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

Ladies and gentlemen, good afternoon. Welcome to CPIC 2023 first half interim results announcement. I'm Su Shaojun, Board Secretary. I'm pleased to communicate with all the investors, analysts and friends from the media to report our interim reports and hear your thoughts. This meeting will be held both online and off-line. Throughout the meeting, we have simultaneous interpretation service. After the meeting, you may watch a replay of this conference by the link we put on our company's website. Now I would like to introduce to you the senior management of CPIC. Mr. Fu Fan, Group President. Mr. Ma Xin, Group Vice President ; Mr. Zhang Yuanhan, Group Chief Financial Officer and Chief Actuary. Mr. Cai Qiang, General Manager and CEO of CPIC Life; Mr. Zeng Yi, General Manager of CPIC P&C; Mr. Yu Rongquan, General Manager of CPIC AMC. Independent directors will also join the conference online. One of our senior executives will also be sitting and answer conference, both online and offline. Mr. Fu Fan, Group President, will first introduce the interim results, then we will have a Q&A session. The floor is yours, Mr. Fu Fan.

Good afternoon, investors, analysts and friends from the media. Welcome to our 2023 interim results announcement. I'm happy to talk to you both face-to-face and online. In the first half of 2023, China's economy gradually recovered and demonstrated resilience. However, the process of [ advances met ] difficulties and takes time for full recovery and restructuring. Livable national initiatives and government policies, improving consumer demand for insurance and reform of China's financial regulatory system will present opportunities for insurer's long-term development, but also call for further improvement in insurers' corporate governance and business management. CPIC stayed focused on core business of insurance, remain committed to value growth and longtermism. We achieved encouraging overall business results. and enhanced comprehensive strengths. CPIC Life deepened the Changhang Transformation and achieved balanced business development and steady value growth. CPIC P&C pursued precise business management with sustained improvement of business quality and mix. Asset management, further improved sustainable ALM system and reported solid investment results. In the meantime, we constantly optimized customer-oriented business operation, implemented strategies in health care and elderly care management, business development in key regions and technology empowerment achieving notable breakthroughs in value creation and capability building. In terms of business metrics, group insurance revenue amounted to RMB 134.1 billion, a year-on-year growth of 7.4%. Group OPAT attributable to shareholders of parent RMB 21.5 billion, up by 2.5%. Group net profits lowered by 8.7% to RMB 18.3 billion. Group EV are RMB 537.1 billion, growth of 3.4%. Group number of customers stayed stable at 171 million. And group AUM are RMB 2.84 trillion, an increase of 6.9% from the end of 2022. From the beginning of this year, we started to implement new insurance standards and new standards on financial instruments. Written metrics will be very much different under the new accounting standards. For example, insurance revenue is different from gross written premiums under the old standards in both its definition and actual numbers. And the net profits are affected. No. So it will not be necessary to comparison in comparative periods. We also retrospectively adjust the numbers relating to insurance business for the same period of the preceding year according to the new insurance standards, where chose not to retrospectively adjust numbers relating to investment business for the same period of the preceding year according to the new standards on financial instruments. Net profits rose by 50.9% after restatement of numbers for the same period of 2022. The company maintained solid capital positions. This group comprehensive and core solvency margin ratios on a 0 to -- of 240% and 159%, respectively with diminishing impact of the transition period. Solvency margin ratios of Group CPIC Life and P&C are dropped, but they still maintain sufficient levels and complied with regulatory requirements. OPAT is a metric more compatible with the long-term nature of our business. In the first half this year, excluding short-term investment movements and material one-off factors, group OPAT attributable to shareholders of the parent amounted to RMB 21.5 billion, a year-on-year growth of 2.5%. OPAT of life are RMB 16.7 billion, up by 2.4% and Group EV maintained steady growth, growing by 3.4%. In terms of EV composition, group adjusted net worth amounted to RMB 312.4 billion, up by 4.8% from the end of 2022. Group value of in-force business amounted to RMB 224.8 billion, up by 1.5% from the end of 2022. In terms of drivers of EBIT movement, positive contributions mainly come from expected return on EV and NBV. Meanwhile, EBIT movement was also affected by profit distribution and investment return variance. We persisted in customer orientation with the study of 352 Health Care road map, which focused on insurance payments, service empowerment and ecosystem building to improve the insurance protection plus health management service system. In insurance payment, we focused on protection coverage and claims payment upgraded product and service system underpinned by high-quality health care big data to ensure or rather enhance insurance payments. In service empowerment, we provided integrated insurance plus health plus retirement solution in response to diverse customers' needs. Service programs such as CPIC Home, digital medicine on the CPIC Family Doctor building of hospitals under CPIC Rehab Care health promotion of youth and teenage on CPIC juvenile health promotion and Premier Care Guangci Memorial Hospital, who helped to empower the core business. and cultivate our core competitiveness. And on ecosystem building we built health care ecosystems with health care, industrial equity fund and CPIC Blue charitable foundation. We've adopted a differentiated approach towards a strategy of regional integrated development and promoted innovation in insurance supply to booster development. Focusing on Greater Bay Area and which extended to Hong Kong Macau, we pushed for innovation in products and services to boost our visibility and competitiveness like motor insurance service connect between Macau and Milan and Macau or let's say, rather Macau and Mainland -- and Hong Kong and Mainland, with supportive customer service in play. Hong residents also have access to CPIC Home and CPIC Family Doctor. At the same time, we launched insurance against losses from carbon emissions reduction, green buildings malfunction and income loss of PV power generation to promote green insurance development. New business model for NEV has been up and running on the trial basis in the Greater Bay Area, contributing to the rollout of the vertical business management system and integrated sales and service. In the circle of Chengdu and Chongqing we leveraged our R&D center and data center in Chengdu, built the technology innovation center and export scenario-based application of frontier technology. We also entered into a strategic partnership with West China Hospital to explore personalized integrated solutions, including inclusive health insurance integration, social and commercial insurance and insurance for substandard risks as well as for key customer segments of the elderly and the children. In terms of Big Data strategy, we accelerated digitalization via big data and diversified scenario-based application to empower core insurance business. On customer resource management, we developed a digital integrated solutions to individual customers, which enabled dynamic matching of targeted customer insights and business strategies. On Smart claims management, we independently developed a control platform for online aerial vehicles. The platform can also generate execute aerial photography according to profiles of the land under coverage with accurate results of loss adjustment return for your time. On smart operation, we continue to roll out RPA application with the establishment of professional intelligent smart factories with no men on duty and replacing a monthly average of 400 workers. On digital employees, we launched a digital employee for internal auditing, quality control based on large-scale AI modeling, which can take on and accomplish AI internal auditing tasks through natural language dialogues. Our asset management risk control, we realized all around automation of traditional manual work by multiple AI technologies, such as collection of information on adverse media publicity