2012 Annual Report Taiping Reinsurance Co., Ltd.

Transcription

1 2012 Annual Report Taiping Reinsurance Co., Ltd.

2 Contents Pages General Information 2-4 Notice of 32nd Annual Ordinary General Meeting 5 Chairman s Statement 6-11 Financial Highlights Directors Report Independent Auditor s Report Income Statement 22 Statement of Comprehensive Income 23 Statement of Financial Position 24 Statement of Changes in Equity 25 Statement of Cash Flows Notes to the Financial Statements Detailed Revenue Accounts

3 General Information BOARD OF DIRECTORS CHAIRMAN Meng Zhao Yi Ph. D. VICE CHAIRWOMAN Zhang Hui Ping DIRECTORS Ng Yu Lam Kenneth Lau Siu Mun Sammy Luk Chai Fun* * * Independent Non-executive Director COMPANY SECRETARY * Choi Ming Leung (Ms) (appointed on 1 March 2012) Cheung Kam Hing Simon (resigned on 1 March 2012) CAPITAL Authorised and paid-up capital are 3,000,000,000 and 1,850,000,000 respectively. SHAREHOLDERS 3,000,000,000 1,850,000,000 The Company is 100% owned by Effectual Assets Limited, a company incorporated at British Virgin Islands which is a wholly owned subsidiary of China Taiping Insurance Holdings Company Limited ( CTIH ), a company incorporated in Hong Kong and listed on the Main Board of The Stock Exchange of Hong Kong Limited (Stock Code: 00966) Effectual Assets Limited 100% 2 Taiping Reinsurance Company Limited Annual Report 2012

4 General Information (Continued) COMPANY ADDRESS Head Office 29A, United Centre, 95 Queensway Admiralty, Hong Kong Telephone : (852) Facsimile : (852) mail@tpre.cntaiping.com Website : Beijing Branch 9/F Xihuan Plaza T1 No. 1 Xizhimenwai Street Xicheng District, Beijing, P.R. China Postal Code : Telephone : (86) Facsimile : (86) Labuan Branch Level 11 (B), Block 4 Office Tower Financial Park Labuan Complex Jalan Merdeka FT Labuan, Malaysia Telephone : (60) Facsimile : (60) AUDITORS Deloitte Touche Tohmatsu Certified Public Accountants PRINCIPAL BANKERS 95 29A (852) (852) mail@tpre.cntaiping.com 1 T (86) (86) Level 11 (B), Block 4 Office Tower Financial Park Labuan Complex Jalan Merdeka FT Labuan, Malaysia (60) (60) Bank of China Citibank, N.A. Hong Kong, London Hong Kong, London 3

5 General Information (Continued) LABUAN BRANCH Joe Ng Principal Officer MANAGEMENT BEIJING BRANCH Fei Zhi Zhong General Manager Li Li Deputy General Manager THE MANAGEMENT BOARD MARKET SERVICES DEPT. I Ada Li Manager Cliff Leung Assistant Manager THE BOARD OF DIRECTORS Sammy Lau General Manager Joe Ng Deputy General Manager Tommy Yiu Deputy General Manager MARKET SERVICES DEPT. II RETRO. DIVISION Joyce Li Senior Manager Ronald Pun Assistant Manager Joyce Li Senior Manager Fei Zhi Zhong Deputy General Manager LIFE DIVISION Joyce Li Senior Manager COMPANY SECRETARY Polly Ho Deputy General Manager Alan Ng Deputy General Manager MARKET SERVICES DEPT. III MARKET SERVICES DEPT. IV CLIENTS SERVICES DEPT. Joyce Li Senior Manager Jason Kong Assistant Manager Karen Fu Manager Jeffrey Li Assistant Manager Joanna Leung Senior Manager Siu Ting Manager Market Services Dept (MSD): Clients Services Dept: Marketing and underwriting of treaty and facultative reinsurance business Closings and claims handling MSD I covers Hong Kong, Macau & India MSD II covers World-wide ex Asia MSD III covers Japan, Philippines, Thailand, Pakistan, Laos, Vietnam, Sri Lanka, Bangladesh, Cambodia & rest of Asia MSD IV covers Taiwan, Korea, Malaysia, Brunei, Indonesia & Singapore INFORMATION TECHNOLOGY DEPT. FINANCE & ACCOUNTS DEPT. HUMAN RESOURCES & ADMINISTRATION DEPT. ERM & PLANNING DEPT. Dicky Lai Senior Manager Ivy Ng Assistant Manager Ada Wong Senior Manager Rebecca Choi Manager Angel Yuk Senior Manager Andrew Yuen Manager Yu Xiao Dong Actuary, Life Reinsurance Vitor Liu Actuary, Non-life Reinsurance 4 Taiping Reinsurance Company Limited Annual Report 2012

6 Notice of 32nd Annual Ordinary General Meeting NOTICE IS HEREBY GIVEN that the 32nd Annual Ordinary General Meeting of the Company will be held at the Conference Room at 29A, United Centre, 95 Queensway, Admiralty, Hong Kong on Wednesday 15 May 2013 at 9:00 a.m., for the purpose of receiving and considering the Reports of the Directors and of the Auditors together with the Financial Statements for the year ended 31 December 2012, electing Directors and appointing Auditors A The Transfer Books of the Company will be closed from 8 May 2013 to 15 May 2013 (both days inclusive) during which period no transfer of shares will be registered. By order of the Board Choi Ming Leung Company Secretary Hong Kong, 25 April

