China Life Insurance Co Ltd (LFC) 2011 Q4 法說會逐字稿

(Interpreted). Good afternoon, ladies and gentlemen. Welcome to China Life's 2011 Annual Results briefing.

As for those analysts, investors are [accustomed] with us, but there are a lot of new friends, so I would like to make a self introduction. I'm Liu Yingqi, the Company's Vice President and Secretary of the Board. I am the host for the analysts' briefing. And Mr. Liang, the Board Secretariat -- of the Secretariat will host the meeting in Beijing. The Beijing and Hong Kong venues of this briefing are connected by a live video link. We also welcome those who used the dial-in facility to join us today.

Now, let me introduce the members of the management, who are attending this conference in both Hong Kong and Beijing. They are Mr. Wan Feng, President; Mr. Su Hengxuan, Vice President; Mr. Miao Ping, Vice President. Those are with us in Hong Kong.

And in Beijing, they are Mr. Lin Dairen, Vice President; Mr. Liu Jiade, Vice President; Mr. Zhou Ying, Vice President; Mr. Xu Hengping, Chief Operating Officer; Mr. Li Mingguang, Chief Actuary.

Today's briefing will start with a 30-minute presentation on the Company's 2011 annual results. And afterwards, there will be a 30-minute Q&A session, during which our management will take questions from both Hong Kong and Beijing venues. Now, let me turn the floor over to our President, Mr. Wan Feng.

(Interpreted). Good afternoon, ladies and gentlemen. Welcome to China Life 2011 annual results announcement. Today's presentation will comprise of two parts.

Firstly, I would like to give you a brief review of our 2011 performance and 2012 business development strategy. In the second part of this presentation, our Vice President Mr. Liu Jiade will be presenting our financial results, investment performance and embedded value.

Firstly, on the overall operating environment. In 2011, China's economy maintained a stable and a relatively rapid pace of development, which provided the foundation for sustainable development of the insurance sector. The enhanced CIRC regulations on solvency and the market conducts also created favorable environment for the development of the insurance sector.

However, life insurers felt more difficulty to distribute products due to increased tightening of monetary policy by the Central Bank coupled with the growing competition among financial and the wealth management products. Continued rising labor costs put more pressure on sales force recruitment.

The continued depression of China's capital market had a negative impact on the profitability and the solvency of the insurance sector that resulted in the sharp decrease of solvency margin. The changes to the Bancassurance regulation issued by CIRC and CBRC also affected the development of the Bancassurance channel.

For China Life, 2011 was an unusual year in which we encountered more difficulties and challenges since we completed the restructuring. However, with the concerted and assiduous efforts made by all of us in the Company, we successfully weathered the challenging environment and ensured a sustainable and stable development of our business.

In 2011, we achieved the following.

Firstly, we achieved stable business development, maintaining leading market position.

Secondly, we further optimized business structure and enhanced sustainable development capability.

In the agent channel, we attained a steady growth, upgraded and a unified agent management measures and further improved agent productivity.

The Bancassurance declined, but the decline was below market average. And the business structure was further improved.

The Group channel's short-term premiums, especially accident insurance premiums, achieved rapid growth. The percentage of accident insurance increased and operating efficiency further enhanced.

We also actively promoted sales channel innovations. The tele-marketing channel experienced fast growth.

In 2011, in terms of premium income, our gross written premiums reached CNY318.3b, maintaining a stable business development.

The first-year premiums decreased 14% to CNY163.5b, among which, single premiums were CNY99.6b, a decrease of 19.1% year on year. The decrease of single premiums was mainly due to the competition from other wealth management products as well as the regulatory adjustment related to the Bancassurance business.

First-year regular premiums were CNY48.1b, a decrease of 7.8% year on year. Short-term insurance premiums reached CNY18.8 -- CNY15.8b, a 5.5% increase year on year. The renewal premiums increased by 20.9% to CNY154.7b.

Manifesting the previous year's business mix restructuring results, the Company's sustainable development capability has been further improved. And this can be fully reflected in the chart in terms of business structure.

Apart from our stable business development, China Life's business mix further improved. Our first-year regular premiums accounted for 33% of long-term first-year premiums, an increase of 3 percentage points.

