China: Preparing for future growth

Captain Chia

Good afternoon. I don't know how you feel, but I'm very motivated by Huynh and Shikha and they have created a lot of history. When I look at China, I have to do something to catch up. Now, let me share-... before I start the story, let met share with you the brand of Prudential. I came in last night through the immigration. I got a little bit problem, because I was quite busy, I forgot do jot down which hotel that I stay, so I went to the immigration and I just put down "hotel". And the guy look at me and say: 'which hotel are you staying?' Well, I really don't know, I got a (bigger call?). Then I suddenly remember Phong is very well known here. So I take out my business card and say: 'Look, do you know this logo?' The guy, the immigration officer look at it: 'Oh, Prudential!' Then he say, okay, you can go'. That's what the brand is all about. Honestly it's a live experience that I have gone through that what is brand is.
Now, today welcome to China. This is the home stretch, this is the last bit, this is the last speaker; I hope you bear with me. Before I go into my China story, I just wanted to run through a very brief overview of what China is all about. China has a population of 1.3 billion, you all know, unfortunately, or very fortunately, only 2.5% of the people are insured. And you look at here, this is something which is very interesting here. The Life insurance market has a history of about 25 years in China. You look at it (incomprehensible) you look at in £8 billion and the new premium in 2003 is 12 billion. Something must be wrong. I double check and check and check. What is wrong here? You can't be having a 25 years experience and yet the In-force business at some point (inaudible: 8 billion?) and it's true. And we check it exactly what it is: a lot of the business sold in the past and what is new business here are all single premium and they don't call it In-force business. What does that mean? That means the (incomprehensible) business has a lot of growth opportunities here. The characteristic about the China market here is: the foreign players still have a geographical restriction. You are not allowed to open anywhere. There are only 15 cities that we can go in; the domestic companies still dominate most of the market and if you look at the top-3 players, they are China Life, Ping An and China Pacific, but if you look at the JV and foreign players, they are AIA, Antai and CITIC-Pru, we are in the market in the year 2000.

My next slide will just give you-... look at this slide. The market opens (with?) the open door policies in China started in 1978. And it was only in 1992 AIA made the first entry and since then there was a very slow entry of players. You start to see in the last 4 years, maybe it's preparations of the relaxation, they allowed more and more players in the last 4 years. What happened was that we were restricted by about 15 cities, and all our players we can only sell 1 product, that's a Life product. We can't even sell Group products. That's what the market is all about.

With this market overview I want to start my story. I can only tell my story by talking about our partner. We have a joint-venture partner here CITIC. CITIC is a well-known household name in China. Very strong, respectable and it has a customer base that cut across the whole nation. You ask anyone in China, any Chinese, tell them: 'Who is CITIC?' they would tell you. We are also very well-known, not in China, but now with this 'marriage', we now become very famous. And these two strong players together-... if you look at this statement: we built a strong joint venture relationship built on trust. The word here is 'trust'. I'd like to share with you what 'trust' means. If you really study more about the joint JV's in China, the other people that talk about their JV partners, that how they do business, if you look at their management structure, if you put a CEO, I need to put a deputy CEO; if you have a Finance Manager, I have to put a Deputy Finance Manager. When you go to a meeting, you have to look and count the number of representatives in the meeting, so that you don't get overworked. That is not trust. But in Citic - Prudential, the trust here is: we have only 2 people from Citic that represents them, both sits in the board. One is the Chairman of the Board, who only comes during the board meeting and the second one, which I've made him the CEO, the Chief Operating Officer, really doing the job. Honestly, this is a joint venture. We are a single company. In this joint venture it is a one company, they leave everything to us to run our show and that is the kind of trust we are talking about. And this is the trust that makes our job much, much easier.

After starting with a joint venture partner, this is a story that begins... We have talked about when we entered the market in the year 2000, our approach was the people. Prudential Corporation Asia throughout South Asia, has a lot of talented people. Over the last 4 years, we have got about 300 people that come to China to bring in their expertise, to bring in what they know, to bring in the best practises and all the 4 years, at the same time, through these people we have built more than 200 local managers, who start from 0, we've built them, because some of them are juniors, we've trained them to be senior. This is very, very important to help us to start our business. This approach (inaudible) because of the availablility of the people, the resources, helped us to start a business very fast, that goes into the next approach, is a speed market.

