New China Life Insurance Company Ltd. (601336) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning. Welcome to New China Life's 2021 Interim Results Announcement. I'm Gong Xingfeng, Vice President, Board Secretary and Chief Actuary of the company, also today's moderator. First, please allow me to introduce the management team here with me today. They are CEO and President, Mr. Li Quan; Vice President, Mr. Zhang Hong; Vice President and CFO, Mr. Yang Zheng; Vice President, Mr. Li Yuan; and Vice President, Mr. Yu Zhigang. Today's results announcement has 2 parts. The first is the presentation on the first half performance and the second is Q&A session. Simultaneous interpreting will be provided. [Operator Instructions] Now let's come to the presentation part. Mr. Li Quan will brief you on the H1 performance and future outlook. Mr. Yang Zheng on financials and investment. I will introduce the embedded value part. Now the floor is yours, Mr. Li Quan.

Thank you, Mr. Gong. Ladies and gentlemen, good morning. Welcome to NCI's 2021 interim results announcement. First of all, I'd like to brief you on the overall performance. In the first half, although we encountered a lot of headwinds, but NCI still achieved some highlights. First, the GWP was RMB 100.6 billion, up by 3.9%. It rose steadily. And the 25-month persistency ratio remained flat at 85.8%, up by 1.2 percentage points. Embedded value, RMB 250.7 billion, up by 4.2% compared to the end of last year. Total assets, RMB 1.02 trillion, up by 1.8% compared to the end of 2020. Net profit attributable to shareholders, RMB 10.5 billion, up by 28.3% year-on-year. Annualized total investment yield remains -- it was 6.5%, up by 1.4 percentage points. When developing life insurance business, we also actively shouldered our social responsibility. For environmental protection, we adopted a low-carbon approach to address climate change and promote ecological civilization. In office decoration, we followed the principle of modest decoration and energy saving in all aspects to improve efficiency and reduce consumption. In our daily operations, multiple steps were taken to cut emission and save food. In business conducting, we used mobile platforms for marketing, operating and customer service to cut the paper use. Also, we are actively fulfilling our social responsibility. In July this year, a torrential rain and flood hit Henan. To help them with flood relief and post-disaster reconstruction, we decided to donate RMB 1 million. In H1, to rejuvenate countryside, we spent RMB 8.3 million in Guizhou, Shibing. Also in the first half, we provided nearly 840,000 sanitation workers with insurance. From 2017, the total claim payment reached RMB 22 million. In the second half of this year, under the guidance of high-quality party building, we will remain true to the essence of insurance, continue to optimize products and services, strengthen technological empowerment and strictly control risks to steadily advance annual targets. First, accelerate the transformation of our teams to improve the quality, ensuring the quality of new recruitment and continue to recruit more qualified agents. We will also provide more tools, training, policies and take other measures to cultivate high-quality teams. Second, optimize product offering and improve coordination. Adopting a customer-centered approach, we continue to optimize product mix and align the resources for old age care and health care industry to expand our service scope and also to improve the product attractiveness. Third, foster innovation and strengthen technological support. We stepped up research on business innovation and application to gain more support from technological tools and to improve the operation and management capability. Four, to strengthen risk control and practice compliance operation. Prevention comes first in risk control. We strengthened the compliance culture, education and supervision also to make everyone play its part and play its role to improve our capability to monitor, identify and to firmly control the risks. Next is the insurance business part. In the first half, we tried to seek progress while ensuring stability, made efforts to build a professional distribution network and enhanced risk prevention. All types business remain on track. FYP from long-term insurance business, RMB 30 billion, up by 0.5%. Renewal premiums, RMB 66.9 billion, up by 6.9%, accounting for 6.6% of GWP. This is a solid foundation for rapid premiums growth. Premiums from short-term insurance business, RMB 3.6 billion, down by 16.3%. By different channels, individual insurance channel contributed RMB 69.9 billion premiums, up by 5.5%. Bancassurance channel, RMB 28.9 billion, down by 0.7%, accounting for 28.8% of GWP. Group insurance channel, RMB 1.8 billion, up by 21.5%. For individual insurance channel, it stepped up efforts in customer management to explore ways to support marketing. FYP from long-term insurance business, RMB 10.2 billion, down by 1%. Renewal premiums, CNY 57.6 billion, up by 8.6%. Premiums from short-term insurance, CNY 2 billion, down by 28.8%. For the agent team building, the traditional marketing model get tumbled in the insurance industry. We actively explored the transformation of such models and dismissed the unqualified agents. The agent head count, 441,000, down by 16.2%. Monthly average number of qualified agents, 105,000, reduced by 22%. Monthly average qualified rate, 19.1%, down by 7.3 percentage points. For Bancassurance channel, we deepened cooperation with important partners and boosted the growth of regular business. FYP from long-term insurance business, RMB 4.7 billion, up by 28.5%. Renewal premiums totaled RMB 9.3 billion, down by 2.6%. From different products, the participating insurance contributed RMB 36.3 billion, down by 9.3%, accounting for 36% of GWP. Health insurance, RMB 33.3 billion, up by 4%, accounting for 33% of GWP. And traditional insurance, RMB 29.9 billion, up by 26.9%, accounting for 29.7% of GWP. For the business quality, the quality remained stable in the first half. The 13-month persistency ratio, 88.8%. 25-month persistency ratio, 85.8%, down by -- up by 1.2 percentage points. The surrender rate, 1%, up by 0.3 percentage points. That's all for the insurance business. Now I'll give the floor to Mr. Yang Zheng to introduce the financials and investment part.

