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Edited Transcript of 1508.HK earnings conference call or presentation 29-Aug-19 6:30am GMT

Half Year 2019 China Reinsurance Group Corp Earnings Call

BEIJING Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of China Reinsurance Group Corp earnings conference call or presentation Thursday, August 29, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Linjiang Yuan

China Reinsurance (Group) Corporation - Chairman of the Board

* Meipan Tian

China Reinsurance (Group) Corporation - Chief Actuary

* Riming Kou

U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner

* Wei Zhao

China Reinsurance (Group) Corporation - Former VP & CFO

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Conference Call Participants

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* Dan Tian

China International Capital Corporation Limited, Research Division - Analyst

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Presentation

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Unidentified Company Representative, [1]

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All right. Ladies and gentlemen, good afternoon. I am (inaudible) from the administrative office for China Re. Welcome to our 2019 interim results presentation.

Now it is the reporting time, and we're very happy to meet you all to share with you our business performance in the past half year and take your advice and recommendations on the business growth. The presentation will be in Mandarin, and we'll also provide English messages interpreting service online.

In order to maintain pragmatic and the effective communication in addition to this presentation, we will have other activities followed, so that we can share our latest results with our investors and analysts. Please remember to check the latest information on your calendar and our official website.

Now let me introduce the management to you first. First, Mr. (inaudible), the Actuarial General; Mr. Riming, Business Director for China Re Group; Mr. Shuhai Shen, the Head of International Business; Mr. [Wang Jun], the Assistant to General Manager; and Mr. (inaudible), President and Assistant of China Continent Insurance; Mr. (inaudible) Hong, the Vice President of China Re AMC as well as other department heads or business heads.

First of all, Mr. Riming, Business Director of the company, will show you the business performance. After that, we will take questions from the investors and analysts.

Now first of all, Mr. Riming, please.

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Riming Kou, U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner [2]

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[Interpreted] Good afternoon. Thank you for your coming to join us through the teleconference on our interim results presentation. I would like to take this opportunity and share with you our business performance in the first half.

Now we have 4 business segments. First of all, I'm going to talk about our business growth. In the first half, our gross written premiums was RMB 84.772 billion, up by 27.8%. In addition to the financial reinsurance business, our core reinsurance business created a revenue of RMB 60.84 billion, up by 26.5%., and that this growth are both above the average in the industry. Meanwhile, we also keep optimizing our business structure.

For the P&C nonmotor reinsurance business, there's a 23.1% of increase particularly the IDI business and the catastrophe business where you can see this 91.3% of growth. For the domestic facultative insurance business, there's also a 64.7% of growth. As for the overseas P&C reinsurance business, we saw 237.5% of growth.

As for L&H insurance, the protection type of business, there was a 48.6% increase. As for the P&C nonmotor primary insurance business, there was a 35.4% of growth.

If you look at our business operations, there has been major improvement. The net profit attributable to our parent company was RMB 3.32 billion, up by 42.4% and the annualized ROE is 8.2%, up by 1.99 percentage points. Our risk management has also been very stable, and we also maintained higher growth than others. Our total solvency ratio is above 200%.

Now let me share with you our financial indicators. Our gross written premium, as I said before, the CAGR growth is 19%. And putting aside to the financing reinsurance business, our core business realized premium growth with a CAGR of 20% over 82% -- for 22%. The premium increase was 27.8%, higher than the industrial average.

(technical difficulty)

[I apologize that I just lost the voice from the room. Okay, the voice is back.]

In the first half this year, our total assets is RMB 384.885 billion, up by 12.9% and the net asset is RMB 91.789 billion, up by 5.2%.

Now let me share with you some performance indicators on the implementing our strategy. We have major strategies that are being implemented in the first half. For example, the globalization, the first implementation on the catastrophe reinsurance. And in August this year, we launched the first Re-Model, which is a proprietary catastrophe platform for commercial use. And we also launched the multilevel catastrophe platform structure, and confident we're able to attract over 70 companies at the platform. Meanwhile, we are also working together within the Belt and Road program to launch relative programs such as the Re-Medicine. We also launched the first political violence reinsurance product, filling the gap in the market. Meanwhile, we also build up the overseas service platform. Ever since the beginning of this year, we have already set up cooperations with 30 overseas insurance companies, and we are delivering services in 120 -- 135 countries for our localized insurance companies.

