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

Ladies and gentlemen, good afternoon. Welcome to attend the 2022 Interim Results Announcement of China Reinsurance Group Corporation. I am the moderator for today, the Executive Director, Zhuang Qianzhi of China Re Group and Zhu Xiaoyun. Now I'm going to present to you the distinguished guests who are with us today. The first one is Mr. He Chunlei, the General Manager of China Re Group; Mr. Tian Meipan, the Chief Actuary of China Re Group; Mr. [ Zuo Huiqiang ], the General Manager of the Financial division of China Re Group; and Mr. [ Zhuang Qianzhi ], the General Manager of China Re Life Insurance; and Mr. Li Shanwen, the Deputy Director of the China Re Continental Insurance; and Mr. [indiscernible], the General Manager of China Re Asset Management [ conglomerate ]. Today's results announcement is going to be divided into 2 parts. The first one is that we are going to invite the executives to introduce us the results in the first half of the year 2022. And we are also going to give an outlook to the forward and the upcoming half years. And then we are going to give the floor to Mr. Zuo Huiqiang to introduce all the performance in the different sectors. And the second part is going to be a Q&A session where we are going to answer the questions from analysts. [Operator Instructions] So now I'm going to give the floor to Mr. He, Chunlei.

Respectable investors, analysts, good afternoon. Welcome to attend the China Reinsurance Group 2022 Interim Result Announcement. Since the beginning of this year, the international geopolitical risk is on the rise, climate changes that were triggering a lot of disasters. Fed has increased the interest rate while the global insurance market and the capital markets are to stay effective as expected. The COVID-19 pandemic has been occurred in the multiple areas, while the major economic performance has been under pressure. Facing this complex situation, China Re Group has sticked to our value-enhancing strategy, while staying to the stabilization of the group, restructuring our performance. At the same time, we have kept a very stable performance in the first half of the year 2022. I'm going to give you a brief introduction towards the strategic and also the results we used in the first half of this year. First, my introduction is about the general performance. The first one is the major financial indicators. In the year 2022, China Re Group have a consolidated gross written premium of RMB 87.98 billion, where the net profit attributable to equity shareholders of the parent company is around RMB 1.681 billion, that is around [ 50% drop ]. The reinsurance business is far surpassing and unplaced the counterparties in the international market. The total asset is registered RMB 508.511 billion, where the total equity is registered at [ RMB 9.8182 billion ]. Recently, the dividend yield corresponding to the share price is more than [ 70%. ] Now I'm going to give you a brief introduction towards the reasons behind these changes affected by the COVID-19 pandemic as well as the conflict in the geographical structures. The capital markets see a lot of fluctuations in the short term, while the investment return is dropping quite rapidly. And for the long-term capital investment, the return is dropping quite rapidly. China Re Group is using the recalculation method for the Great Wall Assets that we hold, after a very detailed evaluation, we actually reduced our holdings of the Great Wall Assets, which is triggering that in the medium term of the year 2022, the number has been dropped affecting the numbers that we announced in the 2nd of August reaching around 58.1%. If we exclude the influence of the Great Wall Assets, the first half of this year has registered a very good performance. The second figure I want to review is the steady growth of the premiums and optimization of business structure. In the first half of this year, the consolidated gross written premiums of the group is registered at [ RMB 8.798 billion ], while the domestic P&C reference and domestic L&H reinsurance has been reaching a quite rapid pace. And our key areas, the premiums that we registered is growing quite rapidly. P&C insurance domestically is registered at RMB [ 1.5853 ] billion that is 42.1% growth. In the first half of this year, we are also launching into the Blue Sea market, focusing on the Internet-related ensuring insurance products as well as the wind farms [indiscernible]. Our business is on the rise all the time. The P&C overseas reinsurance business has registered a revenue at [ RMB 1.1374 billion ], that is 7.7% growth. We grab this opportunity where the phase rising, we have also used these opportunities for the geopolitical reinsurance as well as the responsibility group. We have launched into the non-childcare market for the P&C premium insurance non-motor sectors. The total revenue has been registered at RMB 12.3 billion, while the domestic L&H Reinsurance protection-type business sector, we registered a revenue at RMB 13.506 billion. That is 12% -- 6% (sic) [ 12.6% ] growth. In the first half