Earnings Call: H1 2020

Aug 27, 2020

Good morning, ladies and gentlemen. Welcome to China Life's 2020 interim results briefing. Today's presentation comprises five sections. First, I would like to give you an overview of China Life's performance in the first half of 2020. Then I will invite the other members of the management team to present the company's business operations, financials, investments, and embedded value for H1 2020. In H1 2020, facing multiple challenges brought by the COVID-19 economic downturn, the company remained steadfast to the core strategy of centering on customers. Basic operational units are focusing on value creation and the individual insurance business, while firmly prioritizing business values, strengthening sales force, striving for stable growth, upgrading technology, optimizing services, and guarding against the risks, and achieved remarkable results in both pandemic prevention and control and the business development. First, business value and investment income continue to grow. The value of new business in H1 2020 amounted to 36.9 billion RMB, up 6.7% year-on-year. The embedded value exceeded 1 trillion RMB for the first time, reaching 1.016 trillion RMB, up by 7.8% compared with the end of last year. Gross investment income reached 96.13 billion RMB, up 8.1% year-on-year. The second point is the company's overall business scale grew steadily. Gross written premiums amounted to 427.37 billion RMB, up 13.1% year-on-year, maintaining the leading position in the industry. FYRP amounted to 94.17 billion RMB, up 13.3% year-on-year. FYRP with a 10-year or longer payment duration reached 39.5 billion RMB, up by 3.7% year-on-year. Third, protection-oriented business grew rapidly. Percentage of premiums from designated protection-oriented products in FYRP increased by 3.4% year-on-year. Both the number of protection-oriented policies and premiums per policy increased. Fourth, the size of sales force remained stable, with its quality being enhanced. The company's individual agent business sector sales force reached 1.69 million people. Monthly average productive agents increased by 40.4% year-on-year. Capitalizing insurance social stabilizing function, we proactively supported COVID-19 prevention and control and major national strategies. Reflecting the social responsibilities of SOE, we immediately donated insurance to help frontline medical personnel, expanded the insurance coverage for 31 long-term critical disease products to include the COVID-19 liability, and provided a specific coverage of 3 trillion RMB to the whole society. We also donated more than 20 million RMB of pandemic prevention materials and funds. Playing the social stabilizer role for insurance in H1 2020, the company net amount at risk increased by 307.3 trillion RMB, delivered claims for 6.7 million policies and an amount of 67.4 billion RMB, providing customers and the funds for emergency medical treatment and pensions. A total of 184.7 billion of loans pledged by insurance policies were issued, and the grace period for premium payment was extended to ease the financial pressure and customers. We proactively served the real economy in a market-based way, supporting the upgrading of traditional industries and development of strategic emerging industries and private enterprises, major infrastructure projects, and the reform of state-owned enterprises. By the end of June, the company supported the real economy through investment in funds, listed financial products, and unlisted equities with a total scale of 2.06 trillion RMB, of which 267.2 billion was newly invested during the year. We are active in supporting major national strategies. The company increased its investment in Greater Bay Area, Hainan Free Trade Zone, along with other strategic emerging industries and alternative investment amounting to 29 billion RMB within this year. The company also provided insurance service to nearly 1,000 BRI enterprises and promoted inclusive health care and integrated elderly care in line with the Healthy China strategy. In H1 2020, guided by the strategy of China Life Rejuvenation Blueprint, China Life further implemented the Jinxing Project for effectively strengthen the capacity in various fields and boost high quality development. In terms of the sales management for strengthened individual agent business sector, we accelerated integration of the two agent sales teams, promoted standardized management and for basic operational units, and further consolidated the foundations of the sales management bank insurance channel. We focused on business transformation and group and health insurance channels, emphasized specialization and capacity building. In terms of investment management, we improved the investment management system to be market-oriented, coordinated account level asset allocation and entrusted investment management, and bolstered our investment capability through research of asset classes optimization of strategies. In terms of operations and services, the company continued to improve refined management, enhanced the entire internet-based and intelligent operational process, increased operational efficiency through integration, and built up a mechanism for continuous tracking and optimization of customer experiences. For technological support, the technological product development team was rebuilt according to the principle of flattening, gradually increasing the vitality and responsiveness of the team. In risk control, we strengthened the digital and intelligent risk management and are developing to centralize the risk management model to vastly improve the efficiency of risk control. That concludes my brief overview. Now I would like to hand over to Mr. Su Hengxuan, President of China Life, to take you through the company's business and operations. Thank you, Chairman Wang. Next, I will elaborate on the company's business and operations in the first half of the year. In H1 2020, the company continued to focus on new business value growth, accelerated transformation and reform, achieved a good growth of its core businesses. The company's gross written premiums have reached 427.37 billion RMB, up 13.1% year-on-year. FYRP increased by 13.3% year-on-year to 94.17 billion RMB. Of which, those with a payment duration of 10 years or longer