Half Year 2020 New China Life Insurance Co Ltd Earnings Call (Chinese, English) Beijing Aug 28, 2020 (Thomson StreetEvents) — Edited Transcript of New China Life Insurance Co Ltd earnings conference call or presentation Wednesday, August 26, 2020 at 1:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Quan Li New China Life Insurance Company Ltd. – CEO, President & Executive Director * Xingfeng Gong New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary * Yuan Li New China Life Insurance Company Ltd. – VP * Zheng Yang New China Life Insurance Company Ltd. – VP, CFO & Financial Controller ================================================================================ Conference Call Participants ================================================================================ * Dan Tian China International Capital Corporation Limited, Research Division – Analyst * Jing Jing Zhou Changjiang Securities Co., Ltd., Research Division – Research Analyst ================================================================================ Presentation ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [1] ——————————————————————————– Now let’s get started. Ladies and gentlemen, good morning. Today, we are here to held NCI’s 2020 interim results announcement. I’m Gong Xingfeng, Vice President, Chief Actuary and Board Secretary. I will be the moderator of today’s meeting. First, please allow me to introduce today’s management team. They are Mr. Quan Li, CEO and President; Mr. Zheng Yang, Vice President and CFO; Mr. Yuan Li, Vice President; Mr. Liu Yigong, Vice President. Today’s announcement have 2 parts. First is the presentation on the 2020 interim results. And the second is the Q&A session. Simultaneous interpreting will be provided. (Operator Instructions) Mr. Li Quan will introduce the overall half year performance and future outlook. Mr. Zheng Yang will introduce financials and investment, and I will talk about embedded value. Now the floor is yours, Mr. Quan Li. ——————————————————————————– Quan Li, New China Life Insurance Company Ltd. – CEO, President & Executive Director [2] ——————————————————————————– Dear friends, good morning. 2020 is a very special year. In the first half of this year, as COVID-19 swept across the world, the company led by the Party Central Committee spared no efforts to fight against the pandemic. Meanwhile, the company has actively promoted the development strategy of 1+2+1 with life insurance business as the main body, wealth management, old-age care and health care as 2 wings and technology empowerment as the support, which laid a solid foundation for second takeoff. First, let’s look at the first half performance. The insurance industry was hit hard by the COVID-19 H1 2020. The company has taken strict measures to prevent the spread of pandemic and protect the safety of NCI people. And we have to explain this in the following aspects. The first is rapid growth in GWP. Second, the constant increase in EV. And the three, balance the development of business structure. And fourth, stable business quality. Now is the highlights of the half year. We have made the following results: in value, GWP CNY 96.9 billion, a year-on-year increase of 30.9%. FYP from long-term insurance, RMB 29.7 billion, up 155%. Total assets, RMB 939.4 billion, up by 6.9%. In value, EV was 224.8 billion, increase of 9.6% from the end of last year. In structure, FYP from long-term insurance took a higher proportion, and business structure was more balanced. In quality, the 30-month persistency ratio was 91%, up by 0.9 percentage points. Surrender rate, 0.7%, down by 0.3 percentage points. In the second half of this year, we believe the company will push forward the strategy of one body, two wings and technology empowerment. Accelerate transformation upgrading for development with higher quality. First, accelerate product innovation and promote industrial synergy. To innovate product design and product volume to support the business growth and to link healthcare and old-age care industry. To help acquire, engage and accumulate customers. Second, control investment, risks and seize opportunities. That is to optimize our volumes to force down investment risks, while we have to seize the structural opportunities brought by the pandemic. Third, to strengthen application of innovation and promote technology empowerment to strengthen the digital and intelligent application in marketing, support, customer service and operation. Also we have to improve research and development, capability and efficiency. Fourth, enhance compliance and consolidate risk control. We will improve the mechanism for risk monitoring, analysis and prevention, improve comprehensive risk management system, strengthen internal control and auditing. We remain true to our original aspiration and to fulfill our social responsibilities. Through New China Life foundation, we have launched the public welfare activity named NCI accompanies you in building beautiful cities. We donated insurance to sanitation workers. Since 2017, this project has covered 102 large and medium-sized cities and benefited 750,000 sanitation workers with some assured over CNY 187 billion to fight COVID-19. This foundation donated insurance to nearly 200,000 medicals in Wuhan with total some assured of about CNY 60 billion. Also we have made other donations with over RMB 7.6 million. This foundation also launched the road to prosperity in all aspects NCI accompanies you to alleviate poverty. These projects have benefited (inaudible). In the Mongolian, altogether, 11 provinces helped 50,000 poor people with total sum assured over RMB 5 billion. Next, I’d like to present the results of insurance business. In H1 2020, NCI realized GWP growth through both long-term and short-term insurance business. FYP, from long-term insurance business, RMB 29.9 billion, up by 155%, accounting for 30.8% of GWP, an increase of 15 percentage points. Renewal premiums, CNY 62.7 billion, up by 7.4%, taking up 64.7% of GWP, acting as a anchor for rapid premium growth. Premiums from short-term insurance business, RMB 4.3 billion, up by 11.3% year-on-year. Now let’s come to product structure. To meet the diversified needs of customers, we kept boosting to balance