Form 6-K
Table of Contents

Commission File Number 001-31914


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 6-K

 


Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

September 12, 2007

 


China Life Insurance Company Limited

(Translation of registrant’s name into English)

 


16 Chaowai Avenue

Chaoyang District

Beijing 100020, China

Tel: (86-10) 8565-9999

(Address of principal executive offices)

 


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F:

Form 20-F ..X… Form 40-F ……

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):                    

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):                     

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes ..... No ..X..

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-                     

 



Table of Contents

Commission File Number 001-31914

On September 9, 2007, China Life Insurance Company Limited published its interim report as required by The Stock Exchange of Hong Kong Limited for the six months ended June 30, 2007, a copy of which is attached as Exhibit 99.1 hereto.

EXHIBIT LIST

 

Exhibit    Description
99.1    Hong Kong interim report for the six months ended June 30, 2007


Table of Contents

Commission File Number 001-31914

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   

China Life Insurance Company Limited

    (Registrant)
  By:  

/s/ Wan Feng

    (Signature)
   
September 12, 2007                               Name:   Wan Feng
  Title:  

Vice President and Executive Director

Acting Chief Executive Officer

 


Table of Contents

EXHIBIT 99.1

Commission File Number 001-31914

Corporate Information

Company Name: China Life Insurance Company Limited

 

DIRECTORS

Executive Directors

Yang Chao

Wan Feng

 

Non-executive Directors

Shi Guoqing

Zhuang Zuojin

 

Independent Non-executive Directors

Long Yongtu

Sun Shuyi

Ma Yongwei

Chau Tak Hay

Cai Rang

Ngai Wai Fung

 

SUPERVISORS

Xia Zhihua

Wu Weimin

Qing Ge

Yang Hong

Tian Hui

 

COMPANY SECRETARY

Heng Kwoo Seng

 

AUTHORIZED REPRESENTATIVES

Wan Feng

Heng Kwoo Seng

  

REGISTERED OFFICE

China Life Tower

16 Chaowai Avenue, Chaoyang District

Beijing 100020, China

Tel: 86 (10) 8565 9999

Fax: 86 (10) 8525 2232

Website: www.e-chinalife.com

 

PLACE OF BUSINESS IN HONG KONG

25th Floor, C.L.I. Building

313 Hennessy Road, Wanchai

Hong Kong

Tel: (852) 2919 2628

Fax: (852) 2919 2638

 

AUDITORS

PricewaterhouseCoopers

 

LEGAL ADVISERS

King & Wood

Allen & Overy

Debevoise & Plimpton LLP

 

H SHARE REGISTRAR AND TRANSFER OFFICE Computershare Hong Kong Investor Services Limited

Room 1712-1716, 17th Floor

Hopewell Centre

183 Queen’s Road East

Hong Kong

 

DEPOSITARY

JPMorgan Chase Bank

4 New York Plaza, New York

New York 10004


Table of Contents

Commission File Number 001-31914

 

     Contents

Financial Summary

   2

Chairman’s Statement

   3

Management Discussion and Analysis

   8

Auditors’ Review Report

   12

Condensed Consolidated Balance Sheet

   13

Condensed Consolidated Income Statement

   15

Condensed Consolidated Statement of Changes in Equity

   16

Condensed Consolidated Cash Flow Statement

   17

Notes to the Condensed Consolidated Financial Statements

   18

Supplementary Information for ADR Holders

   40

Other Information

   41

 

1


Table of Contents

Commission File Number 001-31914

Financial Summary

Unless otherwise stated, all the financial data of the Group (refers to the Company and its subsidiaries) set out in this report is prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”).

Six months ended 30 June (unaudited)

 

    

RMB million

(except basic and diluted earnings per share)

      2007    2006

Total revenues

   101,429    72,665

Net profit[Note]

   23,289    8,966

Basic and diluted earnings per share (RMB)

 

   0.82

 

   0.33

 

 

Note: Net profit refers to net profit attributable to shareholders of the Company.

(Unaudited as at 30 June 2007)

 

          RMB million
      As at 30
June 2007
   As at 31
December 2006

Total assets

   849,804    764,395

Investment assets[Note 1]

   766,325    686,804

Total shareholders’ equity[Note 2]

 

   167,493

 

   139,665

 

 

Note 1: Investment assets include debt securities, equity securities, term deposits, statutory deposits-restricted, policy loans, securities purchased under agreements to resell and cash and cash equivalents.

 

Note 2: Total shareholders’ equity refers to shareholders’ equity attributable to shareholders of the Company.

 

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Commission File Number 001-31914

Chairman’s Statement

In the first half of 2007, the Company significantly enhanced its execution capabilities, captured opportunities arising from the markets and the listing of its A Shares, and actively responded to new challenges, thereby seeking to make itself an enterprise characterized by “learning and innovative”, “optimizing resources” and “growing with added value” by making use of the opportunities brought about by the promulgation of State Council’s “Some opinions on the reform and development of the insurance industry.” The Company aims at developing the China Life group as a top international financial insurance group, with an objective of developing the Company into a first class international life insurance company with strong capitalization, advanced corporate governance, well-established management system, stringent internal control, leading technologies, first-class team, quality services, outstanding brands and harmonious and balanced mode of development. The Company maintained a steady growth in its business and achieved a significant increase in its investment income. Our three major sales channels remained stable while pursuing balanced growth in the urban and rural markets. China Life also further optimized its business structure and service quality, devoted significant efforts to serving our harmonious society, and actively explored rural insurance business to further expand its coverage in rural insurance market. With further enhancements in capital, business income, assets quality, profitability, management effectiveness and corporate image, China Life significantly strengthened its overall advantages in the market. The Company is at its best development stage ever in its history.

China Life is a core member of the China Life group which ranked 192nd among “Fortune 500” announced by Fortune in 2007, and also ranked seventh in the “Top 100 China Listed Companies” announced by the magazine in July 2007. In the first half of 2007, the influence of the brand of “China Life” has continued to increase and its popularity in international market has further been boosted. It was not only named one of the “World’s Top 500 Brand” in 2007 jointly by the World Brand Organization and the US-China Economic Trade & Investment General Chamber of Commerce, but also won the “China’s Top 10 Valuable Brands” awarded by the World Brand Laboratory. In addition, China Life was awarded the great prize of the “Most Favourable Enterprise Brand of Consumers in China 2007” in the election of the “Most Favourable Enterprise Brand” of consumers in China in 2007 and was the only insurance enterprise brand that was granted award.

REVIEW OF THE FIRST HALF YEAR 2007

STEADY BUSINESS GROWTH, CONTINUOUS OPTIMIZATION OF BUSINESS STRUCTURE

For the six months ended 30 June 2007, total revenues of the Group (including the Company and its subsidiaries) were RMB101,429 million, an increase of 39.6% compared with the corresponding period of 2006. Among them, gross written premiums and policy fees reached RMB63,753 million, up 16.8% from the corresponding period of 2006.

According to the data released by the China Insurance Regulatory Commission, China Life continued to maintain its leading position in the life insurance market in China (for the purpose of this report, “China” refers to the People’s Republic of China, excluding the Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan), with a market share, based on PRC GAAP, of 46.86% in the first half of 2007, representing an increase of 1.59 percentage point from the year of 2006.

While steadily growing its business, China Life stepped up its efforts to adjust its business structure. For the six months ended 30 June 2007, the Company’s first-year regular gross written premiums amounted to RMB16,173 million, an increase of 23.9% from the corresponding period of 2006. First-year regular gross written premiums accounted for 93.3% of the first-year gross written premiums of long term traditional insurance contracts.

 

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Commission File Number 001-31914

Chairman’s Statement

INCREASE IN INVESTMENT INCOME, IMPROVEMENT OF EARNING ABILITY

China Life is one of the largest institutional investors in China’s capital markets. As at 30 June 2007, the Group’s investment assets were RMB766,325 million, an increase of 28.8% from 30 June 2006, and an increase of 11.6% from the end of 2006.

More efforts were devoted by the Company to optimize its investment portfolio and improve asset allocation. During the first half of 2007, by capitalizing on favourable conditions in the PRC’s stock markets, the Company further increased the proportion of investment in equity assets, resulting in a substantial increase in investment income. The Company continued to seize strategic investment opportunities. It participated in the private placement of China Minsheng Banking Corp. Ltd. by contributing RMB5,448 million.

For the six months ended 30 June 2007, the Group’s net investment yield1 was 3.36%, an increase of 1.24 percentage points from the corresponding period of 2006. The total investment yield2 was 5.19%, an increase of 1.90 percentage points from the corresponding period of 2006.

In the first half of 2007, net profit attributable to shareholders of the Company was RMB23,289 million, an increase of 159.7% from the corresponding period of 2006. As at 30 June 2007, total shareholders’ equity of the Company was RMB167,493 million, up 19.9% from the end of 2006.

As at 30 June 2007, the Company’s solvency ratio was 4.40 times the minimum regulatory requirement. In the first half of 2007, our consolidated cost ratio was 15.3%, which basically maintained at a stable level as compared with the corresponding period of 2006.

STABLE SALES CHANNELS, ENHANCED SERVICE QUALITY

Currently, China Life has the most extensive distribution network in China’s insurance industry, comprising over 650,000 exclusive agents, 12,000 group insurance sales force, over 90,000 intermediary sale agencies, spreading over in commercial bank, postal savings, cooperative saving institutions and with over 20,000 customers managers as at 30 June 2007. Sales channel for individual insurances, which is a core sales channel of the Company, maintained a stable development. 97.5% of our exclusive agents now hold valid licenses, which is an increase of about 18 percentage points from the corresponding period in 2006, and an increase of 3.5 percentage points from the end of 2006. The Company continued to strive to integrate sales channel resources and share customer information. A special business department has been created to strengthen execution of an “integrated” sales strategy and consolidate sales resources. Our Tibetan branch was formally opened for business on 28 May 2007, which means that the sale agencies of the Company have spread to all provinces and autonomous regions of China.

 

1

The net investment yield = net investment income/((investment assets at the beginning of the period – securities sold under agreements to repurchase at the beginning of the period + investment assets at the end of the period – securities sold under agreements to repurchase at the end of the period)/2)

 

2

The total investment yield = (net investment income + net realized gains on financial assets + net fair value gains on assets at fair value through income (held-for-trading))/((investment assets at the beginning of the period – securities sold under agreements to repurchase at the beginning of the period + investment assets at the end of the period – securities sold under agreements to repurchase at the end of the period)/2)

 

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Commission File Number 001-31914

Chairman’s Statement

During the first half of 2007, the Company initiated a series of customer service activities with the theme “Creation of Harmonious Life with China Life” across China. More than 25,000 activities were organized and with more than 55 million customers participated. Through these activities, the service standards were improved and the brand image of China Life was further enhanced. The Company has decided to make 16 June of every year as “China Life Customer Day”.

