PICC Property and Casualty Co Ltd

HKEX:2328

Earnings Call Transcript 2020-Q2

[Zhuyong Li, executive]

Ladies and gentlemen, good morning. Welcome to the 2020 interim results announcement of PICC Group and PICC P&C. My name is Li Zhuyong, Vice President and Secretary of the Board of PICC Group, and I'm the moderator of today's event. The members of the management present at the meeting include Vice Chairman and President of PICC Group, Mr. Wang Tingke; Executive Director, Vice President of PICC Group, Vice Chairman and President of PICC P&C, Mr. Xie Yiqun; Vice President of PICC P&C, Mr. Shen Dong; Vice President of PICC P&C, Mr. Shao Li Duo; Vice Chairman and President of PICC AMC, Mr. [ Zhigang Chen ]; Vice President of PICC AMC, Mr. [ Houjie Zhou ]; Vice Chairman and President of PICC Health, Mr. Hua Shan; Vice Chairman and President of PICC Life, Mr. Fu Anping; and we have other members of the senior management and heads of the department who are joining us online.

We have 2 items in today's agenda. First, we will invite President, Wang Tingke and Vice President, Xie Yiqun, to brief you on the interim results of PICC Group and PICC P&C in 2020, and this will be followed by a Q&A session.

I would like to remind you that all the figures shown in the PowerPoint slides are based on Chinese accounting standards. For their difference from figures based on IFRS, please refer to the appendices within the slides. For those who are joining us via conference call or video link, you can download the PowerPoint slides from our website. First, I would like to give the floor to President, Wang Tingke.

[Tingke Wang, executive]

Distinguished investors and friends from the media, good morning. First, I would like to extend a warm welcome and our gratitude to you for participating in the 2020 interim results announcement of PICC Group and PICC P&C. This results announcement is divided into 2 parts in the presentation. First, in the first part, I'll be giving you an overview. Generally speaking, in the first half of 2020, in face of the COVID-19 pandemic, which is unseen in the century, we have taken coordinated efforts to contain the pandemic and to promote our business.

We have pushed forward, the 3411 Project. Through the support of our clients and investors, we have overcome difficulties and rallied around the group and have generated successes in containing and preventing the virus. And we have also witnessed the improvement in our business with improved business structure, our profitability stabilizing and our asset size is increasing. So we are making progress while ensuring stability. And we have also generated impressive results in the transformation of our business model.

In terms of our business results, in the first half of the year, we overcame the impact of COVID-19 in the first half of the year and made hard efforts to ensure that our business can recover and rebound, and we have generated impressive results.

Our GWP stood at CNY 336.84 billion, up 4.3%. Pretax profit was CNY 21.4 billion, up 10.4% year-on-year. But last year, due to the changes to the handling charges, tax on the base from next -- last year was high. So in the first half of the year, the net profit attributable to the shareholders in the first half of the year is down by 18.8% year-on-year.

Excluding this impact, our net profit attributable to shareholders should be an increase of 2.9%. So our profitability is improving steadily. The net asset attributable to the shareholders is CNY 190.2 billion, up 5% from the beginning of the year. Annualized total investment yield stood at 5.5%, up 1.0 (sic) [ 0.1 ] percentage points year-on-year. And the P&C combined ratio stood at 97.3%, down by 0.3 percentage points year-on-year.

This is a performance that is better than the rest of the industry. Excluding our credit and surety combined ratio, our combined ratio is lower than 92%. Our half year new business value of PICC Life is CNY 4.1 billion, up 19.3% year-on-year, and we have made periodic achievements in high-quality developments.

In the latest list of Fortune 500 companies, we ranked 112th place. Before that, we were at the 121st place. So we're up by 9 notches. And the Board of Directors have proposed an interim cash dividend of RMB 0.36 per 10 shares. This is the first interim cash dividend since we went public. This is also a measure to allow investors to show more of the fruits of our business results.

In the first half of the year, in the face of the impact of COVID-19, in particular, the difficulties in promoting our business offline, we've worked hard to promote the 3411 Project, and we have continued to improve our business structure and business models.

In terms of P&C, PICC P&C have combined the efforts in the 10 priority activities, including integrating policy based business and commercial business, technology transformation and commercial model transformation and improvement in the quality and the efficiency of claimant handling and improve direct sales teams. We have upgraded our car insurance business model and step up digitalization efforts, and we have increased our online services capabilities.

First, we have been committed to improve our business structure. Non-car insurance accounts for 46.8%, up 0.8 percentage points. Household-owned cars, the share of all the auto insurance has been up by 1.4 percentage points year-on-year. And our underwriting volume is up 7.6% year-on-year. Our market share has been up 0.8 percentage points, which outperforms the main competitors.

Secondly, we have been committed to combining policy-based business and commercial business. Our agri insurance in terms of commercial insurance is RMB 25.9 billion, up 10.9%, which is higher than our overall businesses.

And thirdly, we have been integrating technical transformation and commercial model transformation. The working in sync with police model has been rolled out in 4 municipalities and 332 prefectural-level cities, which covers basically all the prefectural-level cities. Our combined loss reduction from Jiaanpei platform and the auto insurance tech-enabled claim handling has reached CNY 4.52 billion. We have been committed to reducing costs and remove the middlemen.

And we have -- in terms of our direct marketing channels, had a premium of CNY 82.2 billion, up 15.8% year-on-year, and our comprehensive expense ratio is 31.9%, down by 0.8%. Our expense ratio is higher -- better in terms of 5 percentage points than the rest of the industry, is 3rd -- 5th. We have been improving our services and making the customers more sticky. The online claim handling of the household vehicles is 91.3%, up 24.6 percentage points over the beginning of the year. And the household car renewal rate is up 7.12 -- 71.2%, up 3.6 percentage points year-on-year. And our financial state is more robust, and we are more resilient.

Our net operating cash inflow is CNY 15.2 billion, up 73.3%, which is the best in the past 5 years. And the LEA (sic) [ LAE ] reserves as a share of the net earned profit from the past 12 months is 36.9%, which is 1.6 percentage points higher than year-on-year.

In terms of life insurance, we have been committed to ensuring good value, and we have been pushing forward professional, efficient, lean and fast development of PICC Health. And life insurance have made new achievements in high quality development, and we are even better in creating value. Specifically, PICC Life has witnessed significant increase in value. The half year NBV is CNY 4.1 billion, up 9 point -- 19.3% year-on-year.

Individual insurance has become the core business channel of the company contributing to 93.4% of the total, and the NBV is up 27.5% over -- year-on-year, and embedded value is now CNY 101 billion, which is 13.2% higher over the beginning of the year, and our business structure continues to improve. And the first year regular TWPs of 10-years-or-more policies has been up by 19.5% year-on-year. And the first year, regular premium has been up by 3.1 percentage points year-on-year. And the regular premium as a share of the total is up 9.4% -- percentage points year-on-year. Our net profit have had hit a record high. Our net profit stood at CNY 3.83 billion, up 23.6% year-on-year.

We have been promoting an integration of online/off-line in business. We have encouraged customers to buy insurance policies online by -- and promote the mobile extension on mobile sales of policies. And our mobile billing rate is over 90%. And accumulated online insurance maintenance rate is over 80%.

In terms of PICC Health, we have had a further increase of value of our business. And we have been promoting the online extension of our business. Our internet channels have been promoting and growing. And due to the pandemic, we accelerated our online business, and we have achieved TWP of CNY 6 billion, up 98.5%. We have gained 9.04 million new customers and accumulated 35.11 million customers.

In terms of emerging segments, we have made new progress in PICC Financial Services, PICC Health and the PICC Reinsurance. And our business status is further consolidated. And this will be further elaborated later.

And the whole of the group, we -- in the first half of the year, we have been integrating resources and promoting high-quality development. We have pushed for the use of smart technology and IT in a total of 9 centers, which have been basically put in place, and the P&C's distributed core system have been tested online. We have seen an increase by CNY 31.9 billion in terms of price, in terms of the PICC e-connection premiums, which is up 379% year-on-year.

