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

Good afternoon, ladies and gentlemen. Welcome to CPIC 2025 Interim Results Announcement. I'm Su Shaojun, Board Secretary of CPIC Group. My great pleasure to be here to share with our CPIC 2025 half year results and also listen to your suggestion about the company's development. We adhered to the government requirements to conduct this results announcement both online and offline. And also investors can watch the playback of this event on our official website. Now first of all, let me introduce the executives for this event. We have Mr. Zhao Yonggang, CPIC Group President; Mr. Yu Bin, CPIC Vice President; and Mr. Ma Xin, Vice President of CPIC Group; and Mr. Su Gang, Vice President, Chief Investment Officer, Chief Financial Officer of CPIC Group; and Mr. Zhang Yuanhan, Chief Actuary of CPIC Group. And our Independent Directors will attend this event online and offline. And some of our senior managers are also attending the event online and offline. First of all, I'll give the floor to Mr. Zhao, President of CPIC Group, to be followed by a Q&A session. Thank you.

Well, good afternoon, ladies and gentlemen. It's my great pleasure to be here to share some information with you. You see in 2025, we see a lot of uncertainty in China and the world. Despite all these kind of risks and uncertainties, China's economy held up well with new quality productive forces gaining momentum. We see a lot of resilience and the dynamism in China. So in the whole, the Chinese economy is still going well. And the insurance industry is also facing a lot of strategic opportunities. Insurance is serving as a cushion of economic shocks and social stabilizers. We have a lot of market potential. From the regulator's perspective, supervision is focused on quality and profitability. I believe this is going to help long-term healthy development for especially those kind of big players. As a leading insurance group in China, CPIC pursue high-quality development to uphold the value and profitability. We see steady growth in our business results and the consolidation of market standing. We have made increased contribution to China's socioeconomic development and people's well-being. If we look at our results in the first half of this year, the group operating income amounted to CNY 200.5 billion, up 3%. Our group OPAT was CNY 19.9 billion, up 7.1%; and our net profit was 27.9%, up 11%. Our EV was CNY 588 billion, up 4.7%. Our AUM reached CNY 3.8 trillion, up 6.5%. Under C-ROSS II, our comprehensive solvency margin was 264% and core solvency margin was 190%. And our subsidiaries' solvency margin are above regulatory levels and higher than levels last year. Going forward, we will maintain reasonable level of capital cushion to withstand systematic risks in view of regulatory requirements and the need for business development. Under the new accounting standards, net profit is more sensitive to capital market volatility. So OPAT is a more useful measure for underlying business performance. Excluding short-term investment volatility and adjustment of material one-off factors, group OPAT was CNY 19.9 billion, up 7.1%. And of this, CPIC Life recorded CNY 15 billion, up 5%. To improve stability, sustainability and the predictability of shareholder dividend, our 2024 ASG meeting approved the proposal on distribution policy and marked an official announcement of our dividend policy. The policy links the dividend to OPAT while considering positive contribution from investment and solvency. We have completed the cash payment of DPS CNY 1.08 for fiscal year 2024, up 5.9% and higher than the growth of APAT of last year. Going forward, we will stay committed to stable, prudent business operation so that our shareholders can continue to share in the growth of the company. Our EV maintained steady growth, up by 4.7% from the end of last year. In terms of composition, the in-force business value was CNY 223.4 billion, up 4.9% year-on-year. And our adjusted net worth amounted to CNY 365.5 billion, up 4.6% from the end of last year. In terms of driver of EV movement, positive contribution mainly come from expected return on EV, NBV and operating experience variance. In the first half of this year, we strive to fulfill our responsibility in terms of the 5 financial priorities. In terms of the technology insurance, we served 75,000 enterprises through the [indiscernible] and realized a premium of CNY 5.2 billion. And we strengthened funding support for strategic emerging sectors and new quality protective forces. Our investment in technology sector reached CNY 119.7 billion. In green insurance, we achieved the fast growth of green insurance and covered 5.3 million in new energy vehicles. And our green investment balance was CNY 280 billion. In terms of inclusive insurance, we launched the coverage for terminal illness, long-term care and the [indiscernible] programs across 240 cities in China. And we also provided CNY 442 billion in agriculture insurance protection and covered more than 2,700 transactions in domestic and foreign trade by small and micro enterprises. Our CPIC Home have opened 10 such communities in 9 cities. And we also have more than 220 brick-and-mortar experience centers for longevity retreat. In terms of digital finance, we have rolled out digital labor, accelerate development of the scenario for AI application and also multiple AI-enabled solutions in CRM empowerment, operation efficiency and risk management. Well, next, let's turn our attention to our core business. In terms of life insurance, we pressed ahead with Changhong [indiscernible], speed up channel diversification, rolled out customer segmentation and improved our product mix. We see faster growth of NBV. Of this, our written premium reached CNY 193.5 billion, up 13.1%. And of this, written premium from new policies grew by 28.7%. Of this, regular premium rose 42.5% and NBV grew by 32% and NBV margin improved by 0.4 pts. In terms of customer mix and business quality, we also see improvement. The share of mid-tier customers and above increased by 3.8 percentage points year-on-year for the agency channel. The number of high net worth customers from bank channel grew by 75% and the ultra-high net worth customer by 85%. 