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Good evening, ladies and gentlemen. Thank you for joining the conference call today with regard to Ping An's 2019 First Quarter Results Announcement. My name's James Garner, I'm Chief Strategist and Head of IR, and I will host the call today.
With me, I have Mr. Jason Yao, our group CFO and Chief Actuary; and Mr. Richard Sheng, the Board Secretary and Brand Director, who will also be attending today's call.
This first conference call will be conducted in English and will last for 30 minutes. [Operator Instructions]
[Operator Instructions] Our first question comes from Kailesh Mistry from HSBC.
My -- the strong set of numbers, the key question I had was just on the fintech and the healthtech business. The run rate of operating profit is down on full-year '18 and also expectations for 2019. What's the main reason behind it? Is it just further investment? And perhaps if you could highlight what the run rate would be if you stripped out some of that additional investment?
Yes. I think that the main reason for the tech business is still key -- we increased our investment in some of our businesses. Then, basically, the profit-making business, their profit still increased, but then the other investment business, we increased our development and R&D expenditure, et cetera. So particularly, in the first quarter, this quarter compared to the same period last quarter, and on some of the business, their loss is getting bigger. And to some extent, offset the profit increase in some other lines of business. But I think, going forward, we still will keep investing. I think this is still going to be the future for the group and we should be confident going forward. The tech business still will contribute strong profits to the group.
[Operator Instructions] Our next question comes from Thomas Wang from Goldman Sachs.
A couple of questions. I think, firstly, agent headcount has declined by 7.5% in the first quarter. Just, can you give us a little bit color and how you would sort of still, I think, full year result, you're still talking about positive growth of full year, is that still the target for the year? And then, secondly, just on the auto life, you can give us sort of growing faster than the industry, and can you just sort of share a little bit where are you growing that business?
Okay. Thank you for your question. Regarding the agent, yes, agent number decreased about 7.5%. I think the reason behind this -- but first thing is, we, the management, expect this decrease. Expect this -- this is not a surprise to us because due to -- in particular, I think, last year, and the year before, the number of agent increased very significantly. Then, with recent macro environment than some of the recruitment is beginning -- a little bit more difficult. And internally, we have not reduced our standard for validation and have not reduced our standard for hiring new agent.
So to some extent we do see some pressure to increase number of agents in the first quarter, but we have been -- make a lot of effort try to continue to grow the agent in second quarter and in the second half. To some extent, yes, we said our total year, the number of agent is still -- we want to achieve positive growth. And another information we have is, on average, for the past 10 years from 2009 to 2018, Ping An's number of agent growth rate is -- compound growth rate is about 13%. And in the past, in particular, in 2007 and in 2016, the growth is over 30%. So there are some adjustment we have to make.
In particular, when the agent grow too fast, some of the agent they can be promoted to agent managers without a real increase in their skills. Then, with some of the change in environment, those agents face some difficulty to even recruit new agent or even they have difficulty to survive. So we have to still keep a strong validation program here. And regarding...
Sorry, can I just clarify. So you mean the decline is really because you're cutting sort of some of the non-productive agents rather than -- or how much -- was that the bigger driver? Or was the difficulty in recruitment the bigger driver?
I think they're both. With recruitment, still, we face competition within the insurance industry, but as well as labor competition from other industry as well. And at the same time, some of the nonqualified agents they have to leave, because they cannot meet the production requirements.
Just to add on that, as Jason said, we're very much focused on quality of the agent force, not just quantity, and we're not going to sacrifice or loosen our KPI requirements and retain nonproductive agents just for the sake of showing the market strong growth in the absolute agent number.
And the second question, regarding the auto business, right? The growth in auto business. Overall, our P&C business in the past, more than 10 years, we achieved both the growth rate is higher than the industry and our combined ratio is better than industry. So I think this trend is still continuing to grow. And I think, in the first quarter, our growth rate is higher than the industry average. At the same time, our combined ratio, 97%, is still much better than the market. Even though compared to same period last year, the combined ratio increased a little bit, but we still think this is a good result. As you can see, the commission rate for P&C business went down, and the expense ratio goes up a little bit due to some of the expense cannot be adapt. So overall, combined ratio increased a little bit, but still a very healthy and a stable level.
