China Life Insurance Co Ltd

SSE:601628

Earnings Call Transcript 2019-Q1

[Li Yinghui, executive]

Good afternoon, ladies and gentlemen, welcome to China Life 2019 First Quarter Results Briefing. I am Li Yinghui, Securities Representative of the company. Mr. Li Mingguang, Vice President, Chief Actuary and Board Secretary; Mr. Zhao Peng, Vice President; Mr. Zhan Zhong, Marketing Director as well as Head of relevant department participating in the briefing.

Today's briefing will begin with a 5 minute introduction of the company's 2019 first quarter results, followed by a Q&A session for around 20 minutes, during which our management will take questions from you in the call.

Let me hand over to Ms. Hou Jue, Head of the IR Division of Board of Directors office for the introduction.

[Jue Hou, executive]

Thank you, Li Yinghui. In the first quarter of 2019, facing a complicated and severe external environment, the company steadily proceeded with all tasks by closely adhering to the strategic deployment of China Life Revitalization and achieved the coordinated development of scale and value.

The company continuously maintained its leading market position with a good momentum for China Life Revitalization. Firstly, the company recorded a relatively rapid growth in its core businesses.

In the first quarter of 2019, the company achieved the revenues from insurance business of RMB 272 billion, an increase of 11.9% year-on-year. First-year regular premiums amounted to RMB 66 billion, an increase of 9.1% year-on-year. And our renewal premiums amounted to RMB 178 billion, an increase of 13.5% year-on-year.

Short-term insurance premiums amounted to RMB 26 billion, an increase of 68.5% year-on-year.

Secondly, our premium structure was further optimized. During the reporting period, the percentage of first-year regular premiums in premiums from long-term insurance of new policies was 98.97%, an increase of 12.23 percentage points from the corresponding period of 2018.

The percentage of renewal premiums in total premiums was 65.5%, a slight increase from the corresponding period of 2018. And our protection-oriented business developed rapidly. In the first quarter of 2019, the surrender rate of the company was 0.62%, a big decrease of 3.34 percentage points year-on-year.

Thirdly, the sales forces expanded with enhanced quality. As at the end of the reporting period, the total number of sales forces from all channels of the company was approximately 1.89 million. In particular, the number of our exclusive individual agents was 1.537 million. The number of sales representatives in the bancassurance channel was 0.276 million. And our monthly average productive agents from the exclusive individual agent channel increased by 3 point -- 37.9% year-on-year. The monthly average number of agents selling protection-oriented insurance products rose by 59.8%. And the monthly average active insurance planners for long-term business in the bancassurance channel grew by 58.7%.

Fourthly, the company proactively took advantage of the investment opportunities and investment income was improved significantly.

As at the end of March, the company's investment assets reached to RMB 3.19 trillion, an increase of 2.7% from the end of 2018. The company continued to adhere to its investment strategies of making long-term investment, value-oriented investment and prudent investment and the flexibly paced its fixed income investments by studying and assessing the interest rate movements in the market.

For equity investments, our stock positions were maintained at a reasonable level. The company carried out active trading operations and optimized investment portfolios by seizing the market opportunities in the first quarter, as a result of which, income from equity investments increased significantly year-on-year.

Hence, in the first quarter, the gross investment income of the company was RMB 50.9 billion. The annualized gross investment yield was 6.71%, an increase of 2.79 percentage points year-on-year. And our annualized net investment yield was 4.31%, a decrease of 0.05 percentage point year-on-year.

During the reporting period, net profit attributable to equity holders of the company was RMB 26 billion, an increase of 92.6% year-on-year. And the value of new business for the first quarter grew by 28.3% year-on-year.

The core solvency ratio and comprehensive of the company were 252% and 262%, respectively.

