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

Ladies and gentlemen, good afternoon. Welcome to the 2022 interim results announcement of the CPIC Group i am Su Shaojun Board Secretary of the CPIC Group. Now given some of the resurgence of this COVID-19 in China to protect the interest of our investors, we are conducting this announcement online. Well, it will be conducted in Chinese with simultaneous interpretation into English. We also received -- we will have a Q&A session online. And of course, you can play back the video later on after the meeting. And we are continuing to protect the interest of our small and medium-sized investors. Actually, before this announcement, we have already issued notices and have also collected some questions from medium and small investors. Now let's introduce the panel. You can see on site in Shanghai, Mr. Fu Fan, Group President; and Mr. Zhang Yuanhan, CFO; and also Chief Actuary of CPIC Group; and Mr. Jing Li, General Manager of CPIC P/C; and Mr. Cai Qiang General Manager of CPIC Life; and Mr. Yanhong PAN General Manager of CPIC AMC, and of course, Mr. Jing Li, Cai Qiang and Yanhong, with us for the first time for this release. and our independent directors is Ms. Liu Xiaodan; Mr. Chen Jizhong; Lam Tyng Yih also joined online. First of all, let's have a presentation on the performance to be followed by Q&A.

Good afternoon, everyone. Welcome to this results announcement. It's my great pleasure to share with you our performance in the first half of this year. Now given this kind of uncertainties environment and difficulties in China and around the world, especially COVID-19, we faced a lot of challenges. But with the backing of our shareholders and the Board, we took the initiative to overcome the difficulties and took the measures to control the pandemic and boost our business. We adhere to high-quality development and deepen our business transformation to pursue channel diversification, accelerated our health care and elderly care business deployment and delivered further progress and amid stable business performance. For some numbers, our GWP reached CNY 242.5 billion, up 8.0% year-on-year. And our OPAT were CNY 20.1 billion, up 9.9% year-on-year. Group net profit fell by 23.1% and our EV reached CNY 501 billion, a growth of 2.2%. And our total number of our customers reached 170 million, and our group AUM reached CNY 2.74 trillion, up 5.4% from the end of last year. And we maintained a solid capital position with our comprehensive and core solvency margin ratio on the C-ROSS II at 290% and 201%, respectively. Despite the impact of C-ROSS II, the solvency margin ratios of the group, CPIC Life, CPIC P/C maintained sufficient levels and comply with regulatory requirements. Our group OPAT attributable to parent stripped out short-term investment movement, changes to evaluation assumptions and impact of material one-off factors on the basis of net profit. During the reporting period, we posted CNY 20.1 billion in OPAT, up 9.9%. Of this, and that from Life was CNY 15.2 billion, up 6%. EV wise, it grew 2.2% from the end of last year. In terms of composition, our adjusted net worth reached CNY 296 billion, up 3%, and our group value of in-force business was CNY 213 billion, up 1%. In terms of contribution, it mainly comes from expected return on EV and NBV. We see an increase of EV and a slowdown of NBV growth. NBV's contribution to EV movement has diminished. At the same time, EV movement was also impacted by investment in return variance and profit distribution. -- while maintaining stable business performance, we accelerated the deployment in health and elderly care to improve the supply of our products and services. Our family doctor system covered 2.8 million registered users. We also launched the Jia An Xin tailor-made innovative medical insurance product. And for high-end high health care, we've established Guangci Memorial Hospital and collaborated with well renowned providers such as New Frontier Vitality Limited, United Family Hospitals to facilitate the online plus offline health ecosystem. We also support China's elderly care strategy and achieved national footprint. For example, our CPIC Home in Chengdu and Dali we're now in operation and have received a total of 110,000 visitors and more than 700 of the CPIC service offices reached out to customers to offer them services during the COVID-19 period. For example, CPIC P/C stood by 24 plus 7. And CPIC Life offered 4 preferential measures in policy loans and benefited 450,000 customers. And we also provided a package of tailor-made financial products to minimize disruption to the supply chain. Our -- actually, the individual customer reached each having 2.32 insurance policies on average, up 1.8%. And the CPIC Life and the CPIC P/C won the top ranking in the first consumer rights protection rank rating by CBIRC, maintaining our #1 position. And technology-wise, we also have -- we continued with our technology infrastructure in Chengdu and Shanghai. And we also upgraded a new generation of CPIC cloud to ensure that our service will be maintained with consistency during COVID period. We also stepped up big data systems, setting up data governance framework and completed the integration of the data of 170 million customers. technology officially launched to explore market-oriented mechanism. We also deepened AI applications. For example, on CPIC P/C will receive a smart interaction with an average monthly average of 150,000 service requests. And we also have a daily average of over 100,000 attempts in customer profile delineation or orphan policies by CPIC Life. Well, now we turn to the business lines. First of all, Life, given the