Earnings Call: Q3 2019

Oct 29, 2019

Earnings release

Good evening, ladies and gentlemen. Welcome to China Life 2019 third quarter results briefing. My name is Li Yinghui. Mr. Li Mingguang, Vice President, Board Secretary, Chief Actuary, Mr. Zhao Peng, Vice President, Mr. Zhan Zhong, Vice President, as well as heads of relevant departments that participate in the briefing. Today's briefing will start with a slide presenting on the company's third quarter results, followed by a Q&A session for around 20 minutes, during which our management will take your questions. Now let me hand over to Grace, Head of the IR Division for the briefing. Thank you, Li. In the first three quarters of 2019, under the guidance of the strategic deployment of China Life revitalization, we actively proceeded with all tasks according to requirements for high-quality development and maintained leading market position with good development momentum. Firstly, the company made steady progress in overall development, and our core businesses continued to grow. In the first three quarters of this year, the company achieved revenues from insurance business of CNY 497 billion, an increase of 6.1% year-on-year. Our first-year regular premiums amounted to CNY 99 billion, an increase of 4.7% year-on-year. Renewal premiums amounted to CNY 334 billion, an increase of 5.9% year-on-year. Short-term insurance premiums amounted to CNY 61 billion, an increase of 31% year-on-year. We want to emphasize short-term business is just the accidental and health business. It's not single premium. For single premiums, we still maintain big negative growth rate as we have promised the market. Secondly, the premium structure was increasingly optimized, and the protection-oriented business developed rapidly. During the reporting period, the percentage of first-year regular premiums of the company in premiums from long-term insurance of new policies was 98%, an increase of 8.45 percentage points from the corresponding period of 2018. The percentage of first-year regular premiums with the payment duration of 10 years or longer in first-year regular premiums was 51%, an increase of 15.72 percentage points from the corresponding period of 2018. The percentage of premiums from designated protection-oriented products in first-year regular premiums increased by 8.79 percentage points year-on-year. During the reporting period, the surrender rate of the company was 1.67%, a decrease of 2.78 percentage points year-on-year. Thirdly, the sales force steadily expanded with continuous improvement in quality. As at the end of this third quarter, the total number of sales forces from all channels was approximately 1.95 million, an increase of approximately 0.18 million from the end of 2018. In particular, the number of exclusive individual agents was 1.663 million, an increase of 15.6% from the end of last year. The quality of our sales force consistently improved, and the monthly average productive agents from the exclusive individual agent channel increased by 37.4% year-on-year. The monthly average number of agents selling designated protection-oriented insurance products rose by 49.2% year-on-year. Fourthly, the company proactively took advantage of investment opportunities, and our asset structure was constantly optimized. As at the end of September, the company's investment assets reached CNY 3.44 trillion, an increase of 10.7% from the end of last year. We deepened the market-oriented reform of our investment management system, strengthened the management of assets and liabilities, seized the market opportunities to allocate to long-term fixed income assets, and optimized the structure of equity portfolios. For the first three quarters of this year, investment income from fixed income assets increased constantly, and income from open market equity investments grew significantly. In the first three quarters, the gross investment income was CNY 134.5 billion. The gross investment