China Life Insurance Co Ltd (LFC) 2019 Q4 法說會逐字稿

Ladies and gentlemen, good morning. Welcome to China Life's 2019 annual results briefing. My name is Yinghui Li, Securities Representative of the Company. The briefing today will be conducted via teleconference. Analysts and investors can also watch the live webcast of the briefing on computer and mobile devices.

The management attending today's briefing include Mr. Wang Bin, Chairman of the Company; Mr. Su Hengxuan, President of the Company; Mr. Li Mingguang, Vice President, Chief Actuary, and Board Secretary; Mr. [Ruan Qi], Vice President; Mr. Zhan Zhong, Vice President; and Ms. (inaudible), Head of Investment Management Center. Today's briefing will start with a 30-minute presentation on the Company's 2019 annual results followed by a 45-minute Q&A session, during which our management will take questions from participants.

Let me know hand over to our Chairman, Mr. Wang Bin.

Good morning, ladies and gentlemen. Welcome to China Life's 2019 annual results briefing at this special time. Today's presentation comprises five sessions. First, I would like to give you an overview of the China Life development in 2019. Then I will invite the other members of the management team to present the Company's business and operations, financials, investment performance, and embedded value for 2019.

I will give you an overview mainly on the 2019 results highlights and the reform initiatives and a brief outlook for the future. 2019 was the first year for our China Life revitalization strategy. With high-quality development as the ultimate goal following the consistent operational guidelines of prioritizing business value, strengthening the salesforce, achieving stable growth, upgrading technology, optimizing customer services and guarding against risks, the Company achieved remarkable results with a continuous growth in both business value and scale.

First, the key operating metrics improved significantly. The value of one year's sales amounted to RMB58.7 billion, up by 18.6% year on year. The investment income increased strongly with a gross investment yield being 5.24%, up 195 basis points year on year. And a comprehensive investment yield being 7.28%, up 418 basis points year on year. The net profit attributable to our creditholders was RMB58.287 billion, up 411.5% year on year.

Second, the Company's overall scale grew steadily. Gross written premiums amounted to RMB567.09 billion, up by 5.8% year on year, maintaining the leading position in the industry. Investment assets reached RMB3.57 trillion, up 15.1% from the end of 2018.

Third, the Company's business structure continued to be optimized. Premiums with a 10-year or longer payment duration amounted to RMB59.17 billion, up 42.1% year on year, and accounted for 54.1% of FYRP, up 14.2% year on year. Designated protection-oriented business grew rapidly, with its proportion in FYRP increased by 8.6%.

Fourth, on both the size and quality of the salesforce were enhanced, and the Company's agent channel salesforce reached 1.613 million people, up 12.1% versus the end of last year. While the agent number increased steadily, the quality continued to improve. Monthly average productive agents increased 34.9% year on year, while the monthly average number of agents selling designated protection-oriented products increased by 43.8% year on year.

Over the past year, the Company strived to strengthen gross momentum through reform and transformation. According to China Life's revitalization blueprint, the Company officially launched the Dingxin Project in the first half of 2019, identified 10 major areas to be reformed, and kicked off more than 30 key projects. By the end of December 2019, we have completed the upgrade of the organization structure and the market layout.

In terms of the sales function, we created a strengthened individual agent channel in coordination with other channels. In terms of investment function, a top-down market oriented investment management system, which is in line with investment value creation chain, has been established. In terms of new technologies, the Company launched a three-year campaign to build a technology-driven China Life, aiming to empower the entire insurance value chain and expand fintech ecology based on digital platforms.

In terms of operations, maintaining the customer-centric approach, we continue to streamline and upgrade the back office platform to be more integrated, intelligent, and ecological, and help our customers access our products and services more conveniently.

Meanwhile, the Company vigorously promoted a market-oriented talent selection, and appraisal mechanism strengthened talent acquisition and training while continuously improving the management capability at all levels. 2019 is the first year of China Life revitalization in which we laid out the blueprint. In 2020, the Company will continue with and step up these reforms. We believe that with a full implementation of the reform measures, the reformed dividends will be continuously released, providing a strong support for stable and healthy development.

The industry and the Company have been impacted by COVID-19 in Q1 of 2020; increasing, and certainly for the whole year. Immediately after the initial outbreak, the Company fully leveraged new technologies to strengthen the salesforce online training and to promote online sales and services in order to minimize the impact of the epidemic. With the situation improving in China, we believe that the industry and the Company will gradually normalize. To this end, the Company will closely monitor and track the development of its business and its salesforce and strive to achieve the planned goals for the year.

