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Edited Transcript of 601628.SS earnings conference call or presentation 23-Aug-19 1:15am GMT

Half Year 2019 China Life Insurance Co Ltd Earnings Call

Beijing Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of China Life Insurance Co Ltd earnings conference call or presentation Friday, August 23, 2019 at 1:15:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Grace Hou

China Life Insurance Company Limited - IR Executive

* Hengxuan Su

China Life Insurance Company Limited - President, Principal Executive Officer & Executive Director

* Mingguang Li

China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary

* Peng Zhao

China Life Insurance Company Limited - VP & In Charge of Finance

* Zhong Zhan

China Life Insurance Company Limited - VP

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Conference Call Participants

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* Dan Tian

China International Capital Corporation Limited, Research Division - Analyst

* Ting Sun

Haitong International Research Limited - Research Analyst

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Presentation

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Grace Hou, China Life Insurance Company Limited - IR Executive [1]

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Ladies and gentlemen, good morning. Welcome to China Life 2019 Interim Results Analyst and Investor Briefing. I'm Grace Hou, Head of the Investor Relations team of the company, the Hong Kong and the Beijing venues for this briefing are connected by a live video conference. We invite those who are not able to attend the briefing in person to use the dial-in facility to join in. Alternatively, a live webcast of the briefings available at the mobile phone and/or computer. As a request, for this briefing, we moved this briefing 15 minutes earlier, in order to make it possible for you to take the Q&A, have more interactions with the management. We also welcome more of advice from us -- from you, so that we can do a better job for you.

Now please let me introduce members of the management who are attending today's briefing in Hong Kong and Beijing, respectively. Mr. Su Hengxuan, President; Mr. Li Mingguang, Vice President, Chief Actuary and the Board Secretary; and Ms. Yang Hong, Vice President with us in Hong Kong. With us in Beijing via live video conference, Mr. Zhao Peng, Vice President; Mr. Ruan Qi, Vice President; and Mr. Peng Zhao, Vice President. Today's briefing will start with a 30-minute presentation on the company's 2019 interim results. After that, there will be 45-minute Q&A session, during which our management will take questions from both Hong Kong and the Beijing venues. Ms. Li Yinghui, secretary -- Securities Representative of the Company, will co-host Q&A session in Beijing with me.

Let me invite first, Mr. Su Hengxuan, our President.

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Hengxuan Su, China Life Insurance Company Limited - President, Principal Executive Officer & Executive Director [2]

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Respectable analysts, today, speaking on this here, we have proposed the strategy goal of revitalization of China Life. In the first half of the year, we took the high-quality development and the government requirements and the focus that customer-centric way and focused on the value under individual products. And we also focused on the value and also achieved a stable growth, operating technology, optimizing customer services, upgrading against the risk.

And we have also adopted a customer-centric approach, focus on the field office strengthening and the NPV individual insurance business development and pushed forward the transformation from being sales-oriented to attaching great -- equal importance to sales and services from being human-resources driven to being human resources and technology-driven as well as being scale-oriented to the coordination of scale and value.

While vigorously promoting those various reforms, the company has also seen the constant development. In the first half of the year, the company growth -- achieved a good result under the strategy.

In the first -- but first, the key operating measures improved significantly, the value of the company amounted to RMB 34 billion, up by 22.7%. The gross investment yield grew significantly to 5.78%, up by 200 basis points, and the net profit attributable to equity holders was RMB 37 billion, up by 128% year-on-year.

And second, the long-term regular premiums and the significant production-oriented business grew rapidly in the first half of this year, the first year regular premiums with a payments duration of 10 years or longer totaled at RMB 38 billion, up by 68% year-on-year, accounting for 45.8% of the whole first-year regular premium, up by 18% year-on-year.

Designated protection business grew strongly with its proportion in the first-year regular premiums increased by 5 basis point -- 5%.

And third, both the size and the quality of the sales force were enhanced. So the company's sales force across all channels reached 1.898 million people, up by 7.1% from the year-end of the last year, of which the agency -- our agency channel sales force amounted to 1.8 million -- 1.5 million people, increased by 9.3%.

Along with the size expansion, the quality also saw market improvements. The monthly average productive agents in the agency channel increased by 38%. In particular, the number of the agents selling designated protection-oriented insurance products increased by 52.1% year-on-year. Through continuous reform and innovation, we will capitalize on the new driving engines and the professional management to create greater value for our shareholders, customers and the society.

Next, I will present the details on the company's business and operations in the first half of 2019. In the first half of the year, under the China Life revitalization strategy, the company saw successful jump starts in the first quarter, followed by a decisive transformation in the second quarter ushering a new prospect to further company's development.

The company's gross written premium reached RMB 377.98 billion, up by 4.9% year-on-year, but the single premiums were greatly reduced from the RMB 10.1 billion to RMB 1.02 billion, representing a 89.9% decrease. The first year regular premiums increased by 1.7% year-on-year to RMB 83.13 billion, of which those with a payment duration of 10 years or longer totaled RMB 38 billion, up by 68% year-on-year. Renewal premiums reached RMB 250 billion, up by 6.4% year-on-year. Short-term premiums reached RMB 43 billion, up by 30.4% year-over-year.

The company's business structure continues to be optimized. So the percentage of single premiums in a long-term, first-year premiums decreased by 64.9% in 2013, down to 1.2%.

