The People's Insurance Company (Group) of China Limited (HKG:1339)

Earnings Call: Q2 2020

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Aug 24, 2020

Ladies and gentlemen, good morning. Welcome to the 2020 interim results announcement of PICC Group and PICC P&C. My name is Li Zhuyong, Vice President and Secretary of the Board of PICC Group, and I am the moderator of today's event. The members of the management present at the meeting include Vice Chairman and President of PICC Group, Mr. Wang Tingke. Executive Director, Vice President of PICC Group, Vice Chairman and President of PICC P&C, Mr. Xie Yiqun. Vice President of PICC P&C, Mr. Shen Dong. Vice President of PICC P&C, Mr. Shao Lidu. Vice Chairman and President of PICC AMC, Mr. Zeng Beichuan. Vice President of PICC AMC, Mr. Huang Benyao. Vice Chairman and President of PICC Health, Mr. Hua Shan. Vice Chairman and President of PICC Life, Mr. Fu Anping. We have other members of this senior management and the heads of the department who are joining us online. We have two items in today's agenda. First, we will invite President Wang Tingke and Vice President Xie Yiqun to brief you on the interim results of PICC Group and PICC P&C in 2020, and this will be followed by a Q&A session. I would like to remind you that all the figures shown in the PowerPoint slides are based on Chinese accounting standards. For their difference from figures based on IFRS, please refer to the appendices within the slides. For those who are joining us via conference call or video link, you can download the PowerPoint slides from our website. First, I would like to give the floor to President Wang Tingke. Distinguished investors and friends from the media, good morning. First, I would like to extend a warm welcome and our gratitude to you for participating in the 2020 interim results announcement of PICC Group and PICC P&C. This results announcement is divided into two parts in the presentation. In the first part, I will be giving you an overview. Generally speaking, in the first half of 2020, in face of the COVID-19 pandemic, which is unseen in a century, we have taken coordinated efforts to contain the pandemic and to promote our business. We have pushed forward the 3411 Project. Through the support of our clients and investors, we have overcome difficulties and rallied around the group and have generated successes in containing and preventing the virus. We have also witnessed the improvement in our business, with improved business structure, our profitability stabilizing, and our asset size is increasing. We are making progress while ensuring stability. We have also generated impressive results in the transformation of our business model. In terms of our business results, in the first half of the year, we overcame the impact of COVID-19, the first half of the year, and made hard efforts to ensure that our business can recover and rebound, and we have generated impressive results. Our GWP stood at CNY 336.84 billion, up 4.3%. Pre-tax profit was CNY 21.4 billion, up 10.4% year-on-year. Last year, due to the changes to the handling charges tax, the base from last year was high. In the first half of the year, the net profit attributable to the shareholders in the first half of the year is down by 18.8% year-on-year. Excluding this impact, our net profit attributable to shareholders should be an increase of 2.9%, so our profitability is improving steadily. The net asset attributable to the shareholders is CNY 190.2 billion, up 5% from the beginning of the year. Annualized total investment yield stood at 5.5%, up 1.0 percentage points year-on-year. The P&C combined ratio stood at 97.3%, down by 0.3 percentage points year-on-year. This is a performance that is better than the rest of the industry. Excluding our credit and surety combined ratio, our combined ratio is lower than 92%. Our half-year new business value of PICC Life is CNY 4.1 billion, up 19.3% year-on-year. We have made periodic achievements in high quality development. In the latest list of Fortune 500 companies, we ranked 112th place. Before that, we were up to the 121st place. We were up by nine notches. The board of directors have proposed an interim cash dividend of RMB 0.36 per 10 shares. This is the first interim cash dividend since we went public. This is also a measure to allow investors to show more of the fruits of our business results. In the first half of the year, in face of the impact of COVID-19, in particular, the difficulties in promoting our business offline, we worked hard to promote the 3411 Project, and we have continued to improve our business structure and business models. In terms of P&C, PICC P&C have combined the efforts in the 10 priority activities, including integrating policy-based business and commercial business, technology transformation, and commercial model transformation, and improvement in the quality and efficiency of claimant handling, and improve direct sales teams. We have upgraded our car insurance business model and step up digitalization efforts, and we have increased our online services capabilities. First, we have been committed to improve our business structure. Non-car insurance accounts for 46.8%, up 0.8 percentage points. Household owned cars, their share of all the auto insurance has been up by 1.4 percentage points year-on-year, and our underwriting volume is up 7.6% year-on-year. Our market share has been up 0.6 percentage points, which outperforms the main competitors. Secondly, we have been committed to combining policy-based business and commercial business. Our agri-insurance in terms of commercial insurance is CNY 25.9 billion, up 10.9%, which is higher than our overall business. Thirdly, we have been integrating technical transformation and the commercial model transformation. The working in sync with police model has been rolled out in four municipalities in 332 prefecture-level cities, which covers basically all the prefecture-level cities. Our combined loss reduction from platform and auto insurance tech-enabled claim handling has reached CNY 4.52 billion. We have been committed to reducing costs and remove the middlemen. We have, in terms of our direct marketing channels, had a premium of CNY 82.2 billion, up 15.8% year-on-year, and our comprehensive expense ratio is 31.9%, down by 0.8%. Our expense ratio is better in terms of five percentage points than the rest of the industry is fifth. We have been improving our services and making the customers more sticky. The online claim handling of the household vehicles is 91.3%, up 24.6 percentage points over the beginning of the year. The household car renewal rate is up 71.2%, up 3.6 percentage points year-on-year. Our financial status is more robust, and we are more resilient. Our net operating cash inflow is CNY 15.2 billion, up 73.3%, which is the best in the past five years. The LEA reserves as a share of the net earned profit from the past 12 months is 36.9%, which is 1.6 percentage points higher than year-on-year. In terms of life insurance, we have been committed to ensuring good value. We have been pushing forward professional, efficient, lean, and fast development of PICC Health. Life insurance have made new achievements in high-quality development, and we are even better in creating value. Specifically, PICC Life has witnessed significant increase in value. The half-year NBV is CNY 4.1 billion, up 19.3% year-on-year. Individual insurance has become the core business channel of the company, contributing to 93.4% of the total, and the NBV is up 27.5% over year-on-year. Embedded value is now CNY 101 billion, which is 13.2% higher over the beginning of the year. Our business structure continues to improve. The first year regular TWPs of 10 year or more policies has been up by 19.5% year-on-year. The first year regular premium has been up by 3.1 percentage points year-on-year. The regular premium as a share of the total is up 9.4 percentage points year-on-year. Our net profits have hit a record high. Our net profit stood at CNY 3.83 billion, up 23.6% year-on-year. We have been promoting an integration of online/offline in business. We have encouraged customers to buy insurance policies online and promote the mobile extension or mobile sales of policies. Our mobile billing rate is over 90% and accumulated online insurance maintenance rate is over 80%. In terms of PICC Health, we have had a further increase of the value of our business. We have been promoting the online extension of our business. Our internet channels have been promoting and growing. Due to the pandemic, we accelerated our online business. We have achieved GWP of CNY 6 billion, up 98.5%. We have gained 9.04 million new customers and accumulated 35.11 million customers. In terms of emerging segments, we have made new progress in PICC Financial Services, PICC Health, and PICC Reinsurance. Our business status is further consolidated, and this will be further elaborated later. On the whole of the group, in the first half of the year, we have been integrating resources and promoting high-quality development. We have a push for the use of smart technology and IT. A total of nine centers, which have been basically put in place, and the P&C's distributed core system have been tested online. We have seen an increase by CNY 31.9 billion in terms of price, for PICC e-connection premiums, which is up 379% year-on-year. We have also been seeing an enhanced performance in core cities in terms of the renewal of household-owned vehicles. The average premium equivalent of PICC Life has been growing higher than the average overall business growth of 21.2 percentage points. The online health insurance in core cities have taken up nearly one-third of the total personal life market share, ranking number one in the industry. Our total gross written premium of the international business has reached CNY 4.8 billion, covering 122 countries and regions, including 88 countries in the Belt and Road Initiative. We have also implemented the initiative of