AIX Inc (AIFU) 2010 Q3 法說會逐字稿

Thank you for standing by for CNinsure 2010 Q3 Earnings conference call. At this time, all participants are in listen-only mode. All lines have been placed on mute to prevent background noise. After the Management's prepared remarks, there will be a question-and-answer session. Please follow the instructions given at that time, if you would like to ask a question.

For your information, this conference call is being broadcast live over the internet. Webcast replay will be available within the hour 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, please disconnect at this time.

I would now like to turn the call over to your host for today's conference, Miss Oasis Qiu, CNinsure Investor Relations Officer.

Miss Qiu, please begin.

Welcome to our third quarter earnings conference call. Our third quarter earnings results were released earlier today and are available on our IR website as well as on Newswire.

Before we continue, please know 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 result 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 20F. We do not undertake any obligation to update this forward-looking information except as required under applicable law.

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

As we did in the previous conference call, I will go over the management prepared remarks before turning the call to them for the Q&A sessions.

On today's agenda we will discuss the operational and financial highlights for the third quarter and share with you our growth strategies for future development.

Let's start with third quarter business development first.

Driven by the robust premium growth in the insurance industry, CNinsure continued to maintain strong growth momentum in the third quarter, with better than expected financial results. Compared with the same period of last year, total net revenue grew 30.4% while net income attributable to company shareholders grew 42.7%, which far exceeded our previous guidance of 38%. Although the follow-on offering has led to a dilution in our EPS, our diluted EPS still grew by 29.7% year-over year in the third quarter.

Our three existing business lines continue to deliver solid financial performance. For P&C Insurance business, it was encouraging to see that the commission rate has slightly improved quarter-over-quarter and as a result our P&C Insurance business grew 6.7% year over-year in the third quarter as compared to year-over-year decline in the second quarter.

Life insurance and Claims Adjusting business continue to grow strongly with net revenues of 109% and 34% respectively from the same period of last year. Business mix was further refined with P&C Insurance, Life Insurance business, and Claims Adjusting business each contributing 55.8%, 31.9% and 12.3% to the Company's total net revenue.

The solid performance in the third quarter was largely attributable to our competitive strategy, which emphasized on economics of scale, standardized operations and differentiations. With decade-long operating history, we have established a nationwide sales and service network with expanding sales volume and better sales quality, i.e. lower loss ratio and higher persistency rate. We are able to constantly increase our bargaining powers with insurance companies.

We have been constantly building our standardized IT-driven platform to drive down the operating costs. Meanwhile, we have been striving for corporate-to-corporate agreements with our partners and place more focus on customized products to differentiate ourselves from our competitors and better meet customers' needs.

All these initiatives have helped enhance our profitability and competitiveness. In addition, in order to further enhance our profitability and drive sustainable growth in the long run, we have been building our new profits centers, i.e. the online sales, telemarketing sales channel, commercial insurance business, consumer finance business, and wealth management business.

We believe that online sales and telemarketing is an inevitable trend. With the change in people's consumption habits, the traditional way of distributing standardized insurance products, such as the auto insurance and accident insurance, which solely relies on individual sales agents, will be increasingly challenged by new channels such as online sales and telemarketing. To prepare for this change we have been proactively building up our own insurance e-commerce platform.

Our target is that over 50% of the revenues for short term and standardized insurance products will be contributed by online sales and telemarketing within the next five years.

Meanwhile, we have been - established an insurance [brokerage] business unit to expand our insurance business into the commercial line. Up to now a technical platform consisting of seasoned professionals has been in place and will expand this line of business with those entrepreneurial programs and acquisitions. Our vision is to become a leading insurance brokerage firm in China within the next five years.

Apart from insurance-related business, we have embarked on exploring financial service business. We have recently set up a joint venture, named Shanghai Puyi to target the wealth management market. In addition we have been in discussion with the shareholders of China Financial Service Group Limited, a consumer credit brokerage company, in which we've already held 18.16% stake, hopefully to increase our shareholding in this company in the first half of next year.

