WASHINGTON, D.C. 20549
Date of event requiring this shell company
report. . . . . . . . . . . . . .
(Name, Telephone, E-mail and/or Facsimile number and Address of Company
Contact Person)
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
Indicate the number of outstanding shares of each of the Issuer’s
classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer”
in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
PART I
|
Item
1.
|
Identity of Directors, Senior Management and Advisers
|
Not Applicable.
|
Item 2.
|
Offer Statistics and Expected Timetable
|
Not Applicable.
|
A.
|
Selected Financial Data
|
The following selected consolidated
statements of income (loss) data for the years ended December 31, 2013, 2014 and 2015 and the consolidated balance sheets data
as of December 31, 2014 and 2015 have been derived from our audited consolidated financial statements, which are included in
this annual report beginning on page F-1. The selected consolidated statements of income (loss) data for the years ended
December 31, 2011 and 2012 and the selected consolidated balance sheets data as of December 31, 2011, 2012 and 2013 have been
derived from our audited consolidated financial statements, which are not included in this annual report.
On March 25, 2011, we disposed of our 55% equity
interest in Datong International Holding Limited and its subsidiaries, or Datong, which were primarily engaged in the distribution
of life insurance products. Following the sale of Datong, we present our financial results for the years ended December 2011 on
both a continuing and discontinued basis. Profits and losses related to Datong were presented as discontinued operations while
profits and losses for the remaining business were presented as continuing operations. Our historical results do not necessarily
indicate results expected for any future periods. The selected consolidated financial data should be read in conjunction with,
and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item
5.Operating and Financial Review and Prospects” below. Our audited consolidated financial statements are prepared and presented
in accordance with U.S. GAAP.
In the first quarter of 2014, we realigned our
financial reporting structure into three business segments that more accurately reflect our organizational structure and changing
business mix. Under the realigned business structure, our business is divided into three reporting operating segments: (1) insurance
agency, (2) insurance brokerage, and (3) claims adjusting. See “Item 4. Information on the Company — B. Business Overview
— Segment Information.” Historical results reflecting the new business segments for 2011, 2012 and 2013 were also restated.
|
|
For the Year Ended December 31,
|
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
(in thousands, except shares, per share and per ADS data
)
|
Consolidated Statement of Income (Loss) Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
1,279,762
|
|
|
|
1,305,310
|
|
|
|
1,418,512
|
|
|
|
1,624,410
|
|
|
|
2,155,264
|
|
|
|
332,716
|
|
Brokerage
|
|
|
29,234
|
|
|
|
48,855
|
|
|
|
63,418
|
|
|
|
232,620
|
|
|
|
369,198
|
|
|
|
56,994
|
|
Claims adjusting
|
|
|
202,003
|
|
|
|
217,497
|
|
|
|
261,206
|
|
|
|
292,981
|
|
|
|
303,846
|
|
|
|
46,906
|
|
Other services
|
|
|
5,676
|
|
|
|
14,455
|
|
|
|
13,888
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total net revenues
|
|
|
1,516,675
|
|
|
|
1,586,117
|
|
|
|
1,757,024
|
|
|
|
2,150,011
|
|
|
|
2,828,308
|
|
|
|
436,616
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
(685,889
|
)
|
|
|
(936,246
|
)
|
|
|
(1,094,843
|
)
|
|
|
(1,261,888
|
)
|
|
|
(1,675,261
|
)
|
|
|
(258,616
|
)
|
Brokerage
|
|
|
(10,477
|
)
|
|
|
(29,716
|
)
|
|
|
(47,351
|
)
|
|
|
(185,593
|
)
|
|
|
(293,875
|
)
|
|
|
(45,366
|
)
|
Claims adjusting
|
|
|
(100,477
|
)
|
|
|
(113,697
|
)
|
|
|
(142,245
|
)
|
|
|
(167,676
|
)
|
|
|
(181,370
|
)
|
|
|
(27,999
|
)
|
Other services
|
|
|
—
|
|
|
|
(6,150
|
)
|
|
|
(8,933
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total operating costs
|
|
|
(796,843
|
)
|
|
|
(1,085,809
|
)
|
|
|
(1,293,372
|
)
|
|
|
(1,615,157
|
)
|
|
|
(2,150,506
|
)
|
|
|
(331,981
|
)
|
Selling expenses
|
|
|
(77,802
|
)
|
|
|
(78,449
|
)
|
|
|
(96,461
|
)
|
|
|
(107,263
|
)
|
|
|
(143,279
|
)
|
|
|
(22,118
|
)
|
General and administrative expenses
(1)
|
|
|
(333,281
|
)
|
|
|
(356,033
|
)
|
|
|
(349,205
|
)
|
|
|
(396,692
|
)
|
|
|
(456,001
|
)
|
|
|
(70,394
|
)
|
Impairment loss on goodwill and intangible assets
|
|
|
(1,057,522
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total operating costs and expenses
|
|
|
(2,265,448
|
)
|
|
|
(1,520,291
|
)
|
|
|
(1,739,038
|
)
|
|
|
(2,119,112
|
)
|
|
|
(2,749,786
|
)
|
|
|
(424,493
|
)
|
Income (loss) from operations
|
|
|
(748,773
|
)
|
|
|
65,826
|
|
|
|
17,986
|
|
|
|
30,899
|
|
|
|
78,522
|
|
|
|
12,123
|
|
Other income , net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
—
|
|
|
|
—
|
|
|
|
8,886
|
|
|
|
44,240
|
|
|
|
65,624
|
|
|
|
10,131
|
|
Interest income
|
|
|
52,031
|
|
|
|
90,323
|
|
|
|
84,250
|
|
|
|
82,251
|
|
|
|
57,234
|
|
|
|
8,835
|
|
Finance cost
|
|
|
—
|
|
|
|
(2,439
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Others, net
|
|
|
22,436
|
|
|
|
6,742
|
|
|
|
(4,601
|
)
|
|
|
2,330
|
|
|
|
13,042
|
|
|
|
2,013
|
|
Income (loss) from continuing operations before income taxes and income of affiliates and discontinued operations
|
|
|
(674,306
|
)
|
|
|
160,452
|
|
|
|
106,521
|
|
|
|
159,720
|
|
|
|
214,422
|
|
|
|
33,102
|
|
Income tax expense
|
|
|
(84,030
|
)
|
|
|
(50,373
|
)
|
|
|
(27,158
|
)
|
|
|
(24,289
|
)
|
|
|
(25,865
|
)
|
|
|
(3,993
|
)
|
Share of income of affiliates
|
|
|
14,246
|
|
|
|
14,658
|
|
|
|
20,621
|
|
|
|
30,649
|
|
|
|
26,924
|
|
|
|
4,156
|
|
Net income (loss) from continuing operations
|
|
|
(744,090
|
)
|
|
|
124,737
|
|
|
|
99,984
|
|
|
|
166,080
|
|
|
|
215,481
|
|
|
|
33,265
|
|
Net income from discontinued operations, net of tax
|
|
|
127,553
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
|
(616,537
|
)
|
|
|
124,737
|
|
|
|
99,984
|
|
|
|
166,080
|
|
|
|
215,481
|
|
|
|
33,265
|
|
Less: Net (loss) income attributable to the noncontrolling interests
|
|
|
(317,163
|
)
|
|
|
(5,773
|
)
|
|
|
4,341
|
|
|
|
4,320
|
|
|
|
5,395
|
|
|
|
833
|
|
Net income (loss) attributable to the Company’s shareholders
|
|
|
(299,374
|
)
|
|
|
130,510
|
|
|
|
95,643
|
|
|
|
161,760
|
|
|
|
210,086
|
|
|
|
32,432
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(0.43
|
)
|
|
|
0.13
|
|
|
|
0.10
|
|
|
|
0.16
|
|
|
|
0.18
|
|
|
|
0.03
|
|
Net income from discontinued operations
|
|
|
0.13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
|
(0.30
|
)
|
|
|
0.13
|
|
|
|
0.10
|
|
|
|
0.16
|
|
|
|
0.18
|
|
|
|
0.03
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(0.43
|
)
|
|
|
0.13
|
|
|
|
0.10
|
|
|
|
0.16
|
|
|
|
0.17
|
|
|
|
0.03
|
|
Net income from discontinued operations
|
|
|
0.13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
|
(0.30
|
)
|
|
|
0.13
|
|
|
|
0.10
|
|
|
|
0.16
|
|
|
|
0.17
|
|
|
|
0.03
|
|
|
|
For the Year Ended December 31,
|
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
(in thousands, except shares, per share and per ADS data
)
|
Net income (loss) per ADS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(8.51
|
)
|
|
|
2.60
|
|
|
|
1.92
|
|
|
|
3.22
|
|
|
|
3.65
|
|
|
|
0.56
|
|
Net income from discontinued operations
|
|
|
2.54
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
|
(5.97
|
)
|
|
|
2.60
|
|
|
|
1.92
|
|
|
|
3.22
|
|
|
|
3.65
|
|
|
|
0.56
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(8.51
|
)
|
|
|
2.60
|
|
|
|
1.91
|
|
|
|
3.19
|
|
|
|
3.49
|
|
|
|
0.54
|
|
Net income from discontinued operations
|
|
|
2.54
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
|
(5.97
|
)
|
|
|
2.60
|
|
|
|
1.91
|
|
|
|
3.19
|
|
|
|
3.49
|
|
|
|
0.54
|
|
Shares used in calculating net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1,002,810,673
|
|
|
|
1,002,308,275
|
|
|
|
998,861,526
|
|
|
|
1,005,842,212
|
|
|
|
1,151,705,374
|
|
|
|
1,151,705,374
|
|
Diluted
|
|
|
1,002,810,673
|
|
|
|
1,005,301,969
|
|
|
|
1,000,570,018
|
|
|
|
1,012,591,387
|
|
|
|
1,203,323,521
|
|
|
|
1,203,323,521
|
|
Dividends declared per share
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
_____________________
|
(1)
|
Including share-based compensation expenses of RMB57.0 million, RMB66.9 million, RMB45.3 million,
RMB23.6 million and RMB17.7 million (US$2.7 million) for the years ended December 31, 2011, 2012, 2013, 2014 and 2015, respectively.
|
|
|
As of December 31,
|
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
(in thousands)
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
2,222,160
|
|
|
|
2,525,618
|
|
|
|
2,288,623
|
|
|
|
2,103,068
|
|
|
|
1,115,266
|
|
|
|
172,167
|
|
Total current assets
|
|
|
2,898,414
|
|
|
|
2,993,900
|
|
|
|
3,177,801
|
|
|
|
3,301,726
|
|
|
|
3,513,061
|
|
|
|
542,324
|
|
Total assets
|
|
|
3,280,996
|
|
|
|
3,400,789
|
|
|
|
3,560,730
|
|
|
|
3,748,486
|
|
|
|
4,014,428
|
|
|
|
619,721
|
|
Total current liabilities
|
|
|
328,309
|
|
|
|
318,539
|
|
|
|
339,425
|
|
|
|
335,440
|
|
|
|
488,448
|
|
|
|
75,403
|
|
Total liabilities
|
|
|
402,001
|
|
|
|
392,882
|
|
|
|
413,968
|
|
|
|
414,226
|
|
|
|
580,859
|
|
|
|
89,669
|
|
Noncontrolling interests
|
|
|
124,948
|
|
|
|
113,527
|
|
|
|
118,665
|
|
|
|
123,508
|
|
|
|
116,139
|
|
|
|
17,929
|
|
Total equity
|
|
|
2,878,995
|
|
|
|
3,007,907
|
|
|
|
3,146,762
|
|
|
|
3,334,260
|
|
|
|
3,433,569
|
|
|
|
530,052
|
|
Total liabilities and shareholders’ equity
|
|
|
3,280,996
|
|
|
|
3,400,789
|
|
|
|
3,560,730
|
|
|
|
3,748,486
|
|
|
|
4,014,428
|
|
|
|
619,721
|
|
Exchange Rate Information
Our business is primarily conducted in China and all of our revenues are denominated in RMB. This annual report
contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the readers. Unless otherwise
noted, all translations from RMB to U.S. dollars in this annual report were made at a rate of
RMB6.4778
to US$1.00, the noon buying rate in effect as of December 31, 2015 in The City of New York for cable transfers of RMB, as set forth
in H.10 weekly statistical release of the Federal Reserve Bank of New York. We make no representation that any RMB or U.S. dollar
amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all.
The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB
into foreign exchange and through restrictions on foreign trade. On April 15, 2016, the noon buying rate was RMB6.4730 to US$1.00.
The following table sets forth information concerning
exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience
and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our future periodic
reports or any other information to be provided to you.
|
|
Noon Buying Rate
|
|
|
(RMB per US$1.00)
|
Period
|
|
Period
End
|
|
Average
(1)
|
|
Low
|
|
High
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
6.2939
|
|
|
|
6.4475
|
|
|
|
6.6364
|
|
|
|
6.2939
|
|
2012
|
|
|
6.2301
|
|
|
|
6.2990
|
|
|
|
6.3879
|
|
|
|
6.2221
|
|
2013
|
|
|
6.0537
|
|
|
|
6.1412
|
|
|
|
6.2438
|
|
|
|
6.0537
|
|
2014
|
|
|
6.2046
|
|
|
|
6.1704
|
|
|
|
6.2591
|
|
|
|
6.0402
|
|
2015
|
|
|
6.4778
|
|
|
|
6.2869
|
|
|
|
6.4896
|
|
|
|
6.1870
|
|
October
|
|
|
6.3180
|
|
|
|
6.3505
|
|
|
|
6.3591
|
|
|
|
6.3180
|
|
November
|
|
|
6.3883
|
|
|
|
6.3640
|
|
|
|
6.3945
|
|
|
|
6.3180
|
|
December
|
|
|
6.4778
|
|
|
|
6.4491
|
|
|
|
6.4896
|
|
|
|
6.3883
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
6.5752
|
|
|
|
6.5726
|
|
|
|
6.5932
|
|
|
|
6.5219
|
|
February
|
|
|
6.5525
|
|
|
|
6.5501
|
|
|
|
6.5795
|
|
|
|
6.5154
|
|
March
|
|
|
6.4480
|
|
|
|
6.5027
|
|
|
|
6.5500
|
|
|
|
6.4480
|
|
April (through April 15)
|
|
|
6.4730
|
|
|
|
6.4713
|
|
|
|
6.4810
|
|
|
|
6.4580
|
|
Source: H.10 weekly statistical release of the Federal
Reserve Bank of New York
|
(1)
|
Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during
the relevant period.
|
|
B.
|
Capitalization and Indebtedness
|
Not Applicable.
|
C.
|
Reasons for the Offer and Use of Proceeds
|
Not Applicable.
Risks Related to Our Business and Our Industry
If our investments in our
mobile and online platforms are not successful, our business and results of operations may be adversely affected.
We have devoted significant efforts to developing
and managing our mobile and online platforms. On January 1, 2012, we launched Baowang (www.baoxian.com), an online insurance platform
which allows customers to search for and purchase a wide range of insurance products, including travel insurance, accident insurance
and homeowner insurance from various insurance carriers. In October 2012, we launched CNpad, the mobile workstation of our proprietary
sales support system, which enables sales agents to help their clients compare price, policy benefits and services from different
insurance carriers’ policies, and to apply for and complete the purchase of the policy that best suits their clients’
needs anywhere and anytime. In August 2014, we unveiled eHuzhu (www.ehuzhu.com), an online non-profit mutual aid platform that
provides low-cost risk-protection programs on a mutual aid basis among program members. In August 2014, we also rolled out Chetong.net
(www.chetong.net), an online-to-offline public service platform for the insurance industry that integrates claims adjustment and
auto service resources from around the country to provide claims services such as damage assessment and loss estimations. In 2015,
we sold approximately 80% of the equity interests in the operating entity of Chetong.net to its management and employees. In the
next few years, we intend to continue to devote significant resources to improving the technology and content of our existing online
and mobile initiatives and launching marketing campaigns to increase consumer awareness of these online and mobile solutions or
platforms. However, our efforts to develop our mobile and online platforms may not be successful or yield the benefits that we
anticipate due to our limited experience in the online and mobile insurance distribution business. In addition, our expansion may
depend on a number of factors, many of which are beyond our control, including but not limited to:
|
·
|
the effectiveness of our marketing campaign to build brand recognition among consumers and our
ability to attract and retain customers;
|
|
·
|
the acceptance of third-party e-commerce platforms as an effective channel for underwriters to
distribute their insurance products;
|
|
·
|
the acceptance of CNpad as an effective tool for sales agents;
|
|
·
|
public concerns over security of e-commerce transactions and confidentiality of information;
|
|
·
|
increased competition from insurance companies which directly sell insurance products through their
own websites, call centers, portal websites which provide insurance product information and links to insurance companies’
websites, and other professional insurance intermediary companies which may launch independent websites in the future;
|
|
·
|
further improvement in our information technology system designed to facilitate smoother online
transactions; and
|
|
·
|
further development and changes in applicable rules and regulations which may increase our operating
costs and expenses, impede the execution of our business plan or change the competitive landscape.
|
On July 27, 2015, the China Insurance Regulatory Commission, or CIRC, promulgated
the
Interim Measures for the Supervision of Internet Insurance Business, or Interim Measures, which immediately became effective and
sets forth the qualifications and procedures for insurance intermediaries to operate internet insurance businesses in China. Since
online insurance distribution has emerged only recently in China and is evolving rapidly, the CIRC may implement new laws and regulations
to govern this sector from time to time. As advised by our PRC counsel, we have obtained the necessary approvals and licenses and
our operations meet the qualification requirements of the Interim Measures. However, we cannot assure you that our operations will
always be consistent with the changes and further development of regulations applicable to us or we will be able to obtain necessary
approvals and licenses as required on a timely basis.
Any failure to successfully identify
the risks as part of our expansion into the online and mobile insurance distribution business may have a material adverse impact
on our growth, business prospects and results of operations, which could lead to a decline in the price of our ADSs.
In addition, our efforts to enhance our technological capabilities and establish a leading position in the
online and mobile insurance distribution and online claims settlement markets require us to incur significant research and development
and marketing expenses which may adversely impact our profitability in the near term.
If we fail to attract and
retain productive agents, especially entrepreneurial agents, and qualified claims adjustors, our business and operating results
could be materially and adversely affected.
A substantial portion of our sales of property
and casualty insurance products and all of our sales of life insurance products are conducted through our individual sales agents,
who are not our employees. Some of these sales agents are significantly more productive than others in generating sales. In recent
years, some entrepreneurial management staff or senior sales agents of major insurance companies in China have chosen to leave
their employers or principals and become independent agents. We refer to these individuals as entrepreneurial agents. An entrepreneurial
agent is usually able to assemble and lead a team of sales agents. We have been actively recruiting and will continue to recruit
entrepreneurial agents to join our distribution and service network as our sales agents. Entrepreneurial agents have been instrumental
to the development of our life insurance business. In addition, we rely entirely on our in-house claims adjustors to provide claims
adjusting services. Because claims adjustment requires technical skills, the technical competence of claims adjustors is essential
to establishing and maintaining our brand image and relationships with our customers. If we are unable to attract and retain the
core group of highly productive sales agents, particularly entrepreneurial agents, and qualified claims adjustors, our business
could be materially and adversely affected. Competition for sales personnel and claims adjustors from insurance companies and other
insurance intermediaries may also force us to increase the compensation of our sales agents, in-house sales representatives and
claims adjustors, which would increase operating costs and reduce our profitability.
Because our industry is highly
regulated, any material changes in the regulatory environment could change the competitive landscape of our industry or require
us to change the way we do business. The administration, interpretation and enforcement of the laws and regulations currently applicable
to us could change rapidly. If we fail to comply with applicable laws and regulations, we may be subject to civil and criminal
penalties or lose the ability to conduct business with our clients, which could materially and adversely affect our business and
results of operations.
We operate in a highly regulated industry. The
laws and regulations applicable to us are evolving and may change rapidly. We could be required to spend significant time and resources
in complying with any material changes in the regulatory environment, which could change the competitive environment of our industry
significantly and cause us to lose some or all of our competitive advantages. The attention of our management team could be diverted
to these efforts to comply or cope with an evolving regulatory or competitive environment. For example, the PRC Insurance Law and
related regulations were amended in 2002, 2009, 2014 and 2015. The 2015 amendments involved a number of significant changes to
the regulatory regime, including eliminating the requirement for any insurance agent, broker or claims adjusting practitioners
to obtain a qualification certificate issued by the CIRC. The elimination of the certificate requirement may result in an increase
in competition for our business and in misconduct by sales or service persons, in particularly sales misrepresentation. In addition,
the general increase in misconduct in the industry could potentially harm the reputation of the industry and have an adverse impact
on our business.
The CIRC has extensive authority to supervise
and regulate the insurance industry in China. In exercising its authority, the CIRC is given wide discretion, and the administration,
interpretation and enforcement of the laws and regulations applicable to us involve uncertainties that could materially and adversely
affect our business and results of operations. The People’s Bank of China and other government agencies may promulgate new
rules governing online financial services. In July 2015, ten government agencies including the People’s Bank of China, the
Ministry of Finance and CIRC promulgated a guidance letter on how to promote the healthy growth of internet finance services, which
set forth the principles of supervising based on the rule of law, appropriate level of regulation, proper categorization, cooperation
among different government agencies and promoting innovation. Not only may the laws and regulations applicable to us change rapidly,
but it is sometimes unclear how they apply to our business. For example, the laws and regulations applicable to our online and
mobile platforms may be unclear. Errors created by our products or services may be determined or alleged to be in violation of
the applicable laws and regulations. Any failure of our products or services to comply with these laws and regulations could result
in substantial civil or criminal liability; could adversely affect demand for our services; could invalidate all or portions of
some of our customer contracts; could require us to change or terminate some portions of our business; could require us to refund
portions of our services fees; could cause us to be disqualified from serving customers; and could have a material and adverse
effect on our business.
Although we have not had any material violations
to date, we cannot assure you that our operations will always comply with the interpretation and enforcement of the laws and regulations
implemented by the CIRC. Any determination by a provincial or national government agency that our activities or those of our vendors
or customers violate any of these laws could subject us to civil or criminal penalties, could require us to change or terminate
some portions of our operations or business, or could disqualify us from providing services to insurance companies or other customers;
and, thus could have an adverse effect on our business.
Our business could be negatively
impacted if we are unable to adapt our services to regulatory changes in China.
China’s insurance regulatory regime is
undergoing significant changes. Some of these changes and the further development of regulations applicable to us may result in
additional restrictions on our activities or more intensive competition in this industry. For example, both the Provisions on the
Supervision of Professional Insurance Agencies and the Provisions on the Supervision of Insurance Brokerages
were amended in December 2015. Pursuant to these amendments,
an insurance agency or brokerage firm is allowed to apply for
a business permit from the CIRC and a business license from the local administration of industry and commerce, or AIC, simultaneously
while previously an insurance agency or brokerage firm had to obtain a business permit issued by the CIRC before it could apply
for a business license from and register with the relevant local AIC. Prior approval by the CIRC is no longer required for an insurance
agency or brokerage firm to establish or divest a branch office or subsidiary. In addition, pursuant to the amendment to
the
Provisions on the Supervision of Insurance Claims Adjusting Firms, insurance claim adjusting firms are no longer required to have
a minimum registered capital of RMB2 million.
See “Item 4. Information on the Company — B. Business Overview
— Regulation.”
These changes may accelerate the growth of professional insurance intermediaries in China and
intensify competition among insurance agencies, insurance brokerage firms and claims adjusting firms. Our business operations and
growth outlook could be materially and adversely affected if we cannot adapt our business to the regulatory and industry changes.
In July 2014, the CIRC promulgated the Consultation
Paper of the Rules on Deepening the Pricing Reform of Commercial Auto Insurance Policies, allowing insurers to set their own premium
rates for auto insurance policies based on a new pricing model. Under the new pricing model, the premium of an auto insurance policy
will be determined based on pure risk premium, loadings and premium adjustment factors, and the pricing in both direct sales and
through intermediary channels will be based on the same pricing model. In January 2015, the CIRC promulgated the Guidelines on
Deepening the Pricing Reform of Commercial Auto Insurance Policies, granting insurers more flexibility in auto insurance premiums
based on their own operational conditions. The pilot program of deregulation reform of regulatory regime on auto insurance pricing
was implemented in six provinces in China in June 2015 and was expanded to an additional 12 provinces in January 2016. The implementation
of the pilot program may lead to a decline in premium rate and commission rate that we receive from insurance companies, which
would adversely impact our business.
Our business and prospects
could be materially and adversely affected if we are not able to manage our growth successfully.
We commenced our insurance intermediary business
in 1999 and have expanded our operations substantially in recent years. Our distribution and service networks expanded from one
company in one province to 34 insurance agencies, two insurance brokerages and three claims adjusting firms in 29 provinces as
of March 31, 2016. Meanwhile, we have broadened our service offerings from the distribution of only automobile insurance products
to cover a wide variety of property and casualty insurance and life insurance products and insurance claims adjusting services.
Since 2011, we have devoted significant efforts to developing our mobile and online platforms and expect they will be a critical
driver to our future business growth. We conduct our claims adjustment operations in China through our subsidiary CNinsure Insurance
Surveyors & Loss Adjustors Co., Ltd., or CISLA. As part of our growth strategy, CISLA filed an application in November 2015
with the National Equities Exchange and Quotations, or NEEQ, to list on the New Third Board, an emerging over-the-counter stock
market for medium- and small-cap companies in China. We expect the listing of CISLA to enhance its brand recognition, help attract
top talent and allow it to raise capital more efficiently to fund its expansion, all of which are essential to the growth of our
claims adjustment business. We anticipate continued growth in the future through multiple means. Our expansion has placed, and
will continue to place, substantial demands on our managerial, operational, technological and other resources. To manage and support
our continued growth, we must continue to improve our operational, administrative, financial and technological systems, procedures
and controls, and expand, train and manage our growing employee and agent base. Furthermore, our management will be required to
maintain and expand our relationships with insurance companies, other insurance intermediaries, regulators and other third parties.
We cannot assure you that our current and planned personnel, systems, procedures and controls will be adequate to support our future
operations. We also cannot assure you that new product and platform offerings will be accepted by consumers or other industry participants
or that we will be able to successfully integrate new products into our greater insurance service platform. Any failure to effectively
and efficiently manage our expansion could materially and adversely affect our ability to capitalize on new business opportunities,
which in turn could have a material adverse effect on our results of operations.
We may be unsuccessful in
identifying and acquiring suitable acquisition candidates, which could adversely affect our growth.
Since our initial public offering in October
2007, we have significantly expanded our operations through a number of acquisitions. We expect some portion of our future growth
to come from acquisitions of high-quality independent insurance intermediary companies or companies that can complement our existing
business and help improve our customers’ experience. There is no assurance that we can successfully identify suitable acquisition
candidates. Even if we identify suitable candidates, we may not be able to complete an acquisition on terms that are commercially
acceptable to us. In addition, we compete with other entities to acquire high-quality independent insurance agencies, brokerages
and claims adjusting firms. Our competitors may be able to outbid us for these acquisition targets. If we are unable to complete
acquisitions, our growth strategy may be impeded and our earnings or revenue growth may be negatively affected.
If we fail to integrate acquired
companies efficiently, or if the acquired companies do not perform to our expectations, our business and results of operations
may be adversely affected.
Even if we succeed in acquiring other insurance
agencies, brokerages and claims adjusting firms, our ability to integrate an acquired entity and its operations is subject to a
number of factors. These factors include difficulties in the integration of acquired operations and retention of personnel, especially
the sales agents who are not employees of the acquired company, entry into unfamiliar markets, unanticipated problems or legal
liabilities, tax and accounting issues. The need to address these factors may divert management’s attention from other aspects
of our business and materially and adversely affect our business prospects. In addition, costs associated with integrating newly
acquired companies could negatively affect our operating margins.
Furthermore, the acquired companies may not perform
to our expectations for various reasons, including legislative or regulatory changes that affect the insurance products in which
a company specializes, the loss of key clients after the acquisition closes, general economic factors that impact a company in
a direct way and the cultural incompatibility of an acquired company’s management team with us. If an acquired company cannot
be operated at the same profitability level as our existing operations, the acquisition would have a negative impact on our operating
margin. Our inability to successfully integrate an acquired entity or its failure to perform to our expectations may materially
and adversely affect our business, prospects, results of operations and financial condition.
Competition in our industry
is intense and, if we are unable to compete effectively, we may lose customers and our financial results may be negatively affected.
The insurance intermediary industry in China
is highly competitive, and we expect competition to persist and intensify. In insurance product distribution, we face competition
from insurance companies that use their in-house sales force, exclusive sales agents, telemarketing and internet channels to distribute
their products, and from business entities that distribute insurance products on an ancillary basis, such as commercial banks,
postal offices and automobile dealerships, as well as from other professional insurance intermediaries. In our claims adjusting
business, we primarily compete with other independent claims adjusting firms. We compete for customers on the basis of product
offerings, customer services and reputation. Many of our competitors have greater financial and marketing resources than we do
and may be able to offer products and services that we do not currently offer and may not offer in the future. If we are unable
to compete effectively against those competitors, we may lose customers and our financial results may be negatively affected.
Our proposed listing of the
shares of CISLA on a stock exchange in China may not be successfully, and the listing may not provide its anticipated benefits
and could negatively impact holders of our ADSs.
In November 2015, CISLA filed an application
with the NEEQ to list on the New Third Board in China. In January 2016, the NEEQ reportedly informed brokerage firms that the listings
of all non-mainstream financial services companies will be temporarily suspended. It is unclear whether or not CISLA will be treated
as a non-mainstream financial services company and how the decision may affect the listing of CISLA. But it may prolong the review
process by the NEEQ and increase uncertainty as to when and whether the listing application will be approved. The proposed listing
may not be successful and we may incur substantial costs in connection with the proposed listing.
We conduct our claims adjustment operations in
China through CISLA, which in 2015 accounted for 10.7% of our total net revenues. We are currently the largest shareholder of CISLA
and own 44.7% of the equity interests in CISLA. We expect to continue to exercise substantial control over CISLA and to consolidate
CISLA's results into our financial statements, even after the proposed listing. However, we cannot assure you that we will be able
to continue to consolidate the financial statements of CISLA in the future. Accounting standards relating to consolidation, and
their interpretation, have changed and may continue to change. If we are not able to continue to consolidate CISLA according to
applicable accounting standards in the future, we may not be able to receive the benefits from the listing.
Even if CISLA remains our consolidated subsidiary,
the ownership interest of our ADS holders in the earnings of CISLA’s operations could be diluted, depending on the amount
of capital raised and the manner in which that cash is raised, being debt or equity. Volatility in the trading price of our ADSs
may increase due to volatility in CISLA’s trading price on the NEEQ. Further, capital raised by issuing shares of CISLA may
not be sufficient to fund CISLA’s capital needs. CISLA’s operations as a company traded on NEEQ may require other resources.
Because the commission and
fee revenue we earn on the sale of insurance products is based on premiums, commission and fee rates set by insurance companies,
any decrease in these premiums, commission or fee rates may have an adverse effect on our results of operations.
We are engaged in the insurance agency, insurance
brokerage and claims adjusting businesses and derive revenues primarily from commissions and fees paid by the insurance companies
whose policies our customers purchase and to whom we provide claims adjusting services. The commission and fee rates are set by
insurance companies and are based on the premiums that the insurance companies charge or the amount recovered from insurance companies.
Commission and fee rates and premiums can change based on the prevailing economic, regulatory, taxation-related and competitive
factors that affect insurance companies. These factors, which are not within our control, include the ability of insurance companies
to place new business, underwriting and non-underwriting profits of insurance companies, consumer demand for insurance products,
the availability of comparable products from other insurance companies at a lower cost, the availability of alternative insurance
products such as government benefits and self-insurance plans, as well as the tax deductibility of commissions and fees and the
consumers themselves. In addition, premium rates for certain insurance products, such as the mandatory automobile liability insurance
that each automobile owner in the PRC is legally required to purchase, are tightly regulated by CIRC.
Because we do not determine, and cannot predict,
the timing or extent of premium or commission and fee rate changes, we cannot predict the effect any of these changes may have
on our operations. Any decrease in premiums or commission and fee rates may significantly affect our profitability. In addition,
our budget for future acquisitions, capital expenditures and other expenditures may be disrupted by unexpected decreases in revenues
caused by decreases in premiums or commission and fee rates, thereby adversely affecting our operations.
Quarterly and annual variations
in our commission and fee revenue may have unexpected impacts on our results of operations.
Our commission and fee revenue is subject to
both quarterly and annual fluctuations as a result of the seasonality of our business, the timing of policy renewals and the net
effect of new and lost business. Historically, our commission and fee revenue, particularly revenue derived from distribution of
property and casualty insurance products, for the fourth quarter of any given year has been the highest among all four quarters,
while our commission and fee revenue for the first quarter of any given year has been the lowest among all four quarters. The factors
that cause the quarterly and annual variations are not within our control. Specifically, consumer demand for insurance products
can influence the timing of renewals, new business and lost business, which generally includes policies that are not renewed, and
cancellations. As a result, you may not be able to rely on quarterly or annual comparisons of our operating results as an indication
of our future performance.
If our contracts with insurance
companies are terminated or changed, our business and operating results could be adversely affected.
We primarily act as agents for insurance companies
in distributing their products to retail customers. We also provide claims adjusting services principally to insurance companies.
Our relationships with the insurance companies are governed by agreements between us and the insurance companies. We have entered
into strategic partnership agreements with most of our major insurance company partners for the distribution of life, property
and casualty insurance products and the provision of claims adjusting services at the corporate headquarters level. While this
approach allows us to obtain more favorable terms from insurance companies by combining the sales volumes and service fees of our
affiliated insurance agencies, brokerages and claims adjusting firms, it also means that the termination of a major contract could
have a material adverse effect on our business. Under the framework of the headquarter-to-headquarter agreements, our affiliated
insurance agencies, brokerages and claims adjusting firms generally also enter into contracts at a local level with the respective
provincial, city and district branches of the insurance companies. Generally, each branch of these insurance companies has independent
authority to enter into contracts with our affiliated insurance agencies, brokerages and claims adjusting firms, and the termination
of a contract with one branch has no significant effect on our contracts with the other branches. See “Item 4. Information
on the Company — B. Business Overview — Insurance Company Partners.” These contracts establish, among other things,
the scope of our authority, the pricing of the insurance products we distribute and our fee rates. These contracts typically have
a term of one year and some of them can be terminated by the insurance companies with little advance notice. Moreover, before or
upon expiration of a contract, the insurance company that is a party to that contract may agree to renew it only with changes in
its material terms, including the amount of commissions and fees we receive, which could reduce our revenues from that contract.
For the year ended December 31, 2015, our top
five insurance company partners were PICC Property and Casualty Company Limited, or PICC P&C, China Pacific Property Insurance
Co., Ltd., or CPIC, Ping An Property & Casualty Insurance Company of China, Ltd., or Ping An, Taiping General Insurance Co.,
Ltd., or Taiping and China Life Property & Casualty Insurance Company Limited, or China Life P&C. Among these top five
partners, each of PICC P&C, CPIC and Ping An accounted for more than 10% of our total net revenues in 2015, with PICC P&C
accounting for 23.9%, CPIC for 11.2% and Ping An for 10.0%. The termination of our contracts with insurance companies that in aggregate
account for a significant portion of our business, or changes to material terms of these contracts, could adversely affect our
business and operating results.
Our operating structure may
make it difficult to respond quickly to operational or financial problems, which could negatively affect our financial results.
We currently operate through our majority-owned
and affiliated insurance agencies, brokerages and claims adjusting firms located in 29 provinces in China. These companies report
their results to our corporate headquarters monthly. If these companies delay either reporting results or informing corporate headquarters
of negative business developments such as losses of relationships with insurance companies, regulatory inquiries or any other negative
events, we may not be able to take action to remedy the situation in a timely fashion. This in turn could have a negative effect
on our financial results. In addition, if one of these companies were to report inaccurate financial information, we might not
learn of the inaccuracies on a timely basis and be able to take corrective measures promptly, which could negatively affect our
ability to report our financial results.
Our dependence on the founders
and key managers of firms that we acquire may limit our ability to effectively manage our business.
In the acquisitions we have completed to date,
some of the founders and key managers of the acquired firms continue to manage the acquired businesses. They are responsible for
ordinary course operational decisions, including personnel and office location, subject to our oversight. They also maintain the
primary relationship with customers and the local branches of insurance companies. Although we maintain internal controls to oversee
our nationwide operations, this operating structure exposes us to the risk of losses resulting from day-to-day decisions of the
managers of the acquired firms or from their departure. Unsatisfactory performance by or loss of services of these founders and
managers could hinder our ability to grow and could have a material adverse effect on our business.
Our future success depends
on the continuing efforts of our senior management team and other key personnel, and our business may be harmed if we lose their
services.
Our future success depends heavily upon the continuing
services of the members of our senior management team and other key personnel, in particular, Mr. Chunlin Wang, or Mr. Wang, our
chief executive officer, and Mr. Peng Ge, or, Mr. Ge, our chief financial officer. If one or more of our senior executives or other
key personnel, are unable or unwilling to continue in their present positions, we may not be able to replace them easily, or at
all. As such, our business may be disrupted and our financial condition and results of operations may be materially and adversely
affected. Competition for senior management and key personnel in our industry is intense because of a number of factors including
the limited pool of qualified candidates. We may not be able to retain the services of our senior executives or key personnel,
or attract and retain high-quality senior executives or key personnel in the future. As is customary in the PRC, we do not have
insurance coverage for the loss of our senior management team or other key personnel.
In addition, if any member of our senior management
team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, sensitive trade
information, key professionals and staff members. Each of our executive officers and key employees has entered into an employment
agreement with us which contains confidentiality and non-competition provisions. These agreements generally have an initial term
of three years, and are automatically extended for successive one-year terms unless terminated earlier pursuant to the terms of
the agreement. See “Item 6. Directors, Senior Management and Employees — A. Directors and Senior Management —
Employment Agreements” for a more detailed description of the key terms of these employment agreements. If any disputes arise
between any of our senior executives or key personnel and us, we cannot assure you of the extent to which any of these agreements
may be enforced.
Salesperson and employee
misconduct is difficult to detect and deter and could harm our reputation or lead to regulatory sanctions or litigation costs.
Salesperson and employee misconduct could result
in violations of law by us, regulatory sanctions, litigation or serious reputational or financial harm. Misconduct could include:
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making misrepresentations when marketing or selling insurance to customers;
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hindering insurance applicants from making full and accurate mandatory disclosures or inducing
applicants to make misrepresentations;
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hiding or falsifying material information in relation to insurance contracts;
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fabricating or altering insurance contracts without authorization from relevant parties, selling
false policies, or providing false documents on behalf of the applicants;
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falsifying insurance agency business or fraudulently returning insurance policies to obtain commissions;
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colluding with applicants, insureds, or beneficiaries to obtain insurance benefits;
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engaging in false claims; or
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otherwise not complying with laws and regulations or our control policies or procedures.
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On April 24, 2015, the PRC Insurance Law was
amended and consequently on December 3, 2015, the CIRC amended the Provisions on the Supervision of Professional Insurance Agencies,
the Provisions on the Supervision of Insurance Brokerages and the Provisions on the Supervision of Insurance Claims Adjusting Firms.
These amendments have made a number of significant changes to the regulatory regime, including eliminating the requirement for
an insurance agent, broker or claims adjusting practitioner to obtain a qualification certificate issued by the CIRC. The elimination
of the certificate requirement may result in an increase in misconduct by sales or service persons, in particularly sales misrepresentation.
We have internal policies and procedures to deter salesperson or employee misconduct. However, the measures and precautions we
take to prevent and detect these activities may not be effective in all cases. We cannot assure you, therefore, that salesperson
or employee misconduct will not lead to a material adverse effect on our business, results of operations or financial condition.
In addition, the general increase in misconduct in the industry could potentially harm the reputation of the industry and have
an adverse impact on our business.
Our investments in certain
financial products may not yield the benefits we anticipate or incur financial loss, which could adversely affect our cash position.
In order to improve our return on capital, we
may from time to time, upon board approval, invest certain portion of our cash in financial products, such as trust products, with
terms of one to two years. These products may involve various risks, including default risks, interest risks, and other risks.
We cannot guarantee these investments will yield the returns we anticipate and we could suffer financial loss resulting from the
purchase of these financial products.
If we fail to maintain an
effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or
prevent fraud.
We are subject to reporting obligations under
U.S. securities laws. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the Securities
and Exchange Commission, or the SEC, every public company is required to include a management report on the company’s internal
controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the
company’s internal controls over financial reporting. In addition, an independent registered public accounting firm must
attest to and report on the effectiveness of the company’s internal controls over financial reporting. These requirements
first applied to our annual report on Form 20-F for the fiscal year ended December 31, 2008.
Our management has concluded that our internal
control over financial reporting was effective as of December 31, 2015. See “Item 15. Controls and Procedures.” However,
there is no assurance that we will be able to maintain effective internal controls over financial reporting in the future. If we
fail to do so, we may not be able to produce reliable financial reports and prevent fraud. Moreover, if we are not able to conclude
that we have effective internal controls over financial reporting, investors may lose confidence in the reliability of our financial
statements, which would negatively impact the trading price of our ADSs. Our reporting obligations as a public company, including
our efforts to comply with Section 404 of the Sarbanes-Oxley Act, will continue to place a significant strain on our management,
operational and financial resources and systems for the foreseeable future.
We may face legal action
by former employers or principals of entrepreneurial agents who join our distribution and service network.
Competition for productive sales agents is
intense within the Chinese insurance industry. When an entrepreneurial agent leaves his or her employer or principal to join our
distribution and service network as our sales agent, we may face legal action by his or her former employer or principal of the
entrepreneurial agent on the ground of unfair competition or breach of contract. As of the date of this annual report, there has
been no such action filed or threatened against us. We cannot assure you that this will not happen in the future. Any such legal
actions, regardless of merit, could be expensive and time-consuming and could divert resources and management’s attention
from the operation of our business. If we were found liable in such a legal action, we might be required to pay substantial damages
to the former employer or principal of the entrepreneurial agent, and our business reputation might be harmed. Moreover, the filing
of such a legal action may discourage potential entrepreneurial agents from leaving their employers or principals, thus reducing
the number of entrepreneurial agents we can recruit and potentially harming our growth prospects.
If we are unable to successfully
expand into the consumer financial services and wealth management sectors, our business and results of operations may be adversely
affected.
In order to better serve our customers’
needs for diversified and comprehensive financial services, we have expanded into complementary business areas, such as consumer
finance and wealth management, to leverage our existing sales network, customer resources and operating platform. For example,
in October 2009, we acquired 20.6% equity interest in Sincere Fame International Limited, or Sincere Fame, which owns 100% of the
equity interests in China Financial Services Group Limited, or CFSG, a consumer financial services provider. In November 2010,
we formed a joint venture, named CNinsure Puyi Investment Management Co., Ltd., or Puyi Investment, (which we later renamed as
CNinsure Puyi Fund Sales Co. Ltd., or Puyi Fund Sales, after obtaining the license to distribute mutual funds in March 2013) in
which we beneficially own 19.5% of the equity interests. See “Item 4. Information on the Company — C.Organizational
Structure — Principle Changes in Corporate Structure” for information on the restructuring of Puyi Fund Sales. Puyi
Fund Sales is a financing platform for mutual funds and trust companies. However, in 2014 we discontinued offering wealth management
products to our customers on a referral basis because of tightened regulation on the distribution of wealth management products
by insurance intermediaries. If we decide to again attempt offering wealth management products, our efforts to do so may not be
successful and may subject us to risks associated with operating in the consumer financial services sectors in China, including
but not limited to, changes in monetary or industry policies and other economic measures that may affect our cooperation with financial
institutions and their product supply, as well as competition from other consumer credit brokerage companies and other financial
services companies that offer wealth management products. Any failure to successfully identify, execute and integrate acquisitions,
investments, joint ventures and alliances as part of any attempted expansion into the consumer financial services sector may have
a material adverse impact on our growth, business prospects and results of operations, which could lead to a decline in the price
of our ADSs.
If we are required to write
down goodwill and other intangible assets, our financial condition and results may be materially and adversely affected.
When we acquire a business, a substantial portion
of the purchase price of the acquisition is generally allocated to goodwill and other identifiable intangible assets. The amount
of the purchase price that is allocated to goodwill and other intangible assets is determined by the excess of the fair value of
purchase price and any controlling interest over the net identifiable tangible assets acquired. As of December 31, 2015, goodwill
represented RMB133.5 million (US$20.6 million), or 3.9% of our total shareholders’ equity, and other net intangible assets
represented RMB19.7
million (US$3.0 million), or 0.6% of our total shareholders’ equity. Our management performs impairment
assessment annually, and in 2011 we recognized an impairment loss of RMB1.1 billion, though we did not recognize any impairment
loss in 2012, 2013, 2014 or 2015. Under current accounting standards, if we determine that goodwill or intangible assets are impaired,
we will be required to write down the value of such assets and recognize corresponding impairment charges. As we implement our
growth strategy through acquisitions, goodwill and intangible assets may comprise an increasingly larger percentage of our shareholders’
equity. As such, any write-down related to such goodwill and intangible assets may adversely and materially affect our shareholders’
equity and financial results.
Any significant failure in
our information technology systems could have a material adverse effect on our business and profitability.
Our business is highly dependent on the ability
of our information technology systems to timely process a large number of transactions across different markets and products at
a time when transaction processes have become increasingly complex and the volume of such transactions is growing rapidly. The
proper functioning of our financial control, accounting, customer database, customer service and other data processing systems,
together with the communication systems of our various subsidiaries and consolidated affiliated entities and our main offices in
Guangzhou, is critical to our business and our ability to compete effectively. We cannot assure you that our business activities
would not be materially disrupted in the event of a partial or complete failure of any of these primary information technology
or communication systems, which could be caused by, among other things, software malfunction, computer virus attacks or conversion
errors due to system upgrading. In addition, a prolonged failure of our information technology system could damage our reputation
and materially and adversely affect our future prospects and profitability.
We may face potential liability,
loss of customers and damage to our reputation for any failure to protect the confidential information of our customers.
Our customer database
holds confidential information concerning our customers. We may be unable to prevent third parties, such as hackers or criminal
organizations, from stealing information provided by our customers to us. Confidential information of our customers may also be
misappropriated or inadvertently disclosed through employee misconduct or mistake. We may also in the future be required to disclose
to government authorities certain confidential information concerning our customers.
In addition, many
of our customers pay for our insurance services through third-party online payment services. In such transactions, maintaining
complete security during the transmission of confidential information, such as personal information, is essential to maintaining
consumer confidence. We have limited influence over the security measures of third-party online payment service providers. In addition,
our third-party merchants may violate their confidentiality obligations and disclose information about our customers. Any compromise
of our security or third-party service providers' security could have a material adverse effect on our reputation, business, prospects,
financial condition and results of operations.
If we are accused
of failing to protect the confidential information of our customers, we may be forced to expend significant financial and managerial
resources in defending against these accusations and we may face potential liability. Any negative publicity may adversely affect
our public image and reputation. In addition, any perception by the public that online commerce is becoming increasingly unsafe
or that the privacy of customer information is vulnerable to attack could inhibit the growth of online services generally, which
in turn may reduce the number of our customers.
If we are unable to respond
in a timely and cost-effective manner to rapid technological change in the insurance intermediary industry, it may result in an
adverse effect.
The insurance industry is increasingly influenced
by rapid technological change, frequent new product and service introductions and evolving industry standards. For example, the
insurance intermediary industry has increased use of the internet to communicate benefits and related information to consumers
and to facilitate information exchange and transactions. We believe that our future success will depend on our ability to continue
to anticipate technological changes and to offer additional product and service opportunities that meet evolving standards on a
timely and cost-effective basis. There is a risk that we may not successfully identify new product and service opportunities or
develop and introduce these opportunities in a timely and cost-effective manner. In addition, product and service opportunities
that our competitors develop or introduce may render our products and services uncompetitive. As a result, we can give no assurances
that technological changes that may affect our industry in the future will not have a material adverse effect on our business and
results of operations.
We face risks related to
health epidemics, severe weather conditions and other catastrophes, which could materially and adversely affect our business.
Our business could be materially and adversely affected by the outbreak of avian flu, severe acute respiratory
syndrome, or SARS, another health epidemic, severe weather conditions or other catastrophes. In April 2009, influenza A (H1N1),
a new strain of flu virus commonly referred to as “swine flu,” was first discovered in North America and quickly spread
to other parts of the world, including China. In January and February 2008, a series of severe winter storms afflicted extensive
damages and significantly disrupted people’s lives in large portions of southern and central China. In May 2008, an earthquake
measuring 8.0 on the Richter scale hit Sichuan Province in southwestern China, causing huge casualties and property damages. In
February 2
013, H7N9 Avian influenza was first discovered in Shanghai, China and quickly widened its
geographical spread in China. Because our business operations rely heavily on the efforts of individual sales agents, in-house
sales representatives and claims adjustors, any prolonged recurrence of avian flu or SARS, or the occurrence of other adverse public
health developments such as influenza A (H1N1) and Zika Virus, severe weather conditions such as the massive snow storms in January
and February 2008 and other catastrophes such as the Sichuan earthquake may significantly disrupt our staffing and otherwise reduce
the activity level of our work force, thus causing a material and adverse effect on our business operations.
Risks Related to Our Corporate Structure
If the PRC government finds that the agreements that establish
the structure for operating part of our China business do not comply with applicable PRC laws and regulations, we could be subject
to severe penalties.
Historically, PRC laws and regulations have restricted
foreign investment in and ownership of insurance intermediary companies. In recent years, some rules and regulations governing
the insurance intermediary sector in China have begun to encourage foreign investment. For instance, under the Closer Economic
Partnership Arrangement, or CEPA, Supplement IV signed in July 2007 and CEPA Supplement VIII signed on December 13, 2011, between
the PRC Ministry of Commerce and the governments of Hong Kong and Macao Special Administrative Region, local insurance agencies
in Hong Kong and Macao are allowed to set up wholly-owned insurance agency companies in Guangdong Province if they meet certain
threshold requirements. On December 26, 2007, the CIRC issued an Announcement on the Establishment of Wholly-owned Insurance Agencies
in Mainland China by Hong Kong and Macao Insurance Agencies, which sets forth specific qualification criteria for implementation
purposes. On August 26, 2010, the CIRC released a Circular on the Cancellation of the Fifth Batch of Administrative Approval Items,
pursuant to which foreign ownership in a professional insurance intermediary in excess of 25% only requires a filing to be made
with the relevant authorities and no longer requires prior approval. Accordingly, in October 2011 we commenced a restructuring
of our company which resulted in us obtaining direct controlling equity ownership in all of our insurance intermediary companies.
See “Item 4. Information on the Company — C. Organizational Structure.”
However, there remains uncertainty regarding
the interpretation and implementation of the relevant regulations and the timing of the restructuring process. In addition, restrictions
by PRC laws and regulations on foreign investments in and ownership of internet businesses still exists. Therefore, we conduct
a small part of our operations in China through contractual arrangements among our PRC subsidiaries and consolidated affiliated
entities (namely Xinbao Investment and its subsidiaries). The subsidiaries of our consolidated affiliated entities hold the licenses
and permits necessary to conduct our online operations in China. Our contractual arrangements with our consolidated affiliated
entities and their shareholders enable us to:
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exercise effective control over our consolidated affiliated entities;
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have an exclusive option to purchase part of the equity interests in Xinbao Investment when and
to the extent permitted by PRC law; and/or
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receive a substantial portion of the economic benefits from our consolidated affiliated entities
in consideration for the services provided by our subsidiaries in China.
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Because of these contractual arrangements, we
are the primary beneficiary of our consolidated affiliated entities and have consolidated them into our consolidated financial
statements. If we, our PRC subsidiaries and consolidated affiliated entities are found to be in violation of any existing or future
PRC laws or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities,
including the CIRC, will have broad discretion in dealing with such violations, including:
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revoking the business and operating licenses of our PRC subsidiaries and consolidated affiliated
entities;
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restricting or prohibiting any related-party transactions among our PRC subsidiaries and consolidated
affiliated entities;
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imposing fines or other requirements with which we, our PRC subsidiaries or our consolidated affiliated
entities may not be able to comply;
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requiring us, our PRC subsidiaries or our consolidated affiliated entities to restructure the relevant
ownership structure or operations; or
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restricting or prohibiting us from providing additional funding for our business and operations
in China.
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Any of these or similar actions could cause disruptions
to our business, as well as reduce our revenues, profitability and cash flows. In addition, if any of these actions results in
our inability to direct the activities of our consolidated affiliated entities and their subsidiaries that most significantly impact
their economic performance, and/or such actions prevent us from receiving the economic benefits from our consolidated variable
interest entities, we may not be able to consolidate the financial results of these variable interest entities into our consolidated
financial statements in accordance with U.S. GAAP.
In January 2015, the Ministry of Commerce, or
the MOC, published a draft of the proposed Foreign Investment Law, which expands the definition of foreign investment and introduces
the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise, or
an FIE. The draft Foreign Investment Law specifically provides that entities established in China but “controlled”
by foreign investors will be treated as FIEs, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market
entry clearance by the MOC, treated as a PRC domestic investor provided that the entity is “controlled” by PRC entities
and/or citizens. In this connection, “control” is broadly defined in the draft law to cover the following summarized
categories: (i) holding 50% of more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights
of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making
bodies, or having the voting power to exert material influence on the board, the shareholders’ meeting or other equivalent
decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the
subject entity’s operations, financial matters or other key aspects of business operations. Once an entity is determined
to be an FIE, it will be subject to the foreign investment restrictions or prohibitions set forth in a “negative list,”
to be separately issued by the State Council later, if the FIE is engaged in the industry listed in the negative list. Unless the
underlying business of the FIE falls within the negative list, which calls for market entry clearance by the MOC, prior approval
from the government authorities as mandated by the existing foreign investment legal regime would no longer be required for establishment
of the FIE.
There is substantial uncertainty regarding
the draft Foreign Investment Law, including, the content of its final form and the timing of its adoption and implementation. It
is uncertain whether the internet industry or online operation, in which our variable interest entities operate, will be subject
to the foreign investment restrictions or prohibitions set forth in the “negative list” to be issued. If the enacted
version of the Foreign Investment Law and the final “negative list” mandate further actions, such as MOC market entry
clearance, to be completed by companies with existing VIE structure like us, we face uncertainties as to whether such clearance
can be timely obtained, or at all.
We rely on contractual arrangements with our consolidated
affiliated entities and their shareholders to conduct a small part of our China operations, which may not be as effective in providing
operational control as direct ownership.
Although we have obtained direct equity ownership
in our insurance intermediary operating companies, we have relied and expect to continue to rely on contractual arrangements with
our PRC consolidated affiliated entities and individual shareholders to operate a small part of our business in China. For a description
of these contractual arrangements, see “Item 4. Information on the Company — C.Organizational Structure.” These
contractual arrangements may not be as effective in providing us with control over our consolidated affiliated entities as direct
ownership.
If we had direct controlling ownership of our
consolidated affiliated entities, we would be able to exercise our rights as a controlling shareholder to effect changes in the
board of directors of these entities, which in turn could effect changes, subject to any applicable fiduciary obligations, at the
management level. But under the current contractual arrangements, as a legal matter, if our consolidated affiliated entities and
their shareholders fail to perform their obligations under these contractual arrangements, we may have to incur substantial costs
and expend significant resources to enforce such arrangements and rely on legal remedies under PRC law, including seeking specific
performance or injunctive relief and claiming damages, which may not be effective. For example, if the shareholders of our consolidated
affiliated entities were to refuse to transfer their equity interest in such entities to us or our designee when we exercise the
call option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have
to take legal action to compel them to fulfill their contractual obligations.
All of our contractual arrangements with our
consolidated affiliated entities and their individual shareholders are governed by PRC law and provide for the resolution of disputes
through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would
be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in some other jurisdictions,
such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual
arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control
over our consolidated affiliated entities, and our ability to conduct our business may be negatively affected.
The individual shareholders
of Xinbao Investment, our consolidated affiliated entity, may have potential conflicts of interest with us, which may materially
and adversely affect our business and financial condition.
As of March 31, 2016, Mr. Wang and Mr. Yuan Tian,
or Mr. Tian, together held 100% of the equity interests in Xinbao Investment. Conflicts of interest may arise between the dual
roles of Mr. Wang and Mr. Tian as a shareholder of our consolidated affiliated entities and as an executive officer or employee
of our company. We do not have existing arrangements to address these potential conflicts of interest and cannot assure you that
when conflicts arise, those individuals will act in the best interest of our company or that conflicts will be resolved in our
favor.
Contractual arrangements
we have entered into with our consolidated affiliated entities may be subject to scrutiny by the PRC tax authorities. A finding
that we owe additional taxes could substantially reduce our consolidated net income and the value of your investment.
Under PRC laws and regulations, arrangements
and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face material
and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between us and our consolidated
affiliated entities are not on an arm’s-length basis and adjust the income of our consolidated affiliated entities in the
form of a transfer pricing adjustment. Particularly, the State Administration of Taxation issued a Public Notice, or Public Notice
16, on March 18, 2015, to further regulate and strengthen the transfer pricing administration on outbound payments by a PRC enterprise
to its overseas related parties. In addition to emphasizing that outbound payments by a PRC enterprise to its overseas related
parties must comply with arm’s-length principles, Public Notice 16 specifies certain circumstances whereby such payments
are not deductible for the purpose of the enterprise income tax of the PRC enterprise, including payments to an overseas related
party which does not undertake any function, bear any risk or has no substantial operation or activities, payments for services
which do not enable the PRC enterprise to obtain direct or indirect economic benefits, or for services that are unrelated to the
functions and risks borne by the PRC enterprise, or relate to the protection of the investment interests of the direct or indirect
investor of the PRC enterprise, or for services that have already been purchased from a third party or undertaken by the PRC enterprise
itself, and royalties paid to an overseas related party which only owns the legal rights of the intangible assets but has no contribution
to the creation of such intangible assets. Although we believe all our related party transactions, including all payments by our
PRC subsidiaries and consolidated affiliated entities to our non-PRC entities, are made on an arm’s-length basis and our
estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in our financial
statements and may materially affect our financial results in the period or periods for which such determination is made. A transfer
pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by our
consolidated affiliated entities, which could in turn increase their respective tax liabilities. Moreover, the PRC tax authorities
may impose penalties on our consolidated affiliated entities for underpayment of taxes. Our consolidated net income may be materially
and adversely affected by the occurrence of any of the foregoing.
