CPIC performance briefing: Confident in maintaining a consistently good performance in the annual investment return rate this year

On August 28, CPIC held a mid-term performance briefing. President Zhao Yonggang, Vice Presidents Yu Bin, Ma Xin, Vice President, Chief Investment Officer, and Financial Officer Su Gang, Chief Actuary Zhang Yuanhan, and Board Secretary Su Shaojun attended the meeting and answered questions from investors. The management responded to key issues such as highlights of operating performance, transformation of dividend insurance, life insurance channel strategies, decline in net assets, new funding directions, and dividend levels. Operating Net Cash Flow Reaches New High for the Same Period President Zhao Yonggang stated that in the face of changes in the external environment, CPIC has always maintained strategic stability, continuously enhanced core functions, accelerated the improvement of core competitiveness, optimized business structure, improved business quality, and enhanced value creation capabilities. From the performance data, in the first half of this year, the group's total assets and operating income continued to rise, and indicators such as operating profit, net profit, and embedded value also maintained steady growth. Overall operations continued to show a stable and progressive development trend, further solidifying the foundation for high-quality development and enhancing development resilience. He summarized the overall operations of the first half of the year, which can be characterized by three features. The first is to adhere to transformational breakthroughs, with steady progress in main business. The life insurance business insists on a value-oriented approach, accelerates the construction of diversified channels, improves the differentiated service supply system, and promotes layered and categorized management of customers. The value of new business and core value ratio have continued to improve. At the same time, the proportion of floating income-type products has gradually increased, the scale of the individual insurance team has stabilized, and the productivity of core personnel has continuously improved, while the value contribution from the bancassurance channel has also steadily increased. The property insurance business prioritizes efficiency, continuously deepens the adjustment of business structure, focuses on improving refined management levels, accelerates the improvement of risk reduction management systems, maintains stable premium growth, optimizes the comprehensive cost ratio, and significantly enhances underwriting profit. Operating net cash flow has reached a new high for the same period. From the asset management sector, it adheres to professionalism, continuously optimizes fixed income asset investment strategies, strengthens equity asset investment in the public market, and timely seizes overseas investment opportunities represented by the Hong Kong stock market, fully leveraging the role of dividend strategies to hedge against expected income downward pressure, providing solid support for the company's stable operations. The second characteristic is to adhere to integrity and innovation, with effective momentum transformation. CPIC closely aligns with the strategic direction and key areas of high-quality development, enhancing and cultivating new growth momentum through solidly executing five major financial initiatives. The first focus is to continuously enrich the product matrix of health insurance, achieving an upgrade in protection capabilities from basic medical insurance to self-paid insurance, and from pre-illness to post-illness coverage. At the same time, it accelerates the improvement of the "prevention - diagnosis - treatment - recovery - care" health service ecosystem, providing customers with high-quality products and service experiences covering the entire life cycle. It also deeply explores the field of pension finance. The management capabilities of pension funds have been continuously improved, and the new business scale of commercial insurance annuities has significantly increased. Additionally, it further strengthens the supply capabilities of fintech and green finance, enhances service support for key areas such as rural revitalization and the Belt and Road Initiative, and accelerates the implementation of large model scenarios, forming multiple AI solutions such as health insurance and intelligent claims assistants, enhancing technological empowerment levels and assisting the entire company's cost reduction and efficiency improvement The third is to adhere to the foundation and cultivate the source, and the foundation for development has been continuously consolidated. Through the company's deepening of long-term operational logic and optimizing the long-term mechanism of asset-liability linkage, the long-term investment return rate continues to cover the cost of liabilities. On one hand, by increasing the collaborative development within the group to streamline key processes and focus models, strengthening comprehensive operations for customers, we have also seen a continuous increase in the number of individual customers holding multiple policies. Additionally, there is a high emphasis on protecting consumer rights, actively promoting the construction of consumer protection demonstration zones and intelligent consumer protection. The life and health insurance companies continue to maintain industry leadership, with the health insurance company also ranking among the top in its peers. At the same time, we are actively improving