Thank you, Mr. Li Quan. Next, I will introduce the financials and investment of the company. First is the revenues and -- the revenue of the company is CNY 130 billion, up by 12.3%. Net written premiums and policy fees increased by 4.1% to CNY 99 billion, influenced by the increase of investment yield, which is up by 47.2%. The investment income increased by 12%. The expenses is in line with the company's business, and net profit totaled CNY 10.5 billion, up by 28.3%. Earnings per share was CNY 3.38. Next, let's see the investment performance. In the first half, the company [ was faced with ] the complex and severe marketing conditions, the investment focus on our core business indicators and realized certain results. Firstly, the investment asset reached CNY 979 billion, up by 1.4% compared with the end of last year. And the annualized total investment yield was 6.5%, up by 1.4 pt. Annualized net investment yield was 4.5%, down by 0.1%. Next, let's see the investment portfolios. The asset allocation of the company compared with last year remained stable. We can see for the -- changes of various items is within a 1% change. The term deposit, accounting for 13.3%, up by 0.6 pt. The debt financial asset totaled CNY 559 billion, accounting for 57.2%, a slight decrease. This is the major asset allocation of our company. The bonds, trust products, debt plans and asset funding funds are all stable. At the same time, the company strengthened the research of the debt products. The overall credit is within control. And the equity financial asset reached CNY 208 billion, accounting for 21.3% of total investment assets, maintained flat. The company focus on value investing and absolute return grabs the structural opportunities to realize the sound yield. And for the nonstandard asset investment, the company has shared our investment philosophy with the investors. We have continued to stabilize our nonstandard asset, but the volume and proportion has decreased. The total nonstandard asset totaled CNY 227 billion, a slight decrease proportion in the investment asset. The debt investment accounting for 71% and equity investment accounting for about 30%. The company has good quality of the nonstandard asset with the credit within control. Next, I'd like to share the solvency margin ratio of the company. By end of June, the core solvency margin ratio of the company is 260%, down by 7.75 pt. The comprehensive solvency margin ratio hit 269%, down by 8.17 pt. That's all for the financials. Next, let's welcome Mr. Gong Xingfeng to introduce the embedded value. Thank you.

Thank you, Mr. Yang Zheng. Next, I will introduce the embedded value of NCI. The end of June this year, the EV of the company continued to rose -- increased by 4.2% from -- raised from CNY 240 billion to CNY 250 billion. Among those, value of in-force business increased by 2.1%, up from CNY 93 billion to CNY 95 billion. The adjusted net worth grew from CNY 147 billion to CNY 155 billion, up by 5.6%. For the analysis of the EV, we can see in the first half this year, the major contributors to EV growth were NBV and expected return, which contributed 2% and 4% to EV growth, respectively. Next, let's go to the VNB. In the first half, the VNB of the company totaled CNY 4 billion, down by 21.7%. FYP-based VNB margin was 12.2%. APE-based VNB margin was 21.2%. That's all for the embedded value. Thank you. That's the end of the presentation part. Let's come to the Q&A session. [Operator Instructions] Now we are ready to take your questions.

[Operator Instructions]

I'm Ding Wang from Guosen Securities. First, congratulations on the management results. I have 2 questions. The first is on the liability side. As you mentioned in the presentation part, the insurance industry against -- encountered some headwinds. I want to ask about the agent development since you achieved a lot of head count growth last year. But this year, we see a huge drop in the head count. What's your outlook in the recruitment in the future? And what measures will you take to prevent the further drop of the head count? The second question is about the asset management. The F1 performance is quite sound and good, but we can see there are some diverging trends in asset markets and sectors. So what's your -- how do you judge the equity market investment?

