AIX Inc (AIFU) 2010 Q2 法說會逐字稿

Thank you for standing by for CNinsure's second-quarter and first-half 2010 earnings conference call. (Operator Instructions). For your information, this conference call is being broadcast live over the Internet. Webcast replay will be available within an hour after the conference is finished. Please visit www.cninsure.net, under the Investor Relations section.

Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would like to turn the meeting over to your host for today's conference, Ms. Oasis Qiu, CNinsure's Investor Relations Officer. Please begin.

Good morning, everyone. Welcome to our second-quarter and first-half 2010 earnings conference call. Our earnings results were released earlier today and are available on our IR website, as well as on newswire.

Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated.

Such risks and uncertainties include but are not limited to those outlined in our filings with the SEC, including our Registration Statement on Form 20-F. We do not undertake any obligation to update this forward-looking information except as required under applicable law.

Today here with me are our Chairman and Chief Executive Officer Mr. Yinan Hu, and our Chief Financial Officer, Mr. Peng Ge, and our Chief Operating Officer, Chief Information Officer and Head of Life Business Unit, Mr. Feng Jin.

As we did in our previous earnings conference call, I will, on behalf of the management, walk you through the management's prepared remarks on the Company's results in the second quarter and first half 2010, and discuss its business outlook for the remainder of 2010. Our CEO, Mr. Hu; CFO, Mr. Ge; and COO, CRO and Head of Life Business Unit, Mr. Feng Jin, will then take your questions in the Q&A session.

In the first half of 2010, we remained focused on executing on our growth strategies for our existing business. At the same time, we have also been working proactively to do groundwork for our new profit centers in order to fuel the Company's long-term growth.

The successful strategic execution led CNinsure to impressive financial results again in the second quarter and first half 2010. For the second quarter of 2010, total net revenues were RMB370 million, up 28.1% from the same period of 2009.

Net income attributable to the Company's shareholders reached RMB119 million, up 40.2% from the same period of 2009, which far exceeded the previous guidance that was provided by the Company, which is growth of over 35%.

Gross margins expanded across three business lines, with the overall gross margin growing to 52.2% in the second quarter from 50.5% a year ago and 50.1% a quarter ago, driven by the growth of our performance bonus and first-year commission made on the life side.

Growth remained strong in our pre-existing business lines. P&C insurance premiums generated by the Company in the second quarter still maintained solid year-over-year growth of 28%. Other revenue growth slowed down due to the continued impact from the fee-based revenue stream and the CIRC's regulation to tighten control over the auto insurance commission rate.

Recently, we have actively deployed a series of strategies to offset the impact and boost the growth on the P&C side, including promoting bundled sales, strengthening corporate-to-corporate partnerships with insurance companies, further broadening our differentiated and customized product offerings, and expanding into insurance brokerage business to provide risk management solutions to our corporate clients, which we believe that will only enhance our bargaining power with insurance companies and profitability. But also further refine our P&C insurance business mix by gradually decreasing the portion of auto insurance in our P&C business.

The biggest excitement comes from our life insurance business. Driven by the increase in first-year commission rate and sales growth, our life insurance business was holding very strong in the second quarter, with net revenue growing 138% year over year, and its contribution to our total net revenues increased to 36.1% as compared to 19.4% a year ago and 31% a quarter ago, further refining our business mix.

Since the commencement of our life insurance business, we have been focused on distributing traditional life insurance policies with long-term payment schedules. After four years of business accumulation, the embedded value of our life insurance business began to shed more light on the Company's growth, playing a key role in stabilizing our revenue streams.

Given the exciting performance of our claims adjusting business in the second quarter last year, we are more encouraged to see that it still recorded a revenue growth of 23.7% year over year.

The three business lines helped fuel our strong growth for 12 consecutive quarters since our IPO in 2007. Looking forward, we are confident that this rapid growth [in the long term] should be sustainable for at least the next three years. While continuously strengthening our existing business, we are also actively working on establishing new profit centers to capitalize on opportunities in the areas of online sales, telemarketing, corporate insurance brokerage business, consumer financial services, and wealth management, which we believe will become the drivers for our long-term success three years from now.