risk compliance infrastructure year. We have been committed to the non-occurrence of systemic risks. We have reviewed the previous malpractices to rectify issues and clean up similar behaviors and enhance accountability for misconduct. Second, we strengthened risk controls of credit and surety insurance to gradually reduce our risk exposure. In addition, we also approved the preparedness for catastrophe and losses by risk reduction so that we could maintain a robust investment philosophy over the long term with sufficient provisions for investment risks. Setting aside sufficient provisions for investment risks. The third part of the implementation of the 3411 Project was about optimizing asset and liability match, preventing long-term risk of pricing interest, and limiting the size of short and medium-term single premium products by reducing it down to 46%. Thanks to our reform, our profitability is up. In terms of our structure, pre-tax profit of P&C business has been growing steadily, and the other segments have also been growing rapidly. The profits contributed by the segments other than P&C business was up to 22.7%, up by 5.5 percentage points compared to the beginning of the year. Additionally, we also have strong solvency profiles, which is up by 19 and 25 percentage points in terms of our core solvency margin ratio on comprehensive solvency margin ratio compared to the beginning of the year. We also saw greater solvency of PICC P&C, Life and Health, which have shown improvement in different degrees, which shows robust financials and better risk resilience. In order to share more the fruits of our success with our investors in 2019, on top of the 2019 dividend payout, the board has just proposed a CNY 0.36 dividend payout per 10 shares in the 2020 interim dividend. The cash dividend has been growing year-on-year since our listing on the Hong Kong Stock Exchange in 2012, with a CAGR of 69.4%. In the future, we are going to determine our amount of dividend payout by taking into account shareholder expectations as well as our business performance, solvency, growth, as well as our financing needs. This is so that investors can have a better chance of sharing the fruits of our success. Since the beginning of this year, we have been hit by the COVID-19 health crisis. However, we rose to the occasion as a responsible member of society, using insurance to serve the needs of pandemic response and restoring normalcy in people's lives and work. In this, we have been exemplary as a central state-owned enterprise. We have been focusing on serving the frontline needs of the pandemic response through providing insurance and financial support. We established an assistance fund to serve medical workers who have recovered from COVID-19. Additionally, we also paid out over CNY 30 million to policyholders, including frontline medical workers. Second of all, we drove business reopening with innovative insurance products with our emergency public health catastrophe insurance mechanism, which covered over 30 million people in 32 provinces with comprehensive work resumption insurance covering 17,000 companies. We also implemented the central government's requirement to stabilize production and ensure supply. We provided agricultural risk insurance of the amount of CNY 1.6 trillion to over 62 million agricultural households. The fourth initiative we took was that we contributed to poverty alleviation by supporting people's livelihood through our critical illness insurance and social medical insurance, the latter of which covered over 740 million people in 295 prefecture levels across 30 provinces. The fifth thing we did was that we boosted real economy with more investment from insurance assets. We invested CNY 12.2 billion to key companies in Hubei and invested in special local government bonds and corporate bonds of the amount of CNY 46.7 billion and CNY 32.4 billion, respectively, in the first half of 2020. In the second half, we can expect the Chinese economy to take a steady recovery, and China will mainly rely on domestic demand to drive development, as well as in sync with the domestic and international demand in a mutually reinforcing loop. We can expect to see improved economic fundamentals. These will remain the same, and these will pave the way for our company reform, creating new opportunities. At the same time, we are also faced with all kinds of uncertainties and challenges, especially in our international environment. The COVID-19 is still spreading across the world, and the world has been seeing a deep economic decline. We are also facing risks of repercussions from declines in economies abroad. In the midst of all of this, PICC has been focusing on achieving progress while maintaining stability, implementing the 3411 Project, and to diffuse our risks through our business model reform and drive our business growth through innovation. There are three points to our business reform or transformation. The first part of which is the business transformation of our auto insurance business. The idea is that we have to gain competitiveness in the markets by reforming our sales channels, our pricing ability, claim processing model, as well as our product services. The second is that we have to create integrated sales channels that integrate both online and offline services. The third of which is that we have to optimize our asset and liabilities. We have to reduce the cost of liabilities, and on the other hand, on the asset end, we have to think about having long-term, stable-yield assets to optimize our portfolio. The second part of our reform is about innovation-driven development, and we are going to do it through three reforms: through digitalization, through a new IT framework, a new backbone network, as well as a core system network. With all of these, we have been able to increase the use of data in decision-making. The second part of our innovation is customer-centric. We have been pushing for the construction of the MPS management system to optimize the customer experience through building a service ecosystem, and improving customer stickiness in the process. We also try to innovate through product differentiation for individuals, legal persons, governments, so that we can provide more customized products to better target the needs at home and abroad. Third, we have been trying to reduce costs and improve efficiency, especially in underwriting. We have been improving the professional capacity to price risk, to improve the use and rigorous standards in claim, as well as underwriting verification. We have been strengthening precision management in claim processing to make it more professional, digitalized, and vertical in order to prevent profit leaks in this process. We have also been strengthening the use of owned or controlled channels, building up our direct sales A direct sales force so that we can cut out the middleman and reduce costs. The fourth thing that we have done is to prevent and diffuse financial risks. We have been doing that to strengthen the government, strengthen governance to better coordinate between the group as well as the subsidiaries, to increase the control of the group over the subsidiaries so that we can improve risk control through management. We have also been improving policies and procedures to have a unified risk management system, improving management effectiveness through embedding it in the IT system. We have been focusing on the prevention of key risks and to target existing risks. We have also strengthened a unified management of risks, through which we have been strengthening the management of risk management to adhere by the risk prevention bottom line to ensure compliance. That's it for my presentation. I would like to welcome the Vice Chairman, Mr. Xie Yiqun, for his presentation. Thank you, Mr. Wang. Now I will be here with you to discuss the results by segment. First of all, let's look at P&C. We have been implementing the 10 key initiatives towards high quality development, and here are some of the highlights. First of all, we have been maintaining the leading market share of 34%, which is 0.8 percentage points up from the same period last year. We had gross written premium of CNY 246.3 billion, up by 4.4% year-on-year. Combined ratio was 97.3%, down by 0.3% year-on-year. Underwriting profit was CNY 5.29 billion, up 20.8% year-on-year. Due to a tax policy change on commission, net profit attributable to shareholders in the first half of 2020 was down 22.1% year-on-year. However, when excluding for said policy change, net profit grew by 4% year-on-year, and pre-tax profit grew by 3.6%. In other words, we are improving in terms of profitability. Annualized ROE was 15.5%, which is still at a high level. Net cash flow from operating activities was CNY 15.2 billion, 73.7% year-on-year, the best in last five years. The comprehensive solvency margin ratio at the end of June was 306%, which was 24 percentage points more than the beginning of the year. We have recorded gross written premium income of CNY 246.3 billion, up 4.4 percentage points year-on-year, with market share of 34%, up 0.8 percentage points from the beginning of the year, maintaining a leadership position. In terms of auto insurance, we recorded CNY 131 billion in gross written premium, up by 2.8% year-on-year, which is the biggest growth in the industry. As the COVID-19 hit on top of car sales declines, we have been focusing on expanding new customers. The market share of new car business has been up by 0.8 percentage points to 34.8%. We have been developing the existing market and expanding our renewal services team to increase the integrated development of channels. The renewal rate of household owned cars has been up by 3.6 percentage points to 71.2 percentage points. We have been making improvements in the car insurance business structure, and we are a leader in the growth rate of our household-owned car insurance business. Our market share has been up 0.8 percentage points. The underwriting