We have also been seeing an enhanced performance in core cities in terms of the renewal of household-owned vehicles. The average growth -- the average premium equivalent of PICC Life has been higher -- has been growing higher than the average overall business growth of 21.2 percentage points. And the core cities -- the online health insurance in core cities have taken up nearly 1/3 of the total personal life market share, ranking #1 in the -- ranking #1 in the industry. Our total gross written premium of the international business has reached CNY 4.8 billion, covering 122 countries and regions, including 88 countries in the Belt and Road initiative. We have also implemented the initiative of risk compliance infrastructure year.

We have been committed to the nonoccurrence of systemic risks. And we have reviewed the previous malpractices to rectify issues and clean up similar behaviors and enhance accountability for misconduct. Second, we strengthened risk controls of credit and surety insurance to gradually reduce our risk exposure.

In addition, we also approved (sic) [ improved ] the preparedness for catastrophe and losses by risk reduction so that we could maintain a robust investment philosophy over the long-term with sufficient provisions for investment risks -- setting aside sufficient provisions for investment risks.

The third part of the implementation of the 3411 Project was about optimizing asset and liability match, preventing long-term risk of pricing interest and limiting the size of short and medium term, single premium product by reducing it down to 46%. Thanks to our reform, our profitability is up.

In terms of our structure, pretax profit of P&C business has been growing steadily. And the other segments have also been going rapidly. The profits contributed by the segment other than P&C business was up to 22.7%, up by 5.5 percentage points compared to the beginning of the year.

Additionally, we also have strong solvency profiles, which is up by 19 and 25 percentage points in terms of our core solvency margin ratio on comprehensive margin -- comprehensive solvency margin ratio compared to the beginning of the year.

We also saw greater solvency of PICC P&C, Life and Insurance, which have also shown improvement in different degrees, which shows robust financials and better risk resilience. In order to share more the fruits of our success with our investors, in 2019, on top of the 2019 dividend payout, the Board has just proposed CNY 0.36 dividend payout per 10 shares in the 2020 interim dividend. And the cash dividend has been growing year-on-year since our listing on the Hong Kong Stock Exchange in 2012 with a CAGR of 60.94%. And in the future, we are going to determine our amount of dividend payout by taking into account shareholder expectations as well as our business performance solvency roles as well as our financing needs. This is so that investors can have a better chance of sharing the fruits of our success.

Since the beginning of this year, we have been hit by the coronavirus health crisis. However, we rose to the occasion as a responsible member of society using insurance to serve the needs of pandemic responders and restoring normalcy in people's life and work. And this -- and in this, we have been exemplary as a central state-owned enterprise. We have been focusing on serving the frontline needs of the pandemic responders through providing insurance and financial support. We established an assistance fund to serve medical workers who have recovered from COVID-19. Additionally, we also paid out over CNY 30 million to policyholders, including frontline medical workers.

Second of all, we drove business reopening with innovative insurance products with our emergency public health catastrophe insurance mechanism, which covered over 30 million people in 32 provinces with comprehensive work resumption insurance covering 17,000 companies. We also implemented the central government's requirement to stabilize production and ensure supply. And we provided agricultural risk insurance of the amount of CNY 1.6 trillion to over 62 million agricultural households.

The fourth initiative we took was that we contributed to poverty alleviation by supporting people's livelihood through our critical illness insurance and social medical insurance, which -- the latter of which covered over 740 million people in 295 prefectural levels across 30 provinces.

The fifth thing we did was that we boosted the real economy with more investment from insurance assets. We invested CNY 12.2 billion to key companies in Hubei, and invested in special local government bonds and corporate bonds of the amount of CNY 46.7 billion and CNY 32.4 billion, respectively, in the first half of 2020.

In the second half, we can expect the Chinese economy to take a steady recovery. And China will mainly rely on domestic demand to drive development as well as in sync with the domestic and international demand in a mutually reinforcing loop. We can expect to see improved economic fundamentals. These will remain the same. And these will pave the way for our company reform, creating new opportunities.

At the same time, we are also faced with all kinds of uncertainties and challenges, especially in our international environment. The COVID-19 is still spreading across the world, and the world has been seeing a deep economic decline. We are also facing risks of repercussions from declines in economies abroad. In the midst of all of this, PICC has been focusing on achieving progress while maintaining stability, implementing the Project 3411 and to diffuse our risk through our business model reform and drive our business growth through innovation.

And there are 3 points to our business reform or transformation. The first part of which is the business transformation of our auto insurance business. The idea is that we have to gain competitiveness in the market to -- in order -- by having -- by reforming our sales channels, our pricing ability, claim processing model as well as our product services.

The second is that we have to create integrated sales channels that integrate both online and service -- online and off-line services. The third of which is that we have to optimize our asset and liabilities. We have to reduce the cost of liabilities. And on the other hand, on the asset end, we have to think about having long-term stable yield assets to optimize our portfolio.

The second part of our reform is about innovation-driven development. And we are going to do it through 3 reforms: through digitalization, through a new IT framework, a new backbone network, as well as a core system network. With all of these, we have been able to increase the use of data in decision-making.

The second part of our innovation is customer-centric. We have been pushing for the construction of the MPA management system to optimize the customer experience, to building a service ecosystem and improving customer stickiness in the process. We also tried to innovate through product differentiation for individuals, legal persons, governments, so that we can provide more customized products to better target the needs at home and abroad.

And third, we have been trying to reduce costs and improve efficiency, especially in underwriting. We have been improving the professional capacity to price risk to improve the use and rigorous standards in claim as well as underwriting verification. We have been strengthening precision management in claim processing to make it more professional, digitalized and vertical in order to prevent profit leaks in this process. We have also been strengthening the use of owned or controlled channels, building up our direct sales force so that we can cut out the middlemen and reduce cost.

The fourth thing that we have done is to prevent and diffuse financial risks. And we have been doing that to strengthen the government -- strengthen governance to better coordinate between the group as well as the subsidiaries to increase the control of the group over the subsidiaries so that we can improve risk control through management. We have also been improving policies and procedures to have a unified risk management system improving management effectiveness through embedding it in the IT system. We have been focusing on the preventing -- the prevention of key risks and to target existing risks. We have also strengthened unite -- a unified management of -- unified management of risks, through which we have been strengthening the management of risk management to adhere by the risk prevention bottom line to ensure compliance.

And that's it for my presentation, and I would like to welcome the Vice Chairman, Mr. Xie Yiqun for his presentation.

[Yiqun Xie, executive]

Thank you, Mr. Wang. And now I will be here with you to discuss the results by segment. First of all, let's look at P&C. We have been implementing the 10 key initiatives towards high-quality development. And here are some of the highlights: first of all, we have been maintaining the leading market share of 34%, which is 0.8 percentage points up from the same period last year. We had a gross written premium of CNY 246.3 billion, up by 4.4% year-on-year. Combined ratio was 97.3%, down by 3 point -- 0.3% year-on-year. Underwriting profit was CNY 5.29 billion, up 20.8% year-on-year.

Due to a tax policy change on commission, net profit attributable to shareholders in the first half of 2020, was down 22.1% year-on-year. However, when excluding foresaid policy change, net profit grew by 4% year-on-year, and pretax profit grew by 3.6%. In other words, we are improving in terms of profitability. Annualized ROE was 15.5%, which is still at a high level.

Cash flow from net -- net cash flow from operating activities was CNY 15.2 billion, 73.7% year-on-year, the best in last 5 years. The comprehensive solvency margin ratio at the end of June was 306%, which was 24 percentage points more than the beginning of the year. We have recorded gross written premium income of CNY 246.3 billion, up 4.4 percentage points year-on-year with market share of 34%, up 0.8 percentage points from the beginning of the year, maintaining a leadership position.

In terms of auto insurance, we recorded CNY 131 billion in gross written premium, up by 2.8% year-on-year, which is the biggest growth in the industry. When -- as the COVID-19 hit, on top of car sales declines, we have been focusing on expanding new customers. And the market share of new car business has been up by 0.8 percentage points to 34.8 percentage -- 34.8%. And we have been developing the existing market and expanding our renewal services team to increase the integrated development of channels.