the development of long-term insurance business. FYP from long-term traditional and health insurance accounted for 45%, while FYP from long-term participating insurance accounted for 55%. Due to a large renewal business base, health insurance premiums, RMB 32 billion, up 14.4% year-on-year. Next slide is GWP breakdown by channels. The agent channel realized premiums of RMB 66.3 billion, up by 10.5%, accounting for 68.4%. Bancassurance channel, CNY 29.1 billion, up by 133.8%, accounting for 30.1% in the GWP. Group insurance channel, CNY 1.5 billion, down by 4.1%. For the agent channel to grow both business value and value, this channel continued to promote the development of high-value business consolidate the product structure of health insurance, annuity and riders. It generated premiums of RMB 66.3 billion, up by 10.5%. FYP from long-term insurance business, CNY 10.3 billion, up by 14%. FYRP from long-term insurance business, CNY 9.8 billion, up by 8.3%. Renewal premiums, CNY 53 billion, up by 9.2%. Premiums from short-term insurance business, CNY 2.8 billion, up by 22%. For the team building in this channel, agent channel stepped up efforts to build sales team and promote the recruitment of new agents. The headcounts hit a record high. By June 30, the headcounts reached 526,000, up by 36.5%. The pandemic posed greater challenges to marketing and reduced active agent headcounts. The monthly average number of qualified agents was 135,000, down by 3.5%. Monthly average qualified rate, 26.4%, down by 12.4 percentage points. Now I would like to introduce the bancassurance channel. It has fully unleashed its potential and put in place the strategy of boosting business volume and value growth. Realized premiums, CNY 29.1 billion, up by 133.8%. FYP from long-term insurance business, CNY 19.5 billion, up 635.3%. FYRP from long-term insurance business, CNY 3.7 billion, up 38.0%. Renewal premiums, CNY 9.6 billion, remaining basically flat. As for business quality, the company strengthened management and business quality remained stable. The 13-month persistency ratio were 91%, up by 0.9 percentage points. And 25-month persistency ratio, 84.6%, down by 1.9 percentage points. The surrender rate dropped to 0.7%, down by 0.3 percentage points. That’s all for the insurance business. Now let’s give the floor to Mr. Zheng Yang. ——————————————————————————– Zheng Yang, New China Life Insurance Company Ltd. – VP, CFO & Financial Controller [3] ——————————————————————————– Thank you, Mr. Li. Next, I will brief you on the company’s financials and investment business. If you look at the 17th page of the PowerPoint, the total revenues reached CNY 116.1 billion, up 30.3%. Net written premiums and policy fees reached CNY 95.425 billion, up 31.1%. Net profit attributable to shareholders of the company was down by 22.1%. The decrease is mainly due to a high profit base last year because of the adjustment of pretax deduction base. Earnings per share was down 22.2%. As for investment performance, in face of the volatility of global financial market because of COVID-19, the company closely focused on absolute return target in asset management business and effectively responded to fluctuations in the market. Investment assets reached CNY 900.3 billion, up 7.3%. Annualized total investment yield was 5.1%, up 0.4 percentage points. Annualized net investment yield was 4.6%, down 0.4 percentage points. As for our investment portfolio, we can see that the investment portfolio is stable. Term deposits, CNY 95.5 billion, its proportion up 3 percentage points. The debt financial asset, CNY 554.5 billion, accounting for 61.6%, down 4 percentage points. The proportion of debt financial assets was down because of last reinvestment in nonstandard debt assets. The equity financial asset reached CNY 184.4 billion, accounting for 20.5%. As for our nonstandard investment portfolio, in the 20th page, the total nonstandard assets was down CNY 7.3 billion. It is down 2.8 percentage points. We can see that the nonstandard debt investment was down 7 percentage points and equity investment was up 7 percentage points. We can see that the nonstandard investment is of high credit and at a high level. As for solvency, the core solvency margin ratio hit 271.79%, down by 11.85 percentage points. The comprehensive solvency ratio hit 281.78%, down 1.86 percentage points. The company issued capital supplement balance in May this year, supplementing actual capital of RMB 10 billion, as supplement for the comprehensive solvency margin ratio. The company’s business developed rapidly. And because of other factors, the company’s solvency has decreased, but is still at a high level. Now let’s welcome Mr. Gong Xingfeng to introduce the actuary part. ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [4] ——————————————————————————– Good morning, I’d like to share the embedded value. The EV of the company was up by 9.6% from CNY 205 billion to CNY 225 billion, of which value of in-force business rose from CNY 82 billion to CNY 92 billion, up by 11.9%. And adjusted net worth from CNY 123 billion to CNY 133 billion, up 8.1%. And this is the movement analysis that shows the growth source of EV in 1H 2020. The main contributors to EV growth were NBV and expected return, which contributed 3% and 4% to EV growth, respectively. Value of new business enriched CNY 5.2 billion, down by 11.4% year-on-year. FYP-based VNB margin was 15.3%. That’s all for embedded value. Thank you. That’s all for the presentation of 2020 interim results. Let’s come to the Q&A session. ================================================================================ Questions and Answers ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [1] ——————————————————————————– (Operator Instructions) Here comes the first question. ——————————————————————————– Unidentified Analyst, [2] ——————————————————————————– Hi (inaudible) Securities, Ms. (inaudible). Congratulations on the H1 results, including investments and team building. I’m (inaudible) from (inaudible) Securities. I have 2 questions. First is about the team building. We saw a huge increase of the headcounts, especially against the backdrop of pandemic. We want to ask about the elimination of nonperforming