In terms of technology, we adopted technologies such as the Blockchain technology for different application scenarios and launched the first all industrial chain insurance company and build up our first Nuclear-Star management platform. Meanwhile, we set up the Somersault Cloud. It's a core business system of China Continent Insurance first modeled by Cloud Framework+ Micro Service, which was successfully launched. Meanwhile, for the IDI business, the written premium recorded a year-over-year growth of more than 90%.

Our overseas department is improving all the time. And as our optimization, our international business management structure was also optimized. Meanwhile, we are also working actively to prepare the Malaysian office, which is under the Hong Kong company.

At the same time, in terms of our business innovation, we also speed up our pace. In terms of P&C insurance company, in terms of the emerging business, we are working very hard, and we achieved the breakthrough in emerging business classes including the major equipment first set insurance, inherent defects insurance that is IDI, the catastrophe insurance, construction safety bond insurance, customs bond insurance, et cetera, and this recorded premium of CNY 778 million with a growth of 91.3%.

In terms of the underage insurance, we created the Million Medicare+ Special Medicine Model, recording accumulated premiums of more than RMB 200 million since its launch. We were also responsible for the experience analysis of the revision of a critical illness definition and the table, processing approximately 300 million policies and 5 million cases of claims through the deep insight of evaluation and exercise trend of critical illness. China Re Life is leading the industry in the iteration and renewal of critical illness insurance products.

And you can see that our gross written premiums enjoyed 51.5% in the first half, reaching the RMB 23.033 billion. And currently, we are also working together with different partners and realized the bigger progress.

In terms of our core business, as I said before, we set up the platform and launched the new products much quicker than before in the past. And now it only needs 30 days to launch a new product. And in the past, it was -- it took 3 days -- in the past, it needed 3 months to launch a new product, but now it just needs 3 days.

Now let's look at the financial indicators of the P&C business sector. As I said before, the -- in addition to our domestic P&C business, there's also overseas business sector. This year, in the first half, we have the Chaucer business from the overseas market as well. From the end of last year until now, we realized the Chaucer -- the U.K. Island, Australia, they finalized the transactions. And over in the first half, our P&C business, the total written premium grew dramatically. Of course, there's a contribution from Chaucer as well.

Our Tier 1 ratio decreased dramatically, down by 2.07 percentage points to 97.36%. So the loss ratio is 55.81% and expense ratio is 41.55%.

Now let's look at our domestic P&C insurance, this rapid growth of nonmotor and facultative reinsurance and the further improvement on business mix. So ever since our listing, the nonmotor reinsurance business keeps growing. And for the C-ROSS, there's positive and there's negative impacts. But now the positive effect is now revealing more and more and bringing about the growth of our business after its negative impact to us at the very beginning. The combined ratio for the domestic P&C business went up by 0.02 percentage points to 99.62%. The loss ratio increased slightly, but the expense ratio decreased to 42.67%. So that's about the domestic P&C reinsurance business. We were able to capture the opportunity in the market and realized growth and laid a good foundation for the future growth under the structure, also further optimized.

As for the nonmotor reinsurance business, there was 237.5% of our growth. Under the combined -- the nonmotor reinsurance business, growth is the size to 200% of the motor business side. So the nonmotor reinsurance business stands for the new growth.

We also promoted written law on the facultative insurance business as the premium increased by 64.7%, reaching RMB 1.097 billion.

Now let's look at our overseas P&C reinsurance business and the Chaucer business. The Chaucer gross written premium went up dramatically by 9.1%, reaching RMB 5.552 billion. The existing domestic P&C reinsurance from the first half last year also went up dramatically. And the Chaucer contributed over 40% of better growth. As for the combined ratio, in the first half, there were less catastrophe cases and the quality business that were combined to Chaucer also played its role very well. The combined ratio was 96.7%, down by 5.6%. If including Chaucer, then it is 96.7%, further decreased by 0.75 percentage point. Combined ratio down by 7.7%.