The renewal rate of car -- household-owned cars has been up by 3.6 percentage points to 71.2 percentage points. We have been making improvements in the car insurance and business structure, and we are a leader in the growth rate of our car owned business -- household-owned car insurance business, and our market share has been up 0.8 percentage points. And the underwriting quantity of household-owned cars has been up 7.6 percentage points year-on-year. And we have seen continued improvement in car insurance. In terms of non-car insurance, in the first half of the year, the non-car insurance GWP was 115.3 percentage points -- CNY 115.3 billion, up 6.2%, and of which A&H GWP was CNY 49.7 billion, up 21.4%.

Our social security business had a income of 40.5% -- CNY 40.5 billion, up CNY 25.1 billion. And our agri insurance GWP was CNY 25.7 billion, up 16.6% with a market share of 47%, which is a leader in the industry.

In terms of credit & surety, we have been strengthening risk management and improve our business structure to reduce risk exposure, and GWP reached CNY 4.3 billion, down by 58.6%.

Due to the pandemic and the domestic economic slowdown, credit -- commercial insurance and cargo insurance and liability insurance have witnessed slowdown in business, but with the economy being further reopened, our business will continue to pick up.

In the first half of the year, PICC P&C had an underwriting profit of CNY 5.3 billion, up 20.8%. Combined ratio was 97.3%, down by 0.3 percentage points. Our profitability is still better than the rest of the industry. By the end of the year, the LEA (sic) [ LAE ] reserve is CNY 145.6 billion, up CNY 18.6 billion from the beginning of the year, or 17.6%. The LEA (sic) [ LAE ] reserve as a share of the net earned profit from the past 12 months is 36.9%, up 1.6%.

[Audio Gap] insurance and non-car insurance has witnessed increase from the beginning of the year, and our reserves are being more stable and solid, and we are even better at -- for stalling the risks from economic cycles and the systemic risks. And our comprehensive loss ratio is 65.4%, up by 0.5 percentage points. This is mainly driven by the increase of non-car -- the loss rate from non-car insurance. The comprehensive expense ratio is 31.9%, down by 0.8 percentage points. This is mainly driven by a drop in the expense ratio from non-car insurance.

And our underwriting profit from auto insurance is RMB 6.6 billion, up RMB 4.4 billion year-on-year with a combined ratio of 94.8%, and down by 3.6 percentage points year-on-year, of which our loss ratio was 57.6%, down by 4 percentage points, and the expense ratio was 37.2%. In terms of non-car insurance, our combined ratio was 101.9%, up by 5.5 percentage points, of which loss ratio was 79.9%.

Our -- excluding agri insurance and credit & surety insurance, our combined ratio from commercial insurance is 94.9%, down by 2.5 percentage points. Mr. Miao, who was the President, said he hoped to reduce the combined ratio from commercial insurance to 95% or lower. And this year, we have reached a percent -- reached the level of 94.9%.

In terms of A&H, due to the change of business structure, we have witnessed a higher share of social security with a higher loss ratio, and our overall A&H loss ratio has been up by 1.1 percentage points year-on-year and expense ratio is down by 1 percentage points. And our underwriting loss was RMB 470 million.

In terms of credit & surety, due to the pandemic, social risk -- credit rates have increased and business default rates have increased. Our loss ratio from credit & surety is 120%, up by CNY 58.6 billion -- 58.6 percentage points. And the combined ratio is up 40.6 percentage points with an underwriting loss of CNY 2.95 billion.

PICC P&C have strengthened its efforts in collection and procedure management to further reduce risk exposure and strengthen risk management. This will further unleash the risks exposure and reduce the risks involved.

We have achieved a net profit of CNY 13.1 billion. Excluding the change in tax policy of handling fees from 2019, our net profit has went up by 4% year-on-year. The PICC P&C's net cash inflow from operating activities is 15.2% -- CNY 15.2 billion, up by RMB 6.24 billion, or 73.7%. We have witnessed a better liquidity. And by the end of June, PICC P&C's total asset CNY 681.9 billion, up 14.5% from the beginning of the year. And our net assets stood at CNY 170.3 billion, up 0.4% from the beginning of the year.

In terms of our life insurance, PICC Life has been promoting the development of integrated development of online and off-line business and our valuable business continued to pick up.

Our first year regular premium has reached CNY 15 billion, up by 1.1%, and the first year regular TWPs of 10-years-or-more policies reached 3.9% (sic) [ CNY 3.9 billion ] up by 14.5 percentage -- up by 14.5%. And our APE has been up 17.8% with higher ability in creating value. And the PICC Life has been reducing lump sum premium business and improving its business structure.

In terms of first-year regular premiums, our first-year regular TWPs of 10-years-or-more policies account for 26.4%, up by 3.1 percentage points. And the regular premium as a share of the total has increased to 71.7%.

Thanks to the improvement of the regular premium business and the overall business structure, PICC Life has witnessed better improvements in new business value and embedded value half year. New business value was CNY 4.1 billion, up by 19.3%. Embedded value has broken the CNY 100 billion mark to CNY 101 billion, which is 13.3% higher over the beginning of the year. In-force business is CNY 39.5 billion, up 17.1% from the beginning of the year. PICC Life has had good metrics in its financial status, and profitability continued to increase.

Net assets stood at CNY 47.2 billion, up 12% from the beginning of the year. And the net profit was CNY 3.8 billion, up 23.6% from the beginning of the year. Excluding the income tax factor, our pretax profit has been up 58.4% year-on-year. And PICC Life has been integrating its sales teams and promoting the comprehensive individual tax. Comprehensive individual insurance refers to the personal agents and the service sales channels. The traditional channels is the main channels for transformation. Until now, we have effective agents and monthly effective agents of 414 -- 414,000 and 102,000, respectively.

And the second channel, the sales -- service sales channel is the more promising channel. And we have in-force agents and monthly in-force agents of 98,000 and 22,000, respectively. And we have been promoting the comprehensive individual tax strategy to consolidate our traditional channels and to promote integrated development of the individual tax. And with the development of the comprehensive individual tax strategy, our sales teams have witnessed improvement in quality and quantity. And our individual agents have numbered more than 510,000 with increasing numbers during the pandemic. And our in-force agents per month is over 120,000, up by 32.89%. And PICC Life has been promoting the comprehensive individual insurance strategy and the cornerstone plan to increase productivity.

Our -- in core cities, PICC Life has witnessed improvement in in-force agents. And our TW -- APE from core cities is up by -- nearly 50% year-on-year and the 10-year -- first-year regular TWPs of 10-years-or-more policies is up by nearly 40%.

In terms of PICC Health, PICC Health has been committed to the model of being professional, efficient, lean and flat and have generated new progress in high-quality development. Our TWP from the first half of the year is CNY 22.2 billion, up by 45.7%. Our commercial insurance have witnessed fast growth with TWP of CNY 14 billion, up by 92.5%. And this has driven the increase of half year NBV to 41.6% year-on-year.

In order to respond to the impacts of COVID-19, PICC Health has been strengthening its online business. In the first half of the year, our TWP was CNY 6 billion, up by 98.5% year-on-year, of which critical illness accounts for CNY 700 million, medical insurance of CNY 5.63 billion, we added 9.04 million customers with an accumulative number of customers reaching 35.11 -- 35 million.

According to the latest data from the industry, PICC Health accounts for 32% of the online health insurance market, which is number one. And our first-year regular premium reached CNY 4.4 billion, up by 28.5% year-on-year.

In the first half of the year, PICC Health's net cash flow from operating activities was CNY 7.1 billion, up by CNY 5.5 billion year-on-year or 322% year-on-year, which is the best in the past 4 years.

In terms of asset management, in the first half of the year, in face of the pandemic in the first half of the year and the complex domestic international market situation, we have taken proactive measures to seize investment opportunities and control risks and have ensured stable yields from investment.

