China Life Insurance Co Ltd (LFC) 2021 Q4 法說會逐字稿

Ladies and gentlemen, good morning. Welcome to China Life's 2021 annual results briefing. My name is Li Yinghui, Securities Representative of the company. The briefing today will be conducted online. Analysts and investors can watch the live webcast of the briefing on your PC and mobile or attend by teleconference.

Joining us today on site include Mr. Su Hengxuan, President; Vice President, Chief Actuary and Board Secretary, Mr. Li Mingguang; Vice President, Madame Huang Xiumei; Vice President, Mr. Ruan Qi; Vice President, Mr. Zhan Zhong; Vice President, Madame Yang Hong; and Assistant to the President and CIO, Madame [Jong Di].

First we will hear from the management team and we will hear a 25-minute presentation on the company's 2021 annual results followed by a 50 minute Q&A session during which we will take questions from the participants. Now let's hand over to Mr. Su.

Ladies and gentlemen, good morning. Welcome to China Life's 2021 annual results briefing. Today's earnings call is divided into five parts. First, I will give a brief overview of the company's performance and results in 2021, followed by presentations by other members of the management team on business operations, financial investments and embedded value.

In 2021 the global COVID pandemic further evolved. The international environment was complex and challenging. The Chinese economy continued steady recovery yet faced pressure on multiple fronts. The incremental growth of consumer demand for life insurance slowed down. The insurance sales force declined. Industry wide growth was lackluster and the depth and breadth of industry shifts far exceeded our expectations.

Despite all those challenges, China Life remained committed to high quality development, ambitiously pursued reform in opening, reform in innovation, further optimized operations and services and enhanced technological enablement to achieve progress while maintaining stability.

First, the company maintained a leading position in the industry in both -- in terms of both business scale and value. Its market leadership was further solidified. The company ranked number one in the industry in terms of GWP, embedded value, new business premiums and other key performance indicators.

Second, the company saw steady enhancement in performance, net profit attributable to equity holders of the company, and growth investment income grew steadily. Solvency ratios remain high. The core solvency ratio reached 253.7% and the comprehensive solvency ratio reached 262.41%.

Fourth, risk prevention and management was robust. In the integrated risk rating by the CBIRC the company was rated A for 15 consecutive quarters. At the same time, the company leveraged the advantages of its principal business to serve the national development agenda. It has been deeply involved in the development of the multilevel Social Security system, China's strategic response to an aging population and a healthy China program.

It has also supported the real economy and China's regional development initiatives. Currently the Chinese economy is under triple pressure of demand contraction, supply-side shocks, and weakening expectations, and the development of the life insurance business is also facing significant challenges. However, we remain confident about the long-term development of China's life insurance industry.

On the macro side, we see effective COVID-19 control. China's society remained stable. Long-term economic development remained positive. Per capita disposable income continued to grow. The common prosperity agenda is making solid progress and, given the market size of China, we believe China will remain the world's largest incremental market for life insurance.

On industry trends, healthcare spend continued to grow in the development of commercial housing insurance remain promising. China's population agent is accelerating and as the third pillar of pension accounts for a very small proportion, there is huge room for future development. Consumer adoption of insurance is deepening and consumer demand is upgrading, the long-term fundamentals of the life business remain favorable.

In terms of policy environment, the elevation of healthy China and the active response to population aging as national strategies will continue to unlock market Opportunities. [a raft] of regulatory policies will be introduced to further promote the industry towards high quality development.

Overall, China's life business is still in a very important period of strategic activity, and the long-term outlook remains positive. That's my brief introduction. Next I would like to pass to Mr. Zhan Zhong, VP, to introduce the business and operations of the company.

Thank you, Mr. Su. Next I will briefly talk about the business and operations of the company in 2021. First let's look at the individual agent business sector.

In 2021, the individual agent segment insisted on value leadership, further drove channel transformation, and maintained steady business growth despite overall industry downturn. GWP for the individual sector was RMB509.49 billion, stable year-on-year. Among them, renewal premiums were RMB407.97 billion, up 4.3% year-on-year. New policy premiums were RMB101.52 billion, down 15.2% year-on-year.

