Waterdrop Inc.

Good morning, ladies and gentlemen, and thank you for standing by for Waterdrop, Inc.' 's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a Q&A session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Shai-Jo Tua. Please proceed, Ms. Tua. Thank you.

Thank you, operators. Hello, everyone. Thank you for joining WaterDrop's first quarter 2021 earnings conference call. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities and Legislation Reform Act of 1999. Overlooking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public findings with the SEC. The company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. Also, this call includes discussion of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and GAAP. Joining us today on the call are Mr. Shen Peng, our founder, chairman, and CEO, Mr. Yang Guang, co-founder, director, and general manager of the insurance marketplace, and Mr. Kevin Shih, our CFO, and Mr. Jian Dan, our head of food strategy. They will all be available for a Q&A session after their remarks. Now I would like to turn the call over to our CEO, Mr. Shen Peng. Please go ahead.

Hello, everyone. Thank you for attending the press conference. We are very happy. In the first quarter of 2021, the performance of水滴 was strong. This is also the first time for us as a public company to publish a quarter press conference. Our net operating income exceeded RMB 8.8 billion in the first quarter. After adjustment, the net profit increased by 43.2%. This performance reflects our advantage in terms of operating efficiency. Since the establishment of the company in 2016, SuiDi has continued to develop rapidly in the Chinese insurance industry and has achieved growth beyond the industry. It has become the leading technology platform in the Chinese insurance technology and medical health service industry.

Hello, everyone. Thank you for joining us on our first quarter 2021 earnings conference call today. We are pleased to report strong quarterly results in our first earnings release as a public company. Our net operating revenue reached over 880 million RMB in Q1, representing an adjusted comparable growth rate of 43%. with 43.2% year-over-year. Our solid results reflected the advantages of our operational efficiencies. Since our inception in 2016, we have benefited from the robust industry development and achieved a top industry growth, and have become a leading integrated insurtech and healthcare service technology platform in China.

Before we talk about our business volume in the first quarter, I would like to summarize our development positioning and strategy in the industry. The focus is on three key concepts, general knowledge, efficiency, and technological innovation. In recent years, the development of China's health insurance has been supported by government policies and regulatory policies. We expect that the overall industry will maintain a healthy growth in a positive environment. The COVID-19 pandemic has raised the demand for health care and health insurance from the perspective of public health. From the perspective of micro-business, WaterDi has provided users with multi-dimensional insurance awareness. The WaterDi company's business is dedicated to the important supplementation of the medical payment system outside of China's medical insurance. The company uses Internet technology to promote public health care for the general public. The goal is to protect the lives of families.

Before I talk about the key highlights of the quarter, I want to briefly summarize our positioning and strategy and emphasize three key words that represent our business, inclusivity, efficiency, and technological innovation. In recent years, the health insurance industry has enjoyed a favorable policy support, and with the implementation of new regulations on internet insurance businesses, we expect the industry to continue prospering in a healthier environment. The COVID-19 pandemic has broadly increased people's demand for health care services and raised awareness for health insurance. While on a micro level, we at Waterjob have also created multidimensional scenarios for insurance awareness education. We position ourselves as an important external force that supplements the government's social medical insurance system and aspires to bring insurance and health care services to billions of people through technological innovations.

We are actively committed to building the social benefits and social value of public health insurance, providing users with private health insurance and large-scale payment assistance. Our entire platform is working together to support the fight against the pandemic. We are actively promoting and leading the industry's universal insurance project. We have used the universal influence of the Internet of Insurance to respond to the calls for the expansion of human health products. We are actively collecting and innovating products to provide high-performance insurance products that are affordable to the general public. Our water-based products are efficient in connecting donors and patients who need to pay high medical expenses. For the patients, we have provided food and water assistance. SuiDiQiu is only a big patient support platform. The business itself does not contribute any revenue to us. Until the end of the first quarter, about 3.6 billion users on our SuiDiQiu platform. For 1.9 million patients, we have provided a total of more than 4 billion yuan of donations.