COVID-19 impact, CPIC Life stayed firm adhered to high-quality deployment development and pursue progress while maintaining stable business performance and demonstrated resilience. In terms of GWP, it reached CNY 149 billion, up 5.4%. Of this FYP amounted to CNY 43.1 billion, up by 25.8% and the recurring premiums reached CNY 106 billion, down by 1.1%. We focused on business quality management with 13-month policy persistency ratio at 87.8%, up by 6.1pts and surrender ratio fell by 0.1 pt. NBV was under pro pressure. Actually, it decreased by 45.3% year-on-year -- and if we look at the quarter in Q1 and Q2, it fell by 48.6% and 39.3% year-on-year, respectively. But of this, the NBV growth in June turned positive actually. If we look at the productivity in the first half, our monthly average agent head count was 312,000. And of this core agent headcount was 69,000 -- and in terms of productivity our core agent FYP average that was 32,300, up by 23.5% and the monthly average FYC per core agent was 4,630 up by 10.8%. And actually, -- during the reporting period, we actually delivered CNY 17.8 billion GWP for the bank channel, up by 876% and new business premium amounted to CNY 16.8 billion, a growth of more than 1,000%. We collaborated mainly with Pudong Development Bank, Rural Credit Cooperatives and China Merchants Bank and our NBV went up by more than 100%, with monthly average regular pay FYP grew by 49% year-on-year. For P/C, we deepened transformation, intensified business quality control and improved our combined ratio. In the first half, GWP reached CNY 91.6 billion, up by 12.3%. Auto business, GWP reached CNY 48.2 billion, up by 7.9%. -- non-auto business grew by 17.6% to CNY 43.4 billion. Our combined ratio was 97.2%, down by 2.1 percentage points, and our loss ratio was 69.7%, down by 0.4pt and expense ratio went down by 1.7 percentage points. We improved the capability for P/C business. and achieved a strong growth momentum. Actually, auto insurance reported a combined ratio of 96.6%, down by 2.4pts and the loss ratio was 70.3%, down by 2.4%, and the expense ratio stayed the same. The share of NEV premium increased by 3.1 percentage points to 6.6% of -- 6.6% year-on-year. And our overall improvement for non-auto business with a combined ratio of 98.4%, down by 1.5 percentage points. We also developed a business in medical insurance for major diseases, accident medical poverty reduction -- so health insurance reported CNY 10.5 billion in GWP, up 28.2%. For agriculture insurance, we seized the opportunity of rural invigoration strategy with GWP for H1 at CNY 9.3 billion, up 38.1%. Liability insurance, we actually collaborated with local governments and offer the specialized differentiated and customized insurance products with GWP at CNY 8.3 billion, up 23.2%. For Asset Management business, our group AUM grew steadily by the end of June this year, our AUM totaled at CNY2.74 trillion, up 5.4%. And -- and the group in-house AUM was CNY 1.94 trillion, up by 7.1%. -- third-party AUM, nearly CNY 800 billion, up by 1.3%. Even the market challenges, we persisted in the down bell shaped asset allocation strategy to increase allocation into long-term T-bonds and also enhance management of reinvestment risk and also moderately increased investment in alternative assets, including private equity, investment property to improve investment return. Looking at the structure, our share of fixed income investment stood at 76.4%, up by 0.7 percentage points. Equity investments were 20.4%, down 0.8 percentage points. Of this, stocks and equity funds accounted for 10.5%, decreasing 0.6 percentage points. We continue to enhance ALM for the first -- for the first half of this year, our net investment income totaled CNY 39 billion, up by 10.2%, mainly because of the increased dividend income on equity assets. Our annualized net investment yield reached 3.9%, down by 0.2 percentage points, and our total investment income amounted to CNY 38.6 billion, down by 21.9%, mainly because of the gains in securities tradings. Our annualized growth rate of investment as net asset value fell by 1.5 percentage points to 3.3%. The 10-year average net asset yield, total investment yield and comprehensive investment yield were 5.0%, 5.4%, 6.1%, respectively, all exceeding long-term investment return assumption for EV. We remain prudent in our risk exposure and strive to enhance credit risk control -- we actually 98.2% of our enterprise bonds and financial bonds issued by nongovernment-sponsored banks had issued a rating of AA or A-1 or above. Of this, the share of AAA reached 93.3% of nonpublic financing instruments of external credit rating, the share of AA+ and above was 99.6%. And of this, the share of AAA was 95.8% and the NPFIs were either exempt from debt issuer external credit rating or secured with credit enhancing measures. Now in terms of sector, we are mainly investing in infrastructure, real estate, communication transport for nonpublic financing instruments. We are committed to long-term value growth. In the second half, we will persist in high-quality development and deepen transformation of core business segments, promote upgrading of development mode, focused on key structures, key areas of health care, big data and integrated regional development and enhanced CPIC service, fully integrate ESG into our business operation and also major risks to ensure healthy and stable development, we are confident that despite the challenges, a new window of opportunity is emerging, which calls for adherence to the right direction and the pursuit of high-quality development with unwavering determination. That actually concludes my presentation. Thank you.