Mr. Li Quan, please answer the first question.

Thank you for your question. In the H1, indeed, the whole life insurance industry had a good start but a disappointing trend, especially in April, May and June. We think there are several reasons. The first is the recovery from the pandemic is lower -- slower than expectation. It hit hard on the life insurance industry. And the second factor is the stringent regulation. China's regulatory authorities put higher bars and standards on the agent's building. And the third is the marketing mechanism in China actually made a lot of contribution in the past 3 decades. But right now, it has to change according to the circumstances and also customers' needs. Now we are entering a period of pains. I think there are 4 mismatches. The first is the age of agents is mismatched with that of our customers. Most of our agents are born in 1960s and '70s, but our customers are much younger. Most of them are born in 1980s and '90s. They have different mindsets and there is a mismatch. It's very hard for them to communicate. And the second mismatch is the product. The product supply is not aligned with the customers' needs. In the past, we may focus on one single product. Most agents sell these products to customers. But right now, we can see there are some individualized and personalized demand from customers, which is very hard to satisfy. And the third mismatch is the marketing scenarios. We know young people. They prefer shopping online. They like visual interactions. But now we still focus on off-line marketing, though we have advanced our technology advance. Top peers and also other large media companies also find it very hard. We still focus more on face-to-face marketing and conduct some salons and off-line activities. So the sales model is changing. And the fourth is the income of agents and their retention is not matched. In 1990s, when we started this marketing model, the income of them were RMB 2,000 to RMB 3,000, which was very high at that time. But after nearly 3 decades, the average income still remained flat at RMB 3,000 to RMB 4,000, which is relatively low in today's society. It's not good to the retention of the agent team. So we can see from the above-mentioned 3 aspects and the 4 mismatches. The individual life insurance channel was hit hard. That's why some indicators you mentioned see a drop in the first half. Faced with these challenges, we take -- we took active measures. We have 3 steps. First -- we have 3 attitudes actually, but we choose to respond actively. First, we dismissed the unqualified agents in following the guidelines of regulators and made sure the head count premiums and structures are all free of fraud. And second, for the new recruitment, we strengthened higher standard and criteria to seek agents that is younger, more professional and living and working in urban areas. Third, we grasped the opportunity to make short-term health insurance customers to buy new policies and to engage more customers and agents use this activity. We encourage them not to renew their short-term policy but to buy new loan policies. We also provided some specific financial input to this activity so that we can inject more confidence in this green market to encourage them to visit more customers. At the same time, we stepped up our efforts to conduct customer activities. For example, the campaign jogging with China -- jogging with New China Life. If you are familiar with our activities, we invited Mr. Su Bingtian also, the athlete, to be the guest of our Jogging with NCI activity. Besides, we also built some platforms to keep interaction and engagement with our customers so that we can make our customers know the company and our products better and to create opportunities for the interaction between agents and customers. So in the first half, the excellent agents and the manager-level agents as well as our structure remained stable against all the headwinds. You mentioned marketing, channel and team building. We still focus on the full approach, marketing through our policies, atmosphere, responsibility and also activities. I mentioned that we prefer agents which is younger, professional and living in the urban areas. And also, we provide products with full coverage, targeting at whole family and to cover the protection from birth to death. We want to build a new ecosystem of marketing. In the past, the marketing ecosystem focused on the head count and product. We think these 2 can ensure rosy sales. But right now, we shifted to technology, services and product. Technology is -- comes at first. We made some efforts to acquire customers from Internet and to engage customers who know NCI well and recognize our products. Also, we launched plans and incentives targeting specific customer groups. And last, I want to say we will strengthen training and to cultivate more excellent agents. We know some agents, they know nothing about insurance. They don't know how to sell so training is very important. We have 2 training programs. One is for new recruits and the other is for managers. Also, we're targeting 3,000, 5,000 agents. So we believe in the second half of this year, we still see opportunities among challenges. We will abide by laws and make sure the head count, premiums and structures are, too. Also, we will take some innovative steps, enhance training, provide financial input. We believe with all these moves, we may make some progress. Thank you.

For the equity market divergence, Mr. Yang Zheng, please answer this question.

