China Life Insurance Co Ltd

SSE:601628

Earnings Call Transcript 2018-Q3

[Li Yinghui, executive]

I'm Ms. Li Yinghui. I'm the securities representative of the company. Mr. Li Mingguang, Vice President, Chief Actuary, Board Secretary; and our General Managers of relevant departments participate in the briefing.

Today's briefing will start with a 5-minute presentation on the company's third quarter performance followed by a Q&A session for about 20 minutes.

Now let me hand over to Ms. Hou Jue, head of the IR division, for the presentation.

[Hou Grace, executive]

Thank you, Madam Li. Now I'd like to report our third quarter report to everyone.

In the first 3 quarters of 2018, facing the complicated and severe external environment, the company adhered to its strategic consistency and tactical flexibility and steadily pushed forward various tasks according to the requirements for high-quality development.

Firstly, the company firmly remained a market-leading position, and renewal premiums became stronger driving force for the business development. In the first of 3 quarters of 2018, the company achieved the revenues from insurance business of RMB 468 million, an increase of the 4.1% year-on-year, maintaining its leading position in the market. In particular, the company recorded renewal premiums of RMB 306 million (sic) [ RMB 316 million], an increase of the 28.7% year-on-year, which demonstrated the strong driving force of renewal business.

Secondly, the company promoted the product diversification strategy in great depth, and its business structure was constantly optimized. The percentage of premiums from the top 5 insurance categories in long-term first-year premiums decreased by 17 percentage points year-on-year, and the long-term protection-oriented business developed at a faster speed. As of September -- end of September, the surrender rate was 4.45%.

Thirdly, the sales force remained stable in its size with enhanced quality, and the sales transformation began to take effect. As at the end of September, the scale of the company's sales force reached 1.83 million, which was basically flat as compared to the end of the June. In particular, the number of our exclusive individual agents in the exclusive individual agent channel reached 1.4 million, an increase of 14,000 agents from the end of the June. Meanwhile, the average agents on a monthly basis for the sale of protection-oriented products increased by 49.7% year-on-year with the quality of the sales force improved.

Fourthly, the allocation in fixed income assets was satisfactory, but asset investment income was under pressure. As end of September, the company's investment assets was over RMB 2.7 trillion. In the third quarter of 2018, the company continued to seize opportunity of the interest rate hike and increased its investment in fixed income assets with long duration. The company also consistently optimized the structure of its equity assets allocation. However, the equity assets income of the company in the open market declined significantly due to the impact of the prolonged downturn in the domestic stock market.

In the first 3 quarters, gross investment yield was 3.3%, a decrease of 1.8 percentage points year-on-year. Net investment yield was 4.6, a decrease of 0.39 percentage point year-on-year. As affected by continuous decline of the capital market, net profit attributable to equity holders of company was RMB 19,869,000,000, a decrease of 46% year-on-year.

Finally, the company's comprehensive strengths were enhanced. As at end of September, the company's total assets reached over RMB 3.1 trillion, an increase of 7.6% as compared to end of 2017, ranking first in the industry. Both of the company's core solvency ratio and the comprehensive solvency ratio reached 262%.

For the next stage, we will focus on our annual targets and take proactive actions to fulfill the overall tasks for the whole year by sticking to the general keynote of making steady progress and requirements for high-quality development and adhering to the operating guideline of prioritizing value, strengthening sales force, optimizing business structure, achieving stable growth and safeguarding against risks. Moreover, we will develop scientific plans for the year 2019 and forge ahead with courage and persistent efforts for the purpose of achieving satisfactory results. Thank you.

[Li Yinghui, executive]

Okay. Thank you, Ms. Hou. Now we begin the Q&A session, which will be conducted in consecutive interpretation. [Operator Instructions]

Now the first question, please.

[Operator]

[Operator Instructions] Our first question comes from Leon Qi, Daiwa.

[Leon Qi, analyst]

My name is Leon from Daiwa. I have 2 questions. The first one is on your agency team. In fact, just now in the presentation, management mentioned that average agent headcount for the sale of protection-oriented products increased by almost 50% year-on-year. However, if we look at the renewal premium disclosed, we understand that the actuarial FYP declined by around 30% in the third quarter. So if management can help us reconcile this set of data, these 2 metrics, why FYP has been declined by around 30% but protection-oriented products increased by 49.7%. Is it because of the decline in productivity or the active ratio engagement of the team? Or actually, the channel that has contributed to the decline of the FYP is actually bancassurance by the agency? What is the reason behind the different directions of these 2 major metrics there? Second question is on the management of the actually the group company. We understand that China Life Insurance Group just welcomed a new Chairman from one of your competitors. If management can share with us any new initiatives or strategies, which will be brought about by the new Chairman of the group company.

[Li Yinghui, executive]

[Foreign Language]

[Unknown Executive]

First, from the individual insurance department, I will answer your question about FYP. In the first 3 quarters this year, we have an active growth of our FYP mainly coming from the impact of the new regulation policies, and it affected the participating product sales as part of the different market environment. On the other hand, the sales force on the protection type of products have increased, and the premium from the protection type also increased.

[Mingguang Li, executive]

[Foreign Language] About your second question, yes, we have a new Chairman, Mr. Wang Bin. He's now the new Chairman of the China Life Group. [Foreign Language] And so our overall strategy for our business, as mentioned in our presentation, we will keep adhering to the guideline of prioritizing value, strengthening sales force, optimizing business structure, achieving stable growth and safeguarding against risks. This is still the direction we are working towards. [Foreign Language] Thank you.

