Huize Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
September 25, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Huizi Second Quarter 2024 Earnings Conference Call. At this time, all participants are in 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 on Huizi and our website at ir.huizi.com under the Events and Webcast section.

Operator

I would now like to hand the conference over to your speaker host today, Mr. Kenny Luo, Huisei's Investor Relations Manager. Please go ahead, Kenny.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to our Q2 2024 earnings conference call. Our financial and operational results were released earlier today and are currently available on both our IR website and Global Newswire services. Before we continue, I would like to refer you to the safe harbor statement in our earnings press release, which also applies to this call as we will be making forward looking statements. Please also note that we will discuss non GAAP measures today, which are more thoroughly explained in our earnings release and filings with the SEC.

Speaker 1

Joining us today are our Founder and CEO, Mr. Quan Jun Ma COO Mr. Li Jiang, Co CFO Mr. Min Han Sia and Co CFO, Mr. Ron Tam.

Speaker 1

Mr. Ma will start the call by providing an overview of the company's performance and operational highlights followed by Mr. Tam, who will go over our financial results for the quarter before we open up the call for questions. I will now turn the call over to Mr. Ma.

Speaker 1

Hello, everyone, and thank you for joining Huijia's Q4 2024 Earnings Conference Call. Throughout the year, China's insurance intermediaries industry has been undergoing a pivotal transformation, driven by changes in consumer behavior, declining interest rates and implementation of the unified commissions and fees in reporting and underwriting. Despite these changes, the potential of the Chinese insurance market remains immense. As new regulatory policies gradually take effect and guidelines become increasingly clearer, the industry is presented with both opportunities and challenges. In response to the industry wide volatility in Q2 of 2024, we proactively adapted to market conditions by offering a diverse product mix, driving innovation in customized products and strengthening our omni channel distribution capabilities.

Speaker 1

We also continue to advance our AI capabilities, prioritize serving high quality clients and expand our international presence to capitalize on regional growth opportunities. In the Q2 of 2024, total gross written premiums or GWP facilitated on our platform reached RMB1.34 billion with total revenue amounting to RMB218 1,000,000. In the Q2, our total FYP facilitated on the platform amounted to RMB 650,000,000. From a product mix perspective, our long term health insurance FYP amounted to RMB120,000,000 maintaining a growth trend throughout the year. While FYP of long term life insurance grew by 5% year over year to RMB380 1,000,000.

Speaker 1

Renewal premiums reached RMB690 1,000,000 in the same quarter, up 42.8% year over year, reflecting our continuous strategic focus on long term insurance. As a result, long term insurance premiums accounted for 91.3% of total GWP, marking the 19th consecutive quarter with this number standing above 90%. Moreover, our short term insurance business also maintained positive momentum with FYP increasing by 32.5% year over year to approximately RMB120 1,000,000 further reinforcing our diversified product offerings. Oizhou remains dedicated to serving high quality customers by delivering superior service experiences. Throughout the quarter, we have launched a number of marketing initiatives such as monthly marketing campaigns, company anniversary, festivals, celebrations and membership day events.

Speaker 1

We successfully reached more than 70,000 users through these efforts and achieved more than 30,000 sales conversion. We also continue to provide users with professional and efficient claims assistance services. In the first half of twenty twenty four, the total number of insurance claim cases assisted by HUISE reached 80,000 with a total claim settlement amount of approximately RMB400 1,000,000. As of the end of the second quarter, our cumulative number of insurance customers has grown to 9,800,000 with 240,000 new customers added during the quarter. The average age of long term insurance customers was 34.7 years with 66.3% from higher tier cities, maintaining a high quality customer profile.

Speaker 1

Furthermore, the average FYP ticket size of safe end products reached RMB78000, up 22.7% year over year. Our customer retention rate have also remained stable with repurchase rates of long term insurance customers reaching 40.5%, a year over year increase of 6.5 percentage points. As of end of June, our cumulative persistency ratios for long term insurance in the 13th 25th months remained at industry high levels of over 95%. As of the end of the second quarter, we had cooperated with 125 insurance companies. In response to the low interest rate and risk adverse environment, we quickly adopted to meet customers' needs for inflation hedge and asset preservation.

Speaker 1

In April, we partnered with AFFIVA COVCO to launch a customized participating whole life insurance product, Pumanjiak, which has been widely recognized since its introduction. Building on our deep market insights and operational capabilities, we continue to iterate and upgrade our existing products. In July, we partnered with China Merchants Life Insurance to introduce Xiaochaotis 3, a child critical illness insurance product. While maintaining the IP's cost effectiveness, we focused on addressing users' refined needs by further optimizing coverage details. In September, we launched the customized Darwin Critical Care 10, marking the 14th iteration of our Darwin Critical Unit Insurance Series.