PRC regulation of loans and
direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans to our PRC subsidiaries
and consolidated affiliated entities or making additional capital contributions to our PRC subsidiaries, which could materially
and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting
our operations in China through PRC subsidiaries and consolidated affiliated entities. In order to provide additional funding to
our PRC subsidiaries and consolidated affiliated entities, we may make loans to our PRC subsidiaries and consolidated affiliated
entities, or we may make additional capital contributions to our PRC subsidiaries.
Any loans we make to any of our directly-held
PRC subsidiaries (which are treated as foreign-invested enterprises under PRC law), namely, CNinsure Zhonglian Enterprise Image
Planning (Shenzhen) Co., Ltd. (also known as Fanhua Zhonglian Enterprise Image Planning (Shenzhen) Co., Ltd.), or Zhonglian Enterprise,
CNinsure Xinlian Information Technology Consulting (Shenzhen) Co., Ltd. (also known as Fanhua Xinlian Information Technology Consulting
(Shenzhen) Co., Ltd.), or Xinlian Information, and Bao Si Kang Information Technology (Shenzhen) Co., Ltd., or Bao Si Kang Information,
cannot exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or the SAFE, or its local
counterparts. Under applicable PRC law, the Chinese regulators must approve the amount of a foreign-invested enterprise’s
registered capital, which represents shareholders’ equity investments over a defined period of time, and the foreign-invested
enterprise’s total investment, which represents the total of the company’s registered capital plus permitted loans.
The registered capital/total investment ratio cannot be lower than the minimum statutory requirement and the excess of the total
investment over the registered capital represents the maximum amount of borrowings that a foreign-invested enterprise is permitted
to have under PRC law. Our directly-held PRC subsidiaries were allowed to incur a total of HK$300 million (US$38.7 million) in
foreign debts as of March 31, 2016. If we were to provide loans to our directly-held PRC subsidiaries in excess of the above amount,
we would have to apply to the relevant government authorities for an increase in their permitted total investment amounts. The
various applications could be time-consuming and their outcomes would be uncertain. Concurrently with the loans, we might have
to make capital contributions to these subsidiaries in order to maintain the statutory minimum registered capital/total investment
ratio, and such capital contributions involve uncertainties of their own, as discussed below. Furthermore, even if we make loans
to our directly-held PRC subsidiaries that do not exceed their current maximum amount of borrowings, we will have to register each
loan with the SAFE or its local counterpart within 15 days after the signing of the relevant loan agreement. Subject to the conditions
stipulated by the SAFE, the SAFE or its local counterpart will issue a registration certificate of foreign debts to us within 20
days after reviewing and accepting our application. In practice, it may take longer to complete such SAFE registration process.
Any loans we make to any of our indirectly-held
PRC subsidiaries (those PRC subsidiaries which we hold indirectly through Zhonglian Enterprise, Xinlian Information and Bao Si
Kang Information) or to any of our PRC consolidated affiliated entities, all of which are treated as PRC domestic companies rather
than foreign-invested enterprises under PRC law, are also subject to various PRC regulations and approvals. Under applicable PRC
regulations, medium- and long-term international commercial loans to PRC domestic companies are subject to approval by the National
Development and Reform Commission. Short-term international commercial loans to PRC domestic companies are subject to the balance
control system effected by the SAFE. Due to the above restrictions, we are not likely to make loans to any of our indirectly-held
PRC subsidiaries or to any of our consolidated affiliated entities.
Any capital contributions we make to our PRC
subsidiaries, including directly-held and indirectly-held PRC subsidiaries, must be approved by the PRC Ministry of Commerce or
its local counterparts, and registered with the SAFE or its local counterparts. Such applications and registrations could be time
consuming and their outcomes would be uncertain.
We cannot assure you that we will be able to
complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with
respect to future loans by us to our PRC subsidiaries or PRC consolidated affiliated entities, or with respect to future capital
contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to
capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely and materially affect our liquidity
and our ability to fund and expand our business.
On August 29, 2008, SAFE promulgated Circular
142, a notice regulating the conversion by a foreign-invested company of its capital contribution in foreign currency into RMB.
The notice requires that the capital of a foreign-invested company settled in RMB converted from foreign currencies shall be used
only for purposes within the business scope as approved by the authorities in charge of foreign investment or by other government
authorities and as registered with the State Administration for Industry and Commerce and, unless set forth in the business scope
or in other regulations, may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of
the flow and use of the capital of a foreign-invested company settled in RMB converted from foreign currencies. The use of such
RMB capital may not be changed without SAFE’s approval, and may not in any case be used to repay RMB loans if the proceeds
of such loans have not been used. Violations of Circular 142 will result in severe penalties, including heavy fines. As a result,
Circular 142 may significantly limit our ability to provide additional funding to our PRC subsidiaries and consolidated affiliated
entities through our directly-held PRC subsidiaries in the PRC, which may adversely affect our ability to expand our business.
However, on March 30, 2015, SAFE promulgated
Circular 19, a notice on reforming the administrative approach regarding the settlement of the foreign exchange capitals of foreign-invested
enterprises, which became effective on June 1, 2015. The new notice states that
foreign-invested
enterprises shall be allowed to settle their foreign exchange capitals on a discretionary basis. The discretionary settlement by
a foreign-invested enterprise of its foreign exchange capital shall mean that the foreign-invested enterprise may, according to
its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the
relevant foreign exchange bureau has confirmed monetary contribution rights and interests (or for which the bank has registered
the account-crediting of monetary contribution). For the time being, foreign-invested enterprises are allowed to settle 100% of
their foreign exchange capitals on a discretionary basis. The SAFE may adjust the foregoing percentage as appropriate according
to balance of payments situations. As a result, Circular 19 will relax the limitation of our ability to provide additional funding
to our PRC subsidiaries and consolidated affiliated entities through our directly-held PRC subsidiaries in the PRC.
Risks Related to Doing Business in China
Adverse economic, political
and legal developments in China could have a material adverse effect on our business.
Substantially all of our business operations
are conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to a significant
degree to economic, political and legal developments in China. China’s economy differs from the economies of most developed
countries in many respects, including with respect to the amount of government involvement, level of development, growth rate,
control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 30
years or so, growth has been uneven across different regions and among various economic sectors of China. Economic growth in China
has been slowing in the past few years and dropped to 6.9% for 2015, one of the slowest in the past 25 years, according to data
released by the PRC government in January 2016. The PRC government has implemented various measures to encourage economic development
and guide the allocation of resources. However, these measures may not be successful in transforming the Chinese economy or spurring
growth. While some of these measures benefit the overall PRC economy, they may also have a negative effect on us. For example,
our financial condition and results of operations may be adversely affected by government control over capital investments or changes
in tax regulations that are applicable to us.
Although the PRC government has implemented
measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership
of productive assets and the establishment of improved corporate governance in business enterprises, the PRC government still owns
a substantial portion of productive assets in China. In addition, the PRC government continues to play a significant role in regulating
industry development by imposing industrial policies. The PRC government also exercises significant control over China’s
economic growth through the allocation of resources, controlling payment of foreign currency- denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or companies. Actions and policies of the PRC government
could materially affect our ability to operate our business.
Uncertainties with respect
to the PRC legal system could adversely affect us.
We conduct our business primarily through our
subsidiaries and consolidated affiliated entities in China. Our operations in China are governed by PRC laws and regulations. Our
subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws
applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be
cited for reference but have limited precedential value.
Although since 1979, PRC legislation and regulations
have significantly enhanced the protections afforded to various forms of foreign investments in China, China has not developed
a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities
in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published
decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties.
In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on
a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies
and rules until some time after the violation. In addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention.
Governmental control of currency
conversion may affect the value of your investment.
The PRC government imposes controls on the
convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Under existing
PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures
from trade-related transactions, can be made in foreign currencies without prior approval from the SAFE by complying with certain
procedural requirements. But approval from appropriate government authorities is required where RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The
PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions.
Under our current corporate structure, the primary source of our income at the holding company level is dividend payments from
our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our
consolidated affiliated entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy
their foreign currency denominated obligations. If the foreign exchange control system prevents us from obtaining sufficient foreign
currency to satisfy our currency needs, we may not be able to pay dividends in foreign currencies to our shareholders, including
holders of our ADSs.
The PRC Enterprise Income
Tax Law may increase the enterprise income tax rate applicable to some of our PRC subsidiaries and consolidated affiliated entities,
which could have a material adverse effect on our result of operations.
According to the PRC Enterprise Income Tax
Law, or the EIT Law, which became effective on January 1, 2008, as further clarified by subsequent tax regulations implementing
the EIT Law, foreign-invested enterprises and domestic enterprises are subject to enterprise income tax, or EIT, at a uniform rate
of 25%, unless otherwise provided. Enterprises that were established and enjoyed preferential tax treatments before March 16, 2007
will continue to enjoy such preferential tax treatments in the following manners: (1) in the case of preferential tax rates, for
a five-year transition period starting from January 1, 2008, during which the EIT rate of such enterprises will gradually increase
to the uniform 25% EIT rate by January 1, 2012; or (2) in the case of preferential tax exemption or reduction with a specified
term, until the expiration of such term. However, if such an enterprise has not enjoyed the preferential treatments yet because
of its failure to make a profit, its term for preferential treatments will be deemed to start from 2008.
As a result of the implementation of the EIT
Law, certain preferential tax treatments enjoyed by some of our consolidated affiliated entities expired on January 1, 2008. According
to the EIT Law and related regulations, the preferential tax rates enjoyed by some of our PRC subsidiaries and consolidated affiliated
entities incorporated in Shenzhen, a special economic zone, will gradually increase to the uniform 25% EIT rate during the five
year transition period. An increase in the EIT rates for those entities pursuant to the EIT Law could result in an increase in
our effective tax rate, which could materially and adversely affect our results of operations.
Our global income or the
dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse
effect on our results of operations.
Under the EIT Law, an enterprise established
outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and will be
subject to the EIT at the rate of 25% on its worldwide income. The Implementation Rules of the EIT Law, or the Implementation Rules,
define the term “de facto management bodies” as “establishments that carry out substantial and overall management
and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” If
we are deemed a resident enterprise, we may be subject to the EIT at 25% on our global income, except that the dividends we receive
from our PRC subsidiary will be exempt from the EIT. If we are considered a resident enterprise and earn income other than dividends
from our PRC subsidiaries, a 25% EIT on our global income could significantly increase our tax burden and materially and adversely
affect our cash flow and profitability.
We have been advised by our PRC counsel, Global
Law Office, that pursuant to the EIT Law and the Implementation Rules, dividends payable by a foreign-invested enterprise in China
to its foreign investors will be subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation
has a tax treaty with China that provides for a different withholding arrangement. Pursuant to the Arrangement between the PRC
and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion, or the Double
Taxation Arrangement, which became effective on January 1, 2007, dividends from our PRC subsidiaries paid to us through our Hong
Kong subsidiary InsCom HK Limited, in which we indirectly hold a 65.1% equity interest, may be subject to a withholding tax at
a rate of 5%. The British Virgin Islands, where our wholly-owned subsidiary and the 100% shareholder of Zhonglian Enterprise and
Xinlian Information is incorporated, does not have such a tax treaty with China. Under the EIT Law and the Implementation Rules,
if we are regarded as a resident enterprise, the dividends we receive from our PRC subsidiaries will be exempt from the EIT. If,
however, we are not regarded as a resident enterprise, our PRC subsidiaries will be required to pay a 5% or 10% withholding tax,
as the case may be, for any dividends they pay to us. As a result, the amount of fund available to us to meet our cash requirements,
including the payment of dividends to our shareholders and ADS holders, could be materially reduced.
Under the EIT Law, dividends
payable by us and gains on the disposition of our shares or ADSs could be subject to PRC taxation.
We have been advised by our PRC counsel, Global
Law Office, that because there remains uncertainty regarding the interpretation and implementation of the EIT Law and its Implementation
Rules, it is uncertain whether any dividends to be distributed by us, if we are regarded as a PRC resident enterprise, to our non-PRC
shareholders and ADS holders would be subject to any PRC withholding tax. If we are required under the EIT Law to withhold PRC
income tax on our dividends payable to our non-PRC corporate shareholders and ADS holders, or if gains on the disposition of our
shares or ADSs are subject to the PRC EIT, your investment in our ADSs or ordinary shares may be materially and adversely affected.
We rely principally on dividends
and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation
on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
We are a holding company, and we rely principally
on dividends from our subsidiaries in China and service, license and other fees paid to our subsidiaries by our consolidated affiliated
entities for our cash requirements, including any debt we may incur. Current PRC regulations permit our PRC subsidiaries to pay
dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations.
In addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year as reported
in its PRC statutory financial statements, if any, to fund a statutory reserve until such reserve reaches 50% of its registered
capital. In addition, each of our PRC subsidiaries that are considered foreign-invested enterprises is required to further set
aside a portion of its after-tax profits as reported in its PRC statutory financial statements to fund the employee welfare fund
at the discretion of its board. These reserves are not distributable as cash dividends. As of December 31, 2015, the total retained
earnings of our PRC subsidiaries available for dividend distributions were RMB2.0 billion (US$301.7 million). Furthermore, if our
subsidiaries and consolidated affiliated entities in China incur debt on their own behalf in the future, the instruments governing
the debt may restrict their ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require
us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially
and adversely affect our subsidiaries’ ability to pay dividends and other distributions to us. Any limitation on the ability
of our subsidiaries and consolidated affiliated entities to distribute dividends or other payments to us could materially and adversely
limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, or otherwise
fund and conduct our business.
PRC regulations relating
to the establishment of offshore special purpose companies by PRC residents and employee stock options granted by overseas-listed
companies may increase our administrative burden, restrict our overseas and cross-border investment activity, or otherwise adversely
affect us. If our shareholders who are PRC residents, or our PRC employees who are granted or exercise stock options, fail to make
any required registrations or filings under such regulations, we may be unable to distribute profits and may become subject to
liability under PRC laws.
On October 21, 2005, the SAFE issued a Notice
on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via
Overseas Special Purpose Vehicles, generally known in China as SAFE Circular 75, requiring PRC residents to register with the local
SAFE branch before establishing or controlling any company outside of China, referred to in the notice as an “offshore special
purpose company,” for the purpose of raising capital backed by assets or equities of PRC companies. PRC residents that are
shareholders of offshore special purpose companies established before November 1, 2005 were required to register with the local
SAFE branch before March 31, 2006. On July 4, 2014, the SAFE issued the Notice on the Administration of Foreign Exchange Involved
in Overseas Investment, Financing and Return on Investment Conducted by PRC Residents via Special-Purpose Companies, or SAFE Circular
37, simultaneously repealing SAFE Circular 75. SAFE Circular 37 also requires PRC residents to register with
relevant Foreign Exchange Bureau for foreign exchange registration of overseas investment before making contribution to
a special purpose company, or SPC, with legitimate holdings of domestic or overseas assets or interests. See “Item 4. Information
on the Company — B. Business Overview — Regulation — Regulations on Foreign Exchange — Foreign Exchange
Registration of Offshore Investment by PRC Residents.”
We have requested our beneficial owners who
to our knowledge are PRC residents to make the necessary applications, filings and amendments as required under SAFE Circular 37
and other related rules. We attempt to comply, and attempt to ensure that our beneficial owners who are subject to these rules
comply with the relevant requirements. However, we cannot assure you that all of our beneficial owners who are PRC residents will
comply with our request to make or obtain any applicable registrations or comply with other requirements under SAFE Circular 37
or other related rules. The failure of these beneficial owners to timely amend their SAFE registrations pursuant to SAFE Circular
37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set
forth in SAFE Circular 37 may subject such beneficial owners to fines and legal sanctions and may also limit our ability to contribute
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to our company or otherwise
adversely affect our business.
On December 25, 2006, the People’s Bank
of China, or the PBOC, promulgated the Measures for the Administration of Individual Foreign Exchange, and on January 5, 2007,
the SAFE further promulgated implementation rules for those measures. We refer to these regulations collectively as the Individual
Foreign Exchange Rules. The Individual Foreign Exchange Rules became effective on February 1, 2007. According to these regulations,
PRC citizens who are granted shares or share options by a company listed on an overseas stock market according to its employee
share option or share incentive plan are required, through the PRC subsidiary of such overseas listed company or any other qualified
PRC agent, to register with the SAFE and to complete certain other procedures related to the share option or other share incentive
plan. Foreign exchange income received from the sale of shares or dividends distributed by the overseas listed company may be remitted
into a foreign currency account of such PRC citizen or be exchanged into Renminbi. Our PRC citizen employees who have been granted
share options became subject to the Individual Foreign Exchange Rules upon the listing of our ADSs on the Nasdaq stock exchange.
On February 15, 2012, SAFE promulgated the
Notice of the State Administration of Foreign Exchange on Issues Related to Foreign Exchange Administration in Domestic Individuals'
Participation in Equity Incentive Plans of Companies Listed Abroad, or the No. 7 Notice, which supersedes the Operation Rules on
Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas-Listed
Company, or the Stock Option Rule, in its entirety and immediately became effective upon circulation. According to the No. 7 Notice,
domestic individuals, which include any directors, supervisors, senior managerial personnel or other employees of a domestic company
who are Chinese citizens (including citizens of Hong Kong, Macao and Taiwan) or foreign individuals who consecutively reside in
the territory of RPC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through
the domestic companies they serve, collectively entrust a domestic agency to handle issues like foreign exchange registration,
account opening, funds transfer and remittance, and entrust an overseas institution to handle issues like exercise of options,
purchasing and sale of related stocks or equity, and funds transfer. As an overseas publicly listed company, we and our employees
who have been granted stock options or any type of equity awards may be subject to the No. 7 Notice. If we or our employees who
are subject to the No. 7 Notice fail to comply with these regulations, we may be subject to fines and legal sanctions. See “Item
4. Information on the Company — B. Business Overview — Regulation — Regulations on Foreign Exchange — SAFE
Regulations on Employee Share Options.”
Fluctuation in the value
of the RMB may have a material adverse effect on your investment.
The value of the RMB against the U.S. dollar
and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July
21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy,
t
he PRC government allowed the RMB to appreciate by more than 20% against the U.S. dollar
between July 2005 and July 2008. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the
RMB and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed the RMB to appreciate slowly
against the U.S. dollar again, though there have been periods when the U.S. dollar has appreciated against the Renminbi as well.
In April 2012, the trading band was widened to 1%, and in March 2014 it was further widened to 2%, which allows the Renminbi to
fluctuate against the U.S. dollar by up to 2% above or below the central parity rate published by the PBOC. In August 2015, the
PBOC changed the way it calculates the mid-point price of Renminbi against U.S. dollar, requiring the market-makers who submit
for the PBOC’s reference rates to consider the previous day’s closing spot rate, foreign-exchange demand and supply
as well as changes in major currency rates. This change, and other changes such as widening the trading band that may be implemented,
may increase volatility in the value of the Renminbi against foreign currencies. It is difficult to predict how market forces or
PRC or United States government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.
Our revenues and costs are mostly denominated in the RMB, and a significant portion of our financial assets
are also denominated in RMB. We rely on dividends and other fees paid to us by our subsidiaries and consolidated affiliated entities
in China. Any significant appreciation or depreciation of the RMB against the U.S. dollar may affect our cash flows, revenues,
earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, a further
appreciation of the RMB against the U.S. dollar would make any new RMB-denominated investments or expenditures more costly to us,
to the extent that we need to convert U.S. dollars into RMB for such purposes. An appreciation of the RMB against the U.S. dollar
would also result in foreign currency translation losses for financial reporting purposes when we translate our U.S. dollar denominated
financial assets into the RMB, as the RMB is our reporting currency. Conversely, a significant depreciation of the RMB against
the U.S. dollar may significantly reduce the U.S. dollar equivalent of our reported earnings, and may adversely affect the price
of our ADSs.
The approval of the China
Securities Regulatory Commission, or the CSRC, may have been required in connection with our initial public offering in October
2007 under a PRC regulation adopted in August 2006. Based on the advice of our PRC counsel, we did not seek CSRC’s approval
for our initial public offering. Any requirement to obtain prior CSRC approval and a failure to obtain this approval, if required,
could have a material adverse effect on our business, operating results, reputation and trading price of our ADSs.
On August 8, 2006, six PRC regulatory agencies,
namely, the PRC Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for
Taxation, the State Administration for Industry and Commerce, the CSRC and the SAFE, jointly adopted the Regulations on Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006
and was revised by the PRC Ministry of Commerce on June 22, 2009. These regulations purport, among other things, to require offshore
special purpose vehicles, or SPVs, formed for overseas listing purposes and controlled by PRC companies or individuals to obtain
the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC
published a notice on its official website specifying documents and materials required to be submitted to it by SPVs seeking CSRC
approval of their overseas listings.
At the time of our initial public offering
in October 2007, while the application of the new regulations remained unclear, our then PRC counsel, Commerce & Finance Law
Offices, advised us that, based on their understanding of the PRC laws and regulations effective at that time as well as the procedures
announced on September 21, 2006:
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the CSRC had jurisdiction over our offering;
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the CSRC by then had not issued any definitive rule or interpretation concerning whether offerings
like our initial public offering were subject to this new procedure; and
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despite the above, given that we had completed our inbound investment before September 8, 2006,
the effective date of the M&A Rule, an application was not required under the M&A Rule to be submitted to the CSRC for
its approval of the listing and trading of our ADSs on the Nasdaq Global Market, unless we were clearly required to do so by subsequent
rules of the CSRC.
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Our PRC counsel, Global Law Office, fundamentally
identifies with the advice on the application of the new regulations given by our then PRC counsel, Commerce & Finance Law
Offices at the time of our initial public offering. Based on advice of our PRC counsel, we did not seek CSRC’s approval for
our initial public offering. We, however, cannot assure you that the relevant PRC government agencies, including the CSRC, would
have reached the same conclusion as our PRC counsel. If the CSRC or other PRC regulatory agencies subsequently determine that the
CSRC’s approval was required for our initial public offering, we may face sanctions by the CSRC or other PRC regulatory agencies.
In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges
in the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as the trading price of our ADSs.
The M&A Rule could also
make it more difficult for us to pursue growth through acquisitions.
The M&A Rule also established additional
procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex,
including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction
in which a foreign investor takes control of a PRC domestic enterprise. To date, we have conducted our acquisitions in China exclusively
through our PRC consolidated affiliated entities. In the future, we may grow our business in part by directly acquiring complementary
businesses rather than through our PRC consolidated affiliated entities. Complying with the requirements of the new regulations
to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the
Ministry of Commerce, may prevent us from completing such transactions on a timely basis, or at all, which could affect our ability
to expand our business or maintain our market share.
The PRC Labor Contract Law
and its implementing rules may adversely affect our business and results of operations.
On June 29, 2007, the Standing Committee of the
National People’s Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008. On September
18, 2008, the State Council adopted the implementing rules for the Labor Contract Law, which became effective upon adoption. On
December 28, 2012, the Standing Committee of the National People's Congress of China promulgated the Decision on Revising the Labor
Contract Law, which became effective on July 1, 2013. The Labor Contract Law and its implementing rules together with the aforesaid
revising decision impose and will impose greater liabilities on employers and significantly affect the cost of an employer’s
decision to reduce its workforce. In the event that we decide to significantly reduce our workforce, the Labor Contract Law and
its implementing rules together with the aforesaid revising decision could adversely affect our ability to effect these changes
cost-effectively or in the manner we desire, which could lead to a negative impact on our business and results of operations.
Risks Related to Our ADSs
The market price for our
ADSs may be volatile.
The market price for our ADSs may be volatile
and subject to wide fluctuations in response to factors including the following:
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actual or anticipated fluctuations in our quarterly operating results;
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changes in financial estimates by securities research analysts;
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conditions in the Chinese insurance industry;
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changes in the economic performance or market valuations of other insurance intermediaries;
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announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint
ventures or capital commitments;
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addition or departure of key personnel;
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fluctuations of exchange rates between the RMB and U.S. dollar or other foreign currencies;
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potential litigation or administrative investigations;
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sales of additional ADSs; and
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general economic or political conditions in China and abroad.
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In addition, the securities market has from time
to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies.
These market fluctuations may also materially and adversely affect the market price of our ADSs.
We may need additional capital,
and the sale of additional ADSs or other equity securities could result in additional dilution to our shareholders.
We believe that our current cash and cash equivalents
and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for the foreseeable future. We
may, however, require additional cash resources due to changed business conditions or other future developments, including any
investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may
seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result
in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and
could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will
be available in amounts or on terms acceptable to us, if at all.
Substantial future sales
of our ordinary shares or ADSs, or the perception that these sales could occur, could cause the price of our ADSs to decline.
Additional sales of our ADSs in the public market,
or the perception that these sales could occur, could cause the market price of our ADSs to decline. If any existing shareholder
or shareholders sell a substantial amount of ordinary shares in the form of ADSs, the market price of our ADSs could decline. In
addition, we may issue additional ordinary shares as considerations for future acquisitions. If we do so, your ownership interests
in our company would be diluted and this in turn could have an adverse effect on the price of our ADSs.
Our corporate actions are
substantially controlled by our officers, directors and principal shareholders.
As of March 31, 2016, our executive officers,
directors and principal shareholders beneficially owned approximately 47.7% of our outstanding shares. These shareholders could
exert substantial influence over matters requiring approval by our shareholders, including electing directors and approving mergers
or other business combination transactions, and they may not act in the best interests of other noncontrolling shareholders. This
concentration of our share ownership also may discourage, delay or prevent a change in control of our company, which could deprive
our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the
price of our ADSs. These actions may be taken even if they are opposed by our other shareholders.
You may not have the same
voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right
to vote.
Except as described in this annual report and
in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares evidenced by our
ADSs on an individual basis. Holders of ADSs may instruct the depositary to exercise the voting rights attaching to the shares
represented by the ADSs. If no instructions are received by the depositary on or before a date established by the depositary, the
depositary shall deem the holders to have instructed it to give a discretionary proxy to a person designated by us to exercise
their voting rights. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you,
or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right
to vote.
You may not be able to participate
in rights offerings and may experience dilution of your holdings as a result.
We may from time to time distribute rights to
our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the depositary will not
offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either
registered under the Securities Act of 1933 or exempt from registration under the Securities Act with respect to all holders of
ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to
endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to take advantage of
any exemptions from registration under the Securities Act. Accordingly, holders of our ADSs may be unable to participate in our
rights offerings and may experience dilution in their holdings as a result.
You may be subject to limitations
on transfer of your ADSs.
Your ADSs are transferable on the books of the
depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection
with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally
when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because
of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any
other reason.
You may face difficulties
in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we
are incorporated under Cayman Islands law, conduct substantially all of our operations in China and most of our directors and officers
reside outside the United States. In addition, Cayman Islands securities laws provide significantly less protection to investors
as compared to U.S. laws.
We are incorporated in the Cayman Islands, and
conduct substantially all of our operations in China through our wholly owned subsidiaries and consolidated affiliated entities
in China. Most of our directors and officers reside outside the United States and some or all of the assets of those persons are
located outside of the United States. As a result, it may be difficult for you to effect service of process within the United States
or elsewhere outside China upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in
U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors,
most of whom are not residents in the United States and some or all of whose assets are located outside of the United States. In
addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of
U.S. courts against us or our officers and directors predicated upon the civil liability provisions of the securities laws of the
United States or any state. Our PRC counsel has advised us that China does not have treaties with the United States or many other
countries providing for the reciprocal recognition and enforcement of judgment of courts. It is also uncertain whether the Cayman
Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or the PRC against us or our officers
and directors predicated upon the securities laws of the United States or any state.
Our corporate affairs are governed by our memorandum
and articles of association and by the Companies Law (2013 Revision) and common law of the Cayman Islands. The rights of shareholders
to take legal action against our directors, actions by noncontrolling shareholders and the fiduciary duties of our directors to
us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman
Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law,
which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary
duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents
in the United States. In particular, because Cayman Islands law has no legislation specifically dedicated to the rights of investors
in securities, and thus no statutorily defined private causes of action specific to investors in securities such as those found
under the Securities Act or the Securities Exchange Act of 1934 in the United States, it provides significantly less protection
to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the
federal courts of the United States.
As a result of all of the above, our public shareholders
may have more difficulty in protecting their interests through actions against our management, directors or controlling shareholders
than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Our auditor is not inspected fully by the Public Company Accounting Oversight Board,
or PCAOB and, as such, you are deprived of the benefits of such inspection.
As an auditor of companies that are publicly
traded in the United States and a firm registered with the PCAOB, Deloitte Touche Tohmatsu is required by the laws in the United
States to undergo regular inspections by PCAOB to assess its compliance with the laws of the United States and the professional
standards of the PCAOB. However, because we have substantial operations within the PRC, a jurisdiction where the PCAOB is currently
unable to conduct inspections without the approval of the Chinese government authorities, our auditor is not currently inspected
fully by the PCAOB.
Inspections of other auditors conducted by the
PCAOB outside of China have at times identified deficiencies in those auditors’ audit procedures and quality control procedures,
which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections in China
prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, shareholders
may be deprived of the benefits of PCAOB inspections, and may lose confidence in our reported financial information and procedures
and the quality of our financial statements.
If additional remedial measures are imposed on the “big
four” PRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings
brought by the SEC alleging the firms' failure to meet specific criteria set by the SEC, with respect to requests for the production
of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act.
Starting in 2011 the Chinese affiliates of the
“big four” accounting firms, (including our independent registered public accounting firm) were affected by a conflict
between US and Chinese law. Specifically, for certain US listed companies operating and audited in mainland China, the SEC and
the PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however,
advised and directed that under China law they could not respond directly to the US regulators on those requests, and that requests
by foreign regulators for access to such papers in China had to be channeled through the CSRC.
In late 2012 this impasse led the SEC to commence
administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the
Chinese accounting firms, (including our independent registered public accounting firm). A first instance trial of the proceedings
in July 2013 in the SEC's internal administrative court resulted in an adverse judgment against the firms. The administrative law
judge proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that
proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the
Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests
by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests,
and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate
production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial
measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate,
an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against
a firm, or in extreme cases the resumption of the current proceeding against all four firms.
In the event that the SEC restarts the administrative
proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult
or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined
to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about
any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed
companies and the market price of our ADSs may be adversely affected.
If our independent registered public accounting
firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered
public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined
not to be in compliance with the requirements of the Exchange Act of 1934, as amended. Such a determination could ultimately lead
to the delisting of our ordinary shares from the Nasdaq Global Select Market or deregistration from the SEC, or both, which would
substantially reduce or effectively terminate the trading of our ADSs in the United States.
Our articles of association
contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and
ADSs.
Our articles of association contain provisions
limiting the ability of others to acquire control of our company or cause us to enter into change-of-control transactions. These
provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing
market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction.
For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in
one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special
rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms
of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares,
in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in
control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares,
the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially
and adversely affected.
You may have to rely on price
appreciation of our ADSs for any return on your investment.
Our board of directors has discretion as to whether
to distribute dividends, subject to applicable laws. Even if our board of directors decides to declare and pay dividends, the timing,
amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow,
our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial
condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your
investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our
ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your
investment in our ADSs and you may even lose your entire investment in our ADSs.
We were a passive foreign
investment company for the taxable year ended December 31, 2015, which generally will subject United States Holders of our ADSs
or ordinary shares to special and adverse tax rules .
Based on the market price of our ADSs, the
value of our assets, and the composition of our income and assets, we believe we were a “passive foreign investment
company,” or PFIC, for United States federal income tax purposes for our taxable year ended December 31, 2015. In
addition, it is likely that one or more of our subsidiaries were also PFICs for such year. A non-United States corporation
will be a PFIC for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at
least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is
attributable to assets that produce passive income or are held for the production of passive income. We must make a separate
determination after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our
assets for purposes of the PFIC test will generally be determined by reference to the market price of our ADSs or ordinary
shares, our PFIC status will depend in large part on the market price of the ADSs or ordinary shares, which may fluctuate
significantly. Unless the market price of our ADSs increases or we reduce the amount of cash and other passive assets we hold
sufficiently from current levels, we are likely to remain a PFIC for future taxable years. Because we believe we were a PFIC
for the taxable year ended December 31, 2015, United States Holders (as defined in “Item 10. Additional Information
— E. Taxation — United States Federal Income Taxation”) of our ADSs or ordinary shares generally will be
subject to special and adverse tax rules with respect to any “excess distribution” received from us and any gain
from a sale or other disposition of the ADSs or ordinary shares. See “Item 10. Additional Information — E.
Taxation — United States Federal Income Taxation — Passive Foreign Investment Company.”
Item 4.
Information on the Company
A. History and Development of the Company
Our founders, Mr. Yinan Hu, or Mr. Hu and Mr.
Qiuping Lai, or Mr. Lai, formed two PRC companies, Guangzhou Nanyun Car Rental Services Co., Ltd. and Guangdong Nanfeng Automobile
Association Co., Ltd., initially to provide automobile-related services, such as car rental and emergency services. In 1999, we
began distributing automobile insurance products and automobile loans on an ancillary basis. In 2001, our founders transferred
their interests in the two PRC companies to China United Financial Services Holdings Limited (then known as China Automobile Association
Holdings Limited), or China United Financial Services, a British Virgin Islands company, as part of a series of transactions in
which Cathay Capital Group, a private equity group, made an investment in China United Financial Services by subscribing for 40%
of the equity interests.
We established two insurance agencies to distribute
insurance products in Beijing and Guangdong in April and May 2002, respectively.
In June 2004, as part of its corporate restructuring
to facilitate international fundraising, China United Financial Services incorporated CISG Holdings Ltd., or CISG Holdings, in
the British Virgin Islands to be the holding company for its insurance agency and brokerage businesses. China United Financial
Services transferred to CISG Holdings all of its rights and interests in four PRC insurance intermediary companies it then controlled.
In September 2004, Cathay Capital Group subscribed for approximately 27.8% of the equity interests in CISG Holdings.
From June 2004 to December 2005, we expanded
our operations by establishing eight insurance agencies and brokerages in Beijing, Sichuan and Guangdong.
In December 2005, an entity affiliated with CDH
Growth Capital Holdings Company Limited, or CDH Growth Capital Holdings, a private equity firm, subscribed for approximately 26.4%
of the equity interests in CISG Holdings, through CDH China Holdings Management Company Limited. In January 2015, CDH Growth Capital
Holdings agreed to sell all of its equity interests in our company to certain members of our management.
We commenced our life insurance business by acquiring
controlling interests in three insurance agencies in Sichuan, Hebei and Fujian in 2006. From 2006 to 2007, we further expanded
our operations by establishing five insurance agencies and one insurance brokerage in Shandong, Hunan, Shenzhen, Shanghai, Fujian
and Guangdong in 2006.
In anticipation of our initial public offering,
we incorporated CNinsure Inc. in the Cayman Islands in April 2007. In July 2007, CNinsure Inc., on a 10,000-for-one basis, issued
its ordinary shares to the then existing shareholders of CISG Holdings in exchange for all of the outstanding shares of CISG Holdings.
After this restructuring transaction, CNinsure Inc. became the ultimate holding company of our group.
On October 31, 2007, we listed our ADSs on the
Nasdaq Global Market under the symbol “CISG.” We and certain selling shareholders of our company completed the initial
public offering of 13,526,773 ADSs, each representing 20 ordinary shares, on November 5, 2007.
On July 14, 2010, we completed a follow-on public
offering of 4,600,000 ADSs, each representing 20 ordinary shares.
Since 2008, we have further extended our distribution
and service network by establishing six insurance agencies and acquiring controlling interests in 18 insurance intermediary companies
(excluding Datong and its subsidiaries).
We have also further expanded our product and
service portfolio. In 2008, we began offering claims adjusting services by acquiring controlling interests in four claims adjusting
firms. In October 2009, we invested in Sincere Fame to expand into the consumer financial services sector. In 2010, we acquired
a majority equity interest in InsCom Holdings Limited, or InsCom Holdings, to build an e-commerce insurance platform. In June 2010,
we established an insurance brokerage business unit to expand our product offerings from retail to commercial lines. In 2012, we
started to offer wealth management products to our customers on a referral basis, though for regulatory reasons we have temporarily
discontinued such sales since 2014.
In April 2014, we established Dianliang Information,
as the holding company for eHuzhu (www.ehuzhu.com), an online mutual aid platform that we launched in July 2014. In June 2014,
we established Shenzhen Chetong Network Technology Co., Ltd., or Chetong Network, as the holding company for Chetong.net, an internet-based
service platform for the insurance industry, which we launched in August 2014. In July 2015, we transferred 19.9% and 80.1% of
the equity interests in Chetong Network to CISLA and the management and employees of Chetong Network, respectively.
See “Item 4. Information on the Company-C.
Organizational Structure” for more information on our corporate structure changes.
Our principal executive offices are located at
27/F, Pearl River Tower, No. 15 West Zhujiang Road, Guangzhou, Guangdong 510623, People’s Republic of China. Our telephone
number at this address is +86-20-8388-6888. Our registered office is at the offices of Maples Corporate Services Limited, PO Box
309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other place as our board of directors may from time to time
decide. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York,
New York 10011.
Recent Transactions
Agreement with Alltrust Insurance Company
of China Limited
In April 2015, we entered into an agreement with
Alltrust Insurance Company of China Limited, or Alltrust, a property and casualty insurance company operating in China, pursuant
to which Alltrust agreed to acquire approximately 7.5% of the equity interests in CNinsure Inc. The transaction was not completed
because Alltrust failed to obtain regulatory approval and therefore did not meet the conditions precedent for closing.
Agreement with Shaanxi J&R Firefighting
Inc.,
In July 2015, Shaanxi J&R Firefighting Inc.,
or Shaanxi J&R, a manufacturer and supplier of fire protection and safety equipment in China and a company listed on Shenzhen
Stock Exchange, entered into a share purchase agreement with Kingsford Resources Limited, or Kingsford, a company owned by members
of our management, to acquire approximately 5.5% of the equity interests in CNinsure Inc. from Kingsford. The transaction was not
completed as Shaanxi J&R failed to secure funding for closing.
Transactions Related to CISLA
In November 2015, CNinsure's subsidiary, CISLA
filed an application with the NEEQ to be listed on the New Third Board, an emerging over-the-counter stock market for medium- and
small-cap companies in China. As of March 31, 2016, the listing application is still pending for approval.
Prior to the submission of the
listing application, CISLA underwent a series of corporate restructurings and issued new shares to CISLA's management and
key employees. As a result,
our shareholding in CISLA was diluted from 51% to 44.7% and
the remaining equity interests of CISLA were owned by its founders, management and employees. We remain the largest
shareholder of CISLA. We expect to continue to exercise substantial control over CISLA and to consolidate CISLA's results
into our financial statements after the proposed listing.
In July 2015, in order to align the interests of the founding team of Chetong.net with the growth of the
platform, Guangdong CNinsure Fangzhong Investment Management Co., Ltd., our subsidiary that initially owned 100% of the equity
interests in Chetong Network, which operates Chetong.net, transferred (x) 80.1% of the equity interests in Chetong Network to the
management and employees of Chetong Network for cash consideration of RMB16.
0 million (US$2.5 million),
and (y) 19.9% of the equity interests in Chetong Network to CISLA for cash consideration of RMB4.0 million (US$0.6 million). As
a result, CISLA and the management and employees of Chetong Network currently hold 19.9% and 80.1% of Chetong Network, respectively.
Minority-Interest Buyout
In December 2015, we acquired the remaining 30%
of the equity interests in Jiangsu CNinsure Lianchuang Insurance Agency Co., Ltd. or Jiangsu Lianchuang, for a total cash consideration
of RMB0.9 million (US$0.1 million), increasing our shareholdings in Jiangsu Lianchuang from 70% to 100%.
In December 2015, we acquired the remaining 40%
of the equity interests in Liaoning CNinsure Gena Insurance Agency Co., Ltd. or Liaoning Gena, for a total cash consideration of
approximately RMB2.6 million (US$0.4 million), increasing our shareholdings in Liaoning Gena from 60% to 100%.
In December 2015, we acquired the remaining 30%
of the equity interests in Jiangxi CNinsure Insurance Agency Co., Ltd. or Jiangxi Agency, for a total cash consideration of RMB1.8
million (US$0.3 million), increasing our shareholdings in Jiangxi Agency from 70% to 100%.
In December 2015, we
acquired the remaining 45% of the equity interests in
Shanghai CNinsure Guosheng Insurance Agency Co., Ltd. or Shanghai Guosheng, for a total cash consideration of approximately RMB2.3
million (US$0.4 million), increasing our shareholdings in Shanghai Guosheng from 55% to 100%.
In November 2015, we acquired the remaining 40%
of the equity interests in Hubei CNinsure Insurance Agency Co., Ltd. or Hubei Agency, for a total cash consideration of RMB2.8
million (US$0.4 million), increasing our shareholdings in Hubei Agency from 60% to 100%.
In November 2015, we acquired the remaining 40%
of the equity interests in Zhejiang CNinsure Tongchuang Insurance Agency Co., Ltd. or Zhejiang Tongchuang, for a total cash consideration
of RMB2.0 million (US$0.3 million), increasing our shareholdings in Zhejiang Tongchuang from 60% to 100%.
In September 2015, we
acquired an additional 29% of the equity interests in
Shandong CNinsure Mintai Insurance Agency Co., Ltd. or Shandong Mintai, for a total cash consideration of RMB22 million (US$3.4
million), increasing our shareholdings in Shandong Mintai from 51% to 80%.
In June 2015, we acquired the remaining 49% of
the equity interests in Ningbo CNinsure Baolian Insurance Agency Co., Ltd. or Ningbo Baolian, for a total cash consideration of
RMB12 million (US$1.9 million), increasing our shareholdings in Ningbo Baolian from 51% to 100%.
In June 2015, we
acquired the remaining 30% of the equity interests in Changsha
CNinsure Lianyi Insurance Agency Co., Ltd. or Changsha Lianyi, for a total cash consideration of RMB7.5 million (US$1.2 million),
increasing our shareholdings in Changsha Lianyi from 70% to 100%.
In June 2015, we acquired the remaining 49% of
the equity interests in Shenyang CNinsure Fangda Insurance Agency Co., Ltd. or Shenyang Fangda, for a total cash consideration
of RMB26 million (US$4.0 million), increasing our shareholdings in Shenyang Fangda from 51% to 100%.
In January 2015, we acquired the remaining 49%
of the equity interests in Henan CNinsure Anlian Insurance Agency Co., Ltd. or Henan Anlian, for a total consideration of RMB68.0
million (US$10.5 million), increasing our shareholdings in Henan Anlian from 51% to 100%.
In January 2015, we acquired an additional 36.5%
of the equity interest in Hebei Fanlian Insurance Agency Co., Ltd. or Hebei Fanlian, for total consideration consisting of RMB40.0
million (US$6.2 million) in cash and 12.5% equity interest in the business of Hebei Branch of CNinsure Lianxing Insurance Sales
Co., Ltd., or CNinsure Lianxing, increasing our shareholdings in Hebei Fanlian from 51% to 87.5%.
Capital Expenditure
Our capital expenditures have been used primarily
to construct, upgrade and maintain our online platforms. See “Item 5. Operating and Financial Review and Prospects –
B. Liquidity and Capital Resources.”
We are a leading independent online-to-offline
financial services provider in China. Through our online platforms and offline sales and service network, we distribute to individual
and institutional customers in China a wide variety of property, casualty and life insurance products underwritten by domestic
and foreign insurance companies operating in China and provide insurance claims adjusting services, such as damage assessments,
surveys, authentications and loss estimations.
We distribute insurance products to customers
primarily through our sales agents
and brokers, and provide claims adjustment services through our claims adjustors. With 132,539 sales agents, 173 in-house sales
representatives, 25 in-house brokers, 918 non-affiliated independent brokers, 1,400 claims adjustors and 602 sales and service
outlets as of March 31, 2016, our distribution and service network reaches 29 out of 34 provinces in China, including some of the
most economically developed regions and affluent cities.
Technological developments and the growth of
mobile internet access have significantly changed the way we operate our business. For instance, we develop and implement Internet-enabled
mobile applications for our sales agents, through which they can access a broad range of auto insurance and life insurance products
from multiple insurance companies, and compare prices and purchase insurance products on their mobile devices for their clients.
We also operate several online platforms, which
we define as websites and Internet-enabled applications that aggregate insurance product offerings from various insurance companies:
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Baowang
(www.baoxian.com), an online insurance platform that allows customers to directly
compare and shop for hundreds of accident, health, travel and homeowner insurance products from dozens of insurance companies online.
As of March 31, 2016, Baowang has over 343,000 registered members.
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eHuzhu
(www.ehuzhu.com), an online non-profit mutual aid platform that provides low-cost
alternative risk-protection programs on a mutual aid basis among program members. eHuzhu currently offers two programs that cover
mutual aid for cancer and accidental death. When a member signs up for a program offered by eHuzhu, he or she agrees to provide
financial aid to and is entitled to receive financial aid from other program members in case of any claims covered under such program.
The amount of financial aid that each member can claim for is up to RMB300,000, with the maximum contribution from each member
limited to RMB3 for each valid claim. As of March 31, 2016, eHuzhu has attracted over 765,000 registered members.
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We are compensated for our insurance agency,
insurance brokerage and claims adjusting services primarily by commissions and fees paid by insurance companies, typically based
on a percentage of the premium paid by the insured or a percentage of the amount recovered from insurance companies. Commission
and fee rates generally depend on the type of insurance products, the particular insurance company and the region in which the
products are sold.
As of March 31, 2016, we had one e-commerce insurance
platform and one online mutual aid platform, and 39 insurance intermediary companies in the PRC, of which 34 were insurance agencies
including three with national operating licenses, two were insurance brokerages and three were insurance claims adjusting firms.
We also own 20.6% of the equity interests in a financial service company which is primarily engaged in the origination and management
of small loans made to individuals, loan repackaging, asset management-related services to financial institutions and mortgage
agency services to individuals, 19.5% of the equity interests in a wealth management service company, and 8.9% of the equity interests
in an online claims services provider.
The professional insurance intermediary sector
in China is highly fragmented. We believe this offers substantial opportunities for further growth and consolidation. The proliferation
of internet access also presents us with huge opportunities to directly reach out to a much broader customer base. We intend to
take advantage of these opportunities to increase our market share by aggressively developing and promoting our online platforms,
expanding our offline distribution and service network and broadening our product portfolio.
Segment Information
We realigned our financial reporting structure
to more accurately reflect our organizational structure and changing business mix. Under the realigned business structure, our
business is divided into three major reporting operating segments: (1) insurance agency, (2) insurance brokerage and (3) claims
adjusting. The insurance agency segment provides a broad range of property and casualty and life insurance products to individual
customers. The insurance brokerage segment primarily provides commercial lines of property and casualty insurance, group life insurance
programs and risk management consulting services to businesses and reinsurance brokerage services to insurance companies. The claims
adjusting segment primarily provides claims adjusting services to self-insured entities or insurance companies that choose to outsource
some or all of their claims adjustment functions..
Insurance Agency Segment
Our insurance agency segment accounted for 80.7%, 75.6% and 76.2% of our net revenues in 2013, 2014 and 2015,
respectively. Revenue from this segment is derived from
two broad categories of insurance products:
(i) property and casualty insurance products, and (ii) life insurance products, both primarily focused on meeting the insurance
needs of individuals.
Property and Casualty Insurance Products
Our main property and casualty insurance product
is automobile insurance. In addition, we also offer individual accident insurance, travel insurance, disability income insurance,
commercial property insurance, construction insurance products and other property and casualty products. The property and casualty
insurance products we distribute to individual customers can be further classified into the following categories:
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Automobile Insurance.
Automobile insurance is the largest segment of property and casualty
insurance in the PRC in terms of gross written premiums. We distribute both standard automobile insurance policies and supplemental
policies, which we refer to as riders. The standard automobile insurance policies we sell generally have a term of one year and
cover damages caused to the insured vehicle by collision and other traffic accidents, falling or flying objects, fire, explosion
and natural disasters. We also sell standard third-party liability insurance policies, which cover bodily injury and property damage
caused by an accident involving an insured vehicle to a person not in the insured vehicle. The riders we distribute cover additional
losses, such as liability to passengers, losses arising from vehicle theft and robbery, broken glass and vehicle body scratches.
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Individual Accident Insurance.
The individual accident insurance products we distribute
generally provide a guaranteed benefit during the coverage period, which usually is one year or a shorter period, in the event
of death or disability of the insured as a result of an accident, or a reimbursement of medical expenses to the insured in connection
with an accident. These products typically require only a single premium payment for each coverage period. Because most of the
individual accident insurance products we distribute are underwritten by property and casualty insurance companies, we classify
individual accident insurance products as property and casualty insurance products.
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Travel Insurance.
The travel insurance products we distribute are short-term insurance providing
guaranteed benefit in the event of death or disability and covering travel-related emergencies and losses, either within one's
own country, or internationally. These products typically require only a single premium payment for each coverage period.
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Disability Income Insurance.
The disability income insurance products we distribute generally
have a term of one year and provide supplementary income before the insured can get back to their regular employment or for a specified
period in the event of illness or disability. These products typically require only a single premium payment for each coverage
period. Because most of the disability income insurance products we distribute are underwritten by property and casualty insurance
companies, we classify them as property and casualty insurance products.
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Commercial Property Insurance.
The commercial property insurance products we distribute
include basic, comprehensive and all risk policies. Basic commercial property insurance policies generally cover damage to the
insured property caused by fire, explosion and thunder and lightning. Comprehensive commercial property insurance policies generally
cover damage to the insured property caused by fire, explosion and certain natural disasters. All risk commercial property insurance
policies cover all causes of damage to the insured property not specifically excluded from the policies.
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Homeowner Insurance.
The homeowner insurance products we distribute primarily cover the
damage to the insured house, furniture and household electrical appliance caused by a number of standard risks such as fire, flood
and explosion.
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The property and casualty insurance products
we distributed in 2015 were primarily underwritten by PICC P&C, CPIC, Ping An, Taiping and Alltrust Property Insurance Co.,
Ltd..
Life Insurance Products
We expect the sale of life insurance products
to continue to be an important source of our revenue in the next several years. The life insurance products we distribute can be
broadly classified into the categories set forth below. Due to constant product innovation by insurance companies, some of the
insurance products we distribute combine features of one or more of the categories listed below:
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Individual Whole Life Insurance.
The individual whole life insurance products we distribute
provide insurance for the insured person’s entire life in exchange for the periodic payment of fixed premiums over a pre-determined
period, generally ranging from five to 20 years, or until the insured reaches a certain age. The face amount of the policy or,
for some policies, the face amount plus accumulated interest is paid upon the death of the insured.
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Individual Term Life Insurance.
The individual term life insurance products we distribute
provide insurance for the insured for a specified time period or until the attainment of a certain age, in return for the periodic
payment of fixed premiums over a pre-determined period, generally ranging from five to 20 years. Term life insurance policies generally
expire without value if the insured survives the coverage period.
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Individual Endowment Life Insurance.
The individual endowment products we distribute generally
provide insurance coverage for the insured for a specified time period and maturity benefits if the insured reaches a specified
age, and provide to a beneficiary designated by the insured guaranteed benefits upon the death of the insured within the coverage
period. In return, the insured makes periodic payment of premiums over a pre-determined period, generally ranging from five to
25 years.
|
|
·
|
Individual Education Annuity.
The individual annuity products we distribute are primarily
education related products. They provide annual benefit payments after the insured attains a certain age, or for a fixed time period,
and provide a lump payment at the end of the coverage period. In addition, the beneficiary designated in the annuity contract will
receive guaranteed benefits upon the death of the insured during the coverage period. In return, the purchaser of the annuity products
makes periodic payment of premiums during a pre-determined accumulation period.
|
|
·
|
Universal Insurance.
We distribute certain universal insurance products that provide not
only insurance coverage but also a minimum guaranteed return on the amount the insured puts into an individual investment account.
In return, the insured makes periodic payment of premiums over a pre-determined period, generally ranging from five to 25 years.
|
|
·
|
Participating Insurance.
The participating insurance products we distribute not only provide
insurance coverage but also pay dividends generated from the profits of the insurance company providing the policy. The dividends
are typically paid out on an annual basis over the life of the policy. In return, the insured makes periodic payment of premiums
over a pre-determined period, generally ranging from five to 25 years.
|
|
·
|
Individual Health Insurance.
The individual health insurance products we distribute primarily
consist of catastrophic health insurance products, which provide guaranteed benefits for specified serious illnesses and medical
insurance, which provides conditional reimbursement for medical expenses during the coverage period. In return, the insured makes
periodic payment of premiums over a pre-determined period.
|
|
·
|
Group Life Insurance.
We distribute several group life insurance products, including group
health insurance. These group products generally have a policy period of one year and require a single premium payment.
|
The life insurance products we
distributed in 2015 were primarily underwritten by Huaxia Life Insurance Co., Ltd., Aegon-THTF Life Insurance Co., Ltd., Great
Wall Life Insurance Co., Ltd., AVIVA-COFCO Life Insurance Co., Ltd. and Taikang Life Insurance Co., Ltd..
Insurance Brokerage Segment
Our insurance brokerage segment accounted for
3.6%, 10.8% and 13.1% of our net revenues in 2013, 2014 and 2015, respectively. Our insurance brokerage segment primarily markets
and sells commercial lines of property and casualty insurance products, group life insurance products, liability insurance products
and credit insurance products to corporate clients. This segment also offers risk management services to enterprises in various
industries and reinsurance brokerage services to insurance companies. The insurance products that our insurance brokerage segment
provides can be broadly classified into the categories set forth below.
|
·
|
Cargo Insurance. The
cargo insurance products we distribute cover damage to or loss of goods
in transit by sea, land or air.
|
|
·
|
Hull Insurance.
The hull insurance products we distribute cover vessels against losses,
liabilities and expenses caused by natural calamities, negligence of crew members and marine accidents, as well as collision liability.
|
|
·
|
Liability Insurance.
The liability insurance products we distribute are primarily product
liability, employer’s liability, public liability and professional liability insurance products. These products generally
cover losses to third parties due to the misconduct or negligence of the insured party, but exclude losses due to fraud or the
willful misconduct of the insured party.
|
|
·
|
Construction and Erection Insurance.
The construction and erection insurance products we
distribute cover property damages and personal injury losses caused by natural disasters and accidents in connection with construction
and erection projects in China and abroad.
|
|
·
|
Credit Insurance.
The credit insurance products we distribute are primarily trade credit
insurance, which protects the account receivables of business entities from loss due to credit risk, and consumer credit insurance,
which enables the borrower to ensure the repayment of a personal consumption loan in the event of the borrower’s death, illness
or disability, unemployment or other circumstances that may prevent him or her from earning income to service the debt.
|
|
·
|
Extended Warranty Insurance.
The extended warranty insurance products we distribute provide
coverage for expenses associated with any repair or replacement of the sold items, such as an electrical appliance or auto vehicle,
after the manufacturer's warranty has expired.
|
|
·
|
Bank Account Crime Insurance
. The bank account crime insurance products we distribute provide
for the recovery of funds stolen from bank accounts.
|
As an insurance broker, we primarily place insurance
programs for corporate clients with PICC P&C, China Life P&C, China United Property and Casualty Insurance Company Limited,
CPIC and Ping An in 2015.
Claims
Adjusting Segment
Total net revenues derived from our claims adjusting
segment accounted for 14.9%, 13.6% and 10.7% of our total net revenue in 2013, 2014 and 2015, respectively. We offer the following
insurance claims adjusting services:
|
·
|
Pre-underwriting Survey.
Before an insurance policy is sold, we conduct a survey of the
item to be insured to assess its current value and help our clients determine the insurable value and the amount to be insured.
We also help our clients assess the underwriting risk with respect to the item to be insured through surveys, appraisals and analysis.
|
|
·
|
Claims Adjusting.
When an accident involving the insured subject matter has occurred, we
conduct an onsite survey to determine the cause of the accident and assess damage. We then determine the extent of the loss to
the insured subject matter and prepare and submit a report to the insurance company summarizing our preliminary findings. Upon
final conclusion of the case, we prepare and submit a detailed report to the insurance company setting forth details of the accident,
cause of the loss, details of the loss, adjustment and determination of loss, an indemnity proposal and, where appropriate, a request
for payment.
|
|
·
|
Disposal of Residual Value.
In the course of providing claims adjusting services, we also
can appraise the residual value of the insured property and offer suggestions on the disposal of such property. Upon appointment
by the insurance company, we handle the actual disposal of the insured property through auction, discounted sale, lease or other
means.
|
|
·
|
Loading and Unloading Supervision.
Upon appointment by ship owners, shippers, consignees
or insurance companies, we can monitor and record the loading and unloading processes of specific cargos.
|
|
·
|
Consulting Services.
We provide consulting services to both the insured and the insurance
companies on risk assessment and management, disaster and damage prevention, investigation, and loss assessment.
|
We primarily provided claims adjusting
services to Ping An, PICC P&C, CPIC, Dinghe Property Insurance Co., Ltd. and China Life P&C in 2015.
As competition intensifies and the insurance
market becomes more mature in China, we believe there will be a further division of labor in the insurance intermediary sector.
We expect that more insurance companies will choose to outsource claims adjusting functions to professional service providers while
they focus on the core aspects of their business, including product development and asset and risk management. We believe we are
well-positioned to capture such outsourcing opportunities.