13 months persistency ratio reached 96.6% and the 25 months ratio rose by 2.8 pts to 94.5%. For agency channel, we improved the distribution of agents, stepped up capacity building and digital empowerment, continue to diversify products and service offering to meet customer needs. We focused on key regions and accelerated high-quality recruitment, enhanced basic management and agent training. In the first half of this year, total premium was CNY 137 billion, up 0.9%. And the share of variable products rose gradually and the par business accounted for 51% of regular premium products. Total headcount stabilized and began to recover. Our total headcount of agents was 186,000 in the first half of this year, up by 1.6% and the new recruits was 39,000, up by almost 20%. And the FYP per core agent reached 73,000, up by 12%. We persisted in value-oriented bancassurance to improve product offering and step up channel development, cement partnership with joint stock banks, especially SOE banks and focused on improving productivity, building professionalism of sales team and high-quality team building. During the reporting period, bank channel realized CNY 41.7 billion in premiums, up by 82%. Of this, regular premium from new policy reached CNY 8.8 billion, up by 58%. NBV from channel totaled CNY 3.6 billion, up 156%. A total of 13 bank outlets reported sales of regular premium business. And on monthly basis, the number grew by -- 70% of this SOE bank outlets grew by 164%. For P&C business, we see high-quality development, we put profitability first and achieved continued optimization of business mix. Our premium income was CNY 112.8 billion, up by 0.9%. Of this, auto insurance was CNY 53.6 billion, up by 2.8% and non-auto, CNY 59.8 billion, down by 0.8%. Our combined ratio stood at 96.3%, down by 0.8 pts year-on-year. Of this, [Audio Gap] loss ratio stood at 69.5%, down by 0.1 pts. Expense ratio was 26.8%, down by 0.7 pts. Underwriting profit amounted to CNY 3.55 billion, up by 30.9%. For auto insurance, we maintained steady development. We strengthened the development of channels and adopted precise management of business quality. In the first half, the combined ratio of auto insurance was 95.3%, down by 1.8 pts. We continue to deepen presence in NEV business with premiums amounting to CNY 10.6 billion, accounting for 19.8% of total auto premiums, up by 5.7 pts year-on-year. For non-auto business, we step up efforts to optimize business mix, advance the risk reduction system, and we see continued improvement in profitability in the first half of this year. Combined ratio was 97.6%. Excluding the impact of personal credit and guarantee insurance, the ratio was 94.8%, down by 2.3% year-on-year. For our main business lines, health insurance achieved a turnaround in profitability and the commercial property gained further improvement in underwriting profitability. Agriculture insurance, liability insurance and commercial property insurance maintained steady growth. For asset management, we explored a new approach toward ALM. They developed a new method known as net investment income plus. We consider multiple factors and established a unified platform and tools to optimize coordination of assets and liabilities. We enhanced ALM system across market cycles and saw steady increase in group AUM. By the end of the first half of this year, AUM totaled CNY 3.8 trillion, rose by 6.5% from the end of last year. SAA remained stable. In terms of investment portfolio, the share of debt accounted for 75%, down by 0.9 pts. The share of equity assets was 14.8%, up by 0.3%. And of this, stocks and equity funds accounted for 11.8%, up by 0.6 pts. Based on our outlook of macroeconomic trends, we followed the down bell-shaped asset allocation strategy, continue to allocate into long-term T-bonds and also explored opportunity for alternative assets. We conducted disciplined and flexible TAA under the guidance of SAA, responded to the dual challenge of equity market volatility and the decline of interest rates. Our net investment yield was 1.7%, down by 0.1 pts. That's mainly because of decline of market interest rates. Total investment yield was 2.3% and comprehensive yield 2.4%, down by 0.4 and 0.6 pts, respectively. And that's mainly because of the reduced gains from fair value movement of fixed income assets through profit and loss. We set great store by credit risk management and proactively extended duration of fixed income assets to lower reinvestment risk. The share of our bond security investments was 60.5%, up by 2.4%. Of this treasury bond, local government bonds and financial bonds issued by government-sponsored banks made up 47.4% of total investment assets. And the duration of those was 12 years, which extended by 0.6 years. And the underlying projects of our nonpublic financing instruments spread across sectors like infrastructure, communication, nonbank financial, real estate, et cetera, with a nominal yield of 4.1% and an average duration of 8.4 years. Looking ahead, in the face of opportunities for Chinese insurance industry, we will pursue reform in an all-around way and continue to strengthen our value-creating capabilities and advance the 3 key strategies of health, elderly care, internationalization and AI+, and continue to transform ourselves into a top-notch insurance and financial services group with market leadership and global competitiveness. Well, that ends my presentation. Thank you.

Well, thank you, Mr. Zhao. Now let's start the Q&A session. First of all, online questions -- first offline questions for those on site. [Operator Instructions] Well, anyone?

