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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for joining the conference call today with regard to Ping An Group's 2020 First Quarter Results Announcement. My name is James Garner. I'm the Group Chief Capital Markets Officer, and I'm going to host today's call.
On the call is Mr. Jason Yao, Group CFO and Chief Actuary; and also Mr. Richard Sheng, the Board Secretary and Brand Director.
This conference call is going to be conducted in English and will last for approximately 30 minutes. To allow for more questions, please ask no more than one question at a time. Please also clearly state your name and the name of the company you represent before asking your questions. Thank you.
Ladies and gentlemen, we are now moving on to the Q&A session. [Operator Instructions] And our first question has come from Thomas with Goldman Sachs.
James, Jason, a couple of questions. Firstly, on the P&C side. I see combined ratio improved year-on-year. But can you sort of give a little bit more color, what's the auto combined ratio of DAU and what's the non-auto of DAU? And secondly, on the life operating profit, it's good to see it recover to a very strong growth. Just again, a little bit more color. What's driven that? What's changed versus the second half when life operating profit was -- I think it was year-on-year decline in the fourth quarter. So what actually changed?
Okay. For the P&C business, the first question, overall, the combined ratio has been fairly stable, 96.5%, a slight improvement from the same period last year. For the P&C business, as you can see, overall, the premium growth, we still achieved quite -- about 5% total premium growth. But within the auto sector, actually, it is a decrease because that is related to the overall demand that also relate to the virus situation. DAU nonauto business has been increasing quite strongly.
Regarding combined ratio, I think overall, the first half, the auto combined ratio has been fairly stable compared to the same period last year, and even to some extent, has been slightly lower because some of the activities like the acquisition expense, marketing expense has been lower compared to the same period last year and that's due to the overall -- the virus situation. So in the other business, the combined ratio to, like, nonauto has been also fairly stable. Group accident health has been stable. Only credit insurance slightly increased, to some extent, also due to the virus situation. I think we're still going to monitor closely for the auto business down to the second quarter and into the second half. So we do not disclose the combined ratio by business line during the first quarter results. But we will still pay attention. Because in the first quarter, there are still some noise, just like, say, some of the expense, you have been -- the marketing activity has been slowing down since some of the expense has been -- has not reoccurred. But I think in the second quarter, when the situation improved, then the business growth, some of the expense will also pick up to some extent. And related in the second quarter or the second half, some of the other claims will also come up to some extent. Regarding the life operating -- yes.
Sorry, if I can follow on that. Also, we kind of expected the claims to be much lower. Is that something you're kind of seeing but still provisioning for a sort of normal year? Or have you not just -- that you're keeping the provision at the same level even though claims is lower?
We have -- according to the mobile practice, but of course, in the first quarter, because of due to the virus, people don't drive, right? Less cars on -- a few cars on the road. Of course, the claim that the accident has been lower compared to the same period last year. Then we have to -- we will reserve accordingly. So to some extent, the loss ratio is coming down. But at the same time, CIRC also has some regulation, to some extent, some of the policies if they don't like it in Wuhan, you have to maybe extend the policy for another 1 or 2 months. Originally, the customer pays the premium for 12 months coverage. But now he may get coverage for 13 months due to the virus, something like that. So we still have to monitor that, right? But of course, the claim in the first quarter did come down because -- due to the virus, right?
Yes, got it.
Okay. Regarding the life operating profits, still, we see some pressure because the overall -- the new business value growth, as you can see, has been negative, largely also due to the virus situation, a lot of face-to-face marketing activities, agent meetings cannot be -- cannot happen due to the virus. So the growth has been slowing down. The operating profit for the life in first quarter still see some quite strong growth because some of the business is still -- the release of residual margin is also largely from your in-force business. And also some of the operating variance has been fairly good compared to the same period last year. The other reason is also the tax situation also. Because the new tax requirement, the new tax rule was effectively -- can become effective in May, right, May last year. So in the first quarter of last year, you still have to pay a little bit high tax due to the commission is still not deductible. So the tax has been -- tax rate has been lower this year, the first half. So these are the reasons. But of course, going forward, we do expect the second quarter, the life operating profit, the growth will come down a bit.
Got it. Can I sort of just, I guess, follow just a little bit? On the...
Can we move to somebody else, please?
Our next question has come from Shengbo Tang with Nomura.
Actually, the question I just want to ask is still about the P&C business, but it's already asked by Tom. So I got another question, which is regarding the credit guarantee insurance business. So since your loan -- because of the P2P tight regulation and also because the credit card or sort of the consumer finance business, LPR ratio is also increasing. So what's the outlook for the credit guarantee business? Will we keep growing the business at double digit? And also, what's the outlook for the overall profitability of the credit guarantee business?