From the medium to long-term perspectives, China remains one of the fastest-growing insurance markets in the world. First of all, the Chinese economy will maintain its stable and long-term upward trend which creates a favorable macroenvironment for the development of the insurance industry.

In 2019, China's per capita GDP topped USD10,000, indicating that China will enter a new stage of higher insurance demand by international precedents. Second, China lays greater emphasis on the role of commercial insurance in supporting economic growth and enhancing social security system. Since the beginning of this year, insurance regulators have issued a series of documents, of which are promoting the high quality development of commercial insurance. Commercial pension and health insurance will usher in a new era of development.

Meanwhile, with the increase of risk awareness of the public and accelerated transformation of insurance companies, the quality of life insurance product offerings and services will be greatly improved, given the whole industry's stronger momentum at the both supply side and demand side. As such, we firmly believe that China's life insurance industry is still at a stage of strategic opportunities.

That concludes my brief overview. Now I would like to hand over to Mr. Su Hengxuan, President of China Life, to take you through the Company's business and operations.

Thank you, Chairman Wang. Next, I will first present details about our business and operations in 2019, and then I'll brief you about the changes from Dingxin product in our sales channels, [respond] to your interest. In 2019, the Company continued to focus on new business, value growth, accelerated transformation and reform, and achieved a rapid development of its core business. The Company's gross written premiums reached RMB567.09 billion, up 5.8% year on year, maintaining number-one in the industry. First year regular premium increased by 4.8% year on year to RMB109.42 billion, of which those paying for 10 years or longer totaled RMB59.17 billion, up 42.1% year on year. Renewed premium reached RMB385.8 billion, up 5.8%. Short-term premium reached RMB69.52 billion, up 25.6% year on year.

In terms of the Company structure, the Company rigorously developed its long-term regular premium products and protection-oriented business, with its business and products launcher continuously optimized. The first year regular premiums unaccounted for 97.9% of long-term first year premiums, up 7.7% year on year. Within first year regular premiums, those with a payment duration of 10 years or longer accounted for 54.1% of the total, up 14.2% year on year. Renewal premium accounted for 77.5% of long-term premiums, up 1.6% year on year.

Protection-oriented business grew rapidly. The percentage of premiums from designated protection-oriented products in the first-year regular premiums increased by 8.6% year on year, and both the number of protection-oriented policies and average premiums per policy increased.

Product diversification continued with six of the top 10 first-year regular premium products being protection-oriented. The agent channel focused on new business value growth through the sales of protection -- protect-oriented products. We also made great efforts to promote the transformation and operating of the sales management and strengthen overall development of the business agent for some day-to-day management. As a result, the channel achieved a coordinated growth on both business volume and value, and its new business margins recently improved.

The agent channel reported gross written premiums of RMB436 billion, up 6.9%, of which RMB336.6 billion for the renewal premiums, up by 6.2%. The FYRP amounted to RMB83.87 billion, up 5.8%, accounting for 99.67% of the long-term first year premium. FYRP with a 10 years or longer payment duration amounted to 52.2%, RMB2 billion, up 42.1% year on year. And its percentage in FYRP was 62.2%, up 15.9% year on year.

Meanwhile, agent channel salesforce increased in both quality and quantity, a major driver for new business growth by the end of 2019. Agent channel salesforce reached 1.613 million people, up 12.1% from the end of 2018. The upsales team, who are younger and better educated, reached 577,000 agents, up 42.1% from the end of 2018, faster than the overall agent force growth rate. The quality and -- of the agent force improved constantly with the monthly average productive agents increased by 34.9%. And the monthly average number of agents selling designated protection-oriented products increased by 43.8%.

With an emphasis on regular premium business, the bancassurance channel further is business restructuring is a new business margin of one year's sales rising constantly. The gross written premiums of bancassurance amounted to RMB70.06 billion, down by 8.8% as a result of optimized the business structure. The FYRP amounted to RMB23.82 billion and accounted for 99.9% of the long-term first year premium of the channel, up 27%. Renewal premium grew by 1.9%, amounting to RMB44.62 billion, and accounted for 63.7% of the gross written premiums of the channel, up by 6.7%.

The group channel continued to diversify its business and witnessed a good growth [rate] of the short-term insurance business. At the end of the reporting period, the gross premium of the (technical difficulty) amounted to RMB28.85 billion, up 9.2%, of which the short-term premiums reached RMB23.83 billion, up 12.1% year on year.

Next I will briefly introduce changes in our sales channel after implementing Dingxin Project. We have set up a strengthened individual agent channel in coordination with other channels. In individual business center, we consolidated the bancassurance -- insurance planners team, tele-sales team, with the agent channel's upsales team. And the new upsale team is independent from the general agent team as two departments. Both of them are supported by the same platform comprised of individual insurance marketing, operations, training, and the cross-selling departments.

