Huize Holding Limited

Ladies and gentlemen, thank you for standing by and welcome to Huizhou Holdings Limited first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. After the management prepared remarks, we will have a question and answer session. Today's conference call is being recorded and the webcast replay will be available. Please visit Weihua IR websites at irhuihua.org under the event and webcast section. I would now like to hand the conference over to your speaker host today, Mr. Harriet Hu, Huihua's Investor Relations Director. Please go ahead, Harriet.

Thank you, operators. Hello, everyone, and welcome to our earnings conference call for the first quarter of 2024. 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 balance with the APC. Joining us today are our founder and CEO, Mr. Sunjin Ma, COO, Mr. Li Jiang, co-CFO, Mr. Minghan Xiao, and co-DFO, Mr. Ronald Tan. Mr. Ma will start a call by providing an overview of the company's performance and operational highlights for the first quarter of 2024. Mr. Tan 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 first quarter of the year, the first quarter of the year, the first quarter of the year, the first quarter of the year, the first quarter of the year, the first quarter of the year, the first quarter of the year, the first quarter of the year, the first quarter of the year, will take advantage of the diversified product supply, all-channel marketing capabilities, and the layout of international business to achieve a better business performance than the industry. In the first quarter, the total insurance fee for the entire platform was about RMB 17.2 billion, which increased by 38%. The total income was about RMB 3.1 billion, which increased by 31.5%. The net profit was about

Hello, everyone, and thank you for joining Hui Ze's first quarter 2024 earnings conference call. In the first quarter of 2024, China's economy continued its recovery and showed positive momentum. The insurance industry also made progress towards high-quality development. with original premium income increasing by 5.1% year-over-year to approximately RMB 2.2 trillion. Adeptly navigating the profound impact of the alignment of registered and actual expenses on the insurance market with our diversified product offerings, omnichannel distribution capabilities, and international business footprint, allowed us to deliver solid results, surpassing industry average. In the first quarter, total gross return premiums, or GWP, facilitated on our platform reached RMB 1.7 billion, up 38% sequentially. Total revenue increased by 31.5% sequentially to RMB 310 million. We achieved a net profit of RMB 6.9 million. marking our sixth consecutive quarter of profitability.

In terms of product mix, the increased volatility in domestic capital markets and the continued decline in interest rates

during the quarter strengthened demand for insurance products with relatively stable returns. Spotting this opportunity, we further enriched our offerings of savings insurance products, including participating and annuity products. As a result, total first-year premiums, or FYP, facilitated on our platform more than doubled sequentially to RMB $860 million. On a sequential basis, FYP of long-term life insurance product more than tripled to RMB 438 million. FYP of annuity product increased by 47.9% to RMB 157 million. And FYP of long-term health insurance product increased by 12.2% to RMB 96 million. We further strengthened our industry-leading position in the long-term insurance market. GWP for long-term insurance accounted for 90.5% of total GWP, marking our 18th consecutive quarter with a ratio of about 90%. Renewal premiums reached RMB 860 million, up 4.1% sequentially.

The total number of Tobao users on the platform has increased to 9.56 million, and the number of new Tobao users is 22 million. In terms of user images, the average age of Tobao long-term users in the first quarter is 34.8 years old, and the average age of users in the upper city in the second quarter is 66.4%. In terms of the price range, the Hong Kong insurance business, which is of high value, continues to expand. As of the end of the first quarter,

Our cumulative number of insurance customers has grown to 9.6 million, representing an increase of 220,000 new insurance customers sequentially. Among the long-term insurance customers from the first quarter, 66.4% were from higher-tier cities, and their average age was 34.8 years old. Benefiting from the success of our Hong Kong business expansion contributing premium product sales, the average FYP ticket size of our savings insurance products reached a record high of approximately RMB 69,000, representing a 17% increase from the previous quarter's high base. As of the end of February, cumulative persistence ratios for long-term insurance in the 13th and 25th months remained at industry high levels of more than 95%.