The Company improves the segmentation and professional management of customer services and upgrades the divergence management standard through the promotion of the “China Life 1+N” service brand and the strengthening of VIP customer service management. China Life is committed to further enhancing its customer service quality through the establishment of a well-developed customer service system that is customer-centered and reflects the corporate culture of China Life.

During the first half of 2007, the Company paid a total amount of about RMB 40 billion of maturity benefits, with the number of payment cases amounting to over 2 million. This shows the strength and high service efficiency of the Company.

CORPORATE GOVERNANCE ENHANCED, RISK MANAGEMENT STRENGTHENED

During the first half of 2007 the Company seriously commenced activities for special projects relating to corporate governance and completed a self-review on corporate governance according to the requirements of the China Securities Regulatory Commission. The self-review report and reform program were approved by the board of directors on 12 June 2007 and subsequently made public after being successfully approved by regulatory authorities.

The Company has conducted compliance works in accordance with Sarbanes-Oxley Act Section 404 and other securities legislation in the United States throughout the Company since December 2004 which covered the Company, its subsidiary, China Life Insurance Asset Management Company Limited, and external actuary consultant. We have been through the two stages of project management and routinization of management. They continuously passed the test of management and defect rectification tests. During the first half of 2007, the Company completed a self assessment on internal control over financial reporting as at 31 December 2006 and confirmed such internal control was effective. The Company had also received from our registered independent auditors unqualified opinions on the above management’s assessment of the effectiveness of internal control over financial reporting and on the effectiveness of our internal control over financial reporting as at 31 December 2006. During the first half of 2007, China Life formulated the “Guiding Opinions on Further Strengthening the Work of Internal Control” and released it for implementation. It further improved the establishment of its internal control system and stepped up its efforts in internal control, with a focus remaining on the compliance with Section 404. The Company will continue to strengthen its internal control system to ensure sustainable and healthy development of its business.

TAKING UP OF SOCIAL RESPONSIBILITIES, CARE FOR SHAREHOLDERS’ INTERESTS

As the largest life insurer in China, the Company is committed to conscientiously performing its corporate social responsibilities. During the first half of 2007, the Company continued to develop its policy-oriented business such as promoting the New Village Cooperative Medical Scheme. By leveraging on the features of commercial insurance in the comprehensive village medical scheme, the Company serviced in the drug and medical system reform. As of the end of June 2007, there were 11 branches of the Company in 82 counties (cities and areas) that had participated in the New Village Cooperative Medical Scheme locally, 34 more regions than the end of 2006, which represented more than three fourth of the total number of regions that had participated in the New Village Cooperative Medical Scheme by the insurance industry in China. As at 30 June 2007, the New Village Cooperative Medical Scheme has reached 24.08 million participants, an increase of 6.68 million participants compared to the end of 2006.

 

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Commission File Number 001-31914

Chairman’s Statement

The Company also introduced new products targeting at rural market, such as “China Life New Industrial Life Insurance”, “China Life Villagers with Land Expropriated and Requisitioned Group Annuities (Class A), “China Life Villagers with Land Expropriated and Requisitioned Group Annuities (Class B) (Participating)”. The Company further developed “China Life Accident and Disability Insurance” focusing on workers from rural areas, so as to actively pursue the rural insurance business and facilitate construction of new rural areas for building a harmonious society.

On 16 June 2007, upon the contribution of RMB 50 million, the Company officially established the “China Life Charitable Fund”. The fund donated RMB 10 million, and launched, together with China Red Cross, a large-scale charity activity called the “Healthy New Village Project”. At the same time, the “China Life Program for Rural Medical Services and Poverty Assistance” was launched. In addition, the Company also supported the construction of 18 “China Life Long March Primary Schools”. The Company strives for the combination of business benefits and social responsibilities, promote the interests of its shareholders, customers and staff, and to maximize economic benefits, corporate image and investment return for the Company through its active participation of social and charity activities.

For the outstanding contributions with respect to corporate social responsibilities, China Life was awarded the highest honour “Red Cross Badge” by China Red Cross Foundation. At the same time, the Company was awarded by organizations such as the Shanghai Securities News as the “Most Responsible Listed Company in China”.

As the sole financial enterprise of China that is currently listed in Shanghai, Hong Kong and New York, China Life has been committed to maximizing value for shareholders. In May 2007, the Company organized the first “Corporate Day” in Guangxi for global investors and analysts, which increased the transparency of the Company, allowed the investors and analysts around the world to improve their understandings of the Company’s operation and boosted their confidence in China Life. In July 2007, the Company held a “Presentation on an Analysis of the Valuation of Life Insurers” in Beijing and introduced to more than 100 fund managers and analysts from 49 fund houses in China about the methods adopted internationally for analyzing and evaluating the valuation of life insurance companies. This presentation activity had achieved good results. Through the organization of the above activities, the Company further strengthened its communications with investors.

DIVIDEND

Pursuant to the resolution passed at the meeting of the Board on 27 August 2007, the Company will not declare any interim dividend for the six months ended 30 June 2007.

 

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Commission File Number 001-31914

Chairman’s Statement

Outlook

In the second half of 2007, adjustments of China’s macro-economic policies, volatilities in the capital markets, intense competition in the life insurance market, and changes in the regulatory policy of the industry (including reform on pricing of life insurance products) may affect the future operation of the Company.

As a leading life insurance company in China and one of the largest institutional investors in China’s capital markets, the Company will pursue its great objective of making China Life Group as a top international financial insurance group. It will further implement its development strategies of “strengthening core businesses and appropriate diversification into related areas”, and develop traditional and participating products as its priority, suitably develop some new business such as unit-linked and universal insurance products, continue to emphasis on long term regular business, focus on optimizing its business structure, continue to emphasis on exclusive agents force, explore group insurance channel and bank insurance channel, continue to emphasis on combination of overall development strategy and local market competitive tactics, realize the fast, coordinated and continued business development of the Company. The Company will continue to leverage the advantages of having the largest client base and most extensive distribution channels and service networks in the country. While proactively adapting to the changing demands of clients, more effort will be devoted to business growth and improvement of business structure, with a view to maintaining a rapid pace of business development. China Life will further enhance its investment management capability to improve its profitability, as well as to strengthen its internal controls, risk management and staff building-up. We shall strive to develop the Company into a first class international life insurance company, to create better value for our shareholders.

Yang Chao

Chairman

Beijing, China

27 August 2007

 

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Commission File Number 001-31914

Management Discussion and Analysis

For the six months ended 30 June 2007 and 2006, the Company’s gross written premiums and deposits were as follows:

 

Unaudited    RMB million
    

 

For the six months ended 30 June

      2007    2006

Individual Life Insurance

     

Gross written premiums

   52,242    43,909

First-year gross written premiums

   16,725    13,408

Single gross written premiums

   624    390

First-year regular gross written premiums

   16,101    13,018

Renewal gross written premiums

   35,517    30,501

Deposits

   47,969    46,053

First-year deposits

   41,853    37,936

Single deposits

   39,876    36,191

First-year regular deposits

   1,977    1,745

Renewal deposits

   6,116    8,117

Group life insurance

     

Gross written premiums

   626    807

First-year gross written premiums

   612    798

Single gross written premiums

   540    759

First-year regular gross written premiums

   72    39

Renewal gross written premiums

   14    9

Deposits

   15,735    14,946

First-year deposits

   15,732    14,933

Single deposits

   15,727    14,923

First-year regular deposits

   5    10

Renewal deposits

   3    13

Accident and health insurance

     

Gross written premiums

   5,986    5,525

Short-term accident insurance

     

Gross written premiums

   2,810    2,672

Short-term health insurance

     

Gross written premiums

   3,176    2,853
         

Total gross written premiums

   58,854    50,241
         

Total deposits

   63,704    60,999
         

 

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Commission File Number 001-31914

Management Discussion and Analysis

As at 30 June 2007 and 31 December 2006, the investment assets of the Group were as follows:

 

           RMB million
   Unaudited   

 

Audited

   As at
30 June 2007
   As at
31 December 2006

Debt securities

   397,218    357,898

Held-to-maturity securities

   186,486    176,559

Available-for-sale securities

   196,238    176,868

At fair value through income (held-for-trading)

   14,494    4,471

Equity securities

   128,049    95,493

Available-for-sale securities

   105,222    62,595

At fair value through income (held-for-trading)

   22,827    32,898

Term deposits

   172,126    175,476

Statutory deposits-restricted

   5,473    5,353

Policy loans

   3,678    2,371

Securities purchased under agreements to resell

   2,047   

Cash and cash equivalents

   57,734    50,213
         

Total

   766,325    686,804
         

SUMMARY

For the six months ended 30 June 2007, the Group’s total revenues were RMB101,429 million as compared with RMB72,665 million for the corresponding period in 2006, representing an increase of 39.6%. Net profit attributable to shareholders of the Company for the six months ended 30 June 2007 amounted to RMB23,289 million, as compared with RMB8,966 million for the corresponding period in 2006, representing an increase of 159.7%. The increase in our total revenues was mainly attributable to the increase in gross written premiums and policy fees, as well as the substantial increase in investment income.

For the six months ended 30 June 2007, the basic and diluted earnings per share was RMB0.82, which increased about RMB0.49 from RMB0.33 as compared to the corresponding period in 2006.

During the first half of 2007, the development of the Company’s business in urban and rural areas has resulted in further optimization of business structure. In order to meet the demands of changing markets, the Company strengthen its efforts in developing new products and upgrading existing products. The Company launched a new product “China Life New Industrial Life Insurance” in three pilot provinces for the rural market and has achieved satisfactory results. In the second half of this year, efforts will be devoted to expand the sales of this product to more areas.

On 12 June 2007, the Company convened the seventh meeting of the second session of the Board, where the resolution for the award of the third batch of stock appreciation rights was considered and approved in the meeting. At present, the stock appreciation rights scheme implemented by the Company is a motivation scheme targeting at the senior management officers and key employees based on the price of the Company’s H shares. The stock appreciation rights do not involve any issue of new shares and have no dilution impact on shareholding structure of the Company.

