What does Ping An Insurance cover?

On October 12, Ping An of China held an open day in Shenzhen on the theme of core finance. Yao Bo, group chief financial executive, Xie Yonglin, group deputy general manager and chairman of Ping An Bank, Chen Dexian, group chief investment executive, and Yu Hong, general manager of Ping An Life, were present at the meeting, and gave keynote presentations on the in-depth analysis of Ping An's value, technology-enabled life insurance, banking retail strategy and investment risk management, respectively.

Ping An of China said that through the open day activities and other forms of management in-depth interpretation of the company's main business and financial data, which is conducive to further strengthening the company's investor relations management and services, consolidate and enhance the transparency of the company's operations and management and the leading level of information disclosure, to help investors more comprehensive and in-depth understanding of the company's investment value.

At the open day, the company's management made an in-depth analysis of the composition of Ping An's value and the empowerment of science and technology to the group's traditional business. On the theme of Ping An's value composition, the management made a logical and rigorous deconstruction and analysis of the high stability and predictability of operating profit and market-leading return on embedded value (ROEV) and high P/EV multiples; and in terms of the empowerment of science and technology to the main financial business, science and technology has been realized in Ping An's business scenarios in the insurance, banking, and investment sectors to achieve a wide range of landing and application.

Five highlights of the open day:

Operating profit ensures the continuity and stability of dividends: with solid growth in the amortization of residual margins in the life and health insurance business, and clear growth drivers in the non-life insurance business, the company's operating profit will be more stable and predictable, and will ensure the continuity and stability of dividends.In 2013, Ping An's cash dividend was 5.145 billion yuan. In 2017, the figure has grown to RMB 27.420 billion, a compound annual growth rate of 52%;

Market-leading ROEV: Thanks to the four major strengths of high-quality new business, prudent assumption-setting, excellent operational control, and high returns from non-life insurance business, Ping An has achieved a return on embedded value (ROEV) and high P/EV multiples that outperform its peers. Ping An's life and health insurance business has averaged 24.7% ROEV over the past five years;

Five Scenarios of Insurance Business AI Comprehensively Applied: In five business scenarios, including agent enrollment, training, team management, sales model and service, AI technology has been widely and effectively applied, with technology leading the industry;

Banking Retail Business Becomes the Main Driver of Growth: Retail business revenue and profit contribution exceeded that of public business for the first time, credit card business entered the first tier of the industry, and the number of circulating households and consumption amount ranked second among joint-stock banks. Asset quality continues to improve, and the asset quality of the entire bank will return to normal by the end of this year;

Intelligent investment control system of international standard y supports investment risk control: Ping An has already y supported the Group and professional companies in effective control of investment risks by establishing an intelligent investment risk management system with six core competencies, including international standards and localization advantages. Over the past ten years, the average net investment return of the insurers has been above 5%, with a compound annual growth rate of 21%.

Group: stable growth in operating profit and ROEV will ensure the continuity and stability of Ping An's dividends

At the meeting, through rigorous logical reasoning, Yao Bo introduced the driving factors of operating profit and ROEV leading the industry, which explained Ping An's value to investors in depth.

Ping An started to implement IFRS 9 in 2018 and began to disclose operating profit indicators from the 2017 interim report. Yao Bo pointed out that after removing short-term volatility effects, operating profit is highly stable and predictable, and its steady growth will ensure the continuity and stability of dividends.

Based on the stable growth of residual marginal amortization and operating deviation of the life and health insurance business, and the clear growth driver of the non-life insurance business, the Group's operating profit is highly predictable.In 2017, the operating profit of the life and health insurance business amounted to RMB52.824 billion, of which the residual marginal amortization contributed RMB49.811 billion, accounting for 68.3%. Yao Bo pointed out that the residual margin amortization comes from the residual margin, and the growth of the residual margin mainly comes from the contribution of new business. Over the past five years, the company's new business value has grown steadily, at a compound annual growth rate of 39 percent.

China's insurance industry is a high-potential market, and Ping An has the competitive advantage of being a first mover, with the company realizing sustained growth in new business value creation, contributing an average annual ROEV of 16.2% over the past 5 years. yao Bo said new business value creation is the largest component of ROEV, and China is a growing market with huge potential, with new business being larger relative to the stock business, leading to the expectation of a higher ROEV. Despite the premium growth pressure on China's entire life insurance market in 1H18, Ping An's new business value creation still contributed a super-high ROEV of 10%.

Expected returns are also an important part of ROEV, contributing an average of 8.4% annually over the past five years.