It is our vision to become a world class financial service group, to satisfy customers' increasing needs for insurance protection, wealth preservation and financing. We anticipate that within the next 10 years 50% of our net income will be derived from insurance related business, 30% from wealth management business and 20% from financing business.

In the future, organic growth and growth through acquisition will continue to be the dual engines for our business development. After taking into account suggestions from various parties, we are determined to review our acquisition model, including payment methods by the Asian matrix and in our provisions, in order to refine this model and make it more simplified and effective. For the future potential acquisitions, we will continue to emphasize on restricting risk, enhancing cash flow and then fixing on high growth and high returns.

Looking forward, we feel confident in the growth prospects of the Company. As people's disposable income continues to rise, increasing demand for insurance protection, asset preservation and appreciation, and financial service, will boost the growth of the insurance and financial service industry.

On the regulatory side, the CIRC has promulgated several new regulations that intend to drive [down development] of the insurance intermediaries. In particular, in late October the CIRC released its opinions on these firms and the (inaudible) insurance market system, which encourages the insurance companies to deepen cooperation with insurance intermediaries and explore new insurance marketing models and channels. As a leader in the insurance intermediary industry, we believe CNinsure will benefit from the profound opportunities presented in the deepening of the firm.

Apart from our ongoing efforts in the insurance business, we began working on the groundwork for other financial service business in an effort to turn our blueprint for the next five years into reality. By leveraging the Company's strong capital position as well as established advantages, we are very confident that CNinsure will achieve further development amid the reforms and rapid expansion of the insurance and financial service industries.

We believe that this is only the beginning of CNinsure's journey and we would like to join hands with our shareholders to witness CNinsure's transformation into a world class financial service group.

Now, I will turn the call to my colleague, [Simon Wu]. He will review the financial results with you on behalf of our CFO, Mr Peng Ge.

Well, the numbers I refer to will be RMB unless otherwise stated.

Total net revenue for third quarter 2010 were RMB388.2 million, up 30.4% from the year ago quarter. Total operating expenses in the third quarter 2010 were RMB269.2 million, up 28.1% from the year ago quarter. Commissions and fees expenses for third quarter 2010 were RMB180.4 million, up 29.1% from the year ago quarter.

Selling expenses for third quarter 2010 were RMB17.5 million, up 18.3% from the year ago quarter. General and administration expenses for third quarter 2010 were RMB71.3 million, up 28.3% from the year ago quarter.

As a result of the foregoing factors, income from operation for third quarter 2010 was RMB119.1 million, up 35.7% from the year ago quarter. For third quarter 2010 operating margin was 30.7% as compared to 29.5% for the year ago quarter. Interest income for third quarter 2010 was RMB7.2 million, down 3.7% from the year ago quarter. Income tax expense for third quarter 2010 was RMB21.5 million, up 0.5% from the year ago quarter. Effective income tax rate was 17% for third quarter 2010, compared to 22.4% for the corresponding period of last year.

Net income attributable to company shareholders for third quarter 2010 was RMB109.8 million, up 42.7% from the year ago quarter. Net margin for third quarter 2010 was 28.3% as compared with 25.8% for the same period of 2009.

Basic net income per ADS for first quarter 2010 was RMB2.198 up 30.4% from RMB1.686 for the year ago quarter. Fully diluted net income per ADS for third quarter 2010 was RMB2.128, up 29.7% from RMB1.641 for the year ago quarter. As of 30 September 2010 the Company had RMB2 billion in cash and cash equivalents. CNinsure expects its net income attributable to the Company shareholders to grow by approximately 32% for the fourth quarter 2010 compared to the corresponding periods of 2009. This guidance excludes non-recurring investment income incurred by business combinations achieved in stages.