 

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Commission File Number 001-31914

Management Discussion and Analysis

Pursuant to paragraph 40(2) of Appendix 16 of Rules (the “Listing Rules”) Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Hong Kong Stock Exchange”), apart from those disclosed in this report, the Company confirmed that the matters as referred to in paragraph 32 of Appendix 16 regarding the Company have not changed materially from those disclosed in our annual report for 2006.

SIX MONTHS ENDED 30 JUNE 2007 COMPARED WITH SIX MONTHS ENDED JUNE 2006

Total Revenues

For the six months ended 30 June 2007, gross written premiums and policy fees were RMB63,753 million, as compared with RMB54,580 million for the corresponding period in 2006, representing an increase of 16.8%. The increase was mainly attributable to the growth in individual life insurance business.

For the six months ended 30 June 2007, the Group’s net investment income was RMB24,071 million, as compared with RMB11,341 million for the corresponding period in 2006, representing an increase of 112.2%. Such increase was mainly attributable to the growth in total investment assets, equity weightings adjustments made to optimize the investment portfolio and the generally favourable performance of the A Share market in China during the first half of 2007.

For the six months ended 30 June 2007, net realised gains on financial assets were RMB2,262 million (six months ended 30 June 2006: net realised gains on financial assets RMB497 million). Net fair value gains on assets at fair value through income (held-for-trading) were RMB10,842 million (six months ended 30 June 2006: net fair value gains at fair value through income (held-for-trading) were RMB5,758 million). Such result was mainly attributable to the generally favorable performance of the A Share market in China during the first half of 2007.

Benefits, claims and expenses

For the six months ended 30 June 2007, the Group’s total benefits, claims and expenses were RMB76,918 million, as compared with RMB61,355 million for the corresponding period in 2006, which were increased by 25.4%. The increase was mainly attributable to the growth of our insurance business, payment arising from maturity of some products and increase of dividend payments to policyholders.

For the six months ended 30 June 2007, our consolidated cost ratio was 15.3%, which represents a stable result as compared with the corresponding period in 2006.

Income tax

For the six months ended 30 June 2007, the Group’s income tax expenses were RMB1,420 million (in the corresponding period of 2006: RMB2,299 million). The effective tax rate of the Group reduced from 20.3% in the first half of 2006 to 5.7% in the first half of 2007. The decline was mainly attributable to a reduction of the enterprise income tax rate applicable to the Group from 33% to 25% with effect from 1 January 2008. Regarding the deferred tax assets or liabilities that were recognised on the date of promulgation of the new income tax law and expected to be settled after 1 January 2008, the Group made an adjustment to their book value using the applicable tax rate of 25%, resulting in a substantial reversal of deferred tax liabilities and a reduction of income tax expenses for the six months ended 30 June 2007.

 

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Commission File Number 001-31914

Management Discussion and Analysis

Net profit

For the six months ended 30 June 2007, net profit attributable to shareholders of the Company was RMB23,289 million, as compared with RMB8,966 million in the corresponding period of 2006, which was increased by 159.7%. The increase in net profit attributable to shareholders of the Company was mainly attributable to substantial increase in investment return, business growth, the continuing optimization of the structure of insurance business, reduction of enterprise income tax rate, and strengthened cost management.

Liquidity and capital resources

Sources of Liquidity

The Company’s principal cash inflows come from insurance premiums, deposits, proceeds from sales and maturity of financial assets, investment income and financing. The primary risks over liquidity with respect to these cash inflows are the risk of early withdrawals by contract holders and policyholders, the risks of default by debtors, as well as volatilities in interest rate and capital market and other risks. The Company will closely monitor and manage these risks.

Additional sources of liquidity to meet unexpected cash outflows are available from cash and our investment assets. As at 30 June 2007, the amount of cash and cash equivalents of the Group was RMB57, 734 million (RMB50,213 million as at 31 December 2006). As at 30 June 2007, the amount of term deposits of the Group was RMB172, 126 million (RMB175,476 million as at 31 December 2006).

Our investment portfolio may also provide us with a source of liquidity to meet unexpected cash outflows. As at 30 June 2007, the investments in debt securities (excluding held-to-maturity securities) had a fair value of RMB210,732 million (RMB181,339 million as at 31 December 2006). As at 30 June 2007, investment in equity securities had a fair value of RMB128,049 million (RMB95,493 million as at 31 December 2006).

Uses of Liquidity

The Company’s principal cash outflows primarily relate to the benefits and claims associated with our various life insurance, annuity and accident and health insurance products, dividend and interest payments on our insurance policies and annuity contracts, operating expenses, income taxes and dividends that may be declared and payable to the Company’s shareholders.

The Company believes that its sources of liquidity are sufficient to meet its current cash requirements.

CLASS ACTION

The Company and certain of its past directors (the “defendants”) have been named in nine putative class action lawsuits filed in the United States District Court for the Southern District of New York between 16 March 2004 and 14 May 2004. The lawsuits have been ordered to be consolidated and restyled In re China Life Insurance Company Limited Securities Litigation, NO.04 CV 2112 (TPG). Plaintiffs filed a consolidated amended complaint on 19 January 2005, which names the Company, Wang Xianzhang (past director), Miao Fuchun (past director) and Wu Yan (past director) as defendants. The consolidated amended compliant alleges that the defendants named therein violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The Company has engaged U.S. counsel to contest vigorously on the lawsuits. The defendants jointly moved to dismiss the consolidated amended complaint on 21 March 2005. Plaintiffs then further amended their complaint. Defendants moved to dismiss the second amended compliant on 18 November 2005. That motion has been fully briefed and is pending before the Court.

 

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Commission File Number 001-31914

Auditors’ Review Report

 

LOGO

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

TO THE BOARD OF DIRECTORS OF CHINA LIFE INSURANCE COMPANY LIMITED

(incorporated in the People’s Republic of China with limited liability)

INTRODUCTION

We have reviewed the interim financial information set out on pages 13 to 39, which comprises the condensed consolidated balance sheet of China Life Insurance Company Limited (the “Company”) and its subsidiaries as at 30 June 2007 and the related condensed consolidated income statement, statement of changes in equity and cash flow statement for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants. The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting”. Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with Hong Kong Accounting Standard 34 “Interim Financial Reporting”.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 27 August 2007

 

12


Table of Contents

Commission File Number 001-31914

Condensed Consolidated Balance Sheet

As at 30 June 2007

 

          Unaudited
As at
30 June
2007
         Audited
As at
31 December
2006
 
      Note        RMB million           RMB million  

ASSETS

          

Property, plant and equipment

      15,263        14,565  

Deferred policy acquisition costs

      39,593        39,230  

Investments in associates

      6,391        6,071  

Financial assets

          

Debt securities

      397,218        357,898  

– held-to-maturity securities

   4.1        186,486         176,559  

– available-for-sale securities

   4.2        196,238        176,868  

– at fair value through income (held-for-trading)

   4.3        14,494        4,471  

Equity securities

      128,049        95,493  

– available-for-sale securities

   4.2        105,222        62,595  

– at fair value through income (held-for-trading)

   4.3        22,827        32,898  

Term deposits

   4.5        172,126        175,476  

Statutory deposits-restricted

      5,473        5,353  

Policy loans

      3,678        2,371  

Securities purchased under agreements to resell

      2,047         

Accrued investment income

      9,784        8,461  

Premiums receivables

      8,949        6,066  

Reinsurance assets

      1,023        986  

Other assets

      2,476        2,212  

Cash and cash equivalents

      57,734        50,213  
                    

Total assets

      849,804        764,395  
                    

The notes on pages 18 to 39 form an integral part of these condensed consolidated financial statements.

 

13


Table of Contents

Commission File Number 001-31914

Condensed Consolidated Balance Sheet

As at 30 June 2007

 

          Unaudited
As at
30 June
2007
   Audited
As at
31 December
2006
      Note    RMB million    RMB million

LIABILITIES AND EQUITY

        

Liabilities

        

Insurance contracts

        

Short-term insurance contracts

        

– reserves for claims and claim adjustment expenses

      2,311    2,498

– unearned premium reserves

      5,636    5,346

Long-term traditional insurance contracts

   6.2    200,031    172,875

Long-term investment type insurance contracts

   6.3    282,261    282,672

Deferred income

      46,331    41,371

Financial liabilities

        

Investment contracts

        

– with Discretionary Participation Feature (“DPF”)

   7    49,727    45,998

– without DPF

   7    2,555    2,614

Securities sold under agreements to repurchase

      11,069    8,227

Annuity and other insurance balances payable

      12,559    8,891

Premiums received in advance

      1,187    2,329

Policyholder dividends payable

      35,450    26,057

Other liabilities

      9,558    5,333

Current income tax liabilities

      4,326    843

Deferred tax liabilities

   12    18,339    19,022

Statutory insurance fund

      139    114
            

Total liabilities

      681,479    624,190
            

Contingencies and commitments

   17,18      

Shareholders’ equity

        

Share capital

   16    28,265    28,265

Reserves

      86,824    77,368

Retained earnings

      52,404    34,032
            

Total shareholders’ equity

      167,493    139,665
            

Minority interest

      832    540
            

Total equity

      168,325    140,205
            

Total liabilities and equity

      849,804    764,395
            
                

Approved and authorized for issue by the Board of Directors on 27 August 2007

 

Yang Chao

  

Wan Feng

Director

   Director

The notes on pages 18 to 39 form an integral part of these condensed consolidated financial statements.