of this year, we are targeting the aging group as well as the chronic disease populations where we are seeing a 16.8% growth. And for the P&C premium insurance non-motor sector is registered at RMB 12.319 billion, that is 9.2% growth compared with last year. For the first time, this is occupying for over 50% of our total revenues. At the same time, the motor business has registered a very rapid return. In May 6 this year, the annual growth performance is actually surpassing the average performance in the market. For the single month performance, it is actually listed the #1 in these competitors. The third one I want to tell you about is that we have a very good underwriting without improvement as well as the robust risk management. The improved underwriting results has been improved continuously. From the second half of this year, the number was 110.28%, it has been dropped to 106.64% to 103%. The combined ratio of Chaucer after excluding the impact of the Russia-Ukraine conflict, we have also registered a very good performance. The combined ratio is 96.34% in the first half of this year, all the entities of the subsidiary companies in our group have a sufficient solvency. The group consolidated is registered at 303% (sic) [ 203% ] China Re P&C is registered at 208%, China Re Life is registered at 226%, while China Continental Insurance is registered at 299%. We are still ranking A in the Standard & Poor's Global rating, and we have a very -- also give us an excellent and stable outlook. Now I'm going to give you introduction towards the connections to national strategies with innovation business momentum. In the first half of this year, we have intertwined our company performance with the national stabilities and we are trying to get the new growth in areas by innovating this strategy, we are also trying to serve the national quality. First, we are facilitating the economic stability. We are trying to build on more enterprise introducing comprehensive insurance products and provide risk protection for around RMB 69.5 billion for more than 20,000 small enterprises. And [indiscernible], we have launched a pilot high- standard farmland insurance product, this is serving the domestic market and guarantee the national food securities. We also provided for around 30% of the freight logistics reinsurance contracts in China, where the numbers of chiefs actually ranked the first in the market. So for China Re also served people's livelihood taking the lead in providing risk solutions aiming at key groups such as some of the citizens, logistics persons and medical staff. Second, we're actually serving the Green Development Strategy. China Re promoted the construction of the new energy vehicle infrastructure releasing the first new energy vehicle insurance pricing models in the industry. China Re released the first electrochemical energy storage insurance development report in China with cross-border cooperation to aid an integrated development model of renewable energy and the electrochemical energy storage technologies plus green insurance protection. China Re supports nuclear power operations, providing full life cycle risk protection for domestic nuclear power plants worth nearly RMB 500 million (sic) [ RMB 500 billion ]. China Re provided reinsurance protection for more than 1,000 projects in green energy fields, including wind power and solar power, et cetera. Thirdly, we are serving the Healthy China Strategy. China Re operated coverage of inclusive insurance plans, integrating treatment projects outside the social insurance categories, including the CAR-T. The new medical devices and newly covered an area for 23 million insured people. China Re upgraded other inclusive products and services, innovating the more than 10 products such as pulmonary nodule related medical insurance, elderly critical illness and long-term care insurance. China Re upgraded investment in medical care and health industry, supporting medical and health industries such as vaccines, drugs and healthy management. Investment balance in the field related to the construction of Healthy China increased by 26.8% year-on-year. Fourthly, we are participating in national governance system construction. We -- most of the indicators within the newly iterated China typhoon catastrophe models and China earthquake catastrophic models are better than those of the international markets, realizing localized substitutions and independent, which is strengthening core competitiveness in catastrophe. China Earthquake Catastrophe Model Version 3.5 has been put in to use in 4 local governments as well as -- in four governmental units and 22 insurance institutions, the leading advantage of our IDI business has been further explored and the new project in Guangzhou has been launched. The total area insured of the IDI platform has exceeded 140 million square meters. Now I'm going to give the floor to Mr. [indiscernible] who is the General Manager of the Financial Department and also the General Manager of the Operational Department of the China Re Group to give you a brief introduction about the business analysis.

