Earnings Call: H1 2021

Aug 26, 2021

Ladies and gentlemen, good morning. Welcome to China Life's 2021 Interim Results briefing. My name is Li Yinghui, securities representative of the company. The briefing today will be conducted online. Analysts and investors can watch the live webcast of the briefing on computer and web devices, or attend the teleconference. For analysts and investors who would like to raise questions, please type in your questions in the chat box on the live webcast page. The management will answer your questions during the Q&A session later. Now let me introduce the management member attending today's briefing. Mr. Su Hengxuan, President. Mr. Li Mingguang, Vice President. Mr. Ruan Qi, Vice President. Mr. Zhan Zhong, Vice President. Ms. Zhang Di, Head of Investment Management Center. Today's briefing will start with a 30-minute presentation on the company's 2021 interim results, followed up by a 45-minute Q&A session, during which our management will take questions from the participants. Let me now hand over to our President, Mr. Su Hengxuan. Ladies and gentlemen, good morning. Welcome to the interim results briefing of China Life 2021. This session will comprise five parts. First, I will start with an overview about the company and the industry over the first half of 2021. Then the management team members will present our performance on business operation, finance, investment, and embedded value. This year, the unprecedented changes gained speed worldwide. COVID continued its rage. The external environment was increasingly severe and complex. Our development environment transformed profoundly. The insurance industry faced short-term pressure. The growth rate of premium started high, but ended low. New policy acquisition lost momentum. Number of agents fell sharply. Despite the complex environment, risks, and challenges, we remained bullish about China Life's insurance industries in the long run. As for the macroeconomy, China features huge potentials, abundant internal drivers, and strong dynamics. The new landscape of dual circulation at home and abroad is taking shape. The economy maintained steady growth and presented long-term prospects, and the structure optimized. The society stays stable. All these have provided the life insurance industry with solid socioeconomic basis for high-quality development. In our industry, the people is earning higher income and are gaining awareness of insurance and health management. For life insurance, there is a dynamic demand and enormous market potentials. The state is promoting the Healthy China program, proactively advancing major strategies such as response to population aging, rural revitalization, and regional coordination. All these have opened broad space for the innovation and development of our industry. Moreover, a new round of technological revolution is evolving at a quicker pace. Technology is empowering life insurance in product development and innovation, model transformation, marketing and services, risk management, and all other links on the value chain. Overall, we believe that the current short-term challenges are just the temporary pain amidst structural changes and rebalancing of supply and demand in China's life insurance industry, which is still enjoying a period of strategic opportunities and the unprecedented and unchanged momentum of growth in the long run. We follow the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics in the New Era. Implement the decisions by the Central Committee of the Communist Party of China. Seek progress while maintaining stability. Strive for high-quality development. Effectively coordinate pandemic control, and the reform and development, and achieve the major milestones along the journey towards revitalization. We guide development with the party's leadership, integrate party leadership with corporate governance, improve modern enterprise system, and sharpen our edge in governance system and capability. We plan development to serve the country's overall development, support the country's major strategies and real economy, honor our responsibility to protect people's livelihood, and highlight our political, economic, and social responsibilities as a state-owned enterprise. We enable development by consolidating our fundamentals, constantly optimize our network, strengthen our team, enable ourselves with technology, upgrade our products and services, beef up risk system, and achieve a much more solid basis for all-round development. We promote development by deepening reform and carry out our Dingxin Project, press ahead with reform projects, and clearly augment our vigor and vitality for growth. In the first half of 2021, the company made reforms steadily and swiftly, aligned and synergized the channel mix, marketized our investment management system, accelerated our digitalization, increased our productivity and the service quality, and realized a sound business development. As next step, we will stand in the new phase of development, implement a new outlook of development, serve new development landscape, push for high-quality development, deepen reform and innovation, develop new models, build new mechanisms, grow new drivers, lift the China Life's revitalization to a new height, and solidify our basis to increase customer value and investors' returns. This is all of my brief overview. I would like to invite Vice President Zhan Zhong to update you about the company's business operation. Thank you, President Xu. I would like to now give you more details about the operation and the business in the first half of 2021. Since the beginning of this year, the environment is complex and volatile. The impact of COVID is suppressing the release of consumer demand, and