Yao Bo said that from the perspective of risk control capability, business quality and profit volatility, Ping An's profit uncertainty is relatively low. The uncertainty of profits is relatively small, but for prudent reasons, it has followed a conservative risk discount rate assumption for the past 10 years, which has brought high expected returns.

Yao Bo combined Ping An's life and health insurance business average ROEV (24.7%) over the past five years with P/EV multiples at different risk discount rates and dividend growth rates, and found that the higher the ROEV, the higher the P/EV.

For Ping An's value, Yao Bo reorganized two major valuation frameworks, namely the SOPV (Sum of Parts Valuation) model and the customer-user economic model, "hoping that analysts will look at Ping An's real value from multiple perspectives". Currently, the group's major business segments have all achieved high ROE, with the group's consolidated ROE reaching 20.7% in 2017. In addition, the technology segment is valued well above shareholders' equity, with its value attributable to the group standing at $153.8 billion.

Five Scenarios of Insurance Business AI Fully Applied

In the insurance business segment, over the past few years, relying on the Group's innovative technology in the field of science and technology, Ping An Life Insurance has developed industry-leading scientific and technological achievements, and has successfully internalized the scientific and technological achievements into its business management. At present, artificial intelligence (AI) technology has been comprehensively applied to Ping An Life Insurance's management of agents.

At the open day, Yu Hong revealed, "AI technology has been widely and effectively utilized in five business scenarios, including agent enrollment, training, team management, sales model and service."

In the enrollment scenario, in order to solve the pain points of numerous personnel and screening difficulties, AI selection and AI interview have been fully online in the personal insurance channel, assisting the business to achieve accurate screening of agents, the effective placement of financial resources and the best development path pre-setting.In 2018, AI selection and AI interview have been fully online in the personal insurance channel so far, and the recognition rate of the 13-month retention of personnel by the AI technology has reached 95%. , saving the company about 630 million yuan in financial costs.

In the training scenario, the AI training system is fully online based on pain points such as difficulty in targeted counseling. In the future, it is expected that the efficiency of Ping An life insurance agents' performance raising will be greatly improved. Yu Hong said that through the adoption of the AI training system, the average merit raising time for agents is expected to be greatly reduced, from 36 months in 2018 to 15 months in 2019; the size of the merit population is expected to expand from 383,000 in 2018 to 459,000 in 2019.

In terms of team management, based on the pain point of the difficulty of real-time management of agents, Ping An Life Insurance has launched AI Assistant, which realizes intelligent task configuration and online sales assistance, and builds three major capabilities, including task management, intelligent accompaniment and intelligent Q&A.

In terms of sales model, in response to the pain point of difficulty in accurate sales, Ping An Life Insurance launched the SAT (Social Assisted Marketing) system to help agents realize real-time connection, high-frequency interaction and accurate marketing, and has achieved outstanding results.In the whole year of 2018, the SAT system has reached 220 million people, interacted 1.3 billion times and distributed 1.08 billion leads.

Bank's retail strategic transformation deepens Contributions account for more than half

According to Xie Yonglin, deputy general manager of Ping An Group and chairman of Ping An Bank, since Ping An Bank started its retail strategic transformation in 2016, after two years of development, the business structure has realized fundamental adjustments, and the retail business has become the main driving force of growth for the whole bank.

Data shows that as of June 30, 2018, Ping An Bank's bank-wide revenue structure has been adjusted from 70% of the public two years ago to more than half of the current retail revenue. Among them, retail loans amounted to 998.9 billion yuan, accounting for 54 percent; retail revenue was 29.3 billion yuan, accounting for 51 percent; and retail net profit was 9.1 billion yuan, accounting for 68 percent.

Under the idea of using technology to drive retail development, Ping An Bank empowers technology in all aspects of products, management and services. Through the innovative OMO model, Ping An Bank has bridged the online and offline new retail. Online, it uses the Pocket Banking APP as a carrier to create a one-stop, intelligent, open and interconnected mobile platform; offline, it uses intelligent identification, artificial intelligence and other technologies to upgrade its offline smart stores and create a comprehensive financial offline traffic portal.

With the help of technological empowerment, the retail business has achieved rapid growth in various indicators, of which the APP monthly activity reached 24 million, ranking second in the joint-stock banks, and the per capita production capacity of the intelligent new stores with the Liuhua Sub-branch as a surrogate reaches more than twice the average level of the whole bank. the growth rate of the AUM, loan and deposit balances ranked second, first and third in the benchmarking banks, respectively.

Meanwhile, through the Group's comprehensive financial assistance, Ping An Bank's credit card business has entered the first echelon of the industry. Among them, the number of credit card households in circulation reached 40.52 million in the first half of 2018, and the consumption amount reached 235.9 billion yuan in August 2018, both indicators ranking second among joint-stock banks. In addition, the net increase in the number of credit card customers and the growth rate of consumption in the first half of this year ranked first among joint-stock banks.

