China Life Insurance Co Ltd (LFC) 2019 Q3 法說會逐字稿

Good evening, ladies and gentlemen. Welcome to China Life's 2019 third-quarter results briefing. My name is Li Yinghui, (technical difficulty). Mr. Lin, China Life's President, Board Secretary, Chief Actuary; Mr. [Tao], Vice President; Mr. Jiang Tao, Vice President; as well as heads of relevant departments will participate in the briefing.

Today's briefing will start with a five-minute presentation on the Company's third-quarter results followed by a Q&A session for about 20 minutes, during which our management will take your questions. Now let me hand over to (inaudible), head of the IR division for the (inaudible).

Thank you, Li. In the first three quarters of 2019 under the guidance of the strategic deployment of China Life revitalization we actively proceeded with all (inaudible) according to requirements for high quality development and maintained leading marketization with [smooth] develop momentum.

Firstly, the Company made steady progress in overall development and our core businesses continue to grow. In the first three quarters of this year the Company achieved the revenues of insurance business of RMB497 billion, an increase of 6.1% year-on-year. And our first year regular premiums amounted to RMB99 billion, an increase of 4.7% year-on-year. Renewal premiums amounted to RMB334 billion, an increase of 5.9% year-on-year.

Short-term insurance premiums amounted to RMB61 billion, an increase of 31% year-on-year. And we want to emphasize short-term business is just the accidental and health business, it is not single premiums. So, single premiums would still maintain a big negative growth rate as we have promised the market.

Secondly, the premium structure was increasingly optimized and the protection oriented business developed rapidly. During the reporting period, the percentage of first year regular premiums of the Company and premiums from long-term insurance of new policies was 98%, an increase of 8.45 percentage points from the corresponding period of 2018.

The percentage of first year regular premiums with the payment duration of 10 years or longer in first year regular premiums was 51%, an increase of 15.72 percentage points from the corresponding period of 2018. The percentage of premiums from designated protection oriented products in first year regular premiums increased by 8.79 percentage points year-on-year. And during the reporting period to surrender rate of the Company was 1.67%, a decrease of 2.78 percentage points year-on-year.

Thirdly, the sales force steadily expanded with continuous improvement in quality. As at the end of the third quarter, the total number of sales forces from all channels was approximately 1.95 million, an increase of approximately 0.18 million from the end of 2018. In particular the number of exclusive individual agents was 1.663 million, an increase of 15.6% from the end of last year.

The quality of our sales force consistently improved and the monthly average productive agents from the exclusive individual agent channel increased by 37.4% year-on-year. The monthly average number of agents selling designated protection oriented insurance products rose by 49.2% year-on-year.

Fourthly, the Company proactively took advantage of investment opportunities and our asset structure was constantly optimized. As at end of September the Company's investment assets reached RMB3.44 trillion, an increase of 10.7% from the end of last year. We deepened the market oriented reform of our investment management system, strengthened the management of assets and liabilities, seized the market opportunities to allocate to long-term fixed income assets and optimized the structure of equity portfolios.

For the first three quarters of this year, investment income from fixed income assets increased constantly and income from open market equity investments grew significantly. In the first three quarters the gross investment income was RMB134.5 billion. The gross investment yield was 5.72%, rising by 231 basis points year-on-year. Our net investment income was RMB113.9 billion and the net investment yield was 4.83%, rising by 21 basis points year-on-year.

During the reporting period our net profit attributable to equity holders of the Company was RMB57.7 billion, an increase of 190.4% year-on-year. And our value of new business grew by 20.4% year-on-year. The core solvency ratio and comprehensive solvency ratio were 260% and 272% respectively.

For the next stage we will continue to adhere to the strategic deployment of China Life Revitalization, take proactive efforts to fulfill the overall tasks of the year 2019 and make [specific] deployments regarding the year 2020.

Moreover, we will consistently carry out various reforms in great depth, strengthen the sales force development, take lead in the large- and medium-sized cities, step up technology empowerment and innovation driven development, and also enhance risk prevention and control in a practical manner so as to move towards high quality development. Thank you.

Thank you. Now we will begin the Q&A session.

(Operator Instructions). Scott Russell, Macquarie.