First-year regular premiums accounted for 98.8% of the long-term, first-year premiums. Within the first-year, regular premiums, those with a payment duration over 10 years or longer accounted for 45.8% of the total, up 18.1% year-on-year.

Protection-type business grew rapidly. The percentage of the premiums from designated protection-oriented products in the first year, total premiums increased by 5% year-on-year. Production -- product diversification continued with 6 point -- 6 out of the top 10 first-year regular premiums product by being protection-oriented.

Particular channels, emphasizing a new business value growth in the first half of the year, the agency -- agent channel further promoted the transformation upgrade of the sales management, the model and the quality of improvement the sales force and the day-to-day sales team management to achieve steady and continued growth. The individual channel recorded a gross premium of RMB 290 billion, up by 6.7%, accounting for 76.9% of the company's total, up by 1.4%. Renewal premium increased by 6.5% year-on-year, which helped to drive the growth of the gross written premiums from this channel.

The first-year regular premiums in the agent channel were RMB 64 billion, which accounted for 99.8% of its long-term first-year premiums. In particular, the percentage of FYRP within 10 years or more payment duration was 51.7%, up by 19.1%.

Bancassurance and the [bookish] channels. The bancassurance channel optimizes business mix significantly, firmly committed to development of a long-term regular premiums business, with its new business margin improved significant -- consistently. Single premiums has sharply decreased from RMB 8.64 billion, down to RMB 12 million, down by 99.9%.

The gross written premiums of the channel amounted to RMB 47 billion, down 15.4%. First-year regular premiums amounted to RMB 17 million accounting for 99.9% of that loss and that first-year premium of the channel up 31% year-on-year. Renewal premium grew by 4.4%, amounting to RMB 29.2 billion, accounted for 61.7% of the gross written premiums of the channel, up by 11.7%.

The group channel continues to develop diversely, optimizing the business structure and expanding various businesses. Gross -- the gross written premium for the channel amounted to RMB 13.98 billion (sic) [RMB 16.798 billion] up by 12.1% year-on-year, of which a short-term premium reached RMB 13.98 billion, up by 19% year-on-year.

In terms of sales force, in this first half of year, the company continues to pursue its sales force's development strategy of expanding the size and improving the quality to strengthen recruiting and cultivating new talents and agents, promote weekly operations, standardize the field-office infrastructure, enhance education and training type and day-to-day management and achieve improvements in both quality and in quantity.

By the end of that reporting period, the company's total sales force reached 1.898 million people, of which the sales force of the agent channels totaled 1.573 million, an increase of 134,000 people from the end of last year, among which the agents of our sales team amounted to 497,000 and an increase of 91,000 people from the end of last year.

The monthly average productive agents in the agency -- productive agents has an increase of 38.2% year-on-year and the monthly number of the agents selling designated protection-oriented products increased by 52%.

The bancassurance channel remains at 241,000, among which the insurance planner team saw a small increase. The monthly average active insurance planners grew by 43.4% year-on-year.

Within [transfer] services, in being customer-centric, the company upgraded 70 services to offer a smoother, faster, smarter, more caring services. The operational efficiency and effectiveness was significantly boosted, but while customer service and experience continued to improve. Concentrating on achieving one customer, when we finalized the multimedia contact centers, finalized the insurance, [ITT] offered a unified entry point of view of various services such as property insurance, pension, [offshore bank] securities, funds and more.

In addition to life insurance, the number of registered finalized the insurance app users exceeds -- exceeded 57 million, and the average number of the active users per month increased by 52%. The company launched the claims and settlements for critical diseases within 1-day program, created a [5-waiver] direct claims payment and partnered with more than 10,000 medical institutions. And the rate of effective claims settlement increased by 30%, reduced the time required for making claims with payments by 37%.

The company continues its optimization of its underwriting policy and this strengthens the application of artificial intelligence. The rate intelligent app writing increased by 8.7%. The total number of intelligent customer service performed amounting to over 23 million. The company VIP services continues to be enhanced, and the launch of a number of VIP services, such as domestic medical care device, critical illness, fast track and international emergency rescue.

We understand that the company's progress in implementing the China Life revitalization strategy and the market-oriented reforms are of greater interest to all of you. Allow me to share some information about it.

In the first half of the year, the company launched a comprehensive organization and transformation program called the Dingxin Project, which aimed to drive high-quality development, and reshape the organization system as well as having the potential and facility of the market-oriented mechanisms.

The main components of this project can be summarized as follows. One goal, by following the value market efficiency and problem orientations under the principle offers, joint headquarters, streamlined financial branches, optimize the city branches and dynamic of field offices. We aim to build a type of agile, streamlined, efficient and a vibrant organization structure to enhance the value-creation investment yield in technology employment and services and its drive to revitalization China Life.

Two focuses, assuming to the company's core strategy of centering on customers and the basic operational [newness], focusing on NPV and individual insurance and business, we try to create a strengthened individual-agent channel in coordination with other channels and the market-oriented investment management systems. To engine market-oriented incentive and a talented development mechanism and new technologies to support integrated, intelligent operational system and the precise of financial resource allocation system.

That this new project involves all aspect of the company's operational management, and we plan to roll it out over the next 2 to 3 years. In the second half of the year 2019, we will focus on the organizational restructuring from the top down.