First year premiums were RMB82.25 billion, down 17.4% year-on-year. In 2021, the company experienced a decline in the sales force. We focused on improving the quality of the sales force. As at the end of the reporting period, the sales force for individual sector was 820,000, of (technical difficulty) 519,000 were marketing and 301,000 were collection. The top performing group is stable and the workforce is largely solid.

The diversified business segment insisted on quality improvement and we can see that in 2021 total premiums for bancassurance channel amounted to RMB49.33 billion, up 19.6% year-on-year. First year premiums, RMB16.11 billion, up 2.3% year-on-year. Among them first premiums for five-year and above were RMB6.74 billion, an increase of 35.3% year-on-year.

As of the end of 2021, there were 25,000 account managers in the BA channel with quarterly average [actually] moving, manpower remaining stable and the per capita capital continues to grow. In 2021, we also saw RMB29.16 billion in group insurance, up 1%, [shortly] insurance premiums RMB25.6 million, up 2.9%. And 45,000 group sales force of which the top performing group increased by 13%.

The company puts customers first at the center, aims at the goal of efficiency first, technology driven value increase and first-class experiencing operations and services. We effectively promote operational excellence, accelerate digital and intelligent transformation and continue to provide customers with convenient quality and caring customer service.

So, in the interest of time I will skip the highlight numbers. In 2022, the company will adhere to the general guideline of stability as a top priority and progress with stability, adhere to high quality development and deepening reform and innovation and focus on stability and progress in three areas respectively.

First, stabilize development, continued to put equal emphasis on both business value and scale. Secondly, stabilize sales force, stabilize the scale and improve the quality of the sales force, further deepen the transformation and upgrade of the team, improve professionalization and specialization. Third, stabilize risk management, coordinate development and security, strengthen risk prevention in controlling key areas and tighten the safety net of risk prevention and control.

Fourth, enhance services, adhere to customer centricity, constantly increase product innovation we find improved customer experience so that they can enjoy our high quality services. Number five, achieve leaps in technology, make breakthroughs in digital innovation, vigorously promote the building of digital China Life, and further strengthen the fundamental support of technology in our transformation and upgrade.

Sixth, strengthen reforms, solidify and promote transformation and accelerate market oriented reform and cultivation of new models and growth drivers, deepen the (inaudible) sales deployment and further increase the sophistication of channel management. Next I'd like to give the floor to Madame Hong. Madame Hong will update on the company's financials and investments.

In 2021, the company's total revenues amounted to RMB824.93 billion, an increase of 2.5% year-on-year, of which GWP was RMB618.33 billion, an increase of 1% year-on-year. Gross investment income, RMB214.06 billion, an increase of 7.8% year-on-year.

Net investment income RMB188.77 billion, an increase of 16% year-on-year. Net realized spread gains on financial assets RMB43.07 billion. Impairment losses on financial assets RMB22.72 billion. And net fair value gains through profit, RMB4.94 billion.

In terms of expenses, underwriting and policy acquisition costs decreased year-on-year due to the decline in new business and underwriting and policy acquisition cost ratio decreased from 10.48% to 7.97%. The administrative expense ratio increased from 4.68% to 4.95% due to the expiration of the provision of fee reduction incentive.

In 2021, the company's overall operations remained solid and sound with good investment results, and net income attributable to equity holders of the company was RMB50.92 billion, up 1.3% year-on-year based on updated discovery assumptions for reserves of traditional insurance contracts according to market information. The weighted average ROE was 10.97%, a decrease of 0.86 percentage points year-over-year. EPS was 1.8%, an increase of 0.03 year-over-year.

So, that is regarding the company's P&L. Next I would like to give you some color about the company's assets and liabilities. As of December 31, 2021, the company's total assets increased from RMB4.25 trillion, up 15%, to RMB4.89 trillion at the end of 2021. And total liabilities increased by 16% from RMB3.8 trillion to RMB4.4 trillion. Reserves of insurance contracts were RMB3.42 trillion of which the residual margin was RMB835.4 billion.

As of December 31, 2021, equity attributable to equity holders of the company was RMB478.59 billion, an increase of 6.3% from the end of 2020. And as of the end of the reporting period, the company's core solvency ratio was 253.7% and the comprehensive solvency ratio was 262.41%, still remaining at a high level. The [CRAS2] rules have already come into effect and the company will continue to adhere to prudent operations to maintain the solvency ratios at a robust level.

