China Life Insurance Co Ltd (LFC) 2012 Q4 法說會逐字稿

Good afternoon. Welcome to the analyst and investor briefing of China Life's 2012 annual results. For the duration of the presentation, all lines will be placed in listen-only mode. There will be an opportunity to ask questions after the presentation. (Operator Instructions). This conference call is being recorded for replay purposes. Should anyone have any objections, you may disconnect from the call.

Now I would like to hand the call over to Ms. Liu Yinqqi, Vice President and Secretary of the Board of China Life. She will be the emcee for the event. And I will stand by for the Q&A session.

(Interpreted). -- Secretary of the Board, and I think almost all of you present here will know me well. The Hong Kong and Beijing venues of this briefing are connected by a live video link. We also welcome those who use the dial-in facility to join us.

Now let me introduce the members of the management who are attending this conference. Mr. Yang Mingsheng, the Chairman of the Board; Mr. Liu Jiade, Vice President; Mr. Su Hengxuan, Vice President; are with us in Hong Kong. And in Beijing, Mr. Wan Feng, President; Mr. Lin Dairen, Vice President; Mr. Xu Hengping, Chief Operating Officer; Mr. Li Mingguang, Chief Actuary.

Today's briefing will start with 30-minute presentation on the company's 2012 annual results. After, there will be a 30-minute Q&A session, during which our management will take questions from Hong Kong and Beijing venues.

Now let me turn the floor over to our Chairman, Mr. Yang Mingsheng.

(Interpreted). Good afternoon, ladies and gentlemen. And I'm very pleased to meet with you here. Today's presentation comprises five sections. Firstly, I would like to give you an overview of our 2012 performance. Then the other members of the management team will present our business review, financial summary, investment performance, and embedded value.

In 2012, the Chinese economy slowed down and the capital market remained weak. The Company faced unprecedented challenges in both underwriting and investment business amid a significant growth deterioration of the life insurance industry. Guided by the keynote of tackling difficulties, making steady progress, and striving for expansion, the Company continued to strengthen its market-leading position and achieved the following results.

First, we adapted to the complicated environment and achieved steady business growth. Second, we focused on both business scale and value and attained steady growth in the new business value. Thirdly, the product innovation and the technological application effectively drove business development. Finally, we maintained a stable size of agent force while improving its overall quality.

Regarding the development process of the Company, we will vigorously implement the Innovation Driving Development strategy, continue adhering to the keynote of tackling difficulty, making steady progress, and striving for expansion, equally emphasize both scale and value to ensure our market leadership and sustainable development.

And specifically, we will, firstly, propel business development and maintain steady growth of new business value. Second, adhere to business mix adjustment to promote business growth mode change. Thirdly, foster product and service innovation to raise core competitiveness. Fourthly, apply modern technology to improve operational management. Finally, we will proactively participate in the policy-driven business to fulfill corporate social responsibilities.

Looking ahead in the year 2013, the social and individual wealth accumulation will set a solid foundation for the future development of insurance industry. Further urbanization and population aging will cause further increase in demand for insurance. And the improvements in multi-level social security system will widen insurance business scope and facilitate development mode change. And the investment channel expansion will help improve investment yields and asset/liability matching.

However, the insurance industry is also facing following challenges. First, economic growth is slowing down and the insurance industry is encountering challenges in maintaining growth. Second, bank wealth management products continue to exert pressure on the bancassurance channel, resulting in pressing needs for development mode change. Third, the labor cost keeps rising and agent force faces recruitment challenges. Finally, the industry is facing pressures from increasing surrender and maturity payments.

In the complicated and volatile environment, we will proactively respond to all the challenges, effectively strengthen sustainable development capabilities, and create more value to the shareholders.

Next, please welcome, Mr. Wan Feng, the President of China Life, to present to you the business operation of the Company. Thank you.

