Earnings Call: Q1 2019

Apr 26, 2019

Earnings release

Good afternoon, ladies and gentlemen. Welcome to China Life 2019 first quarter results briefing. I am Li Yinghui, securities representative of the company. Mr. Li Mingguang, Vice President, Chief Actuary and Board Secretary, Mr. Zhao Peng, Vice President, Mr. Jiang Jung, Marketing Director, as well as heads of relevant departments participate in the briefing. Today's briefing will begin with a five-minute introduction of the company's 2019 first quarter results, followed by the Q&A session for around 20 minutes, during which our management will take questions from you in the call. Let me hand over to Ms. Hou Jin, Head of the IR division of Board of Directors office for the introduction. Thank you, Lizo. In the first quarter of 2019, facing the complicated and severe external environment, the company steadily proceeded with all tasks by closely adhering to the strategic deployment of China Life Revitalization and achieved the coordinated development of scale and value. The company continuously maintained its leading market position with a good momentum for China Life Revitalization. Firstly, the company recorded a relative rapid growth in its core businesses. In the first quarter of 2019, the company achieved the revenues from insurance business of CNY 272 billion, an increase of 11.9% year-on-year. First-year regular premiums amounted to CNY 66 billion, an increase of 9.1% year-on-year. Our renewal premiums amounted to CNY 178 billion, an increase of 13.5% year-on-year. Short-term insurance premiums amounted to CNY 26 billion, an increase of 68.5% year-on-year. Secondly, our premium structure was further optimized. During the reporting period, the percentage of first-year regular premiums in premiums from long-term insurance of new policies was 98.97%, an increase of 12.23 percentage points from the corresponding period of 2018. The percentage of renewal premiums in total premiums was 65.5%, a slight increase from the corresponding period of 2018. Our protection-oriented business developed rapidly. In the first quarter of 2019, the surrender rate of the company was 0.62%, a big decrease of 3.34 percentage points year-on-year. Thirdly, the sales force is expanding with enhanced quality. As at the end of the reporting period, the total number of sales force from all channels of the company was approximately 1.89 million. In particular, the number of our exclusive individual agents was 1.537 million. The number of sales representatives in the bancassurance channel was 0.276 million. Our monthly average productive agents from the exclusive individual agent channel increased by 37.9% year-on-year. The monthly average number of agents selling protection-oriented insurance products rose by 59.8%, and the monthly average active insurance planners for long-term business in the bancassurance channel grew by 58.7%. Fourthly, the company proactively took advantage of investment opportunities and investment income was improved significantly. As at the end of March, the company's investment assets reached CNY 3.19 trillion, an increase of 2.7% from the end of 2018. The company continued to adhere to its investment strategies of making long-term investment, value-oriented investment, and prudent investment, and the flexibly paced fixed-income investments by studying and assessing the interest rate movements in the markets. For equity investments, our stock positions were maintained at a reasonable level. The company carried out active trading operations and optimized investment portfolios by seizing the market opportunities in the first quarter. As a result of which, income from equity investments increased significantly year-on-year. Hence, in the first quarter, the gross investment income of the company was CNY 50.9 billion. The annualized gross investment yield was 6.71%, an increase of 2.79 percentage points year-on-year. Our annualized net investment yield was 4.31%, a decrease of 0.05 percentage point year-on-year. During the reporting period, net profit attributable to equity holders of the company was CNY 26 billion, an increase of 92.6% year-on-year, and the value of new business for the first