I'm from China Business News. I have two questions for Mr. Zhao. First of all, how do you comment on your performance for the first half of this year? And the second question, you see in terms of the whole industry, there's a lot of new policy, for example, raise filing integrity and also dynamic pricing rate, et cetera. So a lot of new policies, new regulations. On the macro side, China's economy is stabilizing. So what do you think of the big opportunities or the macro economy or macro environment?

Well, thank you for your question. Now you see the first half of this year, you see China's economy saw stable growth. We see improvement in terms of the income and China's domestic demand, et cetera. And for the insurance industry, we also see a lot of new regulation focusing on risk prevention, high-quality growth, et cetera, as you just mentioned. For example, as you mentioned, rules on dynamic pricing rate, risk filing and also on the agency reform and also suitability of the products. Now all these new regulations aims to turn finance in insurance industry to its fundamentals so as to better play up its main functions. Now given all these kind of changes, CPIC remained steadfast in our strategy. We speed up building our competitive edge, improve our business structure, business mix. As we have just mentioned, for the first half of this year, our total assets and our revenue continue to rise. Our OPAT net profit and EV also saw steady growth. Our overall business performance stabilized, produced solid results and steady growth. We have better foundation for high-quality growth. We see more resilience. To be more specific, you can see for the first half of this year, I would say we see 3 features. First of all, we continued with our transformation. We see steady growth of our main business. For example, for Life business, we continue to focus on value creation and develop multiple channels. We enriched the product offering and the segmentation of customers, our NBV and the margin continue to improve. And the share of our variable products is also rising. Agency team headcount is stabilizing and the productivity of core agents is growing and the contribution of bank channel is improving. On the P&C side, we focused on business quality and continued with restructuring. We speed up risk reduction and fine-tuned our business management. We saw a steady growth of premium, and we improved our combined ratio with higher underwriting profits. And we saw also new high in operation cash flow. For the asset management side, we keep improving investment strategy for fixed income assets and also investment operation for open market equities. We also seized upon overseas opportunity, for example, the stocks in Hong Kong market so as to offset some of the impact from dropping interest rate. Now the second feature is that we continued with our innovation and see the growth of new engine. We pursued high-quality growth by expanding our new engine and focusing on the 5 financial priorities. Now for example, we continue to improve the offering of our health insurance so as to cover those without basic social health care and those already ill. We also keep improving our elderly care ecosystem so as to provide customers with full life cycle products and services. We are also improving our pension management with faster growth of new annuity business. We also accelerated our development in technology and the green insurance offering and promoted our digitalization and big model rollout to use AI solutions to empower our business and cut costs with the use of AI assistant, AI solutions, et cetera. And the third feature is that we continued to consolidate our fundamentals. We keep improving long-term mechanism for asset liability matching. We are improving the synergy across CPIC Group so as to improve customer operation. We see more and more customers who buy more than one policy from us. We also pay a lot of attention to customer protection in terms of digital empowered customer protection. And our subsidiaries lead peers in this regard. At the same time, we focus a lot on building the system for compliance and risk management to monitor key risks so as to improve compliance and risk management at all levels, especially frontline outlets. Of course, we also improved our KPIs, our assessment systems so as to better balance development and compliance. And also, we continue to develop our people, develop our talent team, keep improving, optimizing our management. So I believe that's the key features of our growth for the first half of this year. Going forward, we will continue with our prudent and steady growth to pursue high-quality development and also focus on innovation to generate new engine of growth to balance volume and quality and also to continue to generate value for shareholders, for customers, for society as a whole.

Well, let's continue with the on-site questions. [Operator Instructions] But of course, now we are having questions from on-site.

I'm from [indiscernible] Haitong Securities. I have two questions. Number one, on par Life business. And second, on AI+ strategy. In the first half, we can see par business had a lot of -- well, took a big share, 45%. Now our question is that what was your strategy to promote the share of par business? And given the new regulatory requirements in terms of dynamic pricing rate, what are your future moves or strategies to further promote par business? And the second question is about the AI+ strategy. Now you mentioned you had already built an AI infrastructure supporting more than 100 billion parameter model. Now in terms of your input in AI, can you share some of the examples and how they can be applied to the real business scenarios and their impact?

