China Reinsurance (Group) Corporation (1508) Earnings Call Transcript & Summary

Respected investors, analysts, ladies and gentlemen, good afternoon. Welcome to [ the tenth ] China Reinsurance Group 2020 Interim Performance Announcement. I am Liu Shukai, Director of BoD Office. Now I'd like to introduce you the executives attending today's announcement. Mr. Tian Meipan, Chief Actuary of China Re Group; Mr. Li Ming, Business Director of China Re Group; Mr. Zuo Huiqiang, Director of the International Business of China Re Group; Mr. Lu Xiaowei, VP of China Continental Insurance; Mr. Luo Ruohong, VP of China Re Assets. Today's meeting is going to be divided into 2 parts. The first part is going to invite the executives to introduce you the region's performance. And Mr. Li Ming, our Business Director, is going to give you a general overall picture of what's happened in the first half of this year. Mr. Zuo Huiqiang and Mr. Tian Meipan, Mr. Lu Xiaowei and Mr. Luo Ruohong is going to introduce you all their different sectors. The second round is the Q&A session. The executives are going to have an interaction with all the investors. Now I'd like to give the time to Mr. Li. Let's open the floor to Mr. Li.

Good afternoon. Let me introduce you the performance or achievements of China Re Group in the first half of 2020. After the outbreak of COVID-19 in the first half of this year, it is actually affecting the global economies and also insurance and is also affecting the general overall performance in our group. Under this backdrop, we have focusing on the high-quality development and we are trying our best to tackle with all these risks. I think the general performance is being demonstrated in the high growth of the premiums. Apart from the influence of the overseas performance, we have achieved a quite stabilized operation and demonstrated a very strong risk-controlling capacity. For one part, the improvement in our company has grown quite rapidly. In the first half of the 2020, the gross written premiums is registered at RMB 102.1 billion, that is 20.5% growth year-on-year. Among the 3 sectors grew quite rapidly, the domestic P&C rate rose by 20.8% year-on-year, among which in the emerging sectors, the growth is 27.7% year-on-year. The overseas P&C rate rose by 14.9%, while the overseas new life is that we grew by 24.4%, respectively. The second part is that our investment case reached the market performance. In the first half of the year 2020 facing the volatility in the market, our company has grabbed opportunity to optimize our allocation and achieved a quite good investment performance. So our equity investment in the market, among which the consolidated return on the secondary equity beat the CSI 300 Index, while H-share consolidated return on secondary equity beat Hang Seng by 400 bps. Thirdly, we have achieved a quite stabilized effect excluding the impact of the global COVID-19 because we have quite distributed business and we have quite international operation. The first half of the year 2020 affected by the overseas performance, the net loss for China Re Group is USD 144 million. Facing the impact of COVID-19, China Re Group still performed with strong resilience while the profit before tax has grew by 2.7% year-on-year. Fourthly, we have translated our strategic result into the reality. First, we have formed China Belt and Road Reinsurance Pool. China Re Group is one of the players with this pool and we are going to gather the momentum for this industry to provide a more important risk guarantee for the industry. Second, China Re P&C in Malaysia is about to open. Third, we have opened up the commercial application for the first China earthquake disaster prediction models with our own IPR. Fourthly, we have been participating in the specific [indiscernible] insurance. Fifthly, we have teamed up with our oncological disease insurers, and we are going to explore into the adjustment mechanism for the long-term medical insurance. Sixthly, we have put forward the special drug insurance and we are trying to cultivate the insurance plus special drug market. By working together with the local government and local insurance institutions, we are promoting an inclusive medical tier. Seventhly, we have put China Continental Super APP online, and this is actually a shift into the scientific analytic models, connecting services, underwriting, interactions, payment together. [ Additionally ], the risk management has kept quite stably. All the entities have a very good solvency margin ratios, among which China Re P&C is 212%, China Re Life is 212% sic [ 214% ], China Continental Insurance (sic) [ China Continent Insurance ] is 350%. The consolidated performance of this group is 192 group (sic) [ 192% ]. Generally speaking, we have a very good, stable performance with the Standard & Poor's marking us at the A rate and also the best rating (sic) [ AM Best ] marked us as A group.

