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Good evening, ladies and gentlemen. Thank you for joining the conference call today with regards to Ping An's third quarter results announcement presentation. My name is James Garner, and I'm Chief Strategist and Head of IR at Ping An Group, and I'm going to host today's call. With me, I have Mr. Jason Yao, CFO and Chief Actuary; and Mr. Richard Sheng, the Board Secretary and Brand Director, who will also be attending today's call. This conference call will be conducted in English and will last for 30 minutes. [Operator Instructions]
[Operator Instructions] Your first question comes from Linda.
The first question -- I'm Linda from Bernstein. I have 2 questions. One, regarding the life and, second, regarding the P&C. Regarding life, I have listened to the Chinese version just now. I heard Mr. Jason Yao talking about the strategy in 2019. Am I right in thinking that in the future, you will be driving the VNB growth rather than FYP? And also, Mr. Yao referred to a product mix change to long-term protection. And we know the competition is pretty tough on the ground. Some of your competitors have cut price. So I'm just wondering how you're going to really drive the long-term product sales? Regarding P&C just for tax, we've heard from your peers that the government is changing-- is thinking of changing the tax -- reverse the tax on commission. So I want to get your view on how possibly or when this might happen?
Thanks, Linda. Yes. Regarding the life business. Yes, it is right. We are going to more -- anyway, I think the question is a bit -- we have always been focused on business growth -- new business value growth instead of FYP. We have always been that way. It doesn't say we changed our attitude towards that. So -- but we do have another adjustment -- strategy adjustment towards this opening jump-start product. We put less focus or emphasis on that. And our resource will more shift towards those protection type of products, even starting from the first quarter. Usually, in the first quarter, we put all the resource to sell those jump-start products. Then the second quarter, we sell a long-term type of product. But next year, we will distribute those resource more even across the whole year. Regarding the competition, I think the competition is always there. It is always there. And as you know, Ping An's product price probably is not the lowest in the market, but I think we compete with our competitors in terms of our brand, our quality, service, the relationship between our agent and the customers and our all-integrated financial services model, right? Our customers have multiple products with us. So their loyalty to the company or -- and we can provide multiple services to them. So these are the various elements, and also, we have technology, which we think we can be superior to our competitors. Those things, competition is always there. It is always there. And we are not afraid of competition. And we should be confident we can still achieve positive growth in new business value growth going forward. And then regarding the P&C, the tax issue. I think the progress is -- I think, the industry, right, the company had been -- discussed issues with the regulator, the tax authority and also MOF. Then, I think previously, the CBRC, they are also should be supportive of this tax change. Then so far, the feedback from the tax authority is positive. But in terms of timing, we -- that is very difficult for us to say when. It's a government decision. We cannot estimate. So we will keep a close eye on the progress.
Can I just quickly ask a follow-up on the life product strategy? If you look at next year or next 24 months, will you be shifting towards health insurance or more kind of typical traditional mortality risk? Because some of your peers, or smaller peers, have been really shifting towards health rather than mortality. So I just want to get a sense what kind of product you will be selling?
I think it is covering both. Even though our most popular product like those, what we call, critical illness strategy product, within that product has both protection for mortality and morbidity. If the customer had critical illness, he will be paid when he's alive. If that customer dies, he will be paid as a mortality benefit. So for those kind of products, the both, they have protection in terms of both mortality and morbidity. And assuming -- the reasons that the market -- in the market, there are some sort of short-term sort of health product, like a 1-year type of product, that is morbidity driven. We have some of those products. But in terms of our long-term protection type of products, we still insure both the mortality and morbidity. I think that shouldn't have a big change going forward. James, you wanted to say something?
No, I just wanted to stress because there's quite a few people that didn't hear the Chinese call. What Jason was saying is that we're going to deemphasize the sale of short-term savings products in the opening campaign. So FYP growth may be difficult in the first quarter as we start to deemphasize these short-term savings product, which are relatively low-margin products, because next year, we want to have more balanced growth.
Your next question comes from JPMorgan, Kim.
My name is M.W. Kim from JPMorgan. I have 2 questions. One is about group capital structure. So debt financing in the group level looks pretty new. So may I ask the company's capital structure going forward? And also, would it be the case for the potential [ double ] leverage for the insurance and the banking business growth in the future? That is the first question. And second question is about your fintech business. It seems that the business is becomes some generating the mode of cash. So may I ask whether the Lufax business now is in the stage of the [ sales' ] financing towards the strong earnings growth? So these 2 is my question.