After the consolidation of Chaucer, the [height] of Chaucer growing now. Well, after the acquisition, there's a 9.5% of increase in the total written premium and the combined ratio also went down by 2.3% (sic) [2.23 percentage points]. The loss ratio is 45.77% (sic) [49.77%].

Now let's

(technical difficulty)

In this structure, its biggest product is a political-related product. The marine time, energy and aerospace is the second biggest category of our products, and P&C and the political violence is the #3 biggest category as far as other products. So this is the Chaucer business mix.

In the first half, our consolidation with Chaucer went on smoothly. And in order to support Chaucer's growth, we also issued policies to retain their talents in Chaucer and further help them to improve as a business structure. We also realized progress in this business advancement in the first half.

Now what is the synergy between our business and the Chaucer's business? With Chaucer in place, our overseas reinsurance business enjoyed faster growth. Our international business went up dramatically. Meanwhile, if you can see the comparison between the consolidation before and after Chaucer, the overall -- the composition of the growth also changed quite a lot. We realized the synergy between China Re and Chaucer. By introducing the product buying from Chaucer to China, we were able to fill in the gap in the China Reinsurance market, and bring our own growth to a new level. Meanwhile, we also realized growth synergy and helped expanding our own business through our quality services. So realizing the 1 plus 1 greater than 2 effect. Now that is about in the P&C business.

Now let's look at the L&H reinsurance. In the first half, the total written premium of a saving type of business as well as some -- increased by 75.9%. The premium -- written premium income is attributable to the sum of our products, and the overall business structure were further optimized. Protection type of business now account for 29 point -- 27.9%, closing to -- close to 30%.

In the domestic market, there is a 48.6% of growth. For the protection type of business, there was a high quality of our growth. In terms of business size, there was a faster growth. The IT business continuously and steadily supported the growth of our protection-type business. And the Product+ strategy was effectively promoted, leading to the market via product design and service. So thus, the productivity has been continuously improved.

Meanwhile, our business structure further optimized. There was a high-quality business recorded rapid growth where you can see the 140.8% of growth, and our underwriting profit also improved. Our insurance -- reinsurance conditions of some of the critical illness treaty were adjusted, effectively boosting quality of existing business and significantly improving underwriting profit.

Our total written premium of savings type of business is RMB 9.779 billion, up by 75.9%. We were able to effectively grow this business size. While there's more and more competition in the market, we worked hard to export new customers and realize and maintain the continuous growth.

In terms of our financial reinsurance premium, the premium [remedy] is RMB 23.932 billion, up by 31.4%. We follow the changes in the national policy very closely and actively innovating our own services in financial reinsurance. So we were able to maintain the effective growth in this sector.

Now let's talk about the actual information. So under the C-ROSS, some of basic information about the actual calculation. Our reinsurance business account for over 95% of our total business. The Life business -- Life and Health has been a major factor in this -- in our business revenue.

The embedded value went up by 11.9% to RMB 24.345 billion as of the end of June this year, and the value of our one year's new business also went up by 63.1%, reaching RMB 2.186 billion.

Just now, I talked about L&H reinsurance and the embedded value. Now let's look under the primary P&C insurance. In the first half, China Continent, the primary revenue was RMB 24.163 billion, up by 10.8%. Combined ratio went down by 0.11 percentage points, down to 99.86%. Loss ratio is 24.19% (sic) [54.19%] and expense ratio is 45.67%, with a slight increase.

We expanded to the marketized reform activity and realized our rapid growth of our nonmotor business and the continuous optimization of our business mix. The premium of protection and nonmotor business realized 35.4% of growth, reaching RMB 10.24 billion. The nonmotor business grew much better, much faster than the motor business, because of the more products for those nonmotor sector. For example, the 1 Million Medical Care program. The accident and short-term health premium increased by 59.4%. We're also innovating on the product design as well as the channels. In the first half, our surety realized RMB 2.826 billion of revenue, increased by 28.9%. We also activated that to the changes in the market as called for by the government and the launch the IDI products. In the first, our premium went up by 26.9%, reaching RMB 1.142 billion revenue in the liability sector. And the commercial property sector also realized RMB 725 million, up by 14%. So that is about our business review for the past 6 months.

