China Pacific Insurance Group Co Ltd

SSE:601601

Earnings Call Analysis

Strong Net Profit Growth with Increased Investment Yield

CPIC Group reported strong results for the first half of 2024, showcasing a net profit surge by 37.1% to CNY 25.1 billion. The group's operating income increased by 10.9% to CNY 194.6 billion, while insurance revenue rose by 2.2% to CNY 137 billion. Their assets under management grew by 11% to CNY 3.3 trillion. The NBV margin improved significantly by 5.3 percentage points to 18.7%, reflecting a robust product strategy. Additionally, CPIC's investment income climbed 46.5% year-on-year, resulting in a comprehensive investment yield of 3%, up by 0.9 percentage points.

Introduction to CPIC's Performance

China Pacific Insurance Group, or CPIC, has shown a robust performance in the first half of 2024. Under the new accounting standards, the group's operating income amounted to CNY 194.6 billion, marking an increase of 10.9%. The positive momentum in China's economy and the resilience in the market played a significant role. CPIC's group OPAT grew by 3.3% year-on-year to CNY 19.7 billion, indicating steady business fundamentals.

Life Insurance Segment

The Life Insurance segment of CPIC deepened its transformation efforts and achieved noteworthy results. Specifically, written premium reached CNY 170 billion, a slight increase of 0.3%. The New Business Value (NBV) saw a substantial rise, reaching CNY 9 billion, up by 22.8%, with the NBV margin improving by 5.3 percentage points to 18.7%. Persistency ratios, both 13 months and 25 months, improved, reflecting better customer retention and satisfaction rates. The company's strategic emphasis on innovative products like Ai Xin Bao and integrated services aimed at elderly care also contributed to these gains.

Property & Casualty Insurance

The Property and Casualty (P&C) segment displayed solid growth with primary premium income reaching CNY 111.8 billion, up by 7.8%. Of this, auto insurance premiums contributed CNY 52.2 billion (up 2.8%) and non-auto insurance premiums CNY 59.6 billion (up 12.7%). Underwriting profitability improved, with the combined ratio dropping by 0.8 percentage points to 97.1%. Efforts to enhance expense management, optimize business mix, and focus on high-quality growth areas like health and liability insurance were key drivers behind the favorable results.

Asset Management Success

With assets under management (AUM) increasing by 11% to CNY 3.3 trillion, CPIC's asset management segment demonstrated impressive growth. Net investment income rose to CNY 39.1 billion, driven by higher dividend income. The total investment income grew by 46.5% year-on-year, thanks to improved equity financial assets. The company maintains a diversified investment portfolio, emphasizing long-term bonds and alternative assets to navigate the volatility in capital markets and secure stable returns.

Advancements in ESG and Technology

CPIC continues to prioritize ESG initiatives. The group made strides in green insurance and investment, with premiums from green insurance reaching CNY 34 billion. Investment in technology also played a crucial role, with advancements in big data and digital labor improving operational efficiency and risk management. An ESG committee at the board level further underscores CPIC's commitment to sustainable and responsible growth.

Outlook and Strategy

Looking ahead, CPIC aims to sustain its high-quality growth through focused strategies in health care, regional development, and technological enhancement. The company is well-positioned to meet evolving customer needs with innovative products and targeted services, leveraging digital capabilities to bolster efficiency. Continuous improvement in risk management, particularly in credit and catastrophe risk, will be pivotal. CPIC also plans to maintain a reasonable level of capital cushion to manage market volatility and regulatory changes effectively.

Earnings Call Transcript 2024-Q2

[Shaojun Su, executive]

Good afternoon, ladies and gentlemen. Welcome to the CPIC 2024 interim results announcement. I'm Su Shaojun, Board Secretary of CPIC Group. It's my great pleasure to have this opportunity to give you a brief overview of our performance in the first half of 2024. Well, in order to extend the coverage of this results announcement, we are conducting this event in both online and off-line. And of course, you can review our playback video on our official website.

First of all, allow me to introduce our guest of honor, Mr. Fu Fan, Group Chairman; and Mr. Zhao Yonggang, Group President; and Mr. Zhang Yuanhan, Group CFO and Chief Actuary; and Mr. Su Gang, Group CIO; and our independent director will also attend this meeting and also some of our senior executives will attend this meeting as a nonvoting member.

First of all, I'll give the floor to Mr. Zhao to give us a preview of -- an overview of our H1 performance.

[Yonggang Zhao, executive]

Good afternoon, ladies and gentlemen. I'm Zhao Yonggang, President of CPIC Group. It's my great pleasure to have this opportunity to meet you face-to-face and online. We see in the first half of 2024, China's economy and the positive momentum of recovery. And also, we see the improvement of resilience and the sustainability. For the insurance market, we see an upgrade in customer needs and the industry are having important opportunity to serve China's drive for modernization.

Given these kind of challenges and opportunities, we stay focused on insurance and persisted in value growth and long-term vision and deepened our judgementation and delivered solid business results with secure market standing and increased competitiveness.