Within first-year regular premiums, 10-year or longer payment duration premiums increased by 8.4%. Its proportion in first-year regular premiums increased 6 percentage points to 40%.

And the proportion of renewal premiums in gross written premiums went up to 49%, an increase of 9 percentage points, which reflected our sustainable business development capacity.

And accident insurance premiums accounted for 55% of short-term insurance premiums, an increase of 4 percentage points.

For the prospects of business segments in 2011, our individual Life business remains stable with a premium income of CNY302b. The gross written premiums of Group business decreased by 7.6% (sic - see presentation) to CNY438m.

The gross written premiums of short-term business, reached CNY18 -- CNY15.8b, an increase of 5.5% year on year. Within short-term business, accident insurance premiums increased by 14.5% to CNY8.77b.

For the business quality, impacted by the wealth management products offered by banks, the surrender rates of whole industry went up. The life -- China Life surrender rate increased by 0.85 percentage points to 2.79%. The increase in surrender payment was much lower than that of the industry. Our long-term individual policy persistency rate was stable. 14 months and 26 months persistency rates were 92.5% and 86.9% respectively.

To be more specific, in terms of agent channel in 2011, we made active efforts in developing the distribution channels and their -- and improving their performance.

In agent channel, the channel maintained a stable growth in the year. First-year premiums grew by 5.5% year on year, while first-year regular premiums grew by 6.4% and single premiums declined 43%. Renewal premiums increased by 9.4%.

In 2011, the Exclusive Agent Management Measures was unified and upgraded. And that boosted its market competitiveness and incentivizing effects and agent productivity continued to rise. At the end of 2011, the number of individual agents was 685,000; 21,000 fewer than the previous year.

For the Bancassurance channel, impacted by the wealth management products and Bancassurance regulation changes, first-year regular premiums declined 21% year on year. But the renewal premiums grew strongly by 102%, indicating a stronger business sustainability.

The Company strengthened the cooperation with banks and innovated distribution models. As a result, the short-term impacts of regulation changes were mitigated. Our business performance was better than the industry as a whole. And our Bancassurance market share increased slightly.

The total number of Bancassurance outlets was 96,000. And the total number of account managers and financial advisors was 44% -- 44,000, which was in line with the last year.

For the direct sales channel, the short-term insurance premiums grew 5.3% year on year, in which accident insurance premiums grew 14.5%.

The percentage of accident business in total short-term business increased from 51% to 56%.

Operating efficiency was enhanced and the market leadership was solidified. The number of direct sales representatives was 14,000 people.

For the development of the new distribution channel, in 2011, we accelerated the development of the new distribution channel. We established the tele-marketing centers in 11 provinces. And our tele-marketing sales force expanded to 2,200. The tele-marketing premiums exceeded CNY200m in 2011.

For the alternative investment practice, we actively developed capacities in alternative investment channels (inaudible) our investment opportunities. We are the first insurer officially filed for record with CIRC for private equity investment capability, laying the foundation for future alternative investments.

We completed the first private equity fund investment in the insurance industry. With CNY105 -- CNY1,500m capital commitment. The Company increased investment plans in the infrastructure industry by making 14 new investments, totaling CNY154.1m. We also invest CNY3.3b in Beijing real estate investment plan.

In 2012, the Company's overall principles for business development are maintaining stable growth, developing through innovation, guarding against risks and enhancing value. Specifically speaking, there are six focuses.

The first focus is to maintain stable growth and enhance value. We will apply NBV-oriented KPI and budget plan, grow medium- and long-term payment duration business under the premise of maintaining a stable business growth and market share.

The second focus is to accelerate channel development. Agent channel will focus on high-value businesses. The Bancassurance channel will continue to transform its business model. Direct sales channel will emphasize business profitability. And new distribution will strive for rapid growth.

The third focus is to motivate the local branches. We will tilt resources allocation towards local branches for stronger incentivized effects.

The fourth focus is to strengthen business management fundamentals. We will optimize business processes, strengthen back-office support, and enhance product innovation.

The fifth focus is to optimize investment allocation. We will emphasize strategic asset allocation, seek alternative investment opportunities and optimize the investment portfolio in order to improve investment return.