Thank you for your question. Let me answer your first question. In 2025, we focused on customer needs to promote par Life. Now in terms of the size, par business accounted for CNY 10.7 billion, taking a big share. So for first half of this year, we actually focused on 4 strategies: Number one, we made it absolutely sure about promoting par business. At all levels, we remained on the same page about how par business is in the best interest of our customers and also future direction. Second, we differentiate by different channel, by different region. For example, agency was the first to promote par. For example, for agency, par Life accounted for over 50% and the bank channel is around 25%. For the second half of this year, we believe for the whole year, the share of par business will continue to rise. Thirdly, we differentiate by region. We seized upon the opportunity and also focused on the logic behind selling par business. So we differentiate by different regions, different preferences in different regions and different teams in different areas. Fourthly, we had more policy support, for example, giving support in terms of financial support, personnel support and also coupled with KPI adjustment so that par business was taken as a priority. Going forward, new rules on dynamic pricing rates will be opportunities and challenges because for the short term, these -- well, it will be harder to sell par life. But at the same time, the gap between par business and the traditional business is narrowing. So the relative competitive edge of par business becomes even more obvious. It will be beneficial in the long run. Given this kind of macro changes, CPIC will continue to look at various factors to respond to these changes. We will use AI. We'll focus on synergy. To be specific, first of all, we'll continue to improve the offering of variable products to help with our product mix structuring. We focus on customer needs and also consider the needs of our distribution channel. Secondly, we will continue to focus on health insurance to diversify the source of our profit. We'll seize upon this kind of mid- to high-level health insurance needs, for example, long-term care needs so as to improve this kind of integrated solution, combining product plus services. Thirdly, we'll continue to build our capacity. In the backdrop of dropping interest rate, we will continue to buy long-term T-bond, long-term debt assets so as to better match liability with investment with assets.

Well, let me answer your second question. We launched the DiTP program in 2023. Now -- well, it includes the use of a large model. I would say we had some -- already some results. In terms of infrastructure, we have already a stable infrastructure. We already have built a computing power platform supporting the training of 400 billion parameter models, achieving 512 card GPU cluster management capacity and integrated fundamental models such as DeepSeek and [indiscernible] and more than 30,000 of our employees and more than 90,000 agents are using our AI applications. The digital workforce is bringing productivity equal to 2,700 employees. In terms of health insurance, we reduced our claims turnaround time to merely 2 minutes on average. Also, we use AI to improve our productivity. For example, our AI coach can actually improve the per agent new business premium by 21% in pilot areas. And AI also improved our risk management. Our extra loss reduction exceeded CNY 100 million, thanks to AI. We continue to build our private domain large models and the insurance knowledge bases. We focused on our core scenarios to build our CPIC private large model. Secondly, we also try to build our knowledge base for 10 key areas. And we use that case through iteration to improve the basic capabilities of our large models. In the 15th 5-year plan, AI+ is 1 of the 3 key strategies of CPIC Group. We will focus on 6 key areas to reshape our business procedures so as to cover all the value chain of AI and all the user groups of AI.

Now let's continue with the questions.

I'm from Huatai Securities. First of all, congratulations on the resilience of your performance. Two questions from me. Now first one on the Life business. You have 2+N channel strategy. You have total headcount of over 180,000 agents and the bank channel is enjoying fast growth in terms of value and also volume. So what's your future strategy for these 2 channels? Second question about the health and elderly care strategy. Now it's a hot topic of the market. What are your current progress? And what's your competitiveness or uniqueness for health and elderly care sector?

Now let me first answer your first question about the channels. Thank you for your attention to our strategy. I would say we look at the market environment and also customer needs before launching this strategy. And also, we look at our own resources, our own realities. And also, we will look at the future growth of the industry before we launch the 2+N channel strategy, that is to say agency and banker plus multiple channels, BBE, Internet, et cetera, so as to better improve our capability for creating value. For agency and banker, they are the main pillars of our value creation. To be specific, for the agency channel, we focused on building the team so as to build a professional team empowered by digitalization. We see a lot of good KPIs. For example, total headcount stabilized and recovered. Actually, it stabilized at around 180,000 agents. By the end of the first half of this year, total headcount 186,000, up by 1.6% with improved 13 months and 25 months retention rates. We also see growth in core agent productivity. FYP on average improved by 12.7% for our core agents. And thirdly, the quality of our agents also improved. We had 39,000 new agents, up by almost 20% year-on-year. And these new agents have better qualities, better education. Now new agent FYP also recorded double-digit growth. Fourthly, we also saw better performance in terms of mid-tier and high net worth customers. We are serving them with better results. For example, the share of mid-tier and above customers reached 27.3%, up by 3.8 pts year-on-year. We should seize upon these opportunities to turn our team into a more professional team so that we can better consolidate agencies' role in terms of contributing to company value creation. To be specific, we should better improve the structure of our team, for example, by focusing on provincial capital cities and big cities, focusing on key posts, for example, high-performing agents, and also focusing on key segments, for example, young agents with good education. Secondly, we need to improve team management, agent team management with the updated basic compensation law. As we mentioned, our 13 months retention improved by 4.5 pts and over 50% of our agents have been with us for over 5 years. Thirdly, we also need to improve digital empowerment so that our agents can better leverage the digital tools to help with their sales, to identify customer requirements, to better convert customers, better touch the customers, to do a better job at upsell. For the bank channel, we continued with value-oriented bank strategy to explore new models. For example, first of all, we see the growth of premium and also value for the bank channel, very fast growth. Regular premium growth for bank channel was CNY 8.8 billion, up by 58%. NBV grew by 156% to CNY 3.6 billion, making up almost 40% of new business value of total Life business. Secondly, we continue to improve the structure of our bank partners, both the sales and the share of our key bank partners increased. We see a balanced growth of joint stocks, bank partners and SOE bank partners -- state-owned bank partners. More than 13,000 outlets sold regular premium policies, up by 28.9% and the average monthly number of performing outlets grew by 70%, of which state-owned bank outlets saw a growth of 164%. And thirdly, we continue to build a high-quality, high-performing, high-income, high retention sales team for the bank channel. Going forward, we will continue with the value-oriented bank strategy to further enhance the value creation of the bank channel. I would say we need to improve the regional outlay or regional balance, focus on key cities, for example, in the Yangtze River Delta and the Pearl River Delta and areas around Beijing. Secondly, we need to deepen partnership with our key partners. For example, a balanced growth of the joint stock banks and the state-owned banks and select some good local banks, local commercial, rural commercial banks for collaboration. And thirdly, we need to deepen channel operation so as to share with our bank partners the business growth so as to build up momentum for further growth. And also, we need to better match products and resources to pay more attention to customer needs, to enrich product offering, to offer more variable products, to provide a bank designated or exclusive service system so as to better serve bank park customers' need for wealth management retirement care. And also, we need to utilize digital tools to improve the customer journey, team building, training, quality management, operation, service, et cetera.

