China Life Insurance Co Ltd

SSE:601628

Earnings Call Transcript 2021-Q2

[Li Yinghui, executive]

Ladies and gentlemen, good morning. Welcome to China Life's 2021 Interim Results Briefing. My name is Li Yinghui, securities representative of the company. The briefing today will be conducted online. Analysts and investors can watch the live webcast of the briefing on computer and web devices or attend the teleconference. [Operator Instructions] The management will answer your questions during the Q&A session later.

Now let me introduce the management member attending today's briefing: Mr. Su Hengxuan, President; Mr. Li Mingguang, Vice President; Mr. Ruan Qi, Vice President; Mr. Zhan Zhong, Vice President; Ms. Zhang Di, Head of Investment Management Center. Today's briefing will start with a 30-minute presentation on the company's 2021 interim results followed by a 45-minute Q&A session, during which our management will take questions from the participants.

Let me now hand over to our President, Mr. Su Hengxuan.

[Hengxuan Su, executive]

Ladies and gentlemen, good morning. Welcome to the interim results briefing of China Life 2021. This session will comprise 5 parts. First, I will start with an overview about the company and the industry over the first half of 2021. Then the management team members will present our performance on business operation, finance, investment and embedded value.

This year, the unprecedented changes gained speed worldwide. COVID continued its rage. The external environment was increasingly severe and complex. Our development environment transformed profoundly. The insurance industry faced short-term pressure. The growth rate of premium started high but ended low. New policy acquisition lost momentum. Number of agents fell sharply.

Despite the complex environment, risks and challenges, we remained bullish about China Life's insurance industries in the long run. As for the macro economy, China features huge potentials, abundant internal drivers and strong dynamics. The new landscape of deal circulations at home and abroad is taking shape. The economy maintained steady growth and presented long-term prospects and the structure, optimized. The society stays stable. All these have profound -- provided the life insurance industry with solid socioeconomic basis for high-quality development in our industry, but people is earning higher income and gaining awareness of insurance and health management. For life insurance, there is a dynamic demand and enormous market potentials.

The state is promoting the Healthy China program, proactively advancing major strategies, such as response to population aging, group revitalization and regional coordination. All these have opened broad space for the innovation and development of our industry. Moreover, a new round of technological revolution is evolving at a quicker pace. Technology is empowering life insurance in product development and innovation, model transformation, marketing and services, risk management and other links on the value chain. Overall, we believe that the current short-term challenges are just the temporary pain amidst structural changes and rebalancing of supply and demand in China Life's insurance -- China's life insurance industry, which is still enjoying a period of strategic opportunities and the unprecedented and unchanged momentum of growth in the long run.

We follow the guidance of Xi Jinping on socialism with Chinese characteristics in the new era, implement the decisions by the CPC Central Committee, seek progress while maintaining stability, strive for high-quality development, effectively coordinate pandemic control and reform and development and achieve major milestones along the journey towards revitalization.

We guide development with the party's leadership -- integrated party leadership with corporate governance, improved Mountain enterprise system and sharpen our edge in governance system and capability. We plan development to serve the country's overall development; support the country's major strategies and real economy; honor our responsibility to protect people's livelihood; and highlight our political, economic and social responsibilities as a state-owned enterprise. We enable development by consolidating our fundamentals, constantly optimize our network, strengthen our team, enable ourselves with technology, upgrade our products and services, beef up risk system and achieve a much more solid basis for all-around development.

We promote development by deepening reform and carrying out our Dingxin Project, press ahead with reform projects and clearly augment our vigor and vitality for growth. In the first half of 2021, the company made reforms steadily and swiftly, aligned and synergized the channel mix, marketized our investment management system, accelerated our digitalization, increased our productivity and service quality and realized a sound business development.

As said, we will stand in the new phase of development, implement new outlook of development, serve new development landscape, push for high-quality development, deepen reform and innovation, develop new models, build new mechanisms, grow new drivers, lift China Life Revitalization to a new height and solidify our basis to increase customer value and investors' returns.

This is all of my brief overview. I would like to invite Vice President Zhan Zhong to update you about the company's business operation.

[Zhong Zhan, executive]

Thank you, President Su. I would like to now give you more details about the operation and business in the first half of 2021. Since the beginning of this year, the environment is complex and volatile. The impact of COVID is suppressing the release of consumer demand, and industry recovery falls short of expectation.

