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

Good afternoon, ladies and gentlemen. Welcome to CPIC 2023 Results Announcement Event. I'm Shaojun Su, CPIC Group Board Secretary. At this time, the event is held in both Shanghai and Guangzhou. We're going to give you an introduction of our results last year and also listen to your suggestions and ideas to enhance the rise of small- and medium-sized investors, we are also broadcasting this event online. And also you can check our website to play back this event afterwards. First of all, I will introduce the executives. We have on the Shanghai side, Mr. Fu Fan; CPIC Group Board Chairman; and Ms. Pan Yanhong, Chairman of CPIC Life; and Mr. Yu Bin, CPIC Group Deputy General Manager; and Mr. Zhang Yuanhan, Chief Actuary and CFO of CPIC Group. And also on the Guangzhou side, Mr. Zhao Yonggang, CPIC Group President; and Mr. Gu Yue, CPIC P&C Chairman; and Mr. Ma Xin, CPIC Group Deputy Vice President, and Mr. Su Gang, CIO of CPIC Group. And our independent directors will also attend this event online. First of all, our President, Mr. Zhao Yonggang will give you a presentation on our performance last year, to be followed by a Q&A session. Now I'll give the floor to Mr. Zhao.

Good afternoon, ladies and gentlemen. I'm Zhao Yonggang, President of CPIC Group. Welcome to our annual results announcement for 2023. It's my great pleasure to meet you face-to-face. And last year, China's economy recovered and stayed on track. Given this kind of economic uncertainty and the situation, I would say China's economy have a potential and resilience with increasing positive outlook in the long run. In the meantime, the reform of China's financial regulatory systems support the return of the industry's value proposition to protection and also helps to prevent and mitigate major risks and helps the industry's healthy development. Given these challenges and opportunities, we adhered to high-quality development, deepened our transformation and delivered a stable performance with increased market share and the steady progress in value creating. We also have a more solid foundation for sustainable development. We stay committed to serving our customer needs, forge ahead in pioneering spirit with greater resilience for development and more assuring outlook for long-term growth. In terms of the numbers, group insurance revenue amounted to RMB 266 billion, a year-on-year growth of 6.6%, group OPTA (sic) [ OPAT ] attributable to shareholders of the parent company was RMB 35.5 billion, down by 0.4%. Group net profit fell by 27.1% to RMB 27.3 billion, and group EV was RMB 529 billion, up 1.9% and our group AUM was RMB 2.92 trillion, up 10.1%. And adopting the new accounting standards and reporting financial instrument standards, certain metrics have changed differently under the new standards. According to the new requirements, the company adjusted comparable figures of the previous period, which related to insurance business. And according to these standards, the company did not adjust comparative figures of the prior period, which related to investment business. The company maintained a solid capital position with group comprehensive and core solvency margin ratios stood at 257% and 171%, respectively. Last year, our CPIC Life completed the insurance of perpetual capital bonds Phase 1. And based on our capital planning we will ensure an appropriate cushion for capital to withstand the shocks and the systematic risks. Under the new accounting standard, net profit is more impacted to capital market movement, and therefore, more volatile. OPTA (sic) [ OPAT ] Is more comparable with the long-term nature of our business. Our group OPAT amounted to RMB 35.5 billion, down 0.4%. And of this, net of CPIC Life was 27.3%, up by 0.4%. Group EV was still stable, growing by 1.9%, and the group adjusted net worth amounted to RMB 291.5 billion, down by 2.2%. Group value of in-force business was up by 7.4%. In terms of the drivers of the EV movement and of the positive contribution mainly come from expected return on EV and NBV, EV movement was also impacted by changes in methodology, assumptions and models, investment experience variance and shareholder dividends. In terms of the China's health management, we offer this kind of customized personalized health services to our customers. By collaborating with our partners, we aim to deepen and solidify our service brand to empower our main insurance business. In terms of product, we upgraded the Jinsheng Wuyou CI product and also upgraded Lan Yi Bao and debuted a tax-deferred online medical insurance product for whole-life cancer protection. And we also launched Jia An Xin, a medical insurance product for sub-standard risks to cover both healthy people and also those with 5 types of chronic diseases. For services, we supported elderly care based on customer segmentation. By the end of last year, 8 CPIC Home retirement communities opened for business, including those in Hangzhou and Shanghai. We also debuted Bai Sui Ju, a one-stop integrated smart solution for home-based old-age nursing, so as to improve our services to the elderly. And we also have upgraded Wuyou Guanjia and the CPIC Blue Passport, and we collaborated with Ruijin, a West China Hospital and the UFH and other famous hospitals for the supply of diversified and high-quality medical care products. In terms of our people, we joined hands with Ruijin Hospital to enhance the professionalism of our agents. And we also improved customer experience via CPIC Blue and some other charitable foundations to better serve national initiatives and also focus on the Yangtze River Delta, Greater Bay Area and the Region of Beijing. We have different focuses for different regions. For the Yangtze River Delta region, we consolidated regional advantages. For the Greater Bay Area, we developed the cross-border businesses. For the Region of Beijing and Tianjin, we expanded headquarter economy so as to develop the brand of CPIC. In 2023, the insurance business in the 4 key areas or regions have accounted for a considerable part of our overall business. And we also have a lot of innovation in product, in collaboration. As you can see on the slides, and what we are doing in terms of innovation. Now the 4 key regions have become a source of innovation for high-quality growth of CPIC. We continue to implement the strategy in digital empowerment to enhance our high-quality growth. We established our group centralized data governance system. We have a structure called 3 data centers in 2 places to achieve a cloud computing capacity to support responses within seconds to hundreds of millions of users and real-time computing of our data. CPIC P&C established integrated disaster migration and response system to improve information transparency, prompt rescue efforts and accuracy of claims payment. CPIC Life launched Xin Shuang Lu meaning new model of double recording to enable cloud-based meeting of sales agents and customers. In terms of digital management, we completed the carbon footprint verification of the entire company for the first time and established a visualized platform for footprint management on the operational side. Digital Employee was also up and running in our internal audit center. We persisted in customer orientation, deepened the CPIC service, continue to enhance supply of services and diversify the ecosystem of intra-Group collaboration so as to improve customer value contribution. By the end of last year, the number of group customers, the number of individual customers with two or more insurance policies and the number of individual customers with insurance policies of multiple subsidiaries, the number of long-term life insurance customers with annualized premium of RMB 15,000 or more and the number of customers with SA of RMB 1 million and above on TPL of auto insurance all increased year-on-year. And also the