Thank you, Mr. Fu Fan for your presentation. Now we enter the Q&A [Operator Instructions].

Let's welcome the first question. Well, from Sun Ting from Haitong Securities.

Thank you for the presentation. I'm Sun Ting from Haitong Securities. First of all, congratulations on your quite good performances in H1. I actually have 2 questions for Life business. First of all, for Mr. Cai, you see the Changhang action plan or Changhang transformation. Now it's actually started, and you will have a new compensation scheme. Now how do you view the Changhang transformation in terms of the results and the effects? And what are the difficulties? And what are the good results or lessons learned? And so what are the specific measures in the future? Secondly, we also look at the new business value margin actually dropped quite a lot. So why? Why is the job? What's the reason? And what's your expectation for the future? Are they going to remain low? Or are you going to improve them, improve the NBV margin? I mean -- and what about the positioning of your bank channel because you see a lot of the growth in the new premium for the bank channel, now that is actually beyond your expectation. So what's your positioning for the bank channel.

Thank you for your questions. Now the question about the Changhang action plan. Now actually, it was launched in January 1 last year, its a 5-year plan -- so actually, it was -- we had a 18-month map lum after 1 year's design. Now in this 18-month transformation road map was launched because of the challenges for the whole life industry in China, not only for CPIC but also for the whole industry, it's kind of like a supply side reform for China's life sector. So given these conditions and especially given the COVID-19 and also other challenges, we stick with our transformation. It's like anticyclical transformation, which will certainly become more challenging, but -- and will be more fruitful because it can address the root causes. Now it was officially launched in January 1 of this year, especially given the new compensation scheme of the basic law, now we believe 70% of the projects under the transformation, Changhang transformation, are being implemented -- and with, well, Fasal results, for example, the professionalization and digitalization and career-based team. Now you can see in terms of the quality of the team, you can see very clear improvement in terms of the agency team, agency sales force in terms of, for example, the growth of core agents, improvement of productivity, activity. So you see initial improvements in these regards. Secondly, Secondly, channel diversification that is the value-based bank channel value-based out bank outlet and the bank team development. At the same time, our business quality indicators, for example, surrender ratio, persistency ratio. Now these indicators also should also show improvement. So this is our current review of the Changhang transformation is within our expectation. Now of course, there will be difficulties. First of all, because of the external uncertainties or difficulties, especially for Q1 and Q2. If we look at the NBV numbers, -- now in April and May, the COVID-19 situation in Shanghai and China actually gave us some disruption. But fortunately, we see -- the team did not give up, they did business development online. They provide service online, et cetera. So starting from June, we see a positive trend for June for NBV. So the second difficulty is because of the new model brings new behavior, and this kind of new behavior takes time -- so previously, we used product seminars to promote business. But now we need to shift it from -- shift it to one-on-one presentation. Previously, we used mass recruitment, but now we focus on quality recruitment. Now all this takes time. So in the transitional period, we need to remain steadfast, stick to our principle, stick to our strategy, stick to doing the right things. So we need support on this. Now in terms of the future measures, I believe we should stick to the 18-month road map of the Changhang transformation, we continue to improve our business model, continue to develop and strengthen the strength of our team and continue to empower via digital digitalization, especially in the second half, we will accelerate the pace. So this is to answer your first question. Secondly, NBV margin. If we look at the single product, our NBV margin has not changed, especially for our core or flagship products, be it CI products or annuity or annuity products or health products. Now our flagship products didn't change their margin. What changed? Now because of the change in channel mix, especially given the rise of the bank channel. Now for bank channel, first of all, there is a strategic positioning. We promoted the value-based outlets. Secondly, is the change in product mix, especially in Q2 after the COVID-19 resurgence. We found that consumers prefer shorter-term products after the COVID 19. But we believe it is a transitional thing. It will not last -- so we need to build our capabilities to -- well, to analyze customers' requirements. Now I don't want to stress one point. We do not actively manage the NBV margin, but focus more on customer needs. We need more -- or new source of business margin of business value. Now the third question on the bank channel. Actually, for the bank channel, after 10 years development, especially the regulator CBIRC, the new regulator actually now they focus more I mean there's a total change in the big picture for bank channel. If we look at the mature markets overseas, the bank channel, actually, they take up around 50% of the total market share, especially in terms of the value creation of insurance because banks now pay more attention to customer needs, they pay more to intermediary business. It's not like a winner gets all. So banks focus more on the long-term brand or long-term service for the customers. So given all these big conditions or big trends, we believe the bank channel will be a very important second pillar for the distribution. So it's not a short-term thing. So I believe for bank channel, we still focus on 3 core strategies: first of all, high-value customer, especially private bank customers. Secondly, deep collaboration or partnership. So it's not a massive cooperation. We'd like to work with partners, which have alignment with our strategies. We'd like to focus on resources on those strategically aligned partners for long-term collaboration. And thirdly, this kind of high-quality team to support bank in their sales. So that's the strategy for banks. Thank you.