the compliance and risk management system, strengthening monitoring and early warning of key risks. Enhancing the compliance operational capabilities of institutions at all levels, especially grassroots institutions. Improving our operational evaluation system, incentive and constraint mechanisms, coordinating long-term goals with current tasks for development and safety, effectively guiding institutions at all levels to achieve high-quality development. We are also actively strengthening talent team building, continuously promoting the structural optimization of cadres, and constantly stimulating organizational vitality. Looking ahead to the second half of the year, we will continue to adhere to the overall tone of seeking progress while maintaining stability, consolidating the achievements of high-quality development, further comprehensively deepening reforms, accelerating innovation-driven initiatives, promoting the transition from old to new driving forces, striving to achieve qualitative effective improvement and reasonable quantitative growth, and continuing to create greater value for customers, shareholders, society, and employees. It is expected that the proportion of participating insurance will further increase throughout the year Chief Actuary Zhang Yuanhan introduced that in the first half of 2025, the company will be customer demand-oriented and insist on promoting the transformation of participating insurance. From the perspective of product structure, the participating insurance premium scale in the first half of the year reached 10.128 billion yuan, achieving significant year-on-year growth, with the proportion of participating insurance in the premium income of the China Insurance reaching 42.5%. Especially since the second quarter, the proportion of participating insurance has been particularly significant. In the first half of the year, the transformation of the business structure was enhanced through four major measures. First, strengthen the concept and firm up the transformation. From the head office to branch institutions, there is a deeper understanding that in the current interest rate decline cycle and economic environment, participating insurance is the optimal choice for customer interests and the future development direction of the industry. Second, promote differentiated channel strategies based on actual business scenarios of each channel. In the first half of the year, the proportion of new premium income from the agent channel reached 5%, while the bank insurance channel was nearly half of the agent channel. With the acceleration of product transformation in the second half of the year, it is expected that the proportion of participating insurance will further increase throughout the year. Third, promote differentiated regional strategies, seizing risk opportunities, strengthening the sales logic of risks, and enhancing regional promotion based on regional characteristics, customer preferences, team conditions, and resource endowments, implementing differentiated operational strategies. Fourth, increase the strength of policy guidance and implement differentiated resource allocation strategies, optimizing the direction of financial resources, strengthening talent allocation and performance assessment policy guidance, stimulating the operational vitality of institutions, and better promoting the sales of risks. In the next step, the new round of pricing interest rate adjustments presents both opportunities and challenges for participating insurance On one hand, this will inevitably lead to a decline in the competitiveness of some products in the short term and an increase in sales difficulty. On the other hand, it also narrows the gap between the preset interest rates of participating insurance and traditional insurance, making the relative advantages of participating insurance more prominent, thereby promoting the optimization of the overall business structure, which is beneficial for the long-term management of interest spread risk and the high-quality development of the business. In response to changes in the macro environment and regulatory guidance, the company is actively addressing issues around liability flexibility, resource enrichment, and asset diversification, while establishing digital and ecological synergy to build long-term competitiveness, mainly reflected in the following three aspects. First, continuously improve the supply of floating income products, complete the transformation of product structure, seize development opportunities under the new situation, adhere to customer-centricity as the starting point and team as the foothold, continuously support the operation of diversified floating income products, and proactively layout product strategies under the background of preset interest rate reductions. Second, deepen health insurance and promote structural diversification, seize policy opportunities, continue to develop, and actively leverage the group’s resource advantages to support the new growth in mid-to-high-end medical care and long-term care driven by medical reform, assisting in the optimization of service ecology layout. Provide products plus services, a comprehensive solution. Third, strengthen asset diversification and duration management to enhance profitability. In the context of declining market interest rates, the investment side continues to match long-term government bonds, solidifying net investment returns, reducing duration gaps, strengthening asset-liability linkage, and refining layered benchmarking management of investment returns and liability