Now our CEO, Mr Hu; our CFO, Mr Ge; COO and CIO and Head of Life Insurance Business Unit, Mr Feng Jin, would open the call for your questions.

Operator, we are ready for questions.

Thank you. Ladies and gentlemen, we will now begin our question-and-answer session. (Operator Instructions)

First question is Peter O'Brien from Standard Chartered. Please go ahead.

Yes, thank you. Good morning everyone. Well firstly congratulations on another set of good results and the expanded disclosures are most welcome.

I've got two questions related to acquisitions. Firstly, please can you update us on the outstanding contingent consideration payables, both the amount and when these are expected to clear?

The second question -- approximately how much of the earnings from individual agencies that are accruing into the P&L at a guaranteed level that is above the actual current percentage ownership in individual agencies? Thank you.

(interpreted) Peter, thank you for your question. Out of your two questions I will leave question one to my colleague, Mr Ge Peng to give you all the detailed answer concerning how much yet remains to be paid and when that amount is going to be paid. So he is going to touch on that in just a few seconds.

Okay, let me pick up your second question. Out of the old acquisitions, briefly how much of them have been hitting the target we have set in earnout agreements and how much, how many of them have failed to do so.

The basic conclusion is out of all the mergers and acquisition projects up to now - that is to say up to the end of the third quarter of this year - there is only one company which we think is going to fail to deliver the targets.

This company is the one in Zhejiang province called the Hangzhou Zhixin company. The major reason for this failure is actually due to the reshuffle of the management team of that company. Again, there might be either impairment loss or actually we are in the process of negotiating with Chengdu Jingshi because again this company is - the acquisition of this company is the result of our collaboration with Chengdu Jingshi. We are now in the process of negotiating with Chengdu Jingshi to see how we could actually according to our agreement really safeguard the interests of CNinsure.

As I said, there could be impairment loss resulting from the failure of delivering the projected target of Hangzhou Zhixin. But as I always mentioned that in our agreement with Chengdu Jingshi we always have precaution measures over there. That is to say that adverse financial impact on the Company, on CNinsure, or the adverse impact on EPS of CNinsure will be very much limited.

Okay, thank you.

(interpreted) Now I'm coming to your first question, Peter. The payment remained to be made out to all the acquisitions, according to our book, by the end of quarter three of this year -- there will be total roughly about RMB200 million remaining to be paid out concerning mergers and acquisitions, RMB200 million.

Okay that's great, thanks very much.

Our next question is Mike Grasher from Piper Jaffray. Please go ahead.

Good morning everyone and congratulations on the quarter. First question I had was around the property casualty commission rates. Can you share with us where the property casualty rates currently sit and then also how much higher could they potentially go? Then I have a follow up question as well.

(interpreted) Thanks Mike for the question. Coming to this P&C commission, in hindsight in respect we see that the commission for P&C product distribution has been declining starting from quarter four of 2008 and all the way to second quarter of this year, quarter two of 2010. Actually quarter two of 2010 was actually the bottom of the commission kind of recession happening in the last two years. But starting from quarter two of this year we see the commission of P&C has been picking up slightly but on a steady basis.

Quarter over quarter, if we compare quarter three with quarter two, our commission rate for P&C has been rising by 0.6% quarter three comparing to quarter two. So overall our P&C commission rate is 17.4% at the moment. I believe this slight ticking up of P&C commission rate will be remaining so for the next two or three quarters, but still by a slight chance.

We have confidence to predict that in the next two quarters commission rates for P&C will most likely remaining at the level roughly about 18% for CNinsure.

Since the financial crisis actually this has been a phenomenon for most of the P&C companies in China. Many of them are running at a loss. So this is why they have the tendency of lowering the commission rate for a lot of the professional intermediaries. But at the same time we also notice - and actually it is a factor happening among the P&C industry in China. That is to say these P&C companies, they start to pay more and more attention to quality control; market expansion, market share, are not their sole purpose of expansion.

