Huize Holding Limited

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Ladies and gentlemen, thank you for standing by and welcome to Quasar Holdings Limited Second Quarter 2022 Earnings Content Call. At this time, all participants on your 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 Huizhi's IR website at ir.huizhi.com under the events and webcast section. And I'd like to hand the conference over to your speaker host today, Ms. Harriet Hu, Huizhi's investor relations director. Please go ahead, Harriet.

Thank you, Amber. Hello, everyone, and welcome to our earnings conference call for the second quarter of 2022. Our financial and operating results were released earlier today and are currently available on both our IR website and the newsletter. 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 filings with the ACC. Joining us today are our founder and CEO, Mr. Chunjun Ma, COO, Mr. Li Jiang, Co-CFO, Mr. Minghan Xiao, and Co-CFO, Mr. Ronald Chen. Mr. Ma will start the call by providing an overview of the company's performance and operational highlights for the second quarter of 2022. Mr. Tam 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 Mr. Ma.

Hello, everyone, and thank you for joining Hui Ze's second quarter 2022 earnings conference call. During the second quarter, despite the uncertainty of the red-light environment, the economic recovery was slow under the prevention and control of the epidemic, and the demand for insurance was also under pressure. But with the digital experience we have accumulated over the years, the continued product innovation and deepening the value of users, even in complex and diverse environments, we will be able to respond to the challenges and lead the digital transformation of the insurance industry. The results of the strategic adjustment of the market In the second quarter,

Quasar's business continued to demonstrate strong resilience despite softening insurance demand caused by ongoing economic uncertainty and disruptions caused by regional pandemic restrictions in China. Thanks to our solid digitalization and product innovation capabilities, as well as our in-depth focus on cultivating users' lifetime value, we continued to drive industry digitalization and press on with executing on our strategic plan of building an omni-channel digital insurance service ecosystem, thereby achieving another quarter of remarkable growth. In the second quarter, total growth rate and premiums, or GWP, facilitated on our platform increased by 30.5% year-over-year to RMB 872 million. And our total operating revenue also increased by 30.5% year-over-year to RMB 248 million. From the structure of the balance sheet, we target the market demand and further promote the strategic layout of the balance sheet.

The second group, which includes the new balance sheet of the balance sheet, is about RMB 2.8 billion, which is 1.4 times higher than the previous one. and 143% led to a growth of 59.5% in the same year, which is RMB 4.8 billion, which shows a growth of high-quality business under the full-scale layout. At the same time, the total cost of long-term insurance accounts for 91.7%, which is 11 consecutive seasons higher than 90%, which once again verifies the advantages and strengths of the long-term insurance market that has been deepened for many years. At the same time as the performance increases rapidly, we begin to maintain high-quality user images. By the end of the second quarter, the total number of users who have invested in the platform has reached 8.2 million. Among the long-term users who have invested in the second quarter, the number of customers in the second and above cities has reached 64.2%. The average age is 33.3%. Calculating with the first-tier insurance tax, The long-term view of the construction army is about RMB 3,481. The long-term view of the construction army is about RMB 440,000. In the second quarter, the average continuity rate of the 13th month of the long-term view is higher than 91%. The average continuity rate of the 25th month reaches more than 96%, and the industry continues to maintain higher standards.

In terms of product mix, in response to shifting consumer preferences and macroeconomic backdrop, we have strategically focused on promoting the distribution of savings insurance products. In the second quarter, the first year premiums, or FYP, of savings products facilitated on our platform amounted to RMB 282 million. up by 143% year-over-year. Correspondingly, our total FYP increased by 59.9% year-over-year to RMB 485 million, reflecting that our comprehensive product offerings have supported our high-quality business growth. Meanwhile, we have maintained a strong competitive edge in distributing long-term insurance products. In the second quarter, The GWP contribution of our long-term insurance product was 91.7%, remaining about 90% for the 11th consecutive quarter. We have also maintained a high quality while recording robust business growth. As of June, our cumulative number of insurance clients reached 8.2 million. In the second quarter, about 64.2% of our long-term insurance customers were from higher-tier cities with an average age of 33.3 years old. In terms of FYP, the average ticket size of long-term insurance products and long-term savings products in the second quarter were approximately RMB 3,481 and RMB 44,000, respectively. Our average distancing ratios for long-term life and health insurance in the 13th and 25th months remained at industry high levels of 91% and 96% respectively.