costs to enhance profitability. Life Insurance Channel Continues 2+N Regarding the channel strategy for life insurance, President Zhao Yonggang stated that based on a comprehensive assessment of the market environment, customer needs, as well as the company's resource endowment and future development trends, the development strategy of 2+N multi-channel has been clarified. By laying out diverse channels, we enrich our sources of profit contribution and enhance value creation capabilities. Among these, the agent channel and bancassurance channel have become new pillars of the company's value sources. Specifically, in the agent channel, the focus is on building a marketing team, actively creating a professional and specialized agent team. Since the beginning of this year, the core indicators of the team have been continuously improving. First, the scale of the team has stabilized and rebounded; since the second half of last year, the total workforce has stabilized at over 180,000. By the end of the first half of this year, the total workforce was 186,000, a year-on-year increase of 1.6%. The retention rates for 13 months and 25 months have also improved significantly. Second, the per capita productivity of core personnel has increased year-on-year, with the monthly per capita first-year premium scale increasing by 12.7%, continuing the growth trend. Third, the quality of newly added personnel has also continued to improve. In the first half of this year, 39,000 new personnel were added, a year-on-year increase of 19.8%, and the backgrounds of new hires are better than before, with new hires achieving double-digit growth in monthly per capita first-year premium scale. Fourth, the operational capabilities for mid-to-high-end clients have continued to improve. In recent years, we have enhanced our ability to provide precise services for mid-to-high-end clients through initiatives such as developing wellness and wealth planners. In the first half of the year, the proportion of mid-to-high-end clients in the agent channel reached 27.3%, an increase of 3.8 percentage points year-on-year In the future, the individual insurance channel must continue to take marketing system reform as an opportunity, continuously deepen the professionalization and specialization of the team, promote the improvement and iteration of the team's posture, and consolidate the foundational role of the agent channel in the overall value contribution of the company. To elaborate, first, it is necessary to optimize the structure of the team, focusing on key regions, including some provincial capitals and key cities, concentrating on key positions, including high-performing supervisors with high productivity, and focusing on key demographics, such as younger, highly educated individuals with successful past experiences. In this process, it is important to enhance the quality of recruitment and training, promoting the development of the organization. Secondly, it is essential to improve institutional management, guiding behavioral changes in the team through the updated basic law of individual insurance, laying a foundation for long-term development and enhancing the process level of the team. Throughout the first half of this year, the 13-month retention rate of the team increased by 4.5 percentage points year-on-year, with nearly 50% of the team having more than five years of service. Thirdly, it is crucial to deepen technological empowerment and actively apply digital means. By developing digital tools for customer management, we can better identify customer needs and efficiently match service resources, transitioning from general outreach to intelligent screening, and from repetitive investment to more precise supply, thereby promoting the sales conversion rate of the team and continuously improving the customer retention rate. From the perspective of the bancassurance channel, we must adhere to the main line of value bancassurance and explore new models of channel integration. From the first half of the year, the premium growth rate and value growth of the bancassurance channel have achieved breakthroughs. In the first half of this year, the scale premium for new insurance policies reached 8.84 billion, a year-on-year increase of 58.6%, and the new business value also increased by 156% year-on-year, reaching 3.604 billion, accounting for nearly 40% of the new business value in the entire life insurance sector, significantly enhancing the ability to contribute value. Secondly, we continue to optimize the structure of the channel, with key cooperative channels achieving both year-on-year growth and share increases, and the depth of channel cooperation continues to strengthen. The development of joint-stock banks and large state-owned banks has become more balanced, and the resilience of the channel structure has also improved. From the first half of the year, the number of premium collection outlets reached 13,000, a year-on-year increase of 28.9%, with the average monthly number of premium collection outlets increasing by 70.2%, among which the growth rate of state-owned large banks' outlets reached 164.9%. Thirdly, we are actively building a high-quality team in the bancassurance channel, promoting the construction of a team characterized by high quality, high performance, high income, and high processes, maintaining industry leadership in team productivity and operational efficiency. Looking ahead to the next stage, we must continue to adhere to the value bancassurance strategy, effectively seize market opportunities, and further consolidate and enhance