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

[Interpreted] Ladies and gentlemen, good afternoon. Welcome to the 2020 annual results announcement of the CPIC Group. I'm Su Shaojun, Board Secretary of the group. It's our great pleasure to have all of you here today for this event for the results announcement to brief you about our performance in 2020 and also to listen to your suggestions and recommendations on our business. Now we choose this time so that more investors can participate in this event. And given the pandemic, we are having this event in a remote session. We will conduct the event in Chinese and provide simultaneous interpretation in English. Responding to regulator's call to protect the interest of medium and small investors, so we use a telephone hotline and also e-mail account and also APP to protect the interest of small and medium-sized investors. We have announced that the timing and the format for this event on 24th of March. And you can submit your questions today and/or even beforehand via video link and also other formats. We will try to answer those questions as much as possible. And after the event, you can also watch the playback of this meeting on our website. Now let's introduce the management: Mr. Kong Qingwei, Chairman of CPIC; Mr. Fu Fan, President of CPIC Group; and Mr. Gu Yue, Chairman of CPIC P&C; and Miss Pan Yanhong, proposed Chairman of CPIC Life; and Mr. Yu Bin, Vice President of CPIC Group; Mr. Ma Xin, Vice President of CPIC Group; and Mr. Zhang Yuanhan, CFO and Chief Actuary of CPIC Group. I'll also introduce Mr. Cai Qiang, proposed General Manager of CPIC Life, which was just approved by our Board, pending, of course, approval from the regulators. First of all, we will give the floor to Mr. Fu Fan, President Fu Fan for introduction of the 2020 performance of the group. Now I'll hand over to Mr. Fu Fan.