Dear investors, and dear colleagues, I'm going to give you a brief introduction to the performance of the first half of the year 2022. In the first half of the year 2022, the insurance premiums registered a very quick growth. The gross written premium is registered at RMB 31.797 billion, that is 25.2%. The domestic business is growing -- is registered at [ RMB 2.3039 billion ] that is 30% growth, while the overseas businesses registered at [ RMB 1.1347 billion ], that is 17.7%. The early indicators in which the combined ratio is 98.43%. The net profit is RMB 903 billion, while the annualized ROE is 6.37%. The domestic business in the first half of this year, where we are seeing the agriculture increment is growing by 190.3%. This is being benefited by the record growth in the primary insurance industry and a fast pace of China Re agricultural reinsurance business. The non-motor and non-agri sector is registered at 16.1%, which is being benefited by the non-motor, non-agri sectors. In the domestic performance of the first half of the year 2022, the combined ratio is registered at a growth rate of 99.56%. Domestic business is seeing optimization in the first half of the year 2022, the reinsurance premiums and the proportions of non-motor lines is registered at a growth rate of 70.7%. The non-motor business has been growing from 62.8%, rising to 77.8% this year. We are continuing to expand into the new business frontiers. For one part, it is in line with the national strategy. It is an area we can grow into and it is also -- for the new business sectors, it's also related with the further innovation where we can fully play the technological advantages of China Re Group. Where it's also going to improve our capacities for the innovation. In 2022, the new insurance, the reinsurance premiums is registered at RMB 1,592 billion, that is a 50.2% growth. The major revenue growth is coming from the catastrophe insurance, inherent defect insurance, construction surety bond as well as the first piece new material comprehensive insurance. Although the scale is not very large, but it's registered a very rapid growth. In terms of the overseas business, in the first half of this year, the catastrophe insurance in the first half of this year is actually 80% higher than the average of the year [indiscernible] premium is on the right compared with the year 2022. We are trying to expand the premium business. In the first half of this year, the gross written premiums is registered at [ RMB 1.347 billion ], of which Chaucer is registered at RMB 8,906 million. That is 20.2% growth. So the other sector is registered at RMB 2,468 million. The year-on-year growth is around 8.2%. In the first half of this year, the combined ratio is around 96.5%, of which the Chaucer sector is accounting for 96.34% and the other sectors accounted for a combined ratio of 96.96%. In the first half of this year, Chaucer actually following -- followed up the Russia Ukraine conflict and other catastrophe losses in the timely manner, and Chaucer set aside a prudent provision. And if we excluded the impact of the Russia Ukraine conflict, the total revenue and also the exposure ratio is going to be registered at 80.72% Let me introduce you the performance of L&H Reinsurance. In the first half of this year, the total revenue is reinsurance -- registered at [ RMB 3.2897 billion. ] The business structure has also been optimized. The net profit is around RMB 552 million. Let’s look at reinsurance sectors in the L&H areas. We have always continued the Surety product in the first half of this year, the Surety product accounted for RMB 136 million, among which the YRT business as well as the terminal medical insurance is accounted for 85.4%. That is a 4.3 percentage point growth compared with last year. We are working on the traditional track as well as the innovation track. The major business opportunities from mid-end medical insurance as well as the incremental business opportunities such as long-term medical insurance and special drug promotions. For the innovation track, we have built inclusive insurance plans in multiple regions. In the first half of this year, the Surety product has been registered a combined ratio of 98.24%, the underwriting profit is RMB 230 million. For one part, we actually let in mid-end medical insurance actively play their roles. We have also adopted innovation-driven business models. We have also grew the L&H life insurance. In terms of the data tradition life and also the industrial integration, we have enhanced our core competitiveness and registered a very good growth. And the data plus and trusted by the industries, we took the lead in the Critical Illness Morbidity Review Project. The 2022 Life Table Project and the Long-Term Medical Insurance Experience Analysis projects. China Re carried out research on the historic experience characteristics and the future developments of the trend of the newly defined critical illness products leading the industry on forward-looking research and results. We have also conducted in-depth analysis of our historical experience of the inclusive insurance plans. We have also conducted an analysis on the new risk of our CAR-T therapies, providing the clinical report for the new risk pricing and product development and promoted implementation of the multiple CAR-T projects. In terms of these projects, we are working on the multiple front, including the property assets, the elderly insurance products. We have also formed a product innovation laboratory. By promoting the advance of the medical insurance integrating protection including drugs, equipment testing and advanced treatment China Re promoted the additional protection from existing insured with million-yuan medical insurance and the upgrade of products. We are trying to innovate the insurers to explore the business opportunities within the institutional care. We are also promoting the field and cooperation in the inclusive insurance plans, sick body insurance, consumption, medical insurance and innovation therapy represented by the CAR-T. China Re intensively operated business in the million-yuan medical insurance market. We are also cooperating with insurance companies to explore business opportunities with the institutional care. Now I'm going to introduce you the P&C Primary Insurance. In the first half of the year 2022, we have seen a steady growth in the premiums and improvement in the underwriting result. The primary result is registered at [ RMB 2.4503 billion ], while the combined ratio has been optimized for the business structures were actively optimized and the business qualities and cost control has been strengthened. The combined ratio has been growing from 110.28% by dropping to 103% this year, that is minus 7.28 percentage points growth. Facing the new scenarios in the industry, we have actively promoted the transformation of the industry. The non-motor business line has also been optimized. And the first half of this year, the non-motor line is registered at RMB 103.9 billion, that is around 30% growth apart from the Surety project. The total premiums of this sector is registered at [ 1.031% ] that is a 15.4% growth. The accident and health insurance, the liability insurance and agriculture insurance has registered rapid growth. We have saved the principles where risk control matters most. We have also closed our risk exposure. In the first half of this year, the personal loan side performance ratio is 8.4%. The final part of my introduction is about the asset management. In the first half of the year 2022, there is a rapid growth of the assets under our management with breakthroughs from third-party business. We also coordinated the internal business performance. So by the end of the April, across the industry, the two assets under management is [ RMB 3.90743 billion ], of which a third-party investment asset is RMB 80,652 million that is 211.8% growth compared with last year. The investment yield that we registered, especially the annualized total investment yield is 2.76%. The annualized net investment yield is 4.82%. We have also grabbed the performance in the market in terms of the prudent asset allocations with the optimization of the fixed income investment and equity investment. The external rated AAA bond accounted for 93.45% and the equity sectors, we have the equity investment balance and optimized structure significantly increase the allocations of high-ended dividends and focus on exploring individuals and high-quality stocks with a medium and long-term sustainable growth as a value that matches fundamentals. This is a brief introduction toward our performance. In the first half of this year, we are going to give the floor to the President of China Re Group, Mr. He Chunlei to give us the introduction towards the onslaught of the upcoming half year.