quantity of household-owned cars has been up 7.6 percentage points year-on-year. We have seen continued improvement in car insurance. In terms of non-car insurance, in the first half of the year, non-car insurance GWP was CNY 115.3 billion, up 6.2%, and of which A&H GWP was CNY 49.7 billion, up 21.4%. Our social security business had an income of CNY 40.5 billion, up CNY 25.1 billion. Our agri-insurance GWP was CNY 25.7 billion, up 16.6%, with a market share of 47%, which is a leader in the industry. In terms of credit and surety, we have been strengthening risk management and improve our business structure to reduce risk exposure, and the GWP reached CNY 4.3 billion, down by 8.6%. Due to the pandemic and the domestic economic slowdown, credit, commercial insurance, and cargo insurance, and liability insurance have witnessed a slowdown in business. But with the economy being further reopened, our business will continue to pick up. In the first half of the year, PICC P&C had an underwriting profit of CNY 5.3 billion, up 20.8%. Combined ratio was 97.3%, down by 0.3 percentage points. Our profitability is still better than the rest of the industry. By the end of the year, the LEA reserve is CNY 145.6 billion, up CNY 18.6 billion from the beginning of the year or 17.6%. The LEA reserve as a share of the net earned profit from the past 12 months is 36.9%, up 1.6 percentage. Non-car insurance has witnessed increase from the beginning of the year, and our reserve are being more stable and solid, and we are even better at forestalling the risks from economic cycles and the systemic risks. Our comprehensive loss ratio is 65.4%, up by 0.5 percentage points. This is mainly driven by the increase of the loss rate from non-car insurance. The comprehensive expense ratio is 31.9%, down by 0.8 percentage points. This is mainly driven by a drop in the expense ratio from non-car insurance. Our underwriting profit from auto insurance is CNY 6.6 billion, up CNY 4.4 billion year on year, with a combined ratio of 94.8%, down by 3.6 percentage points year on year, of which our loss ratio was 57.6%, down by 4 percentage points, and the expense ratio was 37.2%. In terms of non-car insurance, our combined ratio was 101.9%, up by 5.5 percentage points, of which loss ratio was 79.9%. Excluding agri-insurance, critical insurance, and credit surety insurance, our combined ratio from commercial insurance is 94.9%, down by 2.5 percentage points. Mr. Miao, who was the President, said that he hoped to reduce the combined ratio from commercial insurance to 95% or lower, and this year we have reached the level of 94.9%. In terms of A&H, due to the change of business structure, we have witnessed a higher share of Social Security with a higher loss ratio, and our overall A&H loss ratio has been up by 1.1 percentage points year on year, and the expense ratio is down by 1 percentage point, and our underwriting loss was CNY 470 million. In terms of credit surety, due to the pandemic, credit risks have increased, and business default rates have increased. Our loss ratio from credit and surety is 120%, up by 58.6 percentage points, and the combined ratio is up 40.6 percentage points, with an underwriting loss of CNY 2.95 billion. PICC P&C have strengthened its efforts in collection and procedure management to further reduce risk exposure and strengthen risk management. This will further unleash the risks exposure and reduce the risks involved. We have achieved a net profit of CNY 13.1 billion, excluding the change in tax policy of handling fees from 2019. Our net profit has went up by 4% year on year. PICC P&C's net cash inflow from operating activities is CNY 15.2 billion, up by CNY 6.24 billion or 73.7%, we have witnessed better liquidity. By the end of June, PICC P&C's total asset stood at CNY 681.9 billion, up 14.5% from the beginning of the year, and our net assets stood at CNY 170.3 billion, up 0.4% from the beginning of the year. In terms of our life insurance, PICC Life has been promoting the integrated development of online/offline business, and our valuable business continue to pick up. Our first year regular premium has reached CNY 15 billion, up by 1.1%, and the first year regular GWP of 10 year or more policies reached 3.9%, up by 14.5 percentage, and our APE has been up 17.8%, with higher ability in creating value. PICC Life has been reducing lump sum premium business and improving its business structure. In terms of first year regular premiums, our first year regular GWP of 10 years or more policies has account for 26.4%, up by 3.1 percentage points, and the regular premium as a share of the total has increased to 71.7%. Thanks to the improvement of the regular premium business and the overall business structure, PICC Life has witnessed improvements in new business value and embedded value. Half year New Business Value was CNY 4.1 billion, up by 19.3%. Embedded value has broken the CNY 100 billion mark to CNY 101 billion, which is 13.3% higher over the beginning of the year. In-force business is CNY 39.5 billion, up 17.1% from the beginning of the year. PICC Life has had good metrics in its financial status, and profitability continue to increase. Net assets stood at CNY 47.2 billion, up 12% from the beginning of the year, and the net profit was CNY 3.8 billion, up 23.6% from the beginning of the year. Excluding the income tax factor, our pre-tax profit has been up 58.4% year-on-year. PICC Life has been integrating its sales teams and promoting the comprehensive individual insurance, refers to the personal agents and the service sales channels. The traditional channels is the main channels for transformation. Until now, we have effective agents and monthly effective agents of 440,000 and 102,000 respectively. The second channel, the service sales channel, is the more promising channel. We have in-force agents and monthly in-force agents of 98,000 and 22,000 respectively. We have been promoting the comprehensive individual insurance strategy to consolidate our traditional channels and to promote integrated development of the individual tax. With the development of the comprehensive individual insurance strategy, our sales teams have witnessed improvement in quality and quantity. Our individual agents have numbered more than 510,000, was increasing numbers during the pandemic. Our in-force agents per month is over 120,000, up by 32.89%. PICC Life has been promoting the comprehensive individual insurance strategy and the Cornerstone Plan to increase productivity. In core cities, PICC Life has witnessed improvement in in-force agents. Our APE from core cities is up by nearly 50% year-on-year. The first year regular TWPs of 10 years or more policies is up by nearly 40%. In terms of PICC Health, PICC Health has been committed to the model of being professional, efficient, lean and flat, and have generated new progress in high-quality development. Our GWP from the first half of the year is CNY 22.2 billion, up by 45.7%. Our commercial insurance have witnessed fast growth with GWP of CNY 14 billion, up by 92.5%. This has driven the increase of half-year NBV to 41.6% year-on-year. In order to respond to the impacts of COVID-19, PICC Health has been strengthening its online business. In the first half of the year, our GWP was CNY 6 billion, up by 98.5% year-on-year. Of which, critical illness accounts for CNY 700 million. Medical insurance, CNY 5.63 billion. We added 9.04 million customers, with a cumulative number of customer reaching more than 35 million. According to the latest data from the industry, PICC Health accounts for 32% of the online health insurance market, which is number one. Our first year regular premium reached CNY 4.4 billion, up by 28.5% year-on-year. In the first half of the year, PICC Health net cash flow from operating activities was CNY 7.1 billion, up by CNY 5 billion year-on-year, or 322% year-on-year, which is the best in the past four years. In terms of asset management, in the first half of the year, in face of the pandemic, in the first half of the year and the complex domestic international market situation, we have taken proactive measures to seize investment opportunities and control risks, and have ensured stable yields from investment. Our groups AUM is CNY 1.8 trillion, and our investment reached CNY 1 trillion, which is up by 6.9% from the beginning of the year. Our investment portfolio is basically stable compared with the beginning of the year. Our investment returns totaled CNY 26.2 billion, up by 9.4% year-on-year. Our net investment return reached CNY 23.7 billion, up by 5.3% year-on-year. Our annualized ROI was 5.5%, which is a high number. Our ROI is still higher than the rest of the industry and with less fluctuations. In the first half of the year, we seized opportunities to allocate assets in fixed income and managed the pace of asset allocation as well as to control risks. We have credit and surety insurance with robust debtors, and our basic assets have been very stable. In terms of our external ratings, 99.9% of them are triple A. In terms of credit enhancement, in terms of the guarantee, it is 62% and 38% for guarantee exemptions. Now let's look at emerging segments in terms of fintech. PICC Financial Services has achieved significant progress in strengthening our presence and putting in place the financial infrastructure, and the key segments are fully functional with clearly defined business model, high value creation capacities overall, and clear value proposition in each of the segments. Our transaction value over the first half at PICC Financial Services was RMB 16.8 billion, up 47.8% year-on-year, with 2.64 million new users and 33% growth in monthly active users in the second quarter, and improved customer stickiness. The losses were reduced by 550 million through technology, which is 114% more than the same period last year. Underneath our PICC Financial Services, we have Bangbang Auto Sales & Services, which achieved a growth in the sales of 59% year-on-year, and our other