• China Life Insurance Co., Ltd.: Investment Reclassification

Abstract

In this library case study we aim for students to analyze the financial statements of a firm and its financial condition by using public information and to understand stakeholders’ decisions. China Life Insurance Co., Ltd. reclassified all of its held-to-maturity investments to available-for-sale at the end of 2012. The reclassification did not violate accounting regulations, but concerns were still raised by the regulator. According to our analysis, the agency problem was exacerbated by the reclassification.

In this case study, the impact of reclassification on financial conditions is analyzed by proposing several investment decisions after reclassification. Net income, comprehensive income, and net worth are calculated for every year in the investment period, and the benefits of reclassification for the firm are evaluated. Through the analyses, students can learn from this case that, in addition to current financial performance, future outcomes should be considered by stakeholders when making investment decisions.

Keywords: China Life Insurance Co., Ltd., Investment Reclassification, Financial Statement Analysis, Corporate Governance, Financial Supervision