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

Ladies and gentlemen, good afternoon. Welcome to attend China Reinsurance Group results announcement in the first quarter of the year 2021st. I'm Liu Shukai, the Director of the BoD Office of the China Re Group. Today, we have with us Mr. Li Ming, the Business Director of China Re Group, and today's meeting is going to be divided into 2 parts. The first session, we are going to invite Mr. Li Ming to give us a brief introduction about the results in the performance of the China Re 2021st Q1st, and the second part, we are going to open up the floor for questions. [Operator Instructions] Now I'd like to give the floor to Mr. Li Ming to deliver the results of the first quarter of the year 2021st.

Good afternoon. I'd like to give you a brief introduction about the indicators for the China Re Group in the first quarter of the year 2021st. By the end of the first quarter of the 2021st, China Re Group registered aggregated insurance income at RMB 35.261 billion, that is 23.2% drop. Net profit is registered at RMB 2.417 billion that is [ 8,621.2% ] growth. The main reason behind it is because the deposit business have all these development opportunities and completed the easy task back at the first quarter in the year 2020, leading to the high base number. If we excluded the deposit-based business, the first quarter of the 2021st is maintaining a very steady growth momentum. At the same time, we also experienced a very rapid growth in our net profit. The major reason is because of the optimization of the position structure and timely realization of the gains might see opportunities arising from the fluctuations in the operating margin. Second, it is also benefited by the year-on-year improvement of the underwriting profit as adjusted by the market. The China Re P&C excluded each quarter has registered an aggregate income -- insurance income at RMB 80.3 billion, that is 9.2% growth. It is higher than the average number in the insurance market, while the net profit is registered at RMB 761 million, that is 215.8% growth. The aggregated solvency adequacy ratio is at 217%, that is 8 percentage points higher year-on-year. China realized, excluded its Hong Kong subsidiaries, has aggregated insurance business revenue at RMB 10.6 billion, that is 40.6% drop compared with last year, while the net profit is registered at RMB 945 million, that is 420% year-on-year, while the aggregated solvency adequacy ratio is 234% growth, that is 50 percentage points right year-on-year. China Continental Insurance has a insurance revenue at RMB 12.082 billion that has a drop by 4.9%, while the net profit is RMB 341 million, that is 128.9% year-on-year. The adequate solvency ratio is 349%, that is 8 percentage points drop year-on-year. That is the numbers I'd like to share with you. Thank you very much. Now the floor is open for questions.

Operator Instructions] The first investor, the floor is yours. The first question is directed to [ Isabel ] from [indiscernible] Capital.

I'm [ Isabel ]. I have 2 questions. The first question is that for the C-ROSS reform in the first quarter, does it has any impact towards the profit and also the underwriting revenues of your group? And what is the impact of the China Continent Insurance? The second question is, can you tell us the undermining result of the reform and how will the China Re Group deal with it. Since last October, fewer reform has been carrying on, and we are gradually generating a clear picture of what is going on with C-ROSS reform?

So our underwriting revenue has been dropped by 21%. While the total policy underwriting has been dropped by 12%. But because for the different quarters and different balances, we have experienced the fluctuation. In February and March, we do experienced some of the abnormalities. Affected by COVID-19 this year, the premium of the vehicle market has also been dropped by 12%, if we are going to have our outlook throughout the year. C-ROSS reform started from the fourth quarter from the last year, and it's going to impact the coming 3 quarters in this year. So our predictions towards the decline in this field is going to be 10% this year, and its impact in the net profit with a rising comprehensive cost, the aggregated cost number is going to be balanced. For the different stakeholders in the market, we do see different levels of the impact. Generally speaking, for some of the insurance companies, they are experienced lesser and less impact, I believe they are going to shrink the impact within 2%. For all the subsidiaries, it is going to have a larger impact. The average number of the impact towards the industry is going to also be around 2%. The major reason is because of the market. Because the C-ROSS reform has advantage for around 70% of the market. And for the China Continent Insurance, it is going to register an industrial average number. So I think we might be falling behind with a 1% compared with the industrial average because for our clients there is a lot of them who are the vehicle owners. So I believe the performance in the second quarter of this year is going to maintain at the same level of the first quarter. Generally speaking, the number is going to be around 4% throughout the year. China Continent Insurance is going to have a very balanced result and we are going to catch up with the average performance of the market. So we are definitely going to put the cutting down of the losses as the target of this year, while we are going to restructure the balance and our product and we are going to add more momentum in other different factors. That is my answer to the C-ROSS reform. For the factors of the critical disease, from the performance in this quarter, I think it might not be as good as we imagined. It might be affected by the strained virus growth. And we also believe the insurance for the critical disease, the market, the demand for the critical disease insurance has been continued by last year, because of the COVID-19 pandemic. Thirdly, we should also think about the compliance reasons. And across the market, the product has been designed as a similar structure, it created more competitiveness in the market. That is the reason why even if we launch the critical disease insurance since February, it does not register a very high momentum in the market, but it does not affect the general sales performance in our group because we have a very overarching distributions in the landscape for the medical-related insurance because we have the -- our presence in the medical insurance in the special drug insurance and the critical disease insurance is only a small part of our medical insurance. Generally speaking, it does not affect our surety business. Moving forward, we are going to catch up with the market dynamics in real time and through analyzing the customers' demand, we are going to readjust our structures and have our frontline sales to promote the numbers, and we are also going to put forward the supply side reform with more leverage to guarantee the supply while innovations and research is going to work at the same time. With a better service level at our new project, I'm quite confident about the future market. Thirdly, we are going to look at the long-term and as for distribution, we are also going to organize our structures and shifting the structure towards the medical-related insurance and also the aging care-related project.