Well, thank you, Mr. Li from Huatai Securities. Well, in terms of the health and elderly care sector of strategy, we see -- the purpose for this is to help our main business of insurance. Let me give you 2 examples. In terms of the elderly care sector, we have more and more CPIC Home up and running. We see actually our health and elderly care is complementing our main business of insurance. For example, our retirement community in Nanjing reached its full capacity only 18 months after its opening. So the more people living our retirement communities, the more policies they are going to sell. For example, many people visit our Nanjing CPIC Home and many of them can be converted. For example, to be exact, actually, more than 1,500 long-term policies were sold, thanks to that. And not only in Nanjing, also in Shanghai Pearl area. So we see this kind of midsized retirement communities in central urban areas are working and also empowering our main business of insurance. And we also have online health management platform, Thai-Guangzhou. Now this platform offers health management services and also treatment plus claim service solutions. For example, we served a high-tech company in Shanghai and the Thai-Guangzhou platform was used by 80% of the employee of that company. Now the HR of that company saw that the platform was widely used by its employees, and they can also see the details of how the employee benefits are used. So given this kind of stickiness of the Thai-Guangzhou on our health management platform, policy renewal becomes very easy. Now as of now, this integrated service solution covered over 100,000 people, and it has become a very big help in improving customer stickiness and risk management. Now these successful cases or experiences taught us a lot. In the 15th 5-year period, CPIC is treating health and elderly care as a core group strategy so as to build an ecosystem for the health and elderly care sector. We would want it to have more synergy with our main business of insurance. CPIC actually focused on the integration of health and elderly care. And also, we focus on medical insurance, long-term care insurance and also opportunities from the second and third pillar for retirement. We are trying to seize upon the opportunities brought by national policies to better serve, better help the growth of the insurance business. Secondly, we would continue to improve our professionalism to better improve the quality of our service. For example, we are going to focus more on retirement household care -- retirement care, online and off-line treatment so as to boost our professionalism to enhance both quality and also efficiency. We are going to be more focused on light asset retirement communities in central urban areas and focus more on the offering of high-quality integrated solutions. So I would say that we are not only exploring the market, we are actually in a good swing, I mean, up and running. We're going to offer good quality service instead of simple service. And thirdly, we'll have more integration of product and services. We'll focus on customer needs and focus on the full life cycle requirement of prevention, diagnosis, treatment and rehabilitation so as to have more touch points with customers and reshape our customer journey to boost the business growth of our main business. We believe our health and elderly care strategy will boost our overall strategy and turn CPIC from a policy-oriented to customer-oriented company. Our EV per share exceeded CNY 60 for the first time in the first half of this year. And thanks to health and elderly care efforts, we -- CPIC no longer a place for customers to make claims compensation. But also, we are more like a full-time health system.

Well, actually, the two questions, well, they are separate questions, but actually, they are interrelated. Health and elderly care strategy or efforts is a very good complement to our main business of insurance. Let's welcome the next question.

First of all, congratulations for very good performance because already on top of a high starting point. Well, I'm [indiscernible] Dongbu Securities. I have two questions. Number one, on investment; and secondly, about net asset. First of all, we see a lot of volatility for the investment market. So my question is on your take on the macroeconomic environment and the stock market for the second half of this year. secondly, you see as of the end of June, your net asset dropped by 3.3%, which narrowed -- I mean, the drop narrowed compared to first quarter. So what are the reasons? What's your take for the whole year?