[Operator Instructions] Our next question comes from MW Kim from JPMorgan.
So during this quarter, that life operating profit looks very strong. So may I ask about the key drivers on strong the life operating profit? Is this still due to the positive new business growth? And also the favorable life experience?
Yes. Life operating profit increased about close to 20%. I think the main source of operating profit for life business is still the strong amortization of residual margin, as we've shown it before. This is -- it's a -- as we have accumulated a very strong balance of the residual margin every year, they're going to be amortized with the -- in force residual margin. At the same time, we'll also write profitable new business. So some of the residual margin on the new business also added to the first quarter's profit.
Our next question comes from Esther Chwei from Deutsche Bank.
My question is on the first-year premium and your efforts to deemphasize jump-start in 2019. So we saw that first-year premium was down 10%, but the momentum seems to be picking up from January to March. Can we get a bit of outlook in terms of how you deal -- are we past the pressure from the jump-start -- deemphasizing the short PPP, Premium Payment Period type of business, so we can expect momentum to pick up?
I think this is expected, right? The margin is going to -- definitely going to improve. This is expected. As we deemphasized those high-cash value, low-margin products. We switch to higher-margin, long-term protecting type of products or some of the savings and protection hybrid products. Their margin is much higher than the old products, but of course, the volume is going down a little bit. So I think the result itself, it's within our management's expectation and within -- according to our strategy. So this is expected, in particular for the first quarter. Then going into the second, third, fourth quarter, I think the margin should be relatively more stable compared to the same period of last year.
[Operator Instructions] Our next question comes from Scott Russell from Macquarie.
I think my question was answered, but if I could just pull together a couple of observations. To what extent should that agent headcount reduction be attributable to the very significant change in product mix? So the margin has, obviously, gone up, a lot more long-term production business written, but a little bit more challenging for agents to sell. To what extent has that been a factor in some of the terminations of agents that you've had to make during the quarter?
I think the jump-start strategy changed, to some extent, affected some of the agents, but not all of them. Not all of them. So I think, currently, it's very difficult to quantify the exact impact. We don't have that number yet.
Scott, if I could just add, I mean, the upshot of actually deemphasizing the jump-start products is, despite the negative FYP growth, we still managed to grow the new business value.
Yes. New business value per agent definitely improved, quite significantly.
And the margin is still quite a long way below the second, third and fourth quarters, that you've typically done in the last few years. Would you describe 1Q '19 product mix as being where you'd like it to be going forward for jump-start? Or is this going to be a multiyear transition?
I think, this year, the difference is, beginning from the first quarter, even the first month, January, we began to promote to sell long-term protect and cover products. Where in the previous years, especially in the first couple of months, we -- the agents sell a lot of jump-start products. So I think this strategy is going to be continued in the next year. Next year maybe, even maybe, hopefully, we do hope even a high proportion of those high-margin protection products can be sold in the first quarter. And if the product mix still improve, then margin itself can also improve, but overall, our goal is to increase the new business value. So there is some balance between margin and volume.
[Operator Instructions] Our next question comes from Patricia Cheng from CLSA.
I also have a question about our margins. One of your peers at the first quarter earnings call mentioned that margin for products across all like all types of products actually went down. So the only reason for the increase in the margins is actually due to the mix change. So for your first quarter result, that increase in margin, how much of it came from like the change in mix? And then, if we just look at like a same product on that same product basis, what has been the margin trend? And then, would you be able to, like give us something like forward-looking, the kind of, like, guidance on the margin outlook, given this type of competition that we're seeing in the industry that everybody is getting rid of the less-productive agents, and focusing more on the high-value business. And so what that has that been impacting the margins of the well established, like high-margin business. Are they still like high margins like a few years ago?
I think the main reason for margin improving in the first quarter is still product mix. For our overall -- the product we sold last year and products sold this year, the margin is stable, right? And unless you come up with new products going forward. So for the existing products, the margin has been fairly stable. Our experience, and I said before, we have been made -- we always make very prudent assumptions. So margin itself, you have a nominal margin, but actual contribution, the actual margin is also you have to considered with your experience variance as well.