I think our credit business is only -- we work only with the corporate business. We don't work with other outside companies. So basically, our credit insurance is very tightly linked to Puhui's business. And historically, Puhui's business, their consumer finance business has been -- the credit situation has been much better than the market. So overall, this business is a profitable business, and the combined ratio is lower than, like, auto business, et cetera. But of course, I think this year, due to the virus, particularly in the areas like Hubei Province and Wuhan, we do see the -- from the consumer finance business, the loss ratio has gone up due to the virus situation and also the collection process has been totally stopped. So I think there are some impacts in the first quarter, and there are going to be additional impacts in the second quarter due to the time lag. So I think in the first half, we do -- we will see some pressure on this credit business. But overall, I think in the second half, since other things gradually back to normal, the business itself in the second half should improve. But of course, this year, in the first half, the credit insurance business, we'll see some pressure.
And our next question has come from MW Kim with JPMorgan.
I have one question about the product mix. So product mix has temporarily changed in Q1. So my question is for the rest of the year, could we say that the life of product mix will return to the normal very quickly driving higher margin?
I mean the life product mix, the question is what -- they were -- I think in the first half, the product mix changed a little bit, a little bit, I think, largely still, in the first half, due to the virus situation. It is -- the sale of long-term protection type of products has been slowing down due to -- you still have to have face-to-face meetings. So the selling of those products compared to the same period last year, the proportion has come down a little bit. At the same time, during the first half, we sold some like short-term protection type of products, short-term health-related products. Those products are still protection type of product, but they are really short term, like 1 year. So overall, the margin on those products is lower. But the purpose of selling those products is, during those periods, those products are actually quite good to accumulate or store potential customers. They certainly -- they have the need to have some protection, but short-term product is relatively easy to sell and people are more acceptive to that. So we accumulated quite a large number of customers through those products. So after virus outbreak, I think we can go back to those customers to start sell our long-term protection type of products. So this is the strategy we have been implementing for the year, first quarter, due to the virus situation. So that's why you see the overall -- that the margin has been decreased a little bit. But I think that is also related to the strategy and also due to the virus situation. So I think after the virus situation, overall, our product mix still going to be fairly stable. We will still sell the same proportion of protection products, high-margin products.
And our next question is come from Michael Chang with CIMB.
My question primarily relates to the opportunities post COVID. I mean, two of the things that have emerged is clearly, it has become much easier to recruit agents. And secondly, it's either to sell health insurance policies. Maybe can you comment on the quality of the new recruits over the last few months? Has there been any change in the quality? And secondly, on the health insurance front, is it really just an opportunity for more short-term health insurance? Or are there opportunities, much more opportunities for the long-term critical illness, high-margin product as well?
I think, yes, yes. So everything -- we have to look after the virus, right? So the growth will resume after the virus situation. So all the life companies, currently, the reform we have been under undergoing is basically we have two driver engines. The first one is the channel, basically, the agent team. The second is product. So regarding the first engine, the agency force. So the [ quoting ] is -- yes, it is extremely important. Still, I think, going forward, China, that the growth model still is going to be a combination of both. The first is increase the number of agents at a very steady rate. The second is to improve productivity. So I think the agent side, yes, we do see, due to the -- like, at the end of last year, we are -- the industry are talking about it is quite difficult to recruit agent now. But I think after the virus, during the virus, the situation may change a little bit due to suddenly, the people in the market looking for jobs has certainly increased. So I think in the first half, we do see some positive signs. The candidates to be agent have been increased. A large number are applying online. So we have conducted a lot more online interviews and also online trainings. So basically, there is opportunity to increase agents. But at the same time, we still have to maintain the requirement, the recruitment requirement. And also, it still takes some time for those online application to be actually converted to the offline agent. So I think that's why you see the number of agents in the first quarter compared to the beginning of the year still decreased slightly, 3%. Hopefully, in the second half, we can see some additional new agent joining into the sales or the number of agents will pick up to some extent.
Then regarding the product, we still are going to focus on high-margin, long-term protection products. But of course, with various rare disease, like, some of them with whole life cost strategies, some of them is within -- with some return of premium features, et cetera. So then also, we will also compliant with the new -- the CBRC is a new regulation on the [indiscernible] definition. So I think we will have rollout of new products, maybe in a few months, with this new product, which are compliant with the new requirements. So I think we have been working on that. A lot of products have been undergoing, yes.
I'll just add. I mean, the opportunity set for our group is much bigger beyond our traditional businesses. One of the big things that the virus has had an impact on is that it's really advanced the development of the Chinese digital economy, probably by about 5 years. And this will have a profound positive impact on the medium-term development for some of our 11 technology businesses, some of which, during the virus period, have actually seen a material increase in activity due to the virus. So I'm not just talking about Good Doctor, which has obviously seen a big increase in visits. It had over 1.1 billion cumulative visits from middle of January to the middle of February. But also Smart City or smart education ecosystem. So the opportunity set medium term from the virus, from the advancement to the Chinese digital economy, actually is much broader than just thinking about it from a health insurance perspective for our group.
