Earnings Call Transcript - HUIZ Q4 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the Huize Holding Limited Fourth Quarter, and Full Year 2023 Earnings Conference Call. At this time, all participants are in 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 Huize's IR website at ir.huize.com under the Events and Webcast section. I'd now like to hand the conference over to your speaker host today, Mr. Harriet Hu, Huize's Investor Relations Director. Please go ahead, Harriet.

Harriet Hu, Investor Relations Director

Thank you, Sarah. Hello everyone and welcome to our earnings conference call for the fourth quarter and full year of 2023. Our financial and operating results were released earlier today and are currently available on both our IR website and a newswire. Before we continue, I would like to refer you to the safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more partly explained in our earnings press 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. Ronald Tam. Mr. Ma will start the call by providing an overview of the company's performance and operating highlights for the fourth quarter and full year of 2023. Mr. Jiang will then provide details on the financial results for the period before we open up the call for questions. I'll now turn the call over to Mr. Ma.

Cunjun Ma, CEO

Hello everyone and thank you for joining Huize’s fourth quarter and full year 2023 earnings conference call. In 2023, China's insurance industry continued its positive growth trajectory, marking the second consecutive year of growth following significant reforms in the industry. Notably, the demand for savings insurance products remains strong, driving a 12.75% growth in total premiums for China's life insurance sector, despite the declining RMB interest rate. The China Insurance Consumer Competence Index also indicated a revival in consumer confidence towards the macroeconomic environment and the insurance industry. Importantly, the intention to increase insurance coverage has rebounded for three consecutive quarters, surpassing levels from both 2021 and 2022. Responding to this evolving market trend, we successfully captured opportunities in long-term saving products by focusing on long-term insurance strategies, diversifying operational tactics, innovating products, and enhancing customer acquisition efforts. We achieved significant results this year. Total gross written premiums (GWP) facilitated on our platform reached RMB5.8 billion, representing an 18.2% increase year over year. Total revenue grew by 3.3% year over year to RMB12 billion, with a non-GAAP net profit of RMB72.3 million, exceeding our guidance of RMB60 million. First-year premiums (FYP) facilitated on our platform reached RMB2.6 billion, a remarkable increase of 42% year over year, and renewal premiums rose by 4% year over year to RMB3.2 billion. In terms of product mix, GWP from long-term insurance products constituted 92.3% in 2023, marking the fourth consecutive year above 90%. Throughout the year, we observed an increase in demand for savings products and utilized our diverse product offerings and omnichannel distribution capabilities to take advantage of these market opportunities. As a result, FYP from our long-term savings products rose by 54.6% year over year to RMB1.7 billion, while FYP from our long-term health products increased by 19% year over year to RMB510 million. In addition to maintaining high-quality growth in our long-term insurance business, we also provided products and risk management solutions to corporate clients, which resulted in a 74% increase in FYP for our PMC insurance product, reaching RMB390 million in 2023. As of the end of the fourth quarter, our total number of insurance customers surpassed 9.3 million. Among the long-term insurance customers acquired in the fourth quarter, 65.8% were from higher-tier cities, with an average age of 34.1 years. Additionally, 41.8% were repeat purchases from existing customers, an increase of eight percentage points year over year. We also saw a significant increase in the average ticket size for savings products in terms of FYP, which was approximately RMB59,000, reflecting a 30% rise year over year. This growth was driven by our efforts to attract high-quality customers and upsell to existing customers with high long-term potential, as well as the success of our Hong Kong business expansion, which contributed to premium international product sales in the fourth quarter. By the end of December, our accumulated persistence ratio for long-term insurance in the 13th and 25th months remained at an industry-leading level of over 95%. Throughout 2023, we partnered with 123 insurance organizations. Our collaboration with leading insurance companies has enriched our diverse product offerings to meet the specific protection needs of customers, whether they seek premium brands or cost-effective products. For instance, in November we partnered with Dajia Annuity Insurance to introduce Dajia Operations, a customized retirement and annuity insurance product catering to the unique needs of customers born in the 1980s and 1990s by providing elderly