[Interpreted] Ladies and gentlemen, investors, media friends, and all friends, old and new, welcome to this results announcement for CPIC Group. Of course, we are still conducting this event online -- in an online fashion. We can say the past year was a very extraordinary year given the spread of COVID-19 and also domestic international situation, and macro pressure, et cetera, et cetera. Now all these put challenges to our wisdom and our persistence, and we persisted in high-quality development to stay focused on our core business of insurance. The Board and also the management focused on our key KPIs to both prevent pandemic and also to achieve transformation and development. We delivered steady growth of our overall business results and also enhancement in comprehensive strengths. Look at the numbers. Our group operating income amounted to CNY 422 billion, growth of 9.5%, OPAT attributed to parent amounted to CNY 31 billion, up 11.7%, EV amounted to CNY 459 billion and the net assets per share rose to CNY 22.37. And we also see the number of our customers climbed to 147 million, growth of 6.4% from the previous year. We're always committed to ensuring a return to our shareholders. In 2020, despite the challenges, the Board recommended an annual dividend per share of CNY 1.20, the same as 2019. And also given the 30th anniversary of the CPIC, so we also proposed a special dividend of CNY 0.10 per share. So taken together, the total dividend for 2020 reached CNY 1.30, that is a payout ratio of 50.9%. Since the listing for more than a decade, the annual average payout ratio has reached 47.6%, testifying to our commitment to the investors. Focusing on the reform and change, we delivered several milestones. For example, the issuance of GDR on the LSE becoming -- making us the first insurance company listed in Shanghai, Hong Kong and London. The optimization of ownership structure paved the way for improvement in governance and strategies. The new Board consists of leading experts in various areas. And these new numbers will bring with it advanced philosophies and international vision, which will contribute to a more professional, market-oriented and international Board. Under this, we launched the Ever-green Plan on a trial basis in our Life and the P&C operations, focusing on key positions, top-performing employees, frontline units to stimulate organizational vitality. We also made progress in retirement properties and completed the first phase of CNY 10 billion investment, with projects in Chengdu, Dali, Hangzhou, Shanghai, Xiamen and Nanjing, which involved a total floor space of 510,000 square meters or 6,300 beds under construction and 11,000 beds in reserve. So with this, we have initially achieved a nationwide deployment in retirement properties, laying a foundation for our elderly care system, known as CPIC Home, we have issued over 10,000 certificates of admission into our CPIC Home communities. We also deepened the participation in the Healthy China Initiative. The Board reviewed and approved the development program of health business. At the group level, we have set up a Special Committee on the Development of Health Industry, responsible for implementation of relevant initiatives and plans. We have also made progress in key areas, for example, joining hands with Ruijin Hospital, a top-notch hospital in China, and established a CPIC Internet Hospital. Also, we entered into strategic partnership with Sequoia Capital to promote long-term investment along the health value chain, such as biopharmaceutical, medical appliances, medical care and the telemedicine. We continue to optimize the governance structure for technology and put in place an overarching governance framework, covering management, research and application. We also formed a strategic partnership with leading technology giants. And we set up 3 innovation labs with Shanghai Jiaotong University, Fudan University and the Shanghai Insurance Exchange to focus on AI, insurance technology, blockchain, et cetera, et cetera. We launched the CPIC Fintech. And also, with 5 business units of data intelligence, application development, Internet operation, cloud service and shares platform, as well as 2 R&D centers in Shanghai and Chengdu. We also used market mechanism to recruit leading experts, including those in big data, cloud computing, Internet operations, cybersecurity. We also vigorously promoted online business operation. CPIC Life focused on the online transpositioning of sales model, such as cloud-driven distribution, using WeChat plus AI to realize remote taping and recording of sales process. CPIC set up an online platform for individual auto insurance customers, which insurance -- with key process, including claims, customer service, et cetera. And launched a series of applications, such as smart loss assessment, online operation management platform, smart medical underwriting models, smartshops, cloud services, et cetera, et cetera. We deepened our operation to promote coordinated business development. At the end of 2020, the number of customers with sum assured exceeding CNY 300,000 on critical illness of CPIC Life reached 4.73 million. And the number of customers with SA of CNY 1 million and above on one -- on third-party liability of auto insurance amounted to 17.1 million, a jump of 30.19%. The penetration of cross-sell of individual customers has been on a steady increase. Our average number of insurance policies per individual customers reached 2.09, increase of 7.2% over the previous year. And the number of individual customers holding insurance policies of multiple group subsidiaries reached 10.24 million, a growth of 20.5%. Also, by the end of the last year, we entered into partnership with 75% of provincial level government agencies. So on back of these, we also consolidated our strength in traditional business, such as agriculture, government-sponsored critical illness insurance, long-term care, occupational annuity, et cetera. We also continued to explore the path to deliver insurance solutions to employee and their families via our corporate and government clients. Now let's talk more about the business performances. We begin to disclose OPAT in the 2019 interim results, which stripped out short-term investment movement, changes to evaluation assumptions and impact of material and one-off factors on the basis of net profits. This is more aligned with the long-term nature of our business. In 2020, group OPAT amounted to CNY 30.14 billion, a growth of 11.7%. Of this, Life OPAT was CNY 25.87 billion, up 16.7%. Group EV also grow steadily. At the end of last year, it amounted to CNY 459.3 billion, a growth of 16%. If you look at the competition, group value of in-force business amounted to CNY 200.019 billion (sic) [ CNY 201.9 billion ], up 7.7%. And the group adjusted net worth was CNY 257.3 billion, up 23.5%. EV movement mainly resulted from the expected return on EV, NBV and the profit distribution. The pandemic led to lockdowns and restrictions on flow of people, which disrupted the face-to-face distribution model of the agency force. So new business premium growth came under big pressure. Given that, NBV reached CNY 17.84 billion or down 27.5%. As a result, the NBV margin fell by 4.4 percentage points to 38.9%. But given our focus on business quality, the NBV margin of the individual customer business stood at 54.9%, still at a decent level. We upheld protection as the basic value proposition of insurance, deepened our product and service innovations and delivered steady increase in residual margin, which grew by 6.5% to reach CNY 351.07 billion by the end of the last year. While new business growth was under pressure, CPIC Life reported stable growth of renewal business. On the whole, the surrender ratio was stable at 1.2%, up by 0.1 percentage points from 2019. During the reporting period, monthly average number of our agents reached to 749,000, down by 5.2% from 2019. And the monthly average performing ratio was 57.8%, down by 1 percentage points. And monthly average FYP per agent was also down by 22.6%. Given these challenges, we took a host of measures to restructure and upgrade the agency force. We established the AMS system, scoring agent performance from 6 dimensions to enhance the implementation of training, service, management, sales and recruitment. And we also amended the basic law to stimulate long-term vitality. We also improved the training system and the system for high-performing agents, which held on June 16, partner festivals. And we also enhanced the infrastructure of health management system with CPIC Blue Passports, covering nearly 13 million customers and the Tele-doctors covering 2 million customers. Next, we'll continue to deepen the integration of the operational model to enhance the role model effect of high-performing agents to strive to establish a multi-tailored service system. The property side, in face of pandemic and the comprehensive reform of auto insurance, we enhanced the customer management system, intensified the technological empowerment and risk management. In 2020, we recorded of GWP of CNY 147.7 billion, a growth of 11.1%. Of this, auto business reported GWP of CNY 95.67 billion, growth to 2.6%; and non-auto, CNY 52.06 billion, a growth of 30.9%. And our combined ratio on the whole was 99.0%, an increase of 0.7 pt from 2019. And the loss ratio stood at 61.4%, up by 1.2 pt, and expense ratio was 37.6%. Given the deepening reform for auto business, CPIC P&C reported a combined ratio of 97.9%, the same as 2019. And the loss ratio stood at 60.5%, down by 0.3 pt, and expense ratio rose by 0.3 pt to 37.4%. We pushed for a shift in growth drivers via enhanced renewal business management, and premium growth attribution shows that renewal business has become the core engine of our auto business. Last year, we maintained rapid development of the emerging non-auto business. For example, health insurance delivered -- diversified supply of personal health insurance products and delivered CNY 8.88 billion in GWP, a growth of 72.7%. Liability insurance focused on improving people's life and also public administration and the real economy. For example, we focused on food safety, environment pollution, large high-tech machinery, new materials, for example. Last year, it delivered GWP of CNY 8.78 billion, up 44.1%. Agriculture insurance, despite the pandemic, we seized the opportunity of government-supportive policies so as to realize profitable, sustainable and high-quality development. Last year, we delivered CNY 8.64 billion in GWP, up by 44.8%. And guarantee insurance, personal line business amounted -- accounted for over 90%. We continue to control, maintain -- and maintain stable business quality. Commercial lines focused on business which serve as a substitute for security deposit. So last year, guarantee insurance reported GWP of CNY 6.6 billion and a combined ratio of 98.1%. Now on asset management, our group AUM reached CNY 2,436.08 billion, up 19.2% from the end of 2019. Of this, group in-house investment assets amounted to CNY 1.648 trillion, a growth of 16.1%. And the third-party AUM reached CNY 788.07 billion, a growth of 26.3%. With -- under the guidance of SAA, we conducted TAA with flexibility. In fixed income, we increased the strategic allocation into long-term T-bonds and the local government bonds. For the portfolio, the share of fixed income asset was 78.3%, down by 2.1 pt from the end of 2019, and the equity investment make up 18.8%, up by 3.1 pt. Of this, stocks and equity funds accounted for 10.2%, an increase of 1.9 pt. Last year, we delivered a solid investment performance. Comprehensive investment yield rose by 0.2 pt to 7.5%. Total investment income was CNY 83.9 billion, up by 25.4%, mainly from gains from securities trading. And interest income with a total investment yield of 5.9%, up by 0.5 pt. Net investment income totaled CNY 67.1 billion, up by 9.6%. This mainly came from increased interest income on fixed income investments. Net investment yield reached 4.7%, down by 0.2 pt. Given the increasing risk -- credit risk, we maintained prudence in credit risk exposure and enhanced risk control for credit risk. Last year, 99.8% of our enterprise bonds and financial bonds issued by nongovernment sponsored banks had an issuer or debt rating of triple -- AA or A minus 1 or above. And of this, the share of a AAA reached 93.1%. And of nonpublic financing instruments with external credit rating, the share of AA+ and above reached 99.9%. And of this, the share of a AAA was 94.9%. Except for those exempt from a debt issuer external credit rating, the rest [ posted ] a guarantee or pledge of collateral. Underlying projects of our nonpublic financing instruments spread across sectors such as infrastructure, real estate, nonbank financial institutions, communication, et cetera, and this gave us a blended nominal yield of 5.3% and average duration of 6.9 years. Looking ahead, 2021 remains challenging, pandemic is still raging, global recovery is still not secured. But we are still confident. And the management, under the leadership of the Board, we will overcome those difficulties. We'll focus on fostering new growth drivers as part of the -- for the Changhang Programme. We'll focus on the fostering of new growth drivers. We will improve quality and productivity of agency force. And for P&C, we will emulate top players to enhance underwriting profitability to sharpen our competitiveness. For long-term development, investment will adapt to changing regulatory and the competitive landscape. To improve asset allocation across economic cycles, we will continue to focus on key levers to strive for further progress in governance, organizational reform, deployment in health and retirement sectors, and also marketization of technology and regional development. That's all. Thank you for your attention.

