CPIC Newsletter for Investors_No. 4(2023)

Regulatory Updates

• CBIRC to launch pilot programme for conversion from life insurance to long-term care liabilities in May

CBIRC issued The Notice on Launch of Pilot Programmes of Conversion of Liabilities from Life Insurance to Long-term Care. According to the document, the conversion business will commence on May 1 on a trial basis, with a period of 2 years. The "conversion business" is defined as the conversion, on a voluntary basis, of death or maturity benefits on in-force life insurance contracts into care benefits via "scientific and reasonable" methods by life insurance companies, so that the insured can be entitled to benefit payments at an earlier date when in need of care due to illnesses or injuries. The regulator indicates that the conversion of in-force life insurance contract liabilities can not only satisfy diverse, personlised needs for long-term care, but can also increase service supply, and innovate contents of service and modes of delivery, which in tuwill help to raise public awareness of long-term care insurance.

Industry Info

• CBIRC surveys 23 life insurers in Beijing, Nanjing and Wuhan to assess cost of liabilities

In late March, CBIRC conducted a survey of over 20 life insurers, followed by a meeting with the participation of the Chinese Insurance Association and insurers under the survey. The survey aimed to solicit industry opinions on 6 areas, namely, cost of liabilities, matching of liabilities and assets, views on levels of cost of liabilities, impact of lowering of reserve discount rate on single companies and the industry, comments or suggestions on effort of the regulator or the association to push for lower cost of liabilities of the industry. Insurance companies under the survey indicated that there had been an industry consensus on need to lower cost of liabilities, while some proposed a step-by-step approach, such as cutting the current reserve discount rate for traditional long-term annuity from 3.5% to 3%, subject to further adjustment should circumstances require. The concrete plan is yet to be finalised by the regulator upon further studies.

• Tax-advantagedhealth insurance about to be expanded, and universal accounts may not exist

On March 29, according to Sina.com Finance, CBIRC is about to release Notice on Expansion of Scope of Commercial Health Insurance Products Applicable for Personal income Tax Incentives. Currently, the expansion is proceeding steadily, and is expected to be completed by the end of the year.

Main changes include: removal of requirement for review of personal income tax filing as a precondition for purchase of health insurance with tax incentives; no more universal accounts for new health insurance with tax incentives; medical insurance can continue to write sub-standard risks, but can be priced separately; recovery of cash value of care insurance in the event of the death of the insured; current health insurance with tax incentives, which dates back to 2017, will move into run-off; upper limits on tax incentives remain the same, but applicants may choose to take out polices for their family members within the limits.

• Pricing of commercial motor insurance further liberalised: short-term impact on premium growth and higher claims ratio expected this year

Regions such as Beijing, Tianjin and Shaanxi will be among the first to start using new pricing modifiers at 24hr on April 28, with other provinces following suit by the end of May. The adjustment expanded the range of discretionary pricing modifiers from [0.65-1.35] to [0.5-1.5], excluding new energy vehicles. The move marks further liberalisation of the comprehensive reform of motor insurance, which also means insurance companies will have more control of their own pricing. Good risks may see further premium cuts, while high-risk car owners may see price hikes, which, on the other hand, can help to improve the availability of insurance over. The deregulation also means more intense market competitions, which may impact premium growth in the short term, and this, coupled with normalisation of travelling, is expected to lead to higher claims ratio of motor insurance.

Company News

• CPIC hosts forum on new accounting standards

On April 20, CPIC hosted the Forum on New Accounting Standards, the first of its kind in the industry. The event seeks to improve communication and exchanges of views on the adoption of new accounting standards and their impact on the insurance market, and guide market expectations, so that the capital market can have a better understanding of insurers' value from the perspective of the new accounting regime. Mr. GUO Hangxiang, partner of E

• Y and an industry expert, was the main speaker. He talked about, with the help of case studies, the main changes of the new accounting standards and their impact, coordination of new insurance accounting standards and new accounting standards on financial instruments, and possible key financial indicators under the new accounting rules. Over 200 investors and analysts, both domestic and overseas, attended the forum either in person or on-line. They expressed satisfaction with the event. The meeting was well-organised and helpful, offering a lot of useful details. They recognised the effort of the

company to pro-actively communicate with market on such a milestone change of accounting rules for the industry.