Speaker 1

This latest version expands coverage to 185 major critical illness and provides more option coverage plans and additional payment scenarios to address customers' evolving needs. As of the end of the Q2, customized product accounted for 41.2 percent of the total FYP, representing a year over year increase of 16.9 percentage points and a quarter over quarter increase of 18.1 percentage points. This fully demonstrates Huizae's leading product innovation capabilities as well as users recognition of Huizae's customized products. The company has seen encouraging progress in its international business. Thanks to the implementation of our international strategy over the past year, international business contributed 11% of total revenue in the Q2, hitting our initial double digit target.

Speaker 1

Additionally, HoiZa's international brand, Pony InsuTech successfully acquired Vietnam's leading digital InsuTech platform, Global Care, marking another milestone in our overseas expansion. This marks not only Hoi Ge's official entry into its 2nd international market, but also forms a key part of our mid to long term strategy in Southeast Asia, accelerating our mission to build a pan Asia intertech platform. Vietnam as an emerging insurance market is experiencing robust economic growth and both a large, young and highly digitalized population base, demonstrating tremendous market potential. We firmly believe that with Heute's outstanding technological capabilities, strong business expertise and extensive experience in the Chinese market, we will create unparalleled competitive advantage for both parties. On one hand, Huizhou will empower global care, driving the digital transformation of the Vietnamese insurance market.

Speaker 1

On the other hand, Global Care will help Huizhou expand diversified market revenue and contribute to building a global recognized brand. 2024 has been a year of rapid changes in the market environment. However, leveraging on Huizi's unique market insight and continuous operational adjustments, we have remained flexible and resilient in this challenging market. At the same time, our international business expansion has begun to show promising results. Looking ahead, with the official arrival of the 2% era for guaranteed interest rates on insurance, participating insurance products are expected to experience a strong rebound in demand, becoming the mainstream products in the market.

Speaker 1

We will work closely with insurance companies, leveraging each other's resources and strengths to launch and promote participating products that better align with market needs, ensuring sustainable growth and the new regulatory environment. This concludes my prepared remarks for today. I will now turn the call to our CFO, Mr. Ron Tan, who will provide an overview of our key financial highlights for the Q2.

Speaker 2

Thank you, Mr. Ma and Kenny, and good evening, everyone in Hong Kong, Asia time zone, and good morning, everyone in New York, U. S. Time zone. I guess to open the discussion here, I guess the challenging industry landscape is quite relevant to the market for the Q2.

Speaker 2

And I guess considering the high base effects for year over year comparisons, we have delivered a pretty resilient set of results for the Q2 with total GWP facilitated on our platform essentially flat on a year over year basis at RMB1.34 billion. Our relative outperformance against the overall intermediary industries average was largely attributable to the differentiated omni channel distribution capabilities of our platform model, which covers both online and offline channels, our continued acquisition or the ability to acquire high quality customers, our industry leading product innovation capabilities and an increase in revenue contribution from our international market. From a product strategy perspective, we continue to strategically focus on long term insurance products, which accounted for over 90% of our GWP during the Q2. Our open platform model continues to empower our internal financial advisers, our distribution channel partners and also the IFAs in the market with an omni channel distribution network, diversified product metrics and our proprietary AI productivity tools. We further deepened customer engagement across our direct to customer segment with the repurchase ratio for our long term insurance products during the Q2 increasing by 6.5 percentage points year over year to 40.5%.

Speaker 2

This metric actually thereby underscores our ability to upsell and also cross sell our customer set and capitalize on the LTV potential of a high quality customer base. We continue to leverage on our proprietary AI solutions that we developed in house to streamline operations and to enhance operating leverage and efficiency. In the Q2, our GWP productivity per employee has improved by 10% year over year, reaching RMB1.4 million per employee. As we look at our operational results, I want to highlight several key achievements that drove our solid performance in the 2nd quarter. Number 1, renewal premiums increased by 42.8 percent year over year to approximately RMB685 1,000,000.

Speaker 2

As of the end of June, our 13th 25th month persistency ratios for long term life and health insurance policies remain at industry high levels of over 95%. And thirdly, average ticket size for our long term savings products have reached a record high of over RMB 77,000 in the Q2 of 2024, which is up by 23% year over year, reflecting increased contribution from premium product sales in our international market segment. We continue to pursue a balanced mix between long term health and savings products categories. The FIP from our long term health products increased by 29% sequentially to RMB124 1,000,000 primarily driven by our customized products with top insurers including Ping An Health Insurance and CPIC. At the same time, contribution from short term health and P and C products maintained a stable growth momentum with FYP from this segment increasing by 33% year over year to RMB116 1,000,000.