subsidiary, Aibao Tech, achieved an increase of 30%. In our pension asset management, PICC Pension, as the professional platform for pension trust management, continues to see significant growth in assets under management, laying the solid foundation for expanding wealth management business. By the end of June, AUM was 170 billion, up by 41.4% compared to the beginning of the year. AUM of occupational annuity was RMB 67.6 billion, up by 80.7% compared to the beginning of the year. AUM of enterprise annuity was RMB 42.8 billion, up 16% compared to the beginning of the year. We continue to strengthen our investment capacities, leading to improved ranking in investment management and laying the foundation for growth in AUM and performance. Let's look at insurance, in which we have been focusing on crafting a boutique company strategy to push for higher quality growth. In the first half, we recorded RMB 2.8 billion in reinsurance premium income, out of which RMB 780 million comes from third-party reinsurance premium income, up 36.4% year-on-year and accounting for 27.5% of total, up by 10.4 percentage points compared to the beginning of the year. We cover 66% of domestic clients, and we are also present in 36 countries and regions with business relations with 99 global as well as regional clients, and we have also been gearing up to establish life reinsurance business. We achieved profit in reinsurance in the first half of the year of RMB 40 million. That's it for my presentation. Now let's give the floor to Q&A. Thank you, Mr. Wang Tingke, as well as Vice President, Mr. Xie Yiqun. Now we will open the floor for Q&A. We will both receive questions online and offline. If you are here present with us today, please raise your hand. If you are joining us online, please follow the operator instructions and press the question button. Before that, please state clearly your name and affiliation. In order to give more investors the opportunity to ask a question, in the interest of time, please limit yourself to 2 questions. Now let's give the floor to the first question, who is attending here, who is here with us today. Thank you for management presentation. I come from Haitong Securities. My name is Song Qing. First of all, congratulations on your excellent performance in your P&C and health insurance business. I have 2 questions, both for Mr. Wang. The first question is that the former President, Mr. Miao, departed, which was kind of a sudden event for the market. Mr. Miao was the one who promoted the 3411 Project. I was wondering if the project was still underway and its impact on the corporate strategy. The second question has to do with the dividend. We are delighted to see an increase in interim dividend payout. Will this be a regular thing? I also remember that management talked about increasing the share of dividends steadily, and I was wondering if this is something that is going to materialize. Will the share of dividends stay the same, or will it increase steadily? Thank you very much for your questions. I will take your first question, and I will let my colleague take your second question. Over the recent years, in our new leadership, we have been committed to implementing the new development philosophy at our company. Thanks to our deliberations in our party committee and our management, the initiative, the project of 3411 was proposed. The project is consistent with the trend of development of the insurance industry in the new era, and is also geared towards achieving higher quality development. Second of all, it is consistent with the trend of the industry regulatory environment, and it is conducive to helping the company going back to its roots of insurance and providing insurance as well as protection type products. It will help us to better serve the real economy. The third thing I have to say, which is also an important point, is that the 3411 Project is highly consistent with our own needs at PICC Group. It is conducive to strengthening our areas of weakness, and it is conducive to our stable growth as a group. Additionally, I believe that the strategic project, this 3411 Project, is one organic whole. At its core, it is about improving our business model so that we can pave the way for higher quality growth. It has a very clear value orientation. It shows our value as a group. It promotes structural optimization as well as the high-quality development. We have evidence to show that during the past year, under the leadership of the party committee as well as the board, all across the group, we have been making efforts to implement each part of the 3411 Project, and we have excellent report card. The 3411 Project has been quite effective, especially this year. We are hit by the emergency of COVID-19. The implementation of the 3411 Project is very helpful for hedging against, or rather responding to the impact of COVID-19. It has been very effective, especially given our measures of migrating our services and customers online and increasing digitalization. This project has been very conducive to our digitalization development and providing the conditions for responding to the COVID-19. This can be seen in our business performance, which after being hit by COVID-19, we quickly recovered. The online service rate, the online provision rate of our services and the use of smart technology has been steadily increasing, as you have probably seen in our presentation. Next up, I believe that people are interested in whether we will continue to implement this project. We remain steadfast to the project. We will further develop this 3411 Project. Especially given our current situation, we are going to continue to drive our business model through technology empowerment. We are going to increase digitalization and to consolidate our presence in core cities. We will continue to optimize our business portfolio in terms of product offering and improve our capacity to prevent and diffuse risks. To do that, we are going to focus on specific areas where we can make progress to promote the implementation of the 3411 Project for it to achieve more success. Thank you. I will take your second question. I know that this is a question that a lot of investors are interested in. During recent years, our management, or rather our leadership, has been promoting the implementation of the 3411 Project. It has been developing steadily, and it has been seen in our improved business performance. In the presentation, you may have heard that we achieved excellent results in the first half of 2020. The reason that we have proposed interim dividend payout is to share the fruits of our success, to give back to our investors. This also has to do with a requirement in the third session of the 18th Party Committee, which has to do with a proportion requirement of turning in a part of our yield as a state-owned company. As for our future dividend policy, according to our commitment to investors, which is laid out in our prospectus and in accordance with the statutory requirements in the company bylaws, we will continue to have a consistent dividend payout policy. The payout is going to be determined in light of the business performance of the group, the subsidiaries, the financing needs of our group at the subsidiaries, legal and regulatory requirements, and especially the reasonable expectations of our investors for investment returns. The dividend payout is going to be determined in light of all of these factors. As for whether we will raise the rate of dividend payout, this is one of the options that we will consider going forward. Next up, we would like to give the opportunity to someone who is posing a question online. Thank you. Please press star 1 to raise your question. This question is from Boku Securities by the name of Chi Shaoliang. Thank you for giving me this opportunity to raise a question. First of all, I would like to follow up on the previous question. We are also delighted to see the first interim dividend ever since the company's listing. We know that the dividend is dependent on the cash flow in P&C business. I would like to see the P&C business view on the interim dividend. Secondly, the dividend payout rate is already rather high, and I was wondering if P&C is considering raising the rate of dividend payout even higher. I know that there has been an impact due to an adjustment in the tax policy on commissions. I do not know if P&C is considering raising the rate of dividend payout in order to stabilize the amount of payout. My second question has to do with the PICC Life, which has recorded excellent performance in the first half of the year. No matter if you look at revenue or if you are looking at the business valuation, it has recorded excellent new business value. My question has to do with the products sold through the agency business as well as the traditional business. How do you balance the traditional and the emerging channel? We know that a lot of the competitors are selling some of the same main products that we have. What is your view of how to balance the volume and the value of the products promoted by individual agents? Thank you. I believe we got your 2 questions, and we will proceed to answer. Thank you for your question. In the first half of the year, the profitability and cash flow of P&C have been excellent, with excellent solvency margin ratio, and we actually have seen a better solvency ratio compared to the beginning of the year. The profit available for dividend payout is CNY 43.9 billion. This paves the solid foundation for future dividend payout. In P&C, we have been paying out 40% of our profits. We are considering that in the whole year, there will be major catastrophes, and there is a comprehensive reform to auto insurance, and there is also cash investment required. We are making full preparation to achieve the goals of the whole year and to meet the long-term interests of the shareholders. This is also to create more stable and long-term return for the shareholders. Secondly, in