In terms of our business numbers, group operating income amounted to CNY 194.6 billion, up 10.9 billion -- up 10.9%. Of this, group insurance revenue were CNY 137 billion, up 2.2%. Our group OPAT was CNY 19.7 billion, up 3.3% and our net profit was CNY 25.1 billion, up 37.1% and EV grew 7.4% and the number of customers reached 181 million, and our AUM increased 11% to CNY 3.3 trillion.

We maintained a solid capital positions under C-ROSS II. Our comprehensive and core solvency margin were 251% and 173% and our comprehensive and core solvency margin ratios were above regulatory minimum levels. CPIC Life successfully completed the issuance of the second phase of perpetual capital bond. Going forward, we will maintain a reasonable level of capital cushion to withstand the systematic risks.

Under the new accounting standards, net profit is more sensitive to the capital market volatility. OPAT is a more useful measure of our underlying long-term business performance. In the first half of this year, short-term investment volatility has a substantial positive impact on our net profit. Excluding that and the material one-off factors, our group OPAT grew 3.3% year-on-year to CNY 19.7 billion. Of this, CPIC Life achieved CNY 15.2 billion, up 1.8%.

Our group EV grew by 7.4% from the end of 2023. If we look at the composition, the net -- adjusted net worth amounted to CNY 320 billion, up 10.1%. And the group value of in-force business was up by 4.2% to CNY 247 billion (sic) [ CNY 257 billion ].

Look at the EV movement, positive contribution mainly come from expected return on EV and NBV. Also EV movement was impacted by investment return variance, operating experience variance and profit distribution. We are customer-oriented. We pursue transformation and innovation to foster drivers of high-quality development.

In terms of the health care strategy, we respond to customer needs and changing behaviors. We launched the Ai Xin Bao, a CI product, and also launched the Xin Fu Nian Nian, an integrated elderly care solution. And our CPIC Family Doctor rolled out 48 experience centers [indiscernible] to innovate a new mode of a smart service and diversified product service offering.

In terms of regional development, we focus on key industries and products to expand the service ecosystem for high net worth customers and developed a differentiated product solution, enhanced cooperation with strategy to build models for the BBE business.

In big data, we increased the use of new technology, stepped up digital and intelligent business management and put in place a group-wide data governance system, promoted the development of large models for insurance and our digital labor for internal audit performed over 2,000 tasks per month.

In brief, our overall business results continue to improve in the first half of 2024. We are also advancing ESG agenda. For example, we see breakthroughs in green insurance, green investment and operation. Our visibility of our ESG brand is improving. We also continue to enhance management mechanism. Our CPIC P&C and the CPIC Life maintain industry leadership in several assessment and also customer interest protection.

This laid a solid foundation for our healthy and long-term growth. Next, let me walk you through the performance of our core business segments. Looking at the Life business, we deepened the Changhang transformation and to step up the pace of reform and achieved rapid NBV growth and further consolidated the foundation of our value growth.

To be specific, our written premium reached CNY 170 billion, up 0.3%. NBV reached CNY 9 billion, up 22.8%. And NBV margin was 18.7%, up by 5.3 percentage points. Our 13 months persistency ratio improved to 96.9% while 25-month ratio rose by 7.6% to 91.7%.

For agency channel, we continue with the three directions and the five most strategy. In terms of career development, we continue to leverage the basic law to roll out our normalized recruitment. And in terms of professionalism, we continue to meet needs for health protection, pension and wealth inheritance, et cetera, to improve skills for selling all types of products.

And we focus on scenarios of CRM and team management to standardize modes of agent's activity management. Our regular-pay new business amounted to CNY 18.2 billion, up by 3.9%. Our core manpower begin to stabilize and recover with a monthly number of 60,000 each month, up by 0.8%. Monthly average FYP per for core agent exceeded 60,000, up by 10.6% and the monthly average FYC per core agent surpassed 8,000.

For banks business, we focused on strategy -- strategic partnership, optimize the staffing of bank outlets and empowered precise fitness operations. On a whole, our new business growth for bank came under pressure, but the value maintained a steady growth. Specifically, the bank channel achieved CNY 21.9 billion, down by 1%. Our NBV grew by 26% to CNY 1.75 billion. And the NBV margin also grew by 5.6 pt to 12.5%.

In P&C, we accelerated the deployment in technology finance, green finance, inclusive finance, digital finance, et cetera. And we see improved underwriting profitability and the steady rapid premium growth. To be specific, our primary premium income reached CNY 111.8 billion, up by 6.8% (sic) [ 7.8% ], of which premium from auto insurance was CNY 52.2 billion, up by 2.8% and non-auto was CNY 59.6 billion, up by 12.7%. Our underwriting combined ratio stood at 97.1%, down by 0.8 pt and the loss ratio was 69.6%, down by 0.8 pt.

For auto business, we continue to optimize business mix, strengthen centralized resource allocation and our underwriting combined ratio of auto insurance was 97.1%, down by 0.9 pt and underwriting loss ratio stood at 71.4%, up by 0.6 pt and the underwriting expense ratio was 25.7%, down by 1.5 pt.

Policy renewal ratio for individual customers reached 76%, up by 1.1 pt and the share of premium from new energy vehicle also rose by 3.6% (sic) [ 3. 9 pt ] to 14.1% in terms of market share. .