share of strategic accounts in agreement with multiple subsidiaries reached 61.4%. CPIC P&C and CPIC Life maintained a high ranking at the regulatory evaluation of consumer rights protection. We are committed to generating long-term stable return for our shareholders. Last year, we had a slight decline for net profit attributable to parent, but we maintained a DPS of RMB 1.01 yuan to our shareholders. Since our listing we have paid out a total of RMB 108.8 billion yuan in cash dividend to shareholders -- to investors. Going forward, we will maintain a prudent dividend level based on OPAT and also considering factors like capital constraints, sustainable development and a reasonable return to shareholders. Well, next, I'll walk you through our core business segments. In terms of Life business, we continue to deepen Changhang action transformation and achieve a balanced business development with steady growth in our premium income and robust NBV performance. Last year, the total written premium amounted to RMB 252.8 billion, up 3.2% and FYP grew by 3.7%. Renewed premium grew by 3.0%. NBV reached RMB 10.9 billion, up 19.1%, and the NBV margin stood at 13.3%, up 1.7 percentage points, 13 months persistency ratio improved by 7.7 pt to 95.7% and the 25 months persistency ratio reached 84.0%. In terms of our agency channel, we continued with efforts on 3 directions and the 5 mosts to steadily improve our core power income and productivity. In terms of career-based development, we established a 2 separate operational model for agents. That is to say, financial advisory or a team leader. We persisted in high-quality growth, high-quality recruitment, coaching and training to drive growth of core manpower. In terms of professionalism, we rolled out online and offline integration differentiated CRM system and we used various training camps to improve value proposition on wealth management, retirement and health protection. In terms of digitalization, we redeployed a digital blueprint based on the needs of employee, agents and customers. Last year, we can see improvement in monthly average FYP per agent and monthly average performance ratio. To be specific, our monthly FYP per core agent was up by 26.6% to RMB 43,503 yuan and the monthly average FYC per core agent rose by 46.3%. On the bank side, the total written premium was RMB 38.06 billion, up by 12.5% and the NBV or regular pay and the new business premium was RMB 9.02 billion, up by 170%. The NBV was RMB 1.8 billion, up by more than 115%. Its share of NBV rose by 7.6 percentage points to 16.9%. In terms of P&C business, we promoted sustainable development and established a integrated system to cover prevention, reduction, relief and claims payment. Our auto and the non-auto business grew steadily. And we also maintained profitable, sustainable, high-quality growth. For the whole year of last year, our recorded primary premium income was RMB 188 billion, up by 11.4%. Of that, auto business accounted for RMB 103 billion, up by 5.6%. Non-auto business grew by 19.3% to RMB 84.8 billion. And our combined ratio was 97.7%, up by 0.8 pt and the underwriting loss ratio stood at 69.1%, up by 1.1 pt and expense ratio was 28.6%, down by 0.3 pt. For auto business, we maintained our fundamentals to enhance CRM and the channel efficiency. The combined ratio of our auto business was 97.6%, up by 1.1 pt from a low base in 2022. The loss ratio stood at 70.6%, up by 1.1 pt and the expense ratio was 27%, same as the previous year. In the same time, our renewal ratio rose by 1.6 pt to 75.4% and the share of NEV reached 12%, up by 3.7 pt's. For non-auto business, we follow the national initiatives. To focus on key areas and accelerated innovation, continue to enhance CRM and also enhanced our quality control. The combined ratio was 97.7% for non-auto business, same as 2022. Health insurance deepened deployment in various businesses and innovated product supply and also stepped up the development of mid- and high-end commercial health insurance. Last year, it reported RMB 17.36 billion in primary premium income, up by 18.6%. For agricultural business, we participated in the trial of forecast indemnity insurance, promoted innovative business of insurance+. Last year, its primary premium income was RMB 17.7 billion, up 28.8%. Liability insurance, well, we offer a specialized customized insurance products in terms of workplace safety, environment protection, et cetera. Last year, its primary premium income was RMB 19.6 billion, up by 31.4%. For commercial property insurance, last year, it generated RMB 6.81 billion in primary premium income, up by 7.5%. For the asset management side, our group AuM maintained a steady growth. By the end of last year, it was RMB 2.92 trillion, up by 10.1% and the group in-house investment assets amounted to RMB 2.25 trillion, up by 15%. Third-party AuM was RMB 672.2 billion, down by 3.7%. We continue to improve allocation into long-term T-bonds to extend duration of fixed income assets and we also improve our investment in equity assets and alternative assets, including private equity to enhance long-term returns. Also, we continue to control credit risk. SAA continued to improve by the end of last year. The share of debt financial assets was 74.5% and equity assets accounted for 14.5%, down by 0.3 pt. And of that, stocks and equity funds accounted for 10.7%, down by 0.8 pt's. In terms of TAA, we maintain the flexibility so as to capitalize on market -- equity market volatility and the secular decline of interest rates. Last year, net investment income totaled RMB 77.7 billion, up by 2.3%, and the net investment yield was 4.0%, down by 0.3 pt's. Total investment income was RMB 52.237 billion, down by 28.3% year-on-year. That is mainly because of the adoption of new accounting standards. So securities trading losses and increase in losses from fair value change and comprehensive investment yield rose by 0.4 pt's year-on-year to 2.7% mainly because of increased impact from equity financial assets at fair value through other comprehensive income. We pay great attention to credit risk management to proactively manage and mitigate the risks. 99.1% of corporate bonds and financial bonds issued by nongovernment-sponsored banks had an issuer debt rating of AA or above. Of this share of AAA reached 96.5% and of nonpublic financing instrument with an external credit rating, the share of AA+ and above reached 99.6%. And that of AAA was 97.6%. NPFIs were either exempt from debt issuer external credit ratings or secured with credit enhancing measures such as guarantee or pledge of collateral. The underlying projects of our nonpublic financing instruments spread across sectors like infrastructure, real estate, with a blended nominal yield of 4.7% and an average duration of 7.8 years. Last year, there were both challenges and opportunities for China and the world. In the long term and medium term, rising income will boost to consumer confidence and this will, in turn, improve insurance demand. Reform and innovation will sustain long-term industry development. The 5 priorities of financial services, namely: Technology, green transition, inclusive finance, elderly care provision and digitalization and holistic financial regulation underpinned by supervision of institutions. All these will help long-term healthy development of China's insurance market. We will stay committed to the vision of being the best in customer experience, business quality and risk control capabilities. We will continue to strive for leadership in healthy and steady development of insurance industry. We will press ahead with high-quality development, seek progress while ensuring stable fundamentals, deepen the 3 key strategies i.e., health care, elderly care and business development in key regions, well, so as to ensure prevention of major risks to enhance resilience for sustainable development. Well, thank you.

