 0.5x 12% 2.9% -14.1x -10.7x 5% 25% 1.6% 4.1% % 12.5% 4.2% -11.1% 8729.T Sony Financial JPY 6, % 1,685 1,575-1,828 1, % NTRL 31-Mar 13.4x 12.1x 8% 1.3x 10.7% 1.4x 11.2% 0.5x 0.7x 7% 4.3% -12.1x -4.6x % 3.7% -6.1% % -1.9% -5.4% 8795.T T&D Holdings JPY 7, % 1,368 1,155-1,509 1, % NTRL 31-Mar 10.5x 8.7x 3% 0.7x 8.2% 0.7x 8.3% 0.4x 0.6x 8% 4.4% -15.9x -10.5x 1 18% 1.9% 4.5% -6.8% 4.7% 5.5% 5.2% -6.2% 8725.T MS&AD Insurance JPY 15, % 2,900 2,092-2,940 3, % OPFM 31-Mar 13.5x 14.4x 9% 0.7x 5.1% 0.8x 5.5% na na na na na na na 31% 2.1% 8.4% -0.9% 31.5% 23.3% % 8630.T NKSJ Holdings JPY 10, % 3,137 2,366-3,210 2, % NTRL 31-Mar 14.2x 13.3x 113% 0.9x 6.4% 0.9x 6.8% na na na na na na na 54% 1.9% % 17.5% 15.8% 2.8% 8766.T Tokio Marine JPY 26,538 1, % 4,121 2,835-4,116 4, % NTRL 31-Mar 12.7x 14.2x 2% 1.1x 7.5% 1.2x 8.4% na na na na na na na 26% 1.9% 7.9% 3.3% 24.1% 26.3% 34.1% 4.8% 82,776 5, % 15.9% 13.1x 12.4x 3 0.9x 7.3% 1.0x 7.8% 0.4x 0.6x 9.3% 3.9% -14.0x -8.6x 18% 31% % -2.7% 18.1% 17.9% 17.3% -1.2% Korea KS Samsung Life KRW 21, % 116,500 92, , , % OPFM 31-Mar 19.4x 19.4x -14% 1.0x 5.3% 1.0x 5.1% 0.8x 0.9x 7% 4.1% -5.6x -3.1x 7% 21% 1.8% 1.3% 1.3% % 17.1% KS Hanwha Life KRW 6, % 7,910 6,310-8,690 7, NTRL 31-Mar 13.1x 13.1x 12% 0.8x 6.3% 0.8x 6.3% 0.7x 0.9x 7% 5.3% -15.0x -6.2x 2% 16% 2.2% -0.6% -3.5% -2.8% 16.2% 13.8% -4.6% KS Tong Yang Life KRW 1, % 10,550 9,660-11,900 na na NR 31-Mar 8.4x 8.4x -15% 0.6x 7.6% 0.6x 7.6% na na na na na na na 33% 3.9% -2.8% -4.1% -5.8% 4.5% -3.2% -1.9% KS Dongbu KRW 3, % 51,800 48,700-63,300 54, % NTRL 31-Mar 7.3x 8.3x 14% 0.9x 12.6% 1.0x 11.4% 0.6x 0.5x 6% 7.4% -5.9x -7.6x 5% 2 3.1% -0.4% -6.7% -12.6% -9.9% % KS Hyundai M&F KRW 2, % 25,150 24,900-32,400 31, NTRL 31-Mar 6.8x 6.5x 31% 0.8x x 12.7% 0.4x 0.2x 8% 6.4% -7.3x -9.6x 5% 2 3.7% -0.8% -1.9% % -17.9% -3.3% KS LIG Insurance KRW 1, ,700 23,700-31,700 na na NR 31-Mar 5.3x 5.3x 42% 0.7x 12.4% 0.7x 12.4% na na na na na na na 22% 4.2% % -13.3% -15.2% -22.7% -13.5% KS Meritz F&M KRW 1, % 12,200 11,850-15,400 na na NR 31-Mar 7.4x 7.4x 32% 0.9x 11.9% 0.9x 11.9% na na na na na na na 26% 3.5% -1.2% % -5.8% -15.6% KS Samsung F&M KRW 13, % 316, , , , OPFM 31-Mar 13.8x 12.6x 16% 1.4x 10.1% 1.2x 9.3% 0.9x 0.9x 6% 7.3% -3.1x -3.0x 4% 29% 1.9% 9.3% 9.5% 9.7% 15.5% 30.5% KS Korean Re KRW 1, % 10,200 9,700-11,900 na na NR 31-Mar 6.2x 6.2x 12% 0.6x 9.7% na na na na na na na na na 3.6% -1.9% -3.8% -10.5% -10.5% -6.8% -5.6% 50,654 1, % 9.6% 10.2x 10.1x 15% 0.9x 9.8% 0.9x 9.6% 0.7x 0.7x 6% 6.1% -7.4x -5.9x 5% 24% % 1.7% 2.3% 9.6% 15.5% 1.6% South East Asia GELA.SI Great Eastern SGD 8, % OPFM 31-Dec 14.1x 13.3x -3% 1.7x 12.8% 1.7x 12.8% 1.1x 1.1x 7% 8.2% 2.2x 2.0x 8% 5 3.7% % 1.2% 5.1% 36.7% 0. AINM.KL Allianz Malaysia MYR % na na NR 31-Dec 7.9x 7.9x na 1.4x 11.8% na na na na na na na na na 2% 0.2% 0.7% 2.8% -1.8% -9.2% % LOND.KL Lonpac Insurance MYR 1, % na na NR 31-Dec 16.7x 16.7x na 2.4x 14.1% 2.4x 14.1% na na na na na na na 77% 4.6% 2.2% 2.8% 5.2% 5.2% 12.4% 2.4% TUNE.KL Tune