Huize Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 20, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Heute Holding Limited's 4th Quarter and Full Year 20 23 Earnings Conference Call.

Speaker 1

At this time, all participants are in

Operator

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 Heuser's IR website at ir. Heuser.com under the Events and Webcasts section.

Speaker 1

I'd now like to hand

Operator

the conference over to your speaker host today, Ms. Harriet Hu, Heuser's Investor Relations Director. Please go ahead, Harriet.

Speaker 1

Thank you, Sarah. Hello, everyone, and welcome to our earnings conference call for the 4th quarter full year of 2023. Our financial and operating results were released earlier today and are currently available on both our IR website and the new flyer. Before we continue, I would like to refer you to the Safe Harbor statements 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 to date, which are more thoroughly explained in our earnings press release and filings with the SEC.

Speaker 1

Joining us today are our Founder and CEO, Mr. Zhenjui Ma COO, Mr. Li Zhang Co CFO, Mr. Minhan Xiao and Co CFO, Mr. Ron Tang.

Speaker 1

Mr. Ma will start the call by providing an overview of the company's performance and operational highlights for the Q4 full year of 2023. Mr. Chen will then provide details on the financial results for the period before we open up the call for questions. I will now turn the call over to Mr.

Speaker 1

Hello, everyone, and thank you for joining Huizhou's 4th quarter and full year 2023 earnings conference call. In 2023, China's insurance industry continued a positive growth trajectory, marking the 2nd consecutive year of growth following the industry's significant reform. In particular, the demand for savings insurance products remained robust, driving a 12.75 percent growth in total premiums for China's life insurance industry amidst the declining RMB interest rate. The China Insurance Consumer Confidence Index also reflected a resurgence in consumer confidence towards the macroeconomic environment and the insurance industry. Notably, the intention to increase insurance coverage has responded for 3 consecutive quarters, surpassing levels in the same period of both 2021 2022.

Speaker 1

Navigating through this evolving market trend, Huizhe has successfully seized the market opportunities in long term savings products by leveraging our strategic focus on long term insurance products, diversify operational tactics, product innovation and customer acquisition capabilities, we have once again delivered satisfactory results. In 2023, total gross written premiums or GWP facilitated on our platform reached RMB5.8 billion, up 18.2 percent year over year. Our total revenue increased by 3.3% year over year to RMB12 1,000,000,000, and we achieved a non GAAP net profit of RMB72.3 million, exceeding our guidance of RMB16 1,000,000. Point 6 billion, up significantly by 42% year over year and renewal premiums increased by 4% year over year, reaching RMB3.2 billion. In terms of product mix, the GWP contribution from long term insurance products in 2023 was 92.3%, representing the 4th consecutive year exceeding 90%.

Speaker 1

During the year, we witnessed a rise in demand for savings products and leverage our diversified product offering and omni channel distribution capabilities to capitalize on the market opportunity. In light of that, FYP from our long term savings products increased by 54.6 percent year over year to RMB1.7 billion and FYP from our long term healthy products increased by 19% year over year to RMB510 1,000,000. While we maintained high quality growth in our long term insurance business, we also provided customized products and risk management solutions to our corporate clients, which led to a 74% surge in the FYP of our PMC insurance product, reaching RMB390 1,000,000 in 2023. As of the end of the 4th quarter, our cumulative number of insurance customers exceeded 9,300,000. Among the long term insurance customers from the 4th quarter, 65.8% were from higher tier Cs and their average age was 34.1 years old.

Speaker 1

41.8% were repurchased from existing customers, which has increased by 8 percentage points year over year. We also witnessed a substantial increase in the 4th quarter in average ticket size of saving products in terms of FYP, which was approximately RMB59000, representing a 30% increase year over year. This was primarily driven by our focus on acquiring high quality customers and upselling existing customers with high LTV potential as well as the success of our Hong Kong business expansion, contributing premium international product sales in the 4th quarter. As of the end of December, our cumulative persistence ratio for the long term insurance in the 13th 26 months remained at industry high levels of more than 95%. As of the end of the Q4, we have cooperated with 123 insured partners.