Thank you, Mr. Yang. Now I'm going to brief you on our business performance in 2012. In 2012, the life insurance industry growth rate dropped noticeably due to complex macroeconomic environment, sluggish capital market and competition from wealth management products offered by banks. Such characteristics are reflected in the following four aspects. As new business decreased, the growth of total premiums was driven by renewal premiums. The individual agent channel premiums continued to grow with the help of renewal premiums, while new premiums through bancassurance channel decreased significantly. The individual agent recruitment continued to encounter difficulties. And the development of new sales channels accelerated.

In 2012, our gross written premiums reached CNY322.7b, increased by 1.4% year on year. Renewal premiums increased by 16.5% to CNY180.2b, which reflected our business mix improvement and further sustainable development. Due to the competition from other wealth management products as well as the bancassurance recognition impacts, long-term first-year premiums were CNY126.1b, decreased by 14.6%. First-year regular premiums were CNY45.5b, a decrease of 5.3% year on year. And short-term business was CNY16.4b, increased by 4% year on year.

In terms of business structure and business quality, the proportion of the new premium in long-term premiums increased from 51% to 59%, which reflected our business development sustainability. The first-year regular premiums accounted for 36% of long-term first-year premium, an increase of 3 percentage points. The mix of first-year regular premiums improved continually with dramatic decrease in less than five-year payment duration premiums. The proportion of five to nine-year regular premiums rose substantially from 12% to 25%, and 10-year and longer first-year regular premiums accounted for 41% in first-year regular premium, and the share of short-term accident premiums in short-term premiums increased from 55% to 58% year on year.

We implemented a strategy that emphasized both scale and the value. In 2012, the value of one-year sales increased by 3.14%. In-force business value reached CNY209.1b, with three-year CAGR of 18.6%.

For our business segments, in 2012, our business -- individual life insurance slightly increased to CNY305.8b. The gross written premium for group business increased by 7.1% to CNY469m. The gross written premium for short-term business reached CNY16.4b, an increase of 4% year on year. Within the short-term business, the short-term accident premium increased by 8.7% to CNY9.5b. The mix of short-term business was further improved.

In 2012, our surrender rate was 2.72%, dropped by 0.07 percentage points year on year. Our long-term individual policy persistency rate was stable. Fourteen months and 26 months persistent rates were 91% and 88.5%, respectively.

In 2012, the gross written premium of individual agent channel reached CNY179.8b, an increase of 11.9% year on year. Share in the new business was CNY37.8b. Renewal premiums were CNY142b. Overall, the individual agent business achieved solid development and business mix further improved. The channel premium share in gross written premiums and in new business were both increased. In addition, with clear product strategy, the traditional protection business grew significantly. With regard to the sales force development, our sales team remained quite stable to around 693,000 agents at the end of 2012.

For the bancassurance channel, affected by the bank wealth management products as well as industry regulation, bancassurance channel's gross written premiums were CNY128.9b, decreased by 10.7% year on year. Share in new business was CNY91.6b, decreased by 18.5%; and renewal premiums CNY37.3b, increased by 16.5%. In first-year premiums, the single premium first-year regular premiums decreased to CNY78.2b, CNY13.4b, respectively.

With regard to the sales force development, the Company continued to expand financial advisor team. The total number of account managers and financial advisers reached over 46,000, up by 1,712 than last yearend.

The direct sales channels realized CNY13.6b premium in 2012, an increase of 5.9%. Short-term business was CNY10.8b, increased by 7.6%. Number of direct sales representatives remained stable at 16,000. We speeded up the layout of new channels, especially telemarketing channel, and completed construction of 23 telemarketing centers. In 2012, the telemarketing channel achieved excellent business mix, conducive to its sustainable development.

In 2012, we continued to optimize operational system and further improve the service quality. We promote the E-China Life mobile marketing system, streamlining business processing, improving policy, ensuring efficiency and reducing operational costs. By the end of 2012, 418,000 agents started using E-China Life system and written 176,000 new policies, accounting for 40% of new premiums in agent channel.

