Earnings Call: Q1 2020

Apr 23, 2020

Earnings release

Good evening, ladies and gentlemen. Welcome to China Life 2020 first quarter results briefing. My name is Li Yinhui, Securities Representative of the company. Today, the management who attends the briefing includes Mr. Li Mingguang, Vice President, Chief Actuary, and Board Secretary, Ms. Huang Xiumei, Vice President, Mr. Zhan Zhong, Vice President. We also have some heads of departments attending today's briefing. Now, we will start with a five-minute presentation on the company's 2020 first quarter results, followed by the Q&A session for around 20 minutes. I will hand over to Ms. Grace Hou, Head of the IR Division for the briefing. Thank you. I'd like to announce our first quarter results briefing for the moment. In the first quarter of 2020, facing the complicated and severe external environment and an expected outbreak of COVID-19, the company adopted a proactive approach for both the pandemic prevention and control in its business development and proceeded steadily with all tasks by concentrating on China Life revitalization and high-quality development requirements. The company realized a continued growth in its core businesses and maintained its leading market position with a positive development momentum. Firstly, our insurance business and new business value achieved a steady growth. In the first quarter of 2020, revenues from the insurance business of the company reached 307.8 billion RMB, an increase of 13% year-on-year. Firstly, regular premiums amounted to 76.1 billion RMB, an increase of 13.9% year-on-year. In particular, firstly, regular premiums with payment duration of 10 years or longer were 25.4 billion RMB, an increase of 2.1% year-on-year. Renewal premiums amounted to 198.3 billion RMB, an increase of 11.2%. Short-term insurance premiums amounted 32.8 billion RMB, an increase of 23.9%. During the reporting period, our protection-oriented business of the company achieved a faster growth, and the percentage of premiums from designated protection-oriented products in the first regular premium rose by two percentage points year-on-year. Especially, our value of new business for the first quarter rose by 8.3%. The surrender rate was 0.28%, a decrease of 0.34 percentage point year-on-year. Secondly, the sales force expanded, and its quality continued to improve. The company kicked off the Ding Project in 2019 under the guidance of the strategic goal of China Life revitalization with fewer centers and fewer focuses as our strategic core. A development system was initially formed, featuring a strengthened individual sales force with an emphasis on its core role of value creation in coordination with the development of group insurance, bancassurance, and health insurance. As at the end of the reporting period, our total number of sales force from all channels was over 2 million. The quality of the sales force was improved constantly, and the monthly average productive agents from the strengthened individual sales force rose by 18.4% year-on-year. Thirdly, a significant achievement was made in technology empowerment. During the COVID-19 pandemic, the company proactively extended our insurance sales online by leveraging on the online platforms such as China Life Inclusive Healthcare and China Life OneService App. The company launched a 24-hour, seven-day online customer services and offer services such as quick claim settlement, online policy application, and electronic insurance policy to satisfy customers' accounts. In addition, the company actively carried out online sales force recruitment and management, established a variety of live streaming and sharing platforms, and reinforced online training and meetings. Fourthly, the strategy of investment allocation was more aligned with the market situations. Our company's investment assets reached 3.68 trillion RMB, an increase of 2.8% from the end of last year. We also took a flexible approach towards allocation to synchronize this and asset duration strategy while controlling the risk exposure of equity investment. It allocated to core equity assets by leveraging on the long-term nature of its investment assets to grasp opportunities in equity market fluctuations. In the first quarter, despite a decline in A-share market and a significant downward trend in interest rates, our gross investment income reached 45.5 billion RMB. Our gross investment yield was 5.13%, merely down by 158 basis points from the corresponding period of 2019, when a significant surge was seen in