Cathay Financial Holding Co Ltd

TWSE:2882

Earnings Call Transcript 2019-Q1

[Operator]

Welcome, everyone, to Cathay Financial Holding Company First Quarter 2019 Conference Call. [Operator Instructions].

And now I would like to introduce Ms. Sophia Cheng, CIO of Cathay Financial Holding Co. Ms. Cheng, please begin.

[Sophia Cheng, executive]

Thank you. Good afternoon, and good morning to friends in Europe. Welcome to Cathay Financial Holding's 2019 First Quarter Analyst Meeting. I am Sophia Cheng, the Chief Investment Officer for Cathay Financial Holding. Today, I will host the conference call. And thank you very much for joining us today.

In the beginning, I would like to introduce the senior managers who are with us today. Today, we have Ms. Grace Chen, Chief Financial Officer for Cathay Financial Holding; Mr. Daniel Teng, Senior EVP of Cathay Financial Holding and Head of Corporate Banking in Cathay United Bank; Mr. Abel Lin, Senior EVP of Cathay Life; Mr. Edward Yung, Senior EVP of Cathay United Bank; Ms. Grace Han, EVP of Cathay Life.

For today's conference call, Charlie from our IR team will present the first quarter results and announce the new 2018 embedded value details. We will also provide more information on IFRS 17 accounting standard. After the presentation, we will open up for Q&A session in which senior management will be more than happy to answer your questions.

Without further ado, let me pass the call over to Charlie for the briefing of first quarter results. Charlie?

[Charlie Hu, executive]

Thank you, Sophia. Let's start with Page 4, which provides overview of the financial performance of our subsidiaries for the first quarter of 2019. Cathay United Bank loan and deposit delivered stable growth with good credit quality. The foreign currency loan growth momentum continued. The income increased 11%. Wealth management fee grew significantly, up by 10% year-on-year. Cathay Life continue value-driven strategy, protection product FYP grew 70% year-on-year, FYPE remain #1 in the industry. Cost of liability continued to improve. Pre-hedging recurring yield achieved 3.34%. Shareholders' equity increased significantly. Unrealized gain or loss of financial assets has turned positive.

Cathay Century, the general insurance subsidiary premium income grew 7% year-on-year, ranked #2 in the industry with 12% market share. Overseas' written premium increased steadily.

Asset management subsidiary Cathay SITE has AUM of TWD 727 billion, ranked #1 in the industry. Lastly, Cathay Securities brokerage business continue to grow, and its sub-brokerage ranked #1 in terms of market share.

Please look at Page 5 for our net income and EPS. Cathay Financial Holdings reported after-tax earnings of TWD 13.6 billion for the first quarter of 2019, declined 42% year-on-year due to high investment income for the same period last year. [ Audio Gap ] reached TWD 1.05.

On Page 6, you can see the income and ROE of our subsidiaries.

Cathay United Bank earnings grew 10% with interest income and fee income increase. Cathay Life's earnings show year-on-year decline due to high base of investment income last year. Our consolidated basis, the holding company's return on equity was 8.8 for the first quarter. Our book value is listed on Page 7. The holding company's book value as of the end of first quarter was TWD 661 billion and the book value per share TWD 44.5.

Page 9 and 10 shows our overseas expansion, which performed steadily. Cathay Financial Holdings continues to expand its overseas business by opening its overseas presence and reinforcing relationship with [ Audio Gap ] Cathay United Bank has footprints in 9 out of 10 ASEAN countries. It was focused on strengthening the development of various local, financial services.

Cathay Life Vietnam's total premium increased by 58% year-on-year and has essentially performed steadily in Vietnam. As for the subsidiaries accreditation in China, Cathay United Bank China subsidiary business is on the right track. For Cathay Life's joint venture in China, the total premium income grew by 16% year-on-year. The general insurance, the strategic alliance with Ant Financial was going very well in China. For Cathay Securities Hong Kong, each business has outperformed steadily.