Second, the Company upgraded counter service by installing new-generation electronic counter equipment. As a result, the customer waiting time was shortened by nearly 30% and customer experience was greatly enhanced, forming a leading competitive advantage in the industry.

Third, the Company fully launched telephone underwriting service to streamline underlying processing and significantly shorten the business processing time. Fourth, the Company initiated pilot CRM program to support the sales activities and recommending high-value customers to sales force.

In 2013, our focus is as follows. First, we will focus on the development of first-year business and continue to ensure market-leading position. Second, we will make efforts to enhance business value. For agent channel, we will focus on the growth of tenure and the longer first-year regular business and strengthen sales efforts towards high embedded value products. For bancassurance channel, we will try to maintain steady business development while acquiring regular premium business as much as possible.

Third, we will promote further innovation and market segmentation, accelerate innovation for our protection products such as pension, healthcare, long-term care and access to insurance. Fourth, we will effectively enhance service capability, enrich the function of E-China Life, develop multi-channel policy services and improve claim settlement service.

Finally, we will proactively explore new business areas, perform well in underwriting supplementary major unit insurance and administering new rural corporate medical insurance, and closely-followed policy for tax-deferred individual pension insurance pilot program.

Now let's welcome Mr. Liu Jiade to present to you our financial and investment performance.

Thank you. I will give you a summary of our key financial results in 2012. In 2012, our net premiums earned were CNY322.1b, increased by 1.2% year on year. Investment income increased significantly by 20.6% to CNY73.2b. The net realized gains on financial assets were CNY4.2b. However, due to the continued depression of the China's capital market, impairment loss increased considerably to CNY31b. Affected by both premium income and gross investment income, our total revenues in 2012 was CNY371.5b, which remained quite stable.

In 2012, the Company continued to execute a prudent financial policy, strengthened comprehensive budget management and exercised stringent control on administrative expenses. As a result, our underwriting and policy acquisition costs were 7.5%, remained stable. Our administrative expenses ratio was 6.3%, increased slightly from that of 2011. The change was mainly due to the increased input and to build-up of sales force to improve development sustainability.

Due to the continued depression of China's capital markets, China Life's impairment loss increased significantly. In 2012, the net profit attributable to the equity holders were CNY11.1b, an increase of -- a year-on-year decrease of 39.7%. Weighted average ROE went down by 3.78 percentage points to 5.38%. EPS was CNY0.39, a decrease of CNY0.26.

As of the December of 2012, our equity holders' equity was CNY221.1b, up by 15.4% compared with the end -- yearend of 2011. Changes comprised net profit of CNY11.1b, other comprehensive income of CNY25b, and a dividend of CNY6.5b paid to the Company's equity holders.

In 2012, the Company's solvency ratio improved due to the increase in comprehensive income. Meanwhile, the Company grabbed the market opportunity to issue CNY38b subordinated term debt, which further raised our solvency ratio. As of the December 31, 2012, the Company's solvency ratio was 235.58%.

For the investment performance in 2012, the Company's investment assets continued to grow. As of December 31 of 2012, net investment assets rose to CNY1.79b, up by 19.8% from yearend of 2011. We allocate our investment assets in a flexible and prudent manner according to the portfolio status and characteristics of liabilities. The percentage of debt security increased from 44.6% to 46.2%. Term deposits increased from 34.84% to 35.8%, and equity securities decreased from 12.2% to 9.2%.

And in 2012, our interest income from investment portfolio increased significantly and the net investment yield was 4.44%. Due to the continued depression of Asia markets, after taking into account the impairment losses of equity investments, the gross investment yield was 2.79%. However, after considering unrealized gains of available-for-sale assets, our comprehensive investment yield reached 4.97%.

The alternative channels can help to facilitate the Company's strategic financial investment, enhance net investment returns, share in the capital appreciation from China's economic development, industry upgrades and company public listings, and diversify the sources of returns.