[Interpreted] Thank you, Mr. Fu, for your presentation on the performance. [Operator Instructions] Thank you. [Operator Instructions] And now let's get the first questioner from Haitong Securities.

[Interpreted] I'm from Haitong Securities, 2 questions. Now first for Ms. Pan Yanhong. Now for the Life side, you have the Changhang, the long-sailing program. You say that you want to focus on value growth and also strengthen your market position. So could you elaborate and balance the 2? And particularly for 2021, so what's your NBV? What's your NBV position for the whole year of 2021? Second, for Chairman Kong. We see a lot of new faces for the Board. Now my question is that, for these new Board members, so how are they doing in terms of corporate governance and also for the company's business development? So what have they already been -- what have they already done? And what are the future plans from them?

[Interpreted] Well, thank you for your question. Now for the Changhang Programme or the [ long-saving ], we raised a lot of specific proposals. For example, we want to secure our value growth and market positions. Now first of all, value growth stabilizing or steady value growth is a long-term strategy for CPIC. And given the Transformation 2.0 strategy, although the market is changing, customers are having varying or changing needs, but we will stick to this value growth, stick to this direction. Secondly, in terms of reinforcing our market position, well, I don't think it is a clear or easy definition for -- where we don't see market position in terms of GWPs. It's not a numbers game. We want to define it as our comprehensive strengths to serve the customers so as to secure our position as a leader in the sector. So it's not a zero-sum game. So I believe the 2 can -- yes, the 2 can complement each other. Now as you also mentioned for this year specifically, now of course, I know you know very well how the market plays. For the grand opening, for insurance sector, I believe the numbers are looking good across the whole sector. But for March, given the new rules on critical illness products, we see more pressure. So given the Changhang Programme or the [ long-saving ] program, Changhang Programme, we will stick to our plan. So this is the first year of the Changhang Programme, we are actually making a lot of progress. We are doing a lot of work as planned. We'll see more progress, thanks to transformation and we'll see also progress in numbers.