Please turn to Page 12 for more details about our banking performance. With proper risk management, we continue to adjust our loan mix by increasing SME and foreign currency loan. Cathay United Bank loan balance increased by 6% year-on-year to TWD 1.6 billion in the first quarter. Deposit also grew by 6% year-on-year. Cathay United Bank maintained high demand deposits ratio. The loan-to-deposit ratio was over 70% as of the end of first quarter.

Interest yield is shown on Page 13. The interest spread was 1.8%, dropped by 3 bp quarter-on-quarter due to higher funding cost. The net interest margin was 1.22% for the first quarter of 2019.

On Page 14, you can find the bank's credit quality. Due to our prudent lending policy, Cathay United Bank maintained low NPL ratio at 18 basis points and coverage ratio at 864%. The gross provision was TWD 1.1 billion, in which over 50% was the general provision required by the regulator against loan growth. Recovery was TWD 500 million.

Now please turn to Page 15 for SME and foreign currency loans. SME loan balance reached TWD 184 billion as of March 2019, grew by 17% year-on-year. Foreign currency loan balance was TWD 240 billion, which accounted for 15% of total loans.

Our offshore earnings is shown on the next page. Offshore earnings reached TWD 3.6 billion due to strong market recovery and offshore earnings accounted for 50% of bank pretax earnings for the first quarter of 2019.

Please turn to Page 17 for fee income. Cathay United Bank continued to enhance the noninterest income. Fee income was TWD 5.8 billion in the first quarter of 2019, up by 11% year-on-year. The main growth driver was wealth management fee.

Page 18 shows the breakdown of wealth management fee. Wealth management fee income performed very well with 10% growth year-on-year, amounted to TWD 3.3 billion. Mutual fund fee declined by 10% due to market volatility and bancassurance fee grew by 24% year-on-year.

Please move to Page 20 and 21 for Cathay Life premium performance. Total premium was TWD 168 billion in the first quarter of 2019, down by 5% year-on-year. The decline was due to the product mix change. And on Page 20, first year premium was TWD 60.7 billion, declined by 11%. But on the right-hand side, you can see that the annualized premium of FYPE grew by 36% year-on-year. The FYPE was TWD 29.1 billion, remained the highest in the industry.

In the first quarter of this year, we focused on selling foreign currency traditional products and protection products. The protection product policy FYP grew by 70% year-on-year in the first quarter.

Page 22 shows the value for new business. Value for new business increased by 38% to TWD 20 billion in first quarter. The growth was due to the product exchange of increased proportion in traditional life and protection policy.

Page 23 shows our cost of liability, which continued to improve. The reserve base liability cost was 4.02% at the end of first quarter, improved 8 basis points compared to the same quarter last year. Our cost of liability will continue to improve by 5 to 10 basis points this year.

Please look at Page 24 for our investment portfolio. Cathay Life total investment reached TWD 6 trillion as of the end of first quarter. Cash position was 1.9% of the invested assets. Overseas investment accounted for 67%.

The investment returns of each asset class are as follows: Cash and cash equivalents, 0.5%; domestic equity, 3.5%; international equity, 9.2% pre-hedge; domestic bond, 6.3%; international bond, 4.9% pre-hedge; mortgage and security loans, 2.02%; policy loan, 5.5%; real estate, 2.7%. The overall investment yield are shown on Page 25 and 26. After hedge investment yield of 3.76%, which is lower than last year due to high year-on-year basis from last year when the company enjoyed strong gains in the first quarter. If you look at recurring yield, you can see further improvement on Page 25. The pre-hedge recurring yield reached 3.34%, increased by 48 bps year-on-year. Because most dividend incomes come in the second and third quarter, we expect further improvement in recurring yield in the next 2 quarters.

The annualized hedging cost was 1.32% of the first quarter. Cathay Life continue its flexible and dynamic hedging strategy to ensure the effective control of the hedging cost. The foreign currencies moved in reserve as of the end of March already reached TWD 20 billion, which was the highest in the industry.

Please look at Page 27 for the regional breakdown of overseas fixed income. Overseas fixed income investment, Cathay Life allocated 43% in North America, 21% in Europe and rest are in Asia Pacific and other countries.