quarter grew by 28.3% year-on-year. The core solvency ratio and comprehensive of the company were 252% and 262% respectively. For the next stage, the company will continue to adhere to the strategic deployment of China Life Revitalization, uphold the core strategy of centering on customers and focusing on basic operational units, focusing on business value and emphasizing on broader individual insurance business, and stick to the operating guideline of prioritizing business value, strengthening sales force, achieving stable growth, upgrading technology, optimizing services, and guarding against the risk to accelerate development of its protection-oriented business, continue to strengthen the sales force, enhance presence in the large and medium-sized cities. Also, we will step up efforts in risk prevention and control so as to boost the high-quality business development of the company. Thank you. Okay. 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 two, and tell us your name and your institution. May I invite the first question, please? Thank you. Ladies and gentlemen, should you have any questions, please press star one. Thank you. First question is Leon Tee from Daiwa Asset Management. Thank you. Hi, thanks for taking my question. This is Leon from Daiwa Securities. I have two questions today. Firstly, congratulations on delivering a very strong 28% of VNB growth. In particular, we are very impressed by the significant margin expansion there. My first question is on the factors behind this margin expansion. If management could share with us from a strategic perspective and specific products, and also finally, in your execution through distribution channels, which factors are driving into this very significant margin expansion in the first quarter of this year? Secondly, I would like to gain some color from management on your active ratio of your agents, especially after the jump-start period. Because at the moment, the market is indeed looking into the sustainability of your agent activity into the next few quarters. The thing is, we do understand that the jump-start period is a little bit different in your agent activity dynamics there. For example, in February and March, if there are any significant differences in your agent active ratio compared with the jump-start period. Also, how does it compare with the similar periods in the previous year? Yes. Thank you. 第一问题来自大和证券的分析师。首先是他想了解一下，在第一季度取得了很大的新业务价值率的提升，所以能否分享一下这个利润率提升的原因，包括战略方面、产品方面，以及我们渠道建设方面的原因。第二个是在关于代理人队伍的活动率方面，我们知道在开门红阶段，这个队伍的活动特点和常规的时期是有很大的不同的，所以在二月、三月的这个代理人活动率来看，是否有和以往年度有一些不一样的情况？并且在开门红之后是否会有新的变化？好，我来回答第一个问题，关于利润率提高的原因。今年一季度我们的工作思路就是价值突出多元发展。所以在这个结果上来看，今年一季度这个业务，前四位的产品保障型业务就占了一半以上。这些都这个业务结构的变化，促进了这个margin的迅速提高。 First, about your first question about the margin improvement. During the first quarter of this year, our strategy of the business was to have value-oriented business development with diversification. During the first quarter, for the premiums for the 10 products with the largest premium income, more than half of the products were designated oriented products. That contributed to the margin improvement. 好，第二个问题我来回答一下。刚才提到的第一个方面，是一季度里面，二月份和三月份的这个活动率是否有变化？有一些变化，因为二月份受到我们传统春节的这个影响，活动率是有一些变化的。从整体来看的话，一季度的这个活动率，这三个月还是比较均衡的。第二个就是说二季度我们这个活动率始终是我们要去追求提高的，因为第一，产品销售我们主要是以保障型的为主，所以说需要大量地提高这种活动率。第二，公司在队伍发展的过程当中的话，我们是一直在追求分类分层经营，所以说我们必须去提升我们的活动率。 Second question about the activity from the agent team. We have seen some of the difference between February and March. That was mainly because of the traditional festival factor that is the Spring Festival during the February. But since from the first quarter on the whole, the activity level was quite balanced and quite steady. As we are entering the second quarter, we are still aiming to improve activity level on the agent team. That is mainly because of two reasons. First, we want to further enhance the sales of the protection-oriented business, which will be based on more activity and more productivity from the agents. Secondly, we stress the differentiation strategy in our sales. We also want to enhance the activity and productivity level that is the base to have the differentiated business. Thank you. Next question is Steven