Thank you, Mr. Cai. Let's welcome the next question.

Thank you for giving me this opportunity. I'm Joe Chan from Credit Suisse. Now first of all, congratulations on the growth of OPAT, I have 3 questions. First of all, you see -- we noticed that the monthly average number of agents dropped quite a lot. So agency in China is a very big channel for life company. But of course, we noticed the improvement in quality, but what about the numbers? It dropped quite a lot. So is it because you transform too quickly? Second question about the OPAT group OPAT, -- when we look at the residual margin actually dropped by 0.8%, but the OPAT was up by 6%. So what are the driving forces for OPAT or operation variance or et cetera. I mean, what are the drive inforce for the OPAT? What is the picture like in long-term or medium-term future? And lastly, about the market. I mean the drop in interest rate, what about the capital market, how to adjust the reinvestment risks? And what's your investment strategy? Are you going to enhance your equity investment to enhance long-term or higher return?

Well, maybe I answer your first question, Charles. Now about the drop in the total number of agents. Now we understand that for agents, agency force in the supply side reform, I mean if we look at the second curve, now when you become more professional and more Korean-based sales force. So starting from last year, we -- we actually responded actively to the requirement from CBIRC to tighten the validation requirements to remove this kind of fake agents. So if it's fake, I mean, they will leave one way or another. So this is kind of a growing pains for agency transformation. So it should be done sooner rather than later. So this is the same for every industry in China. I mean, the removal of surplus productivity. So if there is no cheese, then we should move on to the new cheese. So anyway, I believe we have 3 key themes for the agency transformation. Number one is the change of our values. The core values for CPIC is integrity and prudence. So we'd like to give -- send this message out. We don't want fake agents. We would like to actually also convey this message to the investors. We'd like to give out authentic numbers to our investors. So if you do not show up for the money meetings as an agent, if you cannot make a full commitment to the job, then maybe it's your time to move to leave. Secondly, is the change of model from mass recruitment to quality recruitment from short-term incentives to long-term recruitment and sales so that we can have a long-term business model. Maybe in the first half, you see some big drop in numbers, but because of our because that it's different. I mean there is a grand opening of the Cayman home in China for life insurance companies. But now we don't want to do the Cayman home, the grand opening. We want to, well, smooth out. We don't want this kind of a seasonality. So this is another of our core strategies. Because if you have a stable business as an agent, then your service, your capability, your reputation will pick up. Secondly, the change in capabilities. But of course, it takes time. Actually, you see for us, we don't want the agent leaders to keep the fake agents so that they can maintain their leader status. We like to give the agent leaders a transitional period of maybe 2 years, 3 years, so that they can use the period to build up a new team. So we do have this kind of a transitional period for agent leaders. We want to change in our business model -- so as a result, actually, we are glad to receive a lot of support from our agents, agent leaders and also our staff. So we already see some very good points, good results. Now let me answer your second question about OPAT. Now OPAT for first half was CNY 20.1 billion, up by 9.9%. For OPAT for P/C, while it grew quite fast, 20.3%. That's mainly because of the drop in loss claims. For life, it grew by 6%, also because of a drop in loss claims because of COVID-19 and also some improvement in surrender rates and also because of the improvement of taxation -- but that is the reason for the improvement of life improvement or improvement in OPAT for CPIC Life. Now let me answer your third question. Now of course, on the investment side, given the drop in interest rate, we do see quite a lot of pressure for reinvestment. Now we believe for the macro side for first half, we see a contraction of demand -- so there's a lot of challenges. But for the second half, we believe given -- or thanks to stimulating measures from