7 Chairman s Statement Meng Zhao Yi Ph.D. Chairman SYNOPSIS Having suffered tremendous shocks from a chain of catastrophe events during 2011, 2012 ( the Year ) witnessed both opportunities and challenges for the reinsurance industry. With strong support of China Taiping Insurance Group (the Group ), Taiping Reinsurance Company Limited ( TPRe ) achieved an inspiring turnaround back to profit-making as a result of its sound financial standing and properly executed strategy, even though the unexpected sharp deterioration of the 2011 Thai flood claims during the 1st half year of the Year posed challenges to the company, and hampered the underwriting result. 6 Taiping Reinsurance Company Limited Annual Report 2012

8 Chairman s Statement (Continued) Due to quantitative easing policies being carried out in major economies, global economy was slowly recovering in Excessive capital funds flowed into the reinsurance industry, triggering a more complex and competitive market environment with excess supply. However, with unwavering spirit and efforts dedicated to enhancing its competitiveness and striving after the Group s doctrine of outperforming the market and peers, TPRe proactively confronted challenges and vigorously pursued opportunities which were brought about by the changing market. SNAPSHOTS OF 2012 OVERALL RESULT The operating result of TPRe for the Year has turned around, with net profit after tax of million (2011 (restated): loss of million), representing a swift return to profit for TPRe after its first ever loss year of The turnaround was mainly due to reinforced underwriting risk controls resulting in better business quality and performance, absence of major catastrophe claims in its core Asian markets and strong investment income. These positive factors effectively offset the impact of the underwriting deficit solely caused by the sharp deterioration of 2011 Thai flood claims during the first half of the Year. The combined ratio for the Year was 106.9% (2011 (restated): 103.9%) , % 103.9% 7

9 Chairman s Statement (Continued) KEY PERFORMANCE INDICATORS The key financial data and key performance indicators are summarized below: For the year ended 31 December, million (Restated) 4 4 Change Gross premiums written 3, , % Net premiums written 3, , Net earned premiums 2, , % Net claims incurred (2,291.52) (2,131.55) +7.5% Underwriting expenses (75.69) (73.76) +2.6% Net commission expenses (835.77) (812.31) +2.9% Underwriting loss (207.83) (111.72) +86.0% Total investment income times Net exchange gain times Other administrative expenses (12.78) (11.82) +8.1% Profit before taxation times Profit (loss) after taxation (41.86) Technical reserves ratio 171.1% 154.2% pts Retained ratio 89.5% 89.6% -0.1 pt Earned premiums ratio 87.2% 84.7% +2.5 pts Loss ratio % 73.4% +3.1 pts Expense ratio 1& % 30.5% -0.1 pt Combined ratio % 103.9% +3.0 pts Remarks: 1 Both the loss ratio and expense ratio are based on net earned premiums. 2 The combined ratio is the sum of the loss ratio and the expense ratio. 3 The expense ratio is comprised of underwriting expenses and net commission expenses. 4 During the Year, TPRe has changed its accounting policy for measurement of unearned premium provisions for the year ended 31 December 2012 in order to align itself with the other property and casualty insurance subsidiaries of the Group. The above changes in accounting policy have been applied retrospectively and the comparative figures for 2011 have been restated accordingly Taiping Reinsurance Company Limited Annual Report 2012

10 Chairman s Statement (Continued) ELABORATION OF THE 2012 RESULT OF TPRe TPRe s gross premiums written for the Year increased by 0.1% to 3, million from 3, million in If the one-off non-renewable reinsurance contract with a major Hong Kong client in 2011 is excluded, TPRe would have registered a premium growth of approximately 10% for the Year. During the Year, TPRe enhanced underwriting risk control by tightening underwriting terms and conditions for its core Asian- Pacific markets. The Mainland China market, which is the vital engine for fast and sustainable premium growth, continued to demonstrate favorable underwriting and investment performance. Premium incomes from most of the other regions have also shown stable growth in accordance with its territorial diversification strategy % % TPRe s geographical distribution of gross premiums written is summarized as follows: For the year ended 31 December, million 2012 % of Total 2011 % of Total Hong Kong & Macau % % Mainland China (& Taiwan) 1, % 1, % Japan % % Rest of Asia % % Europe % % Others % % 3, % 3, % 2012 was a sanguine year for TPRe in respect of claims activity since no major catastrophes impacted its portfolio. However, the incurred loss amount relating to the 2011 Thai floods deteriorated sharply during the first half of 2012, by around 640 million, mainly due to belated claims notifications from a number of ceding companies. During the Year, claims reserve provisions and development pattern were routinely reviewed, and thorough studies and analysis were conducted on the adequacy of major catastrophe claims reserves, resulting in the release of redundant loss reserve provisions of 215 million. The net incurred loss ratio for the Year increased to 76.5%. (2011 (restated): 73.4%) % 73.4% 9