The individual business center would deepen transformation; and, hence, a new business creation. In the diversified business center, the group channel focused on improving the specialized operations while the bancassurance channel focused on business from bank outlets, properly coordinating growth in business scale and value.

In 2019, we kicked off a three-year action plan for technology-driven China Life, emphasizing empowerment and innovation, accelerating the digital transformation, and driving the Company's high-quality development. On one hand, we focus on technology empowerment and upgrading. In 2019, the Company deepened the use of AI, IoT, and big data to empower the entire value chain of insurance business; and upgraded the sales model, field offices, and the customer experience.

First, the online customer acquisition grew by 47%. The percentage of online salesforce and recruitment reached 70%.Second, the Company achieved full digital coverage at star field offices, as a sales command center has access to the frontline, enabling real-time information transmission. Third, the number of claims settled automatically exceeded 11.3 million. The Company introduced a short-term risk identification model for critical illness insurance with a 91% accuracy rate.

On the other hand, innovation and transformation were emphasized. The Company had a fruitful achievement in many aspects from the front- to back-end of the life insurance ecosystem, propelling our digital transformation. First we revamped the IT infrastructure and utilized the industry-leading hybrid clouds to rapidly deploy applications at the frontend, and safely store data at back end, ultimately improving the resource allocation efficiency by 10 times and the overall access speed by three times.

Second, we adopted to the market demand and with light applications which are built upon a series of components and plug-ins to deliver flexible combinations in recent app [implementations], such as cloud video, cloud desktop, transform the traditional office model and offered [steadily available] live streaming and smart office services for agents and employees nationwide. (inaudible) 1,000 innovative applications have been launched and why the Company's digital platform expanding the insurance-centered ecosystem.

In 2019, we also kicked off our three-year action plan for excellent services and landed the model featuring multipoint access to the front office integrated and the intelligent headquarters and operation sharing. The first focus was on integration and accessible customer services. The Company improved the integrated mass financial service ecology and achieved the glow of one customer, one China Life, by optimizing its service process throughout the entire service chain. Customers were able to access various financial services provided by China Life group with one unified entry point.

The second focus was on online services and convenient customer services. The Company established the industry leading-whole process automatic claims settlement node, shortening the time required of individual claims payment by 41%. Insurance policy service became more convenient, with a paperless policy application rate for individual customers reaching 97.8%, an increase of 7.8% year on year. Policy administration process online increased by 47%.

The third focus was on business scenarios and smart customer services. The Company provided more differentiated and refined services. It launched the intelligent underwriting system 2.0, increasing the rate of intelligent underwriting by 5.9% year on year. The volume of service provided by online robots increased by 77%. The force was on customer demand and customized services. As a result, our customer satisfaction and loyalty remained high.

In 2020, the Company will strive to achieve the following goals as to ensure concrete progress of the China Life revitalization strategy. First, keep new business value creation at the core of the Company's reform and transformation so as to achieve [planned] results. Second, to further Company's market-oriented reforms and Dingxin Project. Third, speed up digitalization process in business operation. Fourth, accelerate the integration of service platforms. Fifth, strengthen risk management and control, enhance asset-liability management, implement ESG content, and advance our corporate governance.

I will now hand over to Vice President, Chief Actuary, and Board Secretary Mr. Li Mingguang, to present the Company's financials, investment performance, and embedded value.

Thank you, Mr. Su. Next I will present the financials and investment performance, as well as embedded value of China Life in 2019. In 2019, the Company's total revenues amounted to RMB729.47 billion, up by 16.3% year on year. The Company's gross written premium amounted to RMB567.09 billion, up by 5.8% year on year. In 2019, the Company's investment income increased dramatically. Gross investment income amounted to RMB169.04 billion, up 77.7% year on year. Net investment income amounted to RM149.11 billion, up 12.1% year on year. Net realized spread gains by the investment assets were RMB8.57 billion. Impairment losses were RMB7.89 billion, and the net fair value gains through P&L were RMB19.25 billion.

Regarding the cost structure versus last year, the underwriting and policy acquisition costs ratio increased from 9.99% to 11.16%. The administrative expenses ratio decreased from 5.97% to 5.52%. The percentage of administrative expenses to total administrative expense, and underwriting and policy acquisition costs decreased from 37.41% to 33.1%. The Company's cost structure change was mainly driven by the continued optimization of business structure. That is the significant growth of a 10-year-or-longer first-year regular premiums and designated protection-oriented businesses. Meanwhile, the Company strictly controlled the administrative expenses. As a result, underwriting and policy acquisition costs rose subsequently while the proportion of administrative expenses decreased.

