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

Respectful investors and analysts, ladies and gentlemen, good morning. Welcome to attend the 2022 Third Quarter Results Announcement of China Re Group. I'm Liu Shukai, the Director of the Board of Office in China Re Group. Today, we have with us China Re Performance Manager, Mr. [ Zuo Huiqiang ]; and [Technical Difficulty] China Re Life; and also the General Assistant to the Manager of China Re Life, [ Mr. Xiaoyun ]; and also Mr. Li Shanwen from China Continental Reinsurance; and also [ Mr. Liu Ruohong ], Deputy Manager of China Re Life. Today's meeting is going to be divided into 2 parts. The first part is the result announcement by Mr. [ Zuo Huiqiang ]. He is going to introduce the performance of the China Re Group in the first 3 quarters of the year 2022. Dear analysts and investors, as we enter into the second part of this meeting, it is going to be about the Q&A session. Now, I'm going to give the floor to [ Mr. Zuo ].

Dear, investors and analysts, good morning and good afternoon. I'm going to give you a brief introduction of the performance of the first 3 quarters of China Re Group in 2022. In the first 3 quarters, the aggregated premium income in China Re Group is RMB 122,341 million, registered at a 7% growth rate, 3% above the average performance in the market. The net profit in the company is RMB 22.9 billion. There is a downward trend in the insurance market. It is due to the year-on-year decrease in investment income as the capital market experienced significant fluctuations as affected by the factors such as COVID-19 resurgence, geopolitical conflicts and macroeconomic pressures. The second reason is the substantial decrease in investment income of the associated year-on-year. China Re Life registered RMB 22.8 billion. The growth is higher than the market average and the expectation before. For one part, the core net income of the P&C has registered over 20% growth, benefiting from the high and rapid growth of the non-motor sector. On the other side, the overseas performance has registered a 16% growth. It is because we have grabbed the opportunity for the advantages we have underlying. In terms of the undertaking efficiencies, the first 3 quarters is seeing a slightly downward trend, but it's still better than our expectation this year. For the overseas performance, due to the Russia-Ukraine conflict and the hurricanes in the United States, the performance is not as we expected. The major entity of our overseas business, Chaucer, is still one of the top performers in the market. China Re Life has registered RMB 49.5 billion in the first 3 quarters. We believe that innovation is going to be our next leaders and the breakthrough is. We are also going to make sure the surety product is going to be our core competitiveness. In the first 3 quarters, the surety product is definitely leading the performance in the China Re P&C. We are also going to continue to deepen the incremental areas using the innovation-driven methods. In thinking with the surety product, we are definitely going to achieve an increase in terms of the profits. For the China Re Continental Insurance, in the first 3 quarters, the total income in the first 3 quarters is RMB 36.13 million. The growth ratio is slower compared with the average performance in the market, but there is one influencing factor. Since the China Continental Insurance has undertaken a series of the private markets, we have shrunken the performance in this market. Since it is active action starting from the group, we have shrunken the performance of the China Continental Insurance in the credit market. I believe if we have excluded the influencing factor in this part, it is definitely going to catch up with the performance of the market. The solvency ratios of the China Continental Insurance has seen a rapid drop. For the third quarter of the China Continental Insurance, the income premium has registered a 12% growth from the general performance of the first 3 quarters of the China Continental Insurance, it has fluctuated with the performance of the market. That's the reason why China Continental Insurance has restructured its products and managed our cost, improved the undertaking efficiency. That is my briefing of the performance in the first 3 quarters of the China Re Group. Thank you so much for listening. Now, we are going to open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from [ Edwin with CIC ].

I'm [ Edwin from CIC ]. I have 2 questions. The first question is P&C Reinsurance, and the second question is about Life Reinsurance. I should say that there is a very rapid growth in the P&C Reinsurance in the Chinese market. Can you tell me which product has been contributing to such a higher increase and what is the performance of the combined ratio of the first 3 quarters? The second question is about the Life Reinsurance. I'm also seeing a very rapid growth in the Life Reinsurance. Can you tell me which product portfolio is contributing to this rapid growth? Can you also tell me which strategies the group adopted, especially the performance in the healthcare area?