And last, but not least, we will reinforce risk prevention. Specifically, risks relating to capital usage, solvency, non-compliance and high concentration of surrender to ensure the sustained and healthy development.

Next, let's welcome Mr. Liu Jiade, the Vice President of China Life to brief you on our financial investment performance and embedded value.

(Interpreted). Thank you, Mr. Wan. Now, I will present to you our financial summary and embedded value for 2011.

In 2011, our net premiums earned was CNY318.3b, roughly the same level as the previous year. During the reporting period, the interest rate -- interest income earned from the Company's investment portfolio increased significantly. The net investment income reached CNY60.7b, an increase of 24.2% year on year. However, due to the continuous depression of China's capital market, the net realized gains and impairment loss decreased considerably.

The net fair value gains and losses increased. And affected by the decline of the gross investment income, the Company's total revues dropped by 3.9% to CNY370.9b year on year.

In 2011, the Company continued to execute a prudent financial policy, strengthened comprehensive budget management and exercised stringent control on administrative expenses. As a result, our commissions and fees ratio was 7.4%. The slight increase was mainly due to the change in business mix.

Our administrative expenses ratio was 5.8%. The increase was mainly due to inflation, market competition and rise of labor cost.

In 2011, the net profit attributable to shareholders was CNY18.3b, a year-on-year decrease of 45.5%. The decrease was mainly due to the continued depression of China's capital markets, which led to investment yield decline and increase in impairment loss.

Weighted average ROE went down by 6.86 percentage points to 9.16%. And EPS was CNY0.65, a decrease of CNY0.54.

As at December 31, 2011, China Life's total assets reached CNY1.58 trillion, 12.3% higher than the year-end of 2010. Equity holders' equity was CNY191.5b, down by 8.2% compared with the year-end of 2010. The decrease was mainly due to the continuous depression of China's capital markets, the decrease in fair value of available-for-sale securities and the cash dividend paid for the previous year.

In 2011, the Company continued to expand its investment assets. As of December 31, 2011, the investment assets amounted to CNY1.49 trillion, up by 11.9% from the year-end of 2010.

We proactively responded to unfavorable changes in the capital markets and took advantage of market opportunities in a high interest-rate environment to increase allocation of fixed-interest [negotiated] deposits and long term bonds. The percentage of term deposits increased to 34.84% in 2011 to 33.05% in 2010.

We also effectively responded to the decline of equities securities markets by making prudent investment. The percentage of Company's total investment in equity securities decreased from 14.66% in 2010 to 12.17% in 2011, which, to a certain extent, reduced the risk associated with equity securities.

The Company actively developed the capacities in new investment channels. Allocation of other investments also decreased --- also increased.

During the reporting period, the Company's interest income from investment portfolio increased significantly by 24.2%. Net investment yield increased by 0.45 percentage points to 4.28%. However, after taking impairment loss of equity investment into account, the gross investment yield was 3.51%.

Due to the fluctuation of capital markets, payout of the previous year's dividend and the business development, the solvency ratio dropped to 170% as of December 31, 2011.

In 2011, we took advantage of favorable market opportunities to issue CNY30b subordinated term debt which enhanced our solvency adequacy ratio. Under the premise of approval by the Annual General Meeting and the CIRC, we plan to issue up to CNY38b subordinated term debt in the near future to further replenish our capital base.

Going forward, we will enhance capital management, improve capital replenishing mechanism and actively explore new fund raising options to maintain appropriate solvency level and support the long-term and sustained business development. And in future, the external financing will become the main means to replenish our capital.

As of December 31, 2011, our adjusted net worth was CNY110.27b. In-force business value before cost of solvency margin was CNY215.61b. The embedded value after the cost of solvency margin was CNY33.02b. And the embedded value at the end of the year was CNY292.85b. As at December 31, 2011, our embedded value was CNY292.85b, which decreased by 1.76% from that of December 31, 2010.

Therein, the adjusted net worth decreased by 23.77% and in-force business value increased by 18.99%. The new business value for the 2011 sales reached CNY20.2b, an increase of 1.82% compared with that of the same period of last year. This growth rate exceeded the growth rate of our first-year premiums.