WaterDrop is fully committed to the realization of social impact and the commercial value of insurance for all, providing our customers with pre-illness insurance coverage through our WaterDrop insurance marketplace and post-illness crowdfunding support through our WaterDrop medical crowdfunding platform. We continue to leverage all of our platforms to support the fight against the COVID-19 pandemic and to promote inclusive insurance programs throughout the industry. With a recent call from Chinese regulators to broaden health insurance products that contain wider coverage and better quality, our competitive advantages and influence as an inclusive online insurance provider allowed us to rapidly roll out a series of upgraded products that give ordinary people affordable choices for their health insurance needs. Our WaterDrop medical crowdfunding as an online platform efficiently connects the patients who are seeking help to cover significant medical costs and the people who are willing to help. However, WaterDrop medical crowdfunding itself does not contribute any revenue to us. As of March 31st, 2021, through our WaterDrop medical crowdfunding platform, approximately 360 million people donated an aggregate of over 40 billion RMB to nearly 1.9 million patients.

The second key factor is efficiency. Our overall growth is due to efficiency. At the same time, we are happy to see that the efficiency of WaterDrop has made a significant contribution to the industry. The obvious advantage of WaterD is that it can directly survey users through the Internet interface. Through the user account system, it has mastered a wide range of user images, as well as all kinds of wonderful data and dynamic data. It can deeply investigate the behavior of users and understand the needs of users, and more accurately meet the users' needs for protection and upgrade and delivery of products. Based on the dynamic and individualized operation of large data, we can provide WaterD The second keyword is efficiency.

Our overall growth performance is driven by the advantages created by our platform's efficiencies, and we are pleased to see the contribution by WaterDock to the overall improvement of the efficiency of the industry. One of our core advantages is that we can interact with customers directly online, which allows us to accumulate a massive amount of user profiles through the customer account, capture data and dynamic data, and gain invaluable insights into their behavior and demands. This also enables us to satisfy their needs more precisely by presenting the most relevant insurance products while conducting product iterations and upgrades accordingly. Our big data and customized intelligent marketing system have allowed us to enjoy a competitive customer acquisition cost and operating efficiencies from our economies of scale.

Next, I'd like to talk about technology innovation. I want to talk about the development of the water-based technology with the technology-reduced energy business chain to promote efficiency. In the first quarter, we achieved some progress in terms of technology-reduced energy. We based on machine learning and deep learning to create a water-based intelligent delivery system and intelligent user growth system. Next keyword is technological innovation.

I want to talk about how we utilize technology to empower the entire value chain and improve efficiencies and our latest developments in technology. In Q1, we made solid progress on our technology empowerment. We utilized our proprietary intelligent marketing system, intelligent user growth system, and intelligent online marketing and telemarketing system based on machine learning and deep learning algorithms to take a deeper dive into customer insights. We designed and developed a series of algorithms that personalize user experiences and provide targeted matches that best suit our users' needs across marketing, growth conversions, and online marketing scenarios. We constantly build and optimize our user profiles that currently contain roughly 3,000 tags to further boost efficiency for personalized precision matchings.

At the same time, based on NLT technology, we have built a smart communication robot platform, and built a smart virtual machine. Through language understanding, ASR, TTS, and other various AI technologies, we can interact with users in multiple ways, increasing the probability of user virtualization, and greatly increasing the efficiency of operation. Based on AI plus big data, we have built a water-based computer, increasing the basic nature of users, using user behavior data, user-adjusted information, to determine the type of medicine and to identify all kinds of symptoms. To standardize, digitize, and collect information. Through big data models and decision-making engines, to carry out smart research and control, to achieve automatic health insurance, to calculate and control costs. To deal with various sections of negative lipoid, to reduce the duration of lipoid treatment of users, to increase efficiency by more than 30%. To continue to accumulate big data on lipoid, to help design products and calculate risks.

We also developed an intelligent chatbot platform based on natural language processing technology. Our intelligent robots for policy renewal can carry out monthly long interactions with users powered by various AI technologies, including semantics, analysis, ASR, and GPS. This significantly enhances our renewal rate and operational efficiency. Our AI-plus big data-powered order doc range examples users' essential attributes, behavior data, and medical records to identify categories of claims, settlement documents, recognize various certificates, and collect standardized and digital data based on our proprietary knowledge base. We conduct intelligent risk management powered by big data and decision-making models to enable automatic claim verification, manage cost, and insurance adjustments, and empower other steps throughout the claim settlement process. This enables us to shorten the claim processing cycle and increase our efficiency by 30%. Meanwhile, the accumulated clean data also facilitates our product design and enhances our actual aerial capabilities.