Other
Services
Other services contributed 0.8%, nil and nil
of our total net revenue in 2013, 2014 and 2015, respectively, which mainly represented service fees derived from the referral
of wealth management products to our insurance customers and the provision of IT services provided to a subsidiary of Sincere Fame.
In conjunction with the sale of automobile insurance
products, we provide our customers with a number of value-added services under our service slogan, “You take care of driving,
and we’ll take care of the rest.” For example, we assist our customers with obtaining vehicle licenses and subsequent
annual inspections. We maintain 24-hour service hotlines in most of our principal markets. When an accident involving an insured
vehicle occurs within these markets, our service staff can arrive at the scene quickly after being notified through the 24-hour
service hotline and provide onsite assistance to our customers. Fees derived from these services related to insurances products
are recorded as net revenues from insurance agency business.
Seasonality
See “Item 5. Operating and Financial Review
and Prospects — A. Operating Results — Factors Affecting Our Results of Operations — Seasonality.”
Distribution and Service Network and Marketing
We have a
n offline distribution and service network that, as of March 31, 2016,
consisted of 34 insurance agencies, two insurance brokerages and three claims adjusting firms, with 602 sales and service outlets,
132,539 registered independent sales agents, 173 in-house sales representatives, 25 in-house insurance brokers, 918 non-affiliated
independent brokers and 1,400 in-house claims adjustors. Our distribution and service network covers 29 provinces and reaches some
of the most economically developed regions and wealthiest cities in China, such as Beijing, Shanghai, Guangzhou and Shenzhen.
The following table sets forth additional information
concerning our distribution
and service network as of March 31, 2016, broken down by provinces:
Province
|
|
Number of Sales and Service Outlets
|
|
Number of Sales Agents
|
|
Number of In-house Sales Representatives
|
|
Number of In-house Adjustors
|
|
Number of In-house Brokers
|
Guangdong
|
|
|
104
|
|
|
|
26,953
|
|
|
|
150
|
|
|
|
248
|
|
|
|
25
|
|
Hebei
|
|
|
60
|
|
|
|
19,661
|
|
|
|
—
|
|
|
|
75
|
|
|
|
—
|
|
Shandong
|
|
|
71
|
|
|
|
16,538
|
|
|
|
4
|
|
|
|
19
|
|
|
|
—
|
|
Sichuan
|
|
|
71
|
|
|
|
11,119
|
|
|
|
—
|
|
|
|
49
|
|
|
|
—
|
|
Zhejiang
|
|
|
46
|
|
|
|
8,896
|
|
|
|
8
|
|
|
|
67
|
|
|
|
—
|
|
Beijing
|
|
|
25
|
|
|
|
8,095
|
|
|
|
7
|
|
|
|
121
|
|
|
|
—
|
|
Shaanxi
|
|
|
2
|
|
|
|
6,860
|
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
Henan
|
|
|
27
|
|
|
|
6,856
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
Liaoning
|
|
|
37
|
|
|
|
5,922
|
|
|
|
—
|
|
|
|
82
|
|
|
|
—
|
|
Hunan
|
|
|
19
|
|
|
|
5,386
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
Fujian
|
|
|
28
|
|
|
|
4,820
|
|
|
|
—
|
|
|
|
10
|
|
|
|
—
|
|
Chongqing
|
|
|
4
|
|
|
|
3,519
|
|
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
Hubei
|
|
|
26
|
|
|
|
3,182
|
|
|
|
1
|
|
|
|
58
|
|
|
|
—
|
|
Jiangsu
|
|
|
26
|
|
|
|
2,951
|
|
|
|
—
|
|
|
|
121
|
|
|
|
—
|
|
Tianjin
|
|
|
7
|
|
|
|
1,658
|
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
Jilin
|
|
|
2
|
|
|
|
68
|
|
|
|
—
|
|
|
|
37
|
|
|
|
—
|
|
Jiangxi
|
|
|
6
|
|
|
|
34
|
|
|
|
3
|
|
|
|
24
|
|
|
|
—
|
|
Shanghai
|
|
|
14
|
|
|
|
21
|
|
|
|
—
|
|
|
|
143
|
|
|
|
—
|
|
Guangxi
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
—
|
|
Yunnan
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
Hainan
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
Anhui
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
Inner Mongolia
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
—
|
|
Gansu
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
|
|
—
|
|
Shanxi
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
Xinjiang
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
Guizhou
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
Heilongjiang
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19
|
|
|
|
—
|
|
Qinghai
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
Total
|
|
|
602
|
|
|
|
132,539
|
|
|
|
173
|
|
|
|
1,400
|
|
|
|
25
|
|
We market and sell personal lines of property
and casualty insurance products and life insurance products to customers through both registered independent sales agents, who
are not our employees, and our in-house sales representatives. We also market and sell accidental, health, travel and homeowner
insurance products directly to customers through our online platform Baowang (www.baoxian.com). We market and sell insurance claims
adjusting services primarily to insurance companies through our in-house professional claims adjustors and to non-affiliated service
representatives through Chetong.net, an online service platform, by bidding for claims adjusting business contracts. We provide
insurance brokerage services to customers through both our in-house brokers and non-affiliated independent brokers.
Customers
We sell automobile insurance, individual accident
insurance and homeowner insurance products primarily to individual customers. We sell commercial property insurance, cargo insurance,
hull insurance, liability insurance and construction insurance products to institutional customers. Customers for the life insurance
products we distribute are primarily individuals under 50 years of age. For the year ended December 31, 2015, no single individual
customer of insurance products accounted for more than 1% of our net revenues. Our customers for the claims adjusting services
are primarily insurance companies.
As of December 31, 2015, we had accumulated approximately
6.2 million individual customers and 1.3 million institutional customers. By providing certain value-added services to these customers
at no additional charge, we seek to build a loyal customer base that generates referrals and cross-selling opportunities.
Insurance Company Partners
As of March 31, 2016, we had established business
relationships with 72 insurance companies in the PRC. In the Chinese insurance market, local branches of insurance companies generally
have the authority to enter into contracts in their own names with insurance intermediaries. Historically, we have entered into
and maintained business relationships with insurance companies at the local level. That is, our insurance agencies, brokerages
and claims adjusting firms enter into contracts with different local branches of an insurance company that are located within their
respective regions. The termination of a business relationship between one of our insurance agencies, brokerages or claims adjusting
firms and a local branch of an insurance company generally would have no significant impact on the business relationships between
our other insurance agencies, brokerages and claims adjusting firms and the other branches of the same insurance company. Since
2007, we have also sought to establish business relationships with insurance companies at the corporate headquarters level in order
to leverage the combined sales volumes of our various affiliated insurance agencies and brokerages located in different parts of
China. As of March 31, 2016, we had outstanding contracts with 19
life insurance companies and 49
property and casualty
insurance companies at the corporate headquarters level for the distribution of insurance products and outsourcing of claims adjusting
services.
Competition
A number of industry players are involved in
the distribution of insurance products in the PRC. We compete for customers on the basis of product offerings, customer services
and reputation. Because we primarily distribute individual insurance products, our principal competitors include:
|
·
|
Professional insurance intermediaries.
The professional insurance intermediary sector in
China is highly fragmented, accounting for only 7.3% of the total insurance premiums generated in China in 2014, according to the
latest Chinese Insurance Intermediary Market Report. Several insurance intermediary companies have received private equity or venture
capital funding in recent years and are actively pursuing expansion. We believe that we can compete effectively with these insurance
intermediary companies because we have a longer operating history, we have a strong and stable team of managers and sales professionals
equipped with CNpad (our proprietary sales support workstation), we offer diversified products to our sales agents and clients,
we have built a unified operating platform and we were the first to adopt mobile technology to distribute insurance products among
professional insurance intermediaries in China. With increasing consolidation expected in the insurance intermediary sector in
the coming years, we expect competition within this sector to intensify.
|
|
·
|
Insurance companies.
The distribution of individual life insurance products in China historically
has been dominated by insurance companies, which usually use both in-house sales forces and exclusive sales agents to distribute
their own products. In addition, in recent years several major insurance companies have increasingly used telemarketing and the
internet to distribute auto insurance. We believe that we can compete effectively with insurance companies because we focus only
on distribution and offer our customers a broad range of insurance products underwritten by multiple insurance companies.
|
|
·
|
Entities that offer insurance products online.
In recent years, domestic insurance companies,
portal websites and professional insurance intermediaries have begun providing online information to consumers interested in purchasing
insurance products. However, each of their insurance e-commerce operations has its own limitations. The insurance products offered
on an insurance company’s website are usually confined to those under its own brand. Most portal websites provide separate
product information with little ability to compare among insurance plans. None of the professional insurance intermediaries that
organize online product distribution has a nation-wide sales and service network to support after-sale service. We believe that
we can compete effectively with these business entities because our independent online insurance platform offers a broad range
of insurance products underwritten by multiple insurance companies, product comparisons between prices, services and policy benefits
and good after-sale services that are backed by our call center and nation-wide service network.
|
|
·
|
Other business entities.
In recent years, business entities that distribute insurance products
as an ancillary business, primarily commercial banks and postal offices, have been playing an increasingly important role in the
distribution of insurance products, especially life insurance products. However, the insurance products distributed by these entities
are mostly confined to those related to their main lines of business, such as investment-related life insurance products. We believe
that we can compete effectively with these business entities because we offer our customers a broader variety of products.
|
In addition to individual insurance products,
we also distribute commercial property and casualty insurance products. As a result, we also compete, to a lesser degree, with
insurance intermediaries that focus on the distribution of commercial property and casualty insurance products. We believe that
we can compete effectively with these business entities because we can leverage our leading position in the distribution of individual
insurance products and provision of property-related claims services, including our strong relationship with insurance companies,
existing abundant customer resources and large distribution network, to rapidly develop our brokerage business.
We compete primarily with the other major claims
adjusting firms in China, particularly Min Tai’an Insurance Surveyors & Loss Adjusters Co., Ltd., or Min Tai’an.
We believe that we can compete effectively with Min Tai’an and other major insurance claims adjusting firms because we offer
our customers a diversified range of claims adjusting services covering property insurance, automobile insurance and marine and
cargo insurance and are able to leverage the business relationships we have developed with insurance companies through the distribution
of property and casualty insurance products.
Intellectual Property
Our brand, trade names, trademarks, trade secrets
and other intellectual property rights distinguish our business platform, services and products from those of our competitors and
contribute to our competitive advantage in the professional insurance intermediary sector. To protect our intellectual property,
we rely on a combination of trademark, copyright and trade secret laws as well as confidentiality agreements with our employees,
sales agents, contractors and others. As of March 31, 2016, we had 35 registered trademarks in China, including our corporate logo.
Our main website is
www.cninsure.net
.
Regulation
Regulations of the Insurance
Industry
The insurance industry in the PRC is highly regulated.
CIRC is the regulatory authority responsible for the supervision of the Chinese insurance industry. Insurance activities undertaken
within the PRC are primarily governed by the Insurance Law and the related rules and regulations.
Initial
Development of Regulatory Framework
The Chinese Insurance Law was enacted in 1995.
The original insurance law, which we refer to as the 1995 Insurance Law, provided the initial framework for regulating the domestic
insurance industry. Among the steps taken under the 1995 Insurance Law were the following:
|
·
|
Licensing of insurance companies and insurance intermediaries, such as agencies and brokerages.
The 1995 Insurance Law established requirements for minimum registered capital levels, form of organization, qualification of senior
management and adequacy of the information systems for insurance companies and insurance agencies and brokerages.
|
|
·
|
Separation of property and casualty insurance businesses and life insurance businesses. The 1995
Insurance Law classified insurance between property, casualty, liability and credit insurance businesses, on the one hand, and
life, accident and health insurance businesses on the other, and prohibited insurance companies from engaging in both types of
businesses.
|
|
·
|
Regulation of market conduct by participants. The 1995 Insurance Law prohibited fraudulent and
other unlawful conduct by insurance companies, agencies and brokerages.
|
|
·
|
Substantive regulation of insurance products. The 1995 Insurance Law gave insurance regulators
the authority to approve the basic policy terms and premium rates for major insurance products.
|
|
·
|
Financial condition and performance of insurance companies. The 1995 Insurance Law established
reserve and solvency standards for insurance companies, imposed restrictions on investment powers and established mandatory reinsurance
requirements, and put in place a reporting regime to facilitate monitoring by insurance regulators.
|
|
·
|
Supervisory and enforcement powers of the principal regulatory authority. The principal regulatory
authority, then the PBOC, was given broad powers under the 1995 Insurance Law to regulate the insurance industry.
|
Establishment
of the CIRC and 2002 Amendments to the Insurance Law
China’s insurance regulatory regime was
further strengthened with the establishment of the CIRC in 1998. The CIRC was given the mandate to implement reform in the insurance
industry, minimize insolvency risk for Chinese insurers and promote the development of the insurance market.
The 1995 Insurance Law was amended in 2002 and
the amended insurance law, which we refer to as the 2002 Insurance Law, became effective on January 1, 2003. The major amendments
to the 1995 Insurance Law include:
|
·
|
Authorizing the CIRC to be the insurance supervisory and regulatory body nationwide. The 2002 Insurance
Law expressly grants the CIRC the authority to supervise and administer the insurance industry nationwide.
|
|
·
|
Expanding the permitted scope of business of property and casualty insurers. Under the 2002 Insurance
Law, property and casualty insurance companies may engage in the short-term health insurance and accident insurance businesses
upon the CIRC’s approval.
|
|
·
|
Providing additional guidelines for the relationship between insurance companies and insurance
agents. The 2002 Insurance Law requires an insurance company to enter into an agent agreement with each insurance agent that will
act as an agent for that insurance company. The agent agreement sets forth the rights and obligations of the parties to the agreement
as well as other matters pursuant to law. An insurance company is responsible for the acts of its agents when the acts are within
the scope authorized by the insurance company.
|
|
·
|
Relaxing restrictions on the use of funds by insurance companies. Under the 2002 Insurance Law,
an insurance company may use its funds to make equity investments in insurance-related enterprises, such as asset management companies.
|
|
·
|
Allowing greater freedom for insurance companies to develop insurance products. The 2002 Insurance
Law allowed insurance companies to set their own policy terms and premium rates, subject to the approval of, or a filing with,
the CIRC.
|
2009
Amendments to the Insurance Law
The 2002 Insurance Law was amended again in 2009
and the amended insurance law, which we refer to as the 2009 Insurance Law, became effective on October 1, 2009. The major amendments
to the 2009 Insurance Law include:
|
·
|
Strengthening protection of the insured’s interests. The 2009 Insurance Law added a variety
of clauses such as incontestable clause, abstained and estoppels clause, common disaster clause and amending immunity clause, claims-settlement
prescription clause, reasons for claims rejection and contract modification clause.
|
|
·
|
Strengthening supervision on the qualification of the shareholders of the insurance companies and
setting forth specific qualification requirements for the major shareholders, directors, supervisors and senior managers of insurance
companies.
|
|
·
|
Expanding the business scope of insurers and further relaxing restriction on the use of fund by
insurers.
|
|
·
|
Strengthening supervision on solvency of insurers with stricter measures.
|
|
·
|
Tightening regulations governing the administration of insurance intermediary companies, especially
those relating to behaviors of insurance agents.
|
According to the 2009 Insurance Law, the minimum
registered capital required to establish an insurance agency or insurance brokerage as a company must comply with the PRC Company
Law. The registered capital or the capital contribution of insurance agencies or insurance brokerages must be paid-up capital in
cash. The 2009 Insurance Law also sets forth some specific qualification requirements for insurance agency and brokerage practitioners.
The senior managers of insurance agencies or insurance brokerages must meet specific qualification requirements, and their appointments
are subject to approval of the CIRC. Personnel of an insurance agency or insurance brokerage engaging in the sales of insurance
products must meet the qualification requirements set by the CIRC and obtain a qualification certificate issued by the CIRC. Under
the 2009 Insurance Law, the parties to an insurance transaction may engage insurance adjusting firms or other independent appraisal
firms that are established in accordance with applicable laws, or persons who possess the requisite professional expertise, to
conduct assessment and adjustment of the insured subject matters. Additionally, the 2009 Insurance Law specifies additional legal
obligations for insurance agencies and brokerages.
2014
Amendments to the Insurance Law
The 2002 Insurance Law was amended again in 2014
and the amended insurance law, which we refer to as the 2014 Insurance Law, became effective on August 31, 2014. The major amendments
of the 2014 Insurance Law include:
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Relaxing restrictions on
actuaries.
The 2014 Insurance Law no longer requires Insurance companies shall employ actuaries recognized by the insurance regulatory authority
under the State Council. However, an insurance company shall also engage professionals, and establish an actuarial reporting system
and a compliance reporting system as before.
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2015
Amendments to the Insurance Law
The 2014 Insurance Law was amended again in 2015
and the amended insurance law, which we refer to as the 2015 Insurance Law, became effective on April 24, 2015. The major amendments
of the 2015 Insurance Law include:
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Eliminating the requirement for an insurance agent or broker to obtain a qualification certificate
issued by the CIRC before providing any insurance agency or brokerage services.
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Relaxing the requirement for the establishment or other significant corporate events of an insurance
agency or brokerage firm. For example, an insurance agency or brokerage firm is allowed to apply for a business permit from the
CIRC and a business license from the local AIC simultaneously under the 2015 Insurance Law, while an insurance agency or brokerage
firm had to apply for and receive a business permit issued by the CIRC before it could apply for a business license from and register
with the relevant local AIC under the 2014 Insurance Law. Prior approval by the CIRC is no longer required for the divesture or
mergers of insurance agencies or brokerage firms, the change of their organizational form, or the establishment or winding-up of
a branch by an insurance agency or brokerage firm.
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The CIRC
The CIRC has extensive authority to supervise
insurance companies and insurance intermediaries operating in the PRC, including the power to:
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promulgate regulations applicable to the Chinese insurance industry;
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investigate insurance companies and insurance intermediaries;
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establish investment regulations;
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approve policy terms and premium rates for certain insurance products;
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set the standards for measuring the financial soundness of insurance companies and insurance intermediaries;
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require insurance companies and insurance intermediaries to submit reports concerning their business
operations and condition of assets;
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order the suspension of all or part of an insurance company or an insurance intermediary’s
business;
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approve the establishment, change and dissolution of an insurance company, an insurance intermediary
or their branches;
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review and approve the appointment of senior managers of an insurance company, an insurance intermediary
or their branches; and
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punish insurance companies or intermediaries for improper behaviors or misconducts.
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Regulation
of Insurance Agencies
The principal regulation governing insurance
agencies in China is the Provisions on the Supervision of Professional Insurance Agencies, or the POSPIA, promulgated by the CIRC
on September 18, 2009 and effective on October 1, 2009, which has been amended by (i) the Decision on Revising the POSPIA issued
by the CIRC and effective on April 27, 2013, and (ii) the second amendment to the POSPIA issued by the CIRC and effective on October
19, 2015. According to the POSPIA, the establishment of an insurance agency is subject to minimum registered capital requirement
and other requirements and to the approval of the CIRC. The term “insurance agency” refers to an entity that meets
the qualification requirements specified by the CIRC, has obtained the license to conduct an insurance agency business with the
approval of the CIRC, engages in the insurance business by and within the authorization of, and which collects commissions from,
insurance companies. An insurance agency may take any of the following forms: (i) a limited liability company; or (ii) a joint
stock limited company. According to the CIRC’s Decision on Revising the Regulatory Provisions on Professional Insurance Agencies,
or the Insurance Agency Decision, promulgated on April 27, 2013, unless otherwise stipulated by the CIRC, the minimum registered
capital for establishing a new insurance agency is RMB50 million instead of RMB2 million for a regional insurance agency and RMB10
million for a nationwide insurance agency as previously required. An additional increase of registered capital is no longer required
to establish a branch or sales office. Pursuant to the Notice of the CIRC on Further Clarifying Certain Issues Relating to the
Access to the Professional Insurance Intermediary Market, a professional insurance agency that was established prior to the promulgation
of the Insurance Agency Decision and has a registered capital of no more than RMB50 million may apply to establish branches only
in the province in which it is registered. A professional insurance agency company that was established prior to the promulgation
of the Insurance Agency Decision, has a registered capital of not more than RMB50 million and has already established branches
in provinces other than its place of registration may apply to establish additional branches in those provinces. An insurance agency
may engage in the following insurance agency businesses:
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selling insurance products on behalf of the insurance companies;
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collecting insurance premiums on behalf of the insurance companies;
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conducting loss surveys and handling claims of insurance businesses on behalf of the insurer principal;
and
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other business activities approved by the CIRC.
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The name of an insurance agency must contain
the words “insurance agency” or “insurance sales.” The license of an insurance agency is valid for a period
of three years. An insurance agency shall submit a written report to the CIRC within five days from the date of occurrence of any
of the following matters:(i) change of name or a branch’s name;(ii) change of domicile or a branch's business premises;(iii)
change of names of sponsors or major shareholders;(iv) change of major shareholders;(v) change of registered capital;(vi) major
changes to equity structure;(vii) amendment to the articles of association; (viii) divestment of a branch; (ix) establishment of
a branch; (x) spin-off of or merger with an insurance agency or (xi) changes of organizational form. According to the Measures
on the Supervision and Administration of Insurance Brokers and Insurance Claims Adjustors issued by the CIRC in January 2013, personnel
of an insurance agency and its branches engaging in the sales of insurance products or relevant loss survey and claim settlement
shall comply with the conditions prescribed by the CIRC. The senior managers of an insurance agency or its branches must meet specific
qualification requirements set forth in the revised Regulatory Provisions on Professional Insurance Agencies. The appointment of
the senior managers of an insurance agency or its branches is subject to review and approval of the CIRC.
Regulation
of Insurance Brokerages
The principal regulation governing insurance
brokerages is the Provisions on the Supervision of Insurance Brokerages, or the POSIB, promulgated by the CIRC on September 18,
2009 and effective on October 1, 2009, which has been amended by (i) the Decision on Revising the POSIB issued by the CIRC and
effective on April 27, 2013, and (ii) the amendment to the POSIB issued by the CIRC and effective on October 19, 2015. According
to the POSIB, the establishment of an insurance brokerage is subject to the approval of the CIRC. The term “insurance brokerage”
refers to an entity engaging in the insurance brokering business that meets the qualification requirements specified by the CIRC
and has obtained the license to operate an insurance brokering business with the approval of the CIRC. Insurance brokering business
includes both direct insurance brokering, which refers to brokering activities on behalf of insurance applicants or the insured
in their dealings with the insurance companies, and reinsurance brokering, which refers to brokering activities on behalf of insurance
companies in their dealings with reinsurance companies. An insurance brokerage may take any of the following forms: (i) a limited
liability company; or (ii) a joint stock limited company. According to the Decision on Revising the Regulatory Provisions on the
Supervision of Insurance Brokerages, or the Insurance Brokerage Decision, promulgated on April 27, 2013, unless otherwise stipulated
by the CIRC, the minimum registered capital for establishing a new insurance brokerage is RMB50 million instead of RMB10 million
as previously required. An additional increase of registered capital is no longer required for establishing a branch or sales office.
Pursuant to the Notice of the CIRC on Further Clarifying Certain Issues Relating to the Access for Professional Insurance Intermediary
Companies Market, a professional insurance brokerage company that was established prior to the promulgation of the Insurance Brokerage
Decision and has a registered capital of no more than RMB50 million may apply to establish branches only in the province in which
it is registered. A professional insurance brokerage company that was established prior to the promulgation of the Insurance Brokerage
Decision, has a registered capital of not more than RMB50 million and has already established branches in provinces other than
its place of registration may apply to establish additional branches in those provinces. Insurance brokerage companies that provide
internet insurance services must have a registered capital of not less than RMB50 million, unless they were already engaged in
internet insurance services prior to the promulgation of the Insurance Brokerages Decision.
An insurance brokerage may conduct the following
insurance brokering businesses:
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making insurance proposals, selecting insurance companies and handling the insurance application
procedures for the insurance applicants;
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assisting the insured or the beneficiary to claim compensation;
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reinsurance brokering business;
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providing consulting services to clients with respect to disaster and damage prevention, risk assessment
and risk management; and
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other business activities approved by the CIRC.
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The name of an insurance brokerage must contain
the words “insurance brokerage.” The license of an insurance brokerage is valid for a period of three years. An insurance
brokerage shall submit a written report to the CIRC within five days from the date of occurrence of any of the following matters:
(i) change of name or a branch’s name; (ii) change of domicile or a branch's business premises; (iii) change of names of
sponsors or major shareholders; (vi) change of major shareholders; (v) change of registered capital; (vi) major changes to equity
structure; (vii) amendment to the articles of association; or (viii) divestment of a branch. Personnel of an insurance brokerage
and its branches who engage in any of the insurance brokering businesses described above must comply with the qualification requirements
prescribed by the CIRC. The senior managers of an insurance brokerage must meet specific qualification requirements set forth in
the Provisions on the Supervision of Insurance Brokerages. Appointment of the senior managers of an insurance brokerage is subject
to review and approval by the CIRC.
Regulation
of Insurance Claims Adjusting Firms
The principal regulations governing insurance
adjusting firms are the Provisions on the Supervision of Insurance Claims Adjusting Firms, or the POSICAF, issued by the CIRC on
September 18, 2009 and effective on October 1, 2009, which has been amended by (i) the Decision on Revising the POSICAF issued
by the CIRC on September 29, 2013 and effective on December 1, 2013, and (ii) the amendment to POSICAF issued by the CIRC and effective
on October 19, 2015, or the 2015 Amendment. According to the POSICAF, the term “insurance adjusting firm” refers to
an entity that is established in accordance with applicable laws and regulations and with the approval of the CIRC and engages
in the assessment, survey, authentication, loss estimation and adjustment of the insured subject matters upon the entrustment of
the parties concerned. An insurance adjusting firm may take any of the following forms: (i) a limited liability company; (ii) a
joint stock limited company; or (iii) a partnership.
Upon approval of the CIRC, an insurance adjusting
firm may engage in the following businesses:
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inspecting, appraising the value of and assessing the risks of the subject matter before it is
insured;
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surveying, inspecting, estimating the loss of and adjusting the insured subject matter after loss
has been incurred;
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risk management consulting; and
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other business activities approved by the CIRC.
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The name of an insurance adjusting firm must
contain the words “insurance adjusting” and must avoid duplicating names of existing insurance claims adjusting firms.
The license of an insurance adjusting firm is valid for a period of three years. In any of the following situations, an insurance
adjusting firm shall submit a written report to the CIRC when it within five days from the date the resolution for change has been
passed: (i) change of name or a branch’s name; (ii) change of domicile or a branch's business premises; (iii) change of names
of sponsor, major shareholders or capital contributors; (iv) change of major shareholders or capital contributors; (v) major changes
to the equity structure or the proportion of capital contributions; (vi) change of registered capital or capital contributions;
(vii) amendment to the articles of association or the partnership agreement; (viii) division, merger and dissolution or any change
in the form of organization; (ix) divestment of a branch; (ix) establishment of a branch; (x) division of or merger with an insurance
agency or (xi) change of organizational form. Personnel of an insurance adjusting firm or its branches engaged in any of the insurance
adjusting businesses described above comply with the qualification requirements prescribed by the CIRC. The senior managers of
an insurance adjusting firm must meet specific qualification requirements set forth in the Provisions on the Supervision of Insurance
Claims Adjusting Firms. Appointment of the senior managers of an insurance adjusting firm or its branches is subject to review
and approval by the CIRC.
Regulation
of Ancillary-Business Insurance Agencies
The principal regulation governing ancillary-business
insurance agencies is the Interim Measures on the Administration of Ancillary-Business Insurance Agency issued by the CIRC on and
effective as of August 4, 2000. The term “ancillary-business insurance agencies” refer to entities that are engaged
by insurers to handle insurance business on behalf of insurers while concurrently engaging in another non-insurance-related business.
Ancillary-business insurance agencies must meet the qualifications requirements set forth in this regulation. Upon reviewing and
approving the qualifications of an entity applying to become an ancillary-business insurance agency, the CIRC will issue a “License
for Ancillary-Business Insurance Agency,” which will be valid for three years. An ancillary-business insurance agency may
only undertake insurance business on behalf of one insurance company, and the scope of the undertaken business is limited to the
scope specified in the License for Ancillary- Business Insurance Agency.
Regulation
of Insurance Salespersons
The principal regulation governing individual
insurance salespersons is the Measures on the Supervision and Administration of Insurance Salespersons issued by the CIRC on January
6, 2013 and effective on July 1, 2013, which replaced the Provisions on the Administration of Insurance Salespersons promulgated
on April 6, 2006 and effective on July 1, 2006. Under this regulation, the term “insurance salesperson” refers to an
individual who sells insurance products for an insurance company, including those who are engaged by insurance companies or by
insurance agencies. The person must have a college degree or above to be qualified for the examination. A person must be registered
with the CIRC’s Insurance Intermediaries Regulatory Information System and obtain a “Practice Certificate of Insurance
Salespersons” issued by the insurance company or insurance agency to which he or she belongs in order to conduct insurance
sales activities.
Pursuant to the 2015 Insurance Law and the amended
POSPIA, a sales person is no longer required to pass the qualification examination organized by the CIRC or insurance industry
committees to obtain a Qualification Certificate.
Regulation of Insurance Brokers and Insurance
Adjustors
The principal regulation governing insurance
brokerage practitioners and insurance adjustment practitioners is the Measures on the Supervision and Administration of Insurance
Brokers and Insurance Claims Adjustors issued by the CIRC on January 6, 2013 and effective on July 1, 2013. The person must have
a college degree or above to be qualified for the examination. A person also must be registered with the CIRC’s Insurance
Intermediary Supervision Information System and obtain a “Practice Certificate of Insurance Brokers” or “Practice
Certificate of Claims Adjustors” issued by the insurance brokerage firm or insurance claims adjusting company to which he
or she belongs in order to conduct insurance brokerage or claims adjustment activities. An insurance broker is not allowed to conduct
insurance brokerage activities on behalf of himself or herself.
Pursuant to the 2015 Insurance Law and the amended
POSIB and POSICAF, an insurance brokerage practitioners or insurance claims adjustment practitioners is no longer required to pass
the qualification examination organized by the CIRC or insurance industry committees to obtain a “Qualification Certificate
of Insurance Brokers” or a “Qualification Certificate of Claims Adjustors.”
Regulation of Insurance Intermediary Service
Group Companies
The principal regulation governing insurance
intermediary groups is the Provisional Measures for Supervision and Administration of the Insurance Intermediary Service Group
Companies (for Trial Implementation) issued by the CIRC on September 22, 2011 with immediate effect. According to the regulation,
the term “insurance intermediary service group company” refers to a professional insurance intermediary company that
is established in accordance with applicable laws and regulations and with the approval of the CIRC that exercises sole or shared
control of, or is able to exert major influence over, at least two subsidiaries that are professional insurance intermediary companies
primarily engaged in the insurance intermediary business.
An insurance intermediary service group company
must have:
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a registered capital of at least RMB100 million;
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no record of material violation by investors of applicable laws and regulations in the previous
three years; and
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at least five subsidiaries, among which at least two are professional insurance intermediary companies
which contribute at least 50% of the total revenues of the group.
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The name of an insurance intermediary service
group must contain the words “Group” or “Holding.” Its principal business must be equity investment, management
and provision of supporting services. An insurance intermediary service group company shall, submit a written report to the CIRC
and its local counterparts at the place of registration within five working days after the date of occurrence of the following:
(i) changing its registered name or address; (ii) changing its registered capital; (iii) changing its equity structure by more
than 5% or shareholders holding more than 5% of shares; (iv) changing its articles of association; (v) establishing, acquiring,
merging or closing its subsidiary; (vi) engaging in related party transactions between member companies; (vii) disincorporating;
(viii) significantly changing its business scope; or (ix) making a major strategic investment, suffering a significant investment
loss or experiencing other material events or emergencies that affect or may affect the business management, financial status or
risk control of the group. Senior managers of an insurance intermediary service group company must meet specific qualification
requirements and appointment of the senior managers of an insurance intermediary service group company is subject to review and
approval by the CIRC.
Content
Related to Insurance Industry in the Legal Documents of China’s Accession to the WTO
According to the Circular of the CIRC on Distributing
the Content Related to Insurance Industry in the Legal Documents of China’s Accession to the World Trade Organization, or
WTO, for the life insurance sector, within three years of China’s accession to the WTO on December 11, 2001, geographical
restrictions were to be lifted, equity joint venture companies allowed to provide health insurance, group insurance, and pension/annuity
services to Chinese citizens and foreign citizens, and for there to be no other restrictions except those on the proportion of
foreign investment (no more than 50%) and establishment conditions. For the non-life insurance sector, within three years of China’s
accession, the geographical restrictions were to be lifted and no restrictions allowed other than establishment conditions. For
the insurance brokerage sector, within five years of China’s accession, the establishment of wholly foreign-funded subsidiary
companies was to be allowed, and no restriction other than establishment conditions and restrictions on business scope.
Content
Related to Insurance Industry in the Closer Economic Partnership Arrangements
Under CEPA Supplement IV signed in July 2007
and CEPA Supplement VIII signed in December 2011, local insurance agencies in Hong Kong and Macao are allowed to set up wholly-owned
insurance agency companies and conduct insurance intermediary businesses in Guangdong Province (including Shenzhen) on a pilot
basis if they fulfill the following criteria:
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The applicant must have operated an insurance brokerage businesses in Hong Kong and Macao for over
10 years;
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The applicant's average annual revenue of insurance brokerage business for the past three years
before application must not be less than HKD500,000 and the total assets as at the end of the year before application must not
be less than HKD500,000;
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Within the years before application, there has been no serious misconduct or record of disciplinary
action; and
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The applicant must have set up a representative office in mainland China for over one year
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Regulations on Online Financial
Services
On July 18, 2015, ten PRC regulatory agencies,
including the PBOC, the CIRC and the CBRC, jointly issued the Guidelines on Promoting the Healthy Development of Internet Finance,
or the Guidelines. The Guidelines encourage insurance companies to leverage Internet technology to transform and upgrade traditional
financial services. The Guidelines also support financial institutions to build innovative international platforms that could conduct
internet insurance business.
The Guidelines set out the basic principles for
promoting the development and the administration of the online insurance sector. The respective regulatory agencies will adopt
new rules and regulations to implement and enforce the principles set out in the Guidelines. As the implementing rules and regulations
of the Guidelines have not been published, there is uncertainty as to how the requirements in the Guidelines will be interpreted
and implemented.
Regulations on Foreign Exchange
Foreign
Currency Exchange
Foreign exchange regulation in China is primarily
governed by the following rules:
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Foreign Currency Administration Rules (1996), as amended pursuant to the Decision on Revising the
Foreign Currency Administration Rules promulgated by the State Council on January 14, 1997 and the Foreign Currency Administration
Rules promulgated by the State Council on August 5, 2008; and
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Administration Rules of the Settlement, Sale and Payment of Foreign Exchange.
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Under the Foreign Currency Administration Rules,
the RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related
foreign exchange transactions. Conversion of RMB for capital account items, such as direct investment, loan, security investment
and repatriation of investment, however, is still subject to the approval of the SAFE.
Under the Administration Rules of the Settlement,
Sale and Payment of Foreign Exchange, foreign-invested enterprises may only buy, sell or remit foreign currencies at those banks
authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account
item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are also
subject to limitations, which include approvals by the Ministry of Commerce, the SAFE and the State Development and Reform Commission.
Foreign
Exchange Registration of Offshore Investment by PRC Residents
Pursuant to the SAFE Circular 37, issued on July
4, 2014, prior to making contribution to a SPC with legitimate holdings of domestic or overseas assets or interests, a PRC resident
(including PRC institutions and resident individuals) shall apply to the relevant Foreign Exchange Bureau for foreign exchange
registration of overseas investment. A PRC resident who makes contribution with legitimate holdings of domestic assets or interests
shall apply for registration to the Foreign Exchange Bureau at its place of registration or the Foreign Exchange Bureau at the
locus of the assets or interests of the relevant PRC enterprise. A PRC resident who makes contribution with legitimate holdings
of overseas assets or interests shall apply for registration to the Foreign Exchange Bureau at its place of registration or household
register. Where a registered overseas SPC experiences changes of its PRC resident individual shareholder, its name, operating period
or other basic information, or experiences changes of material matters, such as the increase or reduction of contribution by the
PRC resident individual, the transfer or replacement of equity, or merger or division, the PRC resident shall promptly change the
foreign exchange registration of overseas investment with the Foreign Exchange Bureau concerned. Under SAFE Circular 37, failure
to comply with the registration procedures set forth above may result in the penalties, including imposition of restrictions on
a PRC subsidiary’s foreign exchange activities and its ability to distribute dividends to the SPV. See “Item 3. Key
Information — D. Risk Factors — Risks Related to Doing Business in China — PRC regulations relating to the establishment
of offshore special purpose companies by PRC residents and employee stock options granted by overseas-listed companies may increase
our administrative burden, restrict our overseas and cross-border investment activity, or otherwise adversely affect us. If our
shareholders who are PRC residents, or our PRC employees who are granted or exercise stock options, fail to make any required registrations
or filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.
SAFE
Regulations on Employee Share Options
On December 25, 2006, the PBOC promulgated the
“Measures for the Administration of Individual Foreign Exchange,” and on January 5, 2007, the SAFE further promulgated
the implementation rules on those measures. Both became effective on February 1, 2007. According to the implementation rules, PRC
citizens who are granted shares or share options by a company listed on an overseas stock market according to its employee share
option or share incentive plan are required, through the PRC subsidiary of such overseas listed company or any other qualified
PRC agent, to register with the SAFE and to complete certain other procedures related to the share option or other share incentive
plan. Foreign exchange income received from the sale of shares or dividends distributed by the overseas listed company may be remitted
into a foreign currency account of such PRC citizen or be exchanged into Renminbi. Our PRC citizen employees who have been granted
share options are subject to the Individual Foreign Exchange Rules.
On March 28, 2007, SAFE promulgated the Operating
Rules for Administration of Foreign Exchange in Domestic Individuals’ Participation in Employee Stock Ownership Plans and
Stock Option plans of Companies Listed Abroad, or the Operating Rules, or the Operating Rules. Stock Option Rule. On February 15,
2012, SAFE promulgated the No. 7 Notice, which supersedes the Stock Option Rule in its entirety and immediately became effective
upon circulation. According to the No. 7 Notice, domestic individuals, which include any directors, supervisors, senior managerial
personnel or other employees of a domestic company who are Chinese citizens (including citizens of Hong Kong, Macao and Taiwan)
or foreign individuals who consecutively reside in the territory of PRC for one year, who participate in the same equity incentive
plan of an overseas listed company shall, through the domestic companies they serve, collectively entrust a domestic agency to
handle issues like foreign exchange registration, account opening, funds transfer and remittance, and entrust an overseas institution
to handle issues like exercise of options, purchasing and sale of related stocks or equity, and funds transfer. Where a domestic
agency needs to remit funds out of China as required for individuals’ participation in an equity incentive plan, the domestic
agency shall apply with the local office of the SAFE for a foreign exchange payment quota on a yearly basis. A domestic agency
shall open a domestic special foreign exchange account in the bank. After repatriation of foreign currency income earned by individuals
from participation in an equity incentive plan, the domestic agency shall request the bank to transfer the funds from its special
foreign currency account to respective personal foreign currency deposit accounts. In the case of any significant change to the
equity incentive plan of a company listed abroad (such as amendment to any major terms of the original plan, addition of a new
plan, or other changes to the original plan due to merger, acquisition or reorganization of the overseas listed company or the
domestic company or other major events), the domestic agency or the overseas trustee, the domestic agency shall, within three months
of the occurrence of such changes, go through procedures for change of foreign exchange registration with the local office of the
SAFE. The SAFE and its branches shall supervise, administer and inspect foreign exchange operations related to individuals’
participation in equity incentive plans of companies listed abroad, and may take regulatory measures and impose administrative
sanctions on individuals, domestic companies, domestic agencies and banks violating the provisions of the No. 7 Notice.
We and our employees who have been granted applicable
equity awards shall be subject to the No. 7 Notice. If we fail to comply with the No. 7 Notice, we and/or our employees who are
subject to the No. 7 Notice may face sanctions imposed by foreign exchange authority or any other PRC government authorities.
Regulations on Dividend Distribution
The principal regulations governing dividend
distributions of wholly foreign-owned companies include:
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Wholly Foreign-Owned Enterprise Law (1986), as amended pursuant to the Decision of the Standing
Committee of the National People's Congress on Revising the Wholly Foreign-Owned Enterprise Law promulgated on October 31, 2000;
and
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Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended pursuant to the Decision
of the State Council on Amending the Rules for the Implementation of the Law on Foreign-Owned Enterprises promulgated by the State
Council on April 12, 2001 and the Decision of the State Council on Revising the "Detailed Implementing Rules for the Wholly
Foreign-Owned Enterprise Law which took effect as of the promulgation date of March 1, 2014.
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Under these regulations, wholly foreign-owned
companies in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards.
In addition, these wholly foreign-owned companies are required to set aside at least 10% of their respective accumulated profits
each year, if any, to fund certain reserve funds, until the accumulative amount of such fund reaches 50% of its registered capital.
These reserve funds are not distributable as cash dividends.
Regulation on Overseas Listing
On August 8, 2006, six PRC regulatory agencies,
namely, the PRC Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for
Taxation, the State Administration for Industry and Commerce, the CSRC and the SAFE, jointly adopted the Provisions on Foreign
Investors' Merger with and Acquisition of Domestic Enterprises, or the Order No. 10 (2006) which became effective on September
8, 2006. The Order No. 10 (2006) purports, among other things, to require offshore SPVs, formed for overseas listing purposes and
controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an
overseas stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials
required to be submitted to it by SPVs seeking CSRC approval of their overseas listings.
At the time of our initial public offering in
October 2007, while the application of the M&A Rule remained unclear, our then PRC counsel at the time, Commerce & Finance
Law Offices, had advised us that, based on their understanding of the then PRC laws and regulations as well as the procedures announced
on September 21, 2006:
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the CSRC had jurisdiction over our initial public offering;
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the CSRC had not issued any definitive rule or interpretation concerning whether offerings like
our initial public offering are subject to the M&A Rule; and
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despite the above, given that we had completed our inbound investment before September 8, 2006,
the effective date of the M&A Rule, an application was not required under the M&A Rule to be submitted to the CSRC for
its approval of the listing and trading of our ADSs on the Nasdaq Global Market, unless we are clearly required to do so by subsequent
rules of the CSRC.
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See “Item 3. Key Information — D.
Risk Factors — Risks Related to Doing Business in China — The approval of the China Securities Regulatory Commission,
or the CSRC, may have been required in connection with our initial public offering in October 2007 under a PRC regulation adopted
in August 2006. Based on the advice of our PRC counsel, we did not seek CSRC’s approval for our initial public offering.
Any requirement to obtain prior CSRC approval and a failure to obtain this approval, if required, could have a material adverse
effect on our business, operating results, reputation and trading price of our ADSs.”
Regulations on Tax
PRC
Enterprise Income Tax
The PRC EIT is calculated based on the taxable
income determined under the PRC accounting standards and regulations, as well as the EIT law. On March 16, 2007, the National People’s
Congress of China enacted the EIT Law, a new EIT law which became effective on January 1, 2008. On December 6, 2007, the State
Council promulgated the Implementation Rules which also became effective on January 1, 2008. On December 26, 2007, the State
Council issued the Notice on Implementation of Enterprise Income Tax Transition Preferential Policy under the EIT Law, or the Transition
Preferential Policy Circular, which became effective simultaneously with the EIT Law. The EIT Law imposes a uniform EIT rate of
25% on all domestic enterprises and foreign-invested enterprises unless they qualify under certain exceptions. Under the EIT Law,
as further clarified by the Implementation Rules, the Transition Preferential Policy Circular and other related regulations, enterprises
that were established and already enjoyed preferential tax treatments before March 16, 2007 will continue to enjoy them in the
following manners: (i) in the case of preferential tax rates, for a five-year period starting from January 1, 2008, during which
the tax rate will gradually increase to 25%; or (ii) in the case of preferential tax exemption or reduction for a specified term,
until the expiration of such term. However, if such an enterprise has not enjoyed the preferential treatments yet because of its
failure to make a profit, its term for preferential treatment will be deemed to start from 2008. See “Item 3. Key Information
— D. Risk Factors — Risks Related to Doing Business in China — The PRC Enterprise Income Tax Law may increase
the enterprise income tax rate applicable to some of our PRC subsidiaries and consolidated affiliated entities, which could have
a material adverse effect on our result of operations.”
Under the New Income Tax law, enterprises are
classified as either resident or non-resident. A resident enterprise refers to one that is incorporated under the PRC law or under
the law of a jurisdiction outside the PRC with its "de facto management organization" located within the PRC. Non-resident
enterprise refers to one that is incorporated under the law of a jurisdiction outside the PRC with its "de facto management
organization" located also outside the PRC, but which has either set up institutions or establishments in the PRC or has income
originating from the PRC without setting up any institution or establishment in the PRC. Under the New Enterprise Income Tax, Implementation
Regulation, or the New EIT Implementation Regulations, "de facto management organization" is defined as the organization
of an enterprise through which substantial and comprehensive management and control over the business, operations, personnel, accounting
and properties of the enterprise are exercised. Under the New Income Tax Law and the New EIT Implementation Regulation, a resident
enterprise’s global net income will be subject to a 25% EIT rate. On April 22, 2009, the State Administration of Taxation,
or the SAT, issued SAT Circular 82, which provides certain specific criteria for determining whether the "de facto management
body" of a PRC-controlled enterprise that is incorporated offshore is located in China. In addition, the SAT issued a bulletin
on July 27, 2011 providing more guidance on the implementation of Circular 82 and clarifies matters such as resident status determination.
Due to the present uncertainties resulting from the limited PRC tax guidance on this issue and because substantially all of our
operations and all of our senior management are located within China, we may be considered a PRC resident enterprise for EIT purposes,
in which case: (i) we would be subject to the PRC EIT at the rate of 25% on our worldwide income; and (ii) dividends income received
by us from our PRC subsidiaries, however, would be exempt from the PRC withholding tax since such income is exempted under the
EIT Law for a PRC resident enterprise recipient. See “Item 3. Key Information — D.Risk Factors — Risks Related
to Doing Business in China — Our global income or the dividends we receive from our PRC subsidiaries may be subject to PRC
tax under the EIT Law, which could have a material adverse effect on our results of operations.”
PRC
Business Tax
Taxpayers providing taxable services in China are required to pay
a business tax at a normal tax rate of 5% of their revenues, unless otherwise provided. According to the Announcement on the VAT
Reform Pilot Program of the Transportation and Selected Modern Service Sectors issued by the State Tax Bureau in July 2012, the
transportation and some selected modern service sectors, including research and development and technical services, information
technology services, cultural creative services, logistics support services, tangible personal property leasing services, and
assurance and consulting service sectors, should pay value-added tax instead of business tax based on a predetermined timetable
(hereinafter referred to as the “VAT Reform”), effective September 1, 2012 for entities in Beijing and November 1,
2012 for entities in Guangdong. The VAT Reform expanded nation-wide from August 1, 2013. In March 2016,
during the fourth session of the 12th National People’s
Congress, it was announced that the VAT reform will be fully rolled out and extended to all industries including construction,
real estate, financial services and lifestyle services. Subsequently, the SAT and Ministry of Finance jointly issued a Notice on
Preparing for the Full Implementation of the VAT Reform (Cai Shui [2016] No. 32). Accordingly, we will pay value-added tax instead
of business tax starting from May 1, 2016. We are in the process of evaluating the impact on our consolidated financial statements.
Dividend
Withholding Tax
Under the PRC tax laws effective prior to January
1, 2008, dividends paid to foreign investors by foreign-invested enterprises are exempt from PRC withholding tax. Pursuant to the
EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries through
our BVI subsidiary are subject to a 10% withholding tax, provided that we are determined by the relevant PRC tax authorities to
be a “non-resident enterprise” under the EIT Law. Pursuant to the Double Taxation Arrangement, which became effective
on January 1, 2007, dividends from our PRC subsidiaries paid to us through our Hong Kong subsidiary InsCom HK Limited, in which
we indirectly hold a 65.1% equity interest, may be subject to a withholding tax at a rate of 5%. However, as described above, we
may be considered a PRC resident enterprise for EIT purposes, in which case dividends received by us from our PRC subsidiary would
be exempt from the PRC withholding tax because such income is exempted under the EIT Law for a PRC resident enterprise recipient.
As there remains uncertainty regarding the interpretation
and implementation of the EIT Law and the Implementation Rules, it is uncertain whether any dividends to be distributed by us,
if we are deemed a PRC resident enterprise, to our non-PRC shareholders and ADS holders would be subject to any PRC withholding
tax. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Under
the EIT Law, dividends payable by us and gains on the disposition of our shares or ADSs could be subject to PRC taxation.”
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C.
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Organizational Structure
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Principal Changes in Corporate Structure
Historically, PRC laws and regulations restricted
foreign investment in and ownership of insurance intermediary companies. Accordingly, we conducted our business in China through
contractual arrangements among our PRC subsidiaries, consolidated affiliated entities and their shareholders.
Changes in relation to Meidiya Investment
and Yihe Investment
Prior to March 2009, three individuals, Mr. Jianguo
Cui, or Mr. Cui, Mr. Zhenyu Wang and Mr. Lai held 24.7%, 26.4% and 48.9%, respectively, of the equity interests in each of
Meidiya Investment, and Yihe Investment. Mr. Cui and Mr. Zhenyu Wang were designated by two of our former shareholders, Cathay
Auto Services Limited and CDH Inservice Limited, or CDH Inservice, respectively, and Mr. Lai was our former president and co-founder.
In March 2009, Mr. Cui and Mr. Zhenyu Wang transferred
all of their respective equity interests in Meidiya Investment and Yihe Investment to Mr. Ge, our chief financial officer. Following
these transfers, Mr. Lai and Mr. Ge, both of whom are PRC citizens, held 48.9% and 51.1%, respectively, of the equity interests
in each of Meidiya Investment and Yihe Investment.
In October 2010 and February 2011, our
wholly-owned PRC subsidiary, Shenzhen Fanhua Nanfeng Investment Holding Co., Ltd. or Shenzhen Nanfeng Investment, subscribed
for 20% of the equity interests in each of Yihe Investment and Meidiya Investment. In February 2012, Shenzhen Nanfeng
Investment subscribed for additional interests in Meidiya Investment, increasing its shareholding in Meidiya Investment from
20% to 90%, and diluting the interests of Mr. Lai and Mr. Ge to 5.1% and 4.9%, respectively.
In August 2011, CISG Holdings acquired Minkfair
Insurance Management Limited, or Minkfair, a Hong Kong company whose principal business is insurance distribution in Hong Kong.
Subsequently, CNinsure Holdings Ltd., or CNinsure Holdings, a wholly-owned subsidiary of CISG Holdings, issued 1,000 of its shares
to Minkfair. At the same time, CNinsure Holdings repurchased from CISG Holdings one ordinary share of CNinsure Holdings for total
consideration of US$1.00. As a result of these transactions, Minkfair directly owns 100% of the equity interests in CNinsure Holdings.
In October 2012, we obtained license approval
from the CIRC to establish an insurance sales service group company and renamed Shenzhen Nanfeng Investment as “CNinsure
Insurance Sales Service Group Company Limited”, or CNinsure Group Company, to serve as the holding company of our PRC operating
entities.
Since May 2012, Meidiya Investment and Yihe Investment
have transferred their equity interests in five of our subsidiaries, including CNinsure Lianxing and CNinsure Times, both of which
have national operating licenses, to CNinsure Group Company. Meidiya Investment and Yihe Investment have either transferred the
equity interests in all of the insurance agencies and one brokerage company in which they owned 100% or majority equity interest
to CNinsure Lianxing or CNinsure Times, or transferred the business of these operating entities to the branches of CNinsure Lianxing
or CNinsure Times.
In January 2015, Mr. Lai and Mr. Ge transferred
their respective equity interests in Meidiya Investment to CNinsure Group Company, our wholly-owned subsidiary. In addition, the
contractual arrangements among Meidiya Investment, and their respective shareholders and subsidiaries were terminated. Consequently,
Meidiya Investment became our wholly-owned subsidiary and ceased being a consolidated affiliated entity.
In December 2015, Mr. Lai transferred his equity
interests in Yihe Investment to Zhonglian Enterprise and Mr. Ge transferred his equity interests in Yihe Investment to Xinlian
Information. As a result, Zhonglian Enterprise, Xinlian Information and CNinsure Group Company owns 39.1%, 40.9% and 20% of the
equity interests of Yihe Investment, respectively. In addition, the contractual arrangements among Yihe Investment and their respective
shareholders and subsidiaries were terminated. Consequently, Yihe Investment became our wholly-owned subsidiary and ceased being
a consolidated affiliated entity.
Changes in relation to InsCom Holdings and
its Affiliates
In July 2010, CISG Holdings, our wholly owned
subsidiary, acquired a 65.1% interest in InsCom Holdings to build our e-commerce platform.
Prior to April 26, 2011, two individual shareholders,
Mr. Chunlin Wang, our chief executive officer, and Mr. Tian, vice president of our e-commerce insurance unit, held 95% and 5%,
respectively, of the equity interests in Xinbao Investment. In April 2011, Ying Si Kang Information Technology (Shenzhen) Co.,
Ltd., or Ying Si Kang Information, a then wholly-owned PRC subsidiary of InsCom Holdings, Mr. Chunlin Wang and Mr. Tian contributed
RMB2.0 million, RMB7.5 million and RMB0.5 million, respectively, to increase the registered capital of Xinbao Investment. In March
2013, Ying Si Kang Information withdrew its capital contribution in Xinbao investment. As a result, Mr. Chunlin Wang and Mr. Tian
now hold 93.75% and 6.25%, respectively, of the equity interests in Xinbao Investment.
In March 2014, InsCom HK Limited, a wholly-owned
subsidiary of InsCom Holdings, transferred its 100% equity interest in Ying Si Kang Information to Litian Zhuoyue Software (Beijing)
Co., Ltd, or Litian Zhuoyue, and established Bao Si Kang Information.
Changes in relation to CISLA
In 2015, we completed corporate
restructuring relating to CISLA, or the CISLA Restructuring, the operating company for our claims adjusting segment. Prior to
the CISLA Restructuring, CNinsure owned 51% of the equity interests of Guangdong CNinsure Fangzhong Investment Management
Co., Ltd., or Fangzhong, which held 100% equity interests in CISLA. In June 2015, two new investors, Shenzhen Yuanqian
Investment Partnership (Limited Partnership), or Yuanqian, and Shenzhen Longqian Investment Partnership (Limited
Partnership), or Longqian, both of which are owned by certain management members of our claims adjusting segment, invested in
CISLA. Yuanqian and Longqian together subscribed for 12.4% of the equity interests in CISLA for a cash consideration of
RMB17.0 million. As a result, Fangzhong's shareholding in CISLA was diluted from 100% to 87.6%. In July 2015, Fangzhong
transferred 44.7% and 42.9% of the equity interests in CISLA to Meidiya Investment and 22 individuals, among whom were
management members of our claims adjusting segment, for total purchase prices of RMB61.2 million and RMB58.8 million,
respectively. These purchase prices were calculated on the basis of total capital contribution by Fangzhong to CISLA. After
the CISLA Restructuring, we own 44.7% of the equity interests of CISLA, remain its largest shareholder and we continue to
exercise substantial control over CISLA pursuant to shareholders’ agreements with Yuanqian, Longqian and two executive
officers of our claims adjusting segment.
We recorded stock compensation expense of
RMB3.4 million (US$0.5 million), being the excess of (x) the estimated fair value of equity interests in CISLA transferred to Yuanqian
and Longqian over (y) the purchases prices paid by these two investors for such equity interests. The excess is deemed compensation
to the shareholders of Yuanqian and Longqian, who are management members of our claims adjusting segment, for their past services.
Changes in relation to CNinsure Group Company
In December
2015,
Tibet Zhuli
Investment Co., Ltd., our wholly-owned subsidiary, subscribed for 82.0% equity interest of CNinsure Group Company, diluting the
interests of Zhonglian Enterprise and Xinlian Information in CNinsure Group Company from 40% and 60% to 7.2% and 10.8%, respectively.
Corporate Structure
As of March 31, 2016, we, through CNinsure Group
Company, have a controlling equity ownership in 34 insurance agencies, 3 insurance claims adjusting firms, 2 insurance brokerage
companies. We also own 20.6% equity interest of one consumer financial service company, 19.5% equity interest of one wealth management
company and 8.9% equity interest of one online claim adjusting service company. In addition, through contractual arrangements with
Xinbao Investment, our consolidated affiliated entity, we control one e-commerce insurance intermediary company.
Most of the noncontrolling shareholders of the
insurance intermediary companies majority-owned by CNinsure Group Company are the founders of those companies, entrepreneurial
agents with whom we jointly set up the company or a venture capital firm who invests in start-up insurance agency companies. Some
of those noncontrolling shareholders are in charge of the day-to-day operations of these companies. The direct and indirect subsidiaries
or affiliates of CNinsure Group Company and Xinbao Investment hold the licenses and permits necessary to conduct our insurance
intermediary business and internet insurance distribution business in China.
However, because of restrictions under PRC laws
and regulations on foreign investment in the internet businesses and on the provision of wealth management products by insurance
intermediaries, we rely on contractual arrangements to control and receive economic benefits from our consolidated affiliated entities.
Our contractual arrangements with Xinbao Investment
and its shareholders include loan agreements, equity pledge agreements, powers of attorney, exclusive purchase option agreements,
technology service agreements and IT platform service agreements enable us to:
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exercise effective control over our consolidated affiliated entities;
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have an exclusive option to purchase all or part of the equity interests in Xinbao Investment when
and to the extent permitted by PRC law; and
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receive a substantial portion of the economic benefits from our consolidated affiliated entities
in consideration for the services provided by our subsidiaries in China.
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The following diagram illustrates our corporate structure, including
our principal subsidiaries and consolidated affiliated entities as of March 31, 2016:
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Ownership through nominee arrangements among Bao Si Kang Information, our consolidated entity, Xinbao Investment
and their individual shareholders.