In the second half of the year, the company will carry out the following key tasks to lay a solid foundation for the start of the China Life revitalization. First, the company will focus to put more -- to put new business value growth and a more prominent position, concentrating on the development of protection-oriented business, while expanding long-term savings business.

Secondly, the company will [keep] and reform and implement the first batch of initiative of the Dingxin Project, under release. Reform the dividend as soon as possible.

And third, the company will create a strengthened individual agent channel in coordination with other channels and deepen the transformation upgrading of the sales team, put more emphasis on team and quality and the strength for a successful fourth quarter and good start to next year.

Fourth, the company will focus on revitalization of key cities, while continuously strengthen our key advantages in rural areas, use various support such as manpower, financials, asset and others to stimulate the growth in urban areas. We will also be playing to the company's traditional advantages and the national rural revitalization strategy.

Fifth, the company will stress in technology employment and innovation by building internal innovation platform, establishing a market-oriented incentive mechanism for IT personnel, increasing investment in artificial intelligence, strengthening technology-empowered operations and upgrading internalized technological and operational capabilities to a new level. Sixth, we will continue to do a good job in risk prevention and control.

Now I want to hand over to Vice President, Zhao Peng, to present the company's financials and investment performance. Thank you.

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Peng Zhao, China Life Insurance Company Limited - VP & In Charge of Finance [3]

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Thank you, Mr. Su. Next, I will present the financials and investment performance of the China Life in the first half of 2019. In the first half of 2019, the company's total revenues amounted to RMB 448.22 billion, up by 11.6% year-on-year. The company's gross written premiums amounted to RMB 377.9 billion, up by 4.9% year-on-year.

In the first half of the year, the company achieved solid investment income. Gross investment income amounted to RMB 88.92 billion, up by 68% year-on-year. Net investment income amounted to RMB 72.03 billion, up by 11.1% year-on-year. Net realized spread gains on financial assets were RMB 7.15 billion; impairment losses, RMB 3.37 billion and net fair value gains through profit and loss were RMB 13.11 billion.

In terms of cost structure, regarding the underwriting and policy, acquisition and cost ratio increased from 8.89% to 10.17%. Administrative expenses ratio changed from 3.72% to 3.78%. The percentage relates to expenses. To the total expense rate expenses, underwriting and the policy acquisition cost decreased from 29.8% to 27.11%. The change mainly was driven by the continued optimization of business structure, significant growth of 10-year or a more regular premium and designated protection-oriented businesses. As a result, underwriting policy acquisition cost rose, while the proportion of the sales expenses decreased due to the increase in cost investments and income, coupled with the account -- with adjustments of a tax deductible capital for commission and fees in the first half of the year, the net profit attributable to shareholders was RMB 37.599 billion, up by 128.9%. The weighted average ROE was 11.14%, up by 6.03%. The EPS was 1.32%, up by 0.75%. This amounts to the P&L.

Let me move on to balance sheet. As of June 30, 2019, the company's total assets increased from 6.9% to RMB 3.48 trillion up from RMB 3.25 trillion at the end of 2018. The total liabilities increased by 6.0% from RMB 2.93 trillion to RMB 3.11 trillion. The results are being -- show that contracts were RMB 2.46 trillion, of which residual margin was RMB 742.18 billion.

The company's equity attributable to shareholder totaled RMB 368 billion, an increase of 15.7% compared with end of 2018. The equity attributable to equity holders increased by RMB 50.06 billion. Net profit attributable to shareholders amounted to RMB 37.599 billion. Other comprehensive income was RMB 20.18 billion and dividend paid to shareholders was RMB 4.72 billion.

The company remained well capitalized as the core solvency ratio stood at 258%, while comprehensive solvency ratio stood at 269%, up by 8.07% and 18.53% from the beginning -- from the end of last year. In March, the company itself issued RMB 35 billion of capital supplementary bonds, which calculated into supplementary Tier 1 capital, raising the comprehensive solvency ratio by roughly 10%.

Next, I will present the company's investment performance. In terms of asset allocation, first. With asset-liability management system at the core, company build strategic allocation framework based on return, risk and diversification properties that are taking into account [C-WALL's] requirements and asset-liability matching constraints with a clear risk appetite.

We analyze the mid- to long-term interest rate tranche to navigate it through the cycles. As for tactical asset allocation, the company tactically deviated from [SAA] and rebalances.

Within the risk tolerance capitalized market opportunities, for fixed income investment, the company received allocation opportunities on interest rates trends and the market's supply of long-duration bond to improve asset-liability matching conditions and allocated this to that term deposit and nonstandard fixed income investments which strengthens credit risk controls. For equity investment, we see both long-term core assets and attractive valuation, the short-term trading opportunities closely monitor equity risk exposure with a disciplined rebalancing strategy, so as to actively invest with the controlled exposure.

In terms of underlying managers, allocations were managed by China Life dedicated investment team and external managers with distinct styles and the complementary strengths, the external managers. Our strategies were clearly defined to [give claim] to their expertise. So in the first half of year, the investment effort continued to grow, amounting to RMB 3.3 trillion, 6.4% higher than the end of last year. The allocation towards a term deposit decreased from 18.02% to 16.84%. The proportion of bonds decreased from 42.2% to 40.95%.