They were asking professional intermediaries to bring in more quality customers, higher persistency ratio, a relatively low loss payout ratio. They actually are giving more commission to whatever intermediaries who will be able to deliver this kind of result. In addition to that, many of the P&C companies are more inclined to develop products with professional intermediaries to much better fit the needs of consumers.

So overall we've been seeing the way our competition has been changing and your capability to control the quality of yourself and as well as to be more innovative in designing your products for the consumers will be actually becoming an increasing important factor in determining what kind of commission rate you can get. We believe CNinsure has been doing a pretty good job in these two areas.

Thank you for that answer. Then I wanted to jump over to the tax rate, the tax rate falling quite a bit here. Can you walk us through, can you explain this again? It's my understanding that you were able to achieve this tax holiday through an acquisition that you made. Can you walk us through the acquisition and was there some sort of a profitability attached to it that enabled the tax holiday? Thank you.

(interpreted) Mike, let me walk you through how we got this tax holiday. Probably you are aware that we are operating now in 23 provinces with more than 600 sales outlets. So the backoffice operation of a company of this size managing over 50,000 sales professionals is obviously complicated and needs to be supported by a highly IT supported, highly automated information platform.

So this is why in the last three and a half years, since the IPO of CNinsure, the management has been spending a lot of effort as well as resources in building this IT generated supported platform. To our estimation, the total spending directly and indirectly in this area was around about RMB200 million in the last three and a half years.

A lot of the IT information, both infrastructure as well as the application software, we developed either in-house or together with our partners, start to show its great impact starting from third quarter of last year. So this is why we formed a wholly owned IT company. The Chinese name is called (spoken in Chinese). It's a wholly owned IT company. We inject everything we have done in the past three years, with that total investment roughly about RMB200 million, into this company.

Because we possess certain very unique IT systems as well as certain patents over there, so this is why IT company very much supported by the local Chinese government, they could enjoy this tax holiday. To be simple, this tax holiday means when this IT company starts to make a profit, its corporate income tax could be exempt for two years. The income tax for this IT company could be exempt for the first two years and then in the following three years the corporate income tax can be reduced by 50%.

So this is why we called it two years of exemption and three years of 50% reduction. We got this tax holiday simply because we have possessed the patent, the software and the capability attached to this IT company. So it's a five year period of time starting from this year. The income of this IT company actually comes from its services provided to all the family members of CNinsure, being in the life insurance distribution sector, or P&C, or commercial brokerage or claim adjusting. That's it.

Okay and then just to flesh this out a little bit more, where do we see the income or the profit center on the income statement?

Mike, can I have your question again?

Yes. Where do we see the income from this profit centre on the income statement that you provide us?

(interpreted) Mike, actually, because this company is a 100% owned subsidiary of CNinsure, its revenue could be regarded as the cost of other subsidiaries of CNinsure member family. So this is why in the consolidated financial statement you don't really see the financial results of this profit center. But as Mr Ge says, if you need a chart of accounts of this profit center, we could walk you through in the separate cases.

Okay, thank you very much for clarifying.

(Operator Instructions) Our next question is Jenny Zhan from GMO. Please go ahead.

Hello, congratulations for another great quarter. I have a couple of questions - one related to your payables for the acquisition. The CFO, Mr Ge, mentioned there would be RMB200 million payables. May I know, do you have a breakdown of the payable? I mean with the payable for this year, the payable for next year and the payable probably for like 2012.

Another question is also related to your operating cash flow. I know in the quarter report we usually don't see your operating cash flow, but do you have any approximate estimate for your operating cash flow relative to your net income? Thank you.

(interpreted) Jenny, thanks for the question. I mentioned the amount that remains to be payable is roughly or slightly over RMB200 million. According to the book, about RMB130 million will be paid out within this year and next year the payment is roughly about RMB100 million. This RMB100 million will be mainly paid to conclude the acquisition of the (inaudible) case, supposing they fulfill all the projected targets. We don't have anything for 2012 yet.