Speaker 2

FYP from international business also grew by 34% on a sequential basis. Thankfully, improvement in overall take rate of the product mix as well as our strategies in controlling channel distribution costs and the increase in repurchase rate from a direct to consumer segment, our overall gross product margin has improved by 2.3 percentage points sequentially to 31.3 percent in the Q2 of 2024. Our financial position remains very robust with a combined balance of cash and cash equivalents of RMB236 million or US dollar equivalent $33,000,000 as of the end of the second quarter. Our omni channel distribution platform and proprietary AI productivity tools are strengthening our customer acquisition and engagement capabilities and streamlining our operations. We have added about 240,000 new customers to our platform in the Q2, increasing the total customer count to 9,800,000 as of the end of the June quarter.

Speaker 2

We currently expect our platform to reach an important milestone of 10,000,000 customers by the end of this current quarter, quarter 3. Moving forward, we will leverage on unique customer insights and our AI capabilities to further enhance our product innovation and create additional up selling and cross selling opportunities. We'll continue to empower insurance agents, IFP partners and our distribution partners with an optimized omnichannel platform, rich product offerings and advanced AI tools to support customer acquisition and engagement. We'll continue to capitalize on the long term growth opportunities in Asia's insurance industry. We further expanded our overseas presence by adding headcount to our international sales force and drove the promotion of premium products to satisfy robust demand for high value customers.

Speaker 2

Again, total international revenue contribution has accounted for 11% of total group revenues in the Q2, which is up from 7% in the Q1. Looking overseas, we'll continue and further allocate adequate resources to strengthen our international brand, Pony Insurtech. Following the acquisition of Global Care, our priority is to replicate our proven insurance technology ecosystem model in the local Vietnamese market. We have already begun to work closely with the local team to accelerate growth by innovating customized insurance products, distribution partnerships, innovating technological advancements to the platform and deployment of our AI capabilities. In parallel, we are actively exploring underpenetrated markets across Southeast Asia to further expand our footprint.

Speaker 2

These initiatives are expected to drive new growth, diversify our revenue streams and enhance long term value for our shareholders. We are targeting to enter 2 additional markets in the next 12 months and to drive international revenue to contribute 30% of group revenues by 2026. In summary, the shifting industry landscape in our home market of China is driving the healthy and sustainable growth of the entire insurance value chain. In the medium term, we anticipate industry consolidation opportunities would emerge, which would benefit leading players such as ourselves. We are confident that our strategies will solidify our position as a leading Intratec platform in Asia, connecting consumers, insurers and distribution partners digitally and efficiently via our data driven and AI powered solutions.

Speaker 2

And with that, we will now open up the call to Q and A. Thank you for holding up the floor with you, operator.

Operator

Thank you management. We will now begin the question and answer session. Our first question comes from the line of Amy Chen from Citi. Please go ahead.

Speaker 3

Hi. I have three questions. The first one being the guidance management guidance on earnings and expenses. We see that in the Q2 this year, actually, there has been some year over year increase in the G and A expenses as well as share based compensation. Full year wise, how should we think about expenses as well as net profit?

Speaker 3

The second question is on sales year premium trends. We see that in the Q2 this year, there has been some deceleration. And this is similar to the industry wide trend. And we also understand there has been some disruption from the regulatory side due to the rationalization of the commission rates in the broker channel. However, is there any reason behind muted FYP growth?

Speaker 3

And looking ahead to the Q3, how is the FYP growth trend? The third question is also related to the regulatory trend on the rationalization of broker channel commission, how has the product mix changed for Huizi after the regulatory trend changed? Thank you. Thank you. Thank you, Amy, for

Speaker 2

joining us again. So to address your first question on the guidance for earnings and some expense items, I think you have rightly noted that in Q2, we have some reversals or upticks in certain expense categories as it relates to share based compensation. And the primary reason is that we have issued a new round of options through our ESOP plans in the Q1. And in the Q2, our share price has rallied quarter on quarter and due to accounting policies for the calculation of the SBC, the expense item has increased in a sequential basis. So we do expect that to be 1st of all, the SBC is a non cash item.

Speaker 2

It does not affect cash flows. And second, I think overall, the expense ratio should revert to more at the Q1 level of this year going forward. So that's the answer to your first question, Seth. Your second question on FYP trend, I think in Q2, we have obviously been impacted by the rationalization of bookings commissions, the regulatory policy. And that's not just the only reason.