Next on to investment of the company. In 2021 we further identified our top-level allocation strategy and specific management strategy and continued to solidify the asset allocation structure of prioritizing fixed income investment supported by equity and alternative investment to optimize our long horizon deployment. As of the end of 2021, the balance of our investment assets exceeded RMB4.7 trillion, up 15.2% year-on-year.

In terms of bank investment, the company leveraged the high point of interest rate year-over-year and increased the optimistic allocation of traditional fixed income assets with the allocation percentage up from 41.97% to 48.2%.

In terms of equity investment the company anticipated high market volatility and managed its exposure prudently with the allocation percentage of stocks and funds down from 11.31% to 8.75%. The allocation percentage of debt type instruments was down from 11.01% to 9.41%.

In 2021, the company's total interest income grew steadily with a net investment yield of 4.38%, a gain of 4 basis points from 2020. Gross investment yield 4.98%, and the comprehensive investment yield taken into account the current net fair value changes available for sale security recognized in other comprehensive income was 4.87%.

In 2021, the company continued to promote the construction of a long-term mechanism for risk prevention and further improved the multi-dimensional risk quota management system and the resolution mechanism for material investment risk events.

In terms of market risk, as of the end of 2021, the company's duration gap decreased by 0.58 years compared with the beginning of the year. Prudent control of equity exposure and a moderate reduction of market risk arising from equity market fluctuations.

As for credit risk, as of the end of 2021, over 97% of the company's credit banks have AAA rating and over 99% nonstandard fixed income assets have the AAA external rating. In the environment of frequent credit defaults the company did not have any credit defaults in 2021. Next I will hand over to Mr. Li Mingguang, Vice President, to introduce the embedded value of the company.

Now I will present to you the embedded value of China Life in 2021. In 2021, the company's value of one year sales was RMB44.78 billion, down 23.3% year-on-year and down from a high base in recent years. Among them the value of one year sales of the individual Asian business sector was RMB42.95 billion, down 25.5% year-on-year.

The eight new business module of one year sales of individual Asian business set for the first year of 2021 was 42.2%, down 5.9 percentage points from the same period last year. As of December 31, 2021, the company's embedded value was [USD120.3 billion RMB], an increase of 12.2% from the previous year end. Of this amount adjusted net assets were RMB674.3 billion, an increase of 18.6% from the previous year end.

The value of in-force business was RMB528.7 billion, an increase of 5% from the previous year end. After considering the diversification effect the company's effectiveness value was RMB574.2 billion with an embedded value of RMB124.85 billion. This slide shows the movement of the embedded value. Due to time constraints I will skip the numbers. That's all for our presentation. Thank you.

(Operator Instructions). Sun Ting, Haitong Securities.

Thank you for your briefing. I am Sun Ting from Haitong Securities. I have two questions related to the business. First, regarding channel, we can see that the number of your agents dropped from the beginning of the year. What is your judgment of the number of sales moving forward? Will the standard trend continue? What do you think is a reasonable level of the sales force? How is recruitment going on nowadays?

Second, regarding solvency ratio, we have observed there is a big drop in the value, and for this whole sector the level has hit a bottleneck pivot. So, in terms of product innovation what are your considerations? What kinds of products are likely to do well to increase your business value and grow rapidly? Thank you.

First question to Vice President Zhong. Second question to Vice President Li Mingguang.

Let me take the first question. Let's briefly review the cause behind the direct trend. Due to COVID pandemic, consumption and employment trend have become more stable at a lower level, and for this industry this is very challenging. And second, due to the impact of pandemic, on-site business has been severely impacted, which makes it difficult for us to conduct normal business.

So, the revenues of the sales team have been affected leading to losses. And the industry is posing higher and higher requirements for the quality of development. Due to these reasons we have been looking for inflection points for this industry. Last year, the decline actually narrowed from the year before, so we are stepping up our assessment of the situation.

The external environment hasn't changed much including the pandemic, the confidence and the prospects. And internally speaking, we have been raising the bar for performance. So, in terms of sales force, the whole sector faces big pressure out of changes in structure and requirements for [further] evolution. So, all the life insurers have been working hard on transformation. So, this will be an ongoing process.