Since the end of the second quarter, we have maintained a stable relationship with more than 100 insurance companies. Since June, Qwizhe has newly launched a middle-end health insurance, to meet the needs of the middle-aged and elderly community, to meet the needs of the middle-aged and elderly community, to meet the needs of the middle-aged and elderly community, to meet the needs of the middle-aged and elderly community, to meet the needs of the middle-aged and elderly community, to meet the needs of the middle-aged and elderly community, As of the end of the second quarter, we have cooperated with 100 insurance partners

Since June, we have launched several customized products, such as the medical insurance, the premium for the middle-aged and the elderly, as well as the inclusive annuity product co-developed with Sun Life Everbright Life to satisfy the high-quality retirement needs of customers. This new product demonstrates our ability to extend our customized product line to a wide spectrum of insurance coverage scenarios. In the second quarter, DWP for co-developed products increased by 16.8 percentage points year over year. Moreover, we are pleased to share the cumulative FYP of Jinman Yizhou premiums. a customized increasing whole life insurance product we launched in last July has reached RMB 1.2 billion approximately, highlighting our ability to gain insight into users' needs and develop the most appropriate product for our users.

In order to further satisfy customers' demand for high-quality insurance products, We upgrade the Li Pei service system to expand the service object of small horse Li Pei to the quality of Tobao people and include its non-Huize insurance. In the first half of the year, the number of cases solved by Huize to assist customers Li Pei is 34,000. The amount of money involved is 3.2 billion yuan, the largest single amount of which is 2 million yuan. In the first half of the year,

To satisfy the high-quality insurance service needs of our customers, we upgraded our insurance clan assistance system in June by extending the Xiaoma clan service to policyholders' immediate family members. and including their non-Huize policy claims. In the first half, Huize assisted in a total of 34,000 insurance claim cases with a total claim settlement amount of RMB 320 million. The highest claim settlement amount in a single case reached RMB 2 million. Within these claims, we have assisted in handling 252 disputes with a total claim settlement amount of RMB 9.79 million.

In addition, we will continue to implement the cost control and organization optimization at the group level. The effect of cost optimization continues to be released. In the second quarter, sales and management costs will be reduced by 16% on the basis of the first quarter. We will continue to implement the cost reduction effect Meanwhile, following our disciplined cost control measures and the implementation of our group-wide organizational structure optimization, our operational efficiency continues to improve. In the second quarter,

Selling expenses and G&A expenses decreased by a further 16% sequentially. Going forward, we will continue to reduce our fixed cost base to improve operational efficiency and achieve sustainable business development through resource integration and the optimization of staff productivity and workflow. 在这里,我也想分享会责打造

A, B, C, all channels of digitalized insurance service business, the progress of the ecosystem. At the C end, we are attracting more customers, and while establishing a more valuable relationship with them, we will further strengthen the ability of old customers to operate and promote chain growth. In the second quarter, we will actively launch new products and private promotion, service upgrade, and other activities. Through live interaction, over 20 business scenarios,

I would also like to share the progress on our strategic roadmap to build an omni-channel digital insurance service ecosystem that integrates agents, businesses, customers, or ABC to customers, Apart from acquiring new customers and establishing valuable long-term relationships with them, we have also accelerated our business growth through better engagement with existing customers. In the second quarter, we have actively launched new product and promotional activities and provided various service upgrades. These, together with live streaming interactions, telemarketing, and consultant communications have enabled us to reach more than 100,000 users and achieve sales conversion of more than 3,000 users. To businesses, we continued to drive in-depth digital transformation of the industry. For instance, through our digital acceleration engine project with TypingLife, we empowered typing to collect over 4 billion pieces of traffic data from over 20 business scenarios across its six business lines. In the second quarter, the total revenue contribution of our technology service business was approximately RMB 5.38 million.

