No.24 of 2016 (General Serial No. 255):

The Audit Results of the Assets, Liabilities, Profit and Losses of People's Insurance Company Limited. of China (Group) for the year 2014

In accordance with the stipulations of the Audit Law of the People’s Republic of China, in 2015, the China National Audit Office (CNAO) conducted audit on the assets, liabilities, profit and losses of People's Insurance Company Limited of China (Group) (hereinafter referred to as PICC) for the year 2014, with the extension and tracing back to relevant items. The audit focused on the headquarters of PICC and 7 subsidiaries including the sub-unit PICC Property Insurance Company Limited, PICC Life Insurance Company Limited, PICC Health Insurance Company Limited, PICC Capital Investment Management Company Limited and Zhongsheng International Insurance Brokers Co., Ltd. (hereinafter referred to as PICC Property, PICC Life, PICC Health, PICC Capital and Zhongsheng International respectively).

I. Overview

PICC is the state-owned holding company consisting of 12 subsidiaries and 2 foreign representative offices. Both PICC and PICC Property are listed in Hong Kong stock market. As reflected in the consolidated financial statement, by the end of 2014, the total assets of PICC had reached RMB782.054 billion, the total liabilities had been RMB656.911 billion and the owners’ equity had been RMB125.143 billion; the realized operating revenue of the same year had been RMB348.546 and a net profit of RMB18.281 billion had been earned.

The audit results indicated that PICC implemented the national economic and financial policies, continuously promoted the overall development of the enterprises and earnestly fulfilled its social responsibilities; in 2012, PICC achieved the overall listing in Hong Kong and had got the A class AAA level as annual performance evaluation of Ministry of Finance for two consecutive years. The results also demonstrated that some weak links still existed in such fields as financial revenue and expenditure, the making and implementation of major decisions, business operation and the risk management and control.

II. Major Problems Found in the Audit

(I) Financial revenue and expenditure

uFrom 2010 to 2014, the provincial branches of PICC Property had over-accrued RMB360 million as the social relief fund for road traffic accidents and failed to turn over RMB474 million as the special accounts of provincial relief fund, among which, RMB92 million was over-accrued and RMB116 million wasn’t turned over in 2014.

u From 2010 to 2014, in PICC Property and Zhongsheng International, there had been such irregular conducts on accounting as failing to list the withholding and remitting fee of personal income taxes returned by the revenue department in the revenues, involving an amount of RMB446 million, among which the amount of 2014 was RMB203 million.

uFrom 2010 to 2014, the headquarters of PICC and 5 subunits including PICC Property had bought commercial insurance for the staff beyond the total wages and paid RMB180 million as the salary subsidies, among which the amount of 2014 was RMB119 million.

u From 2009 to 2014, the headquarters of PICC and 6 subunits including PICC Property, beyond the upper limit of the state regulation, deposited RMB172 million as public housing fund for the staff. The behavior mentioned above was stopped in July 2014.

u By the end of July 2015, RMB307 million paid as the staff welfare funds and returned by the executives as the stock appreciation rights plan at PICC, PICC Property and Zhongsheng International had been on the credit for a long time and had failed to be cleared. 

u In 2006, without approval, PICC Property engaged in the transaction of enterprise annuity. By the end of 2014, RMB687 million of principals and earnings had accumulated.

(II) Decision-making and implementation

uFrom October 2013 to April 2015, some items of PICC had failed to strictly adhere to the decision making procedures stipulated in the company’s regulations.

u By the end of 2014, PICC Health had failed to set up the assets and liability management committee in accordance with the regulations; there had existed such problems in the subsidiaries of Zhongsheng International as failing to regulate the decision-making systems such as the “Three Importants and One Large" system, keeping the supervisor position vacant and having never held the supervisory board meeting.

u From January 2009 to June 2015, when purchasing office buildings, such companies as PICC Life had failed to evaluate assets, report and make decisions according to the regulations, involving an amount of RMB1.047 billion, among which the amount of 2014 was RMB336 million.

(III) Business operation

u By the end of July 2015, PICC had failed to strictly adhere to relevant policies to develop the pilot projects for houses mortgaging pensions in reverse; the family agricultural machinery comprehensive insurance business covered in the insurance of agriculture, rural areas and farmers had only been conducted in Jilin Province, without being spread to the whole country.

u From January 2011 to June 2015, through false listing of intermediary business fee, such companies as PICC Property had defrauded RMB148 million to be used for operation expenditure, among which the amount of 2014 was RMB134 million.

u From January 2009 to May 2015, there had existed such problems in PICC Life as accepting insurance for the unqualified insurance applicants, paying for the interest beyond the supervisory regulations and accepting the insurance without qualifications, involving an amount of RMB860 million, among which the amount of 2014 was RMB257 million.

u From 2009 to 2014, in an markedly lower fee rate than was reported to the regulatory department, PICC Life had underwritten RMB7.8192 million group accident insurance, medical insurance and life insurance for the staff, among which the amount of 2014 was RMB1.1077 million.

uFrom 2010 to 2014, in the name of “donations”, such companies as PICC Life had made payments to educational departments to obtain the students’ safety insurance business; through logging in the auto insurance claims systems, such companies as PICC Property had obtained the information of car owners, which was used for insurance marketing.

uBy the end of 2014, PICC Property had failed to set up the off-site disaster preparation system; there had existed design deflects in some information systems of such companies as PICC Property and the data quality of car insurance acceptance was inferior.

(IV) Risk management and internal control

u By the end of 2014, PICC had failed to formulate the detailed rules for mass procurement; PICC Health had failed to set up the management systems for the inventory goods, and the storage and retrieval registration management had been imperfect.

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u By the end of 2014, PICC had failed to check and ratify the annual budget for two affiliated foreign representative offices by taking into account the powers of the offices and had failed to regulate the salary standards and assessment methods for the staff of the overseas agencies.

u From 2011 to 2014, such companies as PICC Capital had failed to effectively supervise the actual investment of the insurance capital, resulting in RMB4.259 billion having not been used according to the contract-stipulated purposes by the borrowing enterprises, among which the amount of 2014 was RMB1.046 billion.

(V) Professional ethics

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u From December 2012 to 2013, the headquarters of PICC and the subunit PICC Investment Holdings and Beijing Wanchunyuan Co., Ltd had paid RMB3.0708 million to buy 6 premium cars.

u From 2012 to 2015, the headquarters of PICC and 7 affiliated companies had paid RMB53.813 million to make 96,956 customized gold and silver medals, some of which were presented as gifts to outside units or given to their own staff.

u In July 2013, in violation of the rules set by the central government forbidding to hold meetings in tourist resorts, PICC Capital organized those from units with business dealings to have meeting in Changbaishan Mountain, Jilin Province, spending a total amount of RMB346,700.

Besides, there also existed such problems in PICC as the construction enterprises entrusted for the decoration projects failing to meet the qualification standards, and the equity and property of the affiliated companies failing to be altered timely due to historical reasons.

III. Audit Disposal and Rectification

In regard to issues discovered through auditing, the CNAO has issued audit report and released letters of audit decisions in accordance with laws. PICC is organizing the rectification, and has established and improved 89 related regulations and the concerned parties have been punished. PICC will notify the general public of the details of rectification.

Clues related to issues in violation of laws and disciplines discovered through the audit have been transferred to departments concerned for further investigation.