CILJF - China Life Insurance Company Limited (CILJF) Q4 2022 Earnings Call Transcript

2023-03-30 03:16:10 ET

China Life Insurance Company Limited (CILJF)

Q4 2022 Earnings Conference Call

March 29, 2023 11:00 p.m. ET

Company Participants

Zhao Guodong - Assistant President and Board Secretary

Bai Tao - Chairman

Li Mingguang - Vice President and Chief Actuary

Ruan Qi - Vice President

Yang Hong - Vice President

Bai Kai - Assistant President

Zhao Peng - President

Zhan Zhong - Vice President

Li Yinghui - Investor Relations Officer

Conference Call Participants

Presentation

Zhao Guodong

Good evening, ladies and gentlemen. Welcome to the announcement of China Life's Annual Results 2022. I am Zhao Guodong, Assistant President and Board Secretary. This announcement is available via video conference in Beijing and Hong Kong. Those who can't join us offline are welcome to dial in by teleconference or online streaming.

Next, let me introduce the management and team members in Beijing and Hong Kong. The management team in Beijing includes Mr. Bai Tao, Chairman of China Life; Mr. Li Mingguang, Vice President and Chief Actuary; Mr. Ruan Qi, Vice President; Ms. Yang Hong, Vice President; Mr. Bai Kai, Assistant President. Joining us online from Hong Kong are Mr. Zhao Peng, President of China Life; Ms. [indiscernible], Vice President; Mr. Zhan Zhong, Vice President.

Today's announcement will begin with a 20-minute management presentation about the performance of the company in 2022, which will be followed by a 15-minute Q&A. The Beijing and Hong Kong sides will rotate in raising questions. Ms. Li Yinghui, our Securities Affairs representative, currently in Hong Kong, and I will jointly moderate the session. First, let me invite Chairman Bai Tao for an overview.

Bai Tao

Ladies and gentlemen, good morning. Welcome to the announcement of China Life's annual results 2022. Today's announcement comprises five parts. First, I will give you a brief overview about the company's operation in 2022. And then other executives will cover topics such as business operations, investment, finance, and embedded value. 2022, an extraordinary year, witnessed complex and a severe internal and external environment, as well as deep adjustment of life insurance industry, the company upholds the principle of pursuing progress while maintaining stability [indiscernible] various challenges, and exhibited five features in its results last year.

First, we made sustained contribution and improved our capability to serve the society. We also adhere to the people-centricity and balance the Chinese endeavors and the national priorities, and optimized our product portfolio. Our critical illness insurance covers 350 million people, reducing also their burden, and made a breakthrough in new business, and doubled the customized services. And we also lead industry in terms of personal pension. And we have also intensified our support to the real economy. And our ESG ratings also lead the industry. Second, we achieved a steady development and maintained good growth momentum. We firmly pursued high-quality development and a demonstrated resilience.

With many policies and measures, new policy premium grew briskly. Total premium stayed at high level. Despite our large scale, we effectively responded to the market volatility and reinvestment difficulties. Our investment yield exceeded industry average for the second year in a row. Third, we solidified our market leadership in both scale and value. Our total premium new total assets in new business value, embedded value, and brand value all rank the first in the industry. We became much more competitive in metropolises and cities, and reacquired a market leadership.

Our operating results were recognized in the capital market. Our share price significantly outperformed the index of the overall market and insurance industry. Our market cap ranked the third among the global insurers. Fourth, we controlled our risk with also [prudence and accountability] (ph), and we balance growth and security output steadily and prudently enhanced total risk management in the systems [indiscernible] and consumer protection and [intelligentized] (ph) and digitalized risk control. For 19 consecutive quarters, we maintained our risk ratings at A level and above.

As the only one in the industry achieving A level ratings for 19 quarters. Fifth, we continued our reforms, and we always take reforms as our primary attraction, and launched the eight reform programs. [Indiscernible] eight more products were launched then to upgrade our customer operation, marketing, reforms, resource, consolidation, utilization, and ecosystem, and renewed our core competitiveness for the future. 2022 has passed. You must be interested in what we are doing for reform and the development in 2023.

We believe we embrace good period of [indiscernible] development. First is the favorable long-term macroeconomic environment. This is a period of strategic opportunities. The coming decade is critical to the Chinese path to modernization as per Vision 2035. The Chinese economy is expected to grow by 4 to 5.5%. And the present income is now $13,000. And by 2035, that will double. Such growth will solidify high-quality industry growth. This year, policies have yielded increasing results. The economy is regaining its momentum. Over the past three months, the change is evident and turning for the better, clearly.

Before I came here, I checked our operating results by today. Indeed, the momentum is strong, and such as rebound will promote recovery, expansion, and upgrades of financial services and the insurance consumption. The second is accelerated structural growth in large insurance with the national strategies of proactively addressing population ageing healthy China are implemented. This provides enormous space for personal pension, commercial health, long-term care, includes the fire insurance, and other new growth drivers. Moreover, marketing system reform digitalized our operation, integrated development ecosystem expansion are yielding new driving force. The industry's space for structural long-term growth is unfolding. So, this is a second major opportunity.