To agents, we have expanded our offline business lines

with registered insurance agents covering Beijing, Shanghai, Sichuan, Guangdong, and Shenzhen. FYP facilitated by the 2A business reached RMB 56.6 million in the first six months of 2022. Moreover, we opened our first independent agent store in Shenzhen in the third quarter. striving to reach out to the residents of the region and provide them with a wide range of customized insurance services and empower our professional premium insurance agents. We will use this as a starting point to drive our integrated online and offline business model and will extend the model to other regions after the operations are proven to be sustainable.

We believe that thanks to 16 years of operating experience and the digitalized capabilities of the industry, GuiZhe can take the top and bottom line from the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and bottom line of the A, B, C, to the top and We believe that our 16 years of operational experience and industry-leading digitalization capabilities will enable us to offer our customers

a full range of insurance products across all scenarios and empower the whole insurance industry value chain. Through our integrated online and offline business model, our technology services to our insurer partners, and the provision of value-added insurance products and services in the areas of protection, medical, savings, and retirement, we strive to enhance customer retention and repeat purchase rates and the lifetime value of our customers, thereby achieving diversified business development and sustainable long-term growth.

This concludes my prepared remarks for today.

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

Thank you, Mr. Ma, and thank you, Harriet. Good evening, everyone. For the purpose of this audience call, I would like to quickly recap a few key takeaways from the operational and financial results for the second quarter and for the detailed discussion of financial line items I would like to refer you to our uploaded earnings release for full details. We are very pleased to report an encouraging set of operating and financial results for the second quarter of 2022, a quarter in which we delivered top-line growth coupled with improved operational efficiency, and particularly set against a very challenging macro environment with continued nationwide COVID resurgence leading to much weakened overall economic activity and depressed and so-called heightened income uncertainties. In the second quarter, total GWP increased by a solid 3.5% year-over-year to RMB $872 million, which is mainly driven by the strong growth in first-year premiums or FYP of 59.9% year-over-year to RMB $485 million. The strong recovery in FYP is a testament to the agility of Hazard's business model to adapt to the changing regulatory and market environment, and the successful execution on a product strategy to focus on the co-development and distribution of the increasing whole life insurance product category in 2022. The highly successful product, Jin Ma Ni Zu series, which we co-developed with Hong Kong Life, has been one of our top-selling products on the platform during the quarter. And together with other co-developed products such as the Retirement and Unique product with Sun Life at Wright, as well as other savings products, the long-term savings insurance product category recorded a very strong FYP growth of 1.4x year-over-year. The recovery in our other important long-term health insurance category has also been strong during the second quarter, as we launched new iterations of a highly successful Darwin critical care series, as well as a long-term medical insurance product named Yi Xiang Wu You with CPIC, with total FYP of long-term health insurance products growing by 83% quarter-over-quarter and 8% year-over-year. Touching quickly upon our renewal metrics, renewal premiums increased by 6.1% year-over-year to RMB $387 million, with our 13th and 25th month persistency ratios remained at high levels, 91% and 96%, respectively, and which continues to demonstrate a high-quality user profile on our platform, which provides much confidence for our upstream insurer partners during this very difficult macro environment. And during the quarter, we have fully replenished our online insurance product supply chain with a full suite of products spanning the entire spectrum of term and whole life protection, health, medical, annuity, savings, and P&C categories. With the GWP contribution of our long-term insurance products remaining above 90%, and the GWP contribution of our customized products also increasing by 16.8 percentage points year-over-year in the second quarter. Meanwhile, our sophisticated product innovation and customer acquisition capabilities have helped strengthen our engagement with our insurer partners and empowered us to maximize the lifetime value potential of our users. With the effective customer acquisition capabilities provided by our omni-channel distribution platform, our customer base has reached 8.2 million as of the end of the June quarter. In addition, the ticket size FYP of our long-term savings product category further increased to RMB 44,000 in the second quarter of 2022. Along with a strong growth in FYP, our total operating revenue increased by 13.5% year-over-year to RMB 248 million in the second quarter. As we have mentioned in the previous earnings call for the first quarter, we continue to place an emphasis on optimizing our overall corporate cost structure and operating efficiencies. With the further implementation of a group-wide organizational structure optimization program, our selling expenses and G&A expenses decreased by 16% sequentially to RMB 94 million in the second quarter. And for the second quarter, we have recorded a net loss of RMB $39 million, which narrowed by 55% as compared to Q2 of 2021, which reflects both our top-line growth this quarter as well as the improved operational efficiency as a result of our continuing cost reduction program. And as of the end of the second quarter, our combined balance of cash and cash equivalents was RMB $444 million, demonstrating our ample liquidity and solid balance reposition to withstand the continued challenging macroeconomic environment and providing capital at the same time for future business growth. We've continued to repurchase shares from the open market under our existing share repurchase program, and as of the end of the June quarter, we have repurchased an aggregate of approximately 357,000 ADSs. And going forward, we will continue to execute on the group-wide optimization program in Q3 and Q4, aiming to further bring down our fixed cost base and improve our operating leverage upon a business and macro recovery. And based on a preliminary assessment of our current market conditions, we expect to achieve quarterly profitability in the second half this year. As Mr. Ma mentioned in his opening remarks, we will continue to build and scale an omni-channel digital insurance service ecosystem that integrates A, agents, B, businesses, and C, customers over the next three years, which would place us firmly in the top tier of insurance intermediaries in China, becoming a partner of choice for upstream insurance partners as we move into an age of insurance distribution for new generation consumers, which demands innovative solutions on the part side, as well as a seamless digital user experience. We believe these underlying secular growth trends for the industry remain intact and provide much growth potential for a professional and digitally native platform like Quasar, and provide us with tremendous opportunities to strategically allocate capital to create shareholder value and sustain a high-quality long-term business growth. And with that, this concludes our prepared remarks for today, and we will now open up the call to Q&A. Thank you, operator.