the value contribution of the bancassurance channel in the overall operations of the company. First, we need to optimize the regional layout, focusing on central cities, steadily expanding the institutional layout, and strengthening the institutional layout in key development areas such as the Yangtze River Delta, Greater Bay Area, and Beijing-Tianjin-Hebei. Secondly, we should deepen partnerships to achieve balanced development of business between joint-stock banks and large state-owned banks, while selectively collaborating with local city commercial banks and rural commercial banks, continuously enhancing the resilience of the channel structure. Additionally, we will deepen channel operations and jointly establish a model of co-managing customers and sharing value creation with banks The third point is to optimize the matching of production and service resources, continuously enrich the landscape of insurance products around customer needs, increase the supply of floating income products, upgrade the exclusive service system for bank customers, and meet customers' diverse needs for wealth management and retirement health. The fourth point is to significantly enhance the application of digitalization, promoting digital transformation in dimensions such as customer channel management, team building, training, business quality management, operational services, and resource allocation. The negative impact of interest rates on net assets in the second half of the year will further diminish Regarding the 3.3% decrease in the company's net assets compared to the end of last year, Vice President, Chief Investment Officer, and Financial Officer Su Gang explained that this is due to the different interest rate curves used for assessing assets and liabilities under the new relevant standards, with the asset side using spot rates and the liability side using a 50-day average rate. If there are significant fluctuations in interest rates, such as in the first quarter of this year, it will have a temporary differential impact on net assets, which was quite evident in the first quarter. In the second quarter, market interest rates continued to decline, leading to a rebound in asset valuations, and the difference between the curves on the asset and liability sides is continuously narrowing, which also reduces the negative impact on net assets. From an annual perspective, under the condition of stabilized interest rate fluctuations, the differences between assets and liabilities will mainly concentrate in the first quarter of this year. In the second half of the year, the negative impact on net assets will further diminish. The life insurance business essentially operates in a long-term liability industry, and the company's management and asset-liability operations are based on a long-term perspective. In recent years, CPIC has continuously extended the duration of the asset side, achieving good matching of asset and liability durations, which is a potential in the industry. From a long-term cycle perspective, the interest rate impacts on the asset and liability sides can generally offset each other, maintaining continuous stability. Dividends consider operational profits and investment contributions Su Gang further stated that in the first half of 2025, the company's net profit attributable to the parent company increased by 11% year-on-year, showing a significant improvement compared to the end of the first quarter, with several main reasons for profit growth. First, since the second quarter, the interest rate environment has eased, and the negative impact of interest rate fluctuations on the fair value of fixed-income assets in the first quarter has significantly narrowed. Second, the company has continuously expanded diversified investment channels, especially actively seizing investment opportunities in the Hong Kong stock market, with equity investment returns consistently exceeding benchmarks. Combined with a dividend value strategy, the contributions in a low-interest-rate environment have steadily improved overall investment performance, effectively supporting the growth of net profit. Third, the insurance main business has maintained steady development, with continuous optimization of the business structure, and ongoing improvements in operational and risk control levels. The comprehensive cost ratio of the property insurance sector has further improved year-on-year, and the life insurance business has continued to show a stable and positive trend. Driven by both investment and insurance, the scale of net profit in the first half of the year has grown well year-on-year. Looking ahead to the whole year, the company will continue to adhere to asset-liability matching and a prudent investment strategy, actively respond to fluctuations in the interest rate market, continuously optimize business quality and profitability, and strive to achieve sustained growth in annual net profit. Although the market base in the second half of last year was relatively high, the company will still resolutely promote high-quality development, actively adapt to changes in regulatory policies, and continuously strengthen its value creation capabilities In the second half of the year, the company will focus on improving the operational quality and efficiency of its insurance business, enhancing the profitability and stability of investment returns, and continuously strengthening its medium- and long-term asset-liability management capabilities, coordinating to promote effective qualitative improvements and reasonable quantitative growth, ensuring the