Our group's AUM is RMB 1.8 trillion. And our investment reached CNY 1 trillion, which is up by 6.9% from the beginning of the year. And our investment portfolio is basically stable compared with the beginning of the year. However, investment returns totaled CNY 26.2 billion, up by 9.4% year-on-year.

Our net investment return reached CNY 23.7 billion, up by 5.3% year-on-year. Our annualized ROI was 5.5%, which is a high number. And our ROI is still higher than the rest of the industry and with less fluctuations.

In the first half of the year, we seized opportunities to allocate assets in fixed income and managed the pace of asset allocation as well as control risks. We have -- credit & surety insurance was robust with robust debtors. And our basic assets have been very stable. And in terms of our external ratings, 99.9% of them are AAA. And in terms of credit enhancement -- in terms of the guaranteed, it's 62% and 38% for guarantee exemptions.

Now let's look at emerging segments. In terms of fintech, PICC Financial Services has achieved significant progress in strengthening our presence and putting in place the financial infrastructure, and the key segments are fully functional with clearly defined business model, high-value creation capacities, overall, and clear value proposition in each of the segments.

Our transaction value over the first half at PICC Financial Services was CNY 16.8 billion, up 47.8% year-on-year with 2.64 million new users and 33% growth in monthly active users in the second quarter and improved customer stickiness. The losses were reduced by CNY 550 million through technology, which is 114% more than the same period last year. Underneath our PICC Financial Services, we have BangBang Auto Sales & Services, which achieved growth in the sales of 59% year-on-year. And our other subsidiary Aibao Tech achieved an increase of 30%.

In our pension asset management, PICC pension, asset professional platform for pension trust management continues to see significant growth in assets under management laying the solid foundation for expanding wealth management business. By the end of June, AUM was CNY 170 billion, up by 41.4% compared to the beginning of the year. AUM of occupational annuity was CNY 67.6 billion, up by 80.7% compared to the beginning of the year. And AUM of enterprise annuity was CNY 42.8 billion, up 16% compared to the beginning of the year.

We continue to strengthen our investment capacities, leading to improved ranking in investment management and laying the foundation for growth in AUM and performance.

Let's look at insurance in which we have been focused on crafting a boutique company strategy to push for higher quality growth. In the first half, we recorded CNY 2.8 billion in reinsurance premium income, out of which CNY 780 million comes from third-party reinsurance premium income, up 36.4% year-on-year and accounting for 27.5% of total, up by 10.4 percentage points compared to the beginning of the year.

We cover 66% of domestic clients, and we are also present in 36 countries and regions with business relations with the 99 global as well as regional clients, which -- and we have also been gearing up to establish life insurance -- life reinsurance business. We achieved profit in reinsurance in the first half of the year of CNY 40 million.

And that's it from my presentation. And now let's give the floor to Q&A.

[Zhuyong Li, executive]

Thank you, Mr. Wang Tingke as well as Vice President Mr. Xie.

Now we will open the floor for Q&A. We will both receive questions online and off-line.

If you're here present with us today, please raise your hand. And if you're joining us online, please follow the operator instructions. And press the question button. Before that, please state clearly your name and affiliation. In order to give more investors the opportunity to ask question, in the interest of time, please limit yourself to 2 questions.

And now let's give the floor to the first question, who is attending here, who is here with us today.

[Ting Sun, analyst]

I come from Haitong Securities. My name is Sun Ting. First of all, congratulations on your excellent performance in your P&C and Health insurance business. I have two questions, both for Mr. Wang. The first question is that the former President, Mr. Miao departed, which was kind of a sudden event for the market. And Mr. Miao was the one who promote -- who promoted the 3411 Project.

So I was wondering if the project was still underway, and it's impact on the corporate strategy. The second question has to do with the dividend. We are delighted to see an increase in interim dividend payout, so will this be a regular thing? I also remember that management talked about increasing the share of dividends steadily. And I was wondering if this is something that is going to materialize. Will the share of dividends stay the same or will it increase steadily?

[Tingke Wang, executive]

Thank you very much for your questions. I will take your second -- I will take your first question, and I will let my colleague take your second question.

So over the recent years in our new leadership, we have been committed to implementing the new development philosophy at our company, thanks to our deliberations in our party committee and our management, the initiative -- the Project of 3411 was proposed. The project is consistent with the trend of development of the insurance industry in the new era and it's also geared towards achieving higher quality development.

Second of all, it is consistent with the trend of the industry regulatory environment, and it is conducive to helping the company going back to its roots of insurance and providing insurance as well as protection-type products. It will help us to better serve the real economy.

The third thing I have to say, which is also an important point, is that the 3411 Project is highly consistent with our own needs at PICC Group. It is conducive to strengthening our areas of weakness, and it is conducive to our stable growth as a group.

Additionally, I believe that the strategic project, this 3411 Project is one organic whole. And the -- at its core, it is about improving our business model so that we can pave the way for higher-quality growth. And it has a very clear value orientation. It shows our value as a group. It promotes structural optimization as well as high-quality development. And we have evidence to show that during the past year, under the leadership of the party committee as well as the Board, all across the group, we have been making efforts to implement each part of the 3411 Project, and we have excellent report card.

So the 3411 Project has been quite effective, especially this year, we are hit by the emergency of COVID-19. The implementation of the 3411 Project is very helpful for hedging against -- or rather responding to the impact of COVID-19. It has been very effective, especially given our measures of migrating our services and customers online and increasing digitalization.

This project has been very conducive to our digitalization development and providing the conditions for responding to the COVID-19. And this can be seen in our business performance, which after being hit by COVID-19, we quickly recovered. And the online service rates, the online provision rate of our services and the use of smart technology has been steadily increasing, as you have probably seen in our presentation.

And next up, I believe that people are interested in whether we will continue to implement these projects. We remain steadfast to the project. We will further develop this 3411 Project.

Especially given our current situation, we are going to continue to drive our business model through technology empowerment. We are going to increase digitalization and to consolidate our presence in core cities. We will continue to optimize our business portfolio in terms of product offering and improve our capacity to prevent and diffuse risks. To do that, we are going to focus on specific areas where we can make progress to promote the implementation of the 3411 Project for it to achieve more success. Thank you.

[Unknown Executive]

I will take your second question. I know that this is a question that a lot of the investors are interested in. During recent years, our management -- or rather our leadership has been promoting the implementation of the 3411 Project. It has been developing steadily, and it has been seen in our improved business performance. In the presentation, you may have heard that we achieved excellent results in the first half of 2020. And the reason that we are -- that we have proposed interim dividend payout is to share the fruits of our success to give back to our investors. And this also has to do with a requirement in the third session of the 18th Party Committee, which has to do with a proportion of requirement of turning in a part of our yield as a state-owned company.

So as for our future dividend policy, according to our commitment to investors, which is laid out in our prospectus and in accordance with the statutory requirements in the company bylaws, we will continue to have a consistent dividend payout policy. And the payout is going to be determined in light of the business performance and the group, the subsidiaries, the financing needs of our group, the subsidiaries' legal and regulatory requirements and especially the reasonable expectations of our investors for investment returns.

The dividend payout is going to be determined in light of all of these factors. As for whether we will raise the rate of dividend payout, this is something that we -- among this is one of the options that we will consider going forward.

[Zhuyong Li, executive]

Next up, we would like to give the opportunity to someone who is posing a question online. Thank you.

[Operator Instructions] This question is from [indiscernible] Securities by the name [indiscernible].

[Unknown Analyst]

First of all, I would like to follow-up on the previous question. We are also delighted to see the first interim dividend ever since the company's listing. We know that the cash -- the dividend is dependent on the cash flow in P&C business. So I would like to see the P&C business view on the interim dividend.

Secondly, the dividend payout rate is already rather high. And I was wondering if P&C is considering raising the rate of dividend payout even higher. I know that there has been an impact due to an adjustment in the tax policy on commissions. So I don't know if P&C is considering raising the rate of dividend payout in order to stabilize the amount of payout.

