china p&c insurance

DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. 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.

25 May 2011Asia Pacific/ChinaEquity Research

Multi Line Insurance (Financials)

China P&C Insurance SECTOR REVIEW

A golden age for motor? Figure 1: China P&C insurance profitability improving materially China P&C insurance combined ratio by company (% net earned premium)

90.0%

92.5%

95.0%

97.5%

100.0%

102.5%

105.0%

107.5%

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

)F'casts ---->Sichuan earthquake

/ snowstorms

Underwriting profit

Underwriting loss

PICC

China Pacific

ROE = 15%

Ping An

Source: Company data, Credit Suisse estimates

■ Medium-term outlook remains positive: While 2011 growth will be below historical average due to impact of subsidy removal in 2010, growth rates have picked up in more recent months and we deem medium-term growth fundamentals remain strong given the low penetration rates in all classes (in particular home insurance).

■ Profit improvement sustainability: Given the structural changes that have been put in place since mid-late 2008 (and enforced during 2009), we deem underwriting profitability improvements seen in 2010 will continue into 2011 and beyond; and sustainable for longer than many anticipate.

■ Leverage to rising yields: Given P&C insurers invest in the shorter end of the yield curve (as 75% of their portfolio is short tail motor), they benefit more immediately from interest rates rises than their life insurance peers.

■ Investment view: While PICC P&C (2328.HK) provides the best �pure� exposure to the sector, we are wary of dilution from recapitalisation and IPO/restructuring of the PICC Group; and as such deem better exposure to the sector is through China Pacific (2601.HK), which has the next highest exposure to the sector (P&C division represents ~30% of total earnings).

Research Analysts Arjan van Veen 852 2101 7508

[email protected]

Frances Feng 852 2101 6693

[email protected]

25 May 2011

China P&C Insurance 2

Focus charts and tables Figure 2: China P&C insurance correlated to GDP� China P&C insurance premium / GDP per capita by region (RMB)

Figure 3: � with premium per capita low Global P&C insurance premium / GDP per capita by region (US$)

TibetGuizhou

Gansu

Yunnan

Qinghai

AnhuiJiangxiSichuan Ningxia

Shaanxi

Xinjiang

Guangxi

Hunan

Chongqing

HubeiHenanHainan

Shanxi

Inner Mongolia

Fujian

Heilongjiang

Hebei

Jilin

Shandong

Liaoning

Jiangsu

Zhejiang

Guangdong

Tianjin

Beijing

Shanghai

-

200

400

600

800

1,000

1,200

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

GDP per capita (Rmb)

P&C

prem

ium

per

capi

ta (R

mb)

Growthpotential

Jiangsu

Zhejiang

Guangdong

TianjinBeijing

Shanghai

China

New Zealand Australia

Taiwan

South Korea

Singapore

Hong Kong

Developing

Developed Asia JapanItaly

Germany

FranceUK

Canada

USA

-

400

800

1,200

1,600

2,000

2,400

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000

GDP per capita (US$)

P&C

prem

ium

per

capi

ta (U

S$)

Growthpotential

Figure 4: China P&C market still mainly motor � China P&C market by class (% 2009)

Figure 5: � with China car penetration still very low No. of motor vehicles per 1,000

Auto74%

Liability3%

Other5%

Health2%

Accident3%

Engineering2%

Agriculture4%

Commercial Property7%

0

100

200

300

400

500

600

700

800

900

United States Luxem

bourg Iceland Australia Italy Canada New Zealand Austria Germany Japan Switzerland France Belgium Spain SwedenUK Netherlands Cyprus Portugal South Korea Malaysia Argentina Croatia Russia Mexico Singapore Brazil South Africa China Venezuela Chile Colombia Paraguay El Salvador Morocco IraqChina Bolivia Ecuador Peru Philippines Indonesia Senegal Honduras Nepal Pakistan

Figure 6: Top-five P&C insurers have 75% of the market ... China P&C insurance - market share by company (%)

Figure 7: � with China fastest growing region in NJA NJA P&C insurance � growth rate by country (CAGR % p.a.)

18.4%

1.7%2.5%3.2%3.7%3.9%

13.4%17.3%

37.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

PICC Ping An ChinaPacific

ChinaUnited

CCIC Guotai Sunshine Tianan Others

Dec-04 Dec-07 Dec-10 Mar-11

Top 5 = 75%

0%

5%

10%

15%

20%

25%

30%

35%

Hong Kong

Singapore

South Korea

Taiwan

Australia

New Zealand

China

Thailand

Malaysia

India

Indonesia

Philippines

Vietnam

P&C

insu

ranc

e pre

miu

m g

rowt

h (%

pa) 10yr CAGR 5yr CAGR

Developed Developing Emerging

Source: CEIC, Swiss Re, NationMaster, UN, Credit Suisse estimates

25 May 2011


2011: a golden age for motor? Structural growth to continue medium term Despite the very strong growth in insurance premiums of around 23.5% p.a. over the last decade (the fastest growth rate in Asia), we deem that the China property and casualty insurance market will likely experience growth rates above 15% p.a. for the next decade despite little population growth.

We highlight that most regions in China have insurance density (premiums per capita) well below the levels in more developed countries (even Shanghai and Beijing) and China is still mainly a motor insurance market (~75% of premiums), with home insurance still at a nascent stage (which represents 15-20% of more developed markets).

Nearer term. 2011 premium growth has been impacted by the removal of car subsidies and introduction of Beijing quotas in Dec 2010; but growth rates have recovered to mid teens in March and April.

Profitability improvement sustainability The profitability of the property & casualty sector has steadily improved in the past couple of years due in part to increased regulatory focus and resulting improved discipline from the local insurers.

While the intermediated structure of the current market would lead one to doubt the sustainability of the current profitability, we deem the structural changes that have been put in place since mid to late 2008 (and enforced during 2009), and will continue impact profitability into 2011 and beyond, and may overshoot to the upside near term.

Longer-term, we deem greater direct penetration of the market will lead to a more sustainable business model going forward. We highlight that the insurers (led by Ping An) have had strong success on this front (from a standing start) and the current (lack of) market rating structure does not facilitate aggregators entering the market, in our view.

Strong leverage to rising bond yields Given property & casualty insurers invest in the shorter end of the yield curve (as 75% of their portfolio is short tail motor), they benefit more immediately from interest rates rises than their P&C insurance peers.

For a motor portfolio, an increase in the one-year bond yield by 50 bp would lead to a profit increase of ~4% (assuming a combined ratio of 95%).

Investment view We retain our positive outlook for the sector, although deem that margins have peaked for Ping An and China Pacific. However, we deem the impact of rising yields will continue to flow through and deem further operational improvements are likely for PICC.

While PICC P&C (2328.HK) provides the best �pure� exposure to the sector, we are wary of dilution from recapitalisation given low capital levels and IPO/restructuring of the PICC Group (see �PICC P&C: Restructuring uncertainties�); and as such deem better exposure to the sector is through China Pacific (2601.HK), which has the next highest exposure to sector (P&C division represents ~30% of total earnings).

Property & casualty insurers benefit relatively quickly from rising bond yields

Medium-term growth prospects remain strong for Chinese P&C insurers

We deem improved industry profitability is sustainable to some extent given structural changes

We remain of the view CPIC is the best exposure to the segment.

http://doc.research-and-analytics.csfb.com/docView?language=ENG&source=ulg&format=PDF&document_id=887377251&serialid=XM52SBLE3OZpF5eve8EBJItv9LVbm68BCcHiZiqrkZM%3d

25 May 2011

China P&

C Insurance

4

Sector valuation Figure 8: Non-Japan Asia Insurance � key financial metrics

Reporting Market Monthly Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x)EPS

GrowthP / BV

(x)ROE

(%pa)P / NTA

(x)ROTE (%pa)

P / EV (x)

ROEV (%pa)

VNB (x)

Div Yld (%pa) Price movement (%)

Company Currency Cap Volume Liquidity 24-May high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) 1wk 1mth 1qtr 1hy 1yr YTDUS$m US$m % local local % 7 30 91 182 365 28-Feb

AustraliaAMP.AX AMP AUD 12,741 1,284 10.1% 5.11 4.88-5.80 5.90 21.4% NTRL 31-Dec 13.0x 15.6x -6.8% 2.1x 12.7% 4.0x 25.7% 1.3x 8.3% 8.6x 6.0% -1.9% -8.9% -6.4% 1.4% -6.4% -3.8%TWR.AX Tower NZ NZD 364 10 2.9% 1.34 1.24-1.57 1.53 20.4% NTRL 30-Sep 9.1x 9.1x 6.8% 1.0x 10.6% 1.1x 12.1% 0.4x 4.7% -64x 5.7% -1.1% -1.5% -8.9% -8.9% -10.7% -8.6%IAG.AX IAG AUD 7,639 578 7.6% 3.48 3.27-4.01 4.00 20.8% OPFM 30-Jun 10.7x 11.2x 125.5% 1.5x 13.3% 2.3x 21.0% na na na 5.9% -2.0% -4.4% -5.2% -9.1% 2.1% -4.7%QBE.AX QBE USD 20,408 2,222 10.9% 17.37 16.23-19.66 18.50 13.6% UPFM 31-Dec 10.3x 11.6x 11.5% 1.8x 15.9% 3.6x 30.6% na na na 7.1% -3.2% -9.2% -5.0% 6.2% -11.2% -4.2%SUN.AX Suncorp AUD 11,035 760 6.9% 8.22 7.75-9.70 9.50 20.9% OPFM 30-Jun 10.1x 10.7x 88.4% 0.7x 7.0% 1.3x 12.4% na na na 5.4% -2.1% -1.1% -4.4% -10.1% 2.0% -2.4%

52,187 4,854 9.3% 10.6x 11.6x 45.1% 1.4x 11.9% 2.5x 20.4% 0.9x 6.5% -27.7x 6.0% -2.5% -6.7% -5.3% -0.7% -5.3% -3.8%China601628.SS China Life (A) CNY 95,582 1,403 1.5% 18.92 19.10-27.88 25.08 35.4% NTRL 31-Dec 12.5x 13.0x 17.7% 2.2x 16.6% 2.2x 16.6% 1.5x 11.7% 7.7x 2.8% -5.1% -11.5% -10.3% -16.7% -21.1% -11.5%601601.SS China Pacific (A) CNY 35,440 2,100 5.9% 21.60 20.58-28.67 34.26 61.3% OPFM 31-Dec 15.5x 12.9x 40.0% 2.0x 15.1% 2.0x 15.2% 1.4x 11.1% 7.1x 2.7% -3.5% -8.8% -2.5% -5.6% -0.8% -3.7%601318.SS Ping An (A) CNY 74,860 3,894 5.2% 47.79 44.28-66.98 31-Dec 14.6x 14.7x 26.8% 2.4x 16.5% 2.6x 17.7% 1.5x 10.3% 6.5x 1.6% -4.6% -7.5% -2.3% -18.0% 5.6% -4.0%

205,883 7,398 3.6% 14.2x 13.5x 28.2% 2.2x 16.0% 2.2x 16.5% 1.5x 11.0% 7.1x 2.4% -4.7% -9.6% -6.1% -15.3% -7.9% -7.4%Hong Kong1299.HK AIA USD 40,419 1,881 4.7% 26.10 21.10-27.45 25.00 -2.7% NTRL 30-Nov 15.8x 18.5x -8.2% 1.9x 10.0% 1.9x 10.1% 1.4x 7.5% 13.2x 1.5% -1.1% -2.4% 22.2% 15.0% 32.6% 15.0%0945.HK Manulife CAD 31,402 262 0.8% 137.00 86.05-149.80 31-Dec 10.3x 10.4x 55.6% 1.2x 10.8% 1.5x 14.1% 0.7x 6.6% -44.3x 3.1% -0.7% 0.4% -4.6% 24.1% 11.7% -5.9%2378.HK Prudential plc GBP 29,679 5 0.0% 90.60 57.70-100.00 31-Dec 11.9x 11.8x 9.5% 2.2x 17.0% 2.4x 20.1% 0.9x 7.9% -9.3x 3.7% -1.4% -4.6% 1.5% 21.9% 5.0%2628.HK China Life (H) CNY 95,582 3,817 4.0% 26.30 26.05-36.60 30.00 16.5% NTRL 31-Dec 14.8x 15.1x 20.4% 2.5x 16.5% 2.5x 16.6% 1.8x 11.6% 11.5x 2.4% -2.0% -11.3% -9.5% -21.5% -19.2% -11.3%2601.HK China Pacific (H) CNY 35,440 856 2.4% 32.05 27.95-35.35 41.00 30.1% OPFM 31-Dec 19.7x 16.0x 40.0% 2.4x 15.1% 2.4x 15.2% 1.8x 11.1% 12.8x 2.2% -1.4% -9.3% 4.1% 3.1% 13.5% -1.5%0966.HK China Taiping HKD 4,422 162 3.7% 20.20 19.78-30.00 25.50 26.2% NTRL 31-Dec 19.7x 22.2x -18.5% 1.8x 8.1% 1.9x 8.4% 1.5x 6.7% 4.3x 0.0% -4.0% -6.9% -7.3% -25.7% -12.9% -4.9%2318.HK Ping An (H) CNY 74,860 1,946 2.6% 80.65 58.00-94.40 RSTR na RSTR 31-Dec 20.7x 20.9x 29.2% 3.5x 16.5% 3.7x 17.7% 2.2x 10.3% 14.4x 1.1% -1.4% -6.8% 4.3% -10.6% 39.1% 0.9%2328.HK PICC P&C CNY 15,615 498 3.2% 10.90 6.57-12.24 11.00 1.8% NTRL 31-Dec 14.5x 14.9x 22.4% 2.9x 18.8% 2.9x 19.2% na na na 0.9% -4.4% 1.7% 15.8% -7.8% 65.9% 10.7%

266,339 9,427 3.5% 17.9x 17.8x 18.7% 2.6x 15.0% 2.7x 15.4% 1.8x 10.0% 10.7x 1.3% -2.0% -8.0% 2.2% -3.6% 15.8% -1.3%IndiaRLCP.BO Reliance Capital INR 2,676 158 5.9% 494.35 412.9-860.8 939.00 91.5% NTRL 31-Mar 18.6x 18.6x 24.6% 1.3x 7.1% 0.9x 4.9% na 1.5% -2.9% -17.6% 5.1% -26.9% -23.6% 4.1%MAXI.BO Max India INR 823 15 1.8% 160.65 136.9-175.1 240.00 49.4% OPFM 31-Mar 8.5x 1.0x na -2.8% 1.2% 11.0% 1.8% -5.2% 14.5%

3,500 173 4.9% 13.5x 18.6x 24.6% 1.3x 7.1% 1.0x 4.9% na 1.5% -2.8% -13.1% 6.5% -20.1% -19.3% 6.6%Korea032830.KS Samsung Life KRW 16,213 936 5.8% 89,300 89300-114500 125,000 41.7% OPFM 31-Mar 13.7x 13.2x -24.1% 1.2x 9.0% 1.2x 9.0% 0.7x 5.4% -5.8x 1.7% -7.7% -9.8% -18.8% -10.3% -16.2%088350.KS Korea Life KRW 5,456 291 5.3% 6,920 6,920-8,970 9,800 45.3% OPFM 31-Mar 9.5x 9.6x 10.0% 0.9x 9.4% 0.9x 9.4% 0.7x 6.9% -7.4x 3.7% -4.4% -3.9% -12.0% -8.9% 2.2% -12.3%082640.KS Tong Yang Life KRW 1,176 29 2.4% 12,050 11,300-14,700 19,000 62.0% OPFM 31-Mar 7.2x 6.4x 21.4% 1.0x 15.2% 1.0x 15.2% 0.6x 9.6% -4.6x 4.3% -3.2% -1.6% -3.6% 3.4% 3.0% -4.7%005830.KS Dongbu KRW 3,008 194 6.4% 46,800 32,150-51,600 54,000 17.7% OPFM 31-Mar 8.1x 9.3x 16.5% 1.5x 16.5% 1.5x 16.5% 0.9x 9.8% -1x 2.3% -2.9% -1.0% 1.8% 20.9% 46.3% 2.2%001450.KS Hyundai M&F KRW 2,098 373 17.8% 25,850 20,300-31,100 33,500 32.9% OPFM 31-Mar 7.5x 8.1x 40.5% 1.3x 15.8% 1.3x 15.8% 0.6x 8.0% -3.9x 3.3% 0.8% -4.6% -10.9% 14.9% 19.4% -4.8%002550.KS LIG Insurance KRW 1,304 156 11.9% 23,950 19,800-27,850 30,200 28.7% OPFM 31-Mar 6.5x 7.7x 100.8% 1.0x 13.0% 1.0x 13.1% 0.5x 6.0% -6.2x 2.6% 2.8% -5.1% -0.6% 18.9% 1.9% -2.2%000060.KS Meritz F&M KRW 1,292 138 10.7% 11,500 8,200-13,200 11,800 6.2% OPFM 31-Mar 5.7x 7.5x 25.3% 1.3x 17.6% 1.3x 17.6% 0.6x 8.5% -4.1x 3.6% 0.4% -1.3% -2.2% 20.5% 22.1% 3.6%000810.KS Samsung F&M KRW 9,571 765 8.0% 208,500 168000-246500 270,000 31.4% OPFM 31-Mar 11.7x 11.4x 22.2% 1.4x 11.3% 1.4x 12.0% 1.0x 8.8% 0.0x 1.9% -2.6% -5.0% -7.7% 10.6% 18.5% -6.7%

40,118 2,882 7.2% 8.7x 9.1x 26.6% 1.2x 13.5% 1.2x 13.6% 0.7x 7.9% -4.1x 2.9% -4.5% -6.3% -11.5% 1.1% 11.6% -9.7%South East AsiaGELA.SI Great Eastern SGD 5,902 4 0.1% 15.60 15.10-17.38 20.00 32.4% OPFM 31-Dec 13.2x 12.0x 14.0% 1.6x 13.7% 1.6x 13.7% 1.0x 8.3% -0.2x 4.2% 0.6% 1.3% 0.3% -1.1% -1.9% -0.6%SPRS.SI Singapore Re SGD 150 1 0.8% 0.31 0.24-0.32 na na NR 31-Dec na na na 5.1% -1.6% 3.3% 12.7% 29.2% 3.3%MAAS.KL MAA Holdings MYR 129 28 21.5% 1.30 0.62-1.44 na na NR 31-Dec 0.8% 6.6% 57.6% 103.1% 109.7% 62.5%AINM.KL Allianz MYR 251 2 0.8% 5.00 3.68-5.42 na na NR 31-Dec -2.0% -5.8% -2.0% 22.2% 4.2% -1.0%MHBS.KL Manulife MYR 37 0 0.5% 1.50 1.16-1.63 na na NR 31-Dec 0.7% -4.5% 0.0% 8.7% 15.4% 0.7%MNRB.KL Malaysia Re MYR 189 1 0.5% 2.71 2.55-2.89 na na NR 31-Mar 12.9x 12.9x -53.4% 1.9x 14.5% 1.9x 14.5% na na na -1.5% 1.1% 0.4% 0.4% -1.5% 0.4%NRCP.PS PhilNaRe PHP 82 1.63 1.50-2.42 na na NR 31-Dec 0.6x 0.6x na na na -6.3% -2.4% -4.1% -14.2% 8.7% -2.4%BKI.BK Bangkok Insurance THB 649 2 0.4% 260.00 199.50-273.00 na na NR 31-Dec 13.8x 13.8x 10.6% 1.0x 7.0% 1.0x 7.0% na na na 1.9% 0.4% 4.0% 4.8% 4.4% 30.3% 3.6%BLA.BK Bangkok Life THB 1,714 46 2.7% 43.50 0,022-0,045 55.00 28.3% OPFM 31-Dec 14.5x 13.5x 23.5% 3.3x 24.2% 3.3x 24.1% 1.8x 13.6% 9.8x 1.8% 0.0% 24.3% 40.3% 61.1% 99.5% 33.8%SCNY.BK Siam Comm Life THB 917 1 0.1% 420.00 360.00-618.00 na na NR 31-Dec -0.9% 12.9% 16.7% -21.3% -9.1% 8.2%THRE.BK Thai Re THB 246 1 0.3% 6.30 5.50-6.45 na na NR 31-Dec 12.3x 12.3x 3.6% na na na 0.8% 0.8% 0.8% 1.6% 12.5% 0.8%

10,266 86 0.8% 13.3x 12.9x -0.3% 1.7x 14.9% 1.7x 14.8% 1.4x 10.9% 4.8x 2.6% 0.3% 6.1% 9.4% 9.9% 18.9% 7.1%Taiwan2882.TW Cathay FHC TWD 15,869 840 5.3% 45.25 41.05-55.00 57.50 29.4% OPFM 31-Dec 27.3x 19.8x 121.4% 1.9x 9.3% 1.9x 9.4% 0.9x 4.5% -7.0x 2.3% -1.4% -5.8% -4.3% -1.7% 5.2% -4.5%2881.TW Fubon FHC TWD 12,390 686 5.5% 41.10 32.72-42.40 43.00 9.1% NTRL 31-Dec 12.6x 11.2x 30.2% 1.5x 13.1% 1.5x 13.3% 1.3x 11.7% 8.1x 4.5% -0.7% -1.7% 9.3% 10.9% 19.9% 9.5%2888.TW Shin Kong FHC TWD 3,657 470 12.8% 12.55 10.17-14.95 13.00 7.8% NTRL 31-Dec 16.6x 11.8x 81.5% 1.1x 9.6% 1.1x 9.6% 1.1x 9.7% 2.7x 4.2% 4.6% -0.4% 2.0% 13.6% 17.6% 0.8%

35,185 2,407 6.8% 18.8x 14.2x 77.7% 1.5x 10.7% 1.5x 10.8% 1.1x 8.6% 1.3x 3.7% -0.5% -3.8% 2.5% 6.9% 14.3% 2.4%

Total NJA insurance 408,389 27,273 6.7% Arithmetic average 12.6x 12.4x 27.6% 1.6x 13.6% 1.9x 15.5% 1.1x 8.4% -3.3x 3.2% -1.2% -1.8% 2.0% 6.8% 16.6% 1.9%Weighted average 17.5x 17.4x 30.8% 2.5x 16.1% 2.7x 18.2% 1.5x 9.3% 3.6x 3.1% -2.2% -7.0% 0.1% -1.7% 12.3% -1.9%

Source: Reuters, Company data, Credit Suisse estimates

25 May 2011


Table of contents Focus charts and tables 2 2011: a golden age for motor? 3

Structural growth to continue medium term 3 Profitability improvement sustainability 3 Strong leverage to rising bond yields 3 Investment view 3

Sector valuation 4 Structural growth to continue medium term 6 Profitability improvement sustainability 10 Leverage to rising bond yields 14 Investment view 15 PICC (2328.HK, NEUTRAL, TP HK$11.00) 16 China Pacific (2601.HK, OUTPERFORM, TP HK$41.00) 17 Ping An (2318.HK, RESTRICTED) 18 NJA insurance/financials valuation metrics 21

China insurance market 22 Population distribution 28 Urbanisation 29 Income distribution 31

Property and casualty insurance 32 Market by product 33 Motor insurance 35 Commercial property 38 Agriculture 40 Liability 42 Accident 44 Engineering 46 Market size by region 48 Historical growth rates 49 Premium growth by region 51 Insurance density by region 53 Insurance penetration by region 58 P&C insurance growth, density and penetration rates 60 Company positioning by region 62

Appendix A: Regulatory initiatives 68 Mandatory auto 68 Voluntary auto 69 No. 70 document 70 Solvency regulation 71

Appendix B: Capital position 73 Appendix C: company profiles 76

PICC (2328.HK) 76 China Pacific (2601.HK / 601601.SS) 82 China Pacific � key financials 87 Ping An (2318.HK) 89

Appendix D: regional comparisons 95

25 May 2011


Structural growth to continue medium term China P&C insurance market � historical growth rates

The China insurance market grew to Rmb1.45 tn in total premiums as at the end of December 2010, a 10-year average compound growth rate of 27.8% p.a., when premiums were just Rmb160 bn in 2000.

The life insurance represents around 75% of total insurance premium pool (mainly savings type policies) and has grown at a compound growth rate of 30% p.a. over the past decade.

P&C insurance remains mainly motor insurance in China (around 75% of the total market) and has grown at a compound growth rate of 23% p.a. over the same period, as highlighted below:

Figure 9: China insurance premiums 2000-2010 (Rmb mn/CAGR % p.a.) Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 CAGR � 10yr (%) 5yr (%) 3yr (%) 1yr (%)P&C 99,000 227,480 319,359 406,109 733,757 1,050,088 30.0% 23.6% 28.5% 28.9%P&C 60,800 77,830 112,455 158,035 244,625 402,689 23.4% 25.7% 24.5% 34.5%Total 159,800 305,310 431,813 564,144 978,382 1,452,778 27.8% 24.1% 27.3% 30.4%Source: CIRC, Credit Suisse estimates

We highlight that P&C insurance is more cyclical in terms of growth rates as is more dependent on economic cycles.

As highlighted below, motor vehicle insurance, agriculture and health insurance have been the highest growth segments of the Chinese P&C market, while commercial property and accident insurance have been growing at a much slower pace.


Figure 11: � with motor growth slightly above average Premium growth by P&C segment (four-year CAGR %pa)

Auto74%

Liability3%

Other5%

Health2%

Accident3%

Engineering2%

Agriculture4%


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Auto

Commercial Property

Agriculture

Liability

Accident

Engineering

Health

Other

Total

84% 61%

Source: CIRC Source: CIRC, Credit Suisse estimates

We highlight that home insurance (both contents and building) remains a very small segment of the Chinese P&C market, which we deem to be largely a legacy of socialist background. While we don�t expect change in penetration rates anytime soon, we highlight this as a key medium-term growth segment would normally represent 15-20% of a P&C market.

As has occurred in other segments / countries, this situation could change overnight through regulatory change or other government intervention / promotion. We deem this particularly likely after a major claims event; given the government is often viewed as the insurer by the public in the case of individual property damage.

25 May 2011


Highest growth region in Asia

In a regional context, we highlight that the Chinese P&C market has been by far the highest growth over both the last five and ten year periods.

In addition, the China P&C market is by far the largest in the region, more that 50% larger than the next largest market of Korea and almost double that of Australia.

Figure 12: China fastest growing market in NJA ... NJA P&C insurance premium 5 and 10yr CAGR (%p.a.)

Figure 13: � and also the largest market NJA P&C insurance premiums (US$mn and 10yr CAGR %p.a.)

0%

5%

10%

15%

20%

25%

30%

35%

Hong Kong

Singapore

South Korea

Taiwan

Australia

New Zealand

China

Thailand

Malaysia

India

Indonesia

Philippines

Vietnam

P&C

insu

ranc

e pre

miu

m g

rowt

h (%



21.0%6.2%10.6%

13.2%8.0%13.4%

23.9%

9.0%

7.5%

6.7%

10.8%

18.6%5.5%

-

10,000

20,000

30,000

40,000

50,000

60,000

Hong K

ong

Singapore

South K

orea

Taiwan

Australia

New

Zealand

China

Thailand

Malaysia

India

Indonesia

Philippines

Vietnam

P&C

insu

ranc

e pre

miu

ms (

US$m

n)

FY99 FY09

10yr CAGR (%pa)


Source: Swiss Re, Credit Suisse estimates Source: Swiss Re, Credit Suisse estimates

Market shares

The P&C market has historically been dominated by PICC, Ping An and China Pacific, with the top-five controlling about 75% of the market, but the dominant insurer PICC losing market share over time (see Figure 14).

Figure 14: Top-five P&C insurers 75% of the market ... China P&C insurance - market share by company (%)

Figure 15: � with smaller companies retreating China P&C insurance � market shares (%) 2000-2011

18.4%

1.7%2.5%3.2%3.7%3.9%

13.4%17.3%

37.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%


ChinaUnited



Top 5 = 75%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Marke

t sha

re (%

)

China United Ping An China Pacific CCIC Guotai Sunshine Tianan

China United

Ping An

China Pacific

CCICTianan

GuotaiSunshine

Source: CIRC Source: CIRC

We highlight that many of the more aggressive smaller P&C companies have been losing market share in more recent years, as highlighted in Figure 15.

We deem the solvency standards (June 2008) and �document 70� (August 2008) changes (discussed in detail in this report) as having a big impact on the smaller insurers and have led to a more rational market (in particular the solvency standards), in our view.

25 May 2011


Structural growth to continue medium term

Despite the very strong growth in insurance premiums of almost 25% p.a. over the past decade, we deem that the China insurance market will likely experience growth rates above 15% p.a. for the next decade despite little population growth.

As highlighted below, most regions in China have insurance density (premiums per capita) well below the levels in Shanghai and Beijing, even those with relatively high GDP per capita like Tianjin.

Figure 16: China P&C insurance correlated to GDP� China P&C premium / GDP per capita by region (Rmb, 2009)

Figure 17: � with premium per capita low Global P&C premium / GDP per capita by region (US$, 2009)

TibetGuizhou

Gansu

Yunnan

Qinghai


Shaanxi

Xinjiang

Guangxi

Hunan

Chongqing

HubeiHenanHainan

Shanxi

Inner Mongolia

Fujian

Heilongjiang

Hebei

Jilin

Shandong

Liaoning

Jiangsu

Zhejiang

Guangdong

Tianjin

Beijing

Shanghai

-

200

400

600

800

1,000

1,200

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000


P&C

prem

ium

per

capi

ta (R

mb)

Growthpotential

Jiangsu

Zhejiang

Guangdong

TianjinBeijing

Shanghai

China


Taiwan

South Korea

Singapore

Hong Kong

Developing


Germany

FranceUK

Canada

USA

-

400

800

1,200

1,600

2,000

2,400

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000


P&C

prem

ium

per

capi

ta (U

S$)

Growthpotential

Source: CEIC, Credit Suisse estimates Source: Swiss Re, CEIC, Credit Suisse estimates

When we then examine where Beijing and Shanghai sit relative to more developed regions globally as highlighted in Figure 17 these two municipalities still have materially lower insurance density and GDP per capita.

However, while we expect more developed/penetrated regions like Beijing and Shanghai to grow above the global rates, we do expect these to slow relative to the rest of China. As highlighted in Figure 19, the �Developed China� regions have grown well below the national rate, albeit still at an average rate of about 20% p.a.

Figure 18: Developed China has highest density � China P&C insurance premium per capita by region (Rmb mn)

Figure 19: � and corresponding lowest growth rate China P&C insurance premium growth (3-year CAGR)

0

200

400

600

800

1,000

1,200

ShanghaiBeijingTianjinGuangdongZhejiangJiangsu

LiaoningShandongJilinHebeiHeilongjiangFujianInner MongoliaShanxi

HainanHenanHubeiChongqingHunanGuangxiXinjiangShaanxiNingxiaSichuanJiangxiAnhuiQinghaiYunnanGansuGuizhouTibet

2009 1999

Developed EmergingDeveloping

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%




National


Source: CEIC, CIRC, Credit Suisse estimates Source: CIRC

As such, companies that have the best positioning in the regions likely to experience the next phase of development (i.e., tier-two and tier-three cities, and the central region), will experience stronger medium-term growth.

25 May 2011


P&C growth profile improving

The property & casualty sector is also experiencing a strong recent pick-up in growth rates, driven largely by new motor sales, as highlighted in Figure 21.

While the five-year compound annual growth rate is 25.7% p.a., total premiums year to date (to March 2011) are up 14% on last year.

Figure 20: Growth rates slowing to 14% in 2011 so far� P&C premium growth (% p.a.) by company

Figure 21: �but picking up in more recent months P&C market premium growth (% p.a.) � 2005-2011

-10%

0%

10%

20%

30%

40%

50%

60%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Grow

th (%

pa)

PICC Ping An China Pacific Total Market 10yr avg

Ping An

China Pacific

PICC

Sunshine

China P&C market

0%

20%

40%

60%

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Grow

th (%

pa)

Growth (%pcp) Growth (% rolling 12mths) Growth (5yr CAGR %pa)

6yr CAGR = 23.9%pa

Source: Company data, Credit Suisse estimates Source: CIRC, Credit Suisse estimates

We also highlight that medium-term growth rates are likely to remain at least within historical ranges, noting:

■ Motor vehicle penetration in China remains low by global standards (as highlighted in Figure 23;

■ Penetration rates within China�s administrative regions are also highly skewed (with Beijing motor vehicle ownership very high as highlighted in Figure 22; and

■ Home insurance levels are extremely low across China, with a typical personal lines insurer being around 60:40 home versus motor (with Chinese insurers typically <5% home and contents insurance).