So the next question is directed to [ Alan ] from HSBC.

I am [ Alan ] from HSBC. I have one question. It is about the aggregated cost and also the solvency ratios. How will be the solvency ratios in our overseas business. Recently, we saw a rise of the COVID-19 pandemic in the overseas -- in the international market, does it going to affect our yearly performance for the China Re Group?

Thank you very much for your question. Let me put it in this way. The loss that we have experienced in the first quarter of last year is because we have not imagined and we were underprepared for the COVID-19 pandemic. But for the first quarter this year, we have excluded this risk factor. With the rising of the numbers of the COVID-19 pandemic, in other different countries, in the first quarter of this year, we're definitely going to be better prepared compared with what we have experienced last year. We have a very full understanding of the COVID-19 pandemic. So the pandemic is not going to create any bad -- dreadful impact towards our international business. So let's talk about the shift of the premium market and our internal restructuring of the product. This is the major reason for the performance. Generally speaking, the aggregated solvency ratios in our international business has registered a better performance than I imagined, I think it's quite -- I think it's even better if we compared it with the first quarter of the year 2018 and 2016. If there is not too much heavy disasters happened in the third quarter, I definitely believe that this year, we are going to register very remarkable results. Thank you very much for your questions.

The next question is going to be started from Michelle.

I'm Michelle. I have 2 questions. The first question is about our domestic reinsurance market. This year, I think that from the insurance market, the general formula has been paying in a rather quick manner while its aggregated solvency ratio is rising quite rapidly. So my question is about the general performance in this sector and its impacts towards the -- and would like to ask you the relations between China Re Group and also China Agriculture Insurance. The second question is about the payment that we have experienced. Are there any deposits that we are prepared or can you give us a brief introduction towards the -- where it's ports?

I'd like to answer your first question. So after the funding of the China Agriculture Reinsurance. The communities for the agriculture business from the China Re Group has been shifted to their cart. The quality related to agriculture insurance has been taken care of by China Agricultural Reinsurance. We are not only -- we are no more the operator for this part of the business. Let me give you a brief introduction of our part of the business. So they have gave us a proportion of their business in exchange for our technologies and data that has how we cooperated together. China Agriculture Insurance is growing at a very rapid momentum, while their aggregated solvency adequacy ratio, from the COVID perspective, there's not any abnormalities because for the major disasters happening in the agricultural surface, it is being concentrated from June to September. So there's not so much abnormalities happening right now. We need to look at the second and the third quarter of their performance. The second question you have asked, the second part I want to talk about is that are you referring to the Suez Canal blockage. I think the event has a very limited impact on our company. I think the total cost or total loss for another company is going to be around several million of RMB while the cost affecting the U.S. venture is actually going to registered more harm for our company, and we are connecting with the U.S. market and included that part in our financial report in the first quarter, while we have absorbed the losses of the cold winter in the United States. For the performance in the first quarter, we think our performance is still very remarkable. I believe the incident happened in Suez Canal is not going to have a very heavy impact on our performance.