My second question has to do with the PICC Life, which has recorded excellent performance in the first half of the year. No matter if you look at revenue, or if we're looking at the business valuation, it has recorded excellent new business value. And I -- my question has to do with the products sold through the agency business as well as the traditional business. How do you balance the traditional and the emerging channel?

We know that a lot of the competitors are selling some of the same main products that we have. So what is your view of how to balance the volume and the value of the products promoted by individual agents?

[Unknown Executive]

Thank you. I believe we got your two questions, and we will proceed to answer. Thank you for your question. In the first half of the year, the profitability and the cash flow of P&C have been excellent with excellent solvency margin ratio, and we actually have seen a better solvency ratio compared to the beginning of the year. The profit available for dividend payout is CNY 43.9 billion. This paves the solid foundation for future dividend payout. In P&C, we have been paying out 40% of our profits. And we are considering that in the whole year, there will be major catastrophes, and there's a competitive reform to auto insurance. And there's also a cash investment required. So we are making full preparation to achieve the goals of the whole year and to meet the long-term interest of the shareholders. This is also to create a more stable and long-term return for the shareholders.

Secondly, in the first half of the year, P&C had paid no dividends, but the group as a whole has paid interim dividends. This shows that as a whole in the group, the profit from non-P&C business is increasing as a share of the total, and the business is becoming more steady and robust. Thank you very much.

[Unknown Executive]

Let me answer the second question. How can we strike a balance between the scale and value? In the beginning of the year, we made a plan and resolving around the plan, we will consider the pace of our business and the specifics of our business. And in the first half of the year, we'll focus on the size. We need to ensure a good start. In the second half of the year, we'll focus on the regular premiums and on fine management of efficient human resources. And on these valuable businesses, we are going to make a lot of efforts and in face of the pandemic, we are under high pressure. And we just held a half year working conference. Our goal is that we will not reduce our targets, and we will shoulder our responsibilities to achieve the targets set for this year. Thank you very much.

Next question, please.

[Zhuyong Li, executive]

The next question comes from the [indiscernible] for [indiscernible].

[Unknown Analyst]

I'm from Security Times. Two questions about investment and P&C. When it comes to investment, since July 17, CBIRC has been conducting differentiated regulation of equity investment. Regarding this, P&C can have a floor seeding investment of 40%. So for these policy changes, what are your perspectives? And what are your specific equity investment strategies? Could you give us more information about that?

Second question, which is also related to P&C. In the first half of the year in Wuhan, there was a company which produce fake gold, and PICC P&C was also involved. There's no final verdict on the case. But when it comes to the insurance sector, we focus on the basic terms and conditions of insurance policies, there are some inconsistencies, and certain regulators have been asking for companies to check the situation within their own company. So what are your perspective about such inconsistencies? And have you done internal reviews about this inconsistency? And how do you manage the relevant risks?

[Unknown Executive]

Thank you for your questions. Let me answer the first question. Recently, CBRC has increased the equity investment floor for investments from insurance company, and this is also linked to the other factors. And this is kind of differentiated with regulation. This relaxed regulation represents a good opportunity for companies with good capital adequacy ratio. And this increases our space for allocating assets in equity investments. And this also creates a better opportunity for generating more returns from equity investments.

PICC Group, if you look at the statistics we have disclosed, at present, we have a very high comprehensive solvency ratio. And going forward, this will lay a strong foundation for our investments in equities and the ceiling for P&C is 40%. And for Life, it's 35%. So we have more room for maneuver. We are now studying the policy change and how this will affect our strategy for the equity investment in the future, and we are further improving the conditions for our equity investments.

In our actual practice, we will meet the requirements and consider the situation of the market as well as our own risk preference. We will utilize this opportunity to the best. Thank you very much.

[Unknown Executive]

Thank you for that question. First, I would like to say that the Zhihong company of Wuhan produced fake gold. According to the information we have, the Zhihong company have bought policies with fake gold. This is fraud in insurance business and the public security departments have already registered it as a case and an investigation is now underway. Wuhan Zhihong is buying policies with fake gold. This is not a real insurance policy. And according to contract law and insurance law, this kind of behavior or this kind of policy is ineffective. It can be revoked, and we do not have the responsibility to pay damages or claims. But this is a wake-up call for us. Indeed, in this area, we have the room to strengthen risk management and compliance. So we attach high importance to preventing and diffusing risks, and we are taking strict measures to strengthen risk management and our compliance system. We want to avoid any systematic risk.

Specifically, first, we have strengthened the development of our risk management control. And this year, we have been dividing the different risks into specific areas, and there's a management of risk exposures and risk management should also be integrated in our business processes so as to further guide the business activities.

Secondly, we have been increasing our capability for digital risk management so that the systems can help with strict management of risks. For instance, all the terms and products have been digitalized in the systems. This allows for strict management risks, and we have divided the different risks and managed them accordingly. As has been mentioned, for some specifically agreed terms, the approval will be standardized and will be done in the system. So we are using the systems to manage the risks upfront.

Number 3, we are further strengthening efforts to prevent risks in key areas. In the quasi-financial services, we are strengthening the monitoring of risks and strengthening the efforts to rectify the risk areas and address the problems. This is to address the problems -- potential risks and problems. This case is a wake-up call for us. It's not just the Zhihong case, but also, we have credit and surety business and also quasi-financial services. We are managing the risk exposures in this regard in a more stronger way with higher intensity. And for any existing risks, we are sorting them out and managing them more strictly.

As I have mentioned this year, for quasi-financial insurance, and for -- excluding the credit and surety business, our whole business structure is very good. If you look at the commercial insurance field.

Number 4, we will continue to improve the mechanisms for risk management and clients, so that the business risks and auditing will be 3 lines of defense, and they will each play their roles.

And number 5, we've been strengthening the basic capabilities of different levels of agencies. This includes internal controls at the gross levels, and we will strengthen the risk management and compliance, education at different levels of agencies so that people are more aware of the risks and are better at managing them. Thank you very much.

Next question, please.

[Zhuyong Li, executive]

The next question comes from online.

Next question from CIDIC (sic) [ Citi ], Michelle.

[Michelle Ma, analyst]

I'm from Citi. I'm an analyst. My name is Michelle. Two questions. First, for auto insurance, since August, the regulators have strengthened their investigations for auto insurance, and there has been frequent fines. And also, since the Q2, the -- you're strengthening your activities in this market. So for the management, how can you balance the instructor regulations and the need to seize more of the opportunity before the reform? And before the reform measure is in place, in terms of actuaries and analysis, what kind of preparations have you done?

Second question. As has been mentioned, you are now sorting out the risks of quasi-financial service business. In the first half of the year, the risk exposure of credit and surety is rather high. So in terms of the different quarters, could you tell us in which quarter would you expect a peak for the loss? And when will the loss be going down?

[Unknown Executive]

Thank you for your questions. Now let me answer your questions. Well, we didn't hear your questions very clearly. But it's really about the reforms of the fees. Well, people have paid keen interest to it. On June 9, CBIRC has introduced guidelines for the comprehensive reforms of auto insurance. This is a draft document. According to the content, actually, this is a comprehensive reform. This involves the terms and conditions, the premiums and regulatory systems. Since CBIRC has not made it clear when they are going to further push forward this policy, but according to the goals of the reform, recently, it's time to reduce prices and to increase quality.

Well, if you look at this, then for P&C sector, there are some impact. To be more specific than the premium per car will drop significantly. We have done some estimations, but the figures from our estimations are not very accurate because there's many uncertainties. Our estimation is that there will be a drop of about 23% since the expected loss ratio is 75%. So the loss ratio will increase, and the expense ratio will drop significantly. So this is a very clear impact for the sector.

As one of the market players, we will also be subject to such impact. But in the long term, when the market is more really competitive, then price and the value of the brand and the cost advantage and service capabilities are more important. Market-driven reforms will allow companies with strong service capabilities and cost controls to play a bigger role. And as the largest market player, we do have some advantages in this area.