the first half of the year, P&C had paid no dividends, but the group as a whole has paid interim dividends. This shows that as a whole in the group, the profit from non-P&C business is increasing as a share of the total and that the business is becoming more steady and robust. Thank you very much. Let me answer the second question. How can we strike a balance between the scale and the value? In the beginning of the year, we made a plan, and resolving around the plan, we will consider the pace of our business and the specifics of our business. In the first half of the year, we will focus on the size. We need to ensure a good start. In the second half of the year, we will focus on the regular premiums and on fine management of efficient human resources. On these valuable businesses, we are going to make a lot of efforts. In face of the pandemic, we are under high pressure, and we just held a half-year working conference. Our goal is that we will not reduce our targets, and we will show our responsibilities to achieve the targets set for this year. Thank you very much. Next question, please. The next question comes from the meeting venue, from online. The lady, please. Good morning. I am from Securities Times. Two questions about investment and P&C. When it comes to investment, since July 17, CBIRC has been conducting differentiated regulation of equity investment. Regarding this, P&C can have a ceiling investment of 40%. For these policy changes, what are your perspectives, and what are your specific equity investment strategies? Could you give us more information about that? Second question, which is also related to P&C. In the first half of the year in Wuhan, there is a company which produced fake gold and PICC and P&C was also involved. There is no final verdict on the case, but when it comes to the insurance sector, we focus on the basic terms and conditions of insurance policies. There are some inconsistencies, and certain regulators have been asking for companies to check the situation within their own company. What are your perspective about such inconsistencies, and have you done internal reviews about this inconsistency, and how do you manage the relevant risks? Thank you. Thank you for your questions. Let me answer the first question. Recently, CBIRC has increased the equity investment floor for investments from insurance company, and this is also linked to the other factors, and this is a kind of differentiated way of regulation. This relaxed regulation presents a good opportunity for companies with good capital adequacy ratio, and this increases our space for allocating assets in equity investments. This also creates a better opportunity for generating more returns from equity investments. PICC Group, if you look at the statistics we have disclosed, at present, we have a very high comprehensive solvency ratio. Going forward, this will lay a strong foundation for our investments in equities. The ceiling for P&C is 40%, and for Life it is 35%, so we have more room for maneuver. We are now studying the policy change and how this will affect our strategy for the equity investment in the future, and we are further improving the conditions for our equity investments. In our actual practice, we will meet the requirements and consider the situation of the market as well as our own risk preference. We will utilize this opportunity to the best. Thank you very much. Thank you for that question. First, I would like to say that the Jinhuang Company of Wuhan produced fake gold. According to the information we have, the Jinhuang Company has bought policies with fake gold. This is fraud in insurance business. The public security departments have already registered it as a case, and an investigation is now underway. Wuhan Jinhuang is buying policies with fake gold. This is not a real insurance policy, and according to contract law and insurance law, this kind of behavior or this kind of policy is ineffective. It can be revoked, and we do not have the responsibility to pay damages or claims. This is a wake-up call for us. Indeed, in this area, we have the room to strengthen risk management and compliance, so we attach high importance to preventing and diffusing risks, and we are taking strict measures to strengthen risk management and our compliance system. We want to avoid any systematic risk. Specifically, first, we have strengthened the development of our risk management control. This year, we have been dividing the different risks into specific areas, and there is the management of risk exposures. Risk management should also be integrated in our business processes, so as to further guide the business activities. Secondly, we have been increasing our capability for digital risk management so that the systems can help with strict management of risks. For instance, all the terms and products have been digitalized in the systems. This allows for strict management of risks, and we have divided the different risks and managed them accordingly. As has been mentioned, for some specifically agreed terms, the approval will be standardized and will be done in the system. So we are using the systems to manage the risks upfront. Number three, we are further strengthening efforts to prevent risks in key areas. In the price side financial services, we are strengthening the monitoring of risks and strengthening the efforts to rectify the risk areas and address the problems. This is to address the problems, potential risks and problems. This case is a wake-up call for us. It is not just the Tinghuang case, but also we have credit and surety business and also Kuai Shou financial services. We are managing the risk exposures in this regard in a stronger way with higher intensity. For existing risks, we are sorting them out and managing them more strictly. As I have mentioned, this year, for Kuai Shou financial from insurance and excluding the credit and surety business, our whole business structure is very good, if you look at the commercial insurance field. Number 4, we will continue to improve the mechanisms for risk management and compliance, so that the business risks and auditing will be 3 lines of defense, and they will each play their roles. Number 5, we have been strengthening the basic capabilities of different levels of agencies. This includes the internal controls at the grassroots levels, and we will strengthen the risk management and compliance education at different levels of agencies so that people are more aware of the risks and are better at managing them. Thank you very much. The next question, please. The next question comes from online. Next question from CIDI. Michel. Thank you very much for this opportunity. I am from CIDI. I am an analyst. My name is Michel. Two questions. First, for auto insurance, since August, the regulators have strengthened their investigations for auto insurance, and there has been frequent fines. Also since Q2, you are strengthening your activities in this market. For the management, how can you balance the even stricter regulations and the needs to see more of the opportunity before the reform? Before the reform measure is in place, in terms of actuaries and analysis, what kind of preparations have you done? Second question. As has been mentioned, you are now sorting out the risks of Kuai Shou financial service business. In the first half of the year, the risk exposure of credit surety is rather high. In terms of the different quarters, could you tell us in which quarter would you expect a peak for the loss, and when will the loss be going down? Thank you. Thank you for your questions. Now let me answer your questions. Well, we did not hear your questions very clearly, but it is really about the reforms of the fees. Well, people have paid key interest to it. On June 9, CBIRC has introduced guidelines for the comprehensive reforms of auto insurance. This is a draft document. According to the content, actually, this is a comprehensive reform. This involves the terms and conditions, the premiums, and the regulatory systems. CBIRC has not made it clear when they are going to further push forward this policy. According to the goals of the reform, recently, it is time to reduce prices and to increase quality. Well, if you look at this, then for P&C sector, there are some impacts. To be more specific, then the premium per car will drop significantly. We have done some estimations, but the figures from our estimations are not very accurate because there are many uncertainties. Our estimation is that there will be a drop of about 23%. Since the expected loss ratio is 75%, so the loss ratio will increase, and the expense ratio will drop significantly. This is a very clear impact for the sector. As one of the market players, we will also be subject to such impacts. In the long term, when the market is more freely competitive, then price and the value of the brand and the cost advantage and service capabilities are more important. Market-driven reforms will allow companies with strong service capabilities and cost controls to play a bigger role. As the largest market player, we do have some advantages in this area. Since the beginning of this year, we have been continuing to optimize our business portfolio. Mr. Xie has already touched upon some of this during his presentation. He talked about the rising percentage of household-owned auto insurance, and we have been expanding into the different segments of our insurance. We have received some good results during the first half of the year, and that will help us adapt to the changing environment going forward. Going forward, we are going to see a smaller room for increasing our fees, but we are going to focus on cost reduction in order to provide better services to our customers. We are confident that amidst this reform on auto insurance premium, we are still at an advantaged position to provide good services to our customers. Thank you. Now, I will talk about the credit and surety business. I know that this is something on a lot