New China Life Insurance Company Ltd.

Ladies and gentlemen, good morning. Welcome to NewChinaLife's 2021 Interim Results Announcement. I'm Gong Xinfeng, Vice President, Board Secretary and Chief Actor 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 Zhen, Vice President Mr. Li Yuan, and Vice President Mr. Yu Zhigang. Today's results announcement has two parts. The first is the presentation on the first half performance and the second is Q&A session. Simultaneous interpreting will be provided. Friends who dial into this conference, if you want to raise questions in the Q&A session, please press star and 1. Now, let's come to the presentation part. Mr. Li Quan will brave you on the H1 performance and future outlook. Mr. Yang Zhen on financials and investment. I will introduce the embedded value part. Now the floor is yours, Mr. Li Chuan. 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 100.6 billion RMB up by 3.9%. It rose steadily. And the 25-month persistence ratio remained flat at 85.8% up by 1.2 percentage points. Embedded Value 250.7 billion RMB up by 4.2% compared to the end of last year. Total Assets 1.02 trillion RMB up by 1.8% compared to the end of 2020. Net Profit attributable to shareholders 10.5% billion RMB up by 28.3% year-on-year. Annualized total investment yield remains trailing, it was 6.5% up by 1.4 percentage points. When developing life insurance business, we also actively shoulder our social responsibility. For environmental protection, we adopted a low carbon approach to address climate change and promote ecological civilization. In office decoration, we follow the principle of modest decoration and energy saving in all aspects to improve efficiency and reduce consumption. In our daily operation, multiple steps were taken to cut emissions and save food. In business conducting, we use 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 1 million RMB. in H1 to rejuvenate countryside. We spent 8.3 million RMB in Guizhou, Shibing. Also in the first half, we provided nearly 840,000 sanitation workers with insurance. From 2017, The total claim payment reached 22 million RMB. 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 of old aged care and healthcare 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. To strengthen the risk control and practice compliance operation. Prevention comes first in risk control. We strengthen 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 professional distribution network and enhance the risk prevention. All types of business remain on track. FYP from long-term insurance business, 30 billion RMB up by 0.5%. Renewal premiums, 66.9 billion RMB 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, 3.6 billion RMB down by 16.3%. By different channels, individual insurance channel contributed 69.9 billion RMB premiums, up by 5.5%. Back insurance channel, 28.9 billion RMB, down by 0.7%, accounting for 28.8% of GWP. Group insurance channel, 1.8 billion RMB, up by 21.5%. For individual insurance channel, it stepped up efforts in customer management, explore the ways to support marketing. FYP from long-term insurance business, 10.2 billion RMB down by 1%. Renewal premiums, 57.6 billion are by 8.6%. Premiums from short-term insurance, 2 billion down by 28.8%. For the agent team building, The traditional marketing model gets tumbled in the insurance industry. We actively explored the transformation of such models and dismissed the unqualified agents. The agent counts 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%. For back-shoring channel, we depend on Cooperation with important partners and boosted the growth of regular business. FYP from long-term insurance business, 4.7 billion RMB up by 28.5%. Renewal premiums totaled 9.3 billion RMB down by 2.6%. From different products, the Participating insurance contributed 36.3 billion RMB down by 9.3%, accounting for 36% of GWP. Health insurance, 33.3 billion RMB up by 4%, accounting for 33% of GWP. Traditional insurance, 29.9 billion RMB up by 4%. 26.9% accounting for 29.7% of GWP. For the business quality, the quality remained stable in the first half. The 30-month persistence ratio 88.8%, 25-month persistence 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 Zhen 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 end. The revenue of the company is $130 billion, up by 12.3%. Net written premiums and policy fees increased by 4.1% to $99 billion, influenced by the increase of investment yield, which is up by 47.2% the investment income, increased by 12%. The expenses of is in line with the company's business and net profit totaled 10.5 billion up by 28.3%. Earnings per share was 3.38 yuan. Next, let's see the investment performance. In the first half, the company, in face with the complex and severe marketing conditions, the investment focused on our core business indicators and realized certain results. First, the investment asset reached $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 559 billion accounting for 57.2%, a slight decrease. This is the major asset allocation of our company. The bonds, trusts, products, debt plans, and asset funding funds are all stable. At the same time, the companies strengthen the research of the debt products, the overall credit is within control, and the equity financial asset reached 280 billion, accounting for 21.3% of total investment asset, maintained flat. The company focuses on value investing and absolute return, grasps the structural opportunities to realize the sound yield. And for the nested asset investment, the company has shared