care services and various protection options. In December, we teamed up with PICC Life Insurance to launch the Darwin Critical Care Number Eight Advance, which builds on our 2018 Darwin Critical Care Series product that provided over 310,000 customers with enhanced protection through improved limits, broader coverage, and superior service quality. In 2023, GWP from our customized insurance offerings accounted for 61.6%. Within the same year, FYP generated through our independent financial advisors (ISA) platform reached RMB350 million, marking a significant 73% increase compared to the previous year. The number of high-performing ISA studios surged by 106% in our direct-to-consumer segments. We implemented various promotions and marketing initiatives to engage potential and valuable customers, effectively lowering customer acquisition costs and enhancing post-conversion rates. While expanding our customer base, we remain dedicated to deepening our engagement with existing clients. In 2023, we served over 1 million families with more than 11 million insurance policies and helped facilitate 92,000 insurance plans, totaling a plan settlement of RMB570 million. Recognizing the rising demand for premium insurance and international allocations, we swiftly acted to tap into the opportunities within the Hong Kong insurance market. This strategy has enabled us to diversify our revenue streams, enhance our operational resilience, and strengthen our risk management capabilities. Throughout the year, we collaborated with China Pacific Life Insurance in Hong Kong to co-develop the Jin Man Yi Zu multi-currency products. With the diversification of our product portfolio, we have expanded our Hong Kong insurance brokerage business, creating a comprehensive suite of high-end insurance services tailored to high-value customers. Following the resumption of pro-forward travel, we experienced a substantial increase in the scale of our MCV business, with the revenue contribution from our Hong Kong brokerage operations reaching 6% of our total revenue in the fourth quarter. In addition to our efforts in Hong Kong, we are actively seeking insurance opportunities in the Southeast Asian market. Statistics indicate that the average insurance penetration rate in Asia's emerging markets was 3.6% in 2022, with life insurance at just 2.1%. Particularly, the penetration rates in Vietnam and Indonesia remain low, ranging from 1% to 2%. We believe our successful business model can be effectively implemented in these regions, especially as per capita disposable income continues to rise. The potential in the insurance market in this area is substantial, and we are well-positioned to seize these opportunities. Finally, I am pleased to share some assessments regarding the development of AI and large language models for insurance applications. To date, we have served over 16 million insurance customers, allowing us to compile a wealth of data covering user profiles, plan statistics, product details, and sales information. Utilizing our dual data pools, along with our cutting-edge technology and innovative capabilities, we have launched a suite of AI-powered tools for marketing assistance. These tools include an annuity calculator, an extensive insurance code and knowledge base, and intelligent chatbots, all of which are widely used by our consultants and agents to enhance clarity and efficiency. The annuity calculator instantly displays new payout figures upon calculation and clearly outlines product features, reducing the time consultants need to prepare proposals and enabling quick responses to user inquiries. This AI-driven tool enhances consultant efficiency, capacity, and conversion rates while improving the overall user experience by accurately identifying user needs and minimizing wait times. Looking forward, Huize is committed to taking advantage of long-term growth opportunities within the insurance sector in China and Asia. We will enhance our capabilities to customize and differentiate our products and integrate online and offline distribution and services in our home markets. We will continue investing in market expansion in Hong Kong and actively pursue opportunities in the emerging Southeast Asian markets. Our objective is to identify growth markets with favorable demographics, replicate our business model, diversify our revenue streams across various markets, and elevate our brand recognition on an international level. We aim for a double-digit percentage contribution from international markets in 2024. Concurrently, we have been developing our proprietary AI large language model and will strive to integrate our AI solutions across the entire insurance service chain to empower our business operations and ecosystem partners, including insurance carriers, independent agents, and distribution channels, from initial consultation through user engagement, marketing, risk management, customer service, and plan servicing. This concludes my prepared remarks for today. I will now turn the call over to our CFO Mr. Ron Tam, who will provide an overview of our key financial highlights for the fourth quarter.