Facing the high starting point last year, the company withstood the pressure and achieved progress and industry leadership. The embedded value amounted to RMB 1.14 trillion, up by 6.6% by the end of 2020. And net profit hit RMB 40.98 billion, up by 34.2%. Investment yield came to 5.69%, up by 35 basis points. Core solvency ratio reached 25.9 -- 259% with adequacy. GWP hit RMB 442.3 billion, up by 3.8% with a bigger market share. FYRP reached RMB 80.67 billion, representing 98.9% of FYP. Renewal premium reached RMB 308.39 billion, up by 9.7%. Total sales force reached 1.22 million persons.

We have also stick to the guidance on value and implemented requirements of Dingxin Project. And the individual agent business, the GWP reached about RMB 363 billion, up by 2.2%. Renewal premium reached RMB 285 billion, up by 8.2%. Premium for new policies reached RMB 78.82 billion, down by 15%.

The FYRP of individual agent business went down by 16.5% at RMB 68.65 billion. And there was some volatility of the team size, and we would like to consolidate the size and improve the quality and management. By the end of the reporting period, the total number of individual agents was 1.15 million: general agent team, 719,000; upsell, 431,000. Despite the sliding number, the quality is good and the high-performing ones are stable.

And we also seek high-quality development. We developed the operating system 4.0 for the individual agent sales force and promote specialization, professionalization of the team so as to inject sustainable momentum of our high-quality environment. And diversity -- diverse development also grow hand in hand.

In bancassurance, we seek the goal of both size and value, where we deep dive into bancassurance and promote the transformation of channel mix. In the first half, the GWP on the bancassurance was at RMB 34.4 billion, up by 20.7%. FYRP reached 19 -- RMB 11.99 billion, up by 1.1%.

For group channel, we seek diversification and achieved steady growth. GWP was RMB 16.69 billion, up by 1.2%. And the short-term policy premium, RMB 18.82 billion, up by 3%.

For the others, such as policy-based health and net sales, the GWP was CNY 27.3 billion, up by 4.2%. The company is also pressing hard with the digitalization and development ecosystem for digital insurance and step up R&D and create more value and momentum.

The first, for technology innovation. The technology structure has been upgraded by leveraging the computing power and the open and inclusive and compatible digital platform. Our data processing capacity has been grown by 10x. We have also improved the agile delivery and improved technological responsiveness significantly. So we provide 37.7 iterations per day and respond to market changes and provide a more precise service for customers.

We also provide intelligent application and strengthened the technology service capacity. And we provided 2.3 million times of intelligent services and also enabled the digital twin for off-line field offices.

And in terms of interactive traffic, we have broadened the digital ecosystem. We have opened 3,029 standardized services and partnered with other agencies to carry out 313,000 activities and enriched our ecosystem and services.

And we have also provided express high-quality and heartwarming services to provide services online intelligently and in an ecosystem-based manner so as to address the diverse needs of the customers.

Our online services is frequent and widespread. We have more than 100 million registered user for our app, and the paperless application rate for individual long-term business and the group business exceeded 99.9%. We have also provided accommodation to the auto . And we have also provided a more responsible service. The policy issuance time is improved by 39%. Intelligent approval rate for claim whole process increased by 7%.

We have also provided rapid claims settlement. The total number of settled claims exceeded 9.4 million, up by 40%. The medical institutions covered by direct claims payment has amounted to 20,000 hospitals. The beneficiaries increased by 110%. And we have also personalized information pushes, which is up by 48%. And we provide value-added services like health and art.

In the first half of the year, in the context of confluent risk factors, the company adhered to the risk bottom line and actively balanced growth with safety. First, we actively carried out various types of risk identification and management exercises. We timely detected the risk hazards and comprehensively improved the responsiveness and capabilities.

Second, we focus on dynamic risk management. The ERM and internal control system was further improved.

Third, we strengthened the supervision and realized the effective management of the 3 lines of defense. In response to the weaknesses in risk control, we have further intensified efforts to reinforce our lines of defense.

Fourth, we've comprehensively promoted the IT upgrade and intelligent transformation of risk management and control. We follow the new trends of insurance industry development and applied AI technology, such as big data and machine learning, to develop the knowledge graphs as well as developing the databases, covering 1 billion orders, and also an insurance risk pattern and feature database containing thousands of insurance risk patterns. And we've also developed many anti-money laundering intelligent detection and verification products.