Insurance MYR % % OPFM 31-Dec 15.5x 15.5x na 3.0x 19.1% 3.1x 20.1% na na na na na na na 39% 2.5% 9.5% 5.7% % % PNLF.JK Panin Financial IDR na na NR 31-Dec 6.5x 6.5x na 1.1x 14.1% 1.1x 14.1% na na na na na na na % -9.3% 5.8% 10.1% 28.8% -8.7% PNIN.JK Panin Insurance IDR % na na NR 31-Dec 3.9x 3.9x na 0.8x 14.7% na na na na na na na na na % 9.8% 13.2% 12.3% -2. SMMA.JK Sinar Mas IDR 1, ,000 2,700-4,285 na na NR 31-Dec 15.4x 15.4x na 2.3x 14.9% na na na na na na na na na % 33.3% 11.6% 21.4% 9.4% BLA.BK Bangkok Life THB 2, % % UPFM 31-Dec 16.5x 16.6x 103% 2.8x 16.7% 2.8x 16.7% 2.4x 2.4x 4% 14.2% 25.5x 33.7x -1 13% 1.8% 6.9% 5.2% -10.6% -24.8% 12.7% 9.8% BKI.BK Bangkok Insurance THB 1, % na na NR 31-Dec 15.4x 15.4x na 1.2x 11. na na na na na na na na na 67% 4.3% 2.2% 0.5% 0.3% 5.1% 39.6% 0.5% SCBLIF.BK SCB Life THB 2, % 1, na na NR 31-Dec 12.8x 12.8x na 5.0x 31.1% 5.0x 31.1% 2.2x 2.2x 13% 13.9% 8.2x 8.2x 18% 5 3.9% -0.2% -0.2% % 12.3% -0.2% 21, % 18.6% 9.9x 9.8x 5 1.8x 16.1% 1.9x 15.2% 1.9x 1.9x 8% 12.1% 11.9x 14.6x 6% 31% 3.5% 1.5% 2.2% 2.4% 0.7% 27.1% 2.6% Taiwan 2882.TW Cathay FHC TWD 18, % RSTR RSTR 31-Dec 14.6x 15.0x -19% 1.3x 8.7% 1.3x 8.8% 0.6x 1.1x 7% 4.3% -6.1x 1.1x 2% 2 1.3% 0.9% -2.2% -8.2% % -2.4% 2823.TW China Life TW TWD 2, % % OPFM 31-Dec 17.5x 14.1x -12% 1.0x 7.1% 1.0x 7.1% 0.6x 0.9x 6% 4.4% -3.7x -1.2x -9% 22% 1.7% 0.6% 0.4% 1.7% -1.2% 0.5% 0.6% 2881.TW Fubon FHC TWD 16, % % NTRL 31-Dec 10.4x 12.1x -25% 1.4x 11.3% 1.4x 11.7% 0.9x 1.5x 9% 7.5% -1.5x 5.5x 7% 4 3.3% 2.2% 1.2% 0.2% 5.6% 19.9% 1.2% 2888.TW Shin Kong FHC TWD 2, % % NTRL 31-Dec 9.7x 10.2x 3% 0.8x 7.9% 0.8x 7.9% 0.3x 0.9x 11% 3.3% -8.5x -0.8x -6% 6% 0.6% -0.3% -2.2% -3.4% -7.3% -8.2% -1.9% 40,913 1, % 7.5% 13.2x 13.0x -13% 1.2x 8.9% 1.1x 8.9% 0.6x 8% 4.9% -5.0x -1% 18% 1.4% 1.3% -0.6% -3.7% -2.8% 10.2% -0.7% NJA insurance 670,990 38,429 1, % 4% 17.8x 17.0x -3% 2.3x 13.7% 2.5x x 11% x 8.8x 13% 33% % 5.2% 50.6% 52.7% 69.6% 4.8% Asia insurance 753,766 44,047 2, % 17% 17.6x 16.9x 1% 2.2x 13.4% 2.4x 14.2% 1.2x 1 7.3% 8.8x 7.5x 12% 34% 2.1% 0.5% % 49.1% 64.1% 3.9% Source: Reuters, Credit Suisse (*IBES consensus) 12-month forward rolling forecasts (non-rated stocks use consensus forecasts), New China Life at HK$30 per share

129 Appendix C: Global peer valuations Life insurance global comparisons Figure 377: Global comparison life insurance (based on IBES estimates) Reporting Market Monthly Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x) EPS Growth P / BV (x) ROE (%pa) P / EV (x) ROEV (%pa) VNB (x) ROA (%pa) Company Currency Cap Volume Liquidity 06-Jan high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) US$m US$m % local local % Australia & NZ AMP.AX AMP AUD 13, % % OPFM 31-Dec 14.7x 15.6x 6.8% 1.9x 11.7% 1.3x 8.5% 11.7x 0.65% 11% 5.3% CGF.AX Challenger AUD 2, % % OPFM 31-Dec 10.3x 9.9x 2.6% 1.5x 13. na na na 2.47% 27% 4.9% TWR.AX Tower NZ NZD % NTRL 30-Sep 16.4x 16.4x 7.4% 1.3x 7.7% 0.5x x 3.05% 52% 6.3% 16, x 14.0x 5.6% 1.6x 10.8% 0.9x 5.8% -15.8x 2.06% 3 5.5% China & HK 1299.HK AIA USD 75,621 2, % % OPFM 31-Dec 18.0x 21.0x -5.5% 2.3x x 8.9% 16.4x 1.92% 45% 1.2% 2628.HK China Life CNY 108,263 2, % % NTRL 31-Dec 17.2x 13.9x 23.4% 2.3x 16.5% 1.4x 10.3% 7.8x 2.12% 31% 1.6% 2601.HK China Pacific CNY 44, % % OPFM 31-Dec 19.4x 16.3x 36.1% 2.3x 13.8% 1.5x 9.2% 9.0x 1.94% 35% 2.1% 0966.HK China HKD 8, % % OPFM 31-Dec 18.2x 18.9x -2.8% 2.2x 11.8% 1.2x 6.3% 4.1x 0.78% 17% HK New China Life HKD 16, % NTRL 31-Dec 13.1x 12.2x 16.4% 2.0x 16.2% 1.2x 9.5% 2.5x 1.11% 15% 1.7% 1339.HK PICC Group HKD 20, % % OPFM 31-Dec 10.9x 8.4x 13.6% 1.3x 15.9% 2.6x x 1.45% 13% 0.9% 2318.HK Ping An CNY 87,915 3, % % OPFM 31-Dec 12.8x 13.9x -2.8% 2.0x 14.6% 1.2x 8.5% 3.3x 0.94% 14% 1.5% 361,651 9, % 15.3x 13.9x x 14.8% 1.5x 12.5% 7.1x 1.39% 21% 1.3% Japan 8750.T Dai-Ichi Life JPY 17,305 1, % 1,722 1,331-1,883 2, % OPFM 31-Mar 15.9x 12.7x 42.6% 0.7x 5.7% 0.4x 2.9% -13.8x 0.34% 5% 1.5% 8729.T Sony Financial JPY 6, % , % NTRL 31-Mar 13.8x 12x 9.8% 1.3x 10.7% 0.6x 4.7% -9.9x 0.61% 8% 2.6% 8795.T T&D Holdings JPY 7, % , % NTRL 31-Mar 10.7x 9x 4.8% 0.7x 8.2% 0.4x 4.8% -13.5x 0.69% 6% 2. 31,303 1, % 13.5x 13.5x 0.9x 8.2% 0.5x 4.1% -12.4x 0.55% 6% 2. Korea KS Samsung Life KRW 21, % 115,500 92, , , % OPFM 31-Mar 19.4x 19.4x -14.2% 1.0x 5.2% 0.8x x 0.47% 11% 1.3% KS Hanwha Life KRW 6, % 7,670 6,310-8,690 7, % NTRL 31-Mar 12.9x 12.9x 9.1% 0.8x 6.3% 0.7x 5.3% -15.5x 0.6 na 2.3% KS Tong Yang Life KRW 1, % 10,750 9,660-11,900 na na NR 31-Mar 8.7x 8.7x 0.7x 7.6% na na na na na 3.8% 28, % 13.6x 0.8x 6.4% 2.5% South East Asia BLA.BK Bangkok Life THB 2, ,044-0, % UPFM 31-Mar 14.8x 14.8x x 16.8% 2.1x 14.4% 23.3x 3.34% 36% 2. GELA.SI Great Eastern SGD 8, % % OPFM 31-Dec 14.1x 13.4x -3.6% 1.7x 12.8% 1.1x 8.2% 2.1x 1.22% 18% 3.7% 10, % 14.5x 14.1x 2.1x 14.8% 1.6x 11.3% 12.7x 2.28% 27% 2.9% Taiwan 2882.TW Cathay FHC TWD 17, % RSTR RSTR 31-Dec 14.6x 14.9x -21.2% 1.3x 8.6% 0.6x 4.3% -6.1x 0.56% 9% 1.3% 2823.TW China Life TW TWD 2, % % OPFM 31-Dec 13.6x 13.7x 1.7% 1.2x 8.7% 0.6x 4.4% -4.2x 0.56% 8% 1.7% 2881.TW Fubon FHC TWD 15, % NTRL 31-Dec 10.1x 11.5x -26.3% 1.3x 11.3% 0.9x 7.5% -2.2x 0.78% 9% 3.5% 2888.TW Shin Kong FHC TWD 2, % % NTRL 31-Dec 9.8x 10.4x 2.4% 0.8x 7.9% 0.3x 3.3% -8.9x 3% 0.6% 38,339 2, % 12.0x 12.6x -10.9% 1.2x 9.1% 0.6x 4.9% -5.3x 0.63% 7% 1.8% Europe AEGN.AS Aegon EUR 15,143 1, % % NTRL 31-Dec 8.2x 12.5x -10.7% 0.6x 4.8% 0.4x 3.2% -16.1x 0.25% 3% 4.4% AGES.BR Ageas EUR 7, % % NTRL 31-Dec 9.0x 9.0x 76.4% 0.8x 9.4% na na na 0.69% 6% 5.9% AXAF.PA AXA EUR 50,171 3, % % OPFM 31-Dec 8.2x 8.1x x 10.3% 0.8x 10.2% -3.9x 0.73% 6% 5.4% CNPP.PA CNP EUR 11, % NTRL 31-Dec 8.4x 8.0x x 8.8% 0.6x x 0.33% 3% 5.5% DLL.AS Delta Lloyd EUR 4, % % OPFM 31-Dec 7.2x 5.0x large 1.1x 21.7% 0.8x 16.2% -10.4x 0.82% 4% 5.8% NN.AS NN EUR 10, % % OPFM 31-Dec 10.1x 9.4x large 0.5x 5.3% 0.7x 7.1% -20.5x 0.6 6% 4.4% LGEN.L Legal & General GBP 21,485 1, % % NTRL 31-Dec 12.8x 12.3x 14.3% 2.2x 17.7% na na na 0.29% 4% 5.5% PRU.L Prudential GBP 55,897 1, % OPFM 31-Dec 13.2x 