Kim, yes. Regarding the first question, the group structure -- the group capital structure. I think we have very little leverage at the group level. We -- group sales hasn't issued any bonds yet. And we have very, very limited bank borrowings. So yes, so the current situation, going forward, because, usually, for insurance company, they don't issue a lot of bonds. But now going forward, we have various lines of business, so we may increase borrowing a little bit to enhance ROE. That's why, as you can see, during our board meeting this year, we haven't had a case which we intend to issue no more than 10 billion bonds. So that is also a new -- not new, we had that a year ago. This year, just a renewal of that issues. We haven't issued anything in the past. So we would do some experiments to increase leverage a little bit, a little bit but to refine our capital structure. Your second question is on the fintech business, like Lufax, their sales [ funding ]?
Yes.
Kim, what's your question, I'm sorry?
Yes, so the overall -- the profit generation from the fintech has since largely increased this year. So my question is whether the Lufax is now in a stage of generating very stronger cash or, in other word, no need to do more third-party financing. So that's my question.
Lufax does make money this year in a substantial compared to last year, right? But going forward, I think we're still trying to build Lufax as the strongest platform in China. And now as you can see, the regulation in China regarding relatively like fintech or Internet finance business is also getting tighter and tighter. So Lufax sales, if you can get a stronger capital position, then they can weather those negative environment much stronger than the peers. So anyway, I think going forward, Lufax still may -- it will retain its profit, right, then going forward. And some days, it will IPO the business.
The next question comes from [ Pombo Research ], [ Steven Lai ].
Just a couple of questions. One, I just want to piggyback on the fintech segment. Maybe my -- I can double check my numbers, but it seems that in terms of the operating profit, the fintech and healthtech segment, there's a bit of a volatility quarter-to-quarter. So for example, I think in the third quarter, it was around CNY 1.2 billion versus around CNY 2.4 billion in the second quarter. Just want to understand if it's just the nature of the business or is there something a little bit special in the third quarter. So that's for fintech. And then on the second question is about the P&C. Obviously, it's great to see the combined ratios pretty steady. I'm curious, maybe this has mention in the Mandarin call, but was there any reserve releases in the period? And also, with relating to P&C is, with the potential decrease in auto tax, auto purchase tax, do you foresee there will be some surge in demand in the near term, especially because that the autos that may get the benefit are concentrated in the smaller type of vehicle? And could you give some color that -- is that the segment that Ping An is mostly exposed to or is actually less exposed to?
Regarding the first question, the fintech business, yes. Of course, there is seasonality or volatility within quarter-to-quarter. Some of the business -- and going forward, some of the business maybe they generate -- you couldn't -- the cost within that segment, you have relative more than 10 different business, and each business, they have different patterns of their revenue generation or expenditure patterns. So there is going to be volatility, maybe in the third quarter. Especially in the second half, some of the not-profitable business, right, some of the business, they increase their investments in the second half, the spending come up, then the overall, the operating profits for the fintech, healthtech business compared to the second quarter is -- it's low. There is some different factors. And some of the business may be going forward like, currently, we have 5 different ecosystem, and they involve more than 10 companies. So some of the business are really new, and then we're going to invest more, et cetera. But I think the overall or the promising trend is like the fintech -- the healthtech sector itself, as a percentage to the group's total profits, has been increased quite significantly compared last year. And in terms of absolute profit number, in terms of profit contribution, it is all quite promising.
And just on that way, so basically, the bottom line, the net profit can go up, down because of, like you said, the expansive investments or -- in talent or in technology. But the top line, can we assume that it's growing quite still -- growing quite rapidly even on a Q to Q sequential basis?
We do not disclose revenue for it.
Huh? I'm sorry?
We do not disclose revenue for it. As Yao Bo reiterated, we've got over 10 businesses, and there's a few businesses that are making money. But the other businesses which aren't making money and are generating losses are -- some of them are in early stages of incubation. So there's quite a bit of volatility in terms of R&D spend. And next week, on the 7th of November, we're going to have a whole day on our technology businesses. And you can see in this event where some of the R&D is being invested.
Yes, second question regarding the P&C.
The car side, was it?
Right. On the auto -- yes. It was generally if there's any reserve releases and then just the outlook on auto sales vis-a-vis auto premiums growth. If the tax benefit comes in, yes.
I think overall, I think -- the combined ratio for all the businesses is fairly stable. We have been taking quite prudent reserving mechanism, and the reserves are very -- for us, is very sufficient. So there. I don't like the term of reserve release. You have to take reserve according to your risk. If the reserve is more than your risk, then you provide some prudency, then you take reserve, right?
Right.
And the other question, I think it's too -- it's a bit micro, I'm sorry. I won't be able to answer this during this phone call, right? We can...
We can take it off-line.
Okay. We can take it off-line, yes.
Your next question comes from [ Kailesh Mistry ],
[ KPAC ].