For non-auto business, we continue to be committed to China's national initiatives. Our combined ratio was 97.2%, down by 0.6 pt. For health insurance, we continue to develop traditional business such as terminal illness, personal accident medical insurance with also innovative product offerings.

Its primary premium income in first half of this year was CNY 16.1 billion, up by 21%. For agriculture insurance, we improved its coverage and protection with innovation so as to serve this kind of big agricultural players and met their diversified needs. For the number, we delivered CNY 13.6 billion in the first half of this year, up by 9.8%.

For liability insurance, we focused on workplace safety, environment protection through safety, et cetera, and also cybersecurity. In the first half of this year, its primary premium reached CNY 12.5 billion, up by 11.8%. Commercial property insurance continued to consolidate our leadership in business, and we strive to acquire customers from emerging sectors and high-quality micro and small businesses. For the first half of next year, we generated CNY 4.5 billion in the sector, up by 22%.

For our asset management business, we maintained a steady growth of group AUM, which stood at CNY 3.3 trillion at the end of June this year, up by 11.7%. Of this, our group in-house investment amounted CNY 2.5 trillion, up by 9.2% and third-party AUM reached CNY 807 billion, up by 20%.

We further improved the ALM, asset liability management system across economic cycles, enhanced professional investment research and compliance and risk control and emphasized the stringent control of credit risk to follow a down bell shaped asset allocation strategy. We continue to increase allocation into long-term T-bond to extend the duration and also increased investment in equity assets and alternative assets to enhance our long-term return.

SAA remained stable. At the end of the -- June this year, our share of debt financial assets was 73.8%, a decrease of 0.7 pt and the equity financial assets stood at 14.9%, up by 0.4 pt from the end of 2023. Of this, stocks and equity amounted to 11.2% of total investment assets, up by 0.5%. We conducted disciplined SAA with flexibility to respond to the challenge of equity market volatility and the secular decline of interest rates.

Our net investment income was CNY 39.1 billion, up by 1.67%, which stemmed really mainly from increased dividend income. Our net investment yield reached 1.8%, down by 0.2 pt. Our total investment income was CNY 56 billion, up by 46.5% year-on-year, and comprehensive investment yield was 3%, up by 0.9% percentage point year-on-year, mainly because of the impact from fair value change of equity financial assets to other comprehensive income.

We set great store by credit risk management to proactively manage and mitigate risks. For example, 98.8% of enterprise bonds and financial bonds issued by nongovernment-sponsored banks had an issuer debt rating of AA or above. Of this, AAA rating reached 96.6% and the share of NPFIs with external credit rating reached 98.6%. Except for those issuers with high credit rating, and therefore, exempt from credit in-housing measures, other projects are secured with guarantee or pledge of collateral.

Underlying projects of our nonpublic financing instruments spread across sectors like infrastructure, communication, et cetera, with a blended nominal yield of 4.5% and an average duration of 8 years. Looking ahead, the company will move towards a vision of a top-notch insurance group with global influence.

We are going to pursue progress while ensuring stable business fundamentals. We are going to stay focused on insurance and continue to improve customer-oriented business operation, press ahead with three key strategies in health care, regional development and technology and enhance professional capacity building to ensure prevention of major risks to cement the foundation and resilience of our development.

That concludes my presentation. Thank you.

[Shaojun Su, executive]

Thank you, Mr. Zhao, for your presentation. Now let's enter the Q&A session.

[Shaojun Su, executive]

First of all, those on site will ask the questions and we also welcome online audience to ask questions. [Operator Instructions] Thank you, and from the China Business News. We know that the China's People's Congress mentioned a policy to further promote China's modernization. So my question for you is that how are you responding to this kind of new policy push from the government? And what are you going to do specifically to do that?

[Unknown Executive]

Well, thank you. I would say for a long time, CPIC focused on stable and prudent business. We focused on insurance and to push for sustainable value growth. And we focused on reform to improve our, well, competitiveness. And of course, we see the China's People's Congress and how parties from Congress actually give us more opportunities and raise more requirements.

For example, five key areas of financial sector need to be further enhanced. We need to also serve the real economy and serve the people's well being, I believe, for CPIC, we should do two things. First of all, we should continue to play up the key role of insurance. That is the shock absorber of the economy and the stabilizing effect for the society.

First of all, we need to serve the real economy and the technology, high tech and green finance, fintech. So for example, we need to help this kind of technology companies to give them more financing support. For example, our premium from these high-tech industries reached CNY 5 billion for the first half of this year.

And in terms of a green solution, we focused on green energy, green transportation, low-carbon areas. We launched more than 30 products for these areas. Our premium from the green insurance reached more than CNY 34 billion for the first half of this year. We look forward to give more support in this area so as to better serve the green finance, green economic development.

Secondly, we need to make insurance affordable to be more inclusive. For example, our push to serve the elderly people, our retirement solution, elderly care solution. For example, you can see we have 15 -- already launched 15 CPIC care home communities across 13 cities with altogether 16,000 beds and we also participate in terms of this kind of CI, inclusive CI, affordable CI and medical insurance for Chinese people.