agents. And what’s your target for the whole year team building. Also we noticed that the productivity of agent is decreasing. What measures will you take to improve their productivity? That’s all for the first question. The second question is about the actuarial part. We noticed that you have done adjustment, adjust the discount rate assumption. What’s your consideration on that? And what situation will you down adjust the long-term investment assumption? ——————————————————————————– Yuan Li, New China Life Insurance Company Ltd. – VP [3] ——————————————————————————– Thank you for your question. In H1 2020, we saw an increase in the headcount and decrease in productivity, as you mentioned in the question. This is because since February, we are hit by the pandemic. We found it hard to visit customers and conduct offline sales. Because of the pandemic, it was hard to meet face to face, and we have to recruit to manage our agent team and to sell from online channels. And the high-value product sales was negatively affected. That’s why there was an increase in headcount, but a decrease in productivity. For the second half of this year, we have set a target. That is to increase certain headcounts and to build a 3-high team; high productivity, high retention and high quality. The importance is attached to high-quality agents. Agents become younger. That is our aim. We want to recruit more agents that was born in 1980s and not even 1990s. Also we set some allowance and subsidies for excellent talent agents. And also, we have made 4 measures. The first is the basic law of the agent team, which will put into effect since July 1, to protect agents’ rights from matters methods and measures. And the second is to cultivate the atmosphere of sales to improve the qualified rate and increase qualified agents. Third is to use some promotion activities. For example, the live streaming promotion activity to help them sell. The fourth is to responsibility to provide more comprehensive protection to our customers and to increase the sum assured of each policy. Also we want to strengthen our training to improve the team’s quality. We always said that we have 2 excellents. That is excellent new recruits. And the second is excellent managers. We will provide trainings to different agents catering to their needs to help them grow into excellent managers. Also we will enlarge our financial input to our 500,000 agents. That’s all for this question. As for the second question, we will have our Chief Actuary to answer it. ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [4] ——————————————————————————– About the risk discount rate, it is a comprehensive indicator. It reflects the investor and the car market impression and evaluation about the company. There are many factors affecting it. There are risk-free rate and asset scale. And also the premiums of some risks. Of course, it also includes the estimation of a company of the whole market. As for NCI, since our listing in 2011, we have used the risk discount rate of 11.5%. In nearly in 10 years, of course, the domestic environment has changed a lot, we can see that there are the following main changes. The first one is that the risk-free rate has changed. Of course, the national bond yield is now going downward. Everyone is expecting low about the future. On the other hand, we can see from our listing, our net asset has doubled. And also, the total asset has increased, and we have gained our brands in the whole market. We can see that our capability in innovation and in business growth as well as our brands have increased. In this circumstance, we can see that NCI is now having the opportunity and ability to adjust the risk discount rate. It will not impact the solvency ratio and the long-term business growth of the company. On the other hand, it will be beneficial to the long-term development. Of course, this adjustment is from 11.5% to 11%. The change is not big. And in history of NCI, we have — did some sensitivity test from 11.5, 11 and also even 12. The sensitivity test has been disclosed in our interim results reports. So if you have any other wanderings or other impression about the company’s risk level, and if you see it from your own judgment of the NBV or of the value of the company, you will have a right answer for it. And also, in a downward environment of interest rate, you asked whether the company will change the assumptions of other indicators. Of course, from NCI’s perspective, the investment yield since the last 20 — 10 years, we have reached our target, and it is closely linked to our long-term investment yield evaluation. For the future prospect of investment yield, there are 2 factors. The first one is the existing assets. The second one is the reinvestment. For the 2 factors, we see that they are very complicated. Investment yield is affected by the risk-free rate and the asset allocation of the company. Our asset allocation is very diversified, including fixed income and also equity and other alternative investments, we are now expanding. For example, the private equity and REITs and other emerging tools. So overall, the investment yield of the company will be stable in the long term. And of course, we will have a continued estimation of the whole market. And we will consider the change of the whole market and the requirements of the investor to have a current and a correct estimation of the investment yield. Next question from Commercial Securities, Mr. (inaudible). ——————————————————————————– Jing Jing Zhou, Changjiang Securities Co., Ltd., Research Division – Research Analyst [5] ——————————————————————————– I’m (inaudible). I have 2 questions. The first is that is the persistency ratio — we noticed that 13-month persistency ratio improved, yet 25-month persistency ratio deteriorated. But compared to our peers all show deterioration of both indicators. So I want to ask against the pandemic, how do you evaluate and to improve these 2 indicators? The second question is about the business plan for the remaining 4 months of this year. You mentioned that you didn’t adjust down the annual target even against the pandemic. So what’s your target for 2020? And how do you achieve these targets? What’s your plan for the fourth