Oasis Qiu - Investor Relations Manager Chunlin Wang - Chief Executive Officer Peng Ge - Chief Financial Officer

Thank you for standing by for the CNinsure 2012 Q2 Earnings conference call. At this time all participants are in listen-only mode. All lines have been placed on mute prevent background noise. After the management's prepared remarks there will be a question and answer section. (Operator instructions) For your information, this conference call is now being broadcast live over the internet. Webcast replay will be available within an hour after the conference is finished. Please visit www.cninsure.net, under the Investor Relations section. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ms Oasis Qui, CNinsure Investor Relations Officer.

Welcome to our second quarter and first half 2012 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 this statement 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 this forward-looking information except as required under applicable law. Joining us today is our Chief Executive Officer, Mr. Chunlin Wang, and Chief Financial Officer, Mr. Peng Ge. They will walk you through our second quarter and first half of 2012 financial and operating results and discussed the progress of our strategic transaction. We will take your questions after the prepared remarks. Now I will turn the call over to Mr. Wang.

Dear shareholders, investors, analysts, good morning. Thank you for joining us on today's conference call. Mr. Peng Ge and I will begin today's call with a review of our second quarter and first half of 2012 financial and operating performance followed by an update on the progress of our strategic transaction. Then we will go into the Q&A session. The global and domestic macroeconomic situation were increasingly challenging in the first half 2012. China’s GDP growth was estimated to be below 8%, reaching an eight years low. Against this backdrop, the growth slowdown in China’s insurance industry continued into the first half 2012, [with this] to go single digit year-over-year growth of 5.9% in terms of total premiums. P&C insurance sector grew 14.4% from the first half 2011 but the market competition among insurers intensified and insurers had to increase incentives and telemarketing campaigns, which eroded some of their underwriting profits. Life insurance sector on the other hand only grew 0.23% year-over-year in terms of premiums in the first half of 2012, as insurers continue to face difficulty in agent recruitment and retention, (inaudible) a weak insurance base. Impacted by the macroeconomic situation and structural changes of the China’s insurance industry, our total net revenues was up 2.3% year-on-year in the second quarter of 2012. Cost increases however, offset the revenue growth due to the challenging operating environment. As a result our net income attributable to the company's shareholders for the second quarter of 2012 was down 67.2% and non-GAAP net income attributable to the company's shareholders which excluded share-based compensation expenses, was down 34.2% year-over-year. Looking at our three major business lines, the net revenues of our P&C insurance segment witnessed a marginal decreases of 0.6% year-on-year, primarily due to increased market competition as insurance companies strengthened the investment…

I am pleased to report the results for the second quarter of 2012. The numbers I will refer to will be in RMB unless otherwise indicated. Total net revenues for the second quarter of 2012 were RMB 109.9 million, up 2.3% from the year ago quarter. Total operating cost and expenses for the second quarter 2012 were RMB 392.1 million, up 32.1% from the year ago quarter. Commissions and fees expenses for the second quarter 2012 were RMB 266.3 million, up 29.8% from the year ago quarter. Selling expenses for the second quarter 2012 were RMB 21 million, you 8.9% from the year ago quarter. General and administrative expenses for the second quarter 2012 were RMB 104.8 million, up 44.7% from the year ago quarter. As a result of the foregoing factors, income from operations for second quarter 2012 was RMB 17.8 million, down 82.8% from the year ago quarter. Non-GAAP operating income which excludes share-based compensation expenses was RMB 64.5 million of second quarter 2012, down 60% from the year ago quarter. Interest income for second quarter 2012 was RMB 22.5 million, up 71% from the year ago quarter. Effective income tax rate was 33.8% for second quarter 2012 compared to 19.5% for the year ago quarter. Net income attributable to the company's shareholder was RMB 32.8 million for the second quarter of 2012, decreasing 67.2% from the year ago quarter. Net margin was 8% for the second quarter of 2012 compared to 25% for the year ago quarter. Excluding share-based compensation expenses, non-GAAP net income attributable to the company's shareholder was RMB 69.5 million for the second quarter of 2012, decreasing 34.2% from the year ago quarter. Non-GAAP net margin was 17% for the second quarter 2012 compared to 26.3% for the year ago quarter. Basic and diluted net income per ADS was RMB 0.66 and RMB 0.65 respectively for the second quarter of 2012, down 67.3% and 66.6% from RMB 2 and RMB 1.96 respectively for the year ago quarter. Non-GAAP adjusted basic and fully diluted net income per ADS, which excluded share-based compensation expenses were RMB 1.39 and RMB 1.38 respectively for the second quarter 2012, representing decreases of 34.2% and 33% from RMB 2.11 and RMB 2.07 for the year ago quarter. As of June 30, 2012, the company had RMB 2.5 billion in cash and cash equivalents. CNinsure expects its total net revenue to remain approximately flat for the third quarter of 2012 compared to the corresponding period in 2011. This [also] reflects CNinsure’s current preliminary view which is subject to change. Now, Oasis and Mr. Wang, and our CFO Mr. Ge, will open the floor for your questions.

(Operator Instructions) The first question is [Jeff Chen from Investco] Please go ahead.

[Translated] The question is from [Jeff Chen] and his question is related to our compensation expenses for this quarter which has increased [inconsistently] and we mentioned that reason for the increase is due to adjustments with the recognition measures. He would like us to elaborate a little bit more on this. And he also asked about what will be the compensation expenses level for the coming quarters?