Let's look at the market trends. The insurance industry is still in a period of transformation. The momentum for short-term economic growth is insufficient, whereas the long-term economic development foundation is solid and improving. The insurance demand is changing quite rapidly. The demand for personalized, diversified and comprehensive insurance continues to grow and the transformation of the government functions and climate changes provided opportunities for insurers to participate in social governance. Technical empowerment drives the changes of the competition models, triggering the accelerated upgrading of insurance business from concept to models. The government demand has promoted a different real competition, blockchain, artificial intelligence, big data type upturning the industry, accelerating our transformation and iterations of the insurance industry. Second, the insurance industry is recovering. The P&C insurance industry has been, firstly, getting out of the tough time after the comprehensive motor insurance reform with a rapid rebound in written premiums. The gross ratios of the L&H insurance premiums has been increasing month by month and the equal attention has been paid for the growth of the premiums and embedded value. The structural transformation is accelerating under the guidance of the carbon peaking and carbon neutrality goal. There is a strong growth in renewable energies and new energy vehicle insurance. Thirdly, the insurance industry is faced with opportunities. There is a huge growth potential and broad market space within Chinese market. The national strategies, including the rural revitalization, dual carbon goals, Healthy China, et cetera as well as the Belt and Road initiative have provided the broad blue ocean for the insurance industry. Thirdly, the real economy is transforming and upgrading. Aging of the population is also accelerating and extreme catastrophic events occurred more frequently, demand for social risk management brings new opportunities in the segmental market. Facing this new trend in the market, we are going to focus in on these five major tasks. The first one that we are going to connect to the national strategies and facilitate the economic stability, focusing on the social guaranteeing, green and healthy insurance, strategic new rising industries, while innovating our supporting markets, promoting a sustainable operations to the national strategy, we are going to build a professional, precisive and innovative China Re solutions. Second, we are going to promote the stable operations of our company. We are adhering to the principle of our value creation and value addition making sure that this yearly target of the premiums can be matched. We are also going to try to free skill-up economies. Thirdly, we are strengthening the overall operational management. We are also working on the capital and solvency ratio, better manage the cash flow by dynamically monitoring the performance of the industry. Fourthly, we are trying to improving the comprehensive risk management systems. And the whole system, we are trying to give performance penetration, while trying to recognize the potential risk, build an alarming system for the potential risk, emphasizing the performance in this sector, trying to standardize our management in this area. Fifthly, we are going to implement in the digital China Re 2.0 strategy. Forming the 2.0 digital China Re workshops, at the same time, we are also going to work on the China Re subsidiaries of this Digital China Re and cooperate the release of the China Re 1.0. While upgrading the internal performance, we are going to lead the technologies and empower the development of the industry. Looking into the second half of this year, we are going to stick to the principle while we progress and made the stable performance. Where in this market, we are going to stick to the principles of the other compliance. While, among other different 4 big things, supervise the group, controlling the risk, adjust the structures and enhancing profitability, promote high-quality development of the China Re group, creating a sustainable and stable return for the shareholders. This is 2022 Interim Results Announcement of China Re Group. I thank all the investors and analysts for joining us today, once again, for your long-term support, thank you so much.

