CPIC Newsletter for Investors_No.10(2022)

Regulatory Updates

• Regulator highlights requirements for high-quality development
  On September 3, at the 2022 Chinese Insurance High-quality Development Forum, XIAO Yuanqi, vice-chairman of CBIRC made remarks on how insurance companies can achieve high-quality development. First, he calls for satisfying the real needs of customers on the side of liabilities and persisting in prudent operation on the side of assets. "Meeting customer demand" does not mean sales push or raising commissions. Second, insurance companies should stay focused on the core business of insurance, and the extension along the value chain shall serve the sole purpose of "supporting the core insurance business". Third, he advocates "craftsmanship", i.e., steadfast efforts in customer needs analysis, product development, actuarial pricing, investment management and claims service, since insurance is a highly specialised industry and many life/health insurance products are long term, requiring sophisticated designing and calculation. Fourth is market segmentation and specialisation. Fifth is cultivation of a responsible and trust-worthy corporate culture, being responsible for the society, consumers and the future.
• CBIRC enhances information disclosure of life/health insurance

products

In early August, CBIRC issued the Exposure Draft of Administrative Regulations on Information Disclosure of Life/health Insurance Products for public comments. Insurance companies shall bear the primary responsibility of information disclosure of insurance products, such as product terms and clauses, premium rates, cash value and other information pertaining to consumer interests, so as to meet the needs of insurance applicants, the insured, insurance beneficiaries and the wider public. The document designates China Insurance Association and China Banking and Insurance Information Technology Company as the official platforms for such information disclosure.

Industry Info

• Regulator releases industry statistics

On August 19, CBIRC released industry statistics on its official website. As of the end of Q2, 2022, total assets of insurance companies amounted to 26.6 trillion yuan, up by 1.8 trillion yuan, or 7.0%, from the year beginning. Total primary premiums in the first half of the year reached 2.8 trillion yuan, a year-on-year growth of 5.1%, with claims and benefit payments totalling

776.8 billion yuan, up by 3.1%, and an addition of 24.2 billion new insurance policies in 1H 2022, up by 9.5%.

Company News

• Group Chairman wins Award of China's Outstanding

Entrepreneur

On September 16, CPIC Group Chairman Kong Qingwei was awarded China's Outstanding Entrepreneur for 2021-2022 during the Annual Meeting of Chinese Entrepreneurs. The biennial award was granted by China Enterprise Confederation and China Enterprise Directors Association. Under Kong Qingwei's leadership since 2017, CPIC Group persisted in the principle of progressive development on the basis of stable management. The company carried out strategic transformation, enhanced customer services, and recorded significant results in business scale, competitiveness and profitability.

• CPIC rated A in SSE information disclosure assessment for 9

years on end

Recently, Shanghai Stock Exchange circulated results of Rating of Information Disclosure of Listed Companies for 2021-2022, and CPIC was rated A. 164 companies won the A rating for 3 years on end, accounting for only 10% of the 1,642 listed firms involved. The Exchange has been conducting the assessment for 9 years. Criteria for A rating include compliance and effectiveness in information disclosure, focus on core business, stable business operation, sound governance, and industry leadership. Those rated A for 2021-2022 are mostly champions of industry and industry segments with sound business operation. They voluntarily disclosed more information which helps investors make decisions, and carried out value management through innovative formats of annual reports, separate disclosure of ESG reports, or by hosting on-line results meetings.

• CPIC listed among Forbes China ESG 50 for 2022

On August 23, CPIC was included in the first China ESG 50 released by Forbes. The ranking complies with UN ESG framework and principles, and selected 50 Chinese firms from the 2022 Forbes Global 2000 (which looks at revenue, earning, assets and market capitalization) leading in ESG, covering industries such as financial services, energy, construction & engineering, real estate, internet, and electronic equipment.

CPIC has signed into PSI, PRI and GIP, which serve as guidelines for its green insurance, green investment and green operation, to contribute to green and low-carbon transitioning of China.

Special Report

• Summary of Q & A session of 2022 Interim Results

Announcement

On August 29, CPIC hosted 2022 Interim Results Announcement. Below is

the summary of the Q & A session.

1.Q: China's insurance market is now undergoing profound transformation. What is management view on the medium- and long-term outlook for the sector? What strategies do you have? How do you plan to foster new growth engines?