We just completed our follow-on offering in July. The proceeds of this offering will provide additional capital resources for us to turn the book premium to reality. Up to now, we have seen very encouraging progress in building groundwork for these four new profit centers.

The first profit center is the insurance brokerage business. In early June, we announced the establishment of an insurance brokerage business unit to expand from retail to commercial P&C insurance. So far, a professional team of high caliber has been assembled through reallocation of internal resources and external recruitment.

We have now entered the Shanghai market and started to roll out market research in Beijing, Guangzhou, Chengdu and Jinan. We believe all the solid groundwork that we are laying today will lead to a sound development of our insurance brokerage business and translate into substantial revenue and profit contribution to CNinsure three years from now.

The second profit center is the consumer financial services business. Following our acquisition of 18.16% equity interest in CFSG in late 2009, in mid-July CNinsure and the other shareholders of CFSG made additional capital injection to CFSG by subscribing for new shares of CFSG on a pro rata basis. The shareholding structure of CFSG remained unchanged. The capital will be used to facilitate the Company's expansion in the consumer financial services market.

The third profit center is the online sales and telemarketing. In late July, based on our judgment and belief that the convenience of telemarketing and online sales will make them an increasingly important channel for insurance distribution, we acquired Shenzhen InsCom to explore opportunities in the e-commerce insurance market. With the acquisition, we aim to establish a tridimensional distribution channel that consists of Internet [platform] and ground service. We intend to combine the quote center and the e-commerce platform of InsCom with CNinsure existing network to supplement online sales with ground support.

Last but not the least is the wealth management business. We are now in the process of finalizing the business model and growth strategy for developing the wealth management business and expect that there will be more concrete actions to be taken very soon.

With the smooth progress in both our existing business and new initiatives, I'm happy to say that we are well on track to make 2010 another fruitful year and build strength for future success.

Great companies are those that can finally break through to solidify their leading positions. We believe that the experience management has accumulated amid the ups and downs in the past decade, together with the insight to the market trends and strong execution capability, will lead CNinsure to another success and maximize shareholder returns.

Now I will turn the call over to my colleague, [Feng Lu], to take you through the financial performance for the second quarter of 2010 on behalf of our CFO, Mr. Peng Ge.

(interpreted) The numbers I discuss will be in RMB unless otherwise indicated.

I'm pleased to report solid financial results for second quarter 2010. Total net revenues for second quarter 2010 were RMB365.8 million, up 28.1% from the year-ago quarter.

Total operating costs and expenses for second quarter 2010 were RMB258.6 million, up 27.3% from the year-ago quarter. Commissions and fees expenses for second quarter 2010 were RMB174.8 million, up 23.7% from the year-ago quarter.

Selling expenses for second quarter 2010 were RMB18.2 million, up 57.1% from the year-ago quarter.

General and administrative expenses for second quarter 2010 were RMB65.5 million, up 30.3% from the year-ago quarter.

As a result of the foregoing factors, income from operations for second quarter 2010 were RMB107.2 million, up 30.1% from the year-ago quarter.

For second quarter 2010, operating margin was 29.3% compared to 28.8% for the year-ago quarter. Interest income for second quarter 2010 was RMB6.1 million, down 30.1% from the year-ago quarter.

Income tax expenses for second quarter 2010 was RMB27.8 million, down 8.6% from the year-ago quarter. The expected income tax rate was 19.7% for second quarter 2010 compared to 29.2% for the corresponding period of last year.

Net income attributable to Company shareholders for second quarter 2010 was RMB118.6 million, up 40.2% from the year-ago quarter. Net margins for second quarter 2010 was 32.4% as compared with 29.6% (technical difficulty) of 2009.

Basic net income per ADS for second quarter 2010 was RMB2.600, up 40.2% from RMB1.854 for the year-ago quarter. Fully diluted net income per ADS for second quarter 2010 was RMB2.494, up 35.9% from RMB1.835 for the year-ago quarter.