Now let's look at our investment business. We further improved the risk management on investment projects and further improved our risk management capability. In the past half, the total investment yield was RMB 6.159 billion, up by 21.5%. Net investment yield was RMB 6.027 billion, up by 17.1%. Annualized total investment yield is the 5.19%. Annualized net investment yield is 5.07%. Such increases because, first of all, our asset size is bigger. And centrally, internally, we also improved the return of the yield from our investment in our own associates.

As of the end of June, our total investment assets reached RMB 246.494 billion, up by 7.8%. In the first half, we finalized the dynamic allocation mechanism. If you look at the breakdown, the 26.5% (sic) [67.5%] of the investments are for fixed income investments. Equity and investment funds is the second biggest one, accounting for 18.4%. Cash and short-term time deposits was 8.2%. Investment in associates is 8.7%. And for others, the 3.3%. Our equity allocation and the investment module further improved. The fixed income investment is the bigger part in this pie. In the first half, we actually captured the opportunities and issued new products such as the political violence insurance product.

In terms of equity investment, we also allocated more resources through optimizing our investment program. We were able to reduce the volatility caused by such investments.

Now you can also see the breakdown for equity and the funds investment.

So with that, I would like to conclude my report on our business performance. Thank you.

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Unidentified Company Representative, [3]

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[Interpreted] Thank you very much, Mr. Riming, for your presentation. Now we are going to take questions from our investors and analysts. So we will take questions from the -- on the floor first and then we will take questions online.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

[Interpreted] The first question from the floor.

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Unidentified Analyst, [2]

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[Interpreted] My name is (inaudible). Two questions for you. The first question is about the P&C. The second one is about investment. For the P&C business, nonmotor business is growing very fast. Can you please share with us about the profit information? What about the risks involved?

[I apologize, the voice quality is simply too bad, and I cannot hear him very clearly. Apologies that the interpreter cannot hear this gentleman very clearly.]

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Unidentified Company Representative, [3]

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[Interpreted] Thank you very much for your question. The first question is about the P&C reinsurance business, [Mr. Wang] will take it. Second question about was -- about asset management, Mr. Wang will take it.

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Unidentified Company Representative, [4]

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[Interpreted] Thank you for your questions. First of all, about the P&C reinsurance business. The nonmotor business, basically, their performance -- their profit performance is very good. Number one, the reinsurance business depends quite a lot on the present support, such as the primary China Reinsurance company. So besides we have our advantage in terms of a channel as far as the pricings in China in the past few years, we have been innovating in our own products and we were able to lead the market. So that's why we were better at pricing also innovative products. Meanwhile, we were able to control the risks involved that's why we were able to realize good performance in terms of profit-making.

As for the primary P&C business, this is less competition in the market that's why the acquisition cost is also low. So that's why through our innovative business, we were able to realize better profit performance in the first half.

If you look at the motor -- for the nonmotor business structure, our -- the [city] business is also growing very quickly. So that's why we improve our capability and processing as part of the selection. So that's why we were able to safeguard our own profit margin. In the past couple of few years, the (inaudible) premium is also increasing. So for example, we launched the IDI health (inaudible) different products. Some natural disasters, just now somebody mentioned, for example, some disasters in China, if you raised any stock. This has some very small influence to us. However, now we are adjusting -- we are reviewing the terms and conditions in our policy so that we can work out a mechanism to mitigate such risks brought by natural disasters.

As for the catastrophe risks, we do have very good prearrangement if there's any catastrophe cases. So we were able to control the risks effectively in China. So thank you for your question.

The second question is about investment. You -- of all the equity -- the attributable assets, right, in terms of the attributable assets. So -- and because it is in the secondary multichannel, it is less fluctuating. Currently, it is still at a very small percentage. In the second half of the year, there are still uncertainties. Particularly if you look at the macroeconomy, there are a lot of challenges. Of course, there will be opportunities. We have [together] our own allocation. For the attributable assets in the secondary market, we will keep closely to the changes and the decision in the market and adjust our own investment accordingly.

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Unidentified Analyst, [5]

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[Interpreted] How to respond to the declining yield from the investment in the market?