As to operating cash flow versus the net income, we could conclude that our net income literally equals to our operating cash flow.

(interpreted) I'd like to make one more additional comment to Mr Ge, my CFO. Our net income is literally another term for our operating cash flow. This is of course determined by the very nature of this company. We are a retail distribution company. We receive literally all our revenue in the form of commission, so this is why you see the balance over there.

In addition to this, this company has always attached a great importance in controlling all cash flow risks. We pay a lot of attention to the growth of this company, to the high EPS of this company. We have a tight control over account receivables. I think the nature of this company plus the emphasis of the management resulting in this kind of operating cash flow literally equals to our net income kind of result.

Thank you very much.

Our next question is Ben Lin from Morgan Stanley. Please go ahead.

Good morning (spoken in Chinese). I'll ask three questions in English. Now my first question is on the life business. Can you please comment on the commission trend as well as whether you have signed any new strategic partners in the life insurance business?

My second question is on the acquisition of Shenyang Fangda. From the period of April 2008 when the Company was co-founded by [CSG] and Jingshi, to September 2010 which you increased your stake, how much capital was injected by Jingshi into this company?

My last question is on Baolian. How are you progressing with converting Baolian, which is currently just an insurance information platform, to a potential online insurance sales platform? Thank you.

(interpreted) Ben, coming to your first question concerning the life insurance commission as well as any new strategic supply coming into the portfolio of CNinsure, on average our first year commission rate for life insurance distribution is around 68%. Bearing in mind, this is an average number including long term like a 20 year payment but also 15, 10, 5 years and also including accidental life insurance products. So on average, 68%. We are very much confident to see this commission rate could be raised relatively substantially in the coming years. For next year, from 68% to 70% or even higher is something we are very certain about.

Concerning any new strategic supplies, yes we are also achieving results in this area. Out of the tradition and the overall environment, we've been collaborating in the life insurance retail distributing sector all the time with these foreign JVs most of the time and also with newly established life insurance companies. But for next year, we think we are going to soon make a breakthrough in forging a business relationship with some guys among the top five life insurance underwriters. These top five life insurance underwriters are China Life, Ping An Life, Pacific Insurance, Xinhua and Taitung. So we think we're going to make a breakthrough among some out of these five.

In our JV with Shenyang Fangda, when we raised our equity from merely 5% to a controlling stake with our JV, our JV showed that Chengdu Jingshi have actually invested an amount more than the amount that we paid to Fangda. In other words, we believe they have invested more than RMB40 million in that company.

Ben, as for your third question, the progress of acquisition concerning Baolian or INC, I am happy to report that after a period of discussion or visiting to our counterpart in the UK and the United States, we have positioned Baolian in the future more as a priceline.com kind of company, which is to say we're going to make INC an online trading company for sure, but mainly based on its core competence to offer price comparison concerning those relatively simple or standardized insurance products, i.e. auto insurance policy, accidental health benefits kind of policy. So people can make a comparison and we will have a linkage with various underwriters and we're going to achieve our commission by recommending all these consumers to various underwriters.

Having said that, we realize that this is a tremendous and even a daunting task for Baolian because here it involves not only tech knowledge, the search engine, the huge database but also involves a lot of interest of [stakeholders] in this whole process. Because we need the support of various underwriters who will be willing to put their pricing of various products into this priceline.com kind of model, but we have more or less targeting by the end of quarter two next year we are going to have a trial operating of this new model of Baolian and we hope to launch this approaching the end of the third quarter of next year.

In addition to everything online or through telemarketing, we also realize that Baolian needs people working on the ground. They need the ground troops for generating further leads for introducing online trading and for delivering various kinds of policies to the insured, and also providing additional services to all those insured. But we have been realizing that we're probably more than anybody else by producing this price comparison business model, we might be given the first mover advantage. So this is why we've been very much getting ourselves ready for this venture.