You mentioned Q1, in Q1 the situation hasn't changed. We still have a few days to go before Q1 closes. The recruitment is lower than previous years, so there's a very slight decline in the number of our sales force. So much for my answer, thank you.

Now let me answer the second question. There is wide interest in whether we can develop long-term credits to boost the sluggish development. I think it takes time before we can emerge from the woods of transition. Product wise our principal hasn't changed. We base our product development on the principal of people centric development to over diversify our products.

I have said repeatedly at the briefings that the future (inaudible) of product development is pension plus health, this will not change. Recently we have widened the idea. Moving forward we want to expand our products to include more services and technology.

In the future around every product and every client we want to step up research and development and consolidation to make our products more sustainable and of better quality to enhance the products. And we want to empower our products with technology.

One direction is our tech development is to build digital channel life through insurance products plus related services and also digital empowerment. This will be the overall framework of our future products. This is the first aspect.

As for insurance products, in the past years critical illness was a major driver of value creation. As we all know, for China the depth -- density of China's insurance is still well below the global average. So, in the future there are huge potentials for product development. There are enough ideas as well as space for further product development and as such circumstances for China Life, our top priority is to do the following job well.

First, we want to enhance our IND capability. For example, we need to keep abreast with the changing and diversified customer needs. It took us lots of time to establish this research and survey system, but with COVID, our work has been affected. We are taking measures to solidify the system.

Second, we want to grasp (technical difficulty) with potential impact on product design. For example, healthcare insurance. And technology needs to be linked horizontally to develop products that meet customer demand and, at the same time, they should be sustainable with the risks under control.

With our joint efforts and the transformation of our team, we will understand our customers better. And we'll be able to provide good services for them to promote our upgrade and quality development. Thank you.

We see that there are multiple analysts and investors waiting to ask questions on the call. So, we will take the next question on the call.

Thank you, management team. I have two questions. The first question is regarding strategy. We heard from the presentation about product, about channel. So, I would like to ask in terms of strategy. We can see that the Dongsheng project has seen proof China Life's results substantially. Will there be a new strategy and when that new strategy will be rolled out and what will be the main pivots? And what will be the targets and objectives and also the bottom line? So, that's regarding strategy.

Second is about investment and we can see that the company has a sizable investment team. So, under the new strategy what is the asset allocation strategy of China Life? We can see that bond exposure increased substantially last year.

So, what is the yield on the bond holdings, because we can see the interest rate is quite volatile. So, under your investment guidance, could you maybe talk about the bond exposure, performance as well as duration? And also your investment in some of the big issuers. So, maybe could you talk about those?

So, we will have two members of the management team answer the question. So first, regarding strategy, we remain committed to our strategy as of today and we focus on the major contradictions in society while looking at new changes, maintaining progress and stability at the same time. We focus on protecting our original intentions and managing quality and risk.

So, as a state owned enterprise at the central level as China -- as a life insurance company for the Chinese people, we remain committed to protection and also life after retirement. And we provide lifelong insurance products for our policyholders. We are also committed to growth and development, so growth is our top priority.

We have to maintain, number one, the customer base to make sure we diversify and grow the customer base and focus on our strength in the core business. And we are also committed to high quality development by deepening supply-side and structural reform, innovate with products. As we heard from the management team, we are committed to high quality development, product diversification and innovation as well as customer service.

We heard from the analyst from Haitong. We are trying to innovate in terms of product mix and customer service. This will help drive the upgrade of our business model. In terms of risk prevention, we balance risk with security and we safely guard the risk bottom line. At the company level we will improve our market positioning core competitiveness to help improve people's livelihood.

You asked the question about next steps as well as the Dongsheng project. We will continue to make progress on that. It has already been implemented for three years and it has yielded very strong results. This year we will have some projects in the pipeline. And about performance review, we will maintain stability while achieving progress. So, this is the main theme of our business strategy and we will remain committed to that. Thank you.

Thank you. I will answer your question about investment. You asked a question which is quite macro. When we talk about allocation strategy, we first need to answer what type of investor we are, what is the nature of our capital, and what is the time horizon of our allocation. Only after answering those questions can we know in our investment allocation strategy what is our characteristic, how can we meet our return objectives.