Thank you so much for your questions. The first question is about the P&C Reinsurance. We are going to give the floor to Deputy General Manager, [ Mr. Wang Sung Ya ]. The second question is about Life Reinsurance. We are going to give a floor to Mr. DC, the Deputy Manager of China Re Life, to address it. Thank you so much for your question. For the P&C Reinsurance's performance in the domestic market in the first 3 quarters so far, I think it's based on the high performance, high growth of the non-motor sectors, especially for the agro insurance. The general performance is quite in line with the overall performance in the market. The second question is about the combined ratios of our domestic market. We could see that, generally speaking, compared with the same period last year, there is a small decrease. And for the third part of the question, the changes of the expense ratios, it is because of the [ instabilities ] of the international markets. We have readjusted the expense ratios in the domestic market in the beginning of this year. And actually every year, we have seen the performance of the increased performance and the general performance has registered a very high growth. This is my answer to your questions. [ Mr. Li Prace ], thank you so much for your question. On behalf of the China Re Life, I'd like to give you a brief introduction to the questions. In the first 3 quarters of the year 2022, the premium income of the China Re Life has registered RMB 49.5 billion, among which, the surety products have guaranteed a very stable growth. Currently, the surety product is accounting for over 40% of the total portfolio of our products. It is #1 in terms of our performance. We have also grabbed the opportunities in the market. In terms of the Life Insurance, and we have registered a very rapid growth in terms of the high underwriting values of surety undertakings, so for some of the questions relating to the healthcare and long-term nursing industry. I think the industry keeps a very good momentum. The insurance company also very optimistic in this market. That's the reason why China Re Life is also trying to shift more focus on the healthcare insurance. You mentioned about China Re Life has been participating in some of the mechanisms organized by the CRBC and that report has been recently released. China Re Life has designed a series of projects to meet the upper stream of the market. And in order to meet up with the demand from the aging group, we are also providing the high-end nursing guaranteeing product for the elderly group and currently we are pushing it into the market.

Thank you so much, Mr. Wang and Mr. Lee, for your answers. Now the floor is open to the next question. The next question is going to be given from Jenny from Morgan Stanley.

I'm Jenny from Morgan Stanley. I have 2 questions. The first question is that currently, we are under an international environment where the trade is seeing a lot of fluctuation, so there is going to be a trend for the insurance companies to redirect their investments with the domestic companies. How do you see this trend? The second question is about the IG 17, which is going to be implemented last year. Can you introduce us, what is the impact on the market?

Thank you so much, Jenny, for your questions. Now we are going to give the floor to Mr. Du.

Thank you so much for your question. You have came up with 2 questions. The first question is about the geopolitical conflict as well as the unstable international environment whether it is going to contribute to the reinsurance business market. I'd like to share with you my ideas quite simply. And then I'm going to give the floor to my colleagues, [ Mr. Randon Ya ]. So from the general logic, the trend is just like what you have mentioned, with the instability in the international market, the domestic insurance company is more prone to domestic reinsurance companies to shorter their risks. Another influencing factor is that in the past few years, the international reinsurance market is seeing upward swing in terms of the reinsurance phase. Generally speaking, our market is relatively more stable compared with the international market. But there are so many influencing factors for one business resilience. The capital adequacy ratios, the credibilities of the acceptors for the reinsurance services. But from the perspective of the general trend, I would say that domestic insurance company is more willing to redirect their business to the domestic reinsurance business. Let me make some of the follow-up. Currently, the geopolitical risk affects very slightly in terms of the domestic insurance companies shifting focus. I think the domestic insurance company is more willing to enhance their direct communication with the reinsurance group. And secondly speaking, we should for the domestic reinsurance group, we have focused on the innovation and research with the support and also the follow-up services. Currently, for the short period of the time, we are going to register more advantages. So in the coming areas, the response to the market is going to be more agile, and we are also going to satisfy the customers' demand. Thirdly speaking, the domestic insurance market is becoming stricter, our reinsurance group have a better understanding towards the changes in the domestic policy. We are also going to coordinate with our insurance company partners. Although there are some of the trends in the international market, the underwriting capacity in the international market means that in the foreseeable future, there is going to be a shortage of the supply, while as a domestic reinsurance company, we have registered a very stable growth. So generally speaking, the international reinsurance company is also going to speed up with their own advantages. Thank you so much, Mr. Wang. The second question you talked about is about influence. China Re Group has been listed in the Hong Kong Stock Exchange. And according to the requirement of the Hong Kong stock exchange as well as the requirement of the CPE requirement from the Chinese government, from the year next year, we are going to adopt the new standards and protocols for the insurance. We are also going to adapt to the new financial tools, which is nice. Currently, we are under the urgent preparations. The general population work has been completed and our group, we are actually undergoing series of the trials and experiments, starting from the early-stage data preparation, the 2 protocols is affecting the performance in the market. From the premium, it is being affected by the IFRS 17, the major influencing factor of the IFRS 17 is that it has excluded the cost, which was included before. So that is to say there is going to be a very huge difference of whether a proportion of the cost allowed to the premium or not, from the performance of the industry, it's quite difficult for us to exclude in this part, that is to say we expected that for the life insurers, the total premium and income is going to be hard. So for the general performance of the whole group, we also believe that the income is also going to be hot, if we are following the new accounting standards. That is the reason why we are readdressing the reinsurance market. There are some of the influencing factors to our general performance, but it is mainly due to IAF 9, IAF 9 has expanded the usage of the [ craftsmanship ] work, which is going to be included in the following performance. So moving into the future, our performance is going to be more inclined with the performance in the capital markets. In order to tackle with this change starting from last year to this year, we have reallocated the different structures. And we have also included some of the assets with a stable dividend as well as lower the distribution of the public equities in the secondary market, that is the basic information for your questions. Thank you.

Thank you so much, Mr. Du and Mr. Wang for your answers. Now the floor is going to be given to the next investor. The next question is coming from [ Mindy ].

I have 2 questions. The first question is that in the recent years, the combined ratio of China Continental Insurance is very [indiscernible], can you tell us the reason why and what kind of measures did you adopt? Second question is about the design of the investment portfolio. So for the third quarter and second quarter of this year, there is a downward trend in the [indiscernible] market, can you tell us what are the changes for these 2 markets?

Thank you so much for your question. You mentioned about the first question is about the China Continental Insurance. We are going to divert the first question to Mr. Lu. The second question is about the investment portfolio, we are going to direct to Mr. [indiscernible] from China Re assets. Thank you so much. There is a very rapid increase for the China Continental Insurance in the 3 quarters. It is because the increase in the surety project. And within a few years, I could summarize the reasons for the 2 parts. The first one is optimization of the structures. The second part is lowering down the cost. The general performance of the industry has been in an upward trend. And in the first 3 quarters of this year, the performance of the China Continental Insurance has set up the average performance in the market which improves the underwriting profitability. There is also optimization of the [indiscernible] structure. We are using the won project, providing a diversified vision for the customers. Recently, we have also optimizing the proportions of the high performance and the insurance portfolios. In terms of the underwriting capacities we have also reallocated more weight to the [indiscernible] insurance. We have also administrative and addressed some of the performance in the certain part of the products, for example, for some of the product which were experiencing loss for the long term in terms of the healthcare insurance. We have been focusing on the personal or individual healthcare insurance. In the recent few years, we have promoted the personal healthcare insurance, which has registered a very rapid growth in the recent years. In terms of the optimization of the structures, for one part, we have think about the compliance ratios, the combined ratios for the motor insurers, the [indiscernible] insurance and the life insurance registered increase in terms of performance. That is the reason why the combined ratio is rising, while the combined loss ratio is decreasing. But as [indiscernible] have mentioned about the expectations until the end of this year, we are going to follow the trend that we have designed, and we are also going to tackle the challenges from the COVID-19 and controlling the risk in the credit market, we expected that until the end of this year compared with the same period last year, since there is going to be a lot of fluctuations in the capital market, we are also going to try -- what I can permit you is that we are going to try our best to achieve a better performance at the end of this year. Since third quarter this year, there is a downward trend in the market, there are some [indiscernible] in the market, with this downward trend, there are some of the divide in terms of structure. So there are some -- there are also some of the opportunities in the market. By optimizing the structure, we have rate opportunities for another part, due on the year, we have invested in the stock market where the high dividend is paid. For one part, it brings us a lot of high dividends in the third quarter, for the other parts compared with other performance or other sales, the soft in investment, we invested helped us to tackle with the downward trend. Moving to the future, one major measure that we are going to adopt is to avoid the credit risk. Another part is the equity investment. We have been focusing on the latest trend of the domestic economy and industrial complex. With the policies coming of one off number, we are going to focus on the effects of the policies. We are still focusing closely on the U.S. inflation market as well as the interest market in the United States, combined with the efforts we made so far, I am believing that from a long-term perspective, we are going to enter into a better performance compared with the first 3 quarters of this year. And when the opportunity come, we are going to grab them.

Thank you so much for Mr. Lu and Mr. Lars question. For the interest of the time, we are only available for the last investors. So the final question is coming from [ Kai ].

I have a small question for all the executives. The United States [indiscernible] and also the Russian Ukraine conflict is affecting the international environment, can you tell us what impact that they have on the China Re Group. We are going to give the floor [indiscernible] China Re Life.

You mentioned about the tornadoes in the U.S. market. This is one of the major influencing factors in the international capital markets, Russia Ukraine conflict starts from the first quarter this year. We estimated the compensation ratios for the Russia-Ukraine conflict is going to be around USD 10 billion to USD 30 billion, we have prepared some of the reserve funds since the Russian-Ukraine conflict is still going on, we have estimated the risk exposures at the start of the Russian-Ukraine conflict, for any businesses related to the Russian Ukraine conflict, we suspended the business interactions with them. So the Russian Ukraine conflict has only have an impact on the 2 quarters of this year. For the [indiscernible] in the United States, we estimate that there is going to be a very huge insurance loss and also reinsurance loss in the international market. We estimated the total compliance ratio is going to be USD 30 billion to USD 70 billion. That is the reason why we have prepared a special reserve fund in the third quarter of this year. We are also going to continue to keep a close eye on the solvency ratios and also the latest development of inhabitants in the U.S. market, and we are also going to update you the latest information with that part of the performance.

Thank you so much, Mr. Wang, for your kind answer. For the interest of the time, we are going to wrap up the use without announcement of the China Re Group in the year 2022. If you have any other questions, please contact us. Thank you so much for joining us today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]