Page 28 shows the book value and unrealized gain of financial assets. Thanks to the rebound of global equity and fixed income market in the first quarter of 2019, consolidated book value of unrealized gain of financial assets of Cathay Life has increased significantly to TWD 482 billion and TWD 39.9 billion respectively.

Lastly, please look at 32, 33 and 34 for the performance of Cathay Century. Cathay Century's premium income was TWD 5.7 billion, up by 7% year-on-year. Market share was 11.8% in the first quarter. Cross-selling synergy continued to perform well. Over 60% of the total premium income was generated by the group's channel. So far, I have updated the first quarter 2019 operating results. Today, we have one additional topic we would like to update, which is the 2018 embedded value and total value estimate.

Please turn to Page 36 for Cathay Life's 2018 embedded value and appraisal value estimates. On Page 36, we have summarized EV and AV major components. In this table, we have provided a menu of assumptions for various insurance policies. You can see that we have reduced the equivalent asset yield by 13 bps to 4.38%. In the fourth quarter of 2018, the production of global financial market has caused unrealized losses on investment book, which led to a decline in adjusted net worth, despite value of invoice business has grew by 7% year-on-year. Cathay Life 2018 embedded value hence decreased by 5% year-on-year.

The embedded value per holding company share was TWD 71.5. As for the appraisal value, Cathay Life AV as of 2018 was TWD 1.4 trillion or 107.5 NT dollar for holding company share. We have also estimated 2018 value for one year new business of TWD 52 billion and apply multiple of 8.7 when deriving value for new business.

In the following pages, you can see more detailed analysis on 2018 movement of each EV component.

On Page 43 and 44, we have provided scenario of impact from various investment yield and discount rate, where on Page 45, you can also see the summary table of year-on-year comparison.

Lastly, we would like to provide some information on IFRS 17 accounting framework. There are more questions related to the implementation and potential impact for IFRS 17. Today, together with announcement of embedded value and appraisal value, we hope to explain some of the general rules of IFRS 17 for insurance industry, how it works and how it affects Taiwan life insurance schemes. There are still a lot of uncertainties on regulatory details, and we will update more in the future as needed. We hope this will be useful to your analysis.

Now please turn to Page 47 for the comparison between IFRS 4 and IFRS 17. IFRS 17 is expected to implement in 2022 globally as announced by the IASB. Taiwan may adopt 2 to 3 years later than global implementation, so maybe in 2025. What's IFRS 17 and what's the difference from existing accounting measurement? The biggest difference for IFRS 17 is that IFRS requires a different way to measure the value from insurance services. Previously under embedded value estimate, insurance companies focus on value of new business. The value of new business is the present value of future business based on achievable investment yield and discount rate of VAT. This estimate tends to vary among insurers depending on how optimistic the company is. On the IFRS 17 framework, insurance companies will focus on contractual service margin, that is the present value of future on earned profit from the insurance contract. Interest companies in descended country will mark-to-market asset and liability based on similar yield curve assumptions. Companies need to constantly ensure you have provided sufficient fulfillment value of future liabilities but can only recognize contractual service margin for total value of earned future profit in the remaining service period.

Please turn to Page 48 for accounting approach on historic books. On adoption date, there are 3 ways to treat historic books based on availability of detailed historic data, the retrospective approach, the modified retrospective approach and a fair value approach. The retrospective approach basically retrospect IFRS 17 back to policy underwriting date. It is hard for companies with long history to collect full set of historic data, and therefore we believe many companies with long histories may adopt the modified retrospective approach or the fair value approach. If applied fair value approach, IFRS 17 rules allow insurance company to group and value together those old policies without full historic data set. For companies like Cathay Life with long history, it may choose fair value approach, and therefore the impact of the legacy book can be offset by a profitable newer book. After the adoption date, each segment of insurance policy evaluated independently. The loss-making ones require upfront provision while the profitable ones only amortize margins throughout their service periods.