industry recovery falls short of expectation. Facing the high starting point of last year, the company withstood the pressure and achieved progress and industry leadership. The embedded value amounted to RMB 1.14 trillion, up by 6.6% by the end of 2020. Net profit hit RMB 40.98 billion, up by 34.2%. Investment yield came to 5.69%, up by 35 basis points. Core solvency ratio reached 259% with adequacy. GWP hit RMB 442.3 billion, up by 3.8% with bigger market share. FORFP reached RMB 80.67 billion, representing 98.9% of FYP. Renewal premium reached RMB 308.39 billion, up by 9.7%. Total sales force reached 1.22 million persons. We have also stick to the guidance of value and implement the requirements of Dingxin Project. The individual agent business, the GWP reached about RMB 363 billion, up by 2.2%. Renewal premium reached RMB 285 billion, up by 8.2%. Premium for new policies reached RMB 78.82 billion, down by 15%. The FORFP of individual agent business went down by 16.25% at RMB 68.65 billion. There was some volatility of team size, and we would like to consolidate the size and improve the quality and management. By the end of the reporting period, the total number of individual agents was 1.15 million. General agent team, 719,000. Upsale, 431,000. Despite the sliding number, the quality is good and the high-performing ones are stable. We also stick to high-quality development. We developed the operating system 4.0 for the individual agent sales force, and promote the specialization and professionalization of the team so as to inject sustainable momentum of our high-quality development. The diverse development also grew hand in hand. In bancassurance, we seek the goal of both size and value. We deep dive into bancassurance and promote the transformation of channel mix. In the first half, the GWP of bancassurance was RMB 34.4 billion, up by 20%. FORFP reached RMB 11.99 billion, up by 1.1. For group channel, we seek global diversification and achieve steady growth. GWP was RMB 16.69 billion, up by 1.2%. The short-term policy premium, RMB 18.82 billion, up by 3%. For the others, such as policy-based health and net sales, the GWP was 27.3 billion, up by 4.2%. The company is also pressing hard with the digitalization and developed ecosystem for digital insurance and stepped up our R&D and created more value and momentum. First, for technology innovation. The technology structure has been upgraded by leveraging the computing power and the open and inclusive and compatible digital platform. Our data processing capacity has been grown by 10 times. We have also improved the agile delivery and improved technological responsiveness significantly. We provide 37.7 iterations per day and respond to market changes and provide more precise service for customers. We also provide intelligent application and strengthen the technology service capacity, and we provide 2.3 million times of intelligence services, and also enable the digital twin for offline field offices. In terms of interactive traffic, we have broadened the digital ecosystem. We have opened 3,029 standardized services and partnered with other agencies to carry out 313,000 activities and enriched our ecosystem and services. We have also provided express high quality and heartwarming services, and to provide services online, intelligently, and in an ecosystem-based manner so as to address the diverse needs of the customers. Our online services are frequent and widespread. We have more than 100 million registered users for our app, and the paperless application rates for individual long-term and business and group business all exceeded 99.9%. We have also provided accommodation to the elderly, and we have also provided a more responsible service. The policy issuance time is improved by 39%. Intelligent approval rate for claim whole process increased by 7%. We have also provided rapid claim settlement. The total number of settled claims exceeded 9.4 million, up by 40%. The medical institutions covered by direct claims payment has amounted to 20,000 hospitals. The beneficiaries increased by 110%. We have also collected personalized information pushes, which is up by 48%. We provide value-added services like health and art. In the first half of the year, in the context of conflict risk factors, the company adhered to the risk bottom line and actively balanced growth with safety. First, we actively carried out various types of risk identification and management exercises. We timely detected the risk hazards and comprehensively improved the risk responsiveness and capabilities. Second, we focused on dynamic risk management. The ERM and internal control system was further improved. Third, we strengthened the supervision and realized the effective management of the three lines of defense. In response to the weaknesses in risk control, we have further intensified efforts to reinforce our lines of defense. Fourth, we've comprehensively promoted the IT upgrade and intelligent transformation of risk management and control. We follow the new trends of insurance industry development, applied AI technology such as big data and machine learning to develop the knowledge graphs, as well as developing the databases covering 1 billion orders and also an insurance risk pattern and future database containing thousands of insurance risk patterns. We've also developed many anti-money laundering, intelligent detection and verification products. Up till now, we've received very strong recognition from the regulator. We've received the A rating for 12 consecutive quarters from CBIRC. We're also committed to building a world-class financial and insurance brand through long-term and continuous brand building. China Life has been ranked among the top and leading