Speaker 2

And the other reason that has an impact on overall customer demand is due to the pricing rate, expected pricing rates change in the Q3 of this year actually, which has just happened in August 31, whereby the mainstream products that was priced based on a 3.0 percent interest rate is going to be reduced to 2.5% from September 1. So what that means is that a lot of the customer demand has been shifted or pushed back to Q3 from Q2 as people expect that policy to be in effect by August. So that has resulted in a depressed FYP environment in Q2. And based on that and on the back of that explanation, in Q3, we are expecting an uptrend on FYP, especially in the savings product category due to the pushback demand and the overall industry's push for distribution in the month of August particularly. So that will be the answer to your second question.

Speaker 2

With regards to the third question on the regulatory impact on product mix, I think that overall right now in this current economic climate in China, consumers are still relatively more the propensity to purchase savings products is still very keen due to the declining interest rate environment, the attractiveness of power products, for example, is becoming increasingly attractive from a yield differential comparison perspective. And the lack of good fixed income alternatives or investment product alternatives in the local domestic market should drive the further popularization of PAR products going forward. So into the product mix, what we would expect in the coming quarters is the increasing contribution from participating products as people are more educated about the product. And we are actually one of the first online or digital brokers to customize a power product with a leading insurance carrier actually in the Q2. We have partnered up with Arcelor Kofco, which we just mentioned in the opening remarks by Mr.

Speaker 2

Ma that we have come up with a customized PAR product, which would meet the current market requirements for better returns and at the same time helping insurers manage the asset liability exposure in the longer run. So we do believe that the power product will become mainstream as we move forward in the next in the 1, 2, 3 years. And as the market increasingly gets more educated about this product and also with offline agents or tight agents promoting this product, this will become the mainstream. In quarter 2, we also managed to increase our product mix as it relates to production products. That's on the back of our customized products partnerships with 2 leading insurers, one is Ping An Health and the other is CPIC.

Speaker 2

And these 2 customized products have also helped us deliver a good improvement in the production category. So overall, that has contributed to, again, a better take rate and to mitigate against the negative impact on commissions as it is brought by the regulatory trend on the rationalized bookings commissions. So that will be my answers to your questions, Amy. Thank you.

Speaker 3

Thank you, Ron. That's very clear.

Operator

Thank you for the questions. We're now moving to the next question. Next question comes from the line of Michelle Ma from Citi. Please go ahead.

Speaker 4

Thank you. This is Michelle from Citi. I just have one question on the business strategy, because Ron just mentioned, I think the company target to enter into 2 new markets in the near future. Can we have some could you shed some light on the new business initiatives? And also, I am trying to understand why we would like to enter into multiple overseas markets in a very short of time in a very short time given the each market they have very different regulatory environment and why not just delve into one market and develop some business and then enter into another one.

Speaker 4

So could you shed some light on this?

Speaker 2

Thank you, Michelle. Great questions on the strategy on the international front. I think I guess my answer to your question would be, we have been quite encouraged by our initial results obviously in our 1st international market, which obviously is Hong Kong. And our business in Hong Kong has been tracking quite well and that has encouraged us to further pursue other markets. Vietnam is something that actually has been in the works for almost 1 year.

Speaker 2

Actually when we closed the transaction 2 weeks ago, it's almost the 1st year anniversary of our first contact with the target. And the reason for Vietnam, I think it's quite obvious. It's basically very much a parallel to the Chinese market perhaps maybe 10 years ago. And I think we have seen and we have grown from 18 years ago in China to where we are today and we can kind of envisage the kind of growth trajectory and the business development that would likely to take place in that market because it share very a lot of parallels with the Chinese market. We take a very flexible approach as to our international strategy.

Speaker 2

In Vietnam, obviously, it's a buy and build. It's not a greenfield expansion. It's a M and A transaction where the target is very much similar to our Hui Des Missus model. It's very much like a a Vietnam version of us. And we believe that the chemistry is very, very aligned.

Speaker 2

And with our existing and proven product stack and technology platform, we can quickly replicate our business over there. And the transaction side obviously is also quite small. And from a financial and risk perspective, it's very much managed. And we have a lot of confidence that M and A, the integration and the synergies would be very positive for the group. As for the new 2 new markets, obviously, we are looking across RCI markets and likely this will be the growth markets in the form of Philippines, Indonesia and Singapore.