After many years of experience and experimentation we believe we've developed a methodology for asset allocation appropriate to life insurance companies. We have the top level strategy. We also have the management strategies at the strategic level. We are very clear.

In terms of technical allocation, we look at market trends and also make some provisional changes. In 2022 we have three key words. So, first remaining focused, meaning we have to focus on asset liability management to make sure insurance capital can be effectively deployed to favor long-term investment products. But the cadence will be different.

We can see last year we had the high point of interest rates, so we increased exposure to long-term treasury bonds and local government debts. We also use leverage and leverage our power as asset managers. So, bond holdings increased substantially in 2021 and improved our asset liability matching. But this year it's different. We are now at a low level of interest rate, about less than 1/10 of 1% -- the low 1 percentile of the range. And we may have interest-rate highs.

The real economy is still very weak. There are stabilization efforts being introduced by the government, but we have to look at the effects. We also have the monetary fiscal policy implications and the confluence of those factors. We anticipate interest rate to be high starting with 2022 and maybe lower towards the second half of this year. If that can help stabilize the economy with its hikes, then I think maybe there is a narrow passive incremental growth of interest rate.

In terms of equities, we are a long-term investor, so our focus is more on the long-term when it comes to stock investment. We believe the fundamental driving the prosperity of the stock market remains because we have a policy messages from the Financial Stability Board as well as from the State Council and the various government commissions.

We can see that coordination is now being implemented and the government is very attentive to the macroeconomy. And we want insurance to be a value investor -- a long-term investor to help prop up the stock market. So, the policy element is there.

In terms of valuation and relative value, we see that this is now a great time to buy. After the correction of the equities market we can see valuations are now at 50% or below. And the relative value metric also makes it look very attractive. So, for us, a long-term investor, an insurance capital investor, I think we can now start building up our position already. So, that's about being focused and focusing on our capital nature.

We have to look at the opportunities for equity investment and try to build up our position. And the other keyword is response to change because there are so many unexpected events, we have to make sure we adapt and seize new opportunities and manage emerging risks and make investments as such.

Adapting to the new environment means that in this paradigm shift, whether experience will still hold true, whether the investment rationale remains true, and about adapting to new trends, it's about interest rate, equity market volatility and seizing new opportunities. We mean we will look at the government's policy incentives as well as policy signal. And as an investor, while understanding the policy change, we'll be able to also capture opportunities and make preemptive investment.

So, that is about our short-term and long-term investment consideration. You also talked about this particular company. We now have 28% of the company and we are the largest investor. So, that's [Wanda's] group. And there's been a lot of refinement being done in 28 municipalities and provinces we've done alignment. We cover also e-government, healthcare, security. Those alignment efforts will continue.

Maybe the underlying message is whether we're doing the investment right. If you understand our business really clearly, you can see as a tri-listed company we are committed to corporate governance compliance. And also we have a very rigorous process of investment review. And the same apply to our investment in [wonders]. In terms of compliance filing, so it's being rigorous and compliant. Thank you, that's my answer to your question.

We will take the next question on the call. Next we will hear someone from Credit Suisse.

Good morning. My name is Charles Cho from Credit Suisse. I have two questions. First, it's regarding CRAS2. What is the expected change of your comprehensive and core solvency ratio? And second about EV and also new business premiums, whether you can quantify the expected changes for us.

Second, in terms of last years, we can see that the same industry challenge remained that MVP as a share of business revenue has declined. And we heard from the management team that the industry will continue to see such challenges ahead. So, in terms of coping with those challenges, what will be the priority focus? Because it's difficult to sell new policies, maybe we have to maximize the margin on existing policies and also provide better customer service.

And we know China Life is committed to long-term customer service. So, maybe there are measures to repair the embedded value so that we can boost investor confidence. We will leave the floor to Li Mingguang, the Vice President.

I think those two questions are of great interest to you. We see the implementation of CRAS2 already on February 1. Based on our experience, following the implementation of CRAS2, our core and comprehensive solvency ratios will remain robust and sufficient.

China Life has remained to robust asset liability management and product service diversification and this is in keeping with CRAS management mandate and also comprehensive risk management principles. So, I think we will remain quite robust on those two accounts.