 

14


Table of Contents

Commission File Number 001-31914

Condensed Consolidated Income Statement

For the six months ended 30 June 2007

 

      Unaudited  
   For the six months ended 30 June  
        2007     2006  
   Note    RMB million     RMB million  

REVENUES

       

Gross written premiums and policy fees
(including gross written premiums and policy
fees from insurance contracts
for the six months ended 30 June 2007:
RMB63,308 million,
for the six months ended 30 June 2006:
RMB54,309 million)

      63,753     54,580  

Less: premiums ceded to reinsurers

      (35 )   (43 )
               

Net written premiums and policy fees

      63,718     54,537  

Net change in unearned premium reserves

      (301 )   (289 )
               

Net premiums earned and policy fees

      63,417     54,248  
               

Net investment income

   8    24,071     11,341  

Net realised gains on financial assets

   9    2,262     497  

Net fair value gains on assets at fair value through income (held-for-trading)

   10    10,842     5,758  

Other income

      837     821  
               

Total revenues

      101,429     72,665  
               

BENEFITS, CLAIMS AND EXPENSES

       

Insurance benefits and claims

       

Life insurance death and other benefits

      (8,504 )   (4,120 )

Accident and health claims and claim adjustment expenses

      (2,988 )   (3,193 )

Increase in long-term traditional insurance contracts liabilities

      (27,170 )   (26,741 )

Interest credited to long-term investment type insurance

contracts

      (3,530 )   (3,073 )

Interest credited to investment contracts

      (650 )   (592 )

Increase in deferred income

      (4,454 )   (7,007 )

Policyholder dividends resulting from participation in profits

      (13,386 )   (5,398 )

Amortisation of deferred policy acquisition costs

      (9,466 )   (6,071 )

Underwriting and policy acquisition costs

      (1,468 )   (1,265 )

Administrative expenses

      (4,550 )   (3,542 )

Other operating expenses

      (648 )   (263 )

Statutory insurance fund

      (104 )   (90 )
               

Total benefits, claims and expenses

      (76,918 )   (61,355 )
               

Share of results of associates

      321      

Net profit before income tax expenses

   11    24,832     11,310  

Income tax expenses

   12    (1,420 )   (2,299 )
               

Net profit

      23,412     9,011  
               

Attributable to:

       

– shareholders of the Company

      23,289     8,966  

– minority interest

      123     45  
               

Basic and diluted earnings per share

   13    RMB 0.82     RMB 0.33  
               

Dividends approved and declared during the period

   14    3,957     1,338  
               

The notes on pages 18 to 39 form an integral part of these condensed consolidated financial statements.

 

15


Table of Contents

Commission File Number 001-31914

Condensed Consolidated Statement of Changes In Equity

For the six months ended 30 June 2007

 

    

Unaudited

 
    

Attributable to shareholders
of the Company

    Minority
interest
    Total  
      Share capital
RMB million
   Reserves
RMB million
   Retained
earnings
RMB million
    RMB million     RMB million  

As at 1 January 2007

   28,265    77,368    34,032     540     140,205  

Net profit

         23,289     123     23,412  

Dividends approved and declared

         (3,957 )       (3,957 )

Appropriation to reserve fund

      960    (960 )        

Unrealised gains/(losses), net of tax

      8,496        (7 )   8,489  

Capital contribution

             179     179  

Others

             (3 )   (3 )
                            

As at 30 June 2007

   28,265    86,824    52,404     832     168,325  
                            

As at 1 January 2006

   26,765    37,225    16,388     431     80,809  

Net profit

         8,966     45     9,011  

Dividends approved and declared

         (1,338 )       (1,338 )

Dividends to minority interests

             (8 )   (8 )

Unrealised gains, net of tax

      3,560        10     3,570  
                            

As at 30 June 2006

   26,765    40,785    24,016     478     92,044  
                            

The notes on pages 18 to 39 form an integral part of these condensed consolidated financial statements.

 

16


Table of Contents

Commission File Number 001-31914

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2007

 

    

Unaudited

For the six months
ended 30 June

 
     2007     2006  
      RMB million     RMB million  

Net cash inflow from operating activities

   59,508     36,193  

Net cash outflow from investing activities

   (57,857 )   (74,471 )

Net cash inflow from financing activities

   6,070     53,336  
            

Net increase in cash and cash equivalents

   7,721     15,058  
            

Cash and cash equivalents

    

Beginning of period at 1 January

   50,213     28,051  

Foreign currency losses on cash and cash equivalents

   (200 )   (135 )
            

End of period at 30 June

   57,734     42,974  
            

Analysis of balances of cash and cash equivalents

    

Cash at bank and in hand

   49,607     26,795  

Short-term bank deposits

   8,127     16,179  
            

Cash and cash equivalents

   57,734     42,974  
            

The notes on pages 18 to 39 form an integral part of these condensed consolidated financial statements.

 

17


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

1 ORGANIZATION AND PRINCIPAL ACTIVITIES

China Life Insurance Company Limited (the “Company”) was established in the People’s Republic of China (“China” or “PRC”) on 30 June 2003 as a joint stock company with limited liability as part of a group restructuring of China Life Insurance (Group) Company (formerly China Life Insurance Company) (“CLIC”) and its subsidiaries (the “Restructuring”). The Company and its subsidiaries, are hereinafter collectively referred to as the “Group”. The Group’s principal activity is the writing of life insurance business, providing life, annuities, accident and health insurance products in China.

The Company is a limited liability company incorporated and located in China. The address of its registered office is: 16 Chaowai Avenue, Chaoyang District, Beijing, PRC. The Company was listed on the Stock Exchange of Hong Kong, the New York Stock Exchange and the Shanghai Stock Exchange.

These condensed consolidated financial statements are presented in millions of RenMinBi (“RMB million”) unless otherwise stated. These condensed consolidated financial statements have been approved for issue by the board of directors on 27 August 2007.

 

2 BASIS OF PREPARATION AND ACCOUNTING POLICIES

These unaudited condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants.

These condensed consolidated financial statements should be read in conjunction with the 2006 annual financial statements.

The accounting policies and methods of computation used in the preparation of these condensed consolidated financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2006.

 

18


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

3 SEGMENT INFORMATION

 

  3.1 Business segments

The Group has the following main business segments:

 

  (i) Individual life insurance business

Individual life insurance business relates primarily to the sale of insurance contracts and investment contracts to individuals and comprises participating and non-participating business. Participating life insurance business relates primarily to the sale of participating contracts, which provides the policyholder with a participation in the profits arising from the invested assets relating to the policy and mortality gains. Non-participating insurance business relates primarily to non-participating life insurance and annuity products, which provides guaranteed benefits to the insured without a participation in the profits.

 

  (ii) Group life insurance business

Group life insurance business relates primarily to the sale of insurance contracts and investment contracts to group entities and comprises participating and non-participating business as described above.

 

  (iii) Accident and health insurance business

Accident and health insurance business relates primarily to the sale of accident and health insurance and accident only products.

 

  (iv) Corporate and other

Corporate and other business relates primarily to income and expenses in respect of the provision of the services to CLIC, as described in note 15, share of results of associates and unallocated income taxes.

 

  3.2 Basis of allocating net investment income, realised and unrealised gains or losses and administrative and other operating expenses

Net investment income, net realised gains or losses on financial assets, net fair value gains or losses on assets at fair value through income (held-for-trading) and foreign exchange losses within other operating expenses are allocated among segments in proportion to each respective segment’s average statutory policyholder reserve and claims provision at the beginning and end of the period. Administrative and other operating expenses are allocated among segments in proportion to the unit cost of products in the respective segments.

 

19


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

3 SEGMENT INFORMATION (CONTINUED)

 

       For the six months ended 30 June 2007  
        Individual
life
     Group life      Accident
& Health
(RMB million)
     Corporate
& other
     Total  

Revenues

                

Gross written premiums and policy fees

     56,687      1,080      5,986           63,753  

Gross written premiums

     52,242      626      5,986              

– Term Life

     83      8                 

– Whole Life

     16,029      516                 

– Endowment

     24,271                      

– Annuity

     11,859      102                 

Policy fees

     4,445      454                   

Net premiums earned and policy fees

     56,681      1,080      5,656           63,417  

Net investment income

     21,595      2,125      351           24,071  

Net realised gains on financial assets

     2,029      200      33           2,262  

Net fair value gains on assets at fair value through income (held-for-trading)

     9,727      957      158           10,842  

Other income

                    837      837  
                                    

Segment revenues

     90,032      4,362      6,198      837      101,429  
                                    

Benefits, claims and expenses

                

Insurance benefits and claims

                

Life insurance death and other benefits

     (7,860 )    (644 )              (8,504 )

Accident and health claims and claim adjustment expenses

               (2,988 )         (2,988 )

Increase in long-term traditional insurance contracts liabilities

     (27,087 )    (83 )              (27,170 )

Interest credited to long-term investment type insurance contracts

     (3,520 )    (10 )              (3,530 )

Interest credited to investment contracts

          (650 )              (650 )

Increase in deferred income

     (4,415 )    (39 )              (4,454 )

Policyholder dividends resulting from participation in profits

     (11,744 )    (1,642 )              (13,386 )

Amortization of deferred policy acquisition costs

     (8,665 )    (202 )    (599 )         (9,466 )

Underwriting and policy acquisition costs

     (1,268 )    (44 )    (156 )         (1,468 )

Administrative expenses

     (2,562 )    (287 )    (822 )    (879 )    (4,550 )

Other operating expenses

     (514 )    (55 )    (43 )    (36 )    (648 )

Statutory insurance fund

     (90 )         (14 )         (104 )
                                    

Segment benefits, claims and expenses

     (67,725 )    (3,656 )    (4,622 )    (915 )    (76,918 )
                                    

Share of results of associates

                    321      321  
                                    

Segment results

     22,307      706      1,576      243      24,832  
                                    

Income tax expenses

                    (1,420 )    (1,420 )
                                    

Net profit/(loss)

     22,307      706      1,576      (1,177 )    23,412  
                                    

Attributable to:

                

– shareholders of the Company

     22,307      706      1,576      (1,300 )    23,289  

– minority interest

                    123      123  
                                    

Unrealised gains/(loss) included in shareholders’ equity

     7,623      750      124      (1 )    8,496  
                                    

 

20


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

3 SEGMENT INFORMATION (CONTINUED)

 

     For the six months ended 30 June 2006  
      Individual
life
    Group life     Accident &
Health
(RMB million)
    Corporate
& other
    Total  

Revenues

          

Gross written premiums and policy fees

   47,958     1,097     5,525         54,580  

Gross written premiums

   43,909     807     5,525            

–Term Life

   83     13              

–Whole Life

   13,990     781              

–Endowment

   26,793                  

–Annuity

   3,043     13              

Policy fees

   4,049     290                

Net premiums earned and policy fees

   47,923     1,097     5,228         54,248  

Net investment income

   10,042     1,180     119         11,341  

Net realised gains on financial assets

   440     52     5         497  

Net fair value gains on assets at fair value through income (held-for-trading)

   5,098     599     61         5,758  

Other income

               821     821  
                              

Segment revenues

   63,503     2,928     5,413     821     72,665  
                              

Benefits, claims and expenses

          

Insurance benefits and claims

          

Life insurance death and other benefits

   (4,027 )   (93 )           (4,120 )

Accident and health claims and claim adjustment expenses

           (3,193 )       (3,193 )

Increase in long-term traditional insurance contracts liabilities

   (26,320 )   (421 )           (26,741 )

Interest credited to long-term investment type insurance contracts

   (3,058 )   (15 )           (3,073 )

