China Life Insurance Co Ltd (LFC) 2018 Q4 法說會逐字稿

Good morning, ladies and gentlemen, welcome to China Life 2018 Annual Results Briefing. I'm Yinghui Li, General Manager of the company's Board of Directors office. The Hong Kong and Beijing venues for this briefing are connected by live videoconference. We invite those who are not able to attend the briefing in person to use that audio facility to join definitively. A live webcast of the presentation is available at the mobile and computer for those who cannot attend the briefing.

Now I would like to introduce you the members of the management, Mr. Wang Bin, Chairman of China Life; Mr. Li Mingguang, Vice President, Chief Actuary and Board Secretary; Mr. Zhao Peng, Vice President; Mr. Zhan Zhong, Marketing Director; Ms. Yang Hong, Operations Director are here with us in Hong Kong. Mr. Su Hengxuan, President of China Life; Mr. Xu Haifeng, Vice President; and Mr. Ruan Qi, Vice President are with us in Beijing via videoconference. Today's briefing will start with a 30-minute presentation on the company's 2018 annual results. After this, there will be 30 minutes of Q&A session during which the management will take questions from both Hong Kong and Beijing venues. Ms. Grace Hou from Investor Relations team in Beijing will co-host the Q&A session.

Now I'd like to hand over to our Chairman, Mr. Wang Bin.

Good morning, ladies and gentlemen, welcome to China Life 2018 Annual Results Briefing. Today's presentation comprises 5 sections. First, I would like to give you an overview of China Life's performance in 2018 and the outlook for the future, then I will invite other members of the management team to present the company's financials, investment performance, embedded value and business and operations for 2018.

In 2018, just as the Chinese economy experienced downward pressure due to a myriad of complex and challenging situation at home and abroad, China Life's insurance industry also transformed, actively adapting to the changing landscape. In light of these new challenges, the company structured overall keynote of making progress with stability, prioritize the business value and steadily impact on the high-quality development.

Premium continued to grow with gross written premiums reaching RMB 535.83 billion, up by 4.7% year-on-year despite a RMB 52.3 billion reduction in single premiums. Renewal premiums amounted to RMB 364 billion registering a strong growth of 26% year-on-year. Market share went up by 0.7% from the end of 2017 to 20.4%, strengthening our leading position in the market.

Our premium structure was further optimized. First-year regular premiums accounted for 90.2% of long-term first-year premiums, up by 26.2% year-on-year, accomplishing the landmark task of premium restructuring in the 13th 5-year plan earlier than expected. Renewal premium accounted for 68.1% of gross written premiums, up by 11.8% year-on-year. Well, the proportion of the designated protection-oriented businesses in the first-year regular premiums also went up by 6.7%. Embedded value grew steadily. At the end of 2018, the embedded value of the company amounted to RMB 795 billion, up by 8.3% from the end of 2017.

The total assets amounted to RMB 3.25 trillion, up by 12.3% from the end of 2017, exceeding RMB 3 trillion for the first time. Looking ahead to the next decade, China will remain one of the most promising life insurance markets in the world. The shift in China's economy from the stage of rapid growth to high-quality development is equally evident in the insurance industry, which has refocused on the growth of protection type of products. And life insurance companies have paid more attention to business value growth. Looking at the industry growth from 2014 to 2018, we can see that health insurance is on the fast track exceeding the average growth of industry.

Now turning to the life insurance demands. There are multiple positive factors that will stimulate a steady release of life insurance demand. Firstly, the Chinese government has taken measures to invigorate the market players and stimulate consumption by reducing taxes and fees in many areas. China's per capita disposable income has grown steadily creating advantageous external environment for the healthy and sustainable development of the insurance industry. Secondly, with rise in living standards and the implementation of the healthy China strategy, people are paying more attention to their physical and mental well-being supporting rapid growth in medical and health spending. This has opened up new space for development of protection-oriented business.

Thirdly, as China is experiencing accelerated population aging, long-term saving type of insurance products will see a ready market. Lastly, the increase in government spending for supplementary major medical expenses insurance and social security, the launch of tax advantage, health insurance, tax-deferred pension and other preferential policies has boosted the sales of commercial insurance and created new growth drivers.

