Huize Holding Limited

Ladies and gentlemen, thank you for standing by and welcome to the HOISA Holding Limited Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a 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 Hoyza's IR website at ir.huize.com under the events and webcast section. I'd now like to hand the conference over to your speaker host today, Mr. Kenny Lo, Hoyza's investor relations manager. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the third quarter of 2023. Our financial and operating results were released earlier today and are currently available on both our IR website and 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 horribly explained in our earnings release and filings with the SEC. Joining us today are our founder and CEO, Mr. Chen Junma, COO, Mr. Li Jiang, co-CFO, Mr. Minghang Xiao, and co-CFO, Mr. Ronald Hamm. Mr. Ma will start the call by providing an overview of the company's performance and operating highlights for the first quarter of 2023. And Mr. Hamm 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. Welcome to the third quarter of the press conference of Huize in 2023. In the third quarter of 2023, the macroeconomic situation is gradually recovering. Economic activity is gradually getting better, but the challenge of international relations is still there. The capital market has been fluctuating and fluctuating from time to time. The insurance industry continues to deepen product structure adjustment and transformation. The rising asset price is mainly due to the decline of the stock market and the decline of the interest rate. and other continuous influences have caused the overall investment and revenue of the industry to be suppressed. In the first three seasons, the net profit of the human resources industry has also dropped significantly. The market is on the way to recovery, especially with a drop, but with a long-term trend. In the turbulent market, Huize continues to play a product innovation ability, adding online and offline customers and service capabilities to the entire channel, as well as the foundation of high-quality mass customers on the platform, In the third quarter, we continued to achieve stable results. The total net worth of RMB was 12.5 billion. The total revenue of RMB was 2.9 billion. The net profit of RMB was RMB20170,000. The net profit of RMB was 43%. The net profit of RMB was RMB18490,000. We achieved profit in four consecutive quarters.

Hello, everyone, and thank you for joining Huizhou's third quarter 2023 earnings conference call. In the third quarter of 2023, the macroeconomy gradually recovered, with economic activities showing signs of improvement. However, international relationship challenges persisted, and capital markets erratically experienced fluctuations. The insurance industry continued to deepen product structural adjustment and transformation. The assets of insurance companies were primarily affected by the continuous impact of the stock market downturn, declining interest rates, and ongoing impairment losses, resulting in adverse impacts to the overall industry investment income. In the first three quarters, the net profit of the life insurance industry generally showed a year-on-year downward trend. The market kept experiencing ups and downs, but it's on a long-term positive path towards recovery. Aiming at these external uncertainties, we focus on leveraging our competitive edge in product innovation, omnichannel distribution, customer acquisition capabilities, and high-quality customer profile, and reported another set of solid results. In the third quarter, total growth return premiums, or GWP, facilitated on our platform reached RMB 1.25 billion, and we recorded total revenues of RMB 290 million. Our gap net profit increased 43% sequentially to RMB 20.17 million, and we achieved our fourth consecutive quarter of non-gap net profits, with RMB 18.49 million in the third quarter.

From the structure of the balance sheet, The rules combine the layout of the first kind and the distribution capability of the entire channel to generate a total of RMB 6.4 billion in the first three quarters of the third quarter. In the first three quarters of 2023, the total first quarter of the first quarter was RMB 2.2 billion, which increased by 54% in the same way. In the third quarter, the long-term health insurance new unit insurance was about 100 million yuan, which increased by 8% in the same way. The savings insurance continued to maintain a stronger growth In the long-term strategy, the global effect and high user-connectivity brought by the long-term strategy reached RMB 600 million, which increased by 7% and increased by 25% in return, supporting us to bring stable cash flow in a complex form and maintain a resilient business. The long-term insurance management strategy is 90.9% in the long-term insurance, with more than 90% in the 16 consecutive seasons. On the other hand, the platform's property insurance business has benefited from the continued recovery of domestic economic activities. In the third quarter, platform customers increased their demand for short-term health insurance, property and accident insurance, and other short-term insurance. In the third quarter, the short-term insurance bill reached RMB1.1 billion.