11 Chairman s Statement (Continued) During the Year, TPRe moderated the asset allocation in its investment portfolio by drastically reducing the equity securities investment holdings early in 2012 while enlarging the debt securities investments. In doing so, the recurrent interest income from debt securities was assured, while volatility arising from equity securities investment was circumvented. Therefore, debt securities, debt schemes, cash and bank deposits constituted a combined total of approximately 96.8% of the total investable assets as at 31 December 2012 (2011: 91.4%). 96.8% 91.4% TPRe s total investment income recorded a gain of million for the Year, representing a significant increase from million in the last year. The growth of the debt securities portfolio generated larger net investment income, thus reducing the volatility of the total investment income for the Year. OUTLOOK Although terms and conditions as well as renewal premium rates were tightened and increased respectively in early 2012 after detrimental catastrophes took place in 2011, the market turned soft in the second half of 2012 amid abundant capacity, reflecting the high sensitivity of the reinsurance market against the change of market environment. Looking ahead into 2013, reinsurance industry will continue to encounter numerous challenges: renewal premium rate would likely turn downward given no major catastrophe event outside the USA was recorded in 2012; demands on reinsurance may shrink as mega insurance corporations grow stronger after regrouping and/or mergers; competition will become fiercer as exemplified by the fact that non-traditional players jump into the field with ample capital funds. In addition, the record low interest rates have undermined investment income and push the market competition even tougher. 10 Taiping Reinsurance Company Limited Annual Report 2012

12 Chairman s Statement (Continued) Nevertheless, as a member company of China Taiping Insurance Group, which in turn is a Chinese state-owned insurance conglomerate and is directly supervised by the central government, TPRe has accumulated over 30 years of operating and managing experience in both Mainland China and overseas reinsurance markets with strong financial strength, and it has dedicated to strict risk management discipline. By consistently pursuing a sound and prudent underwriting and reserving policies, TPRe embarks on implementing a comprehensive and rational management system and framework. Therefore, TPRe is confident in meeting the changing market demands, steering against various risks and providing sustainable long-term value for all customers, staff and shareholders. Looking ahead, TPRe will confront its challenges and commit to improve its capabilities and competence in delivering quality service, managing the operation, enabling innovations and enhancing collaboration with its Group members, thus fostering healthy and sustainable development for the company. ACKNOWLEDGEMENTS On behalf of the Board of Directors of TPRe, I would like to extend my heartfelt gratitude to the Group for the timely capital injection of 250 million in the second half of 2012, which enhanced TPRe s capital strength in coping with the market challenges and business development needs. Meanwhile, I am sincerely grateful for the trust and support of the clients, business partners and associates over the years. Moreover, I hereby express my appreciation to all the staff and management of TPRe for their dedication and hard work in turning the company around. With the whole team s commitment, I am confident that TPRe will continue to rejuvenate the company and stride forward with fruitful development. 2.5 Meng Zhao Yi Chairman 25 April

13 Financial Highlights GROSS PREMIUMS WRITTEN (in Million) NET PREMIUMS WRITTEN (in Million) 3,500 3,500 3,000 3,431 3,435 3,000 3,074 3,073 2,500 2,000 2,650 2,500 2,000 2,372 1, ,180 1,092 1,256 1,542 1,681 1,839 1, ,038 1,377 1,470 1,569 1, DISTRIBUTION OF GROSS PREMIUMS WRITTEN By Region SOURCE OF GROSS PREMIUMS WRITTEN Asia * Europe North America Others % 11.1% 4.4% 2.0% * Remarks 2012 Hong Kong & Macau 12.6% Mainland China (& Taiwan) ( ) 44.3% Japan 6.1% Rest of Asia 19.5% % 11.4% 4.5% 1.4% % 37.1% 5.3% 19.8% Others 87.7% 90.3% Related Companies 12.3% 9.7% Financial Strength Rating S&P A. M. Best Fitch RATING A- A A- 12 Taiping Reinsurance Company Limited Annual Report 2012

14 Financial Highlights (Continued) UNDERWRITING RESULTS PROFIT AFTER TAX (in Million) (in Million) (112) restated (208) (42) 112 restated INVESTMENT & OTHER INCOME TOTAL ASSETS (in Million) (in Million) , ,000 8,134 8, ,000 4,000 2,000 3,052 3,340 3,992 4,696 5,266 5,302 5,889 6,898 restated 0 (67)

15 Financial Highlights (Continued) TECHNICAL RESERVES FOR OWN ACCOUNT (in Million) SHAREHOLDERS EQUITY (in Million) Including: Unearned Premium Reserve Insurance Funds 5,000 4,000 3,000 Provisions for Outstanding Claims Life Insurance Fund 3,646 4,479 restated 5,123 3,000 2,500 2,000 1,500 1,868 2,162 1,984 2,419 2,670 2,581 restated 3,058 2,000 1,000 1,695 1,876 2,031 2,308 2,562 2,749 2,875 1, ,252 1,375 1, COMBINED RATIO SHAREHOLDERS EQUITY TO NET PREMIUMS WRITTEN RATIO* * % restated % 160.3% % 126.5% 112.6% 84.0% 99.5% % restated % * Shareholders equity/net premiums written 14 Taiping Reinsurance Company Limited Annual Report 2012