We believe that water-based brands, all-round products, and innovative technologies will keep us at the forefront of the Chinese technology security market. We will continue to expand our user size, provide more diversified services, and deepen cooperation with health service institutions, in order to build a broader health ecosystem.

In a nutshell, we believe our trusted brand, comprehensive product offering, and innovative technologies will allow us to maintain our position as the leading technology-driven insurance platform in China. We will continue to expand our user base, diversify our service offering, and deepen our partnerships with healthcare institutions to build up a larger health ecosystem.

Next, I would like to invite Yang Guang to introduce the latest development of the WaterDiBao project.

Now let me talk to Guan, who will discuss some of our key developments in our insurance marketplace business.

Hello, everyone. I'm going to work you through key highlights in some of the recent developments in our insurance marketplace business. I will start with the product side, where we continue to launch more order, increasing the number to 240 at the end of March from 200 at the end of 2020. Over 90% of our FYP was contributed by customized insurance products, and we continue to enrich our product attributes on top of our into coverage for the customers. In the first quarter, the new definition of critical units was officially put into effect. Prior to its implementation, we have upgraded and designed our product offering according to the new definition of critical units. We moved early to better cater to customer needs rather than speculatively citing CI products under the old definition or simply pursuing short-term incremental volume. The FYTO CEI interest increased by 132% in quarter-wise year-over-year, primarily contributed by the design and sales of products under the new definition of credit units. We did forward-looking research on the new rules and regulations on the interest industry. health insurance products and enhance our information disclosure in order to comply with the new regulatory requirements and improve our customer experience. We also penetrated other categories such as inpatient medical products and the same types of life insurance products as necessary complements to cater to customers' needs. In terms of long-term interest, we've had to strengthen our customer service capabilities and provide necessary online consultation support to enhance users' thickness. We reach out to customers for long-term products, education through diversified scenarios and multiple channels, such as WeChat groups, live streaming educational courses, and one-on-one AI-supported consultation services. Through more accurate user matching, more effective product offering, and better service capabilities, our long-term user retention has increased, and our business quality has further improved. In terms of organizational management, we optimized the team structure and onboard more talents. We also explored the opportunity of collaborating with other industry players. and distribution channels to offer a wider range of coverage to an extended customer base. Next, let me talk about the development of our channels. Conversion of repeat purchase also continues improvement. It's cooling the mutual aid business. FYP generated from internal traffic, third-party traffic channels, and network traffic and repeat purchases increased by 65.2%. over a year respectively. For internal traffic, we saw higher conversion rates from our water dog medical call funding to insurance sales. We experimented with using new conversion strategies, which greatly improved the conversion rates through optimizing the exposure of marketing. For macro traffic and repeat purchase, we continue to diversify the interest product categories for repeat purchase and enhance our cross-selling efforts. Our brand awareness continuously improves thanks to our pre-session marketing and our good reputation. As we dug deeper into our business needs, we developed a membership system to increase our user retention and upgraded our product offering strategy for different types of positive orders to promote cross-signing. For external panels, we enjoyed a competitive customer acquisition cost among industry players. Attributable to our competitive advantage, including, firstly, more diversified services with same customers. Secondly, jointly built smart marketing model for customer acquisition with the third-party distribution channels to improve our efficiency. And thirdly, repeat purchase penetration and, fourthly, our back-end operation and after-sales service insurance and industry-leading user experience and renewable rates. Meanwhile, we also explore new traffic opportunities, including live streaming, multi-channel network, and custom acquisition costs by content. Now, regarding our service capabilities, we continue to educate e-commerce users through multiple short videos and live streaming accounts, which users' questions on choosing an insurance online. We also