totaled 39.5 billion RMB, up 3.7% year-on-year. Renewal premiums reached 281.15 billion RMB, up 12.4% year-on-year. Short-term premiums reached 51.13 billion RMB, up 17% year-on-year. We maintained a strategic consistency and continuously developed the long-term regular payment and protection-oriented businesses, while reassuring steady growth of the entire business. FYRP accounted for 99.03% of the long-term first-year premiums, up 0.24% on top of the high base of 98.79% year-on-year. Protection-oriented businesses grew rapidly. The percentage of premiums from the designated protection-oriented products in FYRP increased by 3.4% year-on-year. Both the number of protection-oriented policies and premium policy increased. Following the new layout of the Dingxin Project, which is divided into individual agent business sector and diversified business sector. In order to facilitate the analysis, the data for the corresponding period of 2019 were adjusted on a pro forma basis. In H1 2020, individual agent business sector adhered to the presentation of business value growth and the return to protection type of business. It made great efforts in the transformation and upgrading of sales management, realizing continuous growth of both business value and business scale. The gross written premiums of individual agent business sector reached 356.08 billion RMB, up 10.1%. Among them, the renewal premium were 263.36 billion RMB, up 9.5% year-on-year. FYRP reached 82.24 billion RMB, up 10.7% year-on-year, accounting for 99.83% of the long-term FYRP. The premiums of FYRP with 10 years or longer payment duration amounted to 39.39 billion RMB, up 6.4% year-on-year. After the organization restructuring of the Dingxin Project, the repositioning of the diversified businesses sectors has been clearly defined. The bank insurance channel now has been repositioned to focus on bank agency business with equal emphasis on business scale and value. The channel kicked off the business transformation smoothly. During the first half of the year, the gross written premiums of bank insurance channel were 28.54 billion RMB, up 70.4% year-on-year. The FYRP reached 11.87 billion RMB, up 43.9% year-on-year. The group insurance channel continued to deepen diversified development and improve business profitability and strengthened the expansion of key businesses. During the first half, the gross written premiums of the group channel was 16.5 billion RMB and down 1.8% year-on-year. Short-term premiums reached 14.39 billion RMB, up 3% year-on-year. Other channels mainly include the government-sponsored health insurance business and online sales business. In H1 2020, the premium income from other channels was 26.25 billion RMB, up 24.8% year-on-year. In H1 2020, the sales force reorganization with a strengthened individual agent business sector in coordination with other channels was complete. The size of the overall sales force remained stable, but its quality was further enhanced. By the end of June, the company had a total sales force of about 1.8 million people. The individual agent business sector's agent totaled 1.69 million, of which 1 million were from the original general agent team, while 683,000 were from the upsell team. The latter included the insurance planners team integrated from the bank insurance channel and the sales team from other channels. The quality of team continued to improve. On the basis of higher performance appraisal standards, the monthly average productive agents increased by 40.4% year-on-year. The bank insurance channel account managers totaled 31,000, with the quarterly average of active managers increased significantly. The number of group insurance sales agents was 53,000, of which the number of the high-performance agents increased by 15.9% over the end of last year. The company is also committed to technology-driven China Life strategy. In H1 2020, we further promoted the company's digital transformation and accelerated the technological innovation, actively used digital technologies to quickly respond to COVID-19 pandemic, and empowered business development. Technological strength is transformed into productivity in a quicker pace. On one hand, technological innovation has been accelerated. First, the company optimized the technological governance, established a management system based on tech products, and proceeded with the construction of the innovation incubation center and the R&D sub-centers. Secondly, the company established four innovation-themed labs in the insurance technology, cloud computing, infrastructure, internet security, and blockchain, and carried out more than 30 research projects, developed 6 AI models, and applied them to business fields such as sales, operation, and risk control. Third, ecological services with insurance at the core became more abundant, and the synergy effect gradually came to fruition. On the other hand, digital transformation has accelerated in an all-round way. First, online recruitment, online training, online business development, and online agent management were greatly improved. Second, field office and digital scenarios were enriched through the use of the Internet of Things and AI to ultimately strengthen online/offline integration. Digital services were fully integrated into frontline operational units and sales teams. Third, online services were rapidly upgraded. During the pandemic period, the advantage of China Life's hybrid cloud was fully utilized, with the service capacity increased by 6 to 8 times. An explosive demand for internet applications were properly met. In H1 2020, the company adhered to the customer-centric principle and further promoted the upgrading of operations and services to be more internet-based, intelligent, and ecological. We provide more convenient and efficient services. The rate of our paperless insurance application for individual long-term business and group business reached 99.8% and 96% respectively, while the efficiency of claim payment increased 13.2% year-on-year. We provided more intelligent services. The automated approval rate of underwriting increased by 3.2% year-on-year. The approval rate of the automatic policy administration reached 98.2%. The amount of services provided by intelligent online customer service robots and intelligent outbound calls. Robots