China Life Insurance Company Limited, H1 2020 Earnings Call, Aug 27, 2020 - SEHK:2628

SEHK:2628

Li Yinghui, the Securities Representative of China Life Insurance Company Limited, made the following statements during the 2020 Interim Results Briefing:

1. Opening Remarks:

   • Gave a warm welcome to attendees at the 2020 Interim Results Briefing.
   • Introduced himself as Li Yinghui, the Securities Representative of the company.
   • Mentioned that the briefing was conducted in Beijing and that analysts and investors could also participate via teleconference and live webcast.
   • Announced the presence of senior management, including Mr. Wang Bing, Chairman; Mr. Su Hengxuan, President; Mr. Li Mingguang, Vice President and Chief Actuary and Board Secretary; Mr. Ruan Qi, Vice President; Mr. Zhan Zhong, Vice President; and Ms. Zhang Di, Head of Investment Management Department.
   • Outlined the agenda for the briefing, which included a 30-minute presentation on the company's 2020 interim results followed by a 45-minute Q&A session.

2. Handover to Chairman Wang Bin:

   • Handed over the briefing to Mr. Wang Bin, the Chairman of China Life Insurance Company Limited, to provide an overview of the company's performance in the first half of 2020.

3. Q&A Session Introduction:

   • Announced the commencement of the Q&A session.
   • Noted that questions had been collected from the community, especially from those unable to attend the offline meeting.
   • Shared two prominent questions collected from the community:
     • Sustainability of the company's new business value growth outpacing the industry.
     • Strategies for stabilizing the size of the individual agent team at peak levels while maintaining productivity.

4. Invitation for Questions:

   • Opened the floor for questions from both on-site and online participants.
   • Provided instructions for asking questions.

5. Closing Remarks:

   • Thanked attendees for participating in the meeting.
   • Invited further questions to be directed to the investor relations team at any time.
   • Concluded the meeting by thanking everyone for their time and bidding goodbye.

These statements provide a comprehensive overview of Li Yinghui's contributions during the 2020 Interim Results Briefing.

Bin Wang, the Former Executive Director of China Life Insurance Company Limited, provided an overview of the company’s performance in the first half of 2020. Here are the key points he addressed:

1. Challenges Faced: Despite facing multiple challenges brought by the COVID-19 pandemic and economic downturn, the company remained steadfast in its core strategy of centering on the customer.

2. Operational Units: Basic operational units were focusing on value creation and individual insurance business, while firmly prioritizing business values, strengthening the sales force, striving for stable growth, upgrading technology, optimizing services, and guarding against risks.

3. Business Value and Investment Income Growth:

   • The value of new business in H1 2020 amounted to RMB 36.9 billion, up 6.7% year-on-year.
   • The embedded value exceeded RMB 1 trillion for the first time, reaching RMB 1.016 trillion, up 7.8% compared with the end of last year.
   • Gross investment income reached RMB 96.13 billion, up 8.1% year-on-year.

4. Overall Business Scale Growth:

   • Gross written premiums amounted to RMB 427.37 billion, up 13.1% year-on-year, maintaining the leading position in the industry.
   • FYRP (first-year recurring premium) amounted to RMB 90.17 billion, up 13.3% year-on-year.
   • FYRP for the 10-year or longer payment duration reached RMB 39.5 billion, up 3.7% year-on-year.

5. Protection-Oriented Business Growth:

   • The percentage of premiums from designated protection-oriented products in FYRP increased by 3.4% year-on-year.
   • Both the number of protection-oriented policies and premiums per policy increased.

6. Sales Force Stability and Quality Enhancement:

   • The company's individual agent business sector sales force reached 1.69 million people.
   • Monthly average productive agents increased by 40.4% year-on-year.

7. Social Responsibilities:

   • China Life capitalized on its insurance social stabilizing function, proactively supporting COVID-19 prevention and control and major national strategies.
   • Immediate donation of insurance to frontline medical personnel, expansion of insurance coverage for 31 long-term critical disease products to include COVID-19 liability, and provision of specific coverage of RMB 3 trillion to the whole society.
   • Donation of over RMB 20 million of pandemic-prevention materials and funds.
   • Provision of RMB 67.4 billion in claims for 6.7 million policies and RMB 184.7 billion in loans pledged by insurance policies.

8. Support for the Real Economy:

   • Support for the real economy through investment in funds, net-centered financial products, and unlisted equities, totaling RMB 2.06 trillion, with RMB 267.2 billion newly invested during the year.
   • Active support for major national strategies, including investments in strategic emerging industries and alternative investments amounting to RMB 29 billion within the year.