leverage the WeChat Enterprise tools, so our sales consultant can frequently interact with the users to ensure a smooth online transaction process process and provide new opportunities for improving the LTV of an AUV consumer. During the e-ference claim process, our intelligent input system supplies RPA, OCR, and NLP technology to identify image information uploaded by users. Currently, the system supports more than 90% municipal levels public hospitals in China. The entire computing process until releasing the final data The accuracy rate of word-of-mouth smart claims has reached over 99.7%, speeding up the claims process from the previous per day, per hour, or even per minute level. services. For microservices provided to people with disabilities, we continue to expand our partnership with pharmaceutical companies and hospitals and have started to develop a coordination mechanism for house management, physical examination, online consultation and treatment, and pharmaceutical sales. As of March, our pharmacy benefit management service, Waterjob Medicine, has served more than 144,000 members. So our cooperation is more than 1,400 pharmacies, over 200 cities in China. We launched a platform named OneDocHealth to provide services to healthy consumers, where we have also explored a series of health management services, such as consultation and physical examinations. quickly in health management. With that, I will now turn over the call to Ken, our CFO, to discuss our first quarter financial performance. Thank you, everyone. Hello, everyone. I will walk you through our financial highlights. Please be reminded that all numbers covered here will be in RMB, and please refer to our earnings release for detailed information about our comparative financial performance on a year-over-year basis. In the first quarter of 2021, our net operating revenue increased by 35.1% to RMB $883 million from RMB $653. of 2020, primarily driven by the growth of insurance brokerage income and technical service income. There has been a major business adjustment in the first quarter of 2021, which is the position of our workforce mutual aid business, which has already been disclosed in full in our IPO prospectus. In repair for the decision, we voluntarily covered the mutual aid of participants' medical expenses arising from medical conditions before the end of March 2021, subject to certain procedural requirements and eligibility criteria that would have only been covered by the ceased mutual aid plan. In addition, we also offered a one-year complementary health insurance policy to each participant with a similar coverage. As a result, we incurred a one-off cost for their medical expenses and the insurance coverage. Among which, around RMB 20 million was accounted for as a reduction of minimum fee revenue, greatly recognized for each constituent. To the extent of cumulative amount earned until March 26, 2021. and around RMB 77 million was recorded as an expense. After this change, the corresponding minimum fee income from mutual aid business, which contributed less than 5% of our total revenue in 2020, will no longer be a revenue stream for us. So on a more comparable basis, including the minimum fee income, our adjusted net operating revenue has a year-on-year growth rate of 43.2%. Our operating costs and expenses for quarter one increased by 75.7% to RMB $1,344 million. To break it down, the operating costs for around RMB $301 million, mainly driven by the runoff cost of RMB workforce mutual aid business, I just mentioned that. And also, attributable to labor cost, as our insurance agents and consultants pay off the investigation and the customer service team directly expanded to support the business growth. Sales and marketing expenses increased by 67.7% year-over-year to RMB 837 million, primarily due to the increase in marketing expenses to third-party tech channels as a result of our business expansion and branding promotions. G&A expenses increased by 87.2% in the quarter 1 to RMB 121 million. Well, excluding traffic compensation expenses, the adjusted G&A expenses would be RMB 59.7 million, representing an increase of 25.1%, primarily due to the increase in professional fees and labor costs. R&D expense increased by 25.6% to R&D 84.7 million. And if excluding hair-based combination, the adjusted R&D expenses would be R&D 78.7 million, implying an increase of 19.4%. Many of them by the increase in R&D level cost and the related expenses as our R&D team continues to expand to enhance our competitive capabilities and technology. We incurred a gap net loss of RMB 370.2 million and an adjusted net loss of RMB 203 million. The adjusted net margin was negative 23.0% for quarter one. In the second quarter of 2021, we expect our FYP to grow more than 50% year-over-year. That possibility is based on the current market conditions and reflects our preliminary views and estimates, which are all projected to change. This concludes our pre-planning remarks. I will now hand over to the operator to open the call for Q&A. Operator, we are ready to take questions. Thank you.