When we first started in the year 2000, when we prepared for Guangzhou, it took us 6 months to get us up and running. Well, 6 months is short. I tell you one story in Beijing. I don't want to mention a name. But one of the companies took 21 months to get it up and running; but we took 6 months. But, because of the learning, we have a multi-task, multi-disciplined task force set up, which we call the preparation team, that looks into all these security license, looking at the offices, setting up the system, hiring the people, and all that, get it prepared. When if we learn from this, when we get a license to 2003 for Beijing, it took us only 4 months, we can get it up and running. And 2 months ago, we get our Suzhou operations up and running in just 3 months. And moving forward, because this speed here, to get an office to start, helps us to expand our business fast. The minute we get our license we get it up and running.

Also, at the same time, look at what we have achieved over the last 4 years. The Guangzhou office we have got 4,300 agents in 4 years with more, almost like 400 staff. And because it's the head quarters, that supports the rest, that's why the number of people are more in terms of staff strength. In Beijing, just over a year, we have more than 2,500 agents, with close to 140 staff. And in just 2 months in Suzhou, we started with 300 agents. And it's going to touch the 1,000-mark very soon and that is the way we actually are moving. We're talking about speed.

Next, if you look at this, is how we have grown over the last 4 years in terms of agents. I'd like to share something here is what we talk about NEM programme. It is a very well know programme in China today in the insurance industry. NEM stands for non-experienced manager. What we mean by non-experienced is non-experience in insurance field. We go to the market, we hire people that has got no experience at all, but that has been working with medium or £3,500 per year income. That in China is equal to about RMB50,000. That's the minimum income, and that is considered as quite a high income. These are the people we select and we train them from a piece of white paper and start to put in all the colours and pictures eventually to become someone that is expert in insurance selling. Over the last 4 years in Guangzhou we have recruited and trained such people for more than 1,600 of them. And in Beijing in just 1 year we have recruited and trained more than 500 of these people. Our programme on the NEM has now been taken as a case study by the CRRC of why we are successful in training people, recruiting people and we have been asked to share with the insurance company. We have been given a lot of speeches and lectures on this. And our growth in terms of number of agents, compound annual growth rate for over 100% and our APE growth for over 250% for the last 2 years.

Next is the product and services differentiation. In this, I think we have differentiated ourselves. I'm going to talk about three things.
First is the Unit Linked product. This United Linked product are differentiate ourselves among the other foreign insurance today in China. Our Unit Linked policy takes about 62% of the entire market. That's how we dominate the Unit Linked product. And we are a first mover in that product. And going into a niche market that people that are more middle class and with a bit more money and this is the market that we move in. And we sell the the Unit Linked product like any other life insurance policy.
The second thing that helps us to differentiate is an initiative started about 2 years ago on the simplified, easy to understand policy contract. With simplified contract policy, in fact when we worked this one, we have been communicating with CRRC all the time telling them about our initiative. And by the time it's about time to launch, the Chairman of CRRC in the beginning of the year made the announcement that the full focus of this year is one of the initiatives is to make the policy contract simple for the policy holder to understand. And that great effort actually brought us into a great favour of the regulators and also to the market. The consumer understands us better and liked us much more.
The third initiative –I just want to share that many–... I just want to take three examples, the third one that we want to share with you here is talk about the Unit Linked product just now, how do we make it simple to sell? Now you will understand this one there, although I didn't understand it translated into English, but is in Chinese, but you probably will like it. The kids like it, I'll tell you why the kids like it.

(Mandarin TV commercial)

Now, what has been said here is a small (intervideo?) VCD that we gave it to every single policy holder who bought the Unit Linked product. And they take it back with them, and it's in a very simplified version that tells them you're rights about this policy, all the policy features, the benefits and you know... we never expect the small little creatures there, just now, have now become the love of the kids. And we never realised that this becomes a long-term 20-year plan, because 20 years down the road, these children are going to buy from Prudential and nobody else. And that was how we differentiated ourselves.

Now, look at our results today. Big part of this... here is still... it's so difficult to get numbers, but you know, we try to get as close as we can, with 8 years head start on us, at a time when they have 8 offices, AIA (incomprehensible) foreign players major part of it. But look at where we are. We are among the top 3, next to all the others, about 14, 15 of them. Here they combine. I must say that the only office 4 years ago, 1 office 1 year ago and the 3rd office just 2 months ago, this is something I feel proud of; we have done pretty well. Not as well as Vietnam, we want to have the 50% market share. Again, that is the kind of dream we should have.

Going forward here, what I call is the first approach is a step change in access. If you understand what the WTO relaxation at the end of the year... Before the relaxation they say there are these 15 cities that you can go in. After the relaxation they say you can go anywhere, but that doesn't mean anytime you can go. It is still subject to applications and approval, one after another. But when we look at this one, we welcome this. Honestly. The China market is such a huge market. Even today if it tells me that I have got 20 cities open today, do we have the resources, do we have the capital (liquidity?), are we ready for it? Now, it goes well, it (jives?) very well with us, that is today the current market is only available and it's going to open up and it's going to relax in the next few years to come and it's going to catch up, that gives us the time to prepare ourselves to look at the potential market in the whole of China, the whole population here.

