Dear shareholders,

The year 2018 was an important one for PICC Group, as it marked the beginning of our journey into a new era. During the year, we heeded the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and its keynote of seeking progress whilst maintaining stability. We implemented new concepts such as the Group’s “3411 Project” for transition to high-quality development. In a complex and changing external environment, we emphasized stability whilst maintaining a steady pace of progress, creating a favorable situation for hard-won reform and development achievements.

Firstly, the business development remained stable and positive. The Group maintained a steady growth momentum despite severe industry conditions which have led to a general slowdown. In 2018, the Group’s turnover exceeded RMB500 billion, reaching RMB503.799 billion, and gross written premiums (“GWPs”) were RMB498.608 billion, representing a 4.7% increase compared to the corresponding period in the previous year, which was higher than the market growth rate. PICC P&C achieved GWPs of RMB388.769 billion, representing a 11.0% increase compared to the corresponding period in the previous year, ranked first in the incremental premium market, and held a market share of 33.0%. PICC Life achieved GWPs of RMB93.727 billion, while PICC Health achieved GWPs of RMB14.798 billion. The emerging segment business grew rapidly. The PICC Financial Services and related project companies achieved a turnover of RMB680 million, a figure more than four times greater than that of the previous year. The inward business of PICC Reinsurance recorded RMB4.89 billion, and the Group’s external reinsurance increased by 169% from the corresponding period in the previous year. PICC Pension won 32 bids as the investment manager for corporate annuities projects, with a tendering success rate of 72.7%.

Secondly, we continued to improve the quality of our development. While putting quality and efficiency first, the Group accelerated its transformation and development, promoted the optimization of its business structure and strengthened its profitability. Profit before tax was RMB27.058 billion and net profit was RMB18.715 billion. PICC P&C achieved a net profit of RMB15.486 billion, with a combined ratio that led the industry. Non-motor vehicle insurance grew by 29% compared to the corresponding period in the previous year, and central cities’ market share fell by 0.5 percentage points from the previous year. PICC Life achieved RMB16.91 billion in first-year TWPs of regular premiums, of which the first-year TWPs of regular premiums of 10 years and above was RMB4.49 billion – leading industry peers in terms of growth rate. Net profit increased by 11.6% compared to the corresponding period of the previous year. The firstyear regular premiums of PICC Health increased by 152.2% compared to the corresponding period of the previous year, and health management business revenue increased by 157.9% compared to the corresponding period of the previous year – the third consecutive year of profit. The Group’s total investment yield was 4.8%, higher than average level of the industry.

Thirdly, we continued the process of transformation and development. The Group continued to optimize its highquality development, implemented the vital “3411 Project”, launched core projects relating to development of the whole region, and began to solve certain deep-seated contradictions which had accumulated over a long period of time. We strengthened top-level innovation and development and formulated and implemented strategies for digital and innovation-driven development – the effectiveness of innovation and development has begun to emerge in each business unit. Membership in the PICC V Alliance has increased to 1.87 million, and the premium was RMB7.2 billion. The mobile billing rate of PICC Life’s sales personnel increased from 60.3% to 94.6% during the course of the year. Registered users of the “PICC Health” app reached 2.39 million, with 80.34 million people receiving health management services. The comprehensive loss on the Jiaanpei auto parts platform was reduced by RMB140 million. We also promoted the development of integrated construction, an implementation plan for integrated strategy, built integrated comprehensive development teams in Shanghai, Guangzhou, Shenzhen and other central cities, and promoted the application of the “PICC e-Tong” mobile sales platform. Through business collaboration, the Group grew its main insurance industry business’s premium of RMB12.94 billion.

Fourthly, we increased emphasis on fast-but-stable reform. The Group was heavily reliant on reform and innovation as the prime driving forces of development. Accordingly, it worked diligently to overcome certain contradictions which had impaired its development. We implemented essential elements of central organizational reform, completed reforms at the Group’s headquarters, effected the “three determinations”, and vigorously promoted changes to the functions, processes and approach of the Group’s headquarters as well as its subsidiaries. We instituted market-oriented reforms, accelerating the reform of management, operations and performance evaluations. We established a constraint mechanism for market-oriented and differentiated incentives, and stimulated enthusiasm throughout the system for a transition to high-quality development. We considered the direction of specialization reform, promoted comprehensive reform at PICC Health and the property management company under PICC Investment Holding, and enabled China Credit Trust to strengthen professional construction while focusing on its main trust business.