Thank you. We will now begin the question and answer session. To ask the question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. Just as a reminder, for those who speak Chinese, would you please ask your question in Chinese first, followed by the English transition by yourself. Thank you. At this time, we'll pause momentarily to assemble our roster. The first question today comes from Jenny Zhang with Morgan Stanley. Please go ahead.

uh uh Jenny, please go ahead to translate your questions in English. Thank you. Okay, right, all right. So, hi, management. This is Jenny from Morgan Stanley. First of all, congratulate on the successful IPO, and thank you for giving us this question to meet with management and then talk about your results again. So, two very simple questions from me. The first one is about acquisition costs. we noticed that some of the, you know, education segment has not been doing very well because of some policy changes. I remember that management mentioned before that this sort of our key sort of competitor for online traffic in the past. So given this backdrop, have you, you know, start to see some of the decline in the online acquisition costs? Do we think it's going to be sustainable? Is that going to be very positive to our business going forward? Second question is about the sort of strategic, like in the health area, you know, what kind of new strategy we're planning to implement in the future. I know Yang Guang mentioned a few progress in the first quarter. Can you give us a little bit more update on you know, after first quarter, I think in April and May, what we have done to continue to push for a expansion in the healthcare industry. Thank you.

Thanks, Jenny, for the question. This is Yang Gong speaking. I will answer the first question regarding the marketing expense. I think our business is still at an expansion stage with the proportion of external traffic increasing. So with our continuous exploring customer needs after we acquire users, I think the effects of wider investment begin to show. And we will further increase the investment with the customer acquisition costs. As long as the customer acquisition costs can be covered by the lifetime value of our customers and continue to expand our customer base to support the user acquisition channels. Currently, sales and marketing expense account for a major part of our expenses, which is in line with our current strategy. In short term, our priority is to grow customer base. But the criteria for social marketing cost control are seriously lower than LTV to match cost and benefit. And the LTV per user is also increasing fastly. And for customers with higher LTV, we expect higher acquisition costs. I think the recent market dynamics, as you just mentioned, are favorable to LTV. increasing pace of the CEC and further expand our user base. Meanwhile, we will continue to enrich our product offering and improve service capabilities to promote repeat purchase and attract natural traffic. For the second question regarding the house business, I will hand it over to our CEO, Shunpeng, to answer that question.

Oh, sure.

We at Waterjob are providing members with cost-effective quality medical and health care services. Our health care and medical services focus on customer needs, offering different values for two types of customers.

and provide them with basic health care services, as well as the packaging of the existing insurance products, including online consultations, phone doctors, medical examinations, health care products, basic medicine and other services. This creates a relatively good system for insurance business. It can help the insurance business to increase the value of the business. It can provide more health data and increase the ability to control the insurance.

Our water drop health business serves healthy people with basic health care management services. Packaging with existing insurance products, we provide a range of services including consultation, telephone doctors, health care products, physical examinations, basic drugs, etc., This has generated synergies with our insurance business and helped the insurance business increase the differentiated value of users, accumulate more healthcare data, and enhance risk control capabilities. At present, we have more than 5 million healthcare members and nearly 1 million users of our healthcare app.

This video is brought to you by the U.S. Department of Health and Human Services and the U.S. Department of Health and Human Services. The current business is divided into two parts. One is the drug welfare business. The drug welfare project is to create new medical treatment methods to treat patients, give lessons and talk to patients. More than 70,000 members will be added to the system. The total number of members has already reached 140,000. Currently, we are cooperating with more than 1,400 drug companies.

Our water drop medical business mainly serves patients, especially those with critical illness. Our long-term strategic goal is to build core competencies in the medical and pharmaceutical industry chain based on our millions of patients' customers. Our current medical business is mainly divided into two segments. The first segment is our PDM service. Our water drop medicine business enables patients acquisition, retention, and conversion. The number of new members for Water Dog Medicine in the first quarter exceeded 70,000, bringing the total cumulative number of the members to around 140,000. So far, we have established cooperation with 1,040 pharmacies.

This drug is for the treatment of patients with severe illness. There is no service in the field of long-term medication outside the hospital. By constructing a hospital management system outside the hospital, it is suitable for the Internet hospital to provide medical care, health care, medicine, health products, and other services. Currently, there are 400,000 patients in the community. The Internet hospital's basic engineering and service capabilities are basically available.