Thank you so much, Mr. [indiscernible]. Now the floor is open up for questions. [Operator Instructions]

[indiscernible] Securities. So I have two questions to all the high-level executives. The first question is about that during the [ 45-year ] period, what are the opportunities and the challenges for the reinsurance industry? So what kind of measures are we going to take to adopt these challenges and opportunities? The second question is about the Life L&H Reinsurance. There is a rapid growth in the Surety products. So what is your expectations to the performance throughout this year? I also want to invite you to introduce our performance in the Healthy China 2022 performance.

I am going to answer the first question. And I am going to direct the second question to Mr. Tian Meipan, the General and Chief Actuary of China Re Group to answer the second question. First, China is the biggest market for the on-the-edge insurance market. Currently, we are still at a strategic and optimistic lever. Although there are some changes for the opportunities and challenges but generally speaking, it is a very critical period where we are going to embrace all kinds of opportunities, no matter for the CO2 implementation, the continued promotion of the comprehensive reform, all the applications of new technologies. This has pointed to one direction, that is to say through the efforts in the insurance industries and the transformation of the insurance industry, we can achieve a high-policy development. For this part, China Re Group has grabbed these opportunities and are probably exploring into these levers and create additional value for the market. To put it [indiscernible] in the [ 45-year ] period, we are focusing on the [indiscernible] and management issues. First, we are stick to the principles where we are going to pursue the profitabilities among the stable operations. We have formed a principal, where we're going to pursue the profitabilities among the stable operations, where it is intertwined with a great trend in the insurance industry in China. We are going to make sure all the growth is based on the concrete technological innovations while promoting the stable growth, restructuring, risk control and value creation. At the same time, we are also going to consolidate the major business sectors of the reinsurance. We are going to make the insurance of the L&H and also insurance of the P&C better performance. For the -- this is the first part of my question. The second part of my answer is that we are going to stick to the general development strategies there, it is going to be size-driven and innovation laid. For the Reinsurance sector, we are working on the different types of data increasing the underwriting capacities of the premiums, increasing the product quality while increasing the procurement for corporate in terms of market management, we are also going to increase the investment abilities. Second, by adopting the innovation mindset, we are also going to work on the innovative market, promoting technological innovation, create the new growth point, achieving a management growth point. Thirdly, we are also going to adopt an incremental mind site, working into the Blue Sea market while connecting the national strategies, promoting the research and lending the implementation of a catastrophe disaster reinsurance business sector, and we are also going to work on the agriculture insurance. Fourthly, we are also going to work on our whole risk management systems and stick to the basic threshold of the risk. By adopting a multiple method, we are going to work on the incremental reinsurance. Thirdly, we have consolidated the strength and advantages of the China Re Group. First, we are going to upgrade the digital transformation and launch the project of Digital China Re 2.0. And we are also going to promote the reinsurance performance while working on the current clients, providing them better services. Thirdly, we are going to play the two platforms, both internationally and domestically to get very good performance results. The third measure that we are adopting is also quite an important one, that is to say we are going to adopt the very strong performance culture and all the measures to be landed. In terms of the underwriting we are going to witness the upgrading and iterations of the consumption power. We are also going to optimize the product and services and control the cost while improving the operational efficiencies for the optimization of this working and human resources in the areas where we have experienced some of the underperformance in the market. At the same time, we are going to work on the cash flow as well as increasing the total number of investable assets. This is what we called our effort in the underwriting. In terms of the investment, we are going to work into the third-party performance, improving the top end investment and also protective investment, promoting the management of the pension funds, public funds and also the PEs. We are firmly believing that with the effort of -- with the effort from all the staff in China Re, we are going to improve our performance and continue to achieve high-quality development in our company. For the second question, on the L&H insurance sector, in the first half of this year, the performance is very satisfied. I think you have introduced -- reintroduced the latest development of the L&H business. This sector