Huize Holding Limited

Today's conference is scheduled to begin shortly. Please continue to stand by. We thank you for your patience. Thank you. Thank you. Ladies and gentlemen, thank you for standing by and welcome to Waiter Holdings Limited first quarter 2022 earnings conference call. At this time, all participants are in the listen only mode. After the management's prepared remarks, we will have a question and answer session. Today's conference call is being recorded and a webcast replay will be available. Please visit Waiter's IR website at IR.Huizhe.com under the events and webcast section. And I'd like to hand the conference over to your speaker host today, Ms. Harriet Hu, Huizhe's Investor Relations Director. Please go ahead, Harriet.

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the first quarter of 2022. Our financial and operating results were released earlier today and are currently available on both our IR website and the newswire. Before we continue, I would like to refer you to the safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained in our earnings release and file links with the SEC. Joining us today are our founder and CEO, Mr. Sunjin Ma, COO, Mr. Li Jiang, co-CFO, Mr. Minghan Xiao, and co-CFO, Mr. Ronald Chen. Mr. Ma will start a call by providing an overview of the company's performance and operational highlights for the first quarter of 2022. Mr. Chen will then provide details on the financial results for the period before we open up the call for questions. I will now turn the call over to Mithuna.

大家好,欢迎大家参加汇泽2022年第一季度的业绩发布会。 回过一季度。 Hello, everyone. 哈瑞,进行,你进行。 Hello, everyone, and thank you for joining Huize's first quarter 2022 earnings conference call. Looking back at the first quarter, our operating environment is full of challenges. On the one hand, the repeated economic uncertainty of the COVID-19 epidemic is increasing, which has led to the needs of insurance consumers. On the other hand, the supply side of Internet insurance has been hit by the short-term impact of new rules, and people have not been able to retire. We have been able to lay a solid foundation for many years, and we have been able to perform better in terms of business and development.

In the first quarter, Huize's business results demonstrated strong resilience, despite a challenging operating environment caused by the ongoing pandemic, softening insurance demand in China due to economic uncertainties. and the impact of the tightening industry regulations. Thanks to the solid foundation we have established in past years, total growth return premiums, or GWP, facilitated on our platform remained fairly stable at RMB 1.3 billion during the period, despite a high base for comparison in the first quarter of last year.

From the structure of Baofei, The effect of our long-term insurance business is stable. In the first quarter, the total insurance fee ratio of long-term insurance is 90.1%. In 10 consecutive quarters, the ratio has reached 90%. The insurance fee for the next quarter has increased by 113.9% and reached RMB 10.8 billion. The stable next-term commission income has improved the company's ability to resist the market uncertainty. At the same time, our number of users continues to increase. The number of users has been high since the end of the first quarter. The total number of users has reached 8 million. The increase is about 49.5 million. Among the long-term users in the first quarter, 63.7% of customers in the second quarter and those in the above cities. The average age is 33.5 years old. In the first quarter, the average continuation rate of the 13th month and the 25th month of the long term is 94%.

In terms of product mix, we have maintained a strong competitive edge in long-term insurance products. In the first quarter, GWP contribution of long-term insurance products remained above 90% for the 10th consecutive quarter. Renewal premiums increased by 113.9% year-over-year to RMB 1.1 billion, providing steady cash flow for us to withstand times of economic downturn and market volatility. As we continue to grow our client base, we have maintained a high-quality user profile. As of March, our cumulative number of insurance clients reached 8 million, representing a quarter-over-quarter increase of approximately $495,000. In the first quarter, roughly 63.7% of our long-term insurance customers were from higher-tier cities with an average age of 33.5. In the first quarter, our average persistency ratios for long-term life and health insurance in the 13th and 25th months have sustained at an industry high level of 94%. In terms of first-year premiums, the average ticket size of savings products was approximately RMB 29,000 in the first quarter.

