Ladies and gentlemen, thank you for standing by. Welcome to Huize 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 Huize's IR website at ir.huize.com under the Events and Webcast section. I would now like to hand the conference over to your speaker host today, Mr. Kenny Lo, Huize's Investor Relations Manager. Please go ahead, Kenny.

Thank you, operator. Hello, everyone, and welcome to our second quarter 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 broadly explained in our earnings release and filings with the SEC. Joining us today are our Founder and CEO, Mr. Cunjun Ma; COO, Mr. Li Jiang; Co-CFO, Mr. Minghan Xiao; and Co-CFO, Mr. Ron Tam. 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.

Hello, everyone, and thank you for joining Huize's second quarter 2024 earnings conference call. Throughout the year, China's insurance intermediary industry has been undergoing a pivotal transformation, driven by changes in consumer behavior, declining interest rates, and the implementation of 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 clearer, the industry faces both opportunities and challenges. In response to the industry-wide volatility in the second quarter of 2024, we proactively adapted to market conditions by offering a diverse product mix, driving innovation in customized products, and enhancing our omnichannel distribution capabilities. 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 second quarter of 2024, total gross written premiums facilitated on our platform reached RMB 1.34 billion, with total revenue amounting to RMB 218 million. In the second quarter, our total first-year premiums facilitated on the platform amounted to RMB 650 million. From a product mix perspective, our long-term health insurance first-year premiums amounted to RMB 120 million, maintaining a growth trend throughout the year. Long-term life insurance first-year premiums grew by 5% year-over-year to RMB 380 million, while renewal premiums reached RMB 690 million in the same quarter, up 42.8% year-over-year, reflecting our ongoing strategic focus on long-term insurance. Consequently, long-term insurance premiums accounted for 91.3% of total gross written premiums, marking the 19th consecutive quarter this figure has remained above 90%. Additionally, our short-term insurance business also maintained positive momentum, with first-year premiums increasing by 33.5% year-over-year to approximately RMB 120 million, further reinforcing our diversified product offerings. Huize remains committed to serving high-quality customers by delivering superior service experiences. Throughout the quarter, we launched several marketing initiatives such as monthly campaigns, company anniversaries, festivals, celebrations, and membership day events. We successfully reached more than 70,000 users through these efforts and achieved over 30,000 sales conversions. We also continue to provide users with professional and efficient claims assistance services. In the first half of 2024, the total number of insurance claims cases assisted by Huize reached 80,000, with a total claim settlement amount of approximately RMB 400 million. As of the end of the second quarter, our cumulative number of insurance customers has grown to 9.8 million, 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. Furthermore, the average first-year premium ticket size of savings products reached RMB 78,000, up 22.7% year-over-year. Our customer retention rate has 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 the end of June, our cumulative persistency ratios for long-term insurance in the 13th and 25th months remained at industry high levels of over 95%. As of the end of the second quarter, we had partnered with 125 insurance companies. In response to the low interest rate and risk-averse environment, we quickly adapted to meet customers' needs for inflation hedging and asset preservation. In April, we partnered with Aviva-COFCO to launch a customized participating whole life insurance product, Fu Man Jia, which has been widely recognized since its introduction. Building on our deep market insights and operational capabilities, we continue to refine and upgrade our existing products. In July, we partnered with China Merchants Life Insurance to introduce Xiao Tao Qi No. 3, a child critical illness insurance product. While maintaining the product's cost-effectiveness, we focus on addressing users' refined needs by further optimizing coverage details. In September, we launched the customized Darwin Critical Care No. 10, marking the 14th iteration of our Darwin critical illness insurance series. This latest version expands coverage to 185 major critical illnesses and provides more options, coverage plans, and additional payment scenarios to address customers' evolving needs. As of the end of the second quarter, customized products accounted for 41.2% of the total first-year premiums, representing a year-over-year increase of 16.9 percentage points and a quarter-over-quarter increase of 18.1 percentage points. This clearly demonstrates Huize's leading product innovation capabilities, as well as users' recognition of Huize'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 second quarter, achieving our initial double-digit target. Additionally, Huize's international brand, Poni Insurtech, successfully acquired Vietnam's leading digital insurtech platform, Global Care, marking another milestone in our overseas expansion. This not only signifies Huize's official entry into its second 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-Asian insurtech platform. Vietnam, as an emerging insurance market, is experiencing robust economic growth and boasts a large, young, and highly digitalized population base, demonstrating tremendous market potential. We firmly believe that with Huize's exceptional technological capabilities, strong business acumen, and extensive experience in the Chinese market, we will create unparalleled competitive advantages for both parties. On one hand, Huize will empower Global Care, driving the digital transformation of the Vietnamese insurance market. On the other hand, Global Care will help Huize expand diversified market revenue and contribute to building a globally recognized brand. 2024 has been a year of rapid changes in the market environment; however, leveraging Huize'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, demand for participating insurance products is expected to experience a strong rebound, positioning them as mainstream products in the market. We will work closely with insurance companies, leveraging each other's resources and strengths to develop and promote participating products that better align with market needs, ensuring sustainable growth under the new regulatory environment. This concludes my prepared remarks for today. I will now turn the call to our CFO, Mr. Ron Tam, who will provide an overview of our key financial highlights for the second quarter.