In terms of product mix, we continue to leverage our diversified product offering and solid omnichannel distribution capabilities. First-year premiums, or FYP, facilitated on our platform reached RMB 640 million in the third quarter. Across the first nine months of 2023, Our FYP has increased by 54% year-over-year to RMB 2.2 billion. The FYP of our long-term health products increased by 8% year-over-year to approximately RMB 100 million in the first quarter. Our savings products maintain strong growth momentum during the quarter, with the FYP of our annuity products tripling year-over-year to RMB 120 million. We are seeing a strong snowball effect as a result of our strategic focus on long-term insurance products and a high stickiness of our users. Our renewal premiums in Q3 reached RMB 600 million, up 7% year-over-year and 25% sequentially, generating steady cash flow to support our resilient business performance. Moreover, the GWP contribution to long-term of long-term insurance products was 90.9%, marking the 16th consecutive quarter where this figure has exceeded 90%. Meanwhile, the continued recovery of the domestic economy boosted demand for short-term health, P&C, and accident insurance products in the third quarter. As a result, the FYP of our short-term insurance products increased by 50% year-over-year to RMB 110 million.

As of the end of the third quarter,

A cumulative number of insurance clients reached 9.12 million, representing an addition of 223,000 new customers. Among clients who purchased long-term insurance in the third quarter, 67.5% were from high-tier cities, and their average age was 33.9 years old, reflecting a focus on young, loyal, and high-quality customers. In terms of FYP, The average ticket size of long-term insurance products was approximately RMB 4,600, while the average ticket size of savings products was approximately RMB 50,000, up by 23% year-over-year. As of the end of August, our cumulative consistency ratios for long-term insurance in the 13th and 25th months remained at industry-high levels of more than 95%.

As of the end of the third quarter, Huize has maintained a stable cooperation relationship with 121 insurance companies. At the same time, we continue to develop customized insurance products with high-quality and cost-effectiveness. Since September, Huize has launched the second Shao'a heavy-duty line of Xiao Taoji, which is associated with China's Taipingyang Renshou Insurance, and has launched the Xinxiang version, Zunxiang version, Zeng'e Zhongsheng Shouxian, and has released the heavy-duty line of Showeizhe No. 6 alternately. We are moving to the 80s and 90s. The demand for future pension is getting higher and higher. Recently, we have launched a large-scale selection of pension-related risks and a group of five pension-related risks to help customers make high-quality pension financial planning to achieve a longer-term, more sustainable, more stable wealth preservation and promotion. We will continue to launch diversified customized insurance products. As of the end of the third quarter, we have cooperated with 121 insured partners. Meanwhile, we continue to co-develop various cost-effective and high-quality customized insurance products with our insured partners.

Since September, We have launched Child Health here, number two, a customized child critical illness insurance product. And Guardian Critical Care, number six, a customized multiple benefit critical illness insurance product. We also partnered with China Pacific Life Insurance to jointly launch Xin Xiang Shou Premium, an increasing whole life insurance product. With the increasing retirement planning awareness of the millennials, We recently launched two annuity products, Da Jia Hui Xuan and Jin Ma Yi Zhu No. 5, to help young customers develop sustainable long-term wealth management and retirement plans. We strive to provide comprehensive protection for our clients and their families through a broad range of product offerings, including insurance products for children and the elderly, as well as various long-term life insurance products and health insurance products.

In the A-end, we have continuously brought technological innovation to our agents. In the meantime, we have again brought improvements to our integration capabilities, further deepening the hot chain function, realizing the system's automatic recognition of the business machine, and accurately sending the business machine's functions, and effectively assisting business consultants and better service insurance agents. The hot chain recognition system function has currently covered 31 scenarios and 108 business machines. In the 2A segment, we continue to empower insurance agents with innovative technologies. During the period

We upgraded our Relink system with new functions providing automated opportunity identification and alerts, helping business consultants assist insurance agents more effectively and efficiently. The upgraded Relink system is currently able to identify 31 business scenarios and 108 types of business opportunities. In the third quarter, FYP facilitated by the two-way business reached OMB 89.65 million, up by 38% year-over-year. In the first nine months of 2023, the FYP facilitated by the 2A business amounted to RMB 320 million, surpassing the total FYP facilitated by this segment in the whole year of 2022.

At the C-end, Huize insists on targeting customers with more and more insurance needs. In a 2C segment,

we remained committed to our customer-centric approach and continue to provide high-quality and effective services that meet our customers' diversified needs across various insurance segments. In the third quarter, we continue to hold various brand promotions and customer engagement activities aimed at attracting new users, activating existing users, and engaging high lifetime value users. We successfully reached more than 50,000 users through these efforts and achieved more than 30,000 sales conversions.