quarter? Also the jump-start period. ——————————————————————————– Yuan Li, New China Life Insurance Company Ltd. – VP [6] ——————————————————————————– You mentioned the persistency ratio. The 13-month persistency ratio increased while 25-month persistency ratio decreased. This is different from our market peers. The reason is that the company stepped up its efforts to evaluate persistency ratio and attached more importance to the business quality. Second is our team become more stable. The 13-month persistency ratio actually shows the sales and the policies that was sold 13 months ago. If the product or sales model 13 months ago was not accepted by the market, then this indicator will go down. So the requirements on our team is the reason for the improvement of this indicator. The third reason is the product change. Last year, in the first half, we sold both health insurance and annuity products. Also we sold some riders. NCI’s riders is a highlight and helped to maintain customers and to improve customer’s weakness. And also to optimize our service of claim settlement. You mentioned our plan for the second half year. I’d like to answer this question from the agent channel perspective. I’d like to say that there are 4 measures. The first is to — led by the party building. The second is to strengthen our agent team. The H2 saw an improvement of our agent headcounts and also quality. The third is to increase value. Agent channel is a value-oriented channel. For the second half of this year, we have adopted (inaudible), a high-value rider product to increase the NBV. Also we will promote health insurance product to grasp the opportunity brought by the pandemic. The fourth, also we will sell some high-value annuity products as supplements to leverage the advantage of iron triangle. That is health insurance, annuity products and the riders. This is a very stable structure. The fourth is to innovate. That is to use technology. We made some efforts, especially for online activities, like new recruits and training. On July 8, Mr. Li Quan also attended the New China live streaming activity to promote new recruits and product promotion. This was for the first time over 300,000 people watched these live streaming video. And we recruited about 100,000 new agents. This is for the recruitment. Also we did some online sales, which shows some good effects. Online training is also very important. We developed classes and lessens to help our team grow and sell products. We also strengthened online management through (inaudible). So I think these 4 aspects answers your question about the next half year plan. We haven’t determined — we don’t intend to adjust our annual target. We hope to make concerted efforts to reach the established targets. ——————————————————————————– Quan Li, New China Life Insurance Company Ltd. – CEO, President & Executive Director [7] ——————————————————————————– I would like to do some addition to the answer of Mr. Li Yuan. Of course, about the second question, we have a relatively comprehensive answer. In the second half, the company will make concerted efforts and do many measures to make up for the underdevelopment in the first half to fulfill the annual target of this year. Of course, we do not now have plan to adjust our annual targets, as now Mr. Li Yuan said, there are many measures taken in the individual insurance channel and at the same time in other aspects. There are even more measures. The first one is that we will shift and focus more in the high-value products. As now the COVID-19 is under control, the requirements of health demand of our customers is pretty high. So we will sell mostly the health insurance and upgrade the health insurance product and also issue our main annuity products and riders to increase and to fulfill the annual target. Overall, we can see that the FYP target can be fulfilled for the whole year. But there are still some difficulties, for example, in our value, especially in NBV, that we will make concerted efforts to fulfill the strategy and the goal of the due development of volume and value. And at the same time, the company will establish our platform, a very comprehensive platform to obtain customers and provide service for our customers. And at the same time, provide customized products for groups — different groups of our customers. In bancassurance channel, we will deepen the operation of our core channels. And at the same time, focus more on high-value products. I think you can rest assured for the development progress of the company because we are more market-oriented in our product development and also our sales regime, especially in product innovation, channel service and customers’ experience as well as technology empowerment. We will invest more in this respect and take more measures to fulfill our target. Thank you. ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [8] ——————————————————————————– (Operator Instructions) The next question comes from CICC, Mr. Dan Tian, now you can raise your questions. ——————————————————————————– Dan Tian, China International Capital Corporation Limited, Research Division – Analyst [9] ——————————————————————————– I’m Mr. Dan Tian from CICC. I want to ask Mr. Li Quan, last year, you issued that you will have a strategy of asset liability dual engine driving both value and volume growth. In the first half, we can see that you have some progress, but is it within your expectation? What’s the good side and what’s the bad side? What will be the adjustment made in the second half? The second one is about the health insurance. We can see that the health insurance business is down a little bit in the first half. What’s the reason for it? Is it because of the COVID-19, a short-term fluctuation? Or is it because of product mix shift or because of the market demand? ——————————————————————————– Quan Li, New China Life Insurance Company Ltd. – CEO, President & Executive Director [10] ——————————————————————————– I will answer your first question. Last year, the company proposed the development strategy of asset liability dual engine driving volume and value growth. In the first half of 2020, the whole company has adhered to this strategy. Until now, we can see that the progress of