Thank you, Mr. Ma and Kenny. Good evening, everyone, in Hong Kong, Asia time zone, and good morning, everyone in New York, U.S. time zone. To open the discussion, the challenging industry landscape is quite relevant to the market for the second quarter. Considering the high base effects for year-over-year comparisons, we have delivered a pretty resilient set of results for the second quarter, 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 industry's average was largely attributable to the differentiated omnichannel distribution capabilities of our platform model, which covers both online and offline channels; our continued acquisition of 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 second quarter. Our open platform model continues to empower our internal financial advisers, our distribution channel partners, and also the IFAs in the market with an omnichannel distribution network, diversified product matrix, 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 second quarter increasing by 6.5 percentage points year-over-year to 40.5%. This metric directly underscores our ability to upsell and cross-sell our customer set and capitalize on the LTV potential of a high-quality customer base. We continue to leverage our proprietary AI solutions that we developed in-house to streamline operations and enhance operating leverage and efficiency. In the second quarter, our GWP productivity per employee 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 second quarter. Renewal premiums increased by 42.8% year-over-year to approximately RMB685 million. As of the end of June, our 13th and 25th month persistency ratios for long-term life and health insurance policies remained at industry high levels of over 95%. The average ticket size for our long-term savings products has reached a record high of over RMB77,000 in the second quarter 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 product categories. The FYP from our long-term health products increased by 29% sequentially to RMB124 million, 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&C products maintained a stable growth momentum, with FYP from this segment increasing by 33% year-over-year to RMB116 million. FYP from international business also grew by 34% on a sequential basis. Thanks to the 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 the direct-to-consumer segment, our overall gross profit margin improved by 2.3 percentage points sequentially to 31.3% in the second quarter of 2024. Our financial position remains very robust, with the combined balance of cash and cash equivalents of RMB236 million, or US dollar equivalent of US$33 million, as of the end of the second quarter. Our omnichannel 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 second quarter, increasing the total customer count to 9.8 million as of the end of the June quarter. We currently expect our platform to reach an important milestone of 10 million customers by the end of this current quarter. Moving forward, we will leverage our unique customer insights and our AI capabilities to further enhance our product innovation and create additional upselling 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. Again, total international revenue contribution accounted for 11% of total group revenues in the second quarter, which is up from 7% in the first quarter. Looking overseas, we'll continue to allocate adequate resources to strengthen our international brand, Poni 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, establishing distribution partnerships, advancing technological improvements to the platform, and deploying our AI capabilities. In parallel, we are actively exploring underpenetrated markets across Southeast Asia to further expand our footprint. 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 two 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 will emerge, which would benefit leading players such as ourselves. We are confident that our strategies will solidify our position as a leading insurtech platform in Asia, connecting consumers, insurers, and distribution partners digitally and efficiently via our data-driven and AI-powered solutions. And with that, we will now open up the call to Q&A. Thank you, and over to you, operator.

Thank you, management. We will now begin the question-and-answer session. Our first question comes from Amy Shin from Citi. Please go ahead.

Hi. I have three questions. The first one being the guidance on earnings and expenses. We see that in the second quarter this year, there has been some year-over-year increase in the G&A expenses as well as share-based compensation. Full-year wise, how should we think about expenses and net profit? The second question is on first year premium trends. We see that in the second quarter this year, there has been some deceleration. This is similar to the industry-wide trend. 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 the muted FYP growth? And looking ahead to the third quarter, what 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 Huize after the regulatory change? Thank you.

Thank you, Amy, for 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 our share-based compensation. The primary reason is that we have issued a new round of options through our ESOP plans in the first quarter. In the second quarter, our share price has rallied quarter-on-quarter, and due to accounting policies for the calculation of the SBC, the expense item has increased sequentially. So, we do expect that, first of all, the SBC is a non-cash item. It does not affect cash flows. 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. Your second question on FYP trends, I think, in Q2, we have obviously been impacted by the rationalization of brokerage commissions, the regulatory policy. That's not just the only reason. The other reason that has impacted overall customer demand is due to the expected pricing rate change in the third quarter of this year, which has just happened on August 31, whereby the mainstream products that were priced based on the 3.0% interest rate are going to be reduced to 2.5% from September 1st. What that means is that a lot of the customer demand has been pushed back to Q3 from Q2 as people expected that policy to be in effect by August. This has resulted in a depressed FYP environment in Q2. Based on that, we expect an uptrend on FYP in Q3, 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. Regarding the third question on the regulatory impact on product mix, overall, in this current economic climate in China, consumers are still relatively more inclined to purchase savings products due to the declining interest rate environment. The attractiveness of participating products, for example, is becoming increasingly appealing from a yield differential comparison perspective. The lack of good fixed income alternatives or investment product alternatives in the local market should drive the further popularity of participating products going forward. What we expect in the coming quarters is an increasing contribution from participating products as people become more educated about the product. We were actually one of the first online brokers to customize a participating product with a leading insurance carrier in the second quarter, as mentioned by Mr. Ma. We partnered with Aviva-COFCO to launch a customized participating product that would meet the current market requirements for better returns and help insurers manage their asset-liability exposure in the long run. We believe that participating products will become mainstream as we move forward in the next one to three years, as the market becomes more educated about this product and with offline agents promoting it, this will become the standard. In Q2, we also managed to increase our product mix with our customized partnerships with two leading insurers, Ping An Health and CPIC, which have also helped us deliver a good improvement in the production category. Overall, that has contributed to a better take rate and mitigated against the negative impact on commissions brought by the regulatory trend of rationalizing brokerage commissions. So, that would be my answers to your questions, Amy. Thank you.