So let me introduce the performance of the China Re P&C. In the first half of the year 2020, the total premiums grew quite rapidly. The gross written premiums is registered RMB 27 billion, that is 17.6% year-on-year, among which the domestic business registered RMB 18.0 billion, that is 20.8%. Overseas business registered RMB 9.7 billion, that is 14.9% year-on-year. At the same time, COVID-19 has crippled our underwriting efficacies. In the first half of this year, the total cost ratio is 102.39%. That is 5.03 pp (sic) [ up 5.03 pp ] compared to last year, among which the domestic ratio is 99.8%. It is basically at the same level of the first half of the year in the year 2019, while the overseas business is 110.32%, that is 15 percentage points of growth year-on-year. The overseas performance in the reinsurance sector registered a revenue of RMB 18.02 billion, that is 20.8% year-on-year. The full year's compounded grew to 12.3%. In the first half of this year, the underwriting quality is quite stable, while the annual compounding growth rate is 12.3% benefited by the growing momentum in the P&C market. And we have rapid ramp up to our [ shift ] to the nonmargin insurance. And our [ leading ] provision in the first half of the year 2020 [ still grew ]. After excluding the agri insurance sector, the domestic insurance premium growth is 11.9%. That is quicker than the 7.6% from the P&C direct insurance. For the different factors. In the first half of the year 2020, the motor insurance and traditional nonmotor insurance has registered a double-digit growth. In the first half of 2020, all the businesses, including the CIC, the total gross written premium has registered 14.9% to RMB 9.7 billion, among which CIC's gross premium has grown by 15.6% to RMB 6.4 billion affected by COVID-19. The overseas reinsurance comprehensive solvency margin ratio has grown by (sic) [ declined to ] 92.08%, that is 3.09 percentage points compared with last year. The quality of the revenue has been improved [ swiftly ]. Now the floor is given to Chief Actuary, Mr. Tian Meipan, to give you a brief introduction of the Re Life sector.

Let me introduce you the Re Life sector's performance in the first half of the year 2020. In the first half of year 2020, the Re Life sector has grown quite rapidly and has achieved a total premium revenue of RMB 15.2 billion (sic) [ RMB 50.2 billion ] that is 30.1% (sic) [ 31.1% ] growth year-on-year, among which the domestic sector registered a total revenue of CNY 41.5 billion, that is 15.7% year-on-year. While the overseas revenue is CNY 18.7 billion (sic) [ CNY 8.7 billion ], that is 257.5 percentage point growth year-on-year. Our strategic development has guaranteed us a total investment -- total revenue of 11.5% growth, among which our guaranteed structure has been optimized in the first half of the year 2020. [indiscernible], they continue to guarantee business sector is actually growing from 58.1% in the first half of 2019 to 62.1% in the first half of 2020, among which the combined ratio of our company cap is actually being lowered down from 97.56% to 97.26%. And so far, we have achieved CNY 181 million underwriting profit. This fast growth is being attributable to Data+, Product+ and strategic development results of our company. We are leading the industry having disease categories, standards and we have achieved the occurrence algorithm for the mild disease. At the same time, we have brought our company with unique data advantages to promote the health insurance to iterate itself. At the same time, we are optimizing ourselves through the data analyzing with control models to promote the long-term medical insurance to guarantee our long-term underwriting [ profits ]. For example, we team up with subsidies policies and industrial leader policies. At the same time, through the data analyzing and through the model, we have conducted a series of the R&D [ bucket ]. And in terms of the deposit business, in the first half of the year 2020, the premium is registered at reaching RMB 22.067 billion, that is 125 percentage growth year-on-year. We are actively [indiscernible] with the low interest environment and trying to perfect the coordinating the mechanism under the controllable cost, refocusing on the deposit business opportunity, while our subsidiary, China Re Hong Kong, is operating fully and exploring into the foreign currency deposit business. In terms of the P&C Re sector. In the first half of the year 2020, the total premium income is registered at CNY 19.5 billion, that is 18.4 percentage drop year-on-year. Our strategy is to develop the P&C Re sector and we are going to enhance our risk analyzing for the trading partners. We believe that this is important resources for our revenue. Now the floor is given to the VP, Mr. Lu Xiaowei, from China Continental Insurance to give you an introduction of the direct P&C insurance.

Good afternoon. Let me introduce you the performance of the P&C direct investment. In the first half of 2020, the original premium income for the P&C direct insurance is RMB 25.4 billion, that is 5.4 percentage points year-on-year, among which the motor insurance original premium income is 14.2% (sic) [ CNY 14.2 billion ], that is 2.3% year-on-year. The nonmotoring sector's original premium income is registered at RMB 11.2 billion, that is 9.7% growth. COVID-19 is also driving the performance in this sector down. In the year 2020 -- in the first half of 2020, the comprehensive cost ratio has grown by 2.7% (sic) [ 2.07 percentage points ] to 101.93%, among which the claims ratio is 57.84%, that is a growth of 3.65 percentage points. In the first half of 2020, we capped to optimize our business structures. And in the motor insurance, we have upgraded some of the -- our total investment or the insurance ratio for the family cars while the family cars occupied 70% of the total revenue. While we're planning to controlling costs among other different high-risk sectors, the profit for the motor insurance has grown rapidly. In the nonmotor sector, to guarantee the insurance sector, we continued to develop a personal loan guaranteed insurance sectors. We have [ formally ] adjusted our client structures while the client group of high-risk tax [indiscernible], the client group of lower and medium risk kept growing, accounting for over 85%. Affected by COVID-19, the nonperformance ratio has grown compared to the last year. We have actively controlled the risk exposure. And since May, the nonperformance ratio has been kept down. So now the floor is given to Mr. Luo Ruohong, VP of China Re Assets, to give you an introduction of the asset management part.

