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

Ladies and gentlemen, good afternoon. I'm Ma Xin, CPIC Group Vice Chairman, Vice President. It's my great pleasure to have all of us here and to attend this capital global market activity. But given the pandemic, in order to protect the rights of all of us, we actually are conducting this event in an online plus offline manner, so everyone here can attend either physically or via video or teleconference. The event will be conducted in Mandarin, and we also offer English simultaneous interpretation. Now why we are having this event in -- actually in the afternoon is because we are listed in 3 regions, so we have investors from England, so it's their morning, I believe. Now on behalf of the CPIC Group, I'd like to extend my warm welcome to all of you. And also, I'd like to thank you for your long-term support and attention to CPIC. CPIC is a company focused on insurance business. We have actually achieved a balanced growth in P&C business, life and asset management business. In recent years, actually, we see very good results for our P&C business. CPIC P&C focus on quality and also enhancing the profitability of the business. We see faster growth and also see deepening transformation. And a lot of the investors are very -- they follow closely under the development of CPIC P&C. Today's theme is pursue high-quality development with value-oriented transformation. So we've -- given this theme, we'd like to share with you what we have been doing at CPIC P&C and our future plans. And then we will have first the presentation and the Q&A session. Please allow me to introduce the management team for this event. They are Mr. Gu Yue, CPIC P&C Chairman; and [ Mr. Zhang ], CPIC P&C General Manager; and [ Mr. Xu Jinghui ], CPIC P&C Deputy General Manager; and Mr. [ Zhao Yonggang], Assistant General Manager of CPIC P&C; and [ Mr. Yu Bin ], Assistant GM of CPIC P&C; and also, [ Mr. Zhang ], CFO and the Chief Actuary of CPIC P&C; and [ Ms. Tao Lei ], Head of Transformation and the Head of Chairman Office of CPIC P&C. To ensure the smooth operation of this event, I'd like to remind you that we at CPIC have strictly abided by the relevant regulations regarding information disclosure. The presentations you are going to see that has already been disclosed, it does not contain any information that should be disclosed but was not. And if you have further questions, please contact our Investors Relations department. Thank you for your feedback. Now I'll hand over to CPIC P&C.

A prudent technology has been deeply integrated with insurance and the value of technology is constantly highlighted. Relying on technological innovation, CPIC P&C has gained a new momentum and pursue -- pushes for high-quality development. Next, we'd like to show you some of our technology achievement to kick off the Investor Day.

Good afternoon. I'm [indiscernible] from CPIC P&C. Technology is everywhere with us, and we are now seeing a lot of ecosystems around us. And we at CPIC P&C also developed an ecosystem, that is our online car owner services. Now it aims to improve our services for our customers. It mainly covers scenarios like the car owner insurance, car owner services and car owner daily life to build an ecosystem that is online, digital and intelligent. For example, for the insurance, we have a lot of products and various application methods. For example, it covers both online and offline. Our customer can dial 10108888 or use app or use WeChat account to apply for our insurance. And in terms of products, we have also insurance, health insurance, asset insurance and house property insurance. And in terms of process, we have streamlined application process. For example, customers can use their phone to have self-service applications. And we also offer online plus offline claims settlement service. For example, if you have an accident, you can use WeChat, a mini app, to make claims and repair your car. And for loss adjustment, for loss adjustment, our customers, they can have removed loss adjustment, because car repair shops they connect with us to realize this kind of remote loss adjustment. And also for small claims, we can offer claims prepayment credit. So if you have enough credit, then actually, whether you are CPIC claims customers or not, you can have our prepayment for claims without manual approval. And also, we are now have this kind of an auto value-added services. We have this kind of a benefit center. They can have a one-click inquiry to inquire what kind of benefits they have. And we also offer services systems. For example, we offer courtesy car services, car checking, testing, et cetera. And we also apply new technologies. For example, they can have a one-click application to receive roadside assistance. We can locate their physical site and they can also make inquiries with their cellphone. And we also have this kind of online shopping mall for our auto customers. We offer incentive such as resale of their second-hand car. And we offer various marketing activities to enhance their retention. We know that in Chinese market, auto premium is a large share of P&C business. But for non-auto, agriculture insurance is becoming a big player. For example, we started in 2015 in the transformation for our e-agriculture business. Let's look at the presentation. Now of course, we have a -- well, it's very hard to adjust the losses for agriculture insurance because it covers a lot of areas. But agri insurance they can try, but they cannot offer very accurate data. So that is why we now offer e-agriculture 5.0. So our pilots, after simple training, they can do the photographing and offer very accurate data. So now we can use AI to analyze the data. And based on different scenarios, to turn them into very concrete loss adjustment results. So now we can make our claims more accurate. And in terms of farming insurance, we actually -- you see we use physical [ tag ] and digital field [ tag ] and image identification. But now these traditional methods cost a lot of money and are not very satisfactory in terms of the effect. Therefore, we launched a new generation of technology. So with this kind of digital technologies, for example VR cameras, and they can do the photo shooting, and they can also identify these insured subjects so as to enhance our accuracy and also efficiency greatly. And also, you see we have the wind project. We cooperated with China Power. So -- because China Power has a lot of -- covers a lot of the physical places, they have a very extensive networks. So together with wind, the e-wind, it can cover using -- a lot of areas using Internet of Things and AI technology. It can cover -- or it can deliver remote surveying. So with this kind of new technologies, our agriculture insurance become faster and more effective.