Figure 22: Vehicles per capita highest in Beijing � No. of motor vehicles per 1,000

Figure 23: � but China well below average No. of motor vehicles per 1,000

0

50

100

150

200

250




National


0

100

200

300

400

500

600

700

800

900

United States Luxem

bourg Iceland Australia Italy Canada New Zealand Austria Germ

any Japan Switzerland France Belgium Spain SwedenUK Netherlands Cyprus Portugal South Korea Malaysia Argentina Croatia Russia Mexico Singapore Brazil South Africa China Venezuela Chile Colombia Paraguay El Salvador Morocco IraqChina Bolivia Ecuador Peru Philippines Indonesia Senegal Honduras Nepal Pakistan

Source: CEIC Source: NationMaster, UN, CEIC, Credit Suisse estimates

25 May 2011


Profitability improvement sustainability P&C profitability improvement sustainability The profitability of the property & casualty sector (about 75% motor) has steadily improved in the past couple of years (see Figure 24) due to a variety of reasons; although its sustainability is debatable given the reliance of the industry on distributing its product through third-party distributors (mainly car sales groups).

Figure 24: Profitability of P&C insurance improving Combined ratio by insurers (%)

Figure 25: �with loss ratios now best on record Cumulative12-month loss ratios (%)

90.0%

92.5%

95.0%

97.5%

100.0%

102.5%

105.0%

107.5%

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

)

F'casts ---->Sichuan earthquake / snowstorms

Underwriting profit

Underwriting loss

PICC

China Pacific

ROE = 15%

Ping An

40%

45%

50%

55%

60%

65%

Dec-9

9

Dec-0

0

Dec-0

1

Dec-0

2

Dec-0

3

Dec-0

4

Dec-0

5

Dec-0

6

Dec-0

7

Dec-0

8

Dec-0

9

Dec-1

0

Source: Company data, Credit Suisse estimates Source: CIRC

In our view, the main drivers of the improvements in profitability were the introduction (and subsequent enforcement) of the following regulations:

■ Solvency standard (June 2008): The CIRC introduced solvency regulations for both Life and P&C insurance industries, which need to be reviewed by a third party. In particular, insurance companies need to:

• Provide quarterly solvency statements

• Report to the CIRC within five working days if insolvent or any major event happens which could cause insolvency;

• Increase capital base, limit shareholder dividend or restrict management compensation if insolvent;

• Stop business expansion, restrict business scope or restrict commercial advertisement if insolvent

■ No. 70 document (August 2008): Was issued to try to eliminate irregularities in the P&C market and prevent damage to market discipline; specifically:

• Enforces strict compliance of the regulator approved insurance policy and premium rates, no irregular (i.e., excessive) discounting allowed.

• Prevents fraudulent claims

• Ensures correct booking of expenses, in particular no commission expense under claims or administration expenses (i.e., remove �soft dollaring� of commission payments)

• Ensures standardised and strict reserving practices

Non-compliance with the above regulations will result in the following punishment

• Suspension of operation

• Forced change of management

• Withdrawal of business licence

• Criminal punishment

25 May 2011


In addition to these two factors, reporting standards have been heightened (~25 insurers had their annual returns returned recently) and actuary signed reports need to be available for review for 10 years and general crackdown on false claims.

Figure 26: Motor insurance dominant class % of portfolio motor insurance by company

Figure 27: With PICC and CPIC most exposed to P&C Profit mix by division (% FY10F)

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

1H12F

% m

otor

insu

ranc

e

F'casts ---->

PICC

Ping An

China Pacific

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

PICC

Ping An

China Pacific

China Taiping

China Life

Life P&C Bank Other

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Motor profitability

Motor profitability has improved substantially in 2009, one year after the enforcement of No. 70 document and solvency regulation to address the market irregularities.

Taking PICC as an example, its motor underwriting profitability returned to positive territory in 2H09, after making losses for previous two years.

Figure 28: Motor returned to profit since 2H09 ... PICC underwriting profitability, motor vs. total (RMB mn)

Figure 29: � profitability improved substantially PICC combined ratio, motor vs. total (%)

-4,000

-3,000

-2,000

-1,000

-

1,000

2,000

3,000

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Unde

rwrit

ting

prof

it (R

mb

mn)

Group Motor

F'cast

90%

95%

100%

105%

110%

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

NEP

)

Group Motor

F'cast


Mandatory versus voluntary auto

We have examined the motor portfolio in more detail by examining the mandatory and voluntary segments separately.

We note that in 2008 mandatory motor segment had a good result while voluntary motor didn�t perform well in terms of profitability, which completely reversed in 2009. We deem the key reason to the reverse as the introduction of the revised mandatory motor liability coverage (higher) and premium rates (lower). The improvement in underwriting profitability was sustained into 2010 which resulted in a combined ratio of total motor class of 97%.

Although the breakdown of mandatory and voluntary profitability is yet not available, we think the 2009 ratio will be maintained, given general feedback from the P&C insurers.

25 May 2011


Figure 30: Voluntary is more profitable than mandatory ...PICC combined ratio, mandatory vs. voluntary (%)

Figure 31: � voluntary combined ratio is lower PICC loss, expense and combined ratio, mandatory vs. voluntary (%)

98%

109%

106%

98%

104%

101%

97%

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

110%

2008 2009 2010Mandatory Voluntary Total auto

83%

26%

109%

63%

35%

98%

69%

32%

101%

0%

20%

40%

60%

80%

100%

120%

Loss ratio Expense ratio Combined ratioMandatory Voluntary Total auto

Source: CIRC, Company data, Credit Suisse estimates Source: CIRC, Company data, Credit Suisse estimates

Ping An outperformed PICC in both mandatory and voluntary segments in 2009 in terms of loss ratio (6-16% lower) which combined with a lower expense ratio (driven by its success in direct marketing) would result in a substantially better underwriting profitability.

Figure 32: PICC loss ratio improved to 69% in 2009 ... PICC motor loss ratio, mandatory vs. voluntary (%)

Figure 33: � Ping An was lower at 60% Ping An motor loss ratio, mandatory vs. voluntary (%)

72%

83%78%

63%

76%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009Mandatory Voluntary Total auto

66% 67%

85%

57%

78%

60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009Mandatory Voluntary Total auto


The premium composition charts below shows that Ping An is more skewed to family vehicles, while PICC (in part due to its scale and hence in ability to fully risk select) is more exposed to riskier classes such as business vehicles and trucks.

Figure 34: PICC skew to business vehicles high ... PICC mandatory by class voluntary (%) -2009

Figure 35: � with Ping An skew to family sedan Ping An mandatory by class voluntary (%) -2009

Family sedan36%

Non business vehicle12%

Business vehicle9%

Non business truck9%

Tractor2%

Special vehicle3%

Motorcycle5%

Trailor1%

Business truck23%

Family sedan53%

Business vehicle7%

Special auto3%

Non business truck8%

Motorcycle3%

Tractor0.4%

Trailor2%

Non business vehicle10%

Business truck14%


25 May 2011


Distribution

P&C insurance in China has traditionally been sold through agent and third party intermediaries, in particular car sales dealerships given the high skew to motor and high levels of new cars sales.

The reliance on agents is obviously more important in rural areas and as such, we demonstrate that the two more rural insurers; PICC and China United have the largest agency forces both in absolute terms and relative to their premium base.

Figure 36: PICC has by far the largest agency force � Agent and premium market share by company (%)

Figure 37: � with agents number skewed to rural areas Agent numbers by region (%)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

PICC Ping An China Pacific China United CCIC Sun-shine China Life Tian-ping Tian an ChinaTaiping

Agent market share Premium market share

-

10,000

20,000

30,000

40,000

50,000

60,000


LiaoningShandongJilinHebeiHeilongjiangFujianInner M

ongoliaShanxi


EmergingDev elopingDev eloped

Source: Pi Financial Services Intelligence Source: Pi Financial Services Intelligence

With the exception of the larger east coast cities, the agent productivity is generally in the range of Rmb 500,000 to 1,000,000 per year as highlighted below.

Figure 38: Agent productivity generally Rmb 500-1,000k Agent productivity by region (premium / agents Rmb �000)

Figure 39: Agent penetration highest in developing ChinaAgent penetration (agent as % population)

-

250

500

750

1,000

1,250

1,500

1,750



ongoliaShanxi


Total

EmergingDev elopingDev eloped

0.00%

0.01%

0.02%

0.03%

0.04%

0.05%

0.06%

0.07%

0.08%



ongoliaShanxi


Dev eloped EmergingDev eloping

Source for both charts: Pi Financial Services Intelligence, CEIC, Credit Suisse estimates

Additionally, agent penetration is highest in Developing China; which is somewhat intuitive give the mix of development and population density.

We deem that insurance in China will migrate more and more to direct form of selling; highlighting the success that Ping An has had in this channel. PICC and others are investing heavily in this capability and as it becomes more accepted practice, we may well see a continued acceleration towards this channel, ultimately rendering a large part of the P&C agency forces redundant. This is more common in developed markets, where agents remain mainly for the SME market.

25 May 2011


Leverage to rising bond yields Property & Casualty insurers have positive leverage to bond yields in that insurance premiums are generally paid at the beginning of the year and hence the insurer earns interest on the premiums until it needs to pay the claim.

Insurers generally try to match the duration of their assets and liabilities (asset liability management or ALM), with mis-matches often penalised by regulator�s minimum capital calculations (which often involve stress testing the portfolio). As such, the type of business a P&C insurer writes will determine the key bond yield to examine.

For short term (tail) business such as motor insurance, the policy duration is usually one year and reporting delays are minimal (for the property part) and as such the one-year bond benchmark is likely to be the most relevant.

For longer term (tail) business, which is generally liability (also know as casualty) insurance, premiums are also generally annual, but the reporting delay can be long. The most common type of liability insurance is worker�s compensation (or employer�s liability) which insures for among other things personal injury while at work. The most extreme obvious example is asbestos, where the time period between exposure (when employee is insured) and symptoms of related diseases developing can be as long as 40 years.

Given property & casualty insurers invest in the shorter end of the yield curve (as 75% of their portfolio is short tail motor), they benefit more immediately from interest rates rises than their life insurance peers.

Figure 40: Chinese government bond yields have moved more at short end 1yr bond 3yr bond 5yr bond 10yr bond 31-Dec-09 1.55 2.40 2.95 3.60 30-Jun-10 1.87 2.45 2.69 3.33 31-Dec-10 2.95 3.51 3.56 3.90 24-May-11 3.06 3.30 3.58 3.95 ∆ 2011 YTD 0.11 -0.21 0.02 0.05 ∆ 2H10 1.08 1.06 0.87 0.57

Source: Reuters, Credit Suisse estimates

For a motor portfolio, an increase in the one-year bond yield by 100 bp would lead to a profit increase of ~5% (assuming a combined ratio of 95%).

Figure 41: Three-year bonds 100 bp in 2H10 � Government bond yields (%)

Figure 42: � with profit sensitivity high Profit sensitivity to 50 bp change in investment yield

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Dec-03

Jun-04

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

3yr bond yield 10yr bond yield

10yr bond yield

3yr bond yield

Short-tail interest rate sensitivity

@3% @4%Premium 100 100Claims + expenses 95 95Underwriting profit 5 5Investment income 1.5 1.8Profit (pre-tax) 6.5 6.8Change in profit 3.8%Capital 50 50Interest rate 3.0% 3.5%

Source: Reuters, Credit Suisse estimates Source: Credit Suisse estimates

P&C insurers benefit more immediately from rising rates than their life insurance peers

25 May 2011


Investment view We retain our positive outlook for the sector, although deem that margins have peaked for Ping An and China Pacific.

However, we deem the impact of rising yields will continue to flow through and deem further operational improvements are likely for PICC, which has lagged peers as highlighted in Figure 43 below.

Figure 43: Profitability peaked for Ping An / CPIC? Combined ratio by insurers (%)

Figure 44: PICC and CPIC most exposed to P&C Profit mix by division (% FY10F)

90.0%

92.5%

95.0%

97.5%

100.0%

102.5%

105.0%

107.5%

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

)


Underwriting profit

Underwriting loss

PICC

China Pacific

ROE = 15%

Ping An

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

PICC

Ping An

China Pacific

China Taiping

China Life

Life P&C Bank Other


In summary, we highlight the following:

■ PICC P&C (2328.HK TP HK$11.00; NEUTRAL) provides the best �pure� exposure to the sector, but we are wary of dilution from recapitalisation and IPO/restructuring of the PICC Group (see �PICC P&C: Restructuring uncertainties�, 25 May 2011, for full details), which also may involve transfer of share into PICC Group.

■ China Pacific (2601.HK TP HK$41.00 / 601601.SS TP Rmb 34.26; OUTPERFORM) provides, in our view, the best exposure to of the listed insurers to the P&C sector, noting (1) 25-30% of earnings are derived from P&C, (2) group valuation not reflective of improved P&C conditions, (3) strong track record in P&C, with loss ratio ahead of many industry peers, (4) well capitalised at over 300% of solvency requirements and unlikely to require additional capital for three years and (5) the group continues to trade on discount to peers on most key valuation multiples.

■ Ping An (2318.HK RESTRICTED): While Ping An has been the stand-out in the P&C sector for the last two reporting periods due to 1) reporting lower combined ratios and 2) having the highest growth rates; in part boosted by their strong success in the direct marketing space, however, given P&C only accounts for 10-15% of group earnings, its share price is more likely to be driven by the fortunes of its life insurance division and/or bank.


25 May 2011


PICC (2328.HK, NEUTRAL, TP HK$11.00) As discussed earlier, the profitability of the property & casualty sector has steadily improved in the last couple of years (see Figure 45) due to increased regulatory focus on solvency, commissions paid and premium discounting in particular.

While sustainability of this improvement is potentially debatable (given the current reliance of the industry on distributing its product through third party distributors), we deem profitability will remain better near to medium term; and deem further upside exists for PICC as it is still lagging peers.

■ Market pricing in further improvement � as highlighted in Figure 46, a further improvement is already priced into PICC�s current share price, with PICC now trading at 4.3x book value, despite generating on ROE of ~22%.

Figure 45: Profitability of P&C insurance improving� Combined ratio by insurers (%)

Figure 46: �but very strong improvement in price PICC Combined ratio (% NEP)

90.0%

92.5%

95.0%

97.5%

100.0%

102.5%

105.0%

107.5%

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

)


Underwriting profit

Underwriting loss

PICC

China Pacific

ROE = 15%

Ping An

90.0%

92.5%

95.0%

97.5%

100.0%

102.5%

105.0%

FY06 FY07 FY08 FY09 FY10 FY11F FY12F

F'casts -->

CS f'casts

Implied by current priceassuming 16x PE

Underwirting loss

Underwirting profit

Source: Company data, Credit Suisse estimates Source: Company data, Reuters, Credit Suisse estimates

■ Capital position weak � given the historical poorer profitability, PICC�s capital ratios have steadily fallen as highlighted in Figure 47, having raised a substantial amount of sub-debt to keep headline ratios above 100%. We deem it will need Rmb10-20 bn in equity to restore capital ratios to more healthy levels and reduce gearing.

Figure 47: PICC capital ratios deteriorating � PICC solvency ratio (%) and composition

Figure 48: � and substantially lower than peers China insurance solvency ratio (%) and composition

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11F

Tier 1 Tier 2 100% MCR = solvecy 150% MCR

F'casts

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10


China Life Ping An China Pacific China Taiping PICC


■ Restructuring uncertainties � according to a Dow Jones report, PICC Group will seek to launch an IPO (see �PICC P&C: Restructuring uncertainties�, 25 May 2011, for full details), which also may involve transfer of PICC P&C shares into PICC Group.


25 May 2011


China Pacific (2601.HK, OUTPERFORM, TP HK$41.00) China Pacific (A) (601601.SS, OUTPERFORM, TP Rmb 34.26)

In our view, China Pacific offers the best relative value exposure to the listed Chinese insurance space, with key investment considerations:

■ Highest P&C exposure after PICC � with 25-30% of earnings are derived from P&C and a strong track record in delivery of superior margins to most peers.

■ Strongest capital position in the sector, with very little gearing and strong excess capital position at group level. We deem it unlikely that the company will need equity capital for the next 2�3 years.

Figure 49: P&C insurance 25-30% of profits � % FY11E profit by division

Figure 50: �with strongest capital position in sector Solvency ratio by company (%)

FY11F

Corp / other15%

P&C26% Life insurance

59%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10



Incl 1H11raising


■ Strong life insurance growth profile, value of new business growth has averaged 26.5% p.a. for the past three years, with medium-term growth underpinned by channel mix improvement, agency force growth and agency productivity improvement.

■ Leverage to rising interest rates, China Pacific has the highest sensitivity in terms of value of in-force business to rising rates, given its negative spread portfolio and low guaranteed business skew.

Figure 51: Value of new business growth strong � Value of new business growth (2H06 base year =100)

Figure 52: � stable growth outlook Value of 1yr new business (VNB) growth (% pa)

100

150

200

250

300

350

400Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

VNB

grow

th (3

1 Dec

2006

=1)

China Taiping

China Life

Ping An

China Pacific

0%

10%

20%

30%

40%

50%

China Life Ping An China Pacific China Taiping

Valu

e of n

ew b

usin

ess g

rowt

h (%

)

3yr CAGR FY10 FY11F

Source for both charts: Company data, Credit Suisse estimates

25 May 2011


Ping An (2318.HK, RESTRICTED) The key considerations of an investment in Ping An at this junction would need to take into account the following considerations:

■ Most value in Life insurance division � while Ping An�s Life insurance division generates about 55% of earnings, it contributes over 70% of the valuation.

■ Financial conglomerate curse � while all Ping An�s division produced good results in 2010, a key problem with financial conglomerates is that the market tends to often focus on the problems associated with one division when these occur. For example, financial conglomerates with bank exposures de-rated more heavily than pure insurers during the financial crisis given the market concern over the banking portfolios.

Figure 53: P&C around 15-20% of group earnings� % FY12E profit by division

Figure 54: �with lower capital ratios in bank Ping An capital ratios (%) � group and divisional

FY12FCorp / other

4%

P&C17%

Banking18%

Life insurance53%

Securities8%

0%

50%

100%

150%

200%

250%

300%

350%

FY09

1H10

FY09

1H10

FY09

1H10

FY09

1H10


Ping AnGroup

Life P&C Bank

Source for both charts: Company data, Credit Suisse estimates, bank MCR = 8% Risk Weighted Assets (RWA) for Ping An bank

Specifically on its P&C insurance business we highlight:

■ P&C growth rate strong � as highlighted in Figure 56, Ping An�s P&C growth rate have been the strongest of the largest insurers, driven in our view to a large extent by the success of their direct marketing efforts.

■ P&C profitability strongest � as highlighted earlier, Ping An has also has the lowest recent combined ratio, which was below 90% in 4Q10.

Figure 55: Ping An combined ratio <90% in 4Q10� Ping An combined ratio (%)

Figure 56: �and has the highest growth rates P&C premium growth (% p.a.) by company

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

NEP

)

F'cast

Underw riting loss

Underw riting profit

Sichuan earthquake / snow storms

-10%

0%

10%

20%

30%

40%

50%

60%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Grow

th (%

pa)


Ping An

China Pacific

PICC

Sunshine

China P&C market


25 May 2011

China P&

C Insurance

19

Figure 57: Non-Japan Asia Insurance � key financial metrics Reporting Market Monthly Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x)

EPS Growth

P / BV (x)

ROE (%pa)

P / NTA (x)

ROTE (%pa)

P / EV (x)

ROEV (%pa)

VNB (x)










35,185 2,407 6.8% 18.8x 14.2x 77.7% 1.5x 10.7% 1.5x 10.8% 1.1x 8.6% 1.3x 3.7% -0.5% -3.8% 2.5% 6.9% 14.3% 2.4%



25 May 2011

China P&

C Insurance

20

Figure 58: China/HK financials � key financial metrics Reporting Market Monthly Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x)

EPS Growth

P / BV (x)

ROE (%pa) P / NTA

ROTE (%pa)


Company / exchange Currency Cap Volume Liquidity 24-May high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) 1wk 1mth 1qtr 1hy 1yr YTDUS$m US$m % local local local % 7 30 91 182 365 Dec-10

A-SHARESChina Banks - dual listed601328.SS BCOM* CNY 52,651 1,179 2.2% 5.63 5.43-6.77 31-Dec 6.2x 6.5x 17.7% 1.2x 18.1% 1.2x 18.1% 4.6% -3.9% -4.7% 2.2% -1.4% -12.6% 2.7%601988.SS BOC* CNY 143,797 475 0.3% 3.28 3.12-3.97 31-Dec 6.8x 6.8x 40.0% 1.2x 17.4% 1.2x 18.0% 5.5% -3.2% -2.4% 1.5% -0.3% -13.4% 1.5%601939.SS CCB* CNY 226,733 842 0.4% 4.91 4.42-5.34 31-Dec 6.9x 7.1x 26.8% 1.5x 21.7% 1.5x 21.7% 6.4% -3.7% -4.7% 1.2% 4.2% 0.1% 7.0%601998.SS Citic Bank* CNY 29,580 513 1.7% 5.11 5.01-6.21 31-Dec 7.5x 7.7x 28.2% 1.3x 16.9% 1.3x 17.0% 3.3% -5.0% -9.7% -2.5% -7.3% -5.5% -2.7%600036.SS CMB* CNY 46,660 3,554 7.6% 13.59 12.52-15.73 31-Dec 7.9x 8.0x 0.0% 1.6x 20.5% 1.7x 21.6% 3.1% -5.0% -7.2% 7.2% 2.4% -0.7% 6.1%601398.SS ICBC* CNY 245,562 1,178 0.5% 4.36 3.89-4.91 31-Dec 7.0x 7.3x 0.0% 1.5x 20.6% 1.5x 20.6% 5.3% -4.4% -2.9% 3.1% -1.4% -1.4% 2.8%600016.SS Minsheng* CNY 24,054 2,271 9.4% 5.81 4.94-6.19 31-Dec 6.5x 7.0x 14.8% 1.3x 18.3% 1.3x 18.3% 4.3% -3.5% -3.3% 13.9% 13.5% 5.0% 15.7%

769,037 10,011 1.3% 7.0x 7.2x 1.4x 19.1% 1.4x 19.3% 4.6% -4.0% -4.0% 2.6% 1.0% -3.9% 4.2%China Banks601169.SS Bank of Beijing CNY 10,509 1,302 12.4% 10.96 10.96-14.64 31-Dec 7.4x 7.4x 1.2x 16.6% 2.5% -3.6% -8.2% -5.1% -9.0% -18.7% -4.2%601009.SS Bank of Nanjing CNY 4,434 814 18.4% 9.70 9.19-12.81 31-Dec 8.8x 8.8x 1.3x 14.5% 2.9% -5.2% -11.1% -5.5% -7.3% -2.4% -2.4%002142.SZ Bank of Ningbo CNY 5,248 824 15.7% 11.82 10.43-14.65 31-Dec 10.4x 10.4x 1.7x 16.8% 2.5% -3.5% -12.2% -4.4% -4.6% 2.1% -4.7%600015.SS Huaxia CNY 12,403 1,118 9.0% 11.76 10.46-13.76 31-Dec 8.6x 8.6x 1.2x 14.1% 2.2% -3.8% -10.1% 3.4% 3.9% 8.1% 7.9%601166.SS Industrial bank CNY 23,152 3,843 16.6% 13.94 12.45-17.33 31-Dec 6.0x 6.0x 1.2x 19.4% 2.6% -5.9% -15.5% -2.1% 3.3% -4.9% 4.3%000001.SZ SDB CNY 9,745 1,521 15.6% 18.16 14.92-19.55 31-Dec 7.4x 7.4x 1.4x 19.3% 1.2% 0.3% 0.4% 16.6% 8.4% 2.1% 15.0%600000.SS SPDB CNY 30,047 3,261 10.9% 13.60 12.31-15.36 31-Dec 7.3x 7.3x 1.3x 17.6% 1.7% -3.9% -6.5% 7.9% 6.3% -7.6% 9.8%

95,537 12,683 13.3% 8.0x 8.0x 1.3x 16.9% 2.2% -3.9% -9.1% 3.0% 2.6% -4.4% 5.8%China Insurers - dual listed601628.SS China Life* CNY 95,582 1,403 1.5% 18.92 19.10-27.88 25.08 35.4% NTRL 31-Dec 12.5x 13.0x 17.7% 2.2x 16.6% 2.2x 16.6% 2.8% -5.1% -11.5% -10.3% -16.7% -21.1% -11.2%601601.SS China Pacific* CNY 35,440 2,100 5.9% 21.60 20.58-28.67 34.26 61.3% OPFM 31-Dec 15.5x 12.9x 40.0% 2.0x 15.1% 2.0x 15.2% 2.7% -3.5% -8.8% -2.5% -5.6% -0.8% -5.7%601318.SS Ping An* CNY 80,393 3,894 4.8% 47.79 44.28-66.98 31-Dec 14.6x 14.7x 26.8% 2.4x 16.5% 2.6x 17.7% 1.6% -4.6% -7.5% -2.3% -18.0% 5.6% -14.9%

211,415 7,398 3.5% 14.2x 13.5x 28.2% 2.2x 16.0% 2.2x 16.5% 2.4% -4.7% -9.6% -6.0% -15.4% -7.6% -11.7%H-SHARESChina Banks - dual listed1288.HK ABC CNY 191,269 1,980 1.0% 4.58 3.21-4.74 5.29 19.8% OPFM 31-Dec 9.0x 9.3x 21.8% 1.8x 19.5% 1.8x 19.5% 4.3% -0.9% -3.2% 21.8% 13.1% 17.4%3328.HK BCOM CNY 57,003 824 1.4% 7.88 7.32-9.43 9.22 21.0% NTRL 31-Dec 7.2x 7.6x 14.8% 1.4x 18.1% 1.4x 18.1% 3.9% -0.6% -6.6% 5.6% -3.9% 8.4% 0.6%3988.HK BOC CNY 120,082 3,048 2.5% 4.19 3.64-4.87 5.12 27.3% OPFM 31-Dec 7.7x 7.7x 9.0% 1.3x 16.9% 1.3x 16.9% 5.1% -0.9% -5.0% 4.8% 1.5% 12.6% 2.2%0939.HK CCB CNY 228,238 4,452 2.0% 7.10 5.91-8.05 8.99 31.9% OPFM 31-Dec 8.3x 8.6x 16.6% 1.8x 21.6% 1.9x 21.7% 5.3% -1.3% -5.1% 7.4% 0.6% 22.0% 1.9%0998.HK Citic Bank CNY 27,152 571 2.1% 5.41 4.38-6.24 5.86 12.0% NTRL 31-Dec 7.1x 6.8x 15.7% 1.1x 16.9% 1.2x 17.0% 3.7% 0.9% -5.4% 9.5% -3.4% 29.1% 7.3%3968.HK CMB CNY 53,490 1,196 2.2% 19.28 17.48-23.50 21.60 14.7% NTRL 31-Dec 9.5x 9.5x 27.4% 1.9x 20.4% 2.1x 21.5% 2.6% -1.6% -10.3% 5.2% -7.1% 13.0% -1.7%1398.HK ICBC CNY 279,581 4,215 1.5% 6.23 5.48-6.76 7.93 31.8% OPFM 31-Dec 8.4x 8.7x 16.4% 1.8x 20.6% 1.8x 20.5% 4.5% -2.4% -7.0% 7.8% 4.5% 17.4% 7.6%1988.HK Minsheng CNY 24,904 475 1.9% 7.25 6.21-7.63 8.10 15.8% UPFM 31-Dec 6.9x 7.3x 18.5% 1.3x 18.3% 1.3x 18.3% 4.1% 0.0% -5.0% 5.4% 2.1% 9.0%

981,719 16,762 1.7% 8.0x 8.2x 17.5% 1.6x 19.0% 1.6x 19.2% 4.2% -1.3% -5.6% 9.8% 3.5% 13.6% 6.6%HK Banks0023.HK BEA HKD 8,323 253 3.0% 31.70 26.95-35.90 35.00 13.5% NTRL 31-Dec 14.3x 15x 1.7% 1.3x 9.1% 1.5x 10.0% 3.1% -1.2% -3.4% -3.4% -6.1% 18.3% -2.6%2388.HK BOC HK HKD 31,675 1,173 3.7% 23.30 16.50-28.85 25.00 12.1% UPFM 31-Dec 12.6x 13.4x 10.1% 1.9x 13.8% 1.9x 13.8% 4.8% -3.7% -4.3% -1.3% -11.9% 40.9% -11.9%2356.HK Dah Sing Bank HKD 1,859 37 2.0% 11.82 9.03-15.20 14.00 21.1% OPFM 31-Dec 10.6x 11.3x 10.9% 1.0x 8.8% 1.1x 9.4% 2.7% -2.0% -4.2% -9.5% -14.8% 34.3% -10.5%0440.HK Dah Sing FHC HKD 1,687 28 1.7% 44.80 37.57-60.70 58.00 32.4% OPFM 31-Dec 10.1x 10.2x 18.3% 0.9x 8.6% 0.9x 9.3% 2.9% -1.2% -7.6% -9.7% -18.2% 20.3% -11.9%0011.HK Hang Seng HKD 29,990 607 2.0% 122.00 101.50-133.90 159.00 34.9% OPFM 31-Dec 13.1x 13.3x 12.5% 2.9x 21.8% 3.1x 23.3% 4.6% 0.1% 0.3% 0.2% -2.8% 18.0% -4.5%0005.HK HSBC HKD 23,073 5,529 24.0% 79.10 70.10-91.75 95.00 20.1% OPFM 31-Dec 10.0x 10.9x 20.9% 1.2x 10.3% 1.4x 13.0% 0.0% -2.1% -5.9% -11.2% -1.6% 13.7% -0.8%2888.HK Std Chartered HKD 7,735 377 4.9% 198.20 174.03-244.00 220.00 11.0% OPFM 31-Dec 11.4x 12.3x 5.9% 1.5x 11.8% 1.8x 14.3% 0.0% 0.0% -4.8% -3.6% -8.9% 16.0% -6.4%0302.HK Wing Hang Bank HKD 3,261 91 2.8% 86.25 64.65-117.40 100.00 18.4% OPFM 31-Dec 13.1x 13.2x 13.5% 1.6x 12.0% 1.7x 13.0% 2.4% -4.1% -2.8% -9.6% -12.9% 31.2% -19.8%

107,602 8,096 7.5% 11.9x 12.4x 11.7% 1.5x 12.0% 1.7x 13.3% 2.6% -1.8% -3.3% -3.8% -6.7% 24.4% -6.6%China Insurers - dual listed2628.HK China Life CNY 95,582 3,817 4.0% 26.30 26.05-36.60 30.00 16.5% NTRL 31-Dec 14.8x 15.1x 20.4% 2.5x 16.5% 2.5x 16.6% 2.4% -2.0% -11.3% -9.5% -21.5% -19.2% -17.2%2601.HK China Pacific CNY 35,440 856 2.4% 32.05 27.95-35.35 41.00 30.1% OPFM 31-Dec 19.7x 16.0x 40.0% 2.4x 15.1% 2.4x 15.2% 2.2% -1.4% -9.3% 4.1% 3.1% 13.5% -0.2%0966.HK China Taiping HKD 4,422 162 3.7% 20.20 19.78-30.00 25.50 26.2% NTRL 31-Dec 19.7x 22.2x -18.5% 1.8x 8.1% 1.9x 8.4% 0.0% -4.0% -6.9% -7.3% -25.7% -12.9% -15.5%2318.HK Ping An CNY 80,393 1,946 2.4% 80.65 58.00-94.40 RSTR na RSTR 31-Dec 20.7x 20.9x 29.2% 3.5x 16.5% 3.7x 17.7% 1.1% -1.4% -6.8% 4.3% -10.6% 39.1% -7.2%2328.HK PICC CNY 15,615 498 3.2% 10.90 6.57-12.24 11.00 1.8% NTRL 31-Dec 14.5x 14.9x 22.4% 2.9x 18.8% 2.9x 19.2% 0.9% -4.4% 1.7% 15.8% -7.8% 65.9% -3.2%

271,871 7,280 2.7% 17.9x 17.8x 18.7% 2.6x 15.0% 2.7x 15.4% 1.3% -1.6% -7.2% -0.7% -11.2% 10.1% -8.6%

Total China / HK financials 1,558,230 47,459 3.0% Arithmeitc average 11.0x 11.1x 15.3% 1.7x 15.6% 1.9x 15.9% 2.7% -2.2% -6.4% 0.6% -5.4% 13.8% -2.2%Weighted average 8.1x 8.2x 12.8% 1.5x 14.6% 1.4x 13.7% 2.9% -1.4% -5.2% 3.3% -1.7% 11.8% 0.4%


25 May 2011


NJA insurance/financials valuation metrics

Figure 59: Chinese insurers trading at high price to book relative to ROE generation NJA insurance - price to book value (x) vs return on equity (% p.a.)