of investors' minds. During the first half of 2020, we recorded CNY 43.8 billion in the first half of the year, which is down 48%. We recorded CNY 2.95 billion losses in overall gross written premiums. This is for the credit insurance. We attained a profit in our surety business. Most of the losses in the credit business is in financing product. During the half of the year, we have been trying to cut down or scale back on our credit-type businesses in order to bring about a risk reduction. By June 30, our risk exposure in the credit and surety business is already significantly down, and we have already cut back on our scale of assets. We have been trying to dispose of our existing assets, and we have been providing support through our online and offline platforms. We have stopped all kinds of online sales of high-risk credit businesses. For online sales programs that promote products with controllable or manageable risks, we have been trying to improve the business model in order to reduce risks. Also, in light of regulatory requirements, we have been trying to do risk profiling of the banks that we work with. For our sales channels that have brought about significant losses to our companies, we have put a stop to business relations during the first half of the year. In other words, we have put a stop to new orders, but we are cooperating with these business partners in other businesses. The products generating significant losses online will be fully eliminated by August 30. By the end of this year, most of our risk exposure will have been eliminated. There may be a few of the risky businesses that is going to continue into 2020, but that is insignificant. In the second half of the year, we are going to continue to reduce risks, and the premium income in this sector can be expected to continue to decline. In the second half of the year, we will probably still continue to see a loss in this sector in terms of premium income. As we accelerate the elimination of assets that generate loss, and as we are accelerating the collection process, in our judgment, we believe that the loss in the second half is going to be significantly less than the first half of the year. I hope that has answered your question. I would like to add a few words on your question with regards to the credit business, as well as our positioning and the strategy. I would just add a few things. I spent a few years in export credit business, and I know a thing or two about managing credit business. What are some of the characteristics of this segment? The credit insurance business is something that is highly specialized. Usually speaking, credit insurance requires specialized and professional management both at home and abroad. This is because the risk management of such a business is highly specialized because it is not based on actuarial science or the law of big numbers. It is a crossover between a credit authorization as well as a protection-type business. No matter if we are dealing with a midterm to long-term credits or other types, we have to base it on the comprehensive risk evaluation given the customer profile. This is very different than the bulk of our business, which is P&C and health and life insurance, which follow the law of big numbers or actuarial science. Credit insurance is something that is highly specialized. However, in many countries, it is a policy-based business. In other words, credit insurance has a lot of risk exposure. It has a long-tail risk as well as cyclicality risk, and it is very challenging to manage well, especially when we are talking about credit guarantee risk. Unless we know the customer fully and only rely on the platforms, we kind of expect to see even more risks. Therefore, we cannot use the same sales approach that we use in P&C or in health or PICC Life. Scale is not something that we should be pursuing in the credit business. As we looked back and summarized our lessons learned, we believe that going forward, we are going to try to comb through all of the existing credit business that we have to instill a correct philosophy, strengthen risk management, and professionalize management, and a reasonable expectation for growth as well as prudential management. Thank you. We have our next question coming from on-site. The person at the first row. Thank you for giving me this opportunity. I am an Analyst and my name is Hong Junshi, and I have two questions. The first question has to do with the reform of auto insurance. We saw that during the first half of the year, the expense ratio has increased slightly during the first half of the year. You have also talked about how the expense ratio is going to be reduced to 25% later on. What is the reason behind the expense ratio, the slight increase during the first half of the year? My second question has to do with the P&C tax rate. We did an independent calculation of the actual, the effective tax rate of P&C for the first and second quarter, and we realized that the effective tax rate for the second quarter would be lower than 10%. I would like to know why there is such a difference between the first quarter and second quarter in terms of effective tax rate. Let me rephrase. In terms of the reason behind the rise in expense ratio for auto insurance, this is because we are promoting the transformation of the channel for auto insurance. One of the initiatives we have been taking is the disintermediation, cutting out the middleman. We have been investing in building up the direct sales and directly controlled channels. As a result of that, we have seen a higher expense ratio compared on a year-to-year basis. Viewed over the long term, once we have the direct marketing channels in place, it is going to be more conducive to higher quality development and better response to this reform in auto insurance premium policies. One of our key responses is to build the channels to reach the customers directly without the middleman, and only with our own sales force can we reach this goal. Also under the pandemic, during the first half of the year, if we didn't have this team, we wouldn't have received the results that we did during the first half of the year. So the reason behind the rise in expense ratio in auto insurance in the first half of the year has to do with investing in our sales force, in the direct marketing channels for auto insurance. I will take your question on the difference between tax rates in the first and second quarter. We paid CNY 2.6 billion in taxes this year, and we received CNY 1.8 billion in tax credits in the first half of 2019. This is because we had a tax policy change in May of 2019, and that changed the tax deduction percentage applicable to commissions. The tax policy was unveiled in the first quarter of 2019, and its impact was felt in the second quarter. The main reason between the tax differences is that there are differences based on the tax deductions, and also they are not distributed evenly across the quarters. Also, there is a tax credit applicable for agricultural insurance. There is also a fluctuation in terms of tax rates applicable to our investment yield. So taking all of these factors into account, there was this difference in tax rates applicable. Thank you. We have another question coming from online. I would like to remind the person to speak slower and louder so that we can compensate for the phone audio quality. Thank you. Our next question comes from Tian, from CICC. Thank you management for giving me this opportunity. I have two questions. My first question has to do with our health insurance. During the first half of the year, the NBV was almost CNY 500 million in the first half, showing a 42% year-on-year. I would like to know which products drove this rise, and also the sales channels for these products. The second question has to do with the investment. We noticed that the group and PICC have been changing some of its investments, and I would like to know the projects that drove these changes. Thank you. As for your first question on health insurance, I believe that we have two figures, one for P&C and one for our health insurance. How about we split our response between our P&C and health response? The question has to do with the NBV of our health insurance, and I will take this question. During the first half of this year, PICC Health NBV increased by 42%, and it is mainly from a product called Hao Yibao, sold online, as well as a dividend insurance. These are the main two drivers behind our growth in NBV. Secondly, there is a change in the assumption between our expense ratio. The new business value increased as a result. Regarding the question about a reduction in our asset holdings. In the first half of the year, when it comes to financial assets, we have reduced the assets by CNY 2.137 billion. This is the highest percentage, and we have followed relevant standards and formulated relevant policies. There are two perspectives. First, we need to consider the timing for the drops of prices and the level of drops in prices. Once these standards are set, we will follow consistent policies in this regard. In the first half of the year, for some of the investment products in our financial assets, we compared them with our policy standards and then reduced some of them in terms of the assets. This is to be prudent in accounting and to increase the quality of our assets and to further prevent investment risks. We have had enough reserve from investment in specific products. Actually, for reduction of holdings of financial investments or assets, this is quite normal, and there's a significant increase in the first half of the year compared with the first half of last year. Our levels are still rather ideal. So investors should not be overly concerned about the risks from the reduction in the holdings of assets. You should consider our total ROI instead. Thank you very much. The next question, please. Next question comes from the meeting venue from investor. Thank you for the opportunity. I'm from Guotai