In 2012, we seized the opportunity to invest CNY11.74b in new infrastructural debt plans and real estate plans. Cumulating, the invested amount reached CNY40.53b, accounting for 2.3% of investment assets, which helped increase Company's net investment returns.

We made unlisted equity investment in COFCO Futures with a 35% stake, the first direct equity investment since deregulation in 2010. We also invested CNY600m in the private equity CITIC Industrial Fund III.

Next, our Chief Actuary, Mr. Li Mingguang, will present on the Company's embedded value. Thank you.

(Interpreted). Thank you, Mr. Liu. Now let's take a look at our embedded value in 2012. As of December 31, 2012, China Life's adjusted net worth was CNY128.5b and in-force business value before cost of solvency margin was CNY245.1b. Embedded value, after cost of solvency margin of CNY36b, was CNY337.6b.

As of December 31 of 2012, our embedded value was CNY337.6b, increased by 15.28% from that of December 31 of 2011. Share in adjusted net worth increased by 16.54% and in-force business value increased by 14.51%. The new business value for 2012 sales reached CNY20.8b, an increase of 3.14%.

This chart shows the embedded value changes in the year of 2012. Major changes include expected return was CNY30.22b, reflecting the expected return generated by the in-force business, as of the year beginning, the new sales made in the year of 2012 and the net assets. The new business value for 2012 was CNY20.83b. Operating experience variance was minus CNY879m. The investment experience variance was CNY9.68b, including unrealized gains changes of available-for-sale financial assets.

Methodology model and assumption changes brought about minus CNY1.91b. Market valuation value adjustment, tax and other assumptions were around minus CNY6.95b. Shareholder dividends were CNY6.5b.

And as a result of that, we can see that the embedded value at December 31 of 2012 was CNY337.6b. Thank you.

(Interpreted). Now, we will take questions. Due to the time constraints, please limit your questions to no more than two, and we will be grateful if you would tell us --

Thank you. We will now move on to the Q&A session. (Operator Instructions).

So let's begin with a question from Hong Kong.

(Interpreted). Thank you. I'm Tang Shengbo from CICC. I have two questions. Firstly, what's your comment on the new regulations? One is the free-pricing reform set by [CRC] and the other is the reform of the agent identity.

Second, you have issued CNY38b sub-debt. When you take the calculation of EV and [NEV], whether you take that into consideration.

(Interpreted). For the free-pricing reform, my personal view is that with the further development of China's economy, the free pricing of the financial industry will go on, with no exception of the life insurance industry. During its implementation, I believe the process will be implemented step by step and the results will be implemented step by step. And the regulator is making some study on that. I really am not so familiar with that, but I think the implementation will be step by step. And that will be conducive to the healthy development of the life insurance industry. This is my personal view. And I think the ultimate trend is the free pricing.

For the agent identity, I think it is a long-term topic for discussion and we believe that the reform of the agent identity should also be implemented step by step, and we believe that the regulator attach great importance to that. However, we believe that the life insurance industry is still in the preliminary step development stage. We cannot fully copy the experience of the advanced life insurance sector in the rest of the world and we should have more time to further improve the quality of the individual agent.

And we will also focus on the agent sales force by our efforts to further implement the -- and improve the basic law on the management of the agents. We believe that the quality of our agents will be further improved.

For the -- and as to your related question, we should make it clear that when we made that sub-term debt, we also make some investment that can match the sub-term debt. And we believe such kind of sub-term debt will help the further -- will improve the investment return a little bit. And we believe that our solvency ratio is above the regulatory limits. And in our assumption model, our solvency requirement is far -- exceeds far more on the regulatory requirement. So we'll have much more room for the solvency.

(Interpreted). I'm Sun Ting from SWS. At present we have seen that the insurance companies set by the banks make a great impact on the domestic insurance companies. What kind of -- what's your view on that?

And second, what's your product strategy of China Life, including, if you consider if you take the free pricing into consideration, whether you will still pursue more on the value side?