This is a very good question. Equity investing is very important to the asset management of NCI. It has a huge influence, though it has a limited size, especially during the fluctuation of equity market and may -- attracted a lot of eyesight from you. From our fundamental strategy, to simplify it, equity market -- equity investment has 3 impacts. First is duration, and the second is return and the third is fluctuation. For duration part, short equity investing is a little bit shorter than required. And it's -- may shorter than the -- [ I have to correct myself. ] Equity investing is -- has a long duration, and its return characteristics have to follow the guidance of the government. And also, we have to seek high-quality targets and alpha returns. This is what we want. That is the long duration and excess return. Third is the fluctuation. This may seem negative to you at the very first glance, but the fluctuation of equity market is not a bad thing. It is a neutral phenomenon. How to leverage the fluctuation of the market and to meet our strategic asset allocation target is a key area. And equity investing is very important towards duration, return and fluctuation. These are the 2 -- 3 key roles equity marketing played. And we can see in the first half, we achieved the rosy results. So in the second half, we will still follow these 3 objectives: to prolong the duration, to generate higher return and to use fluctuations of our objectives. We can see right now, China's economy and the performance of different sectors, industries and corporations, they diverge in different ways. Some changes are within our expectation, but most of them actually took us by surprise. NCI has accumulated experience to cope with short-term fluctuation and to grasp the media to long-term trend. So we will leverage these advantages and to grasp our opportunities in asset allocation, sector selection and security selection also to serve the return objective through short-term fluctuation. Equity assets, especially in short-term period, as you all know, is very important to company's performance. We will follow our established strategy and to grasp market opportunity. Thank you.

[Operator Instructions] Next question comes from Leon Qi from Guangfa Securities (sic) [ Daiwa Securities ].

I have 2 questions. First is we can see the NBV and the margin has increased for the Bancassurance channel, and we can see the peer company has strengthened the focus on Bancassurance channel. And I want to know your strategy on Bancassurance channel and your advantage. The second question is that the persistency ratio of 13 months has decreased by 2.2 pt, but the 25-month persistency ratio increased. I want to know the reason for that. We can see the 25-month persistency ratio decreased for the peer companies, but yours are increased. I want to know the reason.

There's 2 questions. Let's welcome Mr. Li Quan to answer.

For the first question, about the Bancassurance channel in the second half of this year. In the first half of this year, the Bancassurance channel performance is sound in the market and in our peer companies. The distribution channels has realized a good performance. In the second half, we will continue to follow our 3 operations, namely distribution team and customer operations, and follow our strategy of promote regular premiums with single premiums. The single premium of our company has a similar -- and decreased target compared with the last year. But with their strategy, the FY -- our FYP has increased. So in the second half, we will follow our prescribed strategy. In terms of wealth management business, we will consolidate our team building, strengthen trainings and provide more support to the sales of high-value products. And that's the first point. And the second is about the persistency ratio of 20 months and 25 -- 13 months and 25 months. We can see the increase of 25-month persistency ratio shows that the stable last team, the sales of products and high-quality business contributed to this result. So we can see the 25-months persistency ratio increased. The company attached importance to the quality management. We excluded the surrender policies and premiums in the business supporting schemes. And for those institutions who haven't realized the target of persistency ratio, we have some punishment measures. So with those efforts, we can see the 25-month persistency ratio increased. And for the 13-month persistency ratio, in the first half -- it has decreased in the first half of this year. But we think there are -- that trend is in line with the market. And the reasons are that first is because of the pandemic. The economy hasn't recovered. Last year, we prioritized stabilizing the team. So there are some issues about the quality, and the business of quality has decreased. And the second reason is we can see the renewal premiums -- and the willing for paying renewal premiums of customers has decreased. So these 2 reasons contributed to the decrease of the 13-month persistency ratio, but NCI also have taken measures to cope with that problems. And we have conducted specified meetings to cope with that problems. And for the products with weak persistency ratio, we will strengthen our supervision and promotion, and we will punish those who have weak and bad performance. So we have -- to conclude, we have conducted multiple measures to cope with those problems.

And Mr. Li Quan, I want to add to the Bancassurance channel. I agree with Mr. Li Quan. Bancassurance channel has realized positive growth and conduct effective measures after the new management took office in 2019. Last year, I've shared with you about my philosophy about Bancassurance channel. We will develop the Bancassurance channel in a bigger picture. We strive to improve our management level, reduce the cost and improve the value of Bancassurance channel. We have been -- continually follow our set strategy, and solid results have been received. And in the future, we will strive to grow the Bancassurance channel continually. Thank you.