[Operator]

Next question comes from Kailesh Mistry from HSBC.

[Kailesh Mistry, analyst]

It's Kailesh Mistry from HSBC. The key ones were, firstly, of FYP, what proportion in the 9 months was regular premium? And also, can you give us an idea of the mix between protection and savings? A follow-up question from Leon's on the agents for protection business, which increased 50%. What is the number of these agents out of the 1.455 million total agents? And lastly, on full year '18, is there any further update on guidance for either net profit or new business value or FYP?

[Li Yinghui, executive]

[Foreign Language]

[Mingguang Li, executive]

[Foreign Language] Actually, for the several years so far, we have been doing the transformation of our business. One major task is to transform the bancassurance channel business and reduce the single-payment business. [Foreign Language] For this year, we have made the greatest effort to reduce the single-payment business in the bancassurance channel. By the first half of this year, the single payment premium only accounted -- amounted to about RMB 10 billion. [Foreign Language] You may refer to our midterm report for this. [Foreign Language] So that's for the first 3 quarters of this year, the proportion of the regular premium accounts for very large proportion of the FYP. [Foreign Language] For the proportion of the protection type and for the protection sales people, we didn't disclose the exact number because in the whole industry, there's still no uniform definition of the protection-type of business. But as in our own measurement, our protection-type business has seen very rapid growth so far this year. [Foreign Language] And for the third quarter itself, the proportion of the protection-type business accounted for a much larger part of the whole business compared with the first half of this year. [Foreign Language] That's all for my answer.

[Unknown Executive]

[Foreign Language] And I will answer your question about the sales force increase. In the past, a lot of our sales force were focused on the participating products, and the structure of our productive agents was also in line with that feature. [Foreign Language] And so for the transformation to focus more on the protection-type, that is our core strategy to make more efforts to sell the protection type of products and to focus more on the training of such product. So the increase of our sales force for protection-type has shown the preliminary results of such initiative, and we hope that such trend will continue for the future. And we hope the new recruited agents will also follow this direction.

[Operator]

[Operator Instructions] Our next question comes from Steven Lam, Bloomberg Intelligence.

[Steven Lam, analyst]

So yes, I just want to follow on a few things. I asked about investment before, so I'll jump on that as well. I want to get some insights from Lijun on the accounting front. So I'm curious what's the outlook for reserve releases due to the gradual improvement in bond yield? So would you say that the amount of reserve relief in the fourth quarter will be bigger than what you had in the third quarter? And then what's the outlook for first half of next year? And I'm curious on the reserve relief that we've had in the past, in the past 3 to 6 months, how much of those is just coming from because of the bond rate increase but not any fine-tune or adjustments in terms of [Foreign Language] or so-called the gross margin. So that's on the accounting front. The second one is more on a broader aspect. As we have heard that there's some consultation in terms of tax deductions, I'm curious from the agency standpoint when the agents...

[Operator]

Excuse me. Steven's line just got cut. Maybe we'll wait for him to reconnect.

[Technical Difficulty]

[Li Yinghui, executive]

[Foreign Language]

[Operator]

Excuse me. Mr. Steven Lam is back on the line.

[Steven Lam, analyst]

So yes, I was just going to ask, just from the tax deductions from the agents, like when they're discussing with the clients, do they -- do you think that they will see -- the clients will see a little bit better in terms of the income? Or still -- like what are the conversations that you're hearing from the agents when they go out and talk to the clients? Are the clients still very eager to buy policies? If not -- or they are starting to get pessimistic about the livelihood, the income pressure and things like that?

[Li Yinghui, executive]

[Foreign Language]

[Mingguang Li, executive]

[Foreign Language] First question about the reserve assumption. As we have disclosed, the impact from the 750-day curve on the profits on the first of 3 quarters is about RMB 4 billion. That's an increase for our pretax profit. According to our prediction, by the end of this year, it's highly probable that the 750-day curve will still bring the positive impact to the profit, and the amount may be more or less the same with the first 3 quarters. And your second question about the impact of the tax deduction policy to our customers, we think that, well, all the policy that is conducive to the increase of people's income will be beneficial to the sales of the insurance products. But actually, we think that for the protection type of products, even though with the same level of income, there is still very large potential for this market. That's all.

[Operator]

Our next question comes from David from [ Commtus ].

[Unknown Analyst]

I understand you probably don't have further clarity on this, but could you give us some indication given the quality uplift in the FYP that was seen of what your estimated view in the margins might be for the third quarter? Because obviously, we're seeing some weakness in the total volume of premiums. But with a much higher quality, perhaps we're seeing some improving margin trends. Could you guys give any visibility on that?

[Li Yinghui, executive]

[Foreign Language]

[Mingguang Li, executive]

[Foreign Language] We have disclosed some of the statements in our third quarter reports. We mentioned that the sales of the long-term protection-oriented sales increased relatively fast. And for the definition used by China Life, we have our own measurement for protection-oriented business. And the creation and the contribution to the new business value growth is a very important indicator. [Foreign Language] That's all. Thank you.

[Operator]

As there's no more questions, we will now turn back the time to the management.

[Li Yinghui, executive]

Since we are also running out of time, I think we can bring the briefing to the end. If you have any further questions, please feel free to contact our IR team at any time. Thank you for your participation.