I'm the economist from Morgan Stanley. I have 2 questions. So what is your expectations? And what is your observation for the underwriting capacity of the life insurance and has also health sector insurance. And recently, we have heard a very hot discussed topic about the mixed insurance. And for our company's general portfolios, I do believe that some of the product is quite good, while others are not. There is a very huge gap between the 2 different parts. How do you better balance the product? And the second question is about the China [indiscernible] Group.

So let me answer the first question. Currently, for the influence in the health care sector, there are several different categories. The first category is the critical disease. It is an event in Asia in the insurance. The definition of the critical disease insurance means that we are going to pay the clients where they have applied and the more they have -- the more policy is, the better the payment is going to be. So compared with the traditional life insurance, it is also quite different with the traditional life insurance. So for the critical disease-related in France, it is actually based on the conditions of the critical disease. For the general health sector insurance, it is related to the critical chronical disease because the chronical disease is going to experience the 4 stages, including the rising of the disease, the peak of the disease and also the patient is going to recover after the disease. So for the underwriting for the premium, it is not the more the better. It is more about the recovery stage of the patient. The third category of the health sector insurance is fairly-based insurance. It includes the special drug and also the physical examinations served by the doctors. It is a factor that is dominated by the service. And currently, we also have the fourth categories of the insurance, for example, the long-term nursing for the aging population. For example, we are going to send -- the service provider is going to send the professional nurses at their door early morning. So generally speaking, other lazy health sector related insurance goes into these 4 different categories. From my perspective, I have a very positive expectation towards the medical sectors and also the health service sectors. The medical insurance is solving the current problems of -- that is actually making up with the brand of the national insurance. Because some of the diseases or the drugs are not included in the national insurance provided. Some of special growth might not be reached by the residents. If we came forward with the portfolio combining the factual drugs and also the medical service. It is going to generate a lot of value in the market. Our general feedback towards the health sector related insurance is the cause. We believe the medical resources has been controlled by the hospitals. There is over medications or acquired urgent demand for the medical resources. The insurance company is being set at a relatively subordinated stage compared with the hospitals, guiding the medical treatment is the ultimate preference for the client. While this is not being controlled by the medical -- by the insurance group, but if -- in the future, if the insurance company can serve their clients or search for the best medical resources for their clients. It is going to be the best and most economic manner across the society because we are going to look for the best economic manner for our clients. And for some of the special drugs, it is also going to be claimed by the insurance company. It is going to save a lot of social resources. That is to say for the health insurance sector, we do see a lot of potential in the market. But I believe some of the policy-related issues cannot be changed by the insurance companies -- also by the insurance company, especially for the standard maintenance of the State Council, recently has caused regulation towards the long-term healthy development of the health sector related insurance. It has inspired of that moving forward, we believe there is going to be the best allocation for the medical resources in the society. I believe I have answered your first question. That is my personal answer to your question. I'm not quite clear about your second question. Could you please repeat yourself?

So the second question is about the investment of -- from China Re Group towards China [indiscernible] .

Actually, we don't have any investment in that part.

For the interest of time, we're going to give the floor to the last question. The last question is coming from [indiscernible]

A very simple question. For all the [ Foreign Language ], these are inclusive financial insurance projects, what is your general logic behind it.

I'm not answering to the [indiscernible] related question. In the previous questions, I think it's not part of the health sector insurance. From my perspective, it is a half business, half service insurance that has been guided by the local government, the designing logic is to make up for the blanks on side of the social insurance. We required it to be lower cost, easy to understand and easy to operate. It is going to help us to serve the society, and it is also going to educate the society about the health sector related insurance. From that perspective, China Re Group has been participated in this sector very deeply. We have innovated our design for the quarter. But currently, I believe the insurance company don't have much data. And we are having the insurance company to develop better product portfolio and best premiums and policy. And we are also happy with the building of better online platforms and online sales. Generally speaking, their demand to procure the reinsurance projects is based on their previous experience.

Can I clarify that it is the insurance for the [indiscernible] is over compensation over claim projects or is it the visual-based structure. If it is a visual-based structure, can you share me with the visual?

I think after the meeting, we are going to -- I'm going to let my colleague to contact you. I am not quite clear about the exact number. I'm going to provide information to you through my colleague.

Thank you very much for your kind questions, and we really want to thank Mr. Li Ming for your kind answer to these questions. For the interest of time, here, we concluded the business results announcement in the first quarter of 2021st. Thank you very much for your yearly support of China Re Group. If you have any questions or need more information, please contact our investment team. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]