For example, for an inclusive medical insurance for Shanghai, our combined claims payout for the past 3 years reached more than CNY 1.7 billion. And we are also going to help the countryside, the economic recovery to cover, to benefit more farmers in terms of giving them agriculture insurance protection.

On the other hand, we are going to improve our core competitiveness. For example, continue to boost our Changhang transformation. We moved from this kind of extensive growth to inclusive growth for agency channel. Previously, we focused on sales. Now we are becoming more customer oriented.

And for 8 consecutive sectors -- 8 consecutive quarters, we see positive NBV growth. Going forward, we are going to further improve our sales of all type of insurance products to give more energy to our outlets and the agency teams so as to maintain positive growth of our value and profit.

For P&C business, we are going to focus on innovation in new sectors and precise and sophisticated management. CPIC P&C always focus on high-quality growth. While maintaining quality, we see quite fast growth in terms of volume. We are going to continue with this focus on sustainability to explore the new -- the requirements for new risk protection and also reduce the risks, reduce the losses to further improve quality.

In terms of investment, we will continue to see the big picture, to continue to improve our ALM. We are going to have this kind of a cross-cycle ALM and build a risk-oriented funding utilization or investment management mechanism. So we are becoming more long term and become more prudent, so have to have better long-term return from investment.

In terms of digitalization, we are going to accelerate the development of new engine and bring technology closer to business with more integration so as to give more empowerment to customer development, risk management, claims, investment research, et cetera. For example, we will further deepen this kind of application for agent assistance, P&C business claims or underwriting assistance, et cetera.

And for our people development, we will become more market-oriented, make more competitiveness and better link our remuneration with our performance, become more flexible to improve the professionalism of our people and introduce more young talent, for example, in terms of the training camp for young managers, intern management trainee, et cetera, et cetera.

Going forward, we will continue to serve the national strategy, focusing on these key national strategic areas to become more sophisticated in our management and make more prudent to become better at developing our quality growth. Thank you.

[Shaojun Su, executive]

Thank you for the answer. Now let's welcome the next question.

[Ting Sun, analyst]

I'm Sun Ting from Haitong Securities. First of all, congratulations. That's a very good performance for the first half of this year. I have the question on the life side. Now first, you see the Changhang transformation Phase 2 was launched last July. So how do you see its effectiveness?

And secondly, I see some personnel changes for CPIC Life. So what's your long-term view on the strategy going forward and on the targets?

Second question is more on the actuary side. Now actually, September 1 -- starting from September 1, pricing rate will change for life products. So how will it impact your product strategy? And also you see -- you spend a lot of time on developing par life. Your peers may have a 50% share of par insurance. Now what's your stance? Or how is it in CPIC?

[Unknown Executive]

Well, thank you. Maybe I'll answer your first question. Now, it should be said that to enhance our quality growth of our life business, we actually started the Changhang transformation from -- in 2022. Now it's mainly based on the new basic law for our agents, to make them more professional.

On the whole, I would say, Phase 1 of Changhang transformation is bearing fruit. It's giving results. So we see improvement in terms of our core agents number and their income and the quality of our team and we see more contribution from bank insurance and worksite marketing and also improvement in business quality persistency ratio, et cetera.

Now the second phase of Changhang transformation started last July. Now Phase 1 is on top of -- Phase 2 is on top of Phase 1. Phase 2 focus on channel diversification and also strong operational support and a close look of the strategic enactment so as to maximize our customer value, economic value and social value.

To be specific, on the diversification of our channel, we are going to do this kind of 1 plus X model with agency as the center and multiple other channels. For the agency channel, we are going to focus on core agents. We improve productivity to enhance team development, and also the team leaders capability.

For bank channel, we will persist with value orientation to build a better model with the bank partners so as to make bank channel the second pillar for value growth of life insurance. And also, we are going to explore more ways to explore business, for example, worksite marketing.

For the operation support, we are going to better build our mid-office support for business and better manage our asset liability, matching our budgeting management, operation variance management, et cetera. And also we are going to leverage our technology to empower our business. And also, we are going to focus on the customer centers, agile operation and value creation to better boost our dynamism.

And in terms of the strategic management, we're going to this kind of a close loop, including strategic planning and resource allocation and the feedback follow-up so that this kind of strategy will lead to more value creation.

In terms of the targets, we are going to focus on EV, NBV, net profit, OPAT, this kind of economic targets, but also we will focus on the trend of those targets and small specific targets. For example, for the agent team, we are going to look at the number of growth, agent growth, but also production and sales mix and product mix and the turning point.

And for the bank channel, we'll look at the sustainability of the growth of the bank channel. So all these will point to the value of our growth. Of course, in due time, we are going to introduce NPS, ESG indicators into our KPI systems, so as to better reflect the effectiveness of our transformation.

And as you mentioned, our CPIC Life had some changes in top management. Now I believe this -- we have already completed the succession of our top management team at CPIC Life. The new team will continue with our past policies and continue to boost the Changhang transformation and to push ahead with all the key initiatives, to help the overall growth of the company. For the group level, at the group level, we will continue to play up our synergy to further support CPIC Life's business growth. Thank you.