Thank you, Mr. Zhao for your presentation. Now we will enter the Q&A session. Now first, we will first ask any questions from the Shanghai and Guangzhou side. And also, if you have any questions online, you can also prepare them. [Operator Instructions] Well, first of all, a question from the Shanghai side.

A question from the Shanghai Securities newspaper. While you see the industry is in a period of transition. But what is your view on your future high-quality growth strategy?

Thank you. You see, we're undergoing a lot of changes. And the industry is also facing a lot of changes in environment. You see the international environment is quite complicated, and we see a very slow momentum for global economic growth. However, we do see opportunities brought by the green revolution, the AI revolution, et cetera. Internally, we do have a slow or low demand internally, and we have weak expectations. But we also see good news from these high-level events, for example, the China development high-level forum, et cetera. For this year, 2024, the Chinese economy is expected to grow by 5%, and we are going to open more to the outside world. I believe all these will inject new energy to China's economy growth. Based on that, we are going to seize the opportunities for high-quality growth. But of course, we have better understanding based on the experience in the past few years. First of all, high-quality growth should serve the national strategy, should serve the real economy because the Chinese people have a very high expectation for a high-quality lifestyle. So we need to enhance our provision of services and insurance products. So we need to serve people's requirements and needs. We also need to serve the national strategy. It's part of our responsibility, which does actually serve as an economic stabilizer and the shock absorber. Secondly, I believe high-quality growth should focus on quality. We should put quality first because customer demand is changing. So we cannot rely on this kind of extensive growth model with high input, high cost and high consumption. We should focus on quality and efficiency. Try to strike a balance between quality and volume. We should focus on refined, sophisticated management, focus more on innovation and the transformation and reform. Thirdly, high-quality growth should be based on consolidation of our market position. We should balance the growth of in-force business and the new business. We should maintain our fundamentals. We should focus on stability while focusing on transformation. And I believe high-quality growth should also focus a lot on risk management. We are a risk manager as an insurer. So we should serve the customers, but also country and the society on the large. We ourselves could not create risks, we should manage risks. We should be forward-looking, focus on the 3 lines of defense and also strike a balance between innovation and compliance. And lastly, I believe high-quality growth should be sustainable. Now sustainable means that we should have the right strategy. We should have the right resilience. Given this kind of changing internal and external environment, which remains more advent, resolute about our strategy, focus on dynamism and innovation. We should strike a balance and create a win-win with society, shareholder, customer, employees, et cetera. 2024 is a key year for our 14th 5-year plan. We focus on health, business, the big regional growth and also big data strategy. We maintained a steady growth of performance. We are seeing more consolidated market positions. Going forward, we will deepen these strategies. For the health-related business, we are going to become more distinctive to develop our own competitive strengths so as to better empower our insurance business. In terms of our strategy for key regions, we should increase our efforts in terms of customer development, product R&D and resource mobilization so as to enhance our competitiveness. In terms of big data strategy, we should also enhance our efficiency to serve the frontline, to release the value of data. The new Board will continue with our focus on long-term-ism on value proposition, on our professional diversified development. We will try to sit upon China's national strategy on financial industry to enhance our capabilities. And on the other hand, we need to focus on managing the key major risks to reinforce our development fundamentals. We have been in the business for a long time with a lot of professional people and resources working for us. We believe with transformation, we will generate new achievements for the customer, for shareholder, for the society and all relevant stakeholders.