Due to the higher gross investment income, coupled with the upward adjustment of tax deductible cap for commissions and fees, the net profit attributable to equityholders were RMB58.287 billion, up 411.5% year on year. The weighted average return on equity was 16.47%, up 12.93% year on year. Earnings per share was RMB2.05, up RMB1.66. The Company plans to pay cash dividends of RMB0.73 per share to all shareholders, up RMB0.57 year on year. This dividend payout plan is subject to the approval by the 2019 Annual General Meeting. This is about the P&L.

Now let me move on to our balance sheet. As of December 31, 2019, the total assets increased by 14.5% to RMB3.73 trillion from RMB3.25 trillion at the end of last year -- mainly 2018. The total liabilities increased by 13.2% from RMB2.93 trillion to RMB3.32 trillion. The reserve on the insurance contracts were the RMB2.55 trillion, of which the residual margin was RMB768.3 billion.

As of December 31, 2019, our equity attributable to equityholders totaled RMB403.76 billion, up 26.8% year on year. In 2019, the Company's equity attributable to equityholders increased by RMB85.39 billion, of which net profit attributable to equityholders amounted to RMB58.287 billion. Other comprehensive income was RMB34.76 billion, and our dividends paid to shareholders was RMB4.92 billion.

As of the end of 2019, the Company remained well-capitalized, as core solvency ratio stood at 266.71% while the comprehensive solvency ratio stood at 276.53%, up 16.16% and 25.97% year on year. In March 2019, the Company successfully issued RMB35 billion of capital supplemental bond, which was calculated into supplemental tier 1 capital, raising the Company's comprehensive solvency ratio by roughly 10%.

I'm going to present about investment performance. In 2019, the Company optimized the strategic and tactical asset allocation implementation from underlying managers' risk and operations management, along the investment value creation chain. As for strategic asset allocation, we took asset liability management as the core, continuously strengthened the strategic asset allocation and the fundamental research to navigate through cycles. We also incorporated tactical views on account level and capitalized on the market opportunities by deviating from the SAA. Our manager selection process made sure that the TAA was implemented by leveraging both dedicated and external investment managers with a distinct investment style and complementary strengths. Meanwhile, the Company has further optimized its full range, full process supervision to guarantee efficient and quality investment.

The Company's Dingxin Project also followed these principles and reshaped the investment team, completing the first stage of reform in the investment function. Thanks to the increased allocation to interest-bearing assets such as long-term bonds, high dividend stocks, and the nonstandard assets in recent years, the net investment yield remained stable at 4.61% amidst the trending down rate environment. We seized opportunities of the market by effectively implementing tactical allocations in a timely balance, improving the gross investment yield by 195 basis points, and comprehensive investment yield by 418 basis points. I would attribute our performance in 2019 to the improved [management] decision making process and solid execution.

By the end of 2019, the Company's investment assets exceeded RMB3.57 trillion, 15.1% above 2018. By the end of 2019, among the major asset categories, the allocation towards term deposits changed from 18.02% at the end of 2018 down to 14.98%. Bonds changed from 42.2% down to 39.08% (sic - see slide 27, "39.48%"); and sovereign funds, excluding money market funds, from 9.03% to 11%; and debt type of financial products changed from 11.32% to 11.62%.

The Company has maintained a prudent investment strategy. We invested and diversified sectors, and the credit risk of our fixed income investments are well under control. By the end of 2019, our credit bonds exceeded RMB570 billion, of which over 96% have AAA ratings. The total amount of our nonstandard fixed income assets exceeded RMB430 billion with over 90% having AAA external ratings. In 2019, the Company's new nonstandard fixed income investment exceeded RMB110 billion with over 98% having AAA external ratings, so that credit risk is under control.

Next, I'm going to move on to embedded value. First I want to introduce the value of the one year's sales of the Company. In 2019, the value of one year's sales of the Company was RMB58.7 billion, up 18.6% year on year, of which the value of the agent channel's one-year sales amounted to RMB52.19 billion, representing 88.9% of the total. The value of bancassurance channel's one-year sales amounted to RMB6.29 billion, representing 10.7% of total. And the group assurance amounted to about RMB221 million, representing 0.4% of the total value.

In 2019, the Company proactively optimized the business structure and looked at the percentage of the first-year regular premium, 10-year-or-longer FYRP, and designated protection-oriented business. As a result, the new business margin was significantly enhanced, of which the agent channel's new business margin increased to 45.3%, up 3.2%. And bancassurance new business margin increased by [to] (sic - see slide 9) 23.8%, up by 5.1% year on year.