So up until now, we've received very strong recognition from the regulator. We've received the A rating for 12 consecutive quarters from CBIRC. We are also committed to building a world-class financial and insurance brand through long-term and continuous brand building. China Life has been ranked among the top and leading brands. Our brand value and influence have been increasing. We won several very influential awards in the first half.

We are also taking the commitment of building a world-class responsible life insurance company. And we are adhering to the concept of putting people first, caring for life, creating value and serving the society. We established a sound CSR and governance system. We're promoting work related to CSR and engagement of communities.

First, we're actively playing to our advantage of insurance expertise. We participate in multilevel social security system and support Healthy China and work with the aging population strategy of China. Second, we are concerned about charitable giving, and we are building a volunteers team to give back to society. Number three, we are also implementing low-carbon ESG principles in our risk management to promote green development.

In the second half, we will continue to adhere to the general idea and strategy of seeking progress while maintaining stability, and we will focus on high-quality growth. We will focus on the following actions in the context of the 14th Five-Year Plan. Number one, we insist on stable operation and achieve steady progress. We will remain customer-centric, and we will also coordinate the products between savings and protection. Second, we insist on improving quality and stabilizing our workforce and improve their transformation so that they can become more specialized and professionalized. Third, we adhere to reform and innovation, and we're promoting the Dingxin Project in depth. We are also driving digital transformation and business model diversification. Fourth, we are improving quality and efficiency, improving the intelligent sophistication of our business. Number five, we are adhering to compliance management and guard the bottom line of risk management.

Next, I would like to pass over to Mr. Li Mingguang, our VP, to talk about the financials, the investment and EV.

[Mingguang Li, executive]

Thank you, Mr. Zhan. I'll be giving you a short update on our financials, investment performance and EV in the first half. In the first half, the company's revenue totaled RMB 537.11 billion, up 6.5% year-on-year. The company's GWP income was RMB 442.3 billion, an increase of 3.5% year-on-year; gross investment income was RMB 117.64 billion, an increase of 22.4% year-on-year; net investment income, RMB 89.76 billion, 16% increase year-on-year; realized spread gains on financial assets, RMB 30.18 billion; impairment losses on financial assets, RMB 7.6 billion; net fair value gains through net profit, RMB 5.3 billion.

In terms of the expense structure in the first half, due to the decline in new business, underwriting and policy acquisition costs decreased year-on-year, and the underwriting and policy acquisition cost ratio dropped from 11.2% to 7.84%. The company strengthened cost discipline. The administrative expense ratio remained stable.

In the first half, due to the combined effects of changes in investment income and update of discount rate assumptions for reserves of traditional insurance contracts, net profit attributable to shareholders of the company reached RMB 40.98 billion, up 34.2% year-on-year. The weighted average ROE was 8.72%, an increase of 1.36 percentage points year-on-year. EPS was RMB 1.45, an increase of RMB 0.38 year-on-year.

And let me talk about the P&L and then now the balance sheet. As of June 30, the company's total assets increased by 9.4% to CNY 4.65 trillion from CNY 4.25 trillion at the end of last year. Total liabilities increased 10% to CNY 4.17 trillion from CNY 3.8 trillion; reserves of insurance contracts, CNY 3.31 trillion; and residual margin was RMB 850.68 billion. As of June 30, shareholders' equity attributable to the company's shareholders was CNY 471.45 billion, an increase of 4.8% from the end of 2020.

In the first half, the equity attributable to the company's shareholders increased by CNY 21.4 billion, including an increase in net income attributable to the company's shareholders of CNY 40.98 billion, a decrease in other comprehensive income of CNY 1.88 billion and a dividend payout of CNY 18.09 billion.

And as of June 30, the company's core solvency ratio was 259.03%, and comprehensive solvency ratio was 267.69%. The comprehensive solvency ratio decreased by 1.23 percentage points compared with December 31, 2020, mainly due to the continuous growth of insurance business and investment asset size, dividend payout and the downward adjustment of the interest rate for solvency reserves.

Now let me talk about the investments. In the first half, the company firmly implemented the medium- and long-term asset allocation -- strategic asset allocation plan. And also at the technical level, we were making moderate adjustments according to market changes.

First, the company has been seizing the opportunity of the periodic peak of interest rate allocated further to long-term interest bonds. And we've also further optimized the position. Second, we've closely tracked the changes of the equities market, optimized our strategy benchmark and our position and portfolio. We've also -- number three, in response to the market changes of declining supply of nonstandard assets, we've been exploring new strategies for alternative investment, optimizing the alternative investment exposure. And as of June 30, the balance of our investment assets exceeded RMB 4.45 trillion, an increase of 8.8% from the end of 2020.

