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Edited Transcript of 601628.SS earnings conference call or presentation 23-Apr-20 11:45am GMT

Q1 2020 China Life Insurance Co Ltd Earnings Call

Beijing Apr 28, 2020 (Thomson StreetEvents) -- Edited Transcript of China Life Insurance Co Ltd earnings conference call or presentation Thursday, April 23, 2020 at 11:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Grace Hou

China Life Insurance Company Limited - IR Executive

* Li Yinghui

China Life Insurance Company Limited - IR Executive

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Conference Call Participants

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* Kailesh Mistry

HSBC, Research Division - Head of Financials Equity Research, Asia-Pacific and Analyst

* Leon Qi

Daiwa Securities Co. Ltd., Research Division - Executive Director

* Yuping Ma

Citigroup Inc, Research Division - VP

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Presentation

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Li Yinghui, China Life Insurance Company Limited - IR Executive [1]

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Good evening, ladies and gentlemen. Welcome to China Life's 2020 First Quarter Results Briefing. My name is Li Yinghui, executive representative of the company. Today, the management to attend the briefing includes Mr. Li, Mingguang, Vice President, Chief Actuary and Board Secretary; Ms. Hong Yang, Vice President; Mr. Zhan, Zhong, Vice President. We also have some heads of department attending today's briefing.

Now we will start with a 5-minute presentation on the company's 2020 first quarter results, followed by the Q&A session for around 20 minutes.

I will hand over to Ms. Grace Hou, Head of the IR Division, for the briefing.

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Grace Hou, China Life Insurance Company Limited - IR Executive [2]

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Thank you. I would like to announce our first quarter results briefing for the moment. In the first quarter of 2020, facing the complicated and severe external environment and an unexpected outbreak of COVID-19, the company adopted a proactive approach for both the pandemic prevention and control and its business development and proceeded steadily with all focus by concentrating on the central goal of China Life Revitalization and high-quality development requirements. The company realized a continued growth in the core businesses and maintained its leading market position with the positive development momentum.

Firstly, our insurance business and new business value achieved a steady growth. In the first quarter of 2020, revenues from insurance business of the company reached RMB 307.8 billion, an increase of 13% year-on-year. First-year regular premiums amounted to RMB 76.1 billion, an increase of 13.9% year-on-year. In particular, first-year regular premiums with payment duration of 10 years or longer were RMB 25.4 billion, an increase of 2.1% year-on-year. Renewal premiums amounted to RMB 198.3 billion, an increase of 11.2%. Short-term insurance premiums amounted to RMB 32.8 billion, an increase of 23.9%.

During the reporting period, our protection-oriented business of the company achieved a faster growth, and the percentage of premiums from designated protection-oriented products in the first-year regular premiums rose by 2.2 percentage points year-on-year. Especially, our value of new business for the first quarter rose by 8.3%. The surrender rate was 0.28%, a decrease of 0.34 percentage points year-on-year.

Secondly, the sales force expanded and their quality continued to improve. The company kicked off the Dingxin Project in 2019 under the guidance of the strategic goal of China Life Revitalization with dual centers and dual focuses as our strategic core and a development system of Yi Ti Duo Yuan was initially formed, featuring a strengthened individual sales force with an emphasize on its core role of value creation in coordination with the development of group insurance, bancassurance and health insurance. As at the end of the reporting period, our total number of sales force from all channels was over 2 million. The quality of the sales force was improved constantly, and the monthly average productive agents from the strengthened individual sales force rose by 18.4% year-on-year.

Thirdly, a significant achievement was made in technology empowerment. During the COVID-19 pandemic, the company proactively expanded our insurance sales online by leveraging on the online platforms, such as China Life inclusive health care and China Life insurance app. The company launched a 24-hours, 7-day online customer services and offered services such as quick claim settlements, online policy application and electronic insurance policy to satisfy customer demand. In addition, the company actively carried out online sales force recruitment and management, established a variety of live streaming and sharing platform and reinforced online training and meetings.

Fourthly, the strategy of investment allocation was more aligned with the market situations. Our company's investment has reached RMB 3.68 trillion, an increase of 2.8% from the end of last year. We also took a flexible approach towards allocation to fixed income assets and asset duration strategy. While controlling the risk exposure of equity investment, it allocated to core equity assets by leveraging the long-term nature of its investment assets to grasp opportunities in equity market fluctuations.

In the first quarter, despite a decline in A-share market and the significant downward trend in interest rates, our gross investment income reached RMB 45.5 billion. Our gross investment yield was 5.13%, merely down by 158 basis points from the corresponding period of 2019, when the significant surge was seen in equity markets. Plus, our net investment income was RMB 38.1 billion and our yield was 4.29%, a decrease of only 2 basis points year-on-year.

Fifthly, our company fought against the pandemic with united efforts. Since the outbreak of COVID-19 in early 2020, the company voluntarily offered complimentary insurance protection against the COVID-19 to medical workers and the volunteers fighting on the front line, covering over 2.5 million people. At the end of the first quarter, the company made COVID-19-related claims payment of RMB 23.2 million, of which RMB 10.8 million was paid to the frontline medical workers.