the central government, we might see a modest recovery, for example, improvement in infrastructure. Now for the bond market, our view is this. For the overall interest rate, the interest rate might fluctuate. Now in terms of the yield, it will not go up sharply, but the yield curve is already quite low historically. So there's some of the good factors were already factored in. So we believe the total monitoring policy will not be too loose. So our overall judgment is that it will fluctuate in terms of the allocation of fixed assets, fixed income assets. First of all, we should pay attention to the duration of our allocation. For example, especially focusing on long-term bond, T-bond or the or interest rate bond. Secondly, pay more attention to quality, select high-quality assets to well, to actually cross the investment cycle and also to cope with to enhance investment return. And we have actually did a lot of research on the market. Now for example, for the equity market we said we will maintain the down bell strategy. Now for the equity investment, we will diversify the type of equity investment Apart from the equity investment alternative investment, in the secondary market, we are -- will diversify. You can see quite a lot of growth in dividend payout for dividend income. You can see our performance equity -- our performance of equity investment. We dropped much smaller than the market because we focused more on the value side of equity -- in terms of dividend income actually increased by more than 50% compared to last year. And secondly, about new energy or ESG sectors or new energy sectors, we enhanced our allocation. For example, new energy vehicle, et cetera. Now in the second half of this year, we also pay attention to consumption, medical sectors, transportation sectors. We are conducting market study, so as to prepare for a recovery in consumption and economy. On the whole, we are quite active or positive on equity investment. So we are making the preparation for high-quality assets, equity assets.

Well, thank you. Next.

Thank you for this opportunity. I'm Xiyu Sun from Guotai Junan Securities. Now great, and it's great that you issued more issued more information for the results announcement. We actually -- we look at the we actually noticed that the size of core agents increased. So what's your standards or criteria? And will this trend continue? And the second question, for P/C, we see improvement in profit for P/C business. Now of course, the COVID condition is a factor. And so what's your expectation? Or what's your forecast for the future? What about auto and the non-auto business? Is the improvement sustainable?

Thank you for your first question about the core agents or the definition of core agents. Now first of all, let me tell you about the change in the basic law of the compensation scheme for agents. Now you'll see -- and previously, we focused all our resources on the Cayman home on the grand opening. But now we turn them into quarterly bonus or year and bonus performance based. And for the year-end bonus, so it's based on the times where you can meet your monthly targets. So we hope to make this change to change the behavior of our agents. So for core agents, they must qualify for quarterly bonus. Now since CPIC China is very big and CPIC is a big company. So for different branch, they have slightly different standards or criteria for core agents. But anyway, to become a core agent, you need to qualify for quarterly bonus. So if you can qualify as a core agent, then it means that you can get a full-time job full-time salary on the local market, you can make a living for your family. I mean No, for first half of this year, we focused on this kind of a transition for our existing agents. That's a continuous business development on a weekly and monthly basis. So you can see this kind of a 20% increase in the number of core agents -- for the second half, our focus will be not only turning our existing agents into core agents, but also use them to attract new recruits because they -- by becoming core agents, they increase their income, they become successful so that they can attract other potential recruits. And also, it will help agent leaders to recruit more recruitment of more new recruit more new agents. So it's like a change from our previous ways of doing things. So we should not only recruit agents, but also develop them, cultivate them, help them succeed. -- spend more time on them on the new agent to return to improved retention rate.