Good afternoon. It's really an honor to introduce you to the total asset that we managed. We have actively adopted the core base to tackle with the volatile market. In the first half of year 2020, we have achieved a quite good performance. By the end of the year 2020, the total investment in the company is RMB 290 billion, that is 11% compared to end of the year 2019. We have adopted a stabilized, progressive and equilibrium allocation strategy, among which fixed aggregate investment is accounted for 74.5%, equities and fund investment is accounted for 18.4%. The structure has been optimized according to the needs of the market and the company. In the first half year 2020, we have seized the fixed income investment opportunity while we are trying our best to grab the fluctuation in the market, optimize the investment and inventory portfolio, we have been -- the fixed investment has played a foundational role. We have also allocated the deposit in the bank, local government bonds, policy-based financial bonds and other different premium financial projects. This portfolio has enhanced our income results. I think this has concluded the general introduction for the different sectors. Now I would like to introduce you to Mr. Li Ming from China Re Group, the Business Director, to introduce you the future development.

Let me introduce you my outlook to the market and our future strategy. I think if we look into the market, in the short term, COVID-19 has affected -- have a limited effect to the domestic insurance market, while for the long term, it has a very heavy impact to the insurance and reinsurance market. And post-COVID-19 era, the insurance industry is undertaking a significant change. First, the demand for insurance is growing quite rapidly. COVID-19 is going to, firstly, eventually change people's insurance demand while the national government systems and the government's capacity require the operation for the heavy disaster insurance and also the [ cut down ] insurance for the operations. Secondly, technology and innovation will shape the competition in channels, especially if it is reshaping the current value chain. And it is also going to remove the agencies in the motor insurance. Thirdly, we are also experiencing a transition in the business model. It used to be dealership-focused to the product-driven facing these challenges in the insurance market. The reinsurance market is also welcoming a new growth of opportunities. First, there is a growing demand for the reinsurance market. The reinsurance demand from the domestic insurance company is growing, while the growing of the international reinsurance market is going to top its momentum until the end of the 2020. Second, the threshold for insurance is upgrading and it needs our capacity and new plans and the data, technology, products and services. Thirdly, the industrial labor is playing an [ admirable ] important role. China Reinsurance Group as the leader of China reinsurance industry has our own permanent innovation abilities, and we are actually the first mover in the disaster insurance and [ specific ] insurance, and it is going to benefit all of our clients. Moving forward, in the second half of the year 2020, China Re Group is going to operate under the guideline of stabilizing growth. We are adjusting structures, controlling the rate and increase the efficacy. And we also want to try our best to achieve the yearly operation target, and this is also going to help our development in a better quality and in a better momentum.

This concludes the main context for the China Reinsurance 2020 Interim Performance Announcement. Thank you very much. Now the floor is open for questions. [Operator Instructions] Now the floor is open to the first investor.

[Operator Instructions] The first question is from Mr. [indiscernible] from [ CTEC Group ].

I have 2 questions. The first is about the insurance affordability from China Continent Insurance. So because of COVID-19, the credit insurance has posed a higher risk. Moving forward, how do we allocate our business in this sector in the first half -- in the second half of this year? The second question is about the life insurance. So with the revising of the standard, how do we -- how do you see the impact on the life insurance?

The first question is directly to Mr. Lu and the second question is directed to Mr. Tian.

Thank you very much for your questions. Thank you very much. For the China Continent Insurance, I understand that the credit insurance is the credit guaranteeing firm. While China Continent Insurance, our major performance in this area is the personal loan guarantee insurance, actually affected by COVID-19. The credit environment in the society has changed dramatically. The majority of our clients is being affected by COVID-19. Sometimes they are not able to pay their loans. And it actually has increased the risk because it has a postponing impact. Until the end of May, I believe the NPL is reaching its peak. After May, this ratio is declining month by month. I think it's better than our expectations. We expected until the end of this year, this sector of the business is going to achieve some of the underwriting purpose. In terms of the strategy, we are going to optimize the regional structure and client structures. In some of the high-risk regions, we have upheld the threshold and requirements for the clients. At the same time, we have adopted different categories for different clients with a very enriching order for the clients with a lower risk-controlled model. We have controlled the threshold, lowered down the ratio for the high-risk clients. As I mentioned, the client of the medium and the lower risk is reaching 85%. I think moving forward, these sectors will generate profits. That is my answer to your question. Thank you.