12.9x x 23.4% 1.2x 9.3% 2.7x 0.76% 11% 3. PZU.WA PZU PLN 11, % % UPFM 31-Dec 13.9x 15.7x -17.9% 3.2x 20.3% 1.7x x 4.19% 67% 8.1% SL.L Standard Life GBP 13, % % NTRL 31-Dec 15.4x 15.5x 25.1% 2.7x 17.7% 1.6x 10.4% 9.9x 0.25% 5% 0. SLHN.VX Swiss Life CHF 7, % % NTRL 31-Dec 9.1x 8.9x 1.5% 0.8x 8.6% 0.6x 7.1% -14.3x 0.47% 4% 3.5% 209,116 9, % 10.5x 10.7x 13.4% 1.5x 13.5% 0.9x 9.1% -0.1x 0.85% 11% 4.7% Americas AIG AIG USD 75,903 2, % % OPFM 31-Dec 10.9x 10.9x 5.3% 0.6x 6. na na na 1.2% AFL AFLAC USD 26, % % NTRL 31-Dec 9.5x 9.5x 0.3% 1.5x 15.4% na na na 2.84% 27% 2.7% AMP Ameriprise USD 22, % % NTRL 31-Dec 12.9x 12.9x 14.6% 2.7x 21.2% na na na 1.12% 16% 1.9% BBSE3 BB Seguridade BRL 165,539 2, % % OPFM 31-Dec 16.0x 16.0x 18.7% 7.2x 44.7% na na na % HIG Hartford USD 17, % % OPFM 31-Dec 10.6x 10.6x 11.9% 0.9x 8.2% na na na 0.44% 5% 1.7% LNC Lincoln National USD 13, % % UPFM 31-Dec 8.6x 8.6x 6.7% 0.8x 9.4% na na na 0.72% 7% 1.4% MFC.TO Manulife CAD 39,421 1, % % OPFM 31-Dec 11.5x 13.2x n.a. 1.4x 12.2% na na na 0.53% 8% 2.7% MET MetLife USD 57,404 1, % OPFM 31-Dec 8.5x 8.5x 4.2% 0.8x 9.2% na na na 0.95% 8% 2.9% PFG Principal USD 14, % % NTRL 31-Dec 11.1x 11.1x 1.7% 1.4x 12.5% na na na 0.79% 9% 3. PL Protective Life USD 5, % % NTRL 31-Dec 13.2x 13.2x 6.8% 1.1x 8.1% na na na 0.78% 12% 1.4% PRU Prudential Finc'l USD 39,132 1, % % OPFM 31-Dec 8.5x 8.5x 5.5% 1.0x 11.1% na na na 2.7% RGA RGA USD 5, % NTRL 31-Dec 9.7x 9.7x 5.8% 0.8x 8.5% na na na 2.03% 21% 1.7% TMK Torchmark USD 6, % % NTRL 31-Dec 12.0x 12.0x 8.1% 1.4x 11.6% na na na 2.72% 35% 1. UNM UnumProvident USD 8, % % UPFM 31-Dec 9.0x 9.0x 4.3% 0.8x 9.4% na na na 1.35% 13% 2.1% 499,168 12, % 10.9x 11.0x 1.6x 13.4% na na na % 2.2% South Africa DSYJ.J Discovery ZAR 5, % % UPFM 31-Dec 15.4x 15.9x 12.3% 2.9x x 0.1x na 17.83% 335% 1.6% LBHJ.J Liberty ZAR 2, % % UPFM 31-Dec 8.8x 8.3x 3.5% na na na na na 5.8% MMIJ.J MMI ZAR 4, % % OPFM 31-Dec 11.8x 11.4x 10.2% 1.8x x 0.1x na 16.05% 192% 5.5% OMLJ.J Old Mutual ZAR 13, % % OPFM 31-Dec 9.3x 9.6x 15.4% 1.0x 10.9% 0.8x 0.1x na 10.89% 117% 5.2% SLMJ.J Sanlam ZAR 11, % % OPFM 31-Dec 14.4x 14.1x 9.2% 2.6x 18.2% 1.3x 9. na 18.13% 282% 4. 37,968 1, % 11.9x 11.9x 2.1x 15.8% % na 15.72% 231% 4.4% LIFE insurance 1,232,658 37, Arithmeitc average 14.1x 12.2x 1.6x 12.6% 1.1x 8.8% 0.4x 0.0x 30.54% 2.9% Weighted average 12.9x 12.8x 2.3x 16.5% 0.7x 4.9% 2.2x 0.1x 92.22% 2.7% IBES estimates can be delayed in reflecting updated analyst estimates Source: IBES, Company data, Credit Suisse estimates P/Assets (%) Div Yld (%pa) China Life Insurance Sector 129