The third is the faster transformation of the company's comprehensive strengths into tangible gains. Facing customers in diverse and different need, the company boasts professional expertise, extensive network, diverse products, full sales channels, strong branding and services investment capabilities, and fintech strengths, tapping them all with our further coordination will unlock great potentials. In 2023, our 20 ^th anniversary of IPO, we look back and I find that, over the past 20 years, our premium revenue increased by nearly five times, and total asset 15 times net profit -- 30 times. We cherish our achievements over the past two decades.

Under the leadership of a new management team, the company will accelerate high-quality development, continuously release development potential, continue to forge ahead towards the goal of building a world-class life insurance provide, provide customers with comprehensive protection, create a greater value for shareholders, and share development results with the society.

That concludes my overview. Now, over to Mr. Zhao Peng for business and operation. Thank you.

Zhao Peng

Thank you, Chairman Bai. Let me introduce the business and operation in 2022. In 2022, the company steadfastly achieved progress while maintaining stability, focused on insurance as its origin, deepened supply-side reform, pursued high quality development, consolidated its market leadership, and increased its overall strength. First, both business scale and value continued to lead the industry with great resilience. And gross premium revenue was RMB 615 billion, embedded value RMB 1.23 trillion. And, value of one year sales RMB 36 billion. All key metrics outstrip the industry. Second, key business indicators remained stable. Premiums from new policies was RMB 184 billion and FYRP on 10 years was RMB 41.8 billion; both, making positive growth.

Third, comprehensive strength continued to build up the company's total assets and investment assets. Both crossed the mark of RMB 5 trillion, grew by 7.3% and 7.4% respectively. The solvency ratio remained high with the core one reaching 143% and comprehensive one 206%. Both our risk prevention and control capability further improved in CBRC's risk ratings for insurance industry. The company rated A Class for 19th consecutive quarters.

Next, I will review the performance sector by sector. First, individual agent business, in 2022, the sector featured steady business growth and optimized business structure. FYRP was RMB 81.5 billion, down 0.9%. That of 10 years and more stood at RMB 41.8 billion, up 0.5%. And its share in total FYRP expanded by 0.7%. In this sector, customers were operated and served in stratified manner. Sales force training was prioritized. Team management was upgraded. And team productivity further enhanced. Monthly average first year regular premium per agent went up by 51.7%.

We drive our business productive sales force. We continued to solidify quantity and seek efficiency while keeping stability, and optimized our team structure according to the strategy. Team system 4.0 was further rolled out with stronger technical support. [Indiscernible] expand recruiting base and focus hiring and training on the promising. [Indiscernible] project was continued to develop sound sales habit and sale force more professional and specialized.

By the end of 2022, the individual agent sales force had 668,000 people with 430,000 in general sales and 238,000 in upsales. Among the new hires in 2022, high quality new agents namely those aged by 25 to 45 and educated in college and above to have 19.5% of the total, up 3.8% versus 2021, the share of those with at least three years of experience expanded by 8.7% versus 2021.

Diversified business sector actively served the national strategies and helped with the development of the third pillar of pension. Policy based health premium insurance grew by 5.4%, hosting 500 plus projects of interested healthcare. Breakthroughs were made for new business formats and new city dwellers. In personal pension business, the company was a pioneer in market launch and leader in market share. Productivity improved remarkably in 2022, and grew [indiscernible] balance of scale and efficiency. Market share for short-term insurance continued to lead market. Operating efficiency kept improving. Comprehensive cost ratio fell by 6.5%.

In 202, In 2022, bank insurance excelled as well. This channel continued its diverse strategy, partnered with 73 banks. In 2022, it earned a total premium of RMB 63.4 billion up 28.6%, renewed -- renewal premium came to RMB 36.2 billion up 10.4%, business structure for the improved share of FRRP of at least five years reached 43.4%, up 1.5% value of one year new sale grew fast. By the end of last year, there were 21,000 customer managers in bank insurance and team size remained stable and per capita productivity was up 9.1%. The company upholds customer centricity, leverages the group's comprehensive strengths, builds the life insurance plus ecosystem and enables high quality development.

In 2022, premium from P&C business sold by the company reached RMB 22.38 billion. Number of policies grew by 9%. Pension business across sold by the company contributed RMB 15.73 billion. Starting from meeting the diversified needs of the customers, the company built an integrated business platform covering the entire customer group, cooperating it with a P&C company, pension, insurance company, GDB, asset managers, et cetera to run customer campaigns, providing customers with a one stop all round, high quality financial and insurance services, effectively empowering customer operation, team building and business development, and greatly improving the synergy.

Next on Operation, the company aspires to provide the top tier experiences, provide convenient quality and carrying services, develop operations in an integrated, digitalized and diverse manner, empower service supply and delivery, beef up cost consumer protection system and accelerate the deployment of integrated and intelligent operating model. The number of registered users of our application reached the 129 million, claims acceptance rate reached 99.6%, director claim payments delivered 6.7 million times. As our feature business, we provided a senior friendly service for 25.59 million times policy administration and underwriting achieved intelligent dispatch.

There are too many operating highlights to be elaborated during this short presentation. In 2023, the company will speed up its high quality development, especially in the following six priorities. The first is to achieve stable growth. We will give top priority to development and consolidate market leadership in both scale and value. The second is to prioritize business value. We will focus on quality and earnings and take various measures to realize growth in value for new business and profitability. The third is to optimize the business structure. We will adhere to deepening supply side reform around customer needs, vigorously develop a medium to long-term regular business, actively diversify products and continue to optimize business structure. The fourth is to strengthen the salesforce. We continue to stabilize the headcounts of the salesforce while improving quality, accelerating reforms in agent systems, make our sales force more professionalized and specialized.