Stocks under funds, excluding money-market funds, increased from 9.03% to 10.79%, and the debt-type financial product increased from 11.32% to 11.43%.

The company [after the Cs] market opportunities in making appropriate allocations. In terms of net investment income, the allocations for fixed-income products and the high yield of stocks and bond to help mitigate the impact of lower interest rate trends and net investment yield remains stable at 4.66%.

In addition to continuously optimizing long-term fundamental allocations, the company made timely adjustments and proactive steps to extensively capitalize on the -- of the rise of massive Asia market. The gross investment yield and comprehensive yield of increase by -- and 464% -- 464 bps respectively compared with the first half of 2018.

The company had always maintained a prudent investment strategy. All of our [data-train] assets were high quality, well -- with well-controlled risk. By the end of the first half, over 95% of the company's credit had a AAA rating, totaled amount of less than the fixed income assets exceeded RMB 430 billion, with over 98% of them having AAA, excellent rating. The company has newly added NASDAQ-100 fixed income investment exceeded the RMB 40 billion with over 99% of them having AAA rating.

I'd like to hand over to Vice President, Chief Actuary, and the Board Secretary, Li Mingguang, to present the company's embedded value.

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Mingguang Li, China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary [4]

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Thank you, Mr. Zhao. Please allow me to elaborate on China Life's embedded value during the first half of 2019.

As of June 30, the company's embedded value reached RMB 886.8 billion, an increase of 11.5% compared with the end of the last year, of which the adjusted net worth increased by 15.6%, amounting to RMB 446.3 billion, while the value of the in-force business after the cost of required capital increased 7.7% to RMB 440.51 billion.

After considering the diversification effects, the company's value of in-force business after the cost of required capital was RMB 472.8 billion and embedded value was at RMB 919.09 billion.

About the movement of embedded value, the graph shows the change of embedded value from December 31, 2018, to the joint -- the 30th this year. The major changes included the expected return reached RMB 32 billion, reflecting a total of the expected return of the covenant business and expected investment return of the net asset in the first half of the year.

The value of the half year's sales amounted to RMB 34.57 billion, operational experience valuation of RMB 1.2 billion, investment experience variance was RMB 26.26 billion.

Methodology and model changes, RMB 14 million. Market value and other adjustments, minus RMB 1.39 billion. Exchange rate gains, CNY 38 billion -- CNY 38 million. And these are the main changes.

Let's move on to the value. In the first half of the year, the company's value of the half year sales amounted to RMB 34.57 billion, up by 22.7%. The value of the agent channel amounted to 30.38%, representing 87.9% of the total value. The value of the bancassurance channel amounting to RMB 4.04 billion, representing 11.7% of the total value. The value of the group channel amounted to RMB 152 million, representing 0.4% of the total.

In the first half of 2019, the company proactively optimized its business structure and lifted the percentage of the first-year, regular premium 10-year or longer first-year, regular premium and designated protection-oriented premiums. As a result, the new business margin was significantly enhanced, of which the agent channel's new business margin increased to 36.6%, up 4.2%. Bancassurance channel's new business margin increased by 21.5%, up 7.9%. Thank you.

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Unidentified Company Representative, [5]

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Okay. Thank you. We will now take questions. (Operator Instructions) We will be very grateful if you can tell us your name and institution. Let's begin with Hong Kong.

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Questions and Answers

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Dan Tian, China International Capital Corporation Limited, Research Division - Analyst [1]

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From CICC, Tian Dan. Two questions. First to Mr. Su. From the beginning of the year, you have announced that you are streamlining the human resources and organization. Could you give us more details about this?

Second, to Mr. Li. In the first half of the year, all the metrics on human resources and quality of the people have exceeded the market expectation in terms of productive sales force, (inaudible) NPV productivity. Within such a short space of time, I believe you have achieved what other companies took more than 2 or 3 years to achieve. What did you do exactly to achieve such a significant improvement of your productivity?

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Hengxuan Su, China Life Insurance Company Limited - President, Principal Executive Officer & Executive Director [2]

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First, about your first question. As I said, China Life carries out reforms through the Dingxin Project. We actually changed every aspect of the company. We plan to take 2 to 3 years to execute this project and achieve all the intended results. Over the past month, since the initiation of the project, I know in the second half of the year, we would like to change the structure of the headquarter and the branches and optimize the workforce and have the people properly structured.

In terms of position, we would like to strengthen the headquarters, streamline the provincial offices, optimize at the municipal level and make the field offices more dynamic. That is our overall approach. In terms of the current status, this project is certainly in progress in the headquarters. We aim to strengthen the decision-making, commanding professional support, technology empowerment, and the risk control as the 4 key functions and capabilities of headquarters. We'd like to strengthen the front line, optimize the mid-office and streamline the back end.

At the front line, delivery of the functions increased from 6 to 11, and the proportion of front-line employees versus the total workforce is going to be changed from currently 24% to over 2 years, up by 10% and reaching 34%. The position of the front line will be characterized by 3 centers. One is the integrated individual insurance and much diversified financial service and investment management center.

For the center of individual insurance, previously there was a department of individual insurance. It is expanded to 6 departments. More specifically, marketing, our sales, planning, operation, education and training and the competence of finance are the new 6 departments for individual insurance.