financial analysis, promoting a shift to business model of asset management from passive defense to proactive services. Now it's about core business segments unlike during the reporting period, CPIC Life deepened Changhang Transformation and achieved balanced business development and steady value growth. The reported steady growth of total premium income, which surpassed NBV performance, written premium amounted to RMB 169.6 billion, up by 2.5%, of this [indiscernible] grew by 4.1% and renewed premiums up by 1.9% on a year-on-year basis. NBV reached RMB 7.361 billion, a year-on-year growth of 31.5%. NBV margin stood at 13.4%, up by 2.7 percentage points. CSM amounted to RMB 329 billion, up by 0.8%. We pressed ahead with the restructuring of the agency force. And on career-based development, we fully leveraged the amended Basic Law to drive changes in behaviors of agents. Normalized to standardize the procedures of the new agent selection and retention system. There was a normalized amount for recruitment and coaching. We also upgraded honour system for high-performing agents with MDRT headcount reaching new high to improve professionalism. CPIC developed integrated solutions based on customer needs, deepened integration of products and services and promoted the sales proposition of all-around protection for the whole family by product combinations, built the Xin Xun Ying training camps -- a new training camp. As for digitization, we built integrated digital platform for agents to strengthen process control centering on agent activity management. In the first half, core manpower started to stabilize with monthly average FYP per core agent of RMB 55,478, up by 35.1%, and monthly average FYC per core agent is RMB 7,482, up by 61.8%. The Bancassurance focused on value growth, steepened partnerships with banking outlets strengthened basic management with considerable improvement in value contribution. So bancassurance realized RMB 22.1 billion in written premiums, up by 7.7% year-on-year basis. And of this regular paid new business premiums amounted to RMB 6.574 billion, growth of 460%. NBV from this channel also grew by 305% on a year-on-year basis to RMB 1.381 billion with a share of total NBV rising by 12.7 percentage points to 18.8%. This channel is becoming increasingly important for CPIC Life. The property casualty business seized opportunities of economic recovery and industrial upgrading, focused on key national initiatives. And pursued sustainable, high-quality development. The premium growth is rapid, and so underwriting profitability is quite sound. In the first half, so recorded primary premium income of RMB 103.7 billion, up by 14.3% from the same period of last year. Of these premiums from auto insurance were RMB 50.8 billion, up by 5.4%, and that from non-auto business were RMB 52.9 billion, up by 24.5% on a Y-o-Y basis. Under the new accounting standards, underwriting combined ratio was 97.9%, up by 0.6 percentage on a year-on-year basis. Of this, underwriting loss ratio stood at 70.4%, up by 0.9 percentage points as a result of higher claims frequency of automobile insurance. As travel returned to normal, underwriting expense ratio was 27.5%, down by 0.3 percentage points. While ensuring stable business fundamentals, automobile insurance business continued to enhance targeted management and maintained decent underwriting profitability. Underwriting combined ratio for auto business was 98%, up by 1.4 percentage points from the low base of same period last year. Underwriting loss ratio stood at 70.8%, up by 0.8 percentage points and underwriting expense ratio is 27.2%, up by 0.6 percentage points on a Y-o-Y basis. We also see the opportunities of new energy vehicles with a share of NEV premiums reaching 10.2% rising by 3.6 percentage on a year-on-year basis. As for non-auto parts, we closely followed national initiatives and government policies, accelerated innovation. Non-auto insurance posted an underwriting combined ratio of 97.9% down by 0.5 percentage points from the first half of last year. For health insurance, we further tap into niche market businesses such as chronic illness insurance, long-term care and Huiminbao and stepped up the development of mid- and high-end commercial health insurance. Reported RMB 13.3 billion in primary premium income growth of 26.3% on a year-on-year basis. As to liability insurance, we also provided professional diversified and customized insurance products. So primary revenue were RMB 11.1 billion up by 35.1%. Commercial property insurance persisted in high-quality development. So primary premium income was RMB 3.7 billion, up by 4% on a year-on-year basis. And as to agriculture insurance, we provided innovative businesses. The primary premium insurance business were RMB 12.4 billion, up by 33.9% on a year-on-year basis. On asset management, we maintained a stable growth. Group AUM totaled RMB 2.84 trillion, rising 6.9% and group in-house investment assets are RMB 2.12 trillion, a growth of 8.3% and third-party AUM are RMB 718.3 billion, an increase of 2.9%. We persisted in the dumb-bell shaped asset allocation strategy, continuously increasing allocation into long-term T-bonds to extend duration of fixed income assets while moderately increasing investments in equity assets and alternative assets. In the same time, we continue to lower the share of corporate debt investments to control credit risk. Strategic asset allocation continued to improve. As of the end of the reporting period, the share of debt financial assets was 72.5%, an increase of 3.4 percentage points from the beginning of 2023. Share of equity financial assets stood at 14.5%, down by 0.3 percentage points from the beginning of this year. Of the stocks and equity funds accounted for 11.1% of total, down by 0.4%. We contacted TAAs, say, tactical asset allocation on the guidance of SAA proactively coped with market volatility, solid investment performance. The reporting period, net investment income totaled RMB 38.432 billion, up by 2.7% on a year-on-year basis. This stemmed mainly from increased dividend income. Net investment yield reached 2%, down by 0.1% (sic) [ 0.1 percentage point ] The total investment income amounted to RMB 38.249 billion, up by 4.1%, mainly attributable to rose to gains from fair value movement with total investment yield of 2% down by 0.1% (sic) [ 0.1 percentage point ] Comprehensive investment yield rose by 0.6 percentage points to 2.1%, largely due to change in fair value of equity financial assets at fair value through OCI. We set great store by credit risk management proactively managed and mitigated the risk with credit risk overall under control. 99.3% of enterprise bonds and financial bonds issued by nongovernment-sponsored banks had an issuer or a debt rating of AA or above. Of this, the share of AAA reached 95.2%. There is a lot of attention surrounding non-public financing instruments. For NPFIs with external credit ratings, the share of AAA+ and above accounts for 99.6%. And of this, the share of AAA is 97.4%, except for those issuers with high credit ratings and therefore, exempt from credit enhancing measures. The projects are all secured with guarantee or pledge of collateral. [indiscernible] projects of our nonpublic financing instruments spread across sectors like infrastructure, communication, et cetera, and the nominal yield is 4.7%, an average duration of 7.6 years. Since the beginning of this year, China's economy gradually recovers with orderly advancement of restructuring and improving insurance assumption confidence, which paves the way for industry's quality development and growth in the future. Financial regulators attach greater importance to industry's value proposition in risk protection and contribution to China's development. We're confident that we can facilitate the country's social and economic transition by accelerating supply side reform and meeting customers' diverse needs in health care, elderly care management and wealth management and achieve high-quality development of the company in the process. Going forward, under the guidance of the new development philosophy, we will accelerate capacity building compatible with the new development pattern by assisting value creation, adhere to customer oriented business philosophy, stayed focused on the long term, step-up technology empowerment to boost the drivers of development, promote collaboration and synergy to unlock potential of development and forestall major risks to secure achievements of development. We will stay confident and patient, move forward in response to trends of our times and with our customers and work even harder to achieve our vision of an industry leadership in the high quality development. That concludes my presentation. Thank you.