This chart shows the changes in embedded value in the year 2011. Major changes include the expected return was CNY27.78b, which was generated from the in-force business, the net worth at the year beginning and the new sales made in the year 2011. The new business value for one-year sales in 2011 was CNY20.2b. Operating experience variance was minus CNY1.32b. Investment experience by variance was minus CNY32.22b.

Including our unrealized gains and losses of available-for-sale securities, market value and other adjustments was minus CNY8.62b, reflecting market value change from year beginning to year end. The impact of other adjustment dividend distributed to shareholders was CNY11.31b. And the embedded value at December 31, 2011 was CNY292.85b.

That concludes the end of the presentation. Thank you.

(Interpreted). Now, let's go to the Q&A.

Thank you. We will now move on the question-and-answer session. (Operator Instructions). One moment please, for the first question.

(Interpreted). [Bob Brown] from UBS. I have two questions.

The first question is on the embedded value movement analysis. The operating experience variance was minus CNY1.32b. If my memory was correct, in the first half of last year that figure is CNY4.7b. But in the second half, the variance is minus CNY6.2b. So what's the reason for that?

If my memory proves correct, among the CNY4.7b operating variance, the CNY4.2b are coming from the surrender. So what's the real reason for that?

The other question is towards Mr. President Wan. In the past several years, our product strategy is focused more on the participating products. And in the interim results announcement, President Wan mentioned the innovation of the products, as we are faced up with a lot of difficulties and challenges. So what kind of new strategies we can have for the products?

(Interpreted). Thank you, Bob. The question is quite complicated. The operating experience variance was minus CNY1.32b. That reflects the operation is within our assumption. And that figure is resulted from the following factors.

Firstly, the surrender. As we make a very conservative assumption in the surrender rates, the real experience is lower than the assumptions. So that will be the negative impact. And second, is the exceeding of the expenses. Those two factors resulted in the minus CNY1.3b.

As for our high volume of embedded value, such kind of fluctuation is quite normal.

(Interpreted). So the main factors are the two you mentioned, right?

Yes.

(Interpreted). For the second question, our product strategy is more focused on the participating products. And what is our next step for the product strategy? I really appreciate your question. And I really appreciate you more closely follow-up what I mentioned in the interim results.

And I believe that many people pay a lot of attention to the deceleration of the whole industry. Practically speaking, the external environment change, the regulatory change of the environment, will impact the whole industry. But to me, the most important factor is the decreasing competiveness of the life insurance products for the whole industry.

The product is participating products for China Life. It is the products focus for all the industry. Most of the products are the wealth management products.

In the first several years, there are a few wealth management products. We just put forward some wealth management products such as [power] business, [Unilink] and universal products. However, impacted by the external negative environment and the [contract] of the monetary policy, there are a lot of wealth managed products that have cropped up. And many banks secured funds, the mutual funds offered a lot of wealth management products. So there are as many as 1,907 -- 19,700 wealth management products offered by banks, secured funds and the mutual funds which have a direct negative impact on the life insurance products.

In terms of the time period, they are -- some of the products are as short as one month. The longest period is only two years. After the restriction on the banks set by the regulators, the shortest period is only three months. But for our participating products, the insurance coverage is as long as 20 years.

And for participating products, we share the profits with the shareholder. But for the wealth management products, they give all the investment return to the customer. So compared with those kind of management products, the competiveness of the life insurance products is decreasing.

So I believe that the product strategy for the whole industry is the key issue for the life insurance sector.

If we cannot make a direct -- some comparison with the wealth management products from the other financial institutions, all the industry will [incur some problems]. So if, for example, in the Bancassurance channel, if our products offered in the Bancassurance channel cannot be compared with the investment return of the wealth management products offered by the bank secured funds, we will suffer a lot of loss for the insurance products for our product strategy.

In my personal view, the [nat cat] products and the pension products will become the focus. Because, at present, with the development of China's economy, a lot of people and the Government pay a lot of cash into this -- into these two issues. And in those two areas, the banks and other financial institutions cannot step into that.

So we believe, in the next -- in the long future, we will focus more on those two issues. One is the health products. The other is the pension market, which the great potential for -- which has great potential for the life insurance companies. So the question is why we cannot develop the channel products.