As of December 31, 2019, the Company's embedded value reached RMB942.1 billion, an increase of 18.5% year on year of which the adjusted net worth increased by 25.1%, amounting to RMB482.8 billion, while the value of in-force business after cost of required capital increased 12.3% to RMB459.3 billion. After considering the diversification effects, the Company's value of in-force business after the cost of required capital was RMB493 billion, and embedded value was RMB975.8 billion.

The next graph shows the movement in the embedded value from the end of [2019] to that of 2019. Major changes include the following. Expected return reached RMB66.63 billion, reflecting the total of the expected return of the covered business and expanding the investment return of net assets in 2019. The value of one year's sales amounted to RMB58.7 billion. Operating experience variance was RMB128 million. Investment experience variance was RMB31.91 billion. Methodology, model and assumption changes were minus RMB6.85 billion. Market value and other adjustments were RMB3.02 billion. Exchange gains amounted to RMB198 million. And cash dividends paid out to shareholders in 2019 were RMB4.92 billion. That concludes my -- our presentation. Thank you.

We will now begin the Q&A session. We ask investors for their views and suggestions on our performance and operations in 2019. All of the questions collected, the investors are most concerned about the following two questions. First, will the Company's insurance sales strategy channel and product focus for this year be adjusted in light of the COVID-19 epidemic? And second, will there be an impact on the Company's overseas investment? Will the slump in the overseas market affect the Company?

Let's first ask management to answer these two questions.

Mr. [Chen], please, about sales.

Let me address this question. The outbreak of COVID-19 has impact on the Q1 performance of the Company and the industry relating to the demand of the customers; our sales and team management are all affected. And that has caused uncertainties much more as (inaudible) for our overall development. After the outbreak, the Company swiftly took measures, including giving play to our technology expertise under technology-driven total life. We also upgraded the products and boosted online servicing and sales. We also enhanced the online training of our teams so that our salesforce will be able to be better at off-site sales under the epidemic so that we can mitigate the shock by the COVID-19 to our performance.

Most of our products are -- can be actually prescribed online on a remote basis, so we use technology to empower our business. So the policies can be bought online, and the online services are also excessive enough to provide the customers with convenient and customized experience far as customers.

As the Chairman said, the impact of the epidemic is temporary. Now the control has shown an improving trend. I believe most of the companies will come back to the normal trend. With that, I believe that the Company will still master the dynamics of business and team, follow the market changes, make timely changes, and improve the teams' ability and sales capacity. We will strive to hit our targets for the whole year budget. Thank you.

And then [John. B.] from the (inaudible) management centers requested to answer the next question. Okay, I want to address the question about overseas investment. Indeed, as you have seen, the pandemic is spreading across the globe. In Europe and America, it is still actually a very high level. Recently there have been huge volatility in the global capital markets. Our overseas investment started in 2014. The scale of our overseas experience is only less than 2% of our total assets, so it is still at the experimental stage. We do open market products, private market, and some overseas real estate. Under the current market conditions, we believe that the market is now under panic. The central banks and governments worldwide have launched many policies, monetary and fiscal, to give stimulus to the economy. And the market can be expected to be less volatile and gradually stabilize.

Our strategy for open market is to keep the investment very small in size, and the managers are mostly proactive so we have the ability to create alpha generally when the market goes down. There's a possibility for our return to beat the market. Our private investment can be countercyclical, so the short-term shocks can provide us with long-term investment opportunities, perhaps. So the risk is controllable. Overseas investment is a tiny share of our total assets. Short-term impact may generate certain impact and pressure, but in the long term, the risk is controllable and there is a hope for long-term and steady return.

Okay, now I would like to invite questions from analysts and investors online. Due to time limits, please ask no more than two questions, and let us know your name and the institution you represent.

(Operator Instructions). They first question comes from Haitong. The name is Sun Ting.

I'd like to thank the management for the detailed presentation. I would like to surely congratulate the Company on the remarkable results in 2019, especially when the industry's under correction. That is really remarkable. Last year, the revitalization strategy and the Dingxin Project have yielded a big boost to our performance. We have also felt that in terms of performance and IR, China Life is also embracing proactive changes.

I have two questions. First, in terms of management, just now Chairman Wang and Mr. Su said that in 2019 you are adapting your organization and mechanisms to the new strategy of the Company. So I'd like to request the management to give us more details in terms of KPI and incentives for executives and junior level employees. What changes have been brought into place and what impact have they generated?

Second, (inaudible). Last year (technical difficulty).

Sorry, she is just off-line. Let's wait for a moment. Let's address the first question first.