Since the beginning of this year, we have been continuing to optimize our business portfolio. And Mr. Xie has already touched upon some of this during his presentation. He talked about the rising percentage of household on the auto insurance. And we have been expanding into the different segments of our insurance. We have received some good results during the first half of the year and that will help us adapt to the changing environment going forward.

And going forward, we are going to see a smaller room for increasing our fees, but we are going to focus on cost reduction in order to provide better services to our customers. We are confident that amidst this reform on auto insurance premium, we are still at an advantaged position to provide services -- good services to our customers.

[Unknown Executive]

Thank you. Now I will talk about the credit and surety business. I know that this is something on a lot of investors' minds. During the first half of 2020, the -- we recorded CNY 43.8 billion in the first half of the year, which is down 48%. And we recorded CNY 2.95 billion losses in overall gross-written premiums. This is for the credit insurance. We attained a profit in our surety business.

The credit -- most of the losses in the credit business is in financing product. So during the half of the year, we have been trying to cut down or scale back on our credit-type businesses in order to bring about a risk reduction. By June 30, our risk exposure in the credit and surety business is already significantly down. And the -- we have already cut back on our scale of assets. We have been trying to dispose of our existing assets. And we have been providing support through our online and off-line platforms. We have stopped all kinds of online sales of high-risk credit businesses. And for online sales programs that promote products with controllable or manageable risks, we have been trying to improve the business model in order to reduce risks.

Also in light of regulatory requirements, we have been trying to do risk profiling of the banks that we work with for our sales channels that have brought about significant losses to our companies. We have put a stop to business relations during our -- the first half of the year. In other words, we have put a stop to new orders, but we are cooperating with these business partners in other businesses.

The products generating losses, significant losses online, will be fully eliminated by August 30. And by the end of this year, most of our risk exposure will have been eliminated. There may be some -- a few of the risky businesses. That is going to continue into 2020, but that is insignificant. In the second half of the year, we are going to continue to reduce risks. And the premium income in the sector is continue -- can be expected to continue to decline.

In the second half of the year, we'll probably still continue to see loss in this sector in terms of premium income. But as we accelerate the elimination of assets that generate loss, and as we are accelerating the collection process, we -- in our judgment, we believe that the loss in the second half is going to be significantly less than the first half of the year. I hope that has answered your question.

[Unknown Executive]

I would like to add a few words on your question with regards to the credit business, as well as our positioning and the strategy. I would just add a few things. I spent a few years in export credit business. And I know a thing or 2 about managing credit business. So what are some of the characteristics of this segment?

The credit insurance business is something that is highly specialized. Usually speaking, credit insurance requires specialized in professional management, both at home and abroad. And this is because the risk management of such business is highly specialized because it's not based on actuarial science or the law of big numbers. It is kind of -- it is a crossover between a credit authorization as well as protection-type business.

No matter if we're dealing with the midterm or to long-term credits or other types, we have to think -- we have to base it on the comprehensive risk evaluation given the customer profile. And this is very different than our -- the bulk of our business, which is P&C and health and life insurance, which followed a lot of big numbers or actuarial clients.

Credit insurance is something that is highly specialized. However, in many countries, it is a policy-based business. In other words, credit insurance has a lot of risk exposure. It has a long tail risk as well as the cyclicality risk. And it is very challenging to manage well, especially when we're talking about credit guarantee risk.

Unless we know the customer fully and only rely on the platforms, we kind of expect to see even more risks. Therefore, we cannot use the same sales approach that we use in P&C or in health or PICC Life. Scale is not something that we should be pursuing in the credit business.

So as we looked back and summarized our lessons learned, we believe that going forward, we are going to try to comb through all of the existing credit business that we have to instill a correct philosophy, strengthen risk management and professionalized management and a reasonable expectation for growth as well as prudential management.

[Zhuyong Li, executive]

We have our next question coming from on-site. The person in the first row.

[Unknown Analyst]

I am an analyst. And my name is [indiscernible]. And I have 2 questions. The first question has to do with the reform of auto insurance. We saw that during the first half of the year, the expense ratio has increased slightly during the first half of the year. And you have also talked about how the expense ratio is going to be reduced to 25% later on. So what is the reason behind the expense ratio, the slight increase during the first half of the year?

My second question has to do with P&C tax rate. So we did an independent calculation of the actual -- the effective tax rate of P&C for the first and second quarter, and we realized that the effective tax rate for the second quarter would be lower than 10%. And I would like to know why there is such a difference between the first quarter and second quarter in terms of effective tax rate.

[Unknown Executive]

So let me rephrase. In terms of the reason behind the rise in expense ratio for auto insurance, this is because we are promoting the transformation of the channel for auto insurance. And one of the initiatives we have been taking is the disc intermediation, cutting out the middleman. We have been investing in building up the direct sales and directly controlled channels. And as a result of that, we have seen a higher expense ratio compared on a year-to-year basis.

Viewed over the long term, once we have the direct marketing channels in place, it is going to be more conducive to higher-quality development and better response to this reform in auto insurance premium policies. One of our key responses is to build the channel to reach the customers directly without the middleman. And only with our own sales force can we reach this goal. And also under the pandemic, during the first half of the year, if we didn't have this team, we wouldn't have received the results that we did during the first half of the year.

So the reason behind the rise in expense ratio in auto insurance in the first half of the year has to do with investing in our sales force, in the direct to marketing channels for auto insurance.

[Unknown Executive]

I will take your question on the difference between tax rate in the first and second quarter. We paid CNY 2.6 billion in taxes this year, and we received CNY 1.8 billion in tax credits in the first half of 2019. This is because we had a tax policy change in May of 2019. And that changed our deduction -- and that changed the tax deduction percentage applicable to commissions. The tax policy was unveiled in the first quarter of 2019, and its impact was felt in the second quarter.

The reason -- the main reason between the tax differences is that there are differences based on the tax deductions. And also they are not distributed evenly across the quarters. Also there is a tax credit applicable for agricultural insurance. And there is also a fluctuation in terms of tax rates applicable to our investment yield. So taking all of these factors into account, there was this difference in tax rates applicable.

[Zhuyong Li, executive]

Thank you. We have another question coming from online. And I would like to remind the person to speak slower and louder so that we can compensate for the phone audio quality. Thank you.

Our next question comes from Ms. -- from Tian Dan from CIC.

[Dan Tian, analyst]

I have 2 questions. My first question has to do with our health insurance. During the first half of the year, the NBV was almost CNY 500 million in the first half showing 42% year-on-year. I would like to know which products drove this rise and also the sales channels for these products.

The second question has to do with the investment. We noticed that the group and PIC have been changing some of its investments, and I would like to know the projects that drove these changes.

[Unknown Executive]

As for your first question on health insurance, I believe that we have 2 figures, one for P&C and one for our health insurance. How about we split our response between our P&C and health response?

Okay. So the question has to do with the NBV of our health insurance, and I will take this question. During the first half of this year, PICC's health NBV increased by 42%, and it is mainly from a product called Hao Yi Bao sold online as well as a dividend insurance. These are the main 2 drivers behind our growth in NBV.

Secondly, there is a change in the assumption between our expense ratio. And the new business value increased as a result.

[Unknown Executive]

Okay. Regarding the question about a reduction in our asset holdings. In the first half of the year, when it comes to financial assets, we have reduced the assets by CNY 2.137 billion. This is the highest percentage. And we have followed relevant standards and formulary to the relevant policies. There are 2 perspectives. First, we need to consider the timing for the drops of prices and the level of drops in prices. And once these standards are set, we will follow consistent policies in this regard.

In the first half of the year, for some of the investment products in our financial assets, we compared them with our policy standards and then reduced some of them in terms of the assets. This is to be prudent in accounting and to increase the quality of our assets and to further prevent investment risks. And we have had enough reserve from investment in specific products.

Actually, for a reduction of holdings of financial investments or assets, this is quite normal. And there's a significant increase in the first half of the year compared with that of last -- the first half of last year, well, our levels are still rather ideal. So investors should not be overly concerned about the risks from the reduction in the holdings of assets. You should consider our total ROI instead.