In the third quarter, we will continue to deepen the operation of old users, analyze their insurance needs in depth, and provide accurate services to achieve the full life cycle value of users by adding and repurchasing and sales. In the third quarter, the proportion of long-term repurchase customers reached 38.4%. has increased by 4.7%. High user contact continues to provide us with more stable revenue, leading to a decline in customer costs. The three-level group's profit rate has increased by 35.3%, which has increased by 6%. On the other hand, the organization efficiency of the company continues to deteriorate. The total operating costs have dropped by 27%. Among them, the management costs have dropped by 50%.

In the third quarter, we continue to strengthen our user engagement efforts and enhance our upselling capabilities to maximize the lifetime value of our customers. In the third quarter, 38.4% of our long-term insurance product customers will repeat purchases from existing customers, up 4.7% page points year over year. reflecting the stickiness of our client base. This high level of customer loyalty has helped stabilize our revenue stream and lower our customer acquisition costs. In the third quarter, our gross profit margin increased by 6% each point year-over-year to 35.3%. Meanwhile, the company's organizational efficiency continued to be optimized, driving a 27% year-on-year decrease in total operating expenses. In particular, we reduced our general and administrative expenses by 50% year-over-year, resulting in a 5% point decline in the G&A expenses to total revenue ratio, demonstrating overall improvement in our operational efficiency.

Going forward,

We will leverage our in-depth customer insights to develop a broad range of innovative customized products that satisfy the full spectrum of our customers' needs, from healthcare, accident and retirement protection to financial and estate planning. We are committed to fostering a win-win dynamic between insurance companies and insurance customers through our digital products and service platform. At the same time, we will seize the opportunities presented by the industry's digital transformation, deepen the application of digital technology in finance, and further promote the O2O integration of our insurance service ecosystem. This aims to empower agents and teams with technology, facilitating high-quality development within the industry.

Next, let's have our CFO, Rang, introduce you to the performance and financial data.

This concludes my prepared remarks for today. I will now turn the call to our CFO, Mr. Ronald Tan, who will provide an overview of our key financial highlights for the first quarter.

Thank you, Kenny and Mr. Ma. Good evening, everyone. In the third quarter, China's insurance market has entered a transitional phase with respect to the product structure following the suspension of 3.5% products from 1st August. Despite this significant industry-wide challenge, the total GWP facilitated on our platform has remained fairly stable year-over-year at about RMB 1.2 billion in the third quarter. Thanks to the resilience of our omnichannel distribution platform integrating online and offline channels, a large established and high-quality customer base, and the strong insurance product innovation capabilities that we have, we are consistently acquiring new customers more efficiently, with 223,000 net new customers added to the ecosystem in Q3, bringing the total number to more than 9.1 million at the end of the quarter. During the quarter, we continue to record a non-GAAP net profit of about RMB 18 million, marking our fourth consecutive quarter of portability. This strong bottom-line performance is being driven by the successful execution of our key business strategies. First, we maintain our steadfast focus in long-term insurance products, with GWP contribution from these products remaining at about 90%. Second, we continue to empower insurance agents through our omnichannel distribution platform, rich product offerings, and advanced technologies. Our 2A2C business line continues to deliver robust growth, generating total FYP of RMB 90 million, representing a year-over-year increase of 38%. Third, in our direct-to-see segment, we continue to target high-quality, mass-affluent young consumers, and drive upselling opportunities across our customer base. In terms of FYP, the repurchase ratio of our long-term insurance products increased by about 5 percentage points year-over-year to 38.4% in Q3. Lastly, we continue to focus on boosting operational efficiency throughout our business, and that's reflected in improvements in our growth and operating margins. Key highlights and takeaways from our operating results include the following. Number one, Total GWP increased by 32% year-over-year during the first three quarters of 2023, of which first-year premiums and renewal premiums increased by 54% and 16% year-over-year respectively. Two, our persistency ratio for long-term life and health insurance remained at an industry high level. As of August, the 13th and 25th month persistency ratios stood at about 95%. And third, The average ticket size for long-term savings insurance products increased by 23% year-over-year to about RMB 50,000. These positive metrics continue to reflect our high-quality customer profile and our relentless efforts and success in tapping into the long-term lifetime value potential of our customers. In the third quarter, we sustained a market-leading position in long-term insurance products. The FYP of our long-term health products increased by 8% year-over-year to RMB $104 million, while the FYP of our annuity products more than tripled year-over-year to RMB $116 million. We will continue to pursue a balanced product mix between the long-term health and savings categories to satisfy our evolving customer needs. We remain focused on tightening marketing channel costs and optimizing our organizational structure to improve our profit margining efficiencies. As a result, our operating costs in Q3 decreased by 24% year-over-year to RMB 189 million, leading to a strong improvement in our gross margin to 35% as compared to 29% over the same period of last year, primarily driven by increased customer acquisition efficiencies and repurchases by existing customers on our platform. In Q3, our total operating expenses continued to decrease, falling by 27% year-over-year, and our operating expense ratio improved to 29% in Q3 from 33% in the same period of last year. And our gap and non-gap net profit figures were approximately RMB 20 million, 18 million in Q3. As of the end of the quarter, we continue to maintain strong liquidity as our combined balance of cash and cash equivalents increased to RMB 258 million. And we have continued to repurchase shares from the open market under our existing share repurchase program. And as of the end of the September quarter, we have repurchased an aggregate of approximately 1.4 million ADSs to date, which continue to demonstrate our management's confidence in the business model and long-term growth prospects. Moving forward, we will continue to deepen the financial applications of generative AI, striving to enhance our product innovation and upselling capabilities. We will further strengthen the integration of our online to offline ecosystem and empower our agents to to acquire high-quality customers and engage with clients more efficiently and effectively. We will also continue to drive improvements in operating efficiency and optimize resource allocations across the business. We remain committed to expanding our market share and solidifying our position as a top-tier digital insurance product and service platform in the home market in China as we strive to enhance shareholder value and achieve sustainable business growth. We are also investing in growth opportunities in the international market, with our Hong Kong operations now up and running and gaining good momentum, having launched our first ever customized whole life insurance product earlier in August with China Pacific Life Insurance Hong Kong, with an innovative product feature that facilitates underwriting in Hong Kong and retirement in the mainland. We are now working to expand into other attractive markets in the ASEAN region, and we are currently targeting to generate double-digit percentage of our group's revenues, from our international markets within the next 12 months. And with that, we'll now open up the call to questions. Thanks and over to you, operator.

Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up the handset to ask your question. At this time, we will pause momentarily to assemble the roster. And our first question will come from Coco Gong of Morgan Stanley. Please go ahead.

Thank you so much for taking my question. Congratulations on a very good performance for the third quarter of 2023 in a very challenging environment. I have two questions today, if I may. So the first one would be about some of the regulation changes in China, um, especially on the broker channel, as well as some, uh, recent regulations on short-term health insurance. So how does the management perceive this change, uh, impact on our overall business? Um, doubt just, you know, a little bit of a insight on the, uh, maybe sort of the product mix change or product innovation or anything related would be much appreciated. And the second question would be about the critical illness in mind because, you know, we've talked about launching like the new critical illness product, but how are we seeing the sort of marginal changes in terms of the critical illness in mind? given the savings demand is very significant, but are we seeing any positive changes for the critical illness or protection type of product demand recently? Thank you very much.

Thanks, Coco. It's Ron here. So two questions from you. The first one relating regulatory changes and how that's impacting the overall business. I think that's a very fair question, and it's very topical right now. I think the multiple fronts of the business is being impacted by the recent regulatory changes. I think the most evident one would be the cessation of 3.5% products, and that has led to a somewhat downturn in the overall market. I think across the board, we have seen FIP numbers coming down quite a bit. among the top tier companies as well as I think from market channel checks. But I think slowly we have seen that the demand recovery has commenced starting after the October 1st holidays, after the National Day holidays. I think we're seeing some momentum being regained into November. But I think that we are still a bit short of where we were for a normal month, notwithstanding any special changes in the product structure that is driven by the regular changes. So in terms of product mix, I think we are seeing some channels or market demand for participating products. I think we're seeing some trends there. We do believe that participating products could be very interesting in the new environment where it provides a relatively lower fixed guaranteed return with on top of that more of a variable return kind of profile to consumers. I think consumers still in strong demand for good savings product that could deliver good returns over the long term and with more of a protected kind of structure. So I think participating products could gain momentum, particularly in the new year. That's point number one. I think we're also seeing good demand from consumers on retirement annuities products. And with that, we have already launched at least two annuity products in the recent quarter. As I mentioned in the opening remarks, with two insurance companies targeting different segments of the population. So I think we are continuing to try product innovation to capitalize on the changing customer preferences subject to the regulatory changes that is already in place. The increase in some assured products still are interesting. I think that provides a guaranteed close to 3% IRR, which should continue to be well-received by the overall market when the declining risk environment is expected to continue in the near to medium term. With respect to critical illness products, I think on that, we have also publicly disclosed that we have around 8% year-over-year growth on the long-term health segment, which is primarily from critical illness products. So it's a slow recovery. But then we also are driving product innovation in this respect. We have launched different types of critical illness for different segments of the consumer base. For example, the child critical illness products that we have launched. So I think we will continue to tackle a resumption or recovery of consumer demand through delivery of high-value customized products. So that would be the answer to your first question. With respect to your second question, I think also addressed that just now on the critical illness demand. So hopefully those are good answers to your questions, Coco.