Thank you, Ron. That's very clear.

Thank you for the questions. We're moving to the next question. The next question comes from Michelle Ma at Citi. Please go ahead.

Thank you. This is Michelle from Citi. I just have one question on the business strategy because Ron just mentioned the company targets to enter into two new markets in the near future. Could you shed some light on the new business initiatives? I am also trying to understand why we would like to enter into multiple overseas markets in a very short period, given that each market has a very different regulatory environment, and why not just focus on one market and develop the business before moving on to another one. So, could you shed some light on this?

Thank you, Michelle. Great questions on the strategy on the international front. I guess my answer to your question would be that we have been quite encouraged by our initial results. Our first international market, Hong Kong, has been tracking quite well, and that has encouraged us to pursue other markets. Vietnam has been in the works for almost a year. When we closed the transaction two weeks ago, it was almost the first year anniversary of our first contact with the target. The reason for Vietnam is quite obvious; it parallels the Chinese market, perhaps 10 years ago. We have seen and we have grown from 18 years ago in China to where we are today, and we can envisage the kind of growth trajectory and business development likely to take place in that market because it shares many parallels with the Chinese market. We take a flexible approach to our international strategy. In Vietnam, it is a buy and build model, not a greenfield expansion. It is an M&A transaction where the target is very similar to our business model. We believe the chemistry is very aligned. With our existing and proven product stack and technology platform, we can quickly replicate our business over there. The transaction size is also quite small and from a financial and risk perspective, it is very manageable. We have a lot of confidence that the M&A, the integration, and the synergies would be very positive for the group. As for the two new markets, we are looking across ASEAN markets, likely targeting growth markets like the Philippines, Indonesia, and Singapore. We believe that high-value customers will be attracted in these markets as the product connectivity offers a lot of potential for our existing customer base. In the Philippines, for instance, we draw an analogy with Vietnam, albeit it might be an even more frontier market in some ways. In these growth markets, our strategy will be to find a strong local partner with existing resources. In markets like Indonesia and the Philippines, we would likely form a joint venture with an established local group whereby the local partner will handle the regulatory and local resources. From our perspective, we will do what we excel at, which is to empower the business with our technology and product knowledge. That is really the overall business strategy around our internationalization plan. We will always start with what we are really good at in our domestic market and replicate our proven successful formula, while localizing it to respect the culture, best practices, and local regulatory regimes of each market. In all these growth markets, we will seek a local partner who is well-versed in the local market dealings. So, that would be my answer to your question, Michelle.

Thank you for the question.

Okay. Thank you, and congratulations. My question is, does the company plan to introduce more customized products since the industry might tend to sell more participating products? Are there any plans to introduce more or new participating customized products to revert the product mix to the participating products? Yes, thank you.

Apologies. I couldn't really catch your question. The line has been a bit unstable. Could you kindly repeat?

Yes. Can you hear me now? Yes. My question is, does the company plan to introduce some more customized products, especially participating products?

Okay, got it. Thank you. Over the past six to eight years, one of our key competitive strengths has been co-developing products with our insurer partners. If you look back to 2020 when we first IPO-ed our company, we were mainly doing protection products, focusing on critical illness products customization. As we moved forward to 2021 and 2022, the market evolved into an era of savings products. We quickly adapted to changing market dynamics and customer preferences and rolled out endowment insurance, customized products, annuities, and more, for different demographic groups. As we move into the new interest rate regime in China, we envision that, drawing from the experience of Japan in a similar context, participating products will likely become mainstream here. We have already launched our first customized participating product in the second quarter with Aviva-COFCO, a leading brand in the China market. The strategy is to innovate and develop customized products that address the requirements of the three main stakeholders: the consumer, the insurers, and the intermediary. When all three stakeholders' interests are taken care of, only then can the product be distributed effectively. We have accumulated strong experience in product customization expertise and will continue to roll out more products to address the changing market dynamics and consumer preferences, ensuring all stakeholders benefit in terms of product distribution.

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

Thank you, operator. In closing, on behalf of Huize'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.

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