China Pacific Insurance (Group) Co., Ltd. (75CB.F) Q3 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. Welcome to the event, the Q3 results announcement. I'm Su Shaojun, CPIC Group Board Secretary. Now let me introduce the top management, CPIC Group Chairman, Mr. Fu fan; Mr. Su Gang, VP, CIO and CFO of CPIC Group; and Mr. Li Jinsong, General Manager of CPIC Life. First of all, Mr. Su Gang will give you a introduction of the results in the first 3 quarters. Then we'll have a Q&A session. I'll give the floor to Mr. Su Gang.

Good afternoon, ladies and gentlemen. I'm the CFO of CPIC Group, Su Gang. I'll give you a brief introduction on the results of our first 3 quarters. Well, guided by China's near-term measures for insurance industry, we played our role as a social stabilizer and safety net while focusing on core businesses. We deepened our reforms to risk switch from our old to new growth drivers. And we have seen steady progress in the first 3 quarters. Our insurance revenue was CNY 216 billion, up 3.6% year-on-year, supported by insurance performance and investment gains, our net profit reached CNY 45.7 billion up 19.3% and our OPAT stood at CNY 28.4 billion, up 7.4%. In terms of our business lines for the life insurance, our CPIC Life Company deepened its Changhang transformation program while focusing on customer centricity product service integration and agent empowerment. In the first 3 quarters, CPIC Life's total premium income was CNY 263.8 billion, up 14.2%. Its new business value was CNY 15.3 billion, up 31.2% year-on-year. CPIC Life continued to deepen its diversified channel development. The agency channel focused on customer centricity for differentiated customer development and improve the capability to sell par life insurance. It strengthened team building with initiatives such as the CPAI, Elderly Care and Wealth Planner Program to recruit high-quality new agents. Agency also focused on empowering high-performing agents and teams in the first 3 quarters, the agency premium income was CNY 184.3 billion, up 2.9% year-on-year. The share of the mid- to high-end customers grew by 4.8% compared to last year. Thirdly, the business mix also improved. The par life insurance made up 58.6% of the total regular premium new business. Moreover, agency stabilized its total head count with 181,000 agents on a monthly basis on par with last year. The monthly average FYP per agent -- per core agent was CNY 71,000, up 16.6% year-on-year. For the bank channel, we focused on customers' needs, bank customers' needs for wealth management and health and retirement. We continue to improve product offering, customer operation and team capacity building empowered by digitization. In the first 3 quarters of this year, the bank channel delivered CNY 58.3 billion in GWP, up 63.3% year-on-year of which regular premium new business reached CNY 15.9 billion, up 43.6% year-on-year. For the group channel, well, we played up -- it played up its strength to boost business-backed employee marketing or the BBE channel and the coverage of the inclusive insurance in the first 3 quarters, its GWP was CNY 16.29 billion, up 12.2% year-on-year, of which the regular premium new business from the BBE module reached CNY 1 billion, up 15.6% year-on-year. for CPIC P&C, it continued to improve its business mix and customer authorization while boosting technology empowerment and AI application. It also made great efforts for disaster prevention to reduce risks and the safeguard of -- safeguard its progress. For the auto insurance, we continue to improve the big business mix, improve business quality control and innovate NEV, new energy vehicle products and services. For non-auto business guided by national strategy, we've strengthened the basic management and the business development, improved the business mix and risk management. For the agricultural insurance, more products were offered to cover the total cost of China's staple food and the major agricultural products. We also launched innovative products to refine the models and effectiveness of agricultural insurance. In the first 3 quarters, CPIC P&C recorded CNY 160.2 billion in GWP, up 0.1%, of which auto insurance accounted for CNY 80.46 billion, up 2.9%. And due to our proactive adjustment of business mix, non-auto GWP was CNY 79.74 billion, down 2.6% year-on-year. The combined ratio was 97.6%, down 1 percentage point year-on-year. On asset management, we pursued disciplined and yet flexible TAA under the framework of a long-term SAA based on long-term asset liability matching. We effectively allocated long-term fixed income assets to extend asset duration and actively managed equity investment by focusing on low valuation, high dividend stocks and delivered solid returns on top. Thanks to our diversified investment strategy. By the end of Q3, the group's investment asset approached CNY 3 trillion, up 8.8% year-on-year. In the first 3 quarters, annualized net investment yield was 2.6%, down 0.3 percentage points, and the annualized total investment yield was 5.2%, up 0.5 percentage points. Looking ahead, we will continue to pursue high-quality growth, enhance our capabilities to create value, focus on the 5 financial priorities of China's insurance -- China's financial market and strive to build CPIC into a world-class insurance with international competitiveness. Well, that ends my presentation. Thank you.

