China Pacific Insurance (Group) Co., Ltd. (601601) Earnings Call Transcript & Summary

[Interpreted] Ladies and gentlemen, good afternoon. Welcome to CPIC 2020 Interim Results Announcement. I am the Group Vice President, Ma Xin. It's my great pleasure to gather here to exchange with you, with all the investors and the analysts, and to brief you on our performance in the first half of this year and also listen to your suggestions. In the interest of the pandemic control and to protect the interest of everyone, we are conducting this announcement via the webcast and teleconference. The meeting will be conducted in Mandarin and we'll provide English simultaneous interpretation. Now please allow me to introduce the senior management of CPIC, who attend this event: Group Chairman, Mr. Kong Qingwei; Group President, Mr. Fu Fan; CPIC P&C Chairman, Mr. Gu Yue; CPIC Life's General Manager, Ms. Pan Yanhong; CPIC Group Vice President, Mr. Yu Bin; and CPIC Group's Chief Actuary and the CFO, Mr. Zhang Yuanhan. For today's announcement we'll first welcome Mr. Fu Fan to give you a presentation of our performance in 2020 -- first half of 2020, and then we will have a Q&A. Now first, I'll hand over to Mr. Fu Fan.

[Interpreted] Good afternoon, ladies and gentlemen. I'm Fu Fan. Welcome to this results announcement. It's our great pleasure to communicate with you through the online channels. Time travels fast. Now is the time for us to review the past -- first half of this year and look into the future. While we know China was struck by COVID-19 in the beginning -- at the beginning of this year, facing this growing uncertainty in domestic and overseas economic environment, we took matters into our own stride and forged ahead with transformation. We had a few milestone events. For example, the listing of GDR and -- which was listed on the London Stock Exchange. The newly-elected Board led the company to promote business development. We achieved a steady growth of business results and further growth of comprehensive strengths. Let's look at the numbers. In the first half, our gross premium -- written premium amounted to CNY 216 billion, a growth of 2 -- 4.2%. Group EV reached CNY 430 billion, an increase of 8.7%. Group AUM reached CNY 2,306 billion, a growth of 12.9%. Due to impact of the income tax policy adjustment, the group net profit fell 12% to CNY 14.2 billion. But that was excluding -- but there was a tax factor influence. Group customer continued to rise reaching 141 million, and our solvency margin reached 4 -- 289%. And now we ranked 193 -- number 193 on the Fortune Global 500 list. We continue to announce our profit numbers, and we started to introduce OPAT. For example, our net profit fell, but our group OPAT maintained faster growth. Our group OPAT, attributable to the parent, amounted to CNY 17.42 billion, a growth of 20.1 (sic) [ 28.1% ]. Of this, Life OPAT was 13.3% (sic) [ CNY 13.3 billion ], up 20.7%. This year, we stood with the -- with everyone in this country to face the challenges. We launched 7*24 claims hotline and green channels for claims. We streamlined the processes, removed restrictions on designated care providers and diversified channels of non-claim -- of online claims. We expand coverage for multiple products such as PA and critical illnesses, so as to provide better cover for our customers. We supported the efforts to resume work and business, leveraging our expertise. We developed, well, more innovative agricultural insurance to benefit customers in Beijing, Shanghai and Hunan province. We provided health cover to tens of millions of people returning to their positions at the frontline. We innovated a customized insurance program for the resumption of work for migrant workers, benefiting over 2 million workers in Shanghai and Hubei. We launched a diversified customer insurance solutions targeting firms in the manufacturing of key supplies, development of new drugs and vaccines and upstream and the downstream companies of industry value chains. To date, our solution for reopening business have been rolled out to 35 provinces and the municipalities, providing a total of CNY 2.6 billion in sum assured to nearly 11,000 firms, demonstrating our commitment to society and customers. We accelerated technological innovation to boost insurance business. We set up the Technological Innovation and Consumer Rights Protection Committee under the Board, which underscored our commitment to technology at governance level. The new committee will play a leadership role in major decision-making relating to technology and the formulation of technological innovation strategies. We have just announced the Board's approval to establish CPIC Fintech, a major step in the marketization of technology. Actually, last Friday, we -- it got approved from the General Shareholders' Meeting, getting the highest vote on the record. So the setting up of CPIC Fintech was a big milestone in the future. In infrastructure, we launched the database in Luojing, marking the establishment of the 3 data centers in 2 locations. So our -- we see improvement in key indicators like the number of customers and in simultaneous interactions and customers' responses time. We introduced expert from Alibaba, Huawei, CMB Ctrip, to enhance the competence of our team. Also, we promoted online operation -- CPIC P&C promoted online operation with online adoption reaching 35.3%, and the online service rate reaching 80.1%, and the agricultural AI underwriting provided a lot of stimulus. And the CPIC Life enhanced online agency operation construction. And the one-stop all scenario digital system have reached an adoption rate of 93%. And in the first half of this year, the synergy within the country produced a lot of positive results. For example, the number of customers with 2 insurance policies or above reached 27.2 million and affiliated under the joint -- under the group developed more than 400 strategic accounts, reaching 84% of governments at provincial or municipal level. Our new model products plus health management and plus elderly care gained traction. We upgraded the CPIC Blue Passport and also Tele-doctor, which now received 777.9 thousand visits and the retirement communities in Chengdu, Dali, Hangzhou, Shanghai, Xiamen was proceeding well with the issuance of more than 10,000 CPIC Home certificates of admission. The experience center has, so far, received 19,000 visits from -- since inception. Now let's talk about key business segments. Starting from Life Insurance. The pandemic was a major disruption to traditional model of agency. Now in the first half, NBV for CPIC Life was 20 -- CNY 11.2 billion, down by 24.8% and the annualized new business premium for NBV fell by 20% and the NBV margin dropped by 2 percentage points to 73% (sic) [ 37% ] as a result of decreased share of FYPs from individual customer businesses. But our NBV margin of Life -- of individual customer business stood at 56.5%, up 6.8 percentage points. We upheld protection as business -- as basic value proposition of the insurance and we see the growth in residual margin, which grew by 5.3% reaching CNY 347 billion, and our GWP -- and renewal business growth of 6.3% and GWP reaching CNY 138 billion, and our surrender ratio was stable at 0.5%. And we hosted a measure of online and offline integration, more measures, for example, quality recruitment and training support information inquiry. And during the reporting period, we see monthly -- average number of monthly agents reach 766,000, down by 3.8%, and -- but monthly average number of active and the high-performing agents reached 207,000 and 121,000, and -- which is a month-on-month recovery. In the second half, we'll continue to pursue quality growth. For example, we'll focus on core agents, young agents and the high-performing agents. We'll push forward the model of Products+Services and enhanced digital empowerment and the online/offline integration to strengthen capabilities in customer acquisition and upsell. For P&C business, combined ratio was 98.3%, down by 3 -- 0.3 percentage points. Loss ratio stood at 59.7%, up 0.5 percentage points and expense ratio was 6 -- was 33 -- 38.6%, down by 0.8 percentage points. And we -- P&C delivered CNY 76.6 billion in GWP, up by 12.3%. Auto business adapted to challenges by enhancing customer acquisition, retention, promoting online business operation, and it delivered CNY 47.9 billion in GWPs, a growth 4%. Non-auto business recorded a GWP of CNY 28.7 billion, up 29.8%. Now we see this kind of improvement in combined ratio and the loss ratio. Now the combined ratio fell to 97.8%. And we also focus on data integrity, customer acquisition and the management model to strengthen customer information quality, support online and offline service and specialized renewed business team to strengthen renewal business capabilities to push for a shift of growth drivers. Non-auto insurance saw a combined ratio of 99.7%, up by 0.2 percentage points. Agriculture insurance stepped up -- increased innovation services, technology to continue to improve services. CPIC P&C and Anxin Agricultural Insurance delivered CNY 6.2 billion in premiums, up by 45.6%. Liability insurance expanded its coverage relating to social administration and people's welfare with GWP of CNY 4.84 billion, a growth of 34% and improved underwriting profit. Now let's turn to asset management. AUM saw steady growth. By the end of the first half of this year, AUM stood at 6 -- CNY 2.3 trillion, up by 12.9%, of which group in-house AUM reached CNY 1.55 trillion, a growth of 9.4%. Third-party AUM held by CPIC AMC, Changjiang Pension and CPIC Fund totaled CNY 753 billion, up 20.8%. In terms of investment strategy, we continue to optimize asset allocation. We conducted technical asset allocation with flexibility. For example, we extended allocation into T-bond and the local government bonds. We also increased investment in high-quality, nonpublic financing instruments to extend -- to the extent that liquidity risk is under control. If we look at the numbers, the share of fixed income assets stood at 79.5%, down by 0.9pt, and equity investment was 15.5%, down by 0.2pt, and equity -- listed equity securities was 8.3%. And annualized comprehensive investment yield fell by 0.6pt to 5.3%. Total investment income was CNY 38.4 billion, up 17.8%, well, mainly because of the trading gains, interest income on fixed income investments. And the annualized total investment yield was 4.8%, the same as last time, and the net investment income totaled CNY 32.6 billion, up by 10%. And the annualized net investment yield was 4.4%, down by 0.2pt. We maintained the prudence in credit risk exposure. For example, in the first half, 99.8% of enterprise bonds and the financial bonds issued by nongovernment sponsored banks held the insurance credit rating of AA or above. And the AAA ratio reached 93.7%, and of nonpublic financing instruments with an external credit rating, the share of AA+ or above reached 99.9%, of which the share of AAA was 94.7%. Except for those exempt from debt issuer external credit rating, the rest posted a guarantee or pledge of collateral. Now we cover the sectors such as infrastructure, nonbank financial institutions, communications, transportation, real estate, energy and the blended nominal yield was 5.2% and -- with an average duration of 6.9 years. Next year, we will continue to pursue high-quality development, while striking a balance between stability of performance and acceleration. And for the P&C side, we will continue to translate the achievement of our previous transformation into our competitive edge. And the stepped up investments in the infrastructure of the Life Insurance agency force, upgrade customer-oriented operation model and foster new growth engine via service and digital. On the asset side, we will adhere to long-term, prudent and value investments and also enhance our alternative investment capabilities so as to reduce the impact from the reducing interest rate brought by the economic cycles and moving down of yield curves. And also, we need to foster long-term development capabilities. For example, deepening of incentive system, and we have launched the group development program for health-related business. We will renew strategic deployments along the health value chain, intensify our efforts to pool premium resources and promote the sharing of core capabilities via capability building in product, services, operations. Looking ahead, we will strengthen the synergies and meet challenges head on and work relentlessly towards the vision of being the best in customer experience, business quality and risk control with industry leadership in health in a steady development. That concludes my presentation. Thank you.

[Interpreted] Well, thank you, President Fu, for your detailed presentation. Now let's enter the Q&A session. [Operator Instructions] Well, now let's welcome the first question.

The first question comes from Kailesh Mistry of HSBC.

This is Kailesh here from HSBC. I got a few questions. First one is just on Life operating profit. What -- I'm just trying to understand the growth in that profit. So what was the contribution in RMB terms of, for example, residual margin amortization, experience variances and any other items? And how do these compare with the prior year? The second question is on the agency and Life business. Where are you in the restructuring of the Agency and the business structure? Should we expect the agency to grow in the second half? And are you seeing positive NBV growth in the third quarter so far? And just one quick last question, if I may. What's the new money investment yield? And what assets are you investing in?

[Foreign Language]

[Interpreted] Well, I'll answer your first question. Well, we can see that for the group, our OPAT grew by 8 -- 28.1%. Well, 2 factors, number one, nonlife OPAT growth. Now for this part was 58.1% growth. And for Life growth, 20.7% growth. Now for Life growth, last year was 18.9%, but this year, that was only up by 1.8 percentage points. Now that was the changes. And for Life OPAT, the residual margin experience variance. Now for residual margin, amortization, as I mentioned, these 2 things, some offsetting each other. But on the whole, you see the growth, 1.8pt growth mainly came from morbidity, mortality contribution -- suppressed contribution, and that's for Life. For Non-life, 58.1% growth. That's the main contributor for the group OPAT growth.

[Interpreted] Now second question, I'll answer your second question. Now for the company, well, we launched transformation 2.0 and the focus on the agency, we need to focus on core agents -- young agents and top agents. So these 3 teams, 3 agency forces. Now of course -- now we are pushing ahead on these 3 fronts. Now we can see that for the second quarter, now the 3 teams have all shown good results or positive developments compared to Q1. Now actually in July and August, the 3 core teams are also improving. And CPIC, we are sticking to our original plan to push forward this strategy, this initiative. For example, the 3 teams, we are supporting them with systems, with recruitment support, with, for example, recruitment criteria, training and coaching. Now everything is done according to plan. And also in June this year, we launched our -- well, agency top agents, well, system or top agents plan or program and launched various activities to the market. So I would say that now everything is going according to plan. A lot of things are being done. We are going to see more results as we go forward. Now this is for the agency upgrading. And also, we focused on technological empowerment and also service enhancement. Now of course, all these covers a lot of small projects. For example, technological empowerment, given the pandemic, we launched a lot of online systems, online operation tools, for example, customer operation, customer acquisition, customer service tools. And in terms of service enhancement, we launched all kinds of value-added services online to our customers. And also, we focus on, for example, high-end customer, CPIC Blue Passport, CPIC Home, et cetera, et cetera. A lot of the value-added services were provided to our customers, so that we have a better service provision to high-end customers. In the second half and going forward, we will continue to focus on the 3 core teams of agency and push ahead with all the initiatives.

[Interpreted] Now the third question. Second half in terms of our investment. Now on the whole, the investment results were satisfactory, for example, in terms of allocation, fixed income side in the first half, as I mentioned actually in my presentation, now there is a V-shaped curve. So in the second half, it remained unchanged. So for fixed income yield was quite satisfactory, is satisfactory. And we seize the opportunity for long duration assets. So we -- via reinvestment of matured assets. Of course, we know that -- well, equity side, there was a round of opportunities, good opportunities on the stock market. And we have also benefited. So in the second half, so far, our investment performance was quite good.

[Interpreted] Thank you for the answers. Now let's welcome the next question. Well, let's welcome [indiscernible] from Shenwan Hongyuan.

[Interpreted] I'm [indiscernible] from Shenwan Hongyuan Securities. I have a question on EV and P&C. For EV changes, we see NBV margin fell by quite a lot. But if we look at the capital requirements, there was a decrease. That is to say, the cost of capital actually decreased. So what's the reason? Is it a structural reason? Or is it because of changes in assumption? So that's for EV? Second about P&C. In July, the commercial reform of auto insurance was actually announced by the government. So how will it impact CPIC P&C? How are we going to deal with the pressure from -- and what's the reason for the decrease in the combined ratio for P&C?

[Interpreted] Well, let me answer your first question. Now for COC, and for -- before COC, well, the ratio -- the rates went down, but that's only compared to last year's number. And for this year -- last year, our COC was a high number. But if we will look at the year before last, you'll see the COC actually, well, remained on the track. Well, that's mainly because of the structure or mix of our product. Starting from the second half of last year, we started to sell new products. Our new products actually have a low requirement for capital. So that's why COC went down.

[Interpreted] Thank you for the P&C question. You'll see the -- no issues for the first half. Now for P&C, on the whole, our auto business delivered quite good results. Now this is mainly because of company enhanced -- continue to enhance quality of our business. And secondly, because of the pandemic, well, I mean, the claims ratio were impacted. And also certainly because we have enhanced our overall management for auto business. For example, our efficiency improved. And, of course, thanks to our technology empowerment, we -- well, we saved some resources in terms of operation. So that's for the first half. Of course, for the second half, the CBIRC released solicitation of opinion on commercial auto insurance reform. And they will actually release specific rules regarding the commercial auto insurance reform. Now I would say this kind of reform aims to protect consumer rights. So on the whole, I believe the core content can be summarized in 3 sentences, reduced price, enhance our coverage, now -- or enhanced protection coverage and also to enhance quality. So this is -- this not only covers commercial auto insurance, but also compulsory or mandatory auto insurance. So in terms of the impact, I would say, that for the insurance companies, the case size would definitely go down. And the claims would go up. And also, we would say -- well, the policy says that we need to provide for this kind of -- we provide more reserves or provide provision for adequate reserves. So we believe in the short term, the combined ratio would go up. We -- of course, we have done a lot of the study and came up with some responses. For example, number one, we need to accelerate customer operation. Of course, we've been doing this for the past few years, but we feel we need to accelerate the pace. Secondly, we need to deepen the distribution channels' integrated development because you see with customer operation, with integration of the distribution channels, I see, the importance grows even bigger. We have launched some measures, but we feel that we need to further expand the reserves. And thirdly, we need to continue to enhance our operation capabilities. And fourthly, we need to enhance CPIC service brand or service provision. We need to build our service into our well-known brand to provide services to our utmost.

[Interpreted] Well, now let's welcome the next question. Well, Liu Xin Qi from Guotai Junan Securities.

[Interpreted] I'm Liu Xin Qi from Guotai Junan Securities. Two questions here. Number one for Mr. Kong. Now CPIC launched GDR in the first half, and we see some strategic investors were introduced. So now I'd like to know what this would mean for company's governance and operation? That's for Chairman Kong. Secondly is for Ms. Pan. We see some numbers in the report. That is the quality of our agents. Now for the first half per capita NBV grew by 20%. But per capita productivity or FYC dropped by nearly 30%. Now what does it mean? I mean, growth in per capita new business, but the drop of FYC. So will it continue?

[Interpreted] Well, let me answer your first question. Now first of all, we launched our board meeting and General Shareholders' Meeting and results announcement on time. So I would say this first half is really unforgettable and unexpected. Now we all felt it. And -- well, of course, but we have different feelings. Now as I said, that -- well, we feel the challenge. We feel the burden. We feel the targets. But we will be different because of them. We have now some new normal. Maybe the new normal has just started. So we cannot be too optimistic, but we necessarily -- we don't need -- we don't have to be too pessimistic. We need to focus on the moment. We just concluded our board meeting and the General Shareholders' Meeting, and we have set forth several key focuses. Now these were based on our understanding of the law of the market and also the status quo of CPIC and also based on our overall strategy. Now secondly, I would say, we are meeting our expectations. We are stabilizing. Now actually, for the first half, we saw increased market share. And this kind of increase in market share was happening while we maintained our profitability. So this is very good news, especially given the impact of the pandemic. We didn't give up. We are focusing on a lot of things. We are taking the initiatives. For Life -- now, of course, Ms. Pan will answer your second question. But for Life, we had some growth in OPAT. Now this shows our -- quality of our business. Some of our numbers are not very beautiful, not very good. Of course, I'm worried about them, these numbers. But look deeper. I think we shouldn't worry too much. We need to focus on our fundamentals, on the basics, especially the building of our teams. So we need to have more refined management, focus on young team, young agents, top agents. We need to train them systematically. Now we cannot rely on massive recruitment. But we should rely on professionalism. So I believe we have a clear understanding on this. We need to focus on value. So we need to be objective here. We need to cultivate new growth engine for value development. Now as Ms. Pan mentioned, we launched a lot of activities, initiatives. So that's very good news. We need to build for longer future, longer term. Now for our investments, we focus on long-term value and prudent investment as Miss -- Fu Fan mentioned. Our third-party AUM increased, well, which showed trust from, well, customers -- from our customers. We need to be wise. We need to have a very good judgment. And thirdly, I think we should focus -- we should follow the trend and seize upon the opportunities. Well, you see -- I believe you read in the news that with the launching of our GDR, our corporate governance were further enhanced not only in terms of the shareholder structure and board meeting composition and the setting up of specialized committee under the Board, but also in terms of modernized corporate governance. For example, in new Board, we have CFO from Swiss Re, John Robert Dacey; and we also have with us Liang Hong, a very well-known economist; and we also have Liu Xiaodan, kind of independent directors. And 4 of them, 4 out of 15 of our Board of Directors are female, very high percentage among peers. We even have our directors who was born in the '80s, 1980s. I believe with this kind of Board we certainly will have very good leadership and guidance for the future growth. And secondly, I would say, during the pandemic period, some of the work have suspended. For example, a lot of face-to-face communication was stopped. But we are continuing to innovate in terms of institutional building. For example, for our Life company, P&C company, now for these 2 companies, they have got approval for the new incentive plan. Now this kind of in Chinese Changjiang program where we covered more than 1,000 of our core employees, starting from the key positions in the home office to the frontline outlets. Now it combines long-term incentive and the short-term performance. It introduced in this kind of lockup period deferred payment and clawback. So I believe this incentive program will make our people -- young people care more about the company's growth, care more about the company's capitalization. Now this is not only, well, stock options, but a rather more comprehensive incentive program covering the income in a more comprehensive way. Now actually, a lot of media said that CPIC is a rather flattened company, but I think this is not a very accurate adjective. We cannot be flattened in terms of technological empowerment. For example, we approved the setting up of the CPIC Fintech company, financial technology company. Now that newly proposed company will be more market oriented, will adopt flexible rules to focus more on professionalism. We have introduced a lot of talent -- tech talent in terms of -- well, in terms of infrastructure building and the big data and the Internet operation to focus on these key areas. Our technology needs to better empower our operation. We need to better utilize big data, AI, et cetera, so that our future and our value will be closely supported, will be closely accompanied by our technological advancement. And we also continued with our CPIC Home project. For example, we acquired land in Xiamen, Nanjing and Shanghai. I think we are doing even faster than real estate developers, and we are close to completion in Chengdu, and we also have prepared -- we're prepared in Dali. So we are building this kind of ecosystem. We are always on the run. Now, of course, we did a lot of work in order to have positive results. We are doing a lot of hard work and also keep our eyes open for future direction. For example, we have -- the Board have approved the big health business development plan. So this is not an issue of whether we will do it or not. It's an issue of how we do it. We are going to have breakthrough in terms of rules, geographic cover reach and also talent. Lastly, we think we need to be patient to focus on our key operations. You'll see the transformation 2.0 was launched 3 years ago. Now for the ninth Board, we will continue with the transformation and remain sticked to the strategy, remain focused on high-quality growth, so as to be dynamic and so as to be responsible. And I also believe this is in the ninth Board -- what the ninth Board wanted and what the investors would like to have from CPIC. Thank you. And the second question, well, Ms. Pan?

[Interpreted] Yes. About the per capita productivity decrease. Now in terms of the number of cases, you see the protection products -- now there's a lot of riders, including universal life products. So I believe that impacted the number of cases per agent. Now in terms of per capita productivity per agent, that's mainly because of the pandemic impact. You see the low performance in February and March. If we exclude February and March, the per agent productivity actually increased rather than decreased.

[Interpreted] Well, thank you for the answer. Let's welcome the next questions. Well, next is Tian Dan from CICC.

[Interpreted] I'm Tian Dan from CICC. Now number one, about technology. Now you've announced that you're going to set up a CPIC Fintech. Now could you elaborate on its positioning, business model, et cetera, and also interaction with your current technology operations? Second, about Life. Long-term, health commission decreased a lot in terms of DD insurance. So is it because of the big pressure? So what's the reason for this decrease? Is it because of a pandemic or because of the agents -- agency transformation or because of the lowered demand from the market?

[Interpreted] Thank you. Let me answer your first question. Setting up of the fintech company, CPIC Fintech, mainly 3 reasons. Number 1 is meeting the trend of the industry because a lot of more companies are actually positioning fintech in a different way that is using technology not to support but to lead business development. Secondly, if we look at the external environment. Now actually, PBoC encouraged listed insurance companies to set up financial technology companies. And well, we see relevant or similar documents announced by other regulatory bodies. I believe with the setting up of this fintech company, it will stimulate organizational energy to enhance efficiency. Secondly, with market-oriented talent program, it will drive up the enthusiasm of our people. And thirdly, it will drive up the data utilization of CPIC technology.