Thank you, Mr. Fu for your answer. Now let's turn our attention to the Shanghai side for more questions.

I'm [ Martin Cheng ] from CICC. My first question, is more like a follow-up question on the previous question. You see, the CPIC Life's Changhang Transformation plan, we see, you achieved a lot of good results from the Changhang action plan. But we do see some changes in the group top management. Does it mean the Changhang Transformation will also change accordingly? And the second question for P&C company. First of all, congratulations, you did quite a good job in last year. And what about 2024? What's your plan? What's your target? What's your strategy? And what about the [ slid ] in Q1, any big impact from that? And also about the new trends of reducing new energy car auto premiums? Is there any impact from that?

Now first of all, for the Life question, Well, actually, you see the Changhang Transformation started from 2022. Now this is the third year of the Changhang Transformation. I believe the transformation is producing results. Now the Changhang Transformation, what we call Phase 1 now focused mainly on the new business model, what I call new is not only brand new, but also focusing on the people -- in Chinese [ Shimmies ] means hot and also new. So it's not only new but also people focused. Well, secondly, you focused on the bank channel. And lastly is upgrading to focusing on the golden triangle of health, wealth management and retirement care. Now we see NBV started to pick up in the second half of 2022 and then maintain quite fast growth onwards. And in terms of our core agents, they, well, increased in terms of income and also productivity. And also, our quality of business increased quite a lot in terms of claims, et cetera. In terms of OPAT, it maintained a steady at high levels. And in terms of our evaluation assessment rating from the regulators, we are also industry-leading in 2023 in the second half of that year, we actually launched well, actually, a big organizational adjustment or restructure. We made a lot of streamlining, made a lot of adjustment. So we see a much more improved efficiency for organizations. And we also launched the Changhang Transformation Phase 2. Now in Phase 2, you will be more customer focused. Now the second phase, mainly focused on 3 key areas. First of all, we will focus on developing diversified channel. We need to build a new engine for business. For the agency channel, we will focus more on the team development, on improving the quality, the capability of people and for bancassurance and for the group business, they will also focus more on value growth. Secondly, it's about the customer, the mid-office for customer business, big customer development. So we need to actually integrate both the customer and our services so that we can better serve their needs. And lastly, it's about the value management. We need to further boost the efficiency and dynamism of our organization. We need to become more market oriented. We need to focus more on the long term and put people first, so as to better develop our people. And I believe doing all that, we will better motivate all the -- all our [ SSCs ] or our outlets at all levels. So that all our outlets, all our high performers will be -- well, we will be on the same page as to what to do. I believe all that is going smoothly and we are getting more consensus from the front line. And by the way, I have been with CPIC for more than 30 years. My personal impression is that for those many years, we have a very good transition. We have a very stable strategy for our business growth. And also for the company as a whole, the Changhang Transformation, I believe, is well received. We are on the same page about the transformation. We believe we'll continue with the transformation. We will be more resolute on transformation. We will actually be more focused, be more pragmatic, be more practical. So I believe we will see better results going forward.