At the end of the first quarter, the Commission will continue to maintain a stable relationship with 120 insurance companies. In the context of the continued decline in the number of traditional insurance companies, the decision of the market value of stable financial demand and dividend risk, and the launch of the heavy dividend-based life-saving risk, a god of interest, quickly adapt to the needs of users and take advantage of the market opportunity. In April, we also launched a joint-designed dividend-based life-saving risk for Chinese and English people. With the strength of Chinese and English people's entrepreneurial and competitive management and the value of market insight and product design, The advantage of the full-fledged difference is obvious. The wide market attention and users' expectation. In terms of product security, we joined hands with Renbao to introduce a customized heavy-duty product, IOU's Yihe version, to meet the need for heavy-duty security for non-signature people. At the same time, we have newly upgraded Darwin's 9 heavy-duty line, to meet the needs of young customers who are constantly evolving.

As of the end of the first quarter, we have cooperated with 120 insured partners. Amidst the implementation of alignment of registered as actual expenses and the continuous reduction of guaranteed returns on traditional life insurance, we quickly adapted to customer demand and seized the market opportunity by introducing Yisheng Zhongyi, a participating whole life insurance product underwritten by Generally China, which generated significant sales during the quarter. In April, we partnered with Aviva-Cofco Insurance to launch Fumanjia, a customized participating whole life insurance product that offers customers a wide range of choices for future financial planning. Combining the operational strengths of Aviva, COFCO, and our expertise in customer insights and product design. This differentiated product has received significant attention from the market. We also partnered with PICC Life Insurance to launch Ai Wu You Low Threshold Edition, a customized critical illness insurance product for sub-health individuals. At the same time, We launched Darwin Critical Care No. 9, the latest customized critical illness insurance product in the Darwin Critical Care series to meet the evolving needs of younger customers.

In the first quarter, the new insurance fee provided by the IFA platform reached 1.3 billion yuan, which increased by 69.9% in the same ratio. The number of core staff in the studio increased by 105% in the same period as last year. At the C-end, Through monthly marketing, member day, holiday benefits and other activities, we have developed a precise image of the customer and maintained the relationship between the number of customers. In the first quarter, we have transferred more than 160,000 people to Tuobao. In addition, we have further increased the penetration rate of the Hong Kong market, and have improved the security service and diversified asset configuration of high-end users. In the first quarter, In the first quarter, FYP facilitated by our independent financial advisors or RFA platform, which RMB

127 million, a year-over-year growth of 69.9%. The number of high-performing IFA studios increased by 105% year-over-year. In our direct-to-consumer or DTC segment, we successfully achieved more than 16,000 sales conversions in the first quarter through various promotions, marketing campaigns, and customer engagement activities. In addition, we extended our presence in the Hong Kong market to satisfy the demand for premium insurance products and services of high-value customers. In the first quarter, the growth momentum of mainland Chinese visitors purchasing Hong Kong insurance products continued, contributing 7% of our total revenue. Leveraging our comprehensive IFA platform, high-quality lead generation and strong sales conversion capabilities of the DTC segment, and successful penetration into the Hong Kong market, we have further maximized the LTV potential of our customers affected in our high repeat purchase rate for long-term insurance products of 40.4% in the first quarter. Recognizing the uncertainties created by ongoing industry reforms, we maintain our focus on optimizing operational efficiency with total operating expenses decreasing by 24.9% and our expense-to-revenue ratio improving by 10 percentage points when compared with the same period last year.

We have developed an AI marketing assistant and fully covered the use of the A, B, and C ends of HuiZhe. And through the algorithm, we have continuously treated and optimized the efficiency of the rich person consultant. At the same time, HuiZhe has launched a large-model product, the professional intelligence system, to serve the digital transformation of the industry. Currently, the product has been launched on the PC end and started the use of internal testing for external agents. We will continuously polish the underlying technology to enrich the function of the AI product. To date, our proprietary AI marketing assistant has been fully deployed and utilized by our consultants and agents as we consistently make

iterative improvements to its algorithms and optimize its capabilities in empowering our consultants. We also launched a new AI-powered tool providing business development support to further drive the digital transformation of the industry. This tool is currently available on PC and is undergoing internal testing for external agents. We are committed to expanding the functionality of our insurance AI products, which will uniquely position us to meet customers' demands for personalized content and services, support distribution partners in improving productivity, and address insurance carriers' needs for market insights and risk management.