130 Companies Mentioned (Price as of 28-Jan-2015) AIA Group (1299.HK, HK$46.35) China Life (2628.HK, HK$31.25, NEUTRAL, TP HK$30.5) China Life ( SS, Rmb38.9, UNDERPERFORM, TP Rmb24.5) China Pacific (2601.HK, HK$38.7, OUTPERFORM, TP HK$52.0) China Pacific ( SS, Rmb34.75, NEUTRAL, TP Rmb42.0) China (0966.HK, HK$24.1, OUTPERFORM, TP HK$32.5) New China Life (1336.HK, HK$44.65, NEUTRAL, TP HK$48.0) New China Life ( SS, Rmb52.64, UNDERPERFORM, TP Rmb38.0) PICC Group (1339.HK, HK$3.82, OUTPERFORM, TP HK$5.3) Ping An (2318.HK, HK$84.85, OUTPERFORM, TP HK$110.0) Ping An ( SS, Rmb72.29, NEUTRAL, TP Rmb88.0) Important Global Disclosures Disclosure Appendix Arjan van Veen and Frances Feng, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. 3-Year Price and Rating History for China Life (2628.HK) 2628.HK Closing Price Target Price Date (HK$) (HK$) Rating 06-Mar N 14-Jun Jan U 27-Mar N 28-Aug Dec Feb O 26-Mar N 25-Apr Jun Aug Nov Jan * Asterisk signifies initiation or assumption of coverage. N EU T RA L U N D ERPERFO RM O U T PERFO RM 3-Year Price and Rating History for China Life ( SS) SS Closing Price Target Price Date (Rmb) (Rmb) Rating 06-Mar N 14-Jun Jan U 27-Mar N 28-Aug Dec O 17-Feb Mar Apr Jun Aug Nov N 08-Dec U 27-Jan * Asterisk signifies initiation or assumption of coverage. N EU T RA L U N D ERPERFO RM O U T PERFO RM China Life Insurance Sector 130

131 3-Year Price and Rating History for China Pacific (2601.HK) 2601.HK Closing Price Target Price Date (HK$) (HK$) Rating 05-Mar O 13-Jun Jan Dec Jun Aug Dec Jan Jan * Asterisk signifies initiation or assumption of coverage. O U T PERFO RM 3-Year Price and Rating History for China Pacific ( SS) SS Closing Price Target Price Date (Rmb) (Rmb) Rating 05-Mar O 13-Jun Jan Dec Jun Aug Dec Jan Jan N * Asterisk signifies initiation or assumption of coverage. O U T PERFO RM N EU T RA L 3-Year Price and Rating History for China (0966.HK) 0966.HK Closing Price Target Price Date (HK$) (HK$) Rating 06-Mar N 14-Jun Jul O * 11-Jan Jan Apr R 26-Sep O 13-Oct Jan Jan Jan * Asterisk signifies initiation or assumption of coverage. N EU T RA L O U T PERFO RM REST RICT ED China Life Insurance Sector 131

132 3-Year Price and Rating History for New China Life (1336.HK) 1336.HK Closing Price Target Price Date (HK$) (HK$) Rating 02-Feb O 16-Feb Jun Aug Sep Dec R 05-Mar N 26-Mar Aug Dec Mar Apr Jun U 25-Jul Aug N 26-Nov Jan Jan O U T PERFO RM REST RI C T ED N EU T RA L U N D ERPERFO RM * Asterisk signifies initiation or assumption of coverage. 3-Year Price and Rating History for New China Life ( SS) SS Closing Price Target Price Date (Rmb) (Rmb) Rating 02-Feb U 16-Feb N 14-Jun Aug U 21-Sep N 10-Dec R 05-Mar N 26-Mar Aug Dec Mar Apr Jun U 25-Jul Aug N 28-Oct U 26-Nov Jan Jan U N D ERPERFO RM N EU T RA L REST RICT ED * Asterisk signifies initiation or assumption of coverage. China Life Insurance Sector 132

133 3-Year Price and Rating History for PICC Group (1339.HK) 1339.HK Closing Price Target Price Date (HK$) (HK$) Rating 10-Jan N * 20-Feb U 26-Mar Aug N 31-Mar Apr Jun U 25-Aug N 25-Sep Nov O 07-Jan Jan * Asterisk signifies initiation or assumption of coverage. N EU T RA L U N D ERPERFO RM O U T PERFO RM 3-Year Price and Rating History for Ping An (2318.HK) 2318.HK Closing Price Target Price Date (HK$) (HK$) Rating 16-Feb N 16-Mar O 04-Jun Jun Aug Aug Jan Mar Aug Nov R 02-Dec O 09-Jun Aug Nov R 10-Nov O 01-Dec R 08-Dec O 07-Jan Jan Jan * Asterisk signifies initiation or assumption of coverage. N EU T RA L O U T PERFO RM REST RICT ED China Life Insurance Sector 133