increased 78.9% year-on-year. We provided more diversified services. We linked the China Life Insurance application with Guangfa Bank's credit card services, with the average monthly active users of the China Life Insurance app rising 55.6% year-on-year. The online scenarios-based customer day had 120 million participants. We provided more considerate services. The company fully carried out the zero-contact services once the service online customer service agent promoted electronic long-term individual insurance policies, simplified the claims process, and realized fast processing and payment of COVID-19 claims. In H2 2020, the company will continue to aim for high-quality development, adhere to the business guidance of prioritizing business value, strengthening sales force, achieving stable growth, upgrading technology, optimizing services, and guarding against risk, and striving to achieve progress in the following key areas. First, maintain good growth momentum while ensuring stability on the basis of ensuring steady business development in general. We will focus more on individual agent business sector and NBV growth, while giving full play to coordinated development of diversified business sectors and maintaining good momentum for core metrics. Second, enhance quality and efficiency, stick to the NBV-oriented business plan, and put quality and efficiency first. Continue to boost the protection-oriented business, stick to the same guideline of improving quality while enlarging scale for sales team, enhancing the day-to-day management and training, and improving sales force retention and productivity. Third, further carry out the reform measures. Vigorously implement intensive projects, specifically the key transformation projects in investment operation services, sales team, et cetera, and continuously reap reform dividend. Fourth, strengthen technology empowerment. Focus on capacity enhancement, continue to strengthen technology innovation, accelerating the building of R&D centers and the tech incubation center. Fifth, guard against risks. Upgrade the intelligence level for risk management, strengthen control of key risks, and avoid systemic risks. I will now hand over to Vice President, Chief Actuary, and the Board Secretary, Mr. Li Mingguang, to present the company's financials, investment in performance and embedded value. Thank you, Mr. Su. Next, I will present the financials and investment performance, as well as the embedded value of China Life in the first half of 2020. In the first half of the year, the company's total revenues amounted to RMB 504.43 billion, up by 12.5% year-on-year. The company's gross written premiums amounted to RMB 427.37 billion, up by 13.1% year-on-year. The company's gross investment income amounted to RMB 96.13 billion, up 8.1% year-on-year. Net investment income amounted to RMB 77.39 billion, up 7.4% year-on-year. Net realized spread gains on financial assets were RMB 15.48 billion. Impairment losses on financial assets were minus RMB 4.67 billion. The net fair value gains through net profit and loss were RMB 8.61 billion and the disposal gains and impairment losses of associates and joint ventures were minus RMB 0.67 billion. Regarding the expense structure in comparison with the same period last year, the underwriting and policy acquisition cost ratio increased from 10.17% to 11.2%. The administrative expenses ratio decreased from 3.78% to 3.38%. The percentage of administrative expenses to the total administrative expenses and underwriting and policy acquisitions cost decreased from 27.11% to 23.17%. The company's expenses structure change was mainly driven by the growth of the business scale and the optimization of business structure, combined with the strengthened cost control, strict office administrative expenses control, reduced non-urgent and non-essential expenses. In the first half of 2020, the net profit attributable to equity holders of the company was RMB 30.535 billion, down 18.8% year-on-year, due to the combined impact of the update of discount rate assumptions for reserves of traditional insurance contracts, the adjustment of pre-tax deduction policy of underwriting and policy acquisition costs adopted in the corresponding period of 2019, and the change in gross investment income. The weighted average ROE was 7.36%, down 3.78% year-on-year. The earnings per share was RMB 1.07, down RMB 0.25 year-on-year. Now, let me move on to the company's statement of financial positions. As of June 30th, 2020, the company's total assets increased by 6.4% to RMB 3.97 trillion, from RMB 3.73 trillion at the end of last year. Total liabilities increased by 6.8% from RMB 3.32 trillion to RMB 3.54 trillion. Reserve of insurance contracts were RMB 2.86 trillion, of which the residual margin was RMB 821.2 billion. As of June 30th, 2020, the company's equity attributable to equity holders totaled RMB 415.91 billion, an increase of 3% compared with the end of 2019. In the first half of 2020, the company's equity attributable to equity holders increased by RMB 12.14 billion, which the net profit attributable to the equity holders increased by RMB 30.535 billion. Other comprehensive income increased by RMB 2.27 billion, and the dividends paid to shareholders was RMB 20.83 billion. As of June the 30th, 2020, the company's core solvency ratio was 258.24%, and the comprehensive solvency ratio was 267.31%. The comprehensive solvency ratio decreased by 9.22% from the end of 2019, mainly due to factors such as the continued growth of insurance business and investment assets, and dividend distribution, and the market environment changes including the downward interest rate, et cetera. Moving on to investments. In the first half of 2020, with a continuous expansion in investment assets, the balance of fixed income assets increased and the overall interest income of the portfolio grew steadily. We also increased our specialization, flexibility, and comprehensively controlled our investment risk. We have also boosted our asset quality and the value. In the first half of 2020, with a continuous expansion in investment assets, the balance of fixed income assets increased and the overall income of interest of portfolio grew steadily. However, due to the sharp decline of interest rates during the year and delay of the