As the insurance mid-tier industry enters a new era, Huize will face challenges and opportunities for deep transformation in the industry. This transformation will require Huize to constantly improve its own capabilities and efficiency while adapting to a new monitoring environment to maintain competitiveness. In the future, Huize will use return-to-product customized innovation, AI-driven efficiency optimization, internationalization layout, and digitalization development as core growth points. continue to create decentralized products that meet market needs, optimize organizational structure, improve business leverage, achieve cost control and stabilize profit, continue to enrich the customized products and sales capabilities of the Hong Kong insurance market, grasp the development opportunities of the Southeast Asian new market, accelerate the landing of exclusive AR products in the insurance service chain, fully support insurance companies, agents, and sales channels, and other partners.

As the insurance intermediary industry enters the era of alignment of registered and actual expenses, Huige will adapt to the new regulatory and operating environment while continuously improving its core competence and efficiency to maintain its industry-leading position. Looking ahead, our strategic focus will remain on customized insurance product innovation for our targeted demographic sub-segment, platform efficiency and productivity improvement driven by our investment in proprietary AI capabilities, international expansion and digitalization. We will continue to co-develop differentiated products with our insured partners optimize our organizational structure to intense operating leverage, and tighten cost controls to ensure long-term sustainable profitability. We will also expand our customized product offerings and distribution capabilities in Hong Kong, while actively pursuing opportunities in emerging markets of Southeast Asia. Finally, we will accelerate the integration of our AI products throughout the entire insurance service chain to empower our partners, such as insurance carriers, ISAs, and distribution channels.

This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Rong Tian.

and he will provide an overview of our key financial highlights for the first quarter.