Lam with Bloomberg Intelligence. Thank you. Hi. Good afternoon, management. Thank you for taking my questions. Congratulations on the results too. I have basically a couple questions here. One is a simple one. When I look at the renewal premiums for the first quarter, the growth rate seems to have slowed down quite a bit. I mean, as compared to a year ago, in first quarter of 2018, I think you had about 39% increase in renewal premiums. I was wondering is it because there is some maturity, that is why this seasonality is happening? Probably if you look into second quarter or to the rest of the year, are we assuming or can we assume that the renewal premiums growth would be say, give or take mid-teens or between 10%-20% that kind of range, or it could be quite volatile. That is one. Second question is on your investment gains. When I look at your, I think in the Chinese call there is some explanation, but we all understand that the equity market was very strong. I was just curious that if I look at the fair value gain on the P&L, so above the line, above the comprehensive income. I am seeing CNY 13.9 billion in terms of fair value gains. That is for the first quarter. Even if I look back to history in 2015, back in the back then, we did not see that kind of a strong gains. I am wondering to my knowledge, this is the gain under the classification of fair value through P&L. Has there be any changes in terms of some assets got moved into this asset class? But when I look at the balance sheet, I do not see a huge change, so I just want to get some clarity on that. Thank you. 我来。这是来自于彭博的分析师，他有两个问题，第一个是关于续期保费的。他注意到一季度的续期保费这个增速是有所下降的，特别是和去年一季度的39%的增速比较来说的话，是有明显的下降。是不是因为有一些满期的情况，在二季度以及全年来看的话，续期保费的增速大概是什么样的？是不是会有一些波动？第二个问题是在投资收益方面。通过第一场的会议，他也了解到，因为股市的情况很好，所以我们有很多的公允价值的收益。但是即使是在2015年的时候，这个收益也没有达到这么高，所以我们是否在分类方面有一些什么变化？好，我来回答第一个问题，就是续期保费它的增长，既受到了新单业务的拓展，也受到了存量业务交费的影响。那么以往年度新单保费跟存量的业务的影响。对于存量业务，续期保费之中有一些因素的变化也会影响到。比方说你这个交费期长还是短，像本公司的交费期有三年交、五年交、十年交、二十年交，还有更长的一些交费。你这个问题我一下子不是非常好回答，等我会后让他们看一下，再给你回复。你掌握这些影响因素就可以了。那么第二个问题，你关心的是？你要翻译一下。 About your first question regarding the renewal premium. There are a lot of factors that will affect the increase in the renewal premium. Like the FYP in the past years and the existing business and the duration of business of the existing policies. We have different durations, like 3 to 5 years and also 10 years and 20 years. All these factors may affect the renewal premium growth in a certain year. 这个应该是交费期，你可以强调一下。 That is the duration of the payments for- Premium payment. For premium payments. 第二个问题，你关心的就是公允价值变动损益，今年一季度这个金额是比较高，达到了CNY 139亿。主要原因，一方面是今年国内的股市大幅上涨，带来了公开市场权益类投资收益的大幅上涨。第二个确实你也关注到了，我们境内委托资产规模保持平稳增长，其中有一部分是股票投资，那么这部分投资我们分类是分类至交易性金融资产，所以它的市值的变动直接计入当期的损益。那么一季度大概新增权益类敞口大概有CNY 100亿。 Okay。 Your question about the value gains. We had a very large fair value gains in first quarter that is CNY 13.9 billion. One reason is the extreme increase in the open market in A-share market. Another reason is that we have increasing scale of the entrusted domestic assets, and some of the entrusted assets are equity assets, and we allocate it into the trading assets on our statements. So for the market value gains in such category, it will directly record it into the profit. 那么下一步，因为我们整个公开市场的权益投资的占比中位数是大概在10%，下一步我们会根据市场的变化以及我们的判断，更加灵活地去调整仓位，包括对会计分类的一些研究。那么尽量来降低市场波动对当期投资收益以及利润的影响，实现投资收益及利润的长期稳定增长。 For the next stage, we have been following the strategy that the median of our open market equity proportion is about 10%. In the next stage, we will follow this strategy and flexibly adjust our exposure to the equity markets and to use the market fluctuation to benefit our profits and to reduce the fluctuation. Next. Thank you. Once again, please press star one for questions. Next question is Catherine with Merrill Lynch. Thank you. Thank you very much for taking my question. It's Catherine from Merrill Lynch. Just one quick question from me. We know there will be some adjustment in the morbidity table, so I would like to hear from management's view, will this result in a rushing order for protection products before the new table comes out? Also, what's the market practice for ceding ratio for such protection products? Do you actually retain both of the risk premium or actually the risk premium is taken by the reinsurance companies? 