As a matter of fact, we consulted with the regulator for several times. And I think the major obstacle to that is the incentive scheme towards the salesman. Because [in the expenses loading] and in the commissions, there are some caps set by the regulator. For example, the total expense loading, including the commission, the cap is 65%. So within the 65%, the insurance company can make a split between the commission and the expense loading.

But for the life insurance companies, for those endowment products and savings products, it has a relatively high premium. If the commission rate is 10%, therefore the total commission will be relatively high. But for the health products, the premium is quite low, then the commission earned by the agents will be relatively low. Therefore, the agents will prefer more on the endowment products rather than the health products. So we require to ask for the regulator to increase the cap for commissions of the health insurance products.

So we make a lot of suggestions to the regulators to increase the cap of the commission rate on different products. As far as we know, the regulator are considering a revision of such kind of products in terms of the commission rate cap lifting. Only by lifting such kind of commission rate cap can the whole industry experience a very high growth. And that will be conducive for the whole life insurance industry.

(Interpreted). So the next question, for Beijing.

(Interpreted). I'm Jianhai from Essence Securities. My question is related to the sensitivity of the net assets toward the stock capital markets. We have seen the interim report at the Shanghai Stock Exchange increased by 10%. That will affect the net assets of about CNY17.9b. But according to our experience, the sensitivity is roughly 5% rather than the 10%. Why is there such kind of sharp increase of the sensitivity of the net assets toward the capital markets?

(Interpreted). So your question is about the net assets related to the embedded value, because in the notes there's a kind of risk management section. It will disclose the sensitivity of the shareholders' equity towards the capital markets, because in different periods the sensitivity is different. The main reason is that our business assets can be classified into two parts. One is the non-par business whose assets is mainly available-for-sale assets. For the par business, the realized and unrealized gains and losses, only 30% can be attributed to the par accounts. That's the main reason.

The year 2011 is quite unique year. As you can see, the adjusted net worth under the net worth in the [IFRS], there's a sharp decrease of the net assets. This is mainly due to the market fluctuation.

(Interpreted). Next question, back to Hong Kong venue.

(Interpreted). I'm Tang Shengbo from CICC. I have two questions.

One is for the business mix restructuring. Congratulations on your efforts towards the business mix restructuring. So, how about your business mix restructuring progress made in your first two months?

And secondly, in your embedded value movement, the market value and adjustments was minus CNY8.62b. So, what -- can you please give some breakdowns on that? As we know, the held-to-maturity securities, there's no unrealized loss. So, what's -- I just want to make -- I hope that you can give me -- give you some breakdowns on the market value and adjustments figure.

(Interpreted). Thank you for your question. In the past several years, we attached great importance to the business model transformation and further optimization of the business mix to maintain a sustainable development of our business. In the first two months of 2012, we make a lot of innovation to the business development. So, in the first two months, we experienced very stable growth, in the first two months' business.

Firstly, our business turned out to be price stable. In January we had a good kick-off business. And starting from the February, we accelerated our pace toward the high-value long-term regular premium business development. At the same time, due to the relative high basis for the single premium generated from Bancassurance channel of February of last year, we have seen a negative, a sharp decrease of the Bancassurance business in February that resulted into the negative growth in the first two months of the total premium.

Secondly, we have seen the further optimization of business mix, and for the first two months, the percentage of the mid and long-term regular premium business has been increased.

Thirdly, we have experienced a rapid growth in the agent channel. By the end of February, the agent -- total premium from agent channel has experienced a double-digit growth. Although the three-year pay business has experienced negative growth, resulting in the negative growth of the first-year regular premium business in agent channel, but the business mix has been optimized, and we have seen the long-term regular premium business has experienced the rapid growth.

(Interpreted). So, your question is related to the breakdown of the market value and the adjustment. Firstly, this product will decrease our embed value. Part of it -- part of that is related to held-to-maturity securities. At the end of last year there's -- last year we just amortized, we just write off the deferred assets income. And that is the main reason for the minus CNY8.62b of the market value and adjustments.

(Interpreted). Pan, CITIC Securities. My question is a frequently asked question. That is, in the year 2012, what is the new business growth target for the agent channel and the target for the growth of the number of the agents?