Bangkok Life

Great Eastern

Shin Kong FHC

Fubon FHC

Cathay FHC

Samsung F&M Meritz F&M

LIG Insurance

Hyundai M&F

Dongbu

Tong Yang LifeKorea Life

Samsung LifeReliance Capital

PICC P&C

Ping An (H)

China Taiping

China Pacific (H) China Life (H)Prudential plc

Manulife

AIA

Ping An (A)

China Pacific (A) China Life (A)

Suncorp

QBE

IAG

Tower NZ

AMP

PER = 15.1x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% 22.5%Return on Equity (% EPS / BV)

Price

/ Bo

ok V

alue (

P / B

V)

Inexpensive

Expensive

P P E - = - / - E BV BV

PER = 20x

PER = 10x


Figure 60: Chinese insurers trading at high price to book relative banks China / HK financials - price to book value (x) vs return on equity (%p.a.)

Prudential plc

Manulife

AIA

PICC

Ping An

China Taiping

China Pacific China Life

Wing Hang BankStd Chartered

HSBC

Hang Seng

Dah Sing FHC

Dah Sing Bank

BOC HK

BEA Minsheng

ICBCCMB

Citic Bank

CCB

BOC

BCOM

ABC

SPDB SDB

Industrial bank

Huaxia

Bank of Ningbo

Bank of Nanjing Bank of Beijing

PER = 8.7x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% 22.5% 25.0%Return on Equity (% EPS / BV)

Price

/ Bo

ok V

alue (

P / B

V)

Inexpensive

Expensive

P P E - = - / - E BV BV

PER = 20x


Chinese insurers trading on high price to book relative to ROE generation �

� and appear fully priced relative to banks

25 May 2011


China insurance market In examining the Chinese insurance market, we have classified its administrative regions (22 provinces, four municipalities and five autonomous regions) into three sub-regions: Developed, Developing and Emerging China, representing the various stage of economic development they are in, and more specifically, the stages of insurance penetration and density. We have largely excluded the special administrative regions of Hong Kong and Macau from our analysis.

■ Developed China: more developed regions, with high insurance penetration rates (premiums as a percentage of GDP) and medium to high insurance density (premium per capita).

Includes: Shanghai, Beijing, Tianjin and Guangdong.

■ Developing China: developing regional economies, which generally have low to medium insurance density and low insurance penetration rates. Includes: Liaoning, Fujian, Shanxi, Inner Mongolia

■ Emerging China: emerging less developed economies, which generally have low insurance density and low insurance penetration rates

Includes: Henan, Hubei, Sichuan, Yunnan

We have based our grouping on the United Nations Human Development Index (HDI), with the eastern coastal area the more developed, as shown below:

Figure 61: China more developed on eastern coast UN Human Development Index (HDI) by region

Source: UN China Human Development Report 2009/10

The Human Development Index (HDI) is a composite statistic used to rank countries/regions by level of "human development" and separate developed (high development), developing (middle development), and underdeveloped (low development)

China�s economic development is skewed to the eastern coast

25 May 2011


countries. The statistic is composed from data on P&C expectancy, education and per-capita GDP (as an indicator of standard of living).

The Human Development Index is calculated as follows:

■ P&C expectancy at birth, as an index of population health and longevity.

■ Knowledge and education, as measured by the adult literacy rate (with two-thirds weighting) and the combined primary, secondary, and tertiary gross enrolment ratio (with one-third weighting).

■ Standard of living, as indicated by the natural logarithm of gross domestic product per capita at purchasing power parity.

The ranking of China�s administrative regions is shown below:

Figure 62: China administrative regions ranked by human development index UN Human Development Index (HDI) by region

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95


LiaoningShandongJilinHeilongjiangFujianInner MongoliaShanxi

HainanHenanHubeiHebeiChongqingHunanGuangxiXinjiangShaanxiNingxiaSichuanJiangxiAnhuiQinghaiYunnanGansuGuizhouTibet



The human development index is highly correlated to urbanisation, with the recent �wave� largely centred around the eastern and southern coastal areas.

As China�s urbanisation spreads inland to the current tier-two and tier-three cities, we expect growth in these regions to exceed those of the more developed costal ones.

We expect income distribution and urbanisation to be major topics of the 12th five-year plan and as such, this natural transition is likely to occur more quickly than previously anticipated.

Range of development in China by region is fairly high

25 May 2011


In order to get a better �sense� of the development stages of China�s various administrative regions, we have compared each region to other countries with Human Development Index (HDI) scores.

Figure 63: Credit Suisse grouping of China administrative regions Based on UN Human Development Index (HDI) by region

SichuanHubei

Hunan

Shaanxi

Guizhou

Jiangxi

Heilongjiang

Inner Mongolia

Henan

Xizang

Xinjiang

Qinghai

YunnanGuangxi

Hainan

Guangdong

GansuHebei

Beijing

Tianjin

Ningxia Shanxi Shandong

Jiangsu

ShanghaiAnhui

Zhejiang

Fujian

Liaoning

Jilin

Chongqing

Developed

Developing

Emerging


Figure 64: GDP per capita different by region � GDP per capita by region (Rmb)

Figure 65: �correlated to urban density % urban population by region (%)

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000




National


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




National


Source: CEIC, Credit Suisse estimates Source: CEIC, Credit Suisse estimates

25 May 2011


As highlighted below, Shanghai is on par with Portugal, with Guangdong on par with Venezuela, Inner Mongolia on par with Lebanon, Ningxia on par with Jamaica and Gansu on par with Guatemala,

Figure 66: Human development index (HDI) by region Rank Region HDI Comparable country Very high human development 1 Shanghai 0.908 Portugal High human development 2 Beijing 0.891 Bahrain 3 Tianjin 0.875 Chile 4 Guangdong 0.844 Venezuela 5 Zhejiang 0.841 Panama 6 Jiangsu 0.837 Romania 7 Liaoning 0.835 Montenegro 8 Shandong 0.828 Malaysia 9 Jilin 0.815 Dominica 10 Hebei 0.810 Bosnia and Herzegovina 11 Heilongjiang 0.808 Colombia 12 Fujian 0.807 Colombia 13 Inner Mongolia 0.803 Lebanon 14 Shanxi 0.800 Armenia Medium human development - Mainland China average 0.793 Ukraine 15 Henan 0.787 Azerbaijan 16 Hubei 0.784 Thailand 17 Hainan 0.784 Thailand 18 Chongqing 0.783 Thailand 19 Hunan 0.781 Iran 20 Guangxi 0.776 Dominican Republic 21 Xinjiang 0.774 Saint Vincent and the Grenadines22 Shaanxi 0.773 Belize 23 Ningxia 0.766 Jamaica 24 Sichuan 0.763 Paraguay 25 Jiangxi 0.760 Sri Lanka 26 Anhui 0.750 Philippines 27 Qinghai 0.720 Moldova 28 Yunnan 0.710 Kyrgyzstan 29 Gansu 0.705 Guatemala 30 Guizhou 0.690 Tajikistan 31 Tibet 0.630 Bhutan

Source: UN, Credit Suisse estimates

25 May 2011

China P&

C Insurance

26

Figure 67: China insurance � key metrics by administrative region Rmb mn, unless otherwise stated

2009 Population Disposable income Density GDP Life insurance P&C insurance

Region Type Capital SegmentHDI

(2008)Popu-lation Urban Rural

% Urban Total Urban Rural Area Density GDP

GDP / capita Prem-ium

Premium per capita

Premium as % GDP Prem-ium

Premium per capita

Premium as % GDP Vehicles

per 1,000

mn mn mn % Rmb Rmb km2 pop/km2 Rmb mn Rmb Rmb mn Rmb % Rmb mn Rmb % '000 no

Shanghai Municipality Shanghai East Developed 0.91 19.2 17.0 2.2 89% 26,955 28,838 12,324 16,801 1,143.4 1,517,379 78,989 51,322 3,721 3.44 15,181 1,101 1.02 1,471 76.6Beijing Municipality Beijing East Developed 0.89 17.6 14.9 2.6 85% 24,525 26,738 11,986 7,037 2,494.0 1,236,433 70,452 53,318 3,038 4.49 16,442 937 1.39 3,681 209.7Tianjin Municipality Tianjin East Developed 0.88 12.3 9.6 2.7 78% 19,065 21,430 10,675 12,282 1,000.0 768,509 62,574 10,549 859 1.41 4,580 373 0.61 1,300 105.8Guangdong Province Guangzhou South Central Developed 0.84 96.4 61.1 35.3 63% 16,206 21,574 6,906 180,000 535.4 3,967,579 41,166 72,047 824 2.33 23,910 273 0.77 6,589 68.4Zhejiang Province Hangzhou East Developed 0.84 51.8 30.0 21.8 58% 18,463 24,611 10,008 102,000 507.8 2,312,404 44,641 34,176 766 1.84 19,634 440 1.05 4,317 83.3Jiangsu Province Nanjing East Developed 0.84 77.3 43.0 34.3 56% 14,981 20,552 8,004 102,600 752.9 3,456,474 44,744 67,934 879 1.99 22,839 296 0.67 4,368 56.5

Liaoning Province Shenyang Northeast Developing 0.84 43.2 26.1 17.1 60% 11,914 15,800 6,000 145,900 296.0 1,521,972 35,239 25,902 700 2.43 8,647 234 0.81 2,421 56.0Shandong Province Jinan East Developing 0.83 94.7 45.8 48.9 48% 11,769 17,811 6,119 153,800 615.8 3,399,269 35,894 50,390 579 1.74 17,367 199 0.60 5,535 58.4Jilin Province Changchun Northeast Developing 0.82 27.4 14.6 12.8 53% 10,012 14,006 5,450 187,400 146.2 728,583 26,595 14,441 527 2.00 4,046 148 0.56 1,237 45.2Hebei Province Shijiazhuang North Developing 0.81 70.3 30.2 40.1 43% 9,264 14,718 5,150 187,700 374.8 1,729,126 24,581 47,241 672 2.77 12,867 183 0.76 3,958 56.3Heilongjiang Province Harbin Northeast Developing 0.81 38.3 21.2 17.0 56% 9,286 12,556 5,207 454,000 84.3 858,822 22,447 22,165 579 2.67 5,672 148 0.68 1,602 41.9Fujian Province Fuzhou East Developing 0.81 36.3 18.6 17.6 51% 13,396 19,557 6,880 121,300 299.0 1,227,377 33,840 19,959 591 1.93 7,267 215 0.70 1,593 43.9Inner Mongolia Autonomous Hohhot North Developing 0.80 24.2 12.9 11.3 53% 10,764 15,849 4,938 1,183,000 20.5 975,658 40,282 10,397 429 1.07 6,734 278 0.69 1,501 62.0Shanxi Province Taiyuan North Developing 0.80 34.3 15.8 18.5 46% 8,355 14,129 3,438 156,300 219.3 737,636 21,522 22,212 648 3.02 6,713 196 0.91 2,060 60.1

Hainan Province Haikou South Central Emerging 0.79 8.6 4.2 4.4 49% 9,164 13,751 4,744 34,000 254.1 166,368 19,254 2,122 246 1.29 1,185 137 0.72 306 35.5Henan Province Zhengzhou South Central Emerging 0.79 94.9 35.8 59.1 38% 8,413 14,372 4,807 167,000 568.1 1,954,037 20,597 46,766 493 2.41 9,774 103 0.50 3,161 33.3Hubei Province Wuhan South Central Emerging 0.78 57.2 26.3 30.9 46% 9,328 14,367 5,035 185,900 307.7 1,297,124 22,677 30,345 531 2.36 6,897 121 0.54 1,683 29.4Chongqing Municipality Chongqing Central Emerging 0.78 28.6 14.7 13.8 52% 10,362 15,749 4,621 82,300 347.4 655,283 22,920 19,765 691 3.03 4,706 165 0.72 909 31.8Hunan Province Changsha South Central Emerging 0.78 64.1 27.7 36.4 43% 9,305 15,084 4,910 210,000 305.0 1,308,618 20,428 27,348 427 2.11 7,497 117 0.58 1,676 26.2Guangxi Autonomous Nanning South Emerging 0.78 48.6 19.0 29.5 39% 8,477 15,451 3,980 236,700 205.2 779,145 16,045 9,891 204 1.28 4,971 102 0.65 1,199 24.7Xinjiang Autonomous Ürümqi Northwest Emerging 0.77 21.6 8.6 13.0 40% 7,294 12,258 4,005 1,660,000 13.0 430,474 19,942 10,487 486 2.45 5,182 240 1.21 1,015 47.0Shaanxi Province Xi'an Northwest Emerging 0.77 37.7 16.4 21.3 44% 8,089 14,129 3,438 205,600 183.5 818,071 21,688 19,907 528 2.43 6,053 160 0.74 1,463 38.8Ningxia Autonomous Yinchuan Central Emerging 0.77 6.3 2.9 3.4 46% 8,644 14,025 4,048 66,000 94.7 136,150 21,777 2,744 439 2.06 1,184 189 0.89 315 50.5Sichuan Province Chengdu Southwest Emerging 0.76 81.9 31.7 50.2 39% 8,116 13,904 4,462 485,000 168.8 1,419,197 17,339 43,031 526 3.04 14,872 182 1.05 2,847 34.8Jiangxi Province Nanchang East Emerging 0.76 44.3 19.1 25.2 43% 8,938 14,022 5,075 167,000 265.4 768,315 17,335 14,301 323 1.88 4,413 100 0.58 1,071 24.2Anhui Province Hefei East Emerging 0.75 61.3 25.8 35.5 42% 8,538 14,086 4,504 139,700 438.9 1,005,954 16,408 26,962 440 2.68 8,759 143 0.87 1,674 27.3Qinghai Province Xining Northwest Emerging 0.72 5.6 2.3 3.2 42% 7,253 12,692 3,346 721,200 7.7 108,417 19,454 1,025 184 0.95 796 143 0.74 244 43.7Yunnan Province Kunming Southwest Emerging 0.71 45.7 15.5 30.2 34% 7,128 14,424 3,369 394,000 116.0 618,868 13,539 11,192 245 1.81 6,817 149 1.11 1,891 41.4Gansu Province Lanzhou Northwest Emerging 0.71 26.4 8.6 17.7 33% 5,902 11,930 2,980 454,300 58.0 339,236 12,872 8,733 331 2.58 2,705 103 0.80 658 24.9Guizhou Province Guiyang Southwest Emerging 0.69 38.0 11.4 26.6 30% 5,952 12,863 3,005 176,000 215.8 391,536 10,309 5,918 156 1.52 3,605 95 0.93 914 24.1Tibet Autonomous Lhasa West Emerging 0.63 2.9 0.7 2.2 24% 5,915 13,544 3,532 1,228,400 2.4 44,360 15,295 59 0 0.00 343 118 0.78 148 51.2

National 0.79 1,316.6 631.6 685.0 48% 10,921 17,175 5,153 9,623,220 136.8 36,678,375 27,858 826,076 627 2.25 285,135 216.6 0.78 62,806 47.7

Hong Kong Special administrative 0.94 7.1 7.1 100% 1,104 6,390.4 1,485,905 210,617 134,596 19,078 9.06 19,463 2,759 1.31 88.0Macau Special administrative 0.94 0.5 0.5 100% 30 18,379.7 144,099 265,767

Developed 274.5 175.6 98.9 64% 420,720 652.4 13,258,777 48,307 312,435 1,138 2.36 117,399 428 0.89 21,726 79.2Developing 368.7 185.3 183.4 50% 2,589,400 142.4 11,178,445 30,322 233,048 632 2.08 102,219 277 0.91 20,255 54.9Emerging 673.5 270.8 402.7 40% 6,613,100 101.8 12,241,153 18,176 280,592 417 2.29 94,424 140 0.77 18,995 28.2

Source: CEIC, UN, Credit Suisse estimates, *sub-city data only (contained within province above for non-insurance data)

25 May 2011

China P&

C Insurance

27

Figure 68: China insurance � key metrics by administrative region � 3-year CAGR (% p.a.) Rmb mn, unless otherwise stated

3 yr CAGR Population GDP Life insurance P&C insurance

Region Type Capital SegmentHDI

(2008)Popu-lation Urban Rural Density GDP

GDP per capita

Prem-ium

Premium per capita

Premium as % GDP

Prem-ium

Premium per capita

Premium as % GDP Vehicles

per 1,000

mn mn mn pop/km2 Rmb mn Rmb Rmb mn Rmb % Rmb mn Rmb % '000 no

Shanghai Municipality Shanghai East Developed 0.91 1.9% 1.9% 2.2% 1.9% 12.4% 10.3% 18.9% 18.5% 5.0% 14.0% 13.7% 1.0% 11.2% 9.1%Beijing Municipality Beijing East Developed 0.89 3.5% 3.8% 2.0% 3.5% 14.5% 10.6% 17.6% 13.6% 1.9% 25.5% 21.2% 8.8% 15.5% 11.5%Tianjin Municipality Tianjin East Developed 0.88 4.5% 5.6% 1.2% 4.5% 19.3% 14.1% 10.7% 5.9% -7.6% 18.6% 13.5% -1.1% 18.0% 12.8%Guangdong Province Guangzhou South Central Developed 0.84 1.2% 1.4% 0.8% 1.2% 14.0% 12.7% 30.6% 29.2% 13.6% 17.5% 16.2% 1.8% 15.4% 14.0%Zhejiang Province Hangzhou East Developed 0.84 1.3% 2.2% 0.2% 1.3% 13.4% 11.9% 20.5% 18.8% 6.3% 21.9% 20.2% 7.3% 20.2% 18.7%Jiangsu Province Nanjing East Developed 0.84 0.8% 3.1% -1.9% 0.8% 16.5% 15.6% 21.2% 20.2% 4.0% 23.4% 22.5% 6.2% 22.0% 21.0%

Liaoning Province Shenyang Northeast Developing 0.84 0.4% 1.1% -0.7% 0.4% 17.6% 17.2% 22.3% 21.6% 10.1% 21.7% 21.0% 9.3% 15.0% 14.6%Shandong Province Jinan East Developing 0.83 0.6% 2.2% -0.8% 0.6% 15.7% 15.0% 26.4% 22.9% 2.2% 25.0% 20.5% 7.7% 22.8% 22.1%Jilin Province Changchun Northeast Developing 0.82 0.2% 0.4% 0.0% 0.2% 19.4% 19.2% 26.3% 25.4% 6.0% 29.4% 28.5% 8.4% 19.6% 19.4%Hebei Province Shijiazhuang North Developing 0.81 0.7% 4.5% -1.9% 0.7% 14.5% 13.8% 35.4% 34.4% 19.1% 26.8% 25.8% 12.1% 20.0% 19.2%Heilongjiang Province Harbin Northeast Developing 0.81 0.0% 1.3% -1.4% 0.0% 11.4% 11.4% 19.9% 19.9% 8.9% 25.6% 25.5% 13.9% 19.4% 19.4%Fujian Province Fuzhou East Developing 0.81 0.6% 3.0% -1.6% 0.6% 17.3% 16.5% 23.2% 22.6% 4.9% 22.1% 21.5% 3.6% 21.2% 20.4%Inner Mongolia Autonomous Hohhot North Developing 0.80 0.3% 3.5% -2.9% 0.3% 25.3% 24.9% 27.5% 27.0% 0.6% 45.6% 45.0% 14.5% 21.4% 21.0%Shanxi Province Taiyuan North Developing 0.80 0.5% 2.8% -1.3% 0.5% 14.7% 14.1% 29.1% 28.5% 11.6% 21.1% 20.4% 4.4% 19.2% 18.6%

Hainan Province Haikou South Central Emerging 0.79 1.1% 3.2% -0.8% 1.1% 15.8% 14.5% 24.3% 23.0% 7.1% 21.1% 19.8% 4.6% 16.8% 15.5%Henan Province Zhengzhou South Central Emerging 0.79 0.3% 5.5% -2.3% 0.3% 16.5% 16.1% 32.1% 31.6% 13.9% 25.6% 25.2% 7.7% 19.9% 19.5%Hubei Province Wuhan South Central Emerging 0.78 0.2% 1.8% -1.2% 0.2% 19.5% 19.3% 40.3% 39.4% 15.0% 18.9% 18.1% -2.4% 19.5% 19.3%Chongqing Municipality Chongqing Central Emerging 0.78 0.6% 4.0% -2.6% 0.6% 18.7% 18.0% 42.0% 47.0% 15.2% 24.9% 29.3% 1.4% 17.5% 16.8%Hunan Province Changsha South Central Emerging 0.78 0.3% 4.1% -2.2% 0.3% 19.3% 18.9% 33.8% 36.2% 11.3% 30.5% 32.9% 8.8% 22.2% 21.8%Guangxi Autonomous Nanning South Emerging 0.78 1.0% 5.2% -1.4% 1.0% 17.7% 16.6% 22.0% 22.7% 4.2% 23.9% 24.7% 6.4% 21.9% 20.8%Xinjiang Autonomous Ürümqi Northwest Emerging 0.77 1.7% 3.4% 0.7% 1.7% 11.9% 10.0% 19.7% 16.7% 7.5% 28.7% 25.4% 15.8% 17.5% 15.5%Shaanxi Province Xi'an Northwest Emerging 0.77 0.3% 3.9% -2.1% 0.3% 19.8% 19.5% 32.1% 31.7% 7.2% 26.5% 26.1% 2.9% 24.6% 24.1%Ningxia Autonomous Yinchuan Central Emerging 0.77 1.2% 3.5% -0.7% 1.2% 23.1% 21.6% 26.3% 24.7% 2.4% 28.2% 26.4% 3.6% 23.2% 21.8%Sichuan Province Chengdu Southwest Emerging 0.76 0.1% 4.2% -2.2% 0.1% 17.9% 17.8% 34.4% 37.3% 14.6% 33.2% 36.0% 13.4% 21.9% 21.8%Jiangxi Province Nanchang East Emerging 0.76 0.7% 4.5% -1.8% 0.7% 16.7% 15.9% 23.6% 22.7% 12.2% 25.3% 24.4% 5.8% 22.6% 21.8%Anhui Province Hefei East Emerging 0.75 0.1% 4.4% -2.6% 0.1% 18.1% 18.0% 29.2% 32.4% 9.7% 30.1% 33.3% 10.2% 20.9% 20.8%Qinghai Province Xining Northwest Emerging 0.72 0.6% 2.7% -0.9% 0.6% 18.5% 17.8% 30.0% 31.1% 9.2% 25.2% 21.6% 5.5% 22.2% 21.5%Yunnan Province Kunming Southwest Emerging 0.71 0.7% 4.4% -1.1% 0.7% 15.6% 14.9% 23.4% 22.6% 6.7% 24.5% 23.7% 8.0% 18.1% 17.4%Gansu Province Lanzhou Northwest Emerging 0.71 0.4% 2.0% -0.4% 0.4% 14.1% 13.7% 28.7% 28.3% 12.7% 19.4% 19.0% 4.6% 20.8% 20.4%Guizhou Province Guiyang Southwest Emerging 0.69 0.4% 3.2% -0.8% 0.4% 20.7% 20.2% 22.7% 24.4% 2.5% 28.0% 29.8% 7.0% 22.8% 22.4%Tibet Autonomous Lhasa West Emerging 0.63 1.1% -4.5% 3.1% 1.1% 14.8% 13.6% -41.0% 24.9% 14.8% 13.6%

National 0.79 0.6% 3.1% -1.4% 0.6% 16.2% 15.5% 26.3% 25.5% 8.7% 26.0% 25.2% 8.4% 19.3% 18.5%

Developed 1.4% 2.4% -0.2% -1.4% 14.7% 13.1% 22.0% 20.3% 6.4% 20.2% 18.5% 4.8% 17.4% 15.7%Developing 0.5% 2.4% -1.3% -0.5% 16.4% 15.9% 26.7% 26.1% 8.8% 21.2% 20.6% 4.1% 17.9% 17.3%Emerging 0.4% 4.0% -1.7% -0.4% 17.7% 17.2% 31.4% 30.8% 11.6% 20.5% 20.0% 2.4% 18.0% 17.5%

* Sub-city data only (contained within province) Source: CEIC, UN, Credit Suisse estimates

25 May 2011


Population distribution We highlight that the Chinese population remains heavily skewed to non-developed regions, with only 20% of the population living in �Developed China�, as we have defined it.

Figure 69: China�s population is more evenly distributed than its wealth China population by administrative region

0

20

40

60

80

100

120




Developing EmergingDeveloped

Source: CEIC

Emerging China accounts for over 55% of the population, but accounts for under 40% of GDP. In contrast, Developed China accounts for over 35% of GDP.

Figure 70: Emerging China has 56% of population� Population by region (%)

Figure 71: �but only 38% of GDP GDP by region (%)

Developed21%

Developing23%

Emerging56%

Developed36%

Developing26%

Emerging38%

Source: CEIC Source: CEIC

Only 20% of the Chinese population lives in Developed China

25 May 2011


Urbanisation Urbanisation in the People's Republic of China increased in speed following the initiation of the reform and opening policy.

At the end of 2009, mainland China's total population was 1.3 bn, with 685 mn (52%) and 632 mn (48%) residing in the rural and urban areas, respectively. The rural population percentage was 64% in 2001 and 74% in 1990.

Concurrent with the decreasing rural population and increasing urban population, China's main focus of its industrial and economic activities has also moved from the rural to urban areas.

Figure 72: Urbanisation correlated to human development rates % of population in urban areas by region

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


LiaoningShandongJilinHeilongjiangFujianInner MongoliaShanxi

HainanHenanHubeiHebeiChongqingHunanGuangxiXinjiangShaanxiNingxiaSichuanJiangxiAnhuiQinghaiYunnanGansuGuizhouTibet

National


Source: CEIC, Credit Suisse estimates

While the urbanisation rate in China is 48%, lower than the world average (~50%), the speed of China's urbanisation is, nonetheless unprecedented.

According to Professor Lu Dadao, president of the Geographical Society of China (GSC), China's urbanisation took 22 years to increase to 39.1% from 17.9%. It took Britain 120 years, the US 80 years, and Japan more than 30 years to accomplish this.

Urban population grew steadily at around 3-4% from 1950 to 1965. Urban population experienced a 'great jump' in 1958-1961 during the �Great Leap Forward�, in conjunction with the massive industrialisation effort.

During the Cultural Revolution years of 1965-1975, urban population growth dropped substantially as a result of �rustication� of youth and other social cleansing policies.

However, after reforms were launched at the end of 1978, urban population growth began to accelerate. The inflow of foreign direct investment created massive employment opportunities, which fostered urban population growth. In the 1990s, urban population growth started to slow.

Although migration to urban areas has been restricted since the late 1950s, as of the end of 1985 about 33% of the population was urban.

Urbanisation rates are the highest in more developed China

25 May 2011


Figure 73: Population density skewed to more developed regions Population density (pop/sq km) by region

-

250

500

750

1,000

1,250

1,500




National



The pace of urbanisation in China from 1949 to 1982 was relatively slow because of both rapid growth of the rural population and tight restrictions on rural-urban migration for most of that period. According to the 1953 and 1982 censuses, the urban population as a percentage of total population increased from 13.3 to 20.6% during that period.

From 1982 to 1986, however, the urban population increased dramatically to 37% of the total population. This large jump resulted from a combination of factors: the migration of large numbers of surplus agricultural workers (displaced by the agricultural responsibility system) and broaden the criteria for classifying an area as a city or town in 1984.

Although country urban population � 382 mn, or 37% of the total population in the mid-1980s � was relatively low by comparison with developed nations, the number of people living in urban areas in China was greater than the total population of any country in the world, except India.

The disproportionate distribution of population in large cities occurred as a result of the government's emphasis after 1949 on the development of large cities over smaller urban areas.

In 1987, China was committed to a three-part strategy to control urban growth: strictly limiting the size of big cities (those of 500,000 or more people), developing medium-sized cities (200,000 to 500,000) and encouraging the growth of small cities (100,000 to 200,000). The government also encouraged the development of small market and commune centres that were not then officially designated as urban places, hoping that they eventually would be transformed into towns and small cities. The big and medium-sized cities were viewed as centres of heavy and light industry, and small cities and towns were looked on as possible locations for handicraft and workshop activities, using labour provided mainly from rural overflow.

From 2010 to 2025, it is estimated by the Ministry of Housing and Urban-Rural Development that 300 million Chinese now living in rural areas will move into cities.

China�s population density is skewed to developed regions

25 May 2011


Income distribution Disposable income is total personal income minus personal current taxes and is commonly used to denote discretionary income. As highlighted below, disposable income varies substantially by administrative region:

Figure 74: Disposable income varies greatly by region Disposable income (Rmb) per capita by region

-

5,000

10,000

15,000

20,000

25,000

30,000




National



As highlighted in Figure 75 and Figure 76 below, even within the same region, urban incomes are materially higher than rural ones. On average, urban incomes are 3x higher than rural incomes.

Figure 75: With urban incomes higher � Urban disposable income (Rmb) per capita by region

Figure 76: � and rural incomes lower Rural disposable income (Rmb) per capita by region

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000




National


-

5,000

10,000

15,000

20,000

25,000

30,000

35,000




National



Income distribution reforms are likely to feature highly in the next five-year plan, which will likely be coupled with a drive for greater urbanisation.

Average disposable income of Shanghai is 4.5x Gansu

25 May 2011


Property and casualty insurance The China property and casualty (P&C) insurance market is fairly concentrated, with the top-five companies controlling roughly 75% of the market.

Figure 77: China P&C insurance market is very concentrated � China P&C insurance market share by company (% 2004-2011)

18.4%

1.7%2.5%3.2%3.7%3.9%

13.4%17.3%

37.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%


ChinaUnited



Top 5 = 75%

Source: CIRC, Credit Suisse estimates

The largest P&C insurer, PICC, has been ceding market share of the last decade, with its share halving over this period. Ping An and China Pacific�s market shares have been mostly stable during the last 10 years.

Figure 78: � with Ping An the main market share gainer China P&C insurance market share by company (% 2000-2011)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Marke

t sha

re (%

)

China United Ping An China Pacific CCIC Guotai Sunshine Tianan

China United

Ping An

China Pacific

CCICTianan

GuotaiSunshine


The top five control 75% of the China P&C insurance market

PICC has ceded around half its market share in the last decade�but smaller companies have also receded more recently

25 May 2011


Market by product Motor vehicle insurance (or auto insurance) remains by far the most dominant class of business in China, representing around 75% of total premiums.


Auto74%

Liability3%

Other5%

Health2%

Accident3%

Engineering2%

Agriculture4%


Source: CIRC

As highlighted below, motor vehicle insurance, agriculture and health insurance have been the key growth segments of the Chinese P&C market, while commercial property and accident insurance have been growing at a much slower pace.