It's Kailesh here from HSBC. Two questions for me. Sorry if this has been asked already, but I had problems getting through. The first one is on the life business. Can you talk about preparation on the life side for the 2019 opening campaign? In particular, what product enhancements do you have in mind? And also, how are competitive conditions evolving on both the savings and protection side? The second question is on fintech and healthtech. I appreciate that the development of this business line will not be linear. But just wondering if there's any one-offs in the third quarter that led to the slightly slower third quarter result run rate versus the first and the second quarter this year?
I think there is no one-off in the third quarter within the fintech and healthtech business.
Okay. Just on the opening campaign, what we communicated to the market during this call and the Chinese call is that we're going to deemphasize the sale of short-term savings products, which are relatively low new business value margin. So what we're going to do next year is to deemphasize the sale of short-term savings in order to have more balanced growth throughout the year. And we believe that -- in the first quarter, by deemphasizing short-term savings products, FYP growth will be very difficult. That said, we will be allocating or skewing more resources away from short-term savings to actually focus more on protection-type products in the first quarter. So any sort of adverse impact on FYP from deemphasizing short-term saving should hopefully be some offsetting impact from selling higher new business value margin, more protection-orientated products.
And how -- are any of your competitors launching products particularly sort of competitive on the protection side or offering features that you find yourself needing to offer?
I think every company, they try to differentiate a little bit through various offerings, right. Our products are different from the other ones. That's -- it's not a very straightforward vanilla-to-vanilla comparison. Everyone try to add something into the product, then the price can be different. So anyway, I think the competition on the protection side has been there for the past few years, and it's going to be there for the next few years. So we will face those. And as I said, we compete on various fronts, not only the price, not -- so I think we still should be confident to achieve reasonable results.
And then I think your second question was around the volatility in terms of tech earnings. In the third quarter, there was some additional R&D spend. So that tech profit, there will be a little bit of volatility just because we've got over 10 different tech businesses. And some of the businesses which are in their earlier stage of incubation and are losing money will have some peaks and troughs in terms of additional R&D spend.
Okay. And roughly, what's the impact of that additional R&D? Or is that something you're not disclosing?
We haven't disclosed that.
Your next question comes from Jiang Li from Morgan Stanley.
Management, I just have 2 very simple questions. One on P&C side. One is, can you give us a sense regarding some kind of cat losses over third quarter? I know from my research they're very good, but I think third quarter probably deteriorated a bit. So I just wanted to get a sense on sort of one-off versus underlying and how it's trending. The second question is regarding credit insurance and probably the cooperation with Lufax. I'm just wondering, with the merge of banking and insurance regulator, are you expecting they might take a fresh look at this business model? It looks like -- other [ P2P ] players might be under pressure and they might need insurance to back up their credit profile. And more and more insurance companies are entering the space to kind of provide this kind of help or credit guarantee. Is there any risk for the sustainability of this kind of model?
Jenny, can you ask the questions again, please. We can't hear them. You're speaking too close to the phone.
Oh, okay. Yes, sorry. So the 2, 2 very simple questions. One is on the P&C combined ratio. I know it's very good, but I just want to get a sense of the impact from cat losses in third quarter. I just want to get a sense of the underlying, if we exclude that. The second question is about credit insurance and the corporation with kind of P2P lending model. The reason to ask that is because we now have bank and insurance regulator merged together. Are you expecting them to take a review or a fresh look of this cooperation model? I don't think -- the risk is probably more on the market or on the smaller players. There's -- a lot of P2P platforms are under pressure, and there's more needs from them to get insurance to back up their credit profile. Is there any risks from regulator perspective to the sustainability of this model?
Regarding the first question, the P&C combined ratio. For cat loss, we haven't had a significant cat loss in the third quarter. Because as far as I'm aware, from our P&C business, there is no any reflect. So there's no need to necessary to take out some cat loss to get the underlying. I think the overall the combined ratio is fairly stable. Especially, the auto business counts for a large percentage of that. It is a stable business. Regarding the model, the credit insurance model with Lufax. I think, right now, Lufax approved a business model. It's more diversified. A portion of the business is through credit insurance. But another -- a bigger percentage of the business is now we work with outside banks. So I think it's more diversified. It's not solely rely on credit insurance to provide the guarantee. So I think the business model for Lufax sales is more -- I think going forward, it's just relatively more so and less affected by a regulatory impact. And then so far, the merger of the CBRC and the CIRC, we haven't heard any negative feedback from them on this credit insurance business so far.
Just one point to stress, Jenny, is that Ping An P&C only provides credit guarantee insurance to the Ping An Group company, so it doesn't provide credit guarantee insurance to other platforms outside the group. Great. Thank you for your questions. This concludes today's conference call. I'd like to thank all of you again for joining us today. Thank you very much.
Okay. Thank you.