The fifth is to promote reforms. We will promote the eight reform programs in depth and accelerate fostering new development momentum. The sixth is to guard against risks. We will balance development and risk control and tighten risk prevention measures. And very briefly about the eight reform programs, this is a new business strategy proposed to lead the future development. Its goal is to consolidate and enhance the company's leading position, open up new ecosystem and promote high quality development through innovation and breakthroughs in mechanisms, operation, marketing reform, resource integration, management, operating system, et cetera. We will at a due time share with you the milestones of these eight reform programs.

Next, let me invite Li Yinghui to update you about our investments.

Li Yinghui

Thank you, Mr. Zhao. Now, I will brief you on China Life's investment performance in 2022. In 2022, in the face of a severe and complex market environment, the company maintained its strategic determination, firmly implemented its medium and long-term strategic asset allocation plan, and continued to optimize its investment portfolio.

First, we stabilized the fundamentals. In terms of fixed income, we insisted on the dumbbell allocation strategy, and the proportion of bonds remained stable to slightly higher, among which the overall proportion of 10-year bonds stock exceeded 30% and the asset duration continued to lengthen further consolidating the bottom position of long-term allocation and locking in long-term stable returns across the interest rate cycle.

Second, we control volatility utilizing the relatively low investment space of equity positions at the beginning of the year. We crossed the low point of Asia during the year to carry out medium and long-term positioning, and the proportion of stocks and funds, excluding money market funds, rose by 2.5 percentage points. Through the diversification of strategies within equity varieties and the diversification of investment management, robustness of returns on equity assets was enhanced.

And third, we developed growth drivers leveraging the advantages dual insurance, capital management licenses within China Life Group, we tailored diversified products such as fixed income plus fee rates and ABS, focused on long-term investment with long lasting effects, and seized strategic investment opportunities in the process of Chinese modernization, while enhancing the quality and efficiency of serving through our economy.

In 2022, the company worked through huge challenges fully interest rates, deep corrections, equity market, as well as falling net profits, associates and joint ventures. Our investment yield remained resilient. Net investment yield was 4%. Gross investment yield was 3.94%. Comprehensive investment yield was 1.92%. In terms of credit risk management, the company remained committed to its cautious investment philosophy and managed credit risk exposure carefully. As of the end of 2022, more than 98% of the credit bonds held by the company were rated AAA, and over 99% of its nonstandard fixed income assets had external AAA ratings. In 2022, the company reported no credit default.

Next, I'd like to give the floor to Mr. Li Mingguang, who will brief you on the financials and embedded value of the company.

Li Mingguang

Thank you. Ms. Li. Let me walk you through the financials and embedded value of China Life in 2022. In 2022, due to the year-on-year declines of written premiums and gross investment income, our total revenue was RMB 804.39 billion down by 2.5% year-on-year. The company strengthened cost control and budget management and continued to decline or continued to reduce administrative expenditure, administrative expenses dropped slightly year-on-year.

In 2022, due to the plunge of equity market, investment yield dropped, net profit attributable to equity holders of the company worth RMB 32.8 billion down by 36.8% year-on-year, the weighted average ROE was 7.1%, down 3.91 percentage points year-on-year, so, much about profits and losses.

Next, the assets and liabilities of the company, as of the end of 2022, our total assets stood at RMB 5.25 trillion up 7.3%, total liabilities RMB 4.81 trillion up 9.1%, the reserves of insurance contract were RMB 3.88 trillion, the residual margin was RMB 819.71 billion. As of the end of last year, equity attributable to equity holders of the company was RMB 436.17 billion, down by 9% from the end of 2021.

Next, I will move on to embedded value. First, let's look at the value of one-year sales. In 2022, the company actively tackled multiple challenges including the deep adjustment of the life insurance sector and achieved progress amidst stability. Overall business remained sound. The value of one-year sales reached RMB 36 billion maintaining market lead. The value of one year's sales of individual agent business sector was RMB 33.3 billion, down by 22.4% year-on-year. The value of one year's sales of diversified business sector improved business mix with RMB 2.7 billion in value of one year's sales, up by 45.5% year-on-year. Business margin of one year's sales for individual agent business sector in 2022 were 33%, down 9.2 percentage points year-on-year.

Next, about embedded value, in 2022, company continued to strengthen asset liability management, coordinated business development and risk management with RMB 1,230.5 billion in embedded value, up 2.3% from the end of last year. Adjusted net worth was RMB 682.7 billion, up 1.2% from the end of last year. Value of in-force business was RMB 547.8 billion, up 3.6% from the end of last year. This slide shows the movement of embedded value. In the interest of time, I won't go into the statistical details.

So much for the presentation, thank you.

Now, I'd like to invite analysts and investors onsite and online to raise questions. In the interest of time please raise two questions at most each time. And let us know your name and the institution you represent. Let's first take a question from Beijing.

Question-and-Answer Session

A - Unidentified Company Representative

The lady in the first row.