[Operator Instructions]

Just now you have answered and cleared a lot of my doubts. We know that the change of customers has posed challenges, and many companies are seeking new growth points. You mentioned the asset -- the wealth management strategy. Could you please update in this regard?

Thank you, Ms. Mao from CICC. Since we took office, we proposed the strategy called 1 plus 2 plus 1. First, to build NCI into the best financial service groups that provide all-around services and customer-centered. And the first is the life insurance. The 2 is old age care, health care, and another one is for technological empowerment. Fund execution result, we can see this strategy has translated into actions. First, in the life insurance business, our foundation and basis is solid. We have professional channels and products and services. To cope with this year's uncertainties and difficulties, we are exploring transformations of marketing mechanism and strengthen the coordination among different industries. We just presented you with the H1 performance. The GWP is RMB 100.6 billion, up by 3.9%. The growth rate is not high compared with last year. But against the backdrop of this year, we -- it's a hard-won result. Renewal premiums accounted for 67%, a major contributor to the GWP growth. And for wealth management, we have put in place a mature model that align our asset side with liability side to leverage the advantage of asset management and to support the steady growth of liability side. The investment yield is quite rosy and cheery. The annualized total investment returned 6.5%, up by 1.4 percentage points. And for health care and elderly care industry, now we have set up multiple elderly care communities in different cities. And we have 3 communities named Lexiang, Yixiang and Zunxiang. These communities helped contribute RMB 1 billion premiums. And in health industry, we have served 110,000 clients for health checkup. And for technological empowerment, we have strengthened our technological support. And to expand the technology application, we have launched the core system and to cater the needs of our agents and agent team for the marketing. And we also launched the cloud win program to optimize customer experience. These are some results we yielded. Thank you.

[Operator Instructions] Next question comes from Mr. [ Liuda ] CLSA.

I'm analyst [ Liuda ] from CLSA. Just now, the management team have answered a lot of questions, and I have 2 questions. First, as you've mentioned this strict regulation in the market, and what regulation policies could we expect next year? And can you expect some regulation policies that may impact the business in the short run? And the second is about the aged care. We can see in the market, there's a new state annuity insurance that will be established. And I want to know your comment on that. And what do you think the traditional life insurance companies participating in this business?

Let's welcome Mr. Li Quan to answer these 2 questions.

First is about the severe regulation policies. The regulators in the past 2 years has introduced the policies in line with the country and the whole national economy. A lot of policies have been introduced for us, we believe, in the future. In terms of product supply, the distribution model and the agent team, new policies might be introduced. And for the regulations, we think it will be a new normal for the regulation. Now the economy of our country is heading to high-quality growth. The regulators should -- based on the current development model and level to regulate the industry and promote the industry's return to the assets of life insurance and maintain high-quality growth. The second, you've mentioned about state annuity company. This is a new topic and hotspot recently. I think the state annuity insurance company is new. A lot of its future business and the supporting policies hasn't been released. For me, first of all, I think it shows that our country prioritized has the aged care. And the country has, in a macro level, strengthened the role of aged care companies and hope the banks should play a more important role in this regard. And in the future, I think it's a priority in terms of the national strategy. And the second, for the life insurance industry, we think we should focus on our own business and seek the comparative advantage. For life insurance business, we have our advantage. I believe we have 3 advantages. First is in product design, we have a guaranteed rate for the product, which is a comparative advantage for us. The second is life insurance industry has accumulated a sound pricing model and risk control mechanism in the long run. And life insurance business has also accumulated wealth management capabilities of long-term assets, which are pivotal to aged care industry. So for NCI, we believe, we will attach importance to the -- in this field and also the possible regulations that may be introduced by the government, such as the tax support policies or how can the insurers participate in this regard. We will focus on 3 aspects. First is, we are one of the 6 pilot institutions of exclusive aged care annuity insurance and we will actively participate in this regard. And the second is, we will try to accumulate experiences in our pilot programs. The second is, we will enrich our aged care products and the service supplies, and we will provide long-term annuity insurance, care insurance, et cetera. And we are plan to -- planning to introduce the monthly paid annuity insurance to meet the demand of customers. The second is, we will improve our layout in the aged care industries and form sound synergy and coordination with life insurance business and to form our sound ecology that's all [indiscernible].

[Operator Instructions]

I'm a Chao Yuan from Guosen Securities. I have 2 questions. The first is about the basic policies of the agency. Since we know you launched a new policy last July and now the industry environment has changed, how do you reflect on the new policies? And what is the pros and cons? How do you improve it? The second question is about the old age care and health care. We noticed that you have 3 elderly care communities. So what is the operation and the profitability of these 3 pipelines? And what's your future outlook?