For the new definition of the life insurance and its impact on the life insurance, I think I have answered the question in the last investor's briefing. The new definition of the heavy disease has not been published yet. It is actually in the stage of honing the standards. Generally speaking, the new definition is a very good opportunity for our practitioners in the life insurance. It can be divided into several business ideas. The heavy disease insurance is actually one of the major creations for the direct insurance companies. We are definitely going to build this as a pillar for their industry. Moving forward, this momentum is going to grow. In addition, we have seen that in this new definition, every single company is to iterate their previous product. So we have to demand -- to develop into the new products. And under this new definition, the occurrence ratio for the heavy disease, we don't have to relook into the data. We have shifted the 25 different insurances to the 28 different insurances and then we have added a category for the mild disease. And this data is quite rare in terms of market, not only in the first stage, but also in the working scenarios for different kind of disease. This is also under heavy demand in the market. I believe that we have the advantages in the data. For example, in this 28 different definitions for the severe disease, we have our experience. And apart from this 28 different categories, for some of the companies, it will develop 80 different categories or 100 different categories. The idea behind it is not clear. We have a large and rich experience. And for the elderly people, we have a large one -- for the disease occurred at elderly age, we also have a lot of experience. So in the data, we have a deep-rooted tradition. The second part of our advantages is that we have a quite diversifying product range. Our product has been participated in every single wave of this reiterations in the insurance products. We have a quite deep-rooted accumulation, and we have the ability to work together with our partners to develop new products made up for the general public's demand. Thirdly, [ one major ] advantages for us is that the severe disease, under the new definition -- we're actually comparing the working scenario for the [ current ] severe disease. Currently, most of the severe disease are traversing -- is getting worse quite rapidly. But under the new definition, the speed of worsening is going to slow down. This is also very helpful for us to really connect it into the products. Thank you.

Thank you very much, Mr. Lu and Mr. Tian, for your timely answer.

So the next question came from Mr. -- Madam Michelle from Citi.

I have 2 questions. It is about the domestic P&C reinsurance and also the international P&C reinsurance. For the domestic part, is it stable? And in terms of the claim ratios, it is growing quite rapidly while the profit is declining. Can you give us a brief introduction on what kind of business line introduced actually resulting in this declining? Secondly, I can see a very good performance in the [ overall fee ] structure. It is 92% growth. In the second half of this year, there is going to be a growth for the international premium. Your company actually suffered a long-term impact of COVID-19, and figure out more impacting [ measures ].

Thank you very much for your questions. For the questions of the domestic P&C re sector, we are going to direct this question to Mr. Li. And the second question is going be directed Mr. Zuo.

Thank you very much for your question. Thank you very much for your understanding of the claim ratios and you have understanded that we have actually growing ratios in the claims, and also we have a declining in the [indiscernible]. It is actually in line with the claims of this industry. So in general, the overall cost is stabilized.

Let me answer your second question about the performance in the international market. I should say that -- and this year, the international market premium is becoming -- is actually growing, and we believe that this momentum should be kept for the long term. So based on this situation, we are working for the plan in the second half of this year and also in the coming years. Our major concern is that we should diversify different markets because there is not a very balanced development in the international markets. We're actually curious about this fact. And some of the market is actually changing -- or shifting very voluntarily. So I believe that these regions and the markets is where our eyes are laid. And we are also going to organize the structure, focusing on the heavy disaster insurance and nonheavy disaster insurance. With optimizing this insurance, I believe that we are going to have a more stabilized performance. I'm supposing that COVID-19 is creating a lot of challenges to the international market, but it is also bringing us a lot of opportunities. We are conducting a few [ western ] research into the international markets. We hope that we could grasp this opportunity to improve the general performance in the coming year.

Thank you very much, Mr. Li and Mr. Zuo, for your answers.

The next investor is Jiang coming from Morgan Stanley.

So I have 2 simple questions. This year, the flood disaster created severe consequences compared with the previous year. Can you give us a brief introduction of the claim ratio of the direct insurance payments and also the reinsurance? The second question is about the special drug insurance. Can you give us a brief introduction for this insurance? And what is the prospect of claim ratios for the market in this sector?

Thank you very much for your questions. The first question is about the effect for the floods. So we are going to direct this question to Mr. Li Ming. And the second question is going to be directed to Mr. Tian.

This year until July, in the Southern part of China, the flood has created a quite heavy impact. Currently, we experienced losses in 2 parts: one part is in reinsurance, the second part is the P&C direct insurance sector. In terms of the reinsurance, until the end of July, the estimated loss is around RMB 150 million. It is about [indiscernible] [ pilot projects ] and the disasters, and it's also concerning some of the contracts that we have signed. This is actually the estimated loss for the reinsurance. It is actually an estimated loss and is not included in our financial statement because we have done the buffer mechanism, for example, the contracts mechanism or the fluctuation of [ traditional ] mechanism. In terms of the direct insurance, we estimated the payment is around RMB 8.85 million. That is 1.8 percentage points growth compared to the last year.