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Unidentified Company Representative, [6]

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[Interpreted] From the second half this year to this year, if you look at our fixed assets -- fixed income investments, you can see that we are already allocating some resources to increase our fixed income investments by prolonging the maturity, the duration. So this is a proactive deployment.

A few months ago, because of good liquidity, we've also made some early deployment proactively to respond to the possible pressure in the market. Thank you.

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Unidentified Analyst, [7]

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[Interpreted] Wan Bin from BOC Security. Just a follow-up question for the assets side and the liability side. What is the duration? What is the duration for each? For the overseas development, can you please share with us more? Last year, you acquired a subsidiary in U.K. Just want to know what is your plan for the -- for this subsidiary? What are the new developments in the overseas market?

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Riming Kou, U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner [8]

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[Interpreted] Your first question is about investment business, (inaudible) will take it. The second question is about overseas development, Mr. Zhao will take it.

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Unidentified Company Representative, [9]

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[Interpreted] Your first question. Actually I'm pleased that it is a concern for all investors about the duration of our liability and assets. For us -- for China Re, we're different from other companies. So for the asset side, the duration, if you look at that data, you can do the calculation. Our duration is about 3 years by average and this is a moderate duration for maturity. In terms of the terms of our assets under liability or how well they match with each other, actually, we believe that we are in a good position and we're able to manage risks involved. Thank you.

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Wei Zhao, China Reinsurance (Group) Corporation - Former VP & CFO [10]

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[Interpreted] After the acquisition for Chaucer, our overseas business grew dramatically. Our business structure were greatly in -- optimized. So that's about overseas market. After the consolidation, we're still doing the consolidation. And so far, the consolidation is moving on very well. If you look at our business performance, it has been very stable after the acquisition. The integration and consolidation, we are actually pretty satisfied with the integration and consolidation so far. All our business segments, including Chaucer, are operating steadily in the first half.

And as another point, as for the internationalization and what is the plan for the company in the future, internationalization is our long-term strategy. After acquiring Chaucer, we will take it as a major platform for our internationalized strategy. So it is a very strong institution and it is a very good platform, we're definitely trying to grow our international business on it.

Belt and Road program is another one. We have a Chinese company -- Chinese clients who will definitely follow them. We will keep improving and perfecting our own cooperative and -- cooperative network. Currently, we are considering about setting up a new subsidiary in Malaysia and try to get the license and the permits. Entering the Malaysian market, we need such licenses and a permit. But this investment won't be a big one. It is not a big office.

In addition, in Latin America, we do have other considerations. In the past, we didn't have much business there. But now more and more Chinese companies are having projects in Latin America. That's why we are trying to apply to get license in some of the Latin American countries. Definitely in the near future, these are our considerations. Thank you.

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Riming Kou, U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner [11]

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[Interpreted] Thank you for your questions on the floor. Now I would like to take questions from online analysts and investors.

The first question is from CICC, Tian Dan.

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Dan Tian, China International Capital Corporation Limited, Research Division - Analyst [12]

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[Interpreted] Two questions for you. The first one is about the L&H Reinsurance business. And that is whether the primary insurance is declining. Just want to know that whether this has extended to reinsurance business. In the first half, your protection-type of business for the L&H, what is the underwriting performance? The second one is about the Chaucer. Can you please share with us more information about what is the growth of Chaucer? And for example, the synergy with China Re? And what is the position and what is the response -- are your expectations on Chaucer?

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Riming Kou, U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner [13]

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Thank you for your questions. The first one about L&H. Mr. Tian, our Actuarial General, will take it. The second question is about Chaucer. Mr. Zhao will take it.

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Meipan Tian, China Reinsurance (Group) Corporation - Chief Actuary [14]

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[Interpreted] Thank you for your questions. Regarding the L&H, the deterioration of the market, particularly for the critical illness, it is not getting very good. As particularly for these critical illness, this segment is deteriorating. And you can find some characteristics out of these deteriorations. Some of the critical illness is deteriorating, some are not. For example, lung cancer. And because of the new technology being adopted in the physical check, so that's why it is more likely to diagnose the thyroid cancer at an early stage. Of course, people's living conditions is also better than before. Some other diseases, the diagnosis rate is also improving because of better technologies.