Thank you for your question about P/C. Now as the only listed company with headquarters in Shanghai, we are impacted quite a lot by the COVID-19 situation in Shanghai. We took a lot of measures to cope with the well incident. Actually, we actually grow faster than the industry by 2.9 percentage points. And our auto, non-auto and agriculture insurance, actually the 3 main areas of P/C business grew -- all grew by double digits. And our main indicators actually were best within 10 years. But of course, for the future, on the macro side, there will be both certainties and changes because for the economy we will recover, there will be a strong recovery of economy which will give us more opportunity for growth. And China will become more mobile. In terms of combined ratio, there might be some challenges. So given these macro conditions, CPIC P/C will maintain the business growth while maintaining good quality. That is to say we will have a targeted business operation and management so that we can enhance our business operation. We will maintain the growth momentum remain compliant. In H2, especially in Q3, we will focus on the anti-flood business. And also focus on business quality control and further strengthen high-quality development and also build up the foundation for sustainable development for the next 3 years. Now given China's carbon neutrality and peaking strategy and some stimulus policies for new energy vehicles. We believe for the auto business, there will still be room for improvement. So for the auto business, we believe the key word is to seize up the opportunity and follow closely in the new areas, especially the new energy vehicles, we should study this new area. But folks for traditional gas gasoline vehicles, we should maintain our position. We should focus both on business growth and also business quality while maintaining our services. So that our auto business can become -- can maintain its position as a key or a key component of P/C business. And as already mentioned, the drop in loss ratio is because of -- partly because of the drop in travel because of COVID-19, but also because of our business management measures. But of course, given the end of COVID, the claims that we will see more claims returning to the normal level. You can see for July and August, loss ratio actually went up by 1 percentage point -- so we need to optimize our expense management, enhance claims management and also enhance operation and productivity and reduce claims cost. And also we should enhance our team headcount for cases involving personal injuries and also study the new model for new energy vehicles. Now currently, combined ratio for new energy vehicle is more than 100%. We need to drop that. We need to cut that. For non-auto business, we believe we can maintain the sustainability of profitability for non-auto business. For our traditional business, now the share is 2/3 with quite good profitability. But for new business, the share is small, smaller 1/3, but the growing is growing very fast, but the combined ratio is not good enough. So we need to balance new and existing sectors. And more importantly, we should enhance the profitability of new areas of the business. So this is a key task for us. For example, government-sponsored health insurance, we need to enhance our profitability capability, profitability by employee big data platform to manage or manage the medical expenses and also we enhance or optimize the structure of government-sponsored health insurance, for example, by having a right balance between the long-term care business and the medical insurance. And we should also enhance our own capabilities, enhance our project management to improve efficiency. Well, I hope that I have answered your question.

Let's welcome the next question.

Good afternoon I'm Jenny from Morgan Stanley. I have 2 questions. Number one, about the group. We also read the news, a lot of news about the CPIC and development in elderly care industry. So could you tell us more on the elderly sector as the care sector or the third pillar of at the pension business. And also especially elderly care, elderly services, elderly care service. And also compared to other banks or insurance companies, what's your strength? Or what differentiates you? And the second question for the Life company. Now we noticed that there is improvement for productivity and NBV production, et cetera. So what about the trend? Are they going to continue in June, in August? Or is it a onetime theme?

About the -- first of all, the elderly care sector, -- now on the whole, you can see for the elderly care sector. Now on the whole business is -- well, the operation is very smooth. If we look at the -- apart from the Chengdu and the Dali CPIC Home and the CPI come in Hangzhou also opened for business in July this year. So now we have multiple sites across China. Now if we look at the sales in the CPIC Home in Dali also leveraged the tourism in terms of visitors. And in terms of satisfaction of the customers, the ratio is more than 80%. And in terms of SOPs, procedures, it's all improving. And in first half of this year, CPIC Home received a total visitor of over 40,000 people. And also, we set up, we also created more than 2,700 invitations to CPIC home. We will maintain the services and improve our operation so that the visitors, our customers can enjoy their stay in CPIC home. And at the same time, we will establish a professional team to manage those facilities. So this is our main ideas about CPIC Home and elderly care services. For the health-related sectors, CPIC Home is only one part of our strategy. We have an overall health related strategy -- because health-related strategy or areas is our core area of CPIC Group. It helps with driving new business and also enhances our core capabilities. Now, as you -- in terms of our strength, unique strengths, first of all, we are professionalized. We stick with insurance business. Compared to peers, we are more dedicated to insurance business. So this is something proven over the past 30 years. We will continue to do so in the future. We're going to extend this insurance ecosystem. Second strength is that we are more innovative to leverage the ecosystem. We collaborate with Internet giants, big hospitals, et cetera, and start-ups. We now leverage deploy big data and other new technologies to become more professional in this regard. Secondly, we are improving our governance. We have more professional people to run these teams and the projects. Our directors are very professional in their unique areas. So they will be able to give us good guidance.