Speaker 1

Throughout the year, we maintained solid collaboration with leading insurance companies, further enriched our diversified product matrix in order to meet the differentiated protection needs from customers, whether they are in search of premium brands or cost effective products. For example, in November, we partnered with Jiajia Annuity Insurance to launch Jiajia Huixi, a customized retirement annuity insurance product, adjusting the unique needs of the post-80s-90s customers by offering elderly care services and various types of protection options. In December, we partnered with PICC Life Insurance to launch the Darwin Critical Care 8 Advanced. Since its launch in 2018, the Darwin Critical Care series product has provided over 310,000 customers with intense protection through higher limits, broader coverage and better service quality. In 2023, the GWP contribution from our customized insurance products was 51.6%.

Speaker 1

In 2023, FYP facilitated by our independent financial advisors or IFA platform, reached RMB350 1,000,000, representing a significant increase of 73% from the previous year. The number of high performing ISA studios increased by 106%. In our direct to consumer segment, we launched a series of promotions and marketing initiatives to engage potential and high value customers, which effectively reduced customer acquisition costs and posted conversion rates. As we expand our customer base, we continue to remain highly committed to deepening our engagements with existing customers. In 2023, we served more than 1,000,000 families with over 11,000,000 insurance policies and assisted with 92,000 insurance plans, amounting to a total plan settlement of RMB570 1,000,000.

Speaker 1

Recognizing the growing demand for premium insurance and overseas asset allocation, we took actions rapidly and seize the opportunities in the Hong Kong insurance market, which has allowed us to diversify our revenue stream, bolster our operational resilience and enhance our risk management abilities. During the year, we partnered with China Pacific Life Insurance

Speaker 2

Hong Kong

Speaker 1

to co develop the Tima Yibo multi currency product. With the extension of our product portfolio, we have also expanded our Hong Kong Insurance brokerage business, creating a comprehensive suite of high end insurance services tailored for high value customers. With the resumption of cross border travel, we saw a substantial surge in the scale of our MTB business. The revenue contribution from our Hong Kong brokerage business already reached 6% of our total revenue in the Q4. Beyond Hong Kong, we are actively exploring insurance business opportunities in Southeast Asia.

Speaker 1

Market statistics show that the average insurance penetration rate of Asia's emerging market was 3.6% in 2020Q, while that for life insurance was only 2.1%. In particular, the insurance penetration rate in Vietnam and Indonesia was at a low level ranging from 1% to 2%. We believe that the proven success of our business model can be replicated overseas, especially at suitable emerging markets where the per capita disposable income continues to rise. We see that potential in the insurance market in this region is massive and we believe we are in a good position to capture these opportunities. Finally, I'm excited to share some of our investments in the development of AI large language models for insurance application.

Speaker 1

Huizeng has cumulated reserves over 60,000,000 insurance customers to date, amassing a wealth of data that encompasses not only our user profile and plan statistics, but also product details and sales information. Leveraging the strength of our dual data tools coupled with our industry leading technology and innovation capabilities, we have launched a suite of tools powered by our AI marketing assistant. These tools include the annuity calculator and extensive insurance product knowledge bank and the intelligent checkbox, all of which are widely adopted by our consultants and agents. To provide more color, where annuity calculator is designed to instantly and automatically display annuity payouts upon calculation and clearly illustrate product features, reducing the time it takes for consultants to prepare product proposals and enabling them to quickly adjust users inquiries. This AI driven tools not only increase consultant efficiency, capacity and conversion rate, but also improve the overall user experience by precisely pinpoint user needs and reducing wait time.