Thank you for your question. Let me answer your questions. Now first of all, our take on the macro economy and also stock market, I would say, we see a lot of uncertainties in China and also the whole world. Now on the -- well, for the international side, we see a lot of tariff -- game on tariff and geopolitical conflict. So there's a lot of uncertainties. For China itself, real estate market is still restructuring and the local government is also digesting its debt. And we see the slowing down of investment growth and deflation. So given all these kind of factors, we say we do face some challenges. In terms of the equity market, we do see some opportunities brought by policies. And we also see economic transition in China. So I will say the equity market presents opportunity for the mid- to long term. But in the short term, we will see more volatility. So I would say for equity market, insurance investment would have more opportunity, but more difficulty. For interest rate, the interest rate is going down in the long term. So given this kind of backdrop, I will say this kind of opportunity for high-quality assets would be rare. So reinvestment would be difficult for insurance funding. CPIC always pursue the main business of insurance. We have already built an SAA built on our solvency and also our risk preferences. We continue to pursue and fine-tune our dumbbell asset management strategy. We continue to extend our allocation in long-term bond. At the same time, we also explore opportunity for ABS and the REITs. At the same time, we also gradually enhance our allocation in equity assets, including nonpublic equity. In terms of equity asset investment, we focused on high dividend value strategy. We continue to improve the structure of our equity investment portfolio. We will continue to expand the variety of investment and variety of investment channels. We are expanding new areas, for example, investment in gold, private equity, swans, et cetera. We believe this will improve the efficacy and the quality of our investment. As you mentioned, our net asset dropped by 3.3%. Well, let me give you a response. Under new accounting standards, on asset and the liability side, they use different discount rate. For the liability side, they use spot rate curve. But asset side, they use 50-day rate curve. If there is a big volatility on the interest rate side, there will be a time gap for the net assets. Well, this is quite prominent in first quarter of this year. And in the second quarter, asset side valuation continued to improve. And so the time gap is narrowing for the net asset. So with the lower volatility for interest rate, I believe the main gap would mainly concentrate in Q1. In the second half, this kind of gap will continue to narrow. Insurance is a long-term business. Our ALM is also for the long run. CPIC has been, for many years, extending the duration of our assets and the duration gap is favorable. So in the long run, I believe the assets -- the impact of interest rate on the asset and liability side can be offset. So the overall long-term trend is stable.

I'm from [indiscernible] Securities. I have two questions, one for Life and one for P&C. For Life, we see NBV growth is good and maybe margin is also good. Now what are the reasons? Or what's the picture for the whole year? Is it going to accelerate or decelerate? And for year-end, are you going to upgrade your economic assumption? Now for non-auto business, now combined ratio as a whole improved by 0.8 pts. Now for non-auto business, you mentioned the adjustment of personal credit and guarantee business and some negativity there, negative impact on profitability. So what's the impact? Also for non-auto, what about catastrophe loss? What are your measures to cope with it?

Well, thank you for your questions. Let me answer your first question. Well, on a comparable basis, in terms of NBV margin, the growth is not big, mainly because of the drop in pricing rate. CPIC updated our products, for example, Life and Whole Life par business. Now profitability is still good. For agency, Whole Life traditional products, the share improved by 18 pts and the bank channel, 7 percentage pts. On the whole, the overall margin didn't improve a lot because of the pace of sales, the share of single pay on bank channel increased quite a lot. And the bank channel, the margin, excluding single premium products, the margin of bank is still lower than agency. So it brought down the overall margin. And third reason is because we improved our product mix with offering of variable products. And the margin of variable products, of course, is lower than traditional products. So the overall margin didn't grow a lot. For the whole year, if you look at the first half of this year, we can make some prediction. For H1, we focus on customer and also our distribution channel. We will continue with Chonghong transformation. We saw fast growth of NBV. The main drivers for NBV are: Number one, segmentation of customers. We moved customer up to a higher level. The share of our mid-tier and above customer improved to 27%. And the share of high net worth individual and ultra-high net worth individual improved by around 70%. Also, we have the 2+N channel strategy. We see stabilization, recovery of total headcount and also improvement in core agents. Looking at the whole year, in terms of the forecast, I would say there will be steady growth in NBV margin, to be exact. And for each review, we will review our actuarial assumption and economic assumption. We would say in-force investment yield is aligned with our investment yield. But for the long run, it cannot be said for sure. We will keep observing, keep reviewing the market investment yield before making adjustment.

Let me answer your second question. For the P&C company, we continue to pursue quality growth to improve business mix. And as you know, peers have already removed their personal credit and guarantee business. We are doing it now. Now the business impact our performance in 2 ways. First of all, a reduction of premium because of relapse. The combined ratios also were impacted by this business. Combined ratio, non-auto business combined ratio were impacted negatively by 2.8 percentage points. In terms of risk exposure, by the end of July, the amount decreased by 1/3. We believe the impact will be eliminated by the end of 2026. In terms of catastrophe loss last year, first half of 2024 is mainly because of the storm and the blizzard. Last year, the loss was 2% impact. And 2025, the impact from catastrophe loss was 0.5 percentage points. So we will just thank the good weather for this year. We continue, of course, to improve prevention of catastrophe and natural disasters to be specific; number one, in terms of underwriting, we continue to improve our underwriting rules to enhance the management of catastrophe. At the same time, by different products, we dynamically adjusted the catastrophe exposure. Secondly, we improved our risk survey system and improved our tools. And on the claims side, we improved our AI empowerment to give, pre-warning, pre-alert, early warning. Fourthly, we improved the efficiency of claims and also review of those large claim cases.