As of June 30, 2010, the Company had RMB1280.6 million in cash and cash equivalents.

CNinsure expected net income attributable to the Company's shareholders to grow by approximately 38% for the third quarter 2010 compared to the corresponding period of 2009.

Now our CEO, Mr. Hu; our CFO, Mr. Ge; and our CIO and COO and head of life business, Mr. Feng Jin, will open the floor for your questions.

(Operator Instructions). Bao Ling Chan, JPMorgan.

I'm going to ask a question in English. I have three questions.

One, I find that the number of claim adjusters has actually declined since 2009. What are the reasons for the decline, and how would that impact the growth of the claim-adjusting business, seeing that the management was targeting about 50% growth in the claim-adjusting business?

And second question that I have would be regarding the nonlife commission rate. Can you give me an indication what sort of commission rate that you're getting in the second quarter this year? How does it compare to first quarter this year, and what do you see the trend going forward?

And the third question I have is with regards to the tax holiday that is enjoyed by one of your affiliates. Can you tell me more about which affiliate that is, and what sort of tax benefits that you could expect to see in the next few years?

(interpreted) All right, thanks for the question. Let me touch upon this one by one.

First of all, concerning the growth, the growth rate, the tendency of claim-adjusting business, as you may notice that the growth rate for our claim business in quarter two is around 23%. I have to say, this is much higher than the industry average. If you look back into year of 2008, as well as 2009, I think the claim industry, claim-adjusting industry has been encountering certain difficulties. And the overall growth rate for the whole industry was around 10% to 12% in those two years.

Based on this, our growth is almost -- has been almost twice the industry average. But you're also right to notice that compared to our previously set growth rates for claim industry, yes, we are actually falling behind. This is mainly because our adjustments of the growth rate and also the growth strategy for the claim-adjusting business. One of the basic considerations for this kind of adjustment has something to do with the very nature of this business. That is to say, it has a very strong geographical limitation.

If you are really going to be a nationwide service provider, you basically have to build yourself, make your presence in every major market, in every province, and this requires huge investment in building up the sales outlets, the service network, and especially investing a lot of money into fixed assets -- things like good places, offering the services, as well as various kind of transportation vehicles and various kind of instruments which will help you to make a quick and efficient claim adjusting.

So based on this kind of judgment, we have modified the previous strategy a little bit. That is to say, instead of opening service outlets nationwide at the same time, we are actually transferring to focusing on major markets first by building up our foothold in certain major places where you could have the business, and then we will be reconsidering again to roll out nationwide service outlets again.

So that is mainly the reason behind the phenomenon you have noticed.

(interpreted) Coming back to your second question, our average commission rate for auto insurance in quarter two was around 16.8%, 16.8%, which was more or less the same as we have obtained in quarter one -- in quarter one.

As for the tendency of commission rate for auto insurance, probably you may have noticed that since the end of 2008, due to the regulation [grids] and the control, we have been witness the coming down of the auto insurance commission from very high, like 20%, 30% in the past few years, to average about 15, 16, 17 points, in that range.

But it is our firm belief that this run of lowering down the auto commission since the end of 2008 has more or less coming to the bottom. We believe there won't be any major reduction of auto insurance commissions. As a matter of fact, we believe this commission rate can be picking up slightly in the coming quarters and coming years.

But of course, I'd like to emphasize, this picking up is not really coming from another chaotic market situation. This picking up will mainly be based on your production quality and quantity. That is to say, anyone who comes to the market with a tiny little bit of production and with no quality assurance is probably still going to suffer the lowering of the commission rate. So that's our belief and judgment.

(interpreted) As for tax holiday, yes, we do have one company, which is a company -- a software company which is called Litian Zhuoyue Software Ltd. Probably, you know, our market positions basically are two. One, we encourage this type entrepreneurship in partnership with CNinsure doing the business.

Two, we are spending tremendous resources building up a back-office platform which will facilitate this kind of business development, as well as business management.