equity markets. Plus, our net investment income was 38.1 billion RMB, and our yield was 4.29%, a decrease of only 2 basis points year-on-year. Fifthly, the company fought against the pandemic with united efforts. Since the outbreak of COVID-19 in early 2020, the company voluntarily offered complimentary insurance protection against the COVID-19 to medical workers and the volunteers fighting on the front line, covering over 2.5 million people. At the end of the first quarter, the company made COVID-19 related claims payment of 23.2 million RMB, of which 7.8 million RMB was paid to the front-line medical workers. Also, our net profit attributed to equity holders of a company was RMB 17.1 billion, a decrease of 34.4% year-on-year. The core solvency ratio and the comprehensive ratio of the company was 272.15% and 281.57% respectively. For the remaining period of 2020, we will continue to implement national instructions for the pandemic prevention and control in the consensus manner. By adhering to the strategic goal of China Life revitalization, upholding the strategic goal core of centering on customers, concentrating on local branches and field offices, focusing on business value, and strengthening individual insurance business, and sticking to the operating guideline of prioritizing business value, strengthening sales force, achieving stable growth, upgrading technology, optimizing services, and guarding against risks. The company will further promote our reform and transformation, step up our efforts in value creation, team building, reform and innovation, technology empowerment, and risk prevention and control, and threat to make further progress with China Life revitalization. Thank you. Okay, thank you, Bridge. We now begin the Q&A session, which will be conducted in consecutive interpretation. In the interest of time, please limit your questions to no more than 2, and please let us know your name and the institution you represent. Now, may I invite the first question, please? Ladies and gentlemen, we will now poll for questions. If you would like to register for a question, please press star one on your telephone. Thank you. Our first question comes from Michelle Ma with Citigroup. Please go ahead. Thank you. Thank you, management, and congratulations on the very decent first quarter results. I have two questions. One is on the second quarter so far, operating trends. Because the situation has been improved quite a lot from the shocks of COVID-19 compared to first quarter. Have we observed a very substantial rebound of business in the first three weeks of this month? What is our expectation for the rest of the year? Do we expect a V-shape recovery or U-shape or even a slow shape recovery? That is my first question. Second is on the dividend policy. We noticed that in the first quarter, net profit decreased around 35%. Just wondering, any chances that we may tweak our dividend policy a little bit towards some more stable indicator during the year? Could you share some light on this? Thank you. You have made very precise observation. Indeed, our operations and business were hit dramatically in February, but starting from March, we have improvement in the business and continue to turn for the better in this month. It is still so early to jump into any conclusion about the pandemic control. We will remain flexible in the measures we take to develop our business, including combining online and offline measures to expand the sales force and to sell the products. We still cannot predict whether the whole year development trend will be a V shape or U shape. Our goal will remain the same to strive for stable New business value growth, as well as the expansion, as well as the quality improvement on the sales force while expanding the size. Thank you. 关于第二个问题，我在刚刚的年报发布会上也跟大家讲了，公司已经关注到投资者有这些诉求了。我们在未来的分红政策研究过程中，也会考虑投资者这方面的诉求。 About the second question regarding the dividend payout policy. As we have mentioned in our annual results briefing, we are aware of the investor demands and we understand their concern and interest. We will give consideration to the investor demands when making the dividend policy for the whole year. 但是我要强调一句，其实分析师也应该是帮助投资者来理解一个事情，就是公司过度的这种平稳分红，实际上对公司的资本和偿付能力等，可能有比较深远的一些影响。所以我们的分红政策会综合考虑投资者的一些预期，也会考虑到公司未来的资本、未来的投资机会、未来的业务机会等等诸多因素。有进展了，我们会及时地与分析师，为资本市场进行交流。 