Thank you, Mr. Ma and Harriet, and good morning, everyone in Asia, and good evening for those in the U.S. We're very pleased to report that the total GWP facilitated on our platform during the first quarter of 2024 has increased by 38% sequentially amid challenging industry landscape to over RMB $1.7 billion as the overall market landscape and macroeconomic recovery gradually improved. This growth has been largely driven by our omni-channel distribution platform model and the diverse range of product offerings that are attracting new high-value customers and enhancing existing customer engagement, as well as the increasing contribution of international revenue from our successful expansion into the Hong Kong market since the second half of last year. We are also pleased to announce our sixth consecutive quarter of portability. Our sustainable portability further ascertains the effective execution of our key business strategies. Firstly, we have maintained our strategic priority on long-term insurance products, which contributed to over 90% of our GWP in the first quarter. Secondly, our open platform continued to empower the independent financial advisors, or IFA, with our omnichannel distribution network, diversified product matrix, and advanced AI productivity tools. FYP generated by our IFA platform reached RMB 127 million in the first quarter of 2024, which is up significantly by 70% year-over-year. Thirdly, we further deepened our customer engagement in our direct-to-consumer segment. In the first quarter, the repeat purchase ratio for long-term insurance products has increased by 4.5 percentage points, year over year to 40.5%, which reflects our relentless efforts in exploring the long-term value or lifetime value of our customers. Finally, we leverage our proprietary AI solutions to further streamline our operations and further enhance our operating leverage as evidenced by the further improvement in our expense ratio. As we look at our operational results, I want to highlight several key achievements that drove our strong performance in the first quarter. One, FYP more than doubled sequentially to approximately RMB 857 million. Two, the quality of our renewal business remains solid, and as of the end of February, our 13th and 25th month persistency ratios for long-term life and health insurance products remained at industry high levels of over 95%. And third, the average ticket size for our long-term savings products has increased by 58% year over year, to reach RMB 69,000 in the first quarter of 2024, which is a record high for our platform, demonstrating the progress that we have made in upselling our existing customer base and increasing contribution from premium product sales in Hong Kong market. These highlights are just a few examples of a high-quality customer profile and success in capitalizing on the lifetime value potential of our customers. In the first quarter, we sustained our market-leading position in long-term insurance products. FYP for long-term health products increased by 12% sequentially to approximately RMB 100 million, while FYP for our savings products surged 1.6x sequentially to approximately RMB 600 million. And we will continue to pursue a balanced mix between long-term health and savings product categories to satisfy evolving customer needs. At the same time, we further diversified into customized P&C insurance products to create new revenue streams, with FYP from this business increasing by 74 percentage points sequentially to approximately RMB 151 million. Apart from strengthening our market share in China, we remain committed to capitalizing on the long-term digitalization opportunities of Asia's insurance industry. We further expanded our presence in Hong Kong, through the expansion of our team in Hong Kong and the promotion of high-value products to capitalize on robust MCV demand from higher LTV customers. Total international revenue contribution from Hong Kong increased to 7% in the first quarter of 2024. We are also proactively identifying growth opportunities in markets with supportive demographics in Southeast Asia to replicate a proven business model in China. By developing new revenue streams and strengthening brand awareness and recognition internationally, we are confident that we'll be able to grow international revenue contribution to double digits this year. Meanwhile, our omnichannel distribution platform capabilities and our proprietary AI products have helped enhance our customer acquisition and engagement capabilities and streamline operations to improve efficiency. We have net added more than 220,000 new high-quality customers to the ecosystem in the first quarter, increasing the total customer count to over 9.6 million as of the end of March. In the first quarter, our total operating expenses continued to decrease, falling by 25 percentage points year over year. Our operating expense ratio further improved to 26.2% in the first quarter of 2024 from 36.2% a year earlier. And as of the end of March, our financial position remained solid with a combined balance of cash and cash equivalents of RMB 281 million. Moving forward, we'll continue to leverage our deep customer insights and our own proprietary AI model to enhance product innovation and create additional upselling opportunities. We'll leverage on our omni-channel distribution platform, our rich product offerings and advanced technological tools, to enhance customer acquisition and engagement by insurance agents and IFA partners. We will remain a laser-like focus on driving further improvements to operating efficiency by optimizing resource allocation and deploying AI solutions to ensure profitability sustainably. We will also strengthen our overseas expansion efforts to explore opportunities in new markets. In summary, we are optimistic about the outlook of 2024 And we currently maintain our outlook for a non-GAAP net profit of 16 million RMB for the full year. We're confident that our strategies will solidify our position as a leading insurance technology platform in Asia, connecting consumers, insurance carriers, and distribution partners digitally and efficiently via our data-driven and AI-powered solutions. And with that, we will conclude our opening remarks and open it up to call to questions. Thank you and over to you, operator.

Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by as we compile the Q&A roster. So just a reminder, to ask a question, please press star 11 on your telephone keypad.

Just a moment for our first question. Our first question comes from

Your user from CICC, please go ahead.

What is the current demand for long-term and short-term health insurance? What is the current client image of this type of health insurance? Have we seen that health insurance will have a trend of so-called consumption decline? How do you look at the future growth space of health insurance? The second question is about the economic channel. We are not advancing the economic channel. In the industry, many companies are reacting in a very difficult way. We are also doing a series of reform actions to deal with the effects of the decline in wages. I would like to ask about Hui Ze's domestic business. In the short term, what kind of considerations will be made in the cost section in 2024? And then the long term, what are the specific recommendations that we will make to achieve this internal business? Then I will simply translate it. So my first question is related to the health insurance. So beyond your observations, how's the recent demand of short-term and long-term health insurance products? What's the customer portrait of such products? Can we see a tendency of so-called consumption downgrade? And how you see online health insurance future? And my second question is, as we see, fee regulation is moving on. Many insurance brokers found they face the challenges to go through this strict regulation period, and they have taken actions to avoid a sharp decrease of their revenue and profits. We just want to know, In terms of the mainland business, from a short-term, maybe in 2024, what's your cost of strategy? And from the view of a long-term, what measures will you take to ensure your sustainable growth? Thanks.