brands. Our brand value and influence have been increasing. We won several very influential awards in the first half. We are also taking the commitment of building a world-class responsible life insurance company, and we are adhering to the concept of putting people first, caring for life, creating value, and serving the society. We established a sound CSR and governance system. We're promoting work related to CSR and engagement of communities. First, we're actively playing to our advantage of insurance expertise. We participate in multi-level social security system and support Healthy China and work with the aging population strategy of China. Second, we are concerned about charitable giving, and we are building a volunteers team to give back to society. Number 3, we are also implementing low-carbon ESG principles in our risk management to promote green development. In the second half, we will continue to adhere to the general idea and strategy of seeking progress while maintaining stability, and we will focus on high-quality growth. We will focus on the following actions in the context of the 14th Five-Year Plan. Number 1, we insist on stable operation and achieve steady progress. We will remain customer-centric, and we will also coordinate the products between savings and protection. Second, we insist on improving quality and stabilizing our workforce and improve their transformation so that they can become more specialized and professionalized. Third, we adhere to reform and innovation, and we're promoting the Dingxin Project in depth. We are also driving digital transformation and business model diversification. Fourth, we are improving quality and efficiency, improving the intelligent sophistication of our business. Number 5, we are adhering to compliance management and guard the bottom line of risk management. Next, I would like to pass over to Mr. Li Mingguang, our VP, to talk about the financials, the investment, and EV. Thank you, Mr. Zheng. I'll be giving you a short update on our financials, investment performance, and EV in the first half. In the first half, the company's revenue totaled 537.11 billion RMB, up 6.5% year-on-year. The company's GWP income was 442.3 billion RMB, an increase of 3.5% year-on-year. Gross investment income was 117.64 billion RMB, an increase of 22.4% year-on-year. Net investment income, 89.76 billion RMB, 16% increase year-on-year. Realized spread gains on financial assets, 30.18 billion. Impairment losses on financial assets 7.6 billion. Net fair value gains through net profit, 5.3 billion RMB. In terms of expense structure, in the first half, due to the decline in new business, underwriting and policy acquisition costs decreased year-on-year, and the underwriting and policy acquisition cost ratio dropped from 11.2% to 7.84%. The company strengthened cost discipline. The administrative expense ratio remained stable. In the first half, due to the combined effects of changes in investment income and update of discount rate assumptions for reserves of traditional insurance contracts. Net profit attributable to shareholders of the company reached 40.98 billion RMB, up 34.2% year-on-year. The weighted average ROE was 8.72%, an increase of 1.36 percentage points year-on-year. EPS was 1.45 RMB, an increase of 0.38 RMB year-on-year. Let me talk about the P&L. Now the balance sheet. As of June 30, the company's total assets increased by 9.4% to 4.65 trillion from 4.25 trillion at the end of last year. Total liabilities increased 10% to 4.17 trillion from 3.8 trillion. Reserves of insurance contracts, 3.31 trillion, and residual margin was 850.68 billion RMB. As of June 30, shareholders' equity attributable to the company's shareholders was 471.45 billion, an increase of 4.8% from the end of 2020. In the first half, the equity attributable to the company shareholders increased by 21.4 billion, including an increase in net income attributable to the company shareholders of 40.98 billion, a decrease in other comprehensive income of 1.88 billion and a dividend payout of 18.09 billion. As of June 30, the company's core solvency ratio was 259.03%, and comprehensive solvency ratio was 267.69%. The comprehensive solvency ratio decreased by 1.23 percentage points compared with December 31, 2020, mainly due to the continuous growth of insurance business and investment asset size, dividend payout, and the downward adjustment of the interest rate for solvency reserves. Now let me talk about the investments. In the first half, the company firmly implemented the medium and long-term asset allocation, a strategic asset allocation plan, and also at the tactical level, we were making moderate adjustments according to market changes. First, the company has been seizing the opportunity of the periodic peak of interest rate allocated further to long-term interest bonds, and we've also further optimized the position. Second, we've closely tracked the changes of the equities market, optimized our strategy benchmark and our position and portfolio. We've also, number three, in response to the market changes of declining supply of non-standard assets, we've been exploring new strategies for alternative investment, optimizing the alternative investment exposure. As of June 30, the balance of our investment assets exceeded 4.45 trillion RMB, an increase of 8.8% from the end of 2020. In terms of our investment portfolio, the allocation to term deposits changed to 12.45% from 13.32% at the end of 2020. Allocation to bonds changed to 44.23% from 41.97%. Allocation to stocks and funds, excluding money market funds, changed to 9.88% from 11.31%, and the allocation to debt instruments changed to 10.44% from 11.08%. In the first half, the company continued to expand the size of investment