For the next stage, the company will continue to adhere to the strategic deployment of China Life Revitalization, uphold the core strategy of centering on customers and focusing on basic operational units, focusing on business value and emphasizing on broader individual insurance business and stick to the operating guideline of prioritizing business value, strengthening sales force, achieving stable growth, upgrading technology, optimizing services and guarding against the risks to accelerate the development of its protection-oriented business, continue to strengthen the sales force, enhance confidence in the large- and medium-sized cities. And also, we will step up effort in risk prevention and control, so as to boost the high quality business development of the company. Thank you.

Okay. We now begin the Q&A session. Please -- which will be conducted in consecutive interpretation.

In the interest of time, please limit your questions to no more than 2 and tell us your name and your institution. May I invite the first question, please?

[Operator]

[Operator Instructions] The first question is Leon Qi from Daiwa Asset Management.

[Leon Qi, analyst]

This is Leon from Daiwa Securities. I have 2 questions today. Firstly, congratulations on delivering a very strong 28% of NBV growth. In particular, we're very impressed by the significant margin expansion there. So my first question is on the factors behind this margin expansion. If management could share with us from a strategic perspective and specific products? And also, finally, in your execution through distribution channels, which factors are driving in to this very significant margin expansion in the first quarter of this year? Secondly, I would like to gain some color from management on your active ratio of your agents, especially after the jump-start period, because at the moment, the market is indeed looking to the sustainability of your agent activity into the next few quarters. And the thing is we do understand that the jump-start period is a little bit different in your agent activity dynamics there. So, for example, in February and March, if there are any significant differences in your agents active ratio compared with the jump-start period. And also, how does that it compare with the similar periods in the previous year?

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

[Interpreted] First about your first question, about the margin improvement. During the first quarter of this year, our strategy of the business was to have value-oriented business development with diversification. So during the first quarter, for the premiums, for the 10 products with largest premium income, more than half of the products were designated for system-oriented products. So that contributed to the margin improvement.

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

[Interpreted] And second question about activity from management team. We have seen some of the difference between February and March, that was mainly because of the traditional acceptable factors that is the spring festival doing this February.

Versus from the first quarter on the whole, the activity level was quite valid, quite steady. And as we are entering the second quarter, we are still aiming to improve activity level on the agent team. That is mainly because of 2 reasons: first, we want to further enhance the sales of the protection-oriented business, which will be based on more activity and more productivity from the agents; and secondly, we stress the differentiation strategy in our sales, so we also want to enhance the activity and productivity level that is a base to have a differentiated business.

[Operator]

Our next question is from Steven Lam with Bloomberg Intelligence.

[Steven Lam, analyst]

Congratulations on the results, too. I have basically 2 -- a couple of questions here. One is a simple one. When I look at the renewal premiums for the first quarter, the growth rate seems to have slowed down quite a bit. I mean as compared to a year ago, in first quarter of 2018, I think you had about 39% increase in renewal premiums. So I was wondering, is it because there is some maturity, that's why this seasonality is happening. And probably if you look into second quarter or to the rest of the year, are we assuming -- or can we assume that the renewal premiums grow, would be say, give or take mid-teens or between 10% to 20%, that kind of range, or it would be quite volatile? So that' s one. Second question is on your investment gains. So when I look at your, I think, in the Chinese call, there's some explanation, but we all understand that the equity market was very strong. But I was just curious that if I look at the fair value gain on the P&L, so above the line -- above the comprehensive income, so I'm seeing CNY 13.9 billion in terms of fair value gains, that's for the first quarter. Now even if I look back to history in 2015, back in the past [Foreign Language] Back then I -- we did not see that kind of a strong gain.

So I'm wondering -- to my knowledge, this is -- when you cost -- this is the gain under the classification of fair value for P&L. Has there been any changes in terms of, like, some assets got moved into this asset class. But when I look at the balance sheet, I don't see a huge change. So I just wanted to get some clarity on that?

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

[Interpreted] About your first question regarding renewal premium, there are a lot of factors that will affect the increase in the renewal premium, like the FYP in the past years and the existing business and the duration of business of the existing policies.