Interest credited to investment contracts

       (592 )           (592 )

Increase in deferred income

   (6,935 )   (72 )           (7,007 )

Policyholder dividends resulting from participation in profits

   (5,045 )   (353 )           (5,398 )

Amortization of deferred policy acquisition costs

   (5,277 )   (342 )   (452 )       (6,071 )

Underwriting and policy acquisition costs

   (1,131 )   (24 )   (110 )       (1,265 )

Administrative expenses

   (2,003 )   (202 )   (680 )   (657 )   (3,542 )

Other operating expenses

   (180 )   (22 )   (1 )   (60 )   (263 )

Statutory insurance fund

   (80 )   (1 )   (9 )       (90 )
                              

Segment benefits, claims and expenses

   (54,056 )   (2,137 )   (4,445 )   (717 )   (61,355 )
                              

Segment results

   9,447     791     968     104     11,310  
                              

Income tax expenses

               (2,299 )   (2,299 )
                              

Net profit/(loss)

   9,447     791     968     (2,195 )   9,011  
                              

Attributable to:

          

– shareholders of the Company

   9,447     791     968     (2,240 )   8,966  

– minority interest

               45     45  
                              

Unrealised gains included in shareholders’ equity

   3,153     370     37         3,560  
                              
                                      

 

21


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

4 FINANCIAL ASSETS

 

  4.1 Held-to-maturity securities

 

      Amortised
cost
RMB million
   Gross
unrealised gains
RMB million
   Gross
unrealised losses
RMB million
    Estimated fair
value
RMB million

As at 30 June 2007

          

Debt Securities

          

Government bonds

   95,006    2,005    (303 )   96,708

Government agency bonds

   63,855    929    (3,660 )   61,124

Corporate bonds

   3,257    224    (5 )   3,476

Subordinated bonds/debts

   24,368    298        24,666
                    

Total

   186,486    3,456    (3,968 )   185,974
                    

As at 31 December 2006

          

Debt Securities

          

Government bonds

   94,999    7,791    (26 )   102,764

Government agency bonds

   53,935    2,642    (244 )   56,333

Corporate bonds

   3,257    296        3,553

Subordinated bonds/debts

   24,368    1,282    (8 )   25,642
                    

Total

   176,559    12,011    (278 )   188,292
                    
                           
Contractual maturity schedule    Amortised cost    Estimated fair value
      As at 30 June
2007
RMB million
   As at 31 December
2006
RMB million
   As at 30 June
2007
RMB million
    As at 31 December
2006
RMB million

Maturing:

          

Within one year

   4,785    2,974    4,821     3,008

After one year but within five years

   50,933    51,483    52,112     54,345

After five years but within ten years

   35,947    37,295    36,728     40,279

After ten years

   94,821    84,807    92,313     90,660
                    

Total

   186,486    176,559    185,974     188,292
                    
                           

 

22


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

4 FINANCIAL ASSETS (CONTINUED)

 

  4.2 Available-for-sale securities

 

      Amortised
cost/Cost
RMB million
   Gross
unrealised gains
RMB million
   Gross
unrealised losses
RMB million
    Estimated
fair value
RMB million
          

As at 30 June 2007

          

Debt securities

          

Government bonds

   60,523    77    (2,126 )   58,474

Government agency bonds

   105,491    149    (8,168 )   97,472

Corporate bonds

   31,917    114    (1,092 )   30,939

Subordinated bonds/debts

   9,467    9    (123 )   9,353
                    

Subtotal

   207,398    349    (11,509 )   196,238
                    

Equity securities

          

Funds

   23,074    20,067    (20 )   43,121

Common stocks

   31,895    30,397    (191 )   62,101
                    

Subtotal

   54,969    50,464    (211 )   105,222
                    

Total

   262,367    50,813    (11,720 )   301,460
                    

 

 

Debt securities    As at 30 June 2007
-contractual maturity schedule    Amortised cost
RMB million
   Estimated
fair value
RMB million
     

Maturing:

     

Within one year

   2,008    2,026

After one year but within five years

   23,217    22,754

After five years but within ten years

   58,279    56,100

After ten years

   123,894    115,358
         

Total

   207,398    196,238
         

 

 

23


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

4 FINANCIAL ASSETS (CONTINUED)

 

  4.2 Available-for-sale securities (continued)

 

      Amortised
cost/Cost
RMB million
   Gross
unrealised gains
RMB million
   Gross
unrealised losses
RMB million
    Estimated
fair value
RMB million

As at 31 December 2006

          

Debt securities

          

Government bonds

   60,058    863    (569 )   60,352

Government agency bonds

   78,300    664    (243 )   78,721

Corporate bonds

   31,001    238    (487 )   30,752

Subordinated bonds/debts

   7,068    12    (37 )   7,043
                    

Subtotal

   176,427    1,777    (1,336 )   176,868
                    

Equity securities

          

Funds

   20,535    12,437    (103 )   32,869

Common stocks

   15,876    13,882    (33 )   29,725

Warrants

      1        1
                    

Subtotal

   36,411    26,320    (136 )   62,595
                    

Total

   212,838    28,097    (1,472 )   239,463
                    

 

 

Debt securities

-contractual maturity schedule

   As at 31 December 2006
      Amortised cost
RMB million
   Estimated
fair value
RMB million

Maturing:

     

Within one year

   4,544    4,561

After one year but within five years

   26,664    27,016

After five years but within ten years

   60,261    59,995

After ten years

   84,958    85,296
         

Total

   176,427    176,868
         

 

 

24


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

4 FINANCIAL ASSETS (CONTINUED)

 

  4.3 Financial assets at fair value through income (held-for-trading)

 

      As at
30 June 2007
RMB million
   As at
31 December 2006
RMB million

Debt securities

     

Government bonds

   629    148

Government agency bonds

   12,197    1,915

Corporate bonds

   1,346    2,083

Subordinated bonds/debts

   322    325
         

Subtotal

   14,494    4,471
         
Equity securities
Funds
   12,355    12,382

Common stocks

   10,458    20,460

Warrants

   14    56
         

Subtotal

   22,827    32,898
         

Total

   37,321    37,369
         

 

 

25


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

4 FINANCIAL ASSETS (CONTINUED)

 

  4.4 Listed and unlisted investments at carrying value

 

      As at
30 June 2007
RMB million
   As at
31 December 2006
RMB million

Listed debt securities in PRC

     

Government bonds

   57,046    64,562

Corporate bonds

   6,048    6,839
         

Subtotal

   63,094    71,401
         

Unlisted debt securities in PRC

     

Government bonds

   97,063    90,937

Government agency bonds

   173,524    134,571

Corporate bonds

   29,494    29,253

Subordinated bonds/debts

   34,043    31,736
         

Subtotal

   334,124    286,497
         

Listed equity securities in PRC

     

Common stocks

     

– listed in HK, PRC

   6,939    6,884

– listed in mainland, PRC

   65,618    43,301

Funds – listed in mainland, PRC

   14,140    12,861

Warrants – listed in mainland, PRC

   14    57
         

Subtotal

   86,711    63,103
         

Unlisted equity securities in PRC

     

Funds

   41,336    32,390

Common Stocks

   2   
         

Subtotal

   41,338    32,390
         

Total

   525,267    453,391
         

 

As at 30 June 2007, the amount of unlisted debt securities, contracted in the over-the-counter market, is RMB 313,949 million (31 December 2006: RMB260,289 million).

 

26


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

4 FINANCIAL ASSETS (CONTINUED)

 

  4.5 Term deposits

 

     

As at

30 June 2007

RMB million

  

As at

31 December 2006
RMB million

Maturing:

     

Within one year

   43,500    57,930

After one year but within five years

   122,900    111,901

After five years but within ten years

   3,556    3,421

After ten years

   2,170    2,224
         

Total

   172,126    175,476
         
         
           

Included in term deposits are structured deposits of RMB4,531 million (31 December 2006: RMB4,646 million). The interest rate on these deposits fluctuates based on changes in interest rate indexes. The Group uses structured deposits primarily to enhance the returns on investments. Structured deposits are stated at amortised cost.

 

5 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The estimates and judgments to determine the fair value of financial assets and liabilities are described in Note 3.3 and Note 10 of 2006 annual financial statements, respectively.

The table below presents the estimated fair value and carrying value of financial assets and liabilities.

 

     Estimated fair value  
     

As at

30 June 2007

RMB million

   

As at

31 December 2006

RMB million

 

Debt securities

   396,706     369,631  

Equity securities

   128,049     95,493  

Term deposits (excluding structured deposits)

   167,595     170,830  

Structured deposits

   4,347     4,419  

Statutory deposits – restricted

   5,473     5,353  

Securities purchased under agreements to resell

   2,047      

Policy loans

   3,678     2,371  

Cash and cash equivalents

   57,734     50,213  

Long-term investment type insurance contracts

   (276,110 )   (276,241 )

Investment contracts with DPF

   (42,866 )   (39,575 )

Investment contracts without DPF

   (2,408 )   (2,459 )

Securities sold under agreements to repurchase

   (11,069 )   (8,227 )

 

           

 

27


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

5 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)

 

     Carrying value  
     

As at

30 June 2007

RMB million

   

As at

31 December 2006

RMB million

 

Debt securities

   397,218     357,898  

Equity securities

   128,049     95,493  

Term deposits (excluding structured deposits)

   167,595     170,830  

Structured deposits

   4,531     4,646  

Statutory deposits – restricted

   5,473     5,353  

Securities purchased under agreements to resell

   2,047      

Policy loans

   3,678     2,371  

Cash and cash equivalents

   57,734     50,213  

Long-term investment type insurance contracts

   (282,261 )   (282,672 )

Investment contracts with DPF

   (49,727 )   (45,998 )

Investment contracts without DPF

   (2,555 )   (2,614 )

Securities sold under agreements to repurchase

   (11,069 )   (8,227 )
              

The Group issues contracts that transfer insurance risk or financial risk or both. The Group’s activities also expose it to a variety of financial risks. The management of insurance and financial risk are described in Note 4 of 2006 annual financial statements.