[Zhuyong Li, executive]

Thank you very much. Next question, please. Next question comes from the meeting venue, from an investor.

[Unknown Analyst]

I'm from Guotai Junan Securities. My name is [indiscernible]. Two questions. First, online insurance. At how you thought the -- project the ratio is -- or rate is increasing. What is the value of that? And you have also disclosed that your online clients have reached 35 million. So through online insurance sales, you have accumulated so many clients. And what are your development models on online insurance, apart from providing products?

Secondly, regarding the workforce of life insurance, your channel workforce has reached 1.5 million. But actually, your expense ratio is increasing more rapidly than the increase of NBV. So you talked about the cornerstone plan. What are the specific measures within this plan? And what are your expectations? Through this plan, what kind of problems do you want to address through this plan? And what are the expected increases in the quality or indicators?

[Unknown Executive]

Let me answer the question, please. The Hao Yi Bao product, in the first half of the year, our TWP was CNY 4.7 billion. The loss ratio has been stable, and the business is performing very well. First, the actuarial assumption back then was consistent with the basic principles of actuarial science and regulatory policies. And in the first half of the year, this was also audited by Deloitte, and in terms of actual payments of claims, the business is actually better than the original actuarial assumptions and/or hypothesis.

And secondly, this product was well recognized by domestic and international reinsurance market. In the new round of reinsurance, arrangements, Hao Yi Bao is now being supported by large domestic and international reinsurance companies as well as some medium-sized insurance companies. So the overall situation is very good.

Secondly, our online business, how we will further develop in the future. Well, in the future, PICC Health will work on the following aspects. First, we will continue to be committed to provide universal online insurance products. When it comes to our overall business models, we have 6 aspects. One of it is that our online insurance business should benefit everyone. Through this kind of universal offering, we hope to better serve the 1.4 billion Chinese people.

Secondly, we need to utilize the special characteristics of health insurance. In the future, when it comes to the product and for the online business, we will have a long-term plus short-term A&H plus medical health plus critical units and comprehensive units plus single types of units and chronic units. So all these are the different types of the products, and this will be a comprehensive system. And we'll also allow the advantages -- or use the advantages of online sales, which can penetrate deeply, and we hope to cover second and third tier cities. We hope that our universal online insurance products could penetrate about 70% of the markets in the second and third tier cities.

Sorry, I haven't fished yet. And before, you talked about the more than 30 million clients or customers, we have accumulated from online from Hao Yi Bao and other products, now we are working to reconcile and sort out the statistics and to do accurate profiling so that we can do secondary development of business. The deductions for secondary business development is to promote the sales of high-end products and to also supply health management products.

Finally, in the future, you're going to further consolidate our overall management or operation mechanisms for online business. And this is a brand-new area for insurance companies. In the future, we will be more specialized, smart and efficient in this product line. And in particular, we will use technology to empower our business activities and to ensure that our management mechanism is consistent with the development of online business and with the sales of our diverse types of products.

[Unknown Executive]

Let me answer the second question briefly. The cornerstone plan is a plan that aims to make sure that our sales team are more specialized and managed in a more standardized way. In October 2019, it was launched. The aim is to further consolidate our management of the sales team. The cornerstone plan has one major theme in 4 segments. We implement universal rules and tools.

Across China, we have the management of team, standardized evaluation and education and training as well as tech empowerment. These are the 6 aspects of the plan. According to our plan, by the end of this year, cornerstone plan will be able to be implemented in 80% of the agencies we have within the country. According to the results that we have now, our expected targets have been reached. But in the second half of the year, we have a lot of work to do.

We hope that we can be more concrete in certain actions to be standardized and efficient. We hope that we can add more people more rapidly, and we can retain these people and these people can make money so that our sales workforce can expand rapidly. Thank you very much.

[Zhuyong Li, executive]

Thank you. Another question from online, please. Question comes from Goldman Sachs from Thomas.

[Thomas Wang, analyst]

Two questions. Can you hear me? Can you hear me?

[Unknown Executive]

We can hear you, but please slow down.

[Thomas Wang, analyst]

Two questions. First, when it comes to life insurance and health insurance subsidiaries, your solvency ratio in core capital, so for life insurance, it's nearly CNY 20 billion. Have you done some one-off adjustments? Or what are the specific reasons?

And second question is this, for P&C, your loss reserve is high, but the actual loss incurred is not high. So for the loss reserve, which is so high, what is -- which area does it relate to, the credit surety or other areas?

[Unknown Executive]

Let me talk about the solvency of life insurance. Over the past few years, if you look at the life insurance, our solvency ratio has been improving rapidly. And -- whether it's comprehensive or core solvency, they are increasing. And as the company is transforming towards high-quality development, our solvency will become even better. According to the estimations from our models, based on our current business framework in the next few -- or 3 years, in the next 3 years, we have no plans for adding capital.

For PICC Health, our solvency ratio at Q2 is 33 percentage higher over the end of last year. So there are 3 type -- the type-3 regulation has been increased to type-2 regulation for our solvency. This is an increase of solvency caused by change of regulatory policies.

So when it comes to reserves of P&C, in the first half of the year, our LAE reserve is CNY 146.5 billion. This represents an increase of 14.6%. And by the end of June, our LAE reserve is 37.1% of the net profits earned from the past 12 months. This is 1.5 percentage higher than over the same period last year, of which auto insurance and non-auto insurance LAE reserve both have witnessed increases.

When it comes to auto insurance by the end of June, the LAE reserve was CNY 94.4 billion. This is an increase of CNY 11.16 billion higher over the beginning of the year. And as COVID-19 has been contained and with the reopening of the economy, our actual loss has reached the similar levels over the past few years in Q2. So our current LAE reserve is prudent and reasonable.

When it comes to the non-auto insurance, credit and surety LAE reserve have witnessed significant increases. This is mainly because our LAE estimations should reflect the quality of our business. And we are further consolidating the bases for our reserves. When it comes to non-auto insurance, LAE is prudent and reasonable now.

Thank you.

[Zhuyong Li, executive]

Thank you. In the interest time, we will take the last question. This will come from the meeting venue from offline. The gentleman, please.

[Unknown Analyst]

I'm from China -- from [ CBM Securities ]. Two questions. First, regarding agri insurance, the combined ratio is 98.5%. So in face of ASF and severe natural disasters, this is a good performance. So looking ahead, will ASF outbreak be over? And in future, if there's no rebound of ASF, perhaps expectations would be rather stable, right? So this is the outlook about the ASF regarding the agri insurance for the effective control of the natural disasters at Q3 so in a whole of the year, how will natural disasters bring what kind of pressure to our agri insurance?

And the second question regarding policies. You're now promoting high-quality development of P&C, and you have a 3-year action plan. So compared with the comprehensive reform of auto insurance, do these 2 policies include one of each other? Or are they inclusive of each other? Or how would you view the opportunities and the pressures brought by the policies? So are you working even harder or pushing even harder for the auto insurance or non-auto insurance? Please share your guidance in terms of the scale as well as profitability in these regards.

[Unknown Executive]

Your first question that has to do with the agricultural insurance. So the combined ratio for agricultural insurance is 98%, which is 3.1 percentage points compared to the same period last year. And of course, there are 2 types of insurance that drove this rise. The ASF situation is much better than last year. We have much fewer cases and impact of African swine flu. And the peak loss ratio is 33.8%, down by 44 percentage points compared to the last -- the same period last year, but we do not know whether there is going to be a rebound.

This just is the situation in the first half of the year. We could say that breeding insurance has better performance than the year before. However, historically speaking, breeding insurance has been a money-losing segment. The reason why we are seeing higher loss ratio in agriculture insurance has to do with our growing or cultivation insurance. This has to do with, well, of course, COVID-19 this year as a result of the situation in our growing insurance, we have seen a loss ratio growth of 46 percentage points.