Thank you, Mr. Fu for the introduction. We will now start a Q&A session. Yes to join the conference on site, are free to raise questions. Please identify yourself and your institution before asking your question, you may raise two questions at the most. Thank you. So lady in the middle on the right side, please pass around the microphone.

Thank you, President Fu. Sun Ting, analyst from Haitong Securities. To begin with, I would like to congratulate you for the outstanding results and performance on Life, P&C and investments. I have two questions. First question is related to what you just presented. The last page is about outlook so I want to be more specific. So our market and industry development trends will be the company's view. So industries on [ongoing] transformation, how will the company respond to such transformation for a long-term and high-quality development? The second question is for Mr. Zhang. In the first half [indiscernible] as well as the capital productivity have high growth. This growth is even outperforming peers. [indiscernible] for such a high growth, what will be the [indiscernible]? In addition, in the second half and next year, can the company or whether the company can maintain or how to maintain such a high growth momentum?

Thank you, Madam Sun. In the past few years, the environment, the insurance industry underwent the changes. There are several changes. One, overseas market has high inflation and interest rate besides the [federal reserves] rate hike movement is still uncertain. For the global asset pricing and from sales flow, these include big uncertainties of the long-term operation of insurance companies is actually for our investments, there might be strong spillover effects. Second, on the supply side, dividend on population is diminishing. This generational change, consumers change their habits as well as energy structure and industry mix, are changing. So for personal life and P&C life, for the sales model and product design, and service offering this pose new challenges. Third, residents still have well retention needs and so house management product [indiscernible] transformation is underway. It's aging issue and the less children issue put up the consumption weeks in the insurance market, bringing about new market opportunities for financial institutions, especially insurance companies. Last but not the least, the [patents] for long-term interest rates decline and has implemented new accounting standards bring new challenges for match of assets and liabilities management for insurance companies to think as insurance company, we need to respect the patents in the industry. We go back to the internal purpose of the insurance company. So we need to focus on value creation, customer needs orientation, long-term and manage empowerment synergy and so [indiscernible] -- so for Life, terms of measures. I think we need to continue the Changhang transformation and diversified channel whilst agents -- sales agent channel at its core from the illustration material. And we have seen that for the bancassurance strategy, we started on the beginning of last year, that supports a written premium for Life. And for individual business, we will orderly drive the [clear base] and marketing, and we're [indiscernible] a diversified product and service system for customers. As to P&C, we need to continue to adhere to high-quality development for [auto] business. We need to improve market-based pricing capability and fund management. Along auto business, we need to grasp the opportunities from national strategy initiatives such as revitalization. And closer to that, we need to continue to stick to value investing, long-term investments, sound investing and responsibility investment, continue to improve the value contribution on the assets side. At the group level, we will continue to utilize our integrated operation advantage, tap into a strategy on how their business data and integrate original development. The company is to announce the corporate [finance], optimized management mechanism, improved process and realize sustainable value creation.