coming from our end terminal business sectors, including the inclusive insurance sector. This is a very profitable product range. I could see that the development in the first half of this year also means that we have optimized our structures in this field compared with the performance in [ 2021 ], the high profitability performance is registered at around 7% from the yearly growth rate. Firstly, we actually stick to the principle where the profitability is going to be the first and also we are going to pursue the stabilities among the general performance, this is our underlying team. We hope that the Surety product can achieve certain quantities. At the same time, it is going to be very safe. This is the general principles behind the performance. And to be frankly, in the year 2022 and in the recent past years, the Surety products operation is under a lot of operational difficulties. It is to all of us the common knowledge that in the year 2022, we mentioned that there is a determination for the occurrence of the major disease. This is not only limited to our sector. So in terms of the major and critical disease, we don't have a lot of exposure, but the whole industry is facing the same situation. For example, the pancreatic cancers as well as the lung cancer and SCLC as well as the other different solid tumors deteriorations, it is creating a lot of challenges to the life insurance against this background. How do we guarantee a smooth growth? We would say that there are two sectors, the first line that we should stick to the traditional business sectors. And in this Surety product, we already divide it into two parts: the conventional business and also the innovation business. In terms of the conventional business for the major disease, insurance and also the accidental death insurance and also the disease insurance. So for these sectors, we could see that the accident that is having actually a very segmented market. We all know that for the L&H insurance market, the performance is not very satisfying in the past few years. This mature business is becoming more segmented. But for the major -- for the critical disease, there is a very urgent demand in the industry. For the medical insurance, there is also a lot of discussions about the continuous treatment. There are also other market demand in these sectors, to put it in certain minutes, that is to say the traditional reinsurance market is commercial and mature market, it is not an incremental market. So how to return it into the incremental market? We hope that through our data, through our integration of the industry, the health management and also the management of the claim ratios, we could turn this commercial market into a transformational market. In terms of the innovation, we have been focusing on the product development. We're hoping that through the product integrations, we could create some of the new values that is to say, we are looking forward that in the top of this year, we could register a very stable growth and for the general strategy in the Healthcare industry. In the first half year 2022, we have also done some of the works. One part I want to introduce you is that, we are looking forward to be integrated into the industry, where the traffic is going to lead the performance of the industry. For example, we have the performance in the dental industry. And also some of the -- we have launched a series of the product, which goes into every different data points of the hospitals. So we are making sure that the product is available to the customers. By giving the traffic in these markets, we have also increased the payment ratio. It used to be very difficult for us to control the risk. But this year, through a series of the innovation methods, we are benefiting from it. Second part is from the equity investment. We are hoping the equity investment could coordinate with the business performance. This year, we are still looking into the market. And in terms of infrastructure management, it is quite difficult for us to find a partner, which is very coordinated. We are actually looking if you have any resources in this sector, we can introduce you. So for the third-party about the healthcare in terms of the aging product, this is about our performance in the long-term caring market. And in terms of the overall plans, we are actually working together with some of the aging populations and servicing with them. For example, we are working with some of the state-owned healthcare industry performance and where they can provide a professional aging population services as well as the professional buyers, I hope that we are still running the services in this sector. Fourthly, in terms of the chronical disease management, there are some of the understanding. In terms of the hypertension, we actually done some of the management in terms of the hypertension, which enables the hypertension patient can be treated by treating the long-related -- treating with -- related with the diabetes. Generally speaking the overall layout of the healthcare industry, no matter from the product or from the aging population, the series of the population is actually into range. So generally speaking, although we only have a very short period of time, to be frankly, it is about the integration in this market by the general efforts we are hoping to work into the new products providing the new service for the integration of the market.