Please turn to Page 49 and 50 for the impact of IFRS 17. IFRS 17 implementation does not affect the value of insurance contracts, but affects the timing of profit recognition in insurance services. It may also lead to the structural changes for insurance companies as the following: One, more comparable peer comparisons. After IFRS 17 implementation, insurance companies need to mark-to-market both assets and liabilities based on market discount rates, standardize industry estimates and make comparisons among peers more comparable. Two, restore industry profitability. IFRS 17 adopts more conservative approach by requiring upfront provision against all future losses. It can prevent companies from being too aggressive on pricing competition and restore interest-rate profit margin. Three, volatility on equity. The mark-to-market based on market discount rate may amplify volatility of insurance companies' equity. Therefore, expertise in asset liability management will be even more critical. Four, potential right issue. Power regulator help insurance companies to prepare sufficient capital for IFRS 17 implementation by 2021. Some insurance companies may consider to call for capital as buffer for potential market volatility and uncertainties for technical details from IFRS 17. I hope summary on the embedded value in IFRS 17 is useful to you.

This is the end of presentation. Now, we welcome your questions and comments.

[Operator]

[Operator Instructions] Our first question is coming from Steven Lam of Bloomberg Intelligence.

[Steven Lam, analyst]

A few things here. First, I would like to ask about the pre-hedge recurring yield. I'm just wondering if I'm not mistaken, I think a lot of the entries in the first quarter came from domestic bond. And if I look at the detailed book tally it seems like there is huge or dramatic increase in domestic bond yield. Is there anything that you can tell us about whether it's because you were interested in a slightly different investment grade? Or noninvestment grade? Or are these coming from duration lengthening? That's one. And then secondly, I would like to get the management view on the [indiscernible] growth for the rest of the year. Do you see the similar momentum can be continued that you have in the first quarter? Or this is mostly because of the near-term sales campaign? And lastly on the banking side, I would like to hear the thoughts on what's the main reason of the increase in funding cost. If we see that from the presentation the NIM was largely flat and the spread was kind of down a little bit sequentially.

[Sophia Cheng, executive]

Thank you, Steven. Let me answer the first question related to the recurring yield, which is if you look at Page 24, 25 and 26, these are our asset allocation to the asset yield and the recurring yield. And you notice that the return on domestic bond is higher; however, that is part of the one-off gain. If you look at recurring yield on Page 26 to your left-hand side, recurring yield only accounts for interest income, dividend income and rental income. So the one-off gains from any investment was triggered after hedging. So the better recurring yield are mainly come from our allocation one, in length of asset duration. Two, we also captured a rate hike in the past that we can have better yield. And we also tried to take this opportunity to render better yield. We will try our effort also to enhance vis-a-vis into the credit rating. So it's a mix of various asset from better yield return on the coupon itself and then also length on asset duration.

[Unknown Executive]

I think actually each quarter, I think, have a different -- sometimes has a "seasoning effect." But because we didn't -- we -- right now, our product -- we focus on protection type product and in view of these, the first quarter growth momentum is quite strong, same period by 17% growth. So I think this year we still will focus on protection type program. This is first one. And second one, about the traditional product, we were very focused on USP policy. This is the second part. And uncertainty is that even in product for this year, we are not -- we cannot predict this kind of product in the future, but still we will mainstream our product line. I think this is what I can say at this moment. And funding cost, I think...

[Sophia Cheng, executive]

Just to add some point today, if you look at Slide 21 to the left-hand side, you can see the quarterly first year premium. But actually given one quarter number sometimes we might present our full-year number. There is information, there is always seasonality of products that are in the quarter. On this page, you will notice that the investment investors last year is shrank as some of the more single pay policy, which has gone farther into the traditional life single pay and partly because of the market volatility that we think about the uncertainty in NAV for the [indiscernible] itself. And partially we put a lot of effort motivating our agents continue to sell more into traditional regular pay, and they will also take away some resources. So that's why on this page to the left-hand side, you're seeing FYP decline by about 11% and the annualized FYP to FYPE on the right-hand side is actually a growth of 36%. So far credit for first quarter is quite strong, but I think only one quarter may not be as a good indicator for full year. Maybe we can monitor another quarter.