Thank you for the question. Now for the question on the P&C side. Now, before we look on the 2024 picture, we should look back on 2023. I have seen the last few years, P&C company continues to pursue a strategy for growth. First of all, we look at the market conditions and the market changes so as to adjust our own strategy. For example, 9 years ago, we started to develop agricultural insurance. At that time, we only have a 6% or 7% market share at less than RMB 1 billion premium. But in the last 9 years, we see very fast and stable growth of agricultural business. Take last year, for example, our agriculture insurance grew by more than 28%, which is 11 percentage points higher than the industry average. Last year, our premium for agriculture insurance is RMB 17.7 billion. So you see, that is a very good example of our strategy positioning and also on the liability insurance business, also grew fast for many years in a row. For example, for 2023, the growth was more than 30%. Total volume was close to RMB 20 billion. Now #2 for our P&C business. Agriculture business, agriculture insurance was #3. So we need to maintain long-term growth for these insurance businesses. And secondly, given the occurrence of natural disasters, we also developed a system to prevent, reduce these disasters. But as a general public, well, we will feel there's a lot of disasters. For example, last year, in July last year, where we see a lot of typhoon. And in August, we see a lot of a rainstorm. And then in September, we had another typhoon in Fujian Province. And also, we have some earthquakes. For last year, catastrophe loss after reinsurance accounted more than 2% of our earned premiums previously, the share is less than 1.5%. So as you just mentioned, the slid in January, actually caused a lot of damages, a lot of losses above RMB 500 million in just 10 days. So well, you see bad news, really bad news. So given this kind of a high occurrence of disasters, we paid a lot of attention to disaster prevention and disaster alert system. As Mr. Zhao mentioned, we have a system to both prevent and also reduce disasters, reduce the losses caused by disasters. And by all doing that, we also put ourselves in a better position with our customers, and we increase the experience of our customers. And thirdly, we also improved our system to serve the customers. You see -- given the bigger size of our business, it's harder to serve the customer, where we need to serve our customers with good quality service and also expand our business. So this is a high order. So we need to have a good system to support that. We actually spent a lot of energy on that. We utilized the digitalization to leverage tools. We actually employed or deployed a robot technology to do that. So we use a lot of robots to actually do this kind of hard work, dirty work. And robots also have advantages over human that they actually -- they are error free, they will not get tired. They don't need the lights to operate. They can operate in the darkness, et cetera. I mean by using robot technology, I believe, on average, they actually replaced around 600 to 800 of our people so that saves a lot of manpower. So we are now operating at a higher efficiency, at a better quality, and even at lower costs. So this supports our high-quality growth. And fourthly, we also focus on quality control. Now because customers, they are having diversified needs. And we are having more diversified customers. So we need to have different products, various products to serve different people. As you know, sometimes, insurance companies have low efficiency because they have too many products to maintain and too many customers to serve. So that is why we are doing this kind of integrated sales system. We offer them a kind of integrated solution. I can give you some numbers on that. For example, persistency ratio. 5 years ago, our persistency ratio is less than 50%. Last year, it was more than 75%, especially for our more high-quality customer, their persistency ratio was 77%, really high. And also in terms of serving our individual auto customers, we also used our digital system to generate productivity growth. And in terms of cross-selling between auto and non-auto insurance in 2023, cross-selling grew by 40%. Last year, cross-selling amounted to more than RMB 15 billion. Now this not only brings more premium to CPIC, but also better serve our customers. And of course, we also remain compliance-minded. So we will never waver in terms of compliance. For example, we have a system called the [indiscernible] eye system. That is to say that system can automatically check against the fraud, et cetera. So with the [indiscernible] system, actually it will identify the fraud cases, exceeding RMB 80 million in volume. Well, that's my answers to your question. Not for myself, last year, CPIC P&C has delivered more by solid performance, meeting our expectations. And it also means that transformation is fruit -- is producing results over the last few years. Before 2018, CPIC P&C lags behind our main peers, but starting from 2018, CPIC P&C, well, started to improve. Starting from 2018 to this year, we not only lead the industry but also performed better than our main peers. In 2023, we actually grew 4% faster than the industry. And more than 5% faster than our major peers. Take combined ratio as an example, in 2018, we started to lead the industry in terms of combined ratio starting from 2018. Last year, in terms of combined ratio, our combined ratio was 2 percentage points better than the industry. In 2021, 2020 and starting from 2022, our growth is 1.3 percentage points better than our major peers. Now all this shows that our transformation is on the right track. It is a correct decision, but it needs time, it needs persistency. Now in terms of forecast for 2024, no, I don't want to comment on the general economy. But I would say 2024 is a year with a lot of complexity and uncertainty for P&C business. The overall demand is going down. And the risk exposure is expanding. So that is to say we need to have a more urgent sense of a crisis or emergency. And also, we see there's upgrading of industry, consumption upgrading and also there is the green revolution. All these will bring opportunities. So we need to be more agile, more sensitive. But of course, we need to pay more attention to the occurrence of catastrophes and natural disasters. So if you want my forecast for 2024, well, I can't give you an answer, but I just want to add my personal guess, I would say, we need to be prepared for any opportunities. And secondly, if you can stick to the end, you will probably -- you will not end up too badly. Now your second part of the question is about the new energy vehicle, new energy car. Actually, 3 years ago, we have made a judgment call saying that new energy car will become the same in the future. It will become very popular. 3 years ago, we actually -- we started a project on the new energy vehicle NEV. We believe we will grow very fast, at least in China. We will bring a new business model. So thanks to the efforts in the last 3 years. We started to see some results in 2022 from some of our projects. We believe the new business model for NEV is focused on sales side and the service side. You see new energy car, new energy vehicle is costly. It's popular. It's a smart intelligent car. And the structure of the car -- of the new energy vehicle is different from traditional vehicle. And the driving habits is also somehow different from traditional cars. So well, in China, a lot of the new energy vehicles were used as taxis. So in terms of claims payout for NEV, I mean the incident rate is double that of traditional car. But CPIC P&C is a leader in the market, we should be prepared and embrace the challenges of NEV. Now so far, I would say we have already achieved some initial results. The growth is very fast for NEV. Last year, it grew by 50%. And the share of NEV in CPIC is around 1 to 2 percentage points higher than the peers than the industry. Now of course, now NEV business is still loss-making, but starting from last year, the loss is -- well, is diminishing. So we have high expectations for the NEV business. We are seeing some ray of hope. And also as far as we know, the regulators in China, they are going to formulating -- they're going to formulate some new rules to support the growth of NEVs in China. So as a giant P&C company, we should, well, take the first-mover advantage, so as to serve the overall growth of the industry.

Well, thank you very much for the detailed answer. Now let's move on to the next question.

I'm Qi Xin from Guotai Junan Securities. I have the questions. Number one, about the new management and the product side, for example, the incremental whole life products. In terms of liability, what is the cost of your liability for new business and in-force business and how can you guard against the spread risk? Second question, given the downward trend of interest rate, so how about -- what is your SAA? Any changes there? And what about your -- the gap -- duration gap between assets and liabilities?