Speaker 1

Capitalizing on the long term growth opportunities of the insurance industry in China and Asia. We will enhance our ability to customize differentiated products and integrate online and offline product distribution and services in our home market. We will continue to invest in our market expansion in Hong Kong and actively pursue opportunities in the emerging markets of Southeast Asia. Our goal is to identify addressable growth markets with supportive demographics and replicate our proven business model, further diversify our revenue stream to more markets and elevate our brand's awareness and recognition on the international stage. We are targeting a double digit percentage revenue contribution from international markets in 2024.

Speaker 1

At the same time, we have been investing in our own proprietary AI large language model and will strive to integrate our AI products throughout the entire insurance service chain to empower our business operations and ecosystem partners, which includes insurance carriers, independent agents and distribution channels from the initial insurance product competition to user engagement, marketing, risk management, customer service and plan service. This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ron Tan, and he will provide an overview of our key financial highlights for the Q4.

Speaker 3

Thank you, Mr. Ma and Harriet. Good evening, everyone in the Asia time zone, and good morning to everyone in New York. As the macro economy and industry conditions gradually recover, we are very pleased to report that the total GWP facilitated on our platform for the year increased by 18.2 percent to RMB5.8 billion in 2023. We think that this growth is largely driven by our omnichannel distribution platform capabilities, our high quality customer base, our diverse range of product offerings, as well as our maiden contribution of international revenues from our expansion into the Hong Kong market in the second half of twenty twenty three.

Speaker 3

Our efforts to acquire new customers have also become increasingly efficient with more than 212,000 new customers added to our Q4. By the end of the year, our total customer count has exceeded 9,300,000. We are proud to announce that we recorded a non GAAP net profit of RMB72.3 million for the 2023 fiscal year, surpassing our previously given guidance of RMB16 1,000,000. Our 4th quarter non GAAP net profit of RMB16 point 4,000,000 also marked our 5th consecutive quarter of profitability. Our first financial results are a testament to the effective execution of our key business strategies.

Speaker 3

To elaborate, first, we have consistently prioritized our strategic focus on long term insurance products, which have contributed to over 90% of our gross written premiums for the 17th straight quarter. Secondly, we have continued to empower the capabilities of insurance agents through our superb distribution network, product innovation and technological advancements. This has resulted in a significant 73.4 percent year over year increase in premiums generated by our IFA platform, reaching RMB354 1,000,000 in 2023. Thirdly, we continue to pursue upselling opportunities across the high quality customer base. In 2023, the repeat purchase ratio for our long term insurance products climbed by 6.9 percentage points year over year to 36.9 percent, reflecting the deepening loyalty and trust of our customers in our brand.

Speaker 3

And finally, we continue to optimize our operational efficiency and customize our positioning costs as reflected in the further improvement in our gross margin and expense ratio. As we look at our operational results, I want to highlight several key achievements that drove our strong performance. 1, our 1st year premiums and renewal premiums increased by 42% and 4% year over year respectively, indicating our ability to attract new customers and also engage with existing ones. 2nd, our persistency ratio for long term life and health insurance remain at an industry high level. As of the end of the year, the 13th 25th month persistency ratio stood above 95%.

Speaker 3

And third, the average ticket size for our long term savings insurance products, which has become increasingly important as a category for distribution increased by 31% year over year to over RMB54000 in 2023, demonstrating our continued success in upselling our existing customers. These highlights are just a few examples of a high quality customer profile and our relentless efforts and successes in capitalizing on the lifetime value potential of our customers. In 2023, we proudly sustained our market leading position in long term insurance products in China. The FYP of our long term health product increased by 19% year over year to approximately RMB500 1,000,000 while the FYP of our long term life and annuity products surged 55% year over year to RMB1.7 billion. We will continue to pursue a balanced product mix between long term health and savings categories to satisfy evolving customer needs and market environment.

Speaker 3

In parallel, we have actively diversified our portfolio to include also customized P and C insurance products. This diversification has also paid off as the FYP from this business grew by 74% to approximately RMB400 1,000,000 in 2023, providing us with new and promising revenue stream diversification. In addition, our expansion into the Hong Kong market yielded encouraging results with total international revenue contribution from Hong Kong reaching 6% in the 4th quarter. Throughout the year, we have diligently maintained tight control over our marketing expenses and continue to streamline our operations to improve our profit margins and efficiency. Our gross margin improved to 37.4% in 2023 from 36.6% in 2022.