Junan Securities. My name is Dewjinji. Two questions. First, online insurance. At Hao Yibao, the project of the Yu Xiangbao's rate is increasing. What is the value of that? You have also disclosed that your online clients have reached 35 million. Through online insurance sales, you have accumulated so many clients. What are your development models on online insurance, apart from providing products? Secondly, regarding the workforce of life insurance. Your channel workforce has reached more than half a million, but actually, your expense ratio is increasing more rapidly than the increase of NBV. So you talked about the Cornerstone Plan. What are the specific measures within this plan, and what are your expectations through this plan? What kind of problems do you want to address through this plan, and what are the expected increases in the quality or indicators? Thank you. Let me answer the first question, please. The Haibao product. In the first half of the year, our GWP was CNY 4.79 billion. The loss ratio has been stable, and the business is performing very well. First, the actuarial assumption back then was consistent with the basic principles of actuarial science and the regulatory policies. In the first half of the year, this was also audited by Deloitte. In terms of actual payments of claims, the business is actually better than the original actuarial assumptions or hypothesis. Secondly, this product was well-recognized by domestic and international reinsurance market. In the new round of reinsurance arrangements, Haibao is now being supported by large domestic and international reinsurance companies, as well as some medium-sized reinsurance companies. The overall situation is very good. Secondly, our online business, how we will further develop in the future. In the future, PICC Health will work on the following aspects. First, we will continue to be committed to provide universal online insurance products. When it comes to our overall business models, we have six aspects. One of it is that our online insurance business should benefit everyone. Through this kind of universal offering, we hope to better serve the 1.4 billion Chinese people. Secondly, we need to utilize the special characteristics of health insurance. In the future, when it comes to the product, for the online business, we will have a long-term plus short-term, A&H plus medical health, plus critical illness and comprehensive illness, plus single types of illness and chronic illness. All these are the different types of the products, and this will be a comprehensive system. We will also allow the advantages or use the advantages of online sales, which can penetrate deeply, and we hope to cover second and third-tier cities. We hope that our universal online insurance products could penetrate about 70% of the markets in second and third-tier cities. Sorry, I haven't finished yet. Before, you talked about the more than 30 million clients or customers we have accumulated from online from Haibao other products. Now we are working to reconcile and sort out the statistics and to do accurate profiling so that we can do secondary development of business. Directions for secondary business development is to promote the sales of high-end products and to also supply health management products. Finally, in the future, we're going to further consolidate our overall management or operation mechanisms for online business. This is a brand-new area for insurance companies. In the future, we'll be more specialized, smart, and efficient in this product line. In particular, we will use technology to empower our business activities and to ensure that our management mechanism is consistent with the development of online business and with the sales of diverse types of products. Let me answer the second question briefly. The Cornerstone Plan is a plan that aims to make sure that our sales team are more specialized and managed in a more standardized way. In October 29, it was launched. The aim is to further consolidate our management of the sales team. The Cornerstone Plan has one major theme and four segments. We implement universal rules and tools across China. We have the management of a team, a standardized evaluation, and education and training, as well as tech empowerment. These are the six aspects of the plan. According to our plan, by the end of this year, Cornerstone Plan will be able to be implemented in 80% of the agencies we have within the country. According to the results that we have now, our expected targets have been reached. In the second half of the year, we have a lot of work to do. We hope that we can be more concrete in certain actions to be standardized and efficient. We hope that we can add more people more rapidly, and we can retain these people, and these people can make money so that our sales workforce can expand rapidly. Thank you very much. Thank you. Another question from online, please. Thank you. Question comes from Goldman Sachs, from Thomas. Thank you for this opportunity. Two questions. Can you hear me? Can you hear me? We can hear you, but please slow down. Two questions. First, when it comes to PICC Life and PICC Health subsidiaries, your solvency ratio and core capital. For PICC Life, it's nearly CNY 20 billion. Have you done some one-off adjustments? Or what are the specific reasons? Second question is this. For P&C, your loss reserve is high, but the actual loss incurred is not high. For the loss reserve, which is so high, which area does it relate to, the credit surety or other areas? Thank you. Let me talk about the solvency of PICC Life. Over the past few years, if you look at the PICC Life, our solvency ratio has been growing rapidly. Whether it's comprehensive or core solvency, they are increasing. As the company is transforming towards high quality development, our solvency will become even better. According to the estimations from our models, based on our current business framework, in the next two or three years, we have no plans for adding capital. For PICC Health, our solvency ratio at Q2 is 33% higher over the end of last year. The Type III regulation has been increased to Type II regulation for our solvency. This is an increase of solvency caused by change of regulatory policies. When it comes to reserves of P&C, in the first half of the year, our LEA reserve is CNY 146.5 billion. This represents an increase of 14.6%. By the end of June, our LEA reserve is 37.1% of the net profits earned from the past 12 months. This is 1.5% higher over the same period last year, of which auto insurance and non-auto insurance LEA reserve both have witnessed increases. When it comes to auto insurance, by the end of June, the LEA reserve was CNY 94.4 billion. This is an increase of CNY 11.16 billion higher over the beginning of the year. As COVID-19 has been contained and with the reopening of the economy, our actual loss has reached the similar levels over the past few years in Q2. Our current LEA reserve is prudent and reasonable. When it comes to the non-auto insurance credit and surety LEA reserve, have witnessed significant increases. This is mainly because our LEA estimations should reflect the quality of our business, and we are further consolidating the paces for our reserves. When it comes to non-auto insurance, LEA is prudent and reasonable now. Thank you. Thank you. In the interest of time, we will take the last question. This will come from the meeting venue from offline. The gentleman, please. Thank you. President Wang and Vice Presidents. I'm from CBM Securities. Two questions. First, regarding agri-insurance, the combined ratio is 98.5%. In face of ASF and severe natural disasters, this is a good performance. Looking ahead, will ASF outbreak be over, and in future, there's no rebound of ASF? Perhaps expectations would be rather stable, right? This is the outlook about the ASF regarding the agri-insurance for the effective control of the natural disasters at Q3. In the whole of the year, how will natural disasters bring, what kind of pressure to our agri-insurance? The second question regarding policies. You are now promoting high quality development of P&C, and you have a 3-year action plan. Compared with the comprehensive reform of auto insurance, do these two policies include each other, or are they inclusive of each other? Or how would you view the opportunities and the pressures brought by the policies. Are you working even harder or pushing even harder? Or the auto insurance or non-auto insurance? Please share your guidance in terms of the scale as well as profitability in these regards. Thank you. Your first question that has to do with the agricultural insurance. The combined ratio for agricultural insurance is 98%, which is 3.1 percentage points compared to the same period last year. Of course, there are two types of insurance that drove this rise. The ASF situation is much better than last year. We have much fewer cases and impact of African swine fever. The peak loss ratio is 33.8%, down by 44 percentage points compared to the same period last year. But we do not know whether there is going to be a rebound. Thus, this is the situation in the first half of the year, we could say that breeding insurance has a better performance than the year before. However, historically speaking, breeding insurance has been a money-losing segment. The reason why we are seeing higher loss ratio in agricultural insurance has to do with our growing or cultivation insurance. This has to do with, of course, COVID-19. This year, as a result of the situation in our growing insurance, we have seen a loss ratio growth of 46 percentage points. Also, we have seen a growing expense ratio, which has to do with the ceding of our reinsurance. We have ceded a larger part of our reinsurance. Therefore, we are collecting less in premiums as a share of premium income. These are the two reasons behind this combined ratio in agricultural insurance, which stands at 98% now. In the second half of the year, we are going to continue