[Translated] We issued a stock option in earlier this year and the total amount of the cost has been evaluated by an independent appraisal and approved by our auditor. And total amount of the share-based compensation expenses has not changed. And previously we amortized these expenses evenly on a quarterly basis. However, because we adopted a new incentive program which allowed some of our sales agents to participate in the stock option program. And the vesting of their options is tied to their performance and auditors think that we should adopt a more conservative way to recognize the expenses. So while for this quarter we adopted an accelerated amortization method to recognize the expenses, which result in an increase share-based compensation expenses in the second quarter. But for the coming quarter, the share-based compensation expenses will be back to the normal level which is approximately 12 million (inaudible).

(Operator Instructions) Next question is [Jeff Chen from Investco] Please go ahead.

[Translated] And the second quarter is regarding cash and how much of the cash is interest bearing and how CNinsure invests this amount of cash? Is it in the form of an deposit in the banks or any other investments?

[Translated] The cash -- we have a centralized management of the cash by the group and most of the cash right now is totally in the banks in the form of CD or short term deposits. And we also will put some of them in to short term investment with already high interest and already high returns which is allowed by the regulation rules and with minimum risk.

(Operator Instructions) Next question is [Jeff Chen from Investco].

[Translated] And the question for our CEO Mr. Wang, and the first question is regarding -- he noticed the commission revenue ratio has increased significantly in the second quarter and we mentioned that the reason is because the increase in labor costs and the changes in the operating environment as well as the impact from the direct sales. He wonders how direct sales exert any pressure to intermediaries and whether theses [changes] will continue or will improve in the medium term? And then the second quarter is regarding that we mentioned that our top line and bottom line will go back to a rapid growth phase in 2014 and what is driver for the growth, and then what the growth rate will be like?

[Translated] First of all I would like to tell about the channels, the sales channels in these Chinese insurance market. First of all is the direct sales of insurance companies which is comprised of the China marketing and the current sales agents of the insurance companies. And then the second channel is intermediaries including professional intermediaries and ancillary intermediaries. Right the ancillary intermediaries is the largest channel and the direct sales is the second largest channel, while the professional insurance intermediaries only account for 5% to 6% of the market shares in China right now. So any changes happening in the policies related to the direct sales channel and the ancillary insurance intermediaries in China will have very strong influence on the professional insurance intermediaries. And the current situation is that for the past one to two years, our P&C insurance company has been making a lot of profits and they are competing for more market share and one direct way for them to do that is to raise the commissions, including the commissions paid out to ancillary intermediaries and also to their tied-up agents. So if we as insurer, we don’t increase our commission payout to our sales agents, we will lose the market share. And also because of the CPIs, the high CPI level, and the increase in the billing cost for sales agents and also the sales agents have higher requirements for their quality of life in the future, they are asking us to pay more commission in order to cover that. Otherwise the current commission level were not attractive enough for them to stay in the industry. As for looking forward, we don’t really think that this tough competition will be sustainable. Because we are already seeing P&C company’s profits are [fairly] weakening. If they continue…

(Operator Instructions) The next question is [Jeff Chen from Investco]. Please go ahead.

[Translated] And next question from Jeff is a [novel] topic. CNinsure has a lot of cash and (inaudible) is pretty low right now. Aside from ecommerce, what else do insurers got to do to make good use of the cash, and then the privatization deal was restored last year. Is CNinsure going to reconsider the possibility given that there are a lot of other Chinese companies have been doing this privatization too. And CNinsure has a lot of cash in the country, since that CNinsure is capable of doing such kind of transaction.

[Translated] We feel kind of lucky that we have so much cash in hand right now. Because if you look at the current situation in insurance markets and financial services industry, it is a actually a golden age for good company CNinsure to grow bigger. And so we will need adequate cash reserve in hand to take advantage of those opportunities. And as we mentioned we are going to use a lot in the ecommerce and while our main focus on building the BtoB model. But we believe that the BtoC, or the BtoC market, it will become mature in the next couple of years, and when that comes that will require a lot of cash to fund the marketing campaign. And then we also need a lot of cash to fund the -- to make sure that there is cash for strategy transaction. And looking at the capital market right now, given the current situations we don’t really think that a share buyback or dividend will really be long-lasting to push our stock prices. So we kind of think that we need to reserve more cash to support our business development. And then as for privatization, after the restore of the last privatization deals, the management will like to focus all our energy on the business operation and the company growth. But having said that if there is a right opportunity, if there is a good opportunity and our strategy transaction goes well, we would not really rule out the possibility to consider that.

[Translated] And the last question is that CNinsure issued stock options with an aggregate price of $6 very much. If the market situation continues and CNinsure doesn’t do any share buyback or dividend declarations and the stock options keep under water, the option as you lose [incentive] function, how does the management think about that?

[Translated] Because the management and key personal of the company are really quite confident about business operation of CNinsure, so we do believe that our stock price will have upside and the current stock price doesn’t really concern us very much, and we didn’t see a high turnover because the employee is losing faith in the outlook of company. But having said that, we really will consider various possibilities including increasing the cash compensation to employees.

Thank you for your participation in CNinsure conference. There will a webcast repay within an hour. Please visit CNinsure’s IR website www.cninsure.net, under the Investor Relations section. Thank you all for attending. You may now disconnect. Good bye.