The second segment is our patient management platform. We have established a patient management platform outside the hospital system to help underserved patients with critical illness who need to be on medicine long-term after surgery. This platform works with internet hospitals to provide patients with a range of services including prescriptions, healthcare management, medicine purchase, and mutant supplies. With a community of hundreds of thousands of patients, the platform already has the basic functions and service capabilities of an internet hospital. Meanwhile, we are testing the platform's commercial value on a small scale.

In the first quarter, Waterdrop has made substantial progress and expected to provide more information in the second quarter earnings disclosure. That's all for the question.

Thank you.

The next question comes from Michael Lee. And as a reminder, please, for those who speak Chinese, would you please ask your question in Chinese first, then followed by the English transition. The next question comes from Michael Lee from BLA. Please go ahead.

Thank you. 谢谢管理层。我是来自美国银行证券的分析员Michael。 uh uh No matter from the speed of growth of health insurance or health insurance, the entire industry is actually slowing down, including the growth of health insurance in the past two years, which is actually not bad. But by this year, the first five months seem to have increased by about 16%. So I see that the performance of the water drop has increased by more than 40%, which is actually much faster than the industry or the same industry. I want to ask, how can the water drop be done faster than the same industry? Is there an advantage in the product? Or are we more This is the first question. The second question is about the change in the product structure. Since last year or the beginning of last year, we have slowly increased the part of long-term insurance, and the growth rate is also good. For example, in the first quarter of this year, according to the disclosure, the growth rate of heavy-duty insurance is very fast. But I didn't see in the report what the situation is like in the first quarter of the short-term FYP ratio and the short-term FYP ratio. Thanks, Benjamin. This is Michael Lee from Bank of America Securities. So I have two questions. My first question is about the growth of FYP. So we noticed that this year is very challenging for all of the insurers in China and the growth of health insurance decelerated to about 16% in the first five months this year. So water jobs, about 40% FYP growth is definitely a better result than sector average or its peers. So can you give us some... I mean explanation why water job could outperform and also in terms of the sector growth, what are the reasons behind this kind of deceleration and do you see any turning points? The second thing is about product mix. So Waterjob improved the product mix in the past two years with higher mix of long-term insurance. And can you give us some breakdown of long-term versus short-term in the first quarter of this year, and also the outlook of the product mix changes in the next few quarters? Thanks.

Thank you, Michael, for your important question. I'll try to address your questions about the industry as well as the growth of the water job. And Ms. Jiang, I want to address your second question. First, I think the recent slowdown in the Chinese health insurance market may be attributed to several factors, first of which the ongoing challenge facing the expansion of traditional healthcare agency force industry-wise, and also intensive data competition in Tier 1 and Tier 2 cities in China, and maybe also the speculative marketing of CI policies under the new regulatory definition in the first quarter that have distorted the pace of sales of health insurance products throughout China in the second quarter, maybe even into the third quarter of 2021. About ourselves, first we want to highlight the fact that our health insurance business has been very strong growth throughout the year 2020 and also in the first quarter of 2021. We believe that the Chinese health insurance market has huge growth potential, as always, especially in lower tier cities where efficient distribution model and attractive product offerings are often lacking. Also, I want to stress that so far, based on what we have seen, there have been no signs of weakening demand for health insurance protection products in China. And about the reasons why WaterJob managed to grow faster than it appears, it seems the biggest reason is because we have a far more technologically advanced and efficient business model. Based on data insights and strong knowledge of Operation Know-How, we're able to distribute insurance policies completely online so that we have access to the map market in China in a cost-efficient way. Also, we focus relentlessly on lower-tier cities, which have huge potential for insurance protection products, especially the health protection, but at the same time often underserved by existing insurance players. I would also like to highlight the fact that we always focus on delivering the true value to our customers, which really will help us to grow our customer base in the longer term. For instance, we didn't do the speculative marketing of OSCI policies in January, even though most of our peers did. Instead, we switch to the new AI policies long before the come state set up by the regulators, because we believe that new products offer better value to our customers. After that, address your questions, and Mr. Yenguang will address the other questions. Thanks, Dean. I think with respect to the product mix, our long-term critical building is in We see growth coming mainly from products under the new definition for CF products. As mentioned by Mr. Tian Dan, we didn't participate in the speculation of the sales of the old products. And the other category also maintains robust growth well. of our products and exclusive and customized products. I think in the short term, we still mainly focus on life and house interest, including house, life, annuity, accidental The specific product composition may change at any time according to the changing needs of users. In the future, we do not exclude experimenting with other types of inference as a property. That's all for the questions.