[Interpreted] Thank you for your question. The time flies very fast, I would say. So for the 9th Board of Directors, this is like a first exam for us. Now we are one of the late -- one of the -- well, we're one of the companies to make our announcements latest. Now last year, we issued the GDRs so that we actually see a modernization of our corporate governance. Now the 9th Board of Directors, you see a full lineup of the nice Board. Now all the new members of the Board have brought wisdom, new philosophies, new horizons, new ideas, which also enhanced our decision-making for the Board. I would like to put the question in 3 aspects. So first of all, during the last year, I would say in terms of innovation, we see a lot of changes. Last year, despite the pandemic from the end -- from the start to the end of last year, we didn't stop for one moment. Now looking back, we have CPIC Anxin, that is the Anxin Agricultural Insurance, we've changed our name officially, to serve our agricultural insurance customers. And we also changed the name for our health player, health insurance player to lay the foundation for our health-related business development. We use market mechanism to recruit top-notch talents. I would say, actually, we have got on board many experts in big data, AI, cloud computing, et cetera, et cetera. So you can see even today, you can see a new face, Mr. Cai Qiang. So by staying for the long run or playing for the long run, for the long term, we will attract top, top talent and maintain steady growth. So all this cannot be done without innovation. Secondly, given the new board, we did a lot of work in terms of retirement on the elderly care sector. We're trying to build a more convenient health management system or ecosystem so that we can have presence in -- across all parts of China in the retirement care sector. I can tell you that we have already license for the Guangci CPIC online hospital. We are going to have an official opening for that pretty soon. And I can say we have the CPIC Home in Chengdu, that is a retirement care facility. It will open in April this year. And we also work with Sequoia Capital to establish a CPIC's Sequoia fund. Now with all that, I would say that we can have new growth engines for continued value-based growth. And thirdly, in terms of the changes the new Board members will bring, the thinking -- our philosophy on green economy. Now we have been thinking about how to grow for the future or grow sustainably. Actually, only 2 weeks ago, we had a summit meeting with Swiss Re regarding ESG. They are a leader in terms of ESG initiatives. And apart from that summit meeting, we are also talking to renowned international organizations on topics of ESG. Now ESG, actually the philosophy of ESG is quite aligned with our long-term strategy, with the nature of our business. For example, we also focused on the long term, also focused on value-oriented growth. So as a company with a listing in 3 places, 3 cities, 3 markets, we will respond to the investors' concerns. So the new Board, as always, will try to implement ESG philosophies, ESG strategies into our daily work so that our ESG work will be very effectively implemented. We know that this is the 30th anniversary of CPIC, so it's like a 30-year-old man or person. I believe we are still very young. And with what we are doing, we'll bring new things, new philosophy, new strategy, new atmosphere to CPIC. We will focus on, of course, follow closely our national strategy, for example, low carbon, green economy, et cetera, et cetera. Now with all that, I believe we will have new -- more and more new growth engines for CPIC.

[Interpreted] Thank you, Mr. Kong and Ms. Pan. Now our -- let's welcome the next colleague, Mr. Zhou Cheng from Swiss Re -- Crédit Suisse.

[Interpreted] Now as Chairman Kong mentioned, there's a new face here. Now my first question is for Mr. Cai, you just joined CPIC. Now, well, we are glad you are -- glad for you to join CPIC. So why? Why you choose CPIC? And secondly, could you tell us a bit about the challenges and the opportunities of CPIC Life? So what needs to be changed for CPIC Life or the biggest challenges for CPIC Life, for Mr. Cai? Second question. OPAT for the group and for Life actually slowed down in the second half of last year. So what are the main reasons? Now for 2021, what about the OPAT, will it slow down further? Now as you mentioned, dividend, you pay out a stable dividend and increasing dividend. And you -- and dividend is determined largely by OPAT. So how do we reconcile the 2? Given that the CBIRC is trying to launch C-ROSS Phase 2, so will it affect your dividend level to the shareholders?

