China Insurance Report Q1 2007

Key Insights On The Insurance Sector Of China

Projections for 2006 and drivers of growth: Non-Life Segment

At this stage, we are looking for non-life premiums to rise by 14% in local currency terms in calendaryear 2006.

Preliminary figures from China always need to be viewed with some caution. However the Chairman of the China Insurance Regulatory Commission reported on January 21 that premiums in China rose by 14.4% in 2006. Previously we had been looking for penetration to rise from 0.92% of GDP in 2005 to 1.40% in 2010. The latest figures suggest that we may have been overly optimistic. Accordingly, we are reducing our projection of penetration for 2010 to 1.05%. Projections for 2006 and drivers of growth: Life Segment At this stage, we are looking for life premiums to rise by 30% in local currency terms in calendar-year 2006.

China Life, by far the largest player in the life segment, achieved a 30% rise in gross premiums in 2006. Accordingly, we believe that it is reasonable to look for 30% expansion in life premiums for 2006 as a whole. We remain comfortable with our projection that density will rise from US$30.5 in 2005 to US$70 in 2006. Economic environment We expect China's real GDP growth to slow to single figures in 2007, following four years of doubledigit expansion. BMI is forecasting 9.7% growth this year, down from a projected 10.5% in 2006. Domestic demand will cool as the economy feels the full effects of the authorities' tightening measures,

with fixed asset investment in particular - a primary driver of growth - exhibiting a decline, while consumption will remain lacklustre due to the rigidity of domestic savings habits. In addition, external demand will soften with the projected slowdown in US growth this year, resulting in more moderate export growth.