China Life Insurance Co Ltd (LFC) 2016 Q3 法說會逐字稿

Good morning, good afternoon, ladies and gentlemen. Welcome to the China Life 2016 third quarter results announcement conference call.

Management, please begin your conference. Thank you.

(interpreted) Good afternoon, ladies and gentlemen. Welcome to China Life's 2016 third quarter results briefing conference call. My name is Zheng Yong, the Company's Secretary of the Board. Vice President and Chief Actuary, Mr. Li Mingguang, and Vice President and CFO, Mr. Zhao Lijun, as well as the presidents in charge of corresponding departments will also participate in this con call.

Today's briefing will (inaudible) 10-minute presentation on the Company's 2016 third quarter results. After this, there will be a Q&A session for 20 minutes, during which our management will take questions from participants in the call.

First of all, let me hand over to our Vice President, Mr. Li Mingguang.

(interpreted) Good afternoon, ladies and gentlemen.

We have planned to make [the following] presentation myself, but due to the time limit, [in order to] give more time to raise questions, then I will ask my colleague to brief you about our third quarter results in English.

During the first three quarters of 2016, amidst a complex macro environment and increasingly intense market competition, the Company adhered to the guideline of innovation driven investment strategy and the transformation of (inaudible) and follow the operational principles of prioritizing value, strengthening sales force, optimizing business mix, achieving stable growth, and [guarding] against risk. By accelerating our core business growth, optimizing the business mix, and further expanding the sales force, we delivered outstanding results for the insurance business. However, our profit was still under pressure.

Firstly, the insurance business grew strongly. By the end of September the Company's total premium income were RMB376.3 billion, higher than the total premium income last year, with a year-on-year growth of 21.2%.

The Company continues to rank first among peers in terms of market share. Specifically the Company first-year regular premium grew strongly. At the same time, the renewal premium also increased rapidly, putting an end to the subdued growth over the last -- of the past year. As a result, the growth of both first-year regular premium and the renewal premium drove a sustained increase in total premium.

Secondly, the business mix was continuously optimized. During the third quarter, the Company focused on the business value growth, further optimizing the sales mix. Our first-year regular premium and 10-year or longer first-year regular premium continued the strong growth momentum seen in the first half of the year and realized the rapid growth, which was much faster than the growth rate of first-year premium and the total premium income.

The percentage of first-year regular premium and long-term first-year premium and the percentage of 10-year or longer first-year premium in first-year regular premium was further improved compared with the end of June. In addition, we continued to promote product diversification. As a result, our protection type of business reported relatively fast growth during the third quarter, with our product mix being further optimized and business quality being further improved.

At the end of September, the (inaudible - technical difficulty) revenue rate was 3.11%, 1.56 percentage points lower than the same period of last year.

Thirdly, our sales force continued to expand and overall quality of the team was further enhanced. The Company was committed to further expanding the sales force of [various] channels while putting more resources and efforts into their training and professional development and reinforcing day-to-day management. As a result, the number of productive agents continued to increase significantly.

Fourthly, the Company's investment income was (inaudible) recovered. During the third quarter 2016, we paid more attention to the balance between the revenue risk and the duration. Meanwhile, we increased our equity investment in the open market, actively explored opportunities for non-standardized investment in the PPP and infrastructure and the large projects in these areas. At the end of September, the Company's investment income totaled RMB84.945 billion, with investment performance certainly recovering in the third quarter.

Fifthly, the Company's profit was still under pressure during the first three quarters impacted by the decline of investment income and the update on the discount rate assumption of reserves of traditional insurance contracts. The Company's net profit attributable to shareholders amounted to RMB13.528 billion, a drop of 60% year-on-year.

Going forward, we will accelerate our sales model transformation and (inaudible - technical difficulty) training of our sales force in line with the strategy we set at the outset of the year in order to achieve satisfactory results by the end of 2016. Meanwhile, we are formulating our 2017 business plan by carefully studying internal and external situations, maintaining the strategic (technical difficulty) consistency and [the tactical] flexibility in order to leverage our strengths. By doing so, we will continue to strengthen our sustainable development and the cost competitiveness as we march towards a world-class life insurance company.

(interpreted) Now we will take your questions. Due to the time limit, please limit your questions to no more than two. And we will be very grateful if you could tell us your name and the institution you represent.

Thank you. Ladies and gentlemen, we will now poll for questions. (Operator Instructions).

Our first question comes from Scott Russell with Macquarie Hong Kong. Thank you.

Good afternoon everyone. Firstly, thanks for hosting this call for the first time. It really helps us to get answers. My two questions are both about performance in the most recent third quarter.

Can you give us an indication of how much of your new business was sold as annuity? So the 4% guaranteed annuity product, what percentage of your new business sales did that comprise during the most recent quarter? I think you've said in the past that you do expect that to reduce as a percentage of your sales relative to the very high first half composition.

Secondly, there were some very large impairment losses in the September quarter, RMB1.2 billion, up a lot from last year. Can you explain quickly what assets that was and why that rose? Thank you.

(interpreted) Thank you for your attention you pay to China Life. For the third quarter, among the new business, actually we have almost now (technical difficulty) 4.025% of annuity business in the first quarter.

(interpreted) So the second question will be answered by Mr. Zhao Lijun, our Vice President.

(interpreted) The second question, actually if the impairment loss is out of the fluctuation of the valuation of the [asset] investment, in the first half we have almost RMB0.9 billion of the impairment loss. In the third quarter, we also -- we have further more than RMB1 billion of impairment loss. So in total, we have roughly RMB2.1 billion of impairment loss.