 

6 INSURANCE CONTRACTS

The assumptions used in the preparation of these condensed consolidated financial statements are disclosed in the notes to 2006 annual financial statements. The Group generally, when preparing interim financial statements, utilised the assumptions of prior year for the new business acquired. The major assumptions adopted in the development of liabilities arising from long-term insurance contracts are:

 

  6.1 Process used to decide on assumptions

 

  (i) Investment return assumptions are based on estimates of future yields on the Group’s investments. In determining interest rate assumptions, the Group considers past investment experience, the current and future mix of its investment portfolio and trends in yields. The assumed rate of investment return in future years reflect increased investment in higher yielding securities, including corporate bonds, subordinated bonds/debts, longer duration debt securities and equity securities. The assumed rate of investment return and provision for adverse deviation used are as follows:

 

Year of policy issue    Interest rate
assumptions
   Provision for
adverse deviation

Prior to 2003

   3.80%-5.00%    0.25%-0.50%

2003

   3.65%-5.00%    0.25%-0.50%

2004

   3.70%-5.17%    0.25%-0.50%

2005

   4.00%-5.20%    0.25%-0.50%

2006

   4.60%-5.40%    0.25%-0.60%

Six months ended 30 June 2007

   4.60%-5.40%    0.30%-0.60%
           

 

28


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

6 INSURANCE CONTRACTS (CONTINUED)

 

  6.1 Process used to decide on assumptions (continued)

 

  (ii) Estimates are made for mortality and morbidity rates in each of the years that the Group is exposed to risk. The assumed mortality rates and morbidity rates, varying by age of the insured and contract type, are based upon expected experience at date of contract issue plus, where applicable, a margin for adverse deviation.

The Group bases its mortality assumptions on China Life Insurance Mortality Table (1990-1993) and China Life Insurance Mortality Table (2000-2003), adjusted where appropriate to reflect the Group’s recent historical mortality experience. Appropriate but not excessively prudent allowance is made for future mortality improvement on contracts that insure the risk of longevity, such as annuities. The main source of uncertainty with life insurance contracts is that epidemics such as Avian Flu, AIDS, SARS and wide- ranging lifestyle changes could result in deterioration in future mortality experience, thus leading to an inadequate liability. Similarly, continuing advancements in medical care and social conditions could result in improvements in longevity that exceed those allowed for in the estimates used to determine the liability for contracts where the Group is exposed to longevity risk.

The Group bases its morbidity assumptions for critical illness products on Taiwanese experience in the critical illness market, as the best proxy for the China’s market adjusted where appropriate to reflect the Group’s recent historical and projected future experience. There are two main sources of uncertainty. First, wide-ranging lifestyle changes could result in future deterioration in morbidity experience. Second, future development of medical technologies and improved coverage of medical facilities available to policyholders may bring forward the timing of diagnosing critical illness, which demands earlier payment of the critical illness benefits. Both could ultimately result in an inadequate liability if current morbidity assumptions do not properly reflect such secular trends.

 

  (iii) The assumption for policy administration expenses has been based on expected unit costs plus, where applicable, a margin for adverse deviation. Unit costs have been based on an analysis of actual experience. The unit cost factors are expressed on both a per-policy and a percent-of-premium basis, as follows:

 

     Individual Life    Group Life
Year of policy issue    RMB Per Policy    % of Premium    RMB Per Policy    % of Premium

Prior to 2003

   15.0    2.00%    15.0    2.00%

2003

   12.5    1.75%    12.5    1.75%

2004

   10.0 – 17.5    1.65%-2.55%    17.5    1.65%

2005

   14.5 – 19.5    1.50%-1.80%    4.0    1.30%

2006

   15.0 – 22.0    1.60%-1.85%    6.5    1.50%

Six months ended 30 June 2007

   15.0 – 22.0    1.60%-1.85%    6.5    1.50%
                     

 

29


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

6 INSURANCE CONTRACTS (CONTINUED)

 

  6.2 Movements in liabilities for long-term traditional insurance contracts

The table below presents movement in the liabilities of long-term traditional insurance contracts:

 

      2007
RMB million
    2006
RMB million
 

As at 1 January

   172,875     124,656  

Valuation premium

   33,672     28,888  

Liabilities released for death or other termination and related expenses

   (10,842 )   (5,710 )

Accretion of interest

   3,881     2,580  

Other movements

   445     1,252  
            

As at 30 June

   200,031     151,666  
            

 

         
           

 

  6.3 Movements in liabilities of long-term investment type insurance contracts

The table below presents movement in the liabilities of long-term investment type insurance contracts:

 

      2007
RMB million
    2006
RMB million
 

As at 1 January

   282,672     237,001  

Deposits received

   47,996     46,418  

Deposits withdrawn

   (47,483 )   (8,713 )

Fees deducted from account balances

   (4,454 )   (4,068 )

Interest credited

   3,530     3,073  
            

As at 30 June

   282,261     273,711  
            

 

         
           

 

7 LIABILITIES OF INVESTMENT CONTRACTS

The table below presents movement of investment contracts:

 

      2007
RMB million
    2006
RMB million
 

As at 1 January

   48,612     44,102  

Deposits received

   15,708     14,682  

Deposits withdrawn

   (12,243 )   (9,803 )

Policy fees deducted from account balances

   (445 )   (271 )

Interest credited

   650     592  
            

As at 30 June

   52,282     49,302  
            

 

 

 

30


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

8 NET INVESTMENT INCOME

 

     For the six months
ended 30 June
 
      2007
RMB million
    2006
RMB million
 

Debt securities

   7,608     5,546  

Term deposits and cash and cash equivalents

   4,459     4,033  

Equity securities

   12,127     1,862  

Policy loans

   76     22  

Securities purchased under agreements to resell

   87     3  
            

Subtotal

   24,357     11,466  
            

Securities sold under agreements to repurchase

   (181 )   (88 )

Investment expenses

   (105 )   (37 )
            

Total

   24,071     11,341  
            

 

 

9 NET REALISED GAINS ON FINANCIAL ASSETS

 

     For the six months
ended 30 June
 
      2007
RMB million
    2006
RMB million
 

Debt securities

    

Gross realised gains

   324     2  

Gross realised losses

   (7 )   (6 )

Impairments

   (2,248 )    
            

Subtotal

   (1,931 )   (4 )
            

Equity securities

    

Gross realised gains

   4,358     501  

Gross realised losses

   (165 )    
            

Subtotal

   4,193     501  
            

Total

   2,262     497  
            

 

 

31


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

10 NET FAIR VALUE GAINS ON ASSETS AT FAIR VALUE THROUGH INCOME (HELD-FOR-TRADING)

 

      For the six months
ended 30 June
   2007
RMB million
   2006
RMB million
     

Debt securities

   300    154

Equity securities

   10,542    5,604
         

Total

   10,842    5,758
         
           

 

11 NET PROFIT BEFORE INCOME TAX EXPENSES

Net profit before income tax expenses is stated after charging the following:

 

     For the six months
ended 30 June
      2007
RMB million
   2006
RMB million
     

Salary and welfare

   1,896    1,703

Housing benefits

   126    140

Contribution to the defined contribution pension plan

   217    203

Depreciation

   495    415

Loss on disposal of property, plant and equipment

      1

Exchange loss

   390    208
           

 

12 TAXATION

 

  (a) The amount of taxation charged to the condensed consolidated income statement represents:

 

     For the six months
ended 30 June
      2007
RMB million
    2006
RMB million

Current taxation – enterprises income tax

   4,435     965

Deferred taxation

   (3,015 )   1,334
          

Taxation charges

   1,420     2,299
          
            

 

32


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

12 TAXATION (CONTINUED)

 

  (b) The reconciliation between the Group’s effective tax rate and the statutory tax rate of 33% in the PRC is as follows:

 

          For the six months ended
30 June
 
          2007     2006  
            RMB million     RMB million  

Net profit before income tax expenses

      24,832     11,310  
               

Tax computed at the statutory tax rate of 33%

      8,195     3,732  

Non-taxable income

   (i)    (3,719 )   (1,449 )

Additional tax liability from expenses not deductible for tax purposes

   (i)    72     16  

Effect on change in statutory tax rate

   (ii)    (3,128 )    
               

Income taxes at effective tax rate

      1,420     2,299  
               
            
                

 

  (i) Non-taxable income includes mainly interest income from government bonds and fund distribution. Expenses not deductible for tax purposes include mainly salary, commission, brokerage and donation expenses in excess of deductible amounts as allowed by relevant tax regulations.

 

  (ii) On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the new “CIT Law”). The new CIT Law reduces the domestic corporate income tax rate from 33% to 25% with effect from 1 January 2008.

 

  (c) As at 30 June 2007, deferred income taxation is calculated in full on temporary differences under the liability method using a principal taxation rate of 25% except for those which are estimated to be settled by 31 December 2007 using a tax rate of 33%.

The movement on the deferred income tax liabilities account is as follows:

 

     2007     2006
      RMB million     RMB million

As at 1 January

   19,022     7,982

Deferred taxation charged to income statement

   (3,015 )   1,334

Deferred taxation charged to equity

   2,332     1,759
          

As at 30 June

   18,339     11,075
          
         
           

 

13 EARNINGS PER SHARE

There is no difference between basic and diluted earnings per share. The basic and diluted earnings per share for the six months ended 30 June 2007 are based on the weighted average number of 28,264,705,000 ordinary shares (for the six months ended 30 June 2006: 26,764,705,000).

 

33


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

14 DIVIDENDS

A dividend in respect of 2006 of RMB0.14 per ordinary share, amounting to a total dividend of RMB3,957 million, was approved and declared at the Annual General Meeting in June 2007.

 

15 SIGNIFICANT RELATED PARTY TRANSACTIONS

 

  (a) Related parties

Related parties are those parties which have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The table set forth below summarises the names of significant related parties and nature of relationship with the Company as at 30 June 2007:

 

Significant related party   Relationship with the Company

China Life Insurance (Group) Company (“CLIC”)

  The ultimate holding company

China Life Insurance Asset Management Company Limited (“AMC”)

  A subsidiary of the Company

Guangdong Development Bank (“GDB”)

  An associate of the Company

Beijing Zhongbaoxin Real Estate Development Co., Limited (“Zhongbaoxin”)

 

A subsidiary of a subsidiary of the ultimate holding company

 

 

  (b) Transactions with AMC, GDB, CLIC and its subsidiaries

The following table summarises significant transactions carried out by the Group with AMC, GDB, CLIC and its subsidiaries for the six months ended 30 June 2007.