Thank you for your question. I will answer your second question. [indiscernible], growth of new business value. Indeed, we outperformed our [indiscernible]. Starting from last year January, we implemented Changhang transformation and 18 months have passed. Following the road map, we implemented project one by one. We had 8 projects. Sorry, we have 8 projects. And for 4 quarters consecutively, we maintain [ NBV growth. ] So initial results have already been seen. There are five enablers, four within our expectation and the other is beyond our expectation. First, the new amended law. Greatly improved the initiative of our sales team, greatly improving productivity. The agent's monthly average first year written premium is up by 35%. And first year commission is up by 61.2%. And that is the first enabler. Second is our one-on-one sales. In the past, we had group sales seminar. Now we have one-on-one sales. On product mix in Q1 we improved the proportion of critical [indiscernible] products and house protection products. And besides, we have more products of long-term [indiscernible]. So value-based profits to individual business from this -- to actions are up by 2.8%. Third enabler is a 13-month retention rate. So this rate starts to improve significantly. And e-commerce productivity increased by multitudes. This first half, we recruit less, yet the contribution improved significantly. And fourth enabler is a value-based bancassurance strategy delivers significant results especially on strategic partner outlets improvement on productivity and team building, we had sustainable development. The proportion of products with regular payments is up greatly. These all match the course we set in our strategy. So the first half, bancassurance channel contributed 18.8% to NBV becoming an important pillar. The fifth enabler is beyond our expectation. It is about the product to switch so we had a search on the short-term demand. Your second question is about sustainability. The core of Changhang transformation is to change the model from a short driven one to a regular operation driven one. In the past, we had [indiscernible] period once a year. And now every morning is the red [indiscernible] period. So in this second half, will continue. So regular operation, regular sales and regular recruitment and have a stable model where policies are continuously issued and sales are continuously delivered.

Liu Xin Qi, analyst from Guotai Junan Securities. Congratulations to the management for such outstanding results. I have two questions. The first question is for Mr. [indiscernible] the first half Life and EV growth is good yet for traditional house insurance business, this is a headwind. And then as the layout of CPIC's healthcare business, outperforms the [indiscernible]. So Mr. [indiscernible], will there be new business models in this area to empower those house insurance business development? Second question goes to Mr. [indiscernible]. In the first half, CPIC bancassurance growth is quite good, up by 305% on a year-on-year basis. I also note that regulators have tighter policies on bank insurance charges, there are some new policies. So what will be the impact on bancassurance channel? And these new regulatory environment will be responding measures by [CPIC Life].

Thank you for your question. You mentioned that in the first half, health insurance performance faces headwinds from a data perspective that we look at from another angle, you see that holistically, house insurance business performance is sluggish. And in the world, well, recognized the fact is that medical insurance development is in a rapid cycle. In the first half, our medical insurance business growth is a double-digit growth. So the main negative impact comes from some new business. So the rapid growth of medical insurance might not change in the medium and long term. As for the healthcare business, the most important thing in the first half is we release -- we released the road and we invited many of you as the time of release of the road map, and Mr. Fu also presented to you relevant details on Slide 10. The first layer of this road map is insurance payment. Chinese people still pay more out of their own pocket for medical expanditures, comparing to expenditures in moderately developed countries. Chinese people showed a higher burden, probably two to threefold. That is where the commercial house business may develop. So surely, this segment may lead to a reasonable growth. So we focused on three core elements: underwriting claims and data to innovate and develop our house products -- of course, we want to improve our underwriting profitability for health insurance. The whole industry stream has a long way to go in this regard. The second layer is service empowerment about building the house medical scenarios, customers need. This is what we have been doing for the recent 2 years. Also [coming] March, we have a family doctor to improve accessibility of Internet medical service [indiscernible] off-line part invested in premium medical services like United family hospitals. We also [work] with some famous hospitals. For the elderly and children. We also offer retirement services and driven our health promotion service. The third layer is about ecosystem building. Relating to two funds. Our equity funds was used for driving the innovation of medical care and healthcare industry's development. And CPIC charitable funds focused on cognitive impairment also old and the young. So these are the three layers for the road map. Indeed, this year, we did a lot. In the first half, our [ Juvenile house promotion ] center, [indiscernible] store was unveiled. And the service brand is called Juvenile Health Promotion. We also [incorporate] famous hospital, for example, with Western China Hospital, we are creating a center. And we also cooperate with school of medicine under [indiscernible] University. For [indiscernible] we have research institute. We are working on the national rollout on, [ we have care]. Our family doctor, offer health files serving more people. Within 6 months, we have served 5 million people with family doctor. We also have a brand called [indiscernible]. This brand is gaining traction, becoming a first choice medical insurance product among the young. Within 7 months, this product brings about 1 million young customers with average age of 26 years old. We opened several retirement communities in [Milan], [ Chengdu and Hangzhou. ] We have find more to open in the second half. As to the priorities, in the next stage on health care. First, we want to have an effective connection between service and business development. China's insurance business development is no longer we've seen in the past. The focus was on single insurance product sales and now focus is on experience-based marketing relating to scenarios. Second, [indiscernible] our data advantage to so-called service. We have been in the main insurance business for years. We have a lot of customers. Integration of insurance products and financial services can help customers have a better sense of accessibility and also help each customer we serve to optimize their cost management and service projects. Third, we will consider how to make breakthrough on each project. Some projects were established in Shanghai, for example, the Juvenile House promotion and [Yuanshen] Rehab Care. Going forward, we will roll out these projects nationwide. We want to build a forest from these trees in the industry. So commercial insurance reimbursement ratio is still low. The supply of health Medicare service is not adequate and the integration of products and services is not performed. This represent opportunities for our company. In the past 3 years, we did a lot in this area, and we are firm about its bright future. We will continue to focus on the road map, and we believe more results will be seen.