I think the other importance of our venture into online trading is not only this is going to be a new channel, new way of doing business, but also it's going to reduce our heavy dependence or even overdependence on traditional sales models which are heavily reliant on the increasing of your sales professional, so as to increasing the production amount. We are going to rely more on our knowledge and database about our clients. Currently, CNinsure has possessed a client base of roughly about a 1.5 million so we're going to see whether our growth in the future will be coming more from our knowledge, from our influence upon our clients, rather than purely driven by the increase of sales professionals.

That's it, Ben.

Thank you.

Our next question is Fawne Jiang from Brean Murray. Please go ahead.

Good morning. I have three questions. Number one is regarding your outlook. Can I just ask now what's your growth outlook for each of your segments, P&C, Life, versus Claim Adjustments, in the fourth quarter?

The second one is regarding your growth margin. What's the gross margin for your P&C as well as your Life segment for the third quarter? Since that gross margin has improved in the past few quarters, so how should we look at the gross margin going forward? Also, what's the key drivers for improvement in this quarter besides the commission rate on the P&C side?

My last question is regarding your CFSG business. Since that business contributed about RMB2.5 million in the quarter, that seems to be light compared to the last two quarters. I just wonder what was the reason for the soft result in the third quarter?

(interpreted) As for the outlook of growth for the three lines of business, I feel I could predict 20% growth for P&C in the coming years and very much certain that the 50% growth in the coming two to three years for life insurance retail distribution, and about 20 to 30% but maybe more on the conservative side 20% for claim adjustment business growth in the coming years. But again 20 for P&C, 50 for life insurance and 20% on the conservative side for claim adjusting gross.

As for the outlook of gross margin for the three lines of business, I would predict that gross P&C, the gross margin for P&C and claim adjusting will be remaining more or less stable, similar like we have achieved up to now, while life insurance gross margin will be raised I think on a substantial basis. So that's my outlook for the gross margin.

Then you mentioned what are the key factors driving the business growth of three lines of business. I believe for life insurance definitely is going to be the total number of your sales professionals per capital production, but perhaps more important the quality of their production, which is reflected as persistency ratio, especially like 13 months persistent ratio because all the underwriters, they don't want to see that after spending a lot of time getting the new business their policy will go less in the second anniversary.

Therefore P&C, the key factors in addition to size, to quality, one of the most important factors is the product mix or the business mix. Out of (inaudible) P&C retail distribution we used to have all the insurance policy accounting nearly 70% of the total. This is why it resulted in a relatively slower gross rate for P&C business line. We are gradually reducing the overall mix of our insurance and then at the same time increasing revenue from property insurance side, which is mainly going to be delivered by our commercial brokerage business as well as from the P&C retail distribution sector itself.

As you correctly noticed that the profit contribution from CFSG was RMB2.5 million for this quarter. Yes, it was lighter than the previous quarters. I think this is mainly due to the latest tight control of the monetary policy here in China and also the tight control of money supply especially to the real estate sector in China. Of course the CFSG, the overall mortgage brokerage business has been affected by this tight control resulting to relatively less than satisfactory financial results and less than satisfactory profits contribution to CRSG. I know the management of CFSG is seeking ways to fulfill its yearly targets. We believe, overall speaking, we could be able to maintain the target we expect when we acquire them, that 18% in the last quarter of last year.

Thank you and congrats on a good quarter.

Our next question is Jenny Zhan from GMO. Please go ahead.

Yes, can you hear me? Yeah, just some quick follow up question. Mr Jin has mentioned, actually Mr Hu has mentioned there's some positive policies recently regarding to the insurance right now is not allowed to be sold by banks. This is obviously a positive news to intermediate, to the insurance intermediates like us.

How much percentage of insurance policies now sold through banks and what are the target areas for us to grab more shifts? In your gross guidance have you already factored in this positive factor? That's my first question.