In terms of our investment portfolio, the allocation to term deposits changed to 12.45% from 13.32% at the end of 2020. Allocation to bonds changed to 44.23% from 41.97%. Allocation to stocks and funds, excluding money market funds, changed to 9.88% from 11.31%. And the allocation to debt instruments changed to 10.44% from 11.08%.

In the first half, the company continued to expand the size of investment assets with stable growth in total interest income, thanks to our continuous increasing long-term bond allocation and continuous diversification of fixed income strategies in recent years. The net ROI reached 4.33% in the first half, which was 4 bps higher than the same period in 2020, which is largely stable. The company grasped the market opportunities and cashed in some of the income. The total investment return was 5.69% in the first half, 35 bps higher than the same period of 2020. After adjusting for the net change in fair value on financial assets, we've seen the consolidated investment return at 5.61%, 21 bps higher than the same period of 2020.

In the first half, the company continued to guard its compliance bottom line and improve our risk management capabilities. Number one, we've further audited the use of insurance funds in the company, built up our investment management capabilities and optimized and improved risk management and risk control systems. Second, we further diversified our market risk research and prudently understood the asset allocation strategy. Number three, we adopted a rigorous internal rating system and a multidimensional risk limit to effectively control credit risk. So no credit default event has occurred in the first half for the assets held in our position.

Next, I'll talk about the EV, embedded value. First of all, the value from new policies. Since the implementation of our revitalization strategy, we've maintained our focus on value in 2019 and the first half of 2020. We experienced very high growth in new business value. In the first half of 2021, due to the effect of COVID and other factors, we've seen no strong growth in life demand. And in this context, in the first half, we saw the new business value, the value of new contracts in the first half, reaching CNY 29.87 billion, down 19% year-on-year and down from a high number in recent years. Among them, the value of new business in the individual sector was RMB 28.97 billion in the first half, down 20.8% compared to a higher base in the same period of 2020.

Now let me talk about EV. Also because of the effect of COVID, our EV was CNY 1.14 trillion, an increase of 6.6% from year-end 2020, of which adjusted equity was CNY 617.1 billion, an increase of 8.5% from the previous year-end. And the value of in-force business was CNY 525.7 billion, an increase of 4.4% from December 2020. After adjusting for diversification, the company's VIF was RMB 569.4 billion with an EV of RMB 1.18 trillion.

Now let's look at the movement in EV from December 31, 2020, to June 30, 2021, with some of the key items listed below. The expected returns were RMB 41.14 billion, reflecting the expected returns on business in the first half of 2021 and the sum of the expected returns on equity. And the value of half year sales in the first half was CNY 29.87 billion. Operating experience variance, CNY 1.28 billion; investment variance, CNY 3.31 billion; changing methodology and model, CNY 670 million; impact of market value and other adjustment, CNY 10.58 billion; exchange losses, CNY 67 million; actual shareholder cash dividend payout, CNY 18.09 billion.

So that's my presentation. Thank you very much.

[Operator]

We will now take questions from analysts and investors who are joining through live webcast. [Operator Instructions] The first question comes from Haitong Securities.

[Ting Sun, analyst]

So the [indiscernible], and also the agents are diminished. What are the causes of these things? Will there be trends for the better?

[Unknown Executive]

Mr. Zhan, would you like to take that question?

[Zhong Zhan, executive]

First, indeed, the whole industry follow the same trend. China Life basically follows the same trend with the rest of the industry. So the new business declined, and also the sales force downsized. There were analysis so -- of different sectors. I would like to offer mine. The first reason is with the market. In the post-COVID era, consumers are more prudent. China's economic growth is still leading the world, but that is now very stable. For business development, that has resulted in some pressure.

Second, our agent sales force downsized like the rest of the industry. With less agents, the business also declined. So that is a key reason. For the future, the industry, the company are all shifting towards high-quality development, which is an arduous and a painful process. We are going to make active efforts to go along the investment trends and highlight our advantages. So this is what I would like to say in response to your question.

[Operator]

The second one from [indiscernible] Investment.

[Unknown Analyst]

For the existing customers, how would you redevelop them? Will you also reserve some capacity and growth drivers for the success of next year?

[Unknown Executive]

Would you restate your question? Say that again.

[Unknown Analyst]

For existing customers of premium, how would you do secondary development for them? What are you doing to prepare for a successful opening of next year?