Since the end of the first quarter, we have maintained a stable cooperation relationship with more than 100 insurance companies. Despite the official landing of the new rule of the Internet, caused a short-term impact on product supply. Due to the early deployment of offline and alcohol verification products and the strength of customized development, our product supply chain has quickly recovered. Since March, we have continuously launched customized heavy-duty products such as Xinshouhu, Huixinan, 2002, and Jingying Lianlian. The value of customized products has increased by 69.2% increased by 8.2% in the same period as last year. On the other hand, we cooperated with insurance companies to provide offline products to customers. Not only that, on the basis of the supply of products, we have further completed the system upgrade of customized products, from the limited to the healthy line, and expanded to the full range of customized products. The goal is to divide the customer group and product division to carry out detailed operations. In June, we launched four new customized products, covering heavy, medical, and emergency, with four major categories. Including heavy risk, guard number 5, medical risk, health and protection, emergency risk, delicate start, and accident risk. From many times of compensation,

At the end of the first quarter, we have cooperated with 100 insured partners. Despite the expected short-term impact of the new regulations on the supply of online insurance products, our supply chain has recovered quickly. thanks to the states we took in advance to strengthen our offline presence and our proven capabilities in product innovation and development. Since March, we have launched several customized critical illness products such as Xin Shou Hu and Hui Xin An 2022, as well as customized savings products such as Jin Yin Nian Nian. In the first quarter, GWP for our customized products accounted for 69.2% of total GWP, up 8.2 percentage points year over year. At the same time, we have co-developed offline savings products with our insurer partners. In addition, we have extended our customized product line to a wide spectrum beyond life and health insurance customization. and allows us to refine our product management through more precise customer and product segmentation. For instance, we launched four new customized products, including a critical illness product, Guardian No. 5, and a medical insurance product, 健康医手户, a savings product, 精致取航, and an accident insurance product, 孝敬安 2022. These customized products have unique features such as the introduction of multiple clients and the relaxation of age requirements, which has helped us satisfy the protection needs of the elderly, the middle-aged, and the younger generations alike. 我们持续在科技输出业务端取得了进展

is currently serving large, medium, and new types of digital transformation. It is deeply involved in the digitalization and acceleration engine, purchase point system, customer image, and other projects including Taiping and Changsheng. At the same time, we are constantly pushing forward and gaining market consensus. In March, with strong technology capabilities and high service level, Huizhe Huoping is one of the most trusted Internet insurance technology platforms in 2022. In April, with its large data and technological advantages, we launched a new digitized health insurance system, which is aimed at breaking the barrier between information of insurance supply and insurance demand. From health management to health insurance and insurance recommendations, it is to solve chronic diseases,

On our technology service business front, we have continued to make solid progress and our clients already include the likes of large, mid-sized and emerging insurance companies. who come to us for assistance with their digital transformation needs. For example, we are deeply involved in the digital acceleration, tracking system, and customer profiling projects of our clients, including Taiping and Great Wall. In March, we have been named one of the most reliable insurtech platforms for 2022, given our solid digital capabilities and high-quality service In April, leveraging our proprietary big data analysis and technical advantages, we launched a new digital insurance underwriting system, minimizing the information asymmetry between insurance products and customers. The system aims to solve the problems chronic disease patients face in obtaining insurance by offering a one-stop solution that includes health management, re-underwriting and insurance project recommendations. Finally, in May, we obtained the Data Management Capacity Maturity Assessment Model, the DCMM Stable Class Level 3 certification, one of the most authoritative certification systems for data management maturity in China, underscoring our industry-leading data management capabilities.

In the next three years, we will create a integrated A, B, and C channels of digital insurance service business environment. At the C-end, we will get the basics of the basic plan in time, accelerate the construction of the online and offline integration of the whole scene, the ability to serve all products, the digital ability to play on the platform, and the customer label data that can be used to store and platform, and drive the operation of customer insight and value customers at the business end. continue to dig into the insurance needs of customers in their lifetime, promote the flow rate of transaction users, and through the old customer operation and transformation introduction mechanism, promote chain growth, optimize the cost of goods and services. At the B-end, we will accelerate the productization of insurance technology, fully utilize the digitalized product supply platform and digitalized tool cloud platform, provide digitalized customer management,

Over the next three years, we have set a strategic roadmap to build an omnichannel digital insurance service ecosystem that integrates agents, businesses, customers. To customers, we will leverage our proven online platform with our expanding offline service coverage to deepen engagement with our high-value customers and offer them with a full range of insurance products across all scenarios. We will utilize the digital capabilities and multidimensional client data to drive customer insights and to serve our customers for their lifelong insurance needs. Moreover, we will continue to enhance retention and repeat purchase and to optimize our customer acquisition costs through customer referrals. To businesses, we will further drive industry digitalization by developing and exporting our technology to insurance companies to support digital customer relationship management, underwriting risk management, and insurance claims and further diversify our revenue streams.