Okay. Thanks, Yuyu, for your two questions. Let me address these two questions one by one. With regards to the first question on the demand for long-term or short-term health products, I think we are seeing similar trends in the first quarter in line with the broader market. I think, as we have seen in the broader market, this category continues to be quite weak in terms of the recovery, although we did disclose in our opening remarks that we have seen sequential growth in our long-term health product segment in the first quarter. I think we have quoted actual numbers here whereby our long-term health products have achieved an FYP of 96 million in the first quarter, which increased sequentially by 12%. I think this is a demonstration of how we have been always at the forefront of product innovation to adapt to changing consumer behavior or budgets or preferences, if you will. Obviously, in the macro downturn, whereby consumer demand for reimbursement type products or protection type products continue to be relatively weak as compared to savings products, which are the key focus for consumers right now. So I think going forward, in terms of health products, we will continue to be very focused on the innovation of products, as we have also delivered recently, cooperating with bigger brand insurers, for example, PICC. In April, we have launched the new Darwin product, which is targeting suboptimal health groups. So further to expand the addressable market from what the industry has been kind of selling to previously over the past two to five years, where, for example, critical illness products have been relatively well marketed and saturated. and then the further production gap that customers or consumers require in the broader market will be satisfied by way of more targeted, customized products, which will require innovation from us together with the insurance carrier partners. We also see that there's a bifurcation in terms of health product demand. We see that in the premium segment, in the middle to high-end segment, It might continues to be there. So I think going forward, we also like to focus on product innovation together with insurance carrier partners on how to come up with a better product to suit this premium market where the FYP is in the middle of the low thousand, you know, three to five thousand kind of range. Short-term health products with guaranteed renewals features for medical reimbursement for inpatient type categories. So I think that will be the answer to your first question. With regards to the second question, which is really the topic of the day, you know, the so-called Baoxing He Yi regulation impact on the brokers and agencies industry, I would like to say a few points here. I think first of all, as demonstrated in our Q1 results, we have been very resilient, if not quite spectacular in terms of adapting to changing environment. You know, FYP has increased substantially sequentially and year-over-year, which we do believe we have been far outperforming the broader or traditional insurance brokers or agents in China. And that's really thanks to the omni-channel platform model that we have, whereby we are more reliant on platform in terms of lead generation versus entrenched agency force-led type of business development for the more traditional players in the market. So I think that is one key point I'd like to make. Second point is that on the cost side, as you have asked, you have seen that we have continued to improve on our efficiencies as demonstrated by our continued improvement in extensive income ratios across the operating and selling expenses categories. And that's really a demonstration of the ability for our platform or business model to develop business growth with less headcount. And also the fact that we are technology enabled, the fact that we have AI products that really are contributing to the efficiency gains throughout the business processes. So that is another point that I would like to make with respect to countering the regulatory pressures on the cost side. And finally, I think that the key differentiating factor that our company has always been demonstrating to the market is the product innovation capabilities. And then the fact that big brands are trusting us in terms of the digital channels for distribution is a very strong case in point. You know, over the past one year or so, we have been partnering with the big brands like, you know, Ping An Health, PICC, Generali China, Aviva, Covco. These are all names that would resonate with the current market conditions where I think the Chinese consumers overall are preferring higher quality or bigger brand names for peace of mind when it comes to financial products and wealth management. So I will just stop there in terms of answering your questions, and I hope that will be clear to you. Thank you.

Thanks, Eric Lea. Thank you. Just a reminder, to ask a question, please press star 11 on your telephone. Our next question comes from Amy Chen from Citi. Please go ahead.

Hi, this is Amy. Thank you for this opportunity for me to ask some questions. The first one is on net profit, actually. Congratulations on a consecutively profitable quarter. However, we do notice that the net profit in the first quarter this year is actually significantly lower compared to the same period last year. May I know what's the main reason behind this? And also on the cost of revenue, we noted that this actually picked up around over 20% and probably due to higher channel cost. Could you please elaborate on that front? And the second question is also on busing. Could you please. And I'm wondering if you could provide more color in respect with respect to how this has impacted your commission level. We're on say saving type products as well as on production type products. Thank you.

