THE LETTER TO SHAREHOLDERS

Dear Shareholders,

China faced complex and severe economic and financial situations in 2018. The domestic and international environments for economic operation have undergone profound changes. Great efforts were made in financial industry to forestall risks and to strengthen regulatory inspection and punishment. The insurance industry witnessed negative growth in the jump start period of 2018 after years of rapid development. Under the fickle market environment, the Company stayed committed to the path of high-quality development, actively prevented operational risks, practically strengthened the supply-side reform and improved customer services. As of the end of 2018, the Company’s total assets reached RMB733,929 million, increasing by 3.3% year on year. In 2018, the net profit attributable to shareholders of the Company realized RMB7,922 million, increasing by 47.2% year on year. The Company realized the value of one year’s new business of RMB12,210 million, growing by 1.2% year on year. In conclusion, the Company has yielded fruitful results in 2018.

First, market ranking moved up. The Company’s renewal-premium-driven growth model has achieved remarkable results against a flat premium growth of life insurance industry in 2018. The renewal premiums amounted to RMB95,860 million in 2018, growing by 24.9% year on year, pushing the Company’s gross written premiums (GWP) to RMB122,286 million, increasing by 11.9% year on year and market ranking rising by 1 place. As of the end of 2018, its net assets reached RMB65,587 million, growing by 2.9% year on year. The high-quality growth model has laid a solid foundation for the Company’s long-term, healthy and stable development.

Second, protection business strengthened. In 2018, under the business strategy of “promoting the sales of primary insurance through riders”, protection business of the Company has witnessed a rapid growth. The first year premiums (FYP) from long-term health insurance accounted for 58.7% of FYP from long-term insurance business, growing by 26.0 percentage points year on year, which was leading the insurance industry. The increasing coverage of riders propelled the significant improvement of customer’s risk prevention. According to the claim settlement data of 2018, the Company handled 1.72 million cases for 1.08 million customers with the total claim payment of RMB8,060 million. The payment for critical illness insurance increased by 39.2% year on year, and the payment for medical insurance rose by 44.0% year on year. The Company’s approach to win reputation through claim settlement has achieved initial results.

Third, business quality improved. Benefiting from the development of health insurance and other protection business, the Company’s new business margin increased significantly to 47.9%, rising by 8.2 percentage points year on year. Meanwhile, the persistency ratio continued to rise. The 13-month persistency ratio was 90.7%, increasing by 1.3 percentage points year on year. The 25-month persistency ratio was 84.9%, increasing by 1.9 percentage points year on year.

Fourth, sales team strengthened. In 2018, the Company enhanced both the quality and quantity of its sales team and their capabilities to develop protection business significantly improved. As of the end of 2018, the number of total individual agents reached 370,000, growing by 6.3% year on year. The monthly average performance rate was 52.8%, increasing by 6.0 percentage points year on year.

Fifth, customer service optimized. In terms of the products supply, the Company enriched product pipeline and innovated protection services. In respect of primary insurance, the Company upgraded the popular anticancer product Kangaiwuyou. As for riders, we launched a new protection type product for cardiovascular and cerebrovascular disease, which has filled the market gap and been popular among customers. In terms of the service efficiency, the core operating indicators saw constant improvement. The average time for underwriting has been shortened to 0.56 days, 12.7% shorter than that of last year. The average time for claim settlement has been cut by 11.9% to 2.07 days. The average time for updating information was 1.04 days, ensuring high and stable efficiency. In terms of the application of new technologies, buying insurance via WeChat, artificial intelligence Q&A robot, customer follow-up via WeChat, facial recognition, voice recognition and other new technologies have been widely adopted. Customer service efficiency and customer experience have been improved. In terms of counter building, 305 new generation customer-service centers were built throughout the whole year and window service significantly improved.

Sixth, investment business remained stable. The Company adhered to a prudent investment philosophy. The total investment yield of 2018 was 4.6% and there was not a single default in investment business of the Company in 2018. The risk management measures in investment business have withstood the market test.

Seventh, industry supply expanded. On the basis of strengthening main business, the Company actively extended to the health and pension industry and further widened customer base. In the pension industry, New China Pension has obtained the qualification of investment manager and account manager. Xinhua Seniors Service was put into operation. The seniors lived there have been looked after well. In the health industry, 16 health management centers of New China Health have completed construction and offered services for nearly 420,000 people annually. Another 3 health management centers are in the process of construction preparation. At the same time, Rehabilitation Hospital was officially put into operation and qualified for physical examination, which laid a new foundation for the Company’s rehabilitation business.

Eighth, public welfare carried on. The Company has promoted the project of donating insurance to sanitation workers across the country and launched targeted poverty alleviation program. In 2018, 515,000 sanitation workers benefited from the project in 56 cities with accumulative sum assured of personal accident insurance worth RMB51,500 million. Forty-five claim cases were settled in 2018 with the total claim payment of RMB4.01 million. The project was highly praised by local governments and regulatory departments and well recognized by sanitation workers. The Company set up cards and files for a total of nearly 30,000 poor households under the targeted poverty alleviation program and the sum assured donated exceeded RMB3,000 million.

The path towards high-quality development is the flesh of NCI’s growth, while loyalty to the Company, grasping opportunities and courage to fight are the spirits of NCI’s development. The integration of both flesh and spirit enabled us to hand over this satisfying answer sheet. On behalf of the Company’s management team, I would like to pay tributes to all colleagues and express my sincere gratitude to shareholders, customers, partners and all sectors of society for your attention and support. It is your support that propels the Company to yield results step by step, to successfully transform the growth model and growth driver and to move persistently forward on the path of high-quality development.

Looking ahead, there exist opportunities in changes and hopes in challenges for the macroeconomy. In the short term, China’s economy faces downward pressure. In the long run, China is still in the important period of strategic opportunities for development. From the perspective of growth driver, domestic demand is still the fundamental. The demands to preserve and increase the value of wealth, maintain health and care for the seniors will create huge space for the development of the insurance industry. The financial sector will have both loosening and tightening policies. Monetary policy will be eased or tightened to the right degree, regulation will continue to be strict and reform and opening up in the financial sector will continue to be deepened. There has been stricter regulation since the establishment of CBIRC and the regulatory concept has been further transformed into high-quality development. The life insurance industry has both inheritance and innovation. The industry will still be in the process of transformation and development with a rising trend of technology empowerment and industrial synergy. There is a broad prospect for product and service innovation in line with the market trend. In short, there coexist challenges and opportunities, difficulties and hopes in the Company’s development. However, opportunities outweigh challenges and hopes outweigh difficulties. The life insurance industry is still in an important period of strategic opportunities with great potential. As long as life insurance companies follow the trend and seize opportunities, they are possible and promising to achieve development in changes, overcome difficulties in challenges and create new splendor in competition.

The year 2019 marks the 70th anniversary of the founding of the People’s Republic of China. It will be a crucial year for the country to achieve the first Centenary Goal of building a moderately prosperous society in all respects. China’s economy calls for higher-quality development. It is imperative for life insurance industry to embark on the path of high-quality development and to serve the country’s high-quality development. In the new year, on the basis of strengthening the main life insurance business, the Company will accelerate its pace of high-quality development, actively extend to the health and pension industry and strive to meet the comprehensive needs to prevent risks for customers. On the new starting point, the Company will make persistent efforts to actively explore a high-quality development path with NCI characteristics which is in line with market law, the industry trend, and meets customers’ demands, and will achieve excellent results in return for your care and support.

LI Zongjian
Executive Director
20 March 2019