Well, thank you. Now let's take some questions from those online over. [Operator Instructions] Now we have a question from Zhou Cheng from UBS Securities.

I'm Zhou Cheng from UBS Securities. First of all, congratulations on your solid performance. Your OPAT is better than expected by the market. I have two questions. Number one, you see OPAT improved by 11% in the first half, a considerable growth for Q2 and the growth would be about 30-something. So what's the reason for the net profit growth? And OPAT grew by 7.1%. Also, what are the reasons behind that? And you mentioned future dividend payment will be linked to OPAT. So how about 2025's cash dividend payout? And second question, CII, comprehensive investment yield dropped by 0.6% to 2.4%. Now the volatility is quite big and your absolute number is lower than peers. So what are the reasons? And we look at the equity investment, especially stocks by the end of June, the outstanding balance of your stocks improved by 11%. Now it's not a very big growth, also slower than your peers. So what are the reasons? Is it because of your newly added investment in stocks were smaller or lower than your peers?

Well, thank you. I'll answer your two questions. Well, for the first half, our net profit improved by 11%. Now of course, compared to Q1, the growth was much faster. Now it's mainly because of several reasons. Number one, interest rate environment is getting better and the negative impact is narrowing down. And also, we seized upon a lot of equity market, especially the stocks in Hong Kong market. So our investment yield exceeded market benchmark. So these all supported our net asset growth. Our investment business also supported this and P&C also see improved combined ratio. Our Life business stabilized with steady growth. So all this combined, we see good growth for the first half. And for the whole year, we will continue to match investment with liability, continue to improve our quality of business growth to make steady growth. Well, despite a high starting point, high benchmark in the second half of last year, we will continue to pursue high-quality growth for the second half of this year. We're going to continue to improve the quality of insurance business, continue to enhance investment yield and build up the overall capability for asset liability management. Well, in terms of OPAT, for the first half of this year, the total OPAT was CNY 19.9 billion, up by 7.1%. That's mainly because of the improving underwriting profit for the P&C business and also the lower cost of liability cost for life business. Of course, we know that operation experience variance and also underwriting profit from P&C were the main contributors. So for the whole year, we believe OPAT will maintain steady growth. As we mentioned, we will continue with our prudent business growth to keep up the good contribution from operation variance. We believe for the whole year, our OPAT will continue with steady growth. In terms of the dividend payout, we will consider OPAT. We will link it to the business growth and also consider the positive contribution from investment. Last year was a case in point. For the year of 2025, we will look at the OPAT and also investment and also look at how to smooth out the yearly distribution. Now in terms of the comprehensive investment yield, it dropped a little bit, mainly because of the relative change of fixed income assets. As you see, we had a considerably lower change in our fixed income asset recognized into P&L. And also because last year, we had a quite high starting point, high benchmark. Now of course, the annual performance of our investment yield is impacted by multiple factors. First of all, the ALM systems of the company, we are actually exploring a new model for ALM. We have actually establish an [indiscernible] model for ALM. We're trying to explore a new platform and tools to better match ALM. With this kind of new methodology, we continue to improve the ALM coordination. We'll continue to manage the liability and also share the long-term liability costs and risks with our customers. And we are using multiple measures to stabilize our investment yield to offset the drop in interest rate. For example, extend our asset duration, enhance the equity investment and explore alternative assets to achieve a high yield. And in the first half, our investment yield only dropped by 0.1 pts on a nonannualized basis. CPIC has also established an SAA based on our long-term ALM preference based on our judgment for the long-term market trend. We have a very good SAA for fixed income assets and diversified assets. For example, stocks in Hong Kong market, overseas opportunities, other alternative opportunities, et cetera. At the same time, our SAA also has an impact. In terms of open market equity investment, we have implemented a high dividend stock strategy. We look at not only high dividend payout, but also the fundamentals of those stocks so that the portfolio can withstand volatility, withstand long-term risk. We also use growth type assets to share with the investment yield and the growth opportunities. Actually, we always focus on total investment yield across cycles. We always pursue value and prudent investment, responsible investment so as to produce stable long-term sustainable return to shareholders. In the last 10 years, our overall investment yield is 4.7%, #1 in listed insurers. Comprehensive investment yield is also leading peers. I believe among our listed peers, our investment yield is at the mid- and upper range. We believe we will keep up the good work going forward.

Well, thank you. In the interest of time, we can only have one more last question -- one last question. Well, we'll have a question from [indiscernible] Securities.

I have two questions. Number one, on the asset side for the first half of this year, what are the -- what's your investment -- new investment for 2025? For example, investment in Hong Kong stocks and the pressure for reinvestment because of your nonstandard asset investment is 10%. So it's quite higher than your peers. Second question on the P&C business. NEV, the share of NEV premium is close to 20%. Now what about the trend going forward? And can it be profitable? What about the combined ratio? Are you going to put some limits to the growth of NEV business? Maybe a follow-up question. Liability, the lowering of liability cost. Is it about new business or about in-force business?