So, in the new business value of last year, it is about [CNY20.2b] among which how many are coming from the agent channel? So if the agent channel contributes 70% to 80% to NBV, I believe that the profit margin in the agent channel will be -- was further improved of last year.

(Interpreted). As I've mentioned, that in the year 2012, we will accelerate our business mix transformation and try our best to increase NBV growth and strengthen the mid and long-term regular premium business development. This is our major target for the agent channel.

In the first three months it has been implemented as scheduled. As you have seen, the 10-year regular premium business has experienced double-digit growth for the NBV contribution. I think in the year 2011 the agent channel contributes 83% to 84% of the NBV.

I think Mr. Su has asked us also the question raised by the analyst. I want to add that the profitability of the agent channel is relatively high. On the other hand, we are making our efforts to further improve the profit margin of the Bancassurance products.

(Interpreted). Then back to Hong Kong venue.

(Interpreted). I'm Ben Lin from Morgan Stanley. I have a simple question. As you mentioned, you will focus more on the NBV growth in this year. So my question is that, so in your assessment toward -- quota toward the senior management, what is the percentage of the NBV in the -- of the KPI -- in the KPI of total senior management? What are other KPI indicators?

(Interpreted). The weightings of the NBV in the KPI towards the branch manager is 35%. Last year the figure is only 12%.

(Interpreted). Then back to Beijing venue.

(Interpreted). I'm [Fen Ching] from [SWS]. I have one question, about agent recruitment. The year 2011 experienced the downsizing of the agent channel and the improvements of the agent productivity. Then what is about the agent recruitment strategy for the agent channel? As we have seen in the presentation, the China Life will tilt more resources to the local branches, then what is the specific measure towards the agent channel?

(Interpreted). So I want to make it more specific. First, I just want to make it clear that your question is related to the agent channel and we will answer the question by agent channel recruitment in agent channel and the Bancassurance channel. As for the resources tilted more toward to the local branches, we will give the floor to Mr. Liu Jiade.

Actually, the daily recruitment system has already been set up in the China Life. And starting from the fourth quarter of 2010, we have put forward the Exclusive Agent Management Law and requiring the junior executives to set up the daily recruitment system. With the new basic law's implementation, we strengthened the assessment toward the performance of those junior executives.

As you can see, great changes have been taking place in the agent channel. Although the total number of the total agents has been decreased, the quality has been improved. As you can see that the total number of new recruitment has been increased by 30%. And secondly, the agent structure of the agents has also been changed. As you can see, that the percentage of the agents were below 35 years -- 35 years of age has been increased by 4%, and which -- that's in line with our direction to have more young agents.

And thirdly, the productivity of agents has been improved. As you may have noticed, that in the year 2011, the first-year premium, first-year regular premium and the first-year -- 10-year regular pay business per capita has been increased by 11%, 14%, 17.5%, which is a good result from the implementation of the new basic law. And in the year 2012 we will still adopt the effective expansion business strategy and we'll double our efforts for the -- for more recruitment of the good qualities. And in different regions we will adopt different recruitment strategy, pay more attention to the other area, agent recruitment.

At the same time, findings of the new direction of the agent recruitment strategy, we will ask the local branches to pay more attention to the agent recruitment in urban areas. And thirdly, we will set up the campaign for the junior executive training and the green hand training. And fourthly, in the agent recruitment, we will in-house the training and the nurturing of the junior executives to further improve their qualities and attract more agents to become the junior executives. And at the same time, we will further implement the new basic law to make sustainable development of our total agents.

For the Bancassurance financial advisors recruitment in the Bancassurance channel, we have developed the business for 10 years and accumulated more than 40m customers and we set up a financial advisor team to offer better service for those 40m customers. So when the customers have the insurance amount, the financial advisors can offer some new products to them. In some local branches, the financial advisors has been increased to 17,000 people, in some local branches. And we will re-double efforts for the recruitment of the financial advisors in the Bancassurance channel.

(Interpreted). For the focus on the local branches as for China Life, the local branches and the forefront business line is very important to China Life. And we put forward an important concept that is customer-focused and local branches focused and value-focused. So, how to make our local branches to develop quickly is of importance to China Life.