Now I will first answer your question. Now, we saw a lot of whole -- incremental whole life. The liability cost increased very slightly. Maybe just a few bps. Now with the market changes in terms of interest rate going down, so the overall cost is going down. Secondly, in terms of new business selection, looking at the Chinese market, in the new year, now customers have more requirements or new requirements for products. We will, first of all, reduce our pricing rates and enhance the variable parts in our products. And thirdly, we will increase the share of our protection part so that it will become less sensitive to interest rate and what's more, we are having new rules, regulatory rules on commissions. We believe these new rules will help us manage -- better manage our costs. So with downward interest rate in China, we believe the whole industry is having the same problem. They will have a lower reduced dividend payout ratio, rates -- dividend payout rates, so as to cope with spread risk.

Now let me answer your question on the asset side. You're right. Given this, kind of a very complex environment, especially given the downward trend of our interest rates in China, I believe, well, the insurance industry is facing a lot of challenges and pressures. If you take the issue, I mean, if you look at it only in a silo perspective, if you isolate the issue, you only see a challenge. But if you look at -- put it into perspective, you will see more opportunities. For example, in terms of matching liability with assets, well, how can you make it more sustainable for the long term? Now CPIC, our SAA and asset liability matching, Well, on both fronts, on both sides, we focus on the dumb-bell model. And we we're not saying that we want a dumb-bell model with sophisticated TAA. What do I mean by that? That is to say, first of all, we need to become more professional every step of the way. For example, you know for insurance investment, we should start with liability. And then we should have SAA. And then we should have our yearly allocation and then we can have the TAA. And then we do mandates, investment mandates and then do day-to-day management. So this is a really very long chain of management. How can we better manage our investment so that at the group, the investment managers, asset managers can both win, can create synergy. No, I believe it depends on the efforts, the professionalism of everyone along that chain of investment. Secondly in terms of SAA, we should make it more sophisticated so that it will become more targeted, we will have more targeted investment measures. For example, fixed income SAA last year in the past, we tried to improve our allocation into long-term bond -- super long-term bonds. We do that in order to prolong our asset duration. At the same time, we are reducing the share of our credit products. And by that, we actually avoided some of the credit risk events on the market. And we also just go to the ABS qualification so that we can explore new ways to allocating innovative fixed assets, fixed income asset products. And for our dividend payout, now even given the new accounting standards, we are trying to invest in high dividend payout stocks, so that our portfolio as a whole will produce more stable return. So actually, we've got a lot of dividend payout from this kind of high paying stocks. I mean, it grew by more than 40%. So that is why our net investment yield maintained quite stable or more stable compared to peers. Now we are trying to improving -- trying to improve our asset -- our investment in equity and also enhancing management post investment. But of course, Chinese insurers need to make more exploration. We need more diversified investment. For example, global asset allocation. And also, we will bring ESG into our investment process. And also the investment process need to be managed in a sophisticated way. Now you see our investment process is a year-long process, for example, setting up the targets and then break it down and then supervision of major investment projects. Each week, we will conduct a meeting on market research. Each quarter, we will have a meeting between internal and external experts. So as to review our investment strategy, and we will conduct ad hoc seminars on specific themes. So we believe these will help to improve the stability of our yields. But of course, all that well, we need to ask ourselves how to better manage assets and the liabilities. It's not only interest rate spread risk. We need to also care about the duration gap and the matching between input and output, income and the cost. In the last 5 years, our share of T-bonds improved about 20 percentage points, more than doubled. But I would say our SAA is forward-looking. And the share of our high dividend paying stocks is also quite reasonable. We also have a category for the high dividend paying stocks. As long as we stick with long-term value prudent investment and responsible investment, we believe we can achieve SAA that is countercyclical.

Well, thank you. Thank you for the answers. We talked about the asset liability and also we talked about our strategy, investment strategy. What is a sophisticated investment system. Now let's move on to the Guangzhou side.

I'm [indiscernible] from Haitong Securities. Now I have 2 questions. Last year, you delivered solid performance better than peers. Now for 2024, what's your take for this year? How can you serve or continue with your high-quality growth? Can you give me more details? Second question is about the dividend payout policy. Now OPAT, I mean, it's going down. So -- but your dividend payout is stable. So my question is that what's your guidance on that? How are you going to link your dividend payout to OPAT?

Now first question, 2024, that is a very critical year for the 14th 5-year plan. We're going to stick with our CPIC way of high-quality growth. Now, Mr. Fu have given you a lot of details on high-quality growth. I will focus on the specific businesses. I would say, first of all, in terms of our insurance business, we should stick to the fundamentals of our insurance business. Now as we mentioned, we should focus on value proposition, to focus on the Changhang Transformation, to have differentiated customer development, to focus on wealth management, retirement and health business development also to enhance our efforts in terms of recruitment and the core agent training. For bank channel, we should continue to focus on the value and volume. For P&C business, we should focus on quality and for auto business, we should focus on acquiring new customers and retain high-quality customers. For non-auto business, we should focus on the quality improvement of health insurance, liability insurance. Also, we need to enhance our capability in terms of risk identification in new areas to enhance capability to reduce risks. And on the asset liabilities -- asset management side, we will continue with our prudent investment strategy to enhance research on macro and market trends and continue to develop our SAA and strategies that is countercyclical. Secondly, we need to focus on the strategic opportunities and focus on innovation. As we mentioned, we will focus on health-related business. Now for health business, we will use health-related services to empower our insurance business. We need to also improve our provision of products and enhance the growth of our health business, and also improve the services of health-related business and also better utilize the value of our health-related data. In terms of the key regions development, which better empower the front lines, focusing on the key regions, especially the mid- and high-end customers in those regions. We should focus on the synergy of Life and P&C business to enhance cross-selling. In terms of big data, we should increase our efficiency to better develop our ecosystem to empower our insurance business and accelerate the application of AI technology and better enhance data management capability so as to enhance efficiency and reduce costs. Lastly, in terms of corporate governance, we should continue to enhance our efficiency, improve our governance so that we will have a better execution across the group, and we should also improve our capital management mechanism. And also, we should focus on external capital replenishment mechanism and internal capital accumulation and also in terms of risk management, we should develop a long-term mechanism to respond to risks and manage risks. We should remain committed to our aspiration so as to develop CPIC into a world-class financial services group. We should continue to enhance our comprehensive capability so as to better serve the real economy and the society and also our customers.

