Good evening, ladies and gentlemen. Thank you for joining the conference call this evening, covering Ping An's 2023 third quarter results announcement. My name's James Garner. I'm the Group Chief Capital Markets Officer, and I'm going to host this evening's call. With me today is Mr. Jason Yao, Group Co-CEO, CFO, and Chief Actuary, and also Mr. Richard Sheng, the Board Secretary and Brand Director of Ping An Group, who's also attending the call. This conference call will be conducted in English. It will last for 30 minutes. To allow more questions, please ask no more than one question at a time, and also when asking your question, please state your name and also the name of the company that you represent. Operator, we can take the first question.
Thank you. If anyone wish to ask the question, please press star one on the telephone keypad. Our first question is come from Tianxin Bao with Nomura, and please go ahead.
Thank you very much for the opportunity. I have a question regarding the auto insurance reform. So could you, company, give us some color on the auto insurance reform and what the impact on the auto insurance business in terms of both business premium growth and the underwriting margin? Thanks.
Okay, thank you for the question. Yeah, regarding auto insurance reform, the new guideline, the new rule for the premium regulation has actually began on September 19th. Then, I think it's still a relatively short period of time, but I think the trend is still the overall intention of the regulator is to increase the coverage for customers. At the same time, the premium rate itself is going to be reduced. Then the combined ratio structure with the loss ratio will increase. At the same time, the expense ratio will come down. So that's pretty much the trend so far.
We are still monitoring the progress, but the large trend is, yeah, the premium rates will come down, and the expense ratio will also come down. Hopefully, in the near short term, I think with some of the competition, again, intensified, I think most of company would like to grab some customers before the auto reform. So there is some competition on trying to acquire new customers. So in short period of time, maybe you have some pressure on the combined ratio, but then for the short term and the near term, I think the combined ratio should be relatively stable, and this should benefit like large company like Ping An and the other PICC, et cetera.
So I think, that, that's a brief, outlook. Yeah. So far.
Thank you very much.
Thank you. If anyone wish to ask the question, please press star one on the telephone keypad. Our next question is come from Scott Russell with Macquarie, and Scott, please go ahead.
Good evening, all. Question about life insurance. Trying to marry up the movement in OPAT and VNB during the third quarter. Life OPAT up 16%, VNB down 30-odd%, just for the discrete third quarter. In the past, you've trained us to think about the release of residual margin being heavily driven by VNB, new business trends. Just wondering where that linkage broke down during, during this quarter, please?
Yeah, I think, for the quarter number, maybe have some other elements despite the new business growth and the release of residual margin. I think last year, the third quarter base was relatively lower than I think this year you have a relatively higher third quarter operating profit growth. I think the new business impact will also have some lag on the operating profits because the new business you written in this year, roughly, half of them they were the residual margin will be released this year, and half of them will be released the next year.
So there is a combination of last year's new business value residual margin release from, plus this year's new business value residual margin release. It's a combination of that. So I think the reason for this is just as I explained that the same period of last, the third quarter last year, the base may be a bit low. Then the other thing is the operating variance, maybe for the third quarter of this year, overall, the variance is better, but of course, the new business value growth is still relatively weak compared to the first half.
Thanks, Jason. If you don't mind, can I just preempt a question someone else will probably have just on the margin?
Mm-hmm.
It looks like it's fallen over 20 percentage points again, year-on-year, third quarter, 12 percentage points for the nine months. Maybe just a comment on the products that were sold during the period.
Sure, sure. I think, yeah, overall, although originally, you know, we expect with the virus situation in China largely improved and some of the economic activities has resumed. But in reality, you know, there are still some difficulties having face-to-face meetings with customers. And then I think some customers still have some reservation, you know, meet face-to-face, and also with the economic uncertainty, and it still takes some time for them to suddenly increase their buying need for insurance products. And also, I think, to some extent, usually, the company will hold large meetings to promote protection type of products, but those large meetings, large gathering is still on hold in most of cities.
So that still creates some difficulty selling long-term protection type of products, high margin products. So that still has some pressure. But hopefully, as we mentioned during the interim, like life reform is still going on, and most of the reform projects is going to be implemented by the end of this year. And we hopefully see those impact, the positive results will be gradually shown next year, next year. But as you can see, the margin itself, the other thing, the margin decreased compared to the same period last year.
The other thing is, we also sold some low-margin product, like in the first half, we saw some short-term health-related product, which have relatively low margin. Then in the third quarter, we also sold some like relatively new low margin universal life products, sold through the bank channel and sold through the agency channel. I think this strategy is still quite necessary. It still create a bump, a advantage between the customer and the company. You have some interaction with the customer, and you provide some relatively simple products, but of course, with no margin, but will create the interaction with the customers.
And that can increase also the agency activity ratio, et cetera. So, I think under this year's special situation, I think this strategy is necessary. But of course, at the same time, it will dilute the margin. But, but I think this is our strategy so far. Hopefully, next year, the overall product mix will come back to a normal mix, then the margin will improve.