dividend payment from some listed equities in the portfolio, the net investment yield was 4.29%, down 0.37% from the same period of 2019. At the same time, the company closely followed the movements in the market and flexibly adjusted the investment tactics and allocation pace. Against the backdrop of sharp declines in the yield and the larger volatility in the market, the gross investment yield remained generally stable compared with the same period last year when equity market surged broadly. By the end of June, the investment balance exceeds 3.78 trillion RMB, up 5.8% versus 2019. In terms of investment portfolio, term deposit increased from 14.0% to 14.8%, and debt from 39.48% to 38.53%. Equity and investment bonds, excluding money market fund, from 11% to 10.66%. Debt financial assets are from 11.62% to 11.34%. The company has followed the company's market closely and followed the discipline, and the market risk is generally controlled. In terms of interest, we have flexibly adjusted the allocation and the pace of adjustments and reduced the impact of the interest rate on the return and controlled the risk of interest rate. In terms of the price risk, we strictly followed the investment operation planning, and we also followed the upper and the lower limit and carried out rebalancing in real time. The market risk is generally controlled. We have always maintained a prudent investment strategy with a good quality of fixed income in assets. In the first half of 2020, our credit bonds exceeded 570 billion RMB, of which over 96% had AAA ratings. The total amount of non-standard fixed income assets exceeded 510 billion RMB, with over 99% having AAA external ratings. In the first half of 2020, the company's newly added non-standard fixed income investment exceeded 66 billion RMB, all of which having AAA external ratings and a well-controlled credit risk. Next, let me move on to embedded value. First of all, I would like to introduce the value of the first half of sales. In the first half of 2019, the company's value of half-year sales was 36.89 billion RMB, up 6.7%. The value of the first-year sales of individual agent business center was 36.56 billion RMB, up 9.7%. In the first half of 2020, we stick to high-quality development despite the shock by the pandemic. The FYRP of 10 years and more had a smaller share, but the designated protection type business grew rapidly. The number of policies and the premium per policy both increased, so that the individual business maintained this profitability level. As of June 30, 2020, the company's embedded value was 1.0159 trillion RMB, up 7.8% from the end of last year. Of which, the adjusted net worth was 520.2 billion RMB, up 7.7% from the end of last year. While the value of in-force business was 495.7 billion RMB, up 7.9% from the end of last year. After considering the diversification effect, the company's value in-force business after cost of required capital was 532.9 billion RMB, and its embedded value, 1.0531 trillion RMB. Let me now move on to the embedded value. From the end of 2019 to the end of June, you will see here the following items. The return of 39 billion, and that reflects the expected return and the exactly return of the ROE. In the first half of the year, the net credit value and the operating experience variance are the following. The investment return variance of 39 billion RMB, and the model change and evaluation are minus 240 million. The holdings value and others, 8.6 billion RMB. In exchange rate, 110 million RMB. In the first half of 2020, actually the dividend distributed was 20.8 billion RMB. That's the end of my presentation. Thank you. We will now begin the Q&A session. Many of our friends cannot make it to attend the offline meeting here, especially those from Hong Kong. We have collected the questions from the community and collected the viewpoints and recommendations. There are two outstanding issues from the comments we collected. The first is that in the recent years, the new sale value of the company outgrew the industry. Is it sustainable? How can the company stabilize the size of the individual agent team, which is at the peak level? How to maintain the productivity? Other questions, please. In terms of the new sale value evolution, it is fair to say that in recent years, the growth rate has been decent. In the recent half of the year, despite such a challenging environment, we achieved a growth of 6.7%. That is not easy to achieve. There are several reasons for such good development. The company has always advocated a principle, focusing on value, strengthening the team, optimizing structure, and stabilizing growth. That is our core philosophy, especially the prioritizing value. We also along advocated the need to be customer-centric in product design, sales management, team development. We have always re-emphasized on the customer centricity. As another reason, especially after the start of the Dingxin Project, we always stress on the need to develop technology and the services. These are the fundamental features of life insurance. Customer centricity will, of course, usher in the gains of profitability and efficiency in all respects of customer service. You also ask on whether it is sustainable. If we manage well these underlying work in profitability value, we will see the gains deriving from the fundamentals. As long as we work and make efforts, that'll be good. The next question to you. Okay, let me take up the second question. You care a lot about our team, the sales force. There are several matters to emphasize. The first is to keep consistency and stay focused. Since 2014, we have been enhancing both the scale and quality. We actually reverse the order. Now we put quality ahead of the size. That means we have always been balancing the size and the quality of the team. We want to stay focused and consistent, and adhere to the policy of improving quality and scale, and stabilize our sales force. Second, we also respect the dynamics of sales, whether it is in individual, group, bank insurance, or online sales. Each channel has its own dynamics and law of evolution. We respect them. That is a must for us to do. Over the years, we've been following the dynamics without wavering or flip-flopping. That is the reflection of our commitment to the law of