[Interpreted] Charles, thank you for your question. Now the question regarding why I chose CPIC Life, I would like to say, it's, of course, it's a well thought. I put a lot of thinking to that question. And I believe mainly 3 reasons. First of all, my confidence in China as a nation, especially given my last post, I actually spent several months to different areas in China, the new countryside in China, even to the eastern and the northern part of China. Or you -- I see a lot of opportunity for the -- at the grassroots level, at the countryside, for example. So I have great confidence in the economic growth of China, especially the reform of state-owned enterprises, SOEs in China. Now secondly, it's because of my confidence in insurance sector. We know that in recent years maybe the industry is going through some kind of reform -- transformation. But looking at the industry as a whole, I believe it is still very promising with great potential. And most importantly, I believe the reason to join CPIC is because of my confidence in CPIC. As Chairman Kong mentioned, CPIC had 3 advantages or strengths. Number one is CPIC, especially after the issuance of GDRs, the CPIC's governance is very internationalized and modernized. So it enjoys a diversified source of capital and share capital. So that's giving it a very good positioning in terms of future growth. And secondly, CPIC's overall business layout, that is insurance plus health-related business, plus elderly care sector. I believe these are the key growth areas for future China's economy. And the CPIC has laid a very good foundation or presence in these 3 areas. And CPIC's focus on long-term value growth also align with my philosophy. And thirdly, for over 30 years, CPIC is focused on insurance. So we see a lot of good talent and professionals in CPIC, which impressed me a lot. They are very practical with great integrity and diligence. So this is very far from my ideas of a SOE. So given these reasons, I'm very delighted and honored to become a member of CPIC. So for either the nation or the industry and the company, it's my great pleasure to make some -- my due contribution. So I would say I'm a totally new student, a novice here. First of all, I'd like to know everything about CPIC. I don't necessarily have the answers. I believe the answers will come from the market, from the front line, from the grassroot organizations. So if we can actually consolidate the wisdoms of all CPIC employees, we -- CPIC will become even more successful. Thank you.

Now let me answer your question, second question. Now I'd like to break it up to several parts. First of all, CPIC would like to return -- of a reasonable return to our shareholders. We'd like to pay out stable and steady dividend. Now of course, with restraints from the regulators, we also look at the OPAT and the net profits. Now when we look at the net profits, we look at the excess return brought by net profit. So that is the main strategy for CPIC. And last year, of course, the second half and the first half, we see different picture for OPAT. The reason -- main reason for that is, you see, for CPIC P&C and Life, in terms of claims payout for the first half, because of the pandemic, there were less claims payout, which were changed in the second half. In terms of investment returns, there is also a big change from the first half of last year to the second half of last year. So either for Life and the P&C, the OPAT changed from first to second half of the last year. Looking ahead for 2021, the release of -- the amortization of our residual margin will continue to grow and the fluctuation will certainly be there or at least to a certain degree in 2021. For C-ROSS Phase 2, CPIC has worked with the regulators in its release. We took part in it, in various measures, for example, in terms of the management of actual capital, risk-based capital, at risk capital, et cetera, et cetera. So we partake -- we partook in the testing across the industry. Now we are -- of course, the second phase of C-ROSS will do -- will contribute to an improvement of capital foundation. Now before the official release of C-ROSS II, C-ROSS Phase 2, our solvency was very good. We are very prudent and very stable. And we look forward to the release of C-ROSS Phase 2. We look forward to still very healthy level of solvency after the rollout of C-ROSS II.

[Interpreted] Well, thank you. Let's welcome the next speaker. Mr. Liu Xin Qi from Guotai Junan Securities.

[Interpreted] I'm from Guotai Junan Securities. I have 2 questions. First, for P&C, non-auto insurance business grow very fast, but the combined ratio was more than 100%. So what's the reason? Now CPIC, you focused on underwriting profitability. Now what about 2021? What's your strategy for non-auto P/C business? Secondly, now your equity share -- share of equity assets increased a lot, why? Why this increase in SAA? Because given the new regulations from the regulators, which basically encourages an increased allocation in equities, so what's your strategy for the new year?

Now thank you for your question. Let me answer your first question about P&C. Now the P&C market changed a lot. In 2020, you can see there's the auto insurance -- commercial insurance reform, which brought a lot of changes. So given all these changes, we made our transformation on an active basis. So in 2020, you can see our non-auto P/C business grow very fast at -- which went up by 30.9%. So now auto P&C contributed 80% in terms of new growth, new business growth, or up by more than 20 pts from 2019. That is in terms of the new business growth contribution. And also last year, because of the auto insurance reform and also combined with pandemic, that the overall credit risk of the society increased. So many companies actually participated in the non-auto P/C competition. So pricing went down on the whole for non-auto P/C business. And the claims payout or claims application went up after the pandemic with a lag -- time lag, so that is why we see combined ratio at about 100%. This is the same for a lot of our peers. So for CPIC as a whole, we also see a sharp increase of combined ratio for non-auto P/C business, but still much better than the market average. And for our agricultural insurance, despite pandemic and natural disasters, our agriculture insurance actually delivered underwriting profitability. Now looking at the losses, underwriting losses of the non-auto business, why is operating reasons, for example, because of the squeeze-out effect of auto business and the pricing goes down, and also, et cetera. And for specific line of business, some of the lagging effect of pandemic see much more claims applications. And for some business lines, we don't have a refined expense management. And also, the pig -- swine flu also gave us some impact. And also for CPIC, our growth of policy-sponsored business were very fast. As mentioned by Mr. Fu Fan, you see our health grew by 72%, agricultural insurance grew by more than 40% and so was the liability insurance. So a lot of the growth were policy-supported business. But by nature, the premium from those business will be paid in installments. So given the accounting treatment, so this business will have quite a bigger impact on the -- within period business performance, so -- but these are nonoperating impact. So going forward, we will continue with our strategy to manage the business quality and manage our expense, also customer service, et cetera, et cetera. So we're always trying to have a very -- a balance between volume and value.