Now we are going to give the floor to the next question. So the next question is coming from HSBC. [Operator Instructions] Now the floor is going to be given to the next analyst, it is going to be [ Coco ] from Morgan Stanley.

We have two questions. Let me introduce myself. I am [ Coco ] from Morgan Stanley. So the profitabilities of the company is fluctuated very large. So the question is -- I have two, is going to be implemented. Under the new accounting rules, are there going to be fewer things such as rapid fluctuations? Do you have any further plans to lower down the fluctuation ratios? This is the first question. And for the second question, that with the dropping down the profitability, how do you think about the dividend? You have emphasized the dividend ratio should be around 7%. Are you going to stick to this dividend ratio?

Thank you so much for your questions. So now I'm going to divide this question to [indiscernible], who is the General Manager of the Strategic division of the China Re Group.

Thank you so much for the questions from Morgan Stanley. I'm going to answer these two questions. In the past few years, China Re Group is demonstrating a lot of fluctuations in terms of our interest. The major part is because of the fluctuations in the capital market. The influence is not only limited to the China Re Group, other listed group is also seeing a rapid and similar performance as a company wholly registered in each share market, we are going to implement the new accounting rules, which is going to see the #17 accounting rules, according to the requirement of the International Accounting Group. So while implementing the new accounting rules, the assets is going to be increased by the current standards. The fluctuations in this market means that the equity is going to be transformed to -- according to our simulation models, the fluctuation is going to be continued and is going to be enlarged. But this is being decided by the performance in the capital markets. If the performance in the -- if the performance can be kept and I think this is going to be stabilized to better deal with the impact after the new standards. For one part, we have come up with the solutions. And while we are implementing the strategies moving into the next step, we are also going to implement the strategies. At the same time, we are also going to be emphasizing on the profitability as well as increasing the business standards, increasing the performance for the underwriting performance. I think [indiscernible] has introduced us with some of the examples. At the same time, we are also working on the asset allocation structures increasing the deployment in the high-return assets as well as the high dividend stock market prices, this is going to yield the fluctuations in the market in the future. For the second question, you mentioned it's about question, including the dividend. For the dividend policy, it is going to be capped at very stable ratios. For the dividend ratio year-on-year, we are going to think about the annual profitability ratios as well as the [ deductibility ] ratios and the capital markets as well as the proceeds from the investors by setting up a very reasonable profit from multiple parties. In the past year's operations, we have accumulated and divided interest where we are also going to use the accumulated interest and perfect, if necessary. That is my answer.

The next question is coming from [ Amy ] from HSBC.

I have two questions. The first one is about the Russia Ukraine conflict. The first half of the year, Chaucer has prepared some of the reserves for the Russia Ukraine conflict. Which kind of risk do you cover? Are there any potential for you to release this reserve fund? The second question is about new energy vehicles. So for the reinsurance of the energy base what are the challenges and opportunities. So for the insurance sector, what are the continental insurance's strategies in this sector.

Thank you so much for your questions. The first question is going to be answered by the General Manager Mr. [indiscernible], to answer. The second question is about the energy base. The reinsurance and also the development strategies of the insurance companies is going to be answered by Mr. [indiscernible] from China P&C insurance as well as Mr. [indiscernible] to answer your questions.