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(1)
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The remaining 1% is owned by Xinlian Information.
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(2)
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Direct or indirect ownership attributable to CNinsurance Sales Group through Sichuan Yihe
Investment Co., Ltd., CNinsure Lianxing
Insurance Sales Co., Ltd., CNinsure Times Insurance Sales & Service, and Meidiya
Investment.
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The diagram above omits the names of subsidiaries
and consolidated affiliated entities that are immaterial individually and in the aggregate. For a complete list of our subsidiaries
and consolidated affiliated entities as of March 31, 2016, see Exhibit 8.1 to this annual report.
In January 2015, Mr. Lai and Mr. Ge, transferred
their respective equity interests in Meidiya Investment to CNinsure Group Company. Subsequently in December 2015, Mr. Lai transferred
his equity interests in Yihe Investment to Zhonglian Enterprise and Mr. Ge transferred his equity interests in Yihe Investment
to Xinlian Information. In January 2016, Mr. Rannuo Hu, the individual shareholder of Dianliang Information, transferred 100% of
the equity interests of Dianliang Information to Tibet Zhuli Investment Co., Ltd., our wholly-owned subsidiary. As a result, Meidiya
Investment, Yihe Investment and Dianliang Information become our wholly-owned subsidiaries and we have obtained direct equity ownership
in all of our insurance intermediary businesses and an online mutual aid platform in the PRC.
The following is a summary of the key terms of
our contractual arrangements with Xinbao Investment, our consolidated affiliated entity, and with its shareholders. We had previously
entered into similar contractual agreements with Meidiya Investment, Yihe Investment and Dianlian Information, which were terminated
in January 2015, December
2015 and January
2016, respectively.
Agreements that Provide Us
Effective Control over Xinbao Investment
Loan Agreements
. On December
10, 2014, Mr. Chunlin Wang and Mr. Tian, the two shareholders of Xinbao Investment, entered into loan agreements, or the Bao Si
Kang Loans, with our subsidiary, Bao Si Kang Information, in which we indirectly hold a 65.1% equity interest. These loans replace
the loan agreements entered into among Mr. Chunlin Wang, Mr. Tian and Ying Si Kang Information on December 3, 2010, as amended
in April 2011. The principal loan amounts extended by Bao Si Kang Information to Mr. Chunlin Wang and Mr. Tian are RMB7.5 million
and RMB0.5 million, respectively, equal to their respective capital contributions to Xinbao Investment.
The term of the Bao Si Kang Loans is for ten
years, which cannot be automatically extended but may be extended upon written agreement of the parties. If the Bao Si Kang Loans
are not extended, then upon their expiration and subject to then applicable PRC laws, the loans can be repaid only with the proceeds
from a transfer of the individual shareholder’s equity interests in Xinbao Investment to Bao Si Kang Information or another
person designated by Bao Si Kang Information. Bao Si Kang Information may accelerate the loan repayment upon certain events, including
if the individual shareholder resigns or is dismissed from employment by us or if Bao Si Kang Information exercises its option
to purchase the shareholder’s equity interests in Xinbao Investment pursuant to the exclusive purchase option agreements
described below.
The Bao Si Kang Loans contain a number of covenants
that restrict the actions the individual shareholders can take or cause Xinbao Investment to take, and also require the individual
shareholders to take or cause Xinbao Investment to take specific actions. For example, the individual shareholders must:
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not transfer, pledge or otherwise dispose of or encumber his equity interests in Xinbao Investment,
except for equity pledge for the benefit of Bao Si Kang Information, without the prior written consent of Bao Si Kang Information;
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not take any action that will have a material impact on the assets, business and liabilities of
Xinbao Investment without the prior written consent of Bao Si Kang Information;
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not vote for, or execute any resolution to approve, the sale, transfer, mortgage, or disposal of,
or the creation of any encumbrance on, any legal or beneficial interests in the equity of Xinbao Investment, except to Bao Si Kang
Information or its designee, without the prior written consent of Bao Si Kang Information;
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not vote for, or execute any resolutions to approve, any merger or consolidation with any person,
or any acquisition of or investment in any person by Xinbao Investment without the prior written consent of Bao Si Kang Information;
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vote to elect the director candidates nominated by Bao Si Kang Information;
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cause Xinbao Investment not to supplement, amend or modify its articles of association in any manner,
increase or decrease its registered capital or change the capital structure in any way without the prior written consent of Bao
Si Kang Information; and
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cause Xinbao Investment not to execute any contract with a value exceeding RMB100,000, except in
the ordinary course of business, without the prior written consent of Bao Si Kang Information.
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Equity Pledge Agreements
. Mr. Chunlin
Wang and Mr. Tian entered into separate equity pledge agreements on December 10, 2014, pledging their respective equity interests
in Xinbao Investment to Bao Si Kang Information to secure their obligations under the Bao Si Kang Loans, replacing the equity pledge
agreements as amended in April 2011 and the supplemental agreement entered into in December 2013. Mr. Chunlin Wang and Mr. Tian
also agreed not to transfer or create any encumbrances adverse to Bao Si Kang Information on their respective equity interests
in Xinbao Investment. During the term of the equity pledge agreements, Bao Si Kang Information is entitled to all the dividends
declared on the pledged equity interests. The equity pledge agreements will expire when the individual shareholder fully performs
his obligations under the Bao Si Kang Loans. The equity pledges were recorded on the shareholders’ register of Xinbao Investment,
and registered with the relevant local administration of industry and commerce.
Power of Attorney.
Mr.
Chunlin Wang and Mr. Tian executed powers of attorney on December 10, 2014, each appointing a person designated by Bao Si Kang
Information as his attorney-in-fact on all matters requiring shareholder approval. Further, if Bao Si Kang Information designates
the shareholder to attend a shareholder’s meeting of Xinbao Investment, the individual shareholder agrees to vote his shares
as instructed by Bao Si Kang Information. The term of the power of attorney is for ten years.
Agreements that Provide Us
the Option to Purchase the Equity Interests in Xinbao Investment
Exclusive Purchase Option Agreements
.
Mr. Chunlin Wang and Mr. Tian entered into separate exclusive purchase option agreements on December 10, 2014 to irrevocably grant
Bao Si Kang Information an exclusive option to purchase part or all of his equity interests in Xinbao Investment, when and to the
extent permitted by PRC law. The purchase price will be the minimum price permitted under applicable PRC law. These agreements
replace the exclusive purchase option agreements and the supplemental agreements entered into between Ying Si Kang Information,
Xinbao Investment and each individual shareholder of Xinbao Investment.
Agreements that Transfer Economic Benefits to Us
Technology Service Agreements
.
Pursuant to technology service agreements between (i) Ying Si Kang Information, a subsidiary of Xinlian Information, and (ii)
a subsidiary of Xinbao Investment, as well as certain other of our subsidiaries and affiliates, Ying Si Kang Information agreed
to provide these entities with services to support the use of Mobile Sales Support System, such as transaction support, data maintenance,
system security and efficiency maintenance and on-site support. In exchange, these entities each agree to pay a quarterly fee calculated
primarily based on a percentage of their revenues. Each of these agreements has a term of one year and can be renewed each year
upon mutual agreement.
IT Platform Service Agreements
.
Pursuant to IT platform service agreements between (i) Ying Si Kang Information, and (ii) a subsidiary of Xinbao Investment,
Dianliang Information, as well as certain other of our subsidiaries and affiliates, Ying Si Kang Information agreed to provide
space for system operation and data storage, data maintenance, system security and efficiency maintenance, on-site support, software
optimization and maintenance and other IT platform related services. In exchange, these entities each agree to pay a quarterly
fee calculated primarily based on a percentage of their revenues. The parties to each agreement also agree to negotiating adjustments
to the fee level every three months. Each of these agreements has an initial term of one year and can be renewed each year upon
mutual agreement.
Because of our contractual arrangements with
Xinbao Investment and its shareholders, we are the primary beneficiary of Xinbao Investment and its subsidiaries and we consolidate
them into our consolidated financial statements. In the years ended December 31, 2013, 2014 and 2015, aggregate revenues derived
from these and other of our then-existing consolidated affiliated entities contributed 7.2%, 3.4% and 3.8%, respectively, of our
total consolidated net revenues, based on our corporate structure as of the end of each year. As of December 31, 2014 and 2015,
our consolidated affiliated entities accounted for an aggregate of 1.7% and 2.6%, respectively, of our consolidated total assets.
Due to the restriction on foreign investment in the internet industry,
we expect to continue to rely on contractual arrangements to control and receive economic benefits from our current consolidated
affiliated entities. In the opinion of Global Law Office, our PRC legal counsel, the ownership structures of our consolidated affiliated
entities and our subsidiaries in China comply with all existing PRC laws and regulations;
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the contractual arrangements among our PRC subsidiaries, Xinbao Investment and its
individual
shareholders and Dianliang (which became our wholly-owned subsidiary in January 2016) and its individual shareholder,
governed by PRC law
are valid,
binding and
enforceable,
and will not
result in
any violation
of
PRC laws or
regulations currently in effect; and
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the business operations of our PRC subsidiaries and our consolidated affiliated entities comply
in all material respects with existing PRC laws and regulations.
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We have been advised by our PRC legal counsel,
however, that there are substantial uncertainties regarding the interpretation and application of PRC laws and regulations. Accordingly,
the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC legal counsel. We
have been further advised by our PRC counsel that if the PRC government finds that the agreements establishing the structure for
operating our online operations do not comply with PRC government restrictions on foreign investment in the internet industry,
we could be subject to severe penalties including being prohibited from continuing operations. See “Item 3. Key Information
— D. Risk Factors — Risks Related to Our Corporate Structure — If the PRC government finds that the agreements
that establish the structure for operating part of our China business do not comply with applicable PRC laws and regulations, we
could be subject to severe penalties” and “Item 3. Key Information — D. Risk Factors — Risks Related to
Doing Business in China — Uncertainties with respect to the PRC legal system could adversely affect us.” To date we
have not encountered any interference or encumbrance from the PRC government on account of operating our business through these
agreements.
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D.
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Property, Plant and Equipment
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Our headquarters are located in Guangzhou,
China, where we leased approximately 2,382.6
square meters of office space as of December 31, 2015. Our subsidiaries and
consolidated affiliated entities leased approximately
48,300.0
square meters of office space as of December 31, 2015.
In 2015, our total rental expenses were RMB36.2 million (US$5.6 million).
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Item 4A.
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Unresolved Staff Comments
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None.
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Item
5.
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Operating
and Financial Review and Prospects
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The following discussion and analysis of our
financial condition and results of operations should be read in conjunction with our consolidated financial statements and the
related notes included in this annual report. This discussion and analysis contains forward-looking statements based upon current
expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors”
or in other parts of this annual report.
Following the sale of Datong on March 25, 2011,
we present our financial results for the year ended December 31, 2011 on both a continuing and discontinued basis. Profits and
losses related to Datong were presented as discontinued operations while profits and losses for the remaining business were presented
as continuing operations.
Factors Affecting Our Results of Operations
As an insurance intermediary in China, our financial
condition and results of operations are affected by a variety of factors, including:
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total premium payments to Chinese insurance companies;
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the extent to which insurance companies in the PRC outsource the distribution of their products
and claims adjusting functions;
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premium rate levels and commission and fee rates;
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the size and productivity of our sales force;
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commission rates for individual sales agents;
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product and service mix;
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share-based compensation expenses; and
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Total Premium Payments to
Chinese Insurance Companies
The Chinese insurance industry has grown substantially
in the past decade. Between 2005 and 2015, total insurance premiums increased from RMB492.7 billion to RMB2.4 trillion, representing
a compound annual growth rate, or CAGR, of 17.3%, according to the CIRC. We believe that certain macroeconomic and demographic
factors, such as increasing per capita GDP and an aging population, have contributed to and will continue to drive the growth of
the Chinese insurance industry in the long term.
We derive our revenue primarily from commissions
and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance companies.
Accordingly, industry-wide premium growth will have a positive impact on us. However, there is uncertainty whether the rapid growth
trend will continue. Any downturn in the Chinese insurance industry, whether caused by a general slowdown of the PRC economy or
otherwise, may adversely affect our financial condition and results of operations.
The Extent to Which Insurance
Companies in the PRC Outsource the Distribution of their Products and Claims Adjusting Functions
Historically, insurance companies in the PRC
have relied primarily on their exclusive individual sales agents and direct sales force to sell their products. Only in recent
years, as a result of increased competition, have some insurance companies gradually expanded their distribution channels to include
insurance intermediaries such as commercial banks, postal offices, insurance agencies and insurance brokerages. In addition, because
of a lack of established distribution networks of their own, some newly established insurance companies have chosen to rely primarily
on insurance intermediaries to distribute their products while they focus on other aspects of their business.
As insurance companies in the PRC become more
accustomed to outsourcing the distribution of their products to insurance intermediaries, they may allow insurance intermediaries
to distribute a wider variety of insurance products and may provide more monetary incentives to more productive and effective insurance
intermediaries. These and other similar measures designed to boost sales through insurance intermediaries can have a positive impact
on our financial condition and results of operations. Similarly, as competition intensifies and the insurance market becomes more
mature in China, we expect that more insurance companies will choose to outsource claims adjusting functions to professional service
providers such as our affiliated claims adjusting firms while they focus on the core aspects of their business, including product
development, asset and risk management.
Premium Rate Levels and Commission
and Fee Rates
Because the commissions and fees we receive from
insurance companies for the distribution of insurance products are generally calculated as a percentage of premiums paid by our
customers to the insurance companies, our revenue and results of operations are affected by premium rate levels and commission
and fee rates. Premium rate levels and commission and fee rates can change based on the prevailing economic conditions, competitive
and regulatory landscape, and other factors that affect insurance companies. These other factors include the ability of insurance
companies to place new business, underwriting and non-underwriting profits of insurance companies, consumer demand for insurance
products, the availability of comparable products from other insurance companies at a lower cost, and the tax deductibility of
commissions and fees. In addition, premium rates for certain insurance products, such as the mandatory automobile liability insurance
that each automobile owner in the PRC is legally required to purchase, are tightly regulated by the CIRC. In some instances, we
can negotiate for better rates as an incentive for generating a larger volume of business.
Since China’s entry into the WTO in December
2001, competition among insurance companies has intensified as a result of a significant increase in the number of insurance companies
and the existing insurance companies’ expansion into new geographic markets. This competition has led to a gradual increase
in the commission and fee rates offered to insurance intermediaries, and such increase has had a positive impact on our results
of operations. Meanwhile, the intense competition among insurance companies also has led to a gradual decline in premium rate levels
of some property and casualty insurance products. A pilot deregulation reform in auto insurance pricing regulatory regime was implemented
in six provinces in 2015 and has been extended to an additional 12 provinces starting from January 1, 2016. As a result, auto insurance
premium rates are expected to decline slightly in 2016. While such decline may have a negative impact on the commissions and fees
we earned on a per policy sold basis, it also may have a positive impact on our total commissions and fees revenue by increasing
demand for, and our total sales volume of, those policies.
The Size and Productivity
of Our Sales Force
As a distributor of insurance products, we generate
revenue primarily through our sales force, which consists of individual sales agents in our distribution and service network and
a relatively small number of in-house sales representatives. The size of our sales force and its productivity, as measured by the
average number of insurance products sold per person, the average premium per product sold and the average premiums generated per
person during any specified period, directly affect our revenue and results of operations. In recent years, some entrepreneurial
management staffs or senior sales agents of major insurance companies in China have chosen to leave their employers or principals
and become independent agents. We refer to these independent agents as “entrepreneurial agents.” An entrepreneurial
agent is usually able to assemble and lead a team of sales agents. We have been actively recruiting and will continue to recruit
entrepreneurial agents to join our distribution and service network as our sales agents. Entrepreneurial agents have been instrumental
to the development of our life insurance business.
Acquisitions
The professional insurance intermediary sector
in China is still at an early development stage and highly fragmented. Historically, we have expanded our distribution and service
network in part through selective acquisitions of high-quality independent insurance intermediary companies. Since 2008, we, through
our consolidated affiliated entities in the PRC, acquired controlling interests in 18 insurance agencies (excluding Datong and
its subsidiaries), five insurance claims adjusting firms (one of which was restructured into a holding company of the three claims
adjusting firms) and one online insurance service company as of March 31, 2016. In recent years, market opportunities for independent
insurance intermediaries have expanded rapidly due to the growth of the internet and we have launched several online platforms
to embrace these opportunities. In order to strengthen the core competitiveness of our online platforms, we intend to seek acquisitions
of businesses including leading wealth management companies engaged in internet finance, or companies that have innovative business
models or leading technologies in internet finance. We expect acquisitions to have a positive impact on our results of operations
in the long run. However, acquisitions also involve significant risks and uncertainties. See “Item 3. Key Information —
Risk Factors — D.Risks Related to Our Business and Our Industry — If we fail to integrate acquired companies efficiently,
or if the acquired companies do not perform to our expectations, our business and results of operations may be adversely affected.”
In addition, any write-down of goodwill due to impairment and the amortization of intangible assets acquired could have a negative
impact on our results of operations. See “Item 3. Key Information — D.Risk Factors — Risks Related to Our Business
and Our Industry — If we are required to write down goodwill and other intangible assets, our financial condition and results
may be materially and adversely affected.”
Commission Rates for Individual
Sales Agents
A large component of our operating costs and
expenses is commissions paid to our individual sales agents. In order to retain sales agents, we must pay commissions at a level
comparable to the commissions paid by our competitors. Intensified competition for productive sales agents within the Chinese insurance
industry and rising salaries in China have led to a significant increase in commission rates in recent years. The increase in commission
rates has had a negative impact on our results of operations. If we are forced to further increase our commission rates for individual
sales agents due to competition or otherwise, our operating costs and expenses will increase correspondingly.
Product and Service Mix
We began distributing automobile insurance products
in 1999 and expanded our product offerings to other property and casualty insurance products in 2002 and then to individual life
insurance products in 2006, primarily to individual customers. We further broadened our service offering to cover insurance claims
adjusting services in 2008. We started to offer insurance brokerage services for commercial line insurance to corporate clients
and reinsurance brokerage services in 2010 and referral services for wealth management products in 2012.
In the first quarter of 2014, we realigned our
financial reporting structure into three business segments that more accurately reflect our organizational structure and changing
business mix. Under the realigned business structure, our business is divided into three reporting operating segments: (1) insurance
agency, (2) insurance brokerage, and (3) claims adjusting.
Insurance Agency Segment
Our largest segment by revenue, the insurance
agency segment, provides a broad range of property and casualty and life insurance products to individual customers. The property
and casualty insurance policies we distribute are typically for one-year terms, with a single premium payable at the beginning
of the term. Accordingly, we receive a single commission or fee for each property and casualty policy our customers purchase. In
order for us to have recurring commission and fee revenue from property and casualty insurance products, our customers have to
renew their policies or purchase new policies through us every year. Most individual life insurance policies we sell require periodic
payment of premiums, typically annually, during a pre-determined payment period, generally ranging from five to 25 years. For each
such policy that we sell, insurance companies will pay us a first-year commission and fee based on a percentage of the first year’s
gross premiums, and subsequent commissions and fees based on smaller percentages of the renewal premiums paid by the insured throughout
the payment period of the policy. Therefore, once we sell a life insurance policy with a periodic payment schedule, it can bring
us a steady flow of commission and fee revenue throughout the payment period as long as the insured meets his or her premium payment
commitment.
Because insurance companies pay us first-year
commissions and fees for most life insurance products at rates higher than those for property and casualty insurance products,
we expect a positive impact on our revenue if our distribution of life insurance products increases in the future. However, we
will also incur a corresponding increase in operating costs because we pay our sales agents a higher commission and fee for distributing
life insurance products. Hence, gross margin attributable to the agency segment remained relatively stable in 2013, 2014 and 2015.
Insurance Brokerage Segment
For insurance brokerage services in connection
with commercial line insurance, insurance companies typically pay us brokerage fees as a percentage of the insurance premiums.
We pay our in-house insurance brokers salary or non-affiliated brokers who we assist in the negotiation or placement of insurance
programs with underwriters a share of the commissions we receive from insurance companies. Gross margin of this line of business
was slightly higher than that of our retail line of property and casualty insurance business and lower than that of our claims
adjusting business. We expect the revenues from our insurance brokerage business as a percentage of our total net revenues to increase
over the next few years and that such an increase will have a positive impact on our gross margin and operating margin.
Claims Adjusting Segment
The fees we receive for our claims adjusting
services are calculated based on the types of insurance involved. For services provided in connection with property and casualty
insurance (other than marine cargo insurance and automobile insurance), our fees are calculated as a percentage of the recovered
amount from insurance companies plus travel expenses. For services provided in connection with marine cargo insurance, our fees
are charged primarily on an hourly basis and, in some cases, as a percentage of the amount recovered from insurance companies.
For automobile insurance, our fees are generally fixed and the amounts collected are based on the types of services provided. In
some cases, our fees are charged based on the number of claims adjustors involved in providing the services. We pay our in-house
claims adjustors a base salary plus a commission calculated based on a small percentage of the service fees we receive from insurance
companies or the insured. The claims adjusting business has become and likely will continue to be an important source of our net
revenues. The gross margin and operating margin attributable to the claims adjusting business were higher than those for both property
and casualty insurance products and life insurance product. We expect that revenues from our claims adjusting business as a percentage
of our total net revenues to remain stable over the next few years.
Other Services
During 2012 and 2013, we received service fees
from a subsidiary of Sincere Fame for the provision of IT services and referral service fees from our wealth management product
supplier if customers referred by our sales agents purchase wealth management products from the supplier. We paid commissions to
our sales agents, which are calculated as a percentage of the value of wealth management products purchased by the customers. Gross
margin from this business was higher than other business lines except for the claim adjustment business. However, in 2014 we discontinued
providing IT services to the subsidiary of Sincere Fame. We also ceased offering wealth management products to our customers because
of tightened regulations on the distribution of wealth management products by insurance intermediaries.
Share-based Compensation
Expenses
Our historical results of operations have been
materially affected by the share-based compensation expenses incurred. In 2013, 2014 and 2015, we incurred share-based compensation
expenses of RMB45.3 million, RMB23.6 million and RMB17.7 million (US$2.7 million), respectively. See “Item 5. Operating and
Financial Review and Prospects — A. Operating Results — Key Performance Indicators — Operating Costs and Expenses
— Share-based Compensation Expenses” for a more detailed discussion of our historical share-based compensation expenses.
In order to attract and retain the best personnel for positions of substantial responsibility, provide additional incentive to
employees, directors and consultants and promote the success of our business, we adopted a share incentive plan in October 2007.
Under our 2007 Share Incentive Plan, as amended and restated in December 2008, we may issue an aggregate number of our ordinary
shares, equal to 15% of our total number of shares outstanding immediately after the closing of our initial public offering, to
cover awards granted under the plan. See “Item 6. Directors, Senior Management and Employees — B. Compensation —
Share Incentives — 2007 Share Incentive Plan.” We expect that share-based compensation expenses will continue to be
a significant component of our operating expenses.
Seasonality
Our quarterly results of operations are affected
by seasonal variations caused by insurance companies’ business practices and consumer demand. Historically, insurance companies,
under pressure to meet their annual sales targets, would increase their sales efforts during the fourth quarter of a year by, for
example, offering more incentives for insurance intermediaries to increase sales. As a result, our commission and fee revenue for
the fourth quarter of a year has generally been the highest among all four quarters. Business activities, including buying and
selling insurance, usually slow down during the Chinese New Year festivities, which occur during the first quarter of each year.
As a result, our commission and fee revenue for the first quarter of a year has generally been the lowest among all four quarters.
Key Performance Indicators
Before January 1, 2014, we operated in three
operating segments: (1) property and casualty insurance; (2) life insurance; and (3) insurance claims adjusting services. In the
first quarter of 2014, we realigned our financial reporting structure into four business segments that more accurately reflect
our organizational structure and changing business mix. Under the realigned business structure, our business is divided into three
reporting operating segments: (1) insurance agency, (2) insurance brokerage, and (3) claims adjusting. The insurance agency segment
provides a broad range of property and casualty and life insurance products to individual customers. Historical results reflecting
the new business segments for 2011, 2012 and 2013 are also restated.
Net Revenues
Our revenues are net of PRC business tax. In
2013, 2014 and 2015, we generated net revenues of RMB1.8 billion, RMB2.2 billion and RMB2.8 billion (US$436.6 million), respectively.
We derive net revenues from the following sources:
|
·
|
Insurance agency segment
: commissions paid by insurance companies for the distribution of
(i) property and casualty products, and (ii) life insurance products, primarily to individual customers, which accounted for 80.7%,
75.6
% and
76.2
%
of our net revenues for 2013,
2014 and 2015, respectively;
|
|
·
|
Insurance brokerage segment
: commissions and advisory fees for (i) insurance and reinsurance
brokerage services primarily paid by the insurance companies, and (ii) risk management consulting services primarily paid by the
insureds, which accounted for 3.6%, 10.8
% and
13.1
%
of
our net revenues for 2013, 2014 and 2015, respectively;
|
|
·
|
Claims adjusting segment
: commissions and fees primarily paid by the insurance companies
and, to a lesser degree, by the insureds for the provision of claims adjusting services, which accounted for 14.9%, 13.6
%
and
10.7
%
of our net revenues for 2013, 2014 and 2015, respectively;
|
|
·
|
Other services
: which consists of fees for non-insurance related services such as service
fees derived from the referral of wealth management products and the provision of IT services. These other service fees accounted
for 0.8%, nil and nil of our net revenues for 2013, 2014 and 2015, respectively.
|
The following table sets forth our total net
revenues earned from each of our reporting segments both in absolute amounts and as percentages of total net revenues, for the
periods indicated:
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
%
|
|
RMB
|
|
%
|
|
RMB
|
|
US$
|
|
%
|
|
|
(in thousands except percentages)
|
Insurance agency segment
|
|
|
1,418,512
|
|
|
|
80.7
|
|
|
|
1,624,410
|
|
|
|
75.6
|
|
|
|
2,155,264
|
|
|
|
332,716
|
|
|
|
76.2
|
|
Insurance brokerage segment
|
|
|
63,418
|
|
|
|
3.6
|
|
|
|
232,620
|
|
|
|
10.8
|
|
|
|
369,198
|
|
|
|
56,994
|
|
|
|
13.1
|
|
Claims adjusting segment
|
|
|
261,206
|
|
|
|
14.9
|
|
|
|
292,981
|
|
|
|
13.6
|
|
|
|
303,846
|
|
|
|
46,906
|
|
|
|
10.7
|
|
Other services
|
|
|
13,888
|
|
|
|
0.8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total net revenues
|
|
|
1,757,024
|
|
|
|
100.0
|
|
|
|
2,150,011
|
|
|
|
100.0
|
|
|
|
2,828,308
|
|
|
|
436,616
|
|
|
|
100.0
|
|
Net revenues from the insurance agency segment,
in particular, automobile insurance products, have been our primary source of revenue since our inception. Net revenues from the
insurance agency segment increased from 2013 to 2015. As per capita automobile ownership in China is still low, automobile sales
in China still have significant growth potential. Therefore, we expect that automobile insurance products will continue to be a
significant contributor to our total net revenues in the next several years.
We established an insurance brokerage business
unit to expand into the business of offering commercial lines of property and casualty insurance in 2010. Net revenues from the
insurance brokerage segment increased from 2013 to 2015 in both absolute amounts and as a percentage of our total net revenues,
primarily reflecting the strong growth of our insurance brokerage business during the period. As we continue to grow our insurance
brokerage business, we expect that net revenues from the insurance brokerage segment will remain stable as a percentage of our
total net revenues in the next few years.
We began providing claims adjusting services
in 2008. Net revenues from our claims adjusting segment increased from 2013 to 2015 in absolute amounts, primarily reflecting the
stable growth of our claims adjusting business during the period. As we continue to grow our claims adjusting business, we expect
that net revenues from claims adjusting services will remain stable as a percentage of our total net revenues in the next few years.
Net revenues from other services mainly includes
non-insurance related services such as IT service fees. In 2013, we provided IT platform and software services to a third party
and an affiliated entity through one of our subsidiaries, Litian Zhuoyue, including system operation, data storage, data maintenance,
system security and efficiency maintenance, on-site support, software optimization and maintenance and other IT platform related
services. We ceased providing IT services to these entities in 2014. But we resumed providing such services to these entities through
another of our subsidiaries, Ying Si Kang Information in 2015. We do not expect these non-insurance related service fees to constitute
a significant portion of our total net revenues in the future.
The commissions and fees we receive from the
distribution of insurance products are based on a percentage of the premiums paid by the insured. Commission and fee rates generally
depend on the type of insurance products, the particular insurance company and the region in which the insurance products are sold.
We typically receive payment of the commissions and fees from insurance companies for insurance products on a monthly basis. Some
of the fees are paid to us annually or semi-annually in the form of performance bonuses after we achieve specified premium volume
or policy renewal goals as agreed upon between the insurance companies and us.
We are compensated primarily by insurance companies
for our claims adjusting services. The fees we receive for our claims adjusting services depend on the types of insurance involved.
For services provided in connection with marine cargo insurance, our fees are charged primarily on an hourly basis and, in some
cases, as a percentage of the amount recovered from insurance companies. For claims adjusting services related to automobile insurance,
our fees are generally fixed on a per claim basis, or in some cases, on a per head basis. These fees are typically paid to us on
a quarterly basis. For services provided in connection with other property and casualty insurance, our fees are calculated as a
percentage of the recovered amount from insurance companies plus travel expenses. We typically receive payment for these fees on
a semi-annual or annual basis.
Operating Costs and Expenses
Our operating costs and expenses consist of costs
incurred in connection with the distribution of insurance products and the provision of claims adjusting services, selling expenses
and general and administrative expenses. The following table sets forth the components of our operating costs and expenses, both
in absolute amounts and as percentages of our net revenues, for the periods indicated.
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
%
|
|
RMB
|
|
%
|
|
RMB
|
|
US$
|
|
%
|
|
|
(in thousands except percentages)
|
Total net revenues
|
|
|
1,757,024
|
|
|
|
100.0
|
|
|
|
2,150,011
|
|
|
|
100.0
|
|
|
|
2,828,308
|
|
|
|
436,616
|
|
|
|
100.0
|
|
Operating costs
|
|
|
(1,293,372
|
)
|
|
|
(73.6
|
)
|
|
|
(1,615,157
|
)
|
|
|
(75.1
|
)
|
|
|
(2,150,506
|
)
|
|
|
(331,981
|
)
|
|
|
(76.0
|
)
|
Selling expenses
|
|
|
(96,461
|
)
|
|
|
(5.5
|
)
|
|
|
(107,263
|
)
|
|
|
(5.0
|
)
|
|
|
(143,279
|
)
|
|
|
(22,118
|
)
|
|
|
(5.1
|
)
|
General and administrative expenses
|
|
|
(349,205
|
)
|
|
|
(19.9
|
)
|
|
|
(396,692
|
)
|
|
|
(18.5
|
)
|
|
|
(456,001
|
)
|
|
|
(70,394
|
)
|
|
|
(16.1
|
)
|
Total operating costs and expenses
|
|
|
(1,739,038
|
)
|
|
|
(99.0
|
)
|
|
|
(2,119,112
|
)
|
|
|
(98.6
|
)
|
|
|
(2,749,786
|
)
|
|
|
(424,493
|
)
|
|
|
(97.2
|
)
|
Operating
Costs
We incur costs primarily in connection with the
distributions of insurance products and provisions of insurance brokerage and claims adjusting services. The costs that we incurred
increased in absolute amounts each year from 2013 to 2015, primarily as a result of an increase in net revenues and an increase
in the size of our sales force and the number of claims adjustors. We rely mainly on individual sales agents and a small number
of in-house sales representatives, and to a much lesser degree, on our online insurance platform for the distributions of insurance
products. For insurance and reinsurance brokerage services, we mainly rely on our in-house brokers and non-affiliated brokers.
For claims adjusting services, we rely entirely on our in-house claims adjustors. Costs incurred as a percentage of net revenues
increased from 2013 to 2015, primarily due to a significant rise in policy acquisition costs and commission costs as a result of
increasing labor cost pressure and greater market competition. We anticipate that our costs will continue to increase in absolute
amounts as we further grow our business.
Selling Expenses
Our selling expenses primarily consist of:
|
·
|
salaries and employment benefits for employees who work in back office below the provincial management
level;
|
|
·
|
office rental, telecommunications and office supply expenses incurred in connection with sales
activities; and
|
|
·
|
advertising and marketing expenses.
|
We expect that our selling expenses will continue
to increase as we expand our distribution and service network in both existing markets and new geographic regions. As we grow in
size, we also intend to spend more on marketing and advertising to enhance our brand recognition and promote our online platforms.
General
and Administrative Expenses
Our general and administrative expenses principally
comprise:
|
·
|
salaries and benefits for our administrative staff;
|
|
·
|
share-based compensation expenses for managerial and administrative staff;
|
|
·
|
research and development expenses in relation to our mobile and online programs;
|
|
·
|
professional fees paid for valuation, market research, legal and auditing services;
|
|
·
|
compliance-related expenses, including expenses for professional services;
|
|
·
|
bad debt expenses for doubtful receivables
|
|
|
|
|
·
|
depreciations and amortizations;
|
|
·
|
office rental expenses;
|
|
·
|
travel and telecommunications expenses;
|
|
·
|
entertainment expenses;
|
|
·
|
office supply expenses for our administrative staff; and
|
We expect that our general and administrative
expenses will increase as we hire additional administrative personnel, pay higher labor costs and incur additional costs in connection
with the expansion of our business, and our efforts to develop our e-commerce platform.
Share-based compensation expenses
. Share-based
compensation expenses constituted one of the largest components of our general and administrative expenses in 2013, 2014 and 2015.
We incurred share-based compensation with respect to certain managerial and administrative staff and a small number of sales agents
in 2013, 2014 and 2015. The following table sets forth our share-based compensation expenses, both in absolute amounts and as percentages
of our general and administrative expenses, for the periods indicated.
|
|
For the Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
%
|
|
RMB
|
|
%
|
|
RMB
|
|
US$
|
|
%
|
|
|
(in thousands except percentages)
|
Share-based compensation expenses
|
|
|
45,317
|
|
|
|
13.0
|
|
|
|
23,598
|
|
|
|
5.9
|
|
|
|
17,653
|
|
|
|
2,725
|
|
|
|
3.9
|
|
Others
|
|
|
303,888
|
|
|
|
87.0
|
|
|
|
373,094
|
|
|
|
94.1
|
|
|
|
438,348
|
|
|
|
67,669
|
|
|
|
96.1
|
|
General and administrative expenses
|
|
|
349,205
|
|
|
|
100.0
|
|
|
|
396,692
|
|
|
|
100.0
|
|
|
|
456,001
|
|
|
|
70,394
|
|
|
|
100.0
|
|
Our share-based compensation expenses in 2013,
2014 and 2015 were primarily attributable to the options granted in November 2008, March 2009 and March 2012.
For more information about our share-based compensation
expenses, please see Note 19 to our audited consolidated financial statements included in this annual report.
Taxation
We and each of our subsidiaries and consolidated affiliated entities
file separate income tax returns.
The Cayman Islands, the British Virgin Islands
and Hong Kong
Under the current laws of the Cayman Islands
and the British Virgin Islands, we and our subsidiaries incorporated in the British Virgin Islands are not subject to income or
capital gains taxes. In addition, dividend payments are not subject to withholding tax in those jurisdictions. Our subsidiary incorporated
in Hong Kong is subject to a normal profits tax rate of 16.5% of its assessable profits for the years of assessment ending March
31, 2014, 2015 and 2016. Payment of dividends is not subject to withholding tax in Hong Kong.
PRC
Pursuant to the PRC EIT laws in effect before
January 1, 2008, most of our subsidiaries and consolidated affiliated entities in China were subject to the standard EIT rate,
which was 33%. Our subsidiaries and consolidated affiliated entities located in Shenzhen, a special economic zone, were subject
to an EIT rate of 15%. The EIT was calculated based on taxable income under PRC accounting principles. For some entities, the EIT
is calculated based on the actual revenue at a deemed tax rate according to the local practices of the respective local tax bureaus
in charge. In addition, our subsidiaries and consolidated affiliated entities in China are subject to a 5% business tax on gross
revenues generated from providing services and two additional fees, the city construction fee and the education fee, which are
generally calculated at 7% and 3%, respectively, on business tax.
On March 16, 2007, the National People’s
Congress of China enacted the EIT Law which became effective on January 1, 2008. On December 6, 2007, the State Counsel issued
the Implementation Rules which became effective on January 1, 2008. On December 26, 2007, the State Council issued the Transition
Preferential Policy Circular which also became effective on January 1, 2008. According to the EIT Law, as further clarified by
the Implementation Rules, the Transition Preferential Policy Circular and other related regulations, foreign-invested enterprises
and domestic enterprises are subject to EIT at a uniform rate of 25%. The EIT rate of enterprises established before March 16,
2007 that were eligible for preferential tax treatments according to then effective tax laws and regulations will continue to enjoy
such preferential tax treatments in the following manners: (1) in the case of preferential tax rates, for a five-year transition
period starting from January 1, 2008, during which the EIT rate of such enterprises will gradually increase to the uniform 25%
EIT rate by January 1, 2012; or (2) in the case of preferential tax exemption or reduction with a specified term, until the expiration
of such term. However, if such an enterprise has not enjoyed the preferential treatments yet because of its failure to make a profit,
its term for preferential treatment will be deemed to start from 2008.
As a result of the implementation of the EIT
Law, certain preferential tax treatments enjoyed by some of our consolidated affiliated entities expired on January 1, 2008. Our
effective tax rate increased significantly in 2008 and 2009 compared to 2007, primarily due to these expirations. According to
the EIT Law and related regulations, the preferential tax rates enjoyed by some of our PRC subsidiaries and consolidated affiliated
entities incorporated in Shenzhen, a special economic zone, will gradually increase to the uniform 25% EIT rate during the five
year transition period. An increase in the EIT rates for those entities pursuant to the EIT Law could result in an increase in
our effective tax rate, which could materially and adversely affect our results of operations.
Pursuant to a Notice of Preferential Policies
of EIT, jointly issued by the PRC Ministry of Finance and the SAT on February 22, 2008, a newly established software enterprise
was entitled to an exemption from EIT for the first two years and a 50% reduction of EIT for the following three years starting
from the first profit-making year. Our affiliated entities, Litian Zhuoyue, Shenzhen CNinsure Software Technology Co., Ltd. (also
known as Shenzhen Fanhua Software Technology Co., Ltd.) and Ying Si Kang Information, are entitled to the tax holidays under this
notice from 2010 to 2014, 2012 to 2016 and 2014 to 2018, respectively.
Critical Accounting Policies
We prepare financial statements in accordance
with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect the reported amounts of our assets and
liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal period, as well as the reported
amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our
own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future
based on available information and assumptions that we believe to be reasonable. This forms our basis for making judgments about
matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial
reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree
of judgment than others in their application.
The selection of critical accounting policies,
the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes
in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following
accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
Our revenue is derived principally from the
provision of insurance brokerage, agency and claims adjusting services. We recognize revenue when all of the following have occurred:
persuasive evidence of an agreement with the insurance companies or insurance agencies exists, services have been provided, the
fees for such services are fixed or determinable and collectability of the fee is reasonably assured.
Insurance agency services are considered to
be rendered and completed, and revenue is recognized, at the time an insurance policy becomes effective, that is, when the signed
insurance policy is in place and the premium is collected from the insured. We have met all the four criteria of revenue recognition
when the premiums are collected by us or the respective insurance companies and not before, because collectability is not ensured
until receipt of the premium. Accordingly, we do not accrue any commission and fees prior to the receipt of the related premiums.
Insurance brokerage services revenue is recognized when the signed insurance policy is in place and the premium is collected from
the insured and the commission settlement confirmation is received from insurance companies, because the commission rate for brokerage
services is negotiated case by case and our fees are fixed when such confirmation is received. No allowance for cancellation has
been recognized for agency and brokerage businesses as we estimate, based on its past experience that the cancellation of policies
rarely occurs. Any subsequent commission adjustments in connection with policy cancellations which have been deminims to date are
recognized upon notification from the insurance carriers. Actual commission and fee adjustments in connection with the cancellation
of policies were 0.2%, 0.2% and 0.2% of the total commission and fee revenues during years ended December 31, 2013, 2014 and 2015,
respectively. For agency and brokerage services, we may receive a performance bonus from insurance companies as agreed and per
contract provisions. Once an agency and brokerage company achieves its performance target, typically a certain sales volume, the
bonus will become due. The bonus amount is computed based on the insurance premium amount multiplied by an agreed-upon percentage.
The contingent commissions are recorded when a performance target is being achieved.
Insurance claims adjusting services are considered
to be rendered and completed, and revenue is recognized at the time loss adjusting reports are confirmed being received by insurance
companies. We have met all the four criteria of revenue recognition when the service is provided and the loss adjusting report
is accepted by insurance companies. We do not accrue any service fee before the receipt of an insurance company’s acknowledgement
of receiving the adjusting reports. Any subsequent adjustments in connection with discounts which have been de minims to date are
recognized in revenue upon notification from the insurance companies.
Other service fees include commission revenues
derived from the referral of wealth management products to our customers. Revenues are recorded when the products have been sold
to customers, at which time we have fulfilled all our services obligations.
We present revenue net of sales taxes incurred.
The sales taxes amounted to RMB99.9 million, RMB121.0 million and RMB157.2 million (US$24.3 million) for the years ended December
31, 2013, 2014 and 2015, respectively. In March 2016,
during the fourth session of the 12th National People’s
Congress, it was announced that the VAT reform will be fully rolled out and extended to all industries including construction,
real estate, financial services and lifestyle services. Subsequently, the SAT and Ministry of Finance jointly issued a Notice on
Preparing for the Full Implementation of the VAT Reform (Cai Shui [2016] No. 32). Accordingly, we will pay value-added tax instead
of business tax starting from May 1, 2016. We are in the process of evaluating the impact on our consolidated financial statements.
Share-based Compensation
Employee share-based compensation
All forms of share-based payments to employees,
including employee stock options and employee stock purchase plans, are treated the same as any other form of compensation by recognizing
the related cost in the consolidated statement of income and comprehensive income (loss). Compensation cost related to employee
stock options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized
over the service period, which is usually the vesting period. If an award requires satisfaction of one or more performance, or
service conditions (or any combination thereof), compensation cost is recognized if the requisite service is rendered, and no compensation
cost is recognized if the requisite service is not rendered. We recognize compensation cost for an award with only service conditions
that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that
the amount of compensation cost recognized at any date must at least equal the portion of the grant-date value of the award that
is vested at that date.
For awards with both service and performance
conditions, if each tranche has an independent performance condition for a specified period of service, we recognize the compensation
cost of each tranche as a separate award on a straight-line basis; if each tranche has performance conditions that are dependent
of activities that occur in the prior service periods, we recognize the compensation cost on a straight-line basis over the requisite
service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards.
No compensation cost is recognized for instruments
that employees forfeit because a service condition or a performance condition is not satisfied.
Non-employee share-based compensation
Share-based compensation related to non-employees
is recognized as compensation expenses ratably over the requisite service periods. We measure the cost of non-employee services
received in exchange for share-based compensation based on the fair value of the equity instruments issued. We measure the fair
value of the equity instruments in these transactions on the measurement date, which is determined as the earlier of the date at
which a commitment for performance by the counterparty to earn the equity instruments is reached, or the date at which the counterparty’s
performance is complete. The quantity and terms of the equity instruments issued to non-employees are not known up front as they
are dependent upon counterparty performance conditions, we measure the equity instruments at their then-current lowest aggregate
fair value at each reporting dates, and attributes the changes in those fair values over the future services period until the measurement
date has been established.
Modification of an Award
A modification of the terms or conditions of
an equity award is treated as an exchange of the original award for a new award. We measure the effects of a modification as follows:
a.
Incremental compensation cost shall be measured as the excess, if any, of the fair value of the modified award determined
over the fair value of the original award immediately before its terms are modified, measured based on the share price and other
pertinent factors at that date; and
b.
the total recognized compensation cost for an equity award shall at least equal the fair value of the award at the grant date
unless at the date of the modification the performance or service conditions of the original award are not expected to be satisfied.
We record the incremental fair-value-based
measure, if any, of the modified award, as compensation cost on the date of modification (for vested awards) or over the remaining
service (vesting) period (for unvested awards).
Cancellation of an Award
A cancellation of an award that is not accompanied
by the concurrent grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted for as a
repurchase for no consideration. Accordingly, any previously unrecognized compensation cost shall be recognized at the cancellation
date.
We use the Black-Scholes and Binominal option-pricing
model to determine the fair value of stock options. Determining the value of our share-based compensation expense in future periods
requires the input of highly subjective assumptions, including estimated forfeitures and the price volatility of the underlying
shares. The management estimates the forfeitures of the shares based on past employee retention rates and its expectations of future
retention rates, and it will prospectively revise the forfeiture rates based on actual history. The share compensation charges
may change based on changes to the actual forfeitures. The actual share-based compensation expenses may be materially different
from the current expectations.
Share-based compensation expenses of RMB45.3
million, RMB23.6 million and RMB17.7
million (US$2.7 million) for the years ended December 31, 2013, 2014 and 2015, respectively,
were included in the general and administrative expenses.
Impairment of Goodwill, Intangible
Assets and Long-lived Assets
Goodwill and intangible assets with indefinite
lives are required to be tested for impairment at least annually or more frequently if events or changes in circumstances indicate
that these assets might be impaired. If we determine that the carrying value of our goodwill or acquired intangible assets have
been impaired, the carrying value will be written down.
To assess potential impairment of goodwill, we
perform an assessment of the carrying value of our reporting units at least on an annual basis or when events and changes in circumstances
occur that would more likely than not reduce the fair value of our reporting units below their carrying value. If the carrying
value of a reporting unit exceeds its fair value, we would perform the second step in our assessment process and record an impairment
loss to earnings to the extent the carrying amount of the reporting unit’s goodwill exceeds its implied fair value. We estimate
the fair value of our reporting units through internal analysis and external valuations as needed, which utilize income and market
valuation approaches through the application of capitalized earnings and discounted cash flow. These valuation techniques are based
on a number of estimates and assumptions, including the projected future operating results of the reporting unit, appropriate discount
rates and long-term growth rates.
The fair value of each reporting unit is determined
by analysis of discounted cash flows. The significant assumptions regarding our future operating performance are revenue growth
rates, commission and fees growth rates, discount rates and terminal values. If any of these assumptions changes, the estimated
fair value of our reporting units will change, which could affect the amount of goodwill impairment charges, if any.
In 2013, 2014 and 2015, management compared the
carrying value of each reporting unit, including assigned goodwill, to its respective fair value, which is step one of the two-step
impairment test. The fair values of all reporting units were estimated by using the income approach. Based on this quantitative
test, it was determined that the fair value of each reporting unit tested exceeded its carrying amount and, therefore, step two
of the two-step goodwill impairment test was not required. Management concluded that goodwill was not impaired as of December 31,
2013, 2014 and 2015.
|
·
|
For the insurance
agency segment, we projected a five-year discounted cash flow.
Basic assumptions in the cash flow projection included, among others, an estimated annual growth of between 10% to 30% in net revenues
in the coming 5 years with reference to the stabilizing growth rate in 2015, a terminal revenue growth rate of 3%, and gross profit
margin of 22% to 23%, which is similar to the level in 2015. Any projection beyond 5 years by us cannot be estimated with reasonable
accuracy, since the business environment is rapidly changing. The discount rate was set at 22.5%, based on the segment’s
weighted average cost of capital and adjusted to reflect our and business-specific risks. For the agency segment, we had goodwill
of RMB133.5 million (US$20.6 million) as of December 31, 2015. The estimated fair value of the reporting unit exceeded its carrying
value by 100% at December 31, 2015. Consequently, no goodwill impairment has been recognized in 2015.
|
|
·
|
For the claims adjusting segment, related goodwill was completely written off in 2011.
|
The use of discounted cash flow methodology requires
significant judgments including estimating future revenues and costs, industry economic factors, future profitability, determination
of our weighted average cost of capital and other variables. Although we believe that the assumptions adopted in our discounted
cash flow model are reasonable, those assumptions are inherently unpredictable and uncertain. If the reporting unit is at risk
of failing step one of the impairment test, we will describe the material events, trends and uncertainties that affect the reported
income and the extent to which income is so affected.
Amortizable intangible assets and long-lived
assets are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable from its undiscounted future cash flow. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge shall be recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
Impairment of intangible assets with definite lives
We evaluate the recoverability of identifiable
intangible assets with determinable useful lives, whenever events or changes in circumstances indicate that these assets’
carrying amounts may not be recoverable. We measure the carrying amount of identifiable intangible asset with determinable useful
live against the estimated undiscounted future cash flows associated with it. Impairment exists when the sum of the expected future
net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which
the carrying value of the asset exceeds its fair value. Fair value is estimated based on various valuation techniques, including
the discounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about future
cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ
from assumed and estimated amounts. During the years ended December 31, 2013, 2014 and 2015, no impairment loss on identifiable
intangible assets with determinable useful lives was recognized.
Impairment of indefinite-lived intangible assets
An intangible asset that is not subject to amortization
is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset might
be impaired. Such impairment test is to compare the fair values of assets with their carrying amounts and an impairment loss is
recognized if and when the carrying amounts exceed the fair values. The estimates of fair values of intangible assets not subject
to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are inherent
in this process, including estimates of discount rates or market price. Discount rate assumptions are based on an assessment of
the risk inherent in the respective intangible assets. Market prices are based on potential purchase quote from third party, if
any. During the years ended December 31, 2013, 2014 and 2015, no impairment loss on its indefinite-lived intangible assets was
recognized.
Income Taxes
We recognize deferred tax assets and liabilities
for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements,
net operating loss carry-forwards and credits by applying enacted statutory tax rates applicable to future years. Deferred tax
assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. We record a valuation allowance to reduce our deferred income tax assets to an amount that we
believe will more likely than not be realized. We have considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need and amount for the valuation allowance. In the event we were to determine that we would be able
to realize our deferred income tax assets in the future in excess of our net recorded amount, an adjustment to our deferred income
tax assets would increase income in the period such determination was made. Alternatively, should we determine that we would not
be able to realize all or part of our net deferred income tax assets in the future, an adjustment to our deferred income tax assets
would decrease income in the period such determination was made. Current income taxes are provided for in accordance with the laws
of the relevant taxing authorities. The components of the deferred tax assets and liabilities are individually classified as current
and non-current based on their characteristics.
We recognize in our financial statements uncertainties
in income taxes by prescribing a recognition threshold and measurement attributes for financial statement disclosure of tax positions
taken, or expected to be taken on a tax return,
b
ased on the standards of ASC subtopic 740-10
("ASC 740-10"),
Income taxes
. The impact of an uncertain income tax position
on the income tax return is recognized at the largest amount that is more-likely-than- not to be sustained upon audit by the relevant
taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
In 2014, we have adopted FASB ASU No. 2013-11—Income
Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or
a Tax Credit Carryforward Exists prospectively, to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit,
in the balance sheets as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax
credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward
is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes
that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require us to
use, and we do not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit is presented in the balance
sheets as a liability.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards
Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)". The guidance substantially
converges final standards on revenue recognition between the FASB and the International Accounting Standards Board providing a
framework on addressing revenue recognition issues and, upon its effective date, replaces almost all exiting revenue recognition
guidance, including industry specific guidance, in current U.S. generally accepted accounting principles. The core principle of
the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve
that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations
in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the
performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity
satisfies a performance obligation.
ASU 2014-09 is originally effective for annual
reporting periods beginning after December 15, 2016, including interim periods within that reporting period. ASU 2015-14, Revenue
from Contracts with Customers, defers the effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 is effective for
annual reporting periods beginning after December 15, 2017 and interim periods therein. Early adoption is permitted to the
original effective date. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial
statements.
In January 2015, the FASB issued a new pronouncement
which eliminates from U.S. GAAP the concept of extraordinary items.
Subtopic 225-20, Income Statement - Extraordinary
and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently,
an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports
its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an
entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in
the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income
taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.
The FASB heard from stakeholders that the concept
of extraordinary items causes uncertainty because it is unclear when an item should be considered both unusual and infrequent.
Additionally, some stakeholders said that although users find information about unusual or infrequent events and transactions useful,
they do not find the extraordinary item classification and presentation necessary to identify those events and transactions. Other
stakeholders noted that it is extremely rare in current practice for a transaction or event to meet the requirements to be presented
as an extraordinary item.
The amendments in this ASU are effective for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the
amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the
financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of
adoption. The adoption of this ASU is not expected to have a material impact on the our consolidated financial results or disclosures.
In September, 2015, the FASB issued a new pronouncement,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. To simplify the accounting for
adjustments made to provisional amounts recognized in a business combination, the amendments eliminate the requirement to retrospectively
account for those adjustments.
Under this ASU, an acquirer must recognize adjustments
to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts
are determined. The ASU also requires acquirers to present separately on the face of the income statement, or disclose in the notes,
the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting
periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.
For public business entities, the ASU is effective
for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The ASU must be applied
prospectively to adjustments to provisional amounts that occur after the effective date. Early adoption is permitted for financial
statements that have not been issued. We do not expect the adoption of this guidance will have a significant effect on our consolidated
financial statements.
In November, 2015, the FASB issued a new pronouncement
which changes how deferred taxes are classified on organizations’ balance sheets.
The ASU eliminates the current requirement for
organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead,
organizations will be required to classify all deferred tax assets and liabilities as noncurrent.
The amendments apply to all organizations that
present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual
periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for
all entities as of the beginning of an interim or annual reporting period. We are in the process of evaluating the impact of adoption
of this guidance on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU
2016-01"), which requires that equity investments, except for those accounted for under the equity method or those that result
in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However,
an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment
of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01
is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after
December 15, 2017. Early adoption is permitted only for certain provisions. We are in the process of evaluating the impact of adoption
of this guidance on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet. This ASU requires lessees to recognize
a right-of-use asset and lease liability for all leases with terms of more than 12 months. Lessees are permitted to make an accounting
policy election to not recognize the asset and liability for leases with a term of twelve months or less. The ASU does not significantly
change the lessees' recognition, measurement and presentation of expenses and cash flows from the previous accounting standard.
Lessors' accounting under the ASC is largely unchanged from the previous accounting standard. In addition, the ASU expands the
disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which
includes a number of practical expedients. The provisions of this guidance are effective for annual periods beginning after December
15, 2018, and interim periods within those years, with early adoption permitted. We are in the process of evaluating the impact
of adoption of this guidance on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, which
amends the principal-versus-agent implementation guidance and illustrations in the Board's new revenue standard (ASC 606). The
amendments in this update clarify the implementation guidance on principal versus agent considerations. When another party, along
with the reporting entity, is involved in providing goods or services to a customer, an entity is required to determine whether
the nature of its promise is to provide that good or service to the customer (as a principal) or to arrange for the good or service
to be provided to the customer by the other party (as an agent). The guidance is effective for interim and annual periods beginning
after December 15, 2017. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial
statements.
In March 2016, the FASB issued ASU 2016-09, which
simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities,
including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in
the statement of cash flows. For public entities, the ASU is effective for annual reporting periods beginning after December 15,
2016, including interim periods within those annual reporting periods. Early adoption will be permitted in any interim or annual
period for which financial statements have not yet been issued or have not been made available for issuance. We are in the process
of evaluating the impact of adoption of this guidance on our consolidated financial statements.
As of March 31, 2016, we have not yet
adopted the above-mentioned standards.
Results of Operations
The following table sets forth our net revenues,
operating costs and expenses and income from operations by reportable segments for the periods indicated.