I will answer the second question on bancassurance development. In the first half, in bancassurance channel NBV grew by 3x, written premium of regular products grew by 4.66x. The more important thing is that channels value margin has increased from 1.8% to 6.9%, up by 3.8 [indiscernible]. That shows that our strategy is correct, i.e., building a diversified channel. The perspective of contribution by bancassurance and say, China's bancassurance is in its stage 2.0. That is to say bank just corporate with insurance companies and entering into a win-win progress. That is to say customers win, banks win and insurance companies win. In this way, there will be a sustainable development for all the three parties. So we are happy to have such a good performance. [indiscernible] later changes and adjustments. I think there are two aspects. One is the interest rate switch from 3.5% to 3%. We are quite supportive to that. The regulators consider the industry's development and the risk interest rate loss. They also consider a downward interest rate movement. This represents a resolute adjustment. This is good for the whole industry and insurance companies. This is also good for the long-term partners of banks. So following this guiding direction from regulators will work with the industry association to drive the product switch. Second is about using [found] terms and interest rates and sales. This is a special requirement from regulators on bancassurance. This is about the regulated surcharges. There will be no vicious competition. So insurance companies do not focus on surcharges marketing. We focus more on product and services and capabilities. This is good for the industry. We will resolutely follow regulators direction to implement the [spirits] of the policies.

Thank you for the opportunity, Mao Qingqing, analyst from CICC. My first question is related to [indiscernible] business ratio is higher. So can management share with us the performance on EVs? What is your view on profitability prospects and the auto business on EV and potential competitions from the car companies as to [indiscernible] non-auto who knows that non-auto business see increase on premium and underwriting profitability has improved? As the management let us know what are the enablers, which are short-term enablers and which are long-term enablers? I have a question with Life if possible. The question is for Mr. [indiscernible] mentioned that in the first half, the long-term [critical] illness faces headwind would like to ask a question. Previously, the company mentioned that -- to the agents will be encouraged to sell critical illness in the second half. Mr. [indiscernible], what is your view on its future development? Particular illness was once the core product in this industry. They used to have confidence in the business, want actions on the level of teams and products will help us to make icebreaking performance?

Thank you for your question. Over the past several years, P&C follows the requirement of high-quality development. I think we've follow three patterns. One is patterned on China's economy. Second is pattern on insurance industry. And third is pattern -- is about our P&C's history development after benchmarking the best performing result. The first half market share for us is up by 2.5 percentage points. Our combined cost ratio is 0.6 percentage points more than the industry performance.

Thank you for your support and care. You mentioned two questions. So begin with [indiscernible] address the non-auto business development question that I will talk about, any questions. For non-auto business. I mentioned that we follow industry pattern. When the policies are not favorable and when there is a decrease of sales of new vehicles [indiscernible] auto business will be limited. So we have to put a focus on non-auto business development. The last year, we reformed greatly. So organization, no structure on non-auto business. We have group customer resource management center. I believe that this kind of reform will be an important assurance for the development in this area. I just mentioned the three patterns. I believe they are -- they can be categorized as long-term enablers for such a good performance in our auto business. For non-auto business operation, we take some work. For example, house insurance liabilities, insurance and individual non-auto business, we did a lot of work. In the first half, while the house business growth rate is 26.3%, and liabilities insurance had a growth rate of 35.1%. I want to mention that individual non-auto business growth is over 40%. As to health business, we depends on the business layout in line to product supply and for those good performing individual and commercial health insurance products, we increased the sales proportion and contribution. We also accelerated the business development of commercial health business including mid- and high-end medical products. On liabilities insurance, we're focused on the new development pattern of the country and accelerated the quality is the development in this regard. And one important areas such as social governance and technology innovation, we also did something to enhance the company's vitality. This might be some short-term enablers. So in the first half, non-auto combined cost ratio is 7.7% for health. So combined cost ratio is down by 1.1 percentage points. For auto insurance, the combined cost ratio is down by 2.4 percentage points. As to individual non-auto business development is quite good and contribution is quite good. And the contribution from individual non-business accounts for more than 50% of the overall non-auto business. NAV Is indeed a popular topic. In the first half, our company's NAV business development, keeps consistent growth with industry -- in the past, so premium proportion from NAV is just a single digit for this year, the proportion is double digit, up by 3.7 percentage points. However, there is still a mismatch between gasoline field vehicles and NAV. For example, the sales of new cost including NAV and gasoline field vehicles is only 9 point-something percent. And for gasoline-filled vehicles, that is only 0.3%, while the accidental rate NAV is quite high. And besides, there are more cars on the road. So cost of NAV business is over 100%, about 101%. The performance is good, but with its headwinds on cost, we greatly value NAV business. We construct a business management system which is different than the one on the gasoline-filled vehicles because the system literally, four systems and 16 capabilities. This is like a strategic arrangement. The strategy is aimed to improving competitiveness going forward. In the current circumstance, [indiscernible] act as a growth rate of EV business should be modest or let's say, moderate. And we also want to have [an ideal] combined cost and besides, we won't have a copper business mix. So this is like our strategy. I believe all of these moves covering the sales systems, probabilities and strategies would be useful for us to address challenges. As to OEM cost industry operation. We are optimistic about it, and we hold an open mind about it because auto companies have data advantages and insurance companies have [ actuarial variance ] pricing advantages. So with this auto [indiscernible], we enhanced the headquarter to headquarter communication. We want to share resources, build ecosystem together, and we want to have [indiscernible] improvers.