134 3-Year Price and Rating History for Ping An ( SS) SS Closing Price Target Price Date (Rmb) (Rmb) Rating 16-Feb O 16-Mar Jun Jun Aug Aug Jan Mar Mar Aug Nov R 02-Dec O 09-Jun Aug Nov R 10-Nov O 01-Dec R 08-Dec O 07-Jan N 13-Jan Jan * Asterisk signifies initiation or assumption of coverage. O U T PERFO RM REST RICT ED N EU T RA L The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts stock rating are defined as follows: Outperform (O) : The stock s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are base d on a stock s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst wit hin the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and C anadian ratings were based on (1) a stock s absolute total return potential to its current share price and (2) the relative attract iveness of a stock s total return potential within an analyst s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the % and % levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based o n a stock s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 2 or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts sector weightings are distinct from analysts stock ratings and are based on the analyst s expectations for the fundamentals and/or valuation of the sector* relative to the group s historic fundamentals and/or valuation: Overweight : The analyst s expectation for the sector s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst s expectation for the sector s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst s expectation for the sector s fundamentals and/or valuation is cautious over the next 12 months. *An analyst s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. China Life Insurance Sector 134

135 Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 46% (53% banking clients) Neutral/Hold* 38% (5 banking clients) Underperform/Sell* 14% (44% banking clients) Restricted 2% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Credit Suisse s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Price Target: (12 months) for China (0966.HK) Method: We derive our HK$32.50 target price for CTIH using a sum-of-parts approach: our appraisal value for the life business is based on 1x EV (embedded value) plus 10x VNB (value of new business) and 1.2x book value for P&C business based on 12 months forward forecast. Risk: The key risks to our HK$32.50 target price for CTIH include: VNB growth lower than expectation and business quality deterioration, lower interest earnings spread and default risk on bond portfolio. Price Target: (12 months) for New China Life (1336.HK) Method: Our HK$48.00 target price for New China Life (H) is derived using an appraisal value methodology, using 10x value of new business multiple and adjusted embedded value (discount for certain aggressive assumptions and capital raising dilution). Risk: Risks that could cause the share price to diverge from our HK$48.00 price target for New China Life (H) include: (1) weak investment markets (impacting both earnings and solvency), (2) changes in interest rates and shape of yield curve, (3) reduction in sales volumes, (4) regulation change, (5) weak risk management. Price Target: (12 months) for PICC Group (1339.HK) Method: Our HK$5.30 target price for PICC Group is set using a sum-of-the-parts valuation for each division, using 12.5x PE (price-to-earnings) for the P&C business, 0.75x embedded value for life and health and 1x book value for asset management and corporate office (with a 12.5% conglomerate /capital raising discount). Risk: Key risks that could cause the share price to diverge from our HK$5.30 target price for PICC Group include: falling equity market or bond yields, a slowdown in new business, natural catastrophes, deterioration in pricing, claims inflation and regulatory risk. Price Target: (12 months) for Ping An (2318.HK) Method: Our HK$110 target price for Ping An is set using a sum-of-the-parts valuation for each division, using 15x value of new business for life insurance (implying 2x EV), 2.0x book value P&C insurance and securities and 1x book value for the bank. Risk: Key risks that could impede achievement of our HK$110 target price for Ping An include: falling equity market or bond yields, a slowdown in new business, natural catastrophes, bad debt increases and regulatory risk. Price Target: (12 months) for China Pacific (2601.HK) Method: Our 12-month target price of HK$52.00 for China Pacific is based on sum-of-the-parts method. For CPIC Life, the appraisal value is calculated on 0.9x embedded value and 15x value of new business and 2x book value for P&C. Risk: Risks that might impede achievement of our HK$ month target price for China Pacific include the following: a deteriorating investment environment, aggressive China tightening and a slowdown of its insurance business (and increased competition). China Life Insurance Sector 135

136 Price Target: (12 months) for China Life (2628.HK) Method: We have a target price of HK$30.50 for China Life. This is based on calculation of appraisal value which uses embedded value and 10x value of new business. We use a discount rate of 11.5% and investment yield of 5.5%. Risk: Risks to our HK$30.50 target price for China Life include sensitivity to assumptions about product mix, new business margins and investment returns. Key risks also include a sharp slowdown of the China economy. Price Target: (12 months) for Ping An ( SS) Method: Our Rmb88 target price for Ping An (A) is set using a sum-of-the-parts valuation for each division, using 15x value of new business for life insurance, 2x book value for P&C insurance and securities and 1x book value for the bank. Risk: Key risks to our Rmb88 target price for Ping An (A) include: falling equity market or bond yields, slowdown in new business, natural catastrophes, bad debt