If you look at the age range from 20 to 40 years old, particularly those of female patients, there are more cancer -- there are more breast cancer. But for male patients, more thyroid cancer. For the definition is not that important matter talking about critical illness. So the definition will influence -- for example, it may lead to 20x or even 30x of increase on the critical illness claims. For example, if you look at the definitions of the hand, foot-and-mouth disease, we have to review some of the definitions in order to make sure that our business is not affected. So we depend on data. If we have the data, we will know where the risks are and how to handle them. Just now, when Mr. Lew talked about our business, I talked about our -- he also reviewed our -- the efforts we made regarding the critical illness. In addition to this, through our data -- through data analytics, we were able to control risks. We -- depending on the time range, for example, 20 years old and 40 years old, we can look at the data and develop the right products accordingly for those people. If it is a child, and then we can look at the data for children and design and develop the right product accordingly.

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Linjiang Yuan, China Reinsurance (Group) Corporation - Chairman of the Board [15]

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[Interpreted] There still lot of option to this in the future. And currently, we take definition more and more seriously. In the past, a lot of primary insurance companies did not take definitions very seriously. But never result. For life insurance, of course, there will be a casualty in talking about life insurance. It's not like the critical illness. We want to disperse the risks or we want to center -- decentralize the risks.

As for the underwriting profit comparing with the same period last year, there has been several hundreds of times of improvement. This year, we are expecting a big increase, a remarkable increase in terms of underwriting profit.

So let me take your question regarding Chaucer. The latest update on this growth after the acquisition. If you look at each business growth so far, everything is very good. This is because of the good management team out there in Chaucer and they have a very strong, very capable management team.

As for Chaucer, we do have a very good plan for its future. We have formulated some business growth direction. And we are communicating with the management team there, so the direction is now under current discussion with the Chaucer team. As for the positioning of Chaucer, there are 2 considerations for us. Number one, through Chaucer, we will have to keep optimizing our business structure and grow our international business in a high-quality manner. Meanwhile, realizing the domestic and international business optimization at the same time.

Secondly, through Chaucer, we can make use of its own advantage of our special insurance business to deliver and satisfy the needs from our customers along with the Belt and the Road programs. So Chaucer is very strong. For example, the political violence insurance, these are the special insurance business and they are very strong. We hope to see further synergies with Chaucer.

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Unidentified Company Representative, [16]

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[Interpreted] Thank you both. The next question is from online. This question is from (inaudible), Huatai.

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Unidentified Analyst, [17]

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[Interpreted] Two questions for you. In the first half this year, the international business, and then P&C business, and P&C reinsurance enjoyed progress. And the Chaucer is also performing very well. Just want to know, the underwriting profit and profit margin as well as other international business, do you think this kind of improvement will continue in the future? This is the first question. The second question about the (inaudible) reinsurance. The financing reinsurance is still a big part. Can you please share with us the gross margin?

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Unidentified Company Representative, [18]

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[Interpreted] Your first question, Mr. Zhao will take it. The second question about L&H, Mr. Chan will take it.

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Wei Zhao, China Reinsurance (Group) Corporation - Former VP & CFO [19]

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[Interpreted] For the international business, is the sustainability of [patient] growth, you may have already noticed that in the first half, Chaucer just as our other platforms, has been maintaining very smooth operations, which is very good. Now this is because of the benefits of 2 factors. Our business is still under adjustment. Last year and the year before last year, there were some catastrophe effects. And there were also effect -- Chaucer was also affected, so there were some losses. But we are now still doing the adjustments, some major adjustments, to some poor performing business. So this year, the catastrophe comparing with the previous years, particularly last year and the year before last year, our catastrophe is at the mid-level this year. So there's about 2 factors of our growth.

Looking to the future, we can suppose that if the market remains stable, if the market grows smoothly, then we can expect the guaranteed growth in our overseas business. Yet, there are uncertainties. For example, some major natural disasters and catastrophe. So nobody can really guarantee it. This is the -- something decided by nature of our reinsurance business.

About the profitability of our financing reinsurance, usually comparing with the traditional reinsurance business is -- the financial reinsurance is very different. Basically, it is the transferring or the (inaudible). For the financing -- so for financing reinsurance, it is mainly for resulting in the financial pursuits such as the tax and the capital as well as the business management.