To your second question, after the implementation of CRAS2, what will be the changes to EV and new business margin? Analysts want to know both of course. We know embedded value has relationship with CRAS regulation. With the implementation of CRAS2 the actual capital, minimum capital and liabilities have all changed. So, for different companies the impact varies.

According to our internal assumption regarding the minimum capital with the investment of CRAS2. We have had an assessment based on the situation on the ground. The impacts of CRAS2 on EV of China Life is minimal. There's a slight decrease but the impact is minimal.

And second, a recent (inaudible) the percentage of new business value and embedded value has declined for the whole industry. Is this because of their transition from sales to operational management? I think we are still very far from that. For China Life, on the one hand we need to upgrade our sales by increasing efficiency. At the same time we need to improve our capability to serve our customers.

I've already said that in the future in terms of business development and service of customers we need to provide sufficient and heartwarming services so that our existing customer base can develop and grow with China Life.

Another question that you've raised regarding low stock price and our outlook, actually you've already made your call. You've seen our performance, our embedded value has reached RMB1.2 trillion. The current market value is much lower than embedded value and the EV only reflects the value created by underwritten business. It doesn't include the value to be created by new business development.

The stock price hasn't fully reflected in our embedded value or our future value. So, we have had constant communication with the capital market. On (inaudible) the Board has done lots of communicating work. Moving forward China Life can work more for stock price.

First, we will be ourself, we are a (inaudible) runner, and we will remain committed to the long distance to continuously create value for shareholders. And second, we want to continue our good job on information disclosure and keep communicating with the market so that the market and investors understand us better. I believe over time stock price will reflect the value as price fluctuates [over] value. So much for my answer. Thank you.

Another question on the conference call. Michelle of Citi.

Thank you for the opportunity. I am Michelle from Citi. I have two questions. First, on products Mr. Lee mentioned that you want to make good use of technology and health services to increase the attractiveness of your products.

Some of your competitors have been promoting aged care services, especially home aged services and lots of the related products are selling well. So, are you going to provide more home aged care products? Your annuity insurance plus life insurance products have been selling well. Will you impute more aged care elements in the products?

The second question is more detail oriented. I've noticed that your business management costs plus other costs multiplied by premiums registers obvious growth in the second half of the year. You mentioned that this is due to the expiry of the fee cut policy given the weak demand for premiums. Moving forward are you going to move further to control costs? Thank you.

The first question to Vice President Li Mingguang. The second for Huang Xiumei.

Thank you for your questions. You have made a good recommendation for management. I said that in the future we will put products, services and technology together. You mentioned home aged care services as well as other aged care products. The answer is definitely yes. The services include aged care services, health services and also other services.

You mentioned the incremental life insurance product. This is nothing new to us. Our individual channel, bancassurance channel, although I worked on this product and this is not a new type of product. My view is that around aged care and aged population, China Life though continues to develop more products and services.

In terms of the supply of such products, China Life has made lots of contributions, but I think it's not nearly enough. Around aged care, we can't wait for our customers to retire to provide products and services. As a big insurer, we need to leverage our interest to mobilize more young people to take part and (inaudible) products. They don't have to purchase specific aged care products. We have developed a whole system of products with aged care functions.

Now the results have reached RMB1.7 trillion, which is a considerable size. Some of the customers like products of younger maturity, whereas others prefer products of shorter-term and others prefer flexible payments and others prefer more fixed and regular payments. Customers have various preferences around aged care products, we have great room for further development.

And when our customers retire, according to our practice, different generations of aged population are different. Unlike 10 or 20 years ago when people reached 60 or 70, nowadays they are still very dynamic and lead very active lives. So, lots of need for pension products have been overlooked and different groups of people have different demands. As a result we can have more development work to do. So, this is for your first question. The second question over to Miss Hong.

Thank you. Let me take your second question. You have noted the changes in our business costs and administration costs, which is unaffected by the expiry of entry fee cups policy, which includes the return of regulation fee. So, fees have increased and (inaudible) has increased from 4.68% to 4.95%.

You mentioned that moving forward, whether we have further measures to control costs, so let me say this. Over the years the company has paid high attention to the management of [source] and efficiency of costs. We have taken the following measures with good results. Overall, guided by high quality development requirements, we have continuously optimized the allocation of resources and fees through four measures.