Mr. Li Yuan, would you please answer the first question?

Thank you for the question. The new agent team policy was launched last July, and we see 3 features. First, the new policy strengthened the culture of promotion to consolidate the foundation of the pyramid. The foundation is our marketing group. Then the upper level is the marketing division. We try to consolidate the whole structure layers by layers through promotion. Now we have about 600 supervisors, 6,000 divisions and 30,000 groups. The second feature, it strengthened the cultivation of excellent agents. From the very beginning, when we record the agents, we set high bars and criteria. We divide it into 2 directions. The first is excellent recruitment, and the other is common recruitment. So for excellent recruitment, we prioritized their education background and their ages. Also, we provided some measures, for example, the training of excellence 5,000, elite clubs and elite summits for this team. These measures help to stabilize excellent teams and -- but we have to say last year, the total head count reached 100,000. So this is a result yielded by the new policy, both promotion and consolidation. For the future, how do we update the new policy? I have to reiterate that new policy is the cornerstone management tool for the whole company. Right now, according to our schedule, we don't have amendments to the new policy, but we have noticed there's some difference. First, the market environment is different. Second is our emphasis on the excellent agent training. We have to step up our efforts in this regard. And also, the layers of the pyramid will be streamlined. The hierarchical level will be simplified. And also, thirdly, we put more emphasis on the agents who are younger, more professional and working in the urban areas. This is a new trend of our team building. That's all for the question. Thank you.

Mr. Zhang Hong, would you please answer the second question?

Thank you for your question and your support and attention in this regard. Mr. Yi Luan just mentioned health care and elderly industry, actually, show its initial effects. We have formed multiple elderly care communities in different cities. In the first half, the operational indicator remains stable and the business is stable. Our constructions are proceeding smoothly. And two, for some details you mentioned we have 3 communities. In Beijing, we have [indiscernible] community in [indiscernible]. And in Hainan, we have [indiscernible] community. These 2 communities are put into operation. And the [indiscernible] community, which is still under construction in Beijing, Yenching district. This construction project were undergoing smoothly, and Phase 1 construction is expected to complete by the end of this year. On 28th May, we had a debut ceremony. Over 100 potential clients have visited our Yenching community. This is the brief introduction of our elderly care communities. On the other side, to better serve our strategy, we have Xinhua excellence with hospital and also we have Xinhua excellence health investment management company. It has set up 19 health care centers around the world. So to speak, the elderly care and health care program has stable operation indicators and business. For the future, we will make more efforts and provide more inputs. We try to set up more programs in Beijing, Tianjin and Hubei province as well as Changjiang River Delta and Zhujiang River Delta to build NCIs on ecosystem. Also, we want to boost the effective synergy between elderly care industry and the life insurance to strengthen our profitability. Thank you.

[Operator Instructions] Next is Mr. [ Jian Sinwei ] from Huatai Securities.

I have one question. For these setbacks of the sales of health insurance business, the long-term insurance is pivotal to the growth of product. Now there is increment whole life insurance, which is popular in dividend and insurance channel. I want to know your product strategy in the next stage, and the outlook for NBV margin.

Next question is -- invite Mr. Gong to answer.

This is the second year after the outbreak of the pandemic. The pandemic has held influence on the industry and people's lives. This year, there are many challenges for the industry. And the core for that is there is a mismatch between the last insurance plan, the people's demand. In the previous years, there's obvious evidence and characters that the people's demand are changing. And in the past, in a stage, people have favorable interest in the annuity insurance product. And other times, some people prefer house insurance product. And after the pandemic, people have diversified demand for insurance products. And for NCI, the sales has shown those trends. The annuity insurance has a sound yield and performance and -- but the health insurance has encountered challenges. But how to explore customers' demand and found a new growth point in its circumstances is a priority of our company. And people's demand for critical illness products should be explored and attached importance. And we have strengthened our search, the expanded product coverage and product research. Also, in terms of the sales, we try to guide the clients -- guide the customers. And apart from our regular product innovation, we have introduced a new whole life insurance product, including [ Fuxiang Yisheng ], [ Furudonghai ]. Also, we have promoted research and development to new products, which are endowment insurance and whole life insurance, which might be introduced next year. And focusing on those changes, the product combinations and portfolios will be enriched to identify the customers' demand and improve the business. Relatively, the term of the whole life insurance is long. So we have expect more values from those products. We hope that it will be recognized by the market and the form and contribute to the value growth. That's all.