Facing with this new environment and new requirements coupled with the company's own reality, we have put forward the strategical goal of China Life revitalization. During last month's Corporate Open Day, we announced this overarching strategic plan. We have always strived to build ourselves into a time-honored brand. We'll remain steadfast in creating development paths with unique characteristics of China Life. Our business mission and vision is to become a world-class life insurance company and to protect the good life of the people.

Focusing on the goal of revitalizing China Life and achieving sustainable growth, the company will continue to promote these 3 major transformations and dual centers and dual focuses strategy and in-depth integration between assets and liabilities and follow the operational guidelines of prioritizing business value, strengthening the sales force, achieving stable growth, upgrading technology, optimizing services and guarding against risks. We will continue to build the 4 driving engines of talents, mechanism, innovation and integration to improve our development quality. Enhance our urban market competence, extend and strengthen the sales force, reinforce the brand image and boost the spirit of China Life and strive to become a world-class life insurance company.

I will now hand over to Vice President, Zhao Peng to present the company's financials and investment performance.

Thank you, Bin Wang. Next I will present the financials and investment performance of China Life in 2018. In 2018, the company's total revenues amounted to RMB 627 billion, down by 2.5% year-on-year. Net premiums earned amounted to RMB 532.02 billion, up by 5% year-on-year. Investment income was RMB 125.7 billion, up by 2% year-on-year. Net realized spread losses on financial assets were RMB 11.39 billion, impairment losses were RMB 8.21 billion and the net fair value gains through the profit and loss were minus RMB 18.28 billion. Regarding the cost structure, the underwriting and policy acquisition cost ratio changed from 10.07% during the same period last year to 9.99%.

The main reason for this slight decrease came from the company's continued business restructuring and increase in the proportion of renewal premiums. The administrative expenses ratio changed from 5.59% during the same period last year to 5.97%. The percentage of administrative expenses to the total administrative expenses and underwriting and policy acquisition costs changed from 35.69% during the same period last year to 37.41%. The rise was mainly attributable to the company's focus on leveraging costs in recent years, increased investment in the long-term and fundamental areas like the workplace, team building and technology as well as further reducing the volume of single premiums.

So that has caused the slight increase of the administrative expenses. In 2019 because of the appending of the -- in 2018 as a result of the volatility and decline in the equity market, the net profit attributable to equity holders of the company was very much down and bringing down the net profit. So the total net profit attributable to equity holders of the company was RMB 11.4 billion, down by 64.7%. The weighted average ROE was 3.54%, down by 6.95% and EPS was RMB 0.39, down by RMB 0.74.

Moving onto company's balance sheet. At the end of last year, the company's total assets increased to RMB 3.25 trillion to (sic) [from] RMB 2.9 trillion and total liability increased from RMB 2.57 trillion to RMB 2.93 trillion and the equity attributable to equity holders of the company changed from RMB 318 billion (sic) [RMB 320 million] to RMB 320 million (sic) [RMB 318 billion]. Reserve of insurance contracts was RMB 2.22 trillion, of which residual margin was RMB 684 billion.

Company's equity attributable to equity holders totaled RMB 318 billion, a slight decrease of 0.8% compared with the end of 2017, of which net profit attributable to equity holders amounted to RMB 11.4 billion. Other comprehensive income was minus RMB 2.07 billion. The dividend paid to equity holders -- shareholders was RMB 11.69 billion.

Solvency. The company remained well capitalized as core solvency ratio stood at 250.55% and while the comprehensive solvency ratio stood at 250.56%. The decrease in the company's solvency ratio was due to the impact of various factors, mainly including the business growth of the company and the increase of the scale of the investment asset.