Ron Tam, CFO

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% to RMB5.8 billion in 2023. We believe that this growth is largely driven by our omnichannel distribution platform capabilities, a high-quality customer base, a 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 2023. Our efforts to acquire new customers have also become increasingly efficient, with more than 212,000 new customers added to our ecosystem in the fourth quarter. By the end of the year, our total customer count has exceeded 9.3 million. 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 million. Our fourth-quarter non-GAAP net profit of RMB16.4 million also marked our fifth consecutive quarter of profitability. Our financial results are a testament to the effective execution of our key business strategies. To elaborate, first, we have consistently prioritized our strategic focus on long-term insurance products, which have contributed to over 90% of our gross recent 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% year-over-year increase in premiums generated by our IFA platform, reaching RMB354 million in 2023. Thirdly, we continue to pursue upselling opportunities across our 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%, reflecting the deepening loyalty and trust of our customers in our brand. And finally, we continue to optimize our operational efficiency and customize acquisition costs, as reflected in the further improvement in our gross margin and expansion expense ratio. As we look at our operational results, I want to highlight several key achievements that drove our strong performance. One, our first-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. Second, our persistency ratio for long-term life and health insurance remains at industry-high levels. As of the end of the year, the 13th and 25th-month persistency ratio stood at about 95%. And third, the average ticket size for long-term savings insurance products, which has become increasingly important as a category for our distribution increased by 31% year-over-year to over RMB54,000 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 a 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 million, while the FYP of our long-term life and annuity product surged 55% year-over-year to RMB1.7 billion. We'll continue to pursue a balanced product mix between long-term health and savings categories to satisfy evolving customer needs and market environments. In parallel, we have actively diversified our product portfolio to also include customized P&C insurance products. This diversification has also paid off as the FYP from this business grew by 74% to approximately RMB400 million 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 fourth quarter. Throughout the year, we have diligently maintained tight control over our marketing expenses and continued to streamline our operations to improve our profit margins and efficiency. Our growth margin improved to 37.4% in 2023 from 36.6% in 2022. This improvement reflects the enhanced customer acquisition efficiencies and increased repeat purchases by existing customers. In 2023, our total operating expenses continued to decrease, falling by 15% year over year. Our operating expense ratio further improved to 33% in 2023 from 40% a year earlier, decreasing by seven percentage points. We also achieved a non-GAAP net margin of 6% for the full year of 2023, and as of the end of 2023, our financial position remains strong, with a combined balance of cash and cash equivalents standing at RMB249 million, which is more than $30 million. In addition to our commitment to drive shareholder value, we have continued to buy back shares from the open market under our existing mandate. As of the end of 2023, we purchased approximately 1.5 million ADSs, which illustrates 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 in 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 strong demand for high-value customers. We will 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 streams across more markets, elevating our brand awareness and recognition internationally. 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. Moving forward, we'll continue to leverage our deep customer insights and our own proprietary AI products to enhance our product innovation and upselling capabilities. We'll also further strengthen the integration of our online-to-offline ecosystem to improve customer acquisition and engagement capabilities of our insurance agents, by providing them with the tools and support needed in an increasingly competitive landscape. As we recognize the importance of resource allocation across businesses, we'll maintain a laser-sharp focus on driving further improvement in operating efficiency with the aim of enhancing overall profitability. And in summary, considering our robust AI-powered product innovation capabilities, extensive online-to-offline distribution ecosystem, empowerment of our insurance agents and IFA partners, and proactive overseas expansion efforts, we remain optimistic about the outlook for 2024. We are now targeting a non-GAAP net profit of RMB16 million for 2024, with continued investments in new markets and AI. 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'll now open up the call to questions. Thank you very much.

Operator, Operator

We will now take our first question from Amy Chen of Citi. Please go ahead.

Amy Chen, Analyst

Hi, I want to start by congratulating management on another profitable quarter. I have two questions. The first is regarding the adjustment of compensation paid to the brokerage channel. How will this affect our brokerage income, particularly for annuity products or CI products in terms of first-year and renewal commissions? My second question is about customer demand as we approach 2024. How has the product mix changed so far, and which product is currently the most popular? Thank you.