this strategy is getting good results and within our expectation overall. And of course, the expectation of the Board. From the common development of both volume and value, in the — because of the good start in January this year and our resilience in our business, we can see that the total premiums was CNY 96 billion, up 30.9%, hit a record high. And our FYP has also increased by 155%. And also our insurance from short-term business was CNY 4.5 billion (sic) [CNY 4.3 billion], up 11.3%. So in both GWP, FYP and also short-term insurance business, we have increased, and some of them, by a large margin. Everyone is talking about COVID-19. Of course, in February, it impacted a lot. And also in March, we have been largely hindered by it. Since April, its influence has went down, but still had a relatively large impact. So the FYP’s increase by 30.9% is relatively hard one. And it is in the adverse of the whole market trend. In value, because our original plan is to sell a more scale-oriented product in the first half, and because we have a very early lunar spring festival, and we want to sell the annuity in the January and February. And in the later part of the first quarter and then the second quarter, we would like to sell high-value products. But because of the COVID-19, our high-value product sale has been impacted. And it has a very large crush on the face-to-face development and face-to-face sales for our sales team that because of the COVID-19 now as being under control, because of the leadership of the party, and now we — the decrease of our margin is — of our margin in VNB is now under control. So in the second half, we will push forward our targets to have at least half of our target fulfilled. Of course, we can see that for the NBV margin and NBV, we have made concerted efforts, and it is very hard one. But from our outcome, we have a relatively good one. And also from the asset liability dual engine, on the 1 hand, in the asset side, we have optimized our asset allocation and meet the requirements of our customers. So as to push forward, the liability side, the FYP growth to have a balanced development of product. On the other hand, the liability side, sales increase has provided very large cash flow for the asset side. Even though there are very large impacts of the COVID-19, we still seized many structural opportunities and reached a good outcome of the investment yield. In the first half, we realized 200 — CNY 21 billion investment yield, up 24.6%. And our total investment yield increased by 0.4 percentage point. It is a relatively good outcome. We can see that the whole capital market is shrinking in the first half, but we seized many good opportunities. And we believe that the overall development strategy of the company has been well executed and is within our expectation. ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [11] ——————————————————————————– I would like to answer the second question about the health insurance, the FYP of health insurance is relatively obvious. And even more under the whole spectrum of the high-speed development and increase of the FYP overall. The decrease of the FYP of the health insurance is still within the average level of the whole industry. In this year, especially in the early of this year, our FYP growth was mainly comes from the bancassurance channel, the single premiums. For individual channel, its product structure and our customers’ demands have not changed. In health insurance, we can see there are both subjectory and objectory reasons for it. And the objectory reasons takes the larger proportion. We can see the main reason is COVID-19, and everyone is feeling it. We have less face-to-face meeting opportunities, less contact. But health insurance relies heavily on the face-to-face communication of our customers and our sales force to find the demands of the health insurance of our customers. In the past, we have done that. And our sales force has been used to this kind of platform. And the COVID-19 impacted — the COVID-19 impacted it a lot. And the sales team has been hindered in its capability and in itself. And the second impact of the COVID-19 is that it influenced the whole business plan of the company. In the beginning of this year, we have a very clear plan set for the whole year. We would like to sell the scale-oriented product in the beginning of the first quarter and then shift to the health insurance and high-value insurance, but it has been hindered by the COVID-19. And the second objectory reason is that the savings demands for our customers, especially in a downward rate — interest rate environment, is now going up because they have a more long-term expectation for the future. And now the authorities are issuing new policies on the asset allocation and other aspects. So if the insurance product can provide a guarantee interest rate, and it is of high yield, especially in dividends, then it will be of good sales. So in our sales and operation, we noticed that in the COVID-19, the severity of it has shifted our customers’ demand from 2 or more savings product type. And the other reason is that in NCI, in its product mix, we have some unbalanced level. We can see that in the past, we have a higher proportion in health insurance. But now since we have issued new development strategy, we believe that in health insurance we should focus more and invest more that is different from others’ strategy. And also we will make up for our shortcomings and promote more annuity and savings products. But of course, from our company’s own perspective, a balanced development of volume and value and balanced development of asset liability is a very big topic. In this shift in process, we will take different measures, and measures can change in the process. And of course, we are doing adjustments constantly in the whole progress. And just now Mr. Li Yuan mentioned that 1+2+1 strategy, we have had some execution about it. And also in product mix in channels operation and in product, in value product and value-oriented product, we have some changes. So there are some other subjectory reasons. As you mentioned, is there — customers’ demand changed? The company believes that the requirements and demands for insurance, especially