Hello. Thank you, Mr. Zhao. Thank you to the management. I'm [indiscernible] Securities. Congratulations on your good results. Though new business value declined, it's better than your peers, as well as on the capital productivity of your agents also improved markedly. I have two questions. Last year, there were some adjustments with the China Life, and you have a new board of directors. So, for the new Board of Directors, what is your strategic positioning for China Life? Are there adjustments as compared to previous strategies? And at the business level, two weeks ago, at the [Ping An] (ph) announcement meeting in 2023 Q1, and whole year, new business value forecasts on were positive. So, for 2023, what is your outlook? Do you have any guidance? And what is your expectation for individual channels?

Let me take the question first. I returned to China Life in January, last year. Mr. Zhao Peng returned in July, last year. And we formed a new Board of Directors of China Life. Like the market said, Mr. Bai Tao and Mr. Zhao Peng, well, they changed the strategic positioning. Well, this is not very valid question. Looking back, China Life was listed in 2003, it's been 20 years. Like I said, our revenue grew by 5 times, net assets by 15 times, and net profits 30 times over the space of these years. No matter how the leadership changes, no matter how the formation of Board of Directors change, one thing remains unchanged; the mission and vision of China Life haven't changed, which is to serve the country, the people, and build a world-class insurance company.

In the past 20 years, this vision hasn't changed. So, after we return to China Life, we have very good reason to stay committed to this mission and vision to build a world-class life insurance company. So, at the announcement made in for the first-half of the year of last year, I set forth the following strategy. First, commitment; commitment to our mission and vision, which mustn't change no matter how management changes, we still want to build a world-class life insurance company. Second change, I said at the end of last August, I said external situation was changing. Internal situation was also changing. We need to keep abreast with the times. Customer base is changing, digital strategy is changing, and sales force structure is also changing.

Resources consolidation conditions will also change. And so, we proposed professionalization, market orientation, digitalization, and we wanted to continue to consolidate our scale and value leadership, although our business value dropped last year, but we maintained our market lead. So, moving forward into strategy, to put it simply, we want to focus on four areas. We had discussions about this for a long time, plus we want to focus our value. Without creating value a business will have no value. If it doesn't create value nobody will invest in it. Only by creating value can the business have a future. So, we must put value first.

Last year, it was very difficult for us in terms of scale and value. We tried to strike a balance. And everybody would like to have it all. But there has to be tradeoff, so we put value first, we focus on value. Second, we focus on customers. Whoever wins customers can win the market. Over the years, China Life has focused on customers mainly in three areas. First, we want to seek upward breakthrough. As I said earlier with per capita GDP and per capita income increasing, peoples' income is increasing. So, there will be more and more mid and high premium level customers, so we need to work upwards to acquire more customers. Insurance plus health, and insurance plus pension, moving forward these will be our strategic priorities.

Second, downward expansion, we have 900 million with [indiscernible] and 300 million people in new business types, and 240 million of young people -- especially of young people. And put together, the number is huge, so we have to extend to these areas; and third, in depth exploration and development of business with the new customers. Health and accident insurance currently stands at about RMB 400 million, but life insurance is only RMB 78 million. So, there is great room for cross-sale. And critical illness claim is about RMB 100,000, but the healthcare fees can easily breach hundreds of thousands of RMB, so there is great room, and we need to go deeper to develop business with such customers.

And third, we pay lots of attention to the transformation of our life insurance sales force. In terms of the transformation of individual business sector, after two to three decades of development, individual agency has come to a crossroads. Analysts are paying great attention to the future of this business model. In my discussion with my peers, it's also a hot topic. We have the industry's biggest sales force, about 70,000 to 80,000 people. We have to answer this question, what will become of this team? But we have the most complicated team because we have very extensive geographical focuses, and we have to answer this question on our own.

We have entered no man's zone in lots of areas. We have to answer questions our own. We need to borrow good experiences and practices from our peers. At home and abroad, we need to promote the smooth transition of our individual agency business model, and also product and service innovation. We need to focus on big elderly care ecosystem. Starting from 2015, we have been moving into this sector. There is south, north, and middle structure, gradually providing elderly care and services. We can assure customers with better services and more inputs, and also security. This is a huge institution. Our annual sales is over RMB 800 billion. We have agencies across the country, so we need to ensure its sound operation.

Soundness and stability need to come first. And on top of that, we need to seek progress. So, we want to create value in a compliant way. We will not change this culture to ensure that the ship can go steadily forward. And we've also invested a lot to ensure safe, sound, and reliable operations of the company to achieve high-quality development. Thank you for your question.

Zhao Guodong

So, Mingguang, would you like to take the second question?

Li Mingguang

I think your questions have been well-answered by the Board. You asked about this year, but actually in the coming years we are committed, clearly, to value creation. I would like to make a few quick additional remarks very briefly. We will take many measure so as to grow our value, we are confident in that. On top of what our Chairman said, I would like to offer some concrete measures. For example, for our products, we would intensify diversification. Coping with the complex environment, we will do multi-liability, multi-term, and multi-form of products. Second, in terms of products planning and the business operation, the value is a priority of performance review that enables the company to do well is that we and above the industry. But we usually would not benchmark ourselves against the rest of the industry; we just try to be better ourselves. So, we have many measure to further grow our value. That concludes my quick addition.

Zhao Guodong

Next one, please, from Hong Kong. No, the gentleman, please.