Good evening, everyone. Two questions if I can; one on earnings and one on new business. The earnings are up 190% for the nine months in the third quarter. That means they are up 480%. You've called out the tax rule changes and strong investment income as being two reasons. But I'm asking for a little bit more detail on the core drivers of that very strong profitability.

You don't disclose the impact of the change in reserving accounting estimates, but I assume that that was maybe a one-off positive in the third quarter. And if we adjust for the tax and we adjust for the strong investment income, it still looks like your underlying profits doubled in the third quarter. So, I'd just like to understand what's driving that very strong release, maybe lower claims, lower expenses, whatever it might be, residual margin release picking up.

My other question is about new business and it's just a simple one. Can you confirm that the third quarter [V&B] rose by around 15%, which is my estimate, which would imply a decline in margins for the third quarter given that the FYP seems to have been in the high 20s? Thank you.

(Spoken in Chinese).

(Interpreted) I will answer your first question regarding the earnings. So, we have introduced in our briefing of the third-quarter results. So, if we take out a factor of the tax reduction policy, the main contributor from the earnings increase is the investment income.

For the first three quarters we have followed a core concept of asset liability matching and we have pre-allocated some fixed income assets. And we also see the opportunities in the equity market and realize some profits. That is the main reason for the earnings increase.

(Interpreted). The other indicators we have disclosed, it's in detail in our third-quarter report. So, in the limit of time I will not go into detail, but no other significant factors affect it.

And for the [MBB] growth, we shall say that for the first three quarters of the year we have achieved MBB growth that is satisfactory. And the main reason is we have optimized business structure from the end of this year and that is the main contributor of the MBB growth.

And the studies on the second half of this year, we have -- we are more firm than ever to [center] the customers' demand. And for the seasonal change of the MBB margin we should say that it may vary because of customers' needs are also different. And we expect that to follow in the fourth quarter and the next year. So, we will keep strengthening our strategy of customer orientation.

On the (inaudible) of the detailed calculation, I do not have that figure. So, maybe next time you come to Beijing we can (inaudible) look at your model and we will have further discussion.

Okay, let's take the next question.

M.W. Kim, JPMorgan.

Thank you for the opportunity. I had one question about the asset liability management. Clearly the Company's liability duration is expanding at a very faster speed due to the portal mix shift. So, although recently the China bond is actually [delighting], that probably (inaudible) [to the lift]. Overall the asset liability metric ought to be more challenging and should be more [focus dedicated].

So, the question is what would be the Company's overall A&M strategy in 2020 under the low interest rate or the bond rate scenario? And also could you make any comment on A&M strategy on the (inaudible) page 2 stand-out? Because under that scenario, probably this matching would need to be more [sophisticated]. Thank you.

(Spoken in Chinese).

(Interpreted) I also see you have made very good observations of our business structure. We have optimized our business and we have achieved a good development we should say. For the gaps in the assets and the liability duration we have seen a decrease by the third quarter compared with the first half.

For our business plan for the new year, we also have carried out detailed testing on all the aspects on the asset liability match. And we pay attention not only to the cash flow but also to the asset duration and the matching between assets and liabilities side. For the liabilities there's different durations, we have different measures on the asset side. Our core concern is to prevent the long-term uncertainty.

(Interpreted) Currently we are actively participating in the second phase of the (inaudible). But for the specific revision, they haven't been publicized to the market. So, after they have been public we will have detailed discussion and disclosure (inaudible).

Jenny Jiang, Morgan Stanley.

Just a quick question on product side. Just for third quarter alone what was the more popular product -- or maybe you can list two or three. Because your sales have been significantly better than peers.

Secondly, we wonder if management would have some statistics like what percentage of sales are on existing customers and what percentage of sales are on new customers for third quarter or for year to date (inaudible) are both okay. Thank you.

(Spoken in Chinese).

(Interpreted) For your first question we have accelerated the development of the production oriented product. And for the third quarter we have seen more than 10 products that are very popular and we sold them quite well.

The second question starting from the beginning of this year we have implemented a differentiated development strategy on different levels, on the sales team and business and also on the product. So, we want to sell different products according to different groups -- customers' needs. So, we have seen selling to the new customers increasing in the total business.

(Inaudible).