Thank you so much for your interest in the international performance as well as your concern for the Chaucer business. Russia-Ukraine conflict is affecting the performance overseas, Chaucer actually attaches great importance to this question. Chaucer has actually prepared a responsibility reserve fund in the first half of this year, which covers the political violence insurance, physical risk as well as the credibility risk as well as the aerospace and flight insurance. Any potential business sectors, which might relate to the Russia Ukraine conflict is being covered and the general [ exported ] revenues is around USD 133 billion. From the general performance, we think that Chaucer actually collected this reserve fund with a very conserved attitude. We have prepared inadequate reserve fund. Although there are some of these uncertainties from Russia and Ukraine conflict, we think there is still a large proportion that there is going to be a release of the reserve fund. This is my question to the first part of this question. The second question is about energy base. Opportunity and challenges for the reinsurance company, I think energy base some of the opportunities and challenges for the insurance market, for the reinsurance performance, I think that the opportunity is larger than the challenges. In terms of the opportunities, one is about the market share of the energy base, we are quite clear that for the new energy vehicles, it is developing quite rapidly. We estimated that in the upcoming years, the premium of the market skills is going to be billions of the U.S. dollars, that is a very huge market. The second part is by the demand for the reinsurance. For the risk and the energy base, the risk is underlying and is quite different from the conventional vehicle insurance. So far, the solvency ratio is much higher than the conventional vehicles. So our outlook into the future means there is going to be some of the influence and affection. And thirdly, there are some of the challenges. I've mentioned that for the energy base, the risk is quite different with the traditional vehicles. The risk itself is actually higher than the traditional and commercial vehicles. The solvency ratio is also higher which means the challenge is higher. That is to say we have a very limited profitability moving into the future. We actually moved into this area into the large sectors. We think that for the performance in the whole industry, we have tested and re-accounted for these sectors. And in the first half of this year, we also launched the pricing mechanism for the energy base, which has improved some of the core technologies. This actually helps us to compete in this market in the energy base market.

And for the business in the energy base strategies, let me answer the strategies. Based on information in the consumer vehicles, from the January to June this year, the national energy base sales number is registered at around 2.4 million units. The ownership of the energy base in the first half of this year is accounting for 1/4 of the market performance. The sales and energy base is creating new market hype. The energy base is one of the major revenue makers for continental group -- continental company. We are trying to make some breakthroughs. In terms of the concrete breaking through, I think it's actually in line with the dual carbon target and strategies in our country. We have also came up with a green strategy and facing this green strategy. We are actually working on the reinsurance group -- energy base market. So with the pilot projects. So based on these opportunities, we are actually exploring and pioneering into the different channels. We have also made innovations into the different vehicle plus sectors. We have also made some of the -- in terms of the usage of the energy base, we increased the performance. We are using the insurance plus services where the comprehensive insurance has been guaranteed. We are going to be focusing on the overall risk analyzing for the energy base and providing and accelerating the product innovation as well as the channel innovations for the energy base sector.

For the interest of the time, we only have the time for the final question.

The final question is coming from [ Katrina ].

I have one question for the managers. Recently, we find that by affecting by the capital market, the investment return in the company has been dropping down with the interest additions of the Fed. So I have a question, can you introduce us the investment strategies in the second half of this year, surpassing the effect of this investment cycle?

Thank you very much for your questions. Now we are going to give the floor to Mr. [indiscernible] from the China Re Asset Management Group.

Thank you so much for your question. For the fluctuations in the capital market in this year, no matter from the major event, I think the other part is about the fluctuation of the economy as well as the cycles in this industry. You have mentioned about the interest addition for the institutional investors. So how do we support the influence of the economic cycles, we have two measures in the two sectors, the first line is the asset allocation, to allocate some of the medium and long-term assets means that is how we're going to stabilize the performance in the market. And recently, we are seeing the rising of the U.S. bond market. The Chinese money -- the Chinese monetary market is also going to be about our own performance. So stick to the principles of the real allocating the Chinese market as well as the accelerations of the Chinese market. So we are going to allocate enough fixed return assets, while matching with the performance in terms of the bond. And we are also going to allocate a lot of assets in the high return market. That is how we are going to make sure that all of our assets is sitting on a cornerstone. At the same time, we are also working on a long-term investment return, affected by the different adverse event in the market. If we are moving away from the investment central part we are actually lacking the opportunity. So based on that, we are also going to allocate some of the assets with better performance and better equities. So for another part, for the high-quality assets, it is one of the cornerstones where we can surpass the influence of the economic cycles and the fluctuations of the first half of this year. It includes the performance selections as well as the category performance, we have reduced some of these assets, which we predict to have -- might have a worse performance. We also reduced certain levels of these assets. The total investment means that it is going to affect the whole asset quality, which is also going to reduce the risk, unleashing the potential for the stage and the next step. And this is also going to guarantee the safety and securities of these assets by adopting the above-mentioned measures. We are going to surpass the impact of the economic cycles and guarantee a stable performance in the market.

For the interest of time, we conclude the Q&A today. We also want to thank all the analysts and investors for your support in the recent few years. If you have any questions, please contact H&L [indiscernible]. So here we conclude the Interim Results Announcement of China Re 2022. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]