for health, is now going up. And in the COVID-19, the awareness of the whole customer of the whole society is now going up. That’s all for this question. Thank you. (Operator Instructions) Next question comes from (inaudible). ——————————————————————————– Unidentified Analyst, [12] ——————————————————————————– I’m (inaudible). I have 2 questions. The first is the asset side. We noticed the net asset yield decreased in the first half and also an increase in the term deposit. We want to ask about the yield of term deposit and also the yield of the newly added nonstandard assets. What’s the reason for the slight decrease in the net assets yield? For the total asset yield, we saw the equity have delivered good results. Will this wave of markets continue? The second question is about the liability side. The NBV margin saw obvious decrease. Could you please disclose the NBV margin for the first and second quarter, respectively? If the margin has decreased in the second quarter, what’s the reason behind that, is it because of the product structure? ——————————————————————————– Zheng Yang, New China Life Insurance Company Ltd. – VP, CFO & Financial Controller [13] ——————————————————————————– Thank you for your question. I’d like to answer the first investment-related question. I think it’s within your expectation that the net asset yield saw a slight decrease. It’s because the global economic downward trend. Also China’s economic adjustment and the downward interest rate, our investment yield remains similar and the same with the macroeconomic trend. We think it — also about the equity investment at the beginning of this year, Mr. Li Quan has explained a part of this question. We adopted measures to grasp opportunities and also use of timing to respond to the call of the long-term investment of the market. We didn’t ask to sell equity and stocks. For the term deposit, we increased a little bit in the first half, about RMB 30 billion increase. The first reason is that the stock market showed some positive signs. But in the long-term, the low interest rate or 0 interest rate assets is rare. So we think it is good for us to put some cash into risk-free assets. It’s also a supplement to the overall asset allocation. The terms of these deposits are not long, around 2 to 3 years, and the yield is around 4%. Although these are just term deposits, we also made some researches on the counterparties and the asset themselves. Therefore, I can guarantee that these term deposits are safe and the yields can meet the requirements of the company to match the assets with our liability to control our risk exposure that’s why we increased a little bit in term deposits. For the second half of this year, we have the capability to grasp opportunities against the market fluctuation. We will follow the long-term investment principle and slightly increased equity investment. That’s all. ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [14] ——————————————————————————– I’ll answer the second question about the NBV margin. The second quarter compared with the first quarter, both the NBV and the NBV margin has narrowed the gap. That’s because of the structure of product. We step up the sales of high-value products. That’s the end of the answer. The next comes from (inaudible) Securities, Ms. (inaudible). ——————————————————————————– Unidentified Analyst, [15] ——————————————————————————– I have 2 questions. The first one is about the bancassurance strategy. We can see that the company issued a second take off strategy and pushed forward the development of bancassurance channel. And in the first half, the premiums of bancassurance channel increased by a large margin, but we have estimation about the NBV margin is about 1%. Then what’s the development strategy in the future? And how will you balance your value and volume? And second question is about the competition of the whole industry. I want to know what’s the company’s perspective on the impact of the Internet insurance, especially the mutual help plans that is now very popular online, will it have a negative impact to the sales of the company? ——————————————————————————– Yuan Li, New China Life Insurance Company Ltd. – VP [16] ——————————————————————————– I will answer the first question about the strategy of the bancassurance channel. Of course, since the establishment of the new Board and new management, we have issued the development strategy of asset liability to engine driving volume and value growth. In bancassurance channel, it is a very important one. It pursues, of course, volume first and value second. And just now you mentioned in NBV margin, actually, in the first half, we have increased the sales of the single premiums. It dropped — it made the NBV margin drops. But for bancassurance channel, we have 3 advantages in single premiums. The first one is that the banks have high demand for this kind of product. So if we sell high-value product or regular premiums, then it will be very hard in the bancassurance channel. And the second one is that we have the demands coming from our customers. Their demand is not just for high-margin products, but also savings product to help them protect their wealth, especially in annuity and to help them to have some protect when they are owed. And our second — our third advantage is that the single premium sales can help us to sell our regular premiums because we will collect a lot of high-end customers, then we can contact them again to sell regular premiums. That’s why we think that the single premiums product sales is still very relevant and very necessary for our product mix, but of course, coming from the statistics in bancassurance channel, you can see that in both volume and value in both single premiums and regular premiums, we have increased by a large margin. And the NBV, not just the NBV margin, has increased. The NBV increased, and we think that’s what matters. That’s all of this answer. ——————————————————————————– Quan Li, New China Life Insurance Company Ltd. – CEO, President & Executive Director [17] ——————————————————————————– I will do some addition to it. For the answer of Mr. Yuan. Firstly, for the bancassurance channel, if we see it through from a management perspective, we