Speaker 3

This improvement reflects the enhanced customer acquisition efficiencies and the increased repeat purchases by existing customers. In 2023, our total operating expenses continued to decrease following by 15% year over year. Our operating expense ratio further improved to 33% in 2023 from 40% a year earlier, decreasing by 7 percentage points. We also achieved non GAAP net margin of 6% for the full year of 2023. And as of the end of 2023, our financial position remained strong as our combined balance of cash and cash equivalents stood at RMB 249,000,000 which is more than US30 $1,000,000 In addition with our commitment to drive shareholder value, we have continued to buy back shares from the open market under our existing mandate.

Speaker 3

And as of the end of 2023, we have repurchased in aggregate approximately 1,500,000 ADSs, which reiterates management's confidence in our long term business model prospects. As we continue to solidify our market share in China, we are committed to capitalizing on the long term digitalization opportunities of Asia's insurance industry. Our key focus will be to increase our presence in the Hong Kong market where we plan to expand the sales team and launch more customized products to capitalize on the robust MCD demand and also local insurance demand for high value customers. We also proactively identify addressable growth markets with supportive demographics in Southeast Asia and largely untapped market potential to replicate our proven business model in China and further diversify our revenue stream to more markets and elevate our brand awareness and recognition on the international markets. We have set the target to achieve a double digit revenue contribution from international markets by 2024 and this goal reflects our confidence in the scalability and replicability of our business model itself.

Speaker 3

Moving forward, we'll continue to leverage our deep customer insights and our own proprietary AI products to enhance the product innovation and upselling capabilities. We'll also further strengthen the integration of our online to offline ecosystem to enhance customer acquisition and engagement capabilities of our insurance agents by providing them with the tools and support in increasingly competitive landscape. As we recognize the importance of resource allocation across the businesses, we'll maintain a laser sharp focus on driving further improvement in operating efficiency with the aim to enhance the overall profitability. And in summary, considering our robust AI powered product innovation capabilities, our extensive online to offline distribution ecosystem, the empowerment of our insurance agents and IFA partners and our proactive overseas expansion efforts, we are continuing to be optimistic about the outlook for 2024. We are now targeting a non GAAP net profit of RMB16 1,000,000 for 2024 with continued investments in new markets MAI.

Speaker 3

We are 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 through our data driven and AI powered solutions. And with that, we will now open up the call to questions. Thank you very much and open to you, operator.

Operator

Thank you. And this is from the line of Amy Chen from Citi. Please go ahead.

Speaker 2

Hi. Is a follow-up. Congrats on the management on another profitable quarter. And then I have two questions. The first question is on the rationalization of compensation paid to the brokerage channel, which is in Chinese.

Speaker 2

And I'm wondering how would this impact our brokerage income in terms of, for example, for annuity products or say for CI products, how would this impact our 1st year commissions and the renewal commissions? And the second question would be on customer demand. Going to 2024, how has the product mix shift so far? And what is our most mainstream or most popular products at the moment? Thank you.

Speaker 3

Thank you, Amy. So I got two questions from you. The first one on Baoxingqiu impact on the business. So we note that this is a very important topic among investors' minds right now. And so far, I think that what we've seen, which has happened already for the bank insurance channels, is that commission rates have generally been reduced by around 3% to 50% in that area.

Speaker 3

For the brokerage and agency channels, Of course, the actual regulations have not come out officially or ineffective yet. But we do expect that this will come probably in the next few months, maybe as early as April. So what we envisage is that probably there will be a somewhat similar kind of impact on the brokerage and agency channels as we have seen in bank assurance channels in terms of commission rate impact, generally speaking. And I think the impact on the offline so called savings products will be more marked or more effortlessly impacted and versus some of the online only products. So that's what we see as the potential market impact on that question.