(Interpreted). For the bancassurance side, we are facing the critical challenges. We believe such kind of challenges cannot be solved in the short term. At present, a lot of banks that have joint venture for the insurance company. And secondly, that the new bancassurance regulations have been neglected for three years and the impact still exists there. And thirdly, for the great slowdown of the bancassurance business forced us to set up a new mode for development. And we believe at present we should further consolidate our agent channel, next followed by the group business.

And for the first and foremost, we believe what is more important is the product innovation. For the current product portfolio, the participating products and the investment type of business takes the majority of our current products, so we have to readjust our product mix. To enhance the risk type of business, we should develop the short-term health -- healthcare product and the critical illness and short-term accident business as well as the new Medicare program. By developing such kind of products, we will make the pressure of the bancassurance business to be minimized and we will try our best to develop new products in the group business channel.

And secondly, we will try to change our business model. Our business model is the most extensive management model. According to Chinese scientific development concept it is far from the regulatory requirement. For the development of our business, we should coordinate the urban areas and the rural areas and we will strive to further consolidate the rural areas business. At the same time we will expand the urban business to increase the shares of the -- increase the market shares of the urban business.

Secondly, we will try to have some mechanism innovation. At present we should make some breakthrough in the present mechanism, especially our management system and mechanism for our staff and for their remuneration. If we still maintain such kind of mechanism, it will not bring the initiative of our employee into full play. So this is the next step we should follow.

And facing the current gloomy external environment which is reflected by the slowdown of our business, we have further improve our internal quality to overcome those difficulties.

Now let's turn to over to Mr. Wan Feng to continue to offer the questions.

(Interpreted). For the insurance companies set by the bank, it is a common phenomena in the bancassurance sector. At present it does not generate too much impact on the bancassurance channel because at present the overall pie remains stable. But the landscape for the bancassurance business will be changed. We believe that due to our advantages in the business outlets and the brand name, the bancassurance -- the insurance companies set by banks will not generate very huge impact on our business.

(Interpreted). I'm [Shao Ziqin] from Citic Securities -- of Guosen Securities. In 2012 you have seen a rapid growth of the health insurance market, the health insurance business of China Life. In January and February we are also seeing a rapid growth in the health business. So what's your view on the further development of the health insurance business because we believe that the health insurance is closely related to the [mortality] table? And how can we take those risks for pricing into consideration as the environment is further deteriorating?

And second, last year we issued a new product of Kangning critical illness product. Whether such kind of product will have some impact on the sales of the current participant business.

And with the free pricing reform set by the regulator, whether such kind of reform will have our direct -- will have a direct impact on our existing business and new business.

(Interpreted). You have raised a very complicated question. For your health business, when we developed the product, we have a lot of ground to develop such kind of product because we have accumulated a lot of experiences. Our critical illness product is our most competitive product. When we develop such a new product, we make the reference to the mortality table in Japan and Australia. So when we set the pricing, we make a lot of margin with reference to the experience in Japan and Australia.

And for the underwriting, we also have make a very stringent standard on that. At present, the mortality situation for the current business and new business is still within our control and by doing some [ceding] business, we can fully control the risks of the health insurance business.

For the free pricing reform, we just saw the news in the media and such kind of problem is under study for the life insurance sector for many years. So at present, what we must do is to improve our own capability in the product development. We should focus more on the protection side of the product so that the product will be more competitive.

For the investment type of business, we are also making some study on that. We are waiting for more clear regulations set by the regulator so that we can make further innovation or development of such kind of products.

(Interpreted). I am Pan Hongwen from the Citic Securities.

So I want to know the breakdown of the new business value. And I have witnessed the strong growth in the NBV in the second half. What's the reason for that?

For the bancassurance channel, compared with our counterparts, the decline is relatively slow for China Life. So what kind of strategy is it that China Life has adopted for that and what's your view on the bancassurance channel in the year 2013?

(Interpreted). In our NBV, the agent channel accounts for the majority of the NBV. The reason for the rapid growth of the NBV in the second half is that we are -- our first year business -- first year premium growth in the agent channel is very rapid.