[Unknown Executive]

Okay. For the funding costs, I mean, your funding costs increased on the banking side. That's because we saw the arbitrage opportunity during the first quarter. It's not only for all the commercial banks in Taiwan. We saw a dollar is swap arbitrage opportunity. So most of the commercial bank try to attract U.S. dollar and now make swap to make money. So that's why we put a lot of campaign to attract our client to make a time deposit for the U.S. dollar. That's why the funding costs increased a little bit.

[Operator]

And the next one is coming from Thomas Wang of Goldman Sachs.

[Thomas Wang, analyst]

A couple of questions. Can I follow up on the recurring yield? So you talked about businesses' duration and credit ratings. So should we take this as a kind of one-off increase? Or this is going to be more structural that we'll see recurring yields, which may have -- this will yield and go further from here. And secondly, just you talked about the Chinese quota. You have protection product 7% of FYP in last year. I mean you have, looking at last year's number, 5% FYP coming from what you call health, accident and others. So how do we reconcile this -- the 7% [ FYP ] reported [ that breaks ]?

[Chao-Ting Lin, executive]

We -- actually, it will be a long-term improvement in further future years. I think this step will increase year by year. This is our strategy. We want to increase the full year through increased overseas bank portfolio and also strengthen our asset duration. So we don't think this is just one-time effect. Actually, as you know, that yield also -- the whole year, our recurring yield also increased into this first quarter. And we expect this yield, whole year recurring yield, will be higher than last year. And for the next 2 years, we will keep this strategy.

[Thomas Wang, analyst]

Just on the -- [ ETC ] has 50 basis points of difference, first quarter this year versus last year and...

[Chao-Ting Lin, executive]

I think that in the whole year, we don't expect this first quarter increase -- that same period by 48 basis points. We'll be hoping to the whole period but we expect higher than last year.

[Sophia Cheng, executive]

If you look at right-hand side of Page 26, you can see -- maybe left-hand side, you can see more obvious, noticeable movement. While -- however to the right-hand side, you look at whole year basis, the improvement is more smooth because typically when you analyze the quarter number, you can emphasize some timing difference. So it's...

[Thomas Wang, analyst]

So that is okay. So I'm just trying to understand that the timing difference between when you get a coupon or when -- is that -- and I'm just trying to understand why it is shifting. So there's simply -- I mean the insurance has significant shift in that bond portfolio.

[Sophia Cheng, executive]

On a whole year basis, this should be a more smooth, moderate improvement and we've seen that [ structure ]. They were continuing in 2019. That is for another 2, 3 years. Thomas, your question is how did the traditional protection-type policy grow by 70%. You want to know more about the provider or...

[Thomas Wang, analyst]

No. I think the Chinese growth is 7% of the FYP, last year's protection product. I just want to know how should I reconcile that to your reporting for the mix?

[Sophia Cheng, executive]

It is part of the traditional life regular paid. It is still a small part of that because that is a small revenue-based margin, and so it's a small part of it. On Page 21, we grew that, however, in traditional life regular paid. Otherwise, the bar chart looks too hard to understand, too many items.

[Thomas Wang, analyst]

Yes. So this 7%, I have to assume that this 5% which is already in accident, health and others and then the traditional regular premium is about 2% there. Is -- that adds up to 7%. Is that the way to think?

[Sophia Cheng, executive]

Okay. On Slide 21, you see in traditional life regular paid, that TWD 31.9 billion, that includes this traditional protection product. The health, accident and others, these are separate products. So the traditional protection type, that insurance and life protection policy is part of the TWD 31.9 billion.

[Thomas Wang, analyst]

Okay. So the TWD 31.9 billion, which is 50.5% on the whole FYP, I mean you talk about 12% last year -- I mean obviously, this is not the exact number. Last year, there was 7% of FYP that's protection product. You're talking about all the 7%, leading to this 50%-or-so of the traditional life product?

[Sophia Cheng, executive]

Hello, I missed your last sentence. Can you repeat the last sentence again?

[Thomas Wang, analyst]

So the Chinese growth of up 7% of FYP are protection product. And I just want to see where that 7% is? Is that all in the traditional life regular paid? Or is that actually part of it here and the other parts in the health, accident and others?