 

     Note    For the six months ended 30 June
          2007    2006
            RMB million    RMB million

Transaction with CLIC and its subsidiaries

        

Policy management fee income earned from CLIC

   (i)    698    743

Asset management fee earned from CLIC

   (ii)    49    39

Rewards from CLIC for non-transferred policies

   (iii)    70   

Property leasing expense charged by CLIC

   (iv)    33    84

Rentals, deposits and project payments to Zhongbaoxin

   (v)    1    2

Purchase of property, plant and equipment from CLIC

      488   

Transaction with AMC

        

Asset Management fee expense charged by AMC

   (ii)    161    131

Transaction with GDB

        

Brokerage fee charged by GDB

   (vi)    1   

Interest income earned from GDB

 

        37

 

  

 

 

34


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

15 SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

 

  (b) Transactions with AMC, GDB, CLIC and its subsidiaries (continued)

Notes:

 

  (i) As part of the restructuring, CLIC transferred its entire branch services network to the Company. CLIC and the Company have entered into an agreement to engage the Company to provide policy administration services to CLIC relating to the non-transferred policies. The Company, as a service provider, does not acquire any rights or assume any obligations as an insurer under the non-transferred policies. In consideration of the services provided under the agreement, CLIC will pay the Company a service fee based on the estimated cost of providing the services, to which a profit margin is added. The service fee is equal to, for each semi-annual payment period, the sum of (1) the number of non-transferred policies in force that were within their policy term as at the last day of the period, multiplied by RMB8.00 per policy and (2) 2.50% of the actual premiums and deposits in respect of such policies collected during the period. The policy management fee income is included in other income in condensed consolidated income statement.

 

  (ii) CLIC and the AMC have entered into an agreement, whereby CLIC agreed to pay the AMC a service fee at the rate of 0.05% per annum. The service fee is calculated and payable on a monthly basis, by multiplying the average of balance of book value of the assets under management (after deducting the funds obtained and interests accrued from repurchase transactions) at the beginning and at the end of any given month by the rate of 0.05%, divided by 12. Such rate was determined with reference to the applicable management fee rate pre-determined for each specified category of assets managed by the AMC to arrive at a comprehensive service fee rate.

The Company and the AMC have entered into a separate agreement, whereby the Company agreed to pay the AMC a fixed service fee and a variable service fee. The fixed service fee is payable monthly and is calculated with reference to the net asset value of the assets in each specified category managed by the AMC and the applicable management fee rates pre-determined by the parties on an arm’s length basis. The variable service fee equals to 10% of the fixed service fee per annum payable annually. The service fees were determined by the Company and the AMC based on an analysis of the cost of service, market practice and the size and composition of the asset pool to be managed.

Although the description of the service fee rates under the two agreements are different, the ultimate comprehensive service fee rate calculated under each of these two agreements is basically the same.

The asset management fee charged to the Company by AMC is eliminated through the condensed consolidated income statement.

 

  (iii) The Company assisted CLIC to mitigate business risk arising from non-transferred policies, and received a fee income of RMB70 million from CLIC as the reward for such non-transferrable policies for the six months ended 30 June 2007.

 

  (iv) The Company has entered into a property leasing agreement with CLIC, pursuant to which CLIC agreed to lease to the Company some of its owned and leased buildings. The annual rent payable by the Company to CLIC in relation to the CLIC owned properties is determined by reference to market rent or, the costs incurred by CLIC in holding and maintaining the properties, plus a margin of approximately 5%. The annual rent payable by the Company to CLIC in relation to the CLIC leased properties is determined by reference to the rent payable under the head lease plus the actual costs incurred by CLIC arising in connection with the subletting of the properties. The Company has directly paid the relevant rental expenses raised from CLIC leased properties to the third-party instead of CLIC.

 

  (v) The Group made certain project payments to third parties through Zhongbaoxin and paid other miscellaneous expenditures mainly comprised of rentals and deposits to Zhongbaoxin.

 

  (vi) On 29 April, 2007, the Company and GDB entered into a five year individual bank insurance agency agreement. All insurance products suitable for delivery through bank channel are involved in the agreement. GDB will provide services, including selling insurance products, receiving premiums, paying benefits. The company has agreed to pay commission fees as follows: 1) A monthly service fee, calculated on a monthly basis, by multiplying total premium received and a fixed commission rate. 2) A monthly commission fee, calculated on a monthly basis, by multiplying number of policy being handled and fixed commission rate which is not more than RMB 1 per policy, where GDB handles premiums receipts and benefits payments.

 

35


Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

15 SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

 

  (c) Amounts due from/to GDB, CLIC and its subsidiaries

The following table summarises the resulting balance due from and to GDB, CLIC and its subsidiaries. The balance is non-interest bearing, unsecured and has no fixed repayment terms except for the deposits in GDB.

 

     

As at

30 June 2007
RMB million

   

As at

31 December 2006

RMB million

 

Amount due from CLIC

   715     996  

Amount due to CLIC

   (49 )   (3 )

Dividends due to CLIC

   (2,705 )    

Amount deposited with GDB

   3,722      

Amount due from Zhongbaoxin

   1     1  

 

  (d) Key management compensation

 

    

For the six months

ended 30 June

      2007
RMB million
   2006
RMB million

Salaries and other short-term employee benefits

   14    6

Termination benefits

     

Post-employment benefits

     

Other long-term benefits

     

Share-based payments

      5
         

Total

   14    11
         

 

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Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

15 SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

 

  (e) Transactions with state-owned enterprises

Under HKAS 24, business transactions between state-owned enterprises controlled by the PRC government are within the scope of related party transactions. CLIC, the ultimate holding company of the Group, is a state-owned enterprise. The Group’s key business and therefore the business transactions with other state-owned enterprises are primarily related to insurance and investment activities. The related party transactions with other state- owned enterprises were conducted in the ordinary course of business. Due to the complex ownership structure, the PRC government may hold indirect interests in many companies. Some of these interests may, in themselves or when combined with other indirect interests, be controlling interests which may not be known to the Group. Nevertheless, the Group believes that the following captures the material related parties.

As at 30 June 2007, more than 85% (as at 31 December 2006: more than 70%) of bank deposits were with state-owned banks; approximately 98% (as at 31 December 2006: approximately 95%) of the issuers of corporate bonds and subordinated bonds/debts held by the Group were state-owned enterprises. For the six months ended 30 June 2007, more than 60% (for the six months ended 30 June 2006: approximately 60%) of the group insurance business of the Group were with state-owned enterprises; approximately 84% (for the six months ended 30 June 2006: approximately 90%) of bank assurance brokerage charges of RMB1,351 million (for the six months ended 30 June 2006: RMB1,199 million) were paid to state-owned banks and post office; almost all of the reinsurance agreements of the Group are entered into with a state-owned reinsurance company; more than 85% (for the six months ended 30 June 2006: more than 65%) of bank deposit interest income were from state-owned banks.

 

16 SHARE CAPITAL

 

     As at 30 June 2007    As at 31 December 2006
      No. of shares    RMB million    No. of shares    RMB million

Registered, issued and fully paid Ordinary shares of RMB1 each

   28,264,705,000    28,265    28,264,705,000    28,265

 

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Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

17 CONTINGENCIES

The following is a summary of the significant contingent liabilities:

 

            

As at

30 June 2007

RMB million

  

As at

31 December 2006

RMB million

Pending lawsuits

   (b )   54    54

 

  (a) The Company and certain of its past directors (the “defendants”) have been named in nine putative class action lawsuits filed in the United States District Court for the Southern District of New York between 16 March 2004 and 14 May 2004. The lawsuits have been ordered to be consolidated and restyled In re China Life Insurance Company Limited Securities Litigation, NO.04 CV 2112 (TPG). Plaintiffs filed a consolidated amended complaint on 19 January 2005, which names the Company, Wang Xianzhang (past director), Miao Fuchun (past director) and Wu Yan (past director) as defendants. The consolidated amended compliant alleges that the defendants named therein violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The Company has engaged U.S. counsel to contest vigorously on the lawsuits. The defendants jointly moved to dismiss the consolidated amended complaint on 21 March, 2005. Plaintiffs then further amended their complaint. Defendants moved to dismiss the second amended compliant on 18 November 2005. That motion has been fully briefed and is pending before the Court. The likelihood of an unfavourable outcome is still uncertain. No provision has been made with respect to these lawsuits.

 

  (b) The Group has been named in a number of lawsuits arising in the ordinary course of business. Provision has been made for the probable losses to the Group on those claims when management can reasonably estimate the outcome of the lawsuits taking into account the legal advice. No provision has been made for pending lawsuits when the outcome of the lawsuits cannot be reasonably estimated or management believes a loss is not probable.

 

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Table of Contents

Commission File Number 001-31914

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2007

 

18 COMMITMENTS

 

  (a) Capital commitments

 

  (i) Capital commitments for property, plant and equipment

 

     

As at

30 June 2007

RMB million

  

As at

31 December 2006

RMB million

Contracted but not provided for

   183    990

 

  (ii) Capital commitments to invest in Bohai Venture Capital Fund

The Group committed to contribute RMB500 million to Bohai Venture Capital Fund and RMB5 million to Bohai Venture Capital Fund Management Company of which RMB52 million had been paid as at 30 June 2007. The remaining RMB453 million will be paid when called.

 

  (b) Operating lease commitments

The future minimum lease payments under non-cancelable operating leases are as follows:

 

     

As at

30 June 2007

RMB million

  

As at

31 December 2006

RMB million

Land and buildings

     

Not later than one year

   181    242

Later than one year but not later than five years

   254    386

Later than five years

   24    50
         

Total

   459    678
         

The operating lease payments charged to the condensed consolidated income statement for the six months ended 30 June 2007 was RMB189 million (for the six months ended 30 June 2006: RMB187 million).

 

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Table of Contents

Commission File Number 001-31914

Supplementary Information For ADR Holders

RECONCILIATION OF HKFRS AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“US GAAP”)

The consolidated financial statements of the Group have been prepared in accordance with HKFRS. There are no material differences between HKFRS and US GAAP that had an effect on net profit for the six months periods ended 30 June 2007 and 2006 and shareholders’ equity as at 30 June 2007 and 31 December 2006.

 

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Table of Contents

Commission File Number 001-31914

Other Information

DISCLOSURE OF DIRECTORS’ AND SUPERVISORS’ INTERESTS IN SHARES

As at 30 June, 2007, save as disclosed below, none of the Directors, Supervisors or chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (the “SFO”)) that were recorded in the register of the Company required to be kept pursuant to Section 352 of the SFO or which had to be notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, Appendix 10 to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “Listing Rules”).

 

Name of company   

Name of

director

   Capacity    Nature of
interests
   Type of
Shares
  

Number of

Shares held

 

Percentage of

the respective

type of Shares

  

Percentage of

the total number

of Shares in issue

China Life Insurance Company Limited

   Ngai Wai Fung    Beneficial
owner
   Personal    H Shares    2,000(L)   0.000026877    0.000007076

The letter “L” denotes a long position.

