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Investor Q&A
Frequently Asked Questions
Investor Concerns And Answer
Frequently Asked Questions

 

1.In 1H14, your FYP from agency channel increased by 38.8%, while NBV from this channel was up 29.1%, does it mean that margin decreased? Can you explain the reason? On a separate note, stripping out the impact of changes in assumptions and methods, what would be your NBV growth?  
Ø Our NBV recorded 5.23billion RMB in 1H14, representing YOY increase of 22.9%. Stripping out the impact from changes in assumptions and methods, the growth rate would be 20.6%.The changes mainly arose from discount rate, solvency calculation method, surrender rate and expense ratio as of the end of 2013.In 1H14, the NBV from agency channel increased by 29.1%. Given that agency channel contributed 84.4% in terms of NBV, the impact of assumptions on agency channel was around 2 percentage points.
Ø Our margin edged down, which was primarily due to seasonality. The product mix and payment duration did not change much.
Ø The FYP used to calculate NBV in our embedded value report was different from that in financial report.  
2. In 1H14, your FYP and NBV growth for agency channel was robust, what was the driving factor? Will this strong momentum continue into the second half and next year?
Ø In 1H14 the life sector saw robust top-line growth, which was driven by high cash value banc-assurance products and sustained development of agency channel. However, the sales of high cash value products have slowed significantly since April due to new banc-assurance regulation. For CPIC, we have suspended selling these products.
Ø There were a couple of reasons for our strong momentum of agency FYP. First, the product line-up was attractive; second, our agency channel achieved impressive performance in the past several years due to continuous increase in headcounts, better business structure and significant improvement in agent productivity. Going forward, we will consistently focus on agency channel and regular premium business. With the roll out of our strategy, we are confident to maintain the healthy development of agency channel.
3. We have seen a negative FYP growth for banc-assurance channel over the past several years, with a decreasing contribution to NBV. What is your position on this channel?
Ø The value contribution of banc-assurance channel has been shrinking both for CPIC and across the industry. We are making efforts to optimize product mix and improve sales model. In the meanwhile we also see our peers shift their focus from volume to value. Going forward we will pursue for reform and restructuring while consistently rolling out our value-oriented transformation initiatives.
4. In 1H14, the combined ratio for your auto and non-auto sector stood at almost 100% and 97.5% respectively. Among the top four business lines of non-auto segmentation, both liability and accident suffered underwriting losses, what was the problem with the profitability on P&C side? What measures will CPIC adopt to address this challenge?
Ø The combined ratio for our P&C business reached 99.5%,while 99.97% for auto and 97.5% for non-auto, which was high both on a YOY basis and versus the industry average.
Ø The upward trend for our auto combined ratio in the past several years was aligned with the industry.
Ø Although the industry-average acquisition costs for auto business was on an increase trend due to more intensified competition, our expense ratio just went up slightly thanks to the optimization of resources allocation.
Ø If we look at the breakdown of the combined ratio, we could see that the deterioration in loss ratio was the key driving factor, which was due to multiple reasons including a different product mix and inflated labor and spare parts costs.
Ø The development pattern for motor business has also undergone some drastic changes, particularly in terms of distribution. Heavier investment in telemarketing and internet sales led to the rise in claim ratio as well.
Ø Over the past several years, we saw rapid expansion, which resulted in weaker business mix. Since 2H13, we have already realized this problem and began to adopt measures to address this challenge. In 1H14, we began to see improvements in several key metrics for auto business such as claims frequency, average premium per policy and etc, but given that combined ratio reflects both current business quality and the performance in previous years, it will take some time for the effect to show.
Ø As motor insurance accounted for 75% of our P&C business, we will spare no efforts to improve its underwriting profitability. We are pursuing for institutional reform, attempting to build a close-looped management mechanism.
Ø Through those initiatives, we will further improve operational efficiency and as a result, achieve a lower combined ratio.
Ø The combined ratio for non-auto sector increased dramatically in 1H14 YOY. Both accident and liability suffered underwriting losses.
Ø Over the past several years, our resource allocation has been skewed towards such emerging business lines as liability. In 1H14 we achieved better-than-average growth in liability, which led to increase in costs.
Ø For accident insurance, both the industry and CPIC have suffered from premium inadequacy for a long period. Thanks to our consistent efforts, although the combined ratio for accident business stayed above 100%, we did see some signs of improvement.
Ø CPIC has always been committed to consolidating its leading position in traditional non auto sector in terms of both top-line growth and underwriting profitability. In the meanwhile we will step up our efforts to develop emerging business lines such as agriculture, credit and etc. Going forward non-auto sector will remain our key profit contributor for P&C business.
Ø In balance, our P&C Company will leverage the intra-group synergies and pursue for bold restructuring. Through those initiatives, we are confident to improve our underwriting profitability consistently. 
5. The combined ratio for non-auto sector is normally lower than that for auto business. However, under Solvency regime, the minimum capital requirement for non-auto will be higher. What impact do you expect this new solvency framework will have?
Ø The second round of testing for Solvency Ⅱ framework on P&C side has been finished. Given that this new regime is a multi-dimensional framework focusing on internal control and risk resistance, we believe its implementation will have profound impact on both the industry and CPIC in terms of business strategy, reinsurance arrangements and risk control.
Ø On the surface, Solvency regime will have higher capital requirement for non-auto business. However if we take into account the combined ratio and other factors, we can hardly conclude that the capital requirement for auto sector will be lower comparing with non auto business under the new solvency framework.
Ø Relevant determining factors for Solvency regime is still in the test run. We believe that the introduction of this framework will be positive for the sustainable and healthy development of both the industry and CPIC. In the meanwhile, it will also better safeguard the interests of consumers. CPIC has been fully prepared for this new capital regime, with proper arrangements for our reserves and future business strategy.
6. The combined ratio for your liability insurance stood at 110%. But we also see that the Chinese central government calls upon the development of liability insurance, particularly compulsory liability. What will be your market strategy for this business line? 
Ø CPIC has increased our resource allocation towards liability business and as a result, achieved impressive top-line growth. The liability insurance as a percentage of our P&C business increased from 3.3% in 2012 to 4.2% in 1H14. Over the past 3 years, the top-line growth for liability business was much higher comparing with other business lines and versus the industry average. In terms of underwriting profitability, over the past 3 years, the combined ratio for liability ranged from 96% to 97%, which was quite impressive. But in 1H14, we saw deterioration in its combined ratio, which was primarily due to premium inadequacy of Employer Liability Insurance. Going forward we will step up our efforts in increasing premium adequacy and reducing acquisition costs.
Ø The State Council recently released the Opinion on Accelerating the Development of Insurance Sector, demonstrating its commitment to promote liability insurance, particularly in the emerging areas of food safety, environment protection, medical care, transportation and so on.
Ø Against this background, CPIC will seize the opportunity and leverage its advantage in experience and data,so as to achieve a more balanced development of liability insurance.
7. In 1H14 your alternative investment business achieved robust growth, but the market also worries about the associated risks. How can you balance the risk control and investment yield?
Ø Since last year, the percentage of alternative investment has been increasing in the insurance sector. With the investment yield improving, the risks have also been accumulating. As for CPIC, our alternative investment increased by 1.9%, which was quite moderate comparing with the rapid growth of the industry.
Ø To better manage the risks, prior to investment, we check the background of underlying assets and make credit analysis for debt investment scheme, trust products and wealth management products. Most of our alternative products enjoy AAA rating. For local government debt investment plans, we choose those regions with more advanced economy and lower leverage. As a result the risks for our alternative investment are on the whole under control.  
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