[Operator Instructions]

Zhou Jing Jing from Changjiang Securities. Mr. Gong just talked about some product strategies. In the future, we know the pension system may see some changes from the contract system to accounting system. So from the actuarial perspective, if we did see this switch, what products will NCI prepare since the unit-linked and universal products used to be accounting system products. But right now, traditional whole life annuity products, they are different. So what adjustments and what products will you make in the future? The second question is about the agent. Actually, we are concerned about the turning point of the head count development. What is the bottom of this drop? We see some peer insurers, also see some challenges because of the stringent regulation. So the agent head count has decreased about 40% for the whole industry. What is the end of this declining trend? What's your expectation?

I'll answer the first question. You talked about the annuity and the pension products. This is a very big and a complex question. Also, this is an important aspect, how to cope with the aging population challenge and how to construct the third pillar. I'd like to share some of my thoughts. The social hot topics reflect a [ symmetry ] of information. In the past, we see some information as [ symmetry ], which may cause conflicts of interest and the market pressures. And now the quick and convenient media coverage make information more transparent. This is also the same to the pension and annuity products. In the past, we mix the accumulation of money and also the withdrawal of money into one product. A customer at his 40s to pay his money to the company -- insurer company. And by the end of 60, he may withdraw the money. But he does not know how his account performed during this period. Our past product strategy distinguish clearly about -- between the account type product. For example, the unit-linked product and the other annuity products. These are 2 totally different types of products in NCI. Now while the company is pushing up the construction of third pillar and proposed a new plan to -- that is to distinguish the accumulation period from the withdrawal period. So for the accumulation period, the rights and obligations are more clarified. We have set individual accounts for customers, which allows customers to see how much they have paid and how does the account perform. While in the withdrawal period, how much you have accumulated in the -- during the accumulation period. All these numbers and the data are transparent and clear. Such approach may represent the future trend of NCI and encourages us to be more innovative and to improve our existing system. Also, as you just mentioned, we have to leverage our advantage and capabilities in managing longevity risk and to deepen the reform of contract-type products. And second, for the account-type products, under the guidance of the third pillar, we have to set up a more flexible management model for the accumulation period and to generate more abilities to create values to provide a much clearer and transparent display -- presentation to the customers. And at the point, we will encourage customers to switch back to the contract-type products. I think this is the macro trend of pension annuity products. NCI is a life insurance company. We have a complete and sound product system. And this year, we also launched some new products. Some of them are short term to medium term, like [ Huitianfu ] annuity. Also, we introduced the [indiscernible] and other products that was linked to elderly care communities. For third-party accounts products, we will also follow the experience we accumulated under the third pillar structure and try to make some innovation. Thank you.

I'll answer the second question. You mentioned agent head counts. When can we expect to see the lowest head count? From 9 million head count to over 4 million head counts, what a dramatic drop for insurance industry. Actually, this trend will continue. A lot of unqualified agents leave this industry. Some of them are not suitable for the insurance selling. Many companies, including NCI, are taking active measures to recruit new agents. I can't say the specific time of this valley, but we think it's more important for us to retain those agents that are good at and excel at insurance sellings. Right now, the head count of agents is not enough for such a big population in China. I have several thoughts to share with you. As I mentioned before, the first is to follow the rules and laws. There used to be some misconduct in the agent team to acquire illegal instruments -- interest and the profit from the company. So we have to strengthen the team management to abide by the laws and the rules and to make sure all the data are transparent and are true. Second, we have launched the product targeting at new recruits and existing agents. For new agents, we want to provide them with some simple -- some products that is easy to sell and help them to engage with the customers. As Mr. Gong mentioned, we have some health care and elderly care communities that will help the new recruits to sell. And the third is to build an agent team that is younger, more professional and good at working at urban areas. We wanted to simplify the hierarchal levels and structure to meet the diversified needs of our customers. The last point is technological empowerment. We want to gain more customers from the Internet. We have to expand the online channels and to cater to the needs of the younger customers. In the past, we used to think the recruitment of agents will bring naturally customers. It is not true. We have to expand the channels to help our team market and to increase their income size to help them retain in the company. By doing so, we have to make efforts into aspects. One is quality. The other is quantity. Thank you.

Due to time limits, let's welcome the last question. Next question comes from [indiscernible].