9. Strategic Blueprint and Implementation:

   • Guided by the strategic China Life rejuvenation blueprint, the company implemented the Dingxin Project to strengthen capacity in various fields and boost high-quality development.
   • Accelerated integration of the two agent sales teams, promoted standardized management for basic operational units, and further consolidated the foundations of sales management.
   • Focus on business transformation and group and health insurance channels, emphasizing specialization and capacity building.

10. Technological Support and Risk Control:

    • Technological product development team was rebuilt to increase vitality and responsiveness.
    • Strengthened digital and intelligent risk management and transitioned to a centralized risk management model to improve the efficiency of risk control.

Bin Wang concluded his remarks by handing over to Mr. Su Hengxuan, the President of China Life, to elaborate on the company's business and operations in the first half of the year.

Hengxuan Su, the President of China Life Insurance Company Limited, provided insights on the company's business and operations in the first half of 2020. Here is a detailed summary of his statements:

1. Overview of Business Performance:

   • The company focused on new business value growth and achieved good growth in core businesses.
   • Gross written premiums reached RMB 427.37 billion, up 13.1% year-on-year.
   • First-year regular premiums (FYRP) increased by 13.3% year-on-year to RMB 94.17 billion.
   • FYRP for 10 years or longer payment duration totaled RMB 39.5 billion, up 3.7% year-on-year.
   • Renewal premiums reached RMB 281.15 billion, up 12.4% year-on-year.
   • Short-term premiums reached RMB 51.13 billion, up 17% year-on-year.

2. Protection-Oriented Business Growth:

   • The percentage of premiums from designated protection-oriented products in FYRP increased by 3.4% year-on-year.
   • Both the number of protection-oriented policies and premium per policy increased.

3. Individual Agent Business Sector:

   • The gross written premiums of the individual agent business sector reached RMB 356.08 billion, up 10.1%.
   • Renewal premiums were RMB 263.36 billion, up 9.5% year-on-year.
   • FYRP reached RMB 82.24 billion, up 10.7% year-on-year.
   • FYRP with 10 years or longer payment duration amounted to RMB 39.39 billion, up 6.4% year-on-year.
   • Adhered to the presentation of business value growth and return to protection-oriented business.

4. Diversified Business Sector:

   • Bancassurance channel repositioned to focus on bank agency business with equal emphasis on business scale and value.
   • Gross written premiums of the bancassurance channel were RMB 28.54 billion, up 70.4% year-on-year.
   • FYRP reached RMB 11.87 billion, up 43.9% year-on-year.
   • Group insurance channel continued to deepen diversified development and improve business profitability.
   • Gross written premiums of the group channel were RMB 16.5 billion, down 1.8% year-on-year.
   • Short-term premiums reached RMB 14.39 billion, up 3% year-on-year.
   • Other channels, including government-sponsored health insurance and online sales, saw premium income reach RMB 26.25 billion, up 24.8% year-on-year.

5. Sales Force Reorganization:

   • The overall sales force remained stable, with a total of about 1.80 million people.
   • Individual agent business sector had a total of 1.69 million, including 1 million from the original channel agent team and 683,000 from the upsell team.
   • Quality of the team continued to improve, with the monthly average productive agents increasing by 40.4% year-on-year.
   • Bancassurance channel account managers totaled 31,000, with a quarterly average of active managers increasing significantly.
   • Number of group insurance sales agents was 53,000, with the number of high-performance agents increasing by 15.9% over the end of last year.

6. Technology and Digital Transformation:

   • Accelerated technological innovation, including the establishment of innovation-themed labs and the development of AI models.
   • Enhanced online recruitment, training, business development, and agent management.
   • Enriched digital scenarios through the use of IoT and AI to strengthen online/offline interaction.
   • Rapidly upgraded online services, utilizing the company’s hybrid cloud to meet explosive demand for internet applications.

7. Operations and Services:

   • Provided more convenient and efficient services, with a high rate of paperless insurance application and increased claim payment efficiency.
   • Provided more intelligent services through automated approval and policy administration.
   • Linked China Life insurance app with Guangfa Bank’s credit card services and increased the app’s average monthly active users.
   • Provided zero-contact services, launching online customer service agents and simplifying claims processes.

8. Future Plans:

   • Aim for high-quality development, prioritizing business values, strengthening sales force, achieving stable growth, upgrading technology, optimizing services, and guarding against risks.

   • Maintain good growth momentum and focus on individual agent business sector and new business value (NBV) growth.

   • Enhance quality and efficiency, sticking to NBV-oriented business plans and improving sales force quality and productivity.

   • Further carry out reform measures, implementing the Dingxin Project and continuous relief.

   • Focus on capacity enhancement and continue to strengthen technological offering innovation.

   • Guard against risks, upgrading the intelligent level of risk management and strengthening control of key risks.