Before January 1, 2014, we operated in three
operating segments: (1) property and casualty insurance; (2) life insurance; and (3) insurance claims adjusting services. In the
first quarter of 2014, we realigned our financial reporting structure to more accurately reflect our organizational structure and
changing business mix. Under the realigned business structure, our business is divided into three reporting operating segments:
(1) insurance agency, (2) insurance brokerage, and (3) claims adjusting. Historical results reflecting the new business segments
for 2013 are also restated.
|
|
For the Year Ended December 31,
|
|
|
2013
|
|
2013 to 2014 Percentage Change
|
|
2014
|
|
2014 to 2015 Percentage Change
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB
|
|
%
|
|
RMB
|
|
%
|
|
RMB
|
|
US$
|
|
|
(in thousands except percentages)
|
Consolidated Statement of Income Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
1,418,512
|
|
|
|
14.5
|
|
|
|
1,624,410
|
|
|
|
32.7
|
|
|
|
2,155,264
|
|
|
|
332,716
|
|
Brokerage
|
|
|
63,418
|
|
|
|
266.8
|
|
|
|
232,620
|
|
|
|
58.7
|
|
|
|
369,198
|
|
|
|
56,994
|
|
Claims adjusting
|
|
|
261,206
|
|
|
|
12.2
|
|
|
|
292,981
|
|
|
|
3.7
|
|
|
|
303,846
|
|
|
|
46,906
|
|
Other services
|
|
|
13,888
|
|
|
|
(100.0
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total net revenues
|
|
|
1,757,024
|
|
|
|
22.4
|
|
|
|
2,150,011
|
|
|
|
31.5
|
|
|
|
2,828,308
|
|
|
|
436,616
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
(1,094,843
|
)
|
|
|
15.3
|
|
|
|
(1,261,888
|
)
|
|
|
32.8
|
|
|
|
(1,675,261
|
)
|
|
|
(258,616
|
)
|
Brokerage
|
|
|
(47,351
|
)
|
|
|
292.0
|
|
|
|
(185,593
|
)
|
|
|
58.3
|
|
|
|
(293,875
|
)
|
|
|
(45,366
|
)
|
Claims adjusting
|
|
|
(142,245
|
)
|
|
|
17.9
|
|
|
|
(167,676
|
)
|
|
|
8.2
|
|
|
|
(181,370
|
)
|
|
|
(27,999
|
)
|
Other services
|
|
|
(8,933
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total operating costs
|
|
|
(1,293,372
|
)
|
|
|
24.9
|
|
|
|
(1,615,157
|
)
|
|
|
33.1
|
|
|
|
(2,150,506
|
)
|
|
|
(331,981
|
)
|
Selling expenses
|
|
|
(96,461
|
)
|
|
|
11.2
|
|
|
|
(107,263
|
)
|
|
|
33.6
|
|
|
|
(143,279
|
)
|
|
|
(22,118
|
)
|
General and administrative expenses
|
|
|
(349,205
|
)
|
|
|
13.6
|
|
|
|
(396,692
|
)
|
|
|
15.0
|
|
|
|
(456,001
|
)
|
|
|
(70,394
|
)
|
Total operating costs and expenses
|
|
|
(1,739,038
|
)
|
|
|
21.9
|
|
|
|
(2,119,112
|
)
|
|
|
29.8
|
|
|
|
(2,749,786
|
)
|
|
|
(424,493
|
)
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance agency
|
|
|
113,206
|
|
|
|
21.5
|
|
|
|
137,539
|
|
|
|
35.2
|
|
|
|
185,935
|
|
|
|
28,704
|
|
Insurance brokerage
|
|
|
9,699
|
|
|
|
267.0
|
|
|
|
35,603
|
|
|
|
40.6
|
|
|
|
50,074
|
|
|
|
7,730
|
|
Claims adjusting
|
|
|
27,077
|
|
|
|
(35.6
|
)
|
|
|
17,442
|
|
|
|
(35.6
|
)
|
|
|
11,233
|
|
|
|
1,735
|
|
Other
|
|
|
(131,996
|
)
|
|
|
21.0
|
|
|
|
(159,685
|
)
|
|
|
5.7
|
|
|
|
(168,720
|
)
|
|
|
(26,046
|
)
|
Income from operation
|
|
|
17,986
|
|
|
|
71.8
|
|
|
|
30,899
|
|
|
|
154.1
|
|
|
|
78,522
|
|
|
|
12,123
|
|
Other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
8,886
|
|
|
|
397.9
|
|
|
|
44,240
|
|
|
|
48.3
|
|
|
|
65,624
|
|
|
|
10,131
|
|
Interest income
|
|
|
84,250
|
|
|
|
(2.4
|
)
|
|
|
82,251
|
|
|
|
(30.4
|
)
|
|
|
57,234
|
|
|
|
8,835
|
|
Others, net
|
|
|
(4,601
|
)
|
|
|
*
|
|
|
|
2,330
|
|
|
|
459.7
|
|
|
|
13,042
|
|
|
|
2,013
|
|
Income from operations before income taxes and income of affiliates
|
|
|
106,521
|
|
|
|
49.9
|
|
|
|
159,720
|
|
|
|
34.2
|
|
|
|
214,422
|
|
|
|
33,102
|
|
Income tax expense
|
|
|
(27,158
|
)
|
|
|
(10.6
|
)
|
|
|
(24,289
|
)
|
|
|
6.5
|
|
|
|
(25,865
|
)
|
|
|
(3,993
|
)
|
Share of income of affiliates
|
|
|
20,621
|
|
|
|
48.6
|
|
|
|
30,649
|
|
|
|
(12.2
|
)
|
|
|
26,924
|
|
|
|
4,156
|
|
|
|
For the Year Ended December 31,
|
|
|
2013
|
|
2013 to 2014 Percentage Change
|
|
2014
|
|
2014 to 2015 Percentage Change
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB
|
|
%
|
|
RMB
|
|
%
|
|
RMB
|
|
US$
|
|
|
(in thousands except percentages)
|
Net income
|
|
|
99,984
|
|
|
|
66.1
|
|
|
|
166,080
|
|
|
|
29.7
|
|
|
|
215,481
|
|
|
|
33,265
|
|
Less: Net income attributable to the noncontrolling interests
|
|
|
4,341
|
|
|
|
(0.5
|
)
|
|
|
4,320
|
|
|
|
24.9
|
|
|
|
5,395
|
|
|
|
833
|
|
Net income attributable to the Company’s shareholders
|
|
|
95,643
|
|
|
|
69.1
|
|
|
|
161,760
|
|
|
|
29.9
|
|
|
|
210,086
|
|
|
|
32,432
|
|
___________________
|
*
|
Not meaningful for analysis because the percentage change is mathematically undeterminable or involves
a change from income or benefit to loss or expense, or vice versa.
|
Year ended December 31, 2015
Compared to Year Ended December 31, 2014
Net Revenues
Our total net revenues increased by 31.5% from
RMB2.2 billion in 2014 to RMB2.8 billion (US$436.6 million) in 2015 primarily attributable to increases in net revenues from our
insurance agency, claims adjusting and insurance brokerage segments.
|
·
|
Net revenues from our insurance agency segment increased by 32.7% from RMB1.6 billion in 2014 to
RMB2.2 billion (US$332.7 million) in 2015. The increase was primarily driven by (i) a 28.6% increase in net revenues derived from
the property and casualty agency business from RMB1.4 billion in 2014 to RMB1.8 billion (US$283.3 million) for 2015, and (ii) a
62.2% increase in net revenues derived from the life insurance agency business from RMB197.2 million in 2014 to RMB319.9 million
(US$49.4 million) for 2015. The growth of the property and casualty insurance agency business was primarily due to the growth of
insurance premiums, as a result of increased marketing efforts and an increase in commission rates that we received from insurance
companies. The increase in net revenues generated from the life insurance agency business was primarily driven by enhanced marketing
efforts and the successful implementation of our cross-selling strategy.
|
|
·
|
Net revenues from insurance brokerage segment increased by 58.7% from RMB232.6 million in 2014
to RMB369.2 million (US$57.0 million) in 2015, primarily due to an increase in our customer base as a result of efforts to expand
sales channels, develop innovative product offerings and cultivate markets.
|
|
·
|
Net revenues from our claims adjusting segment increased by 3.7% from RMB293.0 million in 2014
to RMB303.8 million (US$46.9 million) in 2015.
|
Operating Costs and Expenses
Operating costs and expenses increased by 29.8%
from RMB2.1 billion in 2014 to RMB2.7 billion (US$424.5 million) in 2015.
Operating Costs.
Our operating costs
increased by 33.1% from RMB1.6 billion in 2014 to RMB2.2 billion (US$332.0 million) in 2015, primarily because of increases in
operating costs for our agency insurance, brokerage insurance and claims adjusting segments.
|
·
|
Operating costs for our agency insurance segment increased by 32.8% from RMB1.3 billion in 2014
to RMB1.7 billion (US$258.6 million) in 2015, primarily driven by (i) a 29.8% increase in costs for our property and casualty insurance
agency business from RMB1.1billion in 2014 to RMB1.5 billion (US$226.9 million) in 2015, and (ii) a 58.7% increase in costs for
the life insurance agency business from RMB129.4 in 2014 to RMB205.3 million (US$31.7 million) in 2015, which were largely due
to the increased costs associated with the sales growth and were in line with the growth in net revenues from the property and
casualty insurance agency and life insurance agency businesses.
|
|
·
|
Operating costs for our brokerage insurance segment increased by 58.3% from RMB185.6 million in
2014 to RMB293.9 million (US$45.4 million) in 2015. The increase was primarily due to sales growth.
|
|
·
|
Operating costs for our claims adjusting segment increased by 8.2% from RMB167.7 million in
2014 to RMB181.4 million (US$28.0 million) in 2015. The increase was primarily due to an increase in payroll costs for claims
adjustors and sales growth.
|
Selling Expenses.
Our selling expenses
increased by 33.6% from RMB107.3 million in 2014 to RMB143.3 million (US$22.1 million) in 2015 primarily due to an increase of
RMB19.5 million (US$3.0 million) in marketing expenses to promote CNpad App in the fourth quarter of 2015.
General and Administrative Expenses.
Our
general and administrative expenses increased by 15.0% from RMB396.7 million in 2014 to RMB456.0 million (US$70.4 million) in 2015.
The increase was primarily due to increases in research and development expenses associated with development of our online platforms,
and increases in payroll expenses and conference expenses, partially offset by decreases in share-based compensation, amortization
and depreciation expenses.
Income from Operations
As a result of the foregoing factors, income
from operations increased by 154.1% from RMB30.9 million in 2014 to RMB78.5 million (US$12.1 million) in 2015.
|
·
|
Income from operations for our agency insurance segment increased by 35.2% from RMB137.5 million
in 2014 to RMB185.9 million (US$28.7 million) in 2015.
|
|
·
|
Income from operations for our brokerage insurance segment increased by 40.6% from RMB35.6 million
in 2014 to RMB50.1 million (US$7.7 million) in 2015.
|
|
·
|
Income from operations for our claims adjusting segment decreased by 35.6% from RMB17.4 million
in 2014 to RMB11.2 million (US$1.7 million) in 2015. The decrease was mainly because we recorded stock compensation expense of
RMB3.4 million (US$0.5 million), being the excess of (x) the estimated fair value of equity interests in CISLA transferred to CISLA's
management and employees over (y) the purchases prices paid by them for such equity interests. .
|
|
·
|
Other loss from operations represented operating loss incurred by our headquarters, which was not
allocated to each business segment. Operating loss incurred by our headquarters was RMB168.7 million (US$26.0 million) in 2015,
increased by 5.7% from RMB159.7 million in 2014. The change was primarily due to general administration expenses related to the
development of our online platforms.
|
Other Income
Investment Income.
Investment income
represents income received from short term investments in collective trust products and interbank deposits. Our investment income
increased by 48.3% from RMB44.2 million in 2014 to RMB65.6 million (US$10.1 million) in 2015. The increase was primarily attributable
to an increase in short term investment products.
Interest Income.
Our interest income
decreased by 30.4% from RMB82.3 million in 2014 to RMB57.2 million (US$8.8 million) in 2015. The decrease was primarily due to
a decrease in term deposits as a result of the increased short-term investments and reduction of the interest bearing amounts due
from an affiliate and other receivables.
Others, Net.
Our other income, net,
increased by 459.7% from RMB2.3 million in 2014 to RMB13.0 million (US$2.0 million) in 2015, which primarily consisted of (i) interest
income of RMB7.8 million (US$1.2 million) from the loans granted to employees related to share issuances and subscriptions in November
2014 and December 2014, and (ii) government subsidies.
Income from Operations before Income Taxes and Income of Affiliates
As a result of the foregoing factors, our income
from operations before income taxes and income of affiliates increased by 34.2% from RMB159.7 million in 2014 to RMB214.4 million
(US$33.1 million) in 2015.
Income Tax Expense
Our income tax expense increased by 6.5% from
RMB24.3 million in 2014 to RMB25.9 million (US$4.0 million) in 2015. The effective tax rate in 2015 was 12.1%
compared with
15.2% in 2014. The decrease in effective tax rate was primarily due to preferential tax treatment enjoyed by one of our subsidiaries.
Share of Income of Affiliates
Our share of income of affiliates decreased
by 12.2% from RMB30.6 million in 2014 to RMB26.9 million (US$4.2 million) in 2015, which was primarily due to decreased profits
from Sincere Fame, in which we own 20.6% equity interest, resulting from (i) narrower interest spreads as a result of reduction
in interest rates charged to customers for retail loans; (ii) in
creased marketing expenses related
to its online
platform; and (iii) a change in its accounting recognition method for its service fees
Net Income
As a result of foregoing factors, our net income
increased by 29.7% from RM166.1 million in 2014 to RMB215.5 million (US$33.3 million) in 2015.
Net Income Attributable to the Noncontrolling Interests
Our net income attributable to the non-controlling
interests increased by 24.9% from RMB4.3 million in 2014 to RMB5.4 million (US$0.8 million) in 2015.
Net Income Attributable to the Company’s Shareholders
As a result of the foregoing, our net income
attributable to our shareholders increased by 29.9% from RMB161.8 million in 2014 to RMB210.1 million (US$32.4 million) in 2015.
Year ended December 31, 2014
Compared to Year Ended December 31, 2013
Net Revenues
Our total net revenues increased by 22.4% from
RMB1.8 billion in 2013 to RMB2.2 billion in 2014 primarily attributable to increases in net revenues from our insurance agency,
claims adjusting and insurance brokerage segments.
|
·
|
Net revenues from our insurance agency segment increased by 14.5% from RMB1.4 billion in 2013 to
RMB1.6 billion in 2014, primarily resulting from the increases in sales volume and acquisition of three agency companies in April
2014.
|
|
·
|
Net revenues from insurance brokerage segment increased by 266.8% from RMB63.4 million in 2013
to RMB232.6 million in 2014, primarily due to an increase in our customer base as a result of efforts to expand sales channels,
develop innovative product offerings and cultivate markets in the past three years and the low base in this segment during year
of 2013.
|
|
·
|
Net revenues from our claims adjusting segment increased by 12.2% from RMB261.2 million in 2013
to RMB293.0 million in 2014. The increase primarily resulted from sales volume growth in the auto-related claims adjustment business.
|
Operating Costs and Expenses
Operating costs and expenses increased by 21.9%
from RMB1.7 billion in 2013 to RMB2.1 billion in 2014.
Operating Costs.
Our operating costs
increased by 24.9% from RMB1.3 billion in 2013 to RMB1.6 billion in 2014, primarily because of increases in operating costs for
our agency insurance, brokerage insurance and claims adjusting segments.
|
·
|
Operating costs for our agency insurance segment increased by 15.3% from RMB1.1 billion in 2013
to RMB1.3 billion in 2014. The significant increase was primarily due to the increase in commissions and fees paid to our sales
agents, which reflected higher incentives to sales agents to promote the adoption of CNpad applications.
|
|
·
|
Operating costs for our brokerage insurance segment increased by 292.0% from RMB47.4 million in
2013 to RMB185.6 million in 2014. The increase was primarily due to sales growth.
|
|
·
|
Operating costs for our claims adjusting segment increased by 17.9% from RMB142.2 million in 2013
to RMB167.7 million in 2014. The increase was primarily due to an increase in sales volume and increased salaries for claims adjustors.
|
Selling Expenses.
Our selling expenses
increased by 11.2% from RMB96.5 million in 2013 to RMB107.3 million in 2014 primarily due to an increase in vehicle, office and
marketing expenses.
General and Administrative Expenses.
Our
general and administrative expenses increased by 13.6% from RMB349.2 million in 2013 to RMB396.7 million in 2014. The increases
is mainly due to expenses incurred on research and development of online projects like CNpad, eHuzhu, Baoxian.com and Chetong.net,
offset by a decrease in share-based compensation expense.
Income from Operations
As a result of the foregoing factors, income from operations increased
by 71.8% from RMB18.0 million in 2013 to RMB30.9 million in 2014.
|
·
|
Income from operations for our agency insurance segment increased by 21.5% from RMB113.2 million
in 2013 to RMB137.5 million in 2014.
|
|
·
|
Income from operations for our brokerage insurance segment significantly increased by 267.0% from
RMB9.7 million in 2013 to RMB35.6 million in 2014.
|
|
·
|
Income from operations for our claims adjusting segment decreased by 35.6% from RMB27.1 million
in 2013 to RMB17.4 million in 2014.
|
|
·
|
Other loss from operations represented operating loss incurred by the headquarters which was not
allocated to each business segment. Operating loss incurred by the headquarters was RMB159.7 million in 2014, increased by 21.0%
from RMB132.0 million in 2013. The change was primarily due to general administration expenses related to on line initiatives incurred
by the headquarters.
|
Other Income
Investment Income.
Investment income
represents income received from short term investments in collective trust products and interbank deposits. Our investment income
increase by 397.9% from RMB8.9 million in 2013 to RMB44.2 million in 2014. The increase was primarily attributable to an increase
in short term investment products.
Interest Income.
Our interest income
decreased by 2.4% from RMB84.3 million in 2013 to RMB82.3 million in 2014. The decrease was primarily due to a decrease in term
deposits as a result of the increased short-term investments.
Others, Net.
Our other income, net,
was a loss of RMB4.6 million in 2013 compared to an income of RMB2.3 million in 2014, primarily due to the write-down of dividends
receivables from Datong in 2013.
Income from Operations before Income Taxes and Income of Affiliates
As a result of the foregoing factors, our income
from operations before income taxes and income of affiliates increased by 49.9% from RMB106.5 million in 2013 to RMB159.7 million
in 2014.
Income Tax Expense
Our income tax expense decreased by 10.6% from
RMB27.2 million in 2013 to RMB24.3 million in 2014. The effective tax rate in 2014 was 15.2% compared with 25.5% in 2013 due to
(1) a tax exemption for two years and a 50% tax reduction for the succeeding three years enjoyed by our subsidiary, Ying Si Kang
Information, starting from January 1, 2014; and (2) higher share-based compensation expenses charged for fiscal year 2013 which
were non-tax deductible.
Share of Income of Affiliates
Our share of income of affiliates increased
by 48.6% from RMB20.6 million in 2013 to RMB30.6 million in 2014, primarily due to the rapid growth of net income generated by
Sincere Fame.
Net Income
As a result of foregoing factors, our net income
increased by 66.1% from RMB100.0 million in 2013 to RM166.1 million in 2014.
Net Income Attributable to the Noncontrolling Interests
Our net income attributable to the non-controlling
interests slightly decreased by 0.5% from RMB4.3 million in 2013 to RMB4.3 million in 2014.
Net Income Attributable to the Company’s Shareholders
As a result of the foregoing, our net income
attributable to our shareholders increased by 69.1% from RMB95.6 million in 2013 to RMB161.8 million in 2014.
Inflation
Inflation in China has impacted our results of
operations. According to the National Bureau of Statistics of China, the consumer price index in China increased by 5.4%, 2.6%,
2.6%, 2.0% and 1.4%
in 2011, 2012, 2013 , 2014 and 2015, respectively. Our operating costs and expenses, such as sales agent
and employee compensation and office operating expenses, increased significantly partly as a result of inflation in 2014 and 2015.
Additionally, because a substantial portion of our assets consists of cash and cash equivalents, high inflation significantly reduced
the value and purchasing power of these assets. We are not able to hedge our exposures to higher inflation in China. If high inflation
persists in China in the future, our operational results may continue to be significantly affected.
Foreign Currency
The exchange rate between U.S. dollar and RMB
has declined from an average of RMB8.2264 per U.S. dollar in July 2005 to RMB6.4491 per U.S. dollar in December 2015. The fluctuation
of the exchange rate between the RMB and U.S. dollar and HK dollar resulted in foreign currency translation gain of RMB6.2 million
(US$1.0 million) in 2015, when we translated our financial assets from U.S. dollar and HK dollar into RMB. We have not hedged exposures
to exchange fluctuations using any hedging instruments. See “Item 3. Key Information — D.Risk Factors — Risks
Related to Doing Business in China — Fluctuation in the value of the RMB may have a material adverse effect on your investment.”
and “Item 11. Quantitative and Qualitative Disclosures about Market Risk — Foreign Exchange Risk.”
|
B.
|
Liquidity and Capital Resources
|
Cash Flows and Working Capital
Our principal sources of liquidity have been
cash generated from our operating activities. As of December 31, 2015, we had RMB1.1 billion (US$172.2 million) in cash. Our cash
and cash equivalents consist of cash on hand, bank deposits and short-term, highly liquid investments that are readily convertible
to known amounts of cash, and have insignificant risk of changes in value related to changes in interest rates. Our principal uses
of cash have been to fund acquisitions, developments of online projects including CNpad, Baoxian.com, eHuzhu and Chetong.net (an
online platform previously operated by us), establishing sales outlets, working capital requirements, automobiles and office equipment
purchases, office renovation and rental deposits.
Although we consolidate the results of our PRC
consolidated affiliated entities, we do not have direct access to their cash and cash equivalents or future earnings. But we can
direct the use of their cash through agreements that provide us with effective control of these entities. Moreover, we receive
quarterly fees from some of these consolidated affiliated entities in exchange for certain consulting and other services provided
by us. See “Item 4. Information on the Company — C. Organizational Structure.” We expect to require cash to fund
our ongoing business needs, particularly the further expansion of our distribution and service network, expansion into the financial
services business and development of online platforms.
We believe that our current cash and cash equivalents
and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working
capital and capital expenditures, for at least the next 12 months. We may, however, require additional cash due to changing business
conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash
is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from lending
institutions. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. The sale of additional
equity securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would divert
cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants
that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity
or debt financing as required, our business operations and prospects may suffer.
The following table sets forth a summary of our
cash flows for the periods indicated:
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
(in thousands)
|
Net cash generated from operating activities
|
|
|
185,945
|
|
|
|
261,649
|
|
|
|
281,304
|
|
|
|
43,426
|
|
Net cash used in investing activities
|
|
|
(419,308
|
)
|
|
|
(445,395
|
)
|
|
|
(1,131,551
|
)
|
|
|
(174,681
|
)
|
Net cash generated from (used in) financing activities
|
|
|
3,350
|
|
|
|
(7,817
|
)
|
|
|
(143,708
|
)
|
|
|
(22,185
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(230,013
|
)
|
|
|
(191,563
|
)
|
|
|
(993,955
|
)
|
|
|
(153,440
|
)
|
Cash and cash equivalents at the beginning of the year
|
|
|
2,525,618
|
|
|
|
2,288,623
|
|
|
|
2,103,068
|
|
|
|
324,658
|
|
Cash and cash equivalents at the end of the year
|
|
|
2,288,623
|
|
|
|
2,103,068
|
|
|
|
1,115,266
|
|
|
|
172,167
|
|
Operating Activities
Net cash generated from
operating activities amounted to RMB
281.3 million (US$43.4 million) for the year ended December
31, 2015, primarily attributable to (i) a net income of RMB215.5 million (US$33.3 million), (ii) an add-back of depreciation
of RMB18.4 million (US$2.8 million), amortization of acquired intangible assets of RMB11.6 million (US$1.8 million) and
compensation expenses associated with stock options of RMB17.7 million (US$2.7 million), which were non-cash items, and (iii)
an increase of accounts payable of RMB33.0 million (US$5.1 million) and other payable of RMB71.5 million (US$11.0 million)
due to an increase in the operational expenses that had accrued but were not settled in the fourth quarter of 2015,
partially offset by (i) an increase of accounts receivable of RMB61.4 million (US$9.5 million) as a result of sales growth
and improvement of accounts receivable collections in our claims adjusting segment, (ii) share of income of affiliates of
RMB26.9 million (US$4.2 million), which was also included in net income but did not have cash flow effect during the period,
and (iii) RMB31.1 million (US$4.8 million) in investment income from collective trust funds and inter-bank
deposit.
Net cash generated from operating activities
amounted to RMB261.6 million for the year ended December 31, 2014, primarily attributable to (i) a net income of RMB166.1 million,
(ii) an add-back of depreciation of RMB28.2 million, amortization of acquired intangible assets of RMB16.8 million and compensation
expenses associated with stock options of RMB23.6 million, which were non-cash items, and (iii) an increase of accounts payable
of RMB27.5 million, partially offset by (i) share of income of affiliates of RMB30.6 million which was also included in net income
but did not have cash flow effect during the period and (ii) RMB15.4 million in investment income from investment in collective
trust funds and inter-bank deposit.
Net cash generated from operating activities
amounted to RMB185.9 million for the year ended December 31, 2013, primarily attributable to (i) a net income of RMB100.0 million;
(ii) RMB45.3 million of share-based compensation cost which decreased from 2012 mainly because options granted to employees in
March 2012 were recognized on an accelerated basis, (iii) RMB31.3 million of depreciation of fixed assets which increased significantly
from 2012 due to the purchase of more fixed assets for our e-commerce operations in late 2012 and (iv) RMB13.7 million of amortization
of acquired intangible assets, which were included in net income but did not affect cash flow during the period, offset by (i)
share of income of affiliates amounting to RMB20.6 million, which was also included in net income but did not have cash flow effect
during the period; and (ii) an increase of RMB12.5 million in accounts receivable, which negatively affected operating cash flow,
primarily as a result of more bonuses due from insurance companies not yet collected as of December 31, 2013.
Investing Activities
Net cash used in investing activities for the
year ended December 31, 2015 was RMB1.1 billion (US$174.7 million), primarily attributable to cash used to purchase financial products
including collective trust funds and inter-bank deposits of RMB2.3 billion (US$ 356.4 million), partially offset by (i) proceeds
from short term investments of RMB994.8 million (US$153.6 million) that had matured and (ii) repayment from related parties of
RMB181.2 million (US$ 28.0 million).
Net cash used in investing activities for the
year ended December 31, 2014 was RMB445.4 million, primarily attributable to (i) cash used to purchase short term investments in
financial products of RMB546.6 million, (ii) cash paid out for acquisitions of subsidiaries of RMB62.7 million, and (iii) cash
advance to related parties of RMB62.7 million, which mainly consisted of advances made to Sincere Fame, partially offset by (i)
proceeds from disposal of short term investments of RMB118.2 million and (ii) a decrease in other receivables of RMB113.6 million,
mainly representing an repayment in loans from Jintaiping.
Net cash used in investing activities for the
year ended December 31, 2013 was RMB419.3 million, primarily attributable to (i) purchases of short term investments in financial
products of RMB283.9 million, (ii) payment for the purchase of office equipment of RMB36.2 million, (iii) increase in other receivables
of RMB67.7 million, mainly representing an increase in loans to Jintaiping, and (iv) advance made to related parties of RMB62.3
million, of which mainly consist of advances made to Sincere Fame.
Financing Activities
Net cash used in financing activities was RMB143.7
million (US$22.2 million) for the year ended December 31, 2015, mainly attributable to payments totaling RMB153.5 million (US$23.7
million) for acquisitions of noncontrolling interests in subsidiaries.
Net cash used in financing activities was RMB7.8
million for the year ended December 31, 2014, attributable to payment of RMB11.0 million for acquisitions of noncontrolling interests
in subsidiaries, offset by proceeds received on exercise of stock options of RMB3.2 million.
Net cash generated from financing activities
was RMB3.4 million for the year ended December 31, 2013, attributable to a capital injection from noncontrolling interests of RMB3.4
million.
Capital Expenditures
We incurred capital expenditures of RMB6.3
million, RMB6.2
million and RMB6.7 million (US$1.0 million) for the years ended December 31, 2013, 2014 and 2015, respectively.
Our capital expenditures have been used primarily to construct our online platforms including CNpad and to purchase automobiles
and office equipment for newly established insurance intermediary companies. We estimate that our capital expenditures will increase
in the following two or three years as we further expand our distribution and service network in China, and construct our e-commerce
insurance platform. We anticipate funding our future capital expenditures primarily with net cash flows from financing and operating
activities.
Borrowings
As of each of December 31, 2014 and 2015, we
had no short-term or long-term bank borrowings.
Holding Company Structure
We are a holding company with no material operations
of our own. We conduct our operations primarily through our subsidiaries in China and to a lesser degree our consolidated affiliated
entities, namely, Xinbao Investment and its subsidiaries. As a result, our ability to pay dividends and to finance any debt we
may incur depends upon dividends paid by our subsidiaries and consulting and service fees paid by our subsidiaries and consolidated
affiliated entities. If our subsidiaries or any consolidated affiliated entities incur debt on their own behalf in the future,
the instruments governing their debt may restrict their ability to pay dividends to us. Our wholly owned subsidiaries are permitted
to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and
regulations. Under PRC law, each of our subsidiaries and consolidated affiliated entities in China is required to set aside at
least 10% of its after-tax profits as reported in the PRC statutory financial statements each year, if any, to fund a statutory
reserve until such reserve reach 50% of its registered capital, and to further set aside a portion of its after-tax profits to
fund the employee welfare fund at the discretion of its board. Although the statutory reserves can be used, among other ways, to
increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve
funds are not distributable as cash dividends except in the event of liquidation of the companies. Furthermore, the EIT Law that
took effect on January 1, 2008 has eliminated the exemption of EIT on dividend derived by foreign investors from foreign-invested
enterprises and imposes on foreign-invested enterprises an obligation to withhold tax on dividend distributed by such foreign-invested
enterprises. As of December 31, 2015, our restricted net asset was RMB2.2 billion (US$334.1 million), including RMB78.8 million
(US$12.2 million) restricted net assets of our consolidated affiliated entities. This amount is composed of the registered equity
of our PRC subsidiaries and consolidated affiliated entities and the statutory reserves described above.
We conduct part of our operations through our consolidated affiliated entities.
In
the years ended December 31, 2013, 2014 and 2015, aggregate revenues derived from our consolidated affiliated entities contributed
7.2%, 3.4% and 3.8%, respectively, of our total consolidated net revenues, based on our corporate structure as of the end of each
year. Our operations that are not conducted through contractual arrangements with our consolidated affiliated entities primarily
consist of our insurance agency, insurance brokerage and claims adjusting businesses. As of December 31, 2014 and 2015, our consolidated
affiliated entities accounted for an aggregate of 1.7% and 2.6%, respectively, of our consolidated total assets. The assets that
are not associated with our consolidated affiliated entities primarily consists of cash and cash equivalents, restricted cash,
short term investments, accounts receivable, insurance premium receivables, other receivables, deferred tax assets, amounts due
from related parties, other current assets, property, plant and equipment, goodwill, intangible assets, deferred tax assets, investments
in affiliates and other non-current assets. As of December 31, 2014 and 2015, our consolidated affiliated entities accounted for
an aggregate of 9.3% and 18.1%, respectively, of our consolidated total liabilities. Our ability to pay dividends depends upon
dividends paid by our subsidiaries, which in turn partially depend upon earnings of our consolidated affiliated entities transferred
to our subsidiaries in the form of payments under the technology consulting and services agreements. As of December 31, 2015, the
total amount of service fees payable to our wholly owned subsidiaries from our consolidated affiliated entities was nil. As of
December 31, 2015, we had aggregate undistributed earnings of approximately RMB2.0 billion (US$301.7 million) that were available
for distribution, including RMB2.9 million (US$0.4 million) undistributed earnings of our consolidated affiliated entities. These
undistributed earnings are considered to be indefinitely reinvested, and will be subject to PRC dividend withholding taxes upon
distribution.
|
C.
|
Research and Development, Patents and Licenses, etc.
|
None.
Other than as disclosed elsewhere in this annual
report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2015 to December
31, 2015 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or
capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating
results or financial conditions.
|
E.
|
Off-Balance Sheet Commitments and Arrangements
|
We have not entered into any financial guarantees
or other commitments to guarantee the payment obligations of third parties. We have not entered into any derivative contracts that
are indexed to our shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development
services with us. As a result, as of December 31, 2015, we did not have any off-balance sheet arrangements that had or were reasonably
likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
|
F.
|
Contractual Obligations
|
The following table sets forth our contractual obligations
and commercial commitments as of December 31, 2015:
|
|
Payment Due by Period
|
|
|
Total
|
|
Less than
1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
|
|
(in thousands of RMB)
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
65,404
|
|
|
|
31,152
|
|
|
|
23,596
|
|
|
|
10,656
|
|
|
|
—
|
|
Total
|
|
|
65,404
|
|
|
|
31,152
|
|
|
|
23,596
|
|
|
|
10,656
|
|
|
|
—
|
|
Not included in the table above are uncertain
tax liabilities of RMB70.4 million (US$10.9 million). As we are unable to make reasonably reliable estimates of the period of cash
settlement with the respective taxing authority, such liabilities are excluded from the contractual obligations table above.
Other than the contractual obligations and commercial
commitments set forth above, we did not have any other material long-term debt obligations, operating lease obligations, purchase
obligations or other material long-term liabilities as of December 31, 2015.
This annual report on Form 20-F contains statements
of a forward-looking nature. These statements are made under the “safe harbor” provisions of the U.S. Private Securities
Litigation Reform Act of 1995. You can identify some of these forward-looking statements by words or phrases such as “may,”
“will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,”
“plan,” “believe,” “is/are likely to” or other similar expressions. We have based these forward-looking
statements largely on our current expectations and projections about future events and financial trends that we believe may affect
our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include
statements relating to:
|
·
|
our anticipated growth strategies;
|
|
·
|
the anticipated growth of our life insurance business;
|
|
·
|
the anticipated growth of our e-commerce business;
|
|
·
|
our future business development, results of operations and financial condition;
|
|
·
|
factors that affect our future revenues and expenses;
|
|
·
|
the future growth of the Chinese insurance industry as a whole and the professional insurance intermediary
sector in particular;
|
|
·
|
trends and competition in the Chinese insurance industry; and
|
|
·
|
economic and demographic trends in the PRC.
|
You should thoroughly read this annual report
and the documents that we refer to with the understanding that our actual future results may be materially different from and worse
than what we expect. We qualify all of our forward-looking statements by these cautionary statements. We would like to caution
you not to place undue reliance on forward-looking statements and you should read these statements in conjunction with the risk
factors disclosed in “Item 3. Key Information — D. Risk Factors” of this annual report. Those risks are
not exhaustive. We operate in an emerging and evolving environment. New risk factors emerge from time to time and it is impossible
for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statement.
You should not rely upon forward-looking statements
as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise, except as required under applicable law.
|
Item 6.
|
Directors,
Senior Management and Employees
|
|
A.
|
Directors and Senior Management
|
The following table sets forth information regarding
our directors and executive officers as of the date of this annual report.
Directors
and Executive Officers
|
|
Age
|
|
Position/Title
|
Chunlin Wang
|
|
46
|
|
Chief Executive Officer and Director
|
Peng Ge
|
|
44
|
|
Chief Financial Officer
|
Yinan Hu
|
|
50
|
|
Chairman
|
Xiaojun Shang.
|
|
42
|
|
Director
|
Yunxiang Tang
|
|
70
|
|
Independent Director
|
Stephen Markscheid.
|
|
62
|
|
Independent Director
|
Allen Warren Lueth
|
|
47
|
|
Independent Director
|
Mengbo Yin
|
|
60
|
|
Independent Director
|
Mr. Chunlin Wang
has been our chief executive
officer since October 2011 and became our director in March 2016. From April 2011 to October 2011, he was our chief operating officer.
From January 2007 to October 2011, he was vice president and head of the property and casualty insurance unit of our company. From
2003 to January 2007, he served as assistant to our chairman. From 2002 to 2005, he served as the general manager of Guangdong
Nanfeng, one of our first affiliated insurance intermediaries in the PRC. From 1998 to 2002, Mr. Wang served as a branch manager
at Guangzhou Nanyun Car Rental Services Co., Ltd. and later Guangdong Nanfeng Automobile Association Co., Ltd., our predecessors.
Mr. Wang received his bachelor’s degree in law from Central-Southern University of Politics and Law in China.
Mr. Peng Ge
has been our chief financial
officer since April 2008. From 2005 to April 2008, he served as the general manager of the finance and accounting department and
vice president of our company. From August 2007 to September 2008, he was also a director of our company. From 1999 to 2005, Mr.
Ge headed our Beijing operations. From 1994 to 1999, Mr. Ge was a financial manager at a subsidiary of China National Native Produce
and Animal By-Products Import & Export Corporation. Mr. Ge received his bachelor’s degree in international accounting
and his MBA degree from the University of International Business and Economics in China.
Mr. Yinan Hu
is our co-founder and has
been chairman of our board of directors since our inception in 1998. From 1998 to October 2011, Mr. Hu served as our chief executive
officer. From 1993 to 1998, Mr. Hu served as chairman of the board of directors of Guangdong Nanfeng Enterprises Co., Ltd., a company
he co-founded that engaged in import and export, manufacturing of wooden doors and construction. From 1991 to 1995, Mr. Hu was
an instructor of money and banking at Guangdong Institute for Managers in Finance and Trade. Mr. Hu received a bachelor’s
degree and a master’s degree in economics from Southwestern University of Finance and Economics in China.
Ms. Xiaojun Shang
has been our director
since August 2012. Ms. Shang has been an executive director of CDH Investments Management (Hong Kong) Limited, an asset management
company based in Hong Kong, since October 2010. Prior to that, She was an executive director of CDH Investment Advisory Private
Limited, a private equity fund management company based in Singapore, from 2009 to 2010, a vice president of CDH Investments Management
(Hong Kong) Limited from 2007 to 2009 and a vice president of CDH China Management Company Limited from 2003 to 2007. Prior to
joining CDH China Management Company Limited in 2003, Ms. Shang was an assistant vice president of GIC Special Investments’
Asia Pacific private equity group, focusing on direct investment opportunities in China. From 1997 to 2001, she worked for DBS
Land Limited and CapitaLand Residential Limited in business development, strategic planning, asset management and corporate planning
areas.
Ms. Shang graduated with a Bachelor’s degree in Business Administration with first class honors in 1996 from the National
University of Singapore.
Mr. Yunxiang Tang
, a senior economist,
has been our independent director since May 2012. Mr. Tang served as general manager of the People's Insurance Company (Group)
of China Limited, or the PICC and chairman of the Board of Directors of PICC P&C, PICC Asset Management Company Limited, PICC
Life Insurance Company Limited and PICC Health Insurance Company Limited from 2000 to 2007. He was the president of Insurance Association
of China from 2001 to 2003 and vice chairman of the CIRC from 1998 to 2000. Prior to that, he served in different senior leadership
roles in the financial regulatory authorities, including head of the PBOC Guangdong Branch and chief of State Administration of
Foreign Exchange, Guangdong Branch and assistant governor of the PBOC.
Mr. Stephen Markscheid
has been our independent
director since August 2007. Mr. Markscheid is currently a partner at Wilton Partners, a Shanghai based boutique investment bank.
He is a member of the board of directors and a member of the audit committee, compensation committee and/or nomination committee
of Jinko Solar, Inc., China Ming Yang Wind Group Limited and ChinaCast Education Corporation, all of which are public companies
listed in U.S.
He is also a trustee of Princeton-in-Asia, a nonprofit social service organization affiliated with
Princeton University. From 2007 to 2015, he was the chief executive officer of Synergenz BioScience, Inc., a genomics company based
in Hong Kong. Prior to that, Mr. Markscheid was the chief executive officer of HuaMei Capital Company, Inc., a Sino-U.S. investment
advisory firm from 2006 to 2007. From 1998 to 2006, Mr. Markscheid served as senior vice president for global risk for GE Healthcare
Financial Services and director of business development of GE Capital. Prior to joining GE, Mr. Markscheid worked as case
leader for the Boston Consulting Group throughout Asia from 1994 to 1997. Prior to that, Mr. Markscheid had been a commercial
banker for ten years in London, Chicago, New York, Hong Kong and Beijing with Chase Manhattan Bank and First National Bank of Chicago.
Mr. Markscheid received his bachelor’s degree in East Asian studies from Princeton University, a master’s degree in
international affairs and economics from the School of Advanced International Studies at Johns Hopkins University, and an MBA degree
from Columbia University.
Mr. Allen Lueth
has been our independent
director since August 2007. Mr. Lueth is currently a member of the board of director, the remuneration committee and the audit
committee of Greatview Aseptic Packaging Company Limited, a company listed in Hong Kong. Since December 2010, he has been the head
of finance of Cardinal Health China, one of the world’s leading pharmaceutical distributors, which acquired Zuellig Pharma
China in November 2010. Prior to that, he was the vice president of finance and strategy of Zuellig Pharma China, a private company
focused on pharmaceutical distribution, and was its chief financial officer from 2005 to February 2009. Mr. Lueth worked for GE
Capital from 1998 to 2004 in a variety of roles, including chief financial officer and chief executive officer for the Taiwan operations,
and the representative for China. Earlier, he served with Coopers & Lybrand as an auditor. Mr. Lueth obtained his certificate
as a certified public accountant in 1991 and a certified management accountant in 1994. Mr. Lueth received his bachelor of science
in accounting degree from the University of Minnesota and an MBA degree from the J.L. Kellogg School of Management.
Dr. Mengbo Yin
has been our independent
director since September 2008. He is currently a PhD advisor at Southwestern University of Finance and Economics in China, where
he also serves as head of the university’s postgraduate department. Previously, he was the dean of the university’s
school of finance from 1996 to 2007. Professor Yin received his master’s and PhD degrees in finance from Southwestern University
of Finance and Economics in China.
Employment Agreements
Each of our executive officers has entered into
an employment agreement with us. Under these agreements, each of our executive officers is employed for a specified time period.
We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the employee, including
but not limited to a conviction or plea of guilty to a felony, negligence or dishonesty to our detriment, failure to perform the
agreed-to duties after a reasonable opportunity to cure the failure and failure to achieve the performance measures specified in
the employment agreement. An executive officer may terminate his employment at any time with one-month prior written notice if
there is a material reduction in his authority, duties and responsibilities or in his annual salary before the next annual salary
review. Furthermore, we may terminate an executive officer’s employment at any time without cause upon two-month advance
written notice. In the event of a termination without cause by us, we will provide the executive officer a lump-sum severance payment
in the amount of RMB500,000, unless otherwise specifically required by applicable law.
Each executive officer has agreed to hold, both
during and after the employment agreement expires or is earlier terminated, in strict confidence and not to use, except as required
in the performance of his duties in connection with the employment, any confidential information, trade secrets and know-how of
our company or the confidential information of any third-party, including our consolidated affiliated entities and our subsidiaries,
received by us. In addition, each executive officer has agreed to be bound by non-competition restrictions set forth in his employment
agreement. Specifically, each executive officer has agreed not to, while employed by us and for one year following the termination
or expiration of the employment agreement, (i) approach our clients, customers or contacts or other persons or entities introduced
to the executive officer for the purpose of doing business with such person or entities, and will not interfere with the business
relationship between us and such persons and/or entities; (ii) assume employment with or provide services as a director for any
of our competitors, or engage, whether as principal, partner or otherwise, in any business which is in direct or indirect competition
with our business; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us
at the date of the executive officer’s termination, or in the year preceding such termination.
In 2015, the aggregate cash compensation, including
reimbursement of expenses, to our executive officers was approximately RMB2.3 million (US$0.4 million), and the aggregate cash
compensation to our non-executive directors was approximately RMB2.0 million (US$0.3 million).
Share Incentives
2007 Share Incentive Plan
Our 2007 Share Incentive Plan is intended to
attract and retain the best available personnel for positions of substantial responsibility, provide additional incentive to employees,
directors and consultants and promote the success of our business. We have reserved 136,874,658 ordinary shares for issuance under
our 2007 Share Incentive Plan, which was approximately 15% of our outstanding ordinary shares at the time we authorized the number
of ordinary shares reserved for issuance.
On November 21, 2008, our board of
directors approved the grant of options to purchase an aggregate of 32,000,000 ordinary shares to various directors, officers
and employees pursuant to the 2007 Share Incentive Plan (the “2008 Option”). The exercise price of these options
is US$0.28 per ordinary share, equal to the closing price of our ADS on the Nasdaq Global Market at the grant date (after
adjusting for the 20 ordinary shares to 1 ADS ratio). The options are scheduled to vest over a four-year period starting from
March 31, 2010, subject to the achievement of certain key performance indicators by the option holders and their continued
employment with us. During 2015, in connection with the 2008 Option, options to purchase 374,540 ordinary shares were
exercised and nil ordinary shares were forfeited.
On March 9, 2009, our board of directors voted
to grant options to purchase an aggregate of 10,000,000 ordinary shares to employees under the amended and restated 2007 Share
Incentive Plan (the “2009 Option”). The exercise price of these options is US$0.34 per ordinary share, equal to the
closing price of our ADS on the Nasdaq Global Select Market at the grant date (after adjusting for the 20 ordinary shares to 1
ADS ratio). These options are scheduled to vest over a four-year period starting from March 31, 2010, subject to the achievement
of certain key performance indicators by the option holders and their continued employment with us. During 2015, in connection
with the 2009 Option, options to purchase 394,420 ordinary shares were exercised, and options to purchase 30,100 ordinary shares
were forfeited.
On February 8, 2010, our board of directors
approved the grant of options to purchase an aggregate of 48,000,000 ordinary shares to various directors, officers and employees
pursuant to the amended and restated 2007 Share Incentive Plan. The exercise price of these options is US$0.84 per ordinary share,
equal to the closing price of our ADS on the Nasdaq Global Select Market at the grant date (after adjusting for the 20 ordinary
shares to 1 ADS ratio). These options were scheduled to vest over a four-year period starting from March 31, 2011, subject to the
achievement of certain key performance indicators by the option holders and their continued employment with our company. None of
the options were exercised. Options to purchase 20,328,116 ordinary shares were forfeited due to a cessation of the option holders’
employment and failure to fulfill certain key performance indicators by certain option holders during 2011. Options to purchase
an aggregate of 27,671,884 ordinary shares, which represented all the remaining options granted on February 8, 2010, were cancelled
in November 2011.
On April 28, 2011, our board of directors approved
the grant of options to purchase an aggregate of 28,400,000 ordinary shares to certain directors, officers and employees pursuant
to the amended and restated 2007 Share Incentive Plan (the “2011 Option”). The exercise price of these options is US$0.73
per ordinary share, equal to the closing price of our ADS on the Nasdaq Global Select Market at the grant date (after adjusting
for the 20 ordinary shares to one ADS ratio). These options were scheduled to vest over a four-year period starting from March
31, 2012, subject to the achievement of certain key performance indicators by the option holders and their continued employment
with us. None of the options were exercised. Options to purchase 11,425,400 ordinary shares were forfeited due to a cessation of
the option holders’ employment and failure to fulfill certain key performance indicators by certain option holders during
2011. Options to purchase an aggregate of 16,974,600 ordinary shares, which represented all the remaining 2011 Options, were cancelled
in November 2011.
On March 12, 2012, pursuant to the amended and
restated 2007 Share Incentive Plan, our board of directors approved the grant of options to certain directors, officers, key employees
and sales agents to purchase an aggregate of 93,445,000 ordinary shares at an exercise price of US$0.30 per ordinary share and
approved the grant of options to two independent directors who are residents of the United States in an aggregate of 3,200,000
ordinary shares at an exercise price of US$0.31 per ordinary share (the “2012 Options”). These options are scheduled
to vest over a five-year period starting from May 31, 2012, subject to the achievement of certain key performance indicators by
certain option holders and all option holders' continued employment with us. In December 2013, the board of directors approved
an option modification to extend the expiration dates of the outstanding 2008 Options and 2009 Options to December 31, 2017.
In November 2014, the board and compensation
committee passed a resolution to modify the exercise price of the 2012 Options. The exercise price of the rest of the 2012 Options
was reduced from US$0.30 per ordinary share (for certain directors, officers, key employees and sales agents) and US$0.31 per ordinary
share (for two independent directors who are residents of the United States) to US$0.001 per ordinary share while the maximum aggregate
award of 96,645,000 ordinary shares was reduced to 46,722,500 ordinary shares. The options are subject to the same service period.
As of December 31, 2014, except for the options granted to one of the independent directors, outstanding options to purchase
91,327,722 ordinary shares were modified into 45,663,861 shares options. There was no incremental cost as a result of such option
modification. During the year ended December 31, 2015, in connection with the 2012 Options, options to purchase 5,985,760 ordinary
shares had been exercised and 399,228 ordinary shares had been forfeited due to option holders’ failure to meet the performance
target or termination of employment or agency contracts.
The following paragraphs describe the principal
terms of our amended and restated 2007 Share Incentive Plan as currently in effect.
Types of Awards
. The types of awards we
may grant under our 2007 Share Incentive Plan include the following:
|
·
|
options to purchase our ordinary shares;
|
|
·
|
restricted shares, which represent non-transferable ordinary shares, that may be subject to forfeiture,
restrictions on transferability and other restrictions; and
|
|
·
|
restricted share units, which represent the right to receive our ordinary shares at a specified
date in the future, which may be subject to forfeiture.
|
Awards may be designated in the form of ADSs
instead of ordinary shares. If we designate an award in the form of ADSs, the number of shares issuable under the 2007 Share Incentive
Plan will be adjusted to reflect the ratio of ADSs to ordinary shares.
Eligibility
. We may grant awards to employees,
directors and consultants of our company or any of our related entities, which include our subsidiaries or any entities in which
we hold a substantial ownership interest. However, we may grant options that are intended to qualify as incentive share options,
or ISOs, only to our employees and employees of our majority-owned subsidiaries.
Plan Administration
. The compensation
committee of our board of directors, or a committee designated by the compensation committee, will administer the 2007 Share Incentive
Plan. However, awards made to our independent directors must be approved by the entire board of directors. The compensation committee
or the full board of directors, as appropriate, will determine the individuals who will receive grants, the types of awards to
be granted and terms and conditions of each award grant, including any vesting or forfeiture restrictions.
Award Agreement
. Awards granted under
our 2007 Share Incentive Plan will be evidenced by an award agreement that will set forth the terms, conditions and limitations
for each award. In addition, in the case of options, the award agreement may also specify whether the option constitutes an ISO
or a non-qualifying share option.
Acceleration of Awards upon Corporate Transactions
.
The outstanding awards will accelerate upon occurrence of a change-of-control corporate transaction where the successor entity
does not assume our outstanding awards under the 2007 Share Incentive Plan. In such event, each outstanding award will become fully
vested and immediately exercisable, and the transfer restrictions on the awards will be released and any forfeiture provisions
will terminate immediately before the date of the change-of-control transaction. If the successor entity assumes our outstanding
awards and later terminates the grantee’s service without cause within 12 months of the change-of-control transaction, the
outstanding awards will automatically become fully vested and exercisable.
Exercise Price and Term of Awards
. The
exercise price per share subject to an option will be determined by the plan administrator and set forth in the award agreement
which may be a fixed or variable price related to the fair market value of our ordinary shares;
provided
,
however
,
that no options may be granted to an individual subject to taxation in the United States at less than the fair market value on
the date of grant. To the extent not prohibited by applicable laws or any exchange rule, a downward adjustment of the exercise
prices of any outstanding options may be made in the absolute discretion of the plan administrator and will be effective without
the approval of our shareholders or the approval of the affected participants. If we grant an ISO to an employee who, at the time
of that grant, owns shares representing more than 10% of the voting power of all classes of our share capital, the exercise price
cannot be less than 110% of the fair market value of our ordinary shares on the date of that grant. The term of each award will
be stated in the award agreement. The term of an award shall not exceed 10 years from the date of the grant, except that five years
is maximum term of an ISO granted to an employee who holds more than 10% of the voting power of our share capital.
Amendment and Termination
. Our board of
directors may at any time amend, suspend or terminate the 2007 Share Incentive Plan. Amendments to the 2007 Share Incentive Plan
are subject to shareholder approval to the extent required by law, or stock exchange rules or regulations. Additionally, shareholder
approval will be specifically required to increase the number of shares available for issuance under the 2007 Share Incentive Plan
or to extend the term of an option beyond ten years. Unless terminated earlier, the 2007 Share Incentive Plan will expire and no
further awards may be granted after the tenth anniversary of the shareholder approval of the 2007 Share Incentive Plan.
As of March 31, 2016, options to purchase 74,960,552
ordinary shares of CNinsure were outstanding. The following table summarizes, as of March 31, 2016, the outstanding options
that we granted to our directors and executive officers and to other individuals as a group.
Name
|
|
Options Outstanding
|
|
Exercise Price (Per Ordinary Share)(US$)
|
|
Grant Date
|
|
Expiration Date
|
Chunlin Wang
|
|
|
2,000,000
|
|
|
|
0.001
|
|
|
|
March 12, 2012
|
|
|
|
March 12, 2022
|
|
|
|
|
2,050,000
|
|
|
|
0.278
|
|
|
|
November 21, 2008
|
|
|
|
December 31, 2017
|
|
Peng Ge
|
|
|
2,000,000
|
|
|
|
0.001
|
|
|
|
March 12, 2012
|
|
|
|
March 12, 2022
|
|
|
|
|
3,350,000
|
|
|
|
0.278
|
|
|
|
November 21, 2008
|
|
|
|
December 31, 2017
|
|
Yinan Hu
|
|
|
2,000,000
|
|
|
|
0.001
|
|
|
|
March 12, 2012
|
|
|
|
March 12, 2022
|
|
|
|
|
4,500,000
|
|
|
|
0.278
|
|
|
|
November 21, 2008
|
|
|
|
December 31, 2017
|
|
Xiaojun Shang
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Yunxiang Tang
|
|
|
400,000
|
|
|
|
0.001
|
|
|
|
March 12, 2012
|
|
|
|
March 12, 2022
|
|
Stephen Markscheid
|
|
|
800,000
|
|
|
|
0.001
|
|
|
|
March 12, 2012
|
|
|
|
March 12, 2022
|
|
|
|
|
600,000
|
|
|
|
0.278
|
|
|
|
November 21, 2008
|
|
|
|
December 31, 2017
|
|
Allen Warren Lueth
|
|
|
1,600,000
|
|
|
|
0.3135
|
|
|
|
March 12, 2012
|
|
|
|
March 12, 2022
|
|
|
|
|
600,000
|
|
|
|
0.278
|
|
|
|
November 21, 2008
|
|
|
|
December 31, 2017
|
|
Mengbo Yin
|
|
|
800,000
|
|
|
|
0.001
|
|
|
|
March 12, 2012
|
|
|
|
March 12, 2022
|
|
|
|
|
400,000
|
|
|
|
0.278
|
|
|
|
November 21, 2008
|
|
|
|
December 31, 2017
|
|
Other individuals as a group
|
|
|
31,159,132
|
|
|
|
0.001
|
|
|
|
March 12, 2012
|
|
|
|
March 12, 2022
|
|
|
|
|
6,575,480
|
|
|
|
0.336
|
|
|
|
March 9, 2009
|
|
|
|
December 31, 2017
|
|
|
|
|
16,125,940
|
|
|
|
0.278
|
|
|
|
November 21, 2008
|
|
|
|
December 31, 2017
|
|
____________________
InsCom Holdings Options
On March 29, 2012, the shareholders of InsCom
Holdings, a subsidiary in which we hold 65.1% equity interest, adopted a share incentive plan, under which a maximum number of
202,400,000 ordinary shares of InsCom Holdings can be granted as options, equal to 20% of the total number of ordinary shares outstanding
of InsCom Holdings as at March 28, 2012.
On April 2, 2012, InsCom Holdings granted options
to purchase 36,515,586 ordinary shares of InsCom Holdings to certain property and casualty insurance sales agents and options to
purchase 24,492,750 ordinary shares of InsCom Holdings to certain employees of InsCom Holdings and the headquarter at an exercise
price of RMB1.00 per ordinary share (the “2012 InsCom Option”). Pursuant to the option agreements entered into between
InsCom Holdings and the option grantees, these options were scheduled to vest over a two-year period from 2012 to 2013. The number
of options that the grantees are entitled to in each year was calculated based on the key performance indicator scores of the grantees
in the respective prior year and subject to their continued services. The expiration dates for the 2012 InsCom Options granted
to agents and employees are December 31, 2014 and June 30, 2017, respectively.
On June 24, 2013, InsCom Holdings granted options
to purchase 5,914,312 of its ordinary shares to certain sales agents and 14,744,000 of its ordinary shares to the employees of
InsCom Holdings and its affiliates and the headquarter at an exercise price of RMB1.2 per ordinary share (the “2013 InsCom
Option ”). Pursuant to the option agreements entered into between InsCom Holdings and the option grantees, the options are
scheduled to vest over a two-year period from 2013 to 2014. The number of options that the grantees are entitled to in each year
was calculated based on the key performance indicator scores of the grantees in the respective prior year and subject to their
continued services. The expiration dates for the 2013 InsCom Options granted to agents and employees are December 31, 2014 and
June 30, 2018, respectively.
In December 2013, the board of directors of InsCom
Holdings approved an option modification to extend the expiration dates of both the 2012 InsCom Options and 2013 InsCom Options
for one year and revised the exercise price of the options to RMB0.025 per ordinary share, the fair value as of the modification
date.
On July 1, 2014, InsCom Holdings granted options
to purchase 3,477,281 of its ordinary shares to its entrepreneurial agents and 8,189,000 ordinary shares to the employees of InsCom
Holdings and CNinsure at an exercise price of RMB0.028 per ordinary share. Pursuant to the option agreements entered into between
InsCom Holdings and the option grantees, the options are scheduled to vest over a two-year period from 2014 to 2015. The number
of options that the grantees are entitled to in each year was calculated based on the key performance indicator scores of the grantees
in the respective prior year and subject to their continued services. The expiration dates for options granted to agents and employees
are December 31, 2016 and June 30, 2018, respectively.
On October 1,
2015, the board of directors
of InsCom Holdings approved an option modification to further extend the expiration dates of the 2012 InsCom Options and 2013 InsCom
Options to December 31, 2020.
Board of Directors
Our board of directors consists of seven directors.
Under our currently effective memorandum and articles of association, a director is not required to hold any shares in our company
by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement in which he is materially
interested. The directors may exercise all the powers of our company to borrow money, mortgage its undertaking, property and uncalled
capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of our company or
of any third-party. The directors may receive such remuneration as our board of directors may determine from time to time. There
is no age limit requirement for directors.
In compliance with Rule 5605 of the Nasdaq Listing Rules, a majority of
our
directors and all of the committee members of our board of directors are independent directors. During 2015, our board of directors
met in person or passed resolutions by unanimous written consent 4 times. In addition, our independent directors held executive
sessions without the presence of non-independent directors or members of management twice during 2015. We have no specific policy
with respect to director attendance at our annual general meetings of shareholders.
Committees of the Board of Directors
We have established three committees under the
board of directors: the audit committee, the compensation committee and the corporate governance and nominating committee, and
have adopted a charter for each of the committees. Each committee’s members and functions are described below.
Audit Committee
.
Our audit committee
consists of Allen Lueth (chairman), Stephen Markscheid and Mengbo
Yin
, all of whom satisfy
the “independence” requirements of Rule 5605 of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange
Act of 1934. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements
of our company. The audit committee is responsible for, among other things:
|
·
|
selecting the independent auditors and pre-approving all auditing and non-auditing services permitted
to be performed by the independent auditors;
|
|
·
|
reviewing with the independent auditors any audit problems or difficulties and management’s
response;
|
|
·
|
reviewing and approving all proposed related-party transactions;
|
|
·
|
discussing the annual audited financial statements with management and the independent auditors;
|
|
·
|
reviewing major issues as to the adequacy of our internal controls and any special audit steps
adopted in light of material control deficiencies;
|
|
·
|
annually reviewing and reassessing the adequacy of our audit committee charter;
|
|
·
|
meeting separately and periodically with management, the independent auditors and the internal
auditor; and
|
|
·
|
reporting regularly to the full board of directors.
|
In 2015, our audit committee held meetings or
passed resolutions by unanimous written consent four times.