Over the last three-and-a-half years, CNinsure has been investing around about RMB100 million in this area, as all the investment and all the buildup efforts were actually channeled under this Litian Zhuoyue Software Co., Ltd. We believe that this of course will be giving certain kind of facilitations to the tax holiday situation within CNinsure.

End of the answer?

Yes, thank you. Thanks a lot.

Sean Jiang, ROTH Capital.

(spoken in Chinese). So my first question, regarding your -- following your previous question regarding effective tax rate, I see in Q2 your tax rate was lowered down to 19.7%. But after excluding the investment income and tax, I see the effective tax rate was actually 18.5%. So that's much lower than your previous tax rate of around 25% or 26%. So, what's the reason for this lower tax, and what do you expect the tax rate will be going forward?

And my second question is regarding your recent acquisition of InsCom. Can you give us some background information about the Company? And I believe, similar to your other acquisition, you should have certain performance targets for the management. What are the main performance target milestones?

And third question is, can you give us some updates on government regulations in P&C segment and life insurance segment, and what do you expect these regulatory changes will affect CNinsure? Thank you.

(interpreted) Let me touch upon your first question. The 19.7% overall tax rate, that was the tax rate enjoyed by CNinsure as a whole, as a company. And I believe this will more or less remain the same for the coming two years.

If you ask a reason, this is because we have acquired a company called Litian Zhuoyue Software, or just the software company. You know, the government has allowed companies with technical investments on the innovation, companies like this will be enjoying this kind of tax holiday.

So this Company will have a tax holiday for altogether five years starting from this year. Within the five years, in the first two years, the income tax of this very Company, in the first two years, we're completely exempt. In the three years after this two years, the income tax of this very Company will be charged only by 50%. So this is a two-year total exemption and three years' 50% reduction.

So that's how the tendency will be looking like in the coming five years. We start this tax holiday only from this year, and nearly 19.7%, or 20 -- less -- about 20% total tax rate will be enjoyed by the Company for the coming two years.

(interpreted) Sean, coming back to your second question, the acquisition of InsCom, as a matter of fact CNinsure started everything from auto insurance distribution, and auto insurance is still like 52% to 55% of the total business revenue. And we believe that this will be remaining the case for the coming few years, although the percentage of the mix might be adjusted gradually. But it has been our cash cow. It has been a very steady business. And we know the people in the market, the business, very well.

But at the same time, we are also realizing that this is increasingly becoming a commodity type of product, both in terms of its nature as well in terms of retail distribution. So we have always been thinking about whether we could find a new way to distribute this kind of commodity type, pretty standard, relatively simple products like auto insurance -- of course, including other accidental/death benefits kind of products.

But actually, it doesn't take too much brain to think about the new ways, because there are a lot of successful examples existing overseas, which is basically marketing or retail distributing through Internet or telemarketing.

So I guess that's all the business rationale behind our acquisition of InsCom. But for the acquisition of InsCom, which is results of our market research and due diligence study, we have made a comparison out of five to six available companies doing similar things, and finally we believe that InsCom is relatively in a much better position to be our partner, and actually this is why we took the action to do this merger and acquisition. This is, very briefly, the background concerning the very rationale (technical difficulty) telemarketing and concerning why we take over InsCom on board rather than anybody else.

And then, you are right that InsCom acquisition, like any other of our acquisitions, we do also set performance targets. We also do have these kind of earnout agreements with the management.

At the moment, I'm not really in a position to release to you the actual components of these performance targets and earnout agreements. But the basic or the fundamental principle is, we're going to do everything to ensure the growth of this business, and we will not let any impairment loss happening to InsCom, to this newly InsCom. Our basic aspiration is to see gradually certain portion of our P&C business will be removed to the channel of Internet sales and telemarketing sales and hopefully reduce the overall cost of these kinds of sales.

You know, being a retail distribution company, we are of course paying a lot of attention in recruiting a lot of sales professionals. But these sales professionals are most of the time concentrating on distributing high-value products really in order to make their both ends meet. So I think that's the background and also the rationale behind this acquisition.