First, we have accurate allocation of resources. In this regard we strengthened refined budgeting to offer greater security. And fees reflect our directions for value and efficiency.

Second, we strengthened process control. We continuously step up the management of implementation of our fee budgets with the strength and guidance for our branches. For branches with high deviations we use all kinds of means to issue warnings and correct errors through various means. So, this is the second measure.

Third, we step up guidance through a KPI. With reference to various channels and sales positioning, we improve input-output KPI for channels to coordinate and balance the speed and efficiency of business development.

Fourth, we strictly control administrative expenditures and enforce the requirement of the CPC central committee to practice economy and cut nonessential expenses. Through these measures we have seen good results. Thank you.

Next question from webcast.

Hello, management. From CICC, recently on -- the insurers have faced lots of challenges. The persistency rate had lots of challenges for the company. So, how will you deal with it?

Vice President Li Mingguang, please.

In the past 22 years, due to the pandemic, the working mode of the industry has been greatly affected, including our operational model. And we have developed a hybrid model combining online and off-line business. In 2021-2022, we have seen great progress. As a result of those impacts, persistency rate has declined across-the-board.

As I explained, COVID was the main disincentive and a source of impact. Recognizing the impact to reserves as well as the value affected were already reflected in the changes we made. As macro situation and COVID controls continue to change the situation that we experienced in 2021 will, in my assessment, be less likely going forward.

And then for our assumptions going forward, every year we perform the review exercise with respect to final analysis. For the whole industry as a whole I think there will also be a review exercise to reflect whether there's any major trend that is cause for concern. And if there is, then the reserves and maybe the risk mitigation measures will have to follow. So, we are currently doing all that.

The next question is from the call, please.

Next question is from (inaudible) Securities.

My name is (inaudible) from (inaudible) Securities. Two questions here. So, the first question is about the individual sector. We can see that sales force has declined, but the top performing cohort has remained stable. So, I'd like to ask in Q4 maybe workforce has declined, but whether there were some positive signs of improvement, were there such signs of improvement will be sustained this year.

Last year the residual margin has declined compared with the end of 2020. So, given that MVP is still under pressure, whether the residual market decline will [erode] your profits.

So, Mr. Zhan will first answer the question and then Li Mingguang.

Thank you very much for being so meticulous. The sales force, last year we had [1.37 million] versus 820,000, so we had a decline of about 40%. That's on the macro level, but we were looking at the breakdown metrics. If we look at the seven months retention rate, and I think it's good, but the 13-month retention rate has been declining.

Last year we saw that this is a lagging indicator from 2020. And after July we could see that there were some seven months retention rate increases. I read that as a positive sign. But as you rightly pointed out, the workforce last year was declining, but we focused on improving the quality and the sales force remained largely stable. As I said, the seven months number was increasing this way a decline in the 13 months retention rates.

There are two other metrics that's about effective sales force and also the top and the mid-range performers and we can see there were minor declines on those two counts, but the declines were less severe and that is a positive sign.

Second, if you look at the percentage terms, they actually increased, so if we look at those three metrics together, we heard from the analyst of Haitong Securities about the inflection point. If we look at the three metrics, why we expect the workforce to remain stable, because we saw mixed pictures of those three indicators. So, we have to wait and see.

You mentioned Q1. Q1 had just passed us two months before. Usually we look at the numbers on a quarterly basis. So, I only talked about the size of our sales force shrinking but it was modest. And after we have the latest number we'll be able to tell whether this trend will continue in the future.

I'll take the second question. This is a very tough question and I've been thinking how to answer that. First, the residual margin. Under GAAP we have to add additional reserves. Usually for the current year new business premiums, the impact on margin under GAAP is likely to be modest. That's the common analysis.

Second, it's about the amortization for residual margin. At China Life for some insurance lines, business lines we amortize for the duration of the policy. For some other products the amortization methodology is different. But all in all MVP for the current year, whether it's up or down, will have less impact on our residual margin.

Next question from the call as well. (inaudible) Securities.

Thank you very much for the opportunity. Two questions. Mr. Li, we looked at the annual report and the EV methodology and the assumptions. We can see that there was a negative trend. But if we use the 2020 methodology, the EV change we actually see an increase. So, why was there this difference?