          

 

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Table of Contents

Commission File Number 001-31914

Other Information

INTEREST OF SUBSTANTIAL SHAREHOLDERS OF THE COMPANY

So far as is known to any directors and chief executive of the Company, as at 30 June 2007, the following persons (other than the directors, supervisors and chief executive of the Company) had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange:

 

Name of Substantial
Shareholder
   Capacity    Type of
Shares
   Number of Shares
held
    Percentage
of the
respective
type of
Shares
   Percentage
of the total
number of
Shares in
issue

China Life Insurance (Group) Company

  

Beneficial owner

   Domestic
Shares
   19,323,530,000 (L)   92.8    68.4

Lee Shau Kee (1)

  

Founder of discretionary trusts & interest of controlled corporations

   H Shares    428,358,620 (L)   5.76    1.52

Leeworld (Cayman) Limited (1)

  

Trustee

   H Shares    428,358,620 (L)   5.76    1.52

Leesons (Cayman) Limited (1)

  

Trustee

   H Shares    428,358,620 (L)   5.76    1.52

Lee Financial (Cayman) Limited (1)

  

Interest of controlled corporations

   H Shares    428,358,620 (L)   5.76    1.52

Shau Kee Financial Enterprises

  

Interest of controlled

   H Shares    428,358,620 (L)   5.76    1.52

Limited (1)

  

corporations

          

Richbo Investment Limited (1)

  

Beneficial owner

   H Shares    428,358,620 (L)   5.76    1.52

Citigroup Inc. (2)

  

Interest of corporation controlled by Citigroup Inc.,person having asecurity interest inshares, custodian/approved lendingagent

   H Shares    378,410,192 (L)   5.09    1.34
         163,491,483 (S)   2.20    0.58
         24,514,000 (P)   0.33    0.09
             

Deutsche Bank Aktiengesellschaft (3)

  

Beneficial owner, investment manager and person having a security interest in shares

   H Shares    779,785,361 (L)   10.48    2.76
         799,651,491 (S)   10.75    2.83
             

JPMorgan Chase & Co. (4)

  

Beneficial owner, investment manager and custodian corporation/ approved lending agent

   H Shares    546,423,668 (L)   7.34    1.93
         447,063,370 (S)   6.01    1.58
         184,201,160 (P)   2.48    0.65
             

KBC Group N.V. (5)

  

Interest of corporation controlled by KBC Group N.V.

   H Shares    669,725,133 (L)   9.00    2.37
         890,894,837 (S)   11.97    3.15
             

Societe Generale

  

Beneficial owner and investment manager

   H Shares    443,936,184 (L)   5.96    1.57
         515,675,894 (S)   6.93    1.82

UBS AG (6)

  

Beneficial owner, person having a security interest in shares and interest of corporation controlled by UBS AG

   H Shares    448,303,077 (L)   6.02    1.59
         309,765,831 (S)   4.16    1.10
             

 

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Table of Contents

Commission File Number 001-31914

Other Information

The letter “L” denotes a long position. The letter “S” denotes a short position. The letter “P” denotes interest in a lending pool.

 

Note (1): These references to 428,358,620 H Shares relate to the same block of shares in the Company.

These 428,358,620 H shares were held by Richbo Investment Limited (“Richbo”), an indirect wholly-owned subsidiary of Shau Kee Financial Enterprises Limited (“Shau Kee Financial”). Lee Financial (Cayman) Limited (“Lee Financial”) as trustee of a unit trust (the “Unit Trust”) owned all the issued shares of Shau Kee Financial. Leeworld (Cayman) Limited (“Leeworld”) and Leesons (Cayman) Limited (“Leesons”), as trustees of respective discretionary trusts, held units in the Unit Trust. Mr. Lee Shau Kee owned the entire issued share capital of Lee Financial, Leeworld and Leesons. Accordingly, Mr. Lee Shau Kee, Lee Financial, Leeworld, Leesons, Shau Kee Financial and Richbo were taken to have an interest in these 428,358,620 H shares.

 

Note (2): Citigroup Inc. was interested in a total of 378,410,192 H shares in accordance with the provisions of Part XV, SFO. of these shares, Citigroup Global Markets Financial Products LLC, Citigroup Global Markets Inc., Citicorp Trust Bank, Citibank N.A., and Citigroup Global Markets Ltd were interested in 208,235,734 H shares, 1,663,830 H shares, 30,000 H shares, 62,282,213 H shares and 106,198,415 H shares respectively. All of these entities are either controlled or indirectly controlled subsidiaries of Citigroup Inc.

Included in the 378,410,192 H shares are 24,514,000 H shares (0.33%) which are held in the “lending pool”, as defined under Section 5(4) of the Securities and Futures (Disclosure of Interests – Securities Borrowing and Lending) Rules.

In addition, Citigroup Inc. held by way of attribution a “short position” as defined under Part XV, SFO in 163,491,483 H shares (2.20%).

 

Note (3): Deutsche Bank Aktiengesellschaft was interested in a total of 779,785,361 H shares in accordance with the provisions of Part XV, SFO. Of these shares, Deutsche Asset Management (Asia) Limited, Deutsche Asset Management International GmbH, Deutsche Asset Management Investmentgesellschaft mbH, DWS Investment GmbH, DWS Investment S.A. Luxemburg, Deutsche Bank AG Frankfurt, Deutsche Vermogensbildungsgesellschaft mit beschrankter Haftung, Deutsche Bank (Suisse) S.A., Deutsche Bank AG Singapore Branch and Deutsche Bank Securities Inc. were interested in 19,869,000 H shares, 1,355,000 H shares, 179,490 H shares, 4,000,000 H shares, 10,000,000 H shares, 25,500 H shares, 247,000 H shares, 55,000 H shares, 152,000 H shares and 3,990 H shares respectively. All of these entities are either controlled or indirectly controlled subsidiaries of Deutsche Bank Aktiengesellschaft.

Deutsche Bank Aktiengesellschaft held by way of attribution a “short position” as defined under Part XV, SFO in 799,651,491 H shares (10.75%).

 

Note (4): JPMorgan Chase & Co. was interested in a total of 546,423,668 H shares in accordance with the provisions of Part XV, SFO. Of these shares, JPMorgan Chase Bank, N.A., J.P. Morgan Investment Management Inc., JPMorgan Asset Management (UK) Limited, JF Asset Management (Singapore) Limited – Co Reg #:197601586K, JF Asset Management Limited, JF International Management Inc., JPMorgan Asset Management (Canada) Inc., J.P. Morgan Securities Ltd., J.P. Morgan Whitefriars Inc., JPMorgan Asset Management (Japan) Limited and J.P. Morgan International Bank Limited were interested in 185,067,160 H shares, 8,968,612 H shares, 8,804,409 H shares, 16,258,000 H shares, 195,063,000 H shares, 1,437,000 H shares, 265,000 H shares, 9,833,000 H shares, 111,965,487 H shares, 8,730,000 H shares and 32,000 H shares respectively. All of these entities are either controlled or indirectly controlled subsidiaries of JPMorgan Chase & Co.

Included in the 546,423,668 H shares are 184,201,160 H shares (2.48%) which are held in the “lending pool”, as defined under Section 5(4) of the Securities and Futures (Disclosure of Interests – Securities Borrowing and Lending) Rules.

In addition, JPMorgan Chase & Co. held by way of attribution a “short position” as defined under Part XV, SFO in 447,063,370 H shares (6.01%).

 

Note (5): KBC Group N.V. was interested in a total of 669,725,133 H shares in long position and 890,894,837 H shares in short position in accordance with the provisions of Part XV, SFO. These H shares interests were held by KBC Investments Hong Kong, a wholly- owned subsidiary of KBC Bank N.V. KBC Group N.V. is the indirect controlling shareholder of KBC Bank N.V.

 

Note (6): UBS AG was interested in a total of 448,303,077 H shares in accordance with the provisions of Part XV, SFO. of these shares, UBS Fund Management (Switzerland) AG, UBS Fund Services (Luxembourg) SA, UBS Global Asset Management (Americas) Inc., UBS Global Asset Management (Australia) Inc., UBS Global Asset Management (Canada) Inc., UBS Global Asset Management (Hong Kong) Ltd., UBS Global Asset Management (Japan) Ltd, UBS Global Asset Management (Singapore) Ltd, UBS Global Asset Management (UK) Limited, UBS Securities LLC and UBS Bank (Canada) were interested in 4,321,000 H shares, 368,000 H shares, 2,010,000 H shares, 65,000 H shares, 315,000 H shares, 11,327,500 H shares, 2,788,000 H shares, 12,035,000 H shares, 5,343,000 H shares, 24,615,670 and 150,000 H shares respectively. All of these entities are either controlled or indirectly controlled subsidiaries of UBS AG.

In addition, UBS AG held by way of attribution a “short position” as defined under Part XV, SFO in 309,765,831 H shares (4.16%).

 

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Commission File Number 001-31914

Other Information

Save as disclosed above, the directors and chief executive of the Company are not aware that there is any person who, as at 30 June, 2007, had an interest or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept under section 336 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange.

PURCHASE, SALES OR REDEMPTION OF THE COMPANY’S SHARES

For the six months ended 30 June 2007, the Company and its subsidiaries have not purchased, sold or redeemed any of the Company’s shares.

COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS

BY DIRECTORS AND SUPERVISORS OF THE COMPANY

After making specific inquiries to all the directors and supervisors of the Company, they have confirmed that they had complied with the Model Code for Securities Transactions by Directors of Listed Issuers (“Model Code”) as set out in Appendix 10 of the Listing Rules between the period of 1 January 2007 and 30 June 2007. The Board has established guidelines on no less exacting terms than the Model Code for directors and supervisors of the Company in respect of their dealings in the securities of the Company.

REVIEW BY AUDIT COMMITTEE

The Audit Committee together with external auditors engaged by the Company has reviewed the unaudited condensed consolidated financial statements of the Group for the six months ended 30 June 2007.

COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES OF THE LISTING RULES

The Company has implemented a full set of corporate governance practices, and strongly believes that through fostering sound corporate governance, the Company can further enhance its transparency and accountability. This also helps the Company to achieve its goals and enable the Company to operate in a more regulated manner and boost the confidence of investors.

For the six months ended 30 June 2007, the Company complied with all the code provisions under the Code on Corporate Governance Practices as set out in Appendix 14 of the Listing Rules.

 

44