As to particular illness, I will answer your question. We have been paying close attention to the sales of critical illness products. We also did a lot of customer survey. We find that there are some features on critical illness business in China. Specifically customers keep increasing their awareness with protection through this type of product and the demand gap is widening and customers continue to be more holding [indiscernible] attitude of accepting critical illness products. So it feels that for critical illness, health insurance products, I mean, critical illness product, health insurance products and life insurance products. The demands will continue to be booming. That is the foundation for us. So we need to change. The customers want more diversified, customized and fragmented products. In the past, one product could succeed hugely, but it is no longer the case currently. So insurance companies need to -- based on customers, [indiscernible] at different life stages to provide solution. When we do customer survey, customers want we to know them -- and then to offer them solutions rather than one product. And in addition, products are also sufficient for them who want services. So apart from protection, apart from a payment-related solution, they also want to have a whole package of solution covering health care, prevention and medical services. So for these features -- and last August or rather October specifically in -- or in Q4, we launched a product called [indiscernible], within 1 month. We sold it to more than 100,000 customers. And this year following the product which we upgraded our critical illness product and its latest new products. We call it [indiscernible], if you would have any interest on the product, you may have a look at it. That product may need the basic critical illness demands, it also has several riders to meet customers' protection needs based on the different life stages. In the long run, why the sales performance on critical illness is not good? The core reason is not related to demand but is related to supply because critical illness products are not easy to sell. Why? Because it is against humanity. It is not what customers want. It is what customers need. We talk about being old and sick, death and disability. So people do not want to touch these topics. But for those customers who want to buy such protection product to insurance companies would feel scared. So it means that our team should be able to conduct one-on-one selling based on customers conditions and help customers to realize that Life's risks can be [indiscernible] against through insurance. So we will continue to improve our sales team's capabilities. In addition, in the long run, we still stick to use the product through [ golden triangle ] covering wealth, protection and retirement based on customers' needs on these three fronts, we provide a package of solutions. So if things would be ideal, then -- for the golden [angle] 1/3 should be for protection, for customers. And 1/3 for customers' retirement, and 1/3 for customers' wealth retention that would make for a stable product portfolio.

I want to add a few words in the context of refinance and low carbon transformation, NEVs future will be brought along with its technology progress and risk management improvement the profitability going forward is bound to improve. In many new emerging areas in P&C, this patent has been approved. Our team station in [ Tiguan, Volkswagen ] is organizing Investor Day for [indiscernible] On 1 July, we organized live Investor Day and the results were quite good. So recently, we're organizing such Investor Day for [P&C]. We will invite all of you for index communication. Thank you.

[indiscernible], analyst from [ Oranto Securities ]. I have two questions. First question is about liabilities side. Life knows that in the long run, in China, there's still a lot of growth room for saving and deposits. However, based on our understanding, market still cares about performance in the midterm and short term, especially since the August product to switch. The sales performance go down. We know that the company has adequate supply. So would there be any expectations for a potential recovery on the short-term and medium-term demands? And you just mentioned that short-term-driven model is changed to our regular operation model, while we understand that peers still have [indiscernible] period. So in this way, would [indiscernible] headwinds on regular period-related growth? And second question is about assets. In Q1, Q2, assets, or, let's say, capital markets performance is quite diversified. What's your view on macro economy, stock market performance and interest rate? How about allocation, fixed income assets and equity assets. And on EV, we see investment experience has negativity bias. So would you consider to adjust investment return rate?

I will talk about the [indiscernible] period. Actually, we no longer to [indiscernible] work this year. 1 January, or 2 January, the performance registered a negative growth. But by this January, the performance is quite similar to the performance last January. And in Q1, the performance quite robust. And in last year, in Q4, and in December, our business keeps a robust growth. So for us, we feel that this is not about 1 day, 1 month. It is about managing performance for 1 whole year. This is about managing a team. So we need the ability because that kind of business model is not sustainable. That is not very reasonable for customers. there's no reason for customers to -- for the sake of our [indiscernible] period wait for policy issuance next year and have no protection during the GAAP period. So we no longer rely on rental period. Everything is regular we sell products regularly and people regularly. And in the first half, we still have obvious performance.