Second, with Q1 ending, whether the jumpstart sales season has really delivered strong results, and what's your outlook for the remainder of the year?

Mr. Zhan and Mr. Li will answer the questions.

So, you asked a question on the EV analysis. The methodology and the assumptions change may result in a negative value. When companies are performing their analysis they will have to introduce assumptions. For example, morbidity, mortality and also the secession rate of insurance policies.

If you look at [IVEV], comparing the new assumptions to the old ones, I will say the new assumption lifts the value a little bit. Why it this difference? Because we know for EV there are two components. Net equity and value in force. For MVP it's more like the VIF. It does not have an equity component. So, it's not just affecting VIF when we introduce the new assumptions. It will also affect equity.

So, the impact on EV will be on the negative side because we have to add the VIF impact as well. And for MVP impact, we will have to look at VIF definitely. So, that's why we had a negative effect. But indeed it was a difficult question. Mr. Zhan.

I would like to take this second question about the jumpstart sales and I think you have great interest in knowing the results. I think this year the jumpstart sales had a lot of difficulties, COVID being one of the main sources of impact since the start of this year, especially for the individual agent sector, because we need off-line sales and also engagement with customers for the sales to happen. So, that was under impact.

And for jumpstart, if we look at the pace of promotion and sales, we actually took into consideration the possible risks. And our solution was we develop localized policies of sales and implemented pilots based on each outlet and I think that strategy has worked. There were quite big variations from outlet to outlet, but I think if we look at the results, the two plus one strategy of product mix has really worked.

Of course, we'll have to diversify our product mix further. This year we made changes or what we call optimization of the product mix in terms of product readiness. And in terms of customer acquisition in terms of new product launch, we actually made a lot of great efforts and preparations.

In such a difficult environment, as I said, the industry was under profound changes and correction. We had to give our sales force more support in terms of sales materials, digital tools of customer engagement. And let me talk about the results. Today is March 25, based on preliminary data -- because the annual report only covers data up to February. According to the latest numbers our market position remains very strong.

In terms of skill, we're decidedly number one in the market. In terms of a growth rate, we believe if we compare China Life to comparables, those that are similar in size or more than 50% our size, it's fair to say that our growth rate is quite comfortable. So, is it positive growth? Well, I think everyone experiences negative growth and our negative growth was milder.

So, this is comparing apples to apples. But if you compare us to bank issuers, channel focused businesses, then it will be a different story. So, through arduous efforts we have to say that sales results are by and large on par with our expectations. Without COVID impact we would have been able to meet our sales targets.

For Q1 and for the whole year as a whole, we stated we are confident to become and to stay as the bellwether of the market. We are approaching the end of our briefing. Maybe we can accommodate one more question from the call.

Thank you. We will have (inaudible).

Thank you, management team, for allowing me to ask the last question. This is about the agents. We can see the decline in sales force is similar to the decline in new business value. So, I would like to ask about the income for the whole year. It should be the same, right? And for this year, the company is taking actions to keep the sales force stable. So, in terms of performance review and other arrangements will there be changes?

There was a lot of noise. Could you repeat the second part of the question?

Do you have any adjustments in the basic (inaudible)? And what are the changes in terms of revenue and 2021 as compared to 2020?

Well, first, like I said, last year the fundamentals were stable. In our annual report, like we said, our foundation is solid. The revenue has increased for agents with increasing productivity and capacity. Our sales force dropped by 45% in terms of scale, but our premiums only dropped by 15%. So, (inaudible) that shows that revenues actually increased.

Second, the next steps and the changes, you may have seen that all the companies have been adjusting their management systems or the basic rules, which are the sole of the sales force. And we are also considering this point according to the situations of the market. We will make adjustments, but they are not solely aimed at increasing revenues. They have to get aligned with future trends, the trends of the changes in such sales system.

What are we advocating? We need to get this straight. The recruitment rate is not very high, so what measures should we take? So, in the first half of the year we will share more information regarding our investments.

This brings us to the end of our 2021 annual results briefing. If you have any further questions, please do not hesitate to get in touch with our Investor Relations team at any time. Thank you for the time. Goodbye.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.