increases and regulatory risk. Price Target: (12 months) for New China Life ( SS) Method: Our Rmb valuation for New China Life is derived using an appraisal value methodology, using 7.5x value of new business multiple and adjusted embedded value. Risk: Key risks to our Rmb price target are: (1) weak investment markets (impacting both earnings and solvency), (2) changes in interest rates and shape of yield curve, (3) reduction in sales volumes, (4) regulation change, (5) weak risk management. Price Target: (12 months) for China Pacific ( SS) Method: Our 12-month target price of Rmb for CPIC A is based on sum-of-the-parts method. For CPIC Life, the appraisal value is calculated on embedded value and 12.5x value of new business. We use a discount rate of 11.5% and an investment yield of 5.5%. Risk: Risks that might impede achievement of our Rmb month target price include the following: a deteriorating investment environment, aggressive China tightening and a slowdown of its insurance business. Price Target: (12 months) for China Life ( SS) Method: We have a target price of Rmb24.50 for China Life. This is based on calculation of appraisal value which uses embedded value and 10x value of new business. We use a discount rate of 11.5% and investment yield of 5.5%. Risk: Risks to our Rmb24.50 target price for China Life include sensitivity to assumptions about product mix, new business margins and investment returns. Key risks also include a sharp slowdown of the China economy. Please refer to the firm's disclosure website at for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (0966.HK, 1336.HK, 2318.HK, 2628.HK, SS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (0966.HK, 2318.HK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (0966.HK, 2318.HK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (0966.HK, 1336.HK, 2318.HK, 2628.HK, SS) within the next 3 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (1336.HK, 1339.HK, 2318.HK, 2601.HK, 2628.HK). Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (0966.HK, 1336.HK, 1339.HK, 2318.HK, 2601.HK, 2628.HK, SS, SS, SS, SS) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. China Life Insurance Sector 136

137 For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit 28 January 2015 Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (0966.HK, 1339.HK, 2318.HK, 2601.HK, 2628.HK, SS, SS, SS) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. To the extent this is a report authored in whole or in part by a non-u.s. analyst and is made available in the U.S., the following are important disclosures regarding any non-u.s. analyst contributors: The non-u.s. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-u.s. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse (Hong Kong) Limited... Arjan van Veen ; Frances Feng For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at or call +1 (877) China Life Insurance Sector 137

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