Thank you for your question from [ Oriental Securities ]. Your question on economic situation and interest rate movements. And on the [source] of allocation, I would like to address to your question. We feel that things are still not certain for the macro economy, and we need to have a sober awareness of the fluctuation of the situation. In the overseas markets, there's continuous rate hike and there is deflation. So there is a downward economic pressure. And globally, political uncertainties continue to progress and internally, the domestic market still does not have sufficient growth point. So for external demand, we see a downward trend. And for internal [domestic] demand, we see consumption sluggish related to property market and local governments at many levels adopting measures. So there are many complicated elements factoring the fluctuation of asset prices. So we need to have a [indiscernible] mind. As to stock market performance and interest rates, which feels that the stock market will continue its fluctuation. So we need to focus on overseas liquidity and domestic policy expectations. For stock market, the Asian market or its share market with process valuation is sitting at a historical low level. A lot of positive policies are issued and liquidity is lax. So these support bottom of the market. And in this weekend, many policies are issued supporting the market. In terms of risk return rate on asset classes, we feel stock market has obvious advantages from the valuation perspective and also the interest rate is low. However, enterprises profitability growth is affected by weak demand. So we assume that the stock market will continue the fluctuation. This is our opinion in the short-term. Well, it's hard to say our short-term thoughts are correct. But in later, I would talk about my thoughts in the long term. Anyway, overseas liquidity and domestic policies are key elements affecting market fluctuation. As to interest rates [we feel] it will continue to fluctuate at a low level. So the key focus would be market interest rate. So market leverage is fairly high, so that might heighten the fluctuation of interest rates. As the demands both at home and abroad are weak, so we expect the manager policy will still be ease and the low interest rate environment will not change. After the interest rate decreased in June and August, the 10-year T-bond has a very low rate. So that is 2.6%. So we need to focus on the trend of market interest rate. It feels that many institutions have consistent view on the low interest rate trend in the current environment. So as I said, leverage is still high. So we need to focus on interest rate fluctuation and to be prepared. Also affected by the interest rate difference between China and U.S. as well as [indiscernible] for exchange rates. So for example, in U.S., the 10-year [ T-bond rate ] is 4.2%. And in China, that rate is 2.6%. So exchange rate will also be affected. This is our thoughts on the macro economy. As to the second question you raised regarding the allocation of assets. I believe the analysts that are here have already read some data on the insurance industry, which we look at our group's performance, past the 5-year performance and 10-year performance. Our assets performance has been in a leading position. So it means that we are robust and proactive. Otherwise, they won't have long-term excessive return. But of course, we have a sound risk management control system supporting it. So for the second half, we feel that stock market is good for a long-term allocation because there are positive policies. So second half should be a good opportunity to invest in quality stocks, that were quite proactive on that. And second, we have our fundamentals research system for the short-term fluctuations is not important for long-term investors, we use market fluctuation to gradually increase allocation of quality stocks and they sit at a low level. So creating long-term competitiveness and create a good equity portfolio allocation. Currently, we value those stocks with low valuation and a high dividend. In the past 2 years, we excel and performance was good. For example, we can see the performance on our [ OCI portfolio ]. The return is 8%. And second, we look at some rare end monopoly based assets and resource assets. And third, we will look at the quality companies were related to China's economic transformation like technology and consumption. Basically, these are the three directions for our allocation. As to fixed income assets. We may adopt a diversified strategy to address the low interest rate challenge. The interest rate is on secular declines, imposing big pressure for long-term allocation for us. Because valuation will be affected, so we need to adopt several strategies. To begin with, we will enhance the pricing capabilities and long-term interest rates, improves the effectiveness of allocation. We will seek for a proper allocation window. In the first half, we increased allocation of some bank subordinated debt and agreement deposits, increasing CPIC Life's investment return rates. And for those with lower investment return rates, we will proactively optimize an adjustment relevant on the assets we hold. And second, we will use flexible trading strategy to think for training opportunities from market fluctuation. As such, we will invest in new types. For example, public [foundaries], T-bonds, [indiscernible]. And last, we will focus on high-quality long-duration types. So we assume that local government debt with long duration will be issued rapidly in the second half. So we'll focus on that.

I will answer the third question. Investment return rate and risk discount rates are very important assumptions for EV valuation and NBV valuation. So our company referred to the actual investment return rate. And based on our future allocation on strategic assets, we will prove [indiscernible] evaluate the assumptions. So also in the annual report disclosed sensitivities of post rates for your reference. As to interest rate secular decline as well as fluctuation in the equity market, where we'll also have evaluation regularly to see whether there are a need that we may adjust to the assumptions.

[indiscernible] from [ Shai Securities News ]. In the first several 7 months allotted high interest rate products were sold. You also mentioned that there are headwinds from secular decline interest rates. And also, there are fluctuations. So some insurance companies performance included such elements and such performances are quite evident of such elements. So how do you view the loss from different interest rate? Another question is for the August product switch. How is this switch progress? And will be the new moves from product and marketing strategies?

I will answer your question on interest rate loss. So basically, so evaluation interest rate and pricing interest rate basically are about 2.82%, similar to the 1 to 5 years. And second, on participating in university -- universal insurance. We provide customers with students and credit interest rates. We also have a adjustment mechanism. In the current situation, we don't feel that we have the risk on loss from difference of interest rates. So in the long run, we're quite optimistic about it. And we hold appreciative attitude to both regulators for the timely adjustment on the interest rate. That is good for the long term and steady development for life insurance.