[Unknown Executive]

Is it fair to say that for Hui Min Bao, you have attached a keen interest. This is an emerging business over the recent years. By the end of June, we have opened 27 projects in 9 provinces.

Second, you mentioned the secondary development of these customers and the secondary development of other customers. According to our internal overall arrangements, we are going to phase in the measures step by step. Not only -- it is not the case that Hui Min Bao customers will be secondarily developed immediately for the success for opening of next year and overall strategy for next year. Actually, our policy stays the same, unchanged. In the period to come, we are going to continue our product strategy, which is centered around customers and diversified. Our products cater to the needs of different segments, and we pay more attention to personalization and segmentation of customer needs. And this is how we are going to plan our products for next year. That's all. Thank you.

[Operator]

Next question from CIMB Securities, Khang Chuen Ong.

[Khang Chuen Ong, analyst]

For the development of the national insurance company, what do you think is going to be the conflict of this new company? And our strategy, what are the levers to pull?

[Unknown Executive]

We have noted the information disclosed for that company. It is called a pension company. Actually, we do also comprehensive business in -- for the elderly, like the exclusive pension. And we have followed the pilot requirements and kicked off the relevant initiative. According to the information that we have seen, including the scope of business relating to health, pension, I will say that my company has got a new friend in the same industry. We just do a good job on our own part. That is enough.

[Operator]

Next question from Daiwa Securities, Leon Qi .

[Leon Qi, analyst]

From 2019 to 2020, revitalization strategy yielded remarkable results. While in 2021, you are going to launch a new batch of transformation projects. Could you provide more details on these new transformation projects?

[Unknown Executive]

Thank you for your interest. China Life Revitalization is a vehicle to carry forward the Dingxin Project. It has come to its third year. The progress so far has met our expectation. Like the channel mix of one focus and diverse channels have been complete for a sales channel. And investment management has also met our expectation in terms of the transformation of investment management system and the sound yield realized for investment.

In terms of operation, we have an operating service center, which is also moving forward concomitantly. And for the very support, you have also seen enabling technologies, which has been developed and changed a lot. Our risk management system has also made great headway. So it has intelligence.

This year is the first year of the 14th Five-Year Plan period. Our priority is to surround our overall planning and solidify the basis we have achieved through the Dingxin Project. Over the past 2 years and more, we have indeed laid a solid foundation. We are going to further consolidate the basis we have laid, and we are going to also further implement the key reform results.

There are several highlights I would like to share with you. And we are going to further develop the team and upgrade the business model, driven by the growth of sales force. Professionalization is a priority in upcoming transformations for our sales force. From the regulation to the industry, there has been exploration to achieve model for high-quality development. So you have also seen the attempt to transform the relevant systems and regimes. Indeed, these are what -- also what we are trying to do. We didn't do it 3 years ago.

The next one is about the diverse segments like group, bancassurance, health. For bancassurance, as you have seen from our semi-annual report, we attach importance to both size and value. In the industry, our term premium segment is still leading, and we are also augmenting our value. For our alternative or diverse segments, bancassurance has indeed exhibited notable results. Health and group will prioritize the transformation and implementation of the model.

Third, for digitalization, we have had some basis. Next, we are going to also do data governance and mining to enable the tech-driven China Life. Next one is about risk management. For the whole industry, that is an important premise of development. We will continuously informatize and intelligentize risk management.

We are also constantly reviewing what we are doing. Plan needs to be improved and reviewed from time to time. And the mismatch -- the reality shall be spotted and important improvement opportunities will be identified. Reform is always going on, and we are going to intensify our efforts on reform so that we can best position ourselves in the journey of high-quality development.

[Operator]

The next question comes from CICC [indiscernible].

[Unknown Analyst]

In channel and products, how do you take measures to cope with the difficulties facing the industry? For the new business growth, do you have any guidance to share?

[Unknown Executive]

Let me take up this question. For the second half of the year, Vice President Zhan just said, over the past few years since the start of Dingxin Project, across the various sectors, major headways have been achieved. Since the beginning of this year, due to complex factors, the new orders or new policies are now under pressure. That is why all the departments are very busy. They are trying to promote products, services and channels to better integrate themselves with the customers in need or the users in need. In a nutshell, over the past period, owing to the impact of COVID and other factors, the person-to-person interactions have been remodeled, and sales scenarios have changed a lot. So far and in the future, the environmental changes and our initiatives are examples of the measures that we are taking to break out the constraints placed by these factors.