Q&A for 2022 Annual Results Announcement

1. Q: In recent years, due to economic slow-down, both the banking and the insurance sectors are facing grave challenges. What is management view on your business performance in 2022? Looking ahead, challenges and uncertainties may still persist. How do you plan to cope with them to fulfill your vision of "industry leadership in healthy and steady development"?

1. The way to see business results in 2022: first, scale. As an insurance group headquartered in Shanghai, we delivered industry leading business growth, thanks to the concerted effort of all CPIC employees. Second, quality. Business quality of P/C insurance was the best in a decade. In the 1st year of the Changhang Transformation, key metrics of our life insurance business also saw signs of improvement, and the momentum continued into Q1 this

year. In Q4 2022, CPIC Life and CPIC P/C ranked AAA an d AA respectively at the regulatory IRR, maintaining industry leadership. Asset management took a pro-active approach and maintained resilient investment performance. Third, growth. There was growth in Group number of customers and number of customers with multiple insurance policies, pointing to progress in synergy, which is also one of the priorities of Transformation 2.0. Our strategies in health care, big data and regional integrated development proceeded as planned. At the upcoming ceremony of the launch of Healthy China - CPIC Action, you will see more concrete examples of enhanced capabilities and expanded scope of customer service. Five more CPIC Home retirement communities will open for business this year, on top of the 3 facilities that are already operational.

In the face of complicated business environment, we must adhere to 3 basic elements and 3 key factors, so as to fulfill the vision of industry leadership in healthy and steady development.

Basic elements: 1) We will stay value-oriented, adopt a long-term view and always remain vigilant of major risks in business management. While promoting insurance business development in an orderly manner, we set great store by our responsibilities as an asset manager. 2) We are committed to innovation. Insurance business is a traditional sector, but it's also an emerging sector. In the medium and long term, we will implement the 3 key strategies to boost innovation and inject new vitality into the industry. 3) We will uphold business quality management to protect consumers and fulfill our

responsibilities to investors by means of enhancing professional expertise of sales personnel and incorporating CPIC Service into the corporate culture. In brief, value growth is the core, and innovation defines our strategy, which, coupled with insurance business quality management, constitute the 3 basic elements of healthy and steady development.

Key factors: 1) Digital transitioning. We will capture opportunity of the Digital China Initiative and drive business development through digitalisation, aiming for industry leadership.2) Talent. We will pay even closer attention to recruitment and retention of talent based on market-oriented mechanisms, especially young talent from around the world, while abiding by relevant norms and rules. The incentive system will be more scientific, effective and rule-based, helping to ensure sustainable development of the company. 3) Off-limits thinking. We will always give first priority to customer interests and compliance in business operation, and cement the foundation for healthy and stable development.

2. Q: It's been over a year since you kicked off the Changhang Transformation Phase I for life insurance. The reform has delivered some initial results amid industry pressures last year, evidenced by improving NBV growth and core capabilities. Will there be a Phase II? If so, what would be its focus and key initiatives? Has the reform proceeded according to plan so far? What are the biggest difficulties or challenges you encountered?

1. The progress of the Changhang Action Programme so far is largely in line with management expectations, with projects in agency force, distribution channels and products proceeding according to plan. Going forward, the focus will be on deepening organisational restructuring to better motivate branch offices at various levels, which, in turn, would release potential and improve productivity. The rationale is that optimised organisational structure and improved professionalism of staff could better match the career-based, professional and digital transformation of the agency channel.

The reform in the past year has delivered benefits, though it was an arduous journey, particularly given challenges of the market environment. There were moments of anxiety, stress and even agony. But the worst is over, thanks to steadfast effort in the past year. In Q1 this year, business metrics demonstrated momentum of improvement. The biggest difficulty was the constraint of time, especially last year, given the complication of multiple challenges. Last year we rolled out the top-level design to branch offices. and we acutely felt the pressing of time. Good news is that there has been a strong consensus on the direction of transformation, and if we press ahead and maintain consistency, we will reap more benefits.