Also, our net profit attributable to equity holders of the company was RMB 17.1 billion, a decrease of 34.4% year-on-year. The core solvency ratio and the comprehensive ratio of the company was 272.15% and 281.57%, respectively. For the remaining period of 2020, we will continue to implement national instructions for the pandemic prevention and control in the conscientious manner by adhering to the strategic goal of China Life Revitalization, upholding the strategical core of centering on customers, concentrating on local branches and field offices, focusing on business value and strengthening individual insurance business and sticking to the operating guideline of prioritizing business value, strengthening sales force, achieving stable growth, upgrading technology, optimizing services and guarding against risks.

The company will further promote our reform and transformation, step up our efforts in value creation, team building, reform and innovation, technology empowerment and risk prevention and control and strive to make further progress with China Life Revitalization. Thank you.

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Li Yinghui, China Life Insurance Company Limited - IR Executive [3]

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Okay. Thank you, Grace. We'll now begin the Q&A session, which will be conducted in consecutive interpretation. (Operator Instructions)

Now may I invite the first question, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Michelle Ma with Citigroup.

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Yuping Ma, Citigroup Inc, Research Division - VP [2]

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Congratulation on the first quarter -- very decent first quarter results. I have two questions. One is on the second quarter so far operating trend because the situation has been improved quite a lot from the shocks of COVID-19 compared to first quarter. Have we observed a very substantial rebound of business in the first 2 weeks of -- first 3 weeks of this month? And what's our expectation for the rest of the year? Do we expect like a V-shaped recovery? Or U-shaped -- or even a U-shaped recovery? So that's my first question.

And second is on the dividend policy. We noticed that in the first quarter, net profit decreased around 35%. Just wondering any chances that we may tweak our dividend policy a little bit towards some more stable indicator during the year? Could you share some light on this?

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Unidentified Company Representative, [3]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [4]

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[Interpreted] So you have made very precise observation. Indeed, our operations and business was hit dramatically in February. But starting from March, we have seen improvements in the business and continue to turn for the better in this month. But it's still so early to jump into any conclusion about the pandemic control. And we will remain flexible in the measures we take to develop our business, including combining online and off-line measures to expand the sales force and to sell the products. So we still cannot predict whether the whole year development trend will be V-shaped or U-shaped. Our goal will remain the same to drive for stable new business value growth and -- as well as expansion as well as the quality improvement on the sales force while expanding the size.

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Unidentified Company Representative, [5]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [6]

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[Interpreted] And about the second question regarding the dividend payout policy, as we have mentioned in our annual results briefing, we are aware of the investor demands, and we understand their concern and interest. And we will give consideration to the customer -- to the investors' demand when making the dividend policy for the whole year.

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Unidentified Company Representative, [7]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [8]

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[Interpreted] And I also think that the analysts should help the investors to understand that, for insurance companies, sometimes stable or (inaudible) dividends, they harm our capability to further enhance the business or to have impacts on our assets and also solvency ratio. So when making the dividend policy, we should take into consideration all around factors, including the expectation from the investors and also the demand on the assets in developing our business and also investment performance. So we will take all these factors into consideration, and we'll have a timely communication with the market when we make progress in revising the policy.

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Unidentified Company Representative, [9]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [10]

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[Interpreted] That is for your reference.

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Operator [11]

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

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Kailesh Mistry, HSBC, Research Division - Head of Financials Equity Research, Asia-Pacific and Analyst [12]

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Two questions. Firstly, what happened to individual agent numbers in the first quarter? Just wanted to get an idea of whether recruitment activity continued and you continued to grow that number.

Secondly, just wanted to understand, on the new business outlook, I appreciate the idea is to improve new business value steadily across the year. Just so I understand, why did the new business margin fall in the first quarter, it seems, versus the prior year? Is it a question of the type of business you wrote given the circumstances to then encourage sales later in the year or something like that? If you could just provide some color on that, that would be helpful.

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Unidentified Company Representative, [13]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [14]

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[Interpreted] So regarding your first question about the agent number from different perspectives, first from the new recruitment. During the outbreak of the pandemic, we haven't stopped the recruitment online. And also, because of the disruption of the pandemic to some industries, people from other industries may lose their jobs and they may turn to insurance industry for jobs. And with the outbreak of this disease, people's awareness of the protection of the insurance is also increasing, so there's higher demand for the agents. And also with online recruitment process and online interview, it is easier for the new agents to be recruited.

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Unidentified Company Representative, [15]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [16]

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[Interpreted] And on the other side, on the existing agents, this part of the agents remain stable because, first of all, we provide a lot of supportive measures for the existing agents, including protection against COVID-19 and also differentiated KPI evaluation system. And also, we provide supportive platforms to sell the products and also special products to meet the customers' demands. So the existing agents, they are quite stable. And also because offline face-to-face activities were limited, there were a decreasing number of people termination their contract with the company. So we have seen more people staying with the company.