(interpreted) As regards to your third question, any government regulatory environment change in regulations which may have an impact, or in other words, adverse impact upon the very existence of CNinsure as well as its development, I think we have released everything we know concerning the regulatory environment, as well as government regulations. Seemingly, there's nothing new going around here, but I'd like to emphasize two major regulatory things here.

One is again concerning how CIRC is going to reform the current insurance agents or insurance producer kind of recruiting and management system. We talked about this a long time ago, and also on many occasions in roughly about 3 million insurance producers (technical difficulty) for various kinds of insurance companies. But they are neither employees nor are they registered themselves as independent contractor or independent financial planner, etc.

So this is actually causing a major headache, not only for the government, but also for the very fact whether these people was leaving insurance company, whether they're going to find a job or not.

So CIRC -- the government, actually, through CIRC, has promised that within a timeframe of five years, starting from this year, this 3 million people, their employment status will be more or less (technical difficulty). They have to be either the employees of the insurance company or employees of the insurance brokerage firms, or register themselves as independent financial planners.

I am mentioning this regulation because we believe, after all, this regulation, once being properly executed, is very much beneficial for companies like CNinsure because we are the one standing for (technical difficulty) solution to this. Our very proposal to have this kind of partnership or entrepreneurship, doing business with CNinsure, is actually being regarded as one of the most feasible ways of addressing this issue. As a matter of fact, CNinsure has been invited by CIRC as a pilot company to carry out this kind of reform. So this is one.

Second new thing regulation is concerning, actually, Internet sales by insurance companies. We know previously the regulator body really hasn't touched upon this. We have companies like Tai Tung, we have Tai Tung Online, as we have Ping An, we have 18.com of Ping An. They are doing this kind of Internet sales, you know?

But whether this needs to be regulated and how they will be regulated, CIRC is again in the process of consultation and discussion. Yuan actually has been invited. As a matter of fact, Mr. Tian, he was previously CEO of InsCom, was invited on behalf of CNinsure to participate in that kind of discussion and debating. And the initial result shows that it is pretty favoring a good environment for Internet sales among insurance companies, as well as the insurance intermediaries. So that's just for your reference, Sean.

Well, that's helpful. Thank you.

Ben Lin, Morgan Stanley.

I have three, actually four questions, now. First of all, is the 38% EPS growth guidance for the third quarter before investment income, or is it a normalized number? I just want to know whether since June you have booked any investment incomes or not, and you have included that number in your forecast.

Secondly is on the administration expenses. I can see that it has increased, and it includes around RMB10 million of noncash items. My question is, are they one-off or do you actually expect them to continue? I realize that they refer to amortization and also depreciation costs.

Third question is, your agency force is actually down 4% quarter on quarter, if I am not wrong. Can you please clarify what is the reasoning of that?

And then my last question is, if I use your statement and back-solve the P&C commission, it seems that it actually -- you only grew 1.5% year on year. Am I right? I'm just using the percentage breakdown you have for life, which is 34% of net revenue from life, which basically means the residual must've come from P&C or claims adjustment. If I back-solve that, it seems like the P&C is actually not growing. Can you just comment on these four questions? Thank you.

(interpreted) Let me come back to your questions one by one, while we are chatting certain numbers.

Your first question, did you mention that 38% EPS growth? Actually, our prediction for quarter three, actually, our bottom line will be growing by 38% rather than EPS.

Yes, sorry, net income.

(interpreted) Yes, so net income 38%, that's for sure.

As we envisage that there won't be any merger and acquisition happening in quarter three, so this 38% net income growth will be coming all from our normal operation results. So that's for your question one.

(interpreted) Let me translate for the benefit of others question two concerning administrative costs.

We understand the normal makeup of the administrative costs. But as you mentioned, the three major items which are affecting the administrative costs are -- the overall growing of this administrative cost, is actually first of all the amortization of stock options, you know? Being a retail distributing company, we have to keep people properly incentivized, so we need these kind of stock options, and they also need to be amortized in due course. That's one thing.