Unidentified Analyst

Good morning. I'm analyst [Joe Chung] (ph) from Credit Suisse. Thank you for this opportunity. I will actually congratulate the management. We reviewed your data over the past three years, during the pandemic; your new business value outperformed the rest of the industry. And so eases in other sectors are now calling for the enhanced management of market cap, and they are also calling for the establishment of a valuation system with the Chinese characteristics. You are a market leader, and also a leading SOE in the insurance industry. What do you conceive as your plans and measures in this regard?

Second, your profit has been a difficulty in the capital market, there is also a downturn. But the distribution rate of dividend also beats market expectation, hitting a high level historically. I believe that demonstrates your commitment to the shareholders, and your results reward them. I would like to ask you about your future policy of dividends. Is such a distribution sustainable in terms of long-term steady and handsome reward to the shareholders?

Li Mingguang

May I take these two answers, Chairman?

Bai Tao

Yes.

Li Mingguang

Both questions are excellent. First about market cap management, that is not a new question. We also, on a constant basis, did communicate with the capital market regarding the market attention to the dividend payout, the stability and sustainability of dividend distribution. I know the market is keen on that. Over the years, I think the market has felt that China Life is committed to the interest of the investors. So, for many years, we distribute around 35% in dividend. That policy has been continued for many years despite the difficulties in profitability, we still did that again for this year.

So, the distribution range reached the 43%. What we do well and will do well continuously is to improve our fundamentals, which will support our further distribution. And we'll also pay attention to the needs of the investors and what they ask for. We have seen some redemption and also very high dividend payout rates in the market; we saw them all. And we will pay attention to the business plan and the dividend payout ratio, and work on that policy of dividend. I think is most important is to improve our fundamentals after market cap. And what are the measures for SOEs to manage their cap? As you said, the first priority is to achieve good fundamentals. We are going to reach out to shareholders and investors, and we will take active and effective measures on market cap management. And I can also assure you that our dividend will continue and improve. Despite difficulties over the years, we are still committed to this policy. Please rest assured.

Zhao Guodong

Next question, please, from Beijing. Investor or analysts, please raise your question. On my right-hand side, the fourth one, the gentlemen, please.

Unidentified Analyst

Okay. I would like to thank the management for this opportunity. I am [Guotai Securities] (ph), I'm [indiscernible]. The first one is about SOE reform. As [indiscernible] mentioned that the assessment for SOEs have changed in terms of the metrics and KPIs. So, in the changed format of SOE performance review, have you also adapted your KPIs? Given the financial reports, the consolidated profit is short of RMB 5.8 billion in terms of the -- versus the group. So, what is your policy to address the underperforming subsidiaries?

The next one is about the channel quality. What amazes us is that, over the past two years, during pandemic, the per capita NBV and productivity were on the rise. And the absolute amount is also highest among [indiscernible] listed companies. During the pandemic, what did the company do to ensure productivity NBV and the productivity and allow them to rose to the highest level in the insurance industry among the comparable insurers. So, what will you do in the future to sustain such improvement of your competitive edge?

Unidentified Company Representative

So, as I would like to take the SOE reform question. The other two will be addressed by Mr. Zhan Zhong. You mentioned the change of KPIs of SOE valuation. That is for the state asset management system. When I was in the previous company, I knew how that was practiced. But that's best for corporate. But the financial institutions are reviewed by the Ministry of Finance. We are subject to different KPIs, but the overall direction is the same, namely high-quality development and march towards the world-class companies. So, for different industries KPIs will be differentiated. For example, we have a solvency ratio; that is not applicable to corporates. And in our performance review we also have, indeed, the breakdowns. For example, in terms of technology investment, this is a bonus point issue for them, and the board of ours also is subject to such technology investment. So, the overall direction is high-quality development, but the details can be different. We are consistent and also committed to the overall direction. And we also stick to the modern governance structure. For per capita productivity and channel quality, I would like to invite Mr. Zhan Zhong to address them.

Zhan Zhong

For per capita productivity, our perspective is the following. Over the past three years, since 2019, we realigned our landscape among the different channels. First the bancassurance, over the years we have always been developing lean and the effective and efficient development for the bancassurance. The per capita performance improvement is attributable to such measures and also for the value. The diversified channel is up 45% despite the downturn of the individual agent business. So, that has been compensated by the improved diversified business sector. We are diving into the banking channel.

Our [indiscernible] team is also playing a very good role. Second is about an individual agent business. In the presentation, it was mentioned that we are also investing in developing the team. Our salesforce hires new people. Our new agents are hired with priority of hiring the high quality candidates. The college degree holders are assuming bigger shares. Our products are also extensively changed accordingly. For the team size, we are quite stable.

There's also good stability for the mid and high-end agents. Though the overall team salesforce is downsizing, but the share of the premium one members are actually occupying a larger share in the total. So, that is a result of our continued efforts. So, we have managed to stabilize our per capita productivity with those measures. Next, Hong Kong please. The lady, please.

Thank you, Madam Li Yinghui. This is from CICC. My name is [Wang Jinxing] (ph), an insurance analyst. I would like to focus my question on the recent move for industry associations to have discussions on the falling interest rates. So, I would like to ask you from Business side, actuarial side, so what is your views on the falling interest rate and how far will the fall go for the interest rate falling? What is the impact on your business? Which products will be more affected and with such falling rates since you have been selling with great expertise and strengths, are you confident that they will be maintained?