For the special drug insurance or special medication insurance, it is actually a topic widely discussed in the market. There's nothing specific about this insurance. It is just an innovation in the payment method, so firstly, no matter from the demand side or the market side, it has -- we have a huge market demand. But for the special medication insurance, it is actually addressing the general public concerns to -- we have to find a hospital, have to go to a hospital, have to meet a doctor, and these are the pain points for the general public. The special medication insurance is not only addressing this headache for the general public of the heavy medical prices. And I believe once the innovation drops or the state-of-art therapy is being applied to general public, it is very beneficial. So I think it is a very good integration attempt to synchronize insurance together with pharmaceutical industry. Moving forward, I feel that the special medication insurance is -- just marks a new beginning for the integration between insurance and the pharmaceutical and the medical industry. It is not the end of this chapter. I think that for the special medication insurance, we could -- focusing on the 2C business model and if we are focusing on the 2B business model because -- and the insurance packages provided to the general public, many local government and local institutions support us. And in the insurance sector, we cover several different responsibilities. Moving forward, our responsibility is going to be expanded to several different sectors, not only limited to the [indiscernible] therapy or the secondary [ tumor ], for example, the [ quantum ] therapies and also the [ magnet ] therapy. And we have some of the expensive drugs or state-of-art therapies is also going to be included in this product. And moving forward, chemotherapies or drugs not included in the social security is also going to be a part of this insurance. So we have extended the insurance coverage, and it's going to be a very important part. For the medical sector, our integration with the medicine is also going to open us a new front. For example, we are collaborating with many international renowned pharmacies. This guarantees the supplies of the medicines and this guarantees the logistics supply. These are my -- these are the initial ideas. Our integrations and the synergies we see in innovation drugs is not only by the logistic channels. We are looking forward to the in-depth integration. So the special medicine drug is actually -- initial stage has actually demonstrated our integration with hospitals and with the pharmacy industry in the first stage. It is not only about prudent risk control, and these emergencies -- and this emergence is also about the ability to be -- and this is also going to be our major strategic achievement.

Thank you very much, Mr. Li and Mr. Tian.

The next investor is Mr. Li Jian from Huatai.

I have 2 questions. The first question is about the international reinsurance. The second question is about the domestic P&C insurance. I believe the COVID-19 pandemic has created a lot of challenges for the international market. When will the impact end? How long will it be lasting? Under the [indiscernible] population, do we have any readjustment to the international and overseas market business? For domestic market, it is about the motor insurance. I believe the details for the requirement of the motor insurance has came up. So how do we view the motor insurance reform? How do we view the impact of the motor insurance?

Thank you very much for your questions. The first question is about the overseas P&C re sectors. We are going to direct this question to Mr. Zuo. The second question is going to be directed to Mr. Li Ming.

After the outbreak of COVID-19 at the end -- at the beginning of this year, the pandemic has brought a lot of impact to the reinsurance sectors, not only on the business sector but also in the investment sector. The pandemic is still underway. I believe that you have read some of the information about the estimated loss. Clearly speaking, the uncertainty still looms large. There are so many international institutions estimating the losses, while the numbers we came up has a huge gap. From the bigger picture of the reinsurance impact, currently, I believe the impact have been stabilized. That is our judgment. And the international rating companies have seen their outlook to the international reinsurance market as a stabilized outlook. Second is actually the general picture for the market. Under this backdrop, the international reinsurance market is getting firmer. Starting from the beginning of this year to the several different shapes through -- until now, there is an increase for the premium in the several different major markets. And I believe this trend is going to cap its momentum until the end of this year and even the beginning of the next year. For the first question on how we will come with COVID-19 analysis for the -- well, I cannot come up with an exact date for when will COVID-19 end. So the impact is being decided by when will COVID-19 end or controlled? And only under this backdrop, the impact on the international reinsurance market is going to be clear. Generally speaking, I don't think the pandemic is going to continue for a long time as the market is going to cap its firm standards for quite a long period. Facing that scenario, our strategies to the international market is not growing or shifting quite rapidly. The long-term strategy is being developed through the long-term situation, and we are looking forward to fully research into the market in the next cycle. And we hope to achieve something in that next economic cycle.