For the bancassurance channel, we have rolled out the new product. For the agent channel we also rolled out the product with a combination of critical illness, certain healthcare and accident and we also rolled out the product in the group business channel. We hope that such kind of new products to be rolled out should further -- to make further contribution for our business model transformation in the life insurance industry.

For -- as for your view on the bancassurance channel, you have raised the question that you worry a lot about the bancassurance channel. And we believe that in the past several years, the bancassurance business developed very quickly. That shows that the bancassurance channel is a very important channel. But it is not a core channel. After the development of the -- in the past several years, the growth, the bancassurance business has been more matured and it is tilted more towards a healthy development trying to solve its problems, the existing problems it has.

And we believe that the problem of the bancassurance channel is mainly in the product because the bancassurance channel's main product is the investment type of business and the participant products. But due to the depression of the capital markets, the bancassurance channel's products, mostly the participant products and investment type of business, were not attractive compared with the wealth management product offered by banks.

And we believe that in the future, the bancassurance channel should be further transformed from the investment type of business focus to the protection type of business focused. But we still need -- we need an overall turnaround for the business model transformation in the bancassurance channel.

But we should not make a sharp turnaround, but only a big turnaround because the bancassurance channel accounts for 70% of the first year premium. And we believe that after some time, with the help of the product innovation and the product transformation, the bancassurance channel will have a relatively stable business growth.

(Interpreted). I'm [Li Chen] from Macquarie. I have two questions.

Firstly, it's related to the business strategy. As you mentioned the core -- the agent channel is our core channel. So what kind of measures you will take to maintain the core -- the agent channel as the core channel.

And secondly, in your EV component what's the reason for such a difference of the investment experience variance as well as the market value adjustment?

(Interpreted). I will talk to -- just say some words about agent channel. Then Mr. Su will follow up with that.

For the agent channel and the bancassurance channel and the direct sales channel, our strategy is that the agent channel is our core business channel. The bancassurance channel is an important distribution channel. Those two channels account for 95% of our total premiums. So we attach importance to the agent channel and the bancassurance channel.

For the measures we will take, firstly, we will maintain the sustainable development of the sales force in the agent channel and the bancassurance channel. Last year in the agent channel we have accumulated CNY180.2b of the renewal premiums among which 90% are coming from the agent channel. That's the result of our efforts for the focusing on the first year regular premiums for the past several years. So in order to maintain the sustainable development, we shall still continue to focus on the longer term regular premium business.

And in order to the long-term regular premium business, it is -- we should still focus on the agent channel which requires the face to face contact between the sales people and the potential customers. For the bancassurance channel, the product rolled out is still just -- the products rolled out in the bancassurance channel is a relatively simple product. So in order to maintain the core position of the agent channel, we should first focus on the build-up of the sales force.

And in order to build up such kind of sales force, the sales force should be guaranteed by the mechanism and the system, management system. That is to say we should further improve the basic law on the management of the agent sales force. We will make our basic law on the management of agents to be more competitive to retain the talents in the sales force.

Secondly, we will focus on the development of such kind of sales force. And we will adopt a policy of the manager first and the [follower] next. We will give more attention to the junior office managers. If the junior field office managers can develop very quickly, their capability can be further improved and can they lead a very good team of the sales force.

And thirdly, we should give -- try to further improve the management of the remuneration of the insurance staff and the insurance sales agents.

Fourthly, we will enhance the trainings towards the agents force. For those agents when they step into the China Life team they are just green hands. So how to transform those green hands into a professional talent? It is a problem for all the insurance companies including China Life. In future we will set up three training centers nationwide and put forward some text books for the training of those agents. And we will also set up a specialized team for the lectures to deliver some speech and lectures to those agents force to improve their quality.

And fifthly, we will set up a unified culture for the sales force. So we will try our best to cultivate a culture that's with China Life characteristics so that those agents can -- will more like China Life's atmosphere and culture so they will be retained within the sales force of China Life.

