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

[Interpreted] Ladies and gentlemen, good afternoon. Welcome to the 2021 Interim Results Announcement of China Pacific Insurance (Group) Co., Ltd. I'm Su Shaojun, Board Secretary of CPIC Group. It's a great pleasure to exchange views with all of you and also to share with you our interim results for the first half of this year and also listen to your advice and suggestion regarding our development. Given the COVID-19 situation, we are going to conduct this results announcement online, and we use Mandarin for the meeting and together -- and also provide English simultaneous interpretation. As per regulatory requirements and to protect the interest of small and medium-sized investors, we used a lot of measures, for example, IR hotline and dedicated e-mail accounts, et cetera, and other online measures. We have announced the date of this event on the 21st of August and also solicited questions from our small and medium-sized investors. In order to make this an interactive session, we are conducting this session in the afternoon of China -- Shanghai, China. And of course, all investors can actually participate via video -- live video broadcast and other online platforms and you can also watch the playback of this video -- of this event on our official website. Next, let me introduce the executives for this event. Mr. Kong Qingwei, Group Chairman; and Mr. Fu Fan; CPIC Group President; and Mr. Gu Yue, Chairman of CPIC P/C; and Ms. Pan Yanhong, Chairman of CPIC Life; and Mr. Ma Xin, Vice President of CPIC Group; Mr. [indiscernible], Chairman of CPIC AMC; and Mr. Zhang Yuanhan, Chief Actuary of CPIC Group; and Mr. Cai Qiang, General Manager of CPIC Life. First, we'll have a presentation from Mr. Fu Fan about our first half results and then we'll have a Q&A session. Now let's give the floor to Mr. Fu Fan.