Fifthly, we continued to improve our effectiveness in serving the real economy. The Group’s commitment to alleviating poverty saw it launch “deep poverty insurance” in 58 counties in 11 provinces. The industry’s first “Government Poverty Alleviation Insurance”, this exclusive product was designed to provide risk protection of RMB185.7 billion to poor households and specific populations. As a result of its role in promoting rural revitalization, the Group achieved RMB 26.72 billion in gross written premiums from agricultural insurance, representing a 21% increase compared to the corresponding period the previous year. To further support the development of the real economy, we introduced the first major technological equipment insurance, covering a risk liability amount of RMB79.8 billion. The “inclusive finance, supporting agriculture and small enterprises” business now covers 30 provincial-level institutions, 162 cities and 154 counties across the country. We have made innovations in green insurance and financing services, with environmental pollution liability insurance covering 31 provinces (regions and cities). In its service to China’s social security system, the Group underwrote 2,009 policy-guided medical insurance projects covering 315 cities and 740 million people in 30 provinces. Among these were 329 critical illness insurance business projects whose service scope encompassed 28 provinces, 256 cities and 491 million people. To protect “Belt and Road” construction, the Group undertook international business risk liability of RMB11 trillion, covering more than 150 countries and regions overseas.

Sixthly, we continue to strengthen our prevention and control of risk. The Group implemented regulatory requirements, the deployment of the CBIRC and chaotic rectification requirements of the insurance market, and took the lead in implementing “integration of implementation and execution” regulations on motor vehicle insurance. We strove to take a leading role in the industry to continuously improve institutional mechanisms as well as revising the Group’s basic policies in risk management, improving its risk management information system, strengthening its risk performance assessment, and establishing a model for risk monitoring, prevention and control evaluation as a standard system for 99 provincial institutions. By strengthening key features of our risk management and control, we successfully completed renewal of the Group’s subordinated debts and life insurance when due, effectively preventing a cash flow risk. We increased credit risk prevention and control, developed a unified credit rating management system, strictly managed counterparties, compiled a “white list” for banking and securities industries, and launched a comprehensive investigation of counterparties.

At present, China’s insurance industry is facing challenges that never previously existed during the past 40 years of reform. It must contend with drastic changes based on coexistence of challenges and opportunities, and complex situations in which the macroeconomic cycle, the cycle of technological change and the industry’s “new cycle” all overlap. However, the basis and conditions for turning challenges into opportunities remain, and it is still an important time for strategic opportunities. From a macroeconomic perspective, China is transitioning from high-speed development to high-quality development. In the process of economic transformation into the L-shaped curve, external forces that traditionally promoted growth in the insurance industry have weakened. However, China has the largest middle-income population in the world, as well as the world’s largest ageing population, which will spur profound change in the structures of consumption and financial asset allocation and create the economic basis for opportunity in the insurance industry. From the perspective of technological trends, few industries have experienced such rapid subversion as the insurance industry. Many fast-evolving technologies are impacting the insurance industry in unexpected ways. However, looking at the situation from a historical perspective, the insurance industry has frequently changed with the times in the past, even to the extent of transforming its product structure and development form. The current technological revolutions will also inject new energy into the industry, create and expand new risk management needs, and provide technical support for the industry. Challenges will be turned into opportunities. From the perspective of the overall industry, the current environment of weakening external power and changing regulatory policy has made its original development model difficult to sustain. Strict regulation of market behavior and the implementation of market-oriented premium rates will bring a more consistent, fair and transparent competitive environment and create the institutional basis for the long-term development of a healthy insurance industry. As we face profound changes to the economic and financial situation, we will remain committed to our new development concept, the principle of seeking progress whilst maintaining stability, and serving the real economy in accordance with the requirements for high-quality development. We will promote steady growth and stable profits, drive reform and cost reductions, and improve risk prevention while focusing on the Group’s “3411 Project”. We will devote great effort to business model reform, strengthening the corporate governance structure, increasing market-oriented reforms, and increasing revenue, reducing costs and boosting efficiency. We will improve the quality of our human capital, strengthening the leadership and building of the Party, promoting quality change, efficiency reform and dynamic change, and solidly promote the Group’s transition to highquality development while creating more value for shareholders.