operation. The next one is persistency. Since 2015, we have been transforming the individual agent channel and the sales force. We have been completing the spectrum of the various channels in 2019 and onwards. Especially the second half, we have completed the last piece of the puzzle. The blueprint of our channel has been finalized. But the biggest challenge for individual business and the biggest attraction and concern are all the team, the sales force. The most important is the volume of activities. We need to consistently motivate the managers so that they will autonomously run their business. As the chairman noted, we have also focused on the need of dual centers and dual focuses. We need to always unleash the potential of the workers. In terms of our system of training and education, we also need to consistently and constantly make enhancement and optimization. You love talking about the sales force with us. But after our discussions, you will realize that there are just a number of fundamentals to master, but the key is persistency. We also need to bolster our support. The external environment has changed a lot, but we need to also respect the law of evolution of team management and environment. You have noted the rise of internet. You may ask whether online channels will replace the offline ones. Then we can continuously explore. With the changed environment, we need to continuously improve the level of support. One example is the technology empowerment. Now, for individual business, 99% of the applications were made online. In terms of management tools, analytics tools, AI tools, we have also done a lot. We have also rendered a lot of support in comprehensive financial services. We started late, but performed well. To our sales colleagues, we have provided them with more channels of customer access and provided the customers with more complete financial offerings. We have also supported underwriting and claim processing. According to President Xu just now, you have realized the stride we have achieved in customer service. Products, training and the quality improvement of our administrators and managers, you can all see progress. The sales force improvement is not only about sales colleagues themselves, but the overall improvement of the entire company. The whole company has been working to develop and stabilize the team. Indeed, a lot of efforts have been made. In terms of future development, the moderator raised a question. How can we consider the productivity of different levels of sales agents? Indeed, we have introduced a categorized and a tiered model of operation. As I said, persistency matters. As long as we are persistent, we will do it. Now, I would like to open up the Q&A session to the floor. I know those on site and online are welcome to raise questions. Please identify yourself and your organization. Okay, so many questions. Lady first. Okay. Thank you. I am Sun Ting from Haitong Securities. I would like to first congratulate the company on a wonderful performance. This briefing is, of course, the most successful among all in terms of both quality, sales force, and all other metrics. I have two questions for you. One is about the agents. The market has always a concern over China Life. We always focus on the expenses. As you know, the commission on policy acquisition ratio increased tremendously in Q1 and less for Q2, and the size of the sales force also peaks at 2 million and then fell back to 1.8 million. You also invest a lot of commission and expand the team. Is that a sustainable model? How do you assess the productivity of the commissions and the size up and down of the sales force? The second question goes to President Su. I actually reviewed the Q1 results. You said the target is to have a double-digit growth, but you only made it 6.7%, so lower than a double digit. Do you still maintain the double-digit growth for the whole year target? Thank you. Let me address it. You may add to that. You asked an excellent question to the management. Indeed, as is shown in the tables, the commissions and the policy acquisition expenses ratio increased materially. There were several factors driving it. First, look at the first half of the year, FYRP increased by 13%, and FYRP for 10 years or more by 13.7%. Underlying that is the much higher growth rate of the protection type of business. They will unavoidably lead to a higher commission and the policy acquisition cost. Second, over the past half year, the company has been very successful in controlling the administrative expenses up by only 1.4%. By the adoption of technologies and other management tools, the company has managed very well the expenses and paid and spent the money it needs to pay and spend. Second, in terms of the sales force, after the outbreak of the pandemic, the company resolutely adopted the interim measures to ensure and maintain the stability of the team. That is very necessary. Pandemic is under good control in China, and the market has normalized. The interim measures are gradually lifted. Training, recruiting, and other offline operations of the team are coming back to normal. The relevant expenses will also evolve in the second half of the year and next year, but all these investments will prepare us for the future as a solid foundation. Mr. Zhang, you may add to me. Okay, very briefly about the expenses. From a sales perspective, in President Su's presentation and Vice President Li's presentation, non-essential cost has been downsized, and we encourage people to exercise frugality. From a sales perspective, our premium structure has changed a lot. Although FYRP for 10 years and more failed the target, our protection type of business grew rapidly in terms of the number of policies and the amount of premiums per policy. The protection type business involves higher commission. During the pandemic period, we actually made joint efforts to overcome the impact of the pandemics, including efforts made to boost the sales. We have also relaxed sometimes the performance review criteria that will also lead to some increase of the expenses. The second one is the so-called roller coaster effect that you mentioned about the scaling of the sales force. In Q1 financial statement, we mentioned that with online recruiting, the training needs to be made offline. I keep