assets with stable growth in total interest income. Thanks to our continuous increase in long-term bond allocation and continuous diversification of fixed income strategies in recent years. The net ROI reached 4.33% in the first half, which was 4 basis points higher than the same period in 2020, which is largely stable. The company grasped the market's opportunities and cashed in some of the income. The total investment return was 5.69% in the first half, 35 basis points higher than the same period of 2020. After adjusting for the net change in fair value on financial assets, we've seen the consolidated investment return at 5.61%, 21 basis points higher than the same period of 2020. In the first half, the company continued to guard its compliance bottom line and improve our risk management capabilities. Number 1, we've further audited the use of insurance funds in the company, build up our investment management capabilities, and optimize and improve risk management and risk control system. Secondly, further diversified our market risk research, and prudently understood the asset allocation strategy. Number 3, we adopted a rigorous internal rating system and a multidimensional risk limit to effectively control credit risk. No credit default event has occurred in the first half for the assets held in our position. Next, I'll talk about the EV, embedded value. First of all, the value from new policies. Since the implementation of our revitalization strategy, we've maintained our focus on value. In 2019 and the first half of 2020, we've experienced very high growth in new business value. In the first half of 2021, due to the effect of COVID and other factors, we've seen no strong growth in life demand. In this context, in the first half, we saw the new business value, the value of new contracts in the first half, reaching RMB 29.87 billion, down 19% year-on-year and down from a high number in recent years. Among them, the value of new business in the individual sector was RMB 28.97 billion in the first half, down 20.8% compared to a higher base in the same period of 2020. Now let me talk about EV. Also, because of the effect of COVID, our EV was RMB 1.14 trillion, an increase of 6.6% from year-end 2020, of which adjusted equity was RMB 617.1 billion, an increase of 8.5% from the previous year-end. The value of in-force business was RMB 525.7 billion, an increase of 4.4% from December 2020. After adjusting for diversification, the company's VIF was RMB 569.4 billion, with an EV of RMB 1.18 trillion. Now let's look at the movement in EV from December 31, 2020 to June 30, 2021, with some of the key items listed below. The expected returns were RMB 41.14 billion, reflecting the expected returns on business in the first half of 2021 and the sum of the expected returns on equity. The value of half-year sales in the first half was RMB 29.87 billion. Operating experience variance, RMB 1.28 billion. Investment variance, RMB 3.31 billion. Change in methodology and model, RMB 617 million. Impact of market value and other adjustment, RMB 10.58 billion. Exchange losses, RMB 67 million. Actual shareholder cash dividend payout, RMB 18.09 billion. That's my presentation. Thank you very much. We will now take questions from analysts and investors who are joining through live webcast. Due to time limits, please ask one question at each time and let us know your name and institution. The first question comes from Haitong Securities. Would you like to ask the management, the 10-year term payment are down 5%, and also the agents are diminished. What are the causes of these things? Will there be trends for the better? Mr. Jiang, would you like to take that question? First, indeed, the whole industry follow the same trend. China Life basically follows the same trend with the rest of the industry. The new business declined and also the sales force downsized. There were analysis of different sectors. I would like to offer mine. The first reason is with the market. In the post-COVID era, consumers are more prudent. China's economic growth is still leading the world, but that is not very stable. For business development, that has resulted in some pressure. Second, our agent sales force downsized, like the rest of the industry. With less agents, the business also declined. That is a key reason. For the future, the industry, the company are all shifting towards high-quality development, which is an arduous and a painful process. We are going to make active efforts to go along, invest in the trends and highlight our advantages. This is what I would like to say in response to your question. The next question, please. The second one. From CITIC Construction Investment, Liu Xinqi would like to ask, for the Huiminbao existing customers, how would you redevelop them? Will you also reserve some capacity and growth drivers for the success of next year? Could you restate your question? Say that again. For your existing customers of Huiminbao, how would you do secondary development for them? What are you doing to prepare for a successful opening of next year? It is fair to say that for Huiminbao, you have attached a keen interest. This is an emerging business over the recent years. By the end of June, we have opened 27 projects in nine provinces. Second, you mentioned the secondary development of these customers and the secondary development of other customers. According to our internal overall arrangements, we are going to phase in the measures step by step. It is not the case that Huiminbao customers will be secondarily developed immediately. For the successful opening of next year and overall strategy for next year, actually, our policy stays the same, unchanged. In the period to come, we are going to continue our