May I invite Mr. Li to answer them?

These are very difficult questions. First of all, the market here say I'm not in a position to share further information with you. But you are interested in the falling interest rate and in the low rate environment how will the company operate itself? We have been long thinking and practicing and also realigning our approaches facing the possible fall of the interest rate in the medium long run. So, facing such a mega trend, an insurance company needs to be good at knowing and addressing such mega trends.

And this is a major test to us as insurance company for investment management, NL management. We have mentioned that we always pay attention to the match between assets and liabilities for the loan and the interest rate may fall. How can we deal with that?

This is a question arousing widespread interest in the market as the permanent life insurance has been a hard issue so the discussion boils down just one point namely what to do about it?

So, this business doesn't have a big share in our business, that shows that our product portfolio is diverse between the investment and the business there must be some linkage. Second, in order to cope with the possible changes of raise in the future for product format, we must be diverse, we must have a diverse tenor form and liabilities for our products. So, the different kinds of risks will be first distributed and we need to avoid concentration with excessive concentration for our investment, we also need to properly build our position for the long-term products.

Facing the new environment of interest rates, we need to reconsider different channels and categories of investments. And where will the future risks lie in? And what will be the expected return for those products?

Likewise, analysts also need to think again about this. The business drivers are changing. So, in total analysis of all such changes on product side, business planning, training and asset allocation, we need to gradually introduce changes.

Li Mingguang

So, people pay great attention to interest rates. And I keep following interest rates, so much for my answer.

Next, analysts and investors from Beijing. On my left hand side gentlemen, please.

Management, good morning. I'm from [indiscernible]. I have two questions. First, on the investment side, last year in a complicated environment, investment was under pressure. In 2023 at this point in time, on the investment side, in terms of asset allocation, do you have adjustments or priorities?

Second, regarding the development of bancassurance channel in 2023 and moving forward, what is your plan and deployment? Thank you.

First question will be taken by Liu Hui.

Yes we can hear you. Well, let me answer your first question regarding asset allocation, China Life is a long-term investor, so we work around asset allocation by Mr. Liu mentioned that we will stick to value investing, long-term investing, and sound investing by combining strategies and tactics. We want to achieve long-term and stable investment returns.

More specific about 2023, as you can see, the Chinese economy on the whole is rebounding. Business, profitability and financing needs are looking up and the market risk appetite is returning. So, while expanding domestic demand and stabilizing growth, we expect the interest rate trend will go up a little bit and the equity market will have opportunities. And specific about the asset allocation in 2023, our biggest commitment and change is that we will follow what Mr. Bai said, we will focus on value, especially value. This should be reflected in our investment. First, we want to grow the fundamentals of fixed income stronger. For fixed income products, the focus on value lies in improving the level of build rates and extending the duration for a good match.

So, we will have a good grasp of the rising interest rates and the impact on long duration and low interest bonds. So, at high point of interest rates, we will allocate as many as possible. We will also competitively allocate credit on categories to consolidate our fundamental allocations. In terms of equity, we want to stabilize equity investment. The value of equity investment lies in boosting returns.

So, by focusing on value, we want to coordinate, boosting return and managing volatility. Given long-term, falling interest rates to boost the percentage of equity is a good option. In 2022, when the market was falling, we raised our equity percentage to around the median, which can help us boost our long-term returns.

In 2023, we will continue to coordinate and control our risk exposure and pay more attention to mid and long-term allocation while leveraging the differentiated positioning of Managers and executing balanced allocation.

We will seize opportunities to increase allocation in stocks with low valuation and high dividends to boost our long-term returns with the thicker cushion. And we will also optimize alternative investment. This is also reflected in our focus on value. We will diversify our allocations. In China Life we have two licenses for alternative allocation. So, we will boost asset allocation with steady cash flow through pre rates and fixed income plus funds, we will allocate in quality assets and advantageous tracks, especially those related or with low association with other categories to resist inflation, navigate the cycles to diversify the risks for portfolio, and enrich the sources of our returns. So, this is our plan for allocation in 2023.

Regarding bancassurance question, let me take this question. In past years, we focused on scale and value for bancassurance channel. At the same time, we focus on scale, increase structure, optimizing and value enhancement. Through the past year's development, we have laid a very good foundation. Moving forward, we will continue to stabilize growth, stabilize position, control cost and control risks. Under this guiding principle, we respect the development law of the channel. We stay committed to our strategy with equal emphasis on scale and value, we'll pay attention to regular premiums and promote the improvement of quality of our salesforce to boost the high quality development of bancassurance channel.

Moving forward, we will continue to improve our value and stabilize our scale and status in the market. Thank you.

Next question over to Hong Kong. Lady in the second row, please. Thank you for the question.

I'm from [indiscernible]. Question for Mr. Zhao. You mentioned that in the future, you will focus on customers. In your upward breakthrough, you will focus on insurance plus health and insurance plus pension. So, in terms of health and pension, what is your deployment and positioning? And you started early in this area. What is your advantage and what are the gaps to be filled? Thank you.

Thank you very much for your questions. Three years later, through Beijing and Hong Kong venues, we can have this face-to-face exchanges and I feel really excited about that. Thank you very much for your longstanding support, concern and interest in China Life. And these are frequently asked questions. We are accelerating the development of big health and big pension system and ecosystem. This is the consensus of the industry. This year we will promote eight programs in the system.

