China Life Insurance Co Ltd

SSE:601628

Earnings Call Transcript 2020-Q3

[Li Yinghui, executive]

Good evening, ladies and gentlemen. Welcome to China Life's 2020 Third Quarter Results Briefing Teleconference. My name is Li Yinghui, Securities Representative of the company. Mr. Li Mingguang, Vice President, Chief Actuary and Board Secretary; Ms. Huang Xiumei, Vice President; Mr. Zhan Zhong, Vice President; as well as heads of relevant departments participate in today's briefing.

The briefing will start with a 5-minute presentation on the company's third quarter results followed by a Q&A session for around 20 minutes, during which our management will take your questions.

Let me hand over to Grace for the briefing introduction.

[Hou Grace, executive]

Hello, everybody. Good evening, and good morning. This is Grace Hou. I see at this time we have more time for the English session this time. So thank you for your time.

In the first of 3 quarters of 2020, under the complicated and the severe external environment, China Life closely adhere to the strategic deployment of China Life Revitalization, proceeding well with both pandemic control and business development. And actively pushed forward all tasks according to the requirement for high-quality development, thus maintaining the leading market position with a good development momentum.

Firstly, we made steady progress in business development.

In the first 3 quarters of this year, we achieved the revenues from insurance business of RMB 543 billion, an increase of 9.4% year-on-year. First-year regular premiums amounted to RMB 106 billion, an increase of 7.1% year-on-year. And our renewal premiums amounted to RMB 368 billion, an increase of 10% year-on-year. And short-term amounted to RMB 66 billion, an increase of 9.3% year-on-year.

Secondly, achieved a continued growth in our business value. Our percentage of first-year regular premiums in premiums for our long -- new long-term issuance policies was 98%, an increase of 0.13 percentage points from the corresponding period of 2019. Also, our first-year regular premiums with the payment duration of 20 years or longer amounted to RMB 48 billion, which accounted for 45.8% in our first-year regular premiums.

Prioritizing our business value growth, we continued to accelerate development of our protection-oriented business and the percentage of premiums from designated protection-oriented products in first-year regular premiums increased about 1 percentage point year-on-year. The value of new business for the first 3 quarters of 2020 grow by 2.7% year-on-year. And likely, I think we're still the only positive result in the sector.

The surrender rate was 0.85%, a decrease of 0.82 percentage point year-on-year.

Thirdly, the sales force remained stable. With the Yi Ti Duo Yuan sales function restructuring, a strengthened individual agent business sector in coordination with other business channels, which is the definition of Duo Yuan being complicated -- being completed. We maintained our sales force strategy of improving quality whilst expanding the size, and focus on our day-to-day management and quality enhancement, aiming to the high-quality development of our sales force. As at the end of third quarter, our total sales force was 1.66 million including 1.58 million agents in our individual agent business sector, which remains very stable in general.

Fourthly, constantly enhanced our investment capability. As at the end of the reporting period, our investment assets reached RMB 3.88 trillion, an increase of 8.5% from the end of the 2019. The company deepened the market-oriented reform of its investment management systems, coordinated asset allocation and entrusted investment management at account level. And enhanced our investment capabilities through research of asset types and optimization of investment strategies.

In the third quarter of 2020, we seized a very good opportunity of interest rate hike to increase our allocation to government bonds and loan durations, flexibly controlled the exposure of open market equity investments by taking advantage of market fluctuations, optimize the structure of our equity holdings and took gains when appropriate. In the first 3 quarters, we achieved the gross investment income of RMB 147 billion, an increase of 9.3% year-on-year. And also gross investment yields reached 5.36%, which is also quite good. Net investment income was RMB 123 billion, an increase of 7.7% year-on-year, and net investment yield reached 4.47%, which is higher than the first half results.

Our net profit also was RMB 47 billion, a decrease of 18% year-on-year. And our core solvency ratio and a comprehensive ratio of company, still very solid, reached 255% and 264%, respectively. For the next stage, we will continue to adhere to the strategic deployment of China Life Revitalization, take proactive efforts to fulfill the overall for fiscal and whole year and make proper planning for the year of 2021.

In addition to the regular pandemic control and tasks of ensuring stability on the six fronts and maintaining security in the six areas, which is a very heated topic in China now. We will, according to the requirements for high-quality development, strengthen business value creation, push forward reform and innovation in greater depth. Firmly maintain the bottom line of risk management and control, and strive to promote China Life Revitalization to a new stage.

Thank you all.

[Li Yinghui, executive]

Okay, now we're ready to take your questions, please.

[Operator]

[Operator Instructions]

Our first question comes from Leon Qi with Daiwa.

[Leon Qi, analyst]

This is Leon from Daiwa. My first question is on our next step strategy for China Group Revitalization. Since 2 years ago when we launched the China Life Revitalization strategy, I think all our operating metrics have seen very steady improvements. But at this point of time, given our steady improvements in VNB margin, agency headcount, et cetera, it seems further improvements on that matrix might not be on that kind of low-hanging fruits compared with 2 years ago. So what specific measures and what are the specific areas that we want to focus on in our next step of China Group Life Revitalization, to actually go for extra mile in our strategy down the road for 2021? Because we do understand that in particular from a relative basis now we are facing a much higher basis than 2 years ago.

And secondly, a question on Ant. When China Life, boosted all major shareholder, the group company and also the listed company. One of the biggest external investors was Ant Financial, especially at the -- its IPO, I think we might be trying to explore more strategic operations with Ant. So if management could share more insights, our expectations and plans in order to realize the strategic and operational synergies with Ant that will be much appreciated.