Thank you for taking my questions. A couple of follow-up questions. The first one is you talk about the percentage of protection has gone up by 9 percentage points. What proportion is protection as a contribution to new business profit or AP? That's the first question.

And the second question is can you just talk a little bit about your first-quarter 2020 jumpstart campaign? What are the type of products you're targeting? And are there any targets for growth, whether that's in terms of volumes or also new business value?

And actually a third one, what is the impact of the new critical owners' table rules that are due to come in the coming months? Thanks.

(Spoken in Chinese).

(Interpreted) We should say after several months of hard working the proportion of protection oriented business now comes from a higher percentage in our new business. And we are in very good preparation for the first-quarter jumpstart of next year. And our general guidelines through the asset liability and (inaudible) and we want diversify products and achieve growth in both MBB and our sales force productivity.

And regarding the change of the morbidity table we should say that for the easy appraisal as well as our profit measurements it will not be very much impacted from the revision because the new table is only served as a fundamental table and different companies can refer to their own experience.

We're running out of time. We will take the last question.

Steven Lam, Bloomberg Intelligence.

Just a couple of follow-ups. On the investment side, just curious, did you or how much stocks did you increase in 3Q, if any, excluding the market value gains like how much billion yen you have added? And have you also done that in October so far?

And sort of similar questions, you mentioned numerous times that you seize opportunities to invest in long-term bonds. We've had various episodes of bond yields going up and down in the recent months. So for example, October there's not a rally. Did you seize opportunity this time as well? If so, could you tell us roughly how much you have added?

And you've also mentioned about on the nonstandard asset investments in recent months or since the beginning of this year. Could you give us some color in terms of the return profile or the duration profile of these investments? Or maybe in what kind of asset you've invested?

And then, sorry, last one on the agent side. So, based on my understanding your level rate now is above 1.6 million for the exclusive agents. That's sort of back to the 3Q 2017 level. Are you comfortable with that? Just want to get a sense of whether you still need to have more headcount.

Now you mentioned about the productivity has increased. Could you give us some concept in terms of the percentage of you are active agents out of the total or productive agents? If so, could you tell us the definition of those? Thank you.

(Spoken in Chinese).

(Interpreted) On your first question, for the open market equities, our general guideline is to maintain a reasonable exposure and (inaudible). So, for the first three quarters of this year we see some opportunities allocated to some high dividend stock. And we also see opportunities to be balanced to realize some of the gains and also control this [exposure]. For open market I would say our guideline is to maintain about 10% of our total assets.

Certainly about the long-term bonds, for the first three quarters of this year we have seized some time window with favorable interest rates and we allocated some long-term bonds, especially the government bonds. We have newly added more than RMB120 billion in government bonds.

And at the same time we also allocated to a bank negotiated term deposits and also non-standard fixed income. But also increased the yield and also controlled the risk. For the non-standard assets, our guideline is on the [preventative] of controllable credit risk. We want to enhance the allocation in nonstandard assets.

For the first three quarters of this year the main sectors we allocate from are transportation and also publicity and comprehensive sectors. We also invested mainly top enterprises both nationally and locally. We want to increase the duration and also the investment yield through (multiple speakers) in non-standard assets (inaudible).

(Interpreted) About the agent force, you have made very careful observation about our figure for (inaudible). As I mentioned, by the end of the third quarter our total agents in the agent channel amounted to 1.66 million. That is an increase of 15.6% on the end of last year. And for the whole market we have seen differentiated development momentum regarding the agent force.

For China Life we have achieved our goals in the beginning of the year regarding the agent force expanding. And for the future we will speak to the strategy of improving the quality and enhancing the scale of the sales force. And we expect the total sales force for the whole industry will have lower decrease in the future. So, on the basis of stable increasing we want to achieve more and more quality improvement of the (inaudible).

So, we have made lasting efforts to increase the productivity of our agent force. Like I have mentioned before, we will put more emphasis on recruitment of the sales force and to select more high quality agents. And we will strengthen the training and education of the new agents to provide more and stronger supporting tools to the agents so that they can enhance their capability of sales. Those are my answers. Thank you.

This brings us to the end of the briefing. If you have any further questions, please feel free to contact with our IR team at any time. Thank you for your participation. Bye.