Unidentified Company Representative, Company Representative

Thank you, Amy. So, I got two questions from you. The first one on policy employee impact on the business. We understand that this is a very important topic among investors' minds right now. So far, we've seen that commission rates have generally been reduced by around 30% to 50% for the brokerage and agency channels. Of course, the actual regulations have not come out officially or gone into effect yet, but we do expect that this will come probably in the next few months, maybe as early as April. So, we envisage that there will be somewhat similar kind of impact on the brokerage and agency channels as we have seen in the bank assurance channels, in terms of commission rate impact generally speaking. I think the impact on offline savings products will be more marked or adversely impacted compared to some of the online-only products. On your second question about customer demand and product mix shifts, we have continued to see strong and sustained momentum in the long-term savings category or annuities. This has still been the most popular product among Chinese consumers due to the declining rates environment and the lack of attractive alternative investment options in the Chinese market right now considering the state of the real estate market and also underperforming equity markets. So, the long-term savings products offered by insurance companies still represent a very viable and attractive investment or wealth allocation product for general Chinese consumers. Therefore, we see that for the rest of this year and at least for the first quarter, we are still seeing a very strong demand for savings products. In particular, we have been distributing participating long-term savings products and we are one of the leading online platforms for distributing the most popular participating product offered by the market, which is from a general firm in China. We will be looking to cooperate with one of the top brands in the market for a customized long-term participating savings product, which we hope to launch as early as April next month.

Operator, Operator

We will now take our next question, and this is from the line of Coco Gong from Morgan Stanley. Please go ahead.

Coco Gong, Analyst

Congratulations on the very good results. I only have one question that's a little bit specific. Ron talked a lot about the savings products demand, and obviously the protection is still on investors' minds, although the demand seems to be weak right now, especially in China. 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? 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.

Ron Tam, CFO

Thank you, Coco. Your question on customers or consumers' demand on long-term health products, particularly in the critical illness category. We do see continued, or at least from our internal data, a lukewarm growth in the long-term health categories. We see customers, both existing and new, buying these products through our platform. It's not that the demand is not there; rather, it's that relative attention is more directed towards savings products in the current market. We may see a slow recovery in long-term health categories, particularly critical illness. We have just launched Power Number Eight, a new version of our long-term successful brand IP in the critical illness category, and we are collaborating with large insurers on these customized products to drive more sales in these categories.

Operator, Operator

We'll now take our next question. This is from the line of Zeyu Yao from CICC. Please go ahead.

Zeyu Yao, Analyst

Thanks, management. And congrats on your good result. I have one question here for the 2A segment. Could you give us some more color on how it is going so far? We've noticed that the Insurance Association of China has asked for industry's advice about agent classification. So, if it's in claimant's eyes, I think it may have some effect on our 2A business. Could you share some more views on that? Thank you.

Cunjun Ma, CEO

Thanks. We touched on the 2A business earlier in the opening remarks. This business line has continued to be very strong at least in 2023. It's contributing almost 20% of our overall premium facilitated, and we continue to see strong growth in this business line. FYP facilitated by the IFA platform, which is the 2A platform, was RMB350 million last year, which is a year-over-year increase of 73%. The most important thing is that an increasing number of independent agents or IFAs are now coming to our platform as partners because they find our competitive strengths compelling. Firstly, we have a very extensive product matrix from simple P&C products to extensive life and health products. In particular, the customized exclusive products that we have developed with insurance carriers are a big draw for these independent agents to associate with us as partners. Secondly, our scale advantage allows us to earn top commission rates with most insurance carriers, enabling these agents to enjoy revenue pickup compared to partnering with another platform. Finally, we offer a suite of digital tools that helps agents better manage customer relationships throughout their customer journeys. We aim to replicate this model in the rest of Asia, starting with Hong Kong and moving to other parts of Southeast Asia. Regarding the regulatory impact, most of our independent agents are experienced and will qualify for the higher tiers of agent classifications, and hence we believe this regulatory change will have minimal impact on what they can sell.

Operator, 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.

Harriet Hu, Investor Relations Director

Thank you, operator. So, on behalf of the Huize Management team, we would like to thank you for your participation in today's call. If you require further information, please feel free to reach out to Huize’s IR team. Thank you again for joining us today. This concludes the call.

Operator, Operator

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