[Sophia Cheng, executive]

Thomas, the -- we will give the example because the overall traditional life regular paid policy, the margins are among the best versus a single pay and -- or investment-linked. So within that segment, we try to share one of the most -- one of the very profitable policy, which is the traditional pure protection type policy. And the amount was growing very nicely from -- it's a small amount, but the contribution to CSM is pretty good, yes. So that is part of this -- what's the color, the dark blue line and it fades.

[Thomas Wang, analyst]

Okay. And it's all in the regular paid? Okay. Okay.

[Sophia Cheng, executive]

It is in the regular paid, yes. If you're not clear, you can call me more after the call, yes.

[Thomas Wang, analyst]

Sure. I think that's the best.

[Operator]

And the next one is coming from Yafei Tian of Citi.

[Yafei Tian, analyst]

I have a question. Thank you for the explanation update on the IFRS 17. I noticed that on the slide, you mentioned that because of company's cautious deals that you would actually try to enhance the capital level of the company if possible. So I just wanted to follow up on that point. What are the options that is currently being considered by the management? And if possible to quantify at this stage what, in your view, would be an adequate capital level.

[Unknown Executive]

Yafei, as you know, the adoption day would be -- in Taiwan would be 2025. So there's still 5 years left. So that's still a lot of, would say, guidance from regulator. We need to get, for example, the construction of yield curve, something like that. So it's difficult for me to give you an answer now, but we will prepare our capital buffer as early as possible. And given, as you know, our unrealized loss at the end of March, we already re-bond more than TWD 120 billion. And so now our capital position is much better compared with the year-end, and we know it's a long-term preparation for IFRS 17 adoption. So we will take varied measures to enhance our capital buffer, including -- we'll do a rights offering mainly probably in the second half to further enhance our capital position. Abel, do you want to add some?

[Chao-Ting Lin, executive]

Yes. I think the first one, I want to highlight IFRS 17. Actually right now, we are in preparation but I'm very confident that we can smoothly adopt this IFRS 17 because as I mentioned, in our slide, actually, the IFRS 17 didn't reflect the economic...

[Sophia Cheng, executive]

Economic value.

[Chao-Ting Lin, executive]

Economic value of this -- of our whole in-force portfolio. It's just a different measurement of liabilities. So it will have the one-time impact when we adopt and -- but on the further, actually we'll reduce our interest expense not like right now, we have a higher interest expense. But after we adopt that, we have lowered now our interest expense, which we can benefit from this adoption. So total period actually didn't change anything. Just the profit realized fees oncoming is different.

And secondly, I think that although we have a high legacy book but because we can choose so-called the fair value approach -- so it means that right now, we're saving much profit in our last past years. We said in the new business, which contribute much, much profit, can offset the high legacy book. So it means that actually, when we adopt it, we didn't expect too much that effect to our book. And also...

[Sophia Cheng, executive]

On a net basis.

[Chao-Ting Lin, executive]

No. I mean at the adoption day, we can combine the legacy book and all the profit book together to offset the negative effect. So we didn't expect the total net effect where we can manageable for the total effect. I'm surprised that -- I want to highlight that because we already have some special reserve, if you here look at our finance table, we have a special reserve in our equity, which amount like TWD 270 billion for this special reserve. Part of a loan, that's TWD 200 billion, which funded our property fair valuation, which we have unrealized gain. We put a special reserve on this type. And this presently actually already for our IFRS 17 purpose when we adopt that, we can use that special reserve.

And so it means that we are confident that at current station -- current position, our capital, we think that we can prepare for the future IFRS 17 and -- but because right now, the market volatility is still very high. So actually, we'd also consider -- maybe this year, we are considering maybe we have some -- increased our capital. So I think that in the short period, we didn't [ afraid ] of the IFRS 17 impact because we prepared especially in product synergy; we did a good job especially on the protection-type product and secondly

[Audio Gap]

some of market volatility. So we think that we need to prepare to increase more capital buffer that increase our RBC ratio to prepare that we can have more flexibility when the market goes down that we can have better investment opportunity that can -- for our future investment yield.