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Unidentified Company Representative, [17]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [18]

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[Interpreted] Because there's still some difference in effects from the online and off-line training, so we have made a clear statement that for all the new agents recruited online, there will be another retraining offline after the outbreak of -- when the outbreak of COVID-19 abates. So for the people who failed these retraining, we will terminate their contracts. And also, April is the season of performance evaluation for the first quarter business, so we will also weed out the low-performance activities. So after we take these measures, we expect the number of the total agents to return to normal. Thank you.

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Unidentified Company Representative, [19]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [20]

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[Interpreted] I will answer your second question about the new business value. Our goal for this year is to strive for the stable growth of the new business value.

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Unidentified Company Representative, [21]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [22]

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[Interpreted] And around this goal, we have put forward a concept of integration of our business.

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Unidentified Company Representative, [23]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [24]

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[Interpreted] That means we will take integrated development measures in developing our business, our sales force, technology support and also services to better serve the customers.

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Unidentified Company Representative, [25]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [26]

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[Interpreted] So around this goal, we have made differentiated development plan regarding the product, sales force development and also service to meet the customers' demands and to develop products that's useful for the agents. And then from the quarterly new business value growth, it may differ from quarter-to-quarter maybe on the customers' demand, but for the whole year, our goal remains the same. And we expect stable growth that will not change for the whole year.

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Unidentified Company Representative, [27]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [28]

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[Interpreted] So we think the 8.3% growth in the first quarter was slightly hit by the pandemic outbreak.

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Unidentified Company Representative, [29]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [30]

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[Interpreted] And the situation is now turning for the better.

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Unidentified Company Representative, [31]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [32]

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[Interpreted] And we will also flexibly react to the environment change and customers' demand change.

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Unidentified Company Representative, [33]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [34]

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[Interpreted] So that is for your reference.

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Operator [35]

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(Operator Instructions) Our next question comes from Leon Qi with Daiwa in Hong Kong.

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Leon Qi, Daiwa Securities Co. Ltd., Research Division - Executive Director [36]

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Again, congratulations on the very strong result given all the headwinds in the operating environment. I just have one follow-up question on the margin. We understand that margin kind of was diluted a little bit given the special environment happening in the first quarter this year. I just want to understand that for a longer term -- not necessarily just 2020, for longer term, what's our strategy on the -- in terms of the product mix upgrade? Shall we still be looking at the margin heading up? And a part of this question is regarding the recent definition change on the critical illness products. How do management think this will relate to the margin for longer term?

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Unidentified Company Representative, [37]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [38]

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[Interpreted] Thank you, first of all, for the good words on our performance.

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Unidentified Company Representative, [39]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [40]

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[Interpreted] So I remember that for the revision draft for the definition of the CIRC is on the offshore website in Chinese. So where do you read the English version?

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Leon Qi, Daiwa Securities Co. Ltd., Research Division - Executive Director [41]

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Yes. We read both the Chinese and English version, yes.

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Unidentified Company Representative, [42]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [43]

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[Interpreted] So you have been very sensitive about the change in the industry. I think that this fact is only for public consultation, it has not been officially published. And in my opinion, the main aim and the guideline of this new draft is that the critical illness insurance should be more in line with the practice of the medical treatment and the claim settlement of the critical illness insurance should be more precisely matched with the expenditure of the patients. So with this as the aim, we think that for our products, maybe in the future, the controversial clause may decrease. And also, it will help improve the risk control for some respects.

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Unidentified Company Representative, [44]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [45]

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[Interpreted] And another impact is that for some rare diseases and at least for diseases with very small morbidity rates, the insurance company cannot just include that in the scope of insurance without clear statement to the customers. So that is to protect the customers' rights.

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Unidentified Company Representative, [46]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [47]

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[Interpreted] So to summarize, I think there are several principles we can see in the revision of this definition that includes the -- based on the fairness and also the predictable and also measurable of the payment. And also, it is going with the times.

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Unidentified Company Representative, [48]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [49]

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[Interpreted] And these principles actually help healthy and sustainable operation of the insurance companies. In the future, the difficulty of selling may be mitigated and also the reputation of the company will increase.

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Unidentified Company Representative, [50]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [51]

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[Interpreted] As for its impact on the product margin, we should say the margin is determined by various factors including morbidity rate, the performance of the investments and also the cost control of the company. So we cannot jump into any conclusion based on the revision of the definition on the margins of the company.

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Unidentified Company Representative, [52]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [53]

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[Interpreted] So for our company, our product combination, product mix is based on the customers' demand. It's not aimed for the high margin of specific products.

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Unidentified Company Representative, [54]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [55]

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[Interpreted] So we should say only if the customers' long-term interest is satisfied, we can see achievable interest of the company and also the interest of the shareholders.

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Unidentified Company Representative, [56]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [57]

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[Interpreted] And we will keep working hard in controlling the risks for the insurance business and also cost control.

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Unidentified Company Representative, [58]

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(foreign language)

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Li Yinghui, China Life Insurance Company Limited - IR Executive [59]

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[Interpreted] So that is for your reference. Thank you.

It's the end of our 2020 first quarter results briefing. If you have any questions, please get in touch with our investor relations team at any time. Thank you for participation. Good day.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]