Figure 80: � with motor growth slightly above average Premium growth by P&C segment (four-year CAGR %pa)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Auto

Commercial Property

Agriculture

Liability

Accident

Engineering

Health

Other

Total

84% 61%

Source: CIRC

Motor insurance is the dominant class in China

Agriculture and Health have been the highest growth classes

25 May 2011

China P&

C Insurance

34

Figure 81: China P&C insurance � premiums by segment and administrative region Rmb mn, unless otherwise stated

%

Region Type Capital Segment AutoComm

PropertyAgri-

culture Liab-ility Acc-identEnig-

neering Health Other Total AutoComm

PropertyAgri-

cultureLiab-

ilityAcc-ident

Engi-neering Health Other

Rmb mn mn mn mn mn mn mn mn mn % % %

Shanghai Municipality Shanghai East Developed 7,694 1,212 0 558 184 397 238 1,339 11,623 66.2% 10.4% 0.0% 4.8% 1.6% 3.4% 2.0% 11.5%Beijing Municipality Beijing East Developed 9,375 870 285 395 191 443 114 929 12,602 74.4% 6.9% 2.3% 3.1% 1.5% 3.5% 0.9% 7.4%Tianjin Municipality Tianjin East Developed 2,607 272 31 131 72 140 34 549 3,836 68.0% 7.1% 0.8% 3.4% 1.9% 3.6% 0.9% 14.3%Guangdong Province Guangzhou South Central Developed 16,740 1,936 108 630 512 245 431 1,448 22,048 75.9% 8.8% 0.5% 2.9% 2.3% 1.1% 2.0% 6.6%- Shenzhen* City Shenzhen South Central Developed 6,291 731 2 249 158 246 61 620 8,357 75.3% 8.8% 0.0% 3.0% 1.9% 2.9% 0.7% 7.4%Zhejiang Province Hangzhou East Developed 12,805 1,320 162 381 312 136 194 943 16,253 78.8% 8.1% 1.0% 2.3% 1.9% 0.8% 1.2% 5.8% - Ningbo* City Ningbo East Developed 3,212 478 31 128 110 130 67 444 4,600 69.8% 10.4% 0.7% 2.8% 2.4% 2.8% 1.5% 9.7%Jiangsu Province Nanjing East Developed 14,513 1,911 507 700 578 205 199 1,189 19,803 73.3% 9.7% 2.6% 3.5% 2.9% 1.0% 1.0% 6.0%

Liaoning Province Shenyang Northeast Developing 6,034 473 374 214 156 106 161 374 7,892 76.5% 6.0% 4.7% 2.7% 2.0% 1.3% 2.0% 4.7%- Dalian* City Dalian Northeast Developing 1,751 260 6 69 59 45 22 488 2,699 64.9% 9.6% 0.2% 2.6% 2.2% 1.7% 0.8% 18.1%Shandong Province Jinan East Developing 12,420 919 363 288 370 163 173 512 15,208 81.7% 6.0% 2.4% 1.9% 2.4% 1.1% 1.1% 3.4%- Qingdao* City Qindao East Developing 2,029 247 39 95 54 38 34 245 2,781 73.0% 8.9% 1.4% 3.4% 1.9% 1.4% 1.2% 8.8%Jilin Province Changchun Northeast Developing 2,285 247 59 81 66 62 68 142 3,010 75.9% 8.2% 2.0% 2.7% 2.2% 2.1% 2.2% 4.7%Hebei Province Shijiazhuang North Developing 9,599 571 557 233 188 111 115 299 11,673 82.2% 4.9% 4.8% 2.0% 1.6% 1.0% 1.0% 2.6%Heilongjiang Province Harbin Northeast Developing 2,856 269 137 116 61 79 27 112 3,657 78.1% 7.4% 3.8% 3.2% 1.7% 2.2% 0.7% 3.1%Fujian Province Fuzhou East Developing 5,155 503 122 265 200 119 110 490 6,965 74.0% 7.2% 1.8% 3.8% 2.9% 1.7% 1.6% 7.0%- Xiamen* City Xiamen East Developing 1,281 134 2 66 36 40 24 165 1,748 73.3% 7.6% 0.1% 3.8% 2.1% 2.3% 1.4% 9.5%Inner Mongolia Autonomous Hohhot North Developing 4,012 345 794 127 143 89 67 132 5,709 70.3% 6.0% 13.9% 2.2% 2.5% 1.6% 1.2% 2.3%Shanxi Province Taiyuan North Developing 5,168 477 41 195 145 130 84 122 6,362 81.2% 7.5% 0.7% 3.1% 2.3% 2.0% 1.3% 1.9%

Hainan Province Haikou South Central Emerging 806 65 67 28 31 20 14 163 1,195 67.5% 5.4% 5.6% 2.4% 2.6% 1.7% 1.2% 13.7%Henan Province Zhengzhou South Central Emerging 7,050 477 527 267 170 65 70 106 8,731 80.7% 5.5% 6.0% 3.1% 1.9% 0.7% 0.8% 1.2%Hubei Province Wuhan South Central Emerging 4,578 461 514 236 234 105 110 249 6,486 70.6% 7.1% 7.9% 3.6% 3.6% 1.6% 1.7% 3.8%Chongqing Municipality Chongqing Central Emerging 3,171 237 67 171 221 112 139 203 4,321 73.4% 5.5% 1.6% 4.0% 5.1% 2.6% 3.2% 4.7%Hunan Province Changsha South Central Emerging 4,415 551 1,192 245 268 120 144 238 7,173 61.5% 7.7% 16.6% 3.4% 3.7% 1.7% 2.0% 3.3%Guangxi Autonomous Nanning South Emerging 3,291 322 131 194 185 70 87 298 4,578 71.9% 7.0% 2.9% 4.2% 4.0% 1.5% 1.9% 6.5%Xinjiang Autonomous Ürümqi Northwest Emerging 2,784 318 1,430 172 184 60 258 227 5,432 51.2% 5.9% 26.3% 3.2% 3.4% 1.1% 4.7% 4.2%Shaanxi Province Xi'an Northwest Emerging 4,151 241 123 108 94 157 44 105 5,023 82.6% 4.8% 2.4% 2.1% 1.9% 3.1% 0.9% 2.1%Ningxia Autonomous Yinchuan Central Emerging 954 79 50 25 49 12 17 13 1,198 79.6% 6.6% 4.1% 2.0% 4.1% 1.0% 1.4% 1.1%Sichuan Province Chengdu Southwest Emerging 9,821 568 1,157 493 529 242 301 318 13,428 73.1% 4.2% 8.6% 3.7% 3.9% 1.8% 2.2% 2.4%Jiangxi Province Nanchang East Emerging 3,231 227 201 172 102 54 82 128 4,198 77.0% 5.4% 4.8% 4.1% 2.4% 1.3% 2.0% 3.1%Anhui Province Hefei East Emerging 5,800 384 143 203 112 47 70 227 6,986 83.0% 5.5% 2.0% 2.9% 1.6% 0.7% 1.0% 3.3%Qinghai Province Xining Northwest Emerging 566 90 9 39 34 45 10 9 801 70.7% 11.2% 1.1% 4.9% 4.2% 5.6% 1.2% 1.2%Yunnan Province Kunming Southwest Emerging 4,988 490 314 149 234 129 169 232 6,705 74.4% 7.3% 4.7% 2.2% 3.5% 1.9% 2.5% 3.5%Gansu Province Lanzhou Northwest Emerging 1,882 267 38 114 67 57 29 77 2,530 74.4% 10.6% 1.5% 4.5% 2.7% 2.3% 1.1% 3.0%Guizhou Province Guiyang Southwest Emerging 2,820 165 55 164 115 53 55 82 3,508 80.4% 4.7% 1.6% 4.7% 3.3% 1.5% 1.6% 2.3%Tibet Autonomous Lhasa West Emerging 233 13 8 26 17 36 16 1 351 66.5% 3.7% 2.3% 7.4% 4.7% 10.4% 4.6% 0.4%

Total 186,367 18,128 9,645 7,729 6,241 4,307 3,835 13,217 249,469 74.7% 7.3% 3.9% 3.1% 2.5% 1.7% 1.5% 5.3%

Developed 73,237 8,729 1,126 3,173 2,117 1,942 1,337 7,461 99,121 73.9% 8.8% 1.1% 3.2% 2.1% 2.0% 1.3% 7.5%Developing 52,590 4,445 2,495 1,749 1,478 982 886 3,079 67,704 77.7% 6.6% 3.7% 2.6% 2.2% 1.4% 1.3% 4.5%Emerging 60,540 4,954 6,024 2,807 2,646 1,384 1,612 2,677 82,644 73.3% 6.0% 7.3% 3.4% 3.2% 1.7% 2.0% 3.2%Total

Developed % 39.3% 48.1% 11.7% 41.1% 33.9% 45.1% 34.9% 56.4% 39.7% Auto CommerciaAgricultur Liability Accident EngineerinHealth OtherDeveloping % 28.2% 24.5% 25.9% 22.6% 23.7% 22.8% 23.1% 23.3% 27.1%Emerging % 32.5% 27.3% 62.5% 36.3% 42.4% 32.1% 42.0% 20.3% 33.1%

- - - - - - - - -

2009

* Sub-city data only (contained within province) Source: CIRC, Credit Suisse estimates

25 May 2011


Motor insurance Motor vehicle insurance (or auto insurance) remains by far the most dominant class of business in China, representing around 75% of total premiums.

In China, motor vehicle insurance includes mandatory third party liability and a voluntary insurance, which are discussed in more detail later in this report.

In addition, we highlight that the proportion of motor insurance has been increasing for the listed insurers over the last few years as highlighted below:

Figure 82: Motor insurance dominant class for listed sector % of premiums in motor insurance

50%

55%

60%

65%

70%

75%

80%

85%

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

1H12F

% m

otor

insu

ranc

e

F'casts ---->

PICC

Ping An

China Pacific


We also highlight that motor insurance premium growth has been solid in the last few years; averaging 24% p.a. over the last four years, which is slight above system growth.

Figure 83: Motor has grown at 24% pa last four years� China motor insurance premiums (Rmb mn) and growth (%pa)

Figure 84: � slightly above system growth Premium growth by P&C segment (4 year CAGR %pa)

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

2005 2006 2007 2008 20090.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Premium (Rmb mn) Growth (%pa) 4yr CAGR (%pa)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Auto

Commercial Property

Agriculture

Liability

Accident

Engineering

Health

Other

Total

84% 61%

Source: CIRC, Credit Suisse estimates Source: CIRC, Credit Suisse estimates

Motor insurance is the dominant class for the listed insurers

25 May 2011


Figure 85: Motor vehicle skewed to developed areas� China - number of motor vehicles ('000)

Figure 86: �with density highest in Beijing China vehicles per 1,000 capita by region

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000





0

50

100

150

200

250



ongoliaShanxi


National



Figure 87: Car sales slowing in 2011� Auto sales (no. of vehicles) and growth (%pcp)

Figure 88: �but China penetration still very low China vehicles 1000 capita by region (Rmb mn)

-

250

500

750

1,000

1,250

1,500

1,750

2,000

Jan-05Apr-05Jul-05Oct-05Jan-06Apr-06Jul-06Oct-06Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08Jul-08Oct-08Jan-09Apr-09Jul-09Oct-09Jan-10Apr-10Jul-10Oct-10Jan-11Apr-11

-20%

0%

20%

40%

60%

80%

100%

Passenger vehicles Commercial vehicles Growth (%pcp)

5yr CAGR (23.7%pa)

0

100

200

300

400

500

600

700

800

900

United States Luxem

bourg Iceland Australia Italy Canada New Zealand Austria Germany Japan Switzerland France Belgium Spain SwedenUK Netherlands Cyprus Portugal South Korea Malaysia Argentina Croatia Russia Mexico Singapore Brazil South Africa China Venezuela Chile Colombia Paraguay El Salvador Morocco IraqChina Bolivia Ecuador Peru Philippines Indonesia Senegal Honduras Nepal Pakistan

Source: CEIC, Credit Suisse estimates Source: NationMaster, UN, CEIC, Credit Suisse estimates

Figure 89: PICC motor insurance profitability improving �Motor insurance vs. group combined ratio(%), annual

Figure 90: � combined ratio lowest recently Motor insurance vs. group combined ratio(%), semi-annual

90%

95%

100%

105%

110%

FY04

FY05

FY06

FY07

FY08

FY09

FY10F

FY11F

Com

bine

d ra

tio (%

NEP

)

Group Motor

F'cast

90%

95%

100%

105%

110%

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10F

1H11F

Com

bine

d ra

tio (%

NEP

)

Group Motor

F'cast


25 May 2011

China P&

C Insurance

37

Figure 91: China P&C insurance � motor premiums by company and administrative region Rmb mn, unless otherwise stated

Market share (%)

Region Type Capital Segment Prem-ium PICC Ping AnChina Pacific

China United CICC

Sun-shine

China Life Tian-ping Tian an

China Taiping PICC Ping An

China Pacific

China United CCIC

Sun-shine

China Life

Tian-ping

Tian an

China Taiping

Rmb mn mn mn mn mn mn mn mn mn mn mn % % % % % % % % % %

Shanghai Municipality Shanghai East Developed 7,694 2,569 1,660 1,813 510 206 41 330 135 184 246 33.4% 21.6% 23.6% 6.6% 2.7% 0.5% 4.3% 1.8% 2.4% 3.2%Beijing Municipality Beijing East Developed 9,375 4,411 1,739 1,753 485 100 207 421 129 55 77 47.0% 18.5% 18.7% 5.2% 1.1% 2.2% 4.5% 1.4% 0.6% 0.8%Tianjin Municipality Tianjin East Developed 2,607 1,079 480 355 114 149 136 0 57 80 159 41.4% 18.4% 13.6% 4.4% 5.7% 5.2% 0.0% 2.2% 3.1% 6.1%Guangdong Province Guangzhou South Central Developed 16,740 6,103 4,183 2,828 1,609 408 347 123 404 371 363 36.5% 25.0% 16.9% 9.6% 2.4% 2.1% 0.7% 2.4% 2.2% 2.2%- Shenzhen* City Shenzhen South Central Developed 6,291 1,872 1,575 1,455 190 88 79 410 106 261 254 29.8% 25.0% 23.1% 3.0% 1.4% 1.3% 6.5% 1.7% 4.2% 4.0%Zhejiang Province Hangzhou East Developed 12,805 5,523 1,524 1,573 1,194 546 529 759 249 715 194 43.1% 11.9% 12.3% 9.3% 4.3% 4.1% 5.9% 1.9% 5.6% 1.5% - Ningbo* City Ningbo East Developed 3,212 1,124 405 713 236 261 67 112 60 130 103 35.0% 12.6% 22.2% 7.3% 8.1% 2.1% 3.5% 1.9% 4.0% 3.2%Jiangsu Province Nanjing East Developed 14,513 6,188 2,041 2,658 1,378 347 280 840 98 459 226 42.6% 14.1% 18.3% 9.5% 2.4% 1.9% 5.8% 0.7% 3.2% 1.6%

Liaoning Province Shenyang Northeast Developing 6,034 3,150 815 546 679 250 207 0 0 242 145 52.2% 13.5% 9.0% 11.2% 4.1% 3.4% 0.0% 0.0% 4.0% 2.4%- Dalian* City Dalian Northeast Developing 1,751 695 331 252 185 33 75 0 0 92 88 39.7% 18.9% 14.4% 10.6% 1.9% 4.3% 0.0% 0.0% 5.3% 5.1%Shandong Province Jinan East Developing 12,420 5,851 1,272 1,821 1,321 505 664 162 184 535 104 47.1% 10.2% 14.7% 10.6% 4.1% 5.4% 1.3% 1.5% 4.3% 0.8%- Qingdao* City Qindao East Developing 2,029 955 271 311 92 197 82 0 0 67 54 47.1% 13.4% 15.3% 4.5% 9.7% 4.0% 0.0% 0.0% 3.3% 2.7%Jilin Province Changchun Northeast Developing 2,285 1,182 370 343 0 193 93 0 0 104 0 51.7% 16.2% 15.0% 0.0% 8.5% 4.1% 0.0% 0.0% 4.5% 0.0%Hebei Province Shijiazhuang North Developing 9,599 5,208 1,120 895 1,174 360 305 0 212 207 117 54.3% 11.7% 9.3% 12.2% 3.8% 3.2% 0.0% 2.2% 2.2% 1.2%Heilongjiang Province Harbin Northeast Developing 2,856 1,540 355 244 0 106 235 248 0 101 27 53.9% 12.4% 8.5% 0.0% 3.7% 8.2% 8.7% 0.0% 3.5% 1.0%Fujian Province Fuzhou East Developing 5,155 2,505 912 571 461 189 44 293 0 108 71 48.6% 17.7% 11.1% 8.9% 3.7% 0.8% 5.7% 0.0% 2.1% 1.4%- Xiamen* City Xiamen East Developing 1,281 630 257 239 0 14 0 62 0 71 8 49.2% 20.0% 18.7% 0.0% 1.1% 0.0% 4.8% 0.0% 5.5% 0.6%Inner Mongolia Autonomous Hohhot North Developing 4,012 2,097 398 366 605 455 91 0 0 0 0 52.3% 9.9% 9.1% 15.1% 11.3% 2.3% 0.0% 0.0% 0.0% 0.0%Shanxi Province Taiyuan North Developing 5,168 3,080 559 394 0 324 89 554 0 80 89 59.6% 10.8% 7.6% 0.0% 6.3% 1.7% 10.7% 0.0% 1.5% 1.7%

Hainan Province Haikou South Central Emerging 806 230 179 216 0 57 68 0 0 55 0 28.6% 22.1% 26.8% 0.0% 7.1% 8.5% 0.0% 0.0% 6.8% 0.0%Henan Province Zhengzhou South Central Emerging 7,050 2,997 661 570 904 288 316 926 0 274 113 42.5% 9.4% 8.1% 12.8% 4.1% 4.5% 13.1% 0.0% 3.9% 1.6%Hubei Province Wuhan South Central Emerging 4,578 2,404 542 484 478 115 95 0 78 222 158 52.5% 11.8% 10.6% 10.5% 2.5% 2.1% 0.0% 1.7% 4.9% 3.5%Chongqing Municipality Chongqing Central Emerging 3,171 1,584 568 343 189 103 122 0 16 206 40 49.9% 17.9% 10.8% 6.0% 3.2% 3.8% 0.0% 0.5% 6.5% 1.3%Hunan Province Changsha South Central Emerging 4,415 2,020 676 331 467 138 119 411 0 174 80 45.8% 15.3% 7.5% 10.6% 3.1% 2.7% 9.3% 0.0% 3.9% 1.8%Guangxi Autonomous Nanning South Emerging 3,291 1,886 452 622 0 143 69 0 0 99 20 57.3% 13.7% 18.9% 0.0% 4.3% 2.1% 0.0% 0.0% 3.0% 0.6%Xinjiang Autonomous Ürümqi Northwest Emerging 2,784 1,556 295 171 540 46 118 0 0 57 0 55.9% 10.6% 6.2% 19.4% 1.6% 4.2% 0.0% 0.0% 2.0% 0.0%Shaanxi Province Xi'an Northwest Emerging 4,151 1,930 706 259 497 281 166 0 0 129 184 46.5% 17.0% 6.2% 12.0% 6.8% 4.0% 0.0% 0.0% 3.1% 4.4%Ningxia Autonomous Yinchuan Central Emerging 954 619 185 101 0 48 0 0 0 0 0 64.9% 19.4% 10.5% 0.0% 5.1% 0.0% 0.0% 0.0% 0.0% 0.0%Sichuan Province Chengdu Southwest Emerging 9,821 4,577 1,816 821 1,106 402 185 0 139 293 481 46.6% 18.5% 8.4% 11.3% 4.1% 1.9% 0.0% 1.4% 3.0% 4.9%Jiangxi Province Nanchang East Emerging 3,231 1,707 392 397 0 193 87 354 0 101 0 52.8% 12.1% 12.3% 0.0% 6.0% 2.7% 11.0% 0.0% 3.1% 0.0%Anhui Province Hefei East Emerging 5,800 3,018 1,185 600 0 149 72 356 0 322 98 52.0% 20.4% 10.3% 0.0% 2.6% 1.2% 6.1% 0.0% 5.5% 1.7%Qinghai Province Xining Northwest Emerging 566 339 160 22 0 0 45 0 0 0 0 59.9% 28.3% 3.9% 0.0% 0.0% 7.9% 0.0% 0.0% 0.0% 0.0%Yunnan Province Kunming Southwest Emerging 4,988 2,498 781 681 0 471 148 184 0 187 39 50.1% 15.6% 13.6% 0.0% 9.4% 3.0% 3.7% 0.0% 3.7% 0.8%Gansu Province Lanzhou Northwest Emerging 1,882 992 206 138 159 108 25 166 0 87 0 52.7% 10.9% 7.3% 8.5% 5.7% 1.3% 8.8% 0.0% 4.6% 0.0%Guizhou Province Guiyang Southwest Emerging 2,820 1,187 377 562 0 114 102 221 0 137 119 42.1% 13.4% 19.9% 0.0% 4.1% 3.6% 7.8% 0.0% 4.9% 4.2%Tibet Autonomous Lhasa West Emerging 233 220 13 0 0 0 0 0 0 0 0 94.3% 5.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total 171,803 80,251 26,622 22,478 13,870 6,795 5,005 6,346 1,700 5,585 3,149 46.7% 15.5% 13.1% 8.1% 4.0% 2.9% 3.7% 1.0% 3.3% 1.8%

Developed 63,734 25,873 11,627 10,979 5,289 1,756 1,540 2,472 1,071 1,864 1,264 40.6% 18.2% 17.2% 8.3% 2.8% 2.4% 3.9% 1.7% 2.9% 2.0%Developing 47,529 24,613 5,801 5,180 4,239 2,383 1,728 1,256 396 1,378 553 51.8% 12.2% 10.9% 8.9% 5.0% 3.6% 2.6% 0.8% 2.9% 1.2%Emerging 60,540 29,765 9,194 6,318 4,341 2,656 1,738 2,618 233 2,343 1,332 49.2% 15.2% 10.4% 7.2% 4.4% 2.9% 4.3% 0.4% 3.9% 2.2%Total 171,803 80,251 26,622 22,478 13,870 6,795 5,005 6,346 1,700 5,585 3,149 46.7% 15.5% 13.1% 8.1% 4.0% 2.9% 3.7% 1.0% 3.3% 1.8%

2009


25 May 2011


Commercial property Commercial property is the second largest P&C insurance segment in China; which insures the physical damage to commercial buildings.

We also highlight that commercial property insurance premium growth has been weak in the last few years; averaging 7% p.a. over the last four years, well below system growth.

Figure 92: Commercial property growth low� Commercial property premium (Rmb mn) and growth (%pa)

Figure 93: � heavily skewed to developed China Commercial property � premiums (Rmb mn) by region)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2005 2006 2007 2008 2009-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%


-

500

1,000

1,500

2,000

2,500



ongoliaShanxi




We highlight that the profitability of the commercial property segment has been virtually non-existent. In the case of PICC, which controls over half the market, its commercial property segment, which despite accounting for just 9% of premiums in the last five years; has resulted in Rmb6.2 bn of underwriting losses over that period, relative to group underwriting losses of Rmb1.0 bn.

Figure 94: PICC share higher outside developed China � PICC commercial property market share (%) by region

Figure 95: � with major losses in recent years PICC combined ratio � commercial property vs group (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%



ongoliaShanxi


Total


90%

95%

100%

105%

110%

115%

120%

125%

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Com

bine

d ra

tio (%

NEP

)

Group Motor Commercial property 100%

F'castsCommercial property

Motor

Group

Source: CIRC, Credit Suisse estimates Source: Company data, Credit Suisse estimates

25 May 2011

China P&

C Insurance

39

Figure 96: China P&C insurance � commercial property premiums by company and administrative region Rmb mn, unless otherwise stated

Market share (%)


China United CICC

Sun-shine



China Pacific

China United CCIC

Sun-shine

China Life

Tian-ping

Tian an

China Taiping


Shanghai Municipality Shanghai East Developed 1,212 352 349 318 53 40 13 35 0 15 36 29.1% 28.8% 26.3% 4.4% 3.3% 1.0% 2.9% 0.0% 1.2% 3.0%Beijing Municipality Beijing East Developed 870 385 232 132 33 5 15 45 0 3 19 44.3% 26.7% 15.2% 3.8% 0.6% 1.7% 5.2% 0.0% 0.3% 2.2%Tianjin Municipality Tianjin East Developed 272 151 38 45 8 9 7 0 0 5 8 55.7% 13.9% 16.7% 3.1% 3.2% 2.6% 0.0% 0.1% 1.9% 2.8%Guangdong Province Guangzhou South Central Developed 1,936 1,089 420 276 42 28 36 7 0 18 19 56.2% 21.7% 14.3% 2.2% 1.4% 1.9% 0.4% 0.0% 0.9% 1.0%Zhejiang Province Hangzhou East Developed 1,320 724 127 180 112 36 33 32 0 53 23 54.9% 9.6% 13.6% 8.5% 2.7% 2.5% 2.4% 0.0% 4.0% 1.7%Jiangsu Province Nanjing East Developed 1,911 851 263 531 75 32 37 38 0 67 17 44.5% 13.8% 27.8% 3.9% 1.7% 2.0% 2.0% 0.0% 3.5% 0.9%

Liaoning Province Shenyang Northeast Developing 473 276 81 46 34 14 8 0 0 11 4 58.4% 17.1% 9.7% 7.1% 2.9% 1.8% 0.0% 0.0% 2.3% 0.8%Shandong Province Jinan East Developing 919 458 143 181 18 35 46 11 0 17 8 49.9% 15.6% 19.7% 2.0% 3.9% 5.0% 1.2% 0.0% 1.8% 0.9%Jilin Province Changchun Northeast Developing 247 135 28 58 0 11 12 0 0 4 0 54.7% 11.3% 23.3% 0.0% 4.3% 4.9% 0.0% 0.0% 1.5% 0.0%Hebei Province Shijiazhuang North Developing 571 365 92 61 20 19 8 0 0 6 1 63.9% 16.1% 10.7% 3.4% 3.2% 1.4% 0.0% 0.0% 1.1% 0.2%Heilongjiang Province Harbin Northeast Developing 269 160 41 41 0 5 8 8 0 2 4 59.4% 15.3% 15.3% 0.0% 1.7% 3.1% 3.0% 0.0% 0.8% 1.4%Fujian Province Fuzhou East Developing 503 315 63 63 16 17 4 15 0 4 6 62.6% 12.5% 12.6% 3.2% 3.3% 0.9% 2.9% 0.0% 0.9% 1.1%Inner Mongolia Autonomous Hohhot North Developing 345 256 10 21 19 36 4 0 0 0 0 74.1% 2.8% 6.0% 5.5% 10.3% 1.3% 0.0% 0.0% 0.0% 0.0%Shanxi Province Taiyuan North Developing 477 333 16 71 0 20 15 14 0 2 7 69.7% 3.3% 14.8% 0.0% 4.3% 3.1% 2.9% 0.0% 0.5% 1.4%

Hainan Province Haikou South Central Emerging 65 26 13 21 0 2 3 0 0 1 0 40.3% 19.4% 32.5% 0.0% 2.3% 4.3% 0.0% 0.0% 1.2% 0.0%Henan Province Zhengzhou South Central Emerging 477 213 50 76 36 10 41 33 0 14 4 44.6% 10.5% 16.0% 7.5% 2.2% 8.7% 6.9% 0.0% 2.8% 0.7%Hubei Province Wuhan South Central Emerging 461 264 74 73 4 15 5 0 0 4 22 57.3% 16.1% 15.7% 0.8% 3.3% 1.2% 0.0% 0.0% 0.9% 4.7%Chongqing Municipality Chongqing Central Emerging 237 99 56 46 3 8 8 0 0 4 13 42.0% 23.7% 19.3% 1.2% 3.5% 3.3% 0.0% 0.0% 1.6% 5.4%Hunan Province Changsha South Central Emerging 551 251 105 75 36 14 29 30 0 1 10 45.4% 19.1% 13.7% 6.5% 2.6% 5.3% 5.4% 0.0% 0.3% 1.8%Guangxi Autonomous Nanning South Emerging 322 221 25 55 0 3 12 0 0 4 1 68.5% 7.9% 17.2% 0.0% 0.8% 3.9% 0.0% 0.0% 1.4% 0.3%Xinjiang Autonomous Ürümqi Northwest Emerging 318 197 23 35 52 6 2 0 0 4 0 62.0% 7.2% 10.9% 16.4% 1.8% 0.7% 0.0% 0.0% 1.2% 0.0%Shaanxi Province Xi'an Northwest Emerging 241 123 38 24 17 10 9 0 0 15 6 51.1% 15.6% 10.1% 6.9% 4.0% 3.8% 0.0% 0.0% 6.0% 2.4%Ningxia Autonomous Yinchuan Central Emerging 79 51 16 9 0 3 0 0 0 0 0 65.1% 19.8% 11.0% 0.0% 4.1% 0.0% 0.0% 0.0% 0.0% 0.0%Sichuan Province Chengdu Southwest Emerging 568 283 106 57 34 9 6 0 0 5 68 49.8% 18.6% 10.1% 6.0% 1.6% 1.0% 0.0% 0.0% 0.9% 12.0%Jiangxi Province Nanchang East Emerging 227 145 21 32 0 16 3 9 0 1 0 64.1% 9.2% 14.1% 0.0% 7.2% 1.2% 3.8% 0.0% 0.4% 0.0%Anhui Province Hefei East Emerging 384 233 67 42 0 5 1 12 0 15 9 60.6% 17.4% 10.8% 0.0% 1.4% 0.4% 3.2% 0.0% 3.9% 2.4%Qinghai Province Xining Northwest Emerging 90 61 21 2 0 0 6 0 0 0 0 67.8% 23.7% 2.1% 0.0% 0.0% 6.3% 0.0% 0.0% 0.0% 0.0%Yunnan Province Kunming Southwest Emerging 490 289 75 77 0 20 6 10 0 9 4 59.1% 15.3% 15.7% 0.0% 4.0% 1.3% 2.0% 0.0% 1.8% 0.8%Gansu Province Lanzhou Northwest Emerging 267 171 25 28 5 20 10 9 0 0 0 63.9% 9.3% 10.4% 1.9% 7.5% 3.7% 3.3% 0.0% 0.0% 0.0%Guizhou Province Guiyang Southwest Emerging 165 66 34 42 0 2 12 4 0 4 1 40.2% 20.6% 25.4% 0.0% 1.0% 7.3% 2.4% 0.0% 2.6% 0.5%Tibet Autonomous Lhasa West Emerging 13 10 3 0 0 0 0 0 0 0 0 79.5% 20.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total 16,278 8,554 2,654 2,718 616 447 402 311 1 287 288 52.5% 16.3% 16.7% 3.8% 2.7% 2.5% 1.9% 0.0% 1.8% 1.8%

Developed 7,519 3,553 1,429 1,483 323 149 141 158 1 161 121 47.2% 19.0% 19.7% 4.3% 2.0% 1.9% 2.1% 0.0% 2.1% 1.6%Developing 3,805 2,298 474 541 107 155 107 47 0 46 30 60.4% 12.5% 14.2% 2.8% 4.1% 2.8% 1.2% 0.0% 1.2% 0.8%Emerging 4,954 2,703 751 694 186 142 154 106 0 80 137 54.6% 15.2% 14.0% 3.8% 2.9% 3.1% 2.1% 0.0% 1.6% 2.8%Total 16,278 8,554 2,654 2,718 616 447 402 311 1 287 288 52.5% 16.3% 16.7% 3.8% 2.7% 2.5% 1.9% 0.0% 1.8% 1.8%

2009


25 May 2011


Agriculture Agricultural insurance is the third largest P&C insurance segment in China, which typically insures damage to crops and other farm related undertakings.

We also highlight that agriculture insurance premium growth has been the strongest in the last few years; averaging 81% p.a. over the last four years, well above system growth, albeit off a low base.

Figure 97: Commercial property growth low � Agriculture premium (Rmb mn) and growth (%pa)

Figure 98: � heavily skewed to developed China Agriculture � premiums (Rmb mn) by region) - 2009

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We highlight that the agricultural market is dominated by PICC and China United, with PICC effectively a monopoly insurer in many regions.

We note that PICC does not split out the performance of its agricultural portfolio in its publicly disclosed financial reports.