Thank you. We will now begin the question-and-answer session. To ask a question... You will need to press star 11 on your telephone. Please stand by while we compile the question and answer roster. Once again, it's star 11 for questions. Our first question comes from the line of Yu Yu Zhang from CICC. Please ask your question, Yu Yu.

The second question is about the situation of the product combination and the level of the commission. Can you please share with us in detail the current situation of the product combination? From the perspective of the commission, what is the level of the commission of different products? Finally, I would like to ask the management. We also see that the current epidemic is still continuing. The demand for sales may be slightly weak. What does the company think of the insurance market in the second half of the year? Here I have three questions. And the first question will be that, can you give us some updates on the operation of your offline business? And the second question is, what is the current project portfolio? And in terms of the take rates, could you share some of the colors on the first year and year-round take rates of different projects? And the last question, as the pandemic persists, the customer demand may still be weak. What do you think of the insurance market in the second half of this year, and what's your corresponding operations strategy? Thanks.

Okay, thanks for the questions. It's Ron here. Let me address these three questions that I've just taken down. The first question regarding the development of the offline business. I guess we have also mentioned in the opening remarks that we have been seeing very strong growth momentum in our 2A, 2C model, which is the independent agent's model that we have kick-started in the first quarter of this year. I think that this also has to do with the ability for us to connect to offline product supply, as well as our existing online product supply matrix, which is especially important for offline independent agent's to serve their customer base in a very efficient manner, connecting them to the online and offline product supply, as well as leveraging online digital tools to serve the end customers efficiently and effectively, especially in this period where COVID resurgence and regional pandemic resurgence have still been restricting the traditional offline agency model. So I think that is really one key highlight that we have just mentioned in the opening remarks, that the 2A2C model has seen very strong progress. We have connected to independent agencies covering the major T1 and T2 regions in China, including Beijing, Shanghai, Guangdong, Shenzhen, and Sichuan. And we also shared in the opening remarks that the FYP that has been facilitated by the 2A business model has already reached almost 60 million RMB in the first six months of this year. And I think we do target to see this number going to about 100 million RMB by the year end. So for the second question, I think that the take rates and commission rates for the various products on the platform, I think that essentially the FYB commissions for online products is counted at 60%. 60% for the health products, the long-term health products that we, for example, the Darwin series will be, you know, first year commissions will be 60%. But then for the lifetime value for the product, we are looking at around 110%. LTV commissions, and most of the back-end commissions is being paid for the second year of the renewal. So essentially, for long-term health products, we're getting 110% LTV commissions. For the savings products, we are pretty much getting around 60% as well for the first year. And for the long-term lifetime value, we're getting another 10% to 15% in year two to year five. So that will be the tick rate for the various products right now. And for the third question regarding the strategy with respect to the second half of the year, given the continued weakness in the market and softening customer demand, et cetera, I think what we're seeing right now in the market is that the demand for protection-type products is expected to continue to be very weak. To counter this weakness, I think we have launched new innovative products in the marketplace. For example, the Yi Xiang Wu You product, which we have cooperated with CPIC, as well as the new version of Darwin Critical here. I think we are also seeing recovery in the product segment, because of the fact that the products are now catering to the new consumer preferences during the weakness in the economy. And I think the major focus on the product perspective will still be on the savings product segment for the next 12 months. We do see continued demand in the third quarter, especially for the increasing whole life product that we have been showing much success in the market, the D-MyE2 product. And we are still seeing a pretty strong growth momentum in Q3 sequentially in this particular product. So I think that we'll continue to drive scale growth in savings products for the next 12 months through new iterations of product launches and also leveraging on a successful product IP which we have developed already in the market. With regards to customer acquisition, I think that we are getting more and more precise on our channel. you know, in terms of our investment on the traffic channels. And we will be leveraging more and more on the SEO and SEM of our existing product IPs to drive, you know, our 2C, you know, customer acquisitions on the new customer front. And we're also showing a much more concerted effort internally to leverage to drive the existing customer sales on upselling and also referrals by existing customers so that overall we can further improve our growth margins from the Q2 level. So I guess another thing that we would like to continue to drive in Q3 and Q4, which we have alluded to in the opening remarks, is the continued cost reduction. We would want to target another 10% to 15% additional reduction in the fixed cost base, in the labor cost base by end of the year. as well as further GMA expense control. And I think overall, that will be the second half kind of company strategy on the multiple fronts.