Compensation Committee
.
Our compensation
committee consists of Stephen Markscheid (chairman),Allen Lueth and Yunxiang Tang, all of whom satisfy the “independence”
requirements of Rule 5605 of the Nasdaq Listing Rules. Our compensation committee assists the board of directors in reviewing and
approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided
to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his
compensation is deliberated. The compensation committee is responsible for, among other things:
|
·
|
reviewing and recommending to the board with respect to the total compensation package for our
chief executive officer;
|
|
·
|
approving and overseeing the total compensation package for our executives other than the chief
executive officer;
|
|
·
|
reviewing and making recommendations to the board with respect to the compensation of our directors;
and
|
|
·
|
reviewing periodically and approving any long-term incentive compensation or equity plans, programs
or similar arrangements, annual bonuses, employee pension and welfare benefit plans.
|
In 20
15, our compensation committee held meetings or passed resolutions by
unanimous written consent twice.
Corporate Governance and Nominating Committee
.
Our corporate governance and nominating committee consists of Mengbo Yin(chairman), Allen Lueth and Stephen Markscheid, all
of whom satisfy the “independence” requirements of Rule 5605 of the Nasdaq Listing Rules. The corporate governance
and nominating committee assists our board of directors in identifying individuals qualified to become our directors and in determining
the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other
things:
|
·
|
identifying and recommending to the board nominees for election or re-election to the board, or
for appointment to fill any vacancy;
|
|
·
|
reviewing annually with the board the current composition of the board in light of the characteristics
of independence, skills, experience and availability of service to us;
|
|
·
|
identifying and recommending to the board the names of directors to serve as members of the audit
committee and the compensation committee, as well as the corporate governance and nominating committee itself;
|
|
·
|
advising the board periodically with respect to significant developments in the law and practice
of corporate governance, as well as our compliance with applicable laws and regulations, and making recommendations to the board
on all matters of corporate governance and on any corrective action to be taken; and
|
|
·
|
monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy
and effectiveness of our procedures to ensure proper compliance.
|
In 2015, our corporate governance and nominating
committee held meetings or passed resolutions by unanimous written consent third times.
Duties of Directors
Under Cayman Islands law, our directors have
a fiduciary duty to act honestly, in good faith and with a view to our best interests. Our directors also owe to our company a
duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his duties
a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth
courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to
be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum
and articles of association as amended and restated from time to time. In certain limited circumstances, it may be possible for
our shareholders to bring a derivative action on behalf of our company if a duty owed by our directors to our company is breached.
Terms of Directors and Executive Officers
All directors hold office until their successors
have been duly elected and qualified. Outside of certain specified circumstances, including a director resigns, becoming bankrupt
or of unsound mind or being absent from board meetings without special leave of absence for six consecutive months, a director
may only be removed by a special resolution of the shareholders. Officers are elected by and serve at the discretion of the board
of directors. We do not have contracts in place with any of our directors providing for benefits upon termination of employment.
For the period during which the directors and executives have served in the office, please see “Item 6. Directors, Senior
Management and Employees — A. Directors and Senior Management.”
Employees, Sales Agents and Training
We had 4,288, 3,867 and 4,157 employees as of
December 31, 2013, 2014 and 2015, respectively. We consider our relations with our employees to be good. The following table sets
forth the number of our employees by function as of December 31, 2015:
|
|
Number of Employees
|
|
% of Total
|
Management and administrative staff
|
|
|
2,062
|
|
|
|
49.6
|
|
Financial and accounting staff
|
|
|
334
|
|
|
|
8.0
|
|
Sales and marketing staff
|
|
|
198
|
|
|
|
4.8
|
|
Professional claims adjustors
|
|
|
1,451
|
|
|
|
34.9
|
|
Information technology staff
|
|
|
112
|
|
|
|
2.7
|
|
Total
|
|
|
4,157
|
|
|
|
100
|
|
As of December 31, 2013, 2014 and 2015, we had
51,583, 62,248 and 116,164 sales representatives, respectively. 99.9% of these sales representatives are independent sales agents
who are not our employees and are only compensated by commissions. We have contractual relationships with these sales agents. For
the sale of each property and casualty insurance policy or life insurance policy with a single premium payment schedule, we pay
the sales agent who has generated the sale a single commission based on a percentage of the commission and fee we receive from
the insurance company for the sale of that policy. For the sale of each life insurance policy with a periodic premium payment schedule,
we pay the sales agent who has generated the sale periodic commissions based on a percentage of the commissions and fees we receive
from the insurance company for the sale and renewal of that policy, up to the first five years of the premium payment period, and
retain all commissions and fees we continue to receive from insurance companies for the rest of the premium payment period.
Our life insurance sales agents are typically
organized into sales teams with a multilevel hierarchy, though we are reducing this hierarchy to only two layers in certain cities.
A life insurance sales agent not only receives a commission for the insurance policies that he or she sells, but also a smaller
commission for insurance policies sold by agents under his or her management.
Our sales agents, in-house sales representatives
and claims adjustors are our most valuable asset and are instrumental in helping us build and maintain long-term relationships
with our customers. Therefore, we place a strong emphasis on training our sales force. We provide trainings to both new sales agents
and existing sales agents, on a monthly or quarterly basis, with a different emphasis. For new sales agents, we offer orientation
courses that are designed to familiarize them with the industry background, regulatory environment, corporate culture, insurance
products, and sales skills. For the existing sales agents, we offer on-the-job training courses that aim to enhance their sales
skills and knowledge of different insurance products.
The following table sets forth information with
respect to the beneficial ownership of our shares, as of March 31, 2016, by:
|
·
|
each of our current directors and executive officers; and
|
|
·
|
each person known to us to own beneficially more than 5% of our shares.
|
As of March 31, 2016, there were 1,155,162,526
ordinary shares outstanding. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing
the number of shares beneficially owned by a person and the percentage ownership of that person, we include shares that the person
has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion
of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
|
|
Ordinary
Shares Beneficially Owned
(1) (2)
|
|
|
Number
|
|
%
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
Chunlin Wang
(3)
|
|
|
194,576,540
|
|
|
|
16.8
|
%
|
Peng Ge
(4)
|
|
|
195,876,540
|
|
|
|
16.9
|
%
|
Yinan Hu
(5)
|
|
|
199,468,110
|
|
|
|
17.2
|
%
|
Xiaojun Shang
|
|
|
—
|
|
|
|
—
|
|
Yunxiang Tang
|
|
|
*
|
|
|
|
*
|
|
Stephen Markscheid
|
|
|
*
|
|
|
|
*
|
|
Allen Warren Lueth
|
|
|
*
|
|
|
|
*
|
|
Mengbo Yin
|
|
|
*
|
|
|
|
*
|
|
All Directors and Executive Officers as a Group
(6)
|
|
|
403,914,650
|
|
|
|
34.4
|
%
|
|
|
|
|
|
|
|
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
Sea Synergy Limited
(7)
|
|
|
183,198,110
|
|
|
|
15.9
|
%
|
Kingsford Resources Limited
(8)
|
|
|
190,826,540
|
|
|
|
16.5
|
%
|
High Rank Investments Limited
(8)
|
|
|
190,826,540
|
|
|
|
16.5
|
%
|
Better Rise Investments Limited
(8)
|
|
|
190,826,540
|
|
|
|
16.5
|
%
|
S. Donald Sussman
(9)
|
|
|
68,487,280
|
|
|
|
5.9
|
%
|
Norges Bank (The Central Bank of Norway)
(10)
|
|
|
78,300,000
|
|
|
|
6.8
|
%
|
__________________
*
|
|
Less than 0.5% of our total outstanding ordinary shares.
|
†
|
|
Except for Ms. Shang and independent directors, the business address of our directors
and executive officers is c/o 27/F, Pearl River Tower, No. 15 West Zhujiang Road, Guangzhou, Guangdong 510623, People’s
Republic of China.
|
(1)
|
|
The number of shares beneficially owned by each director and executive officer includes
the shares beneficially owned by such person, the shares underlying all options held by such person that have vested or will vest
within 60 days after March 31, 2016.
|
(2)
|
|
Percentage of beneficial ownership of each director and executive officer is based
on 1,155,162,526 ordinary shares outstanding as of March 31, 2016, and the number of ordinary shares underlying options held by
such person that have vested or will vest within 60 days after March 31, 2016.
|
(3)
|
|
Includes (i) 115,483,560 ordinary share and 75,342,980 ordinary shares in the form of ADSs
held by Kingsford Resources Limited, or Kingsford Resources, and (ii) 3,750,000 ordinary shares that are issuable upon
exercise of options held by Mr. Chunlin Wang within 60 days after March 31, 2016. Mr. Chunlin Wang holds approximately 32.9%
of the total outstanding shares of Better Rise Investments. Better Rise Investments owns approximately 30.6% of Kingsford
Resources Limited, or Kingsford Resources. Mr. Wang disclaims direct beneficial ownership of all of our shares held by
Kingsford Resources except to the extent of his pecuniary interest through Better Rise Investment therein.
|
(4)
|
|
Includes (i)
115,483,560 ordinary share and 75,342,980 ordinary
shares in the form of ADSs held by Kingsford Resources, and (ii) 5,050,000 ordinary shares that are issuable upon exercise of
options held by Mr. Ge within 60 days after March 31, 2016. Mr. Ge holds approximately 67.1% of the total outstanding shares
of Better Rise Investments, which in turn holds approximately 30.6% of the total outstanding shares of Kingsford Resources.
Mr. Ge disclaims beneficial ownership of all of our shares held by Kingsford Resources except to the extent of his pecuniary
interest therein.
|
(5)
|
|
Includes (i) 10,070,000 ordinary shares in the form of ADSs of our company acquired by Mr. Hu
on the open market, (ii) 6,200,000 ordinary shares issuable upon exercise of options held by Mr. Hu within 60 days after
March 31, 2016 and (iii) 183,198,110 ordinary shares of our company directly held by Sea Synergy Limited, or Sea Synergy. Mr.
Hu and his wife hold approximately 98.6% and 1.4%, respectively, of the total outstanding shares of Sea Synergy. Mr. Hu
disclaims beneficial ownership of all of our shares held by Sea Synergy except to the extent of his pecuniary interest
therein.
|
(6)
|
|
Includes ordinary shares beneficially owned by all of our directors and executive
officers as a group and ordinary shares underlying all options held by such persons that have vested or will vest within 60 days
after March 31, 2016.
|
(7)
|
|
Includes 183,198,110 ordinary shares of our company directly held by Sea Synergy.
Mr. Hu and his wife hold approximately 98.6% and 1.4%, respectively, of the total outstanding shares of Sea Synergy. The registered
address of Sea Synergy is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
|
(8)
|
|
Includes 115,483,560 ordinary share and 75,342,980 ordinary shares in the form of
ADSs of our company directly held by Kingsford Resources. High Rank Investments Limited and Better Rise Investments hold 69.4%
and 30.6% of the total outstanding shares of Kingsford Resources, respectively. Mr. Qiuping Lai, former president of CNinsure,
holds 100% of the outstanding shares of High Rank Investments. Mr. Chunlin Wang and Mr. Ge hold 32.9% and 67.1% of the outstanding
shares of Better Rise Investments, respectively. Mr. Lai, Mr. Chunlin Wang and Mr. Ge hold 69.4%, 10.1% and 20.5% shared voting
power of Kingsford Resources, respectively, and each has the authority to vote the percentage of shares owned by Kingsford Resources
that is proportionate to their respective interests in Kingsford Resources. Kingsford Resources entered into a share purchase
and sale agreement on January 4, 2015, as amended on August 12, 2015, with CDH Inservice Limited, or CDH Inservice, pursuant to
which Kingsford Resources purchased from CDH Inservice an aggregate of 91,600,000 ordinary shares and 3,151,149 ADSs, resulting
in Kingsford Resource’s holdings in our company increasing from 3.6% to 16.6% and CDH Inservice’s holdings in our
company decreasing from 16.6% to zero. The registered address of Kingsford Resources is Beaufort House, P.O. Box 438, Road Town,
Tortola, British Virgin Islands. The principal business address for High Rank Investments is P.O. Box 957, Offshore Incorporations
Centre, Road Town, Tortola, British Virgin Islands. The principal business address for Better Rise Investments is P.O. Box 957,
Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
|
(9)
|
|
As reported on Schedule 13D/A filed by Cathay Capital Holdings II, L.P., or Cathay
Capital, on January 8, 2013, the number includes (1) 21,511,600 ordinary shares in the form of ADS of our company directly held
by Mr. Sussman, (2) 271,320 ordinary shares in the form of ADS of our company held by a grantor retained annuity trust, of which
Mr. Sussman is a co-trustee, acquired through transfers of ordinary shares from Mr. Sussman to the grantor retained annuity trust,
(3) 4,292,420 ordinary shares in the form of ADSs of our company held by Caremi Partners Ltd., of which Mr. Sussman is the sole
shareholder, (4) 10,013,120 ordinary shares in the form of ADS of our company directly held collectively by Paloma Partners LLC,
or Paloma Partners, and Paloma International Limited, or Paloma Limited. Mr. Sussman is Chairman and founder of Paloma Partners
Management Company, or PPMC, and co-owns PPMC with certain of its senior employees. PPMC is the special member of Paloma
Partners, provides advisory and non-advisory services to Paloma Limited and Paloma Partners based on a services agreement, (5)
32,294,420 ordinary shares of in the form of ADS of our company directly held by Cathay Capital. Mr. Sussman is the co-owner of
Cathay Master GP, Ltd., the general partner of Cathay Capital. He is also the owner of New China Capital Management, LP, the investment
manager for Cathay Capital, and (6) 104,400 ordinary shares in the form of ADS of our company directly held by Cathay Investment
Fund, Limited, or CIF. Mr. Sussman directly and/or indirectly owns 50% of New China Investment Management, Inc., the investment
manager for CIF. The percentage of beneficial ownership was calculated based on the total number of our ordinary shares outstanding
as of March 31, 2016. The business address of Mr. Sussman is 6100 Red Hook Quarters, Suite C1-C6 St. Thomas, United Virgin Islands
00802-1348
.
|
(11)
|
|
Represents 78,300,000 ordinary shares in the form of ADSs of our company held by Norges
Bank, as reported on Schedule 13G/A filed by Norges Bank on February 7, 2013. The percentage of beneficial ownership was calculated
based on the total number of our ordinary shares outstanding as of March 31, 2016. The address of Norges Bank is Bankplassen 2,
PO Box 1179 Sentrum, NO 0107 Oslo, Norway
.
|
On January 5, 2015, Kingsford Resources entered
into a share purchase and sale agreement, which was amended on August 12, 2015, with CDH Inservice in a privately negotiated transaction,
pursuant to which Kingsford Resources, collectively held by Mr. Lai, Mr. Chunlin Wang and Mr. Ge, has agreed to purchase from CDH
Inservice 7,731,149 ADSs, or its equivalent in ordinary shares of our company, at a price of US$7 per ADS, or US$0.35 per ordinary
share, for total compensation of US$54.1 million. The 7,731,149 ADSs represent the entire interests in our company held by CDH
Inservice as of January 5, 2015. 3,865,575 ADSs or its equivalent in ordinary shares were delivered by CDH Inservice to Kingsford
Resources on January 15, 2015 and the remaining 3,865,574 ADSs or its equivalent in ordinary shares were delivered on August 13,
2015.
None of our existing shareholders have different voting rights from other shareholders. We are not aware of
any arrangement that may, at a subsequent date, result in a change of control of our company. As of March
31,
2016, J.P. Morgan Chase Bank, N.A., or J.P. Morgan, the depositary for our ADS program, is our only record holder in the United
States, holding approximately 61.1% of our total outstanding ordinary shares. The number of beneficial owners of our ADSs in the
United States is likely much larger than the number of record holders of our ordinary shares in the United States.
|
Item 7.
|
Major Shareholders and Related Party Transactions
|
Please refer to “Item 6. Directors, Senior
Management and Employees
¾
E. Share Ownership.”
|
B.
|
Related Party Transactions
|
Amounts Due from an Affiliate and its Subsidiaries
We agreed to grant a revolving loan with a maximum
amount of US$50.0 million (equivalent to RMB318.0 million as per the agreement) to Sincere Fame, and its subsidiaries, pursuant
to a facility letter, or the Facility entered in October 2011. The facility is valid for two years and was renewed for another
two years in October 2013 and October 2015. On January 1, 2012, we and Sincere Fame further entered into a supplemental loan agreement,
which established the legal rights to offset the interests and amounts receivable and payable between us and Sincere Fame, and
all subsidiaries of us and Sincere Fame. These amounts are unsecured, bear interest at 7.3% and are repayable on demand. As of
December 31, 2015, the amount due from Sincere Fame and its subsidiaries represented RMB36.5 million (US$5.6 million) interest
receivable.
Shares Sold to Employee Companies and Subscription Receivables
from Employee Companies
In November 2014, we entered into share purchase agreements with companies established on behalf of our employees,
or the Employee Companies, for the issuance of up to 100,000,000
ordinary shares of our company.
In December 2014, we increased the new shares issued to the employees to 150,000,000 ordinary shares, representing approximately
13.0% of our enlarged total share capital upon completion of the transaction. The purchase price for the 100,000,000 ordinary shares
is US$0.27 per ordinary share or US$5.40 per ADS, while the purchase price for the additional 50,000,000 ordinary shares is US$0.29
per ordinary share or US$5.8 per ADS, both of which are the average closing prices for the 20 trading days prior to the board approvals.
The shares purchased by the Employee Companies were subject to a 180 days lock-up. The sale of shares to the Employee Companies
was completed on December 17, 2014. As of March 31, 2016, none of the shares held by the Employee Companies had been resold.
In order to facilitate the purchase of shares
by our employees pursuant to the share purchase agreement as described above, we also obtained approval from our board of directors
to grant a US$41.5 million loan to the Employee Companies. The loan bears interest at a rate of 3% per annum, is guaranteed by
the individual employees and is repayable upon the sale of the shares by employees, termination of employment or within two years,
whichever comes first. According to FASB ASC 505-10-45,
the loan is recorded as a separate
line of deduction from equity in our consolidated
balance sheet as of December 31, 2014 and
2015, respectively. Interest income accruing from the loan is recognized as non-operating
income
and other receivables. None of the loan to Employee Companies has been repaid as of March 31, 2016 and the total balance thereof
as of December 31, 2015 was RMB268.8 million (US$41.5 million).
Revenues and Other Incomes from Affiliates
We charged affiliates interest of RMB8.1 million
(US$1.2 million) for loans receivable during the year ended December 31, 2015.
Equity Interest Held on Behalf of an Affiliate
One of our subsidiaries held 30% equity interest
of Beijing Fanhua Micro-credit Company Limited, a subsidiary of Sincere Fame, on behalf of Shenzhen Fanhua United Investment Group,
which is also a subsidiary of Sincere Fame.
Contractual Arrangements with Our Consolidated Affiliated Entities
and the Shareholders of Xinbao Investment
Historically,
PRC laws and regulations have restricted foreign investment in and ownership of insurance agencies and brokerages and internet
business. Accordingly, we conducted part of our operations in China through contractual arrangements among our PRC subsidiaries,
Xinbao Investment and its shareholders and subsidiaries. For a description of these contractual arrangements, see “Item 4.
Information on the Company — C. Organizational Structure.”
Employment Agreements
See “Item 6. Directors, Senior Management
and Employees — A. Directors and Senior Management — Employment Agreements” for a description of the employment
agreements we have entered into with our senior executive officers.
Share Options
Please refer to “Item 6. Directors, Senior
Management and Employees — B. Compensation.”
|
C.
|
Interests of Experts and Counsel
|
Not applicable.
Item 8.
|
|
Financial Information
|
|
A.
|
Consolidated Statements and Other Financial Information
|
See “Item 18. Financial Statements.”
Legal Proceedings
We are currently not a party to any material litigation or other
legal proceeding that may have a material adverse impact on our business or operations. However, we are and may continue to be
subject to various claims and legal actions arising in the ordinary course of business.
Dividend Policy
Our board of directors has discretion as to whether
to distribute dividends, subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends
out of profits or share premium account, and provided always that in no circumstances may a dividend be paid if this would result
in our company being unable to pay its debts due in the ordinary course of business. In addition, our shareholders may by ordinary
resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Even if our board of directors
decides to pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future
results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us
from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.
If we pay any dividends, we will pay our ADS
holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees
and expenses payable thereunder. Any dividend we declare will be distributed by the depositary bank to the holders of our ADSs.
Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
We are a holding company incorporated in the
Cayman Islands. We rely on dividends from our subsidiaries in China to fund our payment of dividends, if any, to our shareholders.
Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined
in accordance with PRC accounting standards and regulations. In addition, each of our subsidiaries in China is required to set
aside a certain amount of its accumulated after-tax profits each year, if any, to fund certain statutory reserves. These reserves
may not be distributed as cash dividends. Further, if our subsidiaries in China incur debt on their own behalf, the instruments
governing the debt may restrict their ability to pay dividends or make other payments to us. Furthermore, there are still uncertainties
under the new PRC EIT law and the related regulations regarding whether the dividends we receive from our PRC subsidiaries or dividends
paid to our shareholders will be subject to PRC withholding tax. See “Item 3. Key Information — D. Risk Factors —
Risks Related to Doing Business in China — Our global income or the dividends we receive from our PRC subsidiaries may be
subject to PRC tax under the EIT Law, which could have a material adverse effect on our results of operations.” and “Item
3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Under the EIT Law, dividends
payable by us and gains on the disposition of our shares or ADSs could be subject to PRC taxation.”
We have not experienced any significant changes
since the date of our audited consolidated financial statements included in this annual report.
|
Item 9.
|
The Offer and Listing
|
|
A.
|
Offer and Listing Details
|
The following table provides the high and low
trading prices for our ADSs on the Nasdaq Global Select Market since January 4, 2010 for the periods indicated.
|
|
Sales Price
|
|
|
High
|
|
Low
|
|
|
US$
|
|
US$
|
Annual High and Low
|
|
|
|
|
|
|
|
|
2011
|
|
|
20.88
|
|
|
|
5.28
|
|
2012
|
|
|
9.02
|
|
|
|
5.00
|
|
2013
|
|
|
7.00
|
|
|
|
4.75
|
|
2014
|
|
|
9.44
|
|
|
|
4.90
|
|
2015
|
|
|
12.49
|
|
|
|
5.56
|
|
Quarterly Highs and Lows
|
|
|
|
|
|
|
|
|
First Quarter of 2014
|
|
|
9.44
|
|
|
|
5.50
|
|
Second Quarter of 2014
|
|
|
7.94
|
|
|
|
5.97
|
|
Third Quarter of 2014
|
|
|
7.56
|
|
|
|
5.47
|
|
Fourth Quarter of 2014
|
|
|
7.29
|
|
|
|
4.90
|
|
First Quarter of 2015
|
|
|
9.30
|
|
|
|
6.60
|
|
Second Quarter of 2015
|
|
|
12.49
|
|
|
|
7.55
|
|
Third Quarter of 2015
|
|
|
9.50
|
|
|
|
5.56
|
|
Fourth Quarter of 2015
|
|
|
10.40
|
|
|
|
7.54
|
|
First Quarter of 2016
|
|
|
9.38
|
|
|
|
6.47
|
|
Monthly Highs and Lows
|
|
|
|
|
|
|
|
|
October 2015
|
|
|
9.29
|
|
|
|
7.54
|
|
November 2015
|
|
|
10.40
|
|
|
|
8.92
|
|
December 2015
|
|
|
9.47
|
|
|
|
8.36
|
|
January 2016
|
|
|
9.38
|
|
|
|
6.58
|
|
February 2016
|
|
|
7.56
|
|
|
|
6.47
|
|
March 2016
|
|
|
8.24
|
|
|
|
7.00
|
|
April 2016 (through April 20)
|
|
|
8.48
|
|
|
|
7.18
|
|
Not applicable.
Our ADSs, each representing 20 ordinary shares,
have been listed on the Nasdaq Global Select Market since January 2, 2009 under the symbol “CISG.” From October 31,
2007 until January 1, 2009, our ADSs were listed on the Nasdaq Global Market.
Not applicable.
Not applicable.
Not applicable.
|
Item 10.
|
Additional Information
|
Not applicable.
|
B.
|
Memorandum and Articles of Association
|
The following are summaries of material provisions
of our amended and restated memorandum and articles of association, including certain amendments adopted by our shareholders at
the annual general meeting of shareholders held on December 18, 2008, as well as the Companies Law (2013 Revision) insofar as they
relate to the material terms of our ordinary shares.
Registered Office and Objects
The registered office of our company is at the
offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other
place as our board of directors may from time to time decide. The objects for which our company is established are unrestricted
and we have full power and authority to carry out any object not prohibited by the Companies Law (2013 Revision) or as the same
may be revised from time to time, or any other law of the Cayman Islands.
Board of Directors
See “Item 6. Directors, Senior Management
and Employees — C. Board Practices — Board of Directors.”
Ordinary Shares
General
. Our authorized share
capital consists of 10,000,000,000 ordinary shares, with a par value of US$0.001 each. All of our outstanding ordinary shares are
fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders who
are nonresidents of the Cayman Islands may freely hold and vote their shares.
Dividend Rights
. The holders
of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to the Companies Law.
Voting Rights
. On a show of hands,
each shareholder present in person or by proxy (or, for a corporation or other non-natural person, present by its duly authorized
representative or proxy) at general meeting shall have one vote and on a poll, shall have one vote for each share registered in
his name in the register of members of our company. Voting at any meeting of shareholders is by show of hands unless a poll is
demanded. A poll may be demanded by the chairman of the meeting or by any one or more shareholders together holding at least ten
percent of our paid up voting share capital, present in person or by proxy.
A quorum required for a meeting of shareholders
consists of shareholders holding in aggregate not less than one-third of our issued voting share capital present in person or by
proxy or, if a corporation or other non-natural person, by its duly authorized representative. We may, but are not obliged, to
hold an annual general meeting of shareholders. General meetings may be convened by our board of directors on its own initiative
or upon a request to the directors by shareholders holding in aggregate not less than one-third of our voting share capital. Advance
notice of at least 14 days is required for the convening of our annual general meeting and other shareholders meetings.
An ordinary resolution to be passed by the shareholders
requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in a general meeting, while
a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast
in a general meeting. A special resolution is required for important matters such as a change of name. Holders of the ordinary
shares may effect certain changes by ordinary resolution, including consolidating and dividing all or any of our share capital
into shares of larger amount than our existing shares, and canceling any shares which have not been taken or agreed to be taken.
Transfer of Shares
. Subject to
the restrictions of our articles of association, as applicable, any of our shareholders may transfer all or any of his or her ordinary
shares by an instrument of transfer in the usual or common form or any other form approved by our board.
Liquidation
. On a return of capital
on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution among
the holders of ordinary shares may be distributed among the holders of the ordinary shares as determined by the liquidator, subject
to sanction of an ordinary resolution of our company.
Calls on Shares and Forfeiture of Shares
.
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served
to such shareholders at least 14 days prior to the specified time of payment. The shares that have been called upon and remain
unpaid on the specified time are subject to forfeiture.
Redemption, Repurchase and Surrender
of Shares
. Subject to the provisions of the Companies Law and our articles of association, we may issue shares on terms
that they are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as our board
of directors may determine before the issue of such shares. We also may purchase our own shares, provided that our shareholders
have approved the manner of purchase by ordinary resolution or the manner of purchase is in accordance with that specified in our
articles of association. The manner of purchase specified in our articles of association, which cover purchases of shares listed
on an internationally recognized stock exchange and shares not so listed, is in accordance with Section 37(2) of the Companies
Law or any modification or reenactment thereof for the time being in force. In addition, our company may accept the surrender of
any fully paid share for no consideration. Pursuant to Companies Law (2013 Revision) as amended, upon the repurchase, redemption
or surrender of shares, instead of cancelling them the board of directors can determine whether or not cancel those shares or hold
them as treasury shares pending cancellation, transfer or sale. The company must obtain authorization to hold such shares as treasury
shares either in accordance with the procedures set out in the company’s articles of association or (if there are none) by
a board resolution before being repurchased, redeemed or surrendered in accordance with the usual rules and articles.
Variations of Rights of Shares
.
All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied
either with the written consent of the holders of a majority of the issued shares of that class or with the sanction of a special
resolution passed at a general meeting of the holders of the shares of that class.
Inspection of Books and Records
.
Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders
or our corporate records. However, we make our annual reports, which contain our audited financial statements, available to our
shareholders. See “Item 10. Additional Information — H. Documents on Display.”
We have not entered into any material contracts
other than in the ordinary course of business and other than those described in “Item 4. Information on the Company”
or elsewhere in this annual report.
See “Item 4. Information on the Company
— B. Business Overview — Regulation — Regulations on Foreign Exchange.”
The following summary of the material Cayman
Islands, PRC and United States federal income tax consequences of an investment in our ADSs or ordinary shares is based upon laws
and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary
does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences
under state, local and other tax laws.
Cayman Islands Taxation
According to Maples and Calder, our Cayman Islands
counsel, the Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation
and there is no taxation in the nature of inheritance tax or estate duty. No Cayman Islands stamp duty will be payable unless an
instrument is executed in, or after execution brought within the jurisdiction of the Cayman Islands, or produced before a court
of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payment made to or
by our Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
PRC Taxation
Under the former PRC Income Tax Law for Enterprises
with Foreign Investment and Foreign Enterprises, any dividends payable by foreign-invested enterprises to non-PRC investors were
exempt from any PRC withholding tax. In addition, any interest or dividends payable, or distributions made, by us to holders or
beneficial owners of our ADSs or ordinary shares would not have been subject to any PRC tax, provided that such holders or beneficial
owners, including individuals and enterprises, were not deemed to be PRC residents under the PRC tax law and had not become subject
to PRC tax.
Under the EIT Law, which took effect as of January 1,
2008, enterprises established under the laws of non-PRC jurisdictions but whose “de facto management body” is located
in China are considered “resident enterprises” for PRC tax purposes. Under the implementation regulations issued by
the State Council relating to the new law, “de facto management bodies” are defined as the bodies that have material
and overall management control over the business, personnel, accounts and properties of an enterprise. On April 22, 2009, SAT,
issued SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body”
of a PRC-controlled enterprise that is incorporated offshore is located in China. In addition, the SAT issued a bulletin on July
27, 2011 providing more guidance on the implementation of Circular 82 and clarifies matters such as resident status determination.
Substantially all of our management are currently based in China, and may remain in China in the future. If we were treated as
a “resident enterprise” for PRC tax purposes, we would be subject to PRC income tax on our worldwide income at a uniform
tax rate of 25%, but dividends received by us from our PRC subsidiaries may be exempt from the income tax.
Under the new law and its implementation regulations,
dividends paid to a non-PRC investor are generally subject to a 10% PRC withholding tax, if such dividends are derived from sources
within China and the non-PRC investor is considered to be a non-resident enterprise without any establishment or place of business
within China or if the dividends paid have no connection with the non-PRC investor’s establishment or place of business within
China, unless such tax is eliminated or reduced under an applicable tax treaty. Similarly, any gain realized on the transfer of
ADSs or shares by such investor is also subject to a 10% PRC withholding tax if such gain is regarded as income derived from sources
within China, unless such tax is eliminated or reduced under an applicable tax treaty. Pursuant to the Double Taxation Arrangement,
which became effective on January 1, 2007, dividends from our PRC subsidiaries paid to us through our Hong Kong subsidiary, InsCom
HK Limited, in which we indirectly hold a 65.1% equity interest, or CNinsure Holdings, which is 100% owned by our wholly-owned
Hong Kong subsidiary, Minkfair, may be subject to a withholding tax at a rate of 5%.
If we were considered a PRC “resident enterprise,”
it is possible that the dividends we pay with respect to our ADSs or ordinary shares, or the gain you may realize from the transfer
of our ADSs or ordinary shares, would be treated as income derived from sources within China and be subject to the 10% PRC withholding
tax.
United States Federal Income Taxation
The following discussion describes material United
States federal income tax consequences to a United States Holder (as defined below), under current law, of an investment in our
ADSs or ordinary shares. This discussion is based on the federal income tax laws of the United States as of the date of this annual
report, including the United States Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury
regulations promulgated thereunder, judicial authority, published administrative positions of the United States Internal Revenue
Service (“IRS”) and other applicable authorities, all as of the date of this annual report. All of the foregoing authorities
are subject to change, which change could apply retroactively and could significantly affect the tax consequences described below.
We have not sought any ruling from the IRS with respect to the statements made and the conclusions reached in the following discussion
and there can be no assurance that the IRS or a court will agree with our statements and conclusions. This summary does not discuss
the so-called Medicare tax on net investment income, any United States federal non-income tax laws, including the United States
federal estate and gift tax laws, or the laws of any state, local or non-United States jurisdiction.
This discussion applies only to a United States
Holder (as defined below) that holds ADSs or ordinary shares as capital assets for United States federal income tax purposes (generally,
property held for investment). The discussion neither addresses the tax consequences to any particular investor nor describes all
of the tax consequences applicable to persons in special tax situations, such as:
|
·
|
certain financial institutions;
|
|
·
|
regulated investment companies;
|
|
·
|
real estate investment trusts;
|
|
·
|
brokers or dealers in stocks and securities, or currencies;
|
|
·
|
persons who use or are required to use a mark-to-market method of accounting;
|
|
·
|
certain former citizens or residents of the United States subject to Section 877 of the Code;
|
|
·
|
entities subject to the United States anti-inversion rules;
|
|
·
|
tax-exempt organizations and entities;
|
|
·
|
persons subject to the alternative minimum tax provisions of the Code;
|
|
·
|
persons whose functional currency is other than the United States dollar;
|
|
·
|
persons holding ADSs or ordinary shares as part of a straddle, hedging, conversion or integrated
transaction;
|
|
·
|
persons holding ADSs or ordinary shares through a bank, financial institution or other entity,
or a branch thereof, located, organized or resident outside the United States;
|
|
·
|
persons that actually or constructively own 10% or more of the total combined voting power of all
classes of our voting stock;
|
|
·
|
persons who acquired ADSs or ordinary shares pursuant to the exercise of an employee stock option
or otherwise as compensation;
|
|
·
|
partnerships or other pass-through entities, or persons holding ADSs or ordinary shares through
such entities; or
|
|
·
|
persons that hold, directly, indirectly or by attribution, ADSs, ordinary shares or other ownership
interests in us prior to this offering.
|
If a partnership (including an entity or arrangement
treated as a partnership for United States federal income tax purposes) holds our ADSs or ordinary shares, the tax treatment of
a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A partnership
or a partner in a partnership holding our ADSs or ordinary shares should consult its own tax advisors regarding the tax consequences
of holding our ADSs or ordinary shares.
The following discussion is for informational purposes only and
is not a substitute for careful tax planning and advice. Investors should consult their own tax advisors with respect to the application
of the United States federal income tax laws to their particular situations, as well as any tax consequences arising under the
federal estate or gift tax laws or the laws of any state, local or non-United States taxing jurisdiction and under any applicable
tax treaty.
For purposes of the discussion below, a “United
States Holder” is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income tax purposes:
|
·
|
an individual who is a citizen or resident of the United States;
|
|
·
|
a corporation (or other entity treated as a corporation for United States federal income tax purposes)
created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
|
|
·
|
an estate, the income of which is subject to United States federal income taxation regardless of
its source; or
|
|
·
|
a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration
and one or more United States persons have the authority to control all of its substantial decisions or (ii) in the case of a trust
that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable Treasury
regulations to treat such trust as a domestic trust.
|
The discussion below assumes that the representations
contained in the deposit agreement and any related agreement are true and that the obligations in such agreements will be complied
with in accordance with their terms.
ADSs
If you own our ADSs, then you should be treated
as the owner of the underlying ordinary shares represented by those ADSs for United States federal income tax purposes. Accordingly,
deposits or withdrawals of ordinary shares for ADSs should not be subject to United States federal income tax.
The United States Treasury Department and the
IRS have expressed concerns that United States holders of American depositary shares may be claiming foreign tax credits in situations
where an intermediary in the chain of ownership between the holder of an American depositary share and the issuer of the security
underlying the American depositary share has taken actions that are inconsistent with the ownership of the underlying security
by the person claiming the credit. Such actions (for example, a pre-release of an American depositary share by a depositary) also
may be inconsistent with the claiming of the reduced rate of tax applicable to certain dividends received by non-corporate United
States holders of American depositary shares, including individual United States holders. Accordingly, the availability of foreign
tax credits or the reduced tax rate for dividends received by non-corporate United States Holders, each discussed below, could
be affected by actions taken by intermediaries in the chain of ownership between the holder of an ADS and our company.
Passive Foreign Investment Company
Based on the current and anticipated value of
our assets and the composition of our income and assets, we believe we were a passive foreign investment company (“PFIC”)
for United States federal income tax purposes for our taxable year ending December 31, 2015. A non-United States corporation such
as ourselves will be treated as a PFIC for United States federal income tax purposes for any taxable year if, applying applicable
look-through rules, either:
|
·
|
at least 75% of its gross income for such year is passive income; or
|
|
·
|
at least 50% of the value of its assets (determined based on a quarterly average) during such year
is attributable to assets that produce or are held for the production of passive income.
|
For this purpose, passive income generally includes
dividends, interest, royalties and rents (other than certain royalties and rents derived in the active conduct of a trade or business
and not derived from a related person). We will be treated as owning a proportionate share of the assets and earning a proportionate
share of the income of any other corporation in which we own, directly or indirectly, more than 25% by value of the stock.
The composition of our income and assets will
be affected by the market price of our ADSs and how, and how quickly, we use the cash we generate from our operations and raise
in any offering. Unless the market price of our ADSs increases or we reduce the amount of cash and other passive assets we hold
sufficiently from current levels, we are likely to remain a PFIC for future taxable years. However, PFIC status is based on an
annual determination that cannot be made until the close of a taxable year, involves extensive factual investigation, including
ascertaining the fair market value of all of our assets on a quarterly basis and the character of each item of income that we earn,
and is subject to uncertainty in several respects. Accordingly, we cannot assure you that the IRS will not take a contrary position.
If we are a PFIC for any taxable year during
which you hold ADSs or ordinary shares (as we believe we were for 2015 and prior years), we will continue to be treated as a PFIC
with respect to you for all succeeding years during which you hold ADSs or ordinary shares, unless we cease to be a PFIC and you
make a “deemed sale” election with respect to the ADSs or ordinary shares, as applicable. If such election is made,
you will be deemed to have sold the ADSs or ordinary shares you hold at their fair market value and any gain from such deemed sale
would be subject to the rules described in the following two paragraphs. After the deemed sale election, so long as we do not become
a PFIC in a subsequent taxable year, your ADSs or ordinary shares with respect to which such election was made will not be treated
as shares in a PFIC and, as a result, you will not be subject to the rules described below with respect to any “excess distribution”
you receive from us or any gain from an actual sale or other disposition of the ADSs or ordinary shares.
You are strongly urged
to consult your tax advisors as to the possibility and consequences of making a deemed sale election if we are and then cease to
be a PFIC and such an election becomes available to you.
If we are a PFIC for any taxable year during
which you hold ADSs or ordinary shares (as we believe we were for 2015 and prior years), then, unless you make a “mark-to-market”
election (as discussed below), you generally will be subject to special and adverse tax rules with respect to any “excess
distribution” that you receive from us and any gain that you recognize from a sale or other disposition, including a pledge,
of the ADSs or ordinary shares. For this purpose, distributions that you receive in a taxable year that are greater than 125% of
the average annual distributions that you received during the shorter of the three preceding taxable years or your holding period
for the ADSs or ordinary shares will be treated as an excess distribution. Under these rules:
|
·
|
the excess distribution or recognized gain will be allocated ratably over your holding period for
the ADSs or ordinary shares;
|
|
·
|
the amount of the excess distribution or recognized gain allocated to the current taxable year,
and to any taxable years in your holding period prior to the first taxable year in which we were treated as a PFIC, will be treated
as ordinary income; and
|
|
·
|
the amount of the excess distribution or recognized gain allocated to each other taxable year will
be subject to the highest tax rate in effect for individuals or corporations, as applicable, for each such year and the resulting
tax will be subject to the interest charge generally applicable to underpayments of tax.
|
If we are a PFIC for any taxable year
during which a United States Holder holds our ADSs or ordinary shares (as we believe we were for 2015 and prior years) and
any of our non-United States subsidiaries is also a PFIC, such United States Holder would be treated as owning a
proportionate amount (by value) of the shares of each such non-United States subsidiary classified as a PFIC (each such
subsidiary, a lower tier PFIC) for purposes of the application of these rules. United States Holders should consult their tax
advisors regarding the application of the PFIC rules to any of our subsidiaries.
If we are a PFIC for any taxable year during
which you hold ADSs or ordinary shares (as we believe we were for 2015 and prior years), then in lieu of being subject to the tax
and interest-charge rules discussed above, you may make an election to include gain on our ADSs or ordinary shares as ordinary
income under a mark-to-market method. If you make a mark-to-market election for our ADSs or ordinary shares, you will include in
income for each year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary
shares you hold as of the close of your taxable year over your adjusted basis in such ADSs or ordinary shares. You will be allowed
a deduction for the excess, if any, of the adjusted basis of the ADSs or ordinary shares over their fair market value as of the
close of the taxable year. However, deductions will be allowable only to the extent of any net mark-to-market gains on the ADSs
or ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election,
as well as any gain from the actual sale or other disposition of the ADSs or ordinary shares, will be treated as ordinary income.
Ordinary loss treatment will apply to the deductible portion of any mark-to-market loss on the ADSs or ordinary shares, as well
as to any loss from the actual sale or other disposition of the ADSs or ordinary shares, to the extent that the amount of such
loss does not exceed the net mark-to-market gains previously included for such ADSs or ordinary shares. Your basis in the ADSs
or ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, any
distributions we make would generally be subject to the tax rules discussed below under “ —Dividends and Other Distributions
on the ADSs or Ordinary Shares,” except the lower capital gains rate applicable to qualified dividend income would not apply.
The mark-to-market election is available only
for “marketable stock.” Marketable stock is stock that is regularly traded on a qualified exchange or other market,
as defined in applicable Treasury regulations. Our ADSs, but not our ordinary shares, are listed on the Nasdaq Global Select Market,
which is a qualified exchange or other market for these purposes. Consequently, if the ADSs remain listed on the Nasdaq Global
Select Market and are regularly traded, and you are a holder of ADSs, we expect that the mark-to-market election will be available
to you, but no assurances are given in this regard.
Because a mark-to-market election cannot be made
for any lower-tier PFICs that we may own, a United States Holder may continue to be subject to the PFIC rules with respect to such
United States Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for
United States federal income tax purposes.
In certain circumstances, a United States Holder
of shares in a PFIC may avoid the adverse tax and interest-charge regime described above by making a “qualified electing
fund” election to include in income its share of the corporation’s income on a current basis. However, you may make
a qualified electing fund election with respect to your ADSs or ordinary shares only if we agree to furnish you annually with a
PFIC annual information statement as specified in the applicable Treasury regulations. We do not intend to prepare or provide the
information that would enable you to make a qualified electing fund election.
A United States Holder that holds our ADSs or
ordinary shares in any year in which we are classified as a PFIC (as we believe we were for 2015 and prior years) will be required
to file an annual report containing such information as the United States Treasury Department may require.
You are strongly
urged to consult your own tax advisor regarding the impact of our being a PFIC for 2015 on your investment in our ADSs and ordinary
shares, as well as the application of the PFIC rules to your investment in our ADSs or ordinary shares and the availability, application
and consequences of the elections discussed above.
Dividends and Other Distributions on the ADSs or Ordinary
Shares
Subject to the passive foreign investment company
rules discussed above, the gross amount of any distribution that we make to you with respect to our ADSs or ordinary shares (including
any amounts withheld to reflect PRC withholding taxes) will be taxable as a dividend, to the extent paid out of our current or
accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including any withheld
taxes) will be includable in your gross income on the day actually or constructively received by you, if you own the ordinary shares,
or by the depositary, if you own ADSs. Because we do not intend to determine our earnings and profits on the basis of United States
federal income tax principles, any distribution paid will generally be treated as a “dividend” for United States federal
income tax purposes. Such dividends will not be eligible for the dividends-received deduction allowed to qualifying corporations
under the Code.
Dividends received by a non-corporate United
States Holder may qualify for the lower rates of tax applicable to “qualified dividend income,” if the dividends are
paid by a “qualified foreign corporation” and other conditions discussed below are met. A non-United States corporation
is treated as a qualified foreign corporation (i) with respect to dividends paid by that corporation on shares (or American depositary
shares backed by such shares) that are readily tradable on an established securities market in the United States or (ii) if such
non-United States corporation is eligible for the benefits of a qualifying income tax treaty with the United States that includes
an exchange of information program. However, a non-United States corporation will not be treated as a qualified foreign corporation
if it is a passive foreign investment company in the taxable year in which the dividend is paid or the preceding taxable year.
We believe that we were a PFIC for our taxable year ended December 31, 2014 and, as discussed above in “— Passive Foreign
Investment Company,” for the taxable year ending December 31, 2015.
Under a published IRS Notice, common or ordinary
shares, or American depositary shares representing such shares, are considered to be readily tradable on an established securities
market in the United States if they are listed on the Nasdaq Global Select Market, as are our ADSs (but not our ordinary shares).
Based on existing guidance, it is unclear whether the ordinary shares will be considered to be readily tradable on an established
securities market in the United States, because only the ADSs, and not the underlying ordinary shares, will be listed on a securities
market in the United States We believe, but we cannot assure you, that dividends we pay on the ordinary shares that are represented
by ADSs, but not on the ordinary shares that are not so represented, will, subject to applicable limitations, including ineligibility
for reduced rates as a result of our being a PFIC, be eligible for the reduced rates of taxation. In addition, if we are treated
as a PRC resident enterprise under the PRC tax law (see “Item 10. Additional Information — Taxation — PRC Taxation”),
then we may be eligible for the benefits of the income tax treaty between the United States and the PRC. If we are eligible for
such benefits, then dividends that we pay on our ordinary shares, regardless of whether such shares are represented by ADSs, would,
subject to applicable limitations, including ineligibility for reduced rates as a result of our being a PFIC, be eligible for the
reduced rates of taxation.
Even if dividends would be treated as paid by
a qualified foreign corporation, non-corporate United States Holders will not be eligible for reduced rates of taxation if they
do not hold our ADSs or ordinary shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend
date or if such United States Holders elect to treat the dividend income as "investment income" pursuant to Section 163(d)(4)
of the Code. In addition, the rate reduction will not apply to dividends of a qualified foreign corporation if the non-corporate
United States Holder receiving the dividend is obligated to make related payments with respect to positions in substantially similar
or related property.
You should consult your own tax advisors regarding
the availability of the lower tax rates applicable to qualified dividend income for any dividends that we pay with respect to the
ADSs or ordinary shares.
Any PRC withholding taxes imposed on dividends
paid to you with respect to ADSs or ordinary shares generally will be treated as foreign taxes eligible for credit against your
United States federal income tax liability, subject to the various limitations and disallowance rules that apply to foreign tax
credits generally. For purposes of calculating the foreign tax credit, dividends paid to you with respect to the ADSs or ordinary
shares will be treated as income from sources outside the United States and generally will constitute passive category income.
The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisors regarding
the availability of a foreign tax credit in your particular circumstances.
Disposition of the ADSs or Ordinary Shares
You will recognize gain or loss on a sale or
exchange of ADSs or ordinary shares in an amount equal to the difference between the amount realized on the sale or exchange and
your tax basis in the ADSs or ordinary shares. Subject to the discussion under " — Passive Foreign Investment Company"
above, such gain or loss generally will be capital gain or loss. Capital gains of a non-corporate United States Holder, including
an individual, that has held the ADS or ordinary share for more than one year are eligible for reduced tax rates. The deductibility
of capital losses is subject to limitations.
Any gain or loss that you recognize on a disposition
of our ADSs or ordinary shares generally will be treated as United States-source income or loss for foreign tax credit limitation
purposes. However, where we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax is imposed on gain from the
disposition of ADSs or ordinary shares (see “Item 10. Additional Information — Taxation — PRC Taxation”),
then a United States Holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may
elect to treat the gain as PRC-source income for foreign tax credit purposes. If such an election is made, the gain so treated
will be treated as a separate class or “basket” of income for purposes of the foreign tax credit under Section 865(h)
of the Code. You should consult your tax advisors regarding the proper treatment of gain or loss, as well as the availability of
a foreign tax credit, in your particular circumstances.
Information Reporting and Backup Withholding
Information reporting to the IRS and backup withholding
(currently at a rate of 28%) generally will apply to dividends in respect of our ADSs or ordinary shares, and the proceeds from
the sale or exchange of our ADSs or ordinary shares, that are paid to you within the United States (and in certain cases, outside
the United States), unless you furnish a correct taxpayer identification number and make any other required certification, generally
on IRS Form W-9 or you otherwise establish an exemption from information reporting and backup withholding. Backup withholding is
not an additional tax. Amounts withheld as backup withholding generally are allowed as a credit against your United States federal
income tax liability, and you may be entitled to obtain a refund of any excess amounts withheld under the backup withholding rules
if you file an appropriate claim for refund with the IRS and furnish any required information in a timely manner.
United States Holders who are individuals generally
will be required to report our name, address and such information relating to an interest in the ADSs or ordinary shares as is
necessary to identify the class or issue of which your ADSs or ordinary shares are a part. These requirements are subject to exceptions,
including an exception for ADSs or ordinary shares held in accounts maintained by certain financial institutions and an exception
applicable if the aggregate value of all “specified foreign financial assets” (as defined in the Code) does not exceed
$50,000.
United States Holders should consult their tax
advisors regarding the application of the information reporting and backup withholding rules.
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F.
|
Dividends and Paying Agents
|
Not applicable.
Not applicable.
We previously filed with the SEC a registration
statement on Form F-1 (File No. 333-146605) and a prospectus under the Securities Act with respect to the ordinary shares represented
by the ADSs. We also filed with the SEC a related registration statement on Form F-6 (File Number 333-146765) with respect to the
ADSs.
We are subject to periodic reporting and other
informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports,
including annual reports on Form 20-F, and other information with the SEC. All documents filed by us with the SEC can be inspected
and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. The SEC also maintains a web site at
www.sec.gov
that
contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with
the SEC using its EDGAR system.
As a foreign private issuer, we are exempt from
the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive
officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial
statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
We intend to furnish J.P. Morgan, the depositary
of our ADSs, with all notices of shareholders’ meeting and other reports and communications that are made generally available
to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our
written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting
received by the depositary from us.
In accordance with Rule 5250(d) of the Nasdaq
Listing Rules, we will post this annual report on Form 20-F on our website at http://ir.cninsure.net/sec.cfm. In addition, we will
provide hard copies of our annual report free of charge to shareholders and ADS holders upon request.
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I.
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Subsidiary Information
|
For a list of our subsidiaries as of March 31,
2016, see Exhibit 8.1 to this annual report.
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Item 11.
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Quantitative and Qualitative Disclosures about Market Risk
|
Interest
Rate Risk
Our exposure to interest rate risk primarily
relates to the interest income generated by bank deposits and short-term, highly-liquid investments with original maturities of
90 days or less. Interest-earning instruments carry a degree of interest rate risk, and our future interest income may be lower
than expected. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates.
We have not used any derivative financial instruments to manage our interest risk exposure. As of December 31, 2015, we had no
short-term or long-term bank borrowings. If we borrow money in future periods, we may be exposed to additional interest rate risk.
Foreign
Exchange Risk
Substantially all of our revenues and expenses
are denominated in RMB. Our exposure to foreign exchange risk primarily relates to a small amount of cash and cash equivalent denominated
in U.S. dollars resulting from the remaining proceeds from our follow-on offering completed in July 2010. We have not hedged exposures
denominated in foreign currencies using any derivative financial instruments. Although in general, our exposure to foreign exchange
risks should be limited, the value of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars
and RMB because the value of our business is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars.
The value of the RMB against the U.S. dollar
and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions.
The conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 21, 2005,
the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under such policy, the RMB
is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Removal of the U.S.
dollar peg has resulted in an approximately more than 25.0% appreciation of the RMB against the U.S. dollar over the following
eight years. In April 2012, the trading band has been widened to 1%, and in March 2014 it was further widened to 2%, which allows
the Renminbi to fluctuate against the U.S. dollar by up to 2% above or below the central parity rate published by the PBOC. In
August 2015, the PBOC changed the way it calculates the mid-point price of Renminbi against U.S. dollar, requiring the market-makers
who submit for the PBOC’s reference rates to consider the previous day’s closing spot rate, foreign-exchange demand
and supply as well as changes in major currency rates. This change, and other changes such as widening the trading band that may
be implemented, may increase volatility in the value of the Renminbi against foreign currencies. The PRC government may from time
to time make further adjustments to the exchange rate system in the future. To the extent that we need to convert our U.S. dollar
or other currencies-denominated assets into RMB for our operations, appreciation of the RMB against the U.S. dollar or other currencies
would have an adverse effect on the RMB amount we receive from the conversion. We had U.S. dollar-denominated financial assets
amounting to US$2.6 million and HK dollar-denominated financial assets amounting to HK$1.1 million as of December 31, 2015. A 10%
appreciation of the RMB against the U.S. dollar and HK dollar would have resulted in a decrease of RMB1.8 million (US$0.3 million)
in the value of our U.S. dollar-denominated and HK dollar-denominated financial assets. Conversely, if we decide to convert our
RMB denominated cash amounts into U.S. dollars amounts or other currencies amounts for the purpose of making payments for dividends
on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar or other currencies against the
RMB would have a negative effect on the U.S. dollar or other currencies amount available to us.
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Item 12.
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Description of Securities Other than Equity Securities
|
Not applicable.
Not applicable.
Not applicable.
D.
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American Depositary Shares
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Fees Payable by ADS Holders
We have appointed J.P. Morgan as our depositary.
A copy of our Form of Deposit Agreement with J.P. Morgan was filed with the SEC as an exhibit to our Form F-6 registration statement
initially filed on October 17, 2007, or the Deposit Agreement. Pursuant to the Deposit Agreement, holders of our ADSs may have
to pay to J.P. Morgan, either directly or indirectly, fees or charges up to the amounts set forth in the table below.
Category
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Depositary Actions
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Associated Fees
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(a) Depositing or substituting the underlying
shares
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Each person to whom ADRs are issued against deposits of shares,
including deposits and issuances in respect of:
• Share distributions,
stock split, rights, merger
• Exchange of
securities or any other transaction or event or other distribution affecting the ADSs or the Deposited Securities
|
US$5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADRs delivered
|
(b) Receiving or distributing dividends
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Distribution of dividends
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US$0.02 or less per ADS
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(c) Selling or exercising rights
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Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities
|
US$5.00 for each 100 ADSs (or portion thereof)
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(d) Withdrawing an underlying security
|
Acceptance of ADRs surrendered for withdrawal of deposited securities
|
US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs surrendered
|
(e) Transferring, splitting or grouping
receipts
|
Transfers, combining or grouping of depositary receipts
|
US$1.50 per ADS
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(f) General depositary services, particularly
those charged on an annual basis.
|
• Other services
performed by the depositary in administering the ADRs
• Provide information
about the depositary’s right, if any, to collect fees and charges by offsetting them against dividends received and deposited
securities
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US$0.02 per ADS (or portion thereof) not more than once each calendar year and payable at the sole discretion of the depositary by billing Holders or by deducting such charge from one or more cash dividends or other cash distributions
|
(g) Expenses of the depositary
|
Expenses incurred on behalf of Holders in connection with
• Compliance with
foreign exchange control regulations or any law or regulation relating to foreign investment
• The depositary's
or its custodian's compliance with applicable law, rule or regulation
• Stock transfer
or other taxes and other governmental charges
• Cable, telex, facsimile
transmission/delivery
• Expenses of the
depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency)
• Any other charge
payable by depositary or its agents
|
Expenses payable at the sole discretion of the depositary by billing Holders or by deducting charges from one or more cash dividends or other cash distributions
|
Payment from the Depositary
Direct Payments
J.P. Morgan, as depositary, has agreed to reimburse
certain reasonable company expenses related to our ADR program and incurred by us in connection with the program. For the years
ended December 31, 2014 and 2015, the depositary reimbursed US$0.1 million and US$0.1 million, respectively. For the year ended
December 31, 2014 and 2015, the depositary reimbursement has been deducted US$0.1 million and US$0.1 million withholding income
tax, respectively. The amounts the depositary reimbursed are not perforce related to the fees collected by the depositary from
ADR holders. The table below sets forth the types of expenses that J.P. Morgan has agreed to reimburse and the amounts reimbursed
for the year ended December 31, 2014 and 2015.
|
|
For the Year Ended December 31,
|
|
|
2014
|
|
2015
|
|
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(in thousands of US$)
|
Investor relations
(1)
|
|
|
—
|
|
|
|
—
|
|
Directors and officers liability insurance
|
|
|
140
|
|
|
|
105.8
|
|
Legal fees incurred in connection with preparation of Form 20-F and ongoing SEC compliance and listing requirements
|
|
|
—
|
|
|
|
—
|
|
Listing fees
|
|
|
—
|
|
|
|
—
|
|
Others
|
|
|
—
|
|
|
|
—
|
|
|
|
|
140
|
|
|
|
105.8
|
|
_______________________
|
(1)
|
Includes expenses in relation with roadshows, press release distribution, maintenance of investor
relations website and printing.
|
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
* Including share-based compensation expenses of RMB45,317, RMB23,598 and RMB17,653 (US$2,725), for the years ended December 31, 2013, 2014 and 2015, respectively.