We have different durations, like 3 to 5 years and also 10 years and 20 years.

So all these factors may affect the renewal premium growth in a certain year.

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

And that is the duration of the payments...

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

For premium payments.

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

[Interpreted] Your question about fair value gains, we had a very large fair value gains in the first quarter that is RMB 13.9 billion. One reason is the extreme increase in the open market, in the Asia market. And another reason that we have increasing scale of the interested domestic asset and some of the interested assets and equity assets and we allocate it into the trading assets on our statements.

So for the market value gains in such category, it will directly be recorded into into the profit.

[Unknown Analyst]

[Foreign Language]

[Li Yinghui, executive]

[Interpreted] And for the next stage, when we have been following the strategy that's the median of our open market equity proportion, is about 10%. So in the next stage, we will follow this strategy and flexibly adjust our exposure to the equity markets and to use the market fluctuation to benefit our profit and to reduce the fluctuation.

[Operator]

[Operator Instructions] Next question is Katherine with Merrill Lynch.

[Katherine Hu, analyst]

It's Katherine from Merrill Lynch. Just one quick question from me. We know there will be some adjustment in the morbidity table.

So I would like to hear from management's view, will this result in rushing order for protection product before the new tables come up -- before the new table comes out? And also, what's the market practice for exceeding ratio for such protection products? Do you actually retain most of the risk premium? Or actually the risk premium is taken by the reinsurance companies? [Foreign Language]

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

[Interpreted] First question about whether this rushing effects factor the new morbidity table. We should say that for the insurance company, our sales should be based on customers needs. And for our pricing, we have always been -- carried out pricing based on our actual experience. But the new table will definitely provide a scientific and better guidance for all the insurance companies.

And for your second question about the risks to the reinsurance company, we should say for China Life, we have relatively high level of tolerance of risks that is based on our strong capital. We have the actual capital of several hundred billion RMB. And we have the solvency ratio tied to 252%. But it is not fair to say that we should see more risk to the reinsurance companies. It's only the risk diversification. And we should say this reinsurance companies are also smart enough to have the balance of risks and the premium.

[Operator]

And we have final questions from Kailesh Mistry from HSBC.

[Kailesh Mistry, analyst]

Two questions. The first one is just on new business value. Obviously, very strong growth in first quarter, 28%. Is your expectation still around the 10% mark for full year 2018? And within that, do you still expect revenues to fall over the course of the year further given historically your margin has improved over the course of the year? Second question is impressive growth in agents focused on protection and active agents. Could you tell us what proportion of the total 1.53 million or 1.54 million agents are active? And secondly, what proportion of those affects us on protection?

[Li Yinghui, executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

[Interpreted] And your -- about the first question regarding the NBV growth. We should say the strong growth in the first quarter lay solid foundations for the whole year NBV growth. And the management does not have any thought of taking a break right now and we should work hard -- work even harder for every month, every day to maintain a relatively good growth on the NBV side.

[Unknown Executive]

[Foreign Language]

[Li Yinghui, executive]

[Interpreted] Second question about the agent growth especially in the monthly average productivity [indiscernible] protection products.

I have mentioned in the first question that we will carry out the differentiation strategy in the cultivation and the management of agents.

So for the agents selling protection products, the protection product here in -- not only the protection but also the long-term leading products.

So on next stage, we will put more emphasis on these protection-oriented products. And we think that starting from the second quarter, we should keep on following the strategy of value-oriented strategy. And that will also be conducive to the stable growth on the agent size.

Okay. This brings us to the end of the briefing. If you have further questions, please feel free to get in touch with our Investment Relations team at any time. Thank you for participation. Goodbye.

[Operator]

Thank you for joining the conference. Thank you.

[Portions of this transcript that are marked

[Interpreted] were spoken by an interpreter present on the live call.]