[Yafei Tian, analyst]

Maybe just a follow-up on that question. I think there's just quite a lot of news flowing early days on this subject. And then it looks like FSC is also coming out with different guidance from time to time. So what is the regulator's stand on this issue at the moment? I would suspect if we go too tough on the lifers and when all the lifers come to prepare for the IFRS 17 at the same time, would that be leading to unexpected consequences for expense leading to lower share price and then leading to maybe difficulty for lifers to raise capital? So what's your view on this? Or maybe what is the current FSC thinking behind this?

[Chao-Ting Lin, executive]

The first one, I can't speak for FSC, but on our observation, I think FSC will be orderly to act all the life insurance company in Taiwan to be more aggressive to prepare this IFRS 17. Actually, I think that included -- I think that our company very aggressively prepared the IFRS 17. So I can expect the first one thing is that they will ask all the life insurance company -- maybe in the next month or maybe sometime in this year, they will announce that all the product they need to be followed IFRS 17 standard, it means that you need to consider all the CSM future for...

[Sophia Cheng, executive]

You mean for the new product.

[Chao-Ting Lin, executive]

For the new product itself at the market. So it will reduce the market product application to make more profitable on the new business itself. I think this -- they will do.

And secondly, because the whole industry, they want to adopt IFRS 17, they don't want to -- they just don't want to have some problems when we adopt them, but they want to use -- through this adoption to reduce the focus on market risk for the life insurance industry. So I think this is their purpose for adoption of IFRS 17 because a lot of detail right now is not ready to clarify but we think that their purpose is that through the adoption of IFRS 17 even for the international capital standard, they just want to reduce the new product risk and to increase all the profitable for life insurance company to do better asset liability management skill to help the insurance industry more healthy. I think this is the regulation purpose. So I don't expect there will be very dramatic consequence when we adopt the IFRS 17. This is how we know through the communication with the FSC, but I think that this is what -- my observation but I think the FSC for this topic, they will have -- they'll warn you for that.

[Operator]

[Operator Instructions] And the next question is coming from Chung Hsu of Credit Suisse.

[Chung Hsu, analyst]

Just 2 questions from me. First is on the capital management. The earlier question talked about potential capital raising. I just want to know if that will go beyond your general mandate. I believe that's 1 billion shares. Secondly, how should we think about longer-term dividend policy for Cathay Financial on the back of this IFRS 17 and management actually thinking to issue new shares of the strengthened capital position? How do you -- should we consider or suspect a lower dividend payout on a going forward basis?

My second question is on Page 36 on the embedded value. It looks like on wider in-force, Cathay Life lower the investment return assumption by a few basis points. If I read this correctly, it looks like on the 1 year, new business investment yield assumption is increased from a year ago. Just trying to understand, first of all, if that's correct. And if so, what's driving that difference between wider in-force and the new business investment return?

[Sophia Cheng, executive]

So first of all, on the capital plan, you mentioned 1 billion shares. Actually, we have already provided the agenda for AGM. And typically, in every year, the -- in AGM, they will be asking for, I think, about TWD 50 billion aggregate quarter. And last time, we did a right issuance back in 2013, 6 years ago. On a regular basis, the AGM will act for the quarter. So, so far, I think this year remains the same amount. We haven't seen a change from last year. And so yes, it's a capital call should be within their constraint.

Your second question on long-term dividend policy. The -- as Abel mentioned earlier, the IFRS 17, it require your upfront deduction if you have a negative number. But actually on the in-force policy on the value-based insurance, you are required to mark to market based on the risk-free rate plus a premium for the yield curve instead of the assumed asset yield. And therefore, based on the new rule, if a company is being too aggressive on selling a product at product competition, the upfront, the fair fulfillment value for future liability, they would be -- so they need to reserve an assumed value of future losses upfront and where if you have CSM, you can realize the gain.

As for IFRS 17, the whole structure only changed the timing of earnings. And in fact, we have been reserving now the CSM in the past years that will assume asset adoption or release, and this contractual service margin will also be quite stable. So despite a one-off capture over mark-to-market and the legacy book before or after implementation, it should be positive.