emphasizing the law of sales channels. Pandemic has caused many changes. There were some suggestions that offline things can be all moved online and the offline operations are no longer needed. So everything can be done online and through director sales. But actually, we have discovered the problem in Q1. There is a rush of the recruiters and the recruited in service industries. Basically, the employees are furloughed. Online recruiting was easier. Training was less rigorous, and there was not much assessment, and less ceremonial. After the pandemic eased, now we have supplemented the offline training, retrain the people seriously and vigorously. There are some objective factors at play. The quality of online recruiting is indeed not as good as the offline recruiting. But in order to achieve high-quality growth, we count on a high-quality sales force. So we stick to the criteria. So those who fail the criteria shall be eliminated. So there are some who chose to join us and then chose to leave us voluntarily. It was also discovered that the online sales was more difficult than the offline one. With these factors compounding the size of the team now came to 1.69 million. As I said previously, we will do a good job in securing future development. Let me address the second question. I would like to thank the analyst from Haitong Securities. In Q1, I mentioned this issue. It is fair to say that for this year, one of our targets is a double focus, namely a focus on value and individual business. That is a core strategy, not only for now but also for the long-term future. We will stick to it. But the pandemic unexpectedly hit us and the global economy in Q1 and caused major changes to all walks of life and all dimensions of the global economy, the Chinese economy, and our own development. A lot of uncertainties have resulted. In China, without exaggeration, China is the best performer in pandemic control. Nonetheless, once the pandemic control normalizes for long period to come, the company still will face severe challenges. As a result of the normalization of pandemic control for such difficulties, challenges, the company will earnestly analyze and assess the situation, and stay true to the facts. When necessary, we may make certain adjustments to the whole year targets. However, the company adheres to high-quality development and put people first. We won't change that fundamental philosophy. We will uphold it for the long term to come. For the people and customers, we'll provide diverse products and services, and we'll make progress while ensuring stability. We will also steadily operate our business and increase our ability of sustainable development and keep our market leadership and stably grow our value and try to score victory of both pandemic control and business growth. Okay, thank you. Now I'll turn to those who join us online. Please press star one to raise a question. Please press star one to raise your question online. A question from Lijian of Huatai, please. I want to thank the management. I want to first congratulate the company on the outstanding performance. Two questions. The first is number of agents. The management just now discussed extensively about the agents. I want to know further, your intended size of the salesforce for the second half of this year and next year. That is my first question. Second, the productivity of the agents and profitability of the products. One dropped slightly, the other rose slightly. The pandemic has such a severe impact, but by operating online, you have achieved successful results with the mitigation of the pandemic. When the agents can meet the customers, can these targets on both increase? How did you manage to cope with the pandemic? Would you even do even better in the future for these two targets? Let me address it first, and Mr. Li is invited to make supplementary remarks. In terms of the size of the salesforce, I already covered it. Over the recent years, we have always been expanding the size and improving the quality. From the questions collected and announced by the moderator, our salesforce now has a big size, which is perhaps close to the record high. I can't guarantee to you a certain size of the salesforce, but we will, of course, stick to the policy, namely, with emphasis placed on both the size and the quality of our salesforce. We'll stay focused and consistent. I'm sorry, this is my answer to your first question very briefly. Second, you also asked about the profitability and the productivity. The profitability is flat in the first half versus the previous periods. The savings-type products have failed the target, but the protection-type business grew rapidly, and combined, they offer the same level of profitability year on year. Productivity slightly increased. You also ask whether the second half is comparable to the first half. The success of the first half was attributable to the preparation we made since last year and the efforts made in the first half of the year. We were also very responsive to the shock of the pandemic. I won't claim we are the first in the market, but at least we are one of the leaders in the market in preparing ourselves for sales and products. I think hard efforts do pay off. Thirdly, after the outbreak of the pandemic, we have witnessed the recovery of the economy. So once recovery is achieved in a locality, our business is also recovered in that locality. So the success could not be achieved without the hard efforts made by the entire workforce. You also asked whether we would copy the success in the second half. Mr. Su gave you the outlook. Also, you would like to know what our whole year targets will be. Of course, we would like to do a good job, but we still face major challenges. There's a time lag in terms of the economy and this reflection in the insurance market. There are some early signs of such time lag. We have always been working. We will not stop. We will keep working hard. I won't guarantee that we will outperform the first half in the second half of the year. We will serve the expectation of the shareholders, our management, and our employees. We will try to give you a satisfactory answer in the second half. In terms of profitability, it was mentioned just now, with our efforts, the profitability has remained stable. We are not too