Speaker 2

These markets are our target markets right now. And I guess Singapore would be a similar story to the Hong Kong expansion. We believe that some high value customers will be attracted and the product connectivity and the products that Singapore can offer will provide a lot of potential for existing customer base. And then for Philippines, I think the analogy is with Vietnam, albeit Philippines might be even a little bit more frontier in some ways. But in that market or in all markets that we talked about just now in the growth markets category like Vietnam, our strategy would be to find a strong local partner with existing resources.

Speaker 2

So in markets like Indonesia and Philippines, what we'd be likely to do is to form a joint venture with a established local group whereby the local group the local partner will take care of the regulatory and the local resources. And from our perspective, we will do what we are very best at, which is to empower the business with our technology and the product know how. So that is really the overall business strategy around the internationalization part of the business plan. We will always start with what we are really good at in our domestic market. We will try to replicate the proven successful formula and to localize it with respect to each local market's culture, each local market's best practices and local regulatory regimes.

Speaker 2

And in all these growth markets, we will seek a local partner who are very well versed and very well experienced in the local market business dealings. So I guess that would be my answer to your question, Michelle.

Operator

Thank you for the question. Yes.

Speaker 4

Thank you very much.

Speaker 5

Raul. One moment for the next question.

Operator

Next question comes from the line of Ray Kuo from CICC. Please go ahead.

Speaker 5

Okay. Thank you and congratulations on your CFO. And my question, I only have one question that, the company is actually developing more customized products since the industry might go into tend to sell more participating products and introduce more or introduce some new participating customized products and so as to revert the product mix to the participating product? Yes. Thank you.

Speaker 2

I couldn't really catch your question, just the line has been a bit unstable.

Speaker 5

Could you

Speaker 2

kind of hear me? Yes.

Speaker 5

Can you hear me now? Yes. My question is, Doctor. Thompson is going to introduce some more customized products, especially participating products.

Speaker 2

Okay. Got it. Thank you. I guess over the past 6, 7, 8 years, I guess one of the key differentiating competitive strength that our group has is in the area of co developing products with our insurance partners. I think if you look back at 2020 when we just IPO ed our company, back in those days we're mainly doing protection products.

Speaker 2

We're mainly focusing on quicker illness products customization. And then as we move forward to 2021, 2022, the market has evolved into an era of savings products and we have very much quickly adapted to the changing market environment and customer preferences and we have rolled out endowment insurance customized product annuities and so forth. And also for different demographic groups, we have subcategories for the children and for the young adults and even for the elderly for suboptimal health groups. So as we move into the new interest rate regime in China, what we can envisage is that the drawing from the experience from the Japan in similar context, power products will become likely become we are very confident that the power products will become the mainstream products here. And again, we have already come out with the 1st customized product in the Q2 with our fever cough co, which is a very much a leading brand in the China market.

Speaker 2

It's a joint venture between the SOE COVCO and AVEVA Group, which is a U. K. Insurer and with purchase capital of RMB2.9 billion. So the strategy right now for us is to always innovate and come up with customized products, which help address the requirements on the 3 main stakeholders involved which is the consumer at the end and also the insurers and also the intermediary which is ourselves. With all 3 stakeholders' interests are taken care of, the product can only that the product can distribute well.

Speaker 2

So we have obviously accumulated very strong experience in this product customization expertise and in Q2 we have already come up with 1st version of the PAR product and we will continue to come up with more and more products to address in the changing market environment and consumer preference. And so that we can make sure that all stakeholders would come out and win it in terms of the product distribution.

Operator

Thank you for the questions. With that, I'd like to turn the call back to Mr. Lu for closing remarks.

Speaker 1

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

Operator

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

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Key Takeaways

  • In Q2 2024, Huizi facilitated RMB1.34 billion in gross written premiums and generated RMB218.1 million in revenue, with first‐year premiums of RMB650 million and renewal premiums up 42.8% year‐over‐year.
  • The company maintained a strategic focus on long‐term insurance, which accounted for 91.3% of total GWP for the 19th consecutive quarter, with persistency ratios above 95% and a repurchase rate rising to 40.5%.
  • Product innovation remained a core strength as customized offerings comprised 41.2% of FYP (up 16.9 pp yoy), including new participating whole life and critical illness products developed with leading carriers.
  • Huizi’s international business contributed 11% of Q2 revenue, bolstered by its acquisition of Vietnam’s Global Care, and plans to enter two more Southeast Asian markets within 12 months targeting 30% of revenues from overseas by 2026.
  • Operationally, GWP productivity per employee improved 10% to RMB1.4 million, gross product margin rose to 31.3%, and cash and equivalents stood at RMB236 million as of quarter end.
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Earnings Conference Call
Huize Q2 2024
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