Okay. For your second question, you mentioned -- Mr. Zhao actually mentioned we will actually take OPAT as a reference. In the next 2 years, we believe OPAT will grow slightly. We pay a lot of attention to return to the customers. And actually, our accumulated dividend -- cash dividend payout is RMB 108 billion. And since the adoption of Solvency II, we slightly reduced our dividend payout. And in the last 2 years, we maintained a steady level of dividend payout. We believe this will not affect our business fundamentals. We will continue to maintain the consistency and stability of our dividend payout. .

Thank you. More questions from Guangzhou.

I'm [indiscernible] Securities. Two questions from me. First of all, on the health business. Now what's your comment on that? And also how is that relate to your business -- insurance business. Second question about the new accounting standards. Now NBV on Page 6. We believe -- in regards to the net profit, but OPAT it was actually down -- was adjusted downwards. So in terms of regression, what's the reason behind that?

Well, thank you for your interest in the health business, you see for the health business strategy. Well, we say that we will use 1 year to lay the foundation and see some results in 3 years. So we have actually released the blueprint of health business of CPIC. Now the health business actually will empower or support our insurance business. We have a lot of data, for example, if you look at the numbers, you say that if we do a good job at services, you will have better business numbers. For example, 2 years ago, only 1 million of our customers use our health services. Now it's more than 7 million. So that grows a lot. I mean, faster growth. And we also see that advance to use our services, they will become healthier. And we can, on our side, have more business. Now if you look at the numbers closer, you can see those who used our services generally, the premium of those who used our services doubled that of -- that double those who doesn't -- haven't used our services. And 10x of customers who used our services, health services were likely to buy more insurance from us and our health services also helped our agents to acquire more business. We have a selected network of direct debit medical providers. Now it grew very fast in the last few years. Now these provider networks will better serve customers service, customer needs. And the P&C also benefit from this. You see the increase in the premium size of this segment was considerable. And secondly, we also see from these numbers. We see new features of our customer needs. For example, we will get more ideas, more insights. As I mentioned, more than 7 million people use our health services. Most of that is health consultation mainly from the CPIC online doctor. We have this kind of an online system to give medical advice or consultation to our customers. It's like a CPIC family doctor to our customer. And secondly, this kind of expensive medicine and also orderly nursing care in hospitals. Now these are also a key area. Now you see given COVID and also more pressure from work. So I mean a lot of people have these needs in terms of nursing care using expensive medicine. And thirdly is the health checkup and early vetting. Now this is also a key area of growth because China is becoming mid -- is a middle-income country. So now Chinese people will pay more attention to disease prevention and early vetting, early screening. So we believe in the future, there will be a lot of potential growth. But of course, we have 178 million customers, only 7 million of them are using our health services. So the potential is huge. We're going to focus on online doctor, off-line nursing care, juvenile health and the high-quality medical resources to develop our products so as to empower the business by service. Now your second question.

Now we adopt the new accounting standards. And there is a regression plan for 2020. We regress to I-17, but not I-9. So last year's number is not comparable to this year's number. And OPAT, I mean there's a lot of difference between I-2 and I-17. And this year, we lowered our economic assumption. So OPAT, we're using OPAT to look at the underwriting business of our company. So now this comparison is meaningful.

Well, thank you. Now let's move on to the Shanghai side.

[indiscernible] in terms of digital application, and you have established a CPIC technology company. Now any new progress there? And what are to be expected?

Thank you. In 2023, we did a research on how technology can empower business and we did a survey, did a lot of research. We evaluated the priorities. For example, we developed a fast claim system for the health business so that we can pay out claims in a matter of minutes. And we also have a system to develop or further develop, redevelop our customers. And we also have a system to identify this kind of fraud from auto insurance and the life insurance. Actually were identified up to RMB 50 million worth of fraud. And we also have a system to identify high-risk subjects up to 180 days in advance. And also for P&C side, we used a lot of digital technologies to enhance efficiency. We also developed a system for the bank channel so that they have a better and there's more smooth collaboration with the partner banks. And also we actually now have already developed a big model, big language model for the company. Now this is the basic big model. Now through fine-tuning, we have developed the CPIC insurance big model. Now this big model has actually passed professional tests for the industry. And we also build this kind of AI stuff, especially for the audit -- internal audit department. They have developed a AI employee, for example, by using this kind of an AI employee, they enhanced their productivity by 10%, I mean for the internal audit department. We believe technology will empower business. It will help to not only -- I mean, not only add on to the business, but also multiply the business. So it is to say we need to use technology to enhance efficiency. Last year, we have set up a fund for investment for innovation. I hope to use it to inspire front line. We also set up a FTBP team to the frontline business departments to acquire these requirements. We also set up a data management department with -- interfacing with coordinators from all other departments so that we can better improve the quality of our data management. And we also have a lot of support from the management of other subsidiaries. We hope that there is better coordination between technology and business. We hope that we can improve efficiency, reduce costs, improve customer experience and enhance research by multiplying I mean that we try to integrate technology with business and also in terms of auto driving, also use technology to reduce risks and also better manage risk using technology. And lastly, I would say something about the big model. We'll continue to improve it, enhance its capability and also make it more applicable to more business scenarios. Apart from internal audit, in terms of claims, IT development, we'd like to better utilize the AI employee, make it become a super employee so that within the next 5 years, our productivity can grow by 100%.

