China Pacific Insurance Group Co Ltd Q2 2021 Earnings Call (Chinese, English) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Yuxiang Ge - SWS Research Co., Ltd. - Analyst : [Interpreted] I'm Ge Yuxiang from Shenwan Hongyuan Securities. Now I have some question on investment in P/C. Now you see investment-wise, quite good performance. But EV assumption actually we saw poor performance. ASF, there is an unrealized loss of CNY 1.8 billion. So how come -- why is this unrealized loss? Second question on the P/C business. Now we see some volatility for the P/C profit. How are you going to improve your underwriting profitability going forward? Unidentified Company Representative [Interpreted] Now I'll answer your first question. Thank you for your question. Now you see for the first half of this year, our annualized net investment yield decreased by 0.3 pts. That's mainly because of the downward trend of the interest rate. Now our newly allocated assets, actually offering lower returns and also the share of fixed income assets also went down because the denominator is mainly the interest rate income, our fixed income assets and also dividend payment from equity assets. So since our dividend actually -- so that's why there is a slight drop. Now regarding the -- our -- actually, we deployed the disciplined investment tactics. In -- at the beginning of this year, actually, we had some prediction and analysis of the macroeconomic situation. We believe there will only be structural opportunities for the equity market. So for the first half of this year, you can see on the books face value, you see investment actually given better-than-expected results. So the relieved -- released some -- reduced some of the pressures for the second half of this year and also better prepare us for the long-term investment. Going forward, we will continue with our study of the market to make sure we can meet the investment target for the whole year. As you mentioned, a provision of potential unrealized loss, that's mainly because of the treatment -- accounting treatment for equity assets, that is for any equity assets could cap, market value is lower than cost for longer than 1 year. So we would take a loss provision for those stocks to the tune of around CNY 1.2 billion. So that's -- I mean, these stocks were all high dividend paying stocks. Unidentified Company Representative [Interpreted] Thank you. Now let me answer your P/C question. Now the auto reform starting from September last year, so I believe that we have been -- it's been a year since the reform. We look at -- you can see the results for our first half results. I believe, first of all, premium per vehicle REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 31, 2021 / 8:30AM, 601601.SS - Q2 2021 China Pacific Insurance Group Co Ltd Earnings Call (Chinese, English) dropped clearly or up significantly. Now you'll see for compulsory auto insurance. I mean the up limit actually increased for a lot. So only for the compulsory auto insurance, our claims or our claims payout increased by more than 10%. And the COVID-19, of course, stabilized in China. So we see more people traveling, driving around. So we, therefore, the more claims from the auto insurers. So claims ratio dropped -- increased by more than 1% this -- in the first half of this year. And another factor -- and there are other uncertain factors. But despite all these uncertainties, we need to focus on what we can control. Therefore, we actually made a provision. We increased our reserves. So the share of our unsettled reserve increased also. So I believe that's mainly why the pressure for the overall business for P/C. Now despite this pressure brought by auto insurance reform, we are still confident because this pressure would only force us to refine our management, refine our business development and improve our customer operation. Now actually, you see after quite, well, years of our hard work, we are seeing good results. In the first half of this year, the number of our individual customers increased by 11%. And also in terms of cross-selling between auto and nonauto business, there is an increase of 89%. That means -- and the penetration rate increased by more than 20 percentage points to reaching around 40%. So I mean, these active involvements offset partially the challenges brought by auto insurance reform. Of course, the pressure will continue in the second half of this year, and we are also seeing new measures to be launched for new energy vehicles. I believe, in China, new energy vehicle -- I mean total number of new energy vehicle is likely to reach 2 million in China this year. And for CPIC P/C, well, our share of the new energy vehicle is quite high, higher than our peers by 1 to 2 pts. And in terms of the growth of new energy vehicles, EV hybrid -- EV plant game. I mean actually, the fastest-growing section is the family vehicles, growing very fast. Actually growing by more than 80% per year. And actually, the claims on claims ratio of new energy vehicle is not good. So how can we cope with this new evolvement is likely to be more a question. We need to -- well, yes, work on that. Now we share that -- well, after the -- we need to focus more on operation of customers, improving our internal capabilities, enhancing our business development capability through the customer operation. And we predict with implementation of our reform -- transformation measures, we're going to see good results for our P/C business. Shaojun Su - China Pacific Insurance (Group) Co., Ltd. - Joint Company Secretary & Deputy Director of Transformation Matters [Interpreted] Thank you for the question and answer. Now let's welcome the next question. Jenny Jiang from Morgan Stanley. Well, next question come from Liu Xin Qi of Guotai Junan Securities.