At A-Zone, we will establish a new line of business to serve independent agents and insurance companies all over the country and expand the growth curve. Five months before 2022, A-Zone line of business has already reached RMB 30 million. At the same time, Huize's first independent agent store is about to open in Shenzhen in the third quarter. We believe that due to the rapid trend in the separation of sales, the product structure will change to investment products such as lotus gold, and customers will increase their need for independent consultants. The A-end will have a huge space for growth, and Huize will take advantage of the growth of To agents, we have established a new business line targeting independent offline insurance agents and workshops nationwide as a new growth driver.

Total GDP facilitated by the QA business reached RMB 30 million in the first five months of 2022. Meanwhile, we will open our first independent agent store in Shenzhen in the third quarter. With the long-term industry trend of insurance product distribution by independent agents and brokers, the shift in product mix towards savings products such as annuities, and increasing customer demand for independent insurance agents, all providing tailwinds. We believe there will be huge room for growth in the QA business. We will meet the needs of independent agents with our differentiated advantages of good products, high commission, excellent service, and well-known brands. and we will empower them with a diversified online and offline insurance project matrix, digital business development tools, and customer service support through our core Huize platform.

Looking back at the 16 years of Huize, we have gained the trust and support of more than 60 million users by building professional, reliable, and warm services. In the next stage, Over the past 16 years, we have won the trust of support of more than 16 million customers with our consistent, professional, reliable, and customer-friendly services.

In our next stage, we will spare no effort to build the most trusted brand of one-stop online insurance platform and become the go-to insurance service for middle-class families in China.

This concludes my prepared remarks for today.

I will now turn the call over to our CFO, Mr. Rong Chen, and he will provide an overview of our key financial highlights for the first quarter of 2022.

Thank you, Mr. Ma and Harriet. Good evening, everyone. For this call, I would like to quickly recap a few highlights and takeaways from our first quarter 2022 results. For detailed discussions of financial line items, I would kindly refer you to our uploaded earnings release for full details. Overall, we are very pleased to report a set of resilient operating and financial results for the first quarter of 2022 in light of significant macroeconomic headwinds, a resurgence of Omicron in China, and the challenges brought by tightening regulatory measures in the industry. In the first quarter, total gross return premiums, or GWP, remained fairly stable at RMB 1.3 billion, which represents a 4% year-over-year decrease, and that is despite the high base for comparison that was triggered by the transition to the new statutory definition of critical illness in the first quarter of last year. At the same time, first-year premiums, or FYP, reached RMB 260 million. Renewal premiums more than doubled to RMB 1.1 billion, and that reflects the continued high user stickiness of our customized long-term insurance products. One key highlight in the quarter results is that we have continued to co-develop long-term customized protection and savings products with our insurance partners. One of the key challenges that we have expected going into the year 2022 was the disruption on the supply side of online insurance products due to the regulatory changes. As Mr. Ma has mentioned in his opening remarks, We have already made significant progress in replenishing the supply of products on our platform, and we have now a full suite of co-developed products covering long-term health, savings, and P&C products. In the first quarter, our platform offered 482 insurance products online. These efforts continue to help to drive GWP contribution of our long-term insurance products to be above 90% for the 10th consecutive quarter. And the GWP contribution of our customized products also remained at a high level of 59.2% in the first quarter. Our resilient performance operationally and financially continues to reflect the high quality of our 8 million strong customer base and the effective customer acquisition capabilities provided by our omni-channel distribution platform model. The two key operating metrics that demonstrate these strong points are the average ticket size of our long-term savings products and the persistency ratios for the renewals of our policies. The average FYP of our long-term savings plans were well over RMB 29,000 in the first quarter of 2022. And in the first quarter, our persistency ratios for in-force long-term life and health insurance policies renewals in the 13th and 25th months remained at 94% on average, a very high level compared to industry averages. Our robust product innovation and customer acquisition capabilities have not only helped us strengthen our engagement and relationship with our upstream insurance companies, but also empowered us to maximize the lifetime customer value potential of our users. While our revenue for the quarter saw a temporary setback given the industry-wide weakness in FYP facilitation amidst the adverse external factors, and also the high base for comparison in Q1 of last year. This was more than offset by an overall improvement in our corporate cost structure. As we have mentioned in our previous earnings call, we expected the first half of 2022 to be a period of adaptation and transition for most players in the industry. And at Quasar, our first priority from a strategic financial management standpoint is to further drive improvements in our overall corporate cost structure and operating efficiencies. And we are pleased to report that following the implementation of our group-wide organizational structure optimization program, we have achieved a 59.7% decrease year-over-year in our total operating costs and expenses in Q1 to RMB 285 million. As such, we achieved a gap net profit attributable to shareholders of RMB 10.6 million in the first quarter of 2022. As of the end of the first quarter, our combined balance of cash and cash equivalents was approximately RMB 380 million, demonstrating our ample liquidity and solid balance sheet position to withstand the current economic downturn and providing capital for further investment in business growth. In the first quarter, we have also repurchased an aggregate of approximately 339.3 thousand ADSs, or 10% of our approved mandate under the existing 12-month share repurchase program. Going forward, we will continue to execute on the group-wide optimization program in Q2 with the goal of further reducing our fixed cost base to improve operating leverage upon business recovery. And based on our preliminary assessment of current market conditions, together with a macro recovery in the second half, we expect to achieve quarterly profit in the second half of this year. As Mr. Ma mentioned, we have set out a strategic direction to build an omnichannel digital insurance service ecosystem that integrates agents, A, businesses, B, and customers, C, over the next three years. We believe our ABC strategy will provide us with tremendous opportunities to strategically allocate capital to enhance shareholder value and sustain a long-term business growth. This concludes our prepared remarks for today. and we will now open up the call to Q&A. Thank you and over to you, operator.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question now, please press star 1 on your telephone and wait for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Please stand by while we compile the question and answer roster. Let's get a star 1 for questions. Our first question will come from the line of Amy Chen from Citigroup. Please go ahead.