Retail business in the rapid growth at the same time, through the massive application of science and technology, automation, intelligent risk control system for asset quality escort. According to reports, in Ping An Bank, 100% of credit cards are approved in real time and more than 85% are automatically approved by the system. At the same time, through the transaction-level big data risk control system, real-time interception of fraud, to ensure zero loss of bank and customer assets; vapor financing overall average approval time limit of 0.4 hours, the fastest in the industry. The unsecured car loan business has fully realized "second approval. At the same time, the use of AI intelligent pricing strategy, can be for different ratings of customers for intelligent pricing.

With the fundamental restructuring of the bank's revenue structure, Ping An Bank's asset quality has continued to improve, with various indicators stabilizing and improving. The overdue 90+ coverage ratio and provision coverage ratio have improved significantly, and the deviation has gradually declined. Xie Yonglin said that in the second half of this year, all three indicators will reach above the average level of the industry, and the quality of the bank's assets will return to normal by the end of the year.

Insurers' net investment yield has steadily increased, and the investment risk control system has six core advantages

For the investment segment, Ping An's chief investment executive Chen Dexian introduced three aspects, including the challenges faced by investment and investment performance, the group's investment and risk management system, and the main investment risks and management of insurance funds.

Chen Dexian said the investment management of insurance funds needs to think about three types of questions: what are the risk challenges? How to manage insurance funds? What are the expectations for future returns? In the face of these questions, Ping An has achieved notable investment performance in the past, with the net investment return on insurance capital making a steady improvement after 2012, rising from an average of 4.3% before 2012 to an average of 5.4% after 2012. In contrast, the volatility of investment returns declined significantly after 2012, from 5.7% of total investment returns before 2012 to 1.8% after 2012, and was significantly lower than the CSI 300's 23% and 54% over the same period, respectively. The predictability of investment returns has steadily increased. Meanwhile, the investment operation of insurance funds has brought significant positive contribution to the company's profits, with the average net investment return of the past ten years (2008-2017) above 5%, with a compound annual growth rate of 21%; only the net investment income can satisfy the payout of life insurance business, with an average coverage ratio of 153% over the past six years.

The achievement of these investment results mainly relies on Ping An's internationalized investment management process and robust investment risk control system. In terms of the investment management process, Chen Dexian said Ping An takes asset-liability management as its core, determining the optimal asset allocation through clear risk preferences, quantitative simulation and assessment and selection. In terms of modeling, Ping An took the lead in introducing the world's leading Conning Asset Allocation System in 2013, and developed localized Strategic Asset Allocation (SAA) models based on the characteristics of liabilities.

In terms of the investment risk management system, Ping An has gradually developed the investment control platform from a traditional measurement platform to a smart platform through a combination of quantitative tools and qualitative management, establishing a standardized process covering pre-investment, investment and post-investment, and providing in-depth support to the Group and professional companies in the effective management and control of investment risks. According to Chen Dexian, Ping An's investment and risk management system has six core competencies: international benchmarking, quantitative decision-making, advanced modeling, system platform, process management and local data. On the basis of strict risk management and control, insurance funds invested in non-standard debt assets amounting to more than 360 billion yuan, so far there has been no default assets; credit bond assets amounting to more than 170 billion yuan, the first half of the year there was no default assets.

Chen Dexian said, Ping An insurance investment will continue to "NII +" (Net Investment Income +) as the core strategy, to establish a "safety cushion" for the return of insurance funds. Over the past ten years, the compound annual growth rate of net investment income rate is 20.56%, with hundreds of billions of cash flow for the company's sound operation to provide a solid guarantee. According to Chen Dexian, 71% of the projects in Ping An insurance funds' non-standard asset investment have credit enhancement measures; 47% of the trust plans are projects of the four major state-owned asset management companies; the capacity of the debt-servicing body's cash flow to specifically cover its debts is 88.51%, an increase of 1.5% from the end of 2017. In terms of industry allocation, insurance funds are mainly invested in infrastructure, non-banking finance, real estate and other industries, which are relatively less affected by the risk of economic cycle fluctuations.

Looking ahead, Yao Bo said, "We will continue to deepen the company's strategic plan of "finance + technology" and explore "finance + ecology". In our core financial business, with the help of five core technologies, including artificial intelligence, blockchain, cloud, big data and security, we will continue to enhance efficiency, reduce costs, improve experience, strengthen risk control, and continuously improve our competitiveness, so that we can enhance the value of our company while creating long-term and stable value returns for our shareholders, customers, employees and society.