Okay, thank you.
Thank you. Our next question comes from Thomas Wang with Goldman Sachs, and Thomas, please go ahead.
Thank you. Just a quick question on the agency reform. Can you give us a little bit update, given the agent headcount is still declining, so it's quite a bit actually this quarter. Are you still expecting that reform to complete by year-end? How are you thinking about the headcount by the end of the year? And also, if I could just quickly confirm, did you upstream any capital from P&C to the group this quarter? Thanks.
I think the second question, right, the P&C, I don't think that they upstream any capital. They haven't paid any dividends. But overall, we have our dividend plan for the P&C company. Is that your question? The upstream?
Just want to confirm that there was any capital upstream.
Yeah, yeah, yeah. I think for the half year, we still have agency number around 1 million, 1.15 million agents, and by the third quarter, the number dropped to 1.05 million agents, 8% decline. The reason for that is still, I think the agent recruitment is still largely affected by the COVID-19 situation. It is still relatively not very easy to generate positive recruitment activity.
Then the second reason is, with the virus situation, the overall agent income sort of deteriorated and the slowdown the agency teams, to some extent, their pressure is quite big and the confidence is still affected due to the difficulty of selling long-term protection type of products to generate high income. So some of the agent their motivation to recruit agent is also to some extent or the confidence is affected a little bit. So I think some of the life reform projects have been focused on recruitment. And I think we have been pilot some of those reform in certain branches.
So far, we do see positive, positive signs, and, by the end of the year, we're going to roll out to the all branches. So we don't give a guidance to the end of, to how many agent we'll have by the end of this year. But we do hope by the next year, the number of agents should resume moderate growth. Yeah. But at the same time, we are still, we still should be more focused on reform the overall quality of the agency force and their productivity and their income level. Yeah, this is more important instead of just focus on pure numbers.
The other reason for the decline in this quarter is, you know, we still, you know, sort of some of the low productivity agent or some of the agent with no activity; they left the company. So, yeah.
Thank you.
Thank you. Our next question comes from MW Kim with J.P. Morgan, and MW, please go ahead.
Thank you for the opportunity. So, I have one question about the, the, your back book on the life business. So based on the agent number and also the product mix, it seems that those numbers have a very strong correlation with economy movement. So I just wondering that, how is the company's experience on persistency ratio and also the back book, the quality? I guess that probably a bit more pressure on the numbers, but I just want to confirm and understand overall the outlook. Thank you.
James, did you get-
Yeah.
Did you get the question?
Yeah.
On persistency, right? Yeah.
Yeah. On the persistency, MW, we didn't disclose any persistency ratios. Obviously, the Chinese economy and our life business has been hit pretty hard from COVID-19. So it's reasonable to expect some temporary pressure on persistency. But at this juncture, we haven't given that disclosure. Just one point that I'd like to add, which Jason alluded to earlier, is, you know, the impact of COVID-19 on our life business has been pretty profound, even in the third quarter. It's not just about the inability of agents to do face-to-face meetings, but the macro fallout and the confidence impact from COVID-19 has definitely tempered the demand for individuals temporarily to commit to buying sort of long-term, regular premium protection type products.
So, you know, when we look out to next year, and we think about new business value growth for next year, it's, you know, a key swing factor is going to be the extent to which the adverse impact of COVID-19 starts to ebb on our business. You know, and sadly, that, you know, that's the big swing factor and the uncertainty for next year.
That's very clear. Yeah.
It's much more than just face-to-face, which obviously-
Mm-hmm
... was an immediate impact in the first quarter. In a lot of places we can do it, but the demand to meet agents and do face-to-face has and continues to be adversely impacted. This more from the macro fallout from COVID-19.
Thank you so much.
Thank you. Just a reminder for everyone, if you wish to ask a question, please press star one on the telephone keypad. And our next question comes from Kailesh Mistry with HSBC, and please go ahead.
Hi, good evening. Thank you for taking my question. It's a follow-up on James's comments, actually. So just wanted to ask about your product strategy going into 2021. Obviously, the life reform will be done. In recent years, de-emphasize Jumpstart in that first quarter period. But if the market situation is similar, as you seem to have done in the bank insurance channel in the third quarter, would you look to increase the savings component or the type of savings type business that you offer in order to increase interaction with customers, et cetera? So yeah, just a little bit on this product strategy would be helpful, I think.
Yeah, I think overall our main product strategy is still gonna be focused on long-term protection type of products. You know, this is the Ping An's strength, right? But of course, you know, with a special situation, we to some extent depend on the situation, we have to tune our strategy a little bit. So I think just I said before this year, you know, we do have this COVID-19 situation, which we have never encountered before. So we have to sell some hope products to keep the relationship with the customers, and we also have to sell some low margin savings type of products to basically try to meet their basic needs instead of long-term protection needs. So this year.
