Major Shareholder:

• PICC holdings company ¡V 72.0% interest
• AIG ¡V 9.9% interest

The Group is a leading P&C insurance company in China providing a broad range of P&C insurance products for a wide variety of customers throughout the country. In 2002, we accounted for 70.5% of direct premiums written in the P&C insurance market in China. Our major product lines are motor vehicle insurance, commercial property insurance and homeowners insurance. The Group also provide other insurance products such as cargo insurance and liability insurance. Since March 2003, the Group begun to offer accidental injury insurance to our customers. For the year ended 31 December 2002, the Group recorded net premiums earned of RMB 36,381 million and the combined ratio was 97.1%. For the six months ended 30 June 2003, the Group recorded net premiums earned of RMB 19,930 million and the combined ratio was 92.7%.

The Board believe that, since the establishment in 1949, the Group was developed ¡§PICC¡¨ into one of the best known brand names in the insurance industry in China. The long operating history has allowed the Group to build an in-depth understanding of the P&C insurance market in China. This understanding has significantly enhanced the ability to develop new products and maintain underwriting profitability.

The headquarters is in Beijing, and as of 31 December 2002, the Group had 4,351 local branch offices nationwide. The Group owned the most extensive P&C insurance distribution network in China, with over 26,000 internal sales personnel, over 65,000 individual agents, 98 professional insurance agencies and over 30,000 authorized representatives as of 31 December 2002. The Group also employ specialized professionals in underwriting, claims management, risk management and product development.

The Directors believe that the Group has the following competitive advantages:

• strong brand recognition;
• leading market position;
• extensive distribution network and strong customer relationships;
• strong financial performance; and
• experienced and dedicated senior management and professionals.

• The Group face increasing competition which could adversely affect our business development and results of operations.
• The Group do not, prior to receiving the proceeds of the Global Offering, meet the PRC solvency margin requirement and certain regulatory benchmarks. The need to continue to meet the PRC solvency margin requirement and regulatory benchmarks in the future could constrain our underwriting capacity.
• The fixed assets constitute a high percentage of our total assets, which could adversely affect the results of operations.
• We may incur additional income statement charges if our loss and LAE reserves are insufficient.
• The Group was calculated loss and LAE reserves using actuarial analysis for a limited period only and has a limited track record with which investors can gauge the accuracy of our methods.
• Limitations on the availability of data in the necessary form and a change in claims settlement speed increase the uncertainty of the loss and LAE reserves estimates and the estimates may be understated.
• The failure to successfully integrate and upgrade the information systems could adversely affect the results of operations.

The Group will continue to emphasize a profit-oriented approach to the underwriting activities and adhere to strict return on capital requirements to ensure underwriting profitability. The Group will leverage the in-depth knowledge of the P&C insurance market in China and the operating experience to enhance further the underwriting expertise. By utilizing advanced pricing techniques and analyzing comprehensive market information, The Board believe that the Group will be able to price more effectively the insurance products so that the prices will be more responsive to the changing market while preserving reasonable profits.

The Group believes that the Group can improve the operating margin by further standardizing and improving the claims management process. The major improvement initiatives include establishing a standardized cost database and implementing a rigorous claims review and investigation system to strengthen control at various stages of the claims management process. The Group will also continue to develop and apply new claims management techniques. The Group nationwide service network will allow the policyholders to obtain timely services wherever an insured event occurs, regardless of where the policy was written.

The Group will continue to market the products through different channels to meet the needs of the customers. The Group are implementing a¡§customer manager system¡¨which requires the customer managers to serve as key contact points for customers. These customer managers regularly liaise with customers with the aim of providing one-stop service to meet all their insurance needs. For large-scale commercial risks, the Group will continue to provide the customers with quality and individualized service through specialized sales teams.

The Group will continue to monitor the risk profile of the insurance products. The Group have established limits per risk unit and aggregate risk limits for each policy for certain insurance products with potentially higher insurance liability or a longer insurance liability period. In addition, the product development department will undertake research and obtain necessary internal approval before launching new products. The Group will continue to apply actuarial techniques and advanced product modeling methodologies for new product development and pricing. In 2002, the Group adopted a reserve policy based on actuarial analysis in order to manage the risks and financial positions more prudently.

The Group estimate that the Group will receive net proceeds from the Global Offering of approximately HK$4,325 million, after deducting the underwriting fees and expenses payable by us in the Global Offering and assuming an Offer Price of HK$1.70 per H Share, being the midpoint of the stated offer price range. The Group intends to use these net proceeds to, among other things, increase our level of paid-in capital and improve the solvency margin. The Group will hold these proceeds as investments in accordance with relevant PRC regulations, which will form part of our liquid capital available to pay claims.