(interpreted) So that's the answer. We will take another question.

Thank you. Our next question comes from Leon Qi with Daiwa Security Hong Kong. Thank you.

Hi. Thanks for taking my question. This is Leon Qi from Daiwa Securities. I have two questions.

One is regarding our average guaranteeing rate. Is it possible for management to share with us that what is the average guaranteeing rate for all the current [bad] book policies that are still in force?

Second question is on the composition of our life insurance long-term contract reserve. Is it possible to tell the proportion of participating products in the total pool, in the overall pool of our long-term reserve? Because that is the portion of liability that's supposed to have flexible cost. Thanks.

(interpreted) For the average guarantee minimum rate for the bad book, it's about 2.58%.

For the reserve, the participating business accounts for 60% to 70% of our total reserves.

That's the answer.

Thank you very much.

Thank you. Our next question comes from Esther Chwei with Deutsche Bank Hong Kong. Thank you.

Hello. Thanks for giving me this opportunity to ask the question -- ask two quick questions.

The first one is on the solvency margin ratio. It seems to have declined by 10 percentage points in a quarter. So, just want to understand what's the reason behind that. And how much, if any, of that was driven by the stake in Guangfa Bank, the stake increase in Guangfa Bank? That's my first question.

The second question is with regards to the new money rates. Could you disclose in terms of the new money invested in third quarter, what's the type of assets and also the type of return that you're getting? Thanks.

(Interpreted). So, Mr. Li will answer your first question and Mr. Zhao will answer your second question.

(interpreted) Firstly, I want to be clear that our solvency margin is decreased by 10 percentage points rather than 10%.

Secondly, our solvency ratio is not impacted by our increase of stake in Guangfa Bank.

The main reason for this decline of the solvency ratio is because of the business development.

Now I will turn the floor to Mr. Zhao Lijun.

(interpreted) For the third quarter, actually we continued the momentum we had in the first half. However, we just increased our investment into mid to long-term bond investment and also these short-term time deposit investments, with the total newly-increased money of about RMB87 billion. For the new money rate, it is over 3.5%.

That's the answer.

Thank you. Our next question comes from M.W. Kim with JPMorgan Hong Kong.

Thank you for management for this opportunity. I actually have two questions. One is about the current (inaudible) disclosure.

It seems that so far the (inaudible) [equivalence] ratio looks not to include the supplement, the capital charge for DSII or the GSII, also the countercyclical supplemental capital charge, etc. So, when do you expect the extra capital charge related to the systemic risk will be included in the system?

Second question is about the duration matching between your assets and the liability. It seems that your business is actually, is pending the real liability ratio, selling more the regular products. The asset side, the asset there is clearly going down in every asset class. So, what kind of the asset do you normally, the matching, the extending liability, what would be the expected return on this via the interest-bearing assets? Thank you.

(interpreted) What's your first question? Actually we're not so clear about your first question.

Kim?

Mr. Kim, please go ahead with your question.

(interpreted) We were not so clear about your first question.

Yes. Now, when I look at the (inaudible) disclosure, actually in the required capital calculation, it only accounts the insurance risk and the market risk and the credit risk. But when I look at the overall the (inaudible) [framework], there is here the extra consideration such as the extra capital charge related with the systemic risk and then some (components) should be countercyclical, the supplemental capital or the extra charge as the domestic systematically important insurer, and then the globally systematically important insurer, etc. So, so far, your solvency ratio is very strong, but if we really think about this extra capital charge, I want to know what the solvency ratio look like and when we could see the more detailed or more sophisticated solvency development related with (inaudible).

(interpreted) Actually, yes, we are not so clear about your question. So, Mr. Li will give the answer by -- try to give answer by his understanding.

(interpreted) According to his understanding, actually we have not -- have had -- we have not been involved in this systematic insurance institutions so we cannot give the exact answer to your questions. If we are involved in that system, we will actively assess the risks arising from that.

For the second question, actually it is a relatively complicated question. I will answer your question bit by bit. Firstly, the Company has developed a lot of [regular premium] business in order to further lengthen the duration of our business. So the premium in future can be regarded as our asset.

For the second, with regard to the duration, actually, different business has different requirement towards the different duration. For the business that is not so sensitive to the interest rates, its requirement for the matching is not so high. For those businesses that are sensitive to the interest rates then we have (inaudible) requirements for the matching of the duration.

So for our overall strategy, is that the [asset life] as mentioned, it should be within the tolerance of the -- within the certain tolerance of our risks. In addition to that, you mentioned that at present there is a trend for the lowering of the interest rates and that the trend will continue but Mr. Li is not so agreeable on this proposition. In spite of that, we will also guard against risks for -- arising from the lowering interest rate which is also important task for us to do that.

So taking all these factors into consideration, we will pay more attention to the active interaction between the asset side and the liability side. So for our product strategy we have a more diversified product strategy.

In future, we hope we can develop more product that is not so sensitive to the interest rates. For the product that is sensitive to interest rates we will have a very strong control on the duration. I wonder whether you are satisfied with my answer or not.

Thank you very much.

Thank you, ladies and gentlemen. There are currently no questions online.

(interpreted) That brings us to the end of our briefing. Thank you very much for your participation and I hope you have a nice weekend.

Thank you. Thank you for your participation. This concludes the conference.

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.