Moving on to the investments. I will present the company's investment situation as a provider of long-term capital. So the company seized opportunity of favorable investment -- interest rates in 2018 and increased the allocation to long-term fixed income investments. The newly added long-term fixed income asset allocation of the year amounted to over RMB 500 billion extending the asset duration effectively. Position in equity investments remained at reasonable level. The company upheld the value-oriented investment and further optimized the asset structure. A new equity market investment model, which followed the core + satellite structure was established. The company alternative investment focused on balance between risk and return and steadily allocated, which will help improve the investment yields and asset duration into the future.

In 2018, company investment asset continued to grow amounting to over RMB 3.1 trillion by 12.75% higher than the end of 2017. The allocation towards the term deposit increased from 16.32% to 18.02%. The proportion of bond decreased from 43.17% to 42.2% and stocks and funds decreased from 9.73% to 9.03% and debt-type financial products increased from 10.96% to 11.32%.

In 2018, the yield to maturity of the company's newly allocated fixed income assets increased significantly. However, the net investment yield decreased from 4.92% at the end of 2017 to 4.64% as a result of the decrease in fund dividends. Also effect of the (inaudible) of the Asian market, the gross investment yield and comprehensive investment yield decreased 187 bp and 147 bp, respectively year-on-year. The company has always maintained a prudent investment strategy. All our debt-type assets are of high quality with well-controlled risks. By the end of 2018, over 95% of the company's acquired bonds had AAA ratings and over 98% of our nonstandard fixed income assets had AAA external ratings. Newly added nonstandard fixed income investment exceeded RMB 77 billion with a weighted average maturity of over 8 years. End of 2018, the company had invested over RMB 410 billion in this area.

So this is about financials and investment, I would like to hand over to Vice President, Chief Actuary and Board Secretary, Mr. Li Mingguang to present the company's embedded value for 2018. Thank you.

Thank you, Mr. Zhao. Please allow me to elaborate on China's embedded valued for 2018. As at December 31, 2018, the company's embedded value reached RMB 795.05 billion, an increase of 8.3% compared with the end of last year. Therein the adjusted net worth increased by 4.2%, amounting to RMB 386.05 billion, where the value of in-force business after cost of required capital increased by 12.5% to RMB 409 billion.

This graph shows the movement of the embedded value from the end of 2017 to 31st of December 2018. Major changes include expected return reached RMB 60.25 billion, reflecting the total expected return of covered business and expected investment return of net assets in 2018. The value of one year's sales in 2018 amounted to RMB 49.51 billion. Operating experience variance was RMB 277 million. The investment experience variance was minus RMB 44.46 billion. Methodology, model and assumption changes were minus RMB 1.13 billion. Market value and other adjustments were RMB 8.79 billion. Exchange gains amounted to RMB 325 million. Shareholder dividends paid out in 2018 were RMB 11.69 billion. At the end of 2018, embedded value of the company amounted to RMB 795.05 billion.

The value of one year's sales. In 2018, the value of one year's sales was RMB 49.51 billion, a decrease of 17.6% from 2017, the year-on-year decline which was narrowed by 6.02% compared with the first half 2018. The new business margin of the company sales was enhanced from 2017. The chart to the right shows the contribution of each channel to the value of new business, of which the value of agency channel amounted to RMB 42.84 billion, representing 86.5% of the total and that of bancassurance RMB 6.36 billion, representing 12.8% of the total and the group insurance RMB 314 million and representing 0.6% of the total. Handing over to President Su to present the company's business and operations.

Thank you, Mr. Li. Next I would like to present China Life's business and operations in 2018. In 2018, the company adhered to the overall keynote of making progress with stability and implemented an array of new high-quality development initiatives. The company's business has stabilized and gained a better momentum. The company's gross written premiums reached RMB 535.83 billion, up 4.7% year-on-year. We proactively reduced single premiums from RMB 63.67 billion in 2017 to RMB 11.4 billion representing an 82.1% decrease. Short-term premiums reached RMB 55.33 billion, up by 17.6%. The first-year regular premiums were affected by the in-depth adjustment in the company, which reached RMB 104 billion and down by 7.7%. Our protection-oriented business maintained a rapid growth. Benefiting from optimization of our premium structure over the years, renewal premiums increased by 26.6% to RMB 364.68 billion. The company's premium structure continued to be optimized, which has demonstrated a stronger driving force of the renewal business. The company laid a solid foundation for continued sustainable growth. Within long-term premiums, renewal premiums amounted to 75.9% of the total increase of 13.9% year-on-year.