have to see it very thoroughly. Now of course, as you mentioned, NBV margin is very low in the bancassurance channel. But why do we still develop it, for bancassurance channel, it is a very important channel for our whole company. From NCI’s perspective, we should adhere to the strategy of developing it. In history, bancassurance channel has helped a lot by the scale — of the scale growth of NCI. And we have gained a long-term development through bancassurance and also our brand impact in the whole market through bancassurance. For bancassurance channel itself, we have different measures or different development ways. But of course, it is of low margin, but it still have margin. And we can see from the first half that the margin of the bancassurance channel has increased. And the overall value of the total premiums has increased in the first half. So the target of value of our own company can be fulfilled in the whole year. So if a bancassurance channel has margin and then it has a very large volume, then it will contribute to our overall NBV. And it will be the concerted efforts coming from our sales team. And now we can see that we still lagged by a little bit in the value in the end of the first half, and now we have fulfilled it. For NCI, we have a very specialized team in bancassurance channel with over 10,000 people. But if we do not promote the bancassurance channel, then there will be meanness in this wholesale team. So if we promote the bancassurance channel, it will on the one hand contribute to the overall NBV of the company and then contribute to the income of our sales team. Last year, the bancassurance channel has a very low margin because of a relatively small volume. And now since our bancassurance channel has a large volume, then we have a positive margin. And of course, and at the same time, the authority is requiring us to keep the jobs stable. So we are now adhering to the requirements of the authority. And at the same time, our NBV has turned — our margin has turned positive in the bancassurance channel. We have a very good expectation in the whole development prospects of the insurance channel of the company. The marginal cost is now decreasing because of the scale effect of the bancassurance channel. And there are — another advantage is that we can have a second communication with the customers that we’ve collected in the sales of the single premiums and sell regular premiums to these customers. So we can see that the FYP overall is very good in the bancassurance channel compared to other channels. With the development and also the volume growth of the company, it will have a scale effect. We will have a better brand and a well-received customer base. And this will be very good for the whole company’s sales and the whole company’s long-term development. So when we see this, when we see bancassurance channel, we cannot simply compare its NBV margin with the individual channel. It’s just not comparable. And also for the question that you mentioned, the online insurance sales, we can see that many insurance companies online, they are selling short-term insurance companies, that if they don’t have enough scale and volume, then they will not have good development. But of course, the insurance is not really comparable with the online sales of insurance. But we still believe that the bancassurance channels promotion is a good decision made, and we will consider thoroughly about how to increase the margin of the bancassurance channel. That’s my perspective on the bancassurance channel. About the online insurance — about the online insurance sales, I want to say that the COVID-19 has pushed forward our online insurance sales. Of course, there is technology empowerment in our company’s overall strategy. But of course, we should be realistic. In this perspective, we still need a lot of progress and a lot of efforts made to rank at the top of the industry. So as now, we do not say that we want to develop and then even put out for the whole industry. We still lag behind. So we will do much efforts. Now we have a cloud program going on. Its main objective is to push forward the technology empowerment and to build our platform and our customer service as well as our policy underwritten. And this platform has following capabilities. The first one is to optimize the customers’ experience and to find what’s the category of the customers so that they will have a better experience of buying insurance. And the second one is to provide a platform for our sales force to contact their customers and to increase the capability in online sales. And the third one is to increase our platform building so that we can provide a one-stop solution for our customers underwritten and also policy maintenance. We can see that this whole program is now at a middle level. And in the end of this year, we will have the different functions of the whole program online. And also, we will have some wealth management product to sell in this platform so that to fulfill the requirements of different customers. Therefore, NCI attaches great important to technology empowerment. Especially, I’ve mentioned in the first quarter’s results announcement, that in February, we cannot have face-to-face communication with our customers. But through our online insurance sales, we have a CNY 89 million sales through our online insurance. And also, we are now promoting online service to our customers. In the end of July this year, we have issued the (inaudible) riders, and we sold it online and offline so that the customers will feel it more customized and more convenient. Of course, offline sales is also available. So I believe that in the future online sales and internet and technology empowerment of the whole company will have a bright prospect as the online apps that you just mentioned that they can sell insurance. Of course, they are very emerging tools, new tools. They are competitors for us. But we are different from them. The biggest difference is that we are under strict control of the CBIRC. We are a very mature financial institution. But this online sales platforms don’t have the permission of the CBIRC. But of course, we’ll have some progress in this aspect. That’s why we think that it will impact the insurance sales offline and of the traditional companies in the future. And we believe that in the leadership of the CBIRC and with the company’s technology empowerment strategy, we will be able to provide better experience for our customers and fulfill our annual target and provide higher quality service for our customers. At the same time, we will learn from these online insurance companies to promote our efficiency and use high-tech tools, such as big data and AI to gain experience in online insurance sales and strengthen the operation of online insurance. And I believe we will have more measures taken in this aspect. And the new product that the company issue will be both online and offline. ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [18] ——————————————————————————– Due to time limit, lets welcome the last investor. ——————————————————————————– Unidentified Analyst, [19] ——————————————————————————– Good morning, management I’m (inaudible) from (inaudible) Securities. I have 2 questions. The first is EV related. In H1, the operation experience variance made positive contributions to the EV growth. What is the contribution of the expense? And the second is about the investment side. The company may under pressure in the investment side, especially when the interest rate is going down, and some nonstandard assets come to maturity, what’s your equity investment strategy? What’s your strategy on the tradable securities and long-term equity investment? Also the macro economy is not so good. What’s the risk exposure of nonstandard assets and the bonds assets? ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [20] ——————————————————————————– I’d like to answer the first question about the operation experience. The positive contribution mainly comes from the 13-month persistency ratio. That is the improvement of the business quality. That’s all. ——————————————————————————– Quan Li, New China Life Insurance Company Ltd. – CEO, President & Executive Director [21] ——————————————————————————– The second question is about the asset allocation. I’d like to answer this question. First, I’d like to talk about the asset quality. Our assets, overtly speaking, are healthy and safe. Among the existing asset allocation, over half of them are credit assets. Like the treasury bonds, all bonds issued by local government or government-controlled banks, they occupy a majority of our fixed income assets. For nonstandard assets, we made some credit enhancement measures like the guarantee of collateral. By far, we can say that they have no significant risk default. But like you said, there still exists some risks. Our investment asset managers and staff are very cautious and made great efforts under the decreasing interest rate how to allocate our assets? I think, generally speaking, we should stick to the bottom line of compliance and risk control to improve our professionalism. First, we should do some things certain like to increase equity and debt assets in certain periods. For example, to match the single payment products we sold in bancassurance channel, we selected right assets and super subscriber to the right asset class so as to achieve yields. Nonstandard assets is CNY 15.1 billion. Debt is around a 37%, and the equity is 8%. Also we have other funds. The overall allocation and the yields is good and can meet our expectation requirements. The CBIRC announced some asset management arms with high solvency capability. And these institutions can increase equity investment. New China Life asset is one of them. As an institutional investor, we have very good research capacity, and we have long-term capital. We tend to invest in the good listed companies and also private companies to generate long-term yields. For example, the End Finance, NCI is also one of its investors. This is just an example to show our research and our determination to focus on long-term investment. Since its founding, NCI has remained stable and cautious and seek absolute return in investment. The asset allocation match well with the liability side. Also we meet the requirements of the actuary assumption. That’s all. Thank you. ——————————————————————————– Xingfeng Gong, New China Life Insurance Company Ltd. – VP, Chief Actuary, Board Secretary & Joint Company Secretary [22] ——————————————————————————– Before this announcement, we have sent letters. And some investors sent us their questions about the operation and the business of NCI. Here, I’d like to say thank you for your attention and support. We have selected 2 most concerned questions. The first is the major reason for the first half year growth. Indeed, the first half year of 2020 saw huge hit of the pandemic. The company has made progress and results against such headwinds. The major reasons as follows. As Mr. Quan Li mentioned, I would like to make some supplements, the first is because of the competitiveness and the strong business resilience to guarantee a strong growth momentum. After a series of black swan events, the company responded quickly to the market and stayed true to our target customer and team building. To achieve our targets in premium growth, financial investment, customer service and all other aspects. The second reason is the drive volume and value growth with assets and liability engine. On one hand, we optimize asset allocation to meet the customers’ needs for wealth management and also to support the sales of liability — selling products in liability side to help push up FYP growth and also help balance the product structure. On the other hand, the premium growth in the liability side generated cash flow for the asset side to help NCI gross market opportunity during the fluctuation and achieve better investment yield. The second question is whether the company will consider stock dividend and transfer of reserve to common shares. I’d like to make it clear that we have no plan to adjust our annual dividend policy. Thank you for your participation and all your questions. If you have further questions, please contact our IR team. That’s the conclusion of NCI’s 2020 interim results announcement. Thank you again. [Statements in English on this transcript were spoken by an interpreter present on the live call.]