One is Health and Pension Ecosystem Initiative. This work is grasped from a strategic height. First, to promote big health and big pension is an aspect of implementing the Health China Initiative and actively responding to the aging population of the country. Second, this is also an urgent need to address the needs of the customers. In the second half of last year, we set up a task force for building a big health and big pension ecosystem and we also did a survey from which we can tell that the pressing need of high net worth customers aren't focused on health and elderly care. And this is also an urgent need to implement high quality development strategy of the company.

In terms of big health, we will work on four areas. First, we will continue to step up the development of policy health insurance. This is where our advantages lie, including on critical illness insurance and city tailored health insurance. We will stay committed to the principle of minimal profits while preserving the principles and costs. We will also accelerate the development of commercial insurance products which feature high value. We focus on value like Mr. Chairman said. So, this year we are going to focus on the development of commercial health insurance products including on critical illness insurance and healthcare insurance products.

We will increase innovation in these areas. And third, we want to improve the quality of our health services. We will continuously improve health management service capabilities and enrich the supplies and scenarios of health services and actively build quality efficient, online, offline hybrid health services system.

Fourth, in terms of mining and use of health data, we will step up efforts. We have been doing health insurance business for many years. We have accumulated lots of health data and by mining the data better, we want to support the innovative development of health insurance products to better meet customer needs in these areas.

So, this is about big health. Regarding big elderly care, we will focus on two areas. First, in terms of business, we will continue to actively take part in third pillar, elderly care or pension on system development. This year, we will focus on the development of private pension especially for new citizens and new business type employees. We will actively explore annuity as well as life insurance with pension functions and also services. Mr. Chairman also touched upon it. We started very early in some cities including Fuzhou, Sanya, Tianjin, Shenzhen, we have formed supply capacities for elderly care. This year, we will continue to work in certain areas including Chengdu and Xiamen to build more supply capacities.

Moving forward, we will strengthen positioning in this area. Based upon extensive market research, our plan is to focus on elderly care apartments in Downtown areas which will be combined with our suburb on elderly care institutions supplemented by home-stay elderly care. We hope that in one to two years in 20 to 30 key cities, we can quickly form the supply capacities of elderly care. This business is very important for our high net worth individual customers as well as our long-term business.

China Life will continue to work around life insurance business to comprehensively enhance our capability to integrate big health and big pension ecosystem. We want to build product, service and payment closed loop management to build our core competitiveness of products plus services to drive company from risk compensation to risk reduction in a closed loop whole chain management to better meet the needs of customers demands in terms of health and elderly care and also to better promote high quality development of our company. This year at appropriate time through Open House Day, we'd like to showcase and introduce our plans and also the executions.

If you are available, you're welcome to visit our elderly care facilities. We can show you around and have experience. I myself was amazed. I decided to settle in those elderly care nursing homes after my retirement. Is there anyone dialing in teleconference? And do you have any questions from the telephone side?

Yes, there is one from Guardian, name is [indiscernible]. Please start your question. Thank you.

Okay. Thank you, all the executives for this opportunity. Good morning. This is [indiscernible], analyst from Guardian Securities.

My question goes to President, Zhao Peng. I have been in China Life for almost over six months. You are also executive from an investment firm. So, do you have anything to share with your reflections on China Life in terms of the advantages and core competitiveness? Over the past three years, China Life outperformed the industry. Could you tell us why and where are the gaps that need to be improved in the future? Thank you.

Thank you so much for your question. Just now in our announcement, we already provided the details on the performance in 2022. Also, our Chairman summarized our performance last year with five features. I'd like to focus on what we plan for this year and the future in terms of the company's development and market evolution. In a nutshell, we are firmly bullish about the insurance market in China. Second, the company's performance this year and beyond we are filled with the confidence we are bullish, we are confident, why?

There are three reasons. In terms of the opportunities upcoming, first, there is a huge development opportunity on a strategic level from China's pursuit of the Chinese power to modernization. Among the five features of such modernization, there are two highly relevant to us. The first is the modernization of a huge population and second is the modernization for common prosperity of the entire people.

For life insurance, that provides us with the utmost resources namely the customer base which will come from the enormous population. We will have numerous customers to serve. Just now, the Chairman gives us an overview of the customer trends. Second, about the common prosperity for that, the opportunity lies in wealth management. In the first three months this year, the insurance industry nationwide experienced a rapid recovery.

A quick, important driver is the annuity. The urgent need for wealth management is unlocked and experiencing exploding growth. So, all these are long-term strategic opportunities for us. In this year particularly, the economy has displayed the momentum of the rapid recovery and growth around the Chinese New Year. The Chair let us to visit our branches at the grass root level. We have seen the rapid recovery and growth of the economy.

Second, the people have needs for insurance and wealth management as such demand is not quickly released. Offline activities have also redundant rapidly. All these fill me with confidence. Apart from our elderly homes, you are also welcome to visit our outlets at the grassroot level so that you will feel our vitality and confidence at our frontline at the grass root level because we also get our confidence there.

And third is the opportunities of the industry transformation. First is the marketing and sales system reform as promoted in all the insurance companies. The second one is the bancassurance channel. In the first three months that channel has been rising sharply for both the single premium payments and the term products. And that will translate into more profit and value. We need to pay attention to this.