We need to check the reality. So we cannot simply conclude that any measure will work. So it takes time to adapt these measures for product development. Whatever factor is limiting us, which products, technologies could enable us to overcome the difficulties or obstacles, so this is what we need to do in product development and auxiliary services.

[Operator]

Next question from Credit Suisse, Charles Zhou.

[Charles Zhou, analyst]

The extension rate of 14 months for policies fell sharply because of the less affordability or the recommendation by the agents. With the continued decline of -- that is the case, will NBV be untruthful?

[Unknown Executive]

Mr. Zhan, would you start? I will add further.

[Zhong Zhan, executive]

You now pay close attention to that, and we are also paying attention to that. We didn't start paying attention to it this year. We did it last year. About the retention rate, as I said, for that rate, several factors are at play. For certain products, quality is a problem. For some others, the reason lies with the customers. For external factors, the economy is still uncertain and volatile. And despite the recovery, there is still uncertainty and volatility. So the willingness to pay and affordability of the customers have been affected. So that is part of the reasons.

On the part of the company, we have done a lot. As I said, we noticed this issue months ago, and we developed a high-quality system. Actually, retention is a core KPI of the system. We are going to provide alerts in terms of risk and the business alert. In the sales channel, we have made the alerts as frequent as weekly. So that is about the system building.

Next, for constraints, we have also done a lot. For example, for the personnel, like salespeople, we do have some constraints and also the entry management to enable sound product quality. And we are also doing underwriting, basic law and performance review. We have also introduced rigorous measures. Since the end of 2019, we developed a retrospective analysis on the salespeople with low retention rate. So we try to trace the reason. And for the managers, we have also deferred the payment of remuneration and factor this performance into promotion and demotion. And the retention policies are influential.

[Unknown Executive]

I think we believe this will reflect in the compensation for the sales agents. If the persistency rate is low, we may limit the expansion and also the qualification for the agents to expand and develop the renewable performance of our sales force. So that's my answer to your question.

And I would like to add a point or 2 because I know this is a point of interest to you, and the analyst was very observant. For the 14-month persistency rate, the new business reflected -- actually, the period of COVID outbreak -- it coincided almost precisely with the COVID period. And because of COVID, our sales have suffered. Our service delivery has also been under pressure. But China Life was not stopping its sales. Instead, we invested further to improve our service capabilities to engage with our customers. And despite COVID, we deploy technological means and we moved more our activities online from off-line, and now we are returning to off-line.

So we can briefly recap, our efforts in those months really paid off. Our intervention actually helped test the resilience of our business, whether the online business development, effort was making progress. I think the results are very self-evident if we were to review the experience and look ahead. I must say that, that was a short-lived number because COVID prevention is now well improved, and we now have a more balanced off-line/online business portfolio. And our service is now more attentive, so this will help improve our performance going forward.

[Operator]

Next question from Citi, Michelle.

[Michelle Ma, analyst]

The education -- the tuition industry has been suffering and -- where China Life is converting some of those professionals into a sales agent, whether the productivity and also the size of the workforce will increase in the short term, whether the industry is now at the bottom?

[Unknown Executive]

I would like to take that question. If we look at the sales force at CL, in the last year or 2, we further developed a rigorous selection process. And for those that are ambitious and willing to join the industry, we will definitely reach out to them.

You talked about productivity and capacity utilization. To be honest, in the first half, the industry was actually looking at the downward trend, and the same goes true for our company in terms of sales force. But our posture is quite mixed. Our position is quite mixed. Our productive sales force as a share of total sales force declined compared with the same period last year, but the top performers group was quite stable. That means the attrition was due to company letting people go and also some left because they were not a great fit for the industry. Compared with the first half of 2020, I would say the productivity increased. So this is a mixed picture with both encouraging signs and some weaknesses that we need to further address.

And in terms of team building, China is promoting high-quality development and transformation. The industry is also accelerating the pace towards high-quality development. So going forward, the sales force will be more focused on the quality and mix of the sales force. So we are now in a transitional period. There will be some short-lived pains. The sales force and sales agency system reform will give us some challenges, but I think through our actions, we'll be able to improve our profile and image.

In the first half -- actually, in January, we started the program of building our sales force 4.0, and the 4.0 version focuses more on the key control points of the sales force. We further developed the system, the processes. And also the director and manager training program was used as a pivot to further professionalize the sales force and also develop the specialization. The key is to support the high-quality development of the company with sustainable momentum. So we will focus on improving the mix and also the skill level of our sales force.