16 Directors Report The directors have pleasure in submitting their annual report together with the audited financial statements of Taiping Reinsurance Company Limited (the Company ) for the year ended 31 December PRINCIPAL PLACE OF BUSINESS The Company is a company incorporated and domiciled in Hong Kong and has its registered office and principal place of business at 29A, United Centre, 95 Queensway, Admiralty, Hong Kong. The Company also operates through its two branches in Beijing, China and Labuan, Malaysia, respectively. PRINCIPAL ACTIVITIES The principal activities of the Company are the underwriting of all classes of general reinsurance businesses and two classes of long-term reinsurance businesses (life and annuity, and retirement scheme management category III). RESULTS AND APPROPRIATIONS The results of the Company for the year ended 31 December 2012 are set out in the income statement on page 22. The directors do not recommend the payment of a final dividend in respect of the year ended 31 December FIXED ASSETS Details of the movements during the year in the Company s fixed assets are set out in note 11 to the financial statements. SHARE CAPITAL Details of movements during the year in the share capital of the Company are set out in note 24 to the financial statements A III

17 Directors Report (Continued) DIRECTORS The directors of the Company during the financial year and up to the date of this report were: Meng Zhao Yi (Chairman) Zhang Hui Ping (Vice Chairwoman) Ng Yu Lam Kenneth Lau Siu Mun Sammy Luk Chai Fun In accordance with Article 79 of the Company s Articles of Association, all the directors retire from office at the forthcoming Annual General Meeting and, being eligible, offer themselves for re-election. DIRECTORS INTERESTS IN SHARES Share Option Scheme Under the share option scheme of an intermediate holding company, China Taiping Insurance Holdings Company Limited ( CTIH ), share options were granted to certain directors of the Company. Details of movement of the share options were as follows: 79 No. of options outstanding at the beginning of the year No. of options exercised during the year No. of options outstanding at the end of the year Ng Yu Lam Kenneth 500,000 (200,000) 300,000 Zhang Hui Ping 267, ,000 Lau Siu Mun Sammy 300,000 (300,000) Each option gives the holder the right to subscribe for one share in CTIH. These share options were granted to the above-mentioned directors for their employment either in CTIH or in its other subsidiaries. 16 Taiping Reinsurance Company Limited Annual Report 2012

18 Directors Report (Continued) Share Award Scheme Under the share award scheme of CTIH, shares were awarded to certain directors of the Company: No. of shares Name of directors Date of award Number of awarded shares Average fair value per share As at 1 January 2012 Vested during the year (note 1) (note 2) (note 3) As at 31 December 2012 Vesting date Ng Yu Lam Kenneth 11 November , ,400 30, December 2012 Lau Siu Mun Sammy 11 November , ,000 21, December 2012 Notes: (1) The date of award refers to the date on which the selected employees agree to undertake to hold the awarded shares on the terms on which they are granted and agree to be bound by the rules of the Share Award Scheme. (1) (2) The average fair value of the awarded shares is based on the closing price at the date of award and any directly attributable incremental costs. (2) (3) The awarded shares would be regarded as vested after the vesting date if and only if the vesting notice is signed by the employees. (3) These shares were granted to the above-mentioned directors for their employment either in CTIH or in its subsidiaries. 17

19 Directors Report (Continued) Details of options granted and shares awarded to directors and employees for their employment in the Company are summarised in note 23 to the financial statements. 23 Apart from the foregoing, at no time during the year was the Company, any of its holding companies or fellow subsidiaries a party to any arrangement to enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. DIRECTORS INTERESTS IN CONTRACTS OF SIGNIFICANCE No contract of significance to which the Company, any of its holding companies or fellow subsidiaries was a party, and in which a director of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year. AUDITOR A resolution will be submitted to the annual general meeting to re-appoint Messrs. Deloitte Touche Tohmatsu as auditor of the Company. On behalf of the Board Meng Zhao Yi Chairman 25 April Taiping Reinsurance Company Limited Annual Report 2012

20 Independent Auditor s Report TO THE MEMBERS OF TAIPING REINSURANCE COMPANY LIMITED (incorporated in Hong Kong with limited liability) We h a v e a u d i t e d t h e f i n a n c i a l s t a t e m e n t s o f Ta i p i n g Reinsurance Company Limited (the Company ) set out on pages 22 to 105, which comprise the statement of financial position as at 31 December 2012, and the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the Hong Kong Companies Ordinance applicable to insurance companies, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 19

21 Independent Auditor s Report (Continued) AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with section 141 of the Hong Kong Companies Ordinance, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 141 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 20 Taiping Reinsurance Company Limited Annual Report 2012

22 Independent Auditor s Report (Continued) OPINION In our opinion, the financial statements give a true and fair view of the Company s state of affairs as at 31 December 2012 and of its profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance applicable to insurance companies. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 25 April