product strategy, which is centered around customers and diversified. Our products cater to the needs of different segments. We pay more attention to personalization and segmentation of our customer needs. This is how we are going to plan our products for next year. That's all. Thank you. Next question. From CMB Securities, Zhang Qixian would like to know, for the development of the National Insurance Company, what do you think is going to be the comfort of this new company and our strategy? What are the levers to pull? We have noted the information disclosed for that company. It is called a pension company. Actually, we do also comprehensive business for the elderly, like the exclusive pension. We have followed the pilot requirements and it kicks off the relevant initiative. According to the information that we have seen, including the scope of business relating to health, pension, I would say that my company has got a new friend in the same industry. We just do a good job on our own part. That is enough. Next question, please. From GF Securities, Liu Qi would like to ask, from 2019 to 2020, revitalization strategy yielded remarkable results. In 2021, you are going to launch a new batch of transformation projects. Could you provide more details on these new transformation projects? Thank you for your interest. China Life revitalization is a vehicle to carry forward the Dingxin Project. It has come to its third year. The progress so far has met our expectation. Like the channel mix of one focus and diverse channels have been complete for a sales channel, and investment management has also met our expectation in terms of the transformation of investment management system and the sound yield realized for investment. In terms of operation, we have the operating service center, which is also moving forward concomitantly. For the very support, you have also seen the enabling technologies which has been developed and changed a lot. Our risk management system has also made great headway, and so has intelligence. This year is the first year of the 14th Five-Year Plan period. Our priority is to surround our overall planning and solidify the basis we have achieved through the Dingxin Project. Over the past 2 years and more, we have indeed laid a solid foundation. We are going to further consolidate the basis we have laid. We are going to also further implement the key reform results. There were several highlights I would like to share with you. We are going to further develop the team and upgrade the business model driven by the growth of sales force. Professionalization is a priority in upcoming transformations. For our sales force, from the regulation to the industry, there has been exploration to achieve model for high-quality development. So you have also seen the attempts to transform the relevant systems and regimes. Indeed, these are also what we are trying to do. We didn't do it 3 years ago. The next one is about the diverse segments, like group, bancassurance, health. For bancassurance, as you have seen from our semi-annual report, we attach importance to both size and value. In the industry, our term premium segment is still leading, and we are also augmenting our value. For our alternative or diverse segments, bancassurance has indeed exhibited notable results. Health and group will prioritize the transformation and implementation of the model. A third, for digitalization, we have had some basis. Next, we are going to also do data governance and mining to enable the tech-driven China Life. The next one is about risk management. For the whole industry, that is an important premise of development. We will continuously informatize and intelligentize risk management. We are also constantly reviewing what we are doing. Plan needs to be improved and reviewed from time to time. The mismatch with the reality shall be spotted, and important improvement opportunities will be identified. Reform is always going on, and we are going to intensify our efforts on reform so that we can best position ourselves in the journey of high-quality development. Next question, please. Next question comes from CICC's Mao Qingui, related to asset management. After the greeting, in channel and products, have you taken measures to cope with the difficulties facing the industry? For the new business growth, do you have any guidance to share? Let me take up this question. For the second half of the year, Vice President Zhang just said, over the past few years, since the start of the Dingxin Project, across the various sectors, major headways have been achieved. Since the beginning of this year, due to complex factors, the new policies are now under pressure. That is why all the departments are very busy. They are trying to promote products, services, and channels to better integrate themselves with the customers in need or the users in need. In a nutshell, over the past period, owing to the impact of COVID and other factors, the person-to-person interactions have been remodeled, and the sales scenarios have changed a lot. So far, and in the future, the environmental changes and our initiatives are examples of the measures that we are taking to break up the constraints placed by these factors. We need to check the reality. We cannot simply conclude that any measure will work. It takes time to adapt these measures for product development. Whatever factor is limiting us, which products, technologies could enable us overcome the difficulties or the obstacles. This is what we need to do in product development and auxiliary services. Next question. From Reuters, Zhou Cheng would like to ask, the extension rate of 14 months for policies fell sharply. Is it because of the less affordability or the recommendation by the