Mingguang Li presented the financials and investment performance as well as the embedded value of China Life Insurance Company for the first half of 2020. Here are the details:

• Financial Performance:

  • Total revenues amounted to RMB 504.43 billion, up by 12.5% year-on-year.
  • Gross written premiums amounted to RMB 427.37 billion, up by 13.1% year-on-year.
  • Gross investment income amounted to RMB 96.13 billion, up 8.1% year-on-year.
  • Net investment income amounted to RMB 77.39 billion, up 7.4% year-on-year.
  • Net realized spread gains on financial assets were RMB 15.48 billion.
  • Impairment losses on financial assets were minus RMB 4.67 billion.
  • Net fair value gains through net profit and loss were RMB 8.61 billion.
  • Disposal gains and impairment losses of associates and joint ventures were minus RMB 0.67 billion.

• Expense Structure:

  • Underwriting and policy acquisition cost ratio increased from 10.17% to 11.2%.
  • Administrative expenses ratio decreased from 3.78% to 3.38%.
  • Percentage of administrative expenses to total administrative expenses at underwriting and policy acquisitions cost decreased from 27.11% to 23.17%.

• Profitability:

  • Net profit attributable to equity holders of the company was RMB 30.535 billion, down 18.8% year-on-year.
  • Weighted average ROE was 7.36%, down 3.78% year-on-year.
  • Earnings per share was RMB 1.07, down RMB 0.25 year-on-year.

• Financial Position:

  • Total assets increased by 6.4% to RMB 3.97 trillion from RMB 3.73 trillion at the end of 2019.
  • Total liabilities increased by 6.8% from RMB 3.32 trillion to RMB 3.54 trillion.
  • Equity attributable to equity holders totaled RMB 415.91 billion, an increase of 3% compared with the end of 2019.
  • Core solvency ratio was 258.24%, and the comprehensive solvency ratio was 267.31%.

• Investments:

  • Balance of fixed income assets increased, and the overall interest income of the portfolio grew steadily.
  • Net investment yield was 4.29%, down 0.37% from the same period of 2019.
  • Gross investment yield remained generally stable compared with the same period last year.
  • Investment balance was RMB 3.78 trillion, up 5.8% versus 2019.
  • Term deposits increased from 14.18% to 14.8%, debt from 39.48% to 38.53%, equity and investment bonds (excluding money market funds) increased from 11% to 10.66%, and debt financial assets decreased from 11.62% to 11.34%.

• Credit Quality:

  • Creditor bonds exceeded RMB 570 billion, of which over 96% had AAA ratings.
  • Non-standard fixed income assets exceeded RMB 510 billion, with over 99% having AAA external ratings.
  • Newly added non-standard fixed income investment exceeded RMB 66 billion, all having AAA external ratings.

• Embedded Value:

  • Value of new business in H1 2020 was RMB 36.89 billion, up 6.7%.
  • Value of new business on individual agent business, etc., was RMB 36.56 billion, up 9.7%.
  • Embedded value was RMB 1.0159 trillion, up 7.8% from the end of 2019.
  • Adjusted net worth was RMB 520.2 billion, up 7.7% from the end of 2019.
  • Value of in-force business was RMB 495.7 billion, up 7.9% from the end of 2019.
  • After considering the diversification effect, the value of in-force business after cost of required capital was RMB 532.9 billion, and its embedded value was RMB 1.0531 trillion.

Mingguang Li also addressed questions regarding the sustainability of the company's sales force and its productivity, emphasizing the importance of persistency, quality, and support systems in maintaining a strong and effective sales team. He highlighted the company's efforts in technology empowerment, training, and comprehensive financial services support.

Zhong Zhan, VP, Marketing Director & GM of Individual Insurance Division, addressed the following key points:

1. Sales Force Stability: After the pandemic outbreak, the company adopted interim measures to ensure and maintain the stability of the sales force. These measures were necessary due to the pandemic but are gradually being lifted as the situation normalizes.

2. Commission and Policy Acquisition Costs: The increase in commission and policy acquisition costs was due to higher production-type business growth, which inherently leads to higher commissions. The company also controlled administrative expenses well, growing by only 1.4%.

3. Online Recruitment and Training: During the pandemic, online recruitment and training were easier, but the quality was not as good as offline methods. Post-pandemic, the company supplemented offline training and retrained people rigorously, leading to some voluntary departures from the sales force.

4. High-Quality Growth: The company is committed to high-quality growth and maintaining a high-quality sales force. Those who do not meet the criteria are eliminated, ensuring the team's overall quality.

5. Future Development: The company will continue to focus on securing future development by maintaining a balanced approach to the size and quality of the sales force, leveraging technology, and providing comprehensive support to sales colleagues.