Speaker 3

On your second question about customer demand and product mix shifts, I think we have also continued to see strong and sustained momentum in the long term savings category or annuities. This has still been the most popular or most in demand product among Chinese consumers due to the declining rate environment and probably the lack of attractive alternative investment alternatives in the China market right now with what we've seen in the real estate market and also underperforming equities market. So the long term savings products offered by insurance companies still represents a very viable and attractive investment product or wealth allocation product for general Chinese consumer. So we see that for the rest of this year and it's for the Q1, we are still seeing very strong demand for savings products. And in particular, we have been distributing participating long term savings products.

Speaker 3

And we are probably one of the leading online platforms to distribute hopefully the most popular participating products right now offered by market based from Generali China. So we are probably one of the leading platforms distributing this product in the China market. So I think this is probably the this is going to be the mainstream product for the rest of the year and we will continue to work hard to co develop customized products in this category with some of the larger brand names, which we hopefully will be able to launch as early as April next month. So we will be looking to cooperate with one of the top brands in the China market for a customized freezer exclusive long term participating savings product. So those will be the answers to your questions, Amy.

Speaker 2

That is very clear. Thank you, Varun.

Speaker 3

Thank you.

Operator

Thank you. We'll now take our next question. And this is from the line of Coco Gong from Morgan Stanley. Please go ahead.

Speaker 4

Thank you very much. And yes, congratulations on the very good results. I only have one question that's a little bit specific. Ron, you talked a lot about the savings products to mine and obviously the protection is still on investors' mind, although the demand seems to be still kind of weak right now, especially in China. So I want to understand since we can see a lot of data on this, do we see marginal improvement on critical illness like the long term health insurance product?

Speaker 4

Specifically, are we seeing more customers, new customers buying this insurance product? Or are we just seeing more existing customers buying more coverage? And do we see any other potential signs of marginal improvement in a specific product type? Thank you.

Speaker 3

Right. Thank you, Coco. So a question on customers or consumers demand on long term health products, particularly in the critical illness type of products. I think we do see continued or at least from our internal data, I mean, obviously the savings category is what people want these days. And especially in the current macro environment, I think generally Chinese consumers have a relatively stringent budget to allocate the money.

Speaker 3

So long term savings or whole life products or particularly participating products these days have drawn a lot of the customers' focus and budget. And so I think that this is why we still continue to see a relatively lukewarm growth in the long term health categories, for example, critical illness, which has continued to be recovering slowly. We do see customers, existing customers and new customers buying these products through our platform. It's not like the demand is not there. It's just that with the relative attention more towards savings products generally in the market and especially is a function of intermediaries like ourselves, platforms like ourselves and our competitors and also generally insurance agents in the overall market mainly pushing the distribution and sales of savings products, which is resulted in such a market phenomenon.

Speaker 3

So what we'll do is we'll continue to innovate on the health products. So we mentioned that we have just launched Dauer 8, which is a new version of our long term successful brand IP in the critical illness category. And this time we actually are now working with PICC, which Mr. Ma mentioned earlier in the call. We are working now with large insurers on these customized products.

Speaker 3

So hopefully, create more attention among our customer set and to drive more sales in these categories.

Operator

Thank you. We'll now take our next question. This is from the line of Yu Yu Chang from CICC. Please go ahead.

Speaker 5

Thanks management. Congrats on your good results. I'm Yi Yu Zhong from CLCC. And I have one question here. And my question is for the 2A segment.

Speaker 5

Could you give us some more color on how is it going so far? And we've noticed that recently, Insurance Association of China has asked for industry advice about agent classification. So if it's increments, I think it may have some effect on to a business. So could you share some more views on that? Thank you.

Speaker 3

Right. Thanks. So we touched on the 2A business earlier in the opening remarks. I think this business line has continued to be very strong at least in 2023. It's contributing almost 20% of our overall premium facilitated.