Let me take it. No, but then (inaudible) analyst is very interested in our 2020 KPI and incentive systems. As you know, last year we launched the strategy of revitalization of China Life. And we keep our focus on high-quality growth targets and we have also taken a host of measures. In terms of performance review, KPIs sit around the gross quality, especially in efficiency and value. There are several of them.

Net profit and the one-year new business value and the insurance operating revenue as well as team: net profit has 40% of the weight. That is highest among all. And the new business value is 30%, so these two in total occupy 70%. That highlight the direction of the Company in terms of performance review. And the team accounts for 5%; and revenue, 15%. Apart from those, there are two constraints. We added the per capita profit and the initiative expenses for the business, so they help us to focus on value and really enforce the orientation of our performance. These are the key changes for this year. Thank you.

Sun Ting, are you with us? Second question?

Thank you, President Su, for laying out such key metrics. I would like to follow up with the second question. So you have acquired (inaudible), so what is the position of this company in the group? What further technology initiatives and investments are in the pipeline and what impact they will generate to propel our core business?

I wanted to first address the question of our position. (inaudible) and our own team have two positions. In terms of (inaudible) technology, it is designed to focus on health technology, and our current team is positioned for insurance technology, so the team will complement each other. So this is the plan for the future.

In terms of investment, (technical difficulty) by secondary market operations and products, we have become the largest shareholder of (inaudible) information by holding 18% of its equity. By taking stake in this company, we would like to promote the empowerment of technology and the investment into medical and health technology. So (inaudible), as a leader of smart city, has been focusing for 20 years on the [permatization] of cities with our customer base, including many government and hospital organizations. In terms of [e-governance] and health, it has expertise and advantages in many respects while supplementing the strengths of China Life. In the future, China Life and (inaudible) would like to develop a long-term, stable, and mutually beneficial relationship with clear positions we find respectively, and synergy generated by both so that we can contribute to the growth of China Life. Thank you.

Next question, please.

[JoJo], Credit Suisse.

Congratulations. I'm (inaudible) from Credit Suisse. I would like to congratulate China Life on such wonderful performance compared to what -- its competitors. There is a rumor in the market that China Life would like to restructure and lift the whole group. The whole capital market has close interest and there's many speculation on this. Now the market is quite lousy, so what is the perspective of Chairman Wang on that? The next is about the rates. Because of the various factors, the 10-year government bond yield has clearly dropped. So what is the average guarantee rate of your existing business, and what is the breakeven yield by stress test, if the risk come back by 50 bp? So how big the impact will be on China Life.

I will take your first question. Thank you so much for your attention. As a long-term strategy for sustainable development, the Company strives to boost our value for shareholders and customers, move forward the transformation, and develop a world-leading bancassurance brand. We keep customer-centric and provide better products and services for customers. On February 13, the Company issued an announcement on the [hear say]. I hope that you can stick to it. Thank you.

I would like to discuss the rates briefly. The average guaranteed rate is 2.7%. You also asked the embedded value and the in-force breakeven rate. That is much lower than the average guaranteed rate, apart from the spread. There's also many other kinds of differentials. You raised a scenario that when the risk-free rates drop by 50 bps, what would be the impact on our business. That is quite a complex issue. I also noted that in the market there are different kinds of calculations on the impact of change of rates on our embedded value. I also requested my colleagues to do the calculations, as well. For your reference, I would like to share them with you.

When the rates change, also we'll be changing -- will be the risk discount. That is the risk of free rate plus the comprehensive premium. And the comprehensive premium, we'll consider, as well, cash flow changes and the additional risks associated with it. There are two risks. One is investment; the other is insurance related. When the risk of free rate drops by 50 bp, we also need to simultaneously consider the investment risk changes and insurance risk changes in the cash flow risks. We also need to consider the additional risks caused by the cash flow risks. In total analysis, we designed multiple scenarios and did the calculations. In all the calculated scenarios that can be seen with a 50 bp drop, the embedded value of the Company would drop up to 3%, maximum rate.

I also noted that recently there was calculations that when the ROI dropped by 50 bp and the risk yield dropped by 50 bp, I also calculated the impact on our embedded value. I'm happy to share with you, the impact is about 5%. As I discussed, yield down by 50; and if the risk to discount is also down by 50, I don't quite get the logic between the two. I'd rather share with you the numbers. The scenarios may not include all the possible scenarios, so all the results of calculation are only for your reference.

More questions, please.

(inaudible) from CMS.