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
The accompanying notes are an integral part of the consolidated
financial statements.
(2)
|
|
Summary of Significant Accounting Policies
|
|
(a)
|
Basis of Presentation and Consolidation
|
The consolidated financial statements of
the Group have been prepared in accordance with accounting principles generally accepted in the United States of America ("US
GAAP"). The consolidated financial statements include the financial statements of the Company, all its majority-owned subsidiaries
and those VIEs of which the Company is the primary beneficiary, from the dates they were acquired or incorporated. All intercompany
balances and transactions have been eliminated in consolidation. In addition, the Group consolidates VIEs of which it is deemed
to be the primary beneficiary and absorbs all of the expected losses and residual returns of the entity.
The preparation of the consolidated financial
statements in conformity with US GAAP requires management of the Group to make a number of estimates and assumptions relating to
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the period. Significant accounting estimates reflected
in the Group’s consolidated financial statements included the valuation of deferred tax assets, valuation of goodwill and
intangible assets and liabilities of acquired businesses on acquisition day for impairment analysis, allowance for doubtful receivables,
fair values of the subsidiaries being transferred within the Group at the dates of transactions, the valuation of non-controlling
interests acquired from related parties at acquisition dates, valuation of transfer pricing and fair value of share based compensation.
Actual results could differ from those estimates.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
|
(c)
|
Cash and Cash Equivalents and Restricted Cash
|
Cash and cash equivalents consist of cash
on hand, bank deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash, and have
insignificant risk of changes in value related to changes in interest rates.
In its capacity as an insurance agent and
broker, the Group collects premiums from certain insureds and remits the premiums to the appropriate insurance companies. Accordingly,
as reported in the consolidated balance sheets, "premiums" are receivables from the insureds. Unremitted net insurance
premiums are held in a fiduciary capacity until disbursed by the Group. The Group invests these unremitted funds only in cash accounts
held for a short term, and reports such amounts as restricted cash in the consolidated balance sheets. Also included in the restricted
cash represents guarantee deposits required by China Insurance Regulatory Commission ("CIRC") in order to protect insurance
premium appropriation by insurance agency as well as entrustment deposit received from the members of eHuzhu, an online mutual
aid platform operated by the Group in an escrow account of RMB4,536 and RMB12,398 as of December 31, 2014 and 2015, respectively.
|
(d)
|
Short Term Investment
|
Short term investments are mainly available-for-sale
investments in debt securities that do not have a quoted market price in an active market. They are measured at costs which approximate
their fair values in the consolidated balance sheets. The Group benchmark the costs against fair values of comparable investments
as of balance sheet date, and categorized all fair value measures of short term investments as level 2 of the fair value hierarchy.
No impairment loss on short term investments was identified for each of the years ended December 31, 2013, 2014 and 2015.
|
(e)
|
Accounts Receivable
and Insurance Premium Receivables
|
Accounts receivable are recorded at the invoiced
amount and do not bear interest. Accounts receivable represent fees receivable on agency, brokerage and claims adjusting services
primarily from insurance companies. Amounts collected on accounts receivable are included in net cash provided by operating activities
in the consolidated statements of cash flows. The allowance for doubtful accounts is the Group’s best estimate of the amount
of probable credit losses in the Group’s existing accounts receivable. The Group determines the allowance based on historical
write-off experience. The Group reviews its allowance for doubtful accounts regularly. Past due balances over 90 days and over
a specified amount are reviewed individually for collectability.
Accounts receivable, net is analyzed as follows:
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
Accounts receivable
|
|
|
202,737
|
|
|
|
254,510
|
|
Allowance for doubtful accounts
|
|
|
(16,587
|
)
|
|
|
(13,246
|
)
|
Accounts receivable, net
|
|
|
186,150
|
|
|
|
241,264
|
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The following table summarizes the movement
of the Group's allowance for doubtful accounts:
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Balance at the beginning of the year
|
|
|
9,903
|
|
|
|
12,655
|
|
|
|
16,587
|
|
Provision for doubtful accounts
|
|
|
5,303
|
|
|
|
3,932
|
|
|
|
4,991
|
|
Write-offs
|
|
|
(2,551
|
)
|
|
|
—
|
|
|
|
(8,332
|
)
|
Balance at the ending of the year
|
|
|
12,655
|
|
|
|
16,587
|
|
|
|
13,246
|
|
Insurance premium receivables consist of
insurance premium to be collected from insured, and is recorded at the invoiced amount and do not bear interest. Amounts collected
on insurance premium receivables are included in net cash provided by operating activities in the consolidated statements of cash
flows.
|
(f)
|
Property, Plant
and Equipment
|
Property, plant and equipment are stated
at cost. Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives,
taking into account residual value:
|
|
Estimated useful life (Years)
|
|
Estimated residual value
|
Building
|
|
20
|
-
|
36
|
|
|
0%
|
|
Office equipment, furniture and fixtures
|
|
3
|
-
|
5
|
|
0%
|
-
|
3%
|
Motor vehicles
|
|
5
|
-
|
10
|
|
0%
|
-
|
3%
|
Leasehold improvements
|
|
|
5
|
|
|
|
0%
|
|
The depreciation methods and estimated useful
lives are reviewed regularly. The following table summarizes the depreciation recognized in the consolidated statement of income
and comprehensive income:
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Commission and fees under operating costs
|
|
|
4,988
|
|
|
|
5,508
|
|
|
|
2,056
|
|
Selling expenses
|
|
|
1,636
|
|
|
|
1,282
|
|
|
|
1,180
|
|
General and administrative expenses
|
|
|
24,629
|
|
|
|
21,445
|
|
|
|
15,147
|
|
Depreciation for the year
|
|
|
31,253
|
|
|
|
28,235
|
|
|
|
18,383
|
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
|
(g)
|
Goodwill and
Other Intangible Assets
|
Goodwill represents the excess of costs over
fair value of net assets of businesses acquired.
Goodwill is not amortized, but is tested for impairment
at the reporting unit level at least on an annual basis at the balance sheet date or more frequently if certain indicators arise.
The Group operated in three reporting units for the year ended December 31, 2015. The goodwill impairment review is a two-step
process. Step 1 consists of a comparison of the fair value of a reporting unit with its carrying amount. An impairment loss may
be recognized if the review indicates that the carrying value of a reporting unit exceeds its fair value. Estimates of fair value
are primarily determined by using discounted cash flows. If the carrying amount of a reporting unit exceeds its fair value, step
2 requires the fair value of the reporting unit to be allocated to the underlying assets and liabilities of that reporting unit,
resulting in an implied fair value of goodwill. If the carrying amount of the goodwill of the reporting unit exceeds the implied
fair value, an impairment charge is recorded equal to the excess of the carrying amount over the implied fair value.
The impairment review is highly judgmental
and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact on the
amount of any impairment charge recorded. Discounted cash flow methods are dependent upon assumptions of future sales trends, market
conditions and cash flows of each reporting unit over several years. Actual cash flows in the future may differ significantly from
those previously forecasted. Other significant assumptions include growth rates and the discount rate applicable to future cash
flows.
In 2013, 2014 and 2015, management
compared the carrying value of each reporting unit, inclusive of assigned goodwill, to its respective fair value which is the step
one of the two-step impairment test. The fair value of all reporting units was estimated by using the income approach. Based on
this quantitative test, it was determined that the fair value of each reporting unit tested exceeded its carrying amount and, therefore,
step 2 of the two-step goodwill impairment test was unnecessary. The management concluded that goodwill was not impaired as of
December 31, 2013, 2014 and 2015.
Identifiable intangibles assets are required
to be determined separately from goodwill based on their fair values. In particular, an intangible asset acquired in a business
combination should be recognized as an asset separate from goodwill if it satisfies either the “contractual-legal”
or “separability” criterion. Intangible assets with a finite economic life are carried at cost less accumulated amortization.
Amortization for identifiable intangibles assets of customer relationship is computed using the accelerated method, while amortization
for other identifiable intangibles assets is computed using the straight-line method over the intangible assets' economic lives.
Intangible assets with indefinite economic lives are not amortized but carried at cost less any subsequent accumulated impairment
losses. If an intangible asset that is not being amortized is subsequently determined to have a finite economic life, it will be
tested for impairment and then amortized prospectively over its estimated remaining economic life and accounted for in the same
manner as other intangible assets that are subject to amortization. Intangible assets with indefinite economic lives are tested
for impairment annually or more frequently if events or changes in circumstances indicate that they might be impaired.
Separately identifiable intangible assets
consist of brand name, trade name, customer relationship, non-compete agreement, agency agreement and license, and software and
system.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The
intangible assets, net consisted of the following:
|
|
|
|
As of December 31, 2014
|
|
|
Useful life
(Years)
|
|
Cost
|
|
Accumulated amortization
|
|
Accumulated
Impairment loss
|
|
Net carrying values
|
|
|
|
|
|
RMB
|
|
|
|
RMB
|
|
|
|
RMB
|
|
|
|
RMB
|
|
Brand name
|
|
Indefinite
|
|
|
24,091
|
|
|
|
—
|
|
|
|
(20,384
|
)
|
|
|
3,707
|
|
Trade name
|
|
9.4
|
to
|
10
|
|
|
8,898
|
|
|
|
(3,867
|
)
|
|
|
—
|
|
|
|
5,031
|
|
Customer relationship
|
|
4.6
|
to
|
9.8
|
|
|
67,096
|
|
|
|
(48,012
|
)
|
|
|
(5,760
|
)
|
|
|
13,324
|
|
Non-compete agreement
|
|
3
|
to
|
6.25
|
|
|
69,485
|
|
|
|
(32,557
|
)
|
|
|
(34,692
|
)
|
|
|
2,236
|
|
Agency agreement and license
|
|
4.6
|
to
|
9.8
|
|
|
21,394
|
|
|
|
(14,789
|
)
|
|
|
(581
|
)
|
|
|
6,024
|
|
Software and system
|
|
5
|
to
|
10
|
|
|
5,999
|
|
|
|
(4,723
|
)
|
|
|
—
|
|
|
|
1,276
|
|
|
|
|
|
|
196,963
|
|
|
|
(103,948
|
)
|
|
|
(61,417
|
)
|
|
|
31,598
|
|
|
|
|
|
As of December 31, 2015
|
|
|
Useful life
(Years)
|
|
Cost
|
|
Accumulated amortization
|
|
Accumulated
Impairment loss
|
|
Net carrying values
|
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
Brand name
|
|
Indefinite
|
|
|
20,111
|
|
|
|
—
|
|
|
|
(16,404
|
)
|
|
|
3,707
|
|
Trade name
|
|
9.4
|
to
|
10
|
|
|
8,898
|
|
|
|
(4,808
|
)
|
|
|
—
|
|
|
|
4,090
|
|
Customer relationship
|
|
4.6
|
to
|
9.8
|
|
|
61,186
|
|
|
|
(51,264
|
)
|
|
|
(2,953
|
)
|
|
|
6,969
|
|
Non-compete agreement
|
|
3
|
to
|
6.25
|
|
|
69,075
|
|
|
|
(33,819
|
)
|
|
|
(34,692
|
)
|
|
|
564
|
|
Agency agreement and license
|
|
4.6
|
to
|
9.8
|
|
|
20,404
|
|
|
|
(15,949
|
)
|
|
|
(77
|
)
|
|
|
4,378
|
|
Software and system
|
|
5
|
to
|
10
|
|
|
5,680
|
|
|
|
(5,680
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
185,354
|
|
|
|
(111,520
|
)
|
|
|
(54,126
|
)
|
|
|
19,708
|
|
Aggregate amortization expenses for intangible
assets were RMB13,665, RMB16,826 and RMB11,571 for the years ended December 31, 2013, 2014 and 2015, respectively.
Impairment of intangible assets with definite
lives
The Group evaluates the recoverability of
identifiable intangible assets with determinable useful lives, whenever events or changes in circumstances indicate that these
assets’ carrying amounts may not be recoverable. The Group measures the carrying amount of identifiable intangible asset
with determinable useful live against the estimated undiscounted future cash flows associated with it. Impairment exists when the
sum of the expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated
as the amount by which the carrying value of the asset exceeds its fair value. Fair value is estimated based on various valuation
techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Group
to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment
and actual results may differ from assumed and estimated amounts. During the years ended December 31, 2013, 2014 and 2015, the
Group recognized no impairment losses on identifiable intangible assets with determinable useful lives.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Impairment of indefinite-lived intangible
assets
An intangible asset that is not subject to
amortization is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that
the asset might be impaired. Such impairment test is to compare the fair values of assets with their carrying amounts and an impairment
loss is recognized if and when the carrying amounts exceed the fair values. The estimates of fair values of intangible assets not
subject to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are
inherent in this process, including estimates of discount rates or market price. Discount rate assumptions are based on an assessment
of the risk inherent in the respective intangible assets. Market prices are based on potential purchase quote from third party,
if any. During the years ended December 31, 2013, 2014 and 2015, the Group recognized no impairment losses on its indefinite-lived
intangible assets.
The estimated amortization expenses for
the next five years are: RMB5,204 in 2016, RMB3,881 in 2017, RMB3,667 in 2018, RMB2,502 in 2019 and RMB658 in 2020, and an aggregate
amount of RMB89 in years thereafter.
|
(h)
|
Other Receivables
and Other Current Assets
|
Other receivables and other current assets
mainly consist of receivables from third parties, advances, deposits, interest receivables, value-added tax recoverable and prepaid
expenses.
|
(i)
|
Investment in Affiliates
|
Investments in affiliates are accounted
for using the equity method. The Group does not control the affiliates but exerts significant influence over them.
|
(j)
|
Other Non-current
Assets
|
Other non-current assets represent investments
in equity security of private companies which the group owns equity interest of less than 20%, over which the Group exerts no
significant influence and are measured initially at cost.
|
(k)
|
Impairment
of Long-Lived Assets
|
Property, plant, and equipment, and purchased
intangible assets with definite life, subject to amortization, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount
by which the carrying amount of the asset exceeds the fair value of the asset.
|
(l)
|
Insurance Premium
Payables
|
Insurance premium payables are insurance
premiums collected on behalf of insurance companies but not yet remitted as of the balance sheet dates.
|
(m)
|
Subscription
Receivables
|
The Group entered into share purchase agreements
with companies established on behalf of our employees (the "Employee Companies") for the issuance of 100,000,000 ordinary
shares at US$0.27 per ordinary share and 50,000,000 ordinary shares at US$0.29 per ordinary share in 2014. The issue prices are
the average closing prices for the 20 trading days prior to the board approval dates of such subscriptions. The sale of shares
to the Employee Companies was completed on December 17, 2014.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
In order to facilitate the purchase of shares
by employees as described above, the Group has granted a loan to the Employee Companies. The loan bears interest at a rate of 3%
per annum and is repayable upon the sale of the shares by employees, termination of employment or within two years, whichever comes
first. Please refer to note 12 for details. The interest rate is determined with reference to fair market prices and therefore
no interest-related compensation expense is recorded.
According to FASB ASC 505-10-45, the loan is recorded
as a separate line of deduction from equity in the Group’s consolidated balance sheet as of December 31, 2014 and 2015. Interest
income accruing from the loan is recognized as non-operating income. None of the loans to employees have been repaid up to the
date of this report and total balance thereof as of year-end was RMB268,829 (US$41,500).
Treasury
shares represents ordinary shares repurchased by the Group that are no longer outstanding and are held by the Group. The repurchase
of ordinary shares is accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury
stock.
During the year ended December 31, 2015,
the Group had repurchased total of 2,261,100 shares from the market for a cash consideration of RMB6,276. As of December 31, 2015,
all the treasury stock had been re-issued for the purpose of stock options exercised.
Income taxes are accounted for under the asset and
liability method. Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities
and their reported amounts in the consolidated financial statements, net operating loss carryforwards and credits by applying enacted
statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Since 2014, the Group has adopted FASB ASU No. 2013-11—Income
Taxes (Topic 740):
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or
a Tax Credit Carryforward Exists
prospectively, to present an unrecognized tax benefit, or a portion of an unrecognized tax
benefit, in the balance sheets as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward
is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that
would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the Group to
use, and the Group does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit is presented in
the balance sheets as a liability.
|
(p)
|
Share-based
Compensation
|
Employee
share-based compensation
All forms of share-based payments to employees,
including employee stock options and employee stock purchase plans, are treated the same as any other form of compensation by recognizing
the related cost in the consolidated statement of income and comprehensive income. Compensation cost related to employee stock
options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over
the service period, which is usually the vesting period. If an award requires satisfaction of one or more performance, or service
conditions (or any combination thereof), compensation cost is recognized if the requisite service is rendered, and no compensation
cost is recognized if the requisite service is not rendered. The Group recognizes compensation cost for an award with only service
conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award,
provided that the amount of compensation cost recognized at any date must at least equal the portion of the grant-date value of
the award that is vested at that date. For awards with both service and performance conditions, if each tranche has an independent
performance condition for a specified period of service, the Group recognizes the compensation cost of each tranche as a separate
award on a straight-line basis; if each tranche has performance conditions that are dependent of activities that occur in the prior
service periods, the Group recognizes the compensation cost on a straight-line basis over the requisite service period for each
separately vesting portion of the award as if the award was, in-substance, multiple awards. No compensation cost is recognized
for instruments that employees forfeit because a service condition or a performance condition is not satisfied.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Non-employee share-based compensation
Share-based compensation related to non-employees
is recognized as compensation expenses ratably over the requisite service periods. The Group measures the cost of non-employee
services received in exchange for share-based compensation based on the fair value of the equity instruments issued. The Group
measures the fair value of the equity instruments in these transactions on the measurement date, which is determined as the earlier
of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or the date at
which the counterparty’s performance is complete. The quantity and terms of the equity instruments issued to non-employees
are not known up front as they are dependent upon counterparty performance conditions, the Group measures the equity instruments
at their then-current lowest aggregate fair value at each reporting dates, and attributes the changes in those fair values over
the future services period until the measurement date has been established.
Modification of an Award
A modification of the terms or conditions of an
equity award is treated as an exchange of the original award for a new award. The Group measures the effects of a modification
as follows:
a.
Incremental compensation cost shall be measured as the excess, if any, of the fair value of the modified award determined
over the fair value of the original award immediately before its terms are modified, measured based on the share price and other
pertinent factors at that date; and
b.
The total recognized compensation cost for an equity award shall at least equal the fair value of the award at the grant
date unless at the date of the modification the performance or service conditions of the original award are not expected to be
satisfied.
The Group records the incremental fair-value-based
measure, if any, of the modified award, as compensation cost on the date of modification (for vested awards) or over the remaining
service (vesting) period (for unvested awards).
Cancellation of an Award
A cancellation of an award that is not accompanied
by the concurrent grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted for as a
repurchase for no consideration. Accordingly, any previously unrecognized compensation cost shall be recognized at the cancellation
date.
The Group uses the Black-Scholes or the Binominal
option-pricing model to determine the fair value of stock options. Determining the value of share-based compensation expense in
future periods requires the input of highly subjective assumptions, including estimated forfeitures and the price volatility of
the underlying shares. The Group estimates the forfeitures of the shares based on past employee retention rates and its expectations
of future retention rates, and prospectively revises the forfeiture rates based on actual history. The share compensation charges
may change based on changes to the actual forfeitures. The actual share-based compensation expenses may be materially different
from the current expectations.
Share-based compensation expenses of RMB45,317,
RMB23,598 and RMB17,653 for the years ended December 31, 2013, 2014 and 2015, respectively, were included in the general and administrative
expenses.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
|
(q)
|
Employee Benefit
Plans
|
As stipulated by the regulations of the
PRC, the Group’s subsidiaries and VIEs in the PRC participate in various defined contribution plans organized by municipal
and provincial governments for its employees. The Group is required to make contributions to these plans at a percentage of the
salaries, bonuses and certain allowances of the employees. Under these plans, certain pension, medical and other welfare benefits
are provided to employees. The Group has no other material obligation for the payment of employee benefits associated with these
plans other than the annual contributions described above. The contributions are charged to the consolidated statement of income
and comprehensive income as they become payable in accordance with the rules of the above mentioned defined contribution plans.
The Group’s revenue is derived principally
from the provision of insurance brokerage, agency and claims adjusting services. The Group recognizes revenue when all of the following
have occurred: persuasive evidence of an agreement with the insurance companies or insurance agencies exists, services have been
provided, the fees for such services are fixed or determinable and collectability of the fee is reasonably assured.
Insurance agency services are considered
to be rendered and completed, and revenue is recognized, at the time an insurance policy becomes effective, that is, when the signed
insurance policy is in place and the premium is collected from the insured. The Group has met all the four criteria of revenue
recognition when the premiums are collected by the Group or the respective insurance companies and not before, because collectability
is not ensured until receipt of the premium. Accordingly, the Group does not accrue any commission and fees prior to the receipt
of the related premiums. Insurance brokerage services revenue is recognized when the signed insurance policy is in place and the
premium is collected from the insured and the commission settlement confirmation is received from insurance companies, because
the commission rate for brokerage services is negotiated case by case and the Group’s fees are fixed when such confirmation
is received. No allowance for cancellation has been recognized for agency and brokerage businesses as the management of the Group
estimates, based on its past experience that the cancellation of policies rarely occurs. Any subsequent commission adjustments
in connection with policy cancellations which have been deminims to date are recognized upon notification from the insurance carriers.
Actual commission and fee adjustments in connection with the cancellation of policies were 0.2%, 0.2% and 0.2% of the total commission
and fee revenues during years ended December 31, 2013, 2014 and 2015, respectively. For property insurance and life insurance,
agency and brokerage services, the Group may receive a performance bonus from insurance companies as agreed and per contract provisions.
Once an agency and brokerage company achieves its performance target, typically a certain sales volume, the bonus will become due.
The bonus amount is computed based on the insurance premium amount multiplied by an agreed-upon percentage. The contingent commissions
are recorded when a performance target is being achieved. Insurance claims adjusting services are considered to be rendered and
completed, and revenue is recognized at the time loss adjusting reports are confirmed being received by insurance companies. The
Group has met all the four criteria of revenue recognition when the service is provided and the loss adjusting report is accepted
by insurance companies. The Group does not accrue any service fee before the receipt of an insurance company’s acknowledgement
of receiving the adjusting reports. Any subsequent adjustments in connection with discounts which have been de minims to date are
recognized in revenue upon notification from the insurance companies.
Other service fees include commission revenues
earned from distribution of wealth management products and revenue from the provision of IT services. Commission from distribution
of wealth management products are recorded when the products have been sold to customers, at which time the Group has fulfilled
all its services obligations. Revenue from the provision of IT services is recognized when the services are rendered.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The Group presents revenue net of sales taxes incurred.
The sales taxes amounted to RMB99,931, RMB120,965 and RMB157,234 for the years ended December 31, 2013, 2014 and 2015, respectively.
According to the Announcement on the VAT Reform Pilot Program of the Transportation and Selected Modern Service Sectors issued
by the State Tax Bureau in July 2012, the transportation and some selected modern service sectors, including research and development
(R&D) and technical services, information technology services, cultural creative services, logistics support services, tangible
personal property leasing services, and assurance and consulting service, should pay value-added tax instead of business tax based
on a predetermined timetable (hereinafter referred to as the “VAT Reform”), effective September 1,2012 for entities
in Beijing and November 1, 2012 for entities in Guangdong. The VAT Reform expanded nation-wide from August 1, 2013. A total
of seven subsidiaries or VIEs in the Group that engage in consulting and information technology services met the VAT Reform requirements,
and have started to pay value-added tax since the respectively effective days. Total Value-added taxes paid by the Group during
the years ended December 31, 2014 and 2015 amounted to RMB14,997 and RMB16,370.
In March 2016,
during the fourth session of the 12th National People’s
Congress, it was announced that the VAT reform will be fully rolled out and extended to all industries including construction,
real estate, financial services and lifestyle services. Subsequently, the State Administration of Taxation and Ministry of Finance
jointly issued a Notice on Preparing for the Full Implementation of the VAT Reform (Cai Shui [2016] No. 32). Accordingly, the Group
will pay value-added tax instead of business tax starting from May 1, 2016. The Group is in the process of evaluating the impact
on the consolidated financial statements.
|
(s)
|
Contingent
Consideration
|
The Group recognizes all the assets acquired
and liabilities assumed in a business combination at the acquisition-date fair values, which will include an estimation of the
fair value of contingent consideration payables if any. Subsequent changes in the fair value of contingent consideration payables
will be recorded in the consolidated statement of income and comprehensive income when incurred. No change in fair value of contingent
consideration payable was charged to consolidated statement of income and comprehensive income for the years ended December 31,
2013, 2014 and 2015.
The selling shareholders of the acquired
entities agreed to return part of considerations to the Group, if certain performance criteria cannot be met. The fair value of
such contingent arrangements was charged to consolidated statement of income and comprehensive income in the amount of nil, nil
and nil for the years ended December 31, 2013, 2014 and 2015, respectively.
|
(t)
|
Fair Value
of Financial Instruments.
|
Fair value is considered to be the price
that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded
at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability. The established fair value hierarchy requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The three levels of inputs may be used to measure fair value include:
Level 1
|
applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
|
Level 2
|
applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
|
Level 3
|
applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The carrying values of the Group’s
financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, insurance premium receivables
and payables, other receivables, accounts payable, amounts due from related parties, approximate their fair values due to the short
term nature of these instruments.
Measured at fair value on a recurring
basis
As of December 31, 2015 and 2014, information
about inputs into the fair value measurements of the Group’s assets and liabilities that are measured at fair value on a
recurring basis in periods subsequent to their initial recognition is as follows.
|
|
Fair Value Measurements at Reporting Date Using
|
Description
|
|
As of
December 31,
2015
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
Short-term investments - debt security
|
|
|
2,026,256
|
|
|
|
—
|
|
|
|
2,026,256
|
|
|
|
—
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
Description
|
|
As of
December 31,
2014
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
Short-term investments - debt security
|
|
|
688,900
|
|
|
|
—
|
|
|
|
688,900
|
|
|
|
—
|
|
The debt security consists of investments
in trust products and asset management plans that have normally pay a prospective fixed rate of return. These investment are recorded
at fair value on a recurring basis. The Group benchmarks the costs against fair values of comparable investments with similar measurement
terms, such as prevailing market yields, at the balance sheet date. It is classified as Level 2 of the fair value hierarchy since
fair value measurement at reporting date uses significant other observable inputs.
The Group did not have Level 3 investments as of December 31, 2014 and 2015.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Measured at fair value on a non-recurring
basis
The Group measures certain assets, including
the cost method investments, equity method investments and intangible assets, at fair value on a nonrecurring basis when they are
deemed to be impaired. The fair values of these investments and intangible assets are determined based on valuation techniques
using the best information available, and may include management judgments, future performance projections, etc. An impairment
charge to these investments is recorded when the cost of the investment exceeds its fair value and this condition is determined
to be other-than-temporary, and impairment charge to the intangible assets is recorded when their carrying amounts may not be recoverable.
Goodwill (note 6) and intangible assets
(note 2(g)) are measured at fair value on a nonrecurring basis and they are recorded at fair value only when impairment is recognized
by applying unobservable inputs such as forecasted financial performance of the acquired business, discount rate, etc. to the
discounted cash flow valuation methodology that are significant to the measurement of the fair value of these assets (Level 3).
The functional currency of the Company is
the United States dollar ("USD"). Assets and liabilities are translated at the exchange rates at the balance sheet date,
equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average
rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component
of other comprehensive income or loss in the consolidated statements of income and comprehensive income. The Group has chosen the
Renminbi ("RMB") as their reporting currency.
The functional currency of the most of the
Company’s subsidiaries and VIEs is RMB. Transactions in other currencies are recorded in RMB at the rates of exchange prevailing
when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into RMB at rates of
exchange in effect at the balance sheet dates. Exchange gains and losses are recorded in the consolidated statements of income
and comprehensive income.
|
(v)
|
Foreign Currency Risk
|
The RMB is not a freely convertible currency.
The State Administration for Foreign Exchange, under the authority of the People's Bank of China, controls the conversion of RMB
into foreign currencies. The value of RMB is subject to changes in central government policies and international economic and
political developments that affect supply and demand in the China Foreign Exchange Trading System market of cash and cash equivalents.
The Group had aggregate amounts of RMB2,080,842 and RMB1,115,296 of cash and cash equivalents denominated in RMB as of December
31, 2014 and 2015, respectively.
|
(w)
|
Translation
into United States Dollars
|
The consolidated financial statements of
the Group are stated in RMB. Translations of amounts from RMB into U.S. dollars are solely for the convenience of the readers and
were calculated at the rate of US$1.00 = RMB6.4778, representing the noon buying rate in the City of New York for cable transfers
of RMB on December 31, 2015, as set forth in H.10 statistical release of the Federal Reserve Board. The translation is not intended
to imply that the RMB amounts could have been, or could be, converted, realized or settled into U.S. dollars at that rate on December
31, 2015, or at any other rate.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
(x) Segment Reporting
The Group distributes a variety
of property and casualty, and life insurance products underwritten by domestic and foreign insurance companies operating in
the PRC, and provides insurance claims adjusting services as well as other insurance-related services and distribution of
wealth management products. The Group operated three segments: (1) insurance agency segment, which mainly consists of
providing agency services for Property and Casualty (“P&C”) insurance products and life insurance products to individual
clients, (2) insurance brokerage segment, which mainly consists of providing P&C and life insurance brokerage services to
institutional clients, and (3) claims adjusting segment, which consists of providing pre-underwriting survey, claim
adjusting, disposal of residual value, loading and unloading supervision and consulting services. Details of these operating
segments are described in note 21. Operating segments are defined as components of an enterprise about which separate
financial information is available and evaluated regularly by the Group's chief operating decision maker in deciding how to
allocate resources and in assessing performance.
Substantially all revenues of the Group are derived
in the PRC and all long-lived assets are located in the PRC.
(y) Earnings per
Share ("EPS") or ADS
Basic EPS is calculated by dividing the net
income available to common shareholders by the weighted average number of ordinary shares /ADS outstanding during the year. Diluted
EPS is calculated by using the weighted average number of ordinary shares /ADS outstanding adjusted to include the potentially
dilutive effect of outstanding share-based awards, unless their inclusion in the calculation is anti-dilutive.
(z) Advertising Costs
Advertising costs are expensed as incurred.
Advertising costs amounted to RMB5,724, RMB6,553 and RMB5,696 for the years ended December 31, 2013, 2014 and 2015, respectively.
(aa) Operating Leases
Leases where substantially all the rewards and risks
of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases
are charged to the consolidated statements of income and comprehensive income over the lease period.
(ab) Accumulated
Other Comprehensive Income
The Group presents comprehensive income in
the consolidated statements of income and comprehensive income with net income in a continuous statement.
Accumulated other comprehensive income
represents foreign currency translation adjustments and share of other comprehensive income of the affiliates for the period.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
|
(ac)
|
Recently Issued Accounting Standards Not Yet Adopted
|
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09,
"Revenue from Contracts with Customers (Topic 606)". The guidance substantially converges final standards on revenue
recognition between the FASB and the International Accounting Standards Board providing a framework on addressing revenue recognition
issues and, upon its effective date, replaces almost all exiting revenue recognition guidance, including industry specific guidance,
in current U.S. generally accepted accounting principles. The core principle of the guidance is that an entity should recognize
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply
the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 is originally effective for annual reporting periods beginning after December
15, 2016, including interim periods within that reporting period. ASU 2015-14, Revenue from Contracts with Customers, defers the
effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 is effective for annual reporting periods beginning after December 15,
2017 and interim periods therein. Early adoption is permitted to the original effective date. The Group is in the process of evaluating
the impact of adoption of this guidance on the Group's consolidated financial statements.
In January 2015, the FASB issued a new pronouncement
which eliminates from U.S. GAAP the concept of extraordinary items.
Subtopic 225-20, Income Statement - Extraordinary
and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently,
an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports
its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an
entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in
the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income
taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.
The FASB heard from stakeholders that the concept
of extraordinary items causes uncertainty because it is unclear when an item should be considered both unusual and infrequent.
Additionally, some stakeholders said that although users find information about unusual or infrequent events and transactions useful,
they do not find the extraordinary item classification and presentation necessary to identify those events and transactions. Other
stakeholders noted that it is extremely rare in current practice for a transaction or event to meet the requirements to be presented
as an extraordinary item.
The amendments in this ASU are effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments
prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial
statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.
The adoption of this ASU is not expected to have a material impact on the Group’s consolidated financial results or disclosures.
In September, 2015, the FASB issued a new pronouncement,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. To simplify the accounting for
adjustments made to provisional amounts recognized in a business combination, the amendments eliminate the requirement to retrospectively
account for those adjustments.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Under this ASU, an acquirer must recognize adjustments
to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts
are determined. The ASU also requires acquirers to present separately on the face of the income statement, or disclose in the notes,
the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting
periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.
For public business entities, the ASU is effective
for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The ASU must be applied
prospectively to adjustments to provisional amounts that occur after the effective date. Early adoption is permitted for financial
statements that have not been issued. The Group does not expect the adoption of this guidance will have a significant effect on
the Group's consolidated financial statements.
In November, 2015, the FASB issued a new pronouncement
which changes how deferred taxes are classified on organizations’ balance sheets.
The ASU eliminates the current requirement for organizations
to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations
will be required to classify all deferred tax assets and liabilities as noncurrent.
The amendments apply to all organizations that present
a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities
as of the beginning of an interim or annual reporting period. The Group is in the process of evaluating the impact of adoption
of this guidance on the Group's consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial
Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"),
which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation
of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity
may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus
or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the
same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective
for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15,
2017. Early adoption is permitted only for certain provisions. The Group is in the process of evaluating the impact of adoption
of this guidance on the Group's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet. This ASU requires lessees to recognize
a right-of-use asset and lease liability for all leases with terms of more than 12 months. Lessees are permitted to make an accounting
policy election to not recognize the asset and liability for leases with a term of twelve months or less. The ASU does not significantly
change the lessees' recognition, measurement and presentation of expenses and cash flows from the previous accounting standard.
Lessors' accounting under the ASC is largely unchanged from the previous accounting standard. In addition, the ASU expands the
disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which
includes a number of practical expedients. The provisions of this guidance are effective for annual periods beginning after December
15, 2018, and interim periods within those years, with early adoption permitted. The Group is in the process of evaluating the
impact of adoption of this guidance on the Group's consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, which amends the principal-versus-agent implementation
guidance and illustrations in the Board's new revenue standard (ASC 606). The amendments in this update clarify the implementation
guidance on principal versus agent considerations. When another party, along with the reporting entity, is involved in providing
goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide that good or
service to the customer (as a principal) or to arrange for the good or service to be provided to the customer by the other party
(as an agent). The guidance is effective for interim and annual periods beginning after December 15, 2017. The Group is in the
process of evaluating the impact of adoption of this guidance on the consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting
for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes,
forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities,
the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual
reporting periods. Early adoption will be permitted in any interim or annual period for which financial statements have not yet
been issued or have not been made available for issuance. The Group is in the process of evaluating the impact of adoption of this
guidance on the consolidated financial statements.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Other receivables, net are analyzed as follows:
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
Advances to staff (i)
|
|
|
8,159
|
|
|
|
6,492
|
|
Advances to entrepreneurial agents (ii)
|
|
|
981
|
|
|
|
367
|
|
Rental deposits
|
|
|
5,701
|
|
|
|
7,655
|
|
Interest income receivables (iii)
|
|
|
46,472
|
|
|
|
29,708
|
|
Value-added tax recoverable (iv)
|
|
|
2,786
|
|
|
|
—
|
|
Receivable from third parties (v)
|
|
|
17,020
|
|
|
|
—
|
|
Other
|
|
|
7,030
|
|
|
|
7,606
|
|
|
|
|
88,149
|
|
|
|
51,828
|
|
(i)
|
|
This represented advances to staff of the Group for daily business operations which
are unsecured, interest-free and repayable on demand.
|
(ii)
|
|
This represented advances to entrepreneurial agents who provide services to the Group.
The advances are used by agents to develop business. The advances were unsecured, interest-free and repayable on demand.
|
(iii)
|
|
This represented accrued interest income on bank deposits, interest bearing receivable
from third parties as described in (v) and accrued interest on subscription receivables (note 2(m)).
|
(iv)
|
|
As of December 31, 2014, the amount represented value-added tax to be refunded from
tax bureau. The amount of value-added tax outstanding as of December 31, 2014 had been refunded during the year 2015.
|
(v)
|
|
As of December 31, 2014, receivable from third party represented the amount due from
Guangdong Jintaiping Asset Management Co. Ltd in an amount of 17,020, which has been fully settled in 2015.
|
(5)
|
|
Property, Plant and Equipment
|
Property, plant and equipment, net, is comprised
of the following:
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
Building
|
|
|
12,317
|
|
|
|
12,317
|
|
Office equipment, furniture and fixtures
|
|
|
127,498
|
|
|
|
128,401
|
|
Motor vehicles
|
|
|
35,229
|
|
|
|
26,341
|
|
Leasehold improvements
|
|
|
10,817
|
|
|
|
9,657
|
|
Total
|
|
|
185,861
|
|
|
|
176,716
|
|
Less: Accumulated depreciation
|
|
|
(138,690
|
)
|
|
|
(142,571
|
)
|
Property, plant and equipment, net
|
|
|
47,171
|
|
|
|
34,145
|
|
No impairment for property, plant and equipment
was recorded for the years ended December 31, 2013, 2014 and 2015.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The movements in carrying amount of goodwill
by reportable segments are as follows:
|
|
Agency
segment
|
|
|
RMB
|
Balance as of January 1, 2014
|
|
|
78,553
|
|
Addition for acquisitions in 2014
|
|
|
54,921
|
|
Balance as of December 31, 2014
|
|
|
133,474
|
|
Balance as of December 31, 2015
|
|
|
133,474
|
|
The gross amount and accumulated impairment
losses by segment as of December 31, 2014 and 2015 are as follows:
|
|
Agency
segment
|
|
Claims
Adjusting
segment
|
|
Total
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Gross as of January 1, 2014 and December 31, 2014
|
|
|
1,096,102
|
|
|
|
38,077
|
|
|
|
1,134,179
|
|
Eliminated on disposal of a subsidiary
|
|
|
—
|
|
|
|
(16,940
|
)
|
|
|
(16,940
|
)
|
Gross as of December 31, 2015
|
|
|
1,096,102
|
|
|
|
21,137
|
|
|
|
1,117,239
|
|
Accumulated impairment loss as of January 1, 2014 and December 31, 2014
|
|
|
(962,628
|
)
|
|
|
(38,077
|
)
|
|
|
(1,000,705
|
)
|
Eliminated on disposal of a subsidiary
|
|
|
—
|
|
|
|
16,940
|
|
|
|
16,940
|
|
Accumulated impairment loss as of December 31, 2015
|
|
|
(962,628
|
)
|
|
|
(21,137
|
)
|
|
|
(983,765
|
)
|
Net as of January 1, 2014, December 31, 2014 and 2015
|
|
|
133,474
|
|
|
|
—
|
|
|
|
133,474
|
|
The Group performed the annual impairment analysis
as of the balance sheet date. There has been no impairment loss recognized in goodwill for the years ended December 31, 2013, 2014
and 2015, respectively.
(7)
|
|
Investment in Affiliates
|
As of December
31, 2014 and 2015, investments in affiliates represent (i) 40% equity interest in Shanghai Teamhead Automobile Surveyors Co., Ltd.
("Teamhead Automobile") which is a PRC registered company that provides insurance surveyor and loss adjustors services,
and (ii) 20.6% equity interest in Sincere Fame International Limited ("Sincere Fame") which is financial services company
registered in BVI and based in Guangzhou, PRC, primarily engaged in the origination and management of small loans made to individuals,
loan repackaging transaction, asset management-related services to financial institutions and mortgage agency services to individuals.
During
the years ended December 31, 2013, 2014 and 2015, the Group recognized its share of income of affiliates in the amount of RMB20,621,
RMB30,649 and RMB26,924 respectively. During the years ended December 31, 2013, 2014 and 2015, the Group recognized its share of
other comprehensive income of affiliates in the amount of nil, nil and RMB37,567, respectively.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Investment as of December 31, 2014 and 2015 were as follows:
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
Teamhead Automobile
|
|
|
498
|
|
|
|
528
|
|
Sincere Fame
|
|
|
219,205
|
|
|
|
283,666
|
|
Total
|
|
|
219,703
|
|
|
|
284,194
|
|
The summarized financial information of equity method investees is illustrated as below:
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
Balance sheet
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
364,045
|
|
|
|
1,348,637
|
|
Non-current assets
|
|
|
1,335,315
|
|
|
|
2,190,168
|
|
Current liabilities
|
|
|
929,731
|
|
|
|
2,389,167
|
|
Non-current liabilities
|
|
|
2,904
|
|
|
|
69,615
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
Results of operation
|
|
RMB
|
|
RMB
|
|
RMB
|
Net Revenues
|
|
|
365,521
|
|
|
|
403,908
|
|
|
|
599,372
|
|
Gross profit
|
|
|
295,954
|
|
|
|
346,688
|
|
|
|
427,258
|
|
Income from operations
|
|
|
139,211
|
|
|
|
184,531
|
|
|
|
158,846
|
|
Net profit
|
|
|
116,674
|
|
|
|
148,891
|
|
|
|
130,647
|
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
(8)
|
|
Variable Interest Entities
|
PRC laws and regulations place certain
restrictions on foreign investment in and ownership of insurance agencies, brokerages and on-line business. Accordingly, the Group
conducts some of its operations in China through contractual arrangements among its PRC subsidiaries, two PRC affiliated entities
and the equity shareholders of these PRC affiliated entities, who are PRC nationals. The contractual arrangements include a series
of contracts entered into between the Group’s PRC subsidiaries and the equity shareholders of these PRC affiliated entities
and these PRC affiliated entities, including loan agreements, equity pledge agreements, irrevocable powers of attorney, exclusive
purchase option agreements, consulting and service agreements, information technology ("IT") platform service agreements
and technology service agreements. Through these contractual arrangements, the Group is entitled to: (1) receive service fees
from the subsidiaries of these PRC affiliated entities; (2) exercise all of the voting powers of the owners of these PRC affiliated
entities; (3) receive dividends declared by these PRC affiliated entities and their subsidiaries; (4) acquire all the equity interests
of these PRC affiliated entities and their subsidiaries once PRC laws permit; and (5) exercise its substantive kick out right
under the terms of the exclusive purchase option agreement. As the Company is the sole primary beneficiary of these VIEs, the
Company consolidates them into its consolidated financial statements.
In recent years, some rules and regulations
governing the insurance intermediary sector in China have begun to encourage foreign investment. The Group has commenced a restructuring
which has resulted in obtaining controlling equity ownership in a majority of its affiliated insurance intermediary companies.
However, there remains uncertainty regarding the interpretation and implementation of the relevant regulations and the timing of
the restructuring process. In addition, restrictions by PRC laws and regulations on foreign investments in and ownership of internet
businesses still exists and the Group is still in the process to complete its restructuring plan. Therefore, as of December 31,
2015, the Group still conducts part of its operations in China through contractual arrangements among its PRC subsidiaries and
consolidated affiliated entities, Shenzhen Xinbao Investment Management Co., Ltd. ("Xinbao Investment") and Shenzhen
Dianliang Information Technology Co., Ltd ("Dianliang Information") (collectively referred as the "Two PRC Affiliated
Entities") and the equity holders of the Two PRC Affiliated Entities who are PRC nationals. To provide the Company effective
control over the Two PRC Affiliated Entities, and the ability to receive substantially all of the economic benefits of the Two
PRC Affiliated Entities and their subsidiaries, a series of contractual arrangements were entered amongst CNinsure Xinlian Information
Technology Consulting (Shenzhen) Co., Ltd. ("Xinlian Information"), CNinsure Zhonglian Enterprise Image Planning (Shenzhen)
Co., Ltd. ("Zhonglian Enterprise"), Litian Zhuoyue Software (Beijing) Co., Ltd ("Litian") and Ying Si Kang
Information Technology (Shenzhen) Co., Ltd. ("Ying Si Kang Information"), which are PRC subsidiaries of the Company,
and the Two PRC Affiliated Entities and their direct equity holders, refer to as the "VIE arrangements".
Agreements that provide the Group effective
control over the Two PRC Affiliated Entities
Loan Agreements
Each of the individual shareholders of Xinbao
Investment entered into a loan agreement with the Group’s subsidiary Ying Si Kang Information, evidencing a zero interest
loan granted to them, equal to their respective capital contributions to Xinbao Investment. When Ying Si Kang was transferred to
Litian in 2014, each of the individual shareholders of Xinbao Investment was released from the agreement with Ying Si Kang and
entered into a new loan agreement with another Group’s subsidiary Bao Si Kang Information Technology (Shenzhen) Co., Ltd.
("Bao Si Kang Information"). The terms of the loan agreement are substantially similar to those in the loan agreements
of Ying Si Kang Information described above.
In addition, the individual shareholder of
Dianliang Information also entered into a loan agreement with the Group’s subsidiary Xinlian Information, evidencing a zero
interest loan granted to the individual shareholder, equal to his capital contribution to Dianliang Information. The terms of the
loan agreement are substantially similar to those in the loan agreements of Xinbao Investment described above.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Equity Pledge Agreements
Pursuant to the equity pledge agreements
between (1) Xinbao Investment, Ying Si Kang Information, and from the later year of 2014 Bao Si Kang Information and the equity
holders of Xinbao Investment; and (2) Dianliang Information, Xinlian Information and the equity holder of Dianliang Information,
the equity holders of the Two PRC Affiliated Entities have pledged their equity interests in the Two PRC Affiliated Entities to
Ying Si Kang Information (later year of 2014 to Bao Si Kang Information) and Xinlian Information to secure their obligations under
the loan agreements between (1) Ying Si Kang Information (later year of 2014 replaced with Bao Si Kang Information) and Xinbao
Investment; (2) Dianliang Information and Xinlian Information. During the term of the equity pledge agreements, Xinlian Information
and Ying Si Kang Information (later year of 2014 replaced with Bao Si Kang Information) are entitled to all the dividends declared
on the pledged equity interests. The equity pledge agreements will expire when the individual shareholder fully performed his obligations
under the loan agreements.
The individual shareholder of Dianliang Information
entered into a pledge agreement with the Group’s subsidiary Xinlian Information. The terms of the pledge agreement are substantially
similar to those in the pledge agreements of Xinbao Investment described above.
Irrevocable Power of attorney
Pursuant to the power of attorney, the nominee
equity holders of the Two PRC Affiliated Entities each executed an irrevocable power of attorney, appointing a person designated
by Xinlian Information or Ying Si Kang Information (later year of 2014 replaced with Bao Si Kang Information) as their attorney-in-fact
to vote on their behalf on all matters of the Two PRC Affiliated Entities requiring equity holder approval. If Xinlian Information
or Ying Si Kang Information (later year of 2014 replaced with Bao Si Kang Information) designates the individual shareholders of
the Two PRC Affiliated Entities to attend shareholders' meetings of the Two PRC Affiliated Entities, each of the individual shareholders
agrees to vote his shares as instructed by Xinlian Information or Ying Si Kang information (later year of 2014 replaced with Bao
Si Kang Information).
The Articles of Association of the Two PRC
Affiliated Entities state that the major rights of the equity holders include the power to review and approve annual budget, operating
strategy and investment plan, elect the members of board of directors and approve their compensation plan. Therefore, through the
power of attorney arrangement, Xinlian Information and Ying Si Kang Information (later year of 2014 replaced with Bao Si Kang Information)
have the ability to exercise effective control over the Two PRC Affiliated Entities through equity holder votes and, through such
votes, to also control the composition of the board of directors. In addition, the senior management teams of the Two PRC Affiliated
Entities are the same as that of Xinlian Information and Ying Si Kang Information (later year of 2014 replaced with Bao Si Kang
Information).
Agreements that provide the Group the
option to purchase the equity interests in the Two PRC Affiliated Entities
Exclusive Purchase Option Agreements
Pursuant to the exclusive purchase right
agreements, Xinlian Information and Ying Si Kang Information (later year of 2014 replaced with Bao Si Kang Information) may purchase
the entire equity interests in, or all the assets of the Two PRC Affiliated Entities, for a purchase price equal to the amount
of the individual shareholder’s actual capital contributions to the Two PRC Affiliated Entities or the minimum price permitted
by PRC laws, if and when PRC laws are amended to permit such a transaction.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Agreements
that transfer economic benefits to Xinlian Information, Zhonglian Enterprise, and Litian
IT platform related service, consulting
service and technology service agreements
Pursuant to IT platform service, technology
service and consulting service agreements entered into between the Group’s PRC subsidiary Ying Si Kang Information and most
of the subsidiaries of the Two PRC Affiliated Entities, Ying Si Kang Information agreed to grant rights to use the "CNinsure"
brand and provide consulting and training services related to finance, taxation, IT platform and internal control compliance and
services to ensure the normal operation of the mobile sales support system to most of subsidiaries of the Two PRC Affiliated Entities
in exchange for fees payable quarterly calculated as a percentage of revenues of each insurance intermediary. Each of these agreements
has an initial term of one year from the signing date and can be renewed each year upon mutual agreement. In 2013, we provided
IT platform and software services to most of subsidiaries of the Two PRC Affiliated Entities through another of our PRC subsidiaries,
Litian. We ceased providing IT services to these entities in 2014. But we resumed providing such services to these entities through
Ying Si Kang Information in 2015.
These contractual arrangements allow the
Group to effectively control the Two PRC Affiliated Entities and their subsidiaries, and to derive substantially all of the economic
benefits from them. Accordingly, the Group treats the Two PRC Affiliated Entities as VIEs and because the Group is the primary
beneficiary of the Two PRC Affiliated Entities, the Group has consolidated the financial results of the Two PRC Affiliated Entities
and their subsidiaries.
In addition to the above agreements, which
allow the Group to exercise effective control, have an exclusive option to purchase all or part of the equity interests and receive
a substantial portion of the economic benefits from the Two PRC Affiliated Entities and their subsidiaries. The Group had also
entered into similar contractual arrangements with the non-controlling interest shareholders of Guangdong Meidiya Investment before
January, 2015 and Sichuan Yihe Investment Co., Ltd. ("Yihe Investments") before December 2015, respectively. In January 2015,
the individual minority shareholders of Meidiya Investment transferred their respective equity interests in Meidiya Investment
to CNinsure Group Company, the Group’s wholly-owned subsidiary. In addition, the contractual arrangements among Meidiya
Investment, and their respective shareholders and subsidiaries were terminated. Consequently, Meidiya Investment became the Group’s
wholly-owned subsidiary and ceased being a consolidated affiliated entity.
In December 2015, the individual minority shareholders of Yihe Investment transferred their
respective equity interests in Yihe Investment to Zhonglian Enterprise and Xinlian Information. As a result, Zhonglian Enterprise,
Xinlian Information and CNinsure Group Company owns 39.1%, 40.9% and 20% of the equity interests of Yihe Investment, respectively.
In addition, the contractual arrangements among Yihe Investment and their respective shareholders and subsidiaries were terminated.
Consequently, Yihe Investment became the Group’s wholly-owned subsidiary and ceased being a consolidated affiliated entity.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Risks in relation to VIE Arrangement
The Company believes that the contractual
arrangements with PRC Affiliated Entities and their subsidiaries and their current shareholders are in compliance with PRC laws
and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability
to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC
laws and regulations, the PRC government could:
|
·
|
revoking the business and operating licenses of the Group's PRC subsidiaries and VIEs;
|
|
·
|
restricting or prohibiting any related-party transactions among the Group's PRC subsidiaries and VIEs;
|
|
·
|
imposing fines or other requirements with which the Group may not be able to comply;
|
|
·
|
requiring the Group to restructure the relevant ownership structure or operations; or
|
|
·
|
restricting or prohibiting the Group from providing additional funding for its business and operations in China.
|
The Company's ability to conduct its business
may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, the Company
may not be able to consolidate the VIEs and their subsidiaries in its financial statements as it may lose the ability to exert
effective control over the VIEs and their subsidiaries and its shareholders, and it may lose the ability to receive economic benefits
from the VIEs and their subsidiaries.
The interests of the shareholders of the PRC Affiliated Entities may
diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual
terms, for example by influencing the PRC Affiliated Entities not to pay the service fees when required to do so. The Company cannot
assure that when conflicts of interest arise, shareholders of the PRC Affiliated Entities will act in the best interests of the
Company or that conflicts of interests will be resolved in the Company’s favor. Currently, the Company does not have existing
arrangements to address potential conflicts of interest the shareholders of PRC Affiliated Entities may encounter in their capacity
as beneficial owners and directors of PRC Affiliated Entities, on the one hand, and as beneficial owners and directors of the Company,
on the other hand. The Company believes the shareholders of PRC Affiliated Entities will not act contrary to any of the contractual
arrangements and the exclusive option agreements provide the Company with a mechanism to remove the current shareholders of PRC
Affiliated Entities should they act to the detriment of the Company. The Company relies on certain current shareholders of PRC
Affiliated Entities, as directors and executive officers of the Company, to fulfill their fiduciary duties and abide by laws of
the PRC and Cayman Islands and act in the best interest of the Company. If the Company cannot resolve any conflicts of interest
or disputes between the Company and the shareholders of PRC Affiliated Entities, the Company would have to rely on legal proceedings,
which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.
The Group have entered into contractual arrangements
with the PRC Affiliated Entities which may be subject to scrutiny by the PRC tax authorities. A finding that the Group owe additional
taxes could substantially reduce the consolidated net income of the PRC Affiliated Entities.
The VIEs are principally engaged in the provision
of agency and e-business in the PRC.
Relevant PRC laws and regulations restrict
the VIE from transferring a portion of its net assets, equivalent to the balance of its statutory reserve and its share capital,
to the Company in the form of loans and advances or cash dividends. Please refer to note 20 for disclosure of restricted net assets.
The Group through contractual arrangements
with Dianliang Information and Xinbao Investment, it controls the remaining five VIEs as of December 31, 2015 (seven VIEs as of
December 31, 2014).
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The financial information of the Company’s
VIEs and VIEs' subsidiaries as of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015, before intra-group
eliminations between VIEs and other group entities, is as follows:
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
Total assets
|
|
|
63,090
|
|
|
|
103,740
|
|
Total liabilities
|
|
|
38,716
|
|
|
|
104,795
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Net Revenues
|
|
|
125,961
|
|
|
|
72,645
|
|
|
|
108,133
|
|
Net loss
|
|
|
(3,767
|
)
|
|
|
(9,636
|
)
|
|
|
(14,554
|
)
|
Net cash used in operating activities
|
|
|
(13,500
|
)
|
|
|
(49,782
|
)
|
|
|
37,943
|
|
Net cash generated from (used in) investing activities
|
|
|
12,041
|
|
|
|
14,709
|
|
|
|
(31,682
|
)
|
Net cash generated from financing activities
|
|
|
—
|
|
|
|
33,370
|
|
|
|
—
|
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
(9)
|
|
Other Payables and Accrued Expenses
|
Components of other payables and accrued
expenses are as follows:
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
|
|
|
|
Business and other tax payable
|
|
|
24,987
|
|
|
|
35,358
|
|
Refundable deposits from employees and agents
|
|
|
9,705
|
|
|
|
13,239
|
|
Professional fees
|
|
|
17,340
|
|
|
|
18,553
|
|
Accrued expenses to third parties (note i)
|
|
|
23,677
|
|
|
|
42,622
|
|
Payables for addition of office equipment, furniture and fixtures
|
|
|
8,618
|
|
|
|
8,618
|
|
Advance from third parties
|
|
|
8,542
|
|
|
|
35,808
|
|
Insurance compensation claim payable to customers
|
|
|
1,563
|
|
|
|
823
|
|
Payable for equity acquisition of investment in affiliates/subsidiaries
|
|
|
4,685
|
|
|
|
38,495
|
|
Contributions from members of eHuzhu mutual aid program
|
|
|
2,341
|
|
|
|
8,995
|
|
Others
|
|
|
7,954
|
|
|
|
11,051
|
|
Total
|
|
|
109,412
|
|
|
|
213,562
|
|
|
(i)
|
As of December 31, 2015, included in accrued expenses to third parties represents an amount
of RMB19,500 payable to Chengdu Puyi Bohui Information Technology Co., Ltd., the shareholder of CNinsure Puyi Fund Sales Co.
Ltd. ("Puyi Fund
Sales") for
marketing activities. The
Group beneficially
owns 19.5% equity
interests in Puyi Fund
Sales.
|
Other payables and accrued expenses are unsecured,
interest-free and repayable on demand.
(10)
|
|
Employee Benefit Plans
|
Employees of the Group located in the PRC
are covered by the retirement schemes defined by local practice and regulations, which are essentially defined contribution plans.
The calculation of contributions for these eligible employees is based on 10% to 22% of the applicable payroll cost according to
the specific requirements of the local regime government.
In addition, the Group is required by law
to contribute certain percentage of applicable salaries for medical insurance benefits, unemployment and other statutory benefits.
The contribution percentages may different from district to district which is subject to the specific requirement of local regime
government. The PRC government is directly responsible for the payments of the benefits to these employees.
For the years ended December 31, 2013, 2014
and 2015, the Group contributed RMB42,919, RMB45,467 and RMB47,955, respectively.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The Company is a tax exempted company incorporated
in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to tax on their income or capital
gains. In addition, upon any payments of dividends by the Group to its shareholders, no Cayman Islands withholding tax is imposed.
The Group’s subsidiaries and VIEs incorporated
in PRC are subject to Income Tax in the PRC.
The provision for current income taxes of the subsidiaries operating
in Hong Kong has been calculated by applying the current rate of taxation of 16.5% for the years ended December 31, 2013, 2014
and 2015, if applicable.