23 Income Statement Notes (restated) Revenue 4 3,435,303,594 3,431,082,546 Gross premiums written 4 3,435,303,594 3,431,082,546 Increase in gross unearned premium provision (21,853,399) (186,820,774) Increase in gross life insurance fund (5,856,434) (2,442,356) Gross premiums earned 3,407,593,761 3,241,819,416 Outward reinsurance premiums (362,064,329) (357,423,491) (Decrease) increase in reinsurers share of unearned premium provision (50,865,877) 20,930,872 Decrease in reinsurers share of life insurance fund Reinsurers share of premiums earned (162,090) (83,944) (413,092,296) (336,576,563) Net premiums earned 2,994,501,465 2,905,242,853 Commission income 64,562,739 64,488,818 Interest income on premium deposits 667, ,358 3,059,731,966 2,970,459,029 Gross claims paid (2,140,750,680) (1,463,275,933) Increase in provision for gross outstanding claims (273,111,619) (1,161,441,351) Gross claims incurred (2,413,862,299) (2,624,717,284) Reinsurers share of claims paid 414,238,221 98,986,749 (Decrease) increase in reinsurers share of provision for outstanding claims (291,893,304) 394,178,489 Reinsurers share of claims incurred 122,344, ,165,238 Net claims incurred (2,291,517,382) (2,131,552,046) Commission expenses (900,332,535) (876,807,982) Interest expenses on premium deposits (21,852) (62,079) Management expenses (75,685,611) (73,761,227) (3,267,557,380) (3,082,183,334) Underwriting loss (207,825,414) (111,724,305) Investment income 5 319,071, ,779,495 Interest expense 27 (2,193,739) Other gains (losses) 6 9,272,529 (142,800,986) Administrative expenses (12,776,011) (11,820,109) Net exchange gain 25,532,133 8,574,967 Profit before taxation 7 131,081,160 19,009,062 Income tax 8 (19,001,039) (60,872,912) Profit (loss) for the year 112,080,121 (41,863,850) 22 Taiping Reinsurance Company Limited Annual Report 2012

24 Statement of Comprehensive Income Note (restated) Profit (loss) for the year 112,080,121 (41,863,850) Other comprehensive income (expense) Available-for-sale securities Fair value gain (loss) during the year 74,244,262 (178,539,118) Reclassification adjustment to profit or loss upon disposal 45,664,240 35,801,647 Reclassification adjustment to profit or loss on impairment 6,385,273 67,045,165 Deferred tax (expense) credit 22 (11,395,933) 6,822,117 Exchange difference on translation of the financial statements of foreign operations 201,739 (218,400) Other comprehensive income (expense) for the year 115,099,581 (69,088,589) Total comprehensive income (expense) for the year 227,179,702 (110,952,439) 23

25 Statement of Financial Position at 31 December Notes (restated) (restated) Assets Fixed assets Investment properties 11 73,720,000 74,760,000 70,920,000 Property and equipment 11 82,598,094 85,470,491 87,238, ,318, ,230, ,158,677 Investments in debt and equity securities 12 4,926,399,704 4,695,629,541 4,172,226,013 Amounts due from group companies ,085 86,450 Trade and other receivables ,206, ,737, ,185,623 Reinsurers share of insurance contract provisions 18 39,604,679 90,632,646 69,785,718 Reinsurers share of provision for outstanding claims ,843, ,736, ,558,199 Deferred tax assets ,667, ,553,253 64,410,701 Tax reserve certificates 15 54,956,929 52,901,670 40,294,848 Pledged deposits at banks ,505, ,226, ,030,684 Deposits at banks with original maturity more than three months ,701, ,608, ,829,037 Cash and cash equivalents 17 1,475,212,168 1,063,172,677 1,217,662,456 8,960,415,098 8,133,768,304 6,887,228,406 Liabilities Insurance contract provisions ,828, ,118, ,855,568 Provision for outstanding claims 19 4,559,241,263 4,286,129,644 3,124,688,293 Amounts due to group companies 20 6,000,283 5,935,510 3,369,915 Trade and other payables ,650, ,327, ,398,177 Deferred tax liabilities 22 5,818,724 1,721,119 Current taxation 148,865, ,426,681 91,772,627 5,902,405,128 5,552,938,036 4,114,805,699 Net assets 3,058,009,970 2,580,830,268 2,772,422,707 Capital and reserves Share capital 24 1,850,000,000 1,600,000,000 1,600,000,000 Reserves 1,208,009, ,830,268 1,172,422,707 3,058,009,970 2,580,830,268 2,772,422,707 The financial statements on pages 22 to 105 were approved and authorised for issue by the Board of Directors on 25 April 2013 and are signed on its behalf by: Meng Zhao Yi Director Lau Siu Mun Sammy Director 24 Taiping Reinsurance Company Limited Annual Report 2012