Moderator, I would like to congratulate the Company on overcoming the difficulties and generating such a handsome performance, and with industry leadership. And the information disclosure is also very adequate with many highlights displayed, so that is very analyst-friendly. I have two questions regarding strategy for the Chairman. First in terms of dividend distribution: international and long-term investors of the Asian market are very keen on cash dividend. Because of the different nature, the life insurance is a business that is very volatile and cannot easily provide stable expectation. Can you provide another number, like the operating revenue or profit, so that shareholders can have an expectation on how much they can earn at dividend?

Second, in terms of revitalization strategy, you defied the downward market trends and improved your quality. So other insurers failed, and difficulty seen in both team and business. So what is your assessment of last year performance, what you liked best and where you think you can improve? So what is your interpretation of your result, 2019, and how would you forecast your performance this year and next year?

For your first question on the dividend policy, I know it quite well. Given the feedback from the capital markets last year, the accounting standards involved volatility for life insurers. For shareholders, if the dividend is only based on the same-year profit, then there would be a lot of volatility for dividend. The Company has considered this.

The dividend policy of the Company is contingent on several factors. One is the Company's profit. We also need to think about solvency, liquidity, future growth opportunities. As you noted and asked whether the company has considered this issue -- as I said, the Company has taken note of it. Internally, we have done some initial research about the long-term stable profit indicators. However, we have not shared them with you at this briefing. I intended to have a face-to-face discussion with analysts and to see whether they believe those numbers are sensible.

But now because of the epidemic, I hope that after the pandemic is gone, I can take some time to have a discussion with analysts and then consider presenting or announcing such profit indicators. I'm going to bring back what you asked about, and continuously do research.

Okay, let me address the second question about the strategic position of the Company. The Company will always focus on the core business, namely life insurance, and take the strategic opportunities for this business and cover the whole life cycle of a customer's extent: value chain of life insurance, improve customer value, and protect their happy life; and excel as the world leading life insurer as our targets. In 2019, the Company registered good growth. The business are steady and progressive. In 2019, the total premium hit a new record with the total RMB568 billion, up by 6%, and the business value is also much higher. In 2019, the Company focused on high-value business, and the 10-year-and-beyond business increased by 52.1%. And designated protection-oriented products also grew briskly. The value has also increased dramatically. By the end of last year, the -- this one-year new business value grew by 18%. All these are very good numbers.

And the premium structure improved. The first on term FYRP increased a lot, and the 10-year-and-beyond versus the FYRP up by 14.21%. And the protection-oriented products versus the FYRP increased by 8.6%. And also salesforce improved both in quality and quantity. In 2019, when the salesforce is contracting for the whole industry, our salesforce was expanded, and to 1.3 million, up by 12%. The quality has improved and the monthly productive agents are up by 35%, and the monthly production salesforce up by 43.8%. For 2019, if there is anything to be improved, I personally feel that we don't need to do more to advance the measures for reform and transformation and development, which is still to be fully implemented. In some branches, the department level is uneven, so this year we are going to redouble our efforts. Thank you.

Next one.

(Operator Instructions). Tian Dan, CICC.

From CICC, my name is Tian Dan. Two questions for Mr. Li. In 2019, the embedded value changed. There is a minus RMB6.8 billion, so what are the changes that have been made to the assumptions that cause such changes? Mostly mobility and withdrawal rate. Why you have made such a change? Second, in terms of 2020 profit, in China the interest rate is falling. So the average line for 700 days is also going to fall. So how would you assess the impact of the reserve on your 2020 profit?

You ask first why the change was made. So that was intended to introduce the mobility and other assumptions. You also asked about the moving average, 750 days line, and the impact. This is an excellent question. Indeed, the 750 days moving average line so far is likely to go down by the end of the year, though it went up last year. So there is an inflection, a different direction. It's likely to fall. However, the impact on profit depends on the ultimate assumed level by the contractual terms.

The interest rate on traditional business is 7, and the moving average of plus the negotiated -- or a comprehensive premium, and the premium reflects tax, liquidity. It is for sure that the Company will follow the liquidity premium and its changes. That include the liability cash flow monitoring and as well as the monitoring of the premium in the capital market. And finally, the valuation assumptions will be finalized. So that means the 750 day moving average plus the comprehensive premium will be the factors that will determine, finally, the profit.

Additionally, we are cautious in terms of gap reserve. That comprises our best estimates. Marginal -- residual margin and risk margin. These are the three parts. By the end of 2019, the residual margin was actually about 30% of the reserve with an amount of RMB760 billion. With all the three added, the valuation rate is very low on our gap. So the Company is financially very prudent, please rest assured.

Thirdly, no matter what, the provisioning of the reserve only affects the distribution of profit but not the total profit. That's my answer. Thank you.

Thank you.

Next question, please.

Michelle, Citibank.