amazed, and you do not need to pursue that too much. I always believe that the strategy of customer centricity shall not place profitability first. The profitability level remains stable. That is because of the diversification strategy for the company's products, which addresses very well the needs of this particular period. During the pandemic period, our protection-type products and business grew rapidly. The success is attributable to both the efforts made by the company and the increased awareness of risks in the community. We need to stay focused on the customer centricity and the diversity of our products. The customer's needs are diverse, so our products needs to be also diverse. Our sales force also needs to be diverse. Mr. Zhang talked about the multi-tiered sales management. We need to motivate the agents of different levels of activity and productivity. Different customers have different levels of needs and affordability for insurance products. We need to take care of all these customers. We will remain customer-centered and guide our product development, operation, team management with such a guideline. In return, we will get higher value and profit. That's all I have to say. Thank you. Back to the on-site participants. The gentleman, please. I would like to thank management. I'm Zheng Qichang from China Merchants Securities. I would like to congratulate the company on the best performance in the global life insurance industry. You have also delivered your commitments. I would like to ask about both supply and demand. First, in terms of supply, what is your strategies? Your strength is nationwide coverage. The company has grown so fast. You are also the number 1 in the industry. Will you refocus on the top-tier cities, and especially penetrate deeper into the high net worth individuals? China Merchants Bank has done a great job in that area and achieved wonderful results. Will you focus on the top-tier cities, fight the top battles, leverage your strengths, and reinforce your supply? Now I would like to ask about demand. The pandemic has impacted all the industries a lot. How would you assess the evolving demand for insurance? There are willing buyers, but because of the tight cash flow, they cannot afford insurance products. Maybe in the next couple of years, which one will be more popular, protection type products or annuity, or pension products? Let me address your first question first and turn to the rest of the management to address your second question. Thank you so much for raising such an interesting topic. Indeed, China Life has always been pondering the question that you asked. Indeed, as you said, from China Merchants Securities, one of our strengths is the complete structure and network that we have. We would like to solidify our county level penetration and focus our offense on the cities. That has been our long-term strategy. In terms of a county level, what I mean is the counties and the lower rural areas below the counties. In terms of the cities, what I mean is the provincial capitals and the developed tier 2 and 3 cities. We now focus on the cities and also integrate those cities into our China Life Rejuvenation Blueprint strategy, implemented through a lot of initiatives and policies, including talent management, performance review, IT support, operational support, services, investment support. All these are focused on the penetration of large cities. First, in the 36 provincial capitals in the first half, their share exceeds the average of the whole system, and the sales force quality is also above average of the whole system. These are good signs. For tier 2 and tier 3 cities, we also attach great importance as our battlefield. In this market, competition is also very intensive. In tier 2 and tier 3 cities, we enjoy certain advantages, but such advantages are under challenges. Therefore, we attach great importance to the tier 2 and the 3 cities. Thirdly, while focusing on large and tier 1, 2 or 3 cities, we also aim to solidify our position in the counties and villages. We have also launched a host of policies enabling that initiative. What we have provided is the enhanced market segmentation. In terms of products for different regions, different groups. Further segmentation is conducted. Second, we also made multi-tier operation of the sales force, as Jen So has said. The county teams have their own strengths. The city teams have their unique strengths, too. For example, as represented by the upsell team, the new teams are on the rise and are mostly successful in the larger cities. The third is the multi-tiered development of the customer base for the high net worth individuals. From products, sales and services, technology support. We provide all kinds of supports in a concerted and cooperative way. For the mass market, we have also adopted the relevant strategies for development. Overall, for large cities, smaller cities and towns, we will neglect none of them. We will solidify our first mover advantage in the lower low-tier cities and rural areas, and also intensively move forward our strategy in the larger cities. That is my answer for your first question. You also asked about the evolution of the situation in the insurance sector. I interpret insurance industry as an important dimension of the supply-side structural reforms. Insurance still under supply when it comes to the satisfaction of people's need for a better life. That includes the supply of products and services, risk protection, et cetera. There remains a lot of work to do. Let insurance come back to protection. It's a fundamental mission. I think that is overall mission. We need to meet the diverse needs of the people for insurance. That includes risk protection in terms of death, medical services, disability, health. People need protection for all these attributes. Also, people need pension care. Usually, we categorize products, pension or annuity are classified into wealth management, but actually, elderly care protection is also a part of the protection in terms of three pillars for elderly care. Insurance covers both pillar 2 and 3. Pillar 3 is particularly about commercial insurance. But actually, insurance can help with both pillar 2 and 3 for pension. We will earnestly develop the protection type business, but we will not overlook the