[Interpreted] Thank you for your second -- for your first question. Now let me answer your second question. Last July, CBIRC, based on the actual and bond -- insurance actual risk profile eased the limit for the equity allocation of insurance companies. Now these new rules from CBIRC basically encourages allocation in equity assets. And also -- because, actually, the equity gave us -- equity assets gave us a better return for the longer term, so CPIC will prudently enhance its allocation in equity. Now this is also reflected in our annual reports. Now for 2021, given the vaccine for pandemic and given the economic recovery across the globe, China's macro economy will grow quite fast. So for equity, we foresee structural opportunities. And China will maintain prudent monetary policies, as mentioned by Premier Li Keqiang. 2020, we did not ease our monetary policy. And this year, 2021, we should maintain the consistency of our monetary policy. So that is why we foresee less pressure or downward pressure for interest rate in China. So given this, for SAA -- under SAA, we will -- for long-term assets, we will adopt the dumbbell allocation strategy to extend the duration for fixed income assets, including nonpublic equity assets.

[Interpreted] Thank you, Mr. Fu and Mr. Gu. Well, next...

The next question comes from Scott Russell of Macquarie.

It's Scott Russell from Macquarie here. I've just got one question and it's about the auto outlook. I believe in the last 12 months, premium rates have fallen by anywhere between 20% and 25%. Can you confirm that for CPIC's book, and whether that will continue throughout this year? And then I'm more interested in the margin impact. How will CPIC limit the margin downside from these severe price reductions, please?

[Interpreted] Thank you for your question. Now after the reform of the auto insurance, the sector and also CPIC were impacted, I would say. Now looking at our numbers. Now it was started -- the reform started last September. So after the launch of that reform, the premium income were influenced, as you mentioned, a drop of like 25%. Now compared to the industry, CPIC, well, pretty much were in line with the market average, 25% that is. But as of now, I believe we did better than the market average in terms of the impact from the reform. But of course, given the other impacts, in terms of claims payout, et cetera. So starting from last September to the end of last year, expense ratio and the claims ratio, and the netting of the 2, and the net impact would give us around 1 percentage points in terms of the impact. As of now, the impact is around 3 percentage points. So for combined ratio, I believe, let's say, 3 percentage points impact, so quite a big impact. But of course, there's also a pandemic issue here. So given last year -- given all that, last year, our auto business still maintained a steady underwriting profit. But for 2021, I believe we have more challenge from this reform, as shown by the numbers. So in response, we are making active measures, especially in the following areas. For example, in terms of the management of our customers. This year, after more than 1 year's preparation, we have set up an individual customer center. So now when we moved from product management or operation to customer operation. Previously, we focused on the increase in the number of cars -- vehicles covered. Going forward, we are going to focus more on the customer needs, focus on that, to explore their needs. Now penetration ratio, for example, has reached a quite high level. Secondly, in terms of digital empowerment, we are utilizing our technologies to build up digital business platforms so as to gain more insight into customer needs and deliver precise marketing campaigns. Now we have seen very good results. So for example, our online adoption ratio and also [ inside ] exploration, I would say we have made very good progress. And thirdly, we need to focus on the centralized operation. We are making a -- we are promoting a project for concentrated or centralized operation. So it's more like moving from off-line to online, from distributed to centralized system. And fourthly, we need to focus on delivering customer services, because that's where our value lies. So we have improved our service systems, for example, in terms of the service experience, service offering and service R&D so that our service can drive up our business and also reflect our CPIC brand. So we are having the same targets. We are working harder. We hope that despite market competition, we hope to deliver high-quality auto business growth.

[Interpreted] Well, let's welcome the next question.

[Interpreted] We have Mr. [ Zeyu Yao ] from CICC.

[Interpreted] I'm [ Zeyu Yao ] from CICC. Two questions from here. Number one, we see, given the pandemic, Life insurance business sector grow far slower, but you still delivered quite fast growth and -- in the health insurance sector. Now what about your strategy for health-related business, especially after the second half of the year -- of last year? Now secondly, from a value growth perspective, critical illness insurance is very important. But given the new regulation on critical or CI product, we see slowed growth for March. What's your view on that? What do you -- how long will it last?