For diversified service center, it is clear that it is necessary to develop the synergy among the diverse segments, namely in group, bancassurance and fund distribution will be more synergized.

In terms of the investment in management center, there are 6 teams. According to a market-oriented approach, we structured the teams in a fashion and make them more and market based, including the performance-review system, appointment and utilization of talent, and fundamentally the performance review systems as the bottom line. So far, the progress is smooth in the middle office.

In terms of the IT, operation and products are the 3 key segments to talk about. For technology, we will increase the capability of technology and develop the subcenter for R&D. We have one R&D center. And in the future, in appropriate regions, we are going to develop R&D subcenters. We will also set up the product system and explore the technological innovations. At the same time, we will also increase our ability of incubation.

For the operational segment, we will optimize the current functions and develop proactively customer-centric, integrated service systems and develop the reformed operational model and increase the consolidation of shared services.

Of course, for the product segment, we will optimize the departmental functions to more market survey segmentation and product operation and make our product development more agile.

For the offices at or below the provincial level, the -- according to the orchestration of the [ad-hoc] office, the plan is under review and approval. I know that there are many aspects. I just want to give you some highlights like this. For your further interest on operations and technology and other factors, if you are interested you have Ms. Yang Hong from operation and Mr. Ruan Qi for technology, further questions are welcome. Thank you.

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Mingguang Li, China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary [3]

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Just now, you asked essentially about how we make the team both bigger and better. What are the tips. I'm not in charge of sales directly, but I do have a feeling for the Hong Kong sales and products. So let me venture to address the first, to be added by Mr. Zhong, if my answer is not complete.

You asked a very pertinent question. Over the years, the growth and the quality improvement of the sales force has always been a focus of the industry. There are 2 parts of this. First, for the older sales reps, how can we keep them vigorous? And also for the newly added colleagues, how can we grow those new sales force? So these are the 2 key challenges for the major insurers. China Life has -- rather had, we have always been advocating a principle in terms of enhanced quality and the quantity. But that is not going to be merely a slogan, how can we make it happen?

In terms of development of sales force, we need to have both the hardware and the software. In terms of hardware for the tangible initiatives, we have been stepping up the investment in the potential city and county level sales force, especially the hardware and the software for marketing.

At the grassroots level, the infrastructure and the software have been very well developed. If you are interested, you are welcome to visit us in China Life. You will be able to see our hardware and the software at workplace. You have Mr. Ruan right here. So he can also address your questions. We have done a very good job in this regard.

Second, with the hardware and the software, education and training must catch up. So we have intensified the development of the trainer team and adapt them to the differentiated systems for different levels of sales force. Cost of the improvement of both hardware and software, the young sales personnel, after joining us, can feel proud and be productive. So this is the key enabling function -- condition.

With a team and the training place, there must be also products for them to sell. We have always been advocating that the supporting functions must take a step ahead to make sure insurance products and services can be well integrated within the shortest possible time the services can be delivered to customers in an integrated way as to comprehensive support. So they will be delivered to our salespeople in the suite.

From the beginning of the year, we would like to highlight value and achieve diversified development. Under this principal, we diversify our development, so that our business is not only long-term saving, but also protection-type products.

Another dimension I'll say is the diversification of our business is that, for all levels of colleagues, there must be their performance metrics. So we should not rely on just one product. If in 1 quarter or 1 half of the year, a large number of people cannot earn revenue, they will not stay with us. What we have done very well recently is that the overwhelming majority of the people have their own revenue. Then they will settle down and stay with us.

From product to services to hardware and software and infrastructure. So we have been working on those fundamentals, then we have nice results. In the middle of the year, naturally, this is what I would like to say. Mr. Zhong, do you have anything to add?

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Zhong Zhan, China Life Insurance Company Limited - VP [4]

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Okay. Let me make a few additions since people are so interested.

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Unidentified Company Representative, [5]

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Do you have things to add?

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Zhong Zhan, China Life Insurance Company Limited - VP [6]

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Yes, I do have. Let me report more information to you. Just now Mr. Li gave you a presentation about the first year -- half of the year. Indeed, the sales force effectively made achievements. Compared with the market, we are somewhat lagging behind. And this is what we are working towards.

So our 3 messages. First, we have been long focusing on developing our team by enhancing both the quality and the quantity of the sales force. While growing the quantity, we still maintain the improvement of quality. Of course, the priority may differ across different stages. But the improvement of our quality has to be based on the expansion of the quantity or the size of the sales force. This is our long-term policy for the sales force development.

Secondly, so if you have come here often, you will remember that we have been working on the transformation and upgrading of individual insurers. After doing that for 2 or 3 years, as you asked, so we have made breakthroughs recently and team development use long-term task. So in recent years, after 3 or 4 years, we can only say that we have achieved initial results. The transformation and operating involve many aspects.

In terms of the sales force development, as I noted here last time, there are just several parts of it, recruiting, development, retention and management. So in terms of recruiting, we need to carefully select the high caliber talents. So in terms of the agent attitude, we need to be careful. In terms of cultivation of new colleagues, we have indeed done a lot. In terms of promotion through our quality management and assistant management, we have made a lot of efforts. Our retention rate in the first half of the year is higher.