I also think that the analysts should help the investors to understand that for insurance companies, sometimes stable or too small dividends may harm our capability to further enhance the business or to have impact on our assets and also solvency ratio. So when making the dividend policy, we should take into consideration all round factors, including the expectations from the investors, and also the demand on the assets in developing our business and also investment performance. We will take all these factors into consideration, and we will have a timely communication with the market when we make progress in revising the policy. 共同参考。 That is for your reference. Thank you. Okay, the next question. Our next question comes from HSBC in Hong Kong. Thank you. Oh, hi. Thank you for taking my question. Two questions. Firstly, what happened to individual agent numbers in the first quarter? I just wanted to get an idea of whether your recruitment activity continued, and you continue to grow that number. Secondly, just wanted to understand on the new business outlook. I appreciate the idea is to improve new business value steadily across the year. Just so I understand, why did the new business margin fall in the first quarter it seems, versus the prior year? Is it a question of the type of business you wrote, given the circumstances, to then encourage sales later in the year or something like that? If you could just provide some color on that would be helpful. 这个问题是来自于HSBC的分析师。有两个问题，第一个是想更多地了解一下在代理人人数方面变化的原因，因为人数也是有了较快的增长，是否对于活动率有降低要求，造成了人数的增长。第二个问题是关于新业务价值率的。他也理解我们公司对于全年的预期是新业务价值稳定增长，然后能否给出更多的信息。另外第一季度的新业务价值率有所下降，这是出于业务种类不同，还是出于一些其他的原因。好，我来回答第一个问题。这个队伍增长的原因的话，我说从两方面来。从队伍的增量来看，第一点，因为疫情发生以来，公司队伍发展是没有停止的，都采取的是线上的方式。第二个的话，那就是一些人转变。同时的话，在疫情期间，提高了社会公众对保险业的认知度，加上线上面试和培训相对比较简单，所以说也加大了人员的流入。从质量来看。 Regarding your first question about the agent number from different perspectives. First, from the new recruitment. During the outbreak of the pandemic, we have not stopped the recruitment online. Also because of the disruption of the pandemic to some industries, people from other industries may lose their jobs and they may turn to [Foreign language] industry for jobs. With the outbreak of this disease, people's awareness of the protection of the insurance also increasing. So there is higher demand for the agents. Also with the online recruitment process and online interview, it is easier for the new agents to be recruited. 第二个方面的话，从原来队伍的存量上来看，相对比较稳定的。因为队伍里面，我们在疫情期间，公司从销售队伍提供了比较多的支持，专属保障，包括差异化地调整了队伍的考核要求，包括提供了一些产品，来保证销售队伍的稳定性，相对是比较稳定的。当然客观上，由于疫情期间，人的活动受到了限制，在这个期间办理离职的人员相对是比较少的。所以从这两个角度，从增量来看和存量来看的话，就形成了我们队伍增长的主要原因吧。 On the other side, on the existing agents, this part of the agents remain stable. Because, first of all, we provide a lot of supportive measures for the existing agents, including protection against COVID-19, and also differentiated KPI evaluation system. Also we provide supportive platforms to sell the products, and also special products to meet the customer's demands. So the existing agents, they are quite stable. Also because the offline face-to-face activities were limited, there were decreasing number of people termination their contract with the company. So we have seen more people are staying with the company. 这个我再补充一下。因为线上培训和线下培训的效果是有差异的。那就是说，我们在疫情期间，实际上我们有明确的规定，在疫情恢复或者结束这个过程当中，我们会对线上的人员再进行一个线下的复训。复训不合格的人员的话，将会进行解约。同时进入到4月份，就是这样一个阶段，已经是一季度的考核期。那对于一季度不合格的这种销售人员，也将会进行解约。线下复训和解约，我们一季度的考核完成以后，这个比例说逐渐地回归到原点。 Because there is still some difference in effect from the online and offline training. We have made a clear statement that for all the new agents recruited online, there will be another retraining offline, when the outbreak of COVID-19 abates. For the people who fail this retraining, we will terminate their contracts. April is the season of performance evaluation for the first quarter business. We will also weed out the low performance activities. After we take these measures, we expect the number of the total agents will return to normal. Thank you. 我来回答你第二个问题。首先是这样，我们今年的价值增长目标是fans目标，还是追求价值率的平稳增长？ I will answer your second question about the new business value. Our goal for this year is to strive for the stable growth of the new business value. 围绕着这个价值增长，实质上讲，我们公司是推出了一个一体化经营的理念。 Around this goal, we have put forward a concept of integration of our business. 那么具体什么叫一体化呢？就是说队伍、业务、科技、服务一体，为客户提供服务。 That means we will take integrated relevant measures in developing our business, our sales force, technology support, and also services better serve the customers. 所以根据这个目标，我们制定了整年的业务计划、队伍计划、产品计划。我们在这个计划里边会出于客户中心，适合队伍发展的这种业务组合。所以就是说在季度之间的，如果单看季度的价值率，可能会发生一些变化，但它的变化更多就是因为客户的这种需求而导致的。当然它不影响我们一年追求的价值增长。 