[Unknown Executive]

Now I'll answer your first question -- second question. With pricing rate going down, I believe we will see some changes in our products. Now in terms of the development, par life is a new direction and the protection business is the new direction. So that's the overall direction.

But ultimately, our protection business and the par life business, I mean, we need to be focused on our future strategy and also the changing requirement from the customers. Of course, we also need to consider regulatory changes. I think we don't have all the facts. But on the whole, we believe overall, in the long term, par life will take up more than 50% of the share of our total business mix.

Now in terms of progress of our par life products, at the beginning of the year, we -- you can see we started to push for par life products several years ago, actually. Well, we actually focused a lot on par life. So our agents, they -- actually, they are quite familiar with par life products.

So if we look at the sales numbers of par life, compared to last year, we actually grew by more than fivefold this year. But of course, it's still small number as of now. We are -- as we speak, we are training our agents to sell more par life products.

[Shaojun Su, executive]

Well, let's welcome the next question.

[Ge Yuxiang, analyst]

I'm from Shenwan Hongyuan, Yuxiang Ge. I have the question, number one, about the future profits, that is the CSM margin; second, at our performance. Now you achieved quite good results in the first half of the year. But what about the future potential for profitability?

Now in the first half, you see CSM margin improved by 2.7%. That's quite a hard won achievement. So what is the -- what is the reason for that? Because interest rate is going down. So but why can you achieve positive growth?

Second question about investment. As you mentioned, in terms of SAA, you are adopting down bell strategy. And -- well, in the past several years, your investment performed better than your peers. Now what about the future? How do you see the future performance, especially for equity market investment? You made some investment in Hong Kong market, so Hong Kong Exchange. So what are the reasons?

[Unknown Executive]

As you mentioned, CSM improved by 2.7% in H1 this year. Now that's better than last year. New business CSM grew by 0.5%. Operation variance adjustment contributed 1.3 pts. Now the 1.3 pts, we have very massive because of the investment growth and the profit will grow. And the influence from surrender also contributed positively. So that is why we got the 1.9 pts.

And for CSM -- now this year, CSM this year is changing because of the upward movement of investment. But going forward, investment might go down. So I believe it's volatile, is sensitive to investment volatility. But our projection is that for the base scenario, our CSM will grow a little bit in the next 2 to 3 years.

[Unknown Executive]

Thank you for your question for investment. Now for CPIC investment, most of our investment business is in China domestically. So our investment performance is closely linked to China's economy. In H1, I believe China's GDP grew by 5%. That's still quite fast in terms of -- compared to other major economies in the world. Our infrastructure -- the infrastructure investment is expanding. Our CPI is stabilized. So I would say China's economy is quite resilient.

But of course, in H2 this year, we will see more challenges. I believe an external environment is very complicated. A lot of geopolitical conflict going outside China, going on outside China. So all these external factors will impact global and China's market sustainability. So for the China's market, I believe we are still going through the growing pains. I mean the challenges will continue for quite a long time.

For example, our domestic needs need a long time to be boosted and our competitiveness need a long time to grow. So I believe our macro economy, our macro policy will continue to expand by cutting tax and other expenses and boosting or stimulating the economy. In terms of monetary policy, it may continue to expand by lowering the interest rate, lowering the RRR.

In terms of property market, the risk and the local government debt risks, I believe the government is doing a lot of things. So given all these, I believe, China's capital market in H2 will stabilize and continue to be volatile, but there might be some kind of a structural opportunity. But on the whole, the interest rate will continue to jump.

For our SAA, we always focus on value investment, prudent investment and long-term investment based on our ALM and the long-term growth, we will continue to have sophisticated investment tactics. We will focus -- continue to stick with our down bell strategy, for example, by invest more in long-term assets.

And on the other hand, we also explore opportunity in high-quality equity assets and alternative assets so as to have better risk-adjusted long-term investment yields. Now as we mentioned, we also made some investment in some Hong Kong listed company, [indiscernible] International.

Now first of all, no, these are small cap companies in Hong Kong Stock Exchange. So our investment in them is quite small in terms of share of our total investment. Of course, China's market is -- China's government is trying -- is making a lot of policies regarding the innovation in the energy sector.

We believe, is very important for China to achieve this kind of energy transformation. So these energy companies were going to serve the national strategy. They are quite -- well, quite attractive in terms of value. Of course, we've always focused on the quality of our research -- investment research team. They have their own -- I mean, all of them have their own focus areas. And so based on their research and the study, based on our internal discussion, we look at the competitiveness, the barriers of entry.

And so we consider all kinds of factors to identify these kind of opportunities, so we can cross the -- these kind of cycles, so as to enhance our overall returns. We will not put all our stakes on just a single company or single sector. We will be diversified. We'll focus on the fundamentals of companies, of sectors, so that our overall portfolio will give us a stable long-term return.

[Shaojun Su, executive]

Well, thank you for the question and answer. Let's move on to the next question.