Secondly, we have longly committed to the transformation and upgrading the -- which have yielded results. And this is not a target, of course. In terms of our new strategy, in terms of integration, we need to focus on value and individual insurance.

And in terms of the new centers, we would like to focus on the grassroot level at the center in our performance review and investment. We try to revitalize the grassroot level, especially in terms of workforce -- or workplace development, we invest a lot of resources, including strategic resources to better the workplace and better result. In this way, we hope that the managers will be able to operate more autonomously, thanks to such strategic core. While focusing on value this year, we also increased our retention rate. As you are well aware, the commission for the designated protection-type products is higher. So that helped to stabilize the team.

In terms of products, we differentiated by different categories and in the levels. So more of the salespeople will earn revenue, and they will stay with us. And if they perform, they will earn revenue. So this is the experience we have achieved in the first half of the year. So thank you for your interest in our sales force development. It's an ongoing job for the long term. We are going to work even harder to do a better job, so that we can reward our shareholders with even better results. That's all of my additions. Thank you.

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Unidentified Company Representative, [7]

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Back to Beijing, please. The lady in the front row.

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Ting Sun, Haitong International Research Limited - Research Analyst [8]

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Okay. Thank you for your presentation. From Haitong Securities. My name is Sun Ting. Two questions from me. First, could you, President Su, briefly address the following question. This year, in terms of profitability, investment and embedded value, China Life has been growing much faster than the industry. Is this for temporary? Or it's going to be sustainable in the next 3 to 5 years?

Could we expect that China Life to grow better or quicker than the industry? Do you have a forecast or a target for the improvement of embedded value in the next 3 to 5 years?

Second about investment. It seems that the global economy is entering into recession and a downturn of the interest rates and the yield is down to 3%, so how are you going to keep our core policy downturn of the loan and yield? Is it possible that you will fail to hit the target of 5% of NPV? And what are you going to do for the allocation of the investment?

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Hengxuan Su, China Life Insurance Company Limited - President, Principal Executive Officer & Executive Director [9]

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Thank you very much for your question, which is highly important and it's also a core topic for us. Let me address your question in the following way. The performance we have achieved this year is a result of efforts of all, and it also is attributable to our respective -- to the dynamics of marketing and of value. We secure high-value development, focus on value and constantly create value to reward our shareholders. This is a long-term target that we commit ourselves to.

Second, in terms of future development strategy, it is, for sure, that such a performance is not going to be for temporary manifestation. Indeed, we get good results in the first half. It is possible that because of the dynamics of the economy and the regulatory policy, there can be some deviations, but beating the market, holding on to high-quality development and of course, sticking to high-value development will not change.

You asked about any technical issues, our Chief Actuary, Mr. Li, will be reminded to answer this. He is more authoritative than I am.

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Mingguang Li, China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary [10]

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[Last autumn], Mr. Su talked about the dream. Let me address your technical question. The core of the revitalization is growth, we -- sorry, for high-value development. We will improve our asset liability management, so we have clearly prepared for -- ourselves for that.

Second, we manage insurance risks. This is always our strength. We develop the human and other resources. We also stick to the value-first principal. Mr. Su said we will strive to beat the market. It's, of course, what we want to achieve, but the profit is exposed to short-term factors and can be -- or can fluctuate. So we cannot guarantee you that we will go beyond the market.

As a life insurer, we ask ourselves to develop the internal value. This is what we are up to. This year, the investment return is actually subject to the volatility of the interest rate volatility. We got a yield of 4.66%. That shows that we did a decent job, and it is also a result of the operation we made in previous years. This is my first addition.

Second, about the declining 10-year yield, will it affect our assumption of 5%? Over the recent days or even the recent 6 months, I've been always asked about it. What I can tell you is my initial conclusion. So it has not come to the time to adjust the 5% assumption. Secondly, don't be too worried. So we have a maturity of 12 years. And for other companies, the maturity is not that long either.

You seem to ask about something about remote future. Interest rate fluctuates. There's a long-term corridor for interest rates. So we need to work together and keep watching. This is what I can share.

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Peng Zhao, China Life Insurance Company Limited - VP & In Charge of Finance [11]

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I would like to discuss the investment. In the first half of the year, the company achieved a very good investment return. We have been also assessing the trajectory for the second half of the year and beyond and designed our investment strategy. As you said, we do -- have felt the mounting pressure on the downward trend of the interest rates. And the -- we have also felt the pressure on our investments. We have actively prepared ourselves for this.

There are 2 commitments and 5 responsive policies. So the first is the dedication to the -- a matching between asset liability. Recently, CBIRC issued the administrative rules on this. And this is a topic that we have been committed to. And the second, we commit ourselves to long-term investment, a value-based investment and prudent investment.

For the 5 initiatives, I'd like to briefly outline them as follows. First, in terms of fixed income products, we did 2 things. First one is to work on the opportunities of allocating to the underlying assets. At appropriate window of time, we will increase the long-term and super-long-term allocation to the government bond of the central government and the local governments.

Recently, the [year 10] yield is declining. And we will choose the appropriate time to acquire super long-term bond to improve our asset liability match. In terms of fixed income, when the interest rate is generally declining while allocating to long-term bond, we will also selectively choose preference equity and standard fixed income.