Figure 99: PICC and China United dominate� Agriculture and total P&C market share (%) by company

Figure 100: � with PICC monopoly in many regions PICC agriculture market share (%) by region

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ongoliaShanxi


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25 May 2011

China P&

C Insurance

41

Figure 101: China P&C insurance � agriculture premiums by segment and administrative region Rmb mn, unless otherwise stated

Market share (%)


China United CICC

Sun-shine



China Pacific

China United CCIC

Sun-shine

China Life

Tian-ping

Tian an

China Taiping


Shanghai Municipality Shanghai East Developed 0 0 0 0 0 0 0 0 0 0 0Beijing Municipality Beijing East Developed 285 227 0 0 58 0 0 0 0 0 0 79.6% 0.0% 0.0% 20.3% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0%Tianjin Municipality Tianjin East Developed 31 31 0 0 0 0 0 0 0 0 0 99.8% 0.0% 0.0% 0.0% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%Guangdong Province Guangzhou South Central Developed 108 104 0 4 0 0 0 0 0 0 0 95.9% 0.0% 3.9% 0.0% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%Zhejiang Province Hangzhou East Developed 162 135 0 16 3 6 0 0 0 2 1 83.2% 0.0% 10.1% 1.6% 3.6% 0.0% 0.0% 0.0% 1.1% 0.3%Jiangsu Province Nanjing East Developed 507 416 0 19 72 0 0 0 0 0 0 82.0% 0.0% 3.7% 14.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%


Hainan Province Haikou South Central Emerging 67 54 1 9 0 0 1 0 0 1 0 81.5% 1.9% 13.7% 0.0% 0.6% 1.0% 0.0% 0.0% 1.4% 0.0%Henan Province Zhengzhou South Central Emerging 527 379 0 0 147 0 0 0 0 0 0 72.0% 0.0% 0.0% 27.9% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0%Hubei Province Wuhan South Central Emerging 514 431 0 0 82 0 0 0 0 0 0 83.9% 0.0% 0.0% 16.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Chongqing Municipality Chongqing Central Emerging 67 66 0 0 0 0 0 0 0 0 0 98.7% 0.0% 0.0% 0.0% 0.0% 0.6% 0.0% 0.0% 0.6% 0.0%Hunan Province Changsha South Central Emerging 1,192 719 0 1 471 0 0 0 0 0 0 60.3% 0.0% 0.1% 39.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Guangxi Autonomous Nanning South Emerging 131 129 0 0 0 1 0 0 0 0 0 98.3% 0.0% 0.3% 0.0% 1.1% 0.3% 0.0% 0.0% 0.0% 0.0%Xinjiang Autonomous Ürümqi Northwest Emerging 1,430 562 0 0 868 0 0 0 0 0 0 39.3% 0.0% 0.0% 60.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Shaanxi Province Xi'an Northwest Emerging 123 112 0 0 11 0 0 0 0 0 0 91.3% 0.0% 0.0% 8.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Ningxia Autonomous Yinchuan Central Emerging 50 50 0 0 0 0 0 0 0 0 0 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Sichuan Province Chengdu Southwest Emerging 1,157 1,101 0 0 56 0 0 0 0 0 0 95.2% 0.0% 0.0% 4.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Jiangxi Province Nanchang East Emerging 201 199 0 0 0 2 0 0 0 0 0 99.1% 0.0% 0.0% 0.0% 0.9% 0.0% 0.0% 0.0% 0.0% 0.0%Anhui Province Hefei East Emerging 143 143 0 0 0 0 0 0 0 0 0 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Qinghai Province Xining Northwest Emerging 9 9 0 0 0 0 0 0 0 0 0 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Yunnan Province Kunming Southwest Emerging 314 290 0 24 0 0 0 0 0 0 0 92.2% 0.0% 7.7% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%Gansu Province Lanzhou Northwest Emerging 38 36 0 0 2 0 0 0 0 0 0 95.3% 0.0% 0.0% 4.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Guizhou Province Guiyang Southwest Emerging 55 55 0 0 0 0 0 0 0 0 0 99.4% 0.0% 0.0% 0.0% 0.0% 0.6% 0.0% 0.0% 0.0% 0.0%Tibet Autonomous Lhasa West Emerging 8 8 0 0 0 0 0 0 0 0 0 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total 9,564 6,931 1 85 2,526 15 3 0 0 3 1 72.5% 0.0% 0.9% 26.4% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%

Developed 1,093 912 0 39 133 6 0 0 0 2 1 83.4% 0.0% 3.6% 12.2% 0.6% 0.0% 0.0% 0.0% 0.2% 0.0%Developing 2,448 1,677 0 10 756 5 0 0 0 0 0 68.5% 0.0% 0.4% 30.9% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%Emerging 6,024 4,342 1 35 1,637 5 2 0 0 1 0 72.1% 0.0% 0.6% 27.2% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%Total 9,564 6,931 1 85 2,526 15 3 0 0 3 1 72.5% 0.0% 0.9% 26.4% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0%

2009


25 May 2011


Liability Liability insurance is the fourth largest P&C insurance segment in China; which is a generic class which covers liability (casualty), with key sub segments, worker�s compensation (employer�s liability), public and product liability.

We also highlight that liability insurance premium growth has been reasonably strong in the last few years; averaging 19% p.a. over the last four years, a little below system growth of 22%.

Figure 102: Liability growth 19% p.a. � Liability premium (Rmb mn) and growth (%pa)

Figure 103: � heavily skewed to developed China Liability � premiums (Rmb mn) by region) - 2009

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ongoliaShanxi




We note that liability is long term (tail) in nature and potential mis-pricing of risk can take many years to discover and lead to large restatements in profitability.

We highlight that PICC is the dominant insurer in China with respect to liability classes and that its combined ratio has been around 100% for most years except 2006.

Figure 104: PICC dominant in liability � Liability and total P&C market share (%) by company

Figure 105: � with combined ratio around 100% PICC combined ratio � commercial property vs group (%)

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Liability Total

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Group Motor Liability

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Group


25 May 2011

China P&

C Insurance

43

Figure 106: China P&C insurance � liability premiums by segment and administrative region Rmb mn, unless otherwise stated

Market share (%)


China United CICC

Sun-shine



China Pacific

China United CCIC

Sun-shine

China Life

Tian-ping

Tian an

China Taiping


Shanghai Municipality Shanghai East Developed 558 273 132 104 11 11 1 18 0 2 8 48.8% 23.6% 18.6% 2.0% 1.9% 0.2% 3.2% 0.0% 0.3% 1.5%Beijing Municipality Beijing East Developed 395 159 104 64 8 2 4 15 7 0 32 40.3% 26.4% 16.3% 2.0% 0.4% 1.0% 3.7% 1.7% 0.1% 8.1%Tianjin Municipality Tianjin East Developed 131 78 19 14 2 7 1 0 0 3 9 59.4% 14.2% 10.8% 1.3% 5.0% 0.6% 0.0% 0.0% 2.2% 6.6%Guangdong Province Guangzhou South Central Developed 630 375 103 77 25 12 14 6 0 9 9 59.6% 16.4% 12.2% 4.0% 1.9% 2.2% 0.9% 0.0% 1.4% 1.4%Zhejiang Province Hangzhou East Developed 381 248 37 47 27 4 5 7 0 4 2 65.0% 9.8% 12.2% 7.0% 1.2% 1.4% 1.8% 0.0% 1.1% 0.5%Jiangsu Province Nanjing East Developed 700 411 62 128 22 13 27 17 0 16 4 58.6% 8.9% 18.3% 3.1% 1.9% 3.9% 2.4% 0.0% 2.3% 0.6%



Total 7,122 4,335 911 771 329 246 140 169 7 102 112 60.9% 12.8% 10.8% 4.6% 3.5% 2.0% 2.4% 0.1% 1.4% 1.6%

Developed 2,795 1,543 457 434 94 49 52 62 7 34 64 55.2% 16.4% 15.5% 3.4% 1.7% 1.9% 2.2% 0.2% 1.2% 2.3%Developing 1,519 1,026 121 124 72 75 26 39 0 18 18 67.5% 8.0% 8.1% 4.8% 4.9% 1.7% 2.6% 0.0% 1.2% 1.2%Emerging 2,807 1,766 333 213 162 123 62 68 0 50 30 62.9% 11.9% 7.6% 5.8% 4.4% 2.2% 2.4% 0.0% 1.8% 1.1%Total 7,122 4,335 911 771 329 246 140 169 7 102 112 60.9% 12.8% 10.8% 4.6% 3.5% 2.0% 2.4% 0.1% 1.4% 1.6%

2009

* Sub-city data only (contained within province) Source: CRIC, Credit Suisse estimates

25 May 2011


Accident Accident insurance is the fifth largest P&C insurance segment in China; covers the insured for loss of pre-defined criteria (i.e., loss of limb, life) due to an accident.

We also highlight that accident insurance premium growth has been reasonably weak in the last few years; averaging 11% p.a. over the last four years, at about half of the system growth rate of 22% p.a.

Figure 107: Accident growth 11% p.a. � Accident premium (Rmb mn) and growth (%pa)

Figure 108: � more evenly distributed throughout China Accident � premiums (Rmb mn) by region) - 2009

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We note that Accident insurance is often sold as a rider on other policies and as such can be quite profitable to insurers (albeit never a major part of the portfolio)..

However, in the case of PICC, we highlight that the profitability of this segment has been quite poor of the last few years..

Figure 109: Ping An / CPIC / CCIC above natural share� Accident and total P&C market share (%) by company

Figure 110: with poor profitability for PICC PICC combined ratio � commercial property vs group (%)

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Acciddent Total

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25 May 2011

China P&

C Insurance

45

Figure 111: China P&C insurance � accident premiums by segment and administrative region Rmb mn, unless otherwise stated

Market share (%)


China United CICC

Sun-shine



China Pacific

China United CCIC

Sun-shine

China Life

Tian-ping

Tian an

China Taiping





Total 5,824 2,065 1,037 995 494 505 282 151 31 149 117 35.4% 17.8% 17.1% 8.5% 8.7% 4.8% 2.6% 0.5% 2.6% 2.0%

Developed 1,850 525 374 412 155 100 78 64 24 74 44 28.4% 20.2% 22.3% 8.4% 5.4% 4.2% 3.4% 1.3% 4.0% 2.4%Developing 1,329 479 231 221 112 126 86 29 2 28 15 36.0% 17.4% 16.6% 8.4% 9.5% 6.5% 2.1% 0.1% 2.1% 1.1%Emerging 2,646 1,061 432 362 227 278 118 58 5 47 58 40.1% 16.3% 13.7% 8.6% 10.5% 4.4% 2.2% 0.2% 1.8% 2.2%Total 5,824 2,065 1,037 995 494 505 282 151 31 149 117 35.4% 17.8% 17.1% 8.5% 8.7% 4.8% 2.6% 0.5% 2.6% 2.0%

2009


25 May 2011


Engineering Engineering insurance refers to the insurance that provides economic safeguard to the risks faced by the ongoing construction project, installation project, and machines and equipment in project operation. Product categories: Depending on the project, it can be divided into construction project all risks insurance and installation project all risks insurance; depending on the attribute of the object, it can be divided into project all risks insurance, and machinery breakdown insurance.

We highlight that the Engineering insurance premium appears to be a relatively new class and has been separated out in the CIRC data for the 2008 and 2009.

Figure 112: Engineering more recent class Engineering premium (Rmb mn) and growth (%pa)

Figure 113: � heavily skewed to developed China Engineering � premiums (Rmb mn) by region) - 2009

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ongoliaShanxi




We note that Engineering insurance is often sold as a rider on other policies and as such can be quite profitable to insurers (albeit never a major part of the portfolio)..

However, in the case of PICC, we highlight that the profitability of this segment has been quite poor of the last few years..

Figure 114: Ping An / CPIC well above natural share� Engineering and total P&C market share (%) by company

Figure 115: with PICC spread national PICC engineering market share by region (%)

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ongoliaShanxi


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25 May 2011

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47

Figure 116: China P&C insurance � engineering premiums by segment and administrative region Rmb mn, unless otherwise stated

Market share (%)


China United CICC

Sun-shine



China Pacific

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Sun-shine

China Life

Tian-ping

Tian an

China Taiping




Hainan Province Haikou South Central Emerging 20 0 12 4 0 1 2 0 0 0 0 2.0% 62.1% 19.3% 0.0% 4.7% 11.8% 0.0% 0.0% 0.0% 0.0%Henan Province Zhengzhou South Central Emerging 65 49 5 3 0 0 2 4 0 1 0 75.8% 7.1% 4.9% 0.7% 0.8% 3.6% 5.6% 0.0% 1.6% 0.0%Hubei Province Wuhan South Central Emerging 105 52 28 13 1 6 2 0 0 0 3 49.5% 26.7% 12.4% 0.5% 6.1% 1.5% 0.0% 0.0% 0.2% 3.0%Chongqing Municipality Chongqing Central Emerging 112 46 18 23 4 6 12 0 0 0 2 41.0% 16.4% 20.5% 4.0% 5.5% 10.6% 0.0% 0.0% 0.0% 2.1%Hunan Province Changsha South Central Emerging 120 36 17 42 7 1 13 3 0 0 1 30.2% 13.9% 34.8% 5.5% 0.7% 11.1% 2.9% 0.0% 0.0% 0.9%Guangxi Autonomous Nanning South Emerging 70 62 3 5 0 0 0 0 0 0 0 88.6% 3.8% 7.1% 0.0% 0.0% 0.1% 0.0% 0.0% 0.1% 0.2%Xinjiang Autonomous Ürümqi Northwest Emerging 60 36 11 9 2 0 0 0 0 0 0 60.9% 19.0% 15.9% 2.8% 0.5% 0.8% 0.0% 0.0% 0.1% 0.0%Shaanxi Province Xi'an Northwest Emerging 157 74 32 27 2 11 6 0 0 2 3 47.3% 20.2% 17.1% 1.6% 7.2% 3.6% 0.0% 0.0% 1.3% 1.6%Ningxia Autonomous Yinchuan Central Emerging 12 8 3 1 0 0 0 0 0 0 0 65.4% 22.1% 10.9% 0.0% 1.7% 0.0% 0.0% 0.0% 0.0% 0.0%Sichuan Province Chengdu Southwest Emerging 242 40 100 43 26 4 7 0 0 2 19 16.5% 41.3% 17.9% 10.7% 1.8% 3.0% 0.0% 0.0% 0.8% 8.0%Jiangxi Province Nanchang East Emerging 54 29 6 10 0 5 0 3 0 2 0 53.6% 11.1% 18.2% 0.0% 8.6% -0.4% 5.0% 0.0% 3.7% 0.0%Anhui Province Hefei East Emerging 47 18 14 9 0 1 0 1 0 2 1 39.2% 30.8% 19.3% 0.0% 2.1% 0.1% 2.2% 0.0% 4.4% 1.8%Qinghai Province Xining Northwest Emerging 45 27 10 6 0 0 2 0 0 0 0 60.6% 23.2% 12.3% 0.0% 0.0% 4.0% 0.0% 0.0% 0.0% 0.0%Yunnan Province Kunming Southwest Emerging 129 43 34 34 0 12 0 5 0 0 1 33.4% 26.5% 26.1% 0.0% 9.6% -0.2% 4.0% 0.0% 0.0% 0.6%Gansu Province Lanzhou Northwest Emerging 57 22 13 19 0 2 0 1 0 0 0 38.5% 22.8% 33.3% 0.3% 3.4% 0.0% 1.8% 0.0% 0.0% 0.0%Guizhou Province Guiyang Southwest Emerging 53 20 17 12 0 0 0 0 0 1 1 38.3% 32.2% 23.3% 0.0% 0.2% 0.5% 0.9% 0.0% 2.0% 2.5%Tibet Autonomous Lhasa West Emerging 36 21 16 0 0 0 0 0 0 0 0 56.6% 43.4% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total 3,809 1,573 894 839 84 112 122 74 0 40 72 41.3% 23.5% 22.0% 2.2% 2.9% 3.2% 1.9% 0.0% 1.1% 1.9%

Developed 1,566 579 414 382 27 30 40 40 0 21 32 37.0% 26.4% 24.4% 1.7% 1.9% 2.6% 2.5% 0.0% 1.3% 2.1%Developing 860 409 140 196 14 31 35 17 0 9 9 47.6% 16.3% 22.8% 1.6% 3.6% 4.0% 1.9% 0.0% 1.0% 1.0%Emerging 1,384 585 340 260 42 51 47 18 0 11 31 42.2% 24.5% 18.8% 3.1% 3.7% 3.4% 1.3% 0.0% 0.8% 2.3%Total 3,809 1,573 894 839 84 112 122 74 0 40 72 41.3% 23.5% 22.0% 2.2% 2.9% 3.2% 1.9% 0.0% 1.1% 1.9%

2009


25 May 2011


Market size by region While China�s insurance premiums are skewed to more developed areas, we do note the larger market sizes in provinces such as Henan and Sichuan, which are the third and fourth largest provinces in China in terms of population (both in excess of 80 mn people).

Figure 117: China insurance premium skewed to more developed areas China P&C insurance premium (Rmb mn) by administrative region - 2009

0

5,000

10,000

15,000

20,000

25,000

30,000





Source: CIRC

We note that while emerging regions contain just over half the Chinese population, it accounts for less than one third of the property and casualty insurance market.

Similarly, �Developed China� accounts for just 21% of the total population, but 42% of the property & casualty insurance market.

Figure 118: China P&C insurance premium by region Figure 119: China population by region

Developed42%

Emerging31%

Developing27%

Developed21%

Developing28%

Emerging51%

Source: CIRC, 2009 Source: CIRC, 2009

Henan and Sichuan have large insurance markets despite lower development

25 May 2011


Historical growth rates The China property & casualty (P&C) insurance market has been the fastest growing insurance market in Asia over the last 10 years, which has materially outpaced the developed world in terms of growth as highlighted below.

China�s property & casualty insurance premiums grew at a compound growth rate of 23.9% p.a. for the last 10 years according to Swiss Re data (21.6% p.a. in local currency), with little signs of slowing down; as the average for the last three years (to 2009) remains above 20% p.a.

Figure 120: NJA growth of 12.5% last 10 years�. Global P&C insurance premiums (2009 and 1999 / 10yr CAGR % pa)

Figure 121: �driven by China growth 24% p.a. NJA P&C insurance premiums (2009 and 1999 / 10yr CAGR % p.a.)

12.5%0.3%

6.5%

5.2%7.9%5.0%

9.6%

4.9%

-

100,000

200,000

300,000

400,000

500,000

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700,000

USA Canada UK France Germany Italy Japan NJA

P&C

insu

ranc

e pre

miu

ms (

US$m

n)

FY99 FY09

10yr CAGR (%pa)

21.0%6.2%10.6%

13.2%8.0%13.4%

23.9%

9.0%

7.5%

6.7%

10.8%

18.6%5.5%

-

10,000

20,000

30,000

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50,000

60,000

Hong K

ong

Singapore

South Korea

Taiwan

Australia

New

Zealand

China

Thailand

Malaysia

India

Indonesia

Philippines

Vietnam

P&C

insu

ranc

e pre

miu

ms (

US$m

n)

FY99 FY09

10yr CAGR (%pa)



In 2009, the Asia-Pacific market was 1.5x the size of Japan in 2009, whereas it was only around 50% of the Japanese market in 1999.

China is now similar in size to Canada and Italy, whereas it represented just 29% of the Canadian market and 21% of the Italian market in 1999.

Given this strong growth rate, the NJA market has grown from representing 5.4% of total global property & casualty insurance premiums in 1999, to 9.3% in 2009.

Within NJA, China has increased from 13.1% of NJA property & casualty insurance premiums in 1999 (0.7% of global), to 33.5% in 2009 (3.1% of global premiums)

Figure 122: NJA was 5.2% of global premium in 1999 � Global P&C insurance premiums (% by region)

Figure 123: � which has doubled to 15.4% in 2009 Global P&C insurance premiums (% by region)

FY99

North America46.4%

Western Europe31.5%

Japan11.3%

NJA5.4%

Latin America2.7%

Central/East Europe1.1%

Middle East0.7%

FY09

North America40.5%

Middle East1.3%

Central/East Europe3.8%

Latin America3.9%

NJA9.3%

Japan6.2%

Western Europe34.1%


25 May 2011


Figure 124: China insurance premium growth consistently strong � China P&C insurance premiums (Rmb mn), growth rate (%p.a.)

17.7%

21.6%

25.4%

21.8%

13.9%22.0%

24.4%10.3%20.4%

40.6%4.3%

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

Life

insu

ranc

e pre

miu

ms (

Rmb

mn)

10yr CAGR = 23.9%

Growth (%pa)

Source: Swiss Re, Credit Suisse estimates

As the market share gains imply, the premium growth delivered by China has comfortably outstripped global and NJA growth over the past 10 years.

As highlighted in Figure 125 below, China has grown from representing 13% of NJA in 1999 to around 33% in 2009.

Figure 125: Non-Japan Asian growth rates consistently above global growth NJA and global P&C insurance premium growth (%p.a. US$)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

as %

of r

egio

n

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

NJA Global (RHS)


The China P&C insurance market has grown at 24% p.a. in the ten years to 2009

China�s growth has exceeded both global and NJA growth in the last 10 years

25 May 2011


Premium growth by region We note that growth rates within NJA are materially different by country, with the more mature countries� growth rate slowing and the less developed countries growing at much higher rates as highlighted below:

Figure 126: Developing and emerging Asia growth � NJA P&C insurance premiums 5-yr growth rate (CAGR % p.a.) � local currency

0%

5%

10%

15%

20%

25%

30%

35%

Hong Kong

Singapore

South Korea

Taiwan

Australia

New Zealand

China

Thailand

Malaysia

India

Indonesia

Philippines

Vietnam

P&C

insu

ranc

e pre

miu

m g

rowt

h (%



Source: Swiss Re, Credit Suisse estimates, to 2009

We also note that the growth rate of �Developed Asia� (Hong Kong, Singapore, Korea, Taiwan, Australia and New Zealand) has been materially lower than the rest of the NJA region, as highlighted below:

Figure 127: Property & casualty insurance premium growth rates (US$ % p.a.) 10-yr CAGR (%p.a.) 5-yr CAGR (% p.a.) Emerging 12.3% 12.0% Developing 21.2% 22.1% - China 23.9% 24.9% Developed 9.0% 6.9% Total non-Japan Asia 12.5% 11.8% Source: Swiss Re, Credit Suisse estimates, to 2009

As we discuss in detail later, the lower growth rates are a function of insurance penetration in each country and slower GDP growth as countries mature.

Population demographics is the other key determinant, where those with growing population (particularly working population) are obviously likely to experience higher growth.

We note that in the case of China, the 23.9% compound growth over the last 10 years (in USD) has been achieved with population growth of just 0.6% p.a.

Growth rates are materially higher outside developed Asia

25 May 2011


Given its size and various rates of development, China�s P&C insurance premium growth has also been quite different in more recent years, with Developed China growing below the national average as highlighted below:

Figure 128: China P&C insurance growth also varying by region China P&C insurance premium growth (3yr CAGR %p.a.) - 2009

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%




National



We highlight that the differential in growth rates by region is starting to diverge between regions, with Developing China growing at 36 p.p. over the last three years, relative to national growth of 26% p.a.

Figure 129: China � P&C insurance premium growth rates (Rmb % p.a.) 10-yr CAGR (%p.a.) 5yr CAGR (%p.a.) 3yr CAGR (%p.a.) Emerging 17.9 22.8 20.2 Developing 17.5 22.5 36.2 Developed 17.7 19.3 26.8 Total China 17.7 21.2 26.0

Source: CEIC, Credit Suisse estimates, to 2009

We expect this trend to accelerate in the future as Developed China growth rates continue to slow, with stronger growth in the less developed regions, driven by urbanisation and industrialisation in these regions, likely to occur in the central Chinese regions as manufacturing shifts from coastal areas inland.

We highlight these trends are already occurring when examining GDP growth trends, with developed regions growth slowing, which had historically grown at higher rates.

Figure 130: China � GDP growth rates (Rmb % p.a.) 10-yr CAGR (%p.a.) 5-yr CAGR (%p.a.) 3-yr CAGR (%p.a.) Emerging 14.8 16.7 17.7 Developing 15.1 17.2 16.4 Developed 16.2 16.7 14.7 Total China 15.4 16.9 16.2

Source: CEIC, Credit Suisse estimates, to 2009

China�s P&C insurance growth is starting to diverge by region

25 May 2011


Insurance density by region Insurance density is defined as average property & casualty insurance premium per capita. This measure allows some assessment of potential saturation of premiums per person. We note that this measure can be distorted by the size of the commercial insurance market, which varies by industry types and market development.

However, we note that the insurance density in Non-Japan Asia is significantly below that of more developed markets, as shown below:

Figure 131: Non-Japan Asian insurance density well below developed markets � Global P&C insurance density (premium per capita US$ and 10-yr CAGR)

10.8%

0.3%6.1%

5.3%6.9%

4.5%8.5%

3.6%

-

500

1,000

1,500

2,000

2,500


P&C

insu

ranc

e pre

miu

ms /

capi

ta (U

S$)

FY99 FY09

10yr CAGR (%pa)


We highlight that insurance density increases with wealth, with the real growth opportunity residing in developing and emerging Asia.

Figure 132: � with real opportunity in developing and emerging markets NJA P&C insurance density (premium per capita US$ and 10-yr CAGR)

18.4%4.3%9.5%11.0%6.0%12.4%23.2%

7.7%6.3%

6.1%

10.4%

14.1%

5.1%

-

200

400

600

800

1,000

1,200

1,400

1,600

Hong Kong

Singapore

South Korea

Taiwan

Australia

New Zealand

China

Thailand

Malaysia

India

Indonesia

Philippines

Vietnam

P&C

insu

ranc

e pre

miu

ms /

capi

ta (U

S$)

FY99 FY09

10yr CAGR (%pa)



Non-Japan Asia P&C insurance premium density remains well below the developed world

With China�s P&C insurance density well below that of �Developed Asia�

25 May 2011


Examining China in detail also highlights material difference between regions, with the municipalities of Shanghai and Beijing insurance density being 4.5x and 5x the national average, respectively.

Figure 133: China insurance density is materially higher in Shanghai and Beijing China P&C insurance premium per capita by region (Rmb mn) - 2009

0

200

400

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800

1,000

1,200




National



Excluding these two municipalities, the difference between the various regions is still quite diverse, with Quinzhou 0.4x the national average and Zhejiang 2.0x.

Figure 134: China insurance density is materially higher in Shanghai and Beijing China P&C insurance premium per capita by region (Rmb mn) - 2009

0

100

200

300

400

500




National



Shanghai and Beijing insurance density are 4.5x and 5x the national average,respectively

25 May 2011


GDP per capita � entering the �sweet spot�

While the historical growth rates from NJA have been strong, we note that insurance density (premium per capita) and insurance penetration (premium as percentage of GDP) remains very low in most of developing and emerging Asia, as highlighted below:

Figure 135: Insurance density/GDP per capita remains low developing and emerging Asia P&C insurance premium per capita vs GDP per capita (US$) - 2009

USA

CanadaUK France

Germany

Italy JapanDeveloped Asia

Hong Kong

Singapore

South Korea

Taiwan

AustraliaNew Zealand

China

ThailandMalaysiaIndiaIndonesiaPhilippines

-

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0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000


Prem

ium

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S$)

Growthpotential


As such, we are of the view that as these countries will continue to mature and GDP per capita rises, their insurance density (premiums per capita) will also increase substantially.

We highlight the development of �Developed Asia� over the last decade in Figure 136 below, noting their starting point has not yet been hit by China.

Figure 136: Developed Asia past �sweet spot� � P&C insurance premium vs GDP per capita (US$) 1999-2009

Figure 137: � but China has long way to go P&C insurance premium vs GDP per capita (US$) - 2009

20092008

200720062005

20042003

2002200120001999

-

500

1,000

1,500

2,000

2,500

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000


Prem

ium

per

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ta (U

S$)

20092008

20072006200420032002200120001999-

500

1,000

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2,500

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000


Prem

ium

per

capi

ta (U

S$)

Growthpotential

Source for both charts: Swiss Re, Credit Suisse estimates

Non-developed Asian GDP and insurance per capita has substantial upside over the next decade

25 May 2011


We highlight that insurance density per capital remains low in most Chinese regions, even regions with much higher GDP per capita than others (for example Tianjin).

Figure 138: Insurance density/GDP per capita remains low in most of China � Property & casualty insurance premium per capita vs GDP per capita (Rmb)-2009

TibetGuizhou

Gansu

Yunnan

Qinghai


Shaanxi

Xinjiang

Guangxi

Hunan

Chongqing

HubeiHenanHainan

Shanxi

Inner Mongolia

Fujian

Heilongjiang

Hebei

Jilin

Shandong

Liaoning

Jiangsu

Zhejiang

Guangdong

Tianjin

Beijing

Shanghai

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ium

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mb)

Growthpotential


We also note that within lower density regions, differences are very large, as highlighted below in Figure 139:

Figure 139: � with differences at lower end still very large Property & casualty premium per capita vs GDP per capita (Rmb)- 2009

ShanghaiBeijing

Tianjin

Guangdong

Zhejiang

Jiangsu

Liaoning

Shandong

Jilin

Hebei

Heilongjiang

Fujian

Inner Mongolia

ShanxiHainan

Henan

Hubei

Chongqing

Hunan

Guangxi

Xinjiang

Shaanxi

NingxiaSichuanJiangxi

Anhui

Qinghai

Yunnan

Gansu

GuizhouTibet

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0 10,000 20,000 30,000 40,000 50,000 60,000 70,000


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Insurance density is low even in regions with high GDP per capita

Large variances exist in regions with lower insurance density

25 May 2011


Figure 122 highlights the development of the insurance density for Shanghai (which has the highest insurance density of China�s administrative regions):

Figure 140: Development of Shanghai municipality insurance density 1998-2009 Property & casualty insurance premium per capita vs GDP per capita (Rmb)

1998

19992000

2001

2002

2003 2004

2005

2006

2007

2008

2009

-

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Prem

ium

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mb)

11yr CAGR = 11.2% pa

11yr CAGR = 14.5% pa


While Shanghai and Beijing have substantially higher insurance density than other administrative regions in China, they remain at levels well below developed countries as highlighted below:

Figure 141: Shanghai/Beijing insurance density remains low relative to developed world Property & casualty insurance premium per capita vs GDP per capita (Rmb)- 2009

Jiangsu

Zhejiang

Guangdong

TianjinBeijing

Shanghai

China


Taiwan

South Korea

Singapore

Hong Kong

Developing


Germany

FranceUK

Canada

USA

-

400

800

1,200

1,600

2,000

2,400

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000


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prem

ium

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ta (U

S$)

Growthpotential

Source: Swiss Re, CEIC, Credit Suisse estimates

Insurance density growth for Shanghai has outgrown GDP per capita by 3% p.a. in the last 11 years

Shanghai and Beijing insurance density remains well below the developed world

25 May 2011


Insurance penetration by region Insurance penetration is defined as property & casualty insurance premiums as a percentage of GDP. This measure allows some assessment of potential saturation of insurance premiums per country, although can be distorted by commercial lines premiums.

Figure 142: NJA insurance penetration well below developed markets � Property & casualty insurance premiums / GDP (%)

0.0%

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1.5%

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GDP

(%)

FY99 FY09


We note that within NJA, many of the developed countries such as Korea and New Zealand have penetration rates in line with the more developed world, with developing and emerging Asia having very low penetration rates.

Figure 143: � but some way to go in non-developed Asia Property & casualty insurance premiums / GDP (%)

0.0%

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2.0%

3.0%

4.0%

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6.0%

Hong Kong

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Philippines

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(%)

FY99 FY09



Non-Japan Asia insurance premium penetration is below many developed markets �

� with even lower penetration in developing and emerging Asia

25 May 2011


While Shanghai and Beijing also have higher insurance penetration than the other regions in China, the difference is nowhere near as large as for insurance density.

Moving outside these two municipalities, the insurance penetration does not generally appear to have a high correlation to development.

Figure 144: Insurance penetration by region is more even in China Property & casualty insurance premiums / GDP (%) - 2009

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6




National



Insurance penetration is generally more uniform across China

25 May 2011


P&C insurance growth, density and penetration rates Figure 145: Non-Japan Asia 10-yr growth rate 12.5% pa� Global P&C insurance premiums (US$mn and 10yr CAGR %p.a.)