Thanks, Amy, for joining us again. So, yeah, key questions from you with regards to margins compression. I would say that's really a direct result of the regulatory changes. That will be one key part of that. But the other will also be due to the fact that, as you correctly pointed out, in the first quarter, channel costs have increased quite a bit. I think it was a strategic move in the first quarter to capitalized on the expected strong demand in the market for the last available savings products under the previous regulatory regime. And so that also led to quite a fierce competition among different players in the market to convert policies from leads. So that has resulted in some surge in the channel cost. And also there's another reason for that, which would be the relative smaller contribution from our DTC segments for Q1 distribution as compared to our 2B2C and 2A2C, and therefore resulting in a higher cost of revenue as a percentage of revenues in the first quarter. We do target to improve that over the course of the next few quarters as we continue to adapt to the changing environment. So that would be the first answer for your questions. And on Baoxing He Yi's on the regulatory impact on commissions, I would say we are now seeing the effects on the agencies and brokerage channels starting in the second half, first quarter to the second quarter. In general, I think I would say savings products have broadly declined in the neighborhood of 30 to 40%. in terms of conversion rates for the first year. For protection products, we are seeing somewhat more resilient or less of an impact because for protection products, we have always been more focused on the so-called online products, the 互联网张储 products. So for this type of product, we're not seeing as much of an impact on commissions as compared to savings products. Obviously, right now, in the broader market, most of the distribution of most of the products that are being bought by customers are in the savings category. So the decline in commission risk for savings products have a more marked market impact on overall commission levels versus protection in the same concept that we are looking at the numbers right now.

Thank you, that is very clear.

Thank you. Our next question comes from Kenny Lim of UOB Canton. Please go ahead.

Hi Ron, thank you very much. First, congratulations to Management on achieving another profitable quarter. So basically two questions for my end. First, could you give us more color about your expansion plan in Southeast Asia? And how is the progress so far? Do these segments start to contribute any revenue? And second, I wanted to ask whether there's an update on your shareholder return policy. Okay, that's all from my end.

All right, so thank you, Kenny, for joining us for the first time and appreciate your coverage. So first question on ServiceAsia. Yes, to this point, we have in ServiceAsia We have been in active dialogue with multiple parties over the course of the past two quarters in terms of expanding into various markets. And the list includes obviously Singapore and also other growth markets like Indonesia, Philippines, and Vietnam. So we are very focused on landing on a first overseas market outside of Hong Kong in the next two quarters. But right now, Southeast Asia is still not contributing international revenues to the overall group revenues. But if you count Hong Kong as Southeast Asia, then yes, that's 7% in the first quarter. We will look to improve that percentage to double digits this year from both organic growth in Hong Kong as well as a new market in Southeast Asia. And the Southeast Asia expansion would most likely be an initiative under a M&A kind of a buy and build strategy. But we also won't rule out partnerships with local groups where we have also received some reverse inquiries in terms of forming joint ventures from local groups in respective countries where they see the large potential for digitalization of insurance distribution in their respective countries and markets. And we're seeing a very fruitful dialogue in those areas. So that will be my answer to your service agent question. The second question on shoulder returns, I think we are planning in the next two to three years to return capital to shareholders by way of dividends. So we are planning ahead on setting up the right structure to enable this dividend distribution But for 2024, I think that will be unlikely. I think it's more probably in the next two or three years kind of horizon that we will be looking to initiate our dividend policy. So that will be my answers to your questions. Kenny, thank you.

Thank you. Thank you very much. This concludes our Q&A session. Now I'll hand back to Harriet for closing remarks.

Thank you, O'Brien. In closing, on behalf of Quasar's management team, we would like to thank you all for joining us today. If you require any further information, please feel free to reach out to Quasar's IR team. Thank you for joining us today. This concludes the call.

Thank you very much.

Thank you.

This concludes today's conference call. Thank you all for participating. You may now disconnect.