Thank you.

The next question comes from Thomas Wang with Goldman Sachs. Please go ahead.

Thank you. Yes, so two questions from my side. First one, Relatively simple restricted cash balance increased quite a bit versus full-year position. Just trying to understand why, what's driving that increase. And secondly, policy retention rate in the first quarter. Can you give a little bit of color? How does it look versus young year versus last year first quarter and Q&Q versus fourth quarter 2020? Thank you.

I come to a question. Regarding your first question, our restricted cash primarily consists of premiums collected from the interest consumers in a pediferic capacity until it is dispersed. to the insurance carriers. The balance of restricted tax really increased in line with the increase of FYP, and the relevant balance of payable was recorded as insurance premium payable in our balance sheet. The settlement period of short-term and long-term insurance brokerage income is generally M plus 1 and M plus 2, respectively. And in terms of your question regarding our retention rates, there was some change in our user acquisition channels mix for the short-term insurance products in the first quarter, where our investment in the external user acquisition channels increased, and our retention rates slightly dropped accordingly as our user base expanded. We expect the retention rate of long-term products to keep stable. There might be some fluctuations in near term, but it depends on the quality and the scale of our users. So we expect the retention rate for long-term to keep stable.

Got it. Thank you.

The next question comes from Junjun May with CICC. Please go ahead.

The next question comes from Junjun May with CICC. The next question comes from Junjun May with CICC. The next question comes from Junjun May with CICC. 那我简单翻译一下我的问题。 Hi, management. This is Qingqing Mao from CSCC. Thanks for taking my question. Firstly, congrats to the robust performance this quarter. I have two questions. For the first one, I'd like to know the company's future development strategy of long-term products. For the second one, could you please share more information about the remainder of management fee income in Q1 and the total expenses incurred in relation to the cessation of mutual aid? Thank you.

Thanks, Tintin. Very good question. I think we have achieved very strong goals in long-term interest and short-term interest business respectively. And I think our strategy to promote the future goals of our long-term interest is that we will provide users with more valuable products by continuing to enrich the categories of long-term We also plan to reach a large number of existing users, which is close to 100 million users. through our online channels to convert them to long-term interest users. And also by leveraging our massive user data to intelligently match users and consultants through our algorithm, we keep improving the conversion rate of long-term interest business. We started the initiative in April and we run a test in May and expect to see the results in the second quarter. And we also have a technology-empowered online sales consultant. improve the efficiency of long-term interest conversion. We are also testing the business model of promoting the long-term interest product via interest brokerage from O2O, from online to offline channels. Hopefully, by doing all these channel applications, we are able to further expand our long-term interest business. the mutual aid program. I will hand it over to Kevin to answer the question. Thank you for your question. We're getting a question about the minimum fee. Please send a reminder of minimum fee income in quarter one. In connection with the mutual aid, voluntarily covered mutual aid participant medical expenses arising from medical conditions diagnosed by March 31st, 2021 that would have been covered by the ceased mutual aid plan. In addition, we offer a one-year complementary health insurance policy to each participant with a similar coverage as the participant's original military plan. And as of April 30, 2021, a total of 2.71 million people have applied for this complementary health insurance policy. The estimated medical expenses and the one year health insurance coverage will be partially accounted for as a reduction of minimum fee income that was previously recognized for each participant to the extent of the cumulative amount earned until March 26, 2021. In quarter one, we recorded only 2.7 million of minimum fee income. The well-off cost amounted to RMB 96.7 million, including two parts. The first part is the related medical expenses are expected to RMB 15 million, and the cost of one-year complementary health insurance policies are expected to be RMB 81.7 million. And as of March 26, 2021, the deducted cumulative monthly income was RMB 19.9 million, and the related cost recognized in the first quarter was RMB 26.8 million. Okay, very clear. Thanks.

Thank you. Thank you.

We are now approaching the end of our conference call. Thank you for your participation in today's conference. You may now disconnect. Have a good day.