For the reform of the motor insurance, this is actually a hard discussed question. We talk about the C-ROSS, and we have the comprehensive insurance reform. I believe that we have finished all the procedures from the first time, second time and to the comprehensive reform. I believe that the overall reform in the motor insurance has finished -- almost finished, achieving the results of the regulatory institution's expectations. For one part, it guarantees or covers a larger responsibility; and second, the premium has lowered down; and thirdly, the procedure phase has also been kept low. I believe this reform is demonstrating us an overall picture of the governmental philosophy, people-centric, and maximizing our profit. So the motor insurance, as a category of the insurance, is actually focusing on the people-centric policies to maximize its profits of the interest for the general public. Because we have shifted our strategy, the claim ratio is going to increase while the procedure phase has decreased -- is going to decrease. The general picture is going to be more opportunity to make ends meet. All the entities in the market is going to experience severe competition, while the large market or large company, with their advantageous position, is going to grab a larger share of the market, and the small company might experience some difficulties. Since we -- if we are not breaking the traditional motor insurance landscape, since we are facing the C-ROSS reform, we must look at it through the bigger picture for the regulation. How do we get rid of the agencies? And how do we find our clients with the highest efficacy? How do we serve our clients with the best-of-quality services, which use the technological method to analyze this market. Thank you very much for your questions.

Thank you, Mr. Zuo and Mr. Li.

The next question is [ Mr. Steven ] from [ Wubei Intelligence ].

I think the first question is about the growth for the premium. In the first half of the year, the premium has grown quite rapidly. Do you have some numbers or statistics to share with us for the emerging sectors? So what is the general comprehensive cost ratio? Is it higher than 10.5%? The second question is the motor insurance sector in the first half of this year. What is the overall and overarching cost ratio? What do you expect it in the second half of this year? The third question is a feedback to Mr. Tian. The last question, from the reinsurance perspective, the reform, what kind of impact will it have on our business volume? Do we -- are we going to experience a growing number of the business? We have a very good performance in the overseas life insurance market. In the second half of this year or in the coming 2021, what do you expected of these sectors of the market?

Thank you very much for your questions. Your question -- the first question is about credit-guaranteed insurance. The second part is about the C-ROSS reform. I think Mr. Li is going to answer this question. And the third question is about the life insurance's overseas performance. We are going to ask Mr. Tian to answer your question.

Thank you very much for your answer (sic) [ question ]. For the individual loan insurance of China Continental Insurance, we have grown quite rapidly. You will see that the industry has also grown quite rapidly. The data in the industry is due to some of the risk events happening to certain different entities. And these entities have controlled the development in this sector. That is the reason why the industry for the sector has grown quite rapidly. And from the peer industry's perspective, many companies had acquired higher growth ratios. So although it is called individual loan-based insurance, although it is under the same name, but actually, the business model is quite different. Generally speaking, there are 2 categories. The first is stock operating models and the second is the channel models collaborating with the insurance companies through their platform or channels and inviting through the channels or platforms. While we are adopting a sales operating model, the insurer needs to get their clients through their platform, doing the risk control by themselves. And on the topic clients is the individuals with loans. So relatively speaking, this type of the clients help us achieve quite frankly -- is frankly vastly distributed. And for each part of the loan, it is not about large number, this year, affected by the COVID-19. Some of the clients do -- affected their solvency capacity, but we brought resumption and production resumption. I believe that we are getting better and make this NPL ratio is actually approaching a double-digit performance. But after May, the ratio has been lowered down. So we are confident in the risk control and profit in these sectors. For the emerging market, we have looked into the different clients and the different regions. For this client in the high region -- high-risk regions, we have controlled their underwriting capacity. For the clients belonging to the high-risk categories, we also controlled their performance. And I believe the newly added client is from the lower-risk group and this group is accounted for 85% of the total clients.

So for the C-ROSS questions, affected by COVID-19, the first half of 2020 and at the end of the first quarter, the solvency ratio is getting down. But with the easing of COVID-19 and with the work resumption and its resumption with transactions, the [ CUI ] capped its momentum of accruing solvency ratios in line with the previous year. Generally speaking, I believe in clean -- solvency ratio is also going to lower down. The overall cost ratio is actually posed towards lower margins. Combining with C-ROSS situation, it is actually quite a [indiscernible] regulator-designed idea. So the impact of our C-ROSS reform to the reinsurance sector is -- we think is quite limited. Because I believe it is less than 13% after the C-ROSS reform. The impact is being demonstrated by the pressure of the comprehensive underwriting capacity. And it is also affecting the profit in the commercial vehicle insurance sector.