Do you see any, like, sort of like pressure or like maybe from your agents? And if from your customers say that, okay, maybe Ping An, we want this particular product from other companies? And would you be considering doing something similar or launching new products that may be more in favorable to your customers? Like i.e. the margin trend going forward, actually, yes, is that -- going back to the question.
Yes. We will look at competition. We look at the competition, our company's own profit target plus that the benefits to the customer, et cetera. Maybe, going forward, we will see the overall market condition, and maybe new products will be rolled out.
I think it's not like a price aggregator website. I mean, to some extent it's quite hard to compare and contrast different life products, and particularly for the longer term life products, in order to sell them, it doesn't just come down to price, it comes down to the trust in the company and the relationship strength with the agents and that definitely comes into play when there's few hundred RMB difference in terms of premium for as the long-term product commitment. So you probably don't see the same sort of price competition, which the peer you talked about, alluded to. And in fact, if you look at where our first quarter margin is, there's probably some scope for maybe that to -- for our margins to gradually continue to improve.
Okay. Can I just add one small question about your dividend policy? So we took the leader in linking the dividend payout to you, like a more stable kind of like operating profit. Would you consider taking another leap into maybe coming up with like a quarterly dividend strategy instead of like the half yearly that we deal with right now -- or I'm sorry, full-year, sorry. Or like half year, anyways, that's the question. Yes.
We have not -- we don't have such plans. Not yet, not yet. I think we are one of very few Chinese financial institutions to pay dividend twice already. Most of the companies, they pay dividend only once a year.
Our next question comes from Jenny Jiang from Morgan Stanley.
I just have one quick question regarding your P&C business. If we look at in an auto growth, it looks a little bit weaker than peers, just because we have less exposure in certain lines? Or is there some slowdown in our core now to -- business such as credit? Maybe just some color there for first quarter.
It just still a quarter number. There's still some seasonality. I think slow down a little bit on a non-auto -- that the credit insurance business, the growth rate is a bit slow compared to the other business, but those business have had some seasonality. So a little bit volatile within -- between quarter-to-quarter.
[Operator Instructions] Our next question comes from Tianjiao Yu from Bernstein.
Just realized the Ping tech Opex actually declined. Wondering what's the reason behind. Is that due to the -- your profit generate like Lufax Autohome? Or is that between some other incubators that you still have?
I think I answered the question before, but anyway, the main reason behind is some of the investment -- the business, which still at the investment stage at the loss getting bigger. We still keep investing to building the ecosystem to acquire customers or even heavy investment in R&D, technology, et cetera. Our profit-making business like Lufax, Autohome, their profit has still increased. But to some extent, the increase in loss offset some of the increase in the gains. But still a quarter, I just still is the first quarter number. For the whole year, it may be different.
Okay. Sorry, I missed the first -- the earlier question.
No problem. No problem.
And the second question, on the P&C, the COR. Wondering, you mentioned the expense ratio went up. That caused the COR increase. I was wondering from the line of product perspective, which product line actually caused this surge on the COR?
I think still -- it's a small increase, 1% is still -- it's a quarter number, right? It's a quarter number, due to some of the expense, some of the back, et cetera, it’s still a quarter number. Maybe the full year number will be different a little bit.
I think I'll just reiterate. Our expectations for the overall combined ratio for this year is to remain relatively stable.
But the other observation you have is the profit, net profit for the P&C business actually increased quite significantly, mainly, due to 2 reasons, right? The first one is, the investment performance is much better than last year, and then, the second is also on income tax side, the commission level is much lower compared to the same level of last year. So the income tax adjustment is much lower compared to 2018.
[Operator Instructions] Our next question comes from Charles Cartledge from Sloane Robinson.
My question has been answered.
[Operator Instructions]
Okay. I think we've come to the end of the questions. Thanks a lot for your questions today. If you'd like to join the Mandarin session, it starts at 6:30. Please redial in and use the access number 5438029#.
I'd like to thank all of you today for joining us on the call. Thank you very much.
Thank you for joining, goodbye.