Distinguished guests, ladies and gentlemen. Good afternoon. I'm [indiscernible] from CPIC P&C. Now we have just heard what applications we have for customers. And internally, we also have a lot of application of technology. Now first of all, we have digital underwriting. With this, we can enhance our services. So we have this kind of new model. Now it actually was started in 2016 to make our operation more efficient and faster. We have multiple accesses and more efficiency, and better experience and lower cost. So it helps the company's operation a lot. And the digital underwriting project has improved the friendliness of the tools, so the take-up rate has exceeded 92% and we can have 24 hours operation. And OCR can help us improve the accuracy by using -- by enhancing their -- by using the AI technologies. Of course, prudent operation is important for any insurance company. In terms of our risk management, we know that natural disasters is not predictable. It has -- it will cause a lot of damages, so with unpredictable losses. So we always need to prevent and fight against the natural disasters. But what can be the right answer? Now I believe there is something we can do to prevent risk, we have this kind of catastrophic risk warning and handling system. Now -- including the risk radar, now it covers the flood, the typhoon, earthquake and the hailstorm, et cetera. It offers -- for functions, now it can offer a lot of technical support in terms of disaster analysis, risk assessment and resource allocation. Facing our customers, we actually offer them risk radar, including the functions regarding early warning, prevention and the loss reduction. Now it can -- while it is an all-digital platform, it can conduct risk assessment digitally. Secondly, it can offer this kind of policy cycle risk services, covers the whole cycle of the policy. And our risk alert system for the catastrophe risks have produced very good results. For example, in terms of the typhoon season and the reducing of social damages. Now of course, auto insurance is our -- the foundation of our whole business to enhance our customers' capability to manage their own risk for their fleet, we offer Taihaobao, which contains a lot of functions. For example, they can identify the drivers' faces to keep them aware of high-risk driving behavior. Secondly, it can actually detect the items in front of the vehicles. Thirdly, it offers blind spot monitoring. And fourthly, it can automatically brake for the vehicle so as to reduce damages. Of course, Taihaobao will keep improving functions. And lastly, let's look at the [ Guy Eye ] risk management platform. Now it started in 2015, this [ Guy Eye ] platform was launched at that time. Now it covers 3 sections. First one is the risk identification section. And secondly is the risk monitoring. And thirdly is the risk management capability. So as to, first of all, identify the risk. Secondly, as to -- second is to monitor the risk to help the second line of defense, to help the function management. And thirdly, that is the empowerment section, that is to help all employees to enhance their awareness of risk control and management. So now it has transformed into a tool for the second line of defense into something we can all use across CPIC. Well, that's a taste of our digital applications inside CPIC P&C. Thank you.

Well, greetings everyone here and also attending the event online. I'm Gu Yue, Chairman of CPIC P&C. Welcome you all to this event, this investor day activity. And I also thank you very much for your long-term support and attention to CPIC P&C. Now this year is a very unique and a very eventful year because we face a lot of challenges, either from the pandemic or from a lot of the other risks and the occurrence of disaster, et cetera. At the same time, we also have a new regulation from the regulators and also new advancement in terms of science and technology. We need to tackle these new topics. So we need to tackle the challenges, embrace the changes and to enhance -- keep enhancing our business quality and achieve breakthrough, on top of benchmarking against the best in the industry. We will stick to our business philosophies. That is we need to persist in high-quality development and persist in customer-oriented operation, and persist in operational compliance, and also persist in transformation innovation so as to be -- to achieve the target set by our CPIC Group. That is the best in customer experience, quality and risk control, and the leadership in healthy and steady development. We have seen some of our innovation results in customer service, risk management and operation. Now today, we will give you some more presentations on how CPIC P&C has been doing recently and also how we have been pursuing high-quality development. Now I'd like to hand over to my colleagues. First of all, that is the CFO and the Chief Actuary, [ Mr. Zhang ], who will talk about our operations. And then [ Ms. Tao Lei ] who will talk about our transformation. Let's welcome them.

Good afternoon. I'm [ Zhang ], I'll talk about the operation results of CPIC P&C in recent years. First of all, I'd like to give you some charts to demonstrate our -- some of our results. Now you can see this is a combined ratio for us and also the growth of our premium. You can see the gray line is the premium growth and the blue line is the combined ratio. You'll see that -- you can see the growth in 2016 is 1.7%, and then it grow much faster in 2018 and '19. At the same time, the combined ratio dropped from 99.2% to 98.4% in 2018 and 98.3% in 2019. So given this, you can see that while maintaining faster growth, we controlled the risks and maintained business quality. Now second chart you can see here, that is the growth of the CPIC P&C against the industry average. The gray line is the industry average. So you see, 2016, we grew much slower than the industry, and we actually surpassed the growth of industry in 2018. And we have been maintaining the trend since 2018 so far. I believe our lead against the industry will be maintained in the foreseeable future. And the third chart you can see here, that is the combined ratio against the industry's level. Also, the gray line is the industry and the blue line is CPIC P&C number. So in 2015, our combined ratio is close to 100%. And of course, in 2014, CPIC P&C actually suffered the underwriting losses, that is a combined ratio of 103.8%. And then in 2016, our combined ratio dropped to 99.2% so -- and the trend kept decreasing, you see. So we are actually leading the industry since then. I believe we will keep the lead against the industry average. And then we can look at the product mix. So you see in the second half of this year, so most of our business, 21.7% come from our auto, that is for the new business. And then we also have a lot of growth from agriculture and health insurance. So you'll see the source of our income is becoming more and more diversified. And for the bar chart, you can see, in 2018, our auto insurance takes up the biggest share, close to 75%. And in 2019 and the first half of this year, non-auto business, the share of non-auto business become bigger. I believe the auto business will decrease in terms of the share of the total business volume. And we also can -- we can see the loss ratio, comprehensive loss ratio from 2018 -- 2015. Now it started with 68%, and in the first half of this year, the number dropped to 59.7%. So this means that we are improving in risk management and business selection. And also, you can see 3 of our digital tool, for example, the risk radar, E-Agricultural Insurance and then DriverCare. I believe these 3 products or tools actually -- well, my colleagues have just given you a very detailed presentation on these 3 tools. Given our continued investment in these tools, technology tools, we will see better results from them. And lastly, we also won a lot of -- well, good ratings and awards. So since 2015, we got the rating A from Standard & Poor's. And also, we've got strength rating A1 from Moody's since 2011. And also, since 2014, we've got corporate credit rating AAA from CCX. So all these are very good ratings. And in terms of awards, we've got 2020 China top 10 P&C insurance company. And in terms of the transformation, we got the China Insurance Ark Award 2020. And also, we won the 2020 China Insurance Ark Award for Technology Progress. And in terms of comprehensive strength, we got the 2018 China's insurance company with outstanding contribution in service quality improvement. And in terms of products and services, we've got the quality service organization by China insurance service innovation summit 2020 award. And in terms of social responsibility, we won the National Poverty Alleviation Award for our Fangpinbao product. And we also won the organizational innovation award for the year. So we believe with our increasing competitiveness, we will keep getting similar awards. Thank you. That's the end of my presentation.

Distinguished guests, good afternoon. I'm [ Tao Lei ] from CPIC P&C. Now I will talk about the transformations taking place in CPIC P&C. Now under the group's Transformation 2.0 strategy, we also conducted our own transformation inside CPIC P&C. Now as [ Mr. Zhang ] mentioned, in terms of our operational results, that's why we have this very good results from transformation. That's because -- well, I believe, a lot of reasons, mainly in 3 areas. Number one is because of the transformation itself is a very good support or mechanism to achieve better results. So we always focus on the growth of the value, of being value-oriented. So we start from -- and we also aim at value growth. So we actually set out our own specific transformation targets and goals and projects so that our direction is aligned with the group's transformation strategy. And secondly, in terms of the content of transformation, we have a framework of transformation and covers all the important areas. For example, given the development on the front line and also development of in-force customers, and also operation efficiency enhancement and risk management capability, et cetera, so given this kind of design, we have better results from transformation. And thirdly, we also look at the industry development trend and also focused on our own realities and our own inadequacies, so that we are more targeted. And we have 27 transformation projects. And if we look at the specific measures, for example, we have a framework, as I mentioned, and we have already more than 110 transformation results covering customer, products, risk management, underwriting structure, covering 10 key areas. And then we are progressive in terms of the methodology, that is to say, we actually use a lot of reformative approaches and we leverage a lot on the application of new technologies. And we also are very customer oriented. That is to say, you should know your users, you should know where it is used, who are going to use it, how to use it, et cetera. So we also displayed the results on the results supermarket platform. It's an internal sharing platform. And all the users can make comments on the changes on the results. And given this, now the overall, what we have in terms of the business mix, we now have auto insurance as the foundation and the non-auto insurance as the pillar for growth. We focus on, first of all, the management of customers, and secondly, on the resource allocation capability. So we are trying to build 4 capabilities and change one model. That is to say, we try to change the formation. That is to say, for example, we shift from policy dimension to the customer dimension. And we tried to enhance -- enrich our -- for example, our data and also enhance our service capability. And also, for example, in terms of cost control, we have become more refined and more detailed oriented so as to better utilize our resources. And actually, the comprehensive reform of commercial auto insurance was launched in -- on September 19. And within 0.5 hour of that, we actually offered the new auto insurance policy after the reform in 41 of our branches. So given this kind of reform, we see 3 -- changes in 3 key areas. That is to enhance protection, reduce the prices and improve the quality. So actually, I believe this reform actually coincide or aligns with what we have been doing all along. So we will keep doing what we are doing and keep refining relevant content so that we can actually see upon this reform and turn it into an alternative. And secondly, non-auto insurance. Now for non-auto insurance, we focus on, first of all, the new areas. We will follow the economic factor in the new emerging areas. For example, 3 areas. And that is, first of all, is the upgrade -- consumption upgrade inside China. For example, education, medical and consumption in -- for example, our -- actually, individual policies enhanced by 46%. And secondly, we follow the policy-sponsored areas. For example, the Belt and Road Initiative and also China Import Expo, et cetera. So we use this kind of exclusive products, plus platform-sharing model and the business improved by 50% in the first half. And also, we further improved our risk management. We will try to serve our internal and external circulation and to improve the business mixture. And as I said, we are trying to develop a comprehensive risk management system. We use this kind of coordination and mechanism to link up sales with business quality. And also, we use digital technology to enhance our risk prevention system. And we also use this kind of a backtracking reporting system to make risk management a regular mechanism. And for our agriculture business, we also focus on 2 areas. Number one is the external policy opportunities. Given the country's focus on developing agricultural insurance, we seize upon these policy opportunities to develop this kind of strategic cooperation platform, and we entered into a lot of strategic cooperation agreements with relevant bodies. And secondly, we developed a platform to develop big customers. And secondly, internally, we actually also collaborate with government department and -- to actually participate in making up relevant standards and rules for the agricultural insurance business. Of course, we also focus on innovation. They include the product innovation. We try to offer more innovative products. We offer this kind of income insurance, insurance plus futures, et cetera, this kind of new product offerings. So for the first half of this year, our [ innovative ] business grew by 70% and then taking up 1/3 of overall business model. Then we also focus on innovation -- technology innovation. And we take a step-by-step approach. For example, as I said, we have the E-Agricultural 1.0. Now it's upgraded to E-Agricultural 5.0. And we also have E-Agricultural FAST. So with these innovations, our risk management also improved accordingly. So transformation helps with our daily operation and also help with our future growth. Number one, in terms of customer operation. Now previously, we only piloted in certain areas, and then we rolled it out across all our branches. So with this kind of uncertainty, externally, we maintain the stability of our business. Now for the individual customers, we have mostly auto insurance customers. We integrate online and offline channels and we digitize the customer information, and we put them into one customer account system. And we try to develop insight using big data. With this kind of customer demand or customer needs insight, we build up a relevant business model. We have developed this individual customer center to help with all these initiatives. In the first half of this year, our auto insurance customer persistent or renewal rate enhanced by 7 PPs and the non-auto enhanced by 8 percentage points. And for our corporate customers, that's mainly non-auto corporate customers, we actually achieved great progress. So now we actually explored various new measures in terms of legal person or legal person customer. And secondly, our capability for regional development. Now currently, China is focusing on both the domestic circulation and also external circulation. So we have the Yangtze River Delta region and Pearl River delta region and also the bigger Beijing area. Now these 3 areas accounted for 60% of the China's GDP and 40% of China's population. So we need to focus on these 3 big regions. And using our network-sharing platform and our standardized technology system, we need to focus on the 3 areas and then spread out to the entire nation. And we also focus on technology empowerment to enhance our operation efficiency. We, well, of course, not only empower ourselves, but also our partners, our customers, our vendors, et cetera, as you have seen in the previous presentations. And to actually support all these transformation initiatives, we must have a very good innovative mechanism. So we not only innovate in terms of tools, but also scenario and also in terms of systems. We have a lot of measures. For example, we have established an innovation academy. We have innovation month. We have innovation conference. And we have innovation incubation mechanism, innovation talent training mechanism and innovation sharing mechanism. So given all these, we have seen a lot of results from innovation become -- for example, all our employees become more innovative, and we have developed a batch of -- a great number of people good at innovation and we also have more than 120 innovative projects. Thank you. That's the end of my presentation.

Well, [ Mr. Zhang ] and [ Ms. Tao ] have talked to you about our operational results and also the transformation strategies. Now I believe now you got a better idea on these matters. Now the reason we talk about transformation is because I believe the achievement for CPIC P&C in recent years would not have been possible without transformation. So that is why we talk to you about transformation. Well, going forward, as we know, China has the second biggest economy in the world, given China's economic growth and also domestic and external circulation, P&C business, P&C sector will be even bigger in China. Well, maybe some of you focus more on life insurance, but the P&C business is also a big area, very promising, with a lot of room and a bigger demand, I believe, especially given the growth of the economy and also given the, well, increasing wealth of people, Chinese people. So we in CPIC P&C, we need -- we are trying to adapt to the new challenges and the new requirements. So we also hope that we -- and we believe we need to assist in pursuing transformation. Because any company need to grow with the times, we need to innovate for us to keep up with the times. The P&C sector is changing dramatically in China, so we need to seize upon these changes to turn it into opportunities. And we cannot do so without transformation. So transformation is very important to CPIC P&C. Secondly, we need to make the benchmarking. We need to set clear targets and we need to have the clear directions. So that is why we always benchmark against the first tier companies. So it's like our totem. So we target, we benchmark against the best and the first in class. So we believe this kind of benchmarking will produce results. For example, our E-Agricultural Insurance. Well, we heard a feedback from a lot of people. Now, of course, we innovate, keep innovating in terms of technology for e-agriculture. Now we now have e-agriculture fund. It's actually E-Agricultural 6.0. And thirdly, we need to persist in effective risk management. So we cannot risk it all. Insurance is not taking risk. So we need to manage the risk. So we need to have this kind of sustainable, refined and the effective management so as to achieve high-quality growth. And fourthly, we need to focus on technology empowerment. Technology is no longer a tool, it is actually a driving force for growth. So it's proven that technology, only technology can enable us to keep up with the times. So given this, we focus on 4 areas of technology, that is AI, Internet of Things, big data and blockchain technologies. So that in the future, the technology innovation will drive our growth for the company. And with this, we will be able to offer customers more convenient and the better and more comprehensive service. Now I'll show you a video clip. [Presentation]

Thank you for your attention. And also, thanks CPIC management for their presentation. Now let's start the Q&A session. [Operator Instructions] Thank you for your cooperation. Now we welcome the management team on to the stage. First, we'll have someone on site, a lady first. And the lady in the second row, please.

I'm Sun Ting from Haitong Securities. CPIC P&C has been doing quite well in recent years. Two question from me. Number one, that is the comprehensive auto commercial insurance reform. Now do you have more details to share on the reform? Secondly, after the reform, will there be, -- well, for example, lower premium for the customers? Second is for [ Ms. Tao ]. You talked about transformation, but -- well, I didn't quite get the gist of the information because it's too abstract. So can you give more concrete examples or more cases? So tell us, what kind of changes you have from transformation? Could you give me more example, specific examples to make it more vivid?

Well, thank you. I'm in charge of the auto insurance, I'm [ Ling ] Assistant GM. Now as I mentioned, the reform was started on September 19. It covers both commercial and the compulsory auto insurance. The big change here is that the standard premium has been adjusted. That is the standard premium for commercial insurance, auto insurance was reduced considerably. And also, the factor, the moving factor, anything factor was also adjusted. So overall, the premium dropped quite significantly. So it was aligned within its target reduced price, enhanced protection and value, and enhanced protection and quality. As you mentioned, the impact after the reform, I believe, of course, our loss ratio will be increased quite a lot. And according to CBIRC's requirement, loss ratio -- expected loss ratio will be around 75% or 10 pps higher than before. And the expense ratio should go down by 10 percentage points so as to benefit the customers. Now 1 week has passed, I believe the commercial premium has indeed went down and the compulsory premium only decreased a little bit, but commercial auto insurance premium dropped quite significantly. So -- and also, loss ratio, those -- the expense ratio is also going down. So given all these, on balance, I believe long-term speaking, the 2 effect will level out, will cancel each other out. But in short term, there is still some uncertainty. And for your second question, of course, I didn't give you a lot of experience -- example, it's maybe more high level. But as I mentioned, actually, our transformation covers both macro and also micro level. For example, we have a [ PO1 ]. We have a marketing platform, digital sales platform. So actually, we can do this before the transformation. So -- but we do not have a centralized platform. But starting from 2018, we'll make it into a project. We try to connect all these thoughts of the -- scattered -- all these networks scattered around China. So starting from 2018 and by -- actually, our plan was to finish it by the end of the year. But given the pandemic, actually, we accelerated it. We rolled it out before the schedule. So actually, this project actually helped us to reopen business in March this year. So you see, as I mentioned, our transformation actually covers all the macro changes and also be reflected in our specific measures or specific procedures. So it not only help us with the short term but also the long term. So it builds both for the current and also for the future.

And I can also just add a little bit, learned from the group perspective. So actually, let me give you 2 more examples. For example, #1, the renewal of auto insurance. 3 years before, the renewal rate for auto insurance is 60%. But now the renewal rate is 70%. So because -- well, it's very hard. I mean because we faced a lot of challenges from our side, but the renewal rate actually enhanced. Now what did we do? Well, number one, the authenticity of auto customer information enhanced greatly. Secondly, we enhanced our renewal efforts. So we not only focus on direct selling, but also telemarketing and also digital platform. And certainly, we enhanced our customer development. But of course, our technology applications also helped our customers. They are more -- they're happier with us. So actually, you see, the year before last, we've got a lot of new growth from renewal business. And second example, agriculture. Agriculture insurance, in 2019, we ranked #5. Now we ranked #3. Now our volume for agriculture insurance might exceed CNY 10 billion this year. So that's thanks a lot to e-agriculture insurance, technology application, innovation and product innovation. So actually, we offer the most products, most income-guarantee product on the market. So in terms of technology upgrade, we now offer e-agriculture 6.0. We have a lot of this kind of upgrading and iteration for our technology.

Well, thank you for the answer. The gentlemen on the second line.

I'm Li Jian from Huatai Securities. Two questions from me. Number one, also about auto insurance. You see the reform is to reduce premium, so -- but what about CPIC P&C? What's your distribution channel? And what's the impact for them? So are you going to reduce the expense or commission to the distribution channel? So how long -- second question, how long will the uncertainty last? So what do you think about the uncertainty? How long will it last? And the second question is about non-auto insurance. Now non-auto insurance is gaining momentum. Now we see agricultural insurance, you did very well. Now what about other non-auto insurance? Any other promising non-auto sectors?

Thank you for your question. Your first question, well, the reform aims to reduce the expense ratio. So it's a -- well, a requirement from the regulator. Now for us, we need to change the structure of the distribution channel. Now our aim is to enhance our direct selling. That is our telemarketing, our online sales. So we need to enhance these distribution channels. So we need to change the structure of our channels. Of course, this is something we have been doing over the years. It's not just done for the reform. And we also focus on measures, for example, using technology and to enhance our efficiency and customer experience so that -- so as to further reduce our distribution cost. Now since the reform has just started, so there will be some uncertainties, so we will keep following it. Now second question, non-auto, non-auto insurance, I'd like to say that for any kind of insurance company, we will face challenges in non-auto insurance because currently, non-auto sector is still making losses. But CPIC P&C, we undergo a lot of changes. We actually -- we will focus on innovation. We keep playing up our existing business. We have 4 engines and 3 technologies. Now we have innovation and we also have a traditional legacy business. Now actually, now we are leading our peers and also making profits in non-auto sector because, first of all -- for example, in terms of personal guarantee insurance. Now CPIC P&C almost focus on prudent and value-based growth. So we always focus on compliance operation and always stick with effective management of risks. So some of our indicators are even better than last year in terms of business quality. And the second type of business or second type of income are individual customers. And thirdly, also sponsor, government-sponsored business, also profitable. So we are confident that in the future, with better risk management, we can have -- we can maintain both fast and steady growth and also value-based growth.

Well, if I may just add about the auto insurance reform. Well, first of all, from the regulator's intention, I believe the regulator want to enhance or protect the right of the customers. Now that we see -- they talked about reducing the premiums, they want to enhance the protection, they want to provide good service to customers. But to put in one word, that is to protect the rights of customers. And as a second intention of the regulator is to force the insurance companies to enhance their operation efficiency and reduce cost, so that they can offer better-priced services for customers. And -- but of course, we cannot foresee the future. I cannot say how long the uncertainty will last. But I believe we should pay attention to several things. Number one, there is the ability to reach out directly to customers. Because if you cannot reach customer directly, then insurance companies will face a lot of challenges. So most companies, they focus on direct selling. And secondly, the ability to centralize to reduce costs. So as I mentioned, the regulator wants the expense ratio to go down from 35% to 25%. So how can we do that? We need to be able to reduce cost and centralize operation. And thirdly, in the whole process, how can we best serve the customers? Now as I -- as we know, it's easy to say we offer good services, but it is harder to deliver the goods to actually do the work. So actually, we do not stay on the paper. We do not pay lip service. We offer them all kinds of value-added services. So I believe if we can do the 3 things right, we will be in a better position in auto insurance competition. Actually, we have been building capability in these 3 areas for many years. There are also our key transformation projects, for example, the development of our channels, our [ PO1 ] project, transformation project. And also for operation, we have a [ YO0 ] project. Y means operation, P means platform. [ YO0 ] -- [ YO1 ] project is also a key transformation project. That is to centralize and to -- well, centralize our operations and reduce our costs. We used a lot of new technologies to refine our operation. I believe we are leading the industry in this regard. We have actually 4 op centers across China. With this kind of a centralized operation, we can offer customers better prices. But of course, as we mentioned in the presentation, we will also offer this kind of mileage underwriting. Now if allowed by the regulators, because the mileage underwriting is utilizing actually foreign experience, because you see there's something new in China. Because if you -- many of the car owners, they do not drive to their offices from Monday to Friday. They take taxi or they take the subway. But they pay premium regardless of whether they drive their car or not. But if we can offer mileage underwriting policy, then you don't have to pay for the mileages you don't drive. And in terms of service, we have a brand called CPIC Service. Now actually, these services are under one -- are all within our ecosystem, a service ecosystem, that is to offer holistic comprehensive service to our customers, not only standardized service, but also personalized customer service. So I believe the capabilities in the 3 areas will put us in the best position to compete with our peers and also secure our future.

Well, let's continue with the question. The lady at the back.

I'm [ Gary Xiao ] from [ Hongyuan ] Securities. Two questions from me. Number one, about KPIs for CPIC P&C. What kind of KPIs? And what changes, given the transformation in KPIs? Secondly, about the dividend payout of CPIC P&C. Now the group dividend actually will receive dividend from CPIC P&C. Now what about the strategy for the next few years in terms of dividend payout?

Now let me answer the two questions. Now number one, about the group's KPIs for CPIC P&C. Now actually the same for P&C and CPIC Life. Now actually, CPIC focus on insurance as the main business. I mean it's quite unique among big players in China. Secondly, a balance between life and P&C business, which is also unique to CPIC Group. Thirdly, we focus a lot on quality. So given these, the features, the KPIs for CPIC P&C include, first of all, combined ratio, which has not changed. So for -- because it's a good indicator of the underwriting capability for insurance -- for P&C insurer. And also, KPI would also include profit indicators and also premium indicators. And the third type of KPIs would be transformational KPIs. For example, in recent years, the renewal rate for auto insurance and also KPIs for agriculture insurance. Now of course, transformational KPIs will change over time. Now second question about the dividend payout. I'm not sure -- are you talking about the P&C dividend?

[indiscernible]

No, because group is the holding company -- so now I would say, CPIC Group set the dividend payout strategy. And for the group, of course, the dividend comes from P&C, CPIC Life, CPIC AMC in terms of profit earned. Now in recent years, CPIC P&C is contributing more and more in terms of the group's dividend payout, of course, because number one, its underwriting profit is growing year after year, and also, investment from CPIC P&C is also quite stable and prudent. So CPIC P&C is contributing more in the dividend. And the CPIC Group actually pay out more and more in terms of dividend, which is also unique in the industry. So if you look at the payout ratio, it's around 40% to 50% for dividend per share. I believe maybe CPIC is #1 in the industry. Of course, maybe it means our share price is not so high, but anyway, the dividend per share is quite high across the industry. And well, actually, senior management of the CPIC Group need to hold shares for the company. And I am more interested in buying the Hong Kong, H-shares of CPIC. But both the Hong Kong and A-share, they offer very good dividend. Thank you.

Thank you. Since we have online participants, so we also see some investors queuing for questioning over the phone. Now let's welcome them.

Zhou Charles from Crédit Suisse.

I'm Zhou Charles from Crédit Suisse. Thank you for your presentation, I mean, the capability -- 3 capabilities, reach out directly to the customers and to serve the customers, et cetera. Well, I believe some Internet players, they are very strong in the 3 capabilities compared to traditional company. For example, they actually engage a lot in -- with customer in terms of time and the number of interactions. So what about the 3 capabilities? Now Internet players, they have a lot more advantages, strength in that. How can you compete with them? Secondly, non-auto sector. Health insurance, can you talk about health insurance? Because you can also offer health insurance, medical insurance, et cetera. So what about your perspective, your view on the health insurance sector? And how do you actually -- how do you complement? Or how CPIC P&C -- CPIC Life in terms of developing health insurance?

Well, thank you. Of course, Internet player, Internet insurance player is very -- Internet insurance is a very hot topic. And in terms of auto insurance, well, actually, you can buy them with a lot of lessors. Now in terms of direct sales, actually, for our direct selling, that includes Internet selling or online selling. Now for CPIC P&C, we hope to combine heavy marketing with online selling so as to achieve this kind of integration of online and off-line, so as to better meet the behavior or cater to the behavior of the customer, cater to their behavior, their habits. For example, we can advise customers to do something or do some operations online after we talk to them over the phone. And secondly, Internet insurance is an area we need to invest a lot on. So we are increasing our investment in Internet capabilities. For example, we have our online services. We have an online team management, people management. So we are using online or digital methods or digital technology to reduce our expenses. Now health insurance, let me answer your question. Now as you mentioned, in China, health insurance is a very promising sector with great potential. It's a new area. So for any company, it will present new challenges. CPIC P&C is also positioning itself in terms of the people, the platform, the system. Now the group is actually taking a coordinated approach. There is a overarching strategy. There is division of labor between different subsidiaries. So for our company, we will focus on our risk management, our management capability, our business development capability so as to deliver -- achieve high-quality growth in health insurance. Thank you.

If I may just add, it's Group Vice President, Ma Xin. I'm in charge of health insurance. You'll see, of course, health insurance. I mean it's a most certain area of business in uncertain environments. For example, even -- given the pandemic, we see high or faster growth of health insurance in China. But we do face a lot of challenges for health insurance. For example, business quality management, because in China now, we are focusing on price competition. Secondly, price offering, because we don't have a lot of the diversified health insurance products. But actually, customers demand more diversified comprehensive products. And thirdly, service is not -- is now not a key strength for health insurance sector. So we believe China is still in its infancy for health insurance sector. So for CPIC, we need to play up our strengths in cross-selling or coordinated synergy between CPIC Life, CPIC P&C and CPIC Health, because actually, P&C have a lot of partnership with local governments, for example, with Hunan province. And there is the Hui Nong agricultural insurance in Hunan province in collaboration with Hunan government. And for CPIC Life, we have a lot of the customers. And for product innovation, we have a very good capability and expertise with our CPIC health insurance company. And secondly, we're also enjoying coordinated approach. Now because we can also integrate the payment function, so as long as we can offer this kind of integrated payment, I believe insurance enjoys a unique advantage. And thirdly, we also enjoy an advantage with our long -- with the long-term nature of insurance funding. With insurance money, there can be investment in hospitals, in medicine development for the longer term. And of course, we need to use the market mechanism. So of course, we would -- actually, we are trying to build a closed looped big health ecosystem. We'd like to utilize all sorts of resources. And of course, we would employ professionals, the medical professionals, insurance professionals to develop the health insurance sector. And we will also use technology. And to focus on the present, this year, CPIC actually has finished the planning for big health ecosystem, now with the establishment of our first online hospital. Secondly, we'll set up a industry fund. We'd like to set up the fund within the year. With this, we'd like to offer services, health services to our employees. Now these services include a family doctor. And then, of course, we also offer them to our agents. We believe everyone in China should have a family doctor. So actually, the -- with this kind of family doctor, they can receive medical service all day long. And we'd also like to offer people with kind of a specific medical service. For example, especially for females, and also for elderly people, there are specific elder -- specific diseases. We are cooperating with a lot of top-tier hospitals in China so as to offer our customers and the employees better quality health services. And next year, we also have a 1, 2, 3, 4 strategy and roll out these specific projects. Thank you. We also noticed that we get some text-based -- text questions from the webcast platform. Now in the interest of time, we can only answer 2 of them. Now let me read out the first question. And the first question, have you calculated the -- with the use of the new technology, how much contribution it has contributed? For example, how much loss it has reduced? And going forward, is it possible to further reduce the costs with application technologies? Second question is about agriculture insurance. Now the question goes, agricultural insurance is perceived as a low-profit business. So what's your position? Will this sector become a main contributor to the shareholders? Or will it be perceived as something to in bundled with other commercial or other commercial agriculture insurance?

Well, I'm CFO, Yuanhan Zhang, of CPIC P&C. Let me answer your first question. Actually, each month, each quarter, we actually will have very specific analysis of our loss ratio and the changes, especially the -- for auto insurance policy loss ratio. Now as we can see, overall, our loss ratio is going down. And actually, we will calculate, and we will contribute. We will do the attribution analysis. We will see what kind of drivers or reasons behind these changes. Now regarding the claims changes. Now the claims changes is the biggest factor, making up 40% to 70% of the change in loss ratio. So I would say, with technology application, with the loss, with -- we can reduce our claims, and hence, reduce the loss ratio. That's my simple answer. Second question. Thank you for your attention to the agricultural insurance. CPIC P&C actually grew fast in terms of agricultural insurance. Now as I -- as we have mentioned, the company's agriculture insurance grew from less than CNY 1 billion to about CNY 10 billion this year. And if we look at the first half, the newly generated business, actually, agricultural contributed 20% of the new business. And if we look at the government policies, I believe China's agricultural insurance will have further room for growth. So by 2022 to 2030, China's -- Chinese government has set out the specific goals for agricultural insurance. So agricultural insurance -- so China will become the biggest agriculture insurance market in the world very quickly. And the CPIC P&C, we will seize these policy opportunities and focus on innovation to further develop our agricultural sector. Thank you.

Let me just add about the technology help reducing the claims. Now you have seen in the presentation, we actually did a lot in terms of technology application. Of course, we didn't conduct a very specific assessment of technology application. But we know that by applying smart devices, self-service claims in different areas, different regions and based on different credit ratings of our customers, we will offer, for example, pre-advancement credits. Now we saved a lot of costs. Secondly, we also applied technology in big cases. We use AI and big data technologies. So with these applications, we see improvement in claims ratio. So our loss ratio also dropped as a result. Though we did not conduct a specific calculation, our -- the impression was that a lot of it comes from technology application. In 2015, we actually set up this kind of bigger price -- a big price for innovation. And for example, we got a big price for our sound identification technology, which won a big award internationally. Now then you say, what do I mean by that? You see by applying this kind of voice identification, actually, we can tell if someone is making a false accident reporting. So in South China, actually, we first rolled it out. And with this kind of a voice identification technology, we actually can detect false accident reporting in 90% of the cases. So this -- well, it helped with our anti-fraud measures. So I believe this kind of a technology application will further help reduce the claims.

Well, we also see a lot of friends from the media on site, so I'd like to invite them to ask the last two questions. Well, the lady in fourth row.

I'm from the Shanghai Securities newspaper. Now you mentioned a lot of work to do in the future. Now could Chairman Gu also tell us more on the strategy side, what will be the second growth curve?

Now the second growth curve is a buzzword recently. Now I've read the book. Now -- and I reread the book recently. The second growth curve -- now first of all, we know it's written by Charles. Now if it is Peter Drucker -- well, I believe Peter Drucker can be called the father of management. So the second growth curve, I mean it's a concept for management, financial management. So I would say you -- it comes from -- it's about the understanding of the market. When we talk about linear growth, so -- but linear growth cannot always remain linear. It will be -- there will be ups and downs, fluctuations. So you have a golden period, but you need to be aware of the new growth opportunities. So I believe that's what the book is all about. So I believe if everyone is aware of the second growth curve, then the industry actually is at a rock bottom because no one is willing to pay a lot or invest a lot in uncertain areas, which also brings out my second point. Actually, since 2015, we are always trying to pursue the second growth curve. For example, as you have seen in the presentation, in 2016, we started to develop the agricultural insurance. Because back in 2016, actually, not many people would be willing to invest a lot in agricultural insurance. But we actually did a lot of research on agricultural insurance in 2015. So our volume, market share, our ranking actually was #6 in 2015. Now we are #3 this year. What did we do? We keep investing, keep doing the right thing, keep focusing on product and technology innovation. Now I believe we can say we have seized upon the second growth curve. Secondly, our liability insurance, which is also a growth area for us. I believe our liability produced the best benefits for the company. I believe our liability grew by over 30% with the best benefits. Our combined ratio is around 10 basis percentage points lower than the industry average. Now we've been doing this -- we have been able to do this because we moved earlier than others. So we identified this gross -- growth area before others. So some of our innovative products -- for example, our Fang Pin Bao antipoverty insurance is both a liability insurance and also a tool to prevent poverty. And we also have some kind of other safe production, safe construction liability products, et cetera, et cetera. So we will lead our peers in many of these areas. And it's all because of our early preparation and an early move. Liability insurance, liability sector is -- has now surpassed traditional enterprise liability insurance. So in the first half of this year, the liability insurance produced CNY 4.8 billion in premium. And the traditional enterprise property insurance was about CNY 4 billion. And we also offer credit guarantee insurance. So we are aware of these opportunities and also pay a lot of attention to the management of relevant risks. So we did a lot of work in terms of risk management. And we know that CPIC P&C is one of the very few who have a faster growth of credit guarantee insurance and also a profitable company. Why? Because we are not blind. We are not reckless in growing credit guarantee insurance. We are well aware of the risk management. We will -- actually has more than one year of preparation. We developed the risk management tool, the magic cube, risk magic cube. And we also prepare -- made good preparation in terms of customer sourcing. And in our customer operation, we also did a lot of preparation. So for the P&C sector, we are making preparations a few years ago in terms of seizing the second growth curve. So I believe if we want to seize the growth -- second growth curve, for individual customers, digitization and the personalized service and wealth growth, given these new changes, retail customers will -- would prefer more smart, more personalized insurance service. So it's not like before. It's not like a simple offering of products. For example, as I mentioned, the mileage-based auto insurance, well -- can well be a new area for us. And also for our corporate customers, now we do not just pay them claims. We also collaborate with our corporate customers to help them reduce and prevent risks. We are having explorations in these areas. For example, we share data with some of our big clients and build the risk prevention platform with them. So in the future, we not only provide insurance products, but we offer risk management service for our corporate customers. And for government partners, actually, they also raised a lot of new requirements. And we believe, for them, government would want more inclusive and more tailor-made services. And they also want us to offer more accessible service. So I believe all these are new, are promising, are emerging. So we believe there are many opportunities in terms of a second growth curve. So my conclusion, the second growth curve is -- you need to think for the challenges and the future growth plan in the best days. So it's all about innovation, it's about new dynamism and new growth. Thank you.

Thank you, Chairman Gu. Now we welcome the last question on the site. Lady in the third row.

I'm from securities newspaper. Now after the reform, what do you think about the overall profit performance? Because if we look at it, auto insurance is the most profitable sector for your business. Non-auto is still making losses.

Well, thank you for your question. Now auto insurance face a lot of pressure, it's true. But beforehand, we have made preparations for several months. We are going to play up our strengths. For example, in some areas, for example, corporate fleets, commercial vehicles, we are going to do more because it's our traditional strength. Secondly, we are going to develop -- further develop customer value. We hope that for individual customers, for car owners, we can develop big development there. For example, upsell to them, cross-sell. And also, we are going to further enhance the quality management. So for high-risk customer groups, we'd like to screen out the market segment to manage our quality. And we'd like to offer better packages to high-quality customers. And also, through digital capabilities, we are going to further reduce our mid-office and back office costs. And lastly, in terms of service, we're going to drive up customer satisfaction with our good service so that we can better cope with the reform of auto insurance.

Now if I may just add, as you mentioned, after this reform, well, it will certainly present challenges to the company. So -- but on another hand, CBIRC promote this reform in order to force insurance companies to transform themselves. So it's not simply reducing the premium and everything else remains the same. Then, of course, then that would mean the loss -- losses for companies. But things will not turn out so because, actually, you see this also a lot changes in commissions we paid to distribution channels. Now actually, where we do see the commission rates paid to distribution channels going down from double digits to single digit. So cost control, centralized operation will need to produce more results. So we need to better manage our management and cost, our BD cost, our sales cost and also enhanced technology empowerment. So -- and the final results would, I believe, after some times, the auto insurance would produce a reasonable margin. And for non-auto insurance, our capability to manage its quality will also enhance. So if we look at the near term -- now currently, of course, non-auto insurance is still making a loss. But with the improvement on our side, I believe non-auto profit-generating capability will be enhanced. And the agriculture insurance, while we develop our business, we control the cost and enhance our management and enhance our technology improvement. With all these, I believe the overall underwriting profitability can be achieved. So actually, you see KPI, the biggest KPI is combined ratio and underwriting profitability. So this is something we are going to work very hard on.

Well, in the interest of time, I'm afraid that's all the time we have. And thank you all for your attention. If you have any other questions, please contact our Investors Relations team. And lastly, I would like to thank all of you for your attending. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]