Thanks.

Do you have any further questions, Yu-Yu? No, thanks. Very clear. Thank you very much. Our next question comes from the line of Amy Chen from CTE. Please ask your question, Amy.

Thank you, management, for giving me the chance to ask questions. So the first question would be also on the commission rate and take rates for our newly launched whole life products compared to critical illness products. And the second one would be I remember on our first quarter result call, management mentioned that we expect to achieve quarterly profits in the third quarter and the fourth quarter. Do we still maintain that guidance, or do we have any new guidance for the second half of the year? Thank you.

Thank you, Amy. Thanks for joining the call and your continued support for us. I think the two questions on the first one takeaways for the various products. I think pretty much you're looking at around 60% or so for the savings products that we are now selling on the platform. I think you also need to consider the difference in the commission rates for the different durations of the savings products because some customers might be going for a 10-year payment or some will be going for a 15-year or 20-year payment. And so the difference in duration will also a little different in the commission rates. So I think what we see on a blended basis, we're looking around close to 60% for the savings product. So if you compare that with the online health insurance product, which essentially is also capped at 60%, there is a pretty small difference between the two with respect to the first year premium commissions. But for the lifetime value commissions, then there will be a difference there because as I just answered to the earlier question before, the savings product, for some of the increasing whole life products that we're selling, the LTV emissions for the second to fifth year probably will be an amount will be another 10% to 15% commission, versus for a long-term health product like a critical illness, we'll be getting 110% lifetime value total. So that will be around 50% in the year two to five. So that will be a difference in takeaways with respect to the two products specifically. And for the second question regarding the guidance for second half, I think we do maintain and we do target the second half quarterly profitability guidance. I think that would require us to continue to implement on a cost optimization program and also, obviously, very much rely on a continued macro recovery so that consumer demand and, you know, the consumer confidence force for consumption is recovered so that, you know, insurance products being the most discretionary of all financial products, the medical such would also be improved and recovered. So I think that we do maintain our guidance and we do target a very, you know, we strive our best to meet these targets in second half of the year.

Thanks, Amy.

Thank you. Thank you very much. That's very clear.

There are no further questions at this time. I would now like to hand the conference back to Ms. Harriet Hu for closing remarks.

Thank you, operator. In closing, on behalf of Dell Hoyser's management team, we would like to thank you for your participation in today's call. And if you require any further information, please feel free to reach out to us. Thank you all for joining us today. This concludes the call.

Thank you. Thank you. That concludes our conference call for today. Thank you for participating. You may now disconnect.

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