[Interpreted] Thank you for your attention on health-related business of CPIC. Now of course, I think you would like to know about CPIC's overall health-related business growth. That is our overall strategy. Secondly, our business relationship between our health-related sector and the health insurance business. And thirdly, our progress. Now I would like to say we need to grow fast, and we must do this. And certainly, we need to do it well. So on the group level health business, always maintained good momentum aligned with the industry average. Long-term CI is always a very important product for life business. We also offered long-term medical insurance for last year, and this also contribute to the accumulation of residual margin. For P&C, health business also make up the biggest contribution for new business. So health insurance, be it long-term or short term, give us a lot of accumulation of new customers. Our health-related business must be -- we must do that because it helps with the value or the livelihood, helps with the livelihood, a better life of our people and society, and also very important for the growth of CPIC. Now health insurance is not an option, it's a must. The question is, do we offer a good health insurance or bad one? So we need to deliver very good service, offer very good health offering. So currently, what we are doing is to build an ecosystem to offer good products to actually build up this closed-loop ecosystem. And firstly, we must do it right, because this is something we must do. So we need to do it well, do it rightly. In the second half of last year, actually starting from second half of last year, we have made a lot of progress. Because you see, we used a lot of digital empowerment initiatives, for example, establishing a Guangci online hospital together with Ruijin Hospital. So by using digital technology, we will enhance the access to medical service for our customers. So that every one of our customers will have a doctor, a family doctor, a medical record and health management system. So we also will start from rehabilitation hospitals, which is in short supply but in big demand. We believe self-built services can guarantee the high level of service. So we must adopt our CPIC standards. We have actually finished the share transfer and the change of official name of our CPIC health insurance company. So going forward, we will do more to become a technology-based health insurance company. And very shortly, together with Sequoia Capital, we'll set up a health sector fund to play up our advantage for the insurance money. And we have already launched several projects under this framework. To sum up, CPIC would like to become a leading provider of health and well-being services. Now this cannot be done overnight. We need to do some very hard and dirty work. But this is where our competitiveness lies. We're going to use market mechanism to achieve breakthrough and to promote a new growth engine for CPIC in the future.

Now let me answer your second question. As you mentioned, yes, in January, given the new rules on CI products, there is -- we see a surge of demand on the market. So that is why there was a very big growth in the first half of first quarter, but slower growth in the second half of the first quarter. But on the long term, I think the society, the market, will have a very big demand for long-term CI insurance. If we look at the average sum assured, it's not adequate on average. So given our calculation, the average sum assured is less than CNY 200,000 on average. I don't think this is enough to cover the expenses related to critical illness. And secondly, in terms of the customer needs, I believe customers want more and more things. It's not just simply a payout. They did like to have a comprehensive solution, for example, both prior to the disease -- to the occurrence of disease, and after and during the treatment. So as Mr. Ma mentioned in the previous question, CPIC is accelerating its business layout in terms of health-related business. And thirdly, in the future, I believe customers are having differentiated needs. For example, we would see, for example, nonstandard customer segments are receiving very little protection at the moment. So as an insurance company, we need to have more capability in serving these substandard or nonstandard segments. This can be a huge potential market for insurers. But of course, this also calls for our digital capability, for example, utilizing big data analysis, et cetera. So all in all, market will have very big demand for CI insurance. We need to enhance our capabilities to offer relevant products. So I'm confident about the future.

[Interpreted] Thank you. Let's welcome the next question.

[Interpreted] Ms. [ Sun Yin ] from Changjiang Securities.

[Interpreted] I'm [ Sun Yin ] from Changjiang Pension -- Securities. Two questions. Number one, about the agency force of CPIC Life. Last year, you see the team size and also income dropped last year. And we don't see clear improvement after the pandemic. And CBIRC paid quite a lot of attention to the agency model across the industry. So what's your view on the recruitment and also top-level design for agency and of your future plans for your agency growth? Secondly, about the technology. CPIC always pay a lot of attention to [ dig ] technology or digital empowerment, et cetera. You entered into a partnership with Huawei, Alibaba, et cetera, Internet giants. So what's your future plan in the long-term or midterm? Are you going to work more with external players? Or are going to do it yourself?

[Interpreted] Well, let me answer your first question. It is true that last year, our agency and also the income of our agents actually suffered from a lot of pressure. The upgrading of our agency with the launch of the Changhang Programme is very critical to us. We will focus on the [ 3C ] or the [ 3C ] teams. We did a lot of work, for example, starting from recruitment and training, and also the new basic laws compensation scheme and also application of technology. So we are doing all that, and have seen some initial results. Now if we look at the specific numbers, if we look at the high-performing agents, we see quite a lot of progress. For example, for January and February this year, income of our agents rose sharply. And for high-performing agents, for example, MDRT, number of MDRTs rose by more than 20%. So now these are all good trends. So that is to say we are seeing results of our agency upgrading. Now of course, upgrading will be a key part of our Changhang Programme. So we'll focus on transforming and upgrading our agency force, especially in our young agents or what we call team core agents. We focus on career development for the agents and training, recruitment, promotion of those agents. We are going to see more result, more progress for that. And of course, yes, the CBIRC issued a lot of the measures to regulate the agency force. Actually, a lot of the regulations or rules were consistent with our strategies for agency. So we will comply -- strictly comply with those rules to drive for healthy growth of our agency force.