And our next question has come from Steven Lam with Bloomberg Intelligence.
James, Jason, also a quick question on the life insurance side. So given we have a couple of weeks, a few weeks into the April, could you give us some idea in terms of the change in the momentum or the pickup in sales on the life insurance side and also on the recruitment side of things? And also, on the same tangent, any comment in terms of, over the next few months, what are the feeling that you get from -- in terms of the business recovery?
Sorry. I didn't hear your question clearly. James, did you hear it?
I couldn't hear you, either. Could you speak up a bit please, Steven?
I'm sorry. Okay. Is this better now? Is this better?
Yes, it's better, yes.
Okay. Sorry, James and Jason. Yes. So quickly, it's on the life insurance. Any color in terms of the pickup in sales in April? What's the main difference between April and March? Is it simply just because of activities? Or you also see demand kind of coming back in? I mean, given the fact that the first quarter number is down substantially, I would imagine the main differences -- because in January, the sales that you guys had were not the same as the other peers, which really boosted some headline numbers in January. So if you strip that out, can we sort of assume that the recovery going forward will be much more powerful for Ping An, in this case, given the technology advantage? And on the recruitment side, if there's some color on the recruitment side so far in April, that would be great.
I think, yes, compared to April to March, we see some improvement. But I think, still, a lot of the areas, the restriction of face-to-face meeting has not been released. So we still -- maybe April, we still face some difficulty. So hopefully, we see the March -- in the June, the situation -- overall within China, the situation will be improved. That's what we hope. April, we still have some difficulty marketing business offline. So that's why I think in the first quarter, we do use the online trying to accumulate customers and find sources to -- customer sources to go -- give those customer sources to our agent. Historically, agents will try to find their potential customer by themselves. Nowadays, we try to use some of the online tools like online product introduction, online people training, whatever, to acquire some customer leads. And those leads will be feed to agents offline, so they can try to talk to those customers afterwards when the situation allows. So this is a new thing we have been experimenting. And hopefully, we can add to that. This is also a technology-related, even, experiment. We have people working in Internet companies doing those online shows, online videos, then we try to accumulate leads.
And regarding recruitment, I think I just mentioned, we do see some encouraging trends in pickups in agent application, and we also did a lot of -- increased the number of online training on products, on overall sales skills, et cetera. So we'll hopefully gradually convert those online application into real agent number in the second quarter.
And regarding the first half, yes, in January, if you look at our premium growth compared to some of our peers, we do see our premium is a bit weak because we still adhere to -- stick to our strategy. We sort of didn't emphasize too much on the jump-start short-term product sales. We still stick to our product strategy, protection type of products. So that's why you see the premium growth, especially in January, is likely tight. But hopefully, as you can see going forward, in March, in May, in the second quarter, I think we can pick up that gap in the second quarter.
I think I'll just add another point. As you know, Steven, we started our life reform, which is 16 different projects, in the middle of 2018. And we're continuing to execute on that reform. And hopefully, by the end of this year, we intend to complete that reform. And one of the important parts of that reform, so 1 of the 16 projects relates to the life agent force. And what we're doing, we're moving away from the old sort of industry mass recruitment model, and we're focusing a lot more on onboarding higher quality agents. So it's -- our strategy is also quite differentiated. So that's also something to consider.
Our last question has come from Michelle Ma with Citi.
Jason and James, my question is on the -- actually, I'm interested in the profile of agents recruited online. Is there any noticeable difference you have observed, like they have a better education background or they are relatively younger than recruited through traditional channel? And what's their productivity look like? Can you give us some color on this?
I think regarding the productivity, it is a bit early. So some of them, they are still just come in that we haven't show -- haven't seen or see a lot of data on the productivity so far.
Then regarding the profile, I think we're still going to stick to our strategy. One is AB program. These are the college education background, which previously, they work in some other industry and they have decent income, now they want to become agent. And also, you have the other ones. It's a normal average quality people. Examinees, they can -- they are interested to be an agent. And if they can pass the exam or interview requirement, we welcome them. So these are still the two sort of channel, two different strategies. So I think so far, it is a bit too early, it is a bit too early. We will continue to monitor. And as just said, once they pass out the relevant exams, requirements and interviews, they will become the official agents and they can begin to sell products when the condition allows. So I think it's a bit early. So just wait another 1 quarter or 2 quarters.
Thank you. Thank you for your questions. If you'd like to join the Mandarin session, it starts in 5 minutes later. So please redial in and use the access number 6522023#. Thank you, all, for joining this evening's call.