26 Statement of Changes in Equity Share capital Fair value reserve Exchange reserve Retained profits Total Notes (note) At 1 January 2011, as previously reported 1,600,000,000 20,501,590 1,049,304,917 2,669,806,507 Effect of change in accounting policy 2 102,616, ,616,200 At 1 January 2011, as restated 1,600,000,000 20,501,590 1,151,921,117 2,772,422,707 Loss for the year (41,863,850) (41,863,850) Other comprehensive income (expense) for the year: Fair value loss during the year (178,539,118) (178,539,118) Reclassification adjustment to profit or loss upon disposal 35,801,647 35,801,647 Reclassification adjustment to profit or loss on impairment 67,045,165 67,045,165 Deferred tax credit 22 6,822,117 6,822,117 Exchange difference on translation of the financial statements of foreign operations (218,400) (218,400) Other comprehensive expense for the year (68,870,189) (218,400) (69,088,589) Total comprehensive expense for the year (68,870,189) (218,400) (41,863,850) (110,952,439) Dividends declared and paid in respect of the year 10 (80,640,000) (80,640,000) At 31 December 2011, as restated 1,600,000,000 (48,368,599) (218,400) 1,029,417,267 2,580,830,268 Profit for the year 112,080, ,080,121 Other comprehensive income (expense) for the year: Fair value gain during the year 74,244,262 74,244,262 Reclassification adjustment to profit or loss upon disposal 45,664,240 45,664,240 Reclassification adjustment to profit or loss on impairment 6,385,273 6,385,273 Deferred tax expense 22 (11,395,933) (11,395,933) Exchange difference on translation of the financial statements of foreign operations 201, ,739 Other comprehensive income for the year 114,897, , ,099,581 Total comprehensive income for the year 114,897, , ,080, ,179,702 Shares issued ,000, ,000,000 At 31 December ,850,000,000 66,529,243 (16,661) 1,141,497,388 3,058,009,970 Note: The fair value reserve comprises the cumulative net change in the fair value of available-for-sale securities held at the end of the reporting period and is dealt with in accordance with the accounting policies set out in note

27 Statement of Cash Flows (restated) OPERATING ACTIVITIES Profit before taxation 131,081,160 19,009,062 Adjustments for: Depreciation 2,829,998 2,730,179 Surplus on revaluation of investment properties (7,320,000) (3,840,000) Dividend income from investments in equity securities (8,963,297) (17,036,534) Interest income (309,554,097) (258,461,001) Net (gains) losses on disposal of property and equipment (3,663,158) 8,061 Net realised losses on available-for-sale securities 4,777,583 79,996,939 Net foreign exchange gain (1,520,022) (12,483,403) Impairment losses recognised in respect of available-for-sale securities 6,385,273 67,045,165 Gain on disposal of investment property (539,650) Net impairment loss recognised (reversed) in respect of trade receivables 4,280,990 (2,993,980) Fair value gain on derivative contracts (4,494,205) Operating loss before changes in working capital (186,699,425) (126,025,512) Decrease in held-for-trading securities 23,063, ,562,558 Increase in trade and other receivables (83,036,801) (183,107,119) Decrease (increase) in amounts due from group companies 338,085 (251,635) Decrease (increase) in reinsurers share of insurance contract provisions 51,027,967 (20,846,928) Decrease (increase) in reinsurers share of provision for outstanding claims 291,893,304 (394,178,489) Increase in trade and other payables 48,323,245 23,929,326 Increase in amounts due to group companies 64,837 2,565,595 Increase in insurance contract provisions 27,709, ,263,130 Increase in provision for outstanding claims 273,111,619 1,161,441,351 Cash generated from operations 445,796, ,352,277 Tax paid Hong Kong Profits Tax paid (5,406,154) (22,542,793) Tax paid outside Hong Kong (31,847,412) (13,717,619) Payment for the purchase of tax reserve certificates (2,055,259) (12,606,822) NET CASH FROM OPERATING ACTIVITIES 406,487, ,485, Taiping Reinsurance Company Limited Annual Report 2012

28 Statement of Cash Flows (Continued) Notes (restated) INVESTING ACTIVITIES Payments for purchase of property and equipment (1,995,843) (937,239) Proceeds from disposals of property and equipment 5,700,000 2,957 Proceeds from disposals of investment properties 8,899,650 Payments for purchase of available-for-sale securities (964,504,870) (1,678,273,198) Proceeds from disposals of available-for-sale securities 1,351,015,049 1,381,355,293 Payments for purchase of held-to-maturity debt securities (755,080,635) (605,904,121) Proceeds from redemption of held-to-maturity debt securities 212,291, ,428,564 Payments for purchase of loans and receivables (9,858,287) (271,967,422) Proceeds from disposals of loans and receivables 59,076,533 18,502,529 Increase in pledged deposits at banks (72,278,401) (34,195,955) Increase in deposits at banks with original maturity more than three months (340,092,193) (159,779,921) Interest received 268,976, ,549,065 Dividends received from investments in equity securities 8,963,297 17,036,534 NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Loan advanced from intermediate holding company Dividends paid to equity shareholders of the Company (228,887,094) (814,182,914) 27(x) 250,000, (80,640,000) NET CASH FROM (USED IN) FINANCING ACTIVITIES 250,000,000 (80,640,000) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 427,600,259 (162,337,871) CASH AND CASH EQUIVALENTS AT 1 JANUARY EFFECT OF FOREIGN EXCHANGE RATE CHANGES 1,063,172,677 1,217,662,456 (15,560,768) 7,848,092 CASH AND CASH EQUIVALENTS AT 31 DECEMBER 17 1,475,212,168 1,063,172,677 27