(Interpreted). So I will add more points on that.

Firstly, the new basic law on the management of sales force was initiated in the second half of 2010 and it is fully implemented by the end of 2012. And we have seen some initial results for the implementation of such kind of basic management, the basic law on the management of agents.

Firstly, the quality of the agents has been further improved. As we have seen the education background in the agent channel has been improved. And secondly, we have seen the total number of agents has been further increased. Thirdly, the effective sales force has been increased by 10%. Under the basic law, firstly, it offers the better service support to the overall strategy of the Company. And how to make full use of such kind of basic law is an important issue for China Life. And we believe our current basic law has some advantages because it gives a lot of incentives to the sales force and it also takes the different local conditions into consideration. And thirdly, it focuses on the newly-added agents recruitment and also to pay more attention to the management skills of the junior field officers. But in future we will further improve the basic law on the management of agents to make it more competitive in the industry.

(Interpreted). For the investment experience, it's positive because we believe the EV calculation is based on the market value. And so the -- we believe the positive variance in the investment experience is mainly coming from the unrealized gains of the available-for-sale financial assets.

As for the market value adjustment it's negative. It reflects the adjustment difference between the market value and the book value. And in the calculation of the embedded value, we also take the deferred tax and other factors into consideration.

(Interpreted). I'm (inaudible) from Haitong Securities. My question is as follows. As China Life has relatively a high proportion of the traditional products in our total premium, so whether the free pricing reform that is taken in future will have some impact on the further -- has some risks on the further increase of the -- on the further surrender -- on the further increase of the surrender rate of the traditional products.

(Interpreted). At present we just got the news from the mass media about the free pricing reform. My understanding is a little bit different from you. I think the free pricing reform refers to the reform of the pricing set by the regulator.

As for its impact on our business, for a insurance customer, if you choose an insurance product, I think even if something occurred during the insurance coverage that might not generate too much impact on the customers to further -- to increase its surrender rate. But that needs time to test the -- whether such kind of phenomena will occur or not.

So your question is about the free pricing towards the recurring business and this is the problem that arise a lot of attention and concern of the regulator. We believe the reform is necessary. But what makes the problem more complicated is that the reform will have some impact on the recurring business, but it will generate a positive impact on the new business. So we hope that the free-up of the guarantee rate cap should be raised step by step, not just the totally free pricing of the product.

(Interpreted). Let's go to the Hong Kong venue.

My name is Pallavi from Standard & Poor's (inaudible). I just wanted to understand is there any change in your impairment policy this year for investments.

And secondly, going ahead, if you assume the stock markets remain flat for this year, what would be the potential impairment impact.

(Interpreted). Since our IPO, we conducted relatively consistent impairment loss policy. In the past several years, due to the negative impact from the capital markets, if the assets maintain -- reach the certain standard for the impairment, the certain accounting standard we should [draw] the impairment loss from the product. And the standardized policy is if the market value is below the book value for one year then we should draw the impairment loss. And secondly, if the market value is only 80% of the book value for half a year, then we should draw the impairment loss. And thirdly, if the market value is only 50% of the book value, then we should draw the impairment loss.

For China Life, we still maintain the consistent accounting policy for the impairment loss. Unless there are some big changes set by the regulator for the accounting principles, we will not change this kind of impairment policies for the impairment loss.

If we change the accounting policies for the impairment loss or under the current situation, what is the impact of the impairment loss. We believe it should be calculated based on the different situation, different scenarios. For the -- all the public financial institutions, especially the life insurance -- public insurance companies, we have conducted the most stringent accounting policy for the impairment loss.

(Interpreted). As the time runs very quickly, we believe that you have made a lot of good questions and this brings to the end of our briefing. If you have further questions, please do get in touch with our Investor Relations team at any time. Their contact numbers can be found on the last page of our press release. Thank you for coming. Thank you.

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.