Within long-term first-year premiums, first-year regular premiums amounted to 19.2% of the total, an increase of 26.2% year-on-year. All protection-oriented businesses saw rapid growth with the percentage of premiums from the designated protection-oriented insurance products in the first-year regular premiums increasing by 6.7% year-on-year.

In 2018, the individual agent channel was value driven and are focused on promoting the transformation and upgrades of sales management model and achieve a steady business growth. The channel recorded a gross written premiums of RMB 408.28 billion, up 15.4% year-on-year, accounting for 76.2% of the company's gross written premiums and up by 7.1% year-on-year. Renewal premium reached RMB 316.93 billion, up 25% year-on-year. The first-year regular premium amounted to RMB 79.24 billion, of which FYRP 5-year or longer and 10-year or longer payment duration accounted for 61.6% and 46.4%, respectively. The bancassurancce channel further transformed its business mix significantly reducing single premium and focusing on the development of regular premium business.

Single premium significantly decreased from RMB 59.78 billion in 2017 to RMB 8.64 billion, down by 85.8%. Affected by this, gross written premiums of the bancassurance channel amounted to RMB 76.84 billion, down by 32.3% year-on-year. First-year regular premiums amounted to RMB 23.24 billion, accounting for 72.9% of the long-term first-year premiums, up by 10% and 46.9% year-on-year, respectively.

Renewal premiums grew to RMB 43.79 billion, amounting to -- accounting for 57% of the gross written premiums, up by 28.9% year-on-year. The group insurance channel accelerated the business diversity and continued to optimize its business structure achieving steady growth across all businesses. Its gross written premiums amounted to RMB 26.4 billion, up by 0.8%, of which the short-term premiums reached RMB 21.27 billion, up by 2.1% year-on-year.

In 2018, company continued to pursue the sales force development strategy of expanding size and improving quality. The company employed more stringent recruitment standards, strengthened the performance reviews and management processes, reinforced dismissal of low performance agents to further optimize the sales force.

At the end of the reporting period, the company's total sales force reached 1.772 million people with quality of teams across all channels being effectively improved. The monthly average productive agents of the agency channel rose by 2.6% year-on-year and monthly average number of agents selling designated protection-oriented products increased by 43% year-on-year and the monthly average active insurance planners in the bancassurance channel increased by 34.5% and the high-performing sales force of the group insurance rose by 16.9% year-on-year.

Affected by wealth management products offered by banks, the surrender payments of certain premium -- single premium businesses in the bancassurance channel increased resulting in a surrender rate of 4.69%, an increase of 0.56% year-on-year. The company regular premiums persistency rate continued to improve, the 14-month persistency rate was 91.1%, while the 26-month rate was 86.0%, up by 0.2% and 0.3% year-on-year, respectively.

The main tasks for 2019 raises the question of strategy to revitalize China Life following the established steps. Our main goals for 2019 are to ensure the company's healthy and stable development, maintain our leading market position, focus on business value and sales force and technological advancement. With the above goals in mind, our key tasks are the following. First, we aim to improve the quality of development. The company will expand the value-oriented business and enhance the profitability of scale business, achieve a steady growth of new premiums, faster growth of first-year regular premiums and rapid growth of protection-oriented business. We will optimize our asset allocation and strive to improve investment yields.

Second, we will push for greater corporate reforms, build a consumer-centric, market-oriented organization structure and establishing a categorized and multitiered management system across all branches. The company will explore and construct a performance-based assessment, compensation and employment mechanism to better incentivize and retain people. We'll establish a value-oriented resource allocation mechanism.

Third, we will effectively strengthen the quality of our sales force. I will elaborate on this point in the following slide.

Fourth, we will actively strengthen our market position in large- and medium-size cities by enhancing our top level design, promoting market-oriented reforms and increasing resource input. At the same time, we will further capitalize on and strengthen our first-move advantage in rural areas.