diverse needs of the people. As long as it is a product for insurance, as long as it's a product needed by the people, we will endeavor to provide such a product. This is rather a general answer. For specifics, I will turn to Mr. Li. You asked a complex question. A few days ago, there was a virtual dialogue on the cloud. I was asked the same question in the interview. I would like to first discuss how we assess the needs. I don't know about the situation of other companies. Actually, we do two things. First, we have our own information network. We will also do our internal management to dynamically track the demand. Second, we leverage the third parties in the market to gather facts and conduct analysis on market demand. Our supply of products is flexible and elastic. It is not the case that at the end of the year, we develop certain products and then do nothing in the middle of the year. Actually, our product pipeline is replenished in a timely manner, so flexibility and elasticity are very important. You may also wonder what our focus will be for our insurance offerings. Actually, our focus has never changed. Health, pension will surely become the focus for the future. I want to elaborate on what has been discussed by President Su. Actually, for pension, what is the balance of pillar 1 and pillar 2? How about the demographic structure? The Chinese population is aging faster and faster. The acceleration of the development of pillar 3, especially the commercial pension insurance. That is a key question, and that should start with the young people, not when people are already old. When can we get it started, and when can the potential needs turn into realistic demand? That is a question. In China, population are scattered in a large territory. Their income level, consumption mentality, and the financial tools available to the investors are all different for different customers. A company needs to be prepared for all the possibilities. You can't claim that the market is a blue sea, so everybody should rush to it. There are always blue seas and red seas in the market. You cannot pick and choose. You have to be ready to supply to all these markets, and that is the key for the future. Please rest assured, by the end of 2019, the penetration of life insurance is only 2.31%. That is very shallow. There's still an immense space of expansion. In the course of penetration, we need to stay committed to customer centricity, so the pathway may be different for different players and to different time points. Back to online participants. From Michelle. I'd like to thank management for this question. I'm from Citigroup. Two questions. First, we noticed that over the recent month, for the insurance sales, the regulators have taken a lot of measures, including the requirement of intermediary registration. So the industry has been discussing the new possibilities of agents. Will the agent examination be reinstated? You have 1.6 million agents in China Life. In event of major reforms, including the independent agents system. So what is your thought on how you will cope with the future? Second, you know Ant Group has already filed for IPO and published the prospectus, and China Life is one of its shareholders. You have also tapped the channels of Ant Group and other online platforms. Given such extensive cooperation with internet companies, do you have any particular thought customizing products for online sales so as to meet the needs of the younger generation and their preference for sales channels? Thank you. Okay, let me take that. In terms of the independent agent, consultation is now in progress. That topic was not raised until this year. That has been a discussion ongoing for many years. We also received the notice from the regulators on the solicitation of comments, and we are also making assessments with hope to provide our own opinions. I think you have read about the draft for comments. Different companies have provided different feedbacks. The agency model was introduced into China almost 30 years ago for the insurance market, and the mainland Chinese insurance industry. This model has already given a strong boost, but there have surfaced a certain downside. For example, the tiers, the allocation of interest, and the cost structure. What we understand is that the introduction of independent agency is meant to resolve the weakness of the current model, but it may also bring about other problems. For example, according to the draft for comments, the upcoming model in China still differs from the benchmarks overseas. We are going to provide our opinions, and some attempts were made, especially in the stores of P&C Insurance. In companies, especially those with a large sales force of agents, no such attempts have been made. We are actively preparing ourselves. As I said, while developing teams, we need to respect the law of evolution, and we also need to comply with the mega trend. We will assess what the mega trend is and actively make ourselves ready. On the second question, you raised a question about online platforms. Indeed, in the first half of the year, the whole industry achieved remarkable growth. My company is included. Major changes happened in the first half of the year. According to the regulatory criteria, our online business achieved significant growth. One reason is the development of technologies. Another reason is the boost given by the pandemic to this part of the business. You asked about the collaboration. We do collaborate with some online platforms, including Ant and Tmall. We have a small share. Such collaboration represents a small share in our overall business. Still the mainstay is our own proprietary business. We are actually intensifying our research and exploration in this part of the business, we have set up a proprietary group for the online life insurance company. The traditional life insurers are all making attempts to look for the path. We are a traditional life insurer. We have a huge sales force. How can we do a good job in online sales? This is what we are exploring, and we will be actively promoting this part of the work. Okay, time is up. Thank you very much for attending this meeting. If you have further question, please stay in touch with our investor relations team at any time. Thank you for your time. Goodbye.