[Operator]

Yunting Lu from Zhongtai.

[Yunting Lu, analyst]

We know universal health insurance is now popularizing, and this has constrained the growth of our individual business. So for commercial health insurance companies, what will be the growth drivers going forward? And for customer demand, where do we see opportunities?

[Unknown Executive]

Thank you for your question. I think the question has been asked many a time. For example, universal health insurance, we call it a city benefit program. It's a customized program per each city, and this segment has really grown very rapidly. We know -- we have basic medical insurance. We have supplementary insurance. We have commercial health insurance, and we also have the city benefit program. Those different pillars make up the hierarchy of China's protection system. And I think city benefit program is one welcome form. We've conducted the program in 27 projects in 9 provinces, and we've covered quite a large population. Through that intervention, we believe we will have a more robust business foundation.

Second, the programs carried a lot of social responsibility. It also helps improve public awareness of the protection function of insurance. The regulator is also very committed, and they have issued some guidelines on further improving this type of products. So for health insurance for city benefit programs, we believe the regulatory environment will be very encouraging.

And for CL, analysts and investors may want to know whether this will cannibalize into our other business lines. I would say no. Because, as I said, the program was about improving public awareness, about insurance protection function and about improving the multi-tiered system. And I believe this will also help improve our expense management.

In our analysis, the market today is looking at a very diverse and stratified demand, and we need to meet very personalized demands. People want different drugs, different types of therapeutics and treatment. So as a commercial health insurance, we have to meet such demand.

And in terms of product development, I've talked a lot, there's a lot of underserved markets out there. For example, the age group, the young generation and those with underlying conditions. So both for pension, for health, we do see some really big underserved markets. We're now still in the growth period rather than a mature, saturated period. So product innovation, new product development, we'll look at very great opportunities ahead.

[Operator]

Next question from [indiscernible].

[Unknown Analyst]

In the midterm, for the core and comprehensive solvency ratio, the number has declined on both accounts. So how do we understand the solvency reserve requirement and also some of the statements made in the interim report? And also for C-ROSS II implementation, do you think this will further weigh on your rates?

[Unknown Executive]

Let me take the second part of your question first. We all want to know whether C-ROSS II implementation will have an impact on our company's performance. And I've seen this question being asked to other insurance companies during their press briefings. So C-ROSS II -- Phase 2 is about refining Phase 1 based on the market reality and also the risk exposure in China. So the program has been further refined. For example, some of the capital requirements, asset side/liability side management. And we know there's a number of areas that are under impact. For example, the residual margin, there's been a further classification of that and also the calibration and measurement of risk, and the held-to-maturity bonds are also included. And there are also some see-through requirements on some of the asset classes. So Phase 2 of C-ROSS II will be more attuned to China's risk reality and market reality. And rest assured, both for core and comprehensive solvency ratio, we are in a very robust position. But we haven't seen the formal announcement of the regulator. So this is my expected result of the test -- stress test.

[Unknown Analyst]

So about the reasons for the decline in those rates, that's the first part of the question.

[Unknown Executive]

So core capital divided by the total capital requirements, so it's a change in the denominator and the numerator. In normal circumstances, when you grow business, you use and deploy more capital, then the solvency ratio will decline naturally. At the same time, the company will generate profits and will add to the capital stock. If those businesses could bring residual margin, then the regulation requires some capital charges, and this will affect the margin -- the ratio as well.

And for numerator, we will have to look at the risk type, market liquidity and credit. And we will have to look at also the diversification effect. So if you want more clarity, I can probably explain further because this is a very long question.

[Operator]

[indiscernible] Securities.

[Unknown Analyst]

So in the future wealth management driven by pension, how would you compare your products versus the products by securities companies and banks? How would you rate those competitiveness? And would you develop some equity-based products?

[Unknown Executive]

This is an excellent question. There's a general feeling. As Mr. Zhan also discussed and asked by an analyst, in the first 6 months of this year, our business development was hit by some temporary difficulties. Where is the way out in the future? You talked about the competition with wealth management and funds. Where is our advantage? Let me give you an example.

We developed an exclusive product for pension. Our utmost competitive advantage and customer value creation is that the product covers the entire life cycle. This is a super long-term product. It can also cover multiple cycles of the economy. This is a test of the company's ability of long-term management, namely on long runner -- long running -- long distance running is quite different from sprinting. What makes the difference is stamina. For a short runner to be a long runner, the change is to be enormous. A long runner can be a short runner as well. I watched [indiscernible] of Olympics. The [indiscernible] could hop very high -- jump very high. That is about the NL long-term management across cycles. This is what our advantage is about.