[Interpreted] Secondly, in terms of long-term health product commission, it dropped a lot compared to last year. That's mainly because of the product reason. Last year, actually, what we sold was Life plus DD. Now these were combined as a traditional product. So the commission expense were treated as a long-term health insurance commission. But this year, we separated the two. So only rider commission were treated as long-term or as health -- long-term health insurance commission. So that's why it dropped a lot. Thank you.

[Interpreted] Well, thank you. Let's welcome the next question.

[Interpreted] I'm Zhou Zhiran from Crédit Suisse. So question number 1 about agency. Now previously, you talk about the total number of agents. And also, you talk about high-quality growth. But recently, we see that other companies revised their incentive program, compensation program for agents. So what about CPIC? Are you going to stick with your original strategy? Or are you going to have some new changes in terms of recruitment? Second question, about dividend policy. Now first half, you see OPAT increased very fast but your net profit were dropped. So maybe this trend will continue for the second half. So now given the difference between OPAT and the net profit, so how would it impact the dividend payout? Because dividend payout is a very important factor for CPIC.

[Interpreted] Now let me answer your first question about the agency development. Now we noticed that some peers are making some changes to their compensation scheme. Now for -- we are also starting the topic. Now as we are focusing on the 3 core teams of agents, we are going to upgrade our compensation scheme. Now I would say we are going to expand and also enhance quality. By that, I mean, we are going to maintain expansion of overall agency. But this kind of expansion must be accompanied by quality that it must be quality recruitment and quality training in terms of activity management. So we needed not only size but also quality. And in terms of quality, we are going to develop the 3 core teams. We will have a, well, full cycle program, for example, in terms of culture, development, training, system building, et cetera. So everything will be there to support our agency development.

[Interpreted] For the second question, you see for the first half of this year, about OPAT, we have already mentioned that. For net profit, it dropped by a little. You know that the second half of last year there was a income tax adjustment -- policy adjustment. So that is why last year's number were affected by a nonrecurring factor. If we exclude that factor, actually, our net profit grew by 24%. Now for the second half, the picture will be more complicated. For example, income from investment, I would say we do face some difficulty, the pandemic situation and the overall -- for example, the overall picture, the agency transformation and the long-term investment yield going down and also fluctuation of market -- capital market. Now you see this is -- today, we also have some big news for the -- well, for the stock market, for the growth and growth market -- growth stock market. So anyway, there's a lot of news today for the stock market in China. So there will be some uncertainty in the future. So there will be more uncertainty for us. But we will strive to maintain the stability of our numbers. For dividend payout, I believe we all know about the long-term investment value of CPIC Group. We are going to make a commitment. We are committed to long-term return to our investors. So of course, we have factored in a lot of these factors, including the difficulties faced -- we faced during the transformation. So I believe EV will be a more important indicator. OPAT is very important. We will do everything to ensure return to investors.

[Interpreted] Let's welcome the next question.

[Interpreted] I'm Sun Ting from Haitong Securities. Two questions from me. Number one, the health care housing business strategy. Now what about your -- what about the future growth opportunity for the big health care industry? Or what measures are you going to take? Now the second question is about the margin -- NBV margin for Life business. Well, it decreased a little bit. But for the Life business, actually, NBV margin increased by more than 2 digits. So what was the reason? And we also know that while smaller companies, insurance companies and Internet insurance companies now there's a lot of competition in long-term DD insurance. So will you have any pressure on NBV margin?