Well, now let's start the Q&A session. [Operator Instructions] We have #1 question from Dongwu Securities.

Well, it's a very timely results announcement. And congratulations on your good performance. I have 2 questions actually. Number one is on the liability side. Actually, as we can see, many insurers relied on bancassurance for faster growth and many of them have completed their targets for 2025. But what about the liability side for next year given the high benchmark or the high basis for this year? And you also mentioned on the agency side. You mentioned that your par life accounted for close to 59% for the agency channel, new business sales. How about the percentage for bank channel? Now the second question is on the investment side, for the first 3 quarters, as we see the total investment yield is 5.2% quite high. Now what about the future for SAA? And for SAA, what's your view on the equity side? What's your strategy? And what's your judgment? And how about your move for the bond investment? And what's your TAA? Or what's your SAA regarding your allocation for the equity side?

Well, thank you. I'm Li Jinsong from the CPIC Life Company. I'll answer your first question. First of all, on the outlook for 2026. Now 2 points. Number one, for the agency channel or the individual business compared to our peers, our judgment is pretty much the same. We talk to them on a regular basis. First of all, the regular premium business will give us positive growth. We agree on this. In terms of the percentage, I believe it might grow by 5% to 10% next year, regular premium business growth next year. Maybe Q1 will grow faster than Q2, and Q3 will be a low point next year. For the agency new business value, we also want positive growth. And in terms of the bank channel, bancassurance channel, currently, as we talk to peers and as we talk to bank partners based on our own situations, we believe the total next year, I mean, the next year, the regular premium business will grow at the same pace as this year, maybe at 10%. We believe CPIC Life will grow faster at 20% to 30% and MBV will grow even faster than the 20% to 30% range. In terms of our main products for Life Company as a whole, if you look at the par life and the variable products, we believe traditional insurance will be -- I mean, as a percentage, it will be smaller than 50% of the total. But of course, if we look at the customer needs and the product diversification, I wouldn't say that -- well, I wouldn't say that arbitrary percentage will be good or bad for the company. So this is so much about the business or product mix. We will look at the overall situation and customer needs. To be more specific, the business or product mix will be more diversified. For CPIC, maybe we are the only company that are going to launch unit-linked products for high net wealth customers. And it will be combined with traditional incremental whole life plus whole life annuity products. So we will sell them as a kind of a sort of a bundles. For bank channel, product offering will be more diversified. For example, we have different segments of customers, for example, including private bank customers and mass bank customers. For private bank, we will want higher-end products. But on the whole, participating insurance will be the main products to be coupled with traditional annuity and incremental whole life. Now in terms of the share of regular share of par insurance in the bank channel, now actually, our share is 27.7% for the par insurance products. And actually, you see we rank #2 among our listed peers. 70%, I mean, in October, 70% of our products are par life for the year, for the single months. Now the second question on the investment. I believe the market is having a lot of uncertainty at the moment, and we see a lot of high-level talks both inside and outside China. A lot of factors affecting the market and also giving us a hint of the future directions for China in the next 5 years. But of course, given all these kinds of very complex situation and the long-term issues, for example, aging society. So the company need to look at our own situation. The profile of our own liabilities, for example, we need to study -- well, keep doing the research to have a mechanism to match liabilities with assets on a long-term basis. Given our profile of our liability, we will say different insurers will have a different mechanism to match assets with liabilities. Hence, different SAA and the TAA for CPIC Group, we have a so-called net investment yield plus model. We look at SAA and the macro economy and the long-term judgment to come up with our specific investment strategy. For fixed asset income -- fixed income assets, we would want to be prudent and be the long term. For example, 10-year treasury bond will be running at a certain range, we believe it will go down at a slower pace. So going forward, we will be more active. We will seize upon the opportunities when the bond -- when the credit bond recovers. And also, we look at this kind of innovative fixed income assets, for example, the ABS and the REITs. So these will help us to drive up our investment yield. So they can, well, offer a sort of a buffer for our net investment yield. For equity side, we need to be prudent. We need to maintain our strategy that is to seek high dividend stocks because this strategy allow us to capture long-term high return from this kind of a high dividend payout stocks with promising potential. So in this way, we can not only get the dividend payment, but also share with the growth potential of those companies. If we look at the last 10 years, this strategy gives us a return much higher than the market benchmark. Also, we are going to have this kind of a satellite strategy. For example, we are going to utilize our CSI style indexes. For example, the CPIs -- the CSI, CPIC, active stock style index, fund index. Using this kind of tools, we can generate positive growth, positive investment yield contribution. So we need to also flexibly adjust our exposure, style exposure. And also, we need to frequently adjust this kind of active and passive strategy. We need to balance domestic and international strategy and allocation so as to achieve higher yields on the long term.