Most of the insurance products come with guarantees, and that is absent for other products of other industries for the customers. In the future environment, a guarantee is precious. That's the second advantage.

Third, as you said, we developed some equity-linked products. That is not for the future. At present in our product mix, there are such products like unit-linked products. Our principle is that once we understand better customer needs, if there is a need, we are going to develop a product for it. With the Dingxin Project, moving on, our investment management capability has been very much enhanced. We have the ability to do that.

From the sales perspective, let me make some additional remarks. For mutual funds, securities, they are always there, not only emerging today. Insurance is also there all along the way. We could not analogize them. Insurance has more substance not only for wealth management. Insurance also plays many other functions, like guarantees and protections. Hui Min Bao, to a certain extent, competes with our short-term health insurance. In the market, various financial analysts must have faced this issue. We do not fear such competition. Insurance has its significance and function not replaceable by funds or securities. This is my addition from the sales perspective.

Let me add further. Different financial institutions provide financial services that are suitable to different people and address different needs for each and every customer. It is a must to proceed from the individual needs and household situation and avoid placing all eggs into the same basket. People are different in terms of what they need, and different products have their own pros and cons.

[Operator]

Next question from Morgan Stanley, Jenny.

[Jenny Jiang, analyst]

So far, we have seen that the 14th Five-Year Plan at this stage places more emphasis on medical insurance rather than health insurance. So in your product planning, is there any impact? And in terms of pension services, how will you develop your business model and entry barrier for competition?

[Unknown Executive]

I've already touched upon this by addressing half of your question. Medical insurance in the future is surely a priority in our product development. For pension, you mentioned the competition barrier. I would want to say that we need to develop our long-term capability for management and service. This is indeed what we are always been intensifying our efforts. For integrated pension and service system, we have made efforts to achieve such development. In pension, we don't only provide insurance products. We are also going to provide the relevant services and the value-added services compounding the pension offering, and that will make us more competitive. In terms of barriers, I wouldn't define it in that way. There's not much entry barrier. We just do a good job on our own part.

[Operator]

From Guosen Securities, Jian Wang.

[Jian Wang, analyst]

In the first half, [indiscernible] the term payment, what is the main product for critical disease? What is your prospect for the next half of the year and the future?

[Unknown Executive]

You're observant. Some of our products used to be designed as a main and auxiliary offering. So if the product is of the nature of health versus pension, they will be allocated. So some of our products have now broken away from that approach, and it is designed as a combo of several kind of policies. And one policy category by critical disease may have a larger share, and that product will be classified into the BU of health insurance. So that is the reason accounting for such change, which you have so carefully observed.

For critical disease prospects, in the first half, we were all anxious. It started quickly then slowed down. There are several factors. One is the impacts of COVID, which have suppressed some customer demand. And before the diseases are redefined, it takes time to build up again.

In the industry and in this company, in terms of GWP, critical disease rose the fastest among all. And we are also constantly intensifying product development to address the differentiated needs in place. We see multiple business models, the development of technology and the teams. We will be [indiscernible] soon.

[Operator]

The last question from the platform from [indiscernible].

[Unknown Analyst]

We have seen that the industry added efforts meant to deploy resources across the greater health value chain. Would you talk about your collaboration with Wanda? And how would that have synergy with health insurance?

[Unknown Executive]

Let me address that. It is well known that China Life 2 years ago started investing in Wanda information and established with it a cooperation at the strategic level. Through Wanda information, we have also made presence in city service, intelligence and fintech. With Wanda information, we have also -- it has also developed a brand-new health information platform so constant efforts are now in progress. We are going to go through Wanda information, leverage its professional capability and resources. And moving forward, our strategic operation, deliver its -- and do functions to serve the sales force and customers.

Let me make addition to that. For integrated health offering, we are open. We have a health platform on an integrated basis. We provide more than 100 service items covering the entire life cycle of customers. Moreover, on our health platform, the number of registered users is also leading the industry. In the future, we are going to explore more ways. We are open and we just follow -- orient our health services in accordance with the customer needs.

[Li Yinghui, executive]

So that brings to the end of our 2021 interim results briefing. If you have further questions, please do not hesitate to contact our IR team at any time. Thank you for your time. Goodbye.