comprehensive achievement of annual operational goals. Regarding the changes in the company's operating profit, in the first half of 2025, the group's attributable operating profit was 19.9 billion yuan, a year-on-year increase of 7.1%, mainly benefiting from the improvement in property insurance underwriting profit and the contribution increase from the reduction in life insurance liability costs. The amortization of contract service margins is a stable source of operating profit, and the interest spread and operational experience deviations remain important guarantees for the growth of operating profit. Meanwhile, the second half of the year also faces new challenges, including adjustments to pricing interest rates in the life insurance business and uncertainties related to catastrophic risks in the property insurance business. In response to the complex external environment, in the second half of the year, CPIC will continue to uphold a prudent operational style, maintaining positive contributions from operational deviations and property insurance underwriting profits, and it is expected that the annual operating profit will continue to maintain steady growth. The company's dividend policy is based on operating profit, maintaining the sustainability of dividends, while the company will also moderately link the dividend amount to the positive contribution of investment returns. Last year's dividend level was higher than the growth rate of operating profit, which was due to the good performance of investment contributions. Regarding the cash dividend for 2025, it will be based on operating profit while closely monitoring the magnitude and structure of investment contributions, aiming to smooth out annual dividends from a long-term perspective to maintain stability and sustainability. Confident in maintaining consistently good performance in investment returns for the entire year Su Gang also mentioned that in the first half of this year, the company's comprehensive investment return rate decreased year-on-year, mainly due to the relative changes in the yields of some fixed-income assets. In the first half of the year, the decline in market interest rates was significantly less than the same period last year, resulting in the fair value of the fixed-income assets held by the company, measured at fair value and changes included in profit and loss, rising significantly less than in the same period last year, affecting the year-on-year level of returns. In addition, CPIC's comprehensive investment return rate ranked among the leading peers in the market last year, and the comparable base was relatively high, which also affected the relative results. Given the complexity and long-term nature of the insurance company's business model, the annual performance of investment returns is influenced by multiple factors. Firstly, it is closely related to the company's asset-liability management system. In recent years, CPIC has actively explored new models for diversified matching management of assets and liabilities, initially constructing a new methodology for asset-liability management that adds net investment return rates, seeking to establish a unified system platform, professional terminology, and management tools based on comprehensive considerations of product management, investment management, financial and capital management, to achieve high-quality linkage between the asset side and the liability side. Under the guidance of the new methodology for adding net investment return rates, the company continuously strengthens the collaborative management of assets and liabilities, on one hand, fully controlling the rigid cost baseline of long-term liabilities, focusing on increasing the proportion of businesses that share long-term investment risks with customers. On the other hand, it actively adopts multiple measures to stabilize net investment returns to adapt to changes in the low-interest-rate era, including extending asset durations, promoting new fixed-income allocations such as ABS and REITs, and increasing allocations to equity assets with higher dividend rates and growth potential, effectively buffering the decline in net investment return rates In the first half of the year, the company's annualized net investment return rate only decreased by 0.1 percentage points year-on-year, maintaining a leading position among listed peers. Secondly, the investment return rate will be influenced by the company's strategic asset allocation framework in the long term. CPIC has established a strategic asset allocation methodology and model centered on solvency as the core risk preference, combined with medium- to long-term forecasts of the macro economy and capital markets, forming a cyclical strategic asset allocation plan that reasonably plans the allocation ratios of major asset classes, including publicly traded equity assets in the Hong Kong stock market and fixed income assets. The company maintains appropriate diversification in the selection of industry allocation varieties, reducing portfolio volatility risk through diversified investments, thereby enhancing the long-term overall risk-adjusted return rate. In addition, the level and volatility of the investment return rate are also closely related to the core strategies of major asset classes. In terms of publicly traded equity investments, in order to actively respond to the low-interest-rate environment, CPIC has implemented a dividend value strategy for over 10 years, actively allocating high-dividend, low-volatility assets, focusing on the intrinsic value and long-term