For the life reinsurance overseas performance, in the first half year of 2020, we have pioneered in the industry. And our overall strategy in this sector is adopting a stabilized strategy with opportunities we are going to explore into the further development. The major industries have been married in several different fronts. We should be focusing on the deposit-dominated business. To be frank, our overseas subsidiaries compared with larger other international reinsurance companies, we are still late movers, just starting in that international market, no matter from the data, client relations and market size, we are relatively small. So we will started from our advantages and doing something we were good at. We are not willing to do something that we don't understand and we don't know. So in the deposit type of the business, the coverage market is being focused in Hong Kong and Singapore. In the first half of this year, and moving into next year, we might be extended to other lower-cost areas, including the foreign currency business in China Mainland, and also, we are also going to explore the Japanese market and Europe market based on my strategic -- our strategic thinking. In the market side, we are going to consider the investment and return ratios. For example, the domestic company required us not only focusing on the deposit type of business. We are also going to focus on the guarantee type of business, especially for the physical bond. We are going to rely on our group advantages in this sector to pioneer, to attempt in this sector and also in the guarantee type of the business. We actually relying on the group's big data and its experience. And we are also going to export other experience. And we are also going to focusing on the special medication insurance to design China -- to transporting the China-specific type of the insurance into the international market. I think it is still under [ our portion ]. And within the short period of time, we might not become one of the mainstream of operators. And in looking forward into the second half of the year 2020 and after the year 2021, we are going to pioneer into these sectors.

Thank you very much, Mr. Lu, Mr. Li and Mr. Tien.

Now the next investor is [ Mr. Joseph Ng from Yangtze Securities ].

I have 2 questions. The first question is about the impact of the revisations of the standards, I believe that this is -- might be causing -- this revised standard might be causing some of the impact of the profit in the direct insurance sector. Have you done some of the research into the commission ratio's timing, too? I mean what is the development [indiscernible] and trajectory in this sector? Some of the insurance -- insurers in the market might be quite adequate in designing the special and -- in the heavy disease and severe disease insurance. How do you look into this sector? I think especially about the revisations of the severe disease sector. No matter whether direct insurance company or the reinsurers, the total premium is declining. So what kind of a categories have an ever-stronger declining tendency? If the interest rate is intact at this level, is -- are we going to experience a further drop in this sector?

We direct the first question to Mr. Tian. And the second question is going to be answered by Mr. Luo.

For the revisations of the current ratios of the severe disease, whether it is going to lead a declining in the severe insurance -- severe disease insurance pricing, I think for the different products, it is very different in terms of sensitivity. For the market and the mainstream, it is actually a lifelong severe disease product. The price for this is going to decline in a moderate range but for the fixed-term life insurance, especially as the term is being [ vetted ] at 5 to 10 years premium and the price is going to drop quite dramatically because these categories of the product is quite [indiscernible] to the occurrence of the disease. The second question is about the price. The price has not only been affected by the coverage ratio. I believe it is only a small part of the pricing mechanism. Interest rates and also the charge for the fees is also a one -- other definite influencing factor. Generally speaking, if [indiscernible] the occurrence ratio is declining, the price is not going to drop down. For the pricing mechanism, is it going to create a shift of the bill to paid into the reinsurance? I believe in this sector, P&C insurance has a quite different [indiscernible] in the -- with the life insurance. But for the life insurance, especially for the businesses about the severe disease, it is about the [ MUEs ] because it's a long-term business. It is not what happens in 1 or 2 years. It is a lifelong product. So currently, I cannot see the cost. So I can only tell you the [ MUE ] -- [ MAUE ], whether it is bad or good. And the overall picture, it is very -- it is actually varying, promoting in the annual [ e ] rate. So from the general [ seeded ] ratio, the demand is growing. I believe that we still have a quite boosted demand for one part under the new definition, the occurrence ratios for the severe disease is shaping quite dramatically. The insurer might not understand what is the severe disease insurance. Some of the insurers might not understand the severe disease, and they don't need an insurance company to help them to understand the product under the new definition. What kind of product is actually made up with the real demand for the general public is under explanation by the direct insurance company. So do we have some of the collaborations with the [ seeded ] companies under this new definition? Actually, we have a lot of one-to-one type client business discussion. We are actually talking to every single mainstream one-to-one product and we are also launching a series of the product's outlook. So for the moderate disease, severe disease and what kind of disease will happen in the moderate disease and also for the immunities to the moderate disease and also for the severe and even critical stage of the disease, oncological disease. We are trying to collaborate with the future development of the market. So I think the [ seeded ] ratio in this sector is quite robust. In definitions under the new definition under these new companies, it actually pulled us to a very good performance, and we are also going to grab this opportunity to do a good job of this sector, and it is also going to be one of the driver for our business.