Secondly is the IT investment we made in the last three-and-a-half years, in the total amount of roughly about RMB100 million. Most of them are coming to the end of construction period, and there needs to be recorded, entered into fixed assets and being amortized in due course, which also attributing to the growth of administrative cost.

And finally is the amortization of our intangible assets. Every time when we do acquisition, the majority bulk of the assets of that Company is actually intangible assets, you know?

So comparatively, I think if we take these three major items out of the administrative costs, the earning of that is more or less like your EBITDA kind of concept. I'll just say it's more or less like the EBITDA concept.

So back to your question, is this going to be a one-off or a growing one? I believe this will be lasting for some years, because we think we're going to keep investment in this area for a few years to come. So I think it's going to be a continuing one.

Secondly, I believe that these things will be building up our institutional capacity, as well as our capacity in controlling the retail distribution channel, as well as forging eventually our sales capability. So this will lead to maybe a scale of economics, you know? With bigger production, with bigger revenue, amortization will, comparatively speaking, exercise a less kind of pressure upon the overall administrative costs.

And finally, you are -- what you mentioned is actually a kind of concern for me. At the moment, my administrative cost rate is roughly about 22%, 23%. I believe this will be the highest point for me to tolerate this. My intention is to cut this down gradually, and definitely we will be lowering that below 20% in the coming years.

That's for question two.

(interpreted) I think your observation that 4% maybe decrease of our sales professional is correct. I have an explanation for that. In the last three-and-a-half years, being a retail distribution company, one of the driving factors is of course recruiting more and more retail producers. But there is a limit. There is a time where you say, enough is enough, actually, although our target is far from only 40,000 people. We are targeting nearly about 100,000 people in five years' time.

But at the same time, we also discovered that all people doesn't really -- it's going to produce the same amount of benefits you are expecting. Instead of recruiting more and more people, raising the per-capita productivity, to some extent, is even more important.

We are now in the stage already having a sizable sales force. So bear in mind, this 20%/80% kind of theory, always 20% of people producing the 80% of production, is very much similar with my own situation.

So this is why, starting from this year, we have been emphasizing more on improving the per-capita productivity rather than keeping on recruiting all the time new members or producers. I think that's the major reason.

(interpreted) As to your last question, you are actually correct, if you notice that there is a decrease of our commission quarter on quarter or even year over year in terms of P&C, especially auto insurance commissions. That is actually true. We disclosed this in previous quarter conference calls. We always make a comparison between if denominated in terms of commission, what is the growth rate or negative growth rate? If it is denominated in insurance premium, what might be the situation?

For example, quarter two, if we compare to last year -- I'm sorry, quarter one of this year, commission revenue of auto insurance, comparing to the same quarter of last year, is about 2% minus growth, minus 2% growth if we make that comparison.

The reasons behind this are basically two. One, we are under the pressure of operating under the pressure of CIRC, which is reducing insurance commission again, again for auto insurance. And secondly, we are promoting actually so-called fee-based kind of commission revenue model, which is to say we ask the insurance companies to give the portion of commission which was due to the insurance producer directly, and we just receive, in a simple way, we just receive the split between these two. So this is also causing a decrease of our commission.

So I think that's the reason. But here I have to emphasize, when we say we have a business mix of P&C, P&C doesn't really mean auto insurance, although auto insurance takes 60%, 70% of the total. This is also why we have been doing so much to refine the business mix of our P&C business line. This is why we have announced we're going to venture into commercial line of the insurance brokerage business, because we see that's one of the major underdeveloped areas in China.

This is why we have acquisition with InsCom, because we see a lot of the commodity type of product, especially auto insurance, can be moved onto Internet. This is why we've been doing bundled sales. Every time when we do an auto insurance policy, we're going to see whether they need any kind of accidental death benefits coverage. And this is also why we have been emphasizing so much to sign these kind of corporate-to-corporate agreement with all the major players, because this kind of agreement will ensure that we are not only treated as a retail distributor, we could also be rewarded based on our production quality and our production quantity.