Also we have seen a growing expense ratio, which has to do with the seeding of our reinsurance. So we have seeded a larger -- we seeded a larger part of our reinsurance. Therefore, we are collecting less in premiums as a share of premium income. So these are the 2 reasons behind this combined ratio in agricultural insurance, which stands at 98% now.

In the second half of the year, we're going to continue to strengthen agricultural insurance, especially in reducing losses through digitalization and using technology-enabled solutions for claim processing. We believe that we will bring expenses and losses under control.

And the read -- so this is basically our reading of the agricultural insurance. In the third quarter and in the fourth quarter, we are optimistic. We have been doing sufficient preparation in terms of impairment provisions. And we hope that we can turn a slight profit in the second half of the year.

The second question has to do with the 3-year reform plan to P&C. And as for auto insurance, this is basically the core of our P&C business. Aside from our auto insurance business, we are also trying to strengthen the growth and management of our non-auto insurance business. During the first half of the year, we have taken the initiative to scale back and cut down on some of the money-losing businesses. For example, we have scaled back our credit and surety insurance by 18%. And our commercial property insurance and other chronically -- our other businesses that are chronically in the red, we have been scaling those back in the first half of the year to provide a better growth environment for our auto insurance.

We have seen rapid development in social medical insurance. That is our policy-based business. Aside from that, the combined ratio, excluding commercial insurance, has been growing. So directionally, we are going to continue to strengthen reform to the auto business sector to maintain our leadership position. And on the other hand, we are going to continue to be efficiency-driven in promoting our commercial insurance, including personal or individual commercial insurance, which we believe is a blue ocean with untapped potential.

[Unknown Executive]

I would like to add something. I understood your question to mean how we are going to position ourselves in the different insurance segments. And my colleague talked about how auto insurance is the cornerstone of our development, and it has an irreplaceable position in our operation. It is the foundation to our business based on the performance over the first half, combined ratio was 94.8%, which is at a historical high, given our recent year performance. And our impairment provision has been raised, which is significantly more than the same period last year as well as compared to the end of last year.

And these are measures we have taken to respond to the uncertainties in auto insurance premium policy. The policy has to do with reducing the premiums and raising the efficiency. So the impact is going to be a lower premium, lower expense rate and more loss rate, and this will create large uncertainties for our combined ratio.

It does not mean that combined ratio will definitely rise as a result of the reform based on the situation in Guangxi, Shaanxi. And since we carried out a pilot program, there is a synced mechanism. So the more the loss ratio, the less per claim -- the less the amount paid out per claim, so combined ratio stayed stable.

However, as this pilot project is just in the early phase, we are going to see some fluctuations and rise in combined ratio as there are -- there may be unfair competition in the market. And looking forward, we believe that auto insurance is still going to be a cornerstone in terms of extending our scale and keeping our expense ratio stable. We are going to integrate our policy-based business as well as our commercial businesses. We are also going to be focusing on upgrading the existing channels. Our existing sales force is going to focus more on non-auto personal insurance so that we have an overall more balanced portfolio and higher quality development overall.

[Unknown Executive]

So I would like to wrap up the question and answer. And I still see a few hands raised. And I know that there are still other participants online who did not get an opportunity to get their questions addressed. We have an Investor Relations team. And if you connect with the colleagues in the HR -- in the office -- in the Board office, you still have an opportunity to get your questions responded.

Previously, in light of CSRC and SSE requirements on serving medium and small investors, we released an announcement on August 19, to investors regarding their feedback on our interim results announcement. We received numerous questions and feedback from medium and small investors. And most of these questions have been basically addressed in the Q&A session, which we just concluded.

And here, I would like to highlight 3 areas of interest to medium and small investors, which is also the concern shared by most investors. First of all, the dividend payout. Dividend payout is a priority for our management, which is creating return for our investors. We have been trying to pay out dividends as much as we can while maintaining business sustainability since our IPO in 2012 in order to share our success with our investors. We have been trying to increase the ratio to the extent possible.

At the end of 2019, we paid out CNY 1.16 every 10 shares, which was 154% growth year-on-year. And our midterm dividend was CNY 0.361 per 10 shares, which is the first interim dividend payout since our IPO. We listed on the Hong Kong Stock Exchange in 2012. And we have been growing our cash dividend year-on-year ever since 2012. The cash dividend payout has been growing at a CAGR of 69.4%, almost 70%. And in the future, we will consider our business performance, our solvency margin ratio, our business growth, financing needs as well as the investors' reasonable expectations for investment return to determine the appropriate level of dividend payout to share the fruits of our success.

The second question has to do with concerns over our stock prices on the stock market -- on the Hong Kong Stock Market and offered many valuable suggestions for management, for which I would like to express my gratitude for your attention and interest. In recent years, we have been trying to achieve progress while maintaining stability and implementing the 3411 Project. We have seen progress in transformation of our 3 subsidiaries, insurance companies and 4 strategies, and we've seen steady growth in our business and profitability. Thanks to successes in this reform, we just released the results for the first half of 2020, would have been excellent.

Ever since we got listed in Shanghai in the A shares market, we have attracted attention from many investors. The A-share price has been basically on par with the industry average. However, due to a multiplicity of factors in the H-share market, our share prices have been trending lower than our A-share prices and decoupled from the fundamentals.

We closed at HKD 2.61 per share -- last share last -- at the end of last week. And we had 0.65% in our PB ratio, which means that the stock prices are far from the fundamentals. As we talked about how we are going to be focusing even more on investor interest, we are going to try to raise dividend as much as possible. On the other hand, we are going to accelerate the implementation of 3411 plan to achieve higher growth -- quality growth so that we can improve our performance and make a case for our value to H-stock investors and so that H-stock prices can come back to a reasonable range.

Additionally, we hope that our friends from the media as well as analysts, we hope that you will also be able to see the successes, the highlights that we have achieved through our reform and that you will help more investors to know the value of investing in our group. Now the H-share stock prices are rather low, and we are trying to raise the rate of our dividend. Our business performance has been going up. So I believe that creates opportunities for investment. There are investors who made the suggestions of repurchasing our shares on the Hong Kong Stock Exchange in order to raise stock prices. This is a common practice in this regard. We do not have as many shares on the Hong Kong Stock Exchange compared to the A-share market in circulation. And that means that we only have a limited amount available for repurchase. We will, of course, give full consideration to your suggestions when conditions permit.

Thirdly, regarding the net profit attributable to equity holders of the parent company, it is CNY 12.6 billion, down by 18.8% year-on-year. Many investors are doubtful about whether we have a problem with our profitability. Many media outlets have made our drop of profitability as their headlines, which is about 18.8%. Some investors are quite confused. So let me explain this. On May 28, 2019, the Ministry of Finance and Taxation Administration put out the announcement on the policy for pretax deduction of handling charge and commission expenditures by insurance enterprises.

The pretax deduction levels of the P&C and the life insurance handling charge and commission has been increased to 18%. And before this new rule was introduced, the figures was 15% and 10%, respectively, for the P&C and life insurance. So currently with the new rule, we can have more deductions. And this new tax regulation has led to differentials between income tax payable as per old rules and the new ones. And in the first half of the year of 2019, when we conducted a reconciliation over 2018, we determine or had a difference of CNY 4.7 billion. This has reduced our combined taxable -- combined income tax by CNY 4.7 billion in 2019. And excluding the parts of some shareholders, the net profit attributable to equity holders has increased in 2019 by CNY 3.3 billion.

After the new tax rule is implemented, in the year 2020, there will be no annual differentials. So this impact to our profits in 2019 is just one-off. It is nonrecurring P&L. In the first half of 2020, our pretax profit was CNY 21.4 billion, up by 10.4% year-on-year. There's no drop here. So our current net profit after deduction of nonrecurring P&L is RMB 12.5 billion or 2.9% year-on-year, and our business is becoming more profitable. So that's my explanation.

Finally, I would like to thank you again for your continued interest and support for PICC Group and PICC P&C.

This concludes the results announcement today. Thank you very much. Thanks.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]