Now second question about life, the trend. Now of course, I cannot give you a forecast, but I can do answer you is that if you look at the first half of this year, apart from April and May, with a big impact from COVID-19. I believe February and the March numbers were within our expectations. We actually travel NBV on a daily basis, it's quite stable. It's not like in the past where it fluctuated a lot. We hope this kind of stability went on -- go on into the second half. And if the June trend, the trend in June can continue, it will be very good. You see -- because now we focus not on sheer number of agents. It's actually -- what matters is production or productivity -- because if we can do the same thing, give you the same number with only half of the number. half of the people, then it will be better. So because it will cut down the cost. So the drop in costs this year is partly because of the reduction in rents of our office buildings. -- let along other indirect costs. So this is also why we will reach out to have developed a lead agency team.

Now you see the elder care industry, I mean, the CPIC Group has a lot of unique strengths because, first of all, in terms of our products, we actually have a longer term with stable return. And we are closely involved in terms of the Pillar 3, the third pillar. And we had a lot of experience in the pension. And so we can build up a pension ecosystem.

Now let's welcome the next question.

I'm [ Li Xing ] from CITIC Securities. I have a question on the demand. Now we noticed that the industry is transforming. So there's a lot of uncertainty about the household income. So some say the demand for insurers will drop. So what's your view on the long-term trend for demand of insurance? And also a question for life for Mr. Cai. So if the demand is going down, -- now even if you succeed with your transformation, what about CI the sales of credible illness insurance -- the second question, P&C. We noticed a 17.6% rise in the reserves for unsettled claims. Now the ratio of reserves versus earned premium is 85.7% increase compared to last year. So why?

Now thank you for the question. In terms of the market forecast, the future demand. I would say -- the whole industry is transforming. Premium and value actually now see quite low growth, not double-digit growth, but low growth. So everybody in the industry is exploring the ways of transformation. Now I believe the challenges are threefold. First of all, it's because of, I mean, eruption of previous or previous or accumulated problems previously, well, it was this kind of a massive recruitment, a lot of agents fake policies. So a high surrender ratio, et cetera, this kind of problems. Secondly, we should have a new growth momentum for the industry. Because it will take time to become a professional and high-quality agency sales force. And for P/C side, we have a reform of commercial auto insurance so that customers can enjoy more benefit. And for the non-auto insurance needs more innovation, -- so all this might give us uncertainty because of the lack of data. And also, we have a global warming. So there is maybe enhance the possibility of catastrophe. And thirdly, external impact. You see the interest is dropping and the market to market is fluctuating, we face pressure for reinvestment. So all this presents a problem or pressure for liability side. And in terms of the regulations, we have C-ROSS II, which have higher requirement for risk management of insurance companies. But we also noticed China's economy fundamentals were not changed. I mean, with more uncertainty, we need more insurance. The function of insurance is more prominent, become clearer. For example, people are made more aware of the need for insurance and given COVID-19. So for the long term, we believe the changing democratic profile and also China's strategy for new energy, et cetera, will inject new vitality for China's insurance market. We also actually run a lot of studies. -- we see -- actually, there is still huge potential demand in terms of medical insurance, wealth management, pension, annuity, et cetera to sum up. Demand is still there, but it is changing. So that means we need to have a better provision of our services and products. So CPIC will transform. We will focus on customer needs. We will keep doing the right thing. For example, the Changhang transformation to build up the new agency sales force. We will strive to meet customers' demand for insurance and wealth management and continue to expand our insurance ecosystem. For example, the elderly care sector -- and for P&C, we will continue to improve our systematic capabilities to make not only to keep not only our existing business but also develop new areas of growth. For Asset Management, we will continue to focus on this cross-cycle asset management. So that's our key views on the market.