[Xin Qi Liu, analyst]

I'm Liu Xin from Guotai Securities. Two questions. Number one, for Mr. Fu. Now as we mentioned that you see local government and the central government has raised a lot of requirements regarding the capitalization or market value management for these big companies. So what's your measures in CPIC?

Second question about the agents. Now you have 60,000 core agents and 183,000 agents in total. So are you reaching a turning point? So my question is that the 60,000 core agents, how do you see the number going forward? Is it going up or down?

What do you think about their income, their productivity going forward? And there is some rumors that there's going to be some kind of commission-related rules for agency channel. So what's your take on that?

[Fan Fu, executive]

Now thank you. Now capital value, I mean market value of listed companies is, of course, it's important. It's a key KPI for listed company. Now when this kind of a policy is launched, people are paying a lot of attention to this. I believe this is a new requirement in the new era. And this is how people expected.

I mean we -- CPIC, we always spend a lot of attention to our management of capitalization or market value. We're always focused on the return to investors and the sustainable growth of our capital value. And now we have actually launched the more specific KPIs for capitalization management, focusing mainly on maximization of the shareholder value and the company value. Now we believe the basis is how to create agent value, that is to say we need to create value in the first place, so as to maximize our EV.

And secondly, of course, the ultimate goal is to realize value so that EV can be -- well, we can actually disclose our information on EV to the investors, to analysts. Going forward, we are going to, first of all, to reinforce our fundamentals and have a very clear strategy to boost our value growth, especially EV and also will become more investor-oriented to have honest and transparent communication with the market, with investors and analysts.

And of course, we need to boost our value performance. And lastly, we will continue to maintain our healthy level of dividend payout so as to, well, achieve a winning solution for both the company and the capital market.

[Unknown Executive]

Now for your second question, I would say our agency channel, we can see -- we will utilize our new basic rule to improve the agency team with improved number of agents and improved the level of new agent retention and productivity.

Core agent is very important. And quality is a key indicator for our agency channel. You will see, of course, we -- based on the realities of Chinese market, for example, the average income of the society, we actually changed our KPIs for core agents.

In the first half of this year, our core agents grew by 0.8% with the new basic rule, and we actually saw positive growth in terms of team performance and the team behavior. Of course, if there is this kind of commission-related rules for agents, we will comply so as to be more compliant and also to better serve the team development.

And in terms of team development, we are going to focus on quality recruitment and agent development and also change or improve the agent team mix. And we are going to have this kind of differentiated or facial training for agents -- new agents. And we're going to focus on some key outlets to serve as the pilot projects to enhance the development of our new agents. So ultimately, we can keep improving the quality and the number of our core agents.

[Qingqing Mao, analyst]

Mao Qingqing from CICC. I have two questions. Number one, on the bank channel. Well, the performance was quite good for H1. Now you mentioned the commission-related rules. So -- but what about your business plan and the targets for bank channel?

And the second question on the P&C side. Now first of all, congratulations, improvement for this year. But what are the reasons? And secondly, for the long term, the combined ratio of the P&C, what is the target and how are you going to achieve the target.

[Unknown Executive]

Well, thank you for your question. Now we believe this commission-related rules, commission rules and also the easing of the number of insurers a bank can cooperate with, I mean this kind of new change is better for the virtuous competitive -- competition, virtuous circle for competition.

So our bank channel will continue to improve our professionalism and to improve our competitiveness, to build this kind of a high-quality service mechanism to better cooperate with banks to serve diversified needs for the customers.

Now for the bank channel, we will continue to stay focused on value growth to boost the dynamism, to boost the momentum and also focus on the value contribution. To be specific, first of all, we need to be -- we need to be specific or need to be focused, especially focusing on this kind of provincial capitals and the key cities. And in terms of partner banks, we will focus more on strategic partners with differentiated policy for each bank partners.

And secondly, we need to leverage our expertise in terms of product and service. We have this kind of golden triangle to serve customers wealth needs -- wealth protection needs, health needs and retirement needs. For example, we have this kind of [Foreign Language] customer cloud to give them better value-added services. And our CPIC Home is also a competitive strategy, competitive, well, area for us.

And of course, people is always the key. We need to have a high-quality, high-performance team for the bank channel. And of course, where we want to keep them, keep this kind of a high-quality bank channel. Actually, our per capita bank productivity is already leading peers.

Now for the P&C side, combined ratio 97.1%, up -- improvement of 0.8 pts. In terms of the drivers, first of all, we enhanced the expense management for auto insurance. Secondly, we did a lot of work in terms of some key cost areas. For example, in the health care, health insurance and the liability insurance, these sectors saw improvement in terms of claims.

For health insurance, for example, we've become more diversified. We had a better share of high and the mid-end health insurance. And we had more selective -- we become more selective in terms of policy-sponsored health insurance business.

At the same time, we enhanced our management of intelligent risk management. And of course, at the same time, also cracked down on the insurance fraud. In terms of liability insurance, we continue to focus on the high-quality areas and remove high-risk businesses. And also, we help our customers to also managing their risks, manage their damages.

And you see P&C business, we're always focused on the sustainability of our P&C business. We focus on quality business. Going forward, we are going to set more KPIs to become more professional, to make risk reduction more system-based, to leverage technology, to reduce costs so that our combined ratio can be more aligned with our major peers.