agents? If they continue to decline or that is the case, will MEV be untruthful? Mr. Zhang, would you start? I will add further. You now pay close attention to that. We are also paying attention to that. We didn't start paying attention to it this year. We did it last year, about the retention rate. As I said, for that rate, several factors are at play. For certain products, quality is a problem. For some others, the reason lies with the customers. For external factors, the economy is still uncertain and volatile, and despite the recovery, there is still uncertainty and volatility. The willingness to pay and affordability of the customers have been affected. That is a part of the reasons. On the part of the company, we have done a lot. As I said, we noticed this issue months ago, and we developed a high-quality system. Actually, retention is a core KPI of the system. We are going to provide alerts in terms of risk and the business alert in the sales channel. We have made the alerts as frequent as weekly. That is about the system building. Next, for constraints, we have also done a lot. For example, for the personnel, like salespeople, we do have some constraints and also the entry management to enable sound product quality, and we are also doing underwriting basic law and performance review. We have also introduced rigorous measures. Since the end of 2019, we developed a retrospective analysis on the salespeople with a low retention rate. We try to trace the reason. For the managers, we have also deferred the payment of remuneration and factor these performance into promotion and demotion. The retention policies are influential. Huanan. I think we believe this will reflect in the compensation for the sales agents. If the persistency rate is low, we may limit the expansion and also the qualification for the agents to expand and develop the renewable performance of our sales force. That is my answer to your question. I would like to add a point or two, because I know this is a point of interest to you. The analyst was very observant. For the 14 months of persistency rate, the new business reflected actually the period of COVID outbreak. It coincided almost precisely with the COVID period. Because of COVID, our sales have suffered. Our service delivery has also been under pressure. China Life was not stopping its sales. Instead, we invested further to improve our service capabilities to engage with our customers. Despite COVID, we deployed technological means. We moved more our activities online from offline. Now we are returning to offline. We can briefly recap. Our efforts in those months really paid off. Our intervention actually helped test the resilience of our business, whether the online business development effort was making progress. I think the results are very self-evident if we were to review the experience and look ahead. I must say that that was a short-lived number because COVID prevention is now well improved. We now have a more balanced offline, online business portfolio. Our service is now more attentive. This will help improve our performance going forward. Next question from CITIC, Michelle. The education, the tuition industry has been suffering and whether China Life is converting some of those professionals into sales agents, whether the productivity and also the size of the workforce will increase in the short term, whether the industry is now at the bottom. I would like to take that question. If we look at the sales force at China Life, in the last year or two, we further developed a rigorous selection process. For those that are ambitious and willing to join the industry, we will definitely reach out to them. You talked about productivity and capacity utilization. To be honest, in the first half, the industry was actually looking at the downward trend. The same goes true for our company in terms of sales force. Our posture is quite mixed. Our position is quite mixed. Our productive sales force as a share of total sales force declined compared with the same period last year. But the top performers group was quite stable. That means the attrition was due to China Life Insurance Company letting people go, and also some left because they were not a great fit for the industry. Compared with the first half of 2020, I would say the productivity increased. This is a mixed picture with both encouraging signs and some weaknesses that we need to further address. In terms of team building, China is promoting high quality development and transformation. The industry is also accelerating the pace towards high quality development. Going forward, the sales force will be more focused on the quality and the mix of the sales force. We are now in a transitional period. There will be some short-lived pains. The sales force and sales agency system reform will give us some challenges. But I think through our actions, we'll be able to improve our profile and image. In the first half, actually, in January, we started the program of building our sales force 4.0. The 4.0 version focuses more on the key control points of the sales force. We further developed the system, the processes, and also the director and manager training program was used as a pivot to further professionalize the sales force and also develop the specialization. The key is to support the high-quality development of the company with sustainable momentums. We will focus on improving the mix and also the skill level of our sales force. Liu Xinqi from Guotai Junan. We know universal health insurance is now popularizing, and this has constrained the growth of our individual business. For commercial health insurance companies, what will be the growth drivers going forward? For customer demand, where do we see opportunities? Thank