Figure 146: � with China highest growth rates NJA P&C insurance premiums (US$mn and 10yr CAGR %p.a.)

12.5%0.3%

6.5%

5.2%7.9%5.0%

9.6%

4.9%

-

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P&C

insu

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US$m

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FY99 FY09

10yr CAGR (%pa)

21.0%6.2%10.6%

13.2%8.0%13.4%

23.9%

9.0%

7.5%

6.7%

10.8%

18.6%5.5%

-

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Hong K

ong

Singapore

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orea

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India

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Philippines

Vietnam

P&C

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e pre

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ms (

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FY99 FY09

10yr CAGR (%pa)


Figure 147: NJA insurance density remains low � Global P&C insurance density (premium per capita US$)

Figure 148: � with China density even lower NJA P&C insurance density (premium per capita US$)

10.8%

0.3%6.1%

5.3%6.9%

4.5%8.5%

3.6%

-

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2,000

2,500


P&C

insu

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e pre

miu

ms /

capi

ta (U

S$)

FY99 FY09

10yr CAGR (%pa)

18.4%4.3%9.5%11.0%6.0%

12.4%23.2%

7.7%6.3%

6.1%

10.4%

14.1%

5.1%

-

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Hong Kong

Singapore

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Philippines

Vietnam

P&C

insu

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S$)

FY99 FY09

10yr CAGR (%pa)


Figure 149: NJA insurance penetration also low � Global P&C insurance penetration (premium as % of GDP)

Figure 150: � with China penetration still very low NJA P&C insurance penetration (premium as % of GDP)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

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5.0%


P&C

insu

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GDP

(%)

FY99 FY09

0.0%

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Hong Kong

Singapore

South Korea

Taiwan

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India

Indonesia

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P&C

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(%)

FY99 FY09


Source for all charts: Swiss Re, Wefa, Credit Suisse estimates

25 May 2011


Figure 151: China key driver of NJA insurance growth NJA P&C insurance premiums (US$mn and 10yr CAGR %p.a.)

Figure 152: � with growth across all regions China P&C insurance premium by region (Rmb mn)

21.0%6.2%10.6%

13.2%8.0%13.4%

23.9%

9.0%

7.5%

6.7%

10.8%

18.6%5.5%

-

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orea

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P&C

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FY99 FY09

10yr CAGR (%pa)


0

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25,000




2009 1999


Figure 153: China density low relative to Developed Asia NJA P&C insurance density (premium per capita US$)

Figure 154: � with opportunity in Developing China NJA P&C insurance density (premium per capita Rmb mn)

18.4%4.3%9.5%11.0%6.0%

12.4%23.2%

7.7%6.3%

6.1%

10.4%

14.1%

5.1%

-

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Hong Kong

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P&C

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FY99 FY09

10yr CAGR (%pa)


0

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400

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1,000

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2009 1999


Figure 155: China penetration rates improving NJA P&C insurance penetration (premium as % of GDP)

Figure 156: �more uniform across regions NJA P&C insurance penetration (premium as % of GDP)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Hong Kong

Singapore

South Korea

Taiwan

Australia

New Zealand

China

Thailand

Malaysia

India

Indonesia

Philippines

Vietnam

P&C

insu

ranc

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GDP

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FY99 FY09


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6




National

2009 1999

Developed EmerginDeveloping

Source for all charts: Swiss Re, CEIC, Wefa, Credit Suisse estimates

25 May 2011


Company positioning by region While motor insurance is more able to be distributed direct to consumers, regional positioning is not as key for P&C as would be the case in life insurance.

As highlighted below in Figure 157, growth rates do vary by region in China and on average are higher in many parts of �Emerging� China relative to the rest of the country.

We highlight that growth rates by company (see Figure 158) are more indicative of their maturity and we don't see huge variances by region for many companies. One that does stand out is China United which has been largely stagnant in �Developed� China and growing very strongly in �Developing� China.

Figure 157: China growth rate varies by sector � P&C insurance premium 4-yr CAGR (% p.a.) by region

Figure 158: � so have company growth by region P&C company growth (4-yr CAGR % p.a.) by region

0%

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ongoliaShanxi


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-5.0%

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Market PICC Ping An China Pacific China United CCIC Sun-shine China Life Tian-ping Tian an ChinaTaiping

Developed Developing Emerging Total


From 2005 to 2009, PICC P&C�s market share has reduced from 54.7% to 42.7%; but in Developed China, its market share reduced from 42.0% to 35.8%.

As highlighted below, the market share erosion has largely been to smaller new entrant into the market.

Figure 159: Market share varies by region � Market share by region - 2005

Figure 160: � with growth higher in Emerging China Market share by region - 2009

0.0%

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25 May 2011

China P&

C Insurance

63

Figure 161: China P&C insurance market � premium market share by administrative region Rmb mn, unless otherwise stated

Market share (%)


China United CICC

Sun-shine



China Pacific

China United CCIC

Sun-shine

China Life

Tian-ping

Tian an

China Taiping


Shanghai Municipality Shanghai East Developed 15,181 3,990 2,642 2,810 610 469 71 415 139 167 311 26.3% 17.4% 18.5% 4.0% 3.1% 0.5% 2.7% 0.9% 1.1% 2.0%Beijing Municipality Beijing East Developed 16,442 5,848 2,572 2,212 615 196 250 533 136 79 161 35.6% 15.6% 13.5% 3.7% 1.2% 1.5% 3.2% 0.8% 0.5% 1.0%Tianjin Municipality Tianjin East Developed 4,580 1,708 776 521 136 200 157 0 57 95 185 37.3% 16.9% 11.4% 3.0% 4.4% 3.4% 0.0% 1.3% 2.1% 4.1%Guangdong Province Guangzhou South Central Developed 23,910 8,988 5,193 3,674 1,819 537 457 150 410 412 409 37.6% 21.7% 15.4% 7.6% 2.2% 1.9% 0.6% 1.7% 1.7% 1.7%Zhejiang Province Hangzhou East Developed 19,634 7,467 1,933 1,995 1,419 644 623 857 256 806 253 38.0% 9.8% 10.2% 7.2% 3.3% 3.2% 4.4% 1.3% 4.1% 1.3%Jiangsu Province Nanjing East Developed 22,839 8,747 2,708 3,841 1,672 479 397 954 104 622 279 38.3% 11.9% 16.8% 7.3% 2.1% 1.7% 4.2% 0.5% 2.7% 1.2%

Liaoning Province Shenyang Northeast Developing 8,647 4,245 1,031 719 901 318 239 0 0 277 162 49.1% 11.9% 8.3% 10.4% 3.7% 2.8% 0.0% 0.0% 3.2% 1.9%Shandong Province Jinan East Developing 17,367 7,202 1,699 2,348 1,477 618 784 185 185 587 122 41.5% 9.8% 13.5% 8.5% 3.6% 4.5% 1.1% 1.1% 3.4% 0.7%Jilin Province Changchun Northeast Developing 4,046 1,590 466 455 0 251 133 0 0 115 0 39.3% 11.5% 11.3% 0.0% 6.2% 3.3% 0.0% 0.0% 2.8% 0.0%Hebei Province Shijiazhuang North Developing 12,867 6,513 1,350 1,079 1,392 446 325 0 213 225 130 50.6% 10.5% 8.4% 10.8% 3.5% 2.5% 0.0% 1.7% 1.8% 1.0%Heilongjiang Province Harbin Northeast Developing 5,672 2,075 449 323 0 129 272 272 0 103 34 36.6% 7.9% 5.7% 0.0% 2.3% 4.8% 4.8% 0.0% 1.8% 0.6%Fujian Province Fuzhou East Developing 7,267 3,712 1,088 722 548 282 53 343 0 122 94 51.1% 15.0% 9.9% 7.5% 3.9% 0.7% 4.7% 0.0% 1.7% 1.3%Inner Mongolia Autonomous Hohhot North Developing 6,734 3,062 433 416 1,139 558 102 0 0 0 0 45.5% 6.4% 6.2% 16.9% 8.3% 1.5% 0.0% 0.0% 0.0% 0.0%Shanxi Province Taiyuan North Developing 6,713 3,857 620 540 0 413 124 616 0 89 103 57.5% 9.2% 8.0% 0.0% 6.2% 1.9% 9.2% 0.0% 1.3% 1.5%

Hainan Province Haikou South Central Emerging 1,185 374 260 348 0 69 85 0 0 58 0 31.6% 22.0% 29.3% 0.0% 5.8% 7.2% 0.0% 0.0% 4.9% 0.0%Henan Province Zhengzhou South Central Emerging 9,774 3,939 784 699 1,144 330 401 1,008 0 306 120 40.3% 8.0% 7.2% 11.7% 3.4% 4.1% 10.3% 0.0% 3.1% 1.2%Hubei Province Wuhan South Central Emerging 6,897 3,693 725 685 576 163 120 0 81 230 214 53.5% 10.5% 9.9% 8.3% 2.4% 1.7% 0.0% 1.2% 3.3% 3.1%Chongqing Municipality Chongqing Central Emerging 4,706 2,144 766 520 236 169 167 0 16 238 64 45.6% 16.3% 11.0% 5.0% 3.6% 3.5% 0.0% 0.3% 5.1% 1.4%Hunan Province Changsha South Central Emerging 7,497 3,438 917 533 1,124 186 194 493 0 177 110 45.9% 12.2% 7.1% 15.0% 2.5% 2.6% 6.6% 0.0% 2.4% 1.5%Guangxi Autonomous Nanning South Emerging 4,971 2,729 596 834 0 182 98 0 0 114 24 54.9% 12.0% 16.8% 0.0% 3.7% 2.0% 0.0% 0.0% 2.3% 0.5%Xinjiang Autonomous Ürümqi Northwest Emerging 5,182 2,766 379 243 1,782 64 131 0 0 67 0 53.4% 7.3% 4.7% 34.4% 1.2% 2.5% 0.0% 0.0% 1.3% 0.0%Shaanxi Province Xi'an Northwest Emerging 6,053 2,438 815 332 556 330 195 0 0 157 199 40.3% 13.5% 5.5% 9.2% 5.4% 3.2% 0.0% 0.0% 2.6% 3.3%Ningxia Autonomous Yinchuan Central Emerging 1,184 783 223 124 0 68 0 0 0 0 0 66.2% 18.8% 10.4% 0.0% 5.8% 0.0% 0.0% 0.0% 0.0% 0.0%Sichuan Province Chengdu Southwest Emerging 14,872 6,831 2,265 1,050 1,407 575 237 0 142 315 606 45.9% 15.2% 7.1% 9.5% 3.9% 1.6% 0.0% 1.0% 2.1% 4.1%Jiangxi Province Nanchang East Emerging 4,413 2,392 452 490 0 274 94 391 0 104 0 54.2% 10.2% 11.1% 0.0% 6.2% 2.1% 8.9% 0.0% 2.4% 0.0%Anhui Province Hefei East Emerging 8,759 3,730 1,394 720 0 190 77 392 0 370 114 42.6% 15.9% 8.2% 0.0% 2.2% 0.9% 4.5% 0.0% 4.2% 1.3%Qinghai Province Xining Northwest Emerging 796 487 219 33 0 0 62 0 0 0 0 61.2% 27.5% 4.2% 0.0% 0.0% 7.8% 0.0% 0.0% 0.0% 0.0%Yunnan Province Kunming Southwest Emerging 6,817 3,634 968 908 0 561 166 208 0 205 54 53.3% 14.2% 13.3% 0.0% 8.2% 2.4% 3.1% 0.0% 3.0% 0.8%Gansu Province Lanzhou Northwest Emerging 2,705 1,410 261 215 184 152 36 185 0 87 0 52.1% 9.6% 7.9% 6.8% 5.6% 1.3% 6.8% 0.0% 3.2% 0.0%Guizhou Province Guiyang Southwest Emerging 3,605 1,526 474 685 0 163 132 246 0 160 124 42.3% 13.2% 19.0% 0.0% 4.5% 3.7% 6.8% 0.0% 4.4% 3.4%Tibet Autonomous Lhasa West Emerging 343 313 38 0 0 0 0 0 0 0 0 91.5% 11.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Total 261,657 111,632 34,496 30,075 18,736 9,017 6,182 7,248 1,739 6,288 3,871 42.7% 13.2% 11.5% 7.2% 3.4% 2.4% 2.8% 0.7% 2.4% 1.5%

Developed 102,585 36,748 15,824 15,053 6,270 2,525 1,955 2,909 1,102 2,181 1,598 35.8% 15.4% 14.7% 6.1% 2.5% 1.9% 2.8% 1.1% 2.1% 1.6%Developing 69,313 32,256 7,134 6,603 5,457 3,015 2,033 1,416 398 1,518 645 46.5% 10.3% 9.5% 7.9% 4.3% 2.9% 2.0% 0.6% 2.2% 0.9%Emerging 89,759 42,629 11,538 8,419 7,009 3,477 2,194 2,924 239 2,589 1,628 47.5% 12.9% 9.4% 7.8% 3.9% 2.4% 3.3% 0.3% 2.9% 1.8%Total 261,657 111,632 34,496 30,075 18,736 9,017 6,182 7,248 1,739 6,288 3,871 42.7% 13.2% 11.5% 7.2% 3.4% 2.4% 2.8% 0.7% 2.4% 1.5%

2009


25 May 2011


PICC

As discussed earlier, PICC�s market share erosion more prominent in Developing and Emerging China

From 2005 to 2009, PICC P&C�s market share has reduced from 54.7% to 42.7%; but in Developed China, its market share reduced from 42.0% to 35.8%.

Figure 162: PICC losing strong regional position � Market share by region � 2009 vs 2005

Figure 163: �with lower market share in Developed China% total premiums by region - 2009

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2005 2009

Developed33%

Emerging38%

Developing29%


Examining individual administrative regions clearly shows that once dominant market shares in various Developed and Emerging individual regions (some over 70% in 2004) have reduced across the board, with only three above 50% left (sixteen in 2004).

Figure 164: China P&C weaker in Developed China � Market share by region � 2005

Figure 165: �but losing ground across the board Market share by region - 2009

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We also note that China P&C has not simply tried to focus on its own distribution force; in terms of product differentiation or agency productivity, but has also belatedly joined the bancassurance rage � with currently about 30% of its new business from this channel.

25 May 2011


Ping An

Ping An has been the main gainer in market share in China over the last few years; particularly in �Emerging� China � which we deem is likely a function of its direct marketing capabilities as it has not invested heavily in growing its agency force and its life agents are also not positioned strongly in those regions.

Figure 166: Ping An growing all regions� Market share by region � 2009 vs 2004

Figure 167: �with a skew to Developed/Emerging China % total premiums by region - 2009

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2005 2009

Developed46%

Emerging33%

Developing21%


Examining individual administrative regions clearly shows an improvement in market share highest in the developing regions.

Figure 168: Ping An was stronger in Developed China � Market share by region � 2005

Figure 169: �but improving most in Emerging China Market share by region - 2009

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25 May 2011


China Pacific

China Pacific�s national market share has been surprisingly stable, having gained some ground in Developed China, but lost share marginally in other regions.

Figure 170: China Pacific holding in Emerging China � Market share by region � 2009 vs 2004

Figure 171: �with a skew to Developed China Market share by region - 2009

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2005 2009

Developed50%

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Examining individual administrative regions also China Pacific�s market share has been remarkably consistent across regions.

Figure 172: China Pacific had strong individual regions �Market share by region � 2005

Figure 173: � but lost ground in those regions Market share by region - 2009

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25 May 2011


China United

China United is a more interesting example where it appears to have retreated to regional areas where its agency network is strong.

Figure 174: China United retreating from Developed ChinaMarket share by region � 2009 vs 2004

Figure 175: � with skew to other regions Market share by region - 2009

0.0%

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2005 2009

Developed33%

Emerging38%

Developing29%


Examining individual administrative regions also highlights China United�s shift � Developed China to Developing China in particular.

Figure 176: China United strength in Developed � Market share by region � 2005

Figure 177: � now moving to other regions Market share by region - 2009

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25 May 2011


Appendix A: Regulatory initiatives China Insurance Regulatory Committee (CIRC) has always been a key driving force behind the healthy growth of the insurance industry. We list out all the major initiatives in Figure 178, that CIRC has taken in the past five years including the auto insurance reform, the introduction of No. 70 document and solvency regulations. We also provide a brief summary of the more important regulatory rules and changes.

Figure 178: China P&C insurance � regulatory history Date Sector Doc no Issuer Type Summary Jul-06 P&C Mandatory CIRC Mandatory motor introduced Jul-06 P&C Voluntary CIRC Standard voluntary motor rates introduced (A. B. C) Apr-07 P&C Voluntary CIRC Voluntary auto premium rates revised (2nd edition) Feb-08 P&C Mandatory CIRC Mandatory motor premium rates revised Feb-08 P&C Voluntary CIRC Voluntary auto premium rates revised (3rd edition) Jun-08 Solvency No. 1 CIRC Final Minimum solvency standards introduced Aug-08 P&C No. 70 CIRC Final Eliminated irregularities and prevent damage to market discipline Oct-09 P&C Voluntary CIRC Voluntary auto premium rates revised (4th edition) Jan-10 P&C Voluntary CIRC Beijing 'floating rate' voluntary auto insurance pricing 'trial' Dec-10 P&C No. 107 CIRC Final Regulate agency and protect market discipline Dec-10 Solvency CIRC Consultation Maximum gearing reduced from 100% to 50% Dec-10 P&C BJ Govt Quota restrictions on vehicles Jan-11 P&C Voluntary CIRC Shenzhen 'market rate' voluntary auto pricing 'trial' Apr-11 P&C Voluntary CIRC Xiamen 'floating rate' voluntary auto insurance pricing 'trial'

Source: CIRC, Government announcements, Credit Suisse estimates

Mandatory auto In 2006, the China Insurance Regulatory Commission (CIRC) effectively implemented one set of standard auto insurance scheme nation-wide by introducing a mandatory auto insurance and a voluntary auto insurance on top with standard liability coverage and premium rates. This uniform auto insurance scheme has its success in meeting the basic insurance need and streamlining the industry.

It has taken into account basic factors such as the vehicle categories, nature of use and claims experiences in terms of risk selection and differentiation. However the nation-wide policy fails to allow for differences in underwriting experiences in different areas in China due to different basic infrastructure, traffic intensity, repair cost and etc.

Recently the key initiative of the CIRC regarding auto insurance is to promote the pricing reform on a city by city basis to allow for a greater degree of customer segmentation and risk selection. Typically, these programmes incorporate additional risk factors such as driving experiences, driver information, sales channel and etc. The CIRC also encourages the local insurance association to set up online auto insurance information sharing platform which help ensure accurate underwriting and proper claims handling.

Mandatory auto Mandatory third party auto insurance was introduced in July 2006 which provides death and injury, medical and property loss insurance. The regulator set the standard premium rate and liability coverage limit and cap the commission rate at 4%. CIRC really designed it to be a �no profit no loss� social insurance scheme. After one year of implementation, traffic accident as a floating factor and corresponding floating discount/premium rate ranging from -30% to 30%, was added into the system for better risk differentiation (see Figure 179).

Following a review of the operating and actuarial results of the mandatory auto business of the P&C insurers, in February 2008, CIRC raised the liability coverage limit by c.100% (Figure 180) and lowered the premium rates by 5-39% for different categories (Figure 181).

Mandatory auto was introduced in July 2006

25 May 2011


Starting from Shanghai, CIRC began to localise the mandatory auto insurance by implementing pricing reform and subsequently launched similar localised schemes in Jiangsu, Fujian and most recently in Chongqing. In some cases of serious traffic law violation, the premium could be lifted by as much as 70%.

Jiangsu is also studying the possibility of introducing different premium rates in different region inside the province to better reflect the risk.

Figure 182: Major regulatory changes on mandatory auto insurance Date Event 1-Jul-2006 Mandatory motor introduced 1-Jul-2007 Accident experience as a floating factor introduced 1-Feb-2008 Mandatory motor premium rates revised 1-Apr-2008 Shanghai introduced traffic violation as floating factor 1-Mar-2010 Jiangsu introduced traffic violation as floating factor 1-May-2010 Sichuan introduced traffic violation as floating factor 1-Jun-2010 Gansu introduced traffic violation as floating factor 1-Jul-2010 Fujian introduced traffic violation as floating factor 1-Feb-2011 Chongqing introduced traffic violation as floating factor


Insurance Association of China has released the mandatory auto business financial and actuarial results for the past four years. In 2009, the total industry suffered an underwriting loss of Rmb5.3 bn and a total net loss of Rmb2.9 bn including investment income after the premium rates adjustment in February 2008.

Voluntary auto The voluntary auto insurance provides additional cover on top of the mandatory auto insurance. The CIRC approved three standard voluntary auto insurance policies developed by PICC, Ping An P&C and CPIC P&C and asked the other P&C insurers to comply with one out of the three. The voluntary auto insurance generally include coverage of third party liability, vehicle damage, theft protection and passengers liability. Customers could purchase one or several of the coverage plus any additional insurance coverage they feel necessary.

Similarly to what happened in the mandatory auto insurance, several major cities started to launch city specific voluntary auto insurance pricing reform which not only incorporates the basic feature of the national policy but also adjusts the premium rate and discount factors according to city specific traffic condition, underwriting experiences and etc. Often, the new voluntary auto insurance offers higher discount rate on no claims experiences and imposes heavier penalty on numerous claims experiences or severe law violation activities. The difference in the premium rate could be as high as 8 times for good driver and bad driver, which effectively achieves risk differentiation.

Figure 183: Major regulatory changes on voluntary auto insurance Date Event 1-Jul-2006 Standard voluntary motor rates introduced (A. B. C) 1-Apr-2007 Voluntary auto premium rates revised (2nd edition) 1-Feb-2008 Voluntary auto premium rates revised (3rd edition) 1-Oct-2009 Voluntary auto premium rates revised (4th edition) 1-Jan-2010 Beijing 'floating rate' voluntary auto insurance pricing 'trial' 1-Jan-2011 Beijing 2nd 'floating rate' voluntary auto insurance pricing 'trial' 1-Jan-2011 Shenzhen 'market rate' voluntary auto pricing 'trial' 1-Apr-2011 Xiamen 'floating rate' voluntary auto insurance pricing 'trial'

Source: CIRC, Credit Suisse

25 May 2011


Figure 184: Major regulatory changes on voluntary auto insurance Date Event 7/1/2006 Introduced three standard voluntary auto insurance, set A, B and C 4/1/2007 Launched 2nd edition voluntary auto policies 2/1/2008 Launched 3rd edition voluntary auto policies 10/1/2009 Launched 4th edition voluntary auto policies 1/1/2010 Launched city specific voluntary auto insurance pricing reform in Beijing 11/1/2010 Both Xiamen and Dalian issued consultation paper on voluntary auto insurance pricing reform 1/1/2011 Launched 2nd voluntary auto insurance pricing reform in Beijing 3/1/2011 Launched city specific voluntary auto insurance pricing reform in Shenzhen

Source: CIRC, Credit Suisse

Due to the penalty imposed on numerous claims experiences, some drivers choose not to claim under their voluntary insurance cover for small accidents to keep a clean record and enjoy a better premium rate the next year. Hence, the enhanced scheme promotes a lower claims frequency. It is reported that in Beijing, after nearly one year of enforcement of the new voluntary auto insurance scheme, the number of reported claims dropped by 6.1% and claims frequency dropped by 27.4% in the first 11 months of 2010 compared to 2009. Online information sharing platform A crucial part of the success of the auto insurance pricing reform is the set-up of an effective online auto insurance information sharing platform which contains key information such as vehicle basic information, drivers record, underwriting experience, claims experience and etc. This platform could ensure a proper claims handling process and fair pricing for the insurance companies as well as the policyholders and prevent fake claims. This platform has been built on a city level and is rolled out in major cities such as Beijing, Shanghai, Shenzhen and etc.

No. 70 document After several years of P&C market chaos, China Insurance Regulatory Commission (CIRC) finally came into action by way of issuing the No. 70 document on 29 Aug 2008. The enforcement of No. 70 document is viewed as a milestone of the tightening of the regulation as well as the improvement of the P&C market condition. The No. 70 document was really to address the market irregularities and promote an orderly, fair and efficient market.

The main focus areas include:

• Ensure the accuracy of the operational and financial data

• Ensure accurate premium recognition

• Prevent fraudulent claims

• Ensure correct booking of expense, no commission expense under claims or administration expenses

• Ensure standardised and strict reserving practice

• Enforce strict compliance of the regulator approved insurance policy and premium rate

• Promote a standardised claims procedure and improve the service quality

• Strengthen the internal control

• Strengthen solvency control and restrict business expansion

The CIRC also laid out measures which include:

• Apply severe legal punishment for mis-conduct

• Suspend the new business for as long as six months

CIRC issued No. 70 document in August 2008

25 May 2011


• Change the responsible management

• Charge legal fine

• Withdraw business licence

• Apply criminal punishment

• Enhance information disclosure, report illegal conduct and punishment to the public in a timely manner

• Strengthen solvency regulation, in the case of insolvent

• Restrict new branch expansion

• Restrict business scope

• Cap management compensation

• Limit shareholder dividend

• Force more reinsurance

• Force replenish of capital

• Build close supervision and investigation system on headquarter, set up regulatory talk with headquarter principal

• Set up report system with major shareholder, independent director and supervisor

• Set up explicit and strict management accountability system

Solvency regulation Solvency is the key to insurance companies capital management and remains one of the most effective measures for the regulator to promote a healthy industry condition. The current solvency regulation was implemented in September 2008 and the discussion on this topic appears in numerous other regulatory documents including No. 70 document that we discussed in the above.

The current solvency regulation requires that

• Insurance companies should follow the CIRC solvency rule to prepare solvency report and ensure the authenticity, accuracy, completeness and compliance

• The board of governance and management are responsible for the solvency report

• Submit audited annual solvency report

• Submit quarterly solvency report

• Report to the CIRC within five working days if insolvent

• Report to the CIRC within five working days if any major event happens which could cause insolvency which includes

• Significant investment loss

• Significant claim, massive surrender or major litigation

• Subsidiary or associate companies face financial distress or taken over by the regulator

• Headquarters of foreign insurance companies receive legal punishment because of solvency issue, face forced regulatory action or files for bankruptcy

• Parent company faces financial distress or taken over by the regulator

Solvency regulation implemented in September 2008

25 May 2011


• Major assets face liquidation or other major legal punishment

• Other events that could make significant negative impact on solvency

It classifies insurance companies into three categories:

• Insolvent; whose solvency margin ratio is below 100%

• Solvent I; whose solvency margin ratio is between 100% and 150%

• Solvent II; whose solvency margin ratio is above 150%

For the insolvent insurance companies, the following measures would be applied

• Increase capital base or limit shareholder dividend

• Set management compensation cap

• Restrict commercial advertisement

• Restrict branch expansion

• Restrict business scope

• Restrict new business

• Force assets auction or restrict fixed assets purchase

• Restrict capital usage

• Change management

• Take over by regulator

• Other actions that CIRC deems necessary

CIRC could ask Solvent I companies to submit plans to prevent insolvency. CIRC could require restructure or other necessary actions if Solvent I and Solvency II companies faces significant solvency risk

Sub-debt CIRC is also planning to tighten regulations for insurance firms raising capital through subordinated debt and issued a consultation paper in Dec. 2010.

Insurance firms that are going to issue subordinated debt need to

• Be in operation for at least three years

• The predicted dynamic solvency in the coming year might be lower than 100%

• Be profitable in the most recent year

• Have net assets above Rmb1 bn (US$150 mn)

• Sub-debt cannot exceed 50% of the total net assets compared with 100% currently

In May 2011, CIRC is set to lower hurdles for insurers seeking to raise capital through subordinated bonds. Insurance companies only need to demonstrate their solvency or two-year projected solvency of lower than 150% (instead of 100%) and have net assets above Rmb500 mn (instead of Rmn1 bn).

CIRC has issued a consultation paper to reduce maximum gearing levels

25 May 2011


Appendix B: Capital position Given insurance is a capital intensive business, and consumers are effectively putting their retirement savings/assets with them, financial strength is a key determinant of an insurance company.

From a shareholder perspective, high growth and low solvency ratios will likely mean a near-term (equity) capital raising, with group solvency ratios of the insurers as follows:

Figure 185: China listed insurers solvency ratios Solvency ratio (%) and composition - 2010

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10



Source: Company data, Credit Suisse

The quality of capital is also important, with the level of gearing/sub-debt shown in grey above, with PICC the standout in terms of low solvency coverage but also low quality solvency coverage, followed by China Taiping.

International regulators are focusing more on quality of capital and level of gearing, hence investors also need to take into account gearing levels rather than just absolute levels of solvency coverage. As highlighted above, the CIRC has also issued a consultation paper which aims to reduce maximum gearing levels from 100% to 50%.

Given the high growth rates, the Chinese insurers are relatively capital hungry, with solvency margins falling more recently. Insurance companies have high upfront costs (commissions, underwriting and other policy set up costs) and as such less mature companies are very capital hungry.

As they mature, the maturing older policies start to release capital until the company starts to reach a �steady state� in terms of capital. This is also the point at which they start to increase the dividend payout ratio.

PICC�s solvency ratios are materially below peers

25 May 2011


Ping An

Ping An�s capital ratios have also reduced substantially recently, although they remain above 200% after the recent capital raising.

We highlight Ping An also has very low debt ratios � with capital ratios in the P&C division and bank lower. The reduction in ratios during 2010 was due to the high growth rates experience by the company and the full consolidation of the associated banks in the group ratios.

Figure 186: Ping An solvency reducing � Ping An solvency ratio (%) and composition

Figure 187: � with bank capital ratios lowest Ping A solvency ratio (%) and composition by division

0%

50%

100%

150%

200%

250%

300%

350%

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-11F

Dec-11F


F'casts

Rmb16.4bn capital raising

0%

50%

100%

150%

200%

250%

300%

350%

FY09

1H10

FY10

FY09

FY10

FY09

FY10

FY09

FY10


Ping AnGroup

Life P&C Bank

Source: Company data, Credit Suisse estimates, MCR for bank = 8% risk weighted assets (RWA)

China Pacific

China Pacific has by far the highest solvency ratios among the Chinese listed insurers, with ratios above 300% and very little gearing. We deem that it is unlikely to need to raise equity capital for at least three years assuming no major market dislocation..

Figure 188: China Pacific solvency reducing � China Pacific solvency ratio (%) and composition

Figure 189: � with Ming An sale to improve position China Pacific solvency ratio (%) and composition by division

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11F

Dec-11F


F'casts

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

FY09

FY10

FY09

FY10

FY09

FY10


China PacificGroup

Life P&C


25 May 2011


PICC

PICC�s solvency position has gradually eroded over the last few years as its profitability has suffered due to poor market competitive conditions.

While the headline solvency ratio has deteriorated, the gearing levels have also substantially increased, with capital raising likely near term, in our view.

Figure 190: PICC solvency reducing � PICC solvency ratio (%) and composition

Figure 191: � with excess almost gone PICC excess capital (above solvency � Rmb mn)

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11FTier 1 Tier 2 100% MCR = solvecy 150% MCR

F'casts

0

2,000

4,000

6,000

8,000

10,000

12,000

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10


China Taiping

Given its immaturity and high growth rate, China Taiping is fairly capital intensive. We highlight that the gearing ratios are also high and as such deem its next raising will likely be in the form of equity capital.

Figure 192: China Taiping solvency reducing� China Taiping solvency ratio (%) and composition

Figure 193: �with Ming An sale to improve position China Taiping solvency ratio (%) and composition by division

0%

50%

100%

150%

200%

250%

300%

350%

400%

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11F

Dec-11F


F'casts

0%

100%

200%

300%

400%

500%

600%

FY09

1H10

FY10

FY09

1H10

FY10

FY09

1H10

FY10


China TaipingGroup

Life P&C


25 May 2011


Appendix C: Company profiles PICC (2328.HK) As discussed earlier, the profitability of the property & casualty sector has steadily improved in the last couple of years (see Figure 45) due to increased regulatory focus on solvency, commissions paid and premium discounting in particular.

While sustainability of this improvement is potentially debatable (given the current reliance of the industry on distributing its product through third party distributors), we deem profitability will remain better near to medium term; and deem further upside exists for PICC as it is still lagging peers.