[Shaojun Su, executive]

Now let's welcome an online question. [Operator Instructions] Number one, from Richard Xu, Morgan Stanley.

[Richard Xu, analyst]

I'm Richard Xu from Morgan Stanley. Two questions from me. Number one, on Life side, you see, at the end of June, your core solvency for CPIC Life is 121%, up slightly compared to last quarter. What are the reasons? And are you satisfied with this solvency ratio? Or what is the future for the solvency ratio?

Second question, you'll see there's a lot of disasters, natural disasters, I mean, it's on the rise. So there is a lot of damages from these disasters. So from a CPIC perspective, commercial insurance companies, I mean, what are your challenges and opportunities in these areas?

[Unknown Executive]

Now let me answer your first question. In terms of solvency ratio, CPIC, solvency ratio, we issued a perpetual bond, it helped with our solvency ratio and because of our internal capital accumulation, now we have a core solvency ratio at 121%. Now we believe the current level of solvency ratio, there's still is a slight gap, I would say. That's mainly given the external environment and business growth requirements and also given regulatory requirements and operational needs.

In the future, we also need to consider business expansion. I mean we need to keep it at the proper level so as to seize upon opportunity on the market. At the moment, I would say with interest rate going down, interest-linked products and equity -- share of equity investment will go up. So we believe there is still a gap. But we will continue. We believe we can do it ourselves. We can improve our product margin so as to improve our solvency adequacy ratio.

[Unknown Executive]

Now let me answer your second question. Thank you for your question. Of course, climate disasters, climate risk is a risk not only for insurance companies, but also for the whole society. We see a lot of extreme weather events. Last year, you can see according to government data, natural disaster damage reached CNY 345 billion, mainly from flood, drought. According to Swiss Re, last year, insurance-related disaster damage is USD 108 billion.

Now we took measures. First of all, we enhanced our risk management capability, innovate our disaster insurance products and improve our management of carbon emission. We've developed our carbon emission mechanism.

We keep -- we actually included into our group strategy -- no, actually, under the group Board, we have a specific ESG Committee. And at all levels of CPIC, we had ESG-related working group and the green insurance and other low-carbon sectors, we all set KPIs for them. We continue to improve relevant evaluation mechanism.

We also have our risk radar to better assess and alert these risks. We also help our customers to reduce these related risks. And in terms of innovation of our products, we launched a lot of products for climate response, clean energy and the EV vehicles. So in H1 this year, we actually -- our premium growth -- premium from green insurance reached CNY 34 billion.

In terms of catastrophe disaster, catastrophe insurance, our total SAA for H1 next year was CNY 500 billion. And in terms of the carbon emission of our investment portfolio, we did some calculation of our carbon emission from our investment portfolios. I would say we are one of the first in our peer -- among our peers to conduct this kind of calculation so as to give us more basis for the evaluation in terms of our green credentials.

We also help this kind of high carbon enterprises to reduce their carbon footprints. Of course, all this is still in its early stage. We're going to do more and the Chinese government are going to launch more in terms of energy transition and growing economy, CPIC will contribute in this regard.

[Shaojun Su, executive]

Well, thank you. Let's move on.

[Cheng Zhou, analyst]

I'm Zhou Cheng from UBS. Now I noticed that you see net profit improved by 37.1%, very good news. It's mainly because of the good performance of your investment. So -- but why? Why did you do well in investment in H1 this year? Is it because of your high dividend asset strategy? And -- but of course, in the second half of the year, in the Shanghai Stock Exchange, I mean, Asia market is under pressure. So can your investment performance go on in the second half?

Second question. We noticed that you sold a lot of the traditional products in recent years. But now you see our 10-year T-bond rate is going down. So you are under a lot of pressure in terms of the asset -- in terms of the liability side, and with the going down of pricing rate, traditional products will face more pressure.

So I believe it's important to have a diversified product mix. Do you have a relevant targets in this regard? And any caveats that you can share for the next 2 to 3 years so that we can better track your performance?

[Unknown Executive]

Well, thank you. First of all, the question about investment. Now based on the new -- given the new accounting standards, the stock market, first of all, go down -- go up, and then go down. So you see there's still -- there are structural opportunities. We always focus on proactive management of our equity investment.

So in H1, we outperformed the market. And together with the downward trend of our interest rate, so the [ TPR ] asset value contribution improved a lot, so that our total investment income improved a lot. So for a long time, we've always focused on the high dividend paying assets. And these go into the OCI assets. So our comprehensive investment yield improved by around 1 pt. But as you mentioned, we are now facing some pressure. So because you see it's a basic law for the stock market.

We are -- for CPIC, we have SAA, TAA mandate investment and then investment management. So our core competitiveness is our long-term investment logic and our disciplined investment practice. We're going to focus on this kind of a cross-cycle SAA so as to achieve risk-adjusted long-term return. We will have also flexible TAA to achieve, well, long-term high yield. With all these, we believe we can iron out this kind of short-term volatility so as to make our profit sustainable.