Speaker 3

And we continue to see strong growth in this business line. So specifically, I think there's a number that I can share here. So yes, so FYP facilitated by the IFA platform, which is the 2A platform was RMB350 1,000,000 last year, which is a year over year increase of 73%. And I think the most important thing is more and more independent agents or IFAs are now coming to our platform as partners because they find the 3 things that are very much our competitive strengths. Firstly, we have a very extensive product matrix from simple P and C products to the extensive life and health products that we have and in particular the customized exclusive greater products that we could evolve with insurance carriers.

Speaker 3

So I think that's a big draw to these intimate independent agents to become associated with us as a partner. And secondly, I think obviously because of our scale advantage, we earn top commission rates with most of the insurance carriers and thereby these agents by plugging into our platform will be able to enjoy the revenue pickup versus maybe partnering with another platform or as an agent inside an agency. So I guess these are the things that are helping us attract more and more agents to come. And I think finally, most importantly, we have the whole suite of the digital tools that we have been mentioning across our opening remarks, which really helps digitalizing the customer journey for these agents and also help them manage customers very efficiently with our digital and AI tools. And this is something that I think that needs quite a unique proposition in the Chinese market at least.

Speaker 3

So just to touch upon the IFA business model, I think what we are looking to launch is we want to replicate this into the rest of Asia. So I think we'll be starting with Hong Kong and also going into other parts of Southeast Asia. I think that's something that we think will be a very good value proposition to those local markets as well. So yes, I think in short, it's performing very well and it will be increasingly important as a revenue stream and business line for us. And your second part of the question is regarding the I believe the right?

Speaker 3

So the agent for the patient exams and the differentiation of different gradings. So what we understand is right now there is 4 grades for agents, grade 1 to grade 4. So for grade 1, you can sell all the complicated products, life and health savings, whatnot. And grade 4, you can only sell very simple products like protection or P and C. What we think that is for most of the agent partners that we have on our 2A business or IFA platform, most of these are relatively experienced agents that has been who have been working in the industry for over 5 years on average.

Speaker 3

So this regulatory impact will be minimal because I think most of these experienced agents have already qualified or can qualify for the higher tiers of the classification. And therefore, it will not have a limiting impact on what they can sell or distribute to the customers. And I think the same can be applied to our in house consultants and agents in the Creator platform. And most of our high performing agents can qualify under these new regulations. And we think that the draft paper has been out, but I think the effective date will likely to be next year.

Operator

Thank you. At this point, we have no further questions. So I would like to hand the conference back to Harriet for closing remarks.

Speaker 2

Thank you, operator.

Speaker 1

So on behalf of Toyota's management team, we would like to thank you for your participation in today's call. And if you require further information, please feel free to reach out to you with the IR team. And thank you again for joining us today. This concludes the call.

Speaker 3

Thank you.

Operator

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

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Key Takeaways

  • Huize delivered strong 2023 results with GWP of RMB5.8 billion up 18.2%, revenue of RMB1.21 billion (+3.3%), and non-GAAP net profit of RMB72.3 million (+42%), marking five consecutive profitable quarters.
  • Long-term insurance products accounted for 92.3% of GWP, with first-year premiums from savings products up 54.6%, health products up 19%, an average ticket size of RMB59,000 (+30%) and 13-26 month persistency above 95%.
  • International expansion is gaining momentum as the Hong Kong brokerage business reached 6% of Q4 revenue, and the company targets a double-digit share from overseas markets in 2024 with plans to enter Southeast Asia.
  • Operational efficiency improved with gross margin rising to 37.4% and operating expenses down 15% (expense ratio 33%), while a cash balance of RMB249 million supported the repurchase of ~1.5 million ADSs.
  • Investment in proprietary AI tools—such as an annuity calculator and AI marketing assistant—has enhanced consultant productivity, proposal speed and overall customer experience across the insurance service chain.
AI Generated. May Contain Errors.
Earnings Conference Call
Huize Q4 2023
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