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Unidentified Analyst, [20]

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[Interpreted] What about pricing?

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Wei Zhao, China Reinsurance (Group) Corporation - Former VP & CFO [21]

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[Interpreted] So it is based on the figured out pricing. For example, what is the financial target and integral part of the valuation. In terms of our profit margin, the margin is pretty good. From 2007, we started financing reinsurance business. Over 10 years so far. In the past few years, the financial reinsurance is the gross margin is higher than other business in China and in other company. In the recent years, in 2017, 2018 and 2019, of this -- the first half of this year, the profit margin is higher and more profit out of this market segment -- out of this business segment. If you look at the figures, as far as the figures, they are also very high. It is because of the underwriting profit is higher, this is why -- this is the main reason.

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Unidentified Company Representative, [22]

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[Interpreted] A question now from Merrill Lynch, Bank of America.

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Unidentified Analyst, [23]

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[Interpreted] Bank of America Merrill Lynch. Two questions for you. The domestic and international, what is the -- their ratio retail trend? How do you control the exposure? So you recently launched a catastrophe 2.0 version. What kind of impact, and what kind of indication would that be to your business?

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Unidentified Company Representative, [24]

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[Interpreted] Mr. Zhao will take your questions.

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Wei Zhao, China Reinsurance (Group) Corporation - Former VP & CFO [25]

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[Interpreted] For the international fee ratio, the trend -- let me talk about the trend first. Internationally, the catastrophe ratio, the fee ratio from the year before last year, last year and til this year, this year has been very smooth and the fee ratio is not going down.

Some markets, which were affected by catastrophe cases, for example, the United States and the Caribbean countries and Japan markets last year, the trend is different. Of course, the primary insurance is stronger than the reinsurance. Generally speaking, we believe that the fee rate will be very stable and they will be rebounding some original areas. So this is about the fee ratio.

As for how to control the exposure, this is also a major concern for us in the company. From the group level to all our subsidiaries, we set up the risk teams -- risk management teams trying to control all the risks. We also keep monitoring all the catastrophe risks, trying to control everything within our control. We launched the earthquake 2.0. This is the catastrophe 2.0. It is good for the company. It is also important for the whole industry. So in short, we hope that this technology can provide the technical platform support to the industry in order to improve a bit the earthquake or insurance pricing or the earthquake reinsuring -- insurance and risk analysis as well as some risk disburse arrangement and how this platform can play an important role and providing a good control for -- to the industry.

A quick comment. For the fee rate, for the catastrophe, the domestic, their fee ratio in the past for years has been reasonable, particularly for these primary insurance companies. Their price even went up. So generally speaking, their fee ratio has been very stable domestically.

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Unidentified Analyst, [26]

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[Interpreted] Just a minute. I have a follow-up question. About the China Continent. What about the petty sum consumption loan? What is the latest update? Any risk management measures?

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Riming Kou, U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner [27]

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[Interpreted] Mr. Lew from China Continent will take it. Thank you for your question.

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Unidentified Company Representative, [28]

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[Interpreted] Our petty loan consumption program. We launched it in 2012 -- 2015. Now 4 years have passed so while controlling all the risks, we were promoting this product. Last year, our premium revenue is about CNY 5 billion. This half, in the first half this year, we realized CNY 2.8 billion and about 28% of growth. In terms of risk control, we set up a all life cycle risk management mechanism from a pre-made and a post insurance through our training to the brokers, through our (inaudible) their training and their education and we also regulated all our procedures. We set up a bespoke party system the customer risk and management model, as it relates to the centralized approving and interviews so that we can make sure that the information from the customer, the progress of our loans, the payback and capabilities and so on and so forth, we can verify the information before any loan is issued.

So we also keep monitoring the feedback every month from the customers. So on the back end, we can have our way to the cash collection of the loans. So far, the NPL has been very stable and the risks are within our control and there's underwriting profit as well. Thank you.

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Unidentified Company Representative, [29]

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[Interpreted] The next question from the floor will be from (inaudible) Capital.

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Unidentified Analyst, [30]

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[Interpreted] Just one question for you. We noticed that in the first half, your L&H -- the new business value increased dramatically. Just want to understand why. So what will be the trend for this segment in the future?