Next year, going forward, I think, one big thing is still the regulator just released their new regulation on the definition of critical illness. So the type... So we have to, we will roll out a new series of long-term critical illness type of products. Then, these are ra- those products overall, they have relatively comparable margin with exi- existing products, but with enhanced products features, a-and maybe we can differentiate our product with our customers. At the same time, I think, we are still, we will... At the same time, I think the life company is getting ready to launch the 2021 Jumpstart campaign.
And officially, it will kick off on November 1st. Then basically, it will have two stages. The first stage will end on December the twelfth. Basically, during that stage, we will sell mainly short-term savings type of products. Then after December the twelfth, and we will quickly switch to sell a high value long-term protection type of products. So these are the overall product strategy and the product pace we have been prepared so far. Yeah.
Yeah. Thank you, Jason. Just, just one little follow-up on your point about 2021 Jumpstart. In the 1 November to 12 December period, is the quota that you've got to for Jumpstart higher, lower, the same as this year or last year? However you want to phrase it, or 2020.
I basically can't give you the quota. I want-
Sure.
- to tell you the number, right? But of course, compared to the year and the 2018 campaign, I think this year, hopefully, we will have a higher sales number. Because-
Okay
... in 2018 and in 2019, to some extent, we deliberately suppressed the sale of those products. But actually, we do see there are still a great demand, you know, from the customer to especially high net worth customers. They have this need to buying some of the products. And especially, during this kind of low interest rate environment, this like short-term savings type of products have some advantage, so far, you know, because insurance products, the current guaranteed rate is 3.5%. Then also to some extent, we also have universal life products, which will combine with those basic products. It creates some attractive to the customer.
And I think, as you know, our competitors are already launched this. So to some extent, I think, we switched our strategy a little bit, you know. That's why we also will launch this and, to some extent, the sales will, to some extent, hopefully can increase from last year's number. Yeah.
Sure. Thank you.
Yeah, I think I would just also add that, all insurers in China have a Jumpstart product campaign, both domestic and international. So we, we've always, you know, had a Jumpstart, you know, we continue to have a Jumpstart program. As Jason said, the demand is there.
Sure. Thank you.
Thank you. Our next question comes from Michael Chang with CIMB. Michael, please go ahead.
Yes, hi. Thanks for giving me the opportunity to ask the question. My question also relates to products and the agent force. So Jason previously mentioned that in 3Q, some of the low productivity agents left the company. Admittedly, it's quite hard to sell in this environment for the reasons that James mentioned. It's not just face-to-face, it's also the macro environment, which makes products harder to sell. Maybe you can share some more initiatives aside from the switch to maybe easier to sell short-term products as well as saving products.
What other initiatives do you have in place to retain the agents, especially if it looks like the current environment of, you know, weakening macro or uncertain macro, as well as reluctance to meet face-to-face continues? So just trying to understand a bit more on the agent outlook. Thanks.
Yeah, I think the, I think this question is also related to the overall, the life reform. As we said before, the life reform will basically have three aspects. The first one is on the product itself, right? We have to update our product, launch new products, just I mentioned, especially with the new definition of critical illness type of products, then we are going to launch a new product, try to increase the competitiveness of P&C's product. But of course, P&C's product will not be the cheapest on the market. The second is still on the agency side, agency reform. Agency reform will pretty much focus on agency recruitment, agency training, and agency management. These various projects have been going on.
And recently, I think in August, we have just launched the new reformed or upgraded Agency Basic Law. This is a very important law for the development of agent, right? It's not only compensate the agent, it also provide the guidance and et cetera, the compensation scheme for how the agency team will grow, how to recruit agent and what other companies focus, whether it's going for long-term health growth or short-term, et cetera. These are all the various projects have been going on, hopefully, because life business is not just one single element you can do it.
It's a combination of, you know, product distribution, management, training, and recruitment, et cetera. So hopefully, all of them, it's, it's hard work, and it's also not easy. Hopefully, all we can put them all together. And this year, we have to admit it, it is, it is a quite a challenge and a difficult year, especially also combined with the COVID-19 situation, which is unexpected. That makes our reform a bit more difficult or delayed some of the progress. Hopefully, then the next year, hopefully, some of those life reform result can be shown, then the life business can resume positive growth, in terms of new business value, and also hopefully, maybe the agency number as well. Yeah.
Okay. Thank you.
Oh, the other thing, regarding the first question, I just want to add, for the P&C company, the combined ratio itself compared to the increased a little bit. That is basically, I just mentioned, in the short term, because the auto insurance reform and the competition get more intensified because most of the company try to grab customer base before the auto reform. But the good trend is, I think, when in the first half, the P&C company has some suffered the credit insurance situation due to also due to the virus situation.
But then I think in the third quarter, and also, if we look beyond third quarter for the whole second half, the credit insurance combined ratio actually is improving, and to some extent, the half year is a high point. Then the second half, it is coming down gradually.
Okay.
Thank you everybody today for your questions. The Mandarin session is going to start in a couple of minutes after this English session ends. If you've registered for the Mandarin session, please redial the conference access number and provide the dedicated passcode. I'd like to thank you all again for joining us. Thanks a lot.