you for your question. I think the question has been asked many a time. For example, universal health insurance, we call it a city benefit program. It's a customized program per each city, and this segment has really grown very rapidly. We know we have basic medical insurance, we have supplementary insurance, we have commercial health insurance, and we also have the city benefit program. Those different pillars make up the hierarchy of China's protection system. I think city benefit program is one welcome form. We've conducted the program in 27 projects in nine provinces, and we've covered quite a large population. Through that intervention, we believe we will have a more robust business foundation. Second, the programs carried a lot of social responsibility. It also helps improve public awareness of the protection function of insurance. The regulator is also very committed, and they have issued some guidelines on further improving these type of products. For health insurance, for city benefit programs, we believe the regulatory environment will be very encouraging. For China Life, analysts and investors may want to know whether this will cannibalize into our other business lines. I would say no. Because as I said, the program was about improving public awareness, about insurance protection function, and about improving the multi-tiered system, and I believe this will also help improve our expense management. In our analysis, the market today is looking at very diverse and stratified demands, and we need to meet very personalized demands. People want different drugs, different types of therapeutics and treatment. As a commercial health insurance, we have to meet such demand. And in terms of product development, I've talked a lot. There's a lot of underserved markets out there. For example, the aged group, the young generation, and those with underlying conditions. So both for pension, for health, we do see some really big underserved markets. We're now still in the growth period rather than a mature, saturated period. So product innovation, new product development will look at very great opportunities ahead. Next question. From Shenwan Hongyuan. The question is, in the midterm, for the core and the comprehensive solvency ratio, the number has declined on both counts. So how do we understand the solvency reserves requirement and also some of the statements made in the interim report? And also for C-ROSS II implementation, do you think this will further weigh on your rates? Let me take the second part of your question first. We all want to know whether C-ROSS II implementation will have an impact on our company's performance. And I've seen this question being asked to other insurance companies during their press briefings. So C-ROSS II phase 2 is about refining phase 1 based on the market reality and also the risk exposure in China. So the program has been further refined. For example, some of the capital requirements, asset side, liability side management, and we know there's a number of areas that are under impact. For example, the residual margin. There's been a further classification of that, and also the calibration and measurement of risk, and the held-to-maturity bonds are also included. And there are also some see-through requirements on some of the asset classes. So phase 2 of C-ROSS II will be more attuned to China's risk reality and market reality. And rest assured, both for core and comprehensive solvency ratio, we're in a very robust position. But we haven't seen the formal announcement of the regulator, so this is my expected result of the stress test. So about the reasons for the declines in those rates. That's the first part of the question. So core capital divided by the total capital requirement. So it's a change in the denominator and the numerator. In normal circumstances, when you grow business, you use and deploy more capital, then the solvency ratio will decline naturally. At the same time, the company will generate profits and will add to the capital stock. If those businesses could bring residual margin, then the regulation requires some capital charges, and this will affect the margin, the ratio as well. And for numerator, we will have to look at the risk type, market liquidity, and credit. And we will have to look at also the diversification effect. So if you want more clarity, I can probably explain further because this is a very long question. Xing Yin from Xinwei Securities. In the future, wealth management driven by pension, how would you compare your products versus the products by securities companies and banks? How would you rank those competitiveness, and would you develop some equity-based products? This is an excellent question. There is a general feeling, as Mr. Zhang also discussed and asked by an analyst, in the first 6 months of this year, our business development was hit by some temporary difficulties. Where is the way out in the future? You talked about the competition with wealth management and funds. Where is our advantage? Let me give you an example. We developed an exclusive product for pension. Our utmost competitive advantage and customer value creation is that the product covers the entire life cycle. It is a super long-term product. It can also cover multiple cycles of economy. This is a test of the company's ability of long-term management, namely on long runner. Long-distance running is quite different from sprinting. What makes a difference is the stamina. For a short runner to be a long runner, the change is to be enormous. But a long runner can be a short runner as well. I watched the champions of Olympics. The lifting champions could hop very high, jump very high. That is about the NL long-term management across cycles. This