to strengthen agricultural insurance, especially in reducing losses through digitalization and using technology-enabled solutions for claim processing. We believe that we will bring expenses and losses under control. This is basically our reading of the agricultural insurance in the third quarter. In the fourth quarter, we are optimistic. We have been doing sufficient preparation in terms of impairment provisions. And we hope that we can turn a slight profit in the second half of the year. The second question has to do with the 3-year reform plan to P&C. As for auto insurance, this is basically the core of our P&C business. Aside from our auto insurance business, we are also trying to strengthen the growth and management of our non-auto insurance business. During the first half of the year, we have taken the initiative to scale back and cut down on some of the money-losing businesses. For example, we have scaled back our credit and surety insurance by 18%. Our commercial property insurance and our other businesses that are chronically in the red, we have been scaling those back in the first half of the year to provide a better growth environment for our auto insurance. We have seen rapid development in social medical insurance. That is our policy-based business. Aside from that, the combined ratio, excluding commercial insurance, has been growing. Directionally, we are going to continue to strengthen reform to the auto business sector to maintain our leadership position. On the other hand, we are going to continue to be efficiency-driven in promoting our commercial insurance, including personal or individual commercial insurance, which we believe is a blue ocean with untapped potential. I would like to add something. I understood your question to mean how we are going to position ourselves in the different insurance segments. My colleague talked about how auto insurance is the cornerstone of our development, and it has an irreplaceable position in our operation. It is the foundation to our business based on the performance over the first half, combined ratio was 94.8%, which is at a historical high given our recent year performance. Our impairment provision has been raised, which is significantly more than the same period last year, as well as compared to the end of last year. These are measures we have taken to respond to the uncertainties in auto insurance premium policy. The policy has to do with reducing the premiums and raising the efficiency. The impact is going to be a lower premium, lower expense rate, and more loss rate. This will create large uncertainties for our combined ratio. It does not mean that combined ratio will definitely rise as a result of the reform based on the situation in Guangxi, Shaanxi, and Xinjiang, where we carried out pilot programs. There is a synced mechanism, so the more the loss ratio, the less the amount paid out per claim. So combined ratio stayed stable. However, as this pilot project is just in the early phase, we are going to see some fluctuations and rise in combined ratio as there may be unfair competition in the market. Looking forward, we believe that auto insurance is still going to be a cornerstone in terms of expanding our scale and keeping our expense ratio stable. We are going to integrate our policy-based business as well as our commercial businesses. We are also going to be focusing on upgrading the existing channels. Our existing sales force is going to focus more on non-auto personal insurance, so that we have an overall more balanced portfolio and higher quality development overall. Thank you. I would like to wrap up the question and answer, and I still see a few hands raised. I know that there are still other participants online who did not get an opportunity to get their questions addressed. We have an investor relations team, and if you connect with colleagues in the board office, you still have an opportunity to get your questions responded. Previously, in light of CSRC and SSE requirements on serving medium and small investors, we released an announcement on August 19 to investors regarding their feedback on our interim results announcement. We received numerous questions and feedback from medium and small investors, and most of these questions have been basically addressed in the Q&A session, which we just concluded. Here, I would like to highlight three areas of interest to medium and small investors, which is also the concern shared by most investors. First of all, the dividend payout. Dividend payout is a priority for our management, which is creating return for our investors. We have been trying to pay out dividends as much as we can while maintaining business sustainability since our IPO in 2012. In order to share our success with our investors, we have been trying to increase the ratio to the extent possible. At the end of 2019, we paid out CNY 1.16 every 10 shares, which was 154% growth year-on-year. Our midterm dividend was CNY 0.36 per 10 shares, which is the first interim dividend payout since our IPO. We listed on the Hong Kong Stock Exchange in 2012, and we have been growing our cash dividend year-on-year. Ever since 2012, the cash dividend payout has been growing at a CAGR of 69.4%, almost 70%. In the future, we will consider our business performance, our solvency margin ratio, our business growth, financing needs, as well as the investors' reasonable expectations for investment return to determine the appropriate level of dividend payout to share the fruits of our success. The second question has to do with concerns over our stock prices on the Hong Kong stock market, and offered many valuable suggestions for management, for which I would like to express my gratitude for your attention and interest. In recent years, we have been trying to achieve progress while maintaining stability and implementing the 3411 Project. We have seen progress in transformation for three subsidiaries insurance companies and four strategies, and we've seen steady growth in our business and profitability. Thanks to successes in this reform, we just released the results for the first half of 2020, which have been excellent. Ever since we got listed in Shanghai in the A-shares market, we have attracted attention from many investors. The A-share price has been basically on a par with the industry average. However, due to a multiplicity of factors in the H-share market, our share prices have been trending lower than our A-share prices and decoupled from the fundamentals. We closed at CNY 2.61 per share at the end of last week. We had 0.65 in our P/B ratio, which means that the stock prices are far from the fundamentals. As we talked about how we are going to be focusing even more on investor interests, we are going to try to raise dividend as much as possible. On the other hand, we are going to accelerate the implementation of 3411 Plan to achieve higher quality growth, so that we can improve our performance and make a case for our value to H stock investors. So that H stock prices can come back to a reasonable range. Additionally, we hope that our friends from the media as well as analysts, we hope that you will also be able to see the successes, the highlights that we have achieved through our reform, that you will help more investors to know the value of investing in our group. Now, the H-share stock prices are rather low, we are trying to raise the rate of our dividends. Our business performance has been going up, so I believe that creates opportunities for investments. There are investors who made the suggestions of repurchasing our shares on the Hong Kong Stock Exchange in order to raise stock prices. This is a common practice in this regard. We do not have as many H-shares on the Hong Kong Stock Exchange compared to the A-share market in circulation. That means that we only have a limited amount available for repurchase. We will, of course, give full consideration to your suggestions when conditions permit. Thirdly, regarding the net profit attributable to equity holders of the parent company, it is CNY 12.6 billion, down by 18.8% year-on-year. Many investors are doubtful about whether we have a problem with our profitability. Many media outlets have made our drop of profitability as their headlines, which is about 18.8%. Some investors are quite confused, so let me explain this. on May 28, 2019, the Ministry of Finance and State Taxation Administration put out the announcement on the policy for pre-tax deduction of handling charge and commission expenditures by insurance enterprises. The pre-tax deduction levels of the P&C and life insurance handling charge and commission has been increased to 18%. Before this new rule was introduced, the figures was 15% and 10% respectively for the P&C and life insurance. So according to the new rule, we can have more deductions. This new tax regulation has led to differentials between income tax payable as per old rules and the new ones. In the first half of year of 2019, when we conducted reconciliation over 2018, we determined or had a difference of CNY 4.7 billion. This has reduced our combined income tax by CNY 4.7 billion in year 2019. Excluding the parts of some shareholders, the net profit attributable to equity holders has increased in 2019 by CNY 3.3 billion. After the new tax rule is implemented, in the year 2020, there will be no annual differentials. So this impact to our profits in 2019 is just one-off. It is a non-recurring P&L. In the first half of 2020, our pre-tax profit was CNY 21.4 billion, up by 10.4% year-on-year. There is no drop here. Our current net profit after deduction of non-recurring P&L is CNY 12.5 billion or 2.9% year-on-year. Our business is becoming more profitable. That is my explanation. Finally, I would like to thank you again for your continued interest and support for PICC Group and PICC P&C. This concludes the results announcement today. Thank you very much. Thanks.

Data Source: Quartr Last updated: Aug 24, 2020

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