没关系，我自己翻译一下吧。我的问题是说这个重疾发病表，我们接下来可能要做一些调整，那我不太晓得，在这个发病表调整之前，我们会不会在市场上看到，事实上保障型的商品会有一波热卖的停售效应？那这个的话，我不晓得，目前在市场上这个保障型商品，我们对于reinsurance company分出去的risk premium占的比重是多少？大部分risk是公司这边去take，还是说主要是在保险公司去take这方面的risk？你这个问题太复杂了。我先试试回答一下吧。严格意义上讲，新表的发布是不是会促进业务的热销，我觉得作为一个保险公司，应该实事求是地跟客户说明白。其实我们现在的定价也不是非常简单地用个标杆表，我们都是要依据本公司的经验来进行定价。新表跟旧表的区别是，新表会更好地指引整个行业进行定价，进行风险计量，所以它两个没有直接关系。所以你这个问题第一问，我只能说这么多。原理上讲不应该有这种联系，这是第一个。第二个就是关于风险的分出。我们高度重视风险的分散和分出。当然我们本身对风险的容纳程度比较高，因为公司的实际资本有数千亿，偿付能力是达到了262%，所以本身有非常庞大的基数来进行风险的分散，同时也是每年都要根据险种的不同，与再保公司签订相应的分出协议。目前我们与再保的合作非常愉快。你说的那个是不是让人家把风险都给承担过去了？我可以告诉你，再保公司经理海，它也是个商业性公司，它也要平衡年度与年度的盈利。所以应该说是一个风险分散，而不能说把风险全给别人了。这种说法本身不符合商业原理，也不符合再保险公司的运作实践。供你参考。 The first question about whether there's a rushing effect after the new morbidity table. We should say that for the insurance company, our sales should be based on customers needs, and for our pricing, we have always been carrying our pricing based on our actual experience. The new table will definitely provide a scientific and better guidance for all the insurance companies. For your second question about the ceding risks to the reinsurance company, we should say for China Life, we have a relatively high level of tolerance of risks. That is based on our strong capital. We have the actual capital of several hundred billion CNY, and we have the solvency ratio at high 252%. It is not fair to say that we should cede more risks to the reinsurance companies. It's only the risk diversification. We should say the reinsurance companies are also smart enough to have the balance the risk and the premiums. Next. Thank you. We have final questions from Kailesh Mistry with HSBC. Thank you. Hi. Good afternoon. Thank you for taking my question. Two questions. The first one is just on new business value. Obviously, very strong growth in the first quarter, 28%. Is your expectation still around the 10% mark for full year 2018? Within that, do you still expect volumes to fall over the course of the year further, given historically your margin was improved over the course of the year? Second question is impressive growth in agents focused on protection and active agents. Could you tell us what proportion of the total 1.53 or 1.54 million agents are active? Secondly, what proportion of those are focused on protection? Thank you. 最后一个问题是来自汇丰的分析师。第一个问题是我们一季度的新业务价值取得了非常强劲的增长，28%，那么对于全年的这个价值上是否还是双位数的目标，是不是有更高的一些能够实现的发展的预期？第二个问题是我们取得了非常快速的增长，在销售保障型业务的代理人以及个险的月均人力方面，那么他想了解一下，在我们的154万人的队伍当中，大概是多少比例是销售保障型，多少比例是基金。好，我来回答第一个问题，第二个问题由张总来回答。应该说一季度的这个新业务价值增长率达到了28%，为一整年的价值增长奠定了一个非常好的基础。我们公司也不会有停下来休息一下的想法，我们会不断地努力，每个季度、每个月度、每天都在努力促进我们的业务价值加快增长。 About the first question regarding the VNB growth, we should say the strong growth in the first quarter lay a solid foundation for the whole year VNB growth. The management does not have any thought of taking a break right now, and we should work even harder for every month, every day to maintain the relatively good growth on the VNB side. 好，我回答一下第二个问题。刚才提到了两个人力，一个是月均销售人力的提升还是比较大的，第二个是咱们保障性销售人力的规模也增长得比较大的。那你提的问题的话，就是下一步我们怎么继续去发展这样一个问题。我想月均销售人力的话，我刚才其实在回答第一个问题的时候谈到了，我们的队伍是要坚持分类分层经营。那月均销售人力，它不仅包含了我们的保障型的产品，同时也包含了长期储蓄类的产品在里面。所以说这个指标我们会继续地去提升它。第二个，作为保障型产品，举绩人力我们在二季度还是坚持重价值发展，所以说人力的这种提升，我想也会保持一个比较稳定的方向去走。 Second question about the agent, especially in the monthly average productivity and also selling protection products. I have mentioned in the first question that we will carry out the diversification strategy in the cultivation and management of agents. For the agent selling protection products, the protection products here means not only the protection but also the long term savings products. Next stage we will put more emphasis on this protection-oriented products. We think that starting from the second quarter, we should keep on following the strategy of value-oriented strategy, and that will also be conducive to the stable growth on the agent side. Okay, this brings us to the end of the briefing. If you have further questions, please feel free to get in touch with our investor relations team at any time. Thank you for participation. Bye bye. Thank you for joining the conference. Thank you.