1. Indeed, in recent years, China's insurance market has experienced profound transformation and entered a new stage of development, marked by changing gears in both premium and value growth. The days of double digits or even higher growth are gone, and now steady growth is the norm. Industry is vigorously exploring paths of transformation. There are mainly 3 challenges facing the industry.
   First, some of the systemic problems accumulated during the high-growth period began to surface. While massive recruiting and heavy spending on incentives fuelled rapid business growth, they also triggered a series of issues, such as false manpower, a high proportion of "self-insured policies" which compromised business quality, and surrender racketeering which erodes the foundation of customer trust. All these problems need to be resolved prudently.
   Second, it takes time to cultivate new growth drivers. The restructuring of life insurance agency force is gaining traction, but improvement in professionalism and career-based development cannot be achieved overnight, as they require steadfast capacity-building in recruitment, training and an enabling culture. In P/C insurance, in the context of auto insurance reform, the profitability of traditional business lines was under pressure. Besides, the launch of specialised terms and clauses for NEV, and innovation in non-auto insurance could be challenges to business quality, since it takes time to understand the risks and accumulate data. Global warming and higher risk of natural catastrophes may severely impact the underwriting profitability of P/C insurers.
   Third, external shocks are increasing. With economic slow-down, loosening of monetary policy, decline of long-term interest rates and capital market volatility, we are facing more pressure in reinvestment, which, coupled with rising credit risk, could be a constraint for insurance business. Moreover, new regulatory rules such as Administrative Provisions on Supervision of Insurance Groups and C-ROSS II require better risk management of insurance companies.
   That being said, the fundamentals of China's economy remain unchanged. As a matter of fact, the unique value proposition of insurance will figure more prominently in an environment of increasing uncertainty, such as providing risk protection, supporting economic growth and promoting social stability. For example, the pandemic considerably raised public awareness of health insurance and services; the volatility of equity market makes savings-type insurance products more popular. In the long term, demographic shift and accumulation of people's wealth can effectively underpin insurance demand. National strategies seeking to meet people's need for a better life, such as

Healthy China, Green Transitioning and integrated development initiatives of key regions will inject new vitality into China's insurance market. According to reports by authoritative market research outfits, China's protection gap is still huge in medical cost reimbursement, critical illness income compensation, as well as wealth management and retirement products and services, which means there is still big potential in China's insurance penetration and density.

In short, customer demand remains intact; it's only that insurance companies need to improve their supply to match changing customer needs. In the face of a changing environment, CPIC took the initiative and initiated the supply-side reform to drive for a shift towards the customer-centric operational model.

We launched the Changhang Transformation on the life insurance side seeking to restructure the agency force and meet customer needs in health & protection, pension and wealth management. Meanwhile, we accelerated deployment in health care and retirement, extended the insurance value chain, innovated health solutions and rolled out retirement communities, so as to diversify our product and service offerings. Our P/C insurance focuses on systematic capacity-building while seizing opportunities in emerging business like NEV auto insurance, sustainable insurance and agricultural insurance. In asset management, we strive to optimise ALM mechanism, and enhance capabilities in asset allocation across economic cycles, in a bid to better support liabilities.

2.Q: Could management give us an update of your deployment in health care and retirement? What is your competitive edge on this front when compared with banks or other insurance companies? What is your plan for next stage?

1. Overall, we are making good progress in elderly care. In the wake of the opening of facilities in Chengdu and Dali at the end of last year, the community in Hangzhou also opened for business in July, marking the formation of chain-based and nationwide operation. In terms of business trends, the community in Dali seized opportunities of the high season for tourism, with the occupancy rate trending up. In terms of operation, customer satisfaction rate exceeded 80%, and we are working on the formulation and improvement of operational standards. As for synergy with the core business of insurance, in the first half of 2022, we received a total of around 40,000 visits, and issued more than 2,700 certificates of admission. Next, we will focus on two things: one is operation and service, diversifying offerings and enhancing standards to further improve customer satisfaction; another priority is the building of professional, chain-based operational management capabilities so as to expand into light-asset business.
   Our competitive edge in elderly care mainly includes: first, we offer long-term pension insurance with stable yields; second, we have been profoundly involved in all the 3 pillars of the pension system; third, and most