Thank you, management, for letting me have the chance to ask a question. I'll be asking questions on behalf of Michelle today. The first question would be that as management has mentioned earlier, there's a new regulation this year that has brought some short-term headwinds on the supply chain, on the supply side. Would it be Would you be able to share more color on how Hui Ze has adapted to this new regulation, and what was their strategy to better cope with the changes, and did you see any changes in terms of product line and in terms of channel mix? And the second question would be on can you give us some updates related to the second quarter operations? Thank you very much.

Okay, thanks, Amy. It's Ron here. I'll take your questions. So the first question regarding the impact on the regulatory changes starting from this year. I think that the regulatory changes have been well, I guess, absorbed by the market and industry. And I guess three key points that I would like to answer in relation to this question would be that, most importantly, we have replenished our supply side with over 400 products in the first quarter of this year. And that encompasses the full suite of products from long-term health, savings, and also property and casualty. So I think that the major concern that people have or the market has on the sector is that the disruption of the supply side on the online insurance product. I think that we have demonstrated that we have already made significant progress in replenishing the supply. And also recently, last week, We have upgraded our portfolio of customized products, and that includes even an online version of an annuity product, I guess, which is one of the first in the industry, which we have co-developed with Hang An Standard Life, which is a joint venture backed by the Abilene Group in the UK. So I think that this is all major milestones and significant concrete steps that we have been taking in terms of addressing the supply chain concerns. So that's the first point I'd like to make. The second point is that with respect to the impact on the regulation, that's also a point about how the first year commissions or the first year premium commissions have been constrained about 60%, thereby affecting the economics of the policy for a brokerage like ourselves. And I think that what we have achieved so far is that on our new, for example, critical illness product that we have developed with the insurance companies, we are now able to achieve basically a lifetime value of the policy, which is basically the same as what we had before the regular changes. So what that means is that the depressed first year commission of 60% has been compensated by a higher second and third year renewal commission rates. And therefore, we have been able to maintain the lifetime value of the policy at probably around 120%, which I think has been a major milestone, again, on the regulatory changes front. And the third point I'd like to make is that we've also, since the second half last year, actively going into the offline space. And I think with that, we have been able to launch, you know, offline versions of the savings product that we have been co-developing with our insurance company partners, particularly with Hong Kong Life. And I think that that has all been coming through in the second quarter of this year. So I think we have been, over the past two quarters, been able to adjust and adapt to the new regulatory regime. And then we have come out quite strongly with respect to the supply side of things, with respect to the online-offline presence and services and products, and also the economic arrangements of the insurance companies. So the second question regarding the Q2 guidance, I think as we all know and the market is very well aware of, Q2 has been an extremely challenging period of time for the Chinese economy in general with enforced lockdowns in major cities across the country. And with that kind of backdrop, I think it is very reasonable to expect a very weak Q2 in terms of operating performance. I think from a FYP perspective, we have been showing some sequential recovery because of the strike that we have made on replenishing the supply side on the online insurance products. But however, we also see continued challenges, and particularly with the lockdown situation. And we also have less of an offset from the strong renewal policies contribution from the first quarter of this year, which was a It resolved this very strong quarter first quarter of last year because of the critical illness definition regime change. So I think that Q2 will be flattish year over year and correspondingly, I think that With a macro recovery that we expect in the second half of this year and with the economy coming back on stream. We do expect that we will be able to achieve a quarterly profit in the second half. Thank you.