■ Market pricing in further improvement � as highlighted in Figure 46, a further improvement is already priced into PICC�s current share price, with PICC now trading at 4.3x book value, despite generating on ROE of ~22%.

Figure 194: Profitability of P&C insurance improving� Combined ratio by insurers (%)

Figure 195: � but very strong improvement in price PICC Combined ratio (% NEP)

90.0%

92.5%

95.0%

97.5%

100.0%

102.5%

105.0%

107.5%

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

)


Underwriting profit

Underwriting loss

PICC

China Pacific

ROE = 15%

Ping An

90.0%

92.5%

95.0%

97.5%

100.0%

102.5%

105.0%

FY06 FY07 FY08 FY09 FY10 FY11F FY12F

F'casts -->

CS f'casts

Implied by current priceassuming 16x PE

Underwirting loss

Underwirting profit

Source: Company data, Credit Suisse estimates Source: Company data, Reuters, Credit Suisse estimates

■ Capital position weak � given the historical poorer profitability, PICC�s capital ratios have steadily fallen as highlighted in Figure 47, having raised a substantial amount of sub-debt to keep headline ratios above 100%. We deem it to need Rmb10-20 bn in equity to restore capital ratios to more healthy levels and reduce gearing.

Figure 196: PICC capital ratios deteriorating � PICC solvency ratio (%) and composition

Figure 197: �and substantially lower than peers China insurance solvency ratio (%) and composition

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11F


F'casts

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10




25 May 2011


PICC � key focus charts

Figure 198: EPS has materially improved � Earning per share (by half)

Figure 199: � with strong premium growth P&C premiums (Rmb mn and growth %p.a.)

(0.10)

(0.05)

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Earn

ings

per

shar

e (EP

S)

-300%

-200%

-100%

0%

100%

200%

300%

EPS

grow

th (%

pa)

F'cast

12.8% 0.5%14.5%

24.3%14.9%

17.6%

28.8%11.5%

13.4%

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Gros

s writ

ten

prem

ium

(Rm

b m

n)

Motor Commercial property Cargo Liability Accident Other

F'cast

GWP growth (% pa)

E Source for both charts: Company data, Credit Suisse estimates

Figure 200: Portfolio skew to motor � PICC premium mix by segment (%) - 2011E

Figure 201: � driving combined ratio improvement PICC combined ratio (%)

FY11F

Other10%

Commercial property6%

Motor75%

Accident3%

Liability4%

Cargo2%

90%

95%

100%

105%

110%

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

NEP

)

Group Motor

F'cast


Figure 202: � underwriting profit not frequent � PICC underwriting profit (Rmb mn)

Figure 203: ... with commission ratio expanding Combined ratio composition (%)

-4,000

-3,000

-2,000

-1,000

-

1,000

2,000

3,000

4,000

5,000

6,000FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Unde

rwrit

ting

prof

it (R

mb

mn)

Group Motor Commercial property Other

F'cast

0%

20%

40%

60%

80%

100%

120%

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Com

bine

d ra

tio (%

NEP

)

Expense ratio Commission ratio Loss ratio U/w breakeven

F'cast

Underwriting loss


25 May 2011


PICC � key valuation metrics

Figure 204: P/E trading at historical average � PICC - PE ratio (x)

Figure 205: � and slightly above relative to market PICC - PE (x) premium to market (HSI)

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Dec-03

Apr-04

Aug-04

Dec-04

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

PE (x

)

sd +1

sd -1

Average

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

Dec-03

Apr-04

Aug-04

Dec-04

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

PE re

lativ

e (%

)

Figure 206: P/B almost 1 sd above average � PICC - Price to book (x) ratio and ROE

Figure 207: � with very low (if any) dividend yield PICC � dividend yield (%)

-

1.0

2.0

3.0

4.0

5.0

Dec-03

Apr-04

Aug-04

Dec-04

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

Pric

e to

boo

k (x

)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

RO

E (%

pa)

ROE (%pa)

Average

sd +1

sd -1

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

Dec-03

Apr-04

Aug-04

Dec-04

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

Div

iden

d yi

eld

(%)

Average

sd +1

sd -1

Figure 208: Price to premium back to average � PICC �Market capitalisation to premiums (x)

Figure 209: � with share price back to recent highs PICC H-share price and HSI index

0.0

0.5

1.0

1.5

2.0

2.5

Dec-03

Apr-04

Aug-04

Dec-04

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

Mar

ket c

ap /

prem

ium

s (A

PE) (

x)

sd +1

sd -1

Average

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Dec-03

Apr-04

Aug-04

Dec-04

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

Shar

e pr

ice

(HK

$)

10,000

15,000

20,000

25,000

30,000

35,000

Han

g Se

ng in

dex

PICC

Hang Seng index

Source for all charts: Company data, Credit Suisse estimates

25 May 2011


PICC � key financials

Figure 210: PICC�s income statement Income statement FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E(Rmb mn) Gross written premium 71,348 88,668 101,878 119,771 154,307 172,117 195,240 221,436∆ unearned premium -5,421 -6,161 2,645 -10,053 -13,699 -9,292 -10,514 -11,876Outwards reinsurance expense -10,311 -13,779 -24,504 -16,422 -17,618 -20,589 -22,903 -25,467Net earned premium 55,616 68,728 80,019 93,296 122,990 142,236 161,823 184,093 Net claims expense -38,616 -46,944 -60,710 -64,517 -82,908 -96,448 -109,648 -124,811 Acquisition expenses -8,882 -11,151 -11,597 -19,795 -23,412 -24,945 -28,395 -32,314Insurance protection expense -610 -749 0 0 0 0 0 0Administration expenses -6,904 -11,311 -10,317 -11,044 -13,943 -17,097 -18,646 -21,044Total non-claims expense -16,396 -23,211 -21,914 -30,839 -37,355 -42,042 -47,041 -53,358 Underwriting result 604 -1,427 -2,605 -2,060 2,727 3,746 5,134 5,925 Inv income tech reserves (est.) 939 1,420 1,410 1,340 1,924 3,074 3,619 4,237Interest credited to PH deposits -136 -248 -215 -112 -25 -165 -179 -194Sundry income/expense -48 -123 62 143 16 18 19 21Insurance trading result 1,359 -378 -1,348 -689 4,642 6,672 8,594 9,989 Investment income on SHF's (est.) 3,076 5,963 2,365 3,100 2,929 2,606 2,950 3,633Financing costs -209 -315 -227 -264 -788 -637 -637 -637Exchange gains/losses -426 -801 -815 -6 -370 -93 -23 -6Associate profit 0 -13 -345 26 81 128 135 144Net profit before tax 3,800 4,456 -370 2,167 6,494 8,675 11,019 13,122 Tax expense -1,718 -1,465 497 -384 -1,282 -2,169 -2,755 -3,281Net profit after tax 2,082 2,991 127 1,783 5,212 6,506 8,264 9,842 Financial summary FY06 FY07 FY08 FY09 FY10 FY11F FY12F FY13FReported EPS 0.187 0.268 0.011 0.160 0.468 0.584 0.678 0.744EPS growth (%pa) 87.1% 43.7% -95.8% 1303.9% 192.3% 24.8% 16.1% 9.7%PE ratio (x) 61.1x 42.5x 837.4x 59.6x 20.4x 16.3x 14.1x 12.8x DPS 0.000 0.091 0.000 0.000 0.000 0.000 0.203 0.223Yield (%pa) 0.0% 0.8% 0.0% 0.0% 0.0% 0.0% 2.1% 2.3%Payout ratio (%) 0.0% 33.9% 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% No of shares (diluted) 11,142 11,142 11,142 11,142 11,142 11,142 12,189 13,237Source: Company data, Credit Suisse estimates, we assume capital raising in FY12E

25 May 2011


Figure 211: PICC�s segmental break-up/operating ratios (%) Segmental FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E GWP by segment (%) Motor 69.9% 69.9% 68.0% 71.4% 75.0% 75.6% 76.7% 77.7%Commercial Property 11.5% 10.1% 9.2% 7.9% 6.8% 6.4% 6.0% 5.5%Cargo 3.9% 3.4% 3.2% 2.3% 2.2% 2.2% 2.1% 2.1%Liability 4.2% 4.1% 4.2% 3.9% 3.5% 3.6% 3.6% 3.5%Accident 3.6% 3.2% 3.7% 3.2% 2.7% 2.6% 2.4% 2.2%Other 7.0% 9.3% 11.8% 11.2% 9.7% 9.5% 9.2% 9.0% Underwriting result by segment Motor -713 57 -2,089 -1,042 2,492 3,748 5,292 6,085Commercial Property 95 -729 -1,468 -1,533 -292 -78 -82 -86Cargo 745 492 434 287 342 190 201 221Liability 391 3 -13 -73 66 4 3 3Accident 250 -46 -374 -224 21 -14 -165 -173Other -164 -1,204 905 525 98 -104 -114 -126 Operating ratios FY06 FY07 FY08 FY09 FY10 FY11F FY12F FY13FGWP growth 14.5% 24.3% 14.9% 17.6% 28.8% 11.5% 13.4% 13.4%Ceding ratio 15.6% 16.7% 23.4% 15.0% 12.5% 12.6% 12.4% 12.2%NEP growth 11.7% 23.6% 16.4% 16.6% 31.8% 15.6% 13.8% 13.8% Loss ratio 69.4% 68.3% 75.9% 69.2% 67.4% 67.8% 67.8% 67.8%Acquisition cost ratio 16.0% 16.2% 14.5% 21.2% 19.0% 17.5% 17.5% 17.6%Insurance protection cost ratio 1.1% 1.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Admin expense ratio 12.4% 16.5% 12.9% 11.8% 11.3% 12.0% 11.5% 11.4%Total expense ratio 29.5% 33.8% 27.4% 33.1% 30.4% 29.6% 29.1% 29.0% Combined operating ratio 99.1% 93.9% 99.0% 96.5% 97.8% 99.8% 98.9% 96.3%Motor 101.7% 99.9% 103.5% 101.5% 97.5% 96.7% 96.0% 96.0%Commercial Property 98.3% 112.8% 124.4% 125.5% 104.3% 101.1% 101.1% 101.1%Cargo 64.0% 78.3% 82.2% 85.8% 87.0% 93.4% 93.7% 93.7%Liability 81.9% 99.9% 100.4% 102.3% 98.4% 99.9% 99.9% 99.9%Accident 86.3% 102.5% 116.1% 108.4% 99.2% 100.5% 105.5% 105.5%Other 107.1% 138.6% 87.6% 93.9% 98.9% 101.1% 101.1% 101.1%Insurance margin (pre-tax) 2.4% -0.6% -1.7% -0.7% 3.8% 4.7% 5.3% 5.4% Inv yield on technical reserves 2.6% 3.6% 3.3% 2.7% 2.7% 3.1% 3.1% 3.1%Inv yield on SHF's funds 14.6% 20.0% 6.9% 7.3% 5.6% 5.2% 5.3% 5.2% Tax rate (%) 45.2% 32.9% 134.3% 17.7% 19.7% 25.0% 25.0% 25.0%Source: Company data, Credit Suisse estimates

25 May 2011


Figure 212: PICC�s balance sheet Balance sheet FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E Cash 21,606 21,452 29,056 32,143 32,209 34,010 42,758 49,003Investments 40,535 54,780 47,735 73,141 111,574 117,814 148,115 169,749Reinsurance recoveries 4,864 4,447 4,716 9,790 10,376 11,406 12,579 13,912Other receivables 6,669 20,587 33,503 21,806 15,503 17,362 19,774 22,518Prepayments 6,739 5,775 11,415 10,947 12,346 13,611 15,007 16,545Deferred acquisition costs 6,817 7,490 0 0 0 0 0 0Fixed assets 16,306 16,119 16,510 16,738 16,702 17,548 18,436 19,369Other 2,588 3,615 1,315 818 3,075 3,075 3,075 3,075Total assets 106,124 134,265 144,250 165,383 201,785 214,827 259,743 294,171 Unearned premium 36,842 43,931 47,118 44,872 53,010 62,303 72,816 84,692Provision for outstanding claims 22,880 29,184 32,571 47,823 69,936 80,611 92,748 106,563Policyholders' deposits 8,894 7,953 7,383 5,287 2,517 8,602 9,304 10,063Other payables 3,716 11,127 19,184 16,595 11,264 11,264 12,125 12,125Borrowings 3,000 3,000 3,000 8,000 14,157 14,157 14,157 14,157Other 10,065 12,992 15,250 21,043 26,067 6,550 6,680 7,769Total liabilities 85,397 108,187 124,506 143,620 176,951 183,486 207,830 235,370 Net assets 20,727 26,078 19,744 21,763 24,834 31,340 51,912 58,802Net tangible assets 20,727 26,078 19,744 21,763 24,834 31,340 51,912 58,802 Book value (RMB/share) 1.86 2.34 1.77 1.95 2.23 2.81 3.92 4.44Price to book value (x) 5.1 4.1 5.4 4.9 4.3 3.4 2.4 2.1Return on equity (%pa) 11.1% 12.8% 0.6% 8.6% 22.4% 23.2% 19.9% 17.8%Return on assets 2.1% 2.5% 0.1% 1.2% 2.8% 3.1% 3.5% 3.6% NTA (p/share) 1.86 2.34 1.77 1.95 2.23 2.81 3.92 4.44Price to NTA (x) 5.1x 4.1x 5.4x 4.9x 4.3x 3.4x 2.4x 2.1xROTE (%pa) 11.1% 12.8% 0.6% 8.6% 22.4% 23.2% 19.9% 17.8% Assets available for solvency 12,344 21,243 16,762 17,469 23,628 30,134 50,706 57,596- of which subdebt 3,000 3,000 3,000 8,000 14,157 14,157 14,157 14,157Minimum solvency margin (MCR) 9,143 11,235 11,546 15,690 20,619 23,968 27,766 32,075Solvency ratio (%) 135% 189% 145% 111% 115% 126% 183% 180%- Tier 1 ratio 102% 162% 119% 60% 46% 67% 132% 135%- Tier 2 ratio 33% 27% 26% 51% 69% 59% 51% 44%Gearing 24% 14% 18% 46% 60% 47% 28% 25%Premium solvency (NTA / premiums) 37.3% 37.9% 24.7% 23.3% 20.2% 22.0% 32.1% 31.9%Claims solvency (NTA / o/s claims) 124.7% 111.7% 74.6% 59.4% 42.7% 46.2% 65.9% 64.4% Holding period (NWP) 0.66 0.69 0.61 0.55 0.55 0.53 0.66 0.70Source: Company data, Credit Suisse estimates

25 May 2011


China Pacific (2601.HK / 601601.SS) In our view, China Pacific offers the best relative value exposure to the listed Chinese insurance space, with key investment considerations:

■ Highest P&C exposure after PICC � with 25-30% of earnings are derived from P&C and a strong track record in delivery of superior margins to most peers.

■ Strongest capital position in the sector, with very little gearing and strong excess capital position at group level. We deem it unlikely that the company will need equity capital for the next 2�3 years.

Figure 213: P&C insurance 25-30% of profits � % FY11E profit by division

Figure 214: � with strongest capital position in sector Solvency ratio by company (%)

FY11F

Corp / other15%


59%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10

1H10

2H10



Incl 1H11raising


■ Strong life insurance growth profile, value of new business growth has averaged 26.5% p.a. for the past three years, with medium-term growth underpinned by channel mix improvement, agency force growth and agency productivity improvement.

■ Leverage to rising interest rates, China Pacific has the highest sensitivity in terms of value of in-force business to rising rates, given its negative spread portfolio and low guaranteed business skew.

Figure 215: Value of new business growth strong � Value of new business growth (2H06 base year =100)

Figure 216: � stable growth outlook Value of 1yr new business (VNB) growth (% pa)

100

150

200

250

300

350

400

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

VNB

grow

th (3

1 Dec

2006

=1)

China Taiping

China Life

Ping An

China Pacific

0%

10%

20%

30%

40%

50%

China Life Ping An China Pacific China Taiping

Valu

e of n

ew b

usin

ess g

rowt

h (%

)

3yr CAGR FY10 FY11F


25 May 2011


China Pacific � key group focus charts

Figure 217: ~65% of earnings life insurance � FY10F NPAT contribution by division

Figure 218: � with solvency position strong China Life group solvency ratio (%)

FY11F

Corp / other15%


59%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11F


F'casts


Figure 219: 2H10 EPS weaker than 1H09 � Earning per share (Rmb) � by half

Figure 220: � with strength particularly in P&C NPAT contribution by division � by half

-0.50

-0.30

-0.10

0.10

0.30

0.50

0.70

0.90

1.10

1.30

1.50

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Earn

ings

per

shar

e (EP

S)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

EPS

grow

th (%

pa)

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Oper

atin

g pr

ofit

(RMB

mn)

Life insurance P&C Corp / other Source for both charts: Company data, Credit Suisse estimates

Figure 221: Embedded value up 12% on pcp � Group embedded value (Rmb mn and % market capitalisation)

Figure 222: � while VNB grew at 27% in 2H10 Group value of 1yr new business (Rmb mn and implied multiplier)

0

40,000

80,000

120,000

160,000

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Embe

dded

val

ue (R

mn

mn)

10%

25%

40%

55%

70%

EV a

s %

of m

arke

t cap

(%)

Net w orth Value of in force business (VIF) EV % market cap (%)

F'casts

0

2,000

4,000

6,000

8,000

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Valu

e 1y

r NB

(Rm

n m

n)

0.0x

15.0x

30.0x

45.0x

60.0x

Impl

ied

VNB

mul

tiplie

r (x)

Value of 1 y ear's NB Implied VNB multiplier (x )

F'casts


25 May 2011


China Pacific � key divisional focus charts � LIFE

Figure 223: Life NPAT impacted by market movements Life insurance NPAT ( Rmb mn and growth %pa)

Figure 224: Headline premium in 2011 weaker so far Life insurance monthly premiums (Rmb mn)

0

2,000

4,000

6,000

8,000

10,000

FY02 FY05 FY06 FY07 FY08 FY09 FY10 FY11F FY12F

Life

NPA

T (R

MB

mn)

-50%

-25%

0%

25%

50%

75%

Grow

th (%

pa)

F'casts

-40%

-20%

0%

20%

40%

60%

80%

100%

Aug-04

Dec-04

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Grow

th (%

pa)

Growth (%pcp) Growth (% rolling 12mths) Growth (5yr CAGR %pa) Source for both charts: Company data, CIRC, Credit Suisse estimates, APE = AP + 10% SP

Figure 225: In-force APE 26% in 2010 � Life insurance Annual Premium Equivalent (IF APE Rmb mn)

Figure 226: � and new business 35% Life insurance new business APE (Rmb mn)

0

20,000

40,000

60,000

80,000

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

In-fo

rce

prem

ium

s (R

MB

mn)

0%

10%

20%

30%

40%

New

busi

ness

gro

wth

(%pa

)

In-force annual premiums 10% single premiums APE grow th (%pa)

F'casts

IF APE growth (% pa)

0

5,000

10,000

15,000

20,000

25,000

30,000

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

New

busi

ness

pre

miu

ms

(RM

B m

n)

0%

10%

20%

30%

40%

50%

New

busi

ness

gro

wth

(%pa

)

New business AP 10% new bsuiness SP NB APE grow th (%pa)

F'casts

NB APE growth (%pa)


Figure 227: Embedded value margin stable � Life embedded value (Rmb mn and %APE)

Figure 228: � and VNB rose in 2H10 as mix improved Value of 1yr new business (Rmb mn and implied multiplier)

15%

15%

40%

18%40%

0

20,000

40,000

60,000

80,000

100,000

120,000

FY07

FY08

FY09

FY10

FY11F

FY12F

Embe

dded

val

ue (R

mn

mn)

0%

50%

100%

150%

200%

250%

EV m

agin

(% p

rem

ium

)

Net w orth Value of in force business (VIF) EV margin (%)

F'casts

Growth (%pa)

0

2,000

4,000

6,000

8,000

10,000

FY07

FY08

FY09

FY10

FY11F

FY12F

Valu

e 1y

r NB

(Rm

n m

n)

0%

15%

30%

45%

60%

VNB

mar

gin

(%)

Value of 1 y ear's NB VNB margin (%)

F'casts


25 May 2011


China Pacific � key divisional focus charts � P&C

Figure 229: P&C NPAT up strongly in 2010 � P&C NPAT (Rmb mn) by half

Figure 230: � with strong premium growth P&C premiums (Rmb mn and growth %pa)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY05 FY06 FY07 FY08 FY09 FY10 FY11F FY12F

P&C

NPAT

(RM

B m

n)

-130%

-80%

-30%

20%

70%

120%

NPAT

gro

wth

(%pa

)

F'casts

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

P&C

prem

ium

s (R

MB

mn)

0.0%

7.5%

15.0%

22.5%

30.0%

37.5%

45.0%

GWP

grow

th (%

pa)

Gross w ritten premium Net earned premium GWP grow th (%pcp)

F'casts


Figure 231: Underwriting profitability strong � P&C underwriting profit (Rmb mn)

Figure 232: � with combined ratio of 93.7% in 2010 P&C combined ratio (%)

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Unde

rwrti

ting

prof

it (R

MB

mn)

F'casts

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

NEP

)

Underwriting loss

Underwriting profit

Sichuan earthquake / snowstorms

F'casts


Figure 233: � with expense ratios stable P&C combined ratio (%) composition

Figure 234: Premium mix remains mostly Auto � Gross written premiums by class (Rmb mn)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Com

bine

d ra

tio (%

NEP

)

Ex pense ratio Loss ratio

F'casts

0

10,000

20,000

30,000

40,000

50,000

60,000

FY05

FY06

FY07

FY08

FY09

FY10

GWP

mix

(Rm

b m

n)

Automobile Non-auto Accident and health


25 May 2011


China Pacific � key valuation metrics

Figure 27: P/E almost 1 sd below long-term average � China Pacific - PE ratio (x)

Figure 28: � but in line relative to market China Pacific - PE (x) premium to market (HSI)

15.0

20.0

25.0

30.0

35.0

40.0

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

PE (x

)

Average

sd +1

sd -1

A-shares

H-shares

0%

50%

100%

150%

200%

250%

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

PE re

lativ

e (%

)

Average

sd +1

sd -1

Figure 235: P/BV at long-term average � China Pacific - Price to book (x) ratio and ROE

Figure 236: � dividend yield around 1% China Pacific � dividend yield (%)

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Pric

e to

boo

k (x

)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

RO

E (%

pa)

ROE (%pa)

Average

sd +1

sd -1

H-shares

A-shares

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Div

iden

d yi

eld

(%)

Average

sd +1

sd -1H-shares

A-shares

Figure 237: Price to EV is at historical average � China Pacific - Price to EV (x) ratio

Figure 238: � so is implied VNB multiple China Pacific - implied VNB multiplier (x) ratio

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Pric

e to

Em

bedd

ed V

alue

(x)

Average

sd +1

sd -1

A-shares

H-shares

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Impl

ied

VNB

mul

tiplie

r (x)

Average

sd +1

sd -1

H-shares

A-shares

Source for all charts: Company data, Credit Suisse estimates

25 May 2011


China Pacific � key financials Figure 239: China Pacific income statement (Rmb mn unless otherwise stated) FY08 FY09 FY10 FY11E FY12E FY13E Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Gross written premiums (GWP) 75,752 96,342 139,555 170,432 203,303 240,698Outwards reinsurance expense -8,435 -9,791 -13,422 -17,288 -20,715 -24,776Change in unearned premium -1,064 -2,424 -6,382 -3,087 -3,415 -4,081Net earned premiums (NEP) 66,253 84,127 119,751 150,057 179,173 211,841 Investment income 8,110 19,316 20,657 22,851 28,499 34,287Other income 1,904 746 919 1,049 1,111 1,208Total revenue 76,267 104,189 141,327 173,958 208,783 247,336 Insurance benefits paid -32,417 -31,916 -37,847 -52,149 -63,167 -75,009Increase in PH reserves -19,417 -37,058 -59,241 -68,068 -81,628 -95,913PH dividends and pa profits -4,633 -3,923 -5,121 -5,327 -6,334 -7,442Insurance PH expense -56,467 -72,897 -102,209 -125,545 -151,128 -178,363 Commission expenses 0 0 0 0 0 0General and administrative expense -17,951 -21,475 -28,063 -32,175 -38,447 -45,554Finance costs -532 -396 -373 -344 -344 -344Total non-PH expenses -18,483 -21,871 -28,436 -32,519 -38,791 -45,898 Total expenses -74,950 -94,768 -130,645 -158,064 -189,919 -224,262 Net profit before tax 1,317 9,421 10,682 15,894 18,864 23,074Associate profit/loss 0 85 -12 134 154 177Tax expense 1,350 -2,033 -2,005 -2,438 -2,922 -3,559NPAT 2,667 7,473 8,665 13,590 16,096 19,692 Minority interest -98 -117 -108 -201 -234 -287NPAT attributable to shareholders 2,569 7,356 8,557 13,389 15,862 19,406 Divisional NPAT Life insurance 4,030 5,427 4,611 8,460 9,728 11,965Property & Casualty 528 1,398 3,451 3,229 3,933 4,736Corporate / other -1,900 624 1,233 1,845 2,368 2,909 Key financials Shares (average diluted) 7,700 7,723 8,600 8,600 8,600 8,600 EPS 0.33 0.95 1.00 1.56 1.84 2.26EPS growth (%pa) -57.8% 185.5% 4.5% 56.5% 18.5% 22.3%PE (x) 82.0x 28.7x 27.5x 17.6x 14.8x 12.1xDPS 0.60 0.30 0.35 0.54 0.65 0.79Dividend yield (%) 2.3% 1.1% 1.3% 2.0% 2.4% 2.9%Payout ratio (%) 179.8% 31.5% 35.2% 35.0% 35.0% 35.0%Return on equity (%) 4.7% 12.9% 11.3% 16.1% 17.0% 18.5%Return on assets (%) 0.8% 2.1% 2.0% 2.6% 2.6% 2.7%Tax rate (%) -ve 21.6% 18.8% 15.3% 15.5% 15.4%Source: Company data, Credit Suisse estimates

25 May 2011


Figure 240: China Pacific balance sheet (Rmb mn unless otherwise stated) FY08 FY09 FY10 FY11E FY12E FY13E

Property and equipment 6,596 8,145 9,197 9,197 9,197 9,197Investments 288,074 366,018 433,385 515,122 620,293 744,732Deferred acquisition costs 0 0 0 0 0 0Insurance receivables 4,303 3,864 5,409 5,963 6,575 7,249Interest receivables 4,979 6,679 9,207 11,140 13,480 16,311Other assets 365 525 553 553 553 553Property and equipment 13,580 11,956 17,960 9,187 6,876 4,028Total assets 317,897 397,187 475,711 551,163 656,973 782,069 Deposits 194,239 236,152 307,186 366,766 457,112 563,329Borrowings 4,121 5,113 7,110 7,839 8,642 9,528Policyholder liabilities 2,188 2,263 2,338 2,338 2,338 2,338Other 68,229 77,986 77,526 82,191 85,676 89,814Total Liabilities 268,777 321,514 394,160 459,134 553,768 665,010 Minority interests 482 1,022 1,254 1,455 1,689 1,975Shareholder equity 48,638 74,651 80,297 90,575 101,516 115,084Net tangible assets 48,273 74,126 79,744 90,022 100,963 114,531 - - - - - - Key financial metrics Book value p/share 6.38 8.80 9.48 10.70 12.00 13.61P/BV (x) 4.3x 3.1x 2.9x 2.6x 2.3x 2.0xReturn on equity (%pa) 4.7% 12.9% 11.3% 16.1% 17.0% 18.5%Net tangible assets p/share 6.33 8.74 9.42 10.64 11.94 13.55P/NTA (x) 4.3x 3.1x 2.9x 2.6x 2.3x 2.0xReturn on NTA (%pa) 4.7% 10.5% 11.0% 15.5% 16.3% 17.7% Embedded value (EV p/share) 9.09 11.44 12.80 14.43 15.95 17.73EV growth (% pa) -3% 0% 12% 13% 11% 11%P / EV (x) 3.0x 2.4x 2.1x 1.9x 1.7x 1.5xReturn on EV (%pa) 3.7% 9.3% 8.2% 11.4% 12.1% 13.4%Value 1yr new business (p/share) 0.47 0.64 0.70 0.84 1.00 1.18VNB growth (% pa) 11% 31% 25% 20% 20% 18%Implied VNB multiplier (x) 39.2x 25.0x 20.9x 15.5x 11.4x 8.2xSource: Company data, Credit Suisse estimates

Figure 241: Group asset mix (%) � 31 Dec 2010 Figure 242: Group asset mix (%) � 2008-11

Time deposits25%

Equity12%

Bonds55%

Others4% Cash & cash equivalents

4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Asse

t mix

(%)

Cash & cash equivalents Time deposits Equity Bonds Others


25 May 2011


Ping An (2318.HK) The key considerations of an investment in Ping An at this junction would need to take into account the following considerations:

■ Most value in Life insurance division � while Ping An�s Life insurance division generates about 55% of earnings, it contributes over 70% of the valuation.

■ Financial conglomerate curse � while all Ping An�s division produced good results in 2010, a key problem with financial conglomerates is that the market tends to often focus on the problems associated with one division when these occur.

Figure 243: P&C around 15-20% of group earnings � % FY12E profit by division

Figure 244: � with lower capital ratios in bank Ping An capital ratios (%) � group and divisional

FY12FCorp / other

4%

P&C17%

Banking18%

Life insurance53%

Securities8%

0%

50%

100%

150%

200%

250%

300%

350%

FY09

1H10

FY09

1H10

FY09

1H10

FY09

1H10


Ping AnGroup

Life P&C Bank

Source for both charts: Company data, Credit Suisse estimates, bank MCR = 8% Risk Weighted Assets (RWA) for Ping An bank

Specifically on its P&C insurance business we highlight:

■ P&C growth rate strong � as highlighted in Figure 56, Ping An�s P&C growth rate has been the strongest of the largest insurers, driven, in our view, to a large extent by the success of their direct marketing efforts.

■ P&C profitability strongest � as highlighted earlier, Ping An has also has the lowest recent combined ratio, which was below 90% in 4Q10.

Figure 245: Ping An combined ratio <90% in 4Q10 � Ping An combined ratio (%)

Figure 246: � and has the highest growth rates P&C premium growth (% p.a.) by company

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

NEP

)

F'cast

Underw riting loss

Underw riting profit

Sichuan earthquake / snow storms

-10%

0%

10%

20%

30%

40%

50%

60%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Grow

th (%

pa)


Ping An

China Pacific

PICC

Sunshine

China P&C market


25 May 2011


Ping An � key group focus charts

Figure 247: ~50% of earnings Life insurance � FY11F NPAT contribution by division

Figure 248: � strong premium growth Gross written premiums (Rmb mn)

FY11F

P&C17%

Banking18%

SDB corp share5%

Securities8%

Corp / other0%

Life insurance52%

0

50,000

100,000

150,000

200,000

250,000

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Gros

s writ

ten

prem

ium

s (RM

B m

n)

Life insurance P&C

F'cast


Figure 249: 2010 EPS up 29% on pcp � Earning per share (Rmb)

Figure 250: � with strength in P&C NPAT contribution by division � by half

-0.50

0.00

0.50

1.00

1.50

2.00

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Earn

ings

per

shar

e (EP

S)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

EPS

grow

th (%

pa)

F'cast

+29%pcp

-2,500

0

2,500

5,000

7,500

10,000

12,500

15,000

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Oper

atin

g pr

ofit

(RMB

mn)

Life insurance P&C Banking Securities Corp / other

F'cast


Figure 251: Embedded value up >25% on pcp � Group embedded value (Rmb mn and % market capitalisation)

Figure 252: � while VNB also up >30% Group value of 1yr new business (Rmb mn and implied multiplier)

0

40,000

80,000

120,000

160,000

200,000

240,000

280,000

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Embe

dded

valu

e (Rm

n m

n)

0%

10%

20%

30%

40%

50%

60%

EV as

% o

f mar

ket c

ap (%

)

Net worth Value of in force business (VIF) EV % market cap (%)

F'cast

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Valu

e 1yr

NB

(Rm

n m

n)

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

Impl

ied V

NB m

ultip

lier (

x)

Value of 1 year's NB Implied VNB multiplier (x)

F'cast


25 May 2011


Ping An � key divisional focus charts (P&C)

Figure 253: P&C NPAT up strongly � P&C NPAT (Rmb mn) by half

Figure 254: � with growth also very strong P&C premiums (Rmb mn and growth %p.a.)