[Hou Grace, executive]

[Foreign Language]

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

First question about the next steps for China revitalization. Our reforms are mainly carried out through Dingxin Project. And in this project, we have measures on our front end, middle end and back end. At the front end that we have mentioned, we will deep the integration and the coordination of Yi Ti Duo Yuan, that means the strengthened individual channel in coordination with other channels. And in the middle channel -- in the middle -- and we will deepen the cooperation and the synergy from the operations, finance and supporting functions.

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

In the middle of next year, we plan to set up a shared service center. That means we will have shared integrated operation center and a finance center that can service our sales channels as well as the risk control. That means we will have better specialization. And we also plan to set up the subcenter, the R&D subcenter, to support the technology application. And in terms of investment management, we will also have the market-oriented mechanism for our investment team.

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

Those measures, I mentioned all tackle the fundamentals of the company and then can help our company, improve our fundamentals to address the challenges of next year. And we will continue to carry out the strategy of prioritizing our business value, and also to provide better service for our customers. So even though there are challenges for next year, we are confident and we are prepared to work hard to address those challenges.

[Xiumei Huang, executive]

[Foreign Language]

[Hou Grace, executive]

And about your question on expectations for our cooperation with Ant Group, as you know, China Life Group and the listed company both participated in the previous series of financing of the Ant Group. And its IPO will bring abundant financial return to investors like China Life. Although our investment was first from the perspective of financial in the first place, as we know, the Ant Group is the leading company in terms of payment solution and also service of the financial and also micro loans to companies. We think there are a possibility for the future cooperation with China Life. And we will proceed from the demand of our business and to explore more opportunities for cooperation of the 2 sites.

[Operator]

Our next question comes from Scott Russell with Macquarie in Hong Kong.

[Scott Russell, analyst]

Just 1 question really about the sales in the third quarter. The first-year regular premiums, they were up 7% year-to-date, but that means they were down 25% in the September quarter. That weakness seems odd given all of the observations around China getting back to normal. And I'd be interested to understand whether your agents are now able to do face-to-face meetings or to what extent the residual effects of the pandemic are impacting their ability to do business. And maybe also a comment on consumer demand. Do people now want to buy life insurance products? Or have you seen demand fall away? Just some explanation of the weak sales number in 3Q, please.

[Hou Grace, executive]

[Foreign Language]

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

So as a many listed companies all released their third quarter results, you can see really the common weak growth of the sales in the third quarter itself for the whole sector.

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

So the COVID-19 still has a very deep profound impact on our national economy as well as on the life insurance industry and on the agent team of different companies. As for how long the impact will linger on, there's still too early to make a precise judgment. We should say it's actually indeed bring restrictions on the business development. And we should regard it as a new normal and to explore new ways of development for the life insurance business.

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

And also in the third quarter, we have done a lot of work apart from the regular sales. We have further tidy up our team and to enhance the fundamentals of the teams and also make preparation for the jump start of [indiscernible].

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

And you also mentioned the customer demand. We should see the impact from COVID-19 and customer demand are 2 sides. On the 1 side, it aroused the customers' awareness of the protection and may increase some customers' demand. But on the other side, it also reduced the family income of some customers and also bring some difficulties for the sales. So that's all for the answer.

[Scott Russell, analyst]

Can I quickly follow up a separate question, just quickly. There was an impairment loss in the third quarter of RMB 6.3 billion. Is that equities or bonds? Can you confirm whether there was a default? Given the stock market rose, it's more likely to be fixed income. Just interested in where that came from?

[Hou Grace, executive]

[Foreign Language]

[Xiumei Huang, executive]

[Foreign Language]

[Hou Grace, executive]

So all of our impairment loss comes from the equity investments. So in this year, there is no default on our bond portfolio.

[Xiumei Huang, executive]

[Foreign Language]

[Hou Grace, executive]

And 1 thing to be explained, compared with our peers, our standard for impairment loss recording more strict and more prudent.

[Operator]

Our next question comes from Kailesh Mistry with HSBC in Hong Kong.

[Kailesh Mistry, analyst]

Just a follow-up on Scott's first question, actually. Given the slowdown in new business growth and FYP in the third quarter, do you still expect to achieve positive NBV growth in full year 2020? And then follow on from that, what strategies are you putting in place for 2021 or any targets that you're setting yourself in terms of agent growth, new business growth? And any sort of quotas you're putting around Jump Start.

[Hou Grace, executive]

[Foreign Language]

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

So to summarize, our pursuit for this year and next year will all be the same one. That is to priorities the new business value.

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

We achieved. 2.7% growth in the new business value for the first 3 quarters. As we have mentioned earlier, in the third quarter, we actually did a lot of things. We reinforce our agent team and also accumulated more customer resources and also prepare for the jump start of next year. Actually, we have done a lot of work apart from the regular business development.

[Mingguang Li, executive]

[Foreign Language]

[Hou Grace, executive]

So that is also part of our answerer. We should do a -- both things at -- in the third quarter. At the same time, we consider not only the result of this year, but also the project for the next year.

[Li Yinghui, executive]

Okay, this is the final question, and it wrapped up the Q3 results briefing today. If you have further questions, please keep in touch with our IR team.

Thank you for your participation. Goodbye.

[Mingguang Li, executive]

Bye-bye.