So we've been doing lots of things to restructure the business mix of P&C and also to prevent the things you feel a bit worried about, whether our commission will be decreasing consistently. But I can assure you, the things will be coming, and at the moment, actually, our cash flow, our profitability are not affected by these kind of trends in the industry.

End of the answer?

Jessica Chen, [Florintary] Investment.

(spoken in Chinese). Do you want me to ask the question in English, or--?

You can ask the question in Chinese; I can do the translation for you into English, if you wish.

Okay, great. Thank you.

(spoken in Chinese)

She had all together three questions. Let me give out the first question first.

She wants to know what is the commission rate for auto insurance, as well as for P&C, generally speaking, but mainly on auto insurance. She understands that within auto insurance, there are two parts -- the commercial side, which is basically body of the auto, and then we have a third-party liability.

She understands that the third-party liability has always been [remained for], whether this is still being the case. And if that's the case, what is the commission rate for the commercial part of auto insurance for CNinsure? And then the commission rate we can get if comparing to our competitors -- how do we stand -- where do we stand?

(interpreted) In answer to your question, I think your major concern is our commission rate for auto insurance. So let me just touch upon this, all right?

As a matter of fact, for the commission we received, as far as CNinsure is concerned, it's composed of three components. One is the so-called prevailing [arm and lens] market commission. You don't really get anything more than your competitors. It's the only market commission. The other two components is what I call commission derived from your total production quality and your total production quantity.

CNinsure started its business back in 1998. We honestly didn't make too much money all the way up until 2004. One of the major reasons -- two major reasons are, first of all, we are at the time mainly a retail distributor of auto insurance policies, so very much limited only to this business model. And secondly, we were just a retail distributor. We can't really negotiate with the insurance underwriters for things like production, for things like bonus based on production quality and quantity.

But now we are in a very much different situation here. If you're talking about the market commission for auto insurance, this could be 8%, 10%, 15%, or even up to 20%, even under the current market situation. They are different from one province to another, from one company to another. So, in that range, from 8% to nearly about 20%.

As far as for the market commission, we are probably treated no different than anybody else, okay? But the real difference, makes us still viable, is the performance bonus we get based on production quality as well as on production quantity. So it's the market prevailing rate, together with the quality and quantity bonus.

(interpreted) Her second question is concerning the growth rate for quarter four or first two quarters of next year or even for the coming few years.

We have made this clear on quite a few occasions, that the management of CNinsure would like to maintain -- and we have all the confidence to maintain roughly about 30% CAGR growth of both topline and bottom line in the coming two to three years -- the 30% CAGR of both topline and bottom line in the coming two to three years.

Last question, third question and last question, concerning CFSG, whether CNinsure is going to increase its holding. If that's the case, when and how might be the price range for this kind of increasing?

We -- CFSG had a Board of Directors meeting in last months. One of the decisions reached by the Board of Directors meeting is to increase actual injection into the Company for building up its sales network nationwide. So all the existing shareholders, including CISG, has been increasing their capital injection in a pro rata basis, in a proportion basis.

And then as for whether CISG (technical difficulty) increase its shareholding from the current 18-something to another percentage, or whether we're going to buy (technical difficulty) CFSG, or whether CFSG is still likely to go for an IPO by themselves, this remains to be issues to be further discussed and clarified. At the moment I'm, sorry, I don't really have a clear and definite answer for you for these few questions.

End of answer.

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Thank you, ladies and gentlemen. There are currently no further questions in our queue. Oasis, I will now pass the call back over to you. Thank you.

Thank you for joining us. If you have any further questions, please feel free to e-mail me or give me a call. Thank you.

Thank you for your participation in CNinsure conference. There will be a webcast replay within an hour. Please visit CNinsure IR website at www.cninsure.net, under the Investor Relations section.

Thank you all for attending. You may disconnect now. Goodbye.