For the resource input in the local branches, firstly, we will give more financial inputs to the local branches and give a very strong financial support to the local branches. Secondly, human resources inputs, and we will ask a lot of managers to go to the forefront to support the local branches development. Thirdly, we will increase the salaries of those employees in the local branches. And such kind of direction set by the headquarter aims to incentivize those local branches employees. Fourthly, we will further improve the working conditions in those local branches.

As for the directions of the financial policies, we will base our -- we will implement it according to our budgetary policy and we will give more expenses [uplift] generated from the newer business toward the local branches during which we will give -- we will offer the different policies toward different regions to share the relatively -- to have the relative justice for the local branches' agents in order to further incentivize their productivity. We'll link the expense uplift from the new business with their remuneration.

At the same time, for the fixed asset allocation, we'll build up a lot of new field office and local offices and give standardized requirements to all the field offices and forefront counters to further improve the corporate profile of China Life.

Another issue is that we set a clear-cut requirement toward the local branches. We will streamline the heavy burden and daily chores on the shoulders of local branches so that the local branches will get relieved from the daily burden to some extent. So I think the tilting] towards local branches is of utmost importance towards us.

(Interpreted). Next question back to Hong Kong venue.

(Interpreted). I'm Patricia from CLSA. Firstly, CIRC released the annualized premium set by CIRC. Actually the standardized premium or annualized premiums has been decreased a lot. However, we have seen the positive growth of NBV. So, what makes such kind of discrepancy? Is that out of the new product offering or something else?

And secondly, the Company were issued CNY38b sub-debt, so, whether the issuance of sub-debt is related to the product strategy. After we issue the new sub-debt, whether it can further support our business development for the standardized premium or annualized premium.

(Interpreted). I will ask Mr. Li Mingguang to answer it.

(Interpreted). The annualized premium set by CIRC is a simple adjustment of the premium payment period. So, the single premium was divided by 10 and the five-year premium was divided by 5. Therefore, the standard premiums -- standards offered by CIRC is a simple adjustment of the different regular premium periods.

As for your question whether the negative growth of the standardized premium and positive result of NBV growth, as far as I know, I think it is mainly related with the fact that the standard premium does not take the different insurance products and different insurance coverage into consideration while the NBV take those factors into consideration.

I think for the sub-debt issue, we do not -- when we calculate the NBV and EV, we do not take the sub-issued debt into consideration.

And I think the sub-debt issuance will reduce the cost of solvency margin. So for the sub-debt issuance, we will issue the CNY38b sub-debt this year. At the same time, we will have a try to issue some sub-debts -- financial instruments like sub-debt in overseas markets. And the ultimate purpose for that is to replenish our capital base and further enhancement of our solvency margin.

Last year there's a sharp decrease of the solvency margin. And for the driving factors for that is mainly because of the following factors. For last year, there are mainly three factors that affected the solvency margin. Firstly, the gloomy capital market resulting the change of the comprehensive income, that resulted in the decrease of the solvency margin. Secondly, the cash dividend paid towards the shareholders totaling CNY11.3b resulted in the sharp decrease of the solvency ratio. Thirdly, the business development lead to the decrease of the solvency ratio.

Here I want to emphasize that the business development -- for the whole year, the business development leads to the decrease of 24 percentage points of the decrease of the solvency ratio, and the business development is not a key factor for the decrease of the solvency ratio of last year. The major reason is out of the gloomy capital market and the distribution of the shareholders' dividend. For this year we will find a good opportunity to issue the new sub-debt and try to find a good asset/liability matching for the sub-debt issuance to lock a very good profit -- the cost of the sub-debt issuance.

And we will closely monitor the sub-debt and solvency ratio this year. Within the headquarter, we will offer a weekly report on the solvency ratio. And we will set different scenarios to test the solvency ratio so that we can have -- make some preparations for that. And we'll also make a lot of research and study on the new ways of the financing and try our best to take the solvency margin management into consideration when we design the new products.

(Interpreted). Due to time limits, we do not have -- cannot afford more time to the people who have the dial-in facilities. So if you have further questions, please get in touch with our Investor Relations team at any time. Their contact number can be found on the last page of the press release.

Thank you for coming.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.