We need to manage our expansion. When we go into the cities, what we look at is the market selections in terms of the populations, in terms of spending capabilities, in terms of our CITIC presence. One of the reasons we choose Suzhou at the time, when we were supposed to get Shanghai, but we made a switch to Suzhou, was because of CITIC presence in Suzhou. The CITIC presence in Suzhou is one of the strongest in among all the provinces in China. And we made the right choice. And we can start our partnership in Suzhou very, very fast, because it was so strong in Suzhou. And our people model here, they help us in the expansion, that is important. Our leadership programme. Now, let met share with you on this leadership programme, we gather all our key people, we run them through. In fact the people that we need, when we look at the resources, I categories them into 3 kinds. First, I call it 'first wave' – people that we need within 6 months and a year. Where do we get it from them? No other place what we shop all our brothers in the family. Singapore, Malaysia, Taiwan, wherever we can get, we shop for help. And we get. And people that we need within the next 1 to 3 years, again, where we do we get from them? We can't shop anymore, but a bit. Some of the junior people from Malaysia we bring them in, but a lot we start to select people from local industry and start to (frame?) them. And the third wave are people that we need three to five years and onwards. And we want to have this category of people 100% localised, and this commitment that we share with CRRC, they welcome it, they see our commitment, they see our contributions to this industry, that we are developing the people. We are building the people. And that is very important. And it goes very well with a step change in access, in the opening up one after another.

Our vision... look at this picture here... To run this, unless we have the regional hub, Clive talked about the second hub that's possibly we have to start thinking about it next year (if it) works. If we want to really run this on a cost efficient basis, we have to start preparing the hub to bring the cost down, and if we can do this one, it will help us in our expansion. Because if we have centralised hub, we don't have to worry about setting up the operations at each of the cities. You know, when you open a city, one of the key challenges that we face in opening up cities, is people. People. If today you go to Chengdu, for example, if you want to run it like a full branch, you cannot find people. Especially underwriters, especially (training?) managers, operation people, hard to find. Very difficult to find. Now with a regional hub, what we need to set up these branches are all sales outlets. These are sales out-... and the speed to open them is very fast. Because it's all done centralised. And the cost is lower. We have a clear strategy and a good execution. I'm (incomprehensible) three man. Captain, I'm 26 years in this business, 7 years I spent in the airforce. My team knows and we follow up and follow through. We have a clear roadmap, step one after the other, one year after another. And the important thing is, you can never, never reach the second year unless you get the first year right. And that's the execution and that's what makes us different. A lot of people feel it's because of execution. It's not because they don't have ideas. They have ideas but they lack execution. And this, I think, our team... I'm going to share with you our team, our strong proven management team. I have 26 years of experience, my general managers in Guangzhou has got 21 years of experience, also Prudential man, and the guy in Beijing running it, has got almost 16-17 years of experience. And the guy running Suzhou has got about again 16-17 years of experience. And everyone that we have, we have a strong committed team here, and I think with this our dream of making it big will come through.

Now, in summary, powerful joint venture relationship with a respectable CITIC group, I think that is a key to our success. We have built a strong platform in China after only 4 years. Our result shows that we have done it. The proven records in establishing successful new operations – look at the speed that we require to open each of the office right now. We are learning each day, each month and each year. I think soon we are going to get Shanghai. When we'll get Shanghai, it's just a matter of-... because we are preparing it, maybe in 3 months I get it up and running, maybe in 2½ months I get it up and running in a next city. That is the kind of speed we are talking about. We know in anticipation of when we get it up. We anticipate the de-regulation means that helps in our strategy in preparing our resources. That is-... it just works well for us. And our platform already in place for the next growth.
I just want to finish my line by sharing with you is our team's passion and our dream. China... if you understand who are the team today, the team most of it that we've gathered together, starting with me. I don't have to come to China. I live a very comfortable life. I was the Chairman of the Life Insurance Association in Malaysia. I ran a very successful insurance company. I spent 18 years at AIJ, 7 years back in Malaysia. I don't have to come. But the team that we have, we actually share one common thing. All of us are Chinese educated, all of us have got a feel for China, that we want to come back to this part of the world and start to do something that we want to contribute. And among the team we share one vision: that 20 years down the road someone (would be right?) about the development of the life insurance industry in China. They have to mention CITIC-Pru, they have to mention all our names in their book. Without that, that book is incomplete. For that, I'd like to now invite Mark to come up for the Q&A sessions.

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