I will add a few more words. So we will raised that to 3.5% is a reasonable guidance by regulators on industries, house and stable developments. Well for insurance companies, our biggest challenge is the risk of assets and liability match because we implementing new accounting standards. So the assets fair value are changes affecting a lot of our financial opportunities. And also previously mentioned that institutions adopt different standards. So the net profits are not consistent. So that would also affect the market as the way the market looks at the valuation of insurance will be different. For insurance companies. We care more about the long-term net worth growth and shareholders' equity growth. So on the liability side, we want to recently control cost and optimized product strategy and control interest rates difference. On the investment side, I think we need to decrease the asset and liability duration gap. Tactically, we need to consider how to control the overall risk of exposure. And have a reasonable investment portfolio. We also need to consider how to use our mechanisms, processes and systems to manage and control risks. And I think this is quite important. In addition, we need to fully utilize the liquidity premium of alternative investments. This brings us with investment returns advantage. As to product switch, we basically, have specified our future product direction. Even if we had this switch from an interest rate of 3.5% to 3%. Currently, the interest rate is going down in China and consumption investment needs are stable to the general public still needs to save and to retain wealth. After the product switch it would not be possible that we will see a sharp decline on sales performance. So we still feel the need as to that. Second, for the 18-month road map, that focuses on channel transformation, building of individual business teams, the focus of value-based bancassurance. So we have already completed our tasks based on the plan. So in the next step, we need to improve our capabilities for [sales] agents. The product switch is not just a challenge. It is more like opportunity. So that means in the second half, we will focus on product optimization and upgrading to diversify the products, decreasing the product concentration. Initially, we focused on the term life insurance products with enhanced [indiscernible]. And recently, we upgraded critical illness products delivering a good result. Our sales capabilities are improving. And we will further enhancing our training system to improve sales capabilities. So retirement products with participating and saving features will be the next focus.

Now we will open the floor to the participants joining [indiscernible]. [indiscernible] From [ Quarter Securities ].

Management team, I have two questions about Life. I see for co-agents, there is an obvious improvement on productivity and revenue. [indiscernible] when productivity goes up significantly, there should be a significant increase on the core sales agent and I understand that as a company described that -- it is a hope to stabilize the number of core agents. I believe the core agents as the most important sales channel. Could you please describe the profile of this channel? [indiscernible], their leading condition and the scale? It's my first question about core sales agent. Second question is about profitability of products. With the current situation, it is not easy to improve the profitability. So the profitability mainly comes from insurance, how to review the movement of such rates? And when can we see obvious improvement of profitability from the agent channel?

First question is about core sales agent. This is focus for us, transforming agent's team, we want to change from the headcount development to productivity development. So last year, when we did the transformation, the first priority is to increase productivity and revenue of core sales agents. When they make money, they can have stable work -- you can have a long-term [indiscernible] based development and they can improve customers' services. So at transformation, we basically start to recruiting. We focused on the remaining people. Focusing on their productivity and capabilities. We want to have that performance live the team. So after 6 months of transformation, the team is basically stabilized. Productivity is up and morale is up. So in the second half of this year, we gradually entered into a recovery stage. We built the selection capabilities of team leaders, and we enhance the selection capabilities for them. Starting from second half of last year, the new commerce recruitment started to be back to normal. We do not want to recruit tens of thousands of people every month. We basically recruited several thousands of people. And right now, [indiscernible] month retention rate has already reached 30%. We hope this ratio can grow to 50%. In this way, when newcomers are here, we can earn money. And then we can have long-term and sustainable growth. So in the last [June], we have a turning point on business. And in this [June], we want to have a turning point on core sales agents. And indeed, the requirements on core sales agents are improving every year. One key point in the mandate basic law is that we want to increase productivity of core sales agents. In this way, they get bonus, be it quarterly or annually. This is a long-term design from the mandate basic law. As to profitability rate we see improvement and bancassurance profitability and individual business and [indiscernible] margin. Well, the bancassurance improvement is higher so actually, the improvement for the individual business is quite obvious because of the products switch in Q3 and with a lot of short payment period products coming in. So the overall margin rate is affected. But in the long run, we hope that the value margin can gradually go up. We don't focus on managing value margin. We focus on managing the overall growth of NBV. We focus on customers, and we want to meet customers' needs at the different stages of their lives. To sum up, we want to steadily improve the sustainable development of the two channels.

In the interest of time, we will have the last question, still the online participants. [indiscernible] Richard Xu from Morgan Stanley.

Richard Xu from Morgan Stanley. I have two questions. One is about profit under new accounting standards. Net profit fluctuation in the industry is in the first half. Real company's net profits and OPAT are quite stable. Going forward, are we going to focus now on OPAT to reflect company's performance and related to dividends? What would be our thoughts on the full year OPAT or net profits? As to the second question, we know that the sensitivity of NBV and [VIF] to launch an investment return rate is higher. So market might be worried about it. What is the company's view? And along with dividend payout ratio going up or going down? Are we going to see a decrease on the sensitivity?

I will answer your question. This year is the implementation of new accounting standards. So net profits go down by 80% in OPAT as a growth of 20.5%. That is a result of assistance on long-term steady development. I know certain fluctuations on net profits on the new standards will be bigger because there would be more efforts putting into FVTPL. So naturally, people focus on OPAT. As to OPAT, I want to clarify that for P&C business, we will no longer take net profits as a basis for P&C's OPAT. So for P&C and health OPAT investment, we have an interest rate target. Why? Because that is related to the fluctuation on net profits. Second, under the new accounting standards, we will continue to pay attention to OPAT. We also have observed some changes from OPAT and these changes are related to the market. We will continue to analyze the OPAT changes and in due course, disclose information.

Thank you, the management team for your answers. Prior to the meeting, we let your questions from investors on topics [indiscernible] in the meeting, we also collected relevant questions. And the questions from the investors cover product switch. [indiscernible] strategy, thoughts on capital market and asset allocation strategy. These questions were communicated comprehensively in the Q&A session. In the interest of time, our company will give replies in writing to other questions raised during the webcast. Thank you very much for your attendance to CPIC. Should there be any further questions, please feel free to contact our team. This conference may now come to a close. Goodbye.