I'm analyst from [indiscernible]. I have 2 questions. First, I want to ask about the industry. We can see the industry going down in the second quarter. What do you think are the reasons behind this? And when can we expect a turning point? Or what indicators or science that may reflect the turning point? The second is in the [indiscernible], we can see the payout of health insurance increased by over 40%, which is higher than the premium growth and whether there are changes of assumptions behind this. And will you adjust your assumption in the future?

First, let's welcome Mr. Gong to answer the second question.

For the increase of the payout, we can see that the payment for medical insurance because of the pandemic in 2020, a lot of the areas are restricted and the payment for medical insurance are low. But in this year, the payout are returning to a normal level. So that's the answer for your first question. And about the payout for the critical illness product, in the past several years, the critical illness business equates to fast and are accounting for high proportion in the FYRP in some time. And so we have growing existing business. With the increase of our existing business, we can expect the growth of the payment to claims, which is in line with the business growth in the past several years, and we can expect the payout payment to the claims increase in the future. And for the current assumptions and the increase of payments -- claim payments, whether there are some promise in terms of pricing and customers, I think it's a complex question. For the pricing point, the base for the pricing of our company has followed the critical illness table and occurs with the table of the industry and the mobility rate. And these tables are transparent. So I think we have a relatively certain and sound grasp of those risks. In the second point, customers' awareness of protection and insurance has increased, which promoted the customers to buy health insurance product. But no doubt we can see there are some fraud in these products sales and -- which has increased the payment ratio of our company and the last ratio as well. Recently, we can see many news which can show this phenomena. And other is the increase of the medical technology, such as the thyroid cancer which has a lower -- it was not that critical but has a higher claim payment. Generally speaking, I believe the claim payment is in the sound normal track and it increases within our expectation, and we will closely follow those assumptions and trends. Thank you. Let's welcome Mr. Li Yuan to answer your first question.

About the first question, you've mentioned the growth of the industry in the second quarter. I have answered -- in my previous answers, we can talk about this. The decrease of industry is not only in the individual's insurance channel by the Bancassurance channel and the corporate insurance has a relatively good performance. And for the life insurance business, I think there are 4 mismatches. Those -- this mechanism, the changes of the market and the mechanism all contribute and influence the industry development. And I think the distribution team building models needs to be changed. And for example, there is a mismatch between the age of customers and our agent. The second is the mismatch between the product supply and customers' demand and people -- customers have diversified and personalized demand. The third is there's a mismatch between the sales model and the market customers' purchase models. So the young people like to buy insurance products online. So we are working on that. And the last is mismatch between the people's income and the affordability of insurance product. So there are mismatches. And about the turning point, for me, I hope the turning point show as quickly as possible. And for me was -- the regulation requirement and the severe regulation policies, we can -- see there are some time that needs to adjust and adapt to the new regulatory requirements. And secondly, I think there needs time to transform the agent team. Companies needs to invest data resources in this regard. And we have made a selection and adjustment in the team building and business promotion. And we have the similar feeling that we hope the turning point show quickly. And through the transformation and coordination of various resources, we believe we can expect some indicators to show the turning point. And in this process, we should, first of all, adapt to the regulatory requirement. The second is we need to strengthen the innovation. There are 4 mismatches, just [indiscernible] mentioned, and that we should work on that to solve those mismatches. And this will require us to strengthen our efforts in product innovation, and we hope to empower the business with technology. The second is we hope to build a new team, which is a young professional urban team, and we hope to provide precise service and products to customers and to meet their demand. We hope those products were sold can better meet people's demand, including the demand for aged care and health care. The -- at the same time, we hope to provide a better health care service for the customers as well as aged care and health care service. And also, we hope to provide more products and service in terms of wealth management business and aged care. Those businesses are our priorities, and we will closely follow the trend of those indicators. First is about the performance rate. The second is productivity per capita. In the first half, we can see the productivity per capita for our company has increased by double digit. The third indicator is people's income. Now the income of the agent is about CNY 3,000, which is not high and inadequate for agents' living. So to improve and increase the income of agents will be our priority in the future. And the fourth indicator is the recruitment. We have to decrease falloff of existing agents and recruit high-quality agents and recruit the high-performing agents. We hope to reduce the falloff of the new agents and retain the team, and we hope those who are impropriate for the industry and leave and hope those who can adjust the industry can retain. And that's all for my answer. Thank you.

Thank you for participating our interim results announcement and for your questions. If you have further questions, please contact the IR team of our company, and we are happy and ready to answer your questions. That's the end of the interim results announcement of NCI. Thank you.