our investment philosophy with the investors. We have continued to stabilize our nest and asset but the volume and proportion has decreased the total nest and asset totaled 227 billion a slight decrease proportion in the investment asset the debt investment accounting for 71 percent and the equity investment accounting for about 30 percent the company has good quality of the nested asset with the credit within control. I'd like to share the sales margin ratio of the company. By end of June, the consumption margin ratio of the company is 260% down by 7.75 PT. The comprehensive sales margin ratio hit 269% down by 8.17 PT. That's all for the financials. Next, let's welcome Mr. Gong Xinfeng to introduce the embedded value. Thank you. Thank you, Mr. Yang Zheng. Next, I would like to introduce the embedded value of NCI. By end of June this year, the EV of the company continued to rose, increased by 4.2%, raised from $240 billion to $250 billion. Among those, the value of enforced business increased by 2.1%, up from $93 billion to $95 billion. Adjusted net worth grew from 147 billion to 155 billion, up by 5.6%. For the analysis of the EV, we can see in the first half of this year, the major contributors to EV growth were MBV 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 $4 billion down by 21.7%. FYP-based VNB margin was 12.2%. APE-based NBV margin was 12.2%. 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. Due to time limit, please raise only two questions and tell us your name. and the institution you represent. Now we are ready to take your questions. Ladies and gentlemen, this is the Q&A session. If you want to raise questions, please press star and 1 and wait for your name to be called. Thank you. Thank you, management. I'm Zeng Guanglong from Chaoshan Securities. First, congratulations on the management results. I have two questions. The first is on the liability side. As you mentioned in the presentation part, the insurance industry encountered some headwinds. I want to ask about the agent development. Since you achieved a lot of headcount growth last year, But this year we see a huge drop in the headcounts. What's your outlook in the recruitment in the future and what measures will you take to prevent the further drop of the headcounts? The second question is about the asset management. The F1 performance is quite sound and good. But we can see there are some diverging trend in asset markets and sectors. So how do you judge the equity market investment? Thank you. Mr. Li Yuan, 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 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 agents' building. And the third is the marketing mechanism in China. actually made a lot of contribution in the past three 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 four 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 customer's 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 offline 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 offline 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 2,000 to 3,000 RMB, which was very high at that time. But after nearly three decades, the average income still remained flat. at 3,000 to 4,000 RMB, 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 three aspects and the four 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 took active measures. We have three steps. First, we have three attitudes actually, but we choose to respond actively. We dismissed unqualified agents following the guidelines of regulators and make sure the headcounts, premiums and the 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 grasp 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 long 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 build 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 this 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 in marketing through our policies, atmosphere, responsibility and also activities. I mentioned that we pray for 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 the birth to the death. We want to build a new ecosystem of our marketing. In the past, the marketing ecosystem We focused on the headcounts and product. We think these two can ensure a rosy sales. But right now we shifted to technology, services and product. Technology 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 at 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 two training programs. One is for new recruits and the other is for managers. Also, we're targeting at 3,000 to 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 headcounts, premiums and the structures are true. 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 it may attracted a lot of eyesight from you from our fundamental strategy to simplify it Its equity investment has three impacts. First is duration, and the second is return, and the third is fluctuation. For duration part, equity investing is a little bit shorter than required, and it's may shorter than the I have to correct myself. Equity investing 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 an 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 a very important tool. Duration, return and fluctuation. These are the three 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 three 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 the short-term fluctuation and to grasp the media to long-term trend. 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, it's very important to company's performance. We will follow our established strategy and to grasp market opportunity. Thank you.