yield was 5.72%, rising by 231 basis points year-on-year. Our net investment income was CNY 113.9 billion, and the net investment yield was 4.83%, rising by 21 basis points year-on-year. During the reporting period, our net profit attributable to equity holders of the company was CNY 57.7 billion, an increase of 190.4% year-on-year. Our value of new business grew by 20.4% year-on-year. The core solvency ratio and comprehensive solvency ratio were 260% and 272% respectively. For the next stage, we will continue to adhere to the strategic deployment of China Life revitalization, take proactive efforts to fulfill the overall tasks of the year 2019 and make specific deployments regarding the year 2020. Moreover, we will consistently carry out various reforms in great depth, strengthen the sales force development, take lead in the large and medium-sized cities, step up technology empowerment and innovation-driven development, and also enhance risk prevention and control in a practical manner so as to move towards high-quality development. Thank you. Okay. Thank you, Grace. Now we begin the Q&A session. Ladies and gentlemen, we will now poll for questions. If you would like to register for questions, please press star one. Thank you. Our first question comes from Scott Russell with Macquarie. Thank you. Good evening everyone. Two questions if I can. One on earnings and one on new business. The earnings are up 190% for the 9 months. In the third quarter, that means they are up 480%. You have called out the tax rule changes and strong investment income as being two reasons. But I am asking for a little bit more detail on the core drivers of that very strong profitability. You do not disclose the impact of the change in reserving accounting estimates, but I assume that that was maybe a one-off positive in the third quarter. If we adjust for the tax and we adjust for the strong investment income, it still looks like your underlying profits doubled in the third quarter. I would just like to understand what is driving that very strong release, maybe lower claims, lower expenses, whatever it might be, residual margin release picking up. My other question is about new business, and it is just a simple one. Can you confirm that the third quarter VNB rose by around 15%, which is my estimate, which would imply a decline in margins for the third quarter, given that the FYP seems to have been in the high 20s? Thank you. 第一个问题是麦格理的Scott Russell问的。他有两个问题，一个是关于利润的，第二是关于新业务价值的。首先，第三季度公司的利润出现了大幅增长，即使是去掉手续费佣金税前扣除的因素，我们的利润还是增长了一倍之多。所以能不能给出更多利润增长的具体原因，包括准备金的变化，包括我们成本的变化等等，有没有一些具体的解释？第二个关于新业务价值，他想确认一下我们三季度的新业务价值增速是否达到了15%，这个是他的预期。也就是说，第三季度新业务价值率出现了下降，考虑到新单保费是有20%以上增长的。好，我先回答第一个问题。非常感谢。公司利润刚才也讲过，从数据来看，主要增长是来自于两个方面，除了手续费和佣金支出的税前扣除政策以外，主要还是投资收益的增长。那么从前三季度来看，刚才我们也介绍了前三个季度的业绩，受到我们在资产负债管理的这么一个总体理念之下，我们加大了对固定收益类投资提前的一些配置，同时有效地把握了权益市场投资的一些机会，实现了较好的投资收益，这是最主要的原因。 I will answer your first question regarding the earnings. We have introduced in our briefing of the third quarter results. If we take out the factor of the tax deduction policy, the main contributor from the earnings increase is the investment income. For the first 3 quarters, we have followed our concept of asset-liability matching, and we have pre-allocated some fixed income assets, and we also see the opportunities in the equity market and realized some profit. That is the main reason for the earnings increase. 那么其他指标的一些变动，在我们披露的三季度报告中都有明确的列示。时间关系，我在这就不一一再介绍了。那么应该说除此之外，没有影响公司利润的重大因素。 For other indicators, we have disclosed in detail in our third quarter report. In the limited time, I will not go into details, but no other significant factors besides this. 谢谢。关于新业务价值率，我要回答这个问题。应该说前三个季度的价值增长有很大一个成分是源于公司从年初到第三季度末，持续不断地进行业务结构调整，所以贡献了绝大部分的增长。 For the NBV growth, we should say that for the first three quarters of this year, we have achieved NBV growth that is satisfactory. The main reason is we have optimized our business structure from the end of this year, that is the main contributor of the NBV growth. 那么从今年下半年开始，我们更加强化以客户为中心的这种作业理念。所以具体哪一个季度的利润率跟上一季度的利润率有什么样的变化，实际上是客户需求的变化。 Starting from the second half of this year, we are more firm than ever to center on the customer demands. For the seasonal change of the NBV margin, we should say that it may vary because of the customer's needs also different. 在今年的四季度，包括明年也是这种特点。 We expect that to follow in the first quarter and next year. 所以以客户为中心的这种理念会更加地强化。 We'll keep strengthening our strategy of customer orientation. 具体就是说你算你准去不准去，具体我没算过。 For the detailed calculation, I do not have that figure. 你如果有时间到北京来，咱们就是看看你的公司，咱们统一一下。 Maybe next time you come to Beijing, we can keep a detailed look at your models and we will have further discussions. 好。 Okay, let's take the next question. Thank you. The next question comes from MW Kim with J.P. Morgan. Thank you. Yeah, thank you for the opportunity. I have one question about the asset liability management. Clearly the company's liability duration is expanding very faster speed due to the product mix shift. Although recently the China bond is actually rising, that probably be a bit relief. Overall, the asset liability matching would be more challenging and should be more sophisticated. The question is, what would be the company's overall ALM strategy in 2020 under the low interest rate or the bond rate scenario? Could you make any comment on ALM strategy on the C-ROSS phase two standard? Because under that scenario, probably this matching would need to be more sophisticated. Thank you. 第二问题来自摩根大通的分析师，他想问问题关于资产负债管理。据他观察，我们的负债端的久期是有不断地增加的，随着我们的产品结构的变化。那么我们的资产的久期也是在有所增加的，所以资产负债的匹配是不是更具挑战性？特别是在2020年债券的利率下降的情况下。第二个问题是关于在偿二代的二期的这个背景下，可能对于资产负债极限的不匹配也提出了一个新的要求，所以公司是怎么看的？我来回答你的问题。应该说你观察得很仔细，公司这几年不断地优化业务结构，但是从实际效果上讲，我们资产负债管理的工作效果还是不错的。 I should say you have made very good observations of our business structure. We have optimized our business and we have achieved the good results we should say. 我们现在的期限缺口，比半年度时候还要缩短。 For the gap in the asset and liability duration, we have seen it decreased by the third quarter compared with the first half. 应该说我们在一整年的业务计划，跟实际开展业务的时候，都要经过严格的资产负债方面的一些测试。 For our business plan for the new year, we also have carried out detailed testing on all aspects on the asset-liability match. 不只是关心现金流问题，也关心不同的久期，以及对应的资产负债。 We pay attention not only to the cash flow, but also to the asset duration and the matching between asset and liability side. 那么对于不同久期的这种负债，我们的成本控制也是不一样的。 For the liabilities with different duration, we have different measures on the asset side. 重点是防范远期的不确定性。 Our core concern is to prevent the long-term uncertainty. 这是关于第一个问题。 That is for the first question. 第二个问题是什么？第二个是关于偿二代资产负债匹配要求。这个是这样，我们现在积极地参与偿二代相关的这个工作之中。目前应该说具体的那些修改的成果还没有发布，一旦发布了以后，我们也会及时地在市场沟通。 Currently, we have been actively participating in the second phase of C-ROSS, but for the specific revisions, they haven't been publicized to the market. So after they have been public, we will have detailed discussion and disclosure to the market. The next. Okay, next question. Thank you. The next question is from Jenny Jiang, Morgan Stanley. Thank you. Hi management, this is Jenny Jiang from Morgan Stanley. Just a quick question on product side, just for third quarter alone, what was the more popular product? Or maybe you can list two or three? Your sales have been significantly better than peers. [Foreign language] We wonder if management had some statistics, like what percentage of sales are on existing customers, and what percentage sales are on new customers? For third quarter over year to date trends are both okay. Thank you. 下一个问题来自摩根Stanley的张女士，她想问关于产品方面，我们第三季度有哪些产品是特别受欢迎的，就是卖得比同业好，能不能列一到三款产品？第二个是从数据上来看，我们的销售有多少是来自于已有客户的，多少是来自于新客户的。好，谢谢你的问题。应该说第三季度开始，公司保障型业务得到了较快的发展。应该说有十几款产品都比较畅销。这是关于第一个问题。 For your first question, we have accelerated the development of the protection-oriented products. For the third quarter, we have seen more than 10 products that are very popular and we sold them quite well. 那么关于第二个问题，公司从今年年初一直倡导一个概念，就是业务队伍，队伍业务。同时产品的配备也在适应不同的客户的需求，也要适应不同层次销售人员的需求。所以在今年的整体业务过程中，新客户带来的业务占比越来越高。 The second question, starting from the beginning of this year, we have implemented differentiated development strategies on different levels on the sales team, on business and also on the product. We want to sell different products according to different groups customer needs. We have seen selling to the new customers increasing in the total business. Thank you. The next question comes from Kyle with HSBC. Thank you. Oh, hi. Thank you for taking my questions. A couple of follow-up questions. First one is you talk about the percentage of protection has gone up by 9 percentage points. What proportion is protection as a contribution to new business profit or APE? That's the first question. Second question is can you just talk a little bit about your first quarter 2020 jump start campaign? What are the type of products you're targeting? Are there any sort of targets for growth, whether that's in terms of volumes or also new business value? Actually a third one, what is the impact of the new critical illness tables rules that are due to come in in the coming months? Thanks. 下一个问题来自HSBC的佟女士。首先她想问我们提到我们的保障型业务前三季度是有较快的增长，在保障占比提升了9个百分点，那我们能否分享一下保障型在整体新业务或者在利润当中的占比？另外一个问题是能否再详细介绍一下2020年开门红的产品，我们在规模和新增价值增速上有什么目标？另外就是对于即将发布的新的重疾表，对于我们业务有什么影响？应该说是这样，经过三个季度的努力，保障型业务的新增价值整体贡献度越来越高。 We should say after several months of hard working, the proportion of protection-oriented business now accounts for a higher percentage in our new business. 2020年的一季度的准备工作正在紧张地进行中。 We are in very good preparation for the first quarter jump start of next year. 应该说主要的指导思想还是不断地强化资产负债管理，在此基础上实现产品多元化，价值跟队伍的双提升。 Our general guidelines still the asset liability management. We want to sell diversified products and achieve growth in both NBV and our sales force productivity. 关于重疾表，新的重疾表正在研发过程中，应该说它研发以后，对公司的价值评估和GAAP评估不会有太大的影响。因为它属于基础表，公司的这种利差和价值核算都是在基础表基础上，按照公司的经验进行调整，反映的是公司实际。 Regarding the change of the morbidity table, we should say that for the EV appraisal as well as our profit measurement, there will not be very much impact from the revision, because the new table only serves as a fundamental table and the different companies can refer to their own experience. 就回答这么多。 That's all for my answer. Thank you. Okay. Now, we're running out of time. We'll take the last question. Thank you. The last question comes from Steven An with Bloomberg Intelligence. Thank you. Hi, thank you management, it is me again. Just a couple of follow-ups. On the investment side, just curious, how much stocks did you increase in 3Q, if any? Excluding the market value gains, how much billion CNY you have added? Have you also done that in October so far? Similar questions, you mentioned numerous times that you seize opportunities to invest in long-term bonds. We have had various episodes of bond yields going up and down in recent months. For example, October, there is another rally. Did you seize the opportunity this time as well? If so, could you tell us roughly how much you have added? You have also mentioned about on the non-standard assets investments in recent months or since the beginning of this year. Could you give us some color in terms of the return profile or the duration profile of these investments, or maybe in what kind of assets you have invested? Then, sorry, last one on the agent side. Based on my understanding, your level right now is above 1.6 million for the exclusive agents. That is sort of back to the 3Q17 level. Are you comfortable with that? I just want to get a sense of whether you still need to have more headcount. You have mentioned about the productivity has increased. Could you give us some concept in terms of the percentage of your active agents out of the total? Or productive agents? If so, could you tell us the definition of those? Thank you. 这位问题是来自国泰的分析师。首先他想问在投资方面，想具体了解一下在前三季度我们有增配了多少股票，然后在股票方面除了服务之外实现了多少收益。然后在债券方面，我们也提到了，我们抓住机会增配了长期性的债券，但债券的收益率今年以来也有很多上下反复的趋势，所以我们目前也是增配了多少，你看这个趋势。另外在非标投资方面，能否具体地介绍一下我们投的都是哪些资产，他们的收益率情况有记录吗？然后最后是关于代理人队伍方面，我们提到了我们个险渠道代理人大概有160万，这也是回到了17年三季这个水平，所以公司对于这个数据是否满意？然后未来对于代理人的人数有什么计划？提到了代理人产能有增加，那么能否具体地分享一下我们有效人力，还有一些直接人力的占比，他们的定义是什么？我来回答第一个问题。应该说公司对公开市场的权益投资，包括股票和基金，始终坚持一贯的政策，就是我们始终保持着一个合理的仓位，以及一个合理的风险敞口。所以刚才我也讲了，我们实际上是一方面我们在市场的有利时机，抓住有利的时机，做了一些股票的配置。那么第二方面，我们也是在择机进行了一些再平衡操作，通过再平衡操作，一方面实现了一些收益，另一方面也是有效地控制我们的风险敞口。第三个我们也是抓住一下的机遇，加大对核心的一些资产的配置，重点是一些高回报高股息股票的配置。当然总的可以看到，我们整个的公开市场权益投资的比重，股票和基金的比重维持在10%左右，这是我们目前维持的一个比重。这是回答第一个问题。第二问题，就是关于这个，要不你先问一下。 About your first question, for the open market equities, our general guideline to maintain a reasonable exposure and a reasonable exposure to risks. For the first three quarters of this year, we see some opportunities to allocate it to some high dividend stocks, and we also see opportunities to rebalance it to realize some of the gains and also control this exposure. For open market equity, our guideline is to maintain about 10% of our total assets. 那么第二个就是我们加大对长久期债券的配置。今年前三季度，我们也是抓住机遇，在利率有效的窗口，加大了对长久期政府债券的配置。那么今年前三季度增配政府债券超过1,000亿，新增1,200亿。在配置长久期债券的同时，我们也灵活地选择像银行存款、非标、固收等品种。这样的话，在严格控制风险的情况下来有效地提高我们的配置收益率。 Secondly, about the long term bonds. For the first three quarters of this year, we have seized some time window with favorable interest rates and we allocated some long term bonds, especially the government bonds. We have newly added more than RMB 120 billion in government bonds. At the same time, we also allocated to bank negotiated term deposits and also non-standard fixed income to also increase the yield and also control the risk. 那么第三个就是关于非标资产。非标资产应该说我们在信用风险也在风险总体可控的情况下，我们是加大配置的。那么今年新增的非标资产主要配置在这个交通运输、公共事业以及综合等领域，主要是以大型的一些头部企业，包括地方的一些龙头企业为主。那么这些新增的非标投资的久期和收益率，应该说都为我们整体收益率的提高做出了贡献。 About the non-standard assets. Our guidelines are the prerequisite of controllable credit risks. We want to enhance the allocation in non-standard assets. For the first three quarters of this year, the main sectors we allocate from transportation and also public utilities and comprehensive sectors. We also invested mainly top enterprises, both nationally and locally. We want to increase the duration and also the investment yield through non-standard assets. 谢谢。好，我来回答第二个问题。首先感谢你，记忆力非常好，记到了16年的我们这个代理人的数据。刚才在我们的这样一个通稿当中，其实已经谈到我们上半年是166万，比年初我们增长了15.6%。 About the agent force. You have made very careful observation about our figure for 16 years. As I mentioned, by the end of the third quarter, our total agents in the agent channel amounted to 1.66 million. That is increase of 15.6% from the end of last year. 那整个今年上半年的话，整个市场每一家公司，从各个公司的情况来看，有正增长的，有负增长的。我们在这里面是处于一个正增长的状态。应该来说，我们这个队伍发展按照公司既定的目标已经实现了。 For the whole market, we have been differentiated development momentum regarding the agent force. For China Life, we have achieved our goals in the beginning of the year regarding the agent force expanding. 未来的话，公司还是会坚持质量旗帜的这样一个队伍发展策略。 For the future, we will stick to the strategy of improving the quality and enhancing the scale of the sales force. 根据目前对市场的这种判断的话，我们相信整个市场的增速会放缓。那我们在这样一个策略下面，会保持我们队伍的平稳增长的前提下，更加注重于对我们队伍的素质的这种提升。 We expect the total sales force for the whole industry will have lower increase in the future. On the basis of stable increasing, we want to achieve more and more quality improvement of the agent force. 从队伍的产能的这个角度来说的话，公司一直在致力于提升我们公司的这样一个销售队伍的产能。当然下一步的话，我们仍然会从我们的增员入口，就是我们的甄选上面提高这种质量，同时在销售训练和新人培训上面去提升它的质量，加大这种销售支持的力度，不断地提升我们的销售技能，去提高我们整个队伍的产能。 We have made lasting efforts to increase the productivity of our agent force. Like I had mentioned before, we will put more emphasis on recruitment of the sales force and to select more high quality agents. We will strengthen the training and education of the new agents and to provide more and stronger supporting team to the agents so that they can enhance their capability of sales. 好，回答完。 Yes, hope my answer help you. This brings us to the end of the briefing. If you have any further questions, please feel free to get in touch with our IR team at any time. Thank you for participation. Bye bye.