29 Notes to the Financial Statements 1. GENERAL The Company is a private limited liability company incorporated in Hong Kong. Its immediate holding company is Effectual Assets Limited ( EAL ), a company incorporated in the British Virgin Islands, which in turn is a wholly-owned subsidiary of China Taiping Insurance Holdings Company Limited ( CTIH ), a company incorporated in Hong Kong and listed on the Main Board of The Stock Exchange of Hong Kong Limited. Its ultimate holding company is China Taiping Insurance Group Co., a company incorporated in the People s Republic of China ( PRC ). The address of the registered office and principal place of business of the Company is 29A, United Centre, 95 Queensway, Admiralty, Hong Kong. The Company also operates through its two branches in Beijing, China and Labuan, Malaysia respectively. The financial statements are presented in Hong Kong dollars, which is also the functional currency of the Company. The principal activities of the Company are the underwriting of all classes of general reinsurance businesses, and two classes of long-term reinsurance businesses (life and annuity, and retirement scheme management category III). 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs )/SIGNIFICANT ACCOUNTING POLICIES In the current year, the Company has applied the following new and revised HKFRSs issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). 1. Effectual Assets Limited 95 29A III 2. Amendments to HKAS 12 Amendments to HKFRS 7 Amendments to HKAS 1 Deferred tax: Recovery of underlying asset Financial instruments: Disclosures Transfers of financial assets Presentation of Financial Statements as part of the annual improvements to HKFRSs cycle issued in The application of the new and revised HKFRSs in the current year has had no material impact on the Company s financial performance and positions for the current and prior years and/or on the disclosures set out in these financial statements. 28 Taiping Reinsurance Company Limited Annual Report 2012

30 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs )/SIGNIFICANT ACCOUNTING POLICIES (Continued) Change in accounting policy and restatement Computation of Unearned Premium Provision In the current year, there is a change in the accounting policy in relation to the method of computation of unearned premium provision for the general reinsurance business. In prior years, the acquisition costs of the reinsurance contracts in relation to the general business were fully charged to profit or loss when the reinsurance contracts were entered into during the period. Under the new accounting policy, the acquisition costs of these reinsurance contracts are deferred and amortised throughout the coverage period of the reinsurance contracts in order to match with the recognition of premiums written. Such deferred acquisition costs are directly deducted from the unearned premium provision at the end of each reporting period. After the change, the method of computation of unearned premium provision will be consistent with other insurance business of its intermediate holding company, CTIH, and be more comparable with other industry players to provide the best estimation of insurance liabilities. The effects of the change in accounting policy on the results for the current and prior years are as follows: Decrease in change in unearned premium provision, net of reinsurance 47,558,823 52,327,984 Increase in profit/decrease in loss for the year 47,558,823 52,327,984 The effects of the change in accounting policy on the financial position of the Company as at 31 December 2012 are as follows: Decrease in reinsurers share of insurance contract provisions Decrease in insurance contract provisions (60,951,960) 263,454,967 Increase on net assets 202,503,007 29

31 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs )/SIGNIFICANT ACCOUNTING POLICIES (Continued) Change in accounting policy and restatement (Continued) Computation of Unearned Premium Provision (Continued) The effect of the above change in accounting policy on the statement of financial position as at 1 January 2011 and 31 December 2011 are summarised below: 2. As at 1 January 2011 As at 1 January 2011 As at 31 December 2011 As at 31 December 2011 (originally stated) Adjustment (restated) (originally stated) Adjustment (restated) Assets Reinsurer s share of insurance contract provisions 80,446,103 (10,660,385) 69,785, ,403,798 (11,771,152) 90,632,646 Total assets 6,897,888,791 (10,660,385) 6,887,228,406 8,145,539,456 (11,771,152) 8,133,768,304 Liabilities Insurance contract provisions 870,132,153 (113,276,585) 756,855,568 1,112,834,034 (166,715,336) 946,118,698 Total liabilities 4,228,082,284 (113,276,585) 4,114,805,699 5,719,653,372 (166,715,336) 5,552,938,036 Net assets 2,669,806, ,616,200 2,772,422,707 2,425,886, ,944,184 2,580,830,268 Capital and reserves Reserves 1,069,806, ,616,200 1,172,422, ,886, ,944, ,830,268 Capital and reserves 2,669,806, ,616,200 2,772,422,707 2,425,886, ,944,184 2,580,830, Taiping Reinsurance Company Limited Annual Report 2012

32 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs )/SIGNIFICANT ACCOUNTING POLICIES (Continued) New and revised HKFRSs that have been issued but are not yet effective The Company has not early applied the following new and revised HKFRSs that have been issued but are not yet effective: Amendments to HKFRSs Amendments to HKFRS 7 Amendments to HKFRS 9 and HKFRS 7 Amendments to HKFRS 10, HKFRS 11 and HKFRS 12 Amendments to HKFRS 10, HKFRS 12 and HKAS 27 Annual improvements to HKFRSs cycle, except for the amendments HKAS 1 1 Disclosures Offsetting financial assets and financial liabilities 1 Mandatory effective date of HKFRS 9 and transition disclosures 3 Consolidated financial statements, joint arrangements and disclosure of interests in other entities: Transition guidance 1 Investment entities 2 HKFRS 9 Financial instruments 3 HKFRS 10 Consolidated financial statements 1 HKFRS 11 Joint arrangements 1 HKFRS 12 Disclosure of interests in other entities 1 HKFRS 13 Fair value measurement 1 HKAS 19 (as revised in 2011) Employee benefits 1 HKAS 27 (as revised in 2011) Separate financial statements 1 HKAS 28 (as revised in 2011) Investments in associates and joint ventures 1 Amendments to HKAS 1 Presentation of items of other comprehensive income 4 Amendments to HKAS 32 Offsetting financial assets and financial liabilities 2 HK(IFRIC) INT 20 Stripping costs in the production phase of a surface mine 1 1 Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 January Effective for annual periods beginning on or after 1 July