Fifth, we will accelerate technological upgrade to fully optimize our user experience and create response system directly facing sales force and customers. We will also strengthen the consolidation of data and applications and speed up the company's digital transformation.

Sixth, we will improve quality of service by advancing the construction of inclusive service system and improving customer's experience. We will also enhance intelligent and intensive operation and boost operational efficiency. Further, we aim to strengthen our risk controls by optimizing our long-term risk control mechanism and improving our comprehensive risk oversight function while continuously improving the company's asset and liability management.

As we know -- we understand that you pay great attention to the company's strategy to improve both the sales force and the investment performance. As such, allow me to elaborate on these 2 points.

In terms of sales force development strategy in 2019, the company will adhere to the overall strategy of expanding the size and improving the quality, aiming to achieve a stable growth in size and accelerate quality improvements. The key measures to achieving these goals are the following. First, we will firmly transform our sales force management model and make this the priority of the company's transformation. Second, we will deeply integrate the training function into sales force management. Specifically, new agent development, retention, agent advancement so as to improve the agent force productivity and retention rates. Third, we will devote more efforts and refocus into development of few new sales teams, the ops sales team and insurance product teams. These teams represent higher recruitment standards, better quality and better productivity force. The company will consolidate the existing sales teams of the agent bancassurance and group channels and establish a broader individual insurance sales team.

In terms of the investment and improving investment performance, the company plan to take the following measures. First, we will strengthen our asset allocation capability, enhance macro research and strive to seize investment opportunity offered in the market trends, cycles and a broader environment. Second, company will continue to diversify third-party entrustment, clarifying the differentiated positioning of the internal and external market-oriented fund managers and create better synergy between the two. Third, we will improve our performance assessment system by implementing a set of scientific investment benchmarks, reasonable attribution of performance and fine-tuning of the performance assessment system, effectively transmitting the constraints on the liability side and striking a balance between the long-term and short-term objective. All these measures are to focus on improving investment yield. Fourth, the company will adjust its investment governance system and promote reform of its market-based employment mechanism to attract talented professionals. That is end of my presentation. Thank you.

Due to time constraints, please limit your questions to no more than 2, please. Also tell us the name and the institution you represent will be very good. So let's begin with the first question from Hong Kong. The gentleman, please?

Okay. From Daiwa Securities. My name is Qi Leon. This is the first time for Chairman, Wang Bin, to attend briefing of results. Through various channels, we have seen that China Life has proposed the [franking] strategy of revitalization of China Life. I would like to ask about the transformation of institutional development. We have seen some immediate improvement since the strategy was proposed, but excluding the short-term performance over the recent couple of quarters. So if we look into the long-term future to achieve long-term growth and revitalization, we need the institutional development to ensure this objective. Chairman Wang said in Beijing, it was also needed by the central government, but China Life is much larger in size and more complex in organization. So Mr. Wang, could you discuss how the institutional reforms will be sustained beyond 2 quarters and carried into the future? In embedded value, there is minus RMB 1 billion adjustment, but the experience variance is positive. So what assumptions were changed to achieve that?

In terms of the proposal of the strategy of revitalization of China Life, we did this in the light of the real situation in China Life and also assess the status of the team and business, we also did a lot of finding and did careful thinking before we proposed that strategy. After the strategy was launched throughout the group, including the listed company, people followed the defined objectives and moved forward in steady yet speedy steps. So in terms of the institutional reforms, I would like to hand over to President Su to give you more details and address your second question.