is what our advantage is about. Most of the insurance products come with guarantees, and that is absent for other products of other industries for the customers. In the future environment, a guarantee is precious. That is the second advantage. Third, as you said, we develop some equity-linked products. That is not for the future. At present, in our product mix, there are such products, like Unit Linked Insurance Plan products. Our principle is that once we understand better customer needs, if there is a need, we are going to develop a product for it. With the Dingxin Project moving on, our investment management capability has been very much enhanced. We have the ability to do that. From the sales perspective, let me make some additional remarks. For mutual funds and securities, they are always there, not only emerging today. Insurance is also there all along the way. We could not analyze them. Insurance has more substance, not only for wealth management. Insurance also plays many other functions, like guarantees and protections. Huiminbao, to a certain extent, competes with our short-term health insurance. In the market, various financial entities must face this issue. We do not fear such competition. Insurance has its significance and function, not replaceable by funds or securities. This is my addition from the sales perspective. Let me add further. Different financial institutions provide financial services that are suitable to different people and address different needs for each and every customer. It is a must to proceed from the individual needs and household situation and avoid placing all eggs into the same basket. People are different in terms of what they need, and the different products have their own pros and cons. Okay. Next question from Morgan Stanley. Jenny has a question. So far, we have seen that the 14th Five-Year Plan of the State places more emphasis on medical insurance rather than health insurance. In your product planning, is there any impact? In terms of pension service, how will you develop your business model and entry barrier for competition? I have already touched upon this by addressing half of your question. Medical insurance in the future is surely a priority in our product development. For pension, you mentioned the competition barrier. I would rather say that we need to develop our long-term capability for management and service. This is indeed what we are. Always been intensifying our efforts. For integrating the pension and service system, we have made efforts to achieve such development. In pension, we not only provide insurance products, we are also going to provide the relevant services and the value-added services compounding the pension offering, and that will make us more competitive. In terms of barriers, I wouldn't define it in that way. There's not much entry barrier. We just do a good job on our own part. Guosheng Securities, Zhao Yao would like to ask. In the first half, there is a 33% of term payment. What is the main product for critical disease? What is your prospect for the next half of the year and the future? You are observant. Some of our products used to be designed as main and auxiliary offering. So if the product is of the nature of health versus pension, they will be allocated. So some of our products have now broken away from that approach. It is designed as a combo of several kind of policies. In one policy category, like critical disease, may have a larger share, and then that product will be classified into the BU of health insurance. So that is the reason accounting for such change, which you have so carefully observed. For critical disease prospects, in the first half, we were all anxious. It started quickly, then slowed down. There are several factors. One is the impact of COVID, which has suppressed some customer demand. Number four, the Diseases are redefined. It takes time to build up again. In industry and in this company, in terms of HWP, critical disease grows the fastest among all. We are also constantly intensifying product development to address the differentiated needs in place. We see multiple business models, the development of technology and the teams. We will be out of woods soon. Next question. The last question from the platform from Guita Jun, she would like to ask, "We have seen that in the industry, active efforts are made to deploy resources across the greater health value chain. Could you talk about your collaboration with Wanda, and how would that have synergy with health insurance?" Let me address that. It is well known that China Life, 2 years ago, started investing in Wanda Information and established with it a corporation at the strategic level. Through Wanda Information, we have also made presence in city service, intelligence, and fintech. With Wanda Information, it has also developed a manual health information platform. Constant efforts are now in progress. We are going to go through Wanda Information, leverage its professional capability and resources, and move forward our strategic operation, deliver its due functions to serve the sales force and the customers. Let me make addition to that. For integrated health offering, we are open. We have a health platform on an integrated basis. We provide more than 100 service items covering the entire life cycle of customers. Moreover, on our health platform, the number of registered users is also leading the industry. In the future, we are going to explore more ways. We are open, and we just orient our health services in accordance with the customer needs. That brings to the end of our 2021 interim results briefing. If you have further questions, please do not hesitate to contact our IR team at any time. Thank you for your time. Goodbye.