I'll answer your first question. In terms of investment 2025 first half. Now of course, because of the macroeconomic growth and policy adjustment, the economy is actually showing a lot of resilience, is improving, but nominal rate is still low in China. So for insurance companies, the whole industry faces pressure for reinvestment and asset allocation. Now we focused on several areas: Number one, continue with the hold to maturity for fixed income assets so as to extend the duration of our assets. Secondly, select the targets. We invest in subordinated bonds, debts of big banks so as to improve the yield of credit products. Thirdly, gradually improve the equity investment for open market. Fourthly, we explore PE and gold and other alternative assets. Now you mentioned our open market financing tools. Now 10%, it's going down. Now I have to say the investment environment is changing for insurance money. Previously, we focused on nonstandard fixed income assets and the long-term bond. We use them to extend our asset duration. And equity investment is used to enhance the yield. But given the drop in interest rate, nonstandard fixed income assets is having more credit risk. So this kind of financial tool -- I mean, the whole market for this kind of financing tool is shrinking. A lot of reaching maturity. By the end of this year, our non-open market financial tool has also seen reduction. The share is dropping to 10%. Now we, of course, will enhance our macroeconomic study so as to extend the asset duration. But at the same time, we will better manage the credit risks. So for this kind of non-open market financial tools, we will select the good ones while managing the risks. So on the whole, so far, the risks are well under control. And in terms of building our investment capacity, we will focus on this kind of cross-cycle investment research capabilities. Number one, we are going to stabilize our net investment yield by extending our duration of our assets and also using ABS and REITs. Secondly, continue to build diversified portfolios so as to seize upon high technology and also industry rotation, et cetera, and also support this kind of emerging sectors through debt investment so as to achieve this kind of a cross-cycle benefit. And fourthly, embed ESG into our investment strategy. Fifthly, explore overseas and global investment opportunities.

Let me answer your second question. In the first half of this year, the premium from NEV is close to CNY 10.6 billion. Now the business is quite good. I believe NEV sector is producing profit already. But of course, NEV, including private car and -- well, commercial cars, commercial NEVs. Now for commercial cars, the risk is higher, combined ratio more than 100%. Private NEV combined ratio is lower than 100%. But in total, combined ratio is less than 100%. In the second half of this year, I believe there will be some pressure in terms of combined ratio. For NEV, I believe it's a quite complex issue. Combined ratio is quite high with different reasons. For example, different brands will have different combined ratios. For example, for this kind of a law, we have more than 300 types of NEVs, which are numbered over 10,000 and 99 out of the 300 types of NEVs have a combined ratio of above 100%. And also, you see NEV is hard to repair. Battery is very pricey, around 50% of the total cost value. And NEV drivers tend to be young. I actually -- for example, the average age of car owner of Xiaomi NEV is 29 years old. And of course, driver behavior for NEV is different. So we need to consider all these factors. Now our strategy, first of all, we developed an NEV business unit to have in-depth collaboration with NEV producers. Now for this kind of new NEV manufacturers, their combined ratio is quite good. And our market share for this kind of new NEV manufacturer is 16%. We are the leader in this regard. And secondly, we need to improve our risk selection. NEV in big cities and medium-sized cities, the loss ratio is high because they use NEV as taxis. For example, in Shanghai, we established collaboration with EV data so that we can monitor the NEV driving force, driving behavior, their driving routes so we can actually identify which NEVs are private cars, which NEVs are taxis. So as I mentioned, first of all, we collaborate with the manufacturers of NEVs. And secondly, we use data to better select the risks. Now we will not impose any limit on the growth of NEV. And we believe this is also part of our social responsibility. Actually, we have established a automobile platform backed by the regulator. So the automobile platform is a good platform to cover all NEV drivers. Well, it's a good platform with good growth.

Now let me answer your liability cost question. Now with the drop in pricing rates, 2021, the rate dropped from 3.5% to 3% to 2%, et cetera. Given this kind of drop in rates, we kept improving our liability side costs. So we established a mechanism to adjust our pricing rates. Our overall pricing rates dropped by 70 bps over the past 5 years. This is one thing. On the second hand, in terms of our business operations, we need to have a breakeven yield. So in terms of breakeven yield, it is much lower than 2.5%. That is our breakeven rate. It is still reducing, still going down. Our sensitivity to interest rate is the best among peers. In terms of new business in January this year, the regulator actually released a rule on the dynamic adjustment of pricing rate. And in July this year, there is a new rule capping the pricing rate at 1.99%. So the pricing rate for traditional products would be 2% and par Life product will be 1.75%. So our liability cost will go down further going forward.

Well, thank you for the answers and questions. We also collected some questions from midsized and small investors. Now these questions are mainly about the strategy of our agency channel and also the measures to contain catastrophe risks and also outlook on our P&C business and Also questions on SAA and TAA. Now I believe we have covered most of them already. Now in the interest of time, we will answer your questions in text after this event. If you have unanswered questions, please contact our IR team. Thank you for your attention. Goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]