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Riming Kou, U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner [31]

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[Interpreted] Mr. Chan will take your question.

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Unidentified Company Representative, [32]

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About the 1-year new business value, there's a dramatic increase mainly because of 2 areas. Number one, the financial reinsurance business, there's a big improvement. Secondly about the protection-type of insurance business, there was also a big improvement. So far, based on what we can see for the protection-type of business, is the business volume increased dramatically. But in terms of sustainability, it is not as successful in others. And the financial insurance, it is still growing. In the future, the interest rate as well as the market fluctuation as well as the implementation of the C-ROSS, there will be new demands for that. So generally speaking, for the 1-year new business value, it will continue to grow.

Specifically for the protection-type of business, as I said before, the product plus, the data plus the product development, the health insurance plus the -- as well as the health industry confusion, we have done great -- a lot of work. That is the advertisement as well.

And I guess I (inaudible) anything special -- specially (inaudible) drugs as well as the 1-year per month product so on and so forth so we were taking the lead in those programs.

We are also collaborating with a lot of the pharmaceutical companies for those specially (inaudible) drugs. We are also working on the data following industrial decisions. So these take a good part in our protection-type of business while our capacities for the released -- I believe this value will continue to go up. As for the figures, this year, the growth comes from 2 areas. It is more than expected. In the future, along with this space is increasing, the growth speed will be slower but the growth will be good -- will be nice in the future.

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Unidentified Company Representative, [33]

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For the interest of time, we'll accept the last question from either the floor or online. The last question, please?

Okay any further question from the floor or online?

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Unidentified Analyst, [34]

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[Interpreted] Management, (inaudible) from (inaudible) Group. Two questions. The first one, in the reorganization, your loss ratio, the 22% of the increase comparing with last year. The domestic P&C, there was also an improvement. So I just want to know why -- what is the reason. The second one about the investment yield. Have you done any comparison with other insurance or reinsurance companies in China and others?

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Riming Kou, U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner [35]

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[Interpreted] Thank you. The first one -- question about P&C. The second one is about investment yield. Okay, Mr. Lew will take your question. Thank you for your question.

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Unidentified Company Representative, [36]

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[Interpreted] For the domestic, the loss ratio increased. It's mainly because of the agriculture-related insurance, shipping vehicle related-business and so on and so forth, and as well as in the primary market. The loss ratio also related to this. In terms of the equity. We have very strict risk hedge and containing -- constraining terms. So we are able to effectively control to reduce the risk so that we can control the combined ratio within the right range.

The second question is about the investment, the comparability with others. China Re, comparatively speaking, is the -- is a very different company compared with other insurance companies because if you are benchmarking with them, we are a reinsurance company. In terms of assets under liability, we are very different from them. If you look at the structure, which is popular in the industry, in terms of the assets allocation tools, we are very close to each other, very similar to each other. As you can see from our disclosure in our annual result -- annual report, the net investment yield as disclosed in our annual report and in the interim result, we are one of the best ones or the top ones. In terms of our total investment yield, you can see that there are some companies that are ahead of us. There are 2 reasons for that. Number one, the Chaucer is a major project for us. It is under Deloitte. It is a very -- it is a special insurance service provider in the U.K. and it is a very conservative insurance company. From this perspective, so the investment yield, relatively speaking, is lower. The risk appetite is also very conservative. And so because if you look at the other -- the Chaucer, they are different. So therefore, this will bring down our total investment yield and net investment yield. Secondly, last year, it was a bit sluggish in the capital market. The secondary attributable investment sector, there was a decline. And some companies took some measures and sought out the equity and some companies decided to keep holding. So that's why their base is greater. So I think it will also be reflected into the yield figures. So these 2 factors basically contribute to the different performance between different companies, but the difference is still within the right range. Thank you.

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Riming Kou, U.S.-China Green Investment Management Ltd. - Director of the Board, C.F.O. & Founding Partner [37]

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[Interpreted] Thank you, all, for your (inaudible) questions. For the interest of the time, this is the end of the interim results presentation. If you have any further questions, please feel free to contact our IR team. We will be looking forward to meeting you again next year during our results announcement. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]