Around this goal, we have made a differentiated development plan regarding the products, sales force development, and also service to meet the customer's demands and to develop products that are useful for the agents. Seeing from the quarterly new business value growth, it may differ from quarter to quarter, maybe on the customer's demand. But for the whole year, our goal remains the same, and we expect stable growth that will not change for the whole year. We think the 8.3% growth in the first quarter was slightly hit by the pandemic outbreak. The situation is now turning for the better. We will also flexibly react to the environment change and the customer's demand change. That is for your reference. Thank you. Okay. Let's take the next question. Once again, ladies and gentlemen, if you'd like to register for a question, please press star one on your telephone. Thank you. Our next question comes from Leon Chiu with Daiwa in Hong Kong. Please go ahead. Thank you. Hi. Thanks for taking my question, and again, congratulations on the very strong result given all the headwinds in your operating environment. I just have one follow-up question on the margin. We understand that margin was diluted a little bit given the special environment happening in the first quarter this year. I just want to understand that for a longer term, not necessarily just 2020, what's our strategy in terms of the product mix upgrade? Shall we still be looking at the margin heading up? Part of this question is regarding the recent definition change on the critical illness products. How do management think this will relate to the margin for longer term? Thank you very much. Thank you, first of all, for the good words on our performance. No worries. I remember that for the revision draft for the definition change, the China Insurance Regulatory Commission is on the official website in Chinese. Where do you read the English version? Let me think. Yes. We read both the Chinese and English version. You have been very sensitive about the change in the industry. I think that this draft is only for public consultation. It has not been officially published. In my opinion, the main aim and the guideline of this new draft is that the critical illness insurance should be more in line with the practice of the medical treatment, and the claim settlement of the critical illness insurance should more precisely match with the expenditure of the patients. With this as the aim, we think that for our products, maybe in the future, the controversial clause may decrease, and it will help improve the risk control for some respects. 还有一些对于那些特殊的一些，容易引起消费者不理解的一些特殊的病种，或者是发生率很小的病种，或者重叠的病种，也不允许不声明的情况下就包含在内。也就是消费者更能明白地消费。 Another impact is that for some rare diseases, and for diseases with very small morbidity rates, the insurance company cannot just include that in the scope of insurance without clear statement to the customers. That is to protect the customers' rights. 所以我总结一下，这一次修改基本上贯彻了几个原则。第一个是坚持了一个公平的原则，第二是坚持了一个可测性的原则，还有一个与最先进的医疗技术相一致的原则。 To summarize, I think there are several principles we can see in the revision of this definition. That includes based on fairness, and the predictability, and measurability of the payment. It is going with the time. 那么刚才介绍的这个改变，实际上对保险公司未来的运营是有好处的。保险公司销售产品的难度，包括美誉度都会提高。 These principles actually help healthy and sustainable operation of the insurance companies. In the future, the difficulty of selling may be mitigated and the reputation of the company will increase. 至于对margin的影响，应该说margin本来就受很多因素的影响，一个是保险发生率的控制，一个是对投资的运用，还有对成本的一些节省。所以现在简单地说未来的margin会提高，有点太武断。 As for its impact on the product margin, we should say the margin is determined by various factors including the morbidity rates, the performance of the investment, and also the cost control of the company. We cannot jump into any conclusion based on the revision of the definition on the margin of the company. 我们公司的产品政策跟mix政策都是以客户为中心，而不是单产品最高盈利性。 For our company, our products combination, product mix, is based on the customer's demand. It's not in the high margin of specific products. 应该说有了客户的长期利益，才有公司的长期利益，股东的长期利益。 We should say, only if the customer's long-term interest is satisfied, we can see achievable interest of the company and also interest of the shareholders. 我们也会在保险风险管理，在成本、基于那方面不断多做努力。 We will keep working hard in controlling the risk for the insurance business and also cost control. 多说这样。 That is for your reference. Thank you. Okay, thank you. Thank you very much. The end of our 2020 first quarter results briefing. If you have any questions, please get in touch with our IR Division team at any time. Thank you for participation. Good night.