Yeah, thank you very much.

The next question comes from Yu Yu Zhang of CICC. Please go ahead.

Thank you, Mr. Guan, for giving me the opportunity to ask this question. I may be concerned about the influence of the previous situation and the influence of the relevant supervision. In fact, this problem may also be involved. My question is related to our new product strategy. We've launched many new insurance products so far this year. So under your observation, what are the most popular products? And by the way, how's the sales of MCV products? Could you share some more details? Thank you.

Thank you. Thank you, Yu Yu. So first question on which are the more popular products these days. I think we're seeing real-time data in our systems. I think that the top two products or top three categories are probably, I think number one would be more towards retirement annuities. And these are the customized products that we have launched together with our partners. I think that is gaining the best momentum in the third quarter. We also, as I mentioned to Coco's question just now, I think we are seeing good demand as well in participating products. So this is something a bit new, I think, some of our new trend. So this will be the second category. And I think with respect to MCV products, we have launched the new product in August. So I think it still takes time for us to really jump up our channels and push sales. But I think we're getting decent market feedback on this innovative product, which enables Hong Kong residents or insurance customers in Hong Kong to enjoy privileges as to retirement in the mainland. I think this is a very innovative product structure. And I think that given time for the product to run, I think that we will be achieving pretty good sales on this. With respect to MCV, I think we are also getting momentum there because of our brand equity in the mainland China. And I think we are also getting good attention from incoming travelers. And so with respect to product mix there, I think mostly, I think as we have seen in other companies or other operators in the Hong Kong market, the strongest demand is probably still for savings products that is underwritten by Hong Kong or international insurance companies with brand name. So I think that's my answer to your second question.

As a reminder, if you ask a question in Chinese, please translate it into English for the benefit of everyone on the call. Our next question comes from Amy Chen of Citi. Please go ahead.

Hi. Congratulations on another profitable quarter. And I have two questions here. The first one would be on guidance for next year. You touched a bit on the trend of product mix in the third quarter, and I wonder if you could share more color about your product strategy in 2024 and also what's your outlook in terms of brokerage income as well as on the earnings side. The second question is that we see that the company has made enormous assets on containing operating costs through all funds and we see that effectively the operating cost to income ratio has come down. I'm wondering if the management has a target for this ratio. Thank you.

Okay. Thank you, Amy. So with respect to your first question on guidance, right now we have not refreshed our guidance for the next year. I think we'll be giving guidance when we are coming up with the fourth quarter results for next year. I think we are still looking to strategize on the overall strategy for next year. So it's a bit early to tell now. In product mix, I think we can share a little bit more insights. I think in the new year, we're more likely to cooperate with larger size insurance companies with respect to savings related products in particular. And we can also explore cooperation with Sino-Foreign joint venture companies that are involved in the savings category. And in particular, with respect to participating products, I think that we would very likely will be rolling out a customized product in that segment. Second, I think we'll still have a very strong focus on retirement annuities products with additional service tied to the insurance policies. So I think that's something that is in strong demand and we are also able to drive differentiating product innovations in this to set ourselves apart from the competition. So I think those two will be our strong focus for next year in terms of product strategy. And on the cost side, I think it's always going to be top of our mind in terms of driving additional efficiencies across the business, you know, across the organizational structure. So I think that we'll continue to drive costs down. And I think there's always a further room to improve in that regard. Maybe we have already done quite substantial cost cutting already, but then I think there's something that we will continue to be very focused on. Maybe we can squeeze out another few percentage points there, but, you know, we will continue to work hard on that to drive portability for the business. Thank you, Amy.

Thank you, Ron.

Once again, if you would like to ask a question, please press star then 1 on your telephone and wait for your name to be announced. Please wait while we reassemble our roster. Seeing no further questions at this time, I'll now turn the call back to Kenny Lo for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.