On the actual side, the net profit projection, now capital market volatility will impact our net profit projection. Well, if we exclude the capital market volatility, net profit is highly -- is closely correlated with OPAT. Our OPAT will grow very slightly in the next 2 to 3 years.

Now P&C side, we will look at the catastrophe impact. And for the Life side, there will be some uncertainty. I mean, operation variance is stabilizing, I can say -- I can even say it is improving. But of course, capital market volatility will have quite a bigger impact.

Now to answer your second question, our liability cost. As of the end of June this year, our in-force products breakeven rate, in-force effective breakeven rate is under 2.5%. And absolute breakeven rate is even lower than 2.5%, because starting from 2013 to 2016, we sold a lot of low-guarantee rate products. The rate was 2.0%. We sold a lot of this kind of a low guarantee rate products in 2013 to 2016.

And the short-term changes will lead to some volatility, but our diversified business mix is how we can cope with the challenges of asset liability matching. So diversification is [indiscernible] in itself. At the same time, as we say, a pure comparable, for example, compared to peers, our growth is comparable. For example, they -- now, of course, we have par life, and we have protection products.

Now what are we going to do in terms of the measures? Now, actually, we have been pushing for diversification of products especially for protection products so as to meet the diversified needs of our customers, is an ongoing process. At the same time, as you mentioned, our par products, previously, we mainly sold par life. Now we are -- we have started to redo the training for par life products.

[Unknown Analyst]

[indiscernible] from Guangdong Development Securities. Two questions. NBV started to turn positive, you see, for 2 consecutive quarters. Now what about your 2025 NBV growth and for NBV margin? Secondly, your asset duration and the liability duration, what are those durations? What about the gap? What's the trend for the duration gap?

[Unknown Executive]

Well, thank you. First of all, in terms of the NBV margin, now for 2025, for our margin, you see other insurance companies, they also see the par life margin going down. But also, we are also developing our share, improving the share of protection product. We believe these two can breakeven. Par life, I believe we had quite a lot of experience in selling par life. So on the whole, in terms of the growth of value, I'm still positive.

[Unknown Executive]

Now on the asset liability duration question, actually, in recent years, we expanded our allocation into long-term T-bonds. So our duration gap is going down in recent years. If you look at the H1 of this year, for life business, fixed income duration -- fixed asset duration has improved about 1 year. So the duration -- asset duration is more than 10.

For liability duration, because we actually saw quite a lot of long-term products, so the liability duration is also going up. So the gap remain pretty much the same. Now because of the data module calculation, so the liability duration is more sensitive to that of the asset side. So ultimately, the asset liability duration gap actually expanded by 0.5 year. But still, I believe is under control. It's within our expectation.

If we consider par and the universal life and also these products can absorb some of the interest rate risks. So if we look at the effective gap, if we look at the effective duration gap, it would be less than half of the current gap. So we believe we are in line with the market in terms of duration gap.

[Shaojun Su, executive]

In the interest of time, we only have time for the last question on site.

[Unknown Analyst]

I'm [indiscernible]. Now first of all, on the investment side, secondly, on the exposure to property market investment. Now you see fair value change amounted to CNY 20.9 billion. Could you break it down? What's the attribution? Second, about property market investment. What's your exposure to that? And what is the structure of that? What are the changes? How about the future in terms of credit risk management?

[Unknown Executive]

Now first one, half and half. That is the fair value change, half of it comes from stocks and half of it come from fixed income assets. Second question about credit risk management, I believe most of you focused -- paid a lot of attention to credit risk management. I believe CPIC is -- I mean, we are prepared for a lot of questions. I mean, in terms of credit risk management, as you can see, before you even see the credit default on the market, we -- long before that, we have been prepared because we have a very sophisticated system to manage the credit risks.

You'll see -- we have, I mean, CPIC Life and P&C. I mean different subsidiaries of CPIC have their own credit risk management team, but we all go by our group level credit management scheme. So that is to say we can have this kind of centralized management for credit risk management. So we all use the same standard across CPIC to cover all the steps of management. As of now, our -- we are quite diversified in terms of our credit products.

And in the history of CPIC, we actually had a very strict control for exposure for property market. As we have always been saying, we are quite prudent in terms of investment in property market. We exited a long time ago, the key area -- the sensitive areas. And we also noticed the China's policy is -- I mean China is heightened control for local government debt platform. So we will follow it very closely to monitor the risks of local government debt platform and while controlling risks select some partners.

So overall, we have very good credit risk management. You can see the credit ratings of our credit products, I mean, very good rating. We always maintain this kind of very high ratings, credit ratings. We'll continue to stick with it and we will sometimes select innovative fixed asset -- credit products, for example, ABS and risk licenses so that our fixed income assets can maintain a good risk profile. So they can produce long-term sustainable returns for CPIC.

[Shaojun Su, executive]

Well, thank you for all your questions. And we also asked questions from small and medium-sized investors. Now their question may centered on Changhang action plan and also pricing rate change, after that, the product strategy and some other questions, we will answer them in written form. And if you have further questions, you can contact our IR team. Thank you. That concludes this event. Thank you very much.

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