Secondly, in terms of equity, in open markets, we also keep to 2 principles. First, in -- a focus for a [low] range of valuation, we will actively buy the high dividend core stocks. Meanwhile, for open market equity investment, we have strict restrictions on the mean by rebalancing. We will also actively control the risk exposure in open market equity investment, so as to reduce the volatility of the portfolio and the impact on the current period return.

In alternative investment, at this third initiative, we will actively innovate our investment strategy. While keeping the risk manageable, we will carefully select the good quality alternative investments.

On one hand, we're going to achieve steady cash flow and dividend. And we can also access the premium of liquidity by investing in alternatives. When the interest rate is declining, we can pull up the return of that portfolio through alternative investment. And we also want to do a better job in managing -- managers through a performance review and a day-to-day communication, we will intensify the performance management of investment managers, so that they can do it better to implement our investment strategy. And we need to also play through the strengths of internal and external investment managers.

And the last, but not least, we'll also carefully guard against risk. There have been, recently, a lot of default cases in the market. So we pay close attention to risk management, including credit risk, market risk, interest rates. For all of them, we will take more stringent risk management measures. But by long-term measures, we will effectively manage risk.

By these things, we are confident that through asset liability management and the enhanced and optimize their portfolio and risk management, we can constantly improve our investment return.

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Grace Hou, China Life Insurance Company Limited - IR Executive [12]

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Next question, back to Hong Kong, please.

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Unidentified Analyst, [13]

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I'm from Goldman. My name is [Ken Diem]. Two questions from me, first about the agent team, second about product.

For agents, in the first half of the year, the number of expansion is robust. Where did you get the new agents? Which cities? Which regions? Tier 1? Tier 2? Or Tier 3 or 4 cities? Or even counties and below? On Slide 13, you have categorized your agents into a subcategory of upsales. And that team grew much faster than the overall. It hit a growth rate of 20%. Why did you grow the upsale team so quickly? What is your motivation?

Second, for products. In the second half of the year, what specific product plans do you have? Other insurers also announced their product plans for the high-, mid- and low-end market. Comprehensive plans have been drawn up by other insurance companies. So you also said you would like to make sure the agents will have product to sell. So what is your product strategy for the second half?

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Hengxuan Su, China Life Insurance Company Limited - President, Principal Executive Officer & Executive Director [14]

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Zhan -- Mr. Zhan, Zhong, could you address that first question? And Mr. Li, Mingguang, could you address the second one?

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Zhong Zhan, China Life Insurance Company Limited - VP [15]

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Okay. In my additional remarks, just now, I gave you some information about the team development. You asked about it. So building on the answer I gave, I'd like to give you more elaboration. The first question is about the source of new agents. Over the years, we have been working on both quantity and the quality of the sales force through the transformation. So it's that, in the course of growth, so recruiting, cultivation and management and retention are the 4 steps. Recruiting is crucial.

In terms of growing the quantity and the quality of the sales force, we have been raising the bar for recruiting in terms of education, age, track record. So these are the criteria of our selection. In every company, there's a hope to keep the bar high for recruiting. And we are moving this to the bank.

Where are the sources, this is what you asked about. For the company, in large- and the middle-size cities, we prioritize our efforts of recruiting. These larger cities are the main battlefield of insurance companies. Of course, they are also main sources of our new agents. China Life has its own strengths in other markets. So we will solidify our advantages in the county cities -- county level. So we take a balanced approach between large cities and the small cities.

You also asked about the upsales team. In the previous briefing and the open day, we mentioned that this team -- we built this team mostly for the urban areas. Our purpose of developing this team is to attract high-caliber talents, especially those well-educated and appropriately aged. We hope that in the larger cities, we can reach out to the high-value customers or the high net worth ones.

The team is still growing. As I said, the sales team cannot be developed over time or instantaneously. There's a delay in between efforts and achievements. In recent years, this team expands quicker than the overall sales force.

In the second half of the year, we will further intensify our emphasis on this team. We hope that by developing this team, we will not only be able to contribute more value to the company, but also developing more high net worth customers.

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Mingguang Li, China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary [16]

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Let me address your second question. In the second half of the year, we would like to increase more focus on value, integration of the team and differentiation. This is overall guiding principles for our products. More specifically, do more protection type and also supported with long-term savings.

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Grace Hou, China Life Insurance Company Limited - IR Executive [17]

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Okay. Beijing, please.

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Unidentified Company Representative, [18]

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As there are no questions from Beijing, moving back to Hong Kong.

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Grace Hou, China Life Insurance Company Limited - IR Executive [19]

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On the phone, there are 100 analysts and investors. If there are questions from online, please raise them. We haven't got any.

I found that during this briefing, many people told us, "You have a wonderful performance. I have no question. Your -- the share price is also pleasing." So we look forward to your questions and they can help us grow better. You, please.

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Unidentified Analyst, [20]

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From [RGB], my name's [Andrew]. The company keeps on emphasizing on value. The single premium growth is also significant, even larger than the termed -- or regular premium mostly from group channel and others. So I would like to ask, the value from this channel is lower, is it possible to make some short-term changes?

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Hengxuan Su, China Life Insurance Company Limited - President, Principal Executive Officer & Executive Director [21]

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Mr. Li, Mingguang, please.

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Mingguang Li, China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary [22]

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I'd like to clarify your question. In terms of one-off premium or a single premium? Which slide are you talking about?