Now let's welcome the next question. Next question comes from Guotai Junan Securities.

I'm from Guotai Junan Securities. I have 2 questions. Number one, about assets and the other on liability. Now you have given us a very detailed sharing. Now in terms of bank, you had a lot of newly opened outlets. Now could you give us more details? I mean regular premium grew fast this year. So how much of it comes from new outlets and how much comes from existing outlets? Now this for 2025. And what about your future prospect on 2026 in terms of opening new outlets, bank outlets? Second question, on the investment side, now as we know, a lot of insurance companies have increased their allocation on equities. So my question is, going forward, what's your strategy specifically about this kind of high-growth stocks? Now the share of TPL, is it going to increase?

Thank you for your questions. Now let me answer your questions. First of all, the bank channel question. Now in 2025, in terms of the growth, I believe it is a multipronged effort. First of all, the channel is making a great effort as we can see in 2025 in terms of regular premium business, Now this kind of state-owned big banks have made great contributions. The share of those banks grew by 22% last year to 33% this year. So I would say the growth of outlets mainly come from state-owned banks, especially ICBC, CCB, for example. So that's the outlet. Secondly, the growth come from the teams, the bank team, sales team, which grew by 20%. Secondly, productivity of those teams also grew by 20% per sales agent, per sales person. So these kind of factors combined gave us a quite rapid growth in terms of the MBV from bank channel, which almost doubled in the first 9 months. What about next year? Now the growth of bank outlets for 2026, I believe that will still be a strategic focus for next year. Because if we look at the pathway for growth, the growth of a case size, well, of course, we want that to maintain. And the growth of outlets would still come from state-owned banks. There's a lot of room for growth. For example, for ICBC, in our outlets, the total number of our ICBC outlet only accounted for 5% of ICBC's total outlets. We would want the 5 percentage number to go up to maybe 7% to 8%. So I would believe there's still a huge room for growth, maybe a growth of 30% to 40% in terms of new outlets. And of course, for the state-owned banks, the case size is relatively lower. So in this regard, we would want the case size of the joint stock banks to go up. So case size will remain flat but the number of outlets will go up, definitely. Now in terms of team growth, we believe next year we'll grow by 30%. That is to say the total head count will grow to 6,200 from the 4,600 this year. Well, the second question about the investment side. First of all, the view on growth stocks, high-growth stocks. Now I believe that we need a high-quality growth. China's growth would rely on the growth of high technology. So we need to balance. We need to have a balance. Now for CPIC, as I mentioned, we have a CSI CPIC active stock fund index. So that is a good tool for us to gauge the different styles so that we can better identify the change of Asia market, the different styles, what is working, what is not working, et cetera. So we believe we're going to look at opportunities especially in terms of science and technology, innovation, energy transition, health and medicine and the rare resources, et cetera. You'll see our comprehensive investment yield was 5.4%, up by 0.4 percentage points. So I would say CPIC has already seized upon the high-growth stocks so that our investment return was better than our peers. Going forward, we need to, for example, look at a more prudent way in terms of accounting treatment. As you mentioned, the share of TPL. Now TPL share, TPL will impact our yearly profit. Now we have a quite good total investment yield, and we have got the trading gains and also the fair value change gains -- now I mean, this kind of changing gains and the fair value changes made positive contribution to our 5.2% total investment yield. But for insurance companies, the share of TPL needs to be prudent. The share of OCI, the increase of the share of OCI is going to be -- is very likely. So we need to have a very balanced strategy between TPL and OCI so that we can, in the long term, better match liability and assets.