I would like to thank the management for the opportunity to raise my question. I'm Michelle from Citibank. Two questions. During the pandemic, I think you had a very good start for the year. You may be less affected than the rest of the industry. Can the management update about the impact in Q1 and the countermeasures in the Company's policies? The second is about the lower rates. What will be different in your product development? You used to offer 3.5% guaranteed return for your products. Will you introduce changes?

I [take off-line now] to make you hear me better. Indeed, we had a -- quite a good start for 2020 and acted proactively in the market. As I noted earlier, for the Company and the industry, there is a big impact from the pandemic. After the outbreak, the Company took a host of measures: upgrading products, optimizing products, building out online services, online sales, and the enhanced agent training with a hope to improve the off-site sales capabilities. All these measures helped to mitigate, to a certain extent, the impact.

Our salesforce management is also more challenging because of the epidemic. Online/off-line are, above all, different. For online sales, we have taken a big number of measures, but we also monitor the online marketing and promotions, online morning meetings. From the morning to the evening, every day there should be five meetings to enhance the amount of activities.

For the [promises] also severely hit by the COVID-19, we appropriately adjusted the KPIs depending on the severity of the pandemic, or just appropriately adjusted the KPIs and standards. The agents are reviewed on a quarterly basis. Because of the proactive measures at the beginning of the year, we have got more wiggle room for our performance review. On the sales side -- including sales support, salesforce management, training -- indeed, a lot of work has been done. There is a hope that for the retention of our team and the mitigation of business impact, some good results can be achieved from that.

I would like to take the second question on product development. You raised a crucial question: above all, how shall we consider the interest rate, especially the risk-free rate, in our product development? Every year we would review our product pricing guidance. While doing that, the first and foremost issue to consider is the position of the medium- and the long-term interest rate. Early on that, we also assess the corresponding liabilities and portfolio changes and the impact on the return so that we can develop, based on that, the pricing guidelines.

In the previous [operations], we actually emphasized the different maturities. And for different maturities, there are various requirements and constraints on pricing. In a nutshell, we just want to guard against the long-term and for expected risk, and also match the short- and medium-term. You are very keen on the changes until the risk-free rate. We are equally keen on that. Every year the Company will review its existing products in terms of the liquidity, maturity, investment pressure, capital requirements. The reviews are made for all products, so inappropriate products may be exited or reengineered. So for the relevant products, we always size up a new situation and the different customer requirements under the new situations so that we can redefine the products.

Certain customers are risk-averse. Some others have a higher risk appetite, but they like risk. So we have different unit range, dividend paying, so we have a diverse portfolio of products to address the diverse needs of the customers. We are also going to update the products in light of the changing customer requirements.

Due to time limits, we will now take the last question.

Thomas from Goldman.

I would like to thank the management. Two questions about the agents. The economy is going down. As a result, other industries may stop hiring. If we are to include, it will be perhaps easier for us. Are we going to scale up our salesforce again? Now, last year, our recruitment was fast in the industry. Second, in terms of product design, Mr. Li, because of the pandemic, many people felt a greater demand for medical reimbursement products. This is still a small market in China. What is the biggest difficulty of designing such products?

Let me address the first question. Indeed, for the whole society and economy, the impact of the pandemic is huge. The Company is working actively on the resumption of work and production. Many (technical difficulty) policies have been offered and launched. As the regulator, the CBIRC is also taking active measures to promote the development of the industry. Regarding your question, for so many years, especially the recent years, but we have always been propelling the business with our salesforce, and they want certain patterns of salesforce development. In 2018, when the industry was actually changing and we exercised our tight management on salesforce, that led to a modest contraction of the salesforce in 2018. But separating that, we have ushered in good performance in 2019 by re-examining our practice in light of the (technical difficulty) or the dynamics of the salesforce and the industry, we can be better off.

So we are going to implement such a long-term policy so that we can be both bigger and better. So while maintaining a steady size of the team, we would like to constantly increase the quality and structure, productivity of the salesforce so that we can hit our targets for both the salesforce development and the business development. In this way we hope that we can buffer the impact of the pandemic this year. Thank you.

Let me answer the second question about the medical insurance development and the difficulties. I get your point. There are several issues. For medical products and other health insurance products, if not life products at large, what we would like to do is to enable the industry to play [is endure] a necessary role in the social security system. The best scenario is that the whole lifecycle expenditure can be lowered with the help of such products, but the biggest difficulty is information sharing. That is the first. The second is collaboration, so much about management.

That brings us to the end of our 2019 annual results briefing. If you have further questions, please don't hesitate to get in touch with our Investor Relations team at any time. Thank you for your time. Goodbye.