Ladies and gentlemen, thank you for standing by, and welcome to the Fanhua Inc. second quarter and first half 2017 earnings conference call. At this time all participants are in a listen only mode. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 22 of August 2017. I would now like to hand the conference over to your first speaker today, Ms. Oasis Qiu. Thank you. Please go ahead.

Good morning. Welcome to our Second Quarter and First Half 2017 Earnings Conference Call. The earnings results were released earlier today and are available on our IR website as well as on newswire. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated. Such risks and uncertainties include but are not limited to those outlined in our filings with the SEC, including our registration statement on Form 20-F. We do not undertake any obligation to update these forward-looking information, except as required under applicable law. Joining us today are our Chief Executive Officer, Mr. Chunlin Wang; our Board Chairman, Mr. Hu Yinan; Chief Financial Officer, Mr. Peng Ge. Mr. Wang will walk you through our financial results in the second quarter of 2017. And then he and Mr. Hu, Mr. Ge will take your questions after the prepared remarks. Now we turn the call over to Mr. Wang.

Thank you for joining us on today's conference call. Here with me, we have our Chairman of the Board, Mr. Yinan Hu; our Chief Financial Officer, Mr. Peng Ge. We will begin today's call with a review of our second quarter 2017 financial and operational performance, followed by a brief discussion of our business outlook. Then we will have a Q&A session after the report.

Hello, everyone. I am Hu Yinan.

Hello, everyone. I am Peng Ge. Welcome to join us on the call.

First of all, looking at the industry landscape, since last year, China has been tightening its control over the financial market. A series of new regulations have been issued by the Central Bank and the CIRC, CBRC and CSRC, aiming at fixing the financial system and guarding against financial risk. New rules rolled out by the CIRC in the past year cover a wide range of issues, from risk inspection, rectifying market orders, cracking down on irregularities, protection of consumer interest, to relying product mix of insurance companies, showcasing the regulator's commitment to tightening supervision and steering the insurance industry back to its focus on protectional oriented insurance products. Among other things, the number 76 notice issued by the CIRC in September 2016 specify that insurance companies must make adjustments to its current product design before April 1, 2017, including decreasing valuation interest rate of universal life insurance products, liability reserve and improving the risk protection from proportion of personal life insurance products. As these new regulations and rules took effect, especially the implementation of the number 76 notice, a bout of popular insurance products were forced to be off the shelves on April 1, 2017, across the industry. As a result, total insurance premiums in the Chinese insurance industry only grew 6.4% year-on-year in the second quarter of 2017, among which the P&C insurance premiums grew 14.1% year-on-year, while life insurance premiums only grew 2.9% year-on-year, the lowest level in the past few years. In the meantime, we can also see that the CIRC's emphasis on protection-oriented insurance business has yielded positive results as follows. Firstly, evaluation of business structure adjustments. Long-term protectional-type traditional life insurance business accounted for 52.9% of the total life insurance premiums, up 16.7% -- 16.7 percentage points from year-end of 2016. Regular term life…

[Operator Instructions] Your first question comes from the line of [Hsieh Yen] from CICC.

[Foreign Language]

The first question is from Hsieh Yen from CICC. And first of all, he congratulates Fanhua for our results, and he has two questions. The first question is regarding our selling expenses. Our selling expenses dropped about 60% in the second quarter. And he understand that it was mainly due to cancellation of a subsidy provided to sales agents in the quarter. Will that impact the growth of our sales in the next few quarters? And the second quarter -- the second question is regarding our investment income. The investment income increased by over 120%, and he's wondering what kind of -- and the investment income mainly related to the short-term investments. He is wondering what kind of products we invested for this short-term investment. And also…

[Foreign Language]

And Mr. Wang would like to answer the first question. Actually, because -- the reason for decline in our selling expenses was because as the sales subsidy has become a, kind of, regular payment. We have actually accounted it as a commission cost. We don't really think that this will impact our sales growth.

[Foreign Language]

And the second question regarding our investment income, the reason for the rapid increase in our investment income was mainly due these kind of products on -- have a term of roughly one year, and a lot of these products mature in the second quarter. And as we only recognize the investment income when received, so we have a higher investment income during the second quarter. And most of this short investment are invested in interbank savings deposit, kind of, products.

[Operator Instructions] Your next question comes from the line of Arthur Hall of Hallco Incorporated. Go ahead. Please ask your question.

Could you explain the reason for the large increase in the amounts due from related parties? It seemed like it was an unusual amount of increase. And also, do you have a target for the number of sales agents at year-end?

[Foreign Language]

[Foreign Language]

Please -- may Mr. Ge answer the first question?

[Foreign Language]

[Foreign Language]

[Foreign Language]

The receivable from related parties is mainly related to the revolving loans that we provided to CISG, the company that we invested, in which we hold about 20%. And the loan -- the amount of the loans was about RMB 370 million with annualized interest rate of 7.3%. And basically, this is a short-term bridge loan that CISG needs to cover their needs for their loan issuance business, and we expect them to pay back the loans by the end of next quarter.

[Foreign language]

And our target to -- our target for the number of sales agents is 400,000 by the end of this year.

Thank you very much and congratulations on a good quarter.

Next question comes from the line of [Sihen Ku] of Open Door, go ahead please ask your question.