Well, let's welcome the next question. The next question is coming from Morgan Stanley.

I'm Zhao from Morgan Stanley. I have 2 questions. Number one on life and the other on P&C. As you mentioned, for 2026, your share of health products will improve, will increase. Now could you give us some more details on what drives the growth in health products? Now are you going to have more new products? For example, previously, you sold a lot of critical illness products. Now second question, for P&C, combined ratio is close to 100% in Q3. Could you give us a breakdown? How much of it is because of the catastrophe? And what about other kind of risks and losses?

Let me answer your questions. For health insurance products, the share will go up in 2026. That is because we look at the customer needs for health insurance, a lot of big demand in China for health insurance. Also in terms of Chinese policy, we look at a lot of high-level policies issued from the Chinese government, a lot about the health insurance, about long-term care insurance, et cetera. All these policy support will give us more opportunity to further develop health insurance business. Number one, the release of recent documents well, gives a lot of big support to the growth of health insurance business because as you can see, over the past 20 years, I would say this year's policy support is the biggest in the last 20 years or so. Secondly, apart from government support, we also have this kind of demand from customer needs. As of now, we have already products for disease medical compensation, disability, long-term care. And we also have this kind of differentiated customer development. We have 2 focus. Number one, on critical -- this kind of whole life critical illness for both adults and juveniles. And we also have this kind of term critical illness products for medical products, we have this kind of mid-end, high-end medical products and also this kind of medical insurance for clinical diseases, et cetera. So I would say we have a quite rich product offering in terms of health insurance. Moreover, in terms of our distribution channels, previously, health insurance was sold by agents. And they mainly sold CI products. Critical illness products, they sell this kind of CI products to mass market. To change that, we were going to make some adjustment for the channel. First of all, for 2026, we're going to do more promotion for CI products. We hope to drive the number, the share of our CI sold by agents to 10%. Secondly, we are going to start selling participating CI products as long as government policy is finalized. Also, we are going to focus on group health insurance products in 2026. So that will be another area of focus for CPIC because Chinese government has also well, has also made a policy encouragement in terms of long-term care health insurance products. So this will have also some influence on the selling of health insurance from the group channel. Thirdly, we are going to promote sales of health insurance through the Internet. I mean the Internet can reach out to a lot of people. Fourthly, the bank channel will also be utilized to sell health insurance because we have a lot of private bank outlets. These customers, they have a big demand for high-end health insurance products. thank you. I hope that answers your question.

Now what about Q3's combined ratio?

Well, some challenges. Number one, new energy vehicle, there's still some uncertainty on that in terms of combined ratio. Now of course, we are making some innovations to reduce the combined ratio of new energy vehicle business. If we look at the results, we have profitability for the new energy vehicles owned by households. But on the whole, we are still making a small loss. And the [indiscernible] business also gave us a negative impact at around 2% to 2.5% in terms of combined ratio. So we will further going forward, we will continue to better manage this kind of business quality. But if we look at the whole year, we believe the whole year combined ratio can continue to improve.