The third is digitalization. The fourth is as I said health and pension ecosystem which is taking shape. And all these four factors are also bringing us enormous development opportunities. For 2023, we would like to stabilize our growth, focus on value, optimize our structure, expand force, promote reform, and control risk. The rational is very clear.

Since we are affected by the renewal index, our renewal premium was under pressure last year. And this year, renewal premium is 70% of our total premium revenue. Sometimes the 10-year premiums have been paid up. So, there will be some structural changes. And we anticipate some further reduction of the renewal premium. But, we would like to drive the total premium with new businesses. By the term products, we would like to also drive the one-year business with the sales force.

The productivity will help also drive our business development. So, with our liability management and optimization of strategic as allocation, we will be more profitable and efficient. With reforms, we will deliver all these targets, of course, with the bottom line of risk defended. So, all these belong to a clear logic. To this end, we have already launched the Eight Reform Programs.

In my view, Dingxin project launched in 2019 provide a continuation on the previous project that focus on the changes of the business model and organization. Three years of efforts yielded excellent results. That is why in the past three years, we managed to achieve both progress and stability. In the future, we will launch the Eight Reform Programs.

The core of that is to achieve breakthroughs in key areas especially three areas. The Eight Reform Programs can be summarized into three levers. The first is sales force. We need to make breakthrough there. The first three of the eight as illustrated in the PPT center around our team development. As I told you in August last year, we had two teams they are crucial to our success.

One is administrative or management team. The 100,000 colleagues there are excellent and stable. The second is the our sales force. As Mr. Zhong said, our team has become smaller. But, the high performance or productive sales force is highly stable. With the first three reform programs, we would like to motivate both the administrators and our sales staff.

So, we firmly advance the specialization and professionalization of our teams. And this year, we will also achieve reasonable growth of volume. The middle two are customer operation and governed enterprise corporation. These two boil down to the customer base. We need to make more out of the 170 million existing customers, so the secondary development rate is only 3% for them.

If we can now lift it to 5% if not more, we will receive ample space of further development. Meanwhile, we also serve 400 million customers from government-backed policies. They also have their demand for insurance. So, how can we identify and satisfy the needs of the existing customers and also develop new customers. And these are the questions we need to answer.

Next, the rest are actually digitalization and also the synergy between health and pension. These two are about the future growth drivers. Without further elaboration, we believe that Eight Reform Programs will vigorously propel our business growth. This year we focus on value. And in terms of business targets, we will take measures on business efficiency, team, and quality.

So, we will achieve strategy improvement of quality and reasonable growth of volume. So, far, we are on track if not even exceeding our expectation. So, that is why we are so confident in our results for now and future. Due to time limit, I would like to invite the final question.

The next -- the final one is now left to Hong Kong. We have 10 minutes please. From Morgan Stanley please.

Thank you, Li. I am an analyst at [indiscernible] from Morgan Stanley. I have two questions, first, about health insurance. We have seen that long-term health has some pressure for new orders of term products especially for critical disease. So, you also mentioned Mr. Zhao that we are planning innovation and diversification for health. And in 2021, you elaborate further are we going to bottom out for such health insurance? What is direction of diversification and innovation?

Second, for 2022, so the foremost renewal rate has already improved, but the 20 months is still under pressure. So, what is the trend of the 26 renewal range? Where is it going? Mr. Bai, please.

Thank you so much for your question. In recent years, long-term health and critical illness business are both diving as a common denominator and question for the industry at large. We are also analyzing the reasons and found the following. In previous years, critical illness insurance achieved high speed growth. Therefore in the market, there has been already a large scale of business as a base figure.

Second in 2021 February 1st, the regulator launched new rules on critical illness, also on May 1st and the new rules on long-term health insurance were promulgated. And they unlocked a lot of demand for long-term health insurance on earlier basis. And also because of the economy, our customers prefer like the RMB 1 million medical insurance and urban customized insurance, which are low-priced and consumption in nature.

So, they have also affected our sales. But, in the long run critical illness and long-term health insurance still enjoy a large room for development and sales. First, in the national health system, insurance will continuously play a more important role. In particular, group coverage and health protection, we still have a lot to do in this industry. The company down the road will combine products and services and extend the chain of the insurance protection and make our offering more attractive to customers, so that we can not only meet more diverse needs of the customer but also promote the development of health insurance. So, we can clear more value and make more contribution to the society as Mr. Zhao said, in 2023, we have started analyzing and exploring the relevant measures despite the continuation of the falling sales of such products in the short-term. The company would like to take measures and find a tipping point so that we can turn around and also achieve a bottom out.

I would like to address your second question about the renewal rate. We pay hell of our attention to the evolution of this ratio. We have been also improving our quality. The management of this renewal rate has already been the most important figure of high quality development. The policies have been rolled out in everything we do. The 14 months continuation rate has already improved. 26 months figure was actually a carryover of the low continuation of the 14 months and policies last year.

I believe with the improvement of our control measures, the renewal of 16 to 24 months will both improve.

Li Mingguang

This brings us to the end of our 2022 annual results briefing. If you have further questions, please do not hesitate to get in touch with our Investor Relations team at any time. Thank you very much for you time. Good bye.

Thank you.

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China Life Insurance Company Limited (CILJF) Q4 2022 Earnings Call Transcript