Pursuant to the relevant laws and
regulations in the PRC, Litian, Shenzhen CNinsure Software Technology Co., Ltd ("CNinsure Software") and Ying Si Kang
Information, the subsidiaries of the Group, were regarded as software companies and thus exempted from PRC Income Tax for two
years starting from its first profit-making year, followed by a 50% reduction for the next three years. For Litian, year 2010
was the first profit-making year and accordingly, Litian has made a 12.5% tax provision for its profits for the years ended
December 31, 2012, 2013 and 2014. For CNinsure Software, year 2012 was the first profit-making year and accordingly, CNinsure
Software has not made any provision for PRC income tax for the years ended December 31, 2012 and 2013, and has made a 12.5%
tax provision for its profits for the years ended December 31, 2014 and 2015. For Ying Si Kang Information, year 2014 is the
first profit-making year and accordingly it has not made any provision for PRC income tax for the years ended
December 31, 2014 and 2015.
The Group accounts for uncertain income tax
positions by prescribing a minimum recognition threshold in the financial statements.
As of December 31, 2015, the Group’s liabilities for unrecognized
tax benefits were included in other tax liabilities. The movements of unrecognized tax benefits are as follows:
|
|
RMB
|
Balance as of January 1, 2013
|
|
|
47,589
|
|
Gross increase in prior-period tax positions
|
|
|
3,146
|
|
Balance as of December 31, 2013
|
|
|
50,735
|
|
Offset per FASB ASU No. 2013-11—Income Taxes (Topic 740)
|
|
|
(4,808
|
)
|
Gross increase in prior-period tax positions
|
|
|
7,928
|
|
Balance as of December 31, 2014
|
|
|
53,855
|
|
Effect per FASB ASU No. 2013-11—Income Taxes (Topic 740)
|
|
|
825
|
|
Gross increase in prior-period tax positions
|
|
|
15,674
|
|
Balance as of December 31, 2015
|
|
|
70,354
|
|
The uncertain tax positions are related to
tax years that remain subject to examination by the relevant tax authorities. Based on the outcome of any future examinations,
or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that the related
unrecognized tax benefits for tax positions taken regarding previously filed tax returns, might materially change from those recorded
as liabilities for uncertain tax positions in the Group’s consolidated financial statements as of December 31, 2014 and 2015.
In addition, the outcome of these examinations may impact the valuation of certain deferred tax assets (such as net operating losses)
in future periods. The Group’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits, if
any, as a component of income tax expense. The Company does not anticipate any significant increases or decreases to its liability
for unrecognized tax benefit within the next twelve months.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
According to the PRC Tax Administration and
Collection Law, the statute of limitations is three years if the underpayment of income taxes is due to computational errors made
by the taxpayer. The statute of limitations will be extended to five years under special circumstances, which are not clearly defined,
but an underpayment of income tax liability exceeding RMB100 is specifically listed as a special circumstance. In the case of a
transfer pricing related adjustment, the statute of limitations is ten years. There is no statute of limitations in the case of
tax evasion.
Income tax expenses are comprised of the
following:
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Current tax expense
|
|
|
29,436
|
|
|
|
25,607
|
|
|
|
26,932
|
|
Deferred tax income
|
|
|
(2,278
|
)
|
|
|
(1,318
|
)
|
|
|
(1,067
|
)
|
Income tax expense
|
|
|
27,158
|
|
|
|
24,289
|
|
|
|
25,865
|
|
The principal components of the deferred
income tax assets and liabilities are as follows:
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Operating loss carryforward
|
|
|
4,313
|
|
|
|
1,079
|
|
Less: valuation allowances
|
|
|
(4,313
|
)
|
|
|
(1,079
|
)
|
Current deferred tax asset, net
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets:
|
|
|
|
|
|
|
|
|
Operating loss carryforward, after offset effect of ASU 2013-11
|
|
|
33,930
|
|
|
|
27,245
|
|
Less: valuation allowances
|
|
|
(31,292
|
)
|
|
|
(25,587
|
)
|
Non-current deferred tax asset, net
|
|
|
2,638
|
|
|
|
1,658
|
|
Total
|
|
|
2,638
|
|
|
|
1,658
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
6,769
|
|
|
|
3,895
|
|
Investment income
|
|
|
18,162
|
|
|
|
18,162
|
|
Total
|
|
|
24,931
|
|
|
|
22,057
|
|
Due to the uncertainty of the level of PRC
subsidiaries or VIEs’ taxable income, management does not believe certain subsidiaries or VIEs will generate sufficient taxable
income such that it is more likely than not that the deferred tax assets will not be realized. As such, a valuation allowance has
been established for these deferred tax assets as of December 31, 2014 and 2015. The Group had total operating loss carry-forwards
of RMB166,557 and RMB131,198 as of December 31, 2014 and 2015, respectively. Such operating loss carry-forwards expire five years
after the PRC subsidiaries or VIEs incur the loss unless utilized. As of December 31, 2015, the operating loss carry-forwards of
RMB14,039, RMB20,306, RMB28,200, RMB34,400 and RMB34,254 is to expire for the years ended December 31, 2016, 2017, 2018, 2019 and
2020, respectively. During the year ended December 31, 2013, 2014 and 2015, nil, nil and RMB4,251, respectively, of tax loss carried
forward has been expired and canceled.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Reconciliation between the provision for
income taxes computed by applying the PRC enterprise income rate of 25% to net income before income taxes and income of affiliates,
and the actual provision for income taxes is as follows:
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Income before income taxes and income of affiliates
|
|
|
106,521
|
|
|
|
159,720
|
|
|
|
214,422
|
|
PRC statutory tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
25
|
%
|
Income tax at statutory tax rate
|
|
|
26,630
|
|
|
|
39,930
|
|
|
|
53,605
|
|
Expenses not deductible for tax purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Entertainment
|
|
|
494
|
|
|
|
579
|
|
|
|
685
|
|
Other
|
|
|
12,974
|
|
|
|
6,482
|
|
|
|
5,176
|
|
Tax exemption and tax relief:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax rate differential
|
|
|
(27,686
|
)
|
|
|
(34,315
|
)
|
|
|
(44,381
|
)
|
Change in valuation allowance
|
|
|
13,812
|
|
|
|
2,934
|
|
|
|
(4,194
|
)
|
Uncertain tax provisions
|
|
|
3,148
|
|
|
|
7,928
|
|
|
|
15,674
|
|
Other
|
|
|
(2,214
|
)
|
|
|
751
|
|
|
|
(700
|
)
|
Income tax expense
|
|
|
27,158
|
|
|
|
24,289
|
|
|
|
25,865
|
|
Additional PRC income taxes that would have
been payable without the tax exemption amounted to approximately RMB27,686, RMB34,315 and RMB44,381 for the years ended December
31, 2013, 2014 and 2015, respectively. Without such exemption, the Group’s basic and diluted net profit per share for the
year ended December 31, 2013, 2014, and 2015 would have been decreased by RMB0.03, RMB0.03, and RMB0.04 respectively.
Under the New Taxation Law, enterprises are classified
as either resident or non-resident. A resident enterprise refers to one that is incorporated under the PRC law or under the law
of a jurisdiction outside the PRC with its "de facto management organization" located within the PRC. Non-resident enterprise
refers to one that is incorporated under the law of a jurisdiction outside the PRC with its "de facto management organization"
located also outside the PRC, but which has either set up institutions or establishments in the PRC or has income originating from
the PRC without setting up any institution or establishment in the PRC. Under the New Enterprise Income Tax ("EIT") Implementation
Regulation, "de facto management organization" is defined as the organization of an enterprise through which substantial
and comprehensive management and control over the business, operations, personnel, accounting and properties of the enterprise
are exercised. Under the New Taxation Law and the New EIT Implementation Regulation, a resident enterprise’s global net income
will be subject to a 25% EIT rate. On April 22, 2009, the State Administration of Taxation (the "SAT"), issued SAT Circular
82,which provides certain specific criteria for determining whether the "de facto management body" of a PRC-controlled
enterprise that is incorporated offshore is located in China. In addition, the SAT issued a bulletin on July 27, 2012 providing
more guidance on the implementation of Circular 82 and clarifies matters such as resident status determination. Due to the present
uncertainties resulting from the limited PRC tax guidance on this issue, it is unclear that the legal entities organized outside
of PRC should be treated as residents for New Taxation Law purposes. Nevertheless, even if one or more of those entities were characterized
as PRC tax residents, no significant impact would be expected on the net current tax payable balance and the net deferred tax balance.
If the entities were to be non-resident
for PRC tax purpose, dividends paid to it out of profits earned after January 1, 2008 would be subject to a withholding tax. In
the case of dividends paid by PRC subsidiaries the withholding tax would be 10% whereas in the case of dividends paid by PRC subsidiaries
which are 25% or more directly owned by tax residents in the Hong Kong SAR, the withholding tax would be 5%.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Aggregate undistributed earnings of the Group’s
subsidiaries and VIEs in the PRC that are available for distribution to the Group of approximately RMB1,967,287 and RMB1,954,541
as of December 31, 2014 and 2015 respectively, are considered to be indefinitely reinvested, and accordingly, no provision has
been made for the dividend withholding taxes that would be payable upon the distribution of those amounts to the Group. If those
earnings were to be distributed or they were determined to be no longer permanently reinvested, the Group would have to record
a deferred tax liability in respect of those undistributed earnings of approximately RMB196,729 and RMB195,454, respectively.
Under applicable accounting principles, a
deferred tax liability should be recorded for taxable temporary differences attributable to the excess of financial reporting over
tax basis, including those differences attributable to a more-than-50-percent-owned domestic subsidiary. However, recognition is
not required in situations where the tax law provides a means by which the reported amount of that investment can be recovered
tax-free and the enterprise expects that it will ultimately use that means. The Group has not recorded any such deferred tax liability
attributable to the undistributed earnings of its financial interest in VIE affiliates because the Group believes such excess earnings
can be distributed in a manner that would not be subject to tax.
During 2015, the Company
issued 6,754,720 new shares for the exercise of options, representing 0.59% of the total shares outstanding as of December 31,
2015.
During 2015, the Company
repurchased 2,261,100 shares from the public market, representing 0.20% of the total shares outstanding as of December 31, 2015.
During 2014, the Company
issued 1,704,380 new shares for the exercise of options, representing 0.15% of the total shares outstanding as of December 31,
2014.
In November 2014, the Group
entered into share purchase agreements with the Employee Companies, for the issuance of up to 100,000,000 ordinary shares of the
Group. In December 2014, the Group increased the new shares issued to the Employee Companies to 150,000,000 ordinary shares. The
total 150,000,000 ordinary shares represented approximately 13.04% of the total enlarged outstanding share capital as of December
31, 2014. The subscription price for the 100,000,000 ordinary shares is US$0.27 per ordinary share or US$5.40 per ADS, while the
subscription price for the additional 50,000,000 ordinary shares is US$0.29 per ordinary share or US$5.8 per ADS, both of which
were the average closing prices for the 20 trading days prior to the board approvals of such transactions. Accordingly, the Group
considers that the employees have subscribed these shares at prices that were set at the best estimation of the future market prices
on issuance date, and the Group has no intention to compensate the employees with a below market price subscription; therefore,
the Group has not recorded any share-based compensation expenses related to any price deviations of the Group’s ordinary
shares from the board approval dates to issuances of these shares. The shares purchased by the Employee Companies are subject to
180 days lock-up. The sale of shares to the Employee Companies was completed on December 17, 2014.
In order to facilitate the
purchase of shares by employees as described above, the Group has granted a loan to Employee Companies. The loans bear interest
at a rate of 3% per annum and is repayable upon the sale of the shares by employees, termination of employment or within two years,
whichever comes first. The interest rate is determined with reference to fair market prices and therefore no interest-related compensation
expense is recorded. Please refer to note 2(m) for accounting policy details.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
(13)
|
|
Net Income per Share
|
The computation of basic and diluted net
income per ordinary share is as follows:
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Basic:
|
|
|
|
|
|
|
Net income
|
|
|
99,984
|
|
|
|
166,080
|
|
|
|
215,481
|
|
Less: Net income attributable to the noncontrolling interests
|
|
|
4,341
|
|
|
|
4,320
|
|
|
|
5,395
|
|
Net income attributable to the Company’s shareholders
|
|
|
95,643
|
|
|
|
161,760
|
|
|
|
210,086
|
|
Weighted average number of ordinary shares outstanding
|
|
|
998,861,526
|
|
|
|
1,005,842,212
|
|
|
|
1,151,705,374
|
|
Basic net income per ordinary share
|
|
|
0.10
|
|
|
|
0.16
|
|
|
|
0.18
|
|
Basic net income per ADS
|
|
|
1.92
|
|
|
|
3.22
|
|
|
|
3.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
99,984
|
|
|
|
166,080
|
|
|
|
215,481
|
|
Less: Net income attributable to the noncontrolling interests
|
|
|
4,341
|
|
|
|
4,320
|
|
|
|
5,395
|
|
Net income attributable to the Company’s shareholders
|
|
|
95,643
|
|
|
|
161,760
|
|
|
|
210,086
|
|
Weighted average number of ordinary shares outstanding
|
|
|
998,861,526
|
|
|
|
1,005,842,212
|
|
|
|
1,151,705,374
|
|
Weighted average number of dilutive potential ordinary shares from share options
|
|
|
1,708,492
|
|
|
|
6,749,175
|
|
|
|
51,618,147
|
|
Total
|
|
|
1,000,570,018
|
|
|
|
1,012,591,387
|
|
|
|
1,203,323,521
|
|
Diluted net income per ordinary share
|
|
|
0.10
|
|
|
|
0.16
|
|
|
|
0.17
|
|
Diluted net income per ADS
|
|
|
1.91
|
|
|
|
3.19
|
|
|
|
3.49
|
|
During the years ended December 31, 2013, 2014 and 2015, the Company
had share options of which would potentially dilute earnings per share in the future, but which were excluded from the computation
of diluted earnings per share as their effect would have been antidilutive, such share options consist of 38,222,880, 16,920 and
nil, respectively.
(14)
|
|
Distribution of Profits
|
As stipulated by the relevant PRC laws and
regulations applicable to China’s foreign investment enterprise, the Group’s subsidiaries and VIEs in the PRC are required
to maintain non-distributable reserves which include a statutory surplus reserve as of December 31, 2015. Appropriations to the
statutory surplus reserve are required to be made at not less than 10% of individual company’s net profit as reported in
the PRC statutory financial statements of the Company’s subsidiaries and VIEs. The appropriations to statutory surplus reserve
are required until the balance reaches 50% of the registered capital of respective subsidiaries and VIEs.
The statutory surplus reserve is used to
offset future losses. These reserves represent appropriations of retained earnings determined according to PRC law and may not
be distributed. There are no appropriations to reserves by the Company other than the Group’s subsidiaries and VIEs in the
PRC during the periods presented. Amounts contributed to the statutory reserves were RMB198,422 and RMB302,115 as of December 31,
2014 and 2015, respectively.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
(15)
|
|
Related Party Balances and Transactions
|
The principal related party balances and
transactions as of and for the years ended December 31, 2014 and 2015 are as follows:
|
a)
|
Amounts due from related parties:
|
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
Amount due from an affiliate and its subsidiaries, net (i)
|
|
|
209,601
|
|
|
|
36,508
|
|
Subscription receivables (note 2(m) & note 12)
|
|
|
257,491
|
|
|
|
268,829
|
|
|
(i)
|
The Group agreed to grant a revolving loan with a maximum amount of US$50,000 (equivalent to
RMB317,990 as per the agreement) to Sincere Fame and its subsidiaries pursuant to a facility letter entered in October 2011
(the “Facility"). The Facility is valid for two years and is renewed upon mutual agreement for another two years in
October 2013 and October 2015. On January 1, 2012, the Group and Sincere Fame further entered into a supplemental loan
agreement, which
established the legal rights to offset the interests and
amounts receivable or payable between the Group and Sincere Fame,
and all the subsidiaries of the Group and Sincere Fame. The amounts are unsecured and bear interest at 7.3% and are
repayable on demand. As of
December 31,
2014 and
2015, the
amount due from
Sincere Fame
and its subsidiaries
represented RMB179,681 and nil
principal receivable, respectively, and
RMB28,420 and
RMB36,508 interest
receivable respectively. In addition, as of December
31, 2014 and 2015, RMB1,500 and nil account receivables represent the amount due from Sincere Fame and its subsidiaries
which are
unsecured, interest-free and repayable on demand.
|
|
b)
|
A subsidiary of the Company provided
information technology service to an affiliate and charged RMB1,415, nil and nil for the years ended December 31, 2013, 2014, and
2015, respectively.
|
|
|
The Group charged affiliates interest income of RMB6,843, RMB12,170 and RMB8,088 for loans receivable
for the years ended December 31, 2013, 2014, and 2015, respectively.
|
|
c)
|
A subsidiary of the Group held a 30% equity interest in Beijing Fanhua Micro-credit Company Limited,
on behalf of Shenzhen Fanhua United Investment Group, which is a subsidiary of Sincere Fame.
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
(16)
|
|
Commitments and Contingencies
|
(i) The Group has several non-cancelable
operating leases, primarily for office premises.
Future minimum lease payments under non-cancelable
operating leases (with initial or remaining lease terms in excess of one year) and future minimum operating lease payments as of
December 31, 2015 are:
|
|
Minimum Lease Payment
|
|
|
RMB
|
Year ending December 31:
|
|
|
|
|
2016
|
|
|
31,152
|
|
2017
|
|
|
16,080
|
|
2018
|
|
|
7,516
|
|
2019
|
|
|
6,535
|
|
2020
|
|
|
4,121
|
|
Total
|
|
|
65,404
|
|
Rental expenses incurred under operating
leases for the years ended December 31, 2013, 2014 and 2015 amounted to RMB30,509, RMB27,455 and RMB36,206, respectively.
(ii) The Group entered into various acquisition
agreements which contain certain purchase considerations that are contingent upon future performance of the acquired companies.
Please refer to note 3 for more details.
(17)
|
|
Concentrations of Credit Risk
|
Concentration risks
Details of the customers accounting for 10%
or more of total net revenues from commissions and fees are as follows:
|
|
Year ended December 31,
|
|
|
2013
|
|
% of sales
|
|
2014
|
|
% of sales
|
|
2015
|
|
% of sales
|
|
|
RMB
|
|
|
|
RMB
|
|
|
|
RMB
|
|
|
PICC Property and Casualty Company Limited ("PICC")
|
|
|
346,405
|
|
|
|
20
|
%
|
|
|
442,608
|
|
|
|
21
|
%
|
|
|
676,939
|
|
|
|
24
|
%
|
China Pacific Property Insurance Co., Ltd. ("CPIC")
|
|
|
204,983
|
|
|
|
12
|
%
|
|
|
255,655
|
|
|
|
12
|
%
|
|
|
315,961
|
|
|
|
11
|
%
|
Ping An Property & Casualty Insurance Company of China, Ltd. ("Ping An").
|
|
|
248,102
|
|
|
|
14
|
%
|
|
|
294,228
|
|
|
|
14
|
%
|
|
|
283,935
|
|
|
|
10
|
%
|
|
|
|
799,490
|
|
|
|
46
|
%
|
|
|
992,491
|
|
|
|
47
|
%
|
|
|
1,276,835
|
|
|
|
45
|
%
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
Details of the customers which accounted
for 10% or more of accounts receivable are as follows:
|
|
As of December 31,
|
|
|
2014
|
|
%
|
|
2015
|
|
%
|
|
|
RMB
|
|
|
|
RMB
|
|
|
PICC.
|
|
|
32,117
|
|
|
|
17
|
%
|
|
|
53,851
|
|
|
|
22
|
%
|
CPIC
|
|
|
22,927
|
|
|
|
12
|
%
|
|
|
28,947
|
|
|
|
12
|
%
|
Ping An.
|
|
|
28,903
|
|
|
|
16
|
%
|
|
|
*
|
|
|
|
*
|
|
Huaxia Life Insurance Company Limited
|
|
|
*
|
|
|
|
*
|
|
|
|
26,456
|
|
|
|
11
|
%
|
|
|
|
83,947
|
|
|
|
45
|
%
|
|
|
109,254
|
|
|
|
45
|
%
|
* represented less than 10% of account receivables as of the year end.
The Group performs ongoing credit evaluations
of its customers and related parties and generally does not require collateral on accounts receivable.
The Group places its cash and cash equivalents
with financial institutions with high-credit ratings and quality.
The Group performs ongoing credit evaluations
on the amounts due from Sincere Fame and its subsidiaries (note 15(a)(i)). As the Group has significant influences over the operations
of Sincere Fame through its equity investment in Sincere Fame, and in view of the historically positive operating results of Sincere
Fame and its subsidiaries, the Group considered that the credit risks on the amounts due from an affiliate and its subsidiaries
are not significant.
Currency risk
Except for the proceeds from the initial
public offering and the follow-on offering (which were in USD), substantially all of the revenue-generating operations of the Group
are transacted in RMB, which is not freely convertible into foreign currencies. On January 1, 1994, the PRC government abolished
the dual rate system and introduced a single rate of exchange as quoted by the People’s Bank of China. However, the unification
of the exchange rate does not imply convertibility of RMB into USD or other foreign currencies. All foreign exchange transactions
must take place either through the People’s Bank of China or other institutions authorized to buy and sell foreign exchange
or at a swap center. Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting
a payment application form together with suppliers’ invoices, shipping documents and signed contracts.
(18)
|
|
Non-Cash Transactions
|
The Group entered into the following non-cash
investing and financing activities:
|
|
Year ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Considerations payable in connection with acquisition of additional interests in subsidiaries
|
|
|
—
|
|
|
|
4,685
|
|
|
|
34,310
|
|
Considerations payable in connection with other investment
|
|
|
3,720
|
|
|
|
—
|
|
|
|
—
|
|
Subscription receivables from employee companies (Note 2(m) & Note 12)
|
|
|
—
|
|
|
|
257,491
|
|
|
|
—
|
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
(19)
|
|
Share-based Compensation
|
2014 InsCom Options
On March
29, 2012, the shareholders of InsCom Holdings Limited ("InsCom"), a private subsidiary of which the Group has a 65.1%
equity interest, have resolved on the adoption of a share incentive plan, under which the maximum number of ordinary shares that
can be granted is 202,400,000 shares, equal to 20% of the total number of ordinary shares outstanding at InsCom as at March 28,
2012, and that the board of directors are authorized to grant such options.
On July 1, 2014, InsCom granted
stock options to purchase 3,477,281 of its ordinary shares to its entrepreneurial agents and 8,189,000 ordinary shares to its employees
(the "2014 InsCom Options"). The number of options that the grantees are entitled to in each year will be calculated
based on the key performance indicator scores of the grantees in the respective prior year and subject to their continued services
to the InsCom and the Group. For options granted to agents, 3,477,281 ordinary shares ("Option K1") shall vest on June
30, 2015, and the expiration date is December 31, 2016. For options granted to employees, ordinary shares of 4,259,000 ("Option
K2") shall vest on July 1, 2014, and the remaining ordinary shares of 3,930,000 ("Option K3") shall vest on June
30, 2015, the expiration date is June 30, 2020. The 2014 InsCom Options have an exercise price of RMB0.028 per ordinary share.
There is no intrinsic value of the options as of the date of grant.
As of the grant date and the periods presented, the
fair values of the 2014 InsCom Options were estimated to be of nominal values. The share-based compensation expenses related to
the 2014 InsCom Options was RMB109 and nil for the years ended December 31, 2014 and 2015, respectively. No shares of 2014 InsCom
Options had been exercised.
2013 InsCom Options
On June
24, 2013, InsCom granted stock options to purchase 5,914,312 of its ordinary shares to its entrepreneurial agents and 14,744,000
ordinary shares to its and the Group's employees (the "2013 InsCom Options"). The number of options that the grantees
are entitled to in each year will be calculated based on the key performance indicator scores of the grantees in the respective
prior year and subject to their continued services to the InsCom and the Group. For options granted to agents, 60,000 ordinary
shares ("Option J1") was vested immediately on June 24, 2013, and the remaining ("Option J2") of the award
options shall vest on June 30, 2014, the expiration date for options granted to agents is December 31, 2014. For options granted
to employees ("Option J3"), the vesting date is June 30, 2014, and the expiration date is June 30, 2018. The 2013 InsCom
Options have an exercise price of RMB1.20 per ordinary share. The exercise price and expiration date for 2013 InsCom Options was
later modified) (See "option modification" section of the note). There is no intrinsic value of the options as of the
date of grant.
As of the grant date and the periods presented, the
fair values of the 2013 InsCom Options were estimated to be of nominal values. The share-based compensation expenses related to
the 2013 InsCom Options was RMB6, nil and nil for the years ended December 31, 2013, 2014 and 2015, respectively. No shares of
2013 InsCom Options had been exercised.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
2012 InsCom Options
On April 2, 2012, InsCom granted stock options
to purchase 36,515,586 of its ordinary shares to its entrepreneurial agents and 24,492,750 ordinary shares to its and the Group's
employees (the "2012 InsCom Options"). Pursuant to the option agreements entered into between the Company and the option
grantees, the options shall vest over a two-year period from 2012 to 2013. The number of options that the grantees are entitled
to in each year will be calculated based on the key performance indicator scores of the grantees in the respective prior year and
subject to their continued services to the InsCom and the Group. For options granted to agents, 86% ("Option I1") was
vested immediately on April 2, 2012, and the remaining 14% ("Option I2") of the award options shall vest on June 30,
2013. The expiration date for options granted to agents is December 31, 2014. For options granted to employees, 36% ("Option
I3") was vested immediately on April 2, 2012, and the remaining 64% ("Option I4") of the award options shall vest
on June 30, 2013, and the expiration date for options granted to employees is June 30, 2017. The 2012 InsCom Options have an exercise
price of RMB1.00 per ordinary share. The exercise price and expiration date for 2012 InsCom Options was later modified) (See "option
modification" section of the note). There is no intrinsic value of the options as of the date of grant.
As of the grant date and the periods presented,
the fair values of the 2012 InsCom Options were estimated to be of nominal values. The share-based compensation expenses related
to the 2012 InsCom Options was RMB6, nil and nil for the years ended December 31, 2013, 2014 and 2015 respectively. As of December31,
2015, no shares of 2012 InsCom Options had been exercised.
2012 Option
On March 12, 2012, the Company granted options ("2012
Options G") to its directors and employees to purchase up to 92,845,000 ordinary shares of the Company. Pursuant to the option
agreements entered into between the Company and the option grantees, the options shall vest over a five-year service period from
2012 to 2016. The members of the board of directors of the Company received 8,800,000 stock options, which require continued services
to the Company but with no other performance conditions. For the rest of the 2012 Option G awards, the number of options that the
grantees are entitled to in each year will be calculated based on the key performance indicator scores of the grantees in the respective
prior year and subject to their continued employment with the Company. Accordingly, 20% ("Option G1"), 20% ("Option
G2"), 25% ("Option G3"), 20% ("Option G4") and 15% ("Option G5") of the award options shall
vest on May 31 each of the years 2012 to 2016, respectively. The expiration date of the 2012 Options is March 12, 2022. The 2012
Options G had an exercise price of US$0.30 (RMB1.90) and an intrinsic value of US$0.04 (RMB0.26) per ordinary share, except for
the 3,200,000 options granted to the two independent directors which had an exercise price of US$0.31 (RMB1.98) and an intrinsic
value of US$0.03(RMB0.17) per ordinary share. The exercise price for Option G was later modified to US$0.001 (RMB0.006) and the
number of shares are reduced by half (See "option modification" section of the note). The fair value of the options was
determined by using the Black-Scholes option pricing model with the following assumptions:
|
|
Option G1
|
|
Option G2
|
|
Option G3
|
|
Option G4
|
|
Option G5
|
Weight average assumptions – expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
2.02
|
%
|
|
|
2.16
|
%
|
|
|
2.29
|
%
|
|
|
2.42
|
%
|
|
|
2.55
|
%
|
Expected life (years)
|
|
|
5.11
|
|
|
|
5.61
|
|
|
|
6.11
|
|
|
|
6.61
|
|
|
|
7.11
|
|
Expected volatility
|
|
|
74.54
|
%
|
|
|
74.54
|
%
|
|
|
74.54
|
%
|
|
|
74.54
|
%
|
|
|
74.54
|
%
|
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The expected dividend yield was estimated
by the Company based on its dividend policy over the expected life of the options. Risk-free interest rate was estimated based
on the USD Treasury Bond Yield and pro-rated according to the tenor of the options plus a risk premium of 1.05% to cater the higher
sovereign risk of China. The expected term was estimated by taking into consideration the expiration period and the vesting terms.
Expected volatility was estimated based on the longest available historical annualized daily volatilities of the Company.
For the
years ended December 31, 2013, 2014 and 2015, share-based compensation expenses of RMB35,732, RMB22,200 and RMB12,940 were recognized
in connection with the 2012 Options G, respectively. During the years ended December 31, 2015, 5,923,620 shares of 2012 Options
G had been exercised. During the years ended December 31, 2013, 2014 and 2015, 786,670, 932,305 and 114,250 shares of 2012 Options
G, respectively, were forfeited due to employee resignations. No share-based compensation expense related to the forfeited options
was recognized.
On March 12, 2012, the Company granted options
("2012 Options H") to its entrepreneurial agents and captains (non-employees) to purchase 3,800,000 ordinary shares of
the Company, of which 3,000,000 and 800,000 options were granted to agents and captains respectively. Pursuant to the option agreements
entered into between the Company and the option grantees, 40% ("Option H1"), 40% ("Option H2") and 20% ("Option
H3") of the 3,000,000 award options granted to agents shall vest in May 31, 2014, 2015 and 2016 of each year respectively;
and 40% ("Option H4"), 40% ("Option H5") and 20% ("Option H6") of the 800,000 award options granted
to captains shall vest in May 31, 2013, 2014 and 2015 of each year respectively. The number of options that the grantees are entitled
to in each year of 2013 to 2016 will be calculated based on the key performance indicator scores of the grantees in the respective
prior year and subject to their continued agent services with the Company. The expiration date of the 2012 Options H is March 12,
2022. The 2012 Options H had an exercise price of US$0.30 (RMB1.90), which was later modified to US$0.001 (RMB0.006) (See "option
modification" section of the note) and an intrinsic value of US$0.04 (RMB0.26) per ordinary share as of the date of grant.
The fair
value of the options was determined by using the Black-Scholes option pricing model with the following assumptions as of December
31, 2015, exclude Option H1, H4 and H5, and H2 and H6 which were vested on May 31, 2013, May 31, 2014 and May 31, 2015 respectively:
|
|
Option H3
|
Stock price per underlying ordinary shares
|
|
|
US$0.46
|
|
Weight average assumptions – expected dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
1.60
|
%
|
Expected life
|
|
|
4.31
|
|
Expected volatility
|
|
|
64.83
|
%
|
The expected
dividend yield was estimated by the Company based on its dividend policy over the expected life of the options. Risk-free interest
rate was estimated based on the USD Treasury Bond Yield and pro-rated according to the tenor of the options plus a risk premium
of 1.05% to cater the higher sovereign risk of China. The expected term was estimated by taking into consideration the expiration
period and the vesting terms. Expected volatility was estimated based on daily stock prices of comparable companies for a period
with length commensurate to expected term.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
For the
years ended December 31, 2013, 2014 and 2015, share-based compensation expenses of RMB1,288, RMB1,289 and RMB1,213 were recognized
in connection with the 2012 Options H, respectively. During the year ended December 31, 2015, 62,140 of 2012 Options H had been
exercised. During the years ended December 31, 2013, 2014 and 2015,143,664, 898,740 and 284,978 shares of 2012 Options H, respectively,
were forfeited due to termination of agency contracts. No share-based compensation expense related to the forfeited options was
recognized.
2009
Options
On March
9, 2009, the Company granted options ("2009 Options") to its employees to purchase 10,000,000 ordinary shares of the
Company. Pursuant to the option agreements entered into between the Company and the option grantees, the options shall vest over
a four-year period, with 30% ("Option D1"), 30% ("Option D2"), 20% ("Option D3") and the remaining
20% ("Option D4") of the options vesting on March 31 of each of the years 2010 to 2013, respectively, subject to the
continuous employment of the option grantees and their key performance indicators ("KPI") results for the year 2009.
The expiration date of the 2009 Options is March 31, 2015, which was later modified to December 31, 2017 (See "option modification"
section of the note). The 2009 Options have an exercise price of US$0.34 (RMB2.30) per ordinary share, equal to the price per ordinary
share quoted on the Nasdaq Global Select Market at the date of passing the resolutions. There is no intrinsic value of the options
as of the date of grant. The fair value of the options was determined by using the Black-Scholes option pricing model with the
following assumptions:
|
|
Option D1
|
|
Option D2
|
|
Option D3
|
|
Option D4
|
Weight average assumptions – expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
3.35
|
%
|
|
|
3.51
|
%
|
|
|
3.55
|
%
|
|
|
3.61
|
%
|
Expected life (years)
|
|
|
3.56
|
|
|
|
4.06
|
|
|
|
4.56
|
|
|
|
5.06
|
|
Expected volatility
|
|
|
33.0
|
%
|
|
|
31.9
|
%
|
|
|
32.2
|
%
|
|
|
31.2
|
%
|
During the years ended December 31,
2015, 394,420 shares of 2009 Options had been exercised. The expected term was estimated by taking into consideration the
expiration period and the vesting terms. Expected volatility was estimated based on daily stock prices of comparable
companies for a period with length commensurate to expected term.
For the years ended December 31, 2013, 2014 and
2015, share-based compensation expenses of RMB238, nil and nil was recognized in connection with the 2009 Options respectively,
excluding the incremental expenses related to the option modification in December 2013 (See "option modification" section
of the note). During the years ended December 31, 2013, 2014 and 2015, 231,600, 110,900 and 30,100 shares of 2009 Options, respectively,
were forfeited due to employee resignations. No share-based compensation expense related to the forfeited options was recognized.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
2008
Options
On November 21, 2008, the Company granted
options to purchase 32,000,000 ordinary shares of the Company to certain directors and employees ("2008 Options"). Pursuant
to the option agreements entered into between the Company and the option grantees, the options shall vest over a four-year period,
with 30% ("Option C1"), 30% ("Option C2"), 20% ("Option C3") and the remaining 20% ("Option
C4") of the options vesting on March 31 of each of the years 2010 to 2013, respectively, subject to the continuous employment
of the option grantees and their KPI results for the year 2009. The expiration date of the 2008 Options is March 31, 2015, which
was later modified to December 31, 2017 (See "option modification" section of the note). The 2008 Options have an exercise
price of US$0.28 (RMB1.90), equal to the fair value of the Company’s share price at the grant date. There is no intrinsic
value of the options as of the date of grant. The fair value of the options was determined by using the Black-Scholes option pricing
model with the following assumptions:
|
|
Option C1
|
|
Option C2
|
|
Option C3
|
|
Option C4
|
Weight average assumptions – expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
3.70
|
%
|
|
|
3.71
|
%
|
|
|
3.93
|
%
|
|
|
4.07
|
%
|
Expected life (years)
|
|
|
3.86
|
|
|
|
4.36
|
|
|
|
4.86
|
|
|
|
5.36
|
|
Expected volatility
|
|
|
28.2
|
%
|
|
|
28.9
|
%
|
|
|
28.0
|
%
|
|
|
27.6
|
%
|
During the year ended December 31, 2015,
374,540 shares of 2008 Options had been exercised. The expected term was estimated by taking into consideration the expiration
period and the vesting terms. Expected volatility was estimated based on daily stock prices of comparable companies for a period
with length commensurate to expected term.
For the years ended December 31, 2013, 2014 and
2015, share-based compensation expenses of RMB946, nil and nil, respectively, was recognized in connection with 2008 Options, excluding
the incremental expenses related to the option modification in December 2013 (See "option modification" section of the
note). During the years ended December 31, 2013, 2014 and 2015 respectively, 269,800, 171,700 and nil shares of 2008 Options, respectively,
were forfeited due to employee resignations. No share-based compensation expense related to the forfeited options was recognized.
Option modification
In December
2013, the board of directors approved an option modification to extend the expiration dates of the outstanding 2008 Options and
2009 Options to December 31, 2017. Other terms of the options grants remain unchanged. The Company had taken a modification charge
for the incremental compensation cost of RMB6,700 to the consolidated statement of income and comprehensive income for the year
ended December 31, 2013, the period in which the modification occurred.
In December
2013, the chairman of InsCom approved an option modification to extend the expiration dates of all InsCom options for one year
and revised the exercise price of the options to RMB0.025 per ordinary share, the fair value as of the modification date. The Company
had taken a modification charge for the incremental compensation cost of RMB401 to the consolidated statement of income and comprehensive
income for the year ended December 31, 2013, the period in which the modification occurred.
In November
2014, the board and compensation committee passed a resolution to modify the exercise price of the 2012 Options. The exercise price
of the remaining unexercised the 2012 Options was reduced from $0.30 per ordinary share (for certain directors, officers, key employees
and sales agents) and $0.31 per ordinary share (for one independent director who is a resident of the United States) to $0.001
per ordinary share while the maximum aggregate award of 96,645,000 ordinary shares was reduced to 46,722,500 ordinary shares. The
options are subject to the same service period. As of December 31, 2014, except for the options granted to one of the independent
directors, outstanding options to purchase 91,327,722 ordinary shares were modified into 45,663,861 shares options. There was no
incremental cost as a result of such option modification.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
In October
2015, the chairman of InsCom approved an option modification to extend the expiration dates of 2012 InsCom options and 2013 InsCom
options to December 31, 2020. Other terms of the options grants remain unchanged. The Company had taken a modification charge for
the incremental compensation cost of RMB100 to the consolidated statement of income and comprehensive income for the year ended
December 31, 2015, the period in which the modification occurred.
For each of the three years ended December 31, 2013,
2014 and 2015, changes in the status of outstanding options, excluding the InsCom options, were as follows:
|
|
Number
of
options
|
|
Weighted
average exercise price in RMB
|
|
Aggregate
Intrinsic Value
RMB
|
Outstanding as of January 1, 2013
|
|
|
133,161,231
|
|
|
|
1.92
|
|
|
|
15,436
|
|
Forfeited
|
|
|
(1,431,734
|
)
|
|
|
1.96
|
|
|
|
|
|
Outstanding as of December 31, 2013
|
|
|
131,729,497
|
|
|
|
1.92
|
|
|
|
15,436
|
|
Exercised
|
|
|
(1,704,380
|
)
|
|
|
2.09
|
|
|
|
|
|
Forfeited
|
|
|
(2,113,656
|
)
|
|
|
1.92
|
|
|
|
|
|
Modification of the 2012
Options
|
|
|
(45,663,861
|
)
|
|
|
1.90
|
|
|
|
|
|
Outstanding as of December 31, 2014
|
|
|
82,247,600
|
|
|
|
1.93
|
|
|
|
10,177
|
|
Exercised
|
|
|
(6,754,720
|
)
|
|
|
1.92
|
|
|
|
|
|
Forfeited
|
|
|
(429,328
|
)
|
|
|
1.93
|
|
|
|
|
|
Outstanding as of December 31, 2015
|
|
|
75,063,552
|
|
|
|
1.93
|
|
|
|
70,931
|
|
Exercisable as of December 31, 2015
|
|
|
67,775,401
|
|
|
|
1.94
|
|
|
|
63,801
|
|
As of December 31, 2015, there were a total
of 7,288,151 outstanding unvested options for the Group. As of December 31, 2015, there was RMB4,893 of total unrecognized compensation
cost related to share options granted in 2012, which was expected to be recognized in the year of 2016.
No 2012 InsCom Options was exercised, or
cancelled during the years ended December 31, 2014 and 2015. There was negligible unrecognized cost as of December 31, 2015. As
of December 31, 2015, 6,036,035 shares of 2012 InsCom Options were forfeited because of resignation of the option holders. As of
December 31, 2015, 54,972,301 shares of the 2012 InsCom Options were outstanding and exercisable, with weighted average remaining
contractual life of 5 years and exercise price of RMB0.025 per ordinary share.
No 2013 InsCom Options was exercised or cancelled
during the years ended December 31, 2014 and 2015, and there was no unrecognized cost expected to be recognized as of December
31, 2015. As of December 31, 2015, 4,119,879 shares were forfeited. As of December 31, 2015, 16,538,433 shares of the 2013 InsCom
Options were outstanding and exercisable, with weighted average remaining contractual life of 5 years and exercise price of RMB0.025
per ordinary share.
No 2014 InsCom Options was exercised or cancelled
during the years ended December 31, 2014 and 2015, and there was no unrecognized cost expected to be recognized as of December
31, 2015. As of December 31, 2015, 2,073,794 shares were forfeited. As of December 31, 2015, 9,592,487 shares of the 2014 InsCom
Options were outstanding and exercisable, with weighted average remaining contractual life of 3.8 years and exercise price of RMB0.028
per ordinary share.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The following table summarizes information
about the Company’s share option plans for the years ended December 31, 2013, 2014 and 2015, excluding the InsCom options,
were:
|
|
Year ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
Weighted-average grant-date fair value per share of options granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total intrinsic value of options exercised
|
|
|
—
|
|
|
|
837
|
|
|
|
17,399
|
|
Total fair value of share options vested
|
|
|
34,362
|
|
|
|
44,912
|
|
|
|
38,178
|
|
The following table summarizes information
about the Company’s stock option plans as of December 31, 2015, excluding the InsCom options, were:
|
|
Options outstanding
|
|
Weighted average remaining contractual life (Years)
|
|
Weighted average exercise price in RMB
|
|
Options Exercisable
|
2012 Options G
|
|
|
39,838,822
|
|
|
|
6.25
|
|
|
|
0.006
|
|
|
|
32,770,447
|
|
2012 Options H
|
|
|
1,023,310
|
|
|
|
6.25
|
|
|
|
0.006
|
|
|
|
803,534
|
|
2009 Options
|
|
|
6,575,480
|
|
|
|
2.00
|
|
|
|
2.30
|
|
|
|
6,575,480
|
|
2008 Options
|
|
|
27,625,940
|
|
|
|
2.00
|
|
|
|
1.90
|
|
|
|
27,625,940
|
|
Total
|
|
|
75,063,552
|
|
|
|
|
|
|
|
|
|
|
|
67,775,401
|
|
(20)
|
|
Restricted Net Assets
|
Relevant PRC statutory laws and regulations
permit payments of dividends by the Group’s PRC subsidiaries only out of their retained earnings, if any, as determined in
accordance with PRC accounting standards and regulations. As a result of these PRC laws and regulations, the Group’s PRC
subsidiaries are restricted in their ability to transfer a portion of their net assets either in the form of dividends, loans or
advances. As of December 31, 2014 and 2015, the Company had restricted net assets of RMB2,055,417 and RMB2,164,132 (including RMB131,313
and RMB78,847 restricted share capital and statutory reserve of the VIEs), respectively, which were not eligible to be distributed.
These amounts were comprised of the registered capital of the Company’s PRC subsidiaries and the statutory reserves disclosed
in note 14.
The Group operated three
operating segments: (1) insurance agency business segment, which mainly consists of providing agency services for P&C
insurance products and life insurance products to individual clients, (2) insurance brokerage business segment, which mainly
consists of providing P&C and life insurance brokerage services to institutional clients, and (3) claims adjusting
segment, which consists of providing pre-underwriting survey, claim adjusting, disposal of residual value, loading
and unloading supervision and consulting services. Operating segments are defined as components of an enterprise about
which separate financial information is available and evaluated regularly by the Group's chief operating decision maker in
deciding how to allocate resources and in assessing performance.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
The following
table shows the Group’s operations by business segment for the years ended December 31, 2013, 2014 and 2015. Other includes
revenue and expenses that are not allocated to reportable segments and corporate related items.
|
|
Year ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
1,418,512
|
|
|
|
1,624,410
|
|
|
|
2,155,264
|
|
|
|
332,716
|
|
Brokerage
|
|
|
63,418
|
|
|
|
232,620
|
|
|
|
369,198
|
|
|
|
56,994
|
|
Claims Adjusting
|
|
|
261,206
|
|
|
|
292,981
|
|
|
|
303,846
|
|
|
|
46,906
|
|
Other
|
|
|
13,888
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total net revenues
|
|
|
1,757,024
|
|
|
|
2,150,011
|
|
|
|
2,828,308
|
|
|
|
436,616
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
(1,305,306
|
)
|
|
|
(1,486,871
|
)
|
|
|
(1,969,329
|
)
|
|
|
(304,012
|
)
|
Brokerage
|
|
|
(53,719
|
)
|
|
|
(197,017
|
)
|
|
|
(319,124
|
)
|
|
|
(49,264
|
)
|
Claims Adjusting
|
|
|
(234,129
|
)
|
|
|
(275,539
|
)
|
|
|
(292,613
|
)
|
|
|
(45,171
|
)
|
Other
|
|
|
(145,884
|
)
|
|
|
(159,685
|
)
|
|
|
(168,720
|
)
|
|
|
(26,046
|
)
|
Total operating costs and expenses
|
|
|
(1,739,038
|
)
|
|
|
(2,119,112
|
)
|
|
|
(2,749,786
|
)
|
|
|
(424,493
|
)
|
Income (loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
113,206
|
|
|
|
137,539
|
|
|
|
185,935
|
|
|
|
28,704
|
|
Brokerage
|
|
|
9,699
|
|
|
|
35,603
|
|
|
|
50,074
|
|
|
|
7,730
|
|
Claims Adjusting
|
|
|
27,077
|
|
|
|
17,442
|
|
|
|
11,233
|
|
|
|
1,735
|
|
Other
|
|
|
(131,996
|
)
|
|
|
(159,685
|
)
|
|
|
(168,720
|
)
|
|
|
(26,046
|
)
|
Total income from operations
|
|
|
17,986
|
|
|
|
30,899
|
|
|
|
78,522
|
|
|
|
12,123
|
|
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
US$
|
Segment assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency
|
|
|
1,682,305
|
|
|
|
454,803
|
|
|
|
70,209
|
|
Brokerage
|
|
|
118,139
|
|
|
|
160,286
|
|
|
|
24,744
|
|
Claims Adjusting
|
|
|
116,877
|
|
|
|
226,121
|
|
|
|
34,907
|
|
Other
|
|
|
1,831,165
|
|
|
|
3,173,218
|
|
|
|
489,861
|
|
Total assets
|
|
|
3,748,486
|
|
|
|
4,014,428
|
|
|
|
619,721
|
|
Substantially all of the Group’s revenues
for the three years ended December 31, 2013, 2014 and 2015 were generated from the PRC. A substantial portion of the identifiable
assets of the Group is located in the PRC. Accordingly, no geographical segments are presented.
CNINSURE INC.
Notes to the Consolidated Financial Statements
(
In thousands, except for shares and per share data
)
In January 2016, the individual shareholder
of Dianliang Information, transferred 100% of the equity interest of Dianliang Information to Tibet Zhuli Investment Co., Ltd.,
a wholly-owned subsidiary if the Group. As a result, Dianliang Information become the wholly-owned
subsidiaries and the Group have obtained direct equity ownership in all of the insurance intermediary businesses and an online
mutual aid platform in the PRC.
In January 2016, the NEEQ reportedly informed brokerage firms that the listings of all non-mainstream financial services companies
will be temporarily suspended. It is unclear whether or not CISLA will be treated as a non-mainstream financial services company
and how the decision may affect the listing of CISLA. But it may prolong the review process by the NEEQ and increase uncertainty
as to when and whether the listing application will be approved. The proposed listing may not be successful and the Group may
incur substantial costs in connection with the proposed listing.
In March 2016,
during the fourth session of the 12th National People’s
Congress, it was announced that the VAT reform will be fully rolled out and extended to all industries including construction,
real estate, financial services and lifestyle services. Subsequently, the State Administration of Taxation and Ministry of Finance
jointly issued a Notice on Preparing for the Full Implementation of the VAT Reform (Cai Shui [2016] No. 32). Accordingly, the Group
will pay value-added tax instead of business tax starting from May 1, 2016. The Group is in the process of evaluating the impact
on the consolidated financial statements.
CNINSURE INC.
SCHEDULE 1—CONDENSED FINANCIAL STATEMENTS OF THE
COMPANY
Balance Sheets
(
In thousands, except for shares
)
|
|
As of December 31,
|
|
|
2014
|
|
2015
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
US$
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
9,707
|
|
|
|
5,349
|
|
|
|
826
|
|
Other receivables
|
|
|
296
|
|
|
|
213,806
|
|
|
|
33,006
|
|
Amounts due from subsidiaries
|
|
|
1,539,702
|
|
|
|
1,394,118
|
|
|
|
215,215
|
|
Total current assets
|
|
|
1,549,705
|
|
|
|
1,613,273
|
|
|
|
249,047
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
1,700,295
|
|
|
|
1,736,488
|
|
|
|
268,067
|
|
Total assets
|
|
|
3,250,000
|
|
|
|
3,349,761
|
|
|
|
517,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables
|
|
|
2,723
|
|
|
|
4,602
|
|
|
|
710
|
|
Amounts due to subsidiaries
|
|
|
36,525
|
|
|
|
27,729
|
|
|
|
4,281
|
|
Total liabilities
|
|
|
39,248
|
|
|
|
32,331
|
|
|
|
4,991
|
|
Ordinary shares (Authorized shares:10,000,000,000 at US$0.001 each; issued and outstanding shares: 1,150,565,906 and 1,155,059,526 as of December 31, 2014 and 2015, respectively)
|
|
|
8,563
|
|
|
|
8,592
|
|
|
|
1,326
|
|
Additional paid-in capital
|
|
|
2,601,401
|
|
|
|
2,454,244
|
|
|
|
378,870
|
|
Retained earnings
|
|
|
963,385
|
|
|
|
1,173,471
|
|
|
|
181,153
|
|
Accumulated other comprehensive loss
|
|
|
(105,106
|
)
|
|
|
(50,048
|
)
|
|
|
(7,726
|
)
|
Subscription receivables
|
|
|
(257,491
|
)
|
|
|
(268,829
|
)
|
|
|
(41,500
|
)
|
Total shareholders’ equity
|
|
|
3,210,752
|
|
|
|
3,317,430
|
|
|
|
512,123
|
|
Total liabilities and shareholders' equity
|
|
|
3,250,000
|
|
|
|
3,349,761
|
|
|
|
517,114
|
|
CNINSURE INC.
SCHEDULE 1—CONDENSED FINANCIAL STATEMENTS OF THE COMPANY—(Continued)
Statements of Income and Comprehensive Income
(
In thousands
)
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
General and administrative expenses
|
|
|
(50,633
|
)
|
|
|
(31,191
|
)
|
|
|
(19,839
|
)
|
|
|
(3,062
|
)
|
Interest income
|
|
|
6,847
|
|
|
|
12,464
|
|
|
|
15,913
|
|
|
|
2,456
|
|
Equity in earnings of subsidiaries
|
|
|
139,429
|
|
|
|
180,487
|
|
|
|
214,012
|
|
|
|
33,038
|
|
Net income
|
|
|
95,643
|
|
|
|
161,760
|
|
|
|
210,086
|
|
|
|
32,432
|
|
Other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(6,982
|
)
|
|
|
6,008
|
|
|
|
6,153
|
|
|
|
949
|
|
Share of other
comprehensive income of affiliates, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
37,567
|
|
|
|
5,799
|
|
Comprehensive income attributable to the Company's shareholders
|
|
|
88,661
|
|
|
|
167,768
|
|
|
|
253,806
|
|
|
|
39,180
|
|
CNINSURE INC.
SCHEDULE 1—CONDENSED FINANCIAL STATEMENTS OF THE COMPANY —
(Continued)
Statements of Shareholders’ Equity
(
In thousands, except for shares)
|
|
Share Capital
|
|
|
|
Treasury Stock
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number of
Share
|
|
Amounts
|
|
Additional
Paid-in
Capital
|
|
Number of
Share
|
|
Amounts
|
|
Retained
Earnings
|
|
Other
Comprehensive Income
|
|
Subscription Receivables
|
|
Total
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
Balance as of January 1, 2013
|
|
|
998,861,526
|
|
|
|
7,624
|
|
|
|
2,284,906
|
|
|
|
—
|
|
|
|
—
|
|
|
|
705,982
|
|
|
|
(104,132
|
)
|
|
|
—
|
|
|
|
2,894,380
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,643
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95,643
|
|
Foreign currency translation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,982
|
)
|
|
|
—
|
|
|
|
(6,982
|
)
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
44,904
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44,904
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
152
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
152
|
|
Balance as of December 31, 2013
|
|
|
998,861,526
|
|
|
|
7,624
|
|
|
|
2,329,962
|
|
|
|
—
|
|
|
|
—
|
|
|
|
801,625
|
|
|
|
(111,114
|
)
|
|
|
—
|
|
|
|
3,028,097
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
161,760
|
|
|
|
—
|
|
|
|
—
|
|
|
|
161,760
|
|
Issue new shares to employees
|
|
|
150,000,000
|
|
|
|
928
|
|
|
|
256,563
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(257,491
|
)
|
|
|
—
|
|
Foreign currency translation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,008
|
|
|
|
—
|
|
|
|
6,008
|
|
Exercise of share options
|
|
|
1,704,380
|
|
|
|
11
|
|
|
|
3,172
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,183
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
23,598
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,598
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,894
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,894
|
)
|
Balance as of December 31, 2014
|
|
|
1,150,565,906
|
|
|
|
8,563
|
|
|
|
2,601,401
|
|
|
|
—
|
|
|
|
—
|
|
|
|
963,385
|
|
|
|
(105,106
|
)
|
|
|
(257,491
|
)
|
|
|
3,210,752
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
210,086
|
|
|
|
—
|
|
|
|
—
|
|
|
|
210,086
|
|
Foreign currency translation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,491
|
|
|
|
(11,338
|
)
|
|
|
6,153
|
|
Repurchase of ordinary shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,261,100
|
)
|
|
|
(6,276
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,276
|
)
|
Exercise of share options
|
|
|
4,493,620
|
|
|
|
29
|
|
|
|
(4,787
|
)
|
|
|
2,261,100
|
|
|
|
6,276
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,518
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
17,653
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,653
|
|
Acquisition of additional interest in a subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
(160,023
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(160,023
|
)
|
Share of other comprehensive income in affiliates
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,567
|
|
|
|
—
|
|
|
|
37,567
|
|
Balance as of December 31, 2015
|
|
|
1,155,059,526
|
|
|
|
8,592
|
|
|
|
2,454,244
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,173,471
|
|
|
|
(50,048
|
)
|
|
|
(268,829
|
)
|
|
|
3,317,430
|
|
Balance as of December 31, 2015 in US$
|
|
|
|
|
|
|
1,326
|
|
|
|
378,870
|
|
|
|
|
|
|
|
—
|
|
|
|
181,153
|
|
|
|
(7,726
|
)
|
|
|
(41,500
|
)
|
|
|
512,123
|
|
CNINSURE INC.
SCHEDULE 1—CONDENSED FINANCIAL STATEMENTS OF THE COMPANY —
(Continued)
Statements of Cash
Flows
(
In thousands
)
|
|
Year Ended December 31,
|
|
|
2013
|
|
2014
|
|
2015
|
|
2015
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
95,643
|
|
|
|
161,760
|
|
|
|
210,086
|
|
|
|
32,432
|
|
Adjustments to reconcile net income to net cash generated from (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries
|
|
|
(139,016
|
)
|
|
|
(180,487
|
)
|
|
|
(214,012
|
)
|
|
|
(33,038
|
)
|
Compensation expenses associated with stock options
|
|
|
44,904
|
|
|
|
23,598
|
|
|
|
17,653
|
|
|
|
2,725
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
1,212
|
|
|
|
39,810
|
|
|
|
(213,510
|
)
|
|
|
(32,959
|
)
|
Other payables
|
|
|
(582
|
)
|
|
|
(42,379
|
)
|
|
|
1,879
|
|
|
|
291
|
|
Net cash generated from (used in)
operating activities
|
|
|
2,161
|
|
|
|
2,302
|
|
|
|
(197,904
|
)
|
|
|
(30,549
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in investment in subsidiaries
|
|
|
(34,102
|
)
|
|
|
29,853
|
|
|
|
55,363
|
|
|
|
8,546
|
|
Advances from (to) subsidiaries
|
|
|
37,337
|
|
|
|
(43,110
|
)
|
|
|
136,788
|
|
|
|
21,116
|
|
Disposal of subsidiaries
|
|
|
(1,532
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net cash generated from (used in) investing activities
|
|
|
1,703
|
|
|
|
(13,257
|
)
|
|
|
192,151
|
|
|
|
29,662
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on exercise of stock options
|
|
|
—
|
|
|
|
3,183
|
|
|
|
1,518
|
|
|
|
234
|
|
Repurchase ordinary shares
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,276
|
)
|
|
|
(969
|
)
|
Net cash generated from (used in) financing activities
|
|
|
—
|
|
|
|
3,183
|
|
|
|
(4,758
|
)
|
|
|
(735
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
3,864
|
|
|
|
(7,772
|
)
|
|
|
(10,511
|
)
|
|
|
(1,622
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
14,589
|
|
|
|
11,471
|
|
|
|
9,707
|
|
|
|
1,499
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(6,982
|
)
|
|
|
6,008
|
|
|
|
6,153
|
|
|
|
949
|
|
Cash and cash equivalents at end of year
|
|
|
11,471
|
|
|
|
9,707
|
|
|
|
5,349
|
|
|
|
826
|
|
CNINSURE INC.
Note to Schedule 1
(
In thousands, except for shares
)
Schedule 1 has been provided pursuant to the requirements
of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, which require condensed financial statements as to the financial position,
changes in financial position and results of operations of a parent company as of the same dates and for the same periods for which
audited consolidated financial statements have been presented when the restricted net assets of the consolidated and unconsolidated
subsidiaries (including variable interest entities) together exceed 25 percent of consolidated net assets as of the end of the
most recently completed fiscal year. As of December 31, 2015, RMB2,164,132 of the restricted capital and reserves are not available
for distribution, and as such, the condensed financial statements of the Company have been presented for the years ended December
31, 2014 and 2015.
F-60
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