We will fully grasp the business model to strengthen benchmarking and transition to high quality development. It is an important task for the Group and its subsidiaries to adapt their business models to the latest economic, social and industry developments. To do so, we will use advanced benchmarking techniques and accelerate the transformation of traditional development modes. At Group level, we will focus on risk and wealth management, promoting the transition from extensional expansion and extensive management to connotative development and intensive management. At the subsidiary level, we are committed to advanced benchmarking which will enable us to identify deficiencies in our business models, address these weaknesses and shortcomings, expand the advantages, create a clear direction of transformation and achieve reform in business models.

We will identify and solve major contradictions and put the “4 major strategies” into practice. We will put concerted effort into key areas such as implementing the Group’s new IT structure, upgrading the core business system and promoting the integrated marketing service system to drive the implementation of the “4 major strategies”. On the principle of “urgency first”, we will accelerate the implementation of projects that are urgently needed at the grassroots level, such as the Group’s unified customer resource platform, mobile tools for expanding business, network comprehensive services, commission settlement and others, to facilitate an expansion of business and a consistently enhanced customer service experience. We will undertake this transformation in a fast but controlled manner, promoting the post-insurance market ecosystem, international strategy and other long-term projects.

We will coordinate the development of cities and counties, and consolidate and enhance the competitiveness of regional markets. We will strengthen the “two integrations”; that is, an urban market focusing on “integrating technological change and business model transformation”, and a county market focusing on “integrating policy-based and commercial business”. We are committed to cultivating a P&C insurance marketing culture, making innovation in building its marketing teams, including the exploration of innovative means in terms of management, incentives, and training mode for setting up a sales teams focusing on personal life insurance. The key will be to strengthen coordination and mutual assistance, continue to promote the pilot project of comprehensive expansion in central cities, and explore new ways to integrate network sharing and team building in county markets.

We will strengthen corporate governance, refine concepts and methods, and maintain a bottom line of no systemic risk. We will continue to strengthen our corporate governance, establishing a centralized, integrated, efficient and collaborative structure at Group level and adapting such to the characteristics of subsidiaries as independent entities. We will establish a rational and effective power balance mechanism among the board of directors, the board of supervisors and management, as well as a rationalized internal control system which will optimize risk management and internal control compliance. We will strive to look forward and understand the market situation with greater acuity, commensurately strengthening infrastructure, updating risk control measures, and enhancing risk management initiative. Ideologically, we will approach risk control and compliance from the political view of maintaining financial security, and enhancing the effectiveness of legal compliance management.

We will keep our mission foremost in mind, taking responsibility to further develop the real economy and people’s quality of life. We will provide in-depth services to support the rural revitalization strategy, the supply-side reform of agricultural insurance product services, and the improvement of insurance coverage for “agriculture, rural areas and farmers”. We will work to alleviate poverty and associated tasks assigned by the central government, create innovative poverty alleviation insurance products and services, and help to build an affluent society. We will implement central government decisions for building a strong national manufacturing capacity, including the development of science and technology insurance. We will pursue the development of green insurance and invest in green projects. We will introduce innovative insurance and investment mechanisms with a focus on areas such as risk reduction, credit enhancement and capital raising, and support the development of private and small and micro enterprises. We will meet public expectations for medical and old-age care, contribute to improvement of the social security system, and accelerate the construction of a healthy pension industry chain.

Only by acknowledging historical trends and adapting to change can we keep pace with the times. I believe that with the hard work of management and employees, and with the support of our clients and shareholders, the Company will turn external pressures into an internal driving force for its transition to high-quality development. We can and will overcome the uncertainties of our external environment with our own initiative, utilize this period of strategic opportunity for the insurance industry, and create outstanding outcomes for our shareholders, our employees and our society.

Miao Jianmin
Chairman

Beijing, PRC

22 March 2019