[Interpreted] Now let me answer your first question. Thank you for the question. Now for the health care business growth, now, I would say, first of all, how we should view it and secondly, what are we going to do? Now for the big health care industry, we believe the potential opportunity is huge. Now from the market strategy -- from the state strategy perspective, actually, healthy China has now become a national strategy. Now in 2018, the commercial insurance payout only make up for 3% of overall medical expenses. But developed market, for example, Germany and France, they were 10%, and the U.S. percentage is even higher. So we have a lot of room for growth in China for the commercial health insurance payment. And in terms of the policy, you see CBIRC issued a policy saying that by 2025, health insurance market will reach a size of CNY 2 trillion. And given this, that would be roughly 19% compound annual growth rate. So even this year, we see a growth of 19.7% for, well, health insurance. So now national policies give a lot of supporting conditions for insurance companies to make enrollment on the market on the health sector. A lot of the government policies have -- give incentives in this regard. For example, now all doctors can practice in -- with multiple institutions. And also we can now sell pharmaceuticals over the Internet. And Internet health insurance can now be included in the state-sponsored health insurance. Of course, we do see some problems. For example, quality management is still facing pressure. Now insurance companies, medical institutions and customers, they don't have mutual interest. They don't have a mechanism to share value. There may be even conflict of interest. Secondly, there is, well, not enough diverse products. There is pure competition on price. And thirdly, there isn't enough health management. For example, we have 400 million people who have hypertension or diabetes. But we don't have enough -- but we barely have any insurance product for chronical diseases. So given this, I would say, we have a big room for growth in terms of health sector for insurance companies, but we need to tackle these problems and challenges to seize upon this opportunity. How should we do it? First of all, high level design. We have a [ 1-2-4-3 ] strategy. That is to say, we are going to focus on individual group and government segments and to build up the mid-office capabilities in terms of product, service, operation and risk management and to build up 2 resource support guarantees in terms of big data and health industry investment fund. And we should have 1 health insurance development specialized committee to lead this growth. We're going to build an ecosystem, leveraging our insurance-plus-service system. Secondly, we're going to utilize big data and AI and analytics to support product, support product design and risk management. And thirdly, we need to utilize big data talent to drive up our advantages. We also need to play up our advantages. Number 1 is our overall group advantages or competitive edge. That is our fundamentals. For example, we have 141 million customers, and we have good cooperation with government. We have a lot of individual customers. Our P&C are involved in a lot of the government-sponsored projects. Our health insurance companies have built up our specialized capability in terms of health management. Secondly, we need to play up our advantage in our commercial insurance payment. We need to integrate the pharmaceuticals, hospital drugs and insurance, so as to provide them with one-stop solution in terms of health management, chronic disease and specialized segment. Thirdly, we are going to utilize our insurance funding. That is through the investment in health sector so that we can build a ecosystem to combine health management and the treatment and the post-disease rehabilitation. And we also need to be market oriented. We need to focus on resources, talent and technology. We need to integrate a lot of resources, for example, in terms of medical, technological and capital resources, and we need to employ professional talent. And we need to change the way we provide service with technology. To sum up, we will go step by step. We will innovate. We will push forward so that our health insurance sector can become a new engine for growth for CPIC.

[Interpreted] Now let me answer you the margin -- NBV margin question. Well, CPIC Life, first, focus on the growth of new business value. But of course, also want to enhance margin. Actually, last year, we launched a new product to offer multiple DD protection, is offered as a rider. Now the rider, in terms of margin, compared to our old products, the margin was much higher. So that is a main reason for the increase in our NBV margin. But at the same time, we face market pressure, competition. So we believe this kind of margin will go -- gradually go down, but we will continue to enhance our innovation in product design. We are going to keep launching new products to maintain our margin.

[Interpreted] Now let's welcome the next question.

[Interpreted] [ Wang Huang ] from Goldman Sachs. Two questions. Number one about OPAT for Life. Now you mentioned 1.8% growth. Is it -- what is it exactly? Now OPAT, good growth, residual margin grew by 5% something previous year, that's 20% something. So what about the second half? Will it gradually -- I mean, the growth will slow down? Or will it gradually flatten out? Now what about 2 to 3 years? Secondly, auto insurance. Now for peers, our claims ratio went down considerably for rivals, for peers. What about CPIC? I mean your claims ratio didn't change, remained flat. So what's the reason?

[Interpreted] Now let me answer your first question about OPAT. Now as I said, the first half Life company grew by 18.9%, I mean, 2019. Now for 2020, the growth was 20.1%. Now as I mentioned, this kind of -- it's mainly driven by morbidity and the mortality gains and also we benefited from the release of risk margin, residual margin. No, residual margin balance, well, it grew by 5.3%. But the balance is closely correlated to this year's performance. But the OPAT is not -- is only -- well, the impact on OPAT is much smaller. So it's mainly from last year's influence. So it shows that our business quality is improving. So going forward, OPAT -- now, of course, first of all, it will be impacted by the release of residual margin. Secondly, the growing -- the improving business quality. Next year, residual margin release will go down -- might go down, but our business quality will go up. So in the next 3 to -- 2 to 3 years, OPAT will still go up, and we will strive to OPAT, residual margin, experience variance -- we will strive to make sure that the 3 things go up. Now NBV -- the drop in NBV will only impact next year's OPAT, but under long run, we will continue to provide stable returns to shareholders. Second question, I didn't quite understand your question, but I'll try to answer them. Now you see first half, our expense ratio dropped a little bit. Our claims ratio dropped a little bit because of the lowered claims due to pandemic. So at that time, we believe that the claims ratio will go up when the pandemic stabilizes and our prediction, well, materialized. So that's our forecast. In the first half of this year, the -- our provision -- reserve for unsettled claims were provisioned, was set aside to factor in this kind of a possible increase in claims after the pandemic passed.

[Interpreted] Given the interest of time, we only have enough time for the last question.

The last question comes from Scott Russell of Macquarie.

Two, please. There's been a lot of discussion this year of CPIC's internationalization strategy. Could you explain what the company's ambitions are for overseas insurance business, which countries and what sort of insurance you're looking at, please? The second question is following up on OPAT, Slide 4 of the pack. This is easily the best information in the slide pack and deserves more focus. You mentioned that non-life rose by 58% to CNY 4.4 billion. But P&C fell by 5% to CNY 3.2 billion. So what explains the others, please? Or what is the adjustment that explains that very strong growth?