The ITP 3-year plan is ongoing, including the big model, we will choose a good time to share with you further. We have more questions from the telephone line.

[Operator Instructions] We have one from Zhou Cheng from UBS.

I'm from UBS, Zhou Cheng. I have two questions. Number one, A question on the -- well, the management team, obviously, CPIC Life. Second question, new business NBV margin. Now actually, the new contract serving margin is lower than NBV margin. But it's exactly the opposite in CPIC. Why? What's your take on this in the future?

Now let me answer your first question about the management team of CPIC Life. Now you can see last 3 years, Changhang Transformation is producing results. And in terms of management, we have a lot of consensus on the direction of transformation. Going forward, we will not change in the direction of transformation. We will become more practical. We believe the transformation will be a long-term thing. As we say to the media, CPIC Life is the first to promote long-term rhythm. We are a friend of the time. Now in terms of people, I mean, management, people management, we adopt a market mechanism. We believe the overall management team will be stable. If I have more information I will share with you.

Now, if I may, as I mentioned, CPIC Life is a key driver -- the biggest driver of value for the group. So from the group perspective, CPIC Life management team, I mean, we see a lot of good results from transformation -- Changhang Transformation from CPIC Life, at least the industry. In terms of business growth and also diversify the channel development. So I mean, meet the expectation and requirement of the CPIC Group Board. So I understand that you want to ask whether Mr. CAI Qiang will continue to serve as serve for CPIC Life. I mean in April 2021, we hired Mr. CAI Qiang as a CEO of CPIC Life. Well, it's a market of operation. Mr. Cai integrated into the CPIC culture, brought a lot of good ideas and expertise to CPIC Life, and made a positive contribution to Changhang Transformation. With the new -- for the new management team of CPIC Life, we will continue with market mechanism. I will share any new information on that with you. CSM 0 and NBV margin are related. VNB usually speaking, is about the capital cost, but discount rate is higher than the CSM 0 but this year, we adjusted our economic cost. CSM 0 is not so sensitive to the economic assumption adjustment. So we do not -- if we do not consider the adjustment, VNB increased by 30% and the CSM 0 is pretty much the same. Secondly, about product structure change. VNB margin growth before -- just before adjusting the assumption is around 30%. So it's pretty much the same as the 31% of CSM 0. So that is to say if there is no adjustment then VNB margin should grow the same as CSM 0.

Well, we have time for one last question. [indiscernible] from Morgan Stanley.

I have two questions. Number one, for Life. About the new rules on commissions, especially for agency channel, what will be the impact? Secondly, your core solvency ratio is quite stable from Q3 and Q4 last year. Now what about the future? How are you going to maintain the solvency ratio because you expect it will further decline to just above 100%.

Now first question, rules on commissions. Now I believe these are -- is a very popular topic. No, I mean these new rules is what the regulators is doing to improve the high-quality growth of the whole industry. So by doing that, the regulator hopes that the industry can become countercyclical. The Life business is very complicated. I believe it is the most complex business in the financial industry. In the past few years, we do see some kind of a reckless growth in China. So I believe that is why the regulators would have these new rules on commission rates reported by insurance companies to the regulators. So the regulators want the industry to have long-term stable growth, sustainable growth. So we actually welcome these new rules on commissions. We embrace these new regulations. Actually -- I mean, it aligns with what we were doing in the past few years. What we have been doing with our agency channel, I mean, for example, they are differentiated, differentiated the selling. All these are in the same direction as what we have been doing in CPIC Life. And the CPIC Group is comprehensive insurance company. We can leverage the synergy between Life and P&C and other business lines. We also have well, for example, resources in terms of health services capability, annuity, retirement capability, so we can serve our customer with integrated solution. So all these means that CPIC Life is in a good position to cope with new rules on commissions. Our transformation is in the direction of the regulators. We will further enhance efforts to build our team to improve the quality of the team. Secondly, in terms of solvency ratio last year given C-ROSS II, we issued capital supplementary debt Phase 1. And this year, we're going to release Phase 2. And we continue to monitor the changes of our solvency ratio and continue to talk to regulators. We believe it will be maintained at a healthy level.

Thank you, the management for your answers. And we also received some questions during the meeting, and now they are on the -- our dividend payout policy and also Changhang Transformation and also growth of the P&C business and also our SAA. And also I believe we have already covered some of those questions. Well, if you have unanswered questions, you can contact our Investor Relations team after the meeting. On the 8th of April, we are going to have a separate session on the new accounting standards. Now thank you for your attention for CPIC, especially well, the investors from -- the analysts from Hong Kong because it's a public holiday in Hong Kong. Thank you all for your attention. Goodbye.