development potential of investment targets, and maintaining the stability of portfolio returns and risk resistance. At the same time, it actively increases the diversity of styles through growth assets to enhance the growth opportunities brought by the transformation of the technology innovation industry, improving the overall return of the portfolio. Based on the results of internal research, under comparable standards, CPIC's average investment return rate over the past 10 years is 4.70%, ranking first among listed peers, with a Sharpe ratio of 1.02 for comprehensive investment returns, also ranking first among listed peers. From historical and related annual performance, the company's investment return rate has consistently been at a moderately high level among listed peers, and it is confident in maintaining a consistently good performance for the entire year's investment return rate. Five Directions of Fund Flow Su Gang introduced that in the first half of 2025, indeed, with the continuous strengthening of domestic macro policies, including the intelligent transformation and upgrading of the national industrial structure, the entire economy is showing considerable strong resilience and a continuously improving trend. However, nominal interest rates are still at a relatively low range, so the insurance industry generally faces dual pressures of asset allocation and reinvestment. In the first half of 2025, CPIC mainly promotes the allocation of new assets from five aspects. First, adhere to the fundamental strategy of holding fixed income assets to maturity, continue to increase the allocation of long-term interest rate bonds, effectively extending the duration of assets, and controlling the duration gap between assets and liabilities. The second is to moderately allocate subordinated capital bonds of large joint-stock banks and actively seek high-quality cooperative partners for agreement deposits and other investment tools to increase the returns of credit assets under the premise of selecting varieties and strict control standards. Third, steadily increase the allocation of publicly traded equity assets. Fourth, continue to increase long-term alternative assets in equity investments. Fifth, actively explore innovative investment channels and varieties such as private equity securities funds and gold investments. Currently, publicly traded financing tools account for 10%, continuing to decline For a considerable period, the investment environment for Chinese insurance funds has been undergoing profound changes. Previously, the focus was on long-duration interest rate bonds and high-quality fixed-income assets to extend asset duration and enhance coupon income, serving as the ballast for the entire investment portfolio. Equity assets played a role in boosting long-term returns, acting as the key minority in the investment portfolio. However, with long-term interest rates declining rapidly and entering a relatively low environment, the credit risk of non-standard fixed-income assets has increased, and the supply of high-quality assets has significantly contracted. The overall market's proportion of new investments in traditional non-public market financing tools has been significantly declining. As a large number of non-public market financing tools are maturing, by mid-2025, the proportion of non-public market financing tools in assets is expected to drop to 10%, a decrease of 2.6 percentage points from the end of the previous year, with the balance of holdings declining by 15% compared to the end of the previous year. The company will, on one hand, strengthen macro research efforts to assess the timing of interest rate bonds and simultaneously match the extension of asset duration. On the other hand, it will also enhance risk research and credit control capabilities, more prudently selecting equity income varieties. Under the premise that the liquidity of investment accounts can bear it, the company will still selectively allocate suitable high-quality projects for non-public market financing tools while strictly controlling risks. Overall, the comprehensive strength of the non-standard debt repayment entities currently held by the company is generally strong, and the actual risk is controllable. From the perspective of asset allocation capability building, the company will place great importance on and continuously achieve cross-cycle projection capabilities to adapt to this long-term challenge in the current low-interest-rate environment. First, adopt multiple measures to stabilize net investment returns, including extending the duration of bonds, increasing new fixed-income varieties such as ABS and REITs, and increasing the allocation of equity assets with high dividend yields and low volatility. Second, continue to actively build a diversified equity investment portfolio, seizing structural opportunities such as technological innovation, industrial transformation, and sector rotation. Third, support strategic emerging industries through equity investment methods, such as the newly established merger and acquisition fund in the first half of this year, to achieve cross-cycle investment returns through long-term industrial layouts that are synergistic with the main business. Fourth, continuously integrate ESG concepts into the entire investment management process, seeking long-term investment opportunities related to climate change. Fifth, cautiously explore overseas investment and global asset allocation models. Risk Warning and Disclaimer The market has risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk