China Pacific Insurance Q&A on Q1 2022 Report

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Questions and Answers for the 2022 First Quarter Report

1. Q: In the first quarter, your net profit dropped a lot, why? What is your expectation for the year? Would investment impairment charges impact net earnings for FY2022?

  1. The drop in net profits in the first quarter was mainly due to lower investment income. There was the high base effect from the first quarter of 2021, coupled with a sharp decline in securities trading gains in February and March due to changing equity market volatility. Investment impairment charges do not yet have a material impact on investment income or net earnings.
    Going forward, given heightened domestic and foreign economic uncertainties and the resurgence of COVID-19 in many cities, FY22 net profits would be under pressure as the city lockdown puts economic activity pending and slow economic growth. We will persist in high-quality development, try our best to overcome difficulties, and ensure stable business development throughout the year.
    The earnings of insurance companies, especially life insurance companies, can be very volatile. That’s why we started publishing OPAT in 2019, which is a more useful and clearer measure of an insurance company‘s underlying performance, as it excludes the impact of investment movements at term, changes in actuarial assumptions and material one-time factors. . Therefore, it provides an alternative angle to assess business performance in addition to accounting profits. In the first trimester,

OPATs attributable to shareholders of the parent company are faring much better

than book profits.

2. Q: To deepen the transformation of life insurance, you launched the Changhang action program comprehensively earlier this year, with the aim of fostering a career agency force towards “3 directions and 5 Mosts”, focusing on core labor and productivity gains. How

How’s it going ? An improvement in the strength of the agency? When can we expect an improvement in KPIs like NBV?

  1. On July 1 of last year, we started the design of phase I of the Changhang Program of Action, and 3 things were accomplished in the next 6 months: 1. Design of a 18-month “road map”; 2. Improved agent validation to consolidate the basics of the sales force; 3. Promoting reform to staff and agents to build consensus.
    The implementation of the roadmap began on January 1, 2022, aiming to build a new way of operating the agency channel centered on professionalism, career development and digitalization. Key initiatives include: 1. Amendment of the Basic Law, establishment of the closed-loop system for high-quality recruitment and high-performing agents. Manager-level agents are more selective in recruiting. Launch of Changhang Partners, an agent recruitment program. 2. NBS built-in closed-loop operation, which starts with

service and then moves on to sales. “Daily Visits, Weekly Management and Monthly Planning” has dramatically improved agent activity rates and therefore agent productivity. 3. Technology for Agents, an online platform, has helped agents with customer relationship management and planning their own day-to-day business, with steady improvement in user coverage and efficiency. 4. Built the training system together with world-renowned teams, and the online courses are running as planned.

5. Upgrade workplaces to a shared agent platform that is modern, professional and open, supporting multiple functions.

In the first quarter, we delivered some initial results: 1. Stabilization and recovery of the core workforce, with an average monthly increase in the core workforce in the first quarter of 33.7% compared to the second half of 2021; 2. FYC average base workforce in Q1 increased 75% from H2 2021, and double digits year-over-year; 3. The 13-month retention rate for new hires in March and February increased by 4.6 pts and 3.7 pts compared to the previous month; 4. Marked improvement in business quality, with a 13-month retention rate up 5.3 pts year-on-year to 89% and a long-term insurance claims rate down 5.6 pts.

Given the industry downturns, our transformation initiatives and the adjustment of business development plans, we experienced pressure on first quarter business performance, with lower NBV. However, as long as we move forward and do the right thing, the momentum for improvement

gradually accumulate. The first quarter results have boosted our confidence and we expect more results in the second half. It will take 2-3 years for the transformation to bear fruit globally, and the continued patience and confidence of our investors would be appreciated.

3. Q: Your outlets and agents are concentrated in tier 3 cities, tier 4 cities, or rural townships. On the other hand, middle-class insurance demand in Tier 1 cities is arguably more robust and resilient. How do you fill this lack of endowment in your quest to

transformation?

  1. lower levelcities are actually our advantage. International experience shows that GDP per capita between USD 8,000 and USD 35,000 tends to coincide with the period of fastest growth in life and health insurance, driven mainly by new customers; whereas above USD 35,000 the market tends to mature, driven largely by existing customers. If this is a useful guide, Tier 1 cities, given their GDP per capita, may have lower growth potential than lower-tier cities, where the demand for class insurance emerging average is not yet satisfied. Oliver Wyman’s reports said China’s life and health protection gap is 1.6 trillion yuan, and of this amount, that of health insurance and health insurance exceeded 1 trillion yuan. For people in lower-tier cities, CI insurance covers both loss of income and medical expenses in the event of serious illness, and it is very

attractive value proposition. It is therefore essential to build on current channels and networks, to evolve them in order to exploit the potential of the middle class market. This is what we seek to achieve through the transformation – to enable our agents to better serve and focus on this market segment. On the other hand, as for Tier 1 cities, we are also working on a differentiated approach to competition for existing customers.

4. Q: The market is concerned that the exposure draft of administrative provisions on life and health insurance sales will make business even more difficult for traditional life insurers, and that competition from the Internet, especially Huiminbao and “million-yuan “Medical insurance may seriously disrupt the demand for traditional critical illness insurance. What is management’s view of

this?

  1. Chinese life insurance has just passed the period of “early penetration” and entered the phase of the diverse needs of the middle class. Today, the main challenge is the mismatch between supply and demand. According to market studies, the 3 main factors inciting customers to choose a financial product: 1. Understanding me, ie the offer of personalized products that correspond to my needs; 2. Long term service; 3. Professionalism. As for life insurance, it means moving from relationship selling

Disclaimer

China Pacific Insurance (Group) Co. Ltd. published this content on June 24, 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unmodified, on Jun 24, 2022 09:35:01 UTC.

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Analyst Recommendations on CHINA PACIFIC INSURANCE (GROUP) CO., LTD.

2022 sales 369B
55,091 million
55,091 million
2022 net income 24,201M
3,618 million
3,618 million
Net debt 2022 27,237M
4,072 million
4,072 million
PER 2022 ratio 9.14x
2022 return 4.11%
Capitalization 205B
30,626 million
30,626 million
EV / Sales 2022 0.63x
EV / Sales 2023 0.62x
# of employees 107,000
Floating 68.3%

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Medium consensus SURPASS
Number of analysts 24
Last closing price CNY23.44
Average target price CNY27.51
Average Spread / Target 17.4%


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