Thank you very much [Mr. analyst] for raising this important topic. Previously, on the open day, I noted that in order to achieve high-quality development for China Life, in order to revitalize China Life, China Life must embark on the reforms of institutions and mechanisms. China Life has been making long-term explorations in this regard, but as I consented to you, the steps into the analysis were still slow in this regard. How can we achieve high-quality development and accomplish the goal of revitalization of China Life? It is a must for China Life to comply with the trend of the times and respond to the call of the era and embark on the market-oriented reform for institutional mechanism. In general, we are going to systematically study, systematically design and start with easier part and also start with the simpler parts and move on to the more complicated and difficult parts. We are going to stick to the value orientation and keep on achieving the strategic objectives and follow the overall direction of revitalization of China Life by taking the following action for market-oriented reforms. First, we are going to restructure the organization. Second, we will develop the market-based management system. As I said, how can we have management by different classes and by different tiers based on the market orientation? In assessment, compensation and employment, we also need to embark on market-oriented reforms. It's fair to say in this regard, recently, we have already taken certain substantive steps recently for the bottom players in large- and medium-size cities, 3 have been eliminated. Fourthly, we also follow closely the formation of the reasonable resource allocation mechanism based on the contribution per resources. So this is my outline of the directions. Thank you. Okay, let me explain your second question, mainly the operating experience variance is positive 2.8, but the methodology, model delivering a negative figure. Experience is positive, that means that in 2018, China Life in terms of managing the insurance risk and expenses made positive gains. It affects the current period of profit and also the value of businesses -- in-force business. As you have noted, we have done a good job in controlling the mortality risk. Last year, we (inaudible) to the underwriting, an antifraud, an application of AI, noticeable results were achieved last year. Secondly, for the methodology, model changes, it was -- impact of minus RMB 1.1 billion, it reflects the efforts of the company to reflect on the future trend. For example, for the mobility, we would like to further consolidate our bases. Thank you.

Beijing venue, please. Please, identify yourself.

From Daiwa Securities. My name is (inaudible). Two questions. First, in terms of regulation, we recently noted that the CBIRC introduced upgrading of the channels regulation. So there is cleanup of the agents and also draft regulation for bancassurance channel. So what is the impact of these 2 regulatory moves on the sales of life insurance, especially for the draft regulation to be issued by CBIRC? We know we have a big bancassurance channel. Will that new regulation exert pressure on our sales? Second, for the liability side sales of protection-type products in 2018, we made a good start this year. Congratulations to the management. But it's mostly driven by the pension and saving type of products. Since we started the protection products early on, I would like to ask like first of all on accounting, so how are these products sold so far? Do we have some quantitative guidance on the whole year performance of sales of these products?

Let me take up the question on the draft regulation on bancassurance channel as well as the development of the protection type of business. Recently, CBIRC issued a draft regulation. It is mostly to inquire about the opinions of our 3- to 4-year term products, the company replied to such request for opinions. As you have shown your interest in this channel, I did do a lot of business through bancassurance. But in 2018, the company flushed this channel by RMB 53.4 billion and it is close to -- similar to the 3- to 4-year term products. I think the regulation is still a draft published for facilitation of opinions. Whether the final result will be still the same as the draft is not for sure. There are also some companies interested in liquidity. After the enactment of the regulation, I will be there in a position to address your question about the impact of the new regulation on our business. Also as you asked about in Q1 this year, China Life adopted value first and development model and that value first -- put value first and also adapt diversity. So in this year, we did make a good start. So with 22 new products launched, we had a good start this year. It is as we expected. The Q1 results will be announced very soon in April. Please wait for a while, be patient. We will make timely disclosure of the Q1 results. And Mr. Zhan, please talk about the agency channel.

I would like to address your question about the 2 new regulations. It is fair to say that the regulation for the whole industry is becoming more and more stringent, the trend has not changed. The company would like to proactively adapt ourselves to regulation and resolve our internal problems in order to get us all ready for the regulatory environment. In the new regulation, the eligibility of the agents need to be reregistered and cleaned up. So that will trigger impact on the industry and squeeze out certain redundancies. So for period to come, the agency -- the agent channel will slow down in its expansion and it may even shrink for some period to come, but still the agent team is below the demand of the market and the channel will scale up, but people will pay more attention to the quality of the agent team. You also raised the question about the over-the-counter sales of bancassurance. You also talked about the draft regulation published for comments. In view of this, we have dramatically changed the single premium structure, and our regular premium structure is optimizing. Quite a large part of the bancassurance sales come from the insurance of tenure business. Actually, it is quite similar with the agent business. So we proactively adapt ourselves to the trends of bancassurance channels and constantly strengthen the ability of our teams so as to meet the requirements of the business environment. Thank you.

Back to Hong Kong, please.

I'm (inaudible) from Bank of China International. For the investment contracts reserves, certain assumptions have been changed. According to the disclosure, the assumptions are changed, the net profit before tax was increased by about RMB 3 billion. I'd like to know more details about what are these changes? Will these changes reoccur every year? On what basis, did we choose to make such adjustments?

Okay. Let me take up your question. As you have seen, well, the impact of the changed assumptions increased the profit before tax by RMB 3 billion. There are several parts. First, in accordance with the current accounting standards for the traditional insurance business, there should be a moving average of 750 days plus the premium adjustments when the curve is changed, so there will be an impact on the reserve. The impact actually reduced the reserve by more than RMB 6 billion and also, as I said, for mobility, some adjustments are made to the assumptions, that also increased the reserve by RMB 3 billion and on net result, the reserve is reduced by RMB 3 billion.

Beijing, please.

I'm Simone Zeng from Haitong Securities. (inaudible) Two questions. One for the investment side, we see that in second half of last year, the investment yield for fixed income increased somewhat. So what are these fixed income products? And what is the investment yield for such products? NBV margin in individual increased from 32% to 42% between the 2 halves of the year. That is quite a rapid growth. What is the reason of margin increase? Is it because of the improving value of single products or the improved portfolio or the structure of our investment -- our insurance products?

Thank you very much for your question. The company has always attached great importance to the allocation of fixed income assets, which account for almost 80% of our total assets and offered stabilizer and (inaudible) of investment yield for the total assets. When the interest was high, we allocated more to the long maturity, long duration fixed income products. Last year, we increased allocation by RMB 500 billion and the yield was 5%. That helped to stabilize the interest rate revenue and investment yield. Thank you.

Second question about the individual insurance channel and the profitability increased in second half of last year versus the first half. It was caused by the change of the product structure rather than caused by single product. In 2018, the industry was under deep adjustments and complex environment of operation. In the first half, our long-term saving type of product was very much hindered and companies were looking for the path of development. After some exploration, we firmly transformed in the second half, especially after Chairman Wang took office. He also raised a host of requirements, which we certainly follow. In terms of the future plan of the individual products and business portfolio, notable improvements has been made and the value has increased significantly.

In Hong Kong, gentleman, please.

(inaudible). Looking at -- strategically, looking at the first quarter and the jump-start campaign and it sounds -- looking at the monthly premium year-to-date, it sounds like you saw a lot of volume of premium, I'd just like to get your thoughts on the strategic sense in focusing your best agents on low-quality business admittedly in the selling season before spring festival, whether or not that makes a lot of sense from your perspective going forward? Or whether maybe a better strategy might be to smooth out that seasonality into the rest of the year? Second question, Slide 27, some great data here showing the year-on-year growth in protection FYRP, up 6.7 percentage points. It is just missing a couple of labels. Could you share with us where it was? And where it went to in 2018 to protection FYRP? And if I could squeeze in just a cheeky third question very quickly, perhaps to Mr. Li, at the very back of the pack, you've included a sensitivity on the impact of (inaudible) diversification benefits, why did you not include that in your base case for embedded value like some of your peers?

(foreign language)