Thank you very much. That was very clear.

Thank you. Our next question comes from the line of Mindy Gao from CLSA. Please ask your question.

Hi. Thank you for taking my question. And this is Mindy from CLSA. And I got two questions. The first one is, as we notice, as we see the resurgence of COVID outbreaks in the first half in China, I just wonder how would that affect our business in the first half of 2022? And my second question would be, as we noticed earlier, that Hueso has been included in the professional list under HFCAA recently, and I'm just wondering what would be the impact and how does the management plan to deal with the potential risk of the listing? That's my two questions. Thank you.

Thank you Mindy for your questions and thanks for joining. Um, so two questions. The first question on the, uh, the COVID, uh, impact on the business. I think, um, where I put it on, on two sides of things, right? I think the first side of things would be from a business operational perspective. I think that we are not as, as affected by, you know, the emergence of COVID then maybe something more traditional offline agencies or brokerages. because most of our activities are done online, as you know. However, I think that the more pertinent point to make is that the Omicron outbreak has really dampened income expectations of the average consumer in China. And also, I think that it also has unfortunately led to quite massive layoffs in the economy across different industries. And so I think that the major impact of Omicron on the industry really has to do with the consumer's competence and the consumer's ability or willingness to consume an insurance product, which, as we all know, insurance product is a non-essential item in a way. It's the most discretionary of all financial products available compared to things like securities or fixed income products, I think. And therefore, I think that the major impact Omicron has is on the demand side of the industry, and it has been very, very weak in the first two quarters, as we can also take reference from the FIP numbers of the major insurers in China, and also from the other brokerages and third-party intermediaries. So that would be the answer to the first question. And for the second question on HFCAA and the listing risk, I think that the market has somewhat absorbed all of this news flow already by now. I think most of the Chinese companies that are listed in the U.S. ATR markets has already gone on this list. And I think from the company's standpoint, what we would like to make as a statement is that we continue to maintain our listing in the U.S. and we will take all the steps that is required to make sure that we will save our shareholders' interest and our shareholder value. And obviously, we'll be looking into measures including potential secondary or dual listing in Hong Kong in order to somehow hedge this risk of the the listing scenario. And I think that we also have been seeing some encouraging signs in the news, you know, reporting on collaborative efforts between the two sides of the regulators' table, you know, from the China side or from the U.S. side, in terms of progressing on the PCAOB issues on, you know, on-site inspection of audits, et cetera. But I think, frankly, this is somewhat out of the corporate's level of control. But we will make, you know, optimistic on a resolution of the matter between the two sides. And we, on our own level, will continue to take all measures in order to save our shareholders' interest.

Thank you.

Thank you. Thank you. As a reminder, if you wish to ask a question, please press dial 1 on your telephone keypad. Thank you. As there are no further questions, I'll turn the call back to Harriet for closing remarks.

Thank you, Operator. So in closing, on behalf of Quasar's management team, we want to say thank you for your participation in today's call. And if you require any further information, please feel free to reach out to us. And thank you for joining us today. And this concludes the call.

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