[Interpreted] Good afternoon, everyone. I'm Fu Fan. Welcome to this event. It's a great pleasure to have this opportunity to communicate to all of you in online manner. Well, as we know, COVID is still raging, and we are facing uncertainties in -- on a macro level. So given this kind of uncertainty and the complications, we are actually meeting challenges head on and delivered steady growth of business results. Our group operating income amounted to CNY 252 billion, up 7.2%. Our group net profit attributable to parent was CNY 17.3 billion, up 21.5%. Our group EV reached CNY 474.43 billion, up 3.3% from the end of 2020. What's important, we actually added over 10 million new customers for the first half of this year. And as of now, our -- actually, our comprehensive solvency margin ratio reached 279% on the C-ROSS. Our OPAT stripped out short-term investment movement, changes to evaluation assumptions and the impact of material once-off factors, in our report, we reported CNY 18.2 billion in OPAT, up 4.9%, of which that of life insurance business was CNY 14.29 billion, up 6.7%. We are also making efforts to foster growth engine for the future. For example, we cooperate with Ruijin Hospital to establish the Guangci CPIC Internet hospital with the first CPIC family doctor product launched. And we are also working on new channels, new products and new technologies for our life business. And we are establishing the first health-related fund with our partners. In big data strategy, we are also establishing the CPIC fintech and signed shared service agreements with other subsidiaries. And we are actually delivering initial success in Shanghai, Chengdu and Wuhan. And we have recruited 7 leading experts and put in place task forces in 6 areas such as big data, AI, cybersecurity, Internet operation, cloud computing and blockchain. In regional development, we intensified efforts in integrated development of key areas, formulated work programs for the 5 new cities Jiading, Qingpu, Songjiang, et cetera. And also drew up and implemented the 3-year action plan of Greater Bay Area of Guangdong, Hong Kong and Macau and also signed an agreement to jointly promote construction of the Greater Bay Area and a dedicated R&D center in that area. Also, we continue to deepened CPIC Service so that our labor will be responsible, intelligent and caring. We have actually set up service offices in 5,800 branch offices across China. We continue to improve service supply and standards. For example, we launched a retirement community project in Wuhan with 8 projects in 7 cities under constructions. And with CPIC Home, we actually saw results in terms of retention of mid- to high-level customers. We have issued actually a lot of emission certificates in the first half of this year, exceeding the total level of last year. And in Shanghai, we anticipated in the Huhuibao, CPIC's specific commercial health insurance program, covering a total of 7.39 million people. We also built the Dark Factory which centralized 102 automation scenarios and responded to 727,000 service requests. And CPIC Life launched the Yangyang customer service By Your Side to cover 5 scenarios, such as a reminder of renewal payment and the benefit payment collection. So our intelligent response ratio reached 97.35%. Next, let's take a look at the numbers. For CPIC Life, we see -- well, you see we see some kind of a bottleneck coupled with the challenges brought by COVID Specifically, in the first half of this year, CPIC reported CNY 10.23 billion in NBV, down 8.9% and annualized new premium of NBV calculation amounted to CNY 40.29 billion, a growth of 32.9%. And NBV margin decreased by 11 basis points to 25.4%. We also launched various new products, and we see our new business sales of our agency channel amounted to CNY 22.58 billion, growth of 18.5%. And our CPIC reported CNY 141.4 billion in GWP, a growth of 2.1%. Meanwhile, we also see steady increase in residual margin, which grew by 1.9% amounting to CNY 357.7 billion. We continued with our quality development to boost high performance of our agents and also via -- and the sales team, via amendments to rules on compensation and training and coaching and by launching good products and launching good training systems. In the first half of this year, the monthly average number of agents was 641,000, down by 16.3%, but our monthly average FYP and FYC per agent reached CNY 5,918 and CNY 986, respectively, up by 41% and 15%, respectively. Going forward, CPIC Life will take a lot of measures to accelerate and restruct our agency force, diversify our channels and step-up capability in digitalization and building our health retirement system. And for CPIC P/C, we are stepping up transformation to promote the shift of growth drivers and deliver steady premium growth. To be specific, our GWP reached CNY 81.56 billion, up 6.4%, of which auto business reported CNY 44.6 billion in GWP, down by 6.9%; and nonauto business recorded CNY 36.9 billion, a growth 28.6%. Our combined ratio actually increased by 1 basis points to 99.3% of which loss ratio was up by 10.4 pts, and expense ratio was down by 9.4 pts to 29.2%. The deepening reform of auto insurance posted a high requirement for business management. So we are adapting to the changes and the challenges. We continue to enhance customer acquisition and retention, set up the center for individual customers, to facilitate the building of a customer operation system. We're also increasing online application of our customers and promoting online and offline integration, so that our risk control capability continue to rise. And our auto insurance actually saw a rise of 1.2 pts for combined ratio and our expense ratio fell by 11.9 pts to 26.3%, but loss ratio rose by 13.1 pts to 72.7%. And for our health insurance, we see diversified supply of our products and rapid development of innovative government-sponsored health insurance. For the first half of this year, we recorded CNY 8.2 billion in GWP for health insurance, a growth of 70%. Now agricultural insurance also took upon the opportunity of national initiatives and followed new path of development focusing on model innovation and service improvement. We saw CNY 6.7 billion in GWP, up by 17.5%. And for liability insurance, we focus on the improvement of peoples' well-being and supporting of real economy. We saw -- we delivered CNY 6.71 billion in GWP, up 38.7%. For our asset management business, our group AUM maintained steady growth, reaching CNY 2.56 billion -- CNY 2.56 trillion, up 5.3% from the end of 2020. And the group in-house AUM was CNY 1.75 trillion, a growth of 6.3%. And third-party AUM also increased 3.2%. And our -- we persisted in asset liability management. Now given the downward trend of interest rate, we faced quite a lot of pressure in terms of reinvestment. So we continue with our dumbbell strategy to increase allocation into long-term T-bonds and focusing on -- also moderately increasing investment in equity assets, including private equity. The share of fixed income assets stood at 77.7%, down by 0.6 pt and investment of equity assets was up by 0.4 pt to 19.2% and stocks and equity funds took up 9.9%, a decrease of 0.3%. Looking at the numbers, actually, our comprehensive, annualized comprehensive investment yield fell by 0.5 pt to 4.8%. That's mainly because of the decrease in net value -- in net of fair value movement of AFS assets booked as other comprehensive income. Total investment income was up by 28.4%. And our annualized total investment yield was 5.0%, up by 0.2 pt. And our net investment income totaled CNY 35.3 billion, up by 8.3%. That's mainly because of the increased interest income on fixed income investments. In the first half of this year, defaults were rising. So we've maintained our prudence in credit risk exposure and also -- while enhancing our credit risk management. So actually, you see 99.7% of our enterprise bonds and financial bonds, issued by nongovernment-sponsored banks had initial debt rating of AA or A-1 or above. Of this, the share of AAA reached 93.3% and the share of AAA of the nonpublic financing instruments with extra credit rating for AA+ was above 99.0%. As of now, actually our -- in terms of sector allocation, our assets are mainly concentrated in infrastructure, real estate, nonbank financial institutions, communication and transportation. Going forward, we're going to maintain our strategy, committed to close the gap in business operation and the intensive efforts in quality improvement of our life insurance, so as to fulfill our annual budget. Also, we will move towards strategic direction and targets of the best in customer experience, business quality and risk control and also reach breakthroughs in terms of professional capacity building of investment management, platform-based development of health service, marketization of technology [Audio Gap].

[Interpreted] [Operator Instructions] Now let's welcome the first question. Well, Haitong Securities, Sun Ting.

[Interpreted] First I'd like to congratulate. I'm Sun Ting from Haitong Securities. First of all congratulations to the company for your quite solid performance given this kind of this challenging environment. Two questions from me. Number 1 is for Chairman Kong. Now you'll see for the CPIC Group, and actually, for all listed insurance companies this year is a very challenging one. And for investors' perspective, we see a lot of the new uncertainties. So for Chairman Kong, going forward, what's your view on the big environment for the industry development? And CPIC-wise, what's your long-term strategy? Second focus of life question. Now our life sector is even more challenging this year. We see a lot of pressure for the business. So I'd like to ask CPIC Life, what's your view on the difficulties in the current environment? And for mid- to long term, what's the next driving force for the market -- for the life insurance market?

[Interpreted] Thank you for your question. Now this results announcement, you see 9 of us, 9 executives on the stage to answer your questions. And most of our senior executives for life and P/C are here. So that means we stand ready to share with you. Now actually, as far as I can remember, since 2017, I actually have been -- I have been to all the results announcement, all of them. I have attended all of them. Now this is a particular difficult year this year. But actually, this kind of difficulty actually calls for wisdom and resolution and confidence from the managers, from top executives. Now I would like to say that if we look back on the first half of this year, for CPIC, I would say change is the word -- keyword, given COVID-19 and the other kind of challenges. So is not and is still ongoing. So for CPIC, I believe the keyword for CPIC is steadiness or stableness. Now steadiness does not mean we do not change at all. Now I would say we would like to have a stable -- steady growth, steady improvement. What do I mean by steady improvement? I will -- I mean, despite all the challenges -- well, externally, we should have -- we should move upwards. You see we have just celebrated our 30th year, 30th anniversary. Now if we look back, actually, it's not been plain sailing all the way. We actually -- we crossed different macroeconomic cycles. So we persist in long term, going for the long run. So actually, we keep pursuing being customized, being customer-oriented. We always focus on sharing share with our customers return to our shareholders. We always focus on the value of our business. So this is even more so this year. We focus on the value of life business and also the value of the quality of our P/C and the Life business and also the stable performance of our investment. So as Mr. Fu actually shared with you a lot of numbers of CPIC. Now I believe all those numbers actually is a reflection of the hard work of CPIC employees. As far as I can remember, I can recall several phenomenons. For example, actually, in the first half of this year, CPIC new business actually met our target, new business growth. MDRT actually exceeded 1,000 people, and we also stood the test of auto insurance reform. And we also see good results for non-auto business. And also for agricultural insurance, this year, the annual premium income is likely to exceed CNY 10 billion. For the investment side, we also saw stable returns. I admit, we are entering a new cycle of sector or industry development. So we will see changes. So we will utilize the change to develop a new growth engine. As Mr. Fu Fan mentioned, for example, we are developing or making progress in health-related sectors with accelerated progress. For example, in Beijing, Qingdao, we are going to see projects under construction, starting construction. And for Chengdu and Dali, we are going to finish 2 projects. And our collaboration with Ruijin Hospital, that is Guangci Internet Hospital, have launched the first product that is called [Foreign Language] that is like a CPIC Home -- Family Doctor. We would provide a customer with pharmacy service, diagnosis service online. And also, we are doing test drives for our CPIC fintech company. We are actually accelerating the process of getting approvals from the regulators. And supported by the Board, we are developing the 5-year plan, the business plan. So we're going to step up efforts in terms of products, investment, liabilities, et cetera, and to develop green economy, green business development. We also know that there will always be uncertainties. And insurance in itself is to actually prepare for the uncertain future by certain contribution today. So we are doing all the solid things, the right things. Of course, the solid things, the harder things is -- well, is difficult. I mean it's difficult to do that. But we remain confident that what we are doing is to actually preparing for uncertain future. We need to focus on the small and specific solid things, so that we can continue with our steady and prudent development for the company so that we can return or give a good result to our shareholders, our employees and more importantly, our customers.

[Interpreted] Thank you. Thank you for your question. Now as Chairman Kong mentioned just a moment ago, CPIC Life faced a lot of the challenges, I mean, for the whole sector. But I'm still very pleased to say that the annualized new premium income actually went up by nearly -- well, by over 30% for CPIC Life. So that means -- I mean, there's not only challenges but also opportunities for our company. I believe the challenges or the difficulties are both internal and external. Now for external difficulties, COVID-19 and economic slowness, [ Dow Jones ] and also more regulations for life insurance. I mean all these are posing pressures in the short term. But internally I believe that is a business model thing. I mean there's a huge challenge to the traditional model. I mean the requirement and the needs, demand for life insurance is not going down because -- well, China has just surpassed the so-called mid-income trap, that's USD 10,000 per capital income. And according to international experience, I mean, the USD 5,000 to USD 10,000 per capita income is going to support faster growth of life insurance sector. So I would say given this kind of a low penetration level or rate in China and also given the low per capita premium in China, the industry as a whole is still having great potential, and Chinese people are normally family-focused people. And we actually -- we like to save money. We like to deposit money. So actually, if you see Japan and South Korea, this kind of northeast, southeastern generations, we actually have a lot of requirement for saving, for protection in the future. So I would say the life industry in China is like riding song at 8:00 or 9:00 in the morning. Although in the short term, especially this year, we see big challenges, but in the long term, the future is still very promising. For the challenges for this year, I believe, on one hand, there is a big demand as a whole. But on the other hand, our consumers, their preferences, their behaviors are changing rapidly. It's not like before. It's not like, well, face-to-face referral, it's not like they are fully believing whatever you sell in the advertisement, in your talk script, in your pitching because customers are demanding more professional service, more professional service and products and more customized solutions. So they are having more requirements on supply side reform. So the old model, traditional model is getting harder and harder. So going forward, we should -- we must become a need-based needs-oriented. We must be able to serve whatever the customer needs. So where is the new growth engine? Personally, I believe there are 3 things. Number one is the in-force -- sales force, I mean, agent -- agency sales team. Now actually, we have a lot of good quality agents and also top-notch agent leaders. We need to help them transform themselves to become more professional, more digital and more adaptive. I believe that is a key driving force for future growth. Secondly is that we actually have more than 160 million customers. And as Mr. Fu mentioned, we just added another 10 million this half of -- first half of this year. So 160 million, that's more than 10% of the Chinese population. They have a very big need for insurance. So we need to think about how we can best serve these 160 million people, customers, maybe through more cross-selling, upselling, et cetera, et cetera. So I believe this is a huge potential pool of untapped business. So we should not focus just on actually securing new customers, acquiring new customers. Actually, as we know in the sector, in the industry, an average customer would need 7 to 9 policies throughout his or her life. But currently, our customer, on average, only has less than, fewer than 2 policies. So as long as we can serve them to their satisfaction, there will be more referrals and up selling. And what's more we see products are becoming more and more similar across different companies. So we need to differentiate ourselves, health service and retirement service would become even more and more important. Because we see -- we don't see a lot of innovation in terms of life insurance products, but the potential for service innovation is without limit. It's infinite. So I believe this could also be another driving force. Thank you.

[Interpreted] Thank you, Mr. Kong and Mr. Cai. Now let's welcome the second question Swiss Re, Mr. John Chen.

[Interpreted] I'm John Chen from Credit Suisse (sic) Swiss Re. Number one is still for -- first question for Mr. Cai. So I'd like to know, as a manager -- General Manager of the CPIC Life, what's your specific ideas about second half of this year or next year? Second question, as I noticed on Page 5 on this slide, there are 3 big well, directions. So my first -- second question is for Mr. Ma Xin about the health-related strategy for CPIC Group?

[Interpreted] Thank you, Charles (sic) [ John ]. Now as I just mentioned well, the 3 driving forces we're going to focus. I mean our agency sales force and our products and also our services. Now actually, starting from this year, we launched the Changjiang action plan with specific targets and measures. So actually, we are -- we actually have launched the road map for Phase 1 of the Changjiang action plan. So among them, we will see a workplace marketing for our agency channel. Now you see for a long time, many of the agents are part time. But part-time agents will be very hard. It will be very hard for them to sell complicated products. So with more and more products and with products getting more and more complex, and with customers getting more and more sophisticated. Given all these changes, the agent cannot serve the customers' needs. So as a first step, our existing agency sales force shall become more professionalized. So this is what we are going to do at priority for us for the second half of this year and next year. Secondly, the service-based marketing. As I mentioned, we have 160 million customers. We need to serve them well, serve them to their satisfaction. We need to change our processes and procedures. So we should first serve them and then sell insurance to them. So it's not like that we are pushing too hard. We were selling. And well, there's nothing else. Well, what we do is just to sell them staff or insurance. So we need to improve our service first. We need to improve the capability of our service team to improve the experience of our customers. So that it's easier for us to achieve cross-selling, upselling on our existing customers. And at the same time we are also improving our products from health side, protection side and also retirement side and also to the wealth heritage or inheritance side. So that -- we offer that could become more competitive. So we have become more and more customer needs based. So that's the 3 main initiatives we are focusing on.

[Interpreted] Well, thank you, Mr. John, for your second question about the health-related strategy. To answer your question, just -- well, 2 things. Number one is the CPIC Group. Well, in terms of the health business, you see actually combined -- on a combined basis, health insurance of CPIC Group achieved a double-digit growth. That's very fast. I mean the growth pace actually doubled the industry average. And our medical insurance actually grew the fastest, and that's the most sticky part of the business. Currently, our health insurance mainly focused on critical earners business and -- well, medical insurance. We are focusing on enhancing the [ SA ] of CI insurance, CI products and also to improve customers and the penetration rate of medical insurance for the customers. And secondly, on the CPIC strategy for health-related sectors, Well, Chairman Kong and Mr. Fu have all mentioned about both mentioned about the health-related sector strategy. I would just mention or add 2 points. You see for health insurance, we know 2 things for sure. Number one, the long-term inflation of medical bills. Now for China, actually, well, I would say China's medical CPI or inflation is growing the fastest among major economies. And the second, the certainty is that there is a, well, rigid demand for medical services from our customers. So we should set -- base on our strategy on these 2 certainties. So we should -- starting from 0 to 1, we should be starting from scratch. How can we start from scratch? We need to be market-oriented and professional. That is to say we need to employ market strategies. For example, our Internet medical team actually now consists of 400 doctors and doctor -- assistants, plus more than 200 IT professionals. And all that took us only half a year, and we launched, well, the [Foreign Language], the CPIC Family Doctor brand. So this is, I would say, a market-based initiative or project. And of course, we are -- this team is still working very hard to improve, to iterate. And I welcome your suggestions and ideas on that initiative. And actually, secondly, we -- it took us a very short period of time to set up a health-related industry fund. Now we have actually getting involved in 24 subprojects covering medical equipment, digital medical services, biological pharmacy, et cetera, et cetera. And the second factor is being professionalized. We are now offering this Family Doctor service. We're collaborating with Ruijin Hospital, a top notch hospital in China. So they are training our GPs, our doctors. And we also joined the stock for the Guangci Hospital -- Guangci commemoration hospital, so that we can become more professional and win the trust from customers. And after the share improvement -- share structure improvement of our specialized health insurance company, we are now focusing on new channels, new products and new technology and push ahead with key projects. So we are going to -- we aim to turn a traditional health insurance company into an agile professional health insurance company. And on top of that, to build our health-related strategy for CPIC Group.

[Interpreted] Thank you. Let's welcome the next question. Ge Yuxiang from Shenwan Hongyuan Securities.

[Interpreted] I'm Ge Yuxiang from Shenwan Hongyuan Securities. Now I have some question on investment in P/C. Now you see investment-wise, quite good performance. But EV assumption actually we saw poor performance. ASF, there is an unrealized loss of CNY 1.8 billion. So how come -- why is this unrealized loss? Second question on the P/C business. Now we see some volatility for the P/C profit. How are you going to improve your underwriting profitability going forward?

[Interpreted] Now I'll answer your first question. Thank you for your question. Now you see for the first half of this year, our annualized net investment yield decreased by 0.3 pts. That's mainly because of the downward trend of the interest rate. Now our newly allocated assets, actually offering lower returns and also the share of fixed income assets also went down because the denominator is mainly the interest rate income, our fixed income assets and also dividend payment from equity assets. So since our dividend actually -- so that's why there is a slight drop. Now regarding the -- our -- actually, we deployed the disciplined investment tactics. In -- at the beginning of this year, actually, we had some prediction and analysis of the macroeconomic situation. We believe there will only be structural opportunities for the equity market. So for the first half of this year, you can see on the books face value, you see investment actually given better-than-expected results. So the relieved -- released some -- reduced some of the pressures for the second half of this year and also better prepare us for the long-term investment. Going forward, we will continue with our study of the market to make sure we can meet the investment target for the whole year. As you mentioned, a provision of potential unrealized loss, that's mainly because of the treatment -- accounting treatment for equity assets, that is for any equity assets could cap, market value is lower than cost for longer than 1 year. So we would take a loss provision for those stocks to the tune of around CNY 1.2 billion. So that's -- I mean, these stocks were all high dividend paying stocks.

[Interpreted] Thank you. Now let me answer your P/C question. Now the auto reform starting from September last year, so I believe that we have been -- it's been a year since the reform. We look at -- you can see the results for our first half results. I believe, first of all, premium per vehicle dropped clearly or up significantly. Now you'll see for compulsory auto insurance. I mean the up limit actually increased for a lot. So only for the compulsory auto insurance, our claims or our claims payout increased by more than 10%. And the COVID-19, of course, stabilized in China. So we see more people traveling, driving around. So we, therefore, the more claims from the auto insurers. So claims ratio dropped -- increased by more than 1% this -- in the first half of this year. And another factor -- and there are other uncertain factors. But despite all these uncertainties, we need to focus on what we can control. Therefore, we actually made a provision. We increased our reserves. So the share of our unsettled reserve increased also. So I believe that's mainly why the pressure for the overall business for P/C. Now despite this pressure brought by auto insurance reform, we are still confident because this pressure would only force us to refine our management, refine our business development and improve our customer operation. Now actually, you see after quite, well, years of our hard work, we are seeing good results. In the first half of this year, the number of our individual customers increased by 11%. And also in terms of cross-selling between auto and nonauto business, there is an increase of 89%. That means -- and the penetration rate increased by more than 20 percentage points to reaching around 40%. So I mean, these active involvements offset partially the challenges brought by auto insurance reform. Of course, the pressure will continue in the second half of this year, and we are also seeing new measures to be launched for new energy vehicles. I believe, in China, new energy vehicle -- I mean total number of new energy vehicle is likely to reach 2 million in China this year. And for CPIC P/C, well, our share of the new energy vehicle is quite high, higher than our peers by 1 to 2 pts. And in terms of the growth of new energy vehicles, EV hybrid -- EV plant game. I mean actually, the fastest-growing section is the family vehicles, growing very fast. Actually growing by more than 80% per year. And actually, the claims on claims ratio of new energy vehicle is not good. So how can we cope with this new evolvement is likely to be more a question. We need to -- well, yes, work on that. Now we share that -- well, after the -- we need to focus more on operation of customers, improving our internal capabilities, enhancing our business development capability through the customer operation. And we predict with implementation of our reform -- transformation measures, we're going to see good results for our P/C business.

[Interpreted] Thank you for the question and answer. Now let's welcome the next question. Jenny Jiang from Morgan Stanley. Well, next question come from Liu Xin Qi of Guotai Junan Securities.

[Interpreted] Two questions from here about life -- business quality of our life business. You see persistency ratio dropped quite a lot. What's the reason? And what are you going to do about it? And second, about the EV. We see group EV grew quite slowly. So apart from persistency factor, what are the other reasons for the slowdown of growth EV?

[Interpreted] Well, thank you. The first question about the quality of business of life insurance. Well, for CPIC Life, I believe we are not alone in facing this business quality issue. Now I believe there are 3 reasons. Number one, I believe that's a legacy issue, we have a -- we had a lot of agents -- recruited a lot of agents. So some of the business is poor in terms of quality. And the second, the COVID-19 and the economic slowdown means actually affordability or some of our customers can no longer afford the product. And thirdly, reputation issue. For example, there is some kind of EV surrender practices on the market and some other, well, coverage -- media coverage -- negative reporting of life insurance. So I mean, these 3 reasons are actually -- what are exactly the reason why we launched the Changjiang action plan to improve our agent team to focus on business quality, to focus on quality recruitment, quality agents. I believe -- these -- this action plan will produce good results. And as the regulatory focus more on protecting customer -- consumer rights, the whole industry is taking integrity, good service more seriously. So I believe the industry, the regulators and practitioners as -- actually when we all work harder, the life insurance sector in China will win customers trust with good solutions and good services. We're going to win their trust. So this short-term setback is actually a good thing for long-term growth of life insurance in China. Secondly, about EV. Now embedded value, of course, is related to business quality. Now for us, for CPIC, first of all, we focus on new business value. We focus on the growth of new business value, on meeting customers' needs and focusing on business quality, focusing on improving efficiency and also improve productivity to drive up EV. Now if I may [indiscernible], EV issue, you see in 2021, our EV growth slowed down. That's because on the one hand, for 2020, we issued the GDRs. So that actually contributed 2.2 percentage points to the EV. So if we take that -- exclude that, then our EV growth would be 5.5%. But this year, our number is 3.3%. So there's a gap of 2%. Now why? Why the 2%? Well, that's mainly because of the new business value. Because you see for the whole year, our EV growth is 16%. So for last years -- we see for this year's growth, actually the basis is shrinking and -- but new business value is not there. Secondly, investment. Investment is also quite a big factor. And also, there is a surrender. That is the operational experience variance. That's also a big factor in the calculation of EV.

[Interpreted] Thank you. Let's welcome the next question. Next Jenny Jiang from Morgan Stanley.

[Interpreted] I'm Jenny from Morgan Stanley. Two questions from me. Number one for Chairman Kong. Number one, about dividend payment payout. Net profit and OPAT are showing quite a difference. So what was your dividend strategy for this year? And secondly, for Mr. Cai, so what's your view? Or what targets or KPIs are you focusing on -- will you care most about? Would it be -- well, I mean, what -- is it productivity or income of agency, et cetera?

[Interpreted] Thank you. Now of course, investors should care about dividend payout. That's most natural thing to do. So for CPIC, in terms of our dividend, I would say CPIC is quite generous. Our dividend payout ratio is close to 50%. That is to say for a long time, since -- especially since the eighth or ninth Board of Directors. We care very much about the payment or dividend payout to shareholders. So actually -- well, we have been called generous in terms of dividend payout. Of course, dividend shall be based on healthy growth. We shall return to shareholders as much as possible based on healthy growth of our business. Of course -- we should, of course, work hard to do that if more conditions allow. Now I believe CPIC Group will maintain continuity of our dividend strategy. But of course, we should also take into consideration about our business operation, our business requirement and also considering regulatory requirements so as to set a proper level of dividend payout. Well, I would like to pay you more, pay out more, but we need to focus also on long-term sustainable development of the company. For example, a lot of innovation initiatives and also becoming more customer oriented. So well, I'm not sure if you're satisfied with my answer.

[Interpreted] Thank you for the second question. You'll see for the next 6 to 12 months, what I care most about in terms of KPI. That would be about the -- not the head count, but the heading or the productivity. Now in the past, we also say about -- we'd only talk about the number of agents, 8 million agents, et cetera, et cetera. But I would say, activations or high-performing agents, they are the key, I mean, not the total number of agents. So we should focus on active agents and high-performing agents. And secondly, I would also focus on productivity. I'm very happy to see that in the first half of this year per capita, first year income increased by more than 40%. And the monthly average FYC, First Year Commission, also increased by 15%. So now these 2 indicators are very good pointing to the right direction. So we need to improve, keep improving our agent income and our agent productivity, and thirdly, I would also care very much about our customers. That is to say, in the short term, we would use MPS as a KPI. But actually, for the long run, I would say, in 2 to 3 years' time, we should measure the customers repeat -- the rate of repeat by repeat purchase. So because they did not only vote with their foot but also vote with their hand, vote with their money. So if the average customer only has one policy from CPIC, then that's -- this is just a purchaser of your policy of insurance. We will want our customers to become repeat customers. We'd like to increase the number of, well, policies held by each customer.

[Interpreted] Given the interest of time, we can only have time for one last question for telephone questions. Next question from Qi Leon of Daiwa Securities.

[Interpreted] Now for my first question about Mr. Cai, that's the agency channel of CPIC Life. Now I know you have a lot of experience in life sector and you have [indiscernible] track record. Now what would you say about the challenges today compared to the difficulties of 10 years ago? So is there are many? Are they comparable? Are they the same? And also about the reform of agency channel, and as you mentioned, we should become more professional, higher quality. So are you going to develop a premium agency team? Are you going to segregate between these? Are going to have different teams to serve different segment of customers? My second question about the -- is to Mr. Zhang Yuanhan, Chief Actuary of CPIC, about the OPAT, which grew by around 7%, but of course, was lower than last year. So what was the competition of it? Is it because of the operational experience variance or spread -- interest rate spread, et cetera. So what's the contributor?

[Interpreted] Well, thank you for your first question. No, AIA, I worked for AIA 10 years ago. Now there are similarities and differences. Now in terms of similarities, I would say it's because of the time and the people and place, so it's not a single event. So there is no silver bullet to change at all. I believe at that time that's -- the way we were still having the financial crisis, and AIA actually were undergoing big challenge. So they need to change. They need to transform. But today, environment is different. Of course, there are difficulty, there are challenges from the life sector as a whole. But the difference is, number one, CPIC is a very big insurance company in China in terms of both the volume and also in terms of our geographic coverage and also in terms of our products, product mix and our business scope. So CPIC is much bigger than AIA, and I've been with CPIC for 6 months. And I visit a lot of branches and outlets. I talk to a lot of people in CPIC. I believe we have 3 unique strengths or [indiscernible]. As I mentioned, we have a big team of agents, and our agency channel have been doing a lot of the right things for many years. We have accumulated a lot of good people, good agents. Secondly, we have a huge number of customers. And thirdly, our employees, CPIC employees are very hard working and many of our managers are high-quality people. So we need to utilize our good people. Another difference is the resource. I mean, CPIC have totally different resources from AIA because CPIC is a, well, top player in China and also a state-owned enterprise. So we can utilize a lot of the resources. So I would say there are both similarities and differences between CPIC now and AIA then. But one thing is for sure, we should start from customer needs and become more professional, more specialized via transformation.

[Interpreted] Now I'll answer your second question regarding OPAT. Last year -- for the first half of last year, given the COVID-19 pandemic claims, medical claims were quite low. But this year, there was a resurge of claims. And you see last year's OPAT was quite high. So there's a high basis. And in terms of [ IM ], release of [ IM ] and operational experience variance, well, these 2 on the upside. So OPAT saw -- gave us good results. And as you mentioned, the EV operation experience variance for EV. Now you see there's quite a lot of surrender cases this year. But the calculation is different because EV not only contain this period, but also long term, long-term operational variance. But for OPAT, they only calculate the release of the increase of the release of [ IM ]. But of course, other operation experience variance are improving.

[Interpreted] Well, thank you. Actually, as I mentioned, we solicited questions from small and medium investors. And we have collected quite a lot of questions. I mean these are mainly focused on the dividend payout strategy. Secondly, life agency transformation and also P/C auto reform. I believe we have already covered most of them, and we are seeing quite a lot of question on the broadcasting platform. Actually we'd like Ms. Pan to answer one question. That's from -- this is a question about [Foreign Language] city-specific health insurance product. A lot of people are benefiting from this insurance. But will it negatively affect CPIC's commercial health insurance?

[Interpreted] Well, thank you, this is really a popular question. Now actually starting from last year, we see in a lot of cities in China, there's this kind of affordable medical insurance for the public. And the CPIC has been an active participant of the whole initiative. I mean the [Foreign Language] is affordable health -- medical insurance for the general public. So you see premium is quite low. It's for the mass market and the -- it's a -- medical reimbursement is like a supplementary medical insurance to the social medical insurance of China. So that's its positioning. Of course, that will help improve the awareness of Chinese people for health insurance. And for the business side, since it's affordable medical insurance, so it's different from critical illness product from CPIC. So it's not a replacement of CI products, but a supplement to CI. So they can choose to buy both of them, especially for high and mid-end customers. So they have a very big demand for long-term CI products. So this kind of a [indiscernible] or city-specific affordable health care -- health insurance is actually a very good opportunity for further developing commercial health insurance. And going forward, we are going to offer more differentiated solutions to different market segments in terms of health insurance.

[Interpreted] Thank you, Ms. Pan. And we have a second question from [ Ms. Li ]. And the question is that CPIC actually is a very prudent investors. But this year, you see your results for our investment return is lower than your peers. Why?

[Interpreted] [Audio Gap] which is very stable and prudent.

[Interpreted] Since in the interest of time, actually, we will have no -- we will need to end the Q&A session. And if you have more questions, you can take it off-line after the event. You can contact our IR team. This concludes our interim results announcement. Thank you for your attention.