33 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs )/SIGNIFICANT ACCOUNTING POLICIES (Continued) HKFRS 9 Financial instruments HKFRS 9 issued in 2010 introduces new requirements for the classification and measurement of financial assets. HKFRS 9 amended in 2011 includes the requirements for the classification and measurement of financial liabilities and for derecognition. HKFRS 9 requires all recognised financial assets that are within the scope of HKAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent reporting periods. In addition, under HKFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss. HKFRS 9, as amended, is effective for annual periods beginning on or after 1 January 2015, with earlier application permitted. The directors are considering the implications of HKFRS 9, the impact on the Company and the timing of its adoption by the Company. The directors anticipate that the adoption of HKFRS 9 in the future may have significant impact on amounts reported in respect of the Company s financial assets. However, it is not practicable to provide a reasonable estimate of that effect until a detailed review has been completed Taiping Reinsurance Company Limited Annual Report 2012

34 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs )/SIGNIFICANT ACCOUNTING POLICIES (Continued) HKFRS 13 Fair value measurement HKFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The standard defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The scope of HKFRS 13 is broad; it applies to both financial instrument items and nonfinancial instrument items for which other HKFRSs require or permit fair value measurements and disclosures about fair value measurements, except in specified circumstances. In general, the disclosure requirements in HKFRS 13 are more extensive than those in the current standards. For example, quantitative and qualitative disclosures based on the threelevel fair value hierarchy currently required for financial instruments only under HKFRS 7 Financial Instruments: Disclosures will be extended by HKFRS 13 to cover all assets and liabilities within its scope HKFRS 13 is effective for annual periods beginning on or after 1 January 2013, with earlier application permitted. The directors anticipate that the application of the new standard may affect certain amounts reported in the financial statements and result in more extensive disclosures in the financial statements. 13 Except as described above, the directors anticipate that the application of the other new and revised HKFRS will not have material impact on the Company s financial performance and positions for the coming financial years and/or on the disclosures set out in these financial statements. Significant accounting policies The financial statements have been prepared on the historical cost basis except for investment properties, investments in available-for-sale securities and held-for-trading securities which are stated at their fair values as explained in the accounting policies set out below. The financial statements have been prepared in accordance with HKFRSs issued by the HKICPA and the Hong Kong Companies Ordinance applicable to insurance companies. 33

35 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs )/SIGNIFICANT ACCOUNTING POLICIES (Continued) Significant accounting policies (Continued) Classification of contracts Contracts under which the Company accepts significant reinsurance risk from another party (the cedant ) by agreeing to compensate the cedant if a specified uncertain future event (the reinsured event ) adversely affects the cedant are classified as reinsurance contracts. Reinsurance risk is the risk other than financial risk that is transferred from the holder of a contract to the issuer. Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party of the contract. Reinsurance contracts may also transfer some financial risk. Reinsurance risk is significant if, and only if, a reinsured event could cause the Company to pay significant additional benefits. Once a contract is classified as a reinsurance contract, it remains classified as a reinsurance contract until all rights and obligations are extinguished or have expired. Recognition and measurement of general reinsurance contracts Recognition of gross premiums written Gross premiums written in respect of reinsurance contracts reflect reinsurance business written during the year, and exclude any taxes or duties based on premiums. Premiums written include estimates for pipeline premiums and adjustments to estimates of premiums written in previous years. The earned proportion of premiums is recognised as revenue. Premiums are earned from the date of inception of risk over the indemnity period based on the pattern of risks underwritten Taiping Reinsurance Company Limited Annual Report 2012

36 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs )/SIGNIFICANT ACCOUNTING POLICIES (Continued) Significant accounting policies (Continued) Recognition and measurement of general reinsurance contracts (Continued) Insurance contract provisions The insurance contract provisions comprise the unearned premium provision and the unexpired risk provision for the general reinsurance business. The unearned premium provision comprises the proportion of gross premiums written which is estimated to be earned in the following financial years, computed separately for each reinsurance contract, on a time-apportioned basis, adjusted if necessary to reflect any variation in the incidence of risk during the period covered by the contract less deferred acquisition costs. The acquisition costs of the reinsurance contracts are deferred and amortised throughout the coverage period of the reinsurance contract, in order to match with the recognition of premiums written. The unexpired risk provision is made for unexpired risks arising from general reinsurance contracts where the expected value of claims and expenses attributable to the unexpired periods of policies in force at the end of the reporting period exceeds the unearned premium provision in relation to such policies. The unexpired risk provision is calculated by reference to classes of business which are managed together, after taking into account the future investment return on investments held to back the unearned premium provision and the unexpired risk provision. Claims Claims incurred comprise the settlement and handling costs of paid and outstanding claims arising from events occurring during the financial year together with adjustments to prior year claims provisions