[Foreign language]

Sizhen has two questions. The first question is regarding our term on the P&C insurance operating model. As we say, we are going to transform our profit model from the commissions front-based to platform based, under which we will charge platform management fee and technology service fee instead of commissions. And when are we going to start this platform-based model? And right now, P&C business still accounted for 34.6% of the total net revenues when -- so under the new model, will this revenues totally disappear? Or will it be offset by the platform management fee and the technology service fee? And how much can we offset? And then the second question is regarding our investment income. We have recorded about RMB100 million investment income in the second quarter. And is this investment income related to the investment in Puyi as well as CISG? As for Puyi as we understand, currently we own about 15%, and CISG we own about 20%. So is it related to these two companies? Is the investment income related to these two companies? And what's our plans are for these two companies?

[Foreign Language]

Mr. Wang will take the first question, and Mr. Ge will answer the second question.

[Foreign Language]

As for the first question, actually, we have been doing a lot of research on this platform-based model for quite a long time, and we have been basically trying to adapt this model according to the market trends, according to the changes in the market. And right now, we have submitted the proposal to the board, and we already got their approval. We expect to complete the transaction to the platform-based model by the end of September. And under this new business model, the way to look at our P&C business or the main metrics to benchmark our P&C business will be the transaction volume as well as the platform management fee as well as the technology service fee and which will be basically the net gross profit for us. And as a result of this change, our top line may decline significantly. But in the longer period, we hope that by 2018, our P&C insurance business revenue will be flattish in terms of revenues. And in 2019, our top line will continue to grow significantly, and we will return back to profitability on our P&C business. Thank you.

[Foreign Language]

So Mr. Ge's answer basically said, in the second quarter, we had about RMB100 million investment income, and that's mainly dues from the short-term investments, as we mentioned just now, mainly related to the interbank deposit products. And another RMB120 million are actually share of income from affiliates, and that's mainly the profits -- the share of profit that we got from CISG, in which we currently own about 20%. As for the future plan on -- for these two companies, business wise, we will definitely support -- continue to support the growth of their business, as financial products and services is a key part of our overall strategy, so we'll continue to support their growth. But as for -- whether or not we're going to take a further step on the equity wise, that will depend on how the financial market environment evolves overtime, as currently the financial market is under a strict control by the Central Bank as well as the regulators, amidst the financial regulations at this stage. And then, as Mr. Ge emphasized again, on business wise, we'll continue to support their development because there are still quite strong demand for these type of products in the market.

Your next question comes from the line of Mr. [Jessie Go] of [Taiping Asset Management]. Go ahead please ask your question.

Sorry, it's from [Indiscernible] International.

The question is from [Jessie] from [indiscernible] International. she's wondering whether we have any plan to introduce our new customers in the second half. And as for Tianan Life and Huaxia Life, which are currently our top product supplies, how their contribution will change in the second quarter -- in second half?

[Foreign Language]

As I mentioned just now, the insurance intermediary channel has become a more important channel for the small and medium-sized companies, and our strategic value is better appreciated by them. And we have been seeing a lot of small, medium-sized company actively pursuing completion with Fanhua, and we expect to have more strategic cooperation -- contracts with insurance -- some insurance companies in the third quarter and the fourth quarter. But we will be more selective in terms of that -- in terms of our considerations that we need to find the best company that can enhance our product portfolio competitiveness in the market as well as can provide better brand recognition for the customers. And then as for the revenue contribution from Tianan and Huaxia we do expect that -- the contribution to come down a little bit more so that we don't have so much concentrated product supply.

[Foreign Language]

And what about [indiscernible] introduced new product suppliers? So normally, are we happy to introduce one or two new product supplier, one each quarter? Or that actually depends on how much new cooperation that we've been discussing with new insurance companies? It doesn't matter how much -- we don't have any specific number?

[Foreign Language]

Unlike P&C insurance business, for the life insurance contracts, it's not -- actually, it's not the more the better. And we tend to be relatively concentrate on the cooperation with a certain number of life insurance companies. So we will basically control the pace of introducing new product suppliers. We don't really have a specific target to achieve. And when we choose the product suppliers, we will basically analyze their own position as well as our market needs to decide who to cooperate with.

[Foreign language]

So right now Fanhua basically has a much more stronger bargaining power or has much more larger space over who to cooperate with and what type of products we can sell.

[Operator Instructions] Next question again is for [Sizen Ku] of Open Door, go ahead please ask your question.

[Foreign language]

The question is from Shizen Ku and he's asking, by the end of June, our cash and cash equivalents was about RMB 700 million. Does it include the short-term investments? And if not -- if included -- if including the short-term investments, what's the net cash amount at the end of the second quarter?

[Foreign language]

[Foreign language]

And our financial manager, [Li Lee], will take this question. And she says that by the end of second quarter, we had about 60 -- RMB 620 million cash and cash equivalents and RMB 2.3 billion short investments. So that means that our net cash position was about RMB 3 billion.

[Foreign Language]

How are you going to spend it?

[Foreign Language]

Let's give a chance for our Chairman to answer the question.

[Foreign Language]

The management and the board are in active discussion of several options on how we can better give returns to shareholders. And so basically, we have been listed for almost 10 years, and he's happy to see that Fanhua has achieved a sustainable profitability, and he's also happy that over 20 years of development, things are inceptions, Fanhua has found the right business model that can generate sustainable growth and sustainable profitability. So right now, the board has been thinking, what is the right way to better return -- to enhance our shareholder value.

There are no further questions at this time. I would now like to hand the conference back to today's presenter. Go ahead. Please continue.

[Foreign Language]

Thank you for joining us on today's conference call. If you have any further questions, please contact us. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.