Ladies and gentlemen, thank you for joining the conference call today with regard to Ping An Group's 2021 first quarter results announcement. My name's James Garner. I'm the Group Chief Capital Markets Officer, and I'm gonna host today's call. On the call is Mr. Jason Yao, Group CFO and Chief Actuary, and also Mr. Richard Sheng, the Board Secretary and Brand Director. This conference call is gonna be conducted in English and will last for approximately 30 minutes. To allow for more questions, please ask no more than one question at a time. Please also clearly state your name and the name of the company you represent before asking your questions. Thank you.
Thank you. Ladies and gentlemen, we are now moving on to the Q&A section. If you would like to ask a question, please press star one. Thank you. Yes, and now our first question—sorry, and our first question comes from Thomas with Goldman Sachs. Thank you.
Thank you. Hi, hi, James. Hi, Jason. A couple questions. Firstly, on the P&C side, I see combined ratio improved year-on-year. But can you sort of give a little bit more color? What's the auto combined ratio have done, and what's the non-auto have done? And secondly, on the life operating profit, it's good to see recovery to very strong growth. Just again, a little bit more color, what's driven that? What's changed versus the second half when life operating profit was the, I think it was year-on-year decline, I mean, the fourth quarter. So what actually changed? Thank you.
Okay. For the P&C business, the first question, overall, the combined ratio has been fairly stable, 96.5%, a slight improvement from the same period last year. For the P&C business, as you can see, overall, the premium growth, we still achieved quite about 5% total premium growth. But within the auto sector, actually, it is a decrease because that is related to the overall demand, and also related to the virus situation. The other non-auto business has been increasing quite strongly.
Regarding combined ratio, I think overall, the first half, the auto combined ratio has been fairly stable compared to the same period last year, and even to some extent has been slightly lower because some of the activities, like, the acquisition expense, marketing expense, have been lower compared to the same period last year due to the overall virus situation. So the other business, the combined ratio to like non-auto has been also fairly stable. Group accident health has been stable, only credit insurance slightly increased to some extent due to, also due to the virus situation. I think, we're still going to monitor closely for the auto business down to the second quarter and into the second half.
So we do not disclose the combined ratio by business line during the first quarter results. But we will still pay attention, because in the first quarter, there are still some noise, just like, say, some of the expense, you have been, the marketing activity has been slowing down. Some expense has not been incurred. But I think in the second quarter, when the situation improved, then the business grows, some of the expense will also pick up to some extent. And later in the second quarter or the second half, some of the other clients will also come up to some extent.
Regarding the life operating-
Yeah. Sorry, if I can follow on that. Also, we kind of would expect the claims to be much lower. Is that something you kind of seen but still provisioning for a sort of normal year, or have you not just- t hat you're keeping the provision the same level, even though claims is lower?
We have, you know, according to the normal practice, but of course, in the first quarter, due to the virus, people don't drive, right? Less cars on the road. A few cars on the road. Of course, the claim that the accident has been lower compared to the same period last year, then we have to- w e will reserve accordingly. So to some extent, the loss ratio is coming down. But at the same time, you know, CIRC also has some regulation to some extent. Some of the policies, if they don't, like in Wuhan, you have to maybe extend the policy for another one or two months.
Originally, the customer pays the premium for 12 months coverage, but now he may get coverage for 13 months due to the virus, something like that. So we still have to monitor that, right? But of course, the claim in the first quarter did come down because fewer people drive, right? Yeah.
Yeah. Got it.
Okay, regarding the life operating profits, still we see some pressure because the overall the new business value growth, as you can see, has been active largely also due to the virus situation. A lot of face-to-face marketing activities, agent meetings cannot happen, you know, due to the virus. So the growth has been slowing down. The operating profits for the life in the first quarter still see some quite a strong growth because some of the business is still in the release of residual margin is also largely from your in-force business, and also some of the operating variance has been fairly good compared to the same period last year.
The other reason is also, the tax situation also, because, the new tax, requirement, the new tax rule was effectively, become effective, in May, right? May last year. So, in the first quarter of last year, you still have to pay a little bit high tax due to the commission is still not deductible. So the tax has been, tax rate has been lower, this year, the first half. So these are the reasons. But of course, going forward, we do expect the second quarter, the life operating profits, the growth will come down, will come down a bit.
Got it. Can I sort of just, I guess, follow just a little bit on?
Can we, can we move to somebody else, please?
Sure. Sure, yeah.
Thank you. Our next question is come from Shengbo Tang with Nomura. Please go ahead.
Actually, the question I just want to ask is still about the P&C business, but it's already asked by Tom. So I've got another question, which is regarding the credit guarantee insurance business. So since, you know, because of the P2P tight regulation, and also because the credit card or sort of, you know, consumer finance business, LPR rate is also increasing. So, what's the outlook for the credit guarantee business? Will we keep growing the business at double digits? A lso, what's the outlook for the overall profitability of the credit guarantee business? Thanks.
I think our credit business is only, we work only with in-house business. We don't work with other outside companies. So basically, our credit insurance is very tightly linked to in-house business. And historically, in-house business, their consumer finance business has been, the credit situation has been much better than the market. So overall, this business is, it is a profitable business, and the combined ratio is lower than the other business, et cetera.
But of course, I think this year, this year, due to the virus, particularly in the areas like Hubei province and Wuhan, we do see that from the consumer finance business, the loss ratio has gone up due to the virus situation and also the collection process has been totally stopped. So I think there are some impacts in the first quarter, and there are going to be additional impacts in the second quarter due to the time lag, you know. So I think in the first half, we will see some pressure on this credit business.
But overall, I think in the second half, since all the other things gradually go back to normal, the business itself in the second half should improve. But of course, this year, in the first half, the credit insurance business will see some pressure.
Thank you.
Thank you. Our next question comes from Andrew Kim with JP Morgan. Please go ahead.
Yeah, thank you for the opportunity. I have one question about the product mix. So the product mix has temporarily changed in Q1. My question is for the rest of the year, could we say that the life product mix will return to the normal very quickly, driving higher margin? Thank you.
I mean, the life product mix, they were-
Yeah.
-I think in the first half the product mix changed a little bit. I think largely still in the first half due to the virus situation it is the sale of long-term protection type of products has been slowing down due to you know you still have to have face-to-face meetings. So the selling of those products compared to the same period last year the proportion has come down a little bit. At the same time during the first half we sold some like short-term protection type of products short-term health-related products.
Those products are still protection type of product, but they are really short term, like one year. So overall, the margin on those product is lower. But the purpose of selling those products is during those period, those products are actually quite good to accumulate or store potential customers. They suddenly have the need to have some protection. A short-term product is relatively easy to sell, and people are more accepted to that. So we accumulated quite a large number of customers through those products. So after the virus outbreak, I think we can go back to those customers to start sell a long-term protection type of products.
So, this is the strategy we have been implemented for the first quarter due to the virus situation. So that's why you see the overall margin has been decreased a little bit. But I think that is also related to the strategy and also due to the virus situation. So I think after the virus situation, overall, our product mix still going to be fairly stable. We will still sell the same proportion of protection products, high-margin products.
That's very clear. Thank you so much.
Thank you.
Thank you. Our next question comes from Michael Chang CIMB. Please go ahead.
Yes, thanks for taking the question. My question primarily relates to the opportunities post-COVID. I mean, two of the things that have emerged is clearly it has become much easier to recruit agents, and secondly, it's easier to sell health insurance policies. Maybe can you comment on the quality of the new recruits over the last few months? Has there been any change in the quality? And secondly, on the health insurance front, is it really just an opportunity for more short-term health insurance, or are there opportunities, much more opportunities for the long-term critical illness, high-margin products as well? Thanks.
Yeah. I think, yeah, yeah. So everything we, you know, you know, we have to look after the virus, right? So the growth will resume after the virus situation. So all the life companies currently, the reform we have been undergoing is basically, we have two driver engine. The first one is the channel, basically the agency, agent team. The second is product. So regarding the first engine, the agency force, so recruiting is also, yeah, it is, extremely important. You know, still, I think, going forward with China, that the growth model still, is going to be, combination of both. The first is increase the number of agent at a very steady rate. The second is to improve productivity.
So I think the agent side, yeah, we do see, you know, due to the virus, like at the end of last year, you know, the industry are talking about it, it is quite difficult to recruit agent now. But I think after the virus, during the virus, and the situation may have changed a little bit, you know, due to suddenly the people in the market looking for jobs has really increased. So I think in the first half, we do see some positive signs that the candidates to be agent has been increased, a large number applying online. So we have conducted a lot more online interviews and also online trainings.
So basically, there's opportunity to increase agent. But at the same time, you know, we still have to maintain the requirements, the recruitment requirements. And also still take some time for those online application to be actually converted to be offline agent. So I think that's why you see the number of agents in the first quarter compared to the beginning of the year, still decreased slightly 3%. Hopefully, in the second half, we can see some additional new agent joining, and the sales or the number of agents will pick up to some extent. Then regarding the product, we still going to focus on high margin long-term protection products.
But of course, with various, like rare disease, like, some of them is whole life plus rare disease, some of them is with a, with some, return of premium, features, et cetera. So then also we will also, you know, comply with with the new the CBRC's new regulation on on the critical illness definition. So I think we will have roll out new products maybe in a few months with this new product, which are compliant with the new requirements. So I think we have been working on that, you know, a lot of products have been undergoing yeah.
I'll just add, I mean, the opportunity set for our group is much bigger beyond our traditional businesses. One of the big things that the virus has had an impact on is that it's really advanced the development of the Chinese digital economy, probably by about 5 years. And this will have a profound positive impact on the medium-term development for some of our 11 technology businesses. Some of which during the virus period have actually seen a material increase in activity due to the virus. So I'm not just talking about Good Doctor, which has obviously seen, you know, a big increase in visits. It had over 1.1 billion cumulative visits from the middle of January to the middle of February, but also Smart City or Smart Education Ecosystem.
The opportunity set medium term from the virus, from the advancement of the Chinese digital economy, actually, is much broader than just thinking about it from a health insurance perspective for our group.
Thanks, James.
Thank you. Our next question is come from Steven Lam, with Bloomberg Intelligence. Steven, please go ahead.
Hello, James. Hi, Jason. Yeah, also a quick question on the life insurance side. So given we have a couple of weeks, a few weeks into April, could you give us some idea in terms of the change in the momentum or the pickup in sales on the life insurance side? And also on the recruitment side of things. And also, you know, on the same tangent, any comment in terms of over the next few months, what are the feeling that you get from in terms of the business recovery? Thanks.
Sorry, I didn't hear your question clearly. James, did you hear it?
I didn't. I couldn't hear it either. Could you speak up a bit please, Steven?
Oh, yeah, I'm sorry. Yeah.
Okay. Is this better now? Is it better?
Yeah, it is better.
Yeah. Sorry.
Okay. Okay. Hi, sorry, James and, Jason. Yeah. So quickly, it's on the life insurance. Any color in terms of the pickup in sales in April? What's the main difference between, you know, April and March? Is it simply just because of activities or you also see demand come, kind of comes back in? I mean, given the fact that the first quarter number, it's down substantially, I would imagine the main difference is because, you know, in January, you know, the sales that you guys had were not the same as, you know, the other peers, which really boosted some headline numbers in January.
If we strip that out, can we sort of assume that the recovery going forward will be much more powerful for Ping An in this case, given the technology advantage? Thanks. On the recruitment side, if there's some color on the recruitment side so far in April, that'd be great. Thanks.
I think, yeah, compared to April to March, we see some improvement, but I think still a lot of areas, the restriction of face-to-face meetings has not been released. So we still maybe April, we still face some difficulty. So hopefully we see the March and the June situation, you know, overall within China, the situation will be improved. That's what we hope. April, we still have some difficulty marketing business online. So that's why I think in the first quarter, we do use the online try to, you know, accumulate our customers and find the sources to- c ustomer sources to and go give those customer sources to our agents.
You know, historically, agents try to find their potential customer by themselves. Nowadays, we try to use some of the online tools, like online product introduction, online people training, whatever, to acquire some customer leads, and those leads will be fed to agents offline, so they can try to talk to those customers afterwards, when the situation allows. So this is a new thing we have been experimenting and hopefully we can. This is also a technology-related even new experiment.
We have people working in internet companies, doing those online shows, online videos, then we try to accumulate leads. And regarding recruitment, I think, as just mentioned, you know, we do see some encouraging trends in pickups in agent application, and we also did a lot of increased number of online trainings on products, on the overall sales skills, et cetera. So we hopefully to gradually convert those online application into a real agent number in the second quarter.
Regarding the first half, yeah, in January, if you look at our premium growth compared to some of our peers, we do see, you know, our premium is a bit weak because we still adhere to stick to our strategy. We sort of didn't emphasize too much on the jumpstart short-term product sales. We still stick to our product strategy, protection type of products. So that's why, you see, the premium growth, especially in January, is lagging behind. But hopefully, as you can see, going forward in March, in May, in the second quarter, I think we can pick up the gap in the second quarter.
I think I'll just add another point. As you know, Steven, we started our life reform, which is 16 different projects in the middle of 2018. We're continuing to execute on that reform, and hopefully by the end of this year, you know, we intend to complete that reform. One of the important parts of that reform, one of the 16 projects relates to the life agent force. What we're doing, we're moving away from the old sort of industry mass recruitment model, and we're focusing a lot more on onboarding, you know, higher quality agents. So it's our strategy is also quite differentiated, so that's also something to consider.
Got it. Thank you, guys.
Thank you. And our last question is come from Michelle Ma with Citi. And, Michelle, please go ahead.
Thank you, Jason and James, for the opportunity. My question is on the... Actually, I'm interested in the profile of agents recruited online. Is there any, like, noticeable difference you have observed? Like, they have a better education background, or, they are relatively younger than recruited through traditional channel? What's their productivity look like? Can you give us some color on this? Thank you.
I think regarding the productivity, it is a bit early, you know? So some of them, you know, they're still just come in, and we haven't show a, haven't seen or seen some a lot of data on the productivity so far. Then regarding the profile, I think we're still going to stick to our strategy. You know, one is the AD Program, right? These are the college education background, which previously they work in some other industry and they have decent income, now they want to become agent. And also, you have the other ones.
It's a normal average quality people, you know, as long as they can, they are interested to be an agent and they can pass the exam or interview requirements, we welcome them. So these are still the two sort of channels, two different strategies. So we- I think so far it is a bit too early. I know it is a bit too early. You know, we will continue to monitor that.
A s you just said, once they pass the relevant exams requirements in interviews, they will become the official agent, and they can begin to sell products when the condition allows. So I think it's a bit early, so just wait another one quarter or two quarters.
Okay. Okay, got you.
Yeah.
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