On top of that, the bank earnings have been quite stable. If you compare with 2012 or '13 -- so '12, I think we make TWD 13 billion in profit and after the restructuring improved to about TWD 17 billion and we kept price to stay there. Last year, the bank already made TWD 21 billion. So that extra TWD 8 billion compared with 6 years ago, the buffer, we are still seeing the bank earnings growing at quite steady level. So on aggregate basis -- and this is a very big monthly movement or it is something special. Otherwise, I would not put this -- combine this 2 together -- don't worry, because we do realize that a long-time investor, they have wished for at least a minimum cash dividend yield to feel comfortable. For example, this year, we are paying TWD 1.5 in cash, and that would be close to 3.5% dividend yield for the upcoming payment. And the next one is on the assumed asset yield.

[Chao-Ting Lin, executive]

I think that the first one, the investment yield in in-force or the new business CoC inventory, we lowered our long-term investment yield. This is because we -- expectation of the long-term interest rate was going down. So we -- in the long term, momentum in in-force or the new business is going down. But in the short term, actually, in the new business because we know the more specific asset location, we -- comparison this year and that year to inform the new business, part of this one, we already allocate, which we received higher investment yield already. So this is why short term, which reflect the actual asset allocation perspective.

[Sophia Cheng, executive]

You mean [ we already ] last year.

[Chao-Ting Lin, executive]

Yes. Yes. Yes.

[Chung Hsu, analyst]

Okay. Okay. Just follow up on the capital side. So if you do go ahead with the capital raising, presumably, 100% of that money will go into a Life subsidiary?

[Sophia Cheng, executive]

Good question. Because this needs a Board discussion at [ each group ], I don't think we are at the position to confirm in such detail. But so far, for 2019, we haven't heard anything from the banks on capital needs.

[Operator]

[Operator Instructions] And the next question is coming from Jay Luo from Point72.

[Jay Luo, analyst]

I just want to ask about, as Abel said, we have sufficient capital preparation for IFRS 17. So why do we, I mean, want to issue common share at the current share price levels? I mean if we have 2025 to know like how much capital we need and what's the market interest rate level, why don't we wait for a bit longer? And how do we know this would be enough if we issue common shares right now given that we still have -- we are still 5 years away from adoption?

[Chao-Ting Lin, executive]

Yes. I think as I mentioned, because for the IFRS 17 -- actually, we don't know the exact impact for the IFRS 17 number. So actually, if we consider the capital raising actually not for the IFRS 17, we only -- for the short-term market volatility. So what we care about is short-term market volatility. We want to -- at this point, to further strengthen our RBC levels. I mentioned that we want to -- if further the market going down we can -- as opportunity, we can lock in, in the long-term investment opportunity. This is why we consider -- if we consider the capital injection, this is for that purpose. Because at this moment, we didn't know what's the -- really number for the IFRS 17 because it still needs to consider a lot of -- no, transition trend. This is another choice you can choose under accounting standard rule and what the level of interest is.

So at this moment, we didn't talk about the impact for the IFRS 17 but -- because, as you will see, actually, our RBC level is lower than -- compared than -- that year-end and year at 2017. So we think that right now because the trade war between U.S. and China, so we think the market will further volatile. And because we allow that we have -- equity position is over than 12%. So we consider the volatile increase. So we need to prepare in advance to keep our flexibility for our investment. This is our main consideration for the capital injection.

[Sophia Cheng, executive]

And because IFRS 17, we are still working on determining the transition date and other detail. So probably more to be offered for market volatility and besides that.

[Operator]

And appears to be no further question at this point. And Ms. Cheng, can we close the conference call now?

[Sophia Cheng, executive]

Yes. Thank you all for participating in Cathay Financial Holdings conference call today. And if you have further questions, please feel free to contact our IR team. They will be here at standby for you. Thank you, and goodbye.

[Operator]

Ladies and gentlemen, we thank you for your participation in Cathay Financial Holding Co.'s conference call. You may now disconnect. Goodbye.