[Foreign Language]

[Interpreted] Thank you. I'll answer the first question. Now currently, we are going through this kind of domestic cycling. So CPIC will focus on domestic demand and pursue high-quality growth. And we also need to introduce external or overseas talent and resources so that we will focus -- we will have our strength in life and pension and annuity, so that we can utilize both domestic and external markets so that we will build up our competitive edge on the market. So our globalized strategy will be highly selective, will be targeted. We will not focus purely on size and the number. We will focus more on the layout and whether there is a synergy, whether there is a significant contribution to our long-term growth. The GDR -- after GDR listing, we are going to, well, pursue our international strategy, as described in the prospectus. We are going to focus on, for example, our Life and P&C and the AMC arm in Hong Kong so that we can have a presence in Hong Kong and to pan out into international -- other international markets and also cover the Greater Bay Area. Well, we do have some more considerations, for example, expand our P&C business in international market, One Belt One Road initiative, for example, and to build, enhance our international allocation of assets and also enhance health and pension business expansion and also expand our technology empowerment. Of course, we will pursue long-term, prudent and value investment. So after selection, we have selected a very well-known consulting companies to conduct study on international projects. And we have also -- are setting up the criteria for screening. So everything is being pushed forward smoothly.

[Interpreted] Now I'll answer the second question. In terms of the P&C net profit, well, there was a nonrecurring effect of CNY 1.4 billion in terms of rebate of income tax. So that is why a slightly drop in profit. But the OPAT excludes that factor. So that is why OPAT grew much faster this year. And for OPAT of P&C, there is underwriting profit and investment gains, investment returns. So both were in underwrite. So that is why OPAT grew by so much this year.

[Interpreted] Well, in order to protect the small- and the medium-sized investors, CPIC actually launched announcement to solicit questions on 17th of August, and we've received a lot of attention and feedback from investors. And a lot of the questions were about the pandemic impact on the business and also transformation of agency and also the commercial and auto insurance reform. Some of the questions have already been answered. But some have not been answered in details. So I would like to make a response to some of the questions, especially regarding the changes in the Board and also the net profit and OPAT. Now question one. You see the Shareholders Meeting actually elected 3 new board directors, one comes from Hillhouse Capital. So this Director, is it a shareholder director? How much share does Hillhouse Capital hold? Is it more than 3%? Now of course, Hillhouse Capital is a shareholder of the company and Ms. Liang Hong now served as Shareholder Director. Now actually, the shareholding of Hillhouse Capital has not reached the threshold for disclosure. So there's no more additional information for disclosure. And according to AoA, apart from the shareholders who hold singly or collectively more than 3% of our company's shares, the company's Board or both Nomination and the Remuneration Committee can also appoint -- nominate director candidates. And in our just announced interim results, you can see the Hong Kong Exchange and London Stock Exchange based on their rules, the Hong Kong central -- settlement company held H-share, but that's on behalf of the customers. And the CITIC Bank, GDR depositor, also these 2 accounts cannot be -- I mean, information for these 2 institutions cannot be disclosed at the moment. Now we welcome Ms. Liang Hong as a director because she can certainly play a big role for our company in terms of judgment for macroeconomy, big decision-making in terms of investment. And also, we have one more new director from our GDR cornerstone investor, Swiss Re, their CFO, John Robert Dacey. So based on his professional expertise in terms of big data, risk pricing, product remuneration, our Board will certainly benefit. And in terms of independent director, we have Liu Xiaodan, who have a lot of experience in internal, in domestic and overseas capital management. And also, we have Jiang Xuping, a expert in Internet operation and management. And we also have [ Wu Junhao ], who's a renowned lawyer in U.K., Australia and Hong Kong. I believe their expertise will help enhance our corporate governance and contribute to our pursuit of high-quality growth. So that's the first question. The second question. The company's net profit dropped by 12% in the first half of this year. But last year, net profit grew by 64%. At the same time, OPAT this year grew by 28%. So this kind of a big fluctuation, what's the reason? Is there something not disclosed? Well, 2 reasons for the net profit drop. Number 1 is that actually the up limit for the pretax deduction of commission expense was in home. And the rebate of some already paid taxes was returned or replated and went into the net profit of 2019. That is why the number for 2019 were boosted. Secondly, given the drop of the T-bond yield curve, we saw a reduction of net profit. So these are all external factors. And in order to better reflect our operational results, we introduced OPAT, which is a more stable indicator and it will better reflect the company's characteristics. For example, we focus on quality growth. We focus on this kind of accumulation of high-margin business in Life and P&C. We have improving combined ratio and stable return from investment. From the valuation perspective, continued profitability is a basis for investment returns. In the future, OPAT, EV and NBV will become a very important component for the company's valuation system. Thank you for your attention and your time. Well, that's the end of the announcement. Thank you again for your time. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]