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Unidentified Analyst, [23]

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The group on other channels, will there be any changes?

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Mingguang Li, China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary [24]

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You were asking about the short-term -- for short-term business, you made a very good observation. There are several types of short-term products, group, individual and diversified. For different kinds of business, we adopt different managerial measures.

For the highly competitive sectors, the company would increase -- a focus on increasing efficiency. For diversified products, the company will intensify sales efforts, so as to further increase the gains from the group insurance. Group channel is not only measured by profit. More importantly, the other gains need to be measured. In terms of the first half results. There have been a clear improvement versus before. Based on the requirement of the revitalization strategy, the improvement measures for group channel will be launched. And so we can then see the results at the end of the year.

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Grace Hou, China Life Insurance Company Limited - IR Executive [25]

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We got one question from conference call, [Founder Securities] [Fo Sing Yan], please.

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Unidentified Analyst, [26]

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Two questions. First, about the products. Previously, you mentioned that the protection type of products grow rapidly, and so has the human resources starter for that. What is the percentage of protection products?

You said 6 out of 10 top products are of protection. But actually, the first 4 -- 5 are long-term savings. So are there any variance of definition? So what is your position and the growth target for protection-type products? So you talked about the diversification effect of embedded values, so the product is not put into it. For the other companies, which do factor in diversification, in fact, the value can be huge. Although that is not put into embedded the value, but you can still see a very big diversification effect. With such a diversification effect, what is the reason for that? What is the situation last year? Could you make a comparison?

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Hengxuan Su, China Life Insurance Company Limited - President, Principal Executive Officer & Executive Director [27]

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I didn't hear you clearly. Could I recap your question?

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Mingguang Li, China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary [28]

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I get some of your question. Although, I didn't hear you clearly, let me try to guesstimate what you asked about. You asked about the diversification effect of embedded value, why it wasn't reported. In my slides, I publicly mentioned the diversification. It was RMB 889 billion, and diversification effect was RMB 32 billion. And considering the embedded value, and the -- for the embedded value, considering the diversification effect will be RMB 91 billion. Although, the diversification effect is huge for us, we don't separately calculate it. The reason is the following. Diversification effect happens at very different levels and changes year-on-year. So for the analysts, the best is to try company continuously rather than jumping from A point to B point when they assess the company. Otherwise, there will be deviation or variance in their assessment. That is why we didn't consider diversification effect. But this time, we disclose it to you because we want to show you that China Life has the biggest spectrum of products and region coverage. And we also have the longest history. So diversification effect is huge for us. If you like -- if you would like to use it as a base scenario, I can do more fact finding and consider whether we can take it as one basis scenario. This is -- that's your second question.

Coming back to your first question, what is the target ratio of protection products for designated protection-oriented business? We call it the same because we consider the timing and the risk profile, controllability, capital consumption and the profitability of the products. So we do it through a comprehensive analysis. Our target is the more, the better. Thank you.

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Grace Hou, China Life Insurance Company Limited - IR Executive [29]

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Due to time constraints, let's move on to the last question. Anyone from Beijing? Third row, the lady, please.

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Unidentified Analyst, [30]

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From [Haitong Securities], my name is [Tong In Ting]. My first question is about a minor change of actuarial assumption. This time, your interest rates for the reserve of noncorresponding portfolio, there is a dip. But actually, the government bond yield will not go down until the end of the year. So that caused your reserve to be provisioned to be a little more. Why are you moving earlier than the benchmark rate? Why did you reduce your interest rates for reserve earlier than market?

Second, you also made an active bid in the market. So you went into other financial institutions and the nonfinancial industries in long-term investments. In middle term, expanding equity investment is a necessary choice until corporate see declining interest rates. For long-term investment, have you considered synergistic investments in the industry or long-term plans? Or are you simply doing it for short-term and then trying to get high dividend on other investment?

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Hengxuan Su, China Life Insurance Company Limited - President, Principal Executive Officer & Executive Director [31]

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VP Li, first question. And VP Zhao, second question, please.

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Mingguang Li, China Life Insurance Company Limited - Chief Actuary, VP & Board Secretary [32]

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Let me address your first question. Based on the current accounting treatment, the assessment interest rates of traditional products is based on the government bond yield curve plus premium. You made a correct observation. For the 750-day moving average, there is an upward trend, but the premium is showing some signal of downward change. We have several considerations for this.

First, we'd like to reflect interest rate that is close to our liability. And second, we would like to reflect the evolving premium in the capital market. In total analysis, the overall assumption of China Life is RMB 2 billion in terms of the impact on the reserve.

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Peng Zhao, China Life Insurance Company Limited - VP & In Charge of Finance [33]

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Let me take your second question. Recently, you must have noted that in the secondary market, we have made some operations or transactions. In the open market, our overall ratio is capped internally so we remain prudent. In the low range of valuation, we actively adjust our investment portfolio.

In a secondary market, we will choose some products with stable profitability and dividend payout. Some stocks meet the regulatory requirements. And based on such requirements, we performed the relevant disclosure procedures. Thank you.

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Grace Hou, China Life Insurance Company Limited - IR Executive [34]

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Thank you all for attending the China Life 2019 interim results briefing. If you have any questions, please contact our IR team at any time. Thank you.

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