Now for the second question, yes, we work with a lot of the technology giants: Alibaba, Huawei, et cetera, and also some very good renowned universities in terms of technology development. For example, with Alibaba, we have now developed our capability to analyze data, manage data, et cetera. So with the data -- mid-office system for data, we have developed a data process system and an accounting engine, which were piloted last -- yesterday. Now as Mr. Fu mentioned, we worked with Jiaotong University to establish the AI lab for voice recognition, image recognition, et cetera, et cetera. And also, we are going to apply these technologies. And we also worked with Taibao and with Fudan University. And we also worked with Shanghai Insurance Exchange to work in blockchain technology. Now as to your question, whether we do it ourselves or work with external providers, I believe it depends on the phase of development. At the current stage, it's ask -- SaaS phase -- or PaaS phase, we will try to utilize vendors, external vendors. But for SaaS phase, we will do it ourselves. But it depends on the different areas. For example, AI, we will work with external parties, and also combined with our scenario, we will integrate and upgrade. Going forward, as we grow in technology prowess, we will build more and more ourselves.

[Interpreted] Thank you for the answers. Now I believe we can only allow one more question from the telephone.

[Interpreted] The next Ge Yuxiang from Shenwan Hongyuan Securities.

[Interpreted] I'm Ge Yuxiang from Shenwan Hongyuan Securities. Two questions. Number one, for Life, now you released the newly released numbers for customer operation, you have 4.7 million customers with high SA for CI products. So I'm not sure whether the growth is in line with your target. Now what are going to be your targets in terms of the growth trend? Second, about P&C. We noticed that, actually, your reserve for unsettled claims dropped compared to what released within your interim report, dropped to around 30%. So what's your take on this? Is it adequate?

[Interpreted] Thank you for your question. You see, well, 4.7 million for SA of CNY 300,000 for CI products, well, that give us a clear growth. Two reasons for that. Number one is the external environment, because customers who have more and more needs for CI products. Secondly, because of our promotion. Now as I mentioned, because I believe, on average, customers were not protected enough in terms of critical illness, so that is why we did a lot of promotional and educational work for our customers, asking our agents to communicate with our customers on the inadequacy of protection in terms of critical illness, and also, with CPIC Blue Passport, et cetera, et cetera. So our customers, they can receive relevant health management services when they purchase our insurance. Now all these helped to drive up customers' needs. So compared to the previous 2 years, I believe the premium grew much faster last year. Going forward, I think with the growing income and awareness from customers, CI will have more room for improvement. That's not only growth in terms of SA and the premium income, but also more offering of health management services.

Now about the P&C reserve for unsettled claims. Now first of all, I'd like to say our reserve level is reasonable and adequate. Now of course, you noticed some change for the reserve for unsettled claims. Now several reasons. Number one, pandemic. Because of the pandemic, you see the claims occurrence or incidents occurrence ratio dropped considerably. For the auto and the non-auto business, it dropped by 3.6 percentage point and 7.4 percentage points, which gave us less fewer claims applications. And aside from that, we also need to pay attention to the claims settlement ratio, which stood at 99.8% in 2020. This is not a public number. We didn't disclose it. But since you ask today, I'll give you a straight answer. Our case settlement ratio is 99.8%, quite high among our peers. So this increase in claims settlement ratio means that we have a more settled claims and less unsettled claims. And thirdly, with an analysis of the last 3 year, the analysis of the unsettled reserves for claim -- unsettled claims reserves for the last 3 years, if we do the regression analysis, we see that we have adequate level of the reserves, which was also testified by our external auditors. So well, I hope this answers your question. Thank you.

[Interpreted] Well, thank you for your answers and also for the questions. And before this event, we also collected questions from small and medium-sized investors. Now a lot of questions were about auto insurance reform and also health-related business, and also digital development, technology development, et cetera. I believe many of the questions have already been covered. And also, we received a lot of questions on the video broadcast platform. Now just to mention 2 of them. Number one from [ Mr. Huang ], a retail investor. Now question is, when will the dividend payout be paid? Now the proposal has been reviewed by the Board and pending approval from the general shareholder meeting. After that approval, we are going to pay out the dividend around the end of June. Second question comes from [ Ms. Ling ], a retail investor. The question was, we see a very clear recovery of share prices for CPIC. But in recent months, we see a lot of fluctuation for the stock price. What's your response? Now let me answer you. Now fluctuation of the stock price were actually because of a lot of reasons, for example, external reasons, regulatory reasons, business reasons, et cetera, et cetera. But for us, for the managers of the company, I would say, we need to stick to what we are doing, do a good job. So even for 2020, given the pandemic and the impact from pandemic, we still stick to our value-based growth, focused on our insurance, to do a good job in terms of offering insurance business. As Mr. Fu mentioned in his presentation, our KPIs delivered stable growth, including our revenue exceeding CNY 400 billion, our EV delivered faster growth, our residual margin grow steadily. For P&C business, still maintain profitability and to lead our peers, and initially established our competitiveness and our asset management business. We also did very good SAA. I believe all that lay a good foundation for our continued stable growth. This is how we return to our investors. So if we look at our governance, we will continue to enhance the communication with all our investors to ensure transparency of information so that help -- so as to help our investors to make a sound judgment. Well, I would say that concludes the Q&A session for today. In the interest of time, some of the questions on the video broadcaster channel cannot be answered. Thank you for your attention for CPIC. Of course, we welcome you to contact our IR team if you have further questions. Thank you again. This is the end of the event. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]