-500

0

500

1,000

1,500

2,000

2,500

3,000

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

P&C

NPAT

(RMB

mn)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

NPAT

gro

wth

(%pa

)

F'cast

0

20,000

40,000

60,000

80,000

100,000

120,000

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

P&C

prem

ium

s (RM

B m

n)

0.0%

7.5%

15.0%

22.5%

30.0%

37.5%

45.0%

GWP

grow

th (%

pa)

Gross written premium Net earned premium GWP growth (%pcp)

F'cast

E Source for both charts: Company data, Credit Suisse estimates

Figure 255: Underwriting profitability at peak? � P&C underwriting profit (Rmb mn)

Figure 256: � with combined ratio of ~90% P&C combined ratio (%)

-400

100

600

1,100

1,600

2,100

2,600

3,100

3,600

4,100

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Unde

rwrti

ting

prof

it (R

MB m

n)

F'cast

90%

92%

94%

96%

98%

100%

102%

104%

106%

108%

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11F

2H11F

Com

bine

d ra

tio (%

NEP

)F'cast

Underwriting loss

Underwriting profit

Sichuan earthquake / snowstorms


Figure 257: � expense ratios stable P&C combined ratio (%) composition

Figure 258: � and premium mix shifting to Auto � Gross written premiums by class (%)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11F

FY12F

Com

bine

d ra

tio (%

NEP

)

Commission cost Loss ratio

F'cast

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10F

GWP

by cl

ass (

%)

Automobile Non-auto Accident and health


25 May 2011


Ping An � key valuation focus charts

Figure 259: Price to EV at longer-term average � Price to embedded value (x)

Figure 260: � with VNB multiplier ~20x Implied VNB multiplier(x) [(Market cap - EV)/VNB]

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Pric

e to

Em

bedd

ed V

alue

(x)

Average

sd -1

sd +1

0

10

20

30

40

50

Jun-04

Oct-04

Feb-05

Jun-05

Oct-05

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Impl

ied

VNB

mul

tiplie

r (x)

Average

sd -1

sd +1


Figure 261: P/E multiple above longer-term average � PE (x) 12mth forward (IBES consensus)

Figure 262: � with dividend yield at <1% NPAT contribution by division � by half

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Jun-04

Oct-04

Feb-05

Jun-05

Oct-05

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

PE (x

)

Average

sd -1

sd +1

0.00%

0.25%

0.50%

0.75%

1.00%

1.25%

1.50%

1.75%

2.00%

Jun-04

Oct-04

Feb-05

Jun-05

Oct-05

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Div

iden

d yi

eld

(%)

Average

sd -1

sd +1

Source for both charts: IBES, Company data, Credit Suisse estimates

Figure 263: Price to book value at LT average � Price to book value (equity) vs return on equity (%p.a.)

Figure 264: � with A-share spread above 25% Ping An H vs A-share price (HK$ equivalent)

1.0

2.0

3.0

4.0

5.0

6.0

7.0Jun-04

Oct-04

Feb-05

Jun-05

Oct-05

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Pric

e to

boo

k (x

)

0.0%

6.0%

12.0%

18.0%

24.0%

30.0%

36.0%

RO

E (%

pa)

ROE (%pa)

Average

sd -1

sd +1

-

20.00

40.00

60.00

80.00

100.00

120.00

Jun-04

Oct-04

Feb-05

Jun-05

Oct-05

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Shar

e pr

ice

(HK

$)

A share

H share


25 May 2011


Ping An � key financials

Figure 265: Ping An income statement (Rmb mn unless otherwise stated) FY08 FY09 FY10 FY11F FY12F FY13F Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Gross written premiums (GWP) 89,103 112,213 159,384 191,052 220,350 254,437Outwards reinsurance expense -5,813 -6,347 -8,181 -17,266 -20,612 -24,614Net written premiums (NWP) 83,290 105,866 151,203 173,786 199,738 229,823Change in unearned premium -1,019 -5,483 -10,079 -7,831 -7,522 -9,037Net earned premiums (NEP) 82,271 100,383 141,124 165,955 192,215 220,786 Investment income -7,416 32,023 31,083 40,823 45,481 50,301Banking net interest income 4,343 4,210 5,934 14,774 25,707 28,277Fee income 3,554 4,918 7,865 11,393 14,459 17,043Other income -616 5,383 1,203 1,367 1,562 1,784Total revenue 82,136 146,917 187,209 234,312 279,424 318,191 Insurance benefits paid -33,261 -46,287 -69,215 -81,232 -92,005 -106,211Increase in PH reserves -23,256 -37,802 -45,862 -54,508 -61,049 -68,375Insurance PH expense -56,517 -84,089 -115,077 -135,740 -153,054 -174,585 Commission expenses -8,672 -11,444 -14,545 -19,105 -22,314 -25,775General and administrative expense -17,162 -26,099 -34,699 -46,446 -58,321 -67,764Loan loss provisions -212 -194 -375 -951 -1,846 -2,097Other expense -1,084 -5,354 -1,631 -1,664 -2,080 -2,600Total expenses -27,130 -43,091 -51,250 -68,166 -84,560 -98,236 Net profit before tax -1,511 19,737 20,882 30,407 41,810 45,370Associate profit/loss 25 182 1,465 2,227 1,570 1,688Tax expense 3,121 -5,437 -4,409 -6,079 -8,354 -9,107NPAT 1,635 14,482 17,938 26,555 35,027 37,951 Minority interest -217 -599 -627 -2,950 -5,652 -6,143NPAT attributable to shareholders 1,418 13,883 17,311 23,604 29,375 31,809 - - - - - - Divisional NPAT P&C insurance FY08 FY09 FY10 FY11F FY12F FY13FProperty & Casualty -1,464 10,374 8,417 12,571 17,038 17,940Banking 500 675 3,865 4,237 4,547 5,285Securities 1,444 1,080 2,882 4,298 4,831 5,281Corporate / other 550 1,072 1,594 1,992 2,375 2,833 Key financials Shares (average diluted) 7,345 7,345 7,569 7,848 7,916 7,916EPS 0.19 1.89 2.29 3.01 3.71 4.02EPS growth (%p.a.) -92.6% 879.1% 21.0% 31.5% 23.4% 8.3%P/E (x) 349.2x 35.7x 29.5x 22.4x 18.2x 16.8xDPS 0.20 0.45 0.55 0.72 0.89 0.97Dividend yield (%) 0.3% 0.7% 0.8% 1.1% 1.3% 1.4%Payout ratio (%) 103.6% 23.8% 24.0% 23.9% 23.9% 24.1%Source: Company data, Credit Suisse estimates

25 May 2011


Figure 266: Ping An balance sheet (Rmb mn unless otherwise stated) FY08 FY09 FY10 FY11F FY12F FY13FCash 105,279 158,219 203,315 224,155 247,131 272,462Investments 479,614 626,032 780,853 877,481 970,505 1,073,917Investments in associates 5,468 12,063 39,601 39,601 39,601 39,601Receivables 4,412 7,860 6,414 7,071 7,796 8,595Deferred acquisition costs 0 0 0 0 0 0Fixed assets 8,287 10,666 8,170 8,170 8,170 8,170Intangibles 10,279 12,874 9,902 9,902 9,902 9,902Other 91,225 107,998 123,372 139,644 161,164 189,624Total assets 704,564 935,712 1,171,627 1,306,024 1,444,269 1,602,270 - - - - - - Deposits 94,991 140,544 175,963 213,937 260,105 316,238Borrowings 65,316 108,486 146,672 146,672 146,672 146,672Payables 27,036 20,148 23,081 23,081 23,081 23,081Claims reserves / UPR 0 0 0 0 0 0Policyholder liabilities 438,253 558,424 689,945 747,618 812,623 885,744Other 11,809 16,367 19,083 20,719 19,770 18,228Total liabilities 637,405 843,969 1,054,744 1,152,026 1,262,251 1,389,963 - - - - - - Minority interests 2,029 2,617 6,773 4,853 7,803 13,455Shareholder equity 65,130 89,126 110,110 149,145 174,214 198,853Net tangible assets 54,851 76,252 100,208 139,243 164,312 188,951 Key financial metrics Book value p/share 8.79 11.57 14.66 18.47 21.29 24.34P/BV (x) 7.7x 5.8x 4.6x 3.7x 3.2x 2.8xReturn on equity (%p.a.) 1.6% 18.6% 17.4% 18.2% 18.7% 17.6%Net tangible assets p/share 7.39 9.82 13.36 17.22 20.04 23.09P/NTA (x) 9.1x 6.9x 5.0x 3.9x 3.4x 2.9xReturn on NTA (%p.a.) 1.8% 22.0% 19.7% 19.7% 19.9% 18.6% Embedded value (EV p/share) 16.73 21.14 26.29 29.44 34.27 39.85P / EV (x) 4.0x 3.2x 2.6x 2.3x 2.0x 1.7xReturn on EV (%p.a.) 0.9% 11.3% 10.8% 11.4% 12.6% 11.7%Value one-yr new business (p/share) 1.16 1.61 2.03 2.30 2.70 3.10Implied VNB multiplier (x) 43.6x 28.8x 20.3x 16.5x 12.3x 8.9xSource: Company data, Credit Suisse estimates

25 May 2011


Appendix D: regional comparisons NJA insurance valuation metrics

Figure 267: Chinese insurers trading on high price to book relative to ROE generation NJA insurance - price to book value (x) vs return on equity (% p.a.)

Bangkok Life

Great Eastern

Shin Kong FHC

Fubon FHC

Cathay FHC

Samsung F&M Meritz F&M

LIG Insurance

Hyundai M&F

Dongbu

Tong Yang LifeKorea Life

Samsung LifeReliance Capital

PICC

Ping An (H)

China Taiping

China Pacific (H) China Life (H)Prudential plc

Manulife

AIA

Ping An (A)

China Pacific (A) China Life (A)

Suncorp

QBE

IAG

Tower NZ

AMP

PER = 15.1x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% 22.5%Return on Equity (% EPS / BV)

Price

/ Bo

ok V

alue (

P / B

V)

Inexpensive

Expensive

P P E

- = - / -

PER = 20x

PER = 10x


China / HK financials valuation metrics

Figure 268: Chinese insurers trading on high price to book relative banks China / HK financials - price to book value (x) vs return on equity (% p.a.)

Prudential plc

Manulife

AIA

PICC

Ping An

China Taiping

China Pacific China Life

Wing Hang BankStd Chartered

HSBC

Hang Seng

Dah Sing FHC

Dah Sing Bank

BOC HK

BEA Minsheng

ICBCCMB

Citic Bank

CCB

BOC

BCOM

ABC

SPDB SDB

Industrial bank

Huaxia

Bank of Ningbo

Bank of Nanjing Bank of Beijing

PER = 8.7x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% 22.5% 25.0%Return on Equity (% EPS / BV)

Price

/ Bo

ok V

alue (

P / B

V)

Inexpensive

Expensive

P P E - = - / - E BV BV

PER = 20x


Chinese insurers trading at high price to book relative to ROE generation�

�and look fully priced relative to banks

25 May 2011

China P&

C Insurance

96

Figure 269: Non Japan Asia Insurance � key financial metrics Reporting Market Monthly Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x)

EPS Growth

P / BV (x)

ROE (%pa)

P / NTA (x)

ROTE (%pa)

P / EV (x)

ROEV (%pa)

VNB (x)










35,185 2,407 6.8% 18.8x 14.2x 77.7% 1.5x 10.7% 1.5x 10.8% 1.1x 8.6% 1.3x 3.7% -0.5% -3.8% 2.5% 6.9% 14.3% 2.4%



25 May 2011

China P&

C Insurance

97

Figure 270: China / HK financials � key financial metrics Reporting Market Monthly Monthly Price 52 Week 12mth 12mth Inv'ment Year Consensus PE (x)

EPS Growth

P / BV (x)

ROE (%pa) P / NTA

ROTE (%pa)


Company / exchange Currency Cap Volume Liquidity 24-May high/low Target Return Rating End PE (x)* 12mth forward diluted (Credit Suisse forecasts) 1wk 1mth 1qtr 1hy 1yr YTDUS$m US$m % local local local % 7 30 91 182 365 Dec-10

A-SHARESChina Banks - dual listed601328.SS BCOM* CNY 52,651 1,179 2.2% 5.63 5.43-6.77 31-Dec 6.2x 6.5x 17.7% 1.2x 18.1% 1.2x 18.1% 4.6% -3.9% -4.7% 2.2% -1.4% -12.6% 2.7%601988.SS BOC* CNY 143,797 475 0.3% 3.28 3.12-3.97 31-Dec 6.8x 6.8x 40.0% 1.2x 17.4% 1.2x 18.0% 5.5% -3.2% -2.4% 1.5% -0.3% -13.4% 1.5%601939.SS CCB* CNY 226,733 842 0.4% 4.91 4.42-5.34 31-Dec 6.9x 7.1x 26.8% 1.5x 21.7% 1.5x 21.7% 6.4% -3.7% -4.7% 1.2% 4.2% 0.1% 7.0%601998.SS Citic Bank* CNY 29,580 513 1.7% 5.11 5.01-6.21 31-Dec 7.5x 7.7x 28.2% 1.3x 16.9% 1.3x 17.0% 3.3% -5.0% -9.7% -2.5% -7.3% -5.5% -2.7%600036.SS CMB* CNY 46,660 3,554 7.6% 13.59 12.52-15.73 31-Dec 7.9x 8.0x 0.0% 1.6x 20.5% 1.7x 21.6% 3.1% -5.0% -7.2% 7.2% 2.4% -0.7% 6.1%601398.SS ICBC* CNY 245,562 1,178 0.5% 4.36 3.89-4.91 31-Dec 7.0x 7.3x 0.0% 1.5x 20.6% 1.5x 20.6% 5.3% -4.4% -2.9% 3.1% -1.4% -1.4% 2.8%600016.SS Minsheng* CNY 24,054 2,271 9.4% 5.81 4.94-6.19 31-Dec 6.5x 7.0x 14.8% 1.3x 18.3% 1.3x 18.3% 4.3% -3.5% -3.3% 13.9% 13.5% 5.0% 15.7%

769,037 10,011 1.3% 7.0x 7.2x 1.4x 19.1% 1.4x 19.3% 4.6% -4.0% -4.0% 2.6% 1.0% -3.9% 4.2%China Banks601169.SS Bank of Beijing CNY 10,509 1,302 12.4% 10.96 10.96-14.64 31-Dec 7.4x 7.4x 1.2x 16.6% 2.5% -3.6% -8.2% -5.1% -9.0% -18.7% -4.2%601009.SS Bank of Nanjing CNY 4,434 814 18.4% 9.70 9.19-12.81 31-Dec 8.8x 8.8x 1.3x 14.5% 2.9% -5.2% -11.1% -5.5% -7.3% -2.4% -2.4%002142.SZ Bank of Ningbo CNY 5,248 824 15.7% 11.82 10.43-14.65 31-Dec 10.4x 10.4x 1.7x 16.8% 2.5% -3.5% -12.2% -4.4% -4.6% 2.1% -4.7%600015.SS Huaxia CNY 12,403 1,118 9.0% 11.76 10.46-13.76 31-Dec 8.6x 8.6x 1.2x 14.1% 2.2% -3.8% -10.1% 3.4% 3.9% 8.1% 7.9%601166.SS Industrial bank CNY 23,152 3,843 16.6% 13.94 12.45-17.33 31-Dec 6.0x 6.0x 1.2x 19.4% 2.6% -5.9% -15.5% -2.1% 3.3% -4.9% 4.3%000001.SZ SDB CNY 9,745 1,521 15.6% 18.16 14.92-19.55 31-Dec 7.4x 7.4x 1.4x 19.3% 1.2% 0.3% 0.4% 16.6% 8.4% 2.1% 15.0%600000.SS SPDB CNY 30,047 3,261 10.9% 13.60 12.31-15.36 31-Dec 7.3x 7.3x 1.3x 17.6% 1.7% -3.9% -6.5% 7.9% 6.3% -7.6% 9.8%

95,537 12,683 13.3% 8.0x 8.0x 1.3x 16.9% 2.2% -3.9% -9.1% 3.0% 2.6% -4.4% 5.8%China Insurers - dual listed601628.SS China Life* CNY 95,582 1,403 1.5% 18.92 19.10-27.88 25.08 35.4% NTRL 31-Dec 12.5x 13.0x 17.7% 2.2x 16.6% 2.2x 16.6% 2.8% -5.1% -11.5% -10.3% -16.7% -21.1% -11.2%601601.SS China Pacific* CNY 35,440 2,100 5.9% 21.60 20.58-28.67 34.26 61.3% OPFM 31-Dec 15.5x 12.9x 40.0% 2.0x 15.1% 2.0x 15.2% 2.7% -3.5% -8.8% -2.5% -5.6% -0.8% -5.7%601318.SS Ping An* CNY 80,393 3,894 4.8% 47.79 44.28-66.98 31-Dec 14.6x 14.7x 26.8% 2.4x 16.5% 2.6x 17.7% 1.6% -4.6% -7.5% -2.3% -18.0% 5.6% -14.9%

211,415 7,398 3.5% 14.2x 13.5x 28.2% 2.2x 16.0% 2.2x 16.5% 2.4% -4.7% -9.6% -6.0% -15.4% -7.6% -11.7%H-SHARESChina Banks - dual listed1288.HK ABC CNY 191,269 1,980 1.0% 4.58 3.21-4.74 5.29 19.8% OPFM 31-Dec 9.0x 9.3x 21.8% 1.8x 19.5% 1.8x 19.5% 4.3% -0.9% -3.2% 21.8% 13.1% 17.4%3328.HK BCOM CNY 57,003 824 1.4% 7.88 7.32-9.43 9.22 21.0% NTRL 31-Dec 7.2x 7.6x 14.8% 1.4x 18.1% 1.4x 18.1% 3.9% -0.6% -6.6% 5.6% -3.9% 8.4% 0.6%3988.HK BOC CNY 120,082 3,048 2.5% 4.19 3.64-4.87 5.12 27.3% OPFM 31-Dec 7.7x 7.7x 9.0% 1.3x 16.9% 1.3x 16.9% 5.1% -0.9% -5.0% 4.8% 1.5% 12.6% 2.2%0939.HK CCB CNY 228,238 4,452 2.0% 7.10 5.91-8.05 8.99 31.9% OPFM 31-Dec 8.3x 8.6x 16.6% 1.8x 21.6% 1.9x 21.7% 5.3% -1.3% -5.1% 7.4% 0.6% 22.0% 1.9%0998.HK Citic Bank CNY 27,152 571 2.1% 5.41 4.38-6.24 5.86 12.0% NTRL 31-Dec 7.1x 6.8x 15.7% 1.1x 16.9% 1.2x 17.0% 3.7% 0.9% -5.4% 9.5% -3.4% 29.1% 7.3%3968.HK CMB CNY 53,490 1,196 2.2% 19.28 17.48-23.50 21.60 14.7% NTRL 31-Dec 9.5x 9.5x 27.4% 1.9x 20.4% 2.1x 21.5% 2.6% -1.6% -10.3% 5.2% -7.1% 13.0% -1.7%1398.HK ICBC CNY 279,581 4,215 1.5% 6.23 5.48-6.76 7.93 31.8% OPFM 31-Dec 8.4x 8.7x 16.4% 1.8x 20.6% 1.8x 20.5% 4.5% -2.4% -7.0% 7.8% 4.5% 17.4% 7.6%1988.HK Minsheng CNY 24,904 475 1.9% 7.25 6.21-7.63 8.10 15.8% UPFM 31-Dec 6.9x 7.3x 18.5% 1.3x 18.3% 1.3x 18.3% 4.1% 0.0% -5.0% 5.4% 2.1% 9.0%

981,719 16,762 1.7% 8.0x 8.2x 17.5% 1.6x 19.0% 1.6x 19.2% 4.2% -1.3% -5.6% 9.8% 3.5% 13.6% 6.6%HK Banks0023.HK BEA HKD 8,323 253 3.0% 31.70 26.95-35.90 35.00 13.5% NTRL 31-Dec 14.3x 15x 1.7% 1.3x 9.1% 1.5x 10.0% 3.1% -1.2% -3.4% -3.4% -6.1% 18.3% -2.6%2388.HK BOC HK HKD 31,675 1,173 3.7% 23.30 16.50-28.85 25.00 12.1% UPFM 31-Dec 12.6x 13.4x 10.1% 1.9x 13.8% 1.9x 13.8% 4.8% -3.7% -4.3% -1.3% -11.9% 40.9% -11.9%2356.HK Dah Sing Bank HKD 1,859 37 2.0% 11.82 9.03-15.20 14.00 21.1% OPFM 31-Dec 10.6x 11.3x 10.9% 1.0x 8.8% 1.1x 9.4% 2.7% -2.0% -4.2% -9.5% -14.8% 34.3% -10.5%0440.HK Dah Sing FHC HKD 1,687 28 1.7% 44.80 37.57-60.70 58.00 32.4% OPFM 31-Dec 10.1x 10.2x 18.3% 0.9x 8.6% 0.9x 9.3% 2.9% -1.2% -7.6% -9.7% -18.2% 20.3% -11.9%0011.HK Hang Seng HKD 29,990 607 2.0% 122.00 101.50-133.90 159.00 34.9% OPFM 31-Dec 13.1x 13.3x 12.5% 2.9x 21.8% 3.1x 23.3% 4.6% 0.1% 0.3% 0.2% -2.8% 18.0% -4.5%0005.HK HSBC HKD 23,073 5,529 24.0% 79.10 70.10-91.75 95.00 20.1% OPFM 31-Dec 10.0x 10.9x 20.9% 1.2x 10.3% 1.4x 13.0% 0.0% -2.1% -5.9% -11.2% -1.6% 13.7% -0.8%2888.HK Std Chartered HKD 7,735 377 4.9% 198.20 174.03-244.00 220.00 11.0% OPFM 31-Dec 11.4x 12.3x 5.9% 1.5x 11.8% 1.8x 14.3% 0.0% 0.0% -4.8% -3.6% -8.9% 16.0% -6.4%0302.HK Wing Hang Bank HKD 3,261 91 2.8% 86.25 64.65-117.40 100.00 18.4% OPFM 31-Dec 13.1x 13.2x 13.5% 1.6x 12.0% 1.7x 13.0% 2.4% -4.1% -2.8% -9.6% -12.9% 31.2% -19.8%

107,602 8,096 7.5% 11.9x 12.4x 11.7% 1.5x 12.0% 1.7x 13.3% 2.6% -1.8% -3.3% -3.8% -6.7% 24.4% -6.6%China Insurers - dual listed2628.HK China Life CNY 95,582 3,817 4.0% 26.30 26.05-36.60 30.00 16.5% NTRL 31-Dec 14.8x 15.1x 20.4% 2.5x 16.5% 2.5x 16.6% 2.4% -2.0% -11.3% -9.5% -21.5% -19.2% -17.2%2601.HK China Pacific CNY 35,440 856 2.4% 32.05 27.95-35.35 41.00 30.1% OPFM 31-Dec 19.7x 16.0x 40.0% 2.4x 15.1% 2.4x 15.2% 2.2% -1.4% -9.3% 4.1% 3.1% 13.5% -0.2%0966.HK China Taiping HKD 4,422 162 3.7% 20.20 19.78-30.00 25.50 26.2% NTRL 31-Dec 19.7x 22.2x -18.5% 1.8x 8.1% 1.9x 8.4% 0.0% -4.0% -6.9% -7.3% -25.7% -12.9% -15.5%2318.HK Ping An CNY 80,393 1,946 2.4% 80.65 58.00-94.40 RSTR na RSTR 31-Dec 20.7x 20.9x 29.2% 3.5x 16.5% 3.7x 17.7% 1.1% -1.4% -6.8% 4.3% -10.6% 39.1% -7.2%2328.HK PICC CNY 15,615 498 3.2% 10.90 6.57-12.24 11.00 1.8% NTRL 31-Dec 14.5x 14.9x 22.4% 2.9x 18.8% 2.9x 19.2% 0.9% -4.4% 1.7% 15.8% -7.8% 65.9% -3.2%

271,871 7,280 2.7% 17.9x 17.8x 18.7% 2.6x 15.0% 2.7x 15.4% 1.3% -1.6% -7.2% -0.7% -11.2% 10.1% -8.6%

Total China / HK financials 1,558,230 47,459 3.0% Arithmeitc average 11.0x 11.1x 15.3% 1.7x 15.6% 1.9x 15.9% 2.7% -2.2% -6.4% 0.6% -5.4% 13.8% -2.2%Weighted average 8.1x 8.2x 12.8% 1.5x 14.6% 1.4x 13.7% 2.9% -1.4% -5.2% 3.3% -1.7% 11.8% 0.4%


25 May 2011


Companies Mentioned (Price as of 24 May 11) China Pacific (A) (601601.SS, Rmb21.74, OUTPERFORM, TP Rmb34.26) China Pacific (H) (2601.HK, HK$31.85, OUTPERFORM, TP HK$41.00) China Taiping (0966.HK, HK$19.78, NEUTRAL, TP HK$25.50) PICC P&C (2328.HK, HK$11.16, NEUTRAL, TP HK$11.00) Ping An (H) (2318.HK, HK$80.60, RESTRICTED) For rest of the companies, please refer to Figure 269 and Figure 270.

Disclosure Appendix Important Global Disclosures I, Arjan van Veen, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. See the Companies Mentioned section for full company names. 3-Year Price, Target Price and Rating Change History Chart for 601601.SS 601601.SS Closing

Price Target

Price

Initiation/ Date (Rmb) (Rmb) Rating Assumption 6-Dec-09 27.1 R 6-May-11 22.47 34.259 O X

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Closing Price Target Price Initiation/Assumption Rating

Rmb

O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered

3-Year Price, Target Price and Rating Change History Chart for 2601.HK 2601.HK Closing

Price Target

Price

Initiation/ Date (HK$) (HK$) Rating Assumption 1-Feb-10 29.4 39.5 O X 20-Apr-10 33.3 39 16-Sep-10 X 25-Nov-10 31.5 41

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25 May 2011



Price Target

Price

Initiation/ Date (HK$) (HK$) Rating Assumption 17-Jun-08 19.88 23 31-Oct-08 17.8 13 N 6-Mar-09 9.17 O 19-Mar-09 12.04 15 6-May-09 13 17.5 6-Jul-09 19.18 21 27-Jul-09 20.75 25 18-Aug-09 19.26 30 18-Nov-09 27.85 34.5 31-Mar-10 27.15 30 N 18-Aug-10 23.55 27 X 25-Oct-10 29.75 30 15-Mar-11 21.85 27.5 22-Mar-11 23.25 25.5

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Price Target

Price

Initiation/ Date (HK$) (HK$) Rating Assumption 17-Jun-08 19.88 23 31-Oct-08 17.8 13 N 6-Mar-09 9.17 O 19-Mar-09 12.04 15 6-May-09 13 17.5 6-Jul-09 19.18 21 27-Jul-09 20.75 25 18-Aug-09 19.26 30 18-Nov-09 27.85 34.5 31-Mar-10 27.15 30 N 18-Aug-10 23.55 27 X 25-Oct-10 29.75 30 15-Mar-11 21.85 27.5 22-Mar-11 23.25 25.5

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Price Target

Price

Initiation/ Date (HK$) (HK$) Rating Assumption 17-Jun-08 59.4 83 19-Aug-08 48.8 79 8-Oct-08 40.05 72 31-Oct-08 32 47 6-Mar-09 37.2 53 10-Apr-09 52.4 60 6-May-09 50.9 62 6-Jul-09 57.6 71 27-Jul-09 68.45 80 17-Aug-09 61.2 82 19-Nov-09 71.15 88 25-Feb-10 58.15 80 25-Aug-10 64.35 88 X 2-Sep-10 66.1 R 13-May-11 82.25 O 16-May-11 81.6 R

8379

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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. Analysts� stock ratings are defined as follows: Outperform (O): The stock�s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock�s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months. Underperform (U): The stock�s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months.

25 May 2011


*Relevant benchmark by region: As of 29th May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock�s absolute total return potential to its current share price and (2) the relative attractiveness of a stock�s total return potential within an analyst�s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, 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; for European stocks, ratings are based on a stock�s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively, subject to analysts� perceived risk. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively, subject to analysts� perceived risk. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. 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 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts� coverage universe weightings are distinct from analysts� stock ratings and are based on the expected performance of an analyst�s coverage universe* versus the relevant broad market benchmark**: Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. *An analyst�s coverage universe consists of all companies covered by the analyst within the relevant sector. **The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months. Credit Suisse�s distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Outperform/Buy* 47% (63% banking clients) Neutral/Hold* 40% (56% banking clients) Underperform/Sell* 10% (50% 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: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html 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. See the Companies Mentioned section for full company names. Price Target: (12 months) for (601601.SS) Method: Our 12-month target price of RMB 34.26 for CPIC A is based on sum-of-the-parts method. For CPIC Life, the appraisal value is calculated on 1x embedded value and 24x value of new business. We use a discount rate of 11.5% and an investment yield of 5.5%. Risks: Risks that might impede achievement of our RMB 34.26 12-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 (2601.HK) Method: Our 12-month target price of HK$41 for CPIC is based on sum-of-the-parts method. For CPIC Life, the appraisal value is calculated on 1x embedded value and 24x value of new business. We use a discount rate of 11.5% and an investment yield of 5.5%. Risks: Risks that might impede achievement of our HK$41 12-month target price include the following: a deteriorating investment environment, agressive China tightening and a slowdown of its insurance business. Price Target: (12 months) for (0966.HK) Method: Method: We derive our HK$25.50 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 17.5x VNB (value of new business). Risks: The key risks to our HK$25.50 target price for CTIH include: VNB growth lower than expectation, cost overrun with new branch openings and China economy growth slowdown. Price Target: (12 months) for (2328.HK) Method: Our $11 12mth forward target price is set using a combinaion of price to earnings, price to book methodologies; based on sustainable return on equity generation and historical multiples.

25 May 2011


Risks: Risks to our 12-month target price of HK$11 for PICC is its high level of sensitivity to claims ratio volatility, capital required to support projected growth and long-run investment return assumptions. Regulatory risk is also high, with significant changes relied on by the company to achieve their earnings targets. Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures 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 (601601.SS, 2601.HK, 0966.HK, 2328.HK, 2318.HK) 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 (601601.SS, 2601.HK, 0966.HK, 2328.HK, 2318.HK) within the past 12 months. Credit Suisse provided non-investment banking services, which may include Sales and Trading services, to the subject company (0966.HK, 2318.HK) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (2328.HK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (601601.SS, 2601.HK, 0966.HK, 2328.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 (601601.SS, 2601.HK, 0966.HK, 2328.HK, 2318.HK) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (0966.HK, 2318.HK) within the past 12 months. As of the end of the preceding month, Credit Suisse beneficially owned 1% or more of a class of common equity securities of (601601.SS, 2601.HK, 2328.HK, 2318.HK). This holding is calculated according to U.S. regulatory requirements which are based on Section 13(d) of the Securities and Exchange Act of 1934. Credit Suisse has a material conflict of interest with the subject company (2318.HK). Credit Suisse is acting as International Advisor to the Special Committee of the Board of Directors of Shenzhen Development Bank ("Special Committee"). Credit Suisse Founder Securities is acting in the role of Independent Financial Advisor to the Special Committee. Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser 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 (601601.SS, 2601.HK, 0966.HK, 2328.HK, 2318.HK) 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. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. 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 anytime after that. 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. � Arjan van Veen, non-U.S. analyst, is a research analyst employed by Credit Suisse (Hong Kong) Limited. � Frances Feng, non-U.S. analyst, is a research analyst employed by Credit Suisse (Hong Kong) Limited. Taiwanese Disclosures: 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. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683. Disclaimers continue on next page.

25 May 2011Asia Pacific/ChinaEquity Research

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