Well, let's welcome the next question. I have 2 questions. Now as you mentioned, next year, health insurance business next year will be sold by agency. But what about your agency headcount and the productivity because we know the race filing integrity regulation is having a big impact. So we would like to learn more about your agency channel. So that's number one. Question number one. And as you mentioned, our 10-year interest rate is still going down slowly. So what's your bond investment strategy? What's your allocation? Are you going to extend your asset duration to narrow the gap? And you also mentioned that you're using the trading of bonds to increase the investment yield. How are you doing on that front?

Okay. Let me answer your first question. I would say on the whole for this year, for the agency channel, in terms of the overall growth, in terms of total headcount, it's on par with last year -- compared to last year. pretty much the same. That's on the total headcount. If we look at the structure of agency, this year, our core agents, the productivity and also income, I mean in terms of the income, that is 71,000, up by 16%. And the quality of our new agents also improved. In the first 3 quarters, if we look at the new agents, we see a growth of the number of new recruits. We believe going forward, the total headcount would stabilize and remain at a reasonable level. Let me share with you some more specific numbers. As I mentioned, if we look at the core agents, for the first 9 months, the average first year premium is growing quarter-by-quarter. For example, for Q3, the per agent first year premium for new business grew by 11%. So I would say, on the whole, the per agent productivity is improving. I believe we bucked the trend compared to our peers because in Q1, they are experiencing a lot of negative growth. We grew quarter-by-quarter, but it's not the same for our peers. In Q3, we actually recorded a double-digit growth in terms of core agents. And the mid-tier agents also demonstrated the same trend. So going forward next year, I believe it will stabilize in terms of total headcount. and production and the share of core agents and the productivity of core agents will both go up. Let me answer your bond investment strategy. First of all, how should we view the duration gap? Of course, duration gap is a core issue, a core KPI for asset liability matching. Previously, we pursued a dumbbell investment strategy. So actually, our duration gap is already at a reasonable level, be it adjusted duration gap and effective duration gap. we should mainly look at the effective duration gap. No, why should I say that it's a reasonable level because if we pursue a 0 duration gap, it's not necessarily the best policy to send off long-term duration risks because it basically eliminate the possibility of getting higher yield from duration from duration gap. As I mentioned, given the level of interest rate in China, when it goes down, invariably, there will be some kind of uptick or recovery. So we believe these are opportunities, pockets of opportunities for us to conduct TAA, be it credit bonds or interest rate bond. So we would seize upon this kind of phase of opportunities. Of course, we are trying to explore the various trading policies, trading strategies for bond assets so as to seize upon this kind of phase of opportunities. As we mentioned, in terms of ETF funds, it might be a good direction for investment so that we can utilize this kind of very good bond investment capabilities on the market so as to make up for our own shortcomings.

Let's welcome the next question.

I have 2 questions. the OPAT for the first 9 months or is it -- well, is there any changes for the OPAT? And secondly, about the whole year's dividend payout ratio, what's your take on that? Because you have very good net profit. And for our -- for your core solvency ratio for CPIC Life is going to go down to probably just above 110% in Q4. maybe because of the low interest rate in China. So anyway, your core solvency ratio, well, maybe could you elaborate on that?