I will take all the 3 questions. From the last one, in terms of the diversification impact of the embedded value. On the open day, an analyst from CICC asked about the same question about diversification effect. The question was raised. So we volunteered to disclose the diversification impact of embedded value. With our current standard, we had grown the value by RMB 29.9 billion. We disclosed this number because many analysts are curious why we didn't use the diversification effect as the base scenario. On the open day, I told you that China Life understood embedded value in its own way. We would (inaudible) to quote it to supplement information. So its main use was to analyze the year-on-year movement or changes of company, owning the contract level and develop the embedded value on this basis, and we actually compare reliably the performance of the company year-on-year and achieve appropriate level of granularity. Please imagine if across different years, different accounts and different products, the distribution will be different. To make the analysis more continual, we have always disclosed the embedded value at the level of contracts. Since you raised this question, we did consider your question and we also follow the guidelines of China Actuary Association and prudently consider the level of diversification. The impact of the layers is 30 billion. So next one is about the rising share of the protection product. In this industry, we have been repeatedly asked, let me repeat the answer. Since you have been kept asking, I would like to answer again. The protection business has several features. First, it is not necessarily free from the interest rate exposure. Second, it doesn't mean the protection business is high value, but you kept asking. Also given our experienced operation, we emphasis on value and steady growth. Therefore, in internal operation, we use the so-called designated protection-type businesses. That is a term that we have adopted to make sure that our performance can deliver the plan and target defined at beginning of the year. So it is special and we have disclosed this proportion for the first time. And so in 2017, such designated products did -- expanded rapidly. First question in terms of the high-quality agents developing low-quality business, I disagree with the term that you used, namely, the low-quality business. In jump-start campaign, we highlight value and diversify our development. By diversification, we mean that I want to diversify our business from protection to saving and also long and short. It also means that the team needs to be also diversified in its growth and at different levels, medium, low, skilled, old and new agents must all prosper so that the team can prosper at large. Therefore, the product strategy is defined by the company in a way consistent with those. When the results are announced in April, you'll be able to see as well whether this strategy has been structurally implemented. At the same time, I also disagree that we use the -- the business is low-quality. On the open day, I made it clear to you. During the jump-start, one of the [fractured] businesses (inaudible) yield. The match was rarely seen, it was so good. Interest rate risks were so low. As the other analyst asked that how is our protection business doing. So we adhere to the strategy of diversification in development. I believe that our assets will yield satisfactory result to you.

Let me add to that. In the industry, for protection products, there is no uniform rule. It is the case that various companies develop their own requirements and designate different scope for protection products. So that is different across different companies.

Questions from online. Please connect the call in from CMS.

From CMS Securities. My name is (inaudible). I have 3 questions. First as you mentioned, I would like to follow up by saying -- asking what products are classified as designated protection plan. What is the inherent or embedded value of such products? Second, on the open day and the annual report, you have been emphasizing on the institutional transformation and market-oriented reforms, so I would like to know more about the impact of such reforms on the incentives?

Let me address your question about the criteria for the designated protection-oriented businesses. This is a broad term. In my own view, all those products relating to the entire life cycle of insured people are the protection products in broad sense. Due to the changes in interest rate in recent years, we have been reflecting on question, are our businesses exposed to the risk of interest rates? Certain people believe that protection products are subject to lower interest rates risks. So people are paying more attention to such designated businesses. As I said previously, when we try to distinguish between protection and savings, we need to look at contracts and what is prescribed therein. So different terms would involve different risks. The operational products need to be managed for risk exposure based on the terms of contract. We need to realize this. Why are we actually developing the term of designated protection-oriented businesses? We would like to focus on value and our ability to manage the interest rate risk and insurance risk, then we define the scope of these products. You were also asking whether these products are highly profitable. No, that is not the case. Our philosophy is to be customer-centric and sell the appropriate products. However, we ensure we don't take risk. Second?

You were asking about the institutional reforms and their impact on the adjustments of the incentives for agents. In this industry, we follow the basic law to govern the agents. So the basic law contains the relations between the company and the agents depending on the year, situation of the market. On company, the basic law is also appropriately adjusted as noted before. In terms of developing the agent team, we always adhere to the principle of expanding the size and improving the quality with a moderate scaling up. We would like to improve the quality of the sales force and also increase the revenue of the agents with the compensation of the agents. So in recruiting, we are going to do a better job and also we would like to cultivate and train the agents better so that we can achieve a higher rate of retention and enable the agent to earn more. So these are also very important incentives and motivations for the agents.

Okay. The 2018 results announcement -- briefing now come to closing. If you have further questions, please contact our IR team. Thank you very much for attending this meeting. Thank you.