Well, that's a very comprehensive answer. I have no addition to make. Now let me answer your question about the P/C reserves. Now on the whole, it's because of the business growth. Now for the reserve for unsettled claims given the COVID impact, apart from the growth of business for first half because of the COVID the loss claims went down a little bit. So the loss ratio were lower than usual. But given this, the end of COVID-19, loss rate claims, loss ratio will move back to normal. So -- and we actually are more cautious in our reserves provision. So we made a proper revision of provision for our reserves to reflect the objective picture of the market and make the reserves more adequate. So -- if we look at the adequacy of our reserves, we would say our numbers are quite reasonable -- and for this kind of undue reserves, it's mainly related to related to the structure of our business mix, product mix.

Well, in the interest of time, we'll only have time for the last question.

Thank you for giving me this opportunity. I'm Li Jian from Huatai Securities. Two questions from me. Number one is for investment. Now we see a lot of risk events for real estate companies. So what about your exposure, if you look at all your investments, what's your risk exposure for the real estate market? How big is it? What is the ratio? And how do you manage the credit risk Second question about the Life company. We see agents. The productivity improved about 7% according to our calculation. Now our question is what about -- what's your forecast or projection of your agents productivity? Or what is your target for the productivity?

First question about the real estate market exposure. Now on the whole, our risk exposure accounted for 5% of our total assets. 5% is quite a low number, especially for the equity stocks and REITs for fixed income is debts, debt plan, bonds and also real estate fund and the investment real estate. Now its bonds and debt plans make up the biggest share. We took a look of those real estate assets. They are mainly this kind of high-quality central government managed companies. So with -- and other company others also gave us quite high credit risk quite high credit risk -- credit ratings. So we believe the overall risk is quite reasonable and well under control. And we will, of course, manage those risks according to our internal rules and procedures. On the whole, we will actually reduce the limit for real estate exposure. And on the macro side, we will have a strict control on the counterparties -- we will look at the company's fundamentals and actually, we downloaded some of the credit lines for some real estate companies. So on the whole, the risk is well under control.

Thank you for the second question. Now for the 18-month road map. Now we talk about the second curve transformation. This is a little bit like your stock investment, several phases Phase 1 is the price go down and the volume maintained flat and then we price went down and the volume went down. And then the price stabilized and the volume -- well, volume diminishes. And the last phase is we see a rise in both the prices and also the volumes. Anyway, for our agency transformation, we are experiencing both a drop in the volume and the price quote-unquote. But for the first half of this year, the picture changes I believe we have removed most of the -- or a lot of the fake agents. And now we are seeing an increase in productivity. This is a very good result. Now going forward, next step we are going to improve -- further improve the capabilities of our core agents and also the capability to recruit new agents. So you might see in the next 6 months, Apart from the productivity increase, you will see a small increase in the number of core agents. And I believe the last phase, Phase 4 will start next year. So that is 18 months to 36 months. So our ultimate goal is the 5-year plan. Towards the end of that, we hope that the average income of our core agents will be 3x of well, society average income. I mean 3x the average income on the society. On the society. So as long as they can -- we can do that, then we can have high-quality people serving as core agents for CPIC.

Well, thank you. We also actually solicited the question from small and medium-sized investors. And they care a lot about the total market conditions and also CPIC's performance and the future strategy. And we have covered most of them. And we also actually had a lot of questions from the online channel. Now. Actually, I have a question from the small investors. which goes that we see a lot of stock buy in from the Chairman and also President and other senior executives. So are there going to be future stock buying plans? Or are you going to have this kind of employee shareholding plan. Now let me answer this question. You see our senior executive is boarding a lot of CPIC stocks, some CPIC stocks on the secondary market, which was disclosed properly. Now these actually indicates our confidence for the long-term growth of the company. Now this kind of confidence comes from our resolve, both long-term success. Now you see COVID condition is quite severe in China. Actually, 50,000 of our employees across more than 800 offices were impacted by COVID-19. Now our executives actually faced up to the challenges. Many of our offices were actually locked down. But our people, our executives, they actually stayed or lived in those offices to keep up with the business volume. And we are also making a lot of progress in terms of elderly care sector. So I believe all these hard work boosted our confidence in the long-term healthy growth of the company. In terms of the stock buyback and the employee shareholding plan, we don't have any disclosable information as of now, but we will pay close attention to it. And as required by law, we will make a close study on this topic, and we'll disclose all the proper information in due time. Now since we don't have enough time for any more questions. And well, of course, you can reach out to us after the meeting, by contacting our IR team. Thank you very much for your time and attention. Goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]