Let me answer your first question. As of the end of Q3, OPAT grew by 7.4% year-on-year and actually was up by 0.3 pt compared to Q2. or the absolute number of OPAT is CNY 28 billion. Now it's because of we are doing very good in terms of business control and also in terms of risk reduction. And for Life, given this kind of -- given our efforts to control the cost and improve our business quality, our profitability is going -- is improving. We believe it will go -- it will continue so that the -- both P&C and Life will contribute positively to OPAT. In terms of dividend for 2025, I believe the Board has already announced our strategy. It will be based on OPAT. It will also look at our business performance and also our solvency and also pay attention to the capital market so that we can give investors returns, which is more in line with their expectations. Now on the solvency issue, let me give you a brief answer. Thank you for your concern. For solvency ratio, core solvency ratio is a very important indicator for our long-term business performance. So we pay close attention to the core solvency ratio number. We have already formulated the plans. We are going to not only be supported by the group, CPIC Life will also pay close attention to improve. Let me just add, the regulators is refining the planning -- plans for C-ROSS Phase 2. So for CPIC Life, as of now, I believe we are on a positive trend, positive track. Now as you have noticed, we have issued convertible bonds to the tune of CNY 15 billion. So the group solvency ratio is already still very high. But based on our judgment of the market, we believe -- and also considering the need for future development, we issued this bond to replenish our capital. Now we issued this kind of convertible bonds, which is quite convertible securities, convertible shares. it's quite popular move for the market. And I believe this is also positive for the capital needs for our subsidiaries. In the interest of time, we can only allow for one last question.

The last question comes from the Guangdong Development Securities.

I have 2 questions. Number one, on asset and the other on the liability side. As you mentioned, in 2026, the regular premium business will grow by maybe 10%. And in Q3, we see a termination of old products. Now can you maintain growth on top of the high baseline in Q3 this year? Why can it grow? Is it because of the demand from new customers? Or is it because of the team capability? So that's number one. Secondly, as we can see for the first 3 quarters, your net investment yield dropped by 0.3 pts. What is the reason? Is it because of the new investment reinvestment. Now what about the future, the future trend for the net investment yield?

Thank you for your question. Now let me just share with you some of our outlook and the reasons for our outlook. First of all, if we look at our business model to promote our agency channel, we are different from peers. Maybe our peers are product-oriented or team oriented, but we focus on product and channel and also customer needs. We focus on 6 factors. Number one, total headcount. We believe for the grand opening, the total headcount will be the same next year versus this year. I believe it will be same for the whole industry. Second factor is whether we can reach out to more customers. Now we believe it will -- I mean, our agents will be able to reach out to slightly more customers next year. Thirdly, conversion rate, conversion ratio. Now of course, this will take a lot of training, long-term training and skills, a lot of skills. We believe conversion ratio will grow up slowly. It's not a quick fix. Now the fourth factor is the number of cases sold by agents. This will be a focus for 2026. If we look at the -- well, our existing customers, we have 90 million existing customers. Upsell will be a focus for next year. Fifthly, case size. Now priority of CPIC Life is to move up the ladder of customer development. The share of mid- to high-end customers is moving up from Q2 and Q3, you can see the share and the case size of our mid- and high-end customers are going up. So we believe case size will grow up quite fast next year. Of course, the sixth factor is the new business margin. Now I believe 5 of the factors remain flat, stable and the case size will go up quite considerably next year. So that is why we believe we can have a 5% to 10% growth. Thank you for your question on net investment yield. I believe given this kind of low interest rate environment, we are taking active measures so as to be able to cross economic cycles. This is a key of our efforts. CPIC pay a lot of attention to the stability of all kinds of investment yields. We need to, of course, maintain stableness of net investment yield. 10-year treasury bond, 10-year interest rate went down a lot in the last 5 years. So the fixed income -- I mean, new investment of fixed income assets is, of course, much lower than the existing yield -- the yield from existing fixed income assets. So to cope with this kind of negative impact, we are taking a lot of measures. First of all, we are extending our allocation into long-term bonds. Secondly, we are seizing opportunities for this kind of a rebound and also utilizing ABS and REITs, this kind of innovative fixed income type assets. We are one of the few companies, insurance companies that have a qualification for ABS and REITs license. We also have an investment arm in Hong Kong. So given this kind of diversified investment capabilities, we can maintain our position -- leading position on the market. And our dividend payout ratio is also good. And we remain confident about proper management of our investment assets. Well, that ends the session for today. If you have other questions, please contact our IR team after the meeting. Thank you.