Thank you very much for your question. For the declining return ratio, now a major reason is about the -- in our average invested assets, in the first half of this year, it is growing quite rapidly. It is the course. The overall growth scale for the market is growing quite rapidly. This rapid growth in scale is higher than what we have expected. It is actually higher and steeper due to net return of the investment. So from the 2 influencing factors, since it is changing, I think the total ratio is being declined by 0.43 percentage points. So I believe that this growth ratio is actually in line. You have mentioned about the domestic long-term performance and our expectations. The return ratio has been taxed at a quite high level. And from the general asset allocation side of coin, under that backdrop, we are actually -- we think the equity market is very promising. And in terms of a fixed-return products, we are going to be focusing on the cash flow. And thirdly, allocation. We are going to enhance our allocation in the bond market and in the financial market. We are also going to optimize the [ subordinated ] bond and also the secondary transmittable bonds. We view these as different opportunities and it is also very helpful for us to get more profits. This is actually helping us to get more investment and diversify our portfolio.

Thank you very much, Mr. Tian and Mr. Luo, for your answers. Due to interest of time, we'd like to invite the last investor.

So the last investor is Edwin from HSBC.

I have 2 quick questions. So my question is about the overall cost ratios for the overseas business. So what kind of product category do you have in the overseas business? How long will it last? Is it 1-year bond or 3-year bond? So how long will these downward impact for the overseas business existed? The second question is about the life insurance. So I believe that you have a lifetime affordable disease insurance, medical insurance. So what is the feedback in the client side? Is it going to be expanded into the medical insurance?

Thank you very much for your questions. For the first question on P&C reinsurance, we are going to direct this question to Mr. Zuo and the second question is going to be directed to Mr. Tian.

COVID-19 pandemic do cover a lot of the overseas P&C insurance market. And it's a very -- covering all kinds of the insurance. For the China Reinsurance, I believe that we have focused on the P&C insurance and also specific insurance. And they do impacted us. From the adversely [ stated ], the majority of the data is actually oddly [indiscernible]. And I believe it's about different claims to the reinsurer -- to the large insurance insurers or through the reinsurers. Some -- I believe that the majority of them belong to occurred-but-not-reported categories. The overall claim ratio is around 110 and it is our expectation, generally speaking, it is very stable. We have observed it for a long period of time. There's not a huge fluctuation. And I think it is the general picture but it is being decided by the development for the pandemic to decide to allow us to have a world picture so eliminating by the pandemic. The overall claim ratio has declined, and I believe that we have a very good performance. That is its impact for the claim. And for the term of the premium, it is for the -- the majority of our warranties are 1 year, so I believe that it is affecting the business in the year 2020. Thank you.

The second question is about the lifelong oncological disease medical insurance. I believe the market has a very good performance. This is actually a very-first lifelong insurance in the market. It is actually solving the headaches for the oncological disease. Currently, the sales is quite stable. And we did not promoted the -- this type of the sales. Looking forward, I still believe that it is going to increasing from the age group. I believe that you might attracted these -- it is being bought by the elderly people. It is actually being sought such the young people, people at middle age and also elderly people bought it at the same ratio. So I should say that, definitely, it is being launched products and it is actually 1 of the 3 or 4 favorite products for the elderly group. Overall speaking, no matter what the payment, the sales -- no matter for the claims and also for the sales, it is also running close to the range expected to other different hospitals in the medical insurance. Under the current situation, it's very difficult. So the most difficult qualities about its [ refusing ] rate from a regulatory institution position point of view. It is very difficult for them to find whether they should approve these insurance. The regulatory bodies actually cares about the lifelong medical care, no matter in Hong Kong and in the United States. They do pose a larger range of questions and its operation have a gap, some of the difficulties. That is the reason why the regulators, in order to protect their customers -- in order to protect the customers, they don't -- they actually have a quite strict requirements. I believe that we have several different large companies, and I also believe that a series of the product is being approved and being sold. I think Pacific Life also has a long-term life insurance, 15-year product with a very good market feedback, we have sold and premiums for billions of RMB. So I think the data, this is actually demonstrating the popularity for these categories of the products. Moving forward, the long-term medical insurance, we find it hard to define and to continue. So the general public might not understand whether this belongs to 1-year term or the long term. So it does not have a very good attractiveness in the long term. If we can really separate them into 1-year insurance and a long-term insurance, I believe the general public is going to have a better understanding. At the beginning of the year 2020, the regulatory bodies has came up with a interpretations and it actually came up in the hearings. And I believe that once it is being implemented, the long-term medical insurance is going to go be boosted into the larger markets, especially for the lifelong oncological disease development. The market is going to have a larger confidence. Going forward, the understanding for the general public to the risk and to the products, when they have a deeper understanding to this sector, it is going to set the support from the general public. Thank you very much.

Thank you very much for your questions. We are ending our call on time. And with that, we conclude this China Re Group 2020 interim performance announcement. We'd like to thank all the investors and analysts for their long-term support and concern for China Re Group. If you need -- if you have more questions or need more information, please contact our group. With that, we conclude today's conference. Thank you very much for attending. [Statements in English on this transcript were spoken by an interpreter present on the live call.]