The second question regarding to speculation regarding about the CIRC's notice about sales agents can't be issued about equity shares until two years of employment. First of all, I want to ask have you heard about this news and the second could you clarify this impact to our cost. Thank you.

(interpreted) Jenny, coming back to your two questions, yes we are fully aware of these two changes in the business environment and we do believe they are more favorable environmental regulatory policy changes benefiting companies like CNinsure.

Regarding your first question, basically it's China banking supervisory body like CIRC and CBRC is the industry watchdog for the banking industry. The issue of circulation, number (inaudible) circulation of this year basically stipulating to the fact that in the future bank outlets will no longer take any sales professionals from the insurance company to work in the site of bank branches. All the insurance products could be only sold through bank employees rather than insurance company employees. In addition to that, within each bank outlets they will take no more than products from - they won't take products from insurance company, no more than three insurance company. So that's the two key aspects.

We believe this is going to exercise substantial influence upon a lot of the insurance underwriters because out of the 60 life insurance underwriters most of them is actually having bank insurance premium amounting more than 50% to their total premium income. I would emphasize here more than 50% of the annual premium income for altogether 60 life insurance company are coming from bank insurance channels. So some of the newly emerged companies, this portion even goes to 80% or 85%. So this kind of tough competition or elimination of their professional sales guides in the banks sales outlet is going to levy a heavy blow on the overall premium revenue.

That leads to a natural conclusion that they're going to have to rely more and more on individual life insurance distribution on the grounds, either through their captive agency or through intermediatory professionals like us. We can feel this very strongly in our latest negotiation because we're in the process of selling the commission rate for next year. We see that almost all the intermediatory channel within life insurance underwriters has been given double or even triple workloads or assignment comparing (inaudible) for year 2011 comparing to 2010.

In other words, we will be more valued as a sales channel by all the underwriters and we will be in a relatively more stronger position in determining which kind of products are going to have to be put onto the shelf of CNinsure and what might be the commission rate. So that's where - how we can fit and that's how we can be beneficial for this kind of changes. But again, here again we believe that as long as we strengthen our sales capability build up, as long as we're going to develop a more sales network, recruiting more sales people, we're probably going to win a lot in this whole process.

Coming to your second question, I'm happy you mentioned this because we really actually like to clarify this point. The second circulation by CIRC stipulating that no company is allowed to give any kind of equity bonus to their sales professionals unless the sales professionals have been working there for over two years. We not only know this but we also know where this come from, because in the process of formulating and issuing this policy, CNinsure has been fully consulted on a few cases.

Because you know within CNinsure we have over the last two and a half years we have developed a system called a score card. It's more like a [mileage] kind of thing with the airline companies. Our mileage kind of program within our sales professional is to be a factor. They will be accumulating points and these points will be used for few purposes but mainly to support their commitment to work longer period of time with the Company because if they work more than two, even three years, there is a chance for them to swap these points with our future, with our options.

There are also chances for them, if they accumulate enough points, they will become full time employees of CNinsure. In their daily processing when they're accumulating enough points they will be enjoying part of a (inaudible) of doing business. That is to say they're underwriting, their back office support, will be giving a preferential treatment. So we [formed] this as a very positive way of encouraging our sales professional to work longer with the Company, being more dedicated and perhaps more importantly to ensure quality of their production. So I'm happy you mentioned this. I'd just like to clarify this point. We do have this mileage program. It's [not an] equity program. It's just accumulating points for the purpose of their benefits.

Thank you.

Thank you, ladies and gentlemen. Due to time constraints we will now conclude our Q&A session here. Miss Qiu, I will now pass the call back over to you for closing comments. Please begin.

Okay. Thank you again for participating. If you have any further questions please feel free to (inaudible). Thank you.

Thank you for your participation in CNinsure's conference. There'll be a webcast replay within the hour. Please visit CNinsure on our website at www.cnnsure.net under the Investor Relations section. Thank you all for attending. You may disconnect. Goodbye.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.