Ladies and gentlemen, thank you for standing by, and welcome to Huize Holding Limited’s Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions] Today’s conference call is being recorded, and a webcast replay will be available. Please visit Huize’s IR website ir.huize.com, under the Events and Webcasts section.

Now, I’d like to hand the conference over to your speaker host today, Ms. Harriet Hu, Huize’s Investor Relations Director. Please go ahead, Harriet..

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the fourth quarter and full year of 2020. Our financial and operating results were released earlier today and are currently available on both our IR website and the Newswire.

Before we continue, I would like to refer you to our 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 the use of non-GAAP measures today, which are more thoroughly 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. Ronald Tam. Mr. Ma will start the call by providing an overview of the company’s performance and operational highlights for the fourth quarter of 2020. Mr.

Tam 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. Ma..

[Foreign Language].

Hello, everyone, and thank you all for joining Huize’s Fourth quarter and Full Year 2020 Earnings Conference Call. 2020 marked an important milestone for Huize. We are officially listed on NASDAQ despite a challenging capital market condition, due to our Huize as 1 of the pioneers in China’s online insurance industry.

In February, the pandemic was at its work in China. And it was not an easy task for us to complete our IPO. Therefore, I would like to express my gratitude to all shareholders and investors for your support and trust.

Despite the uncertain macro conditions throughout the year, we delivered robust results due to our years of experience in the insurance industry, the competitive advantages of our online platform business model, unique focus on long-term insurance product distribution and our leading digital development capabilities.

During the year, total GWP facilitated on our platform increased by 50% year-over-year to RMB 3 billion, while total operating revenue increased by 22.8% year-over-year to RMB 1.22 billion.

Particularly in the fourth quarter, we capitalized on the recovery trends in the industry and overall economy, with both total GWP and total operating revenue increasing by more than 50% year-over-year, to reaching new quarterly highs.

On the business strategy front, Huize pursued the long-term development of user value in place of short-term traffic monetization. Our differentiated long-term insurance product strategy enhanced our resilience during the market downturn and generate sustainable growth momentum.

In 2020, long-term life and health GWP accounted for 93.4% of total GWP, increasing from 87.4% in 2019. Meanwhile, GWP for long-term health insurance increased by 50.6% year-over-year to RMB 2.14 billion. Over the past 3 consecutive quarters, persistency ratios for long-term life and health insurance in the 13 and 26 months have remained about 94%.

We believe that Huize’s capabilities in online acquisition of high-quality clients as well as its higher client retention of both economic modes, which are difficult for our competitors to replicate.

In terms of product innovation, leveraging our massive and multidimensional user data and insurance transaction data, we’ve been able to design more valuable and customized insurance products for our clients with this understanding of their insurance needs.

For example, we launched the Darwin 3 critical illness insurance, which was yet another success of our original Darwin product line. We also took the lead in the customization of annuity products, launched our first online version of joint-life annuity, which was also a unique feature and innovation in China’s online insurance market.

In 2020, GWP for co-developed insurance products with our insurer partners totaled RMB 1.29 billion, and accounted for 42.7% of total GWP compared with 36.3% in 2019. Regarding offline structure, we maintained our user-centric focus, constantly improving our platform functions and services to optimize user experience.

In 2020, Huize further upgraded its client service centers system combining an automatic portal with human assistance and increased its service fleet by up to 5x. During the year, the number of claimed cases assisted by Huize increased by 22% year-over-year to 43,000, and the claimed amount increased by 71% year-over-year to RMB 242 million.

As the pandemic accelerated online insurance consumption, our differentiated services and market reputation enabled us to continue attracting and converting new users. By the end of 2020, the number of Huize’s accumulated insurance clients has increased to 6.85 million.

Moving to technology development, we embedded AI algorithms, data intelligence and machine learning into our key business processes. We accumulate data from transactions, extract knowledge from this data and apply the knowledge to our services in order to achieve win-win in terms of cost reduction and efficiency improvements.

For example, on the front end, we launched AI Proposal application in 2020. This application can quickly process user interest and recommend optimal insurance products. It has not only boosted the efficiency and prospectivity of our consultants, but also improves our clients’ experience.

On the middle end, Huize’s new consultant workstation has been officially put into use. It provides analytical tools such as user portraits and user preference to empower our consultants. Meanwhile, the same screen explanation function also provides clients with an immersive and interactive experience.

On the back end, our intelligent inspection system can transcribe, calculate and analyze multichannel voice and text information to improve the efficiency of our compliance personnel and reduce operating and compliance risk. Then on our operational and financial growth, our industry value and positioning also continue to gain recognition.

During the year, Huize research institute released a list of top 10 China digital insurance agencies in 2020, with Huize placing among the first tier level of companies in terms of innovation capabilities and market performance over the past 2 years.

At the same time, Huize was included in KPMG’s 2020 China leading fintech top 50 list as a result of our development in insurance technology. This was also the fourth consecutive year that we’ve been short listed. Such achievements are the driving force behind our ongoing developments and assessments.

Looking ahead, we are confident in the process of the online insurance industry in China and we aim to further establish Huize as the go-to-digital insurance service platform for new generation consumers empowered by data and technology. In order to achieve this fall our team will focus on the following aspects in 2021.

First, we will fully embrace digitalization, continuously strengthen our technology research and development as well as talent acquisition and enhance Huize’s core competencies. At the same time, we will optimize our corporate culture and governance structure to ensure better adaptations to the ongoing digital transformation.

Second, we will promote a comprehensive strategic upgrade by expanding our off-line business in core cities such as Shanghai and Shenzhen by setting up high-value client service centers to further optimize the service experience and maximize client’s lifetime value.

Third, we will strengthen our collaborations with upstream and downstream partners along the industry value chain to enrich our product offerings and improve service capabilities. We expect Huize to become a more open platform with a follow range of products and services and its ecosystem related to insurance, including medical and health care.

Fourth, we will take full advantage of the capital markets, actively identify high-quality investment targets, and improve our platform’s value proposition and market positioning through mergers and acquisitions to further realize our development strategy. This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr.

Ronald Tam, he will provide an overview of our key financial highlights for the quarter..

Thank you, Mr. Ma and Harriet, and hello, everyone. It’s Ron here.

In summary, we are very excited to report yet another strong set of results for the fourth quarter, in which we have delivered record quarterly numbers again for both total GWP facilitated on our platform as well as total operating revenues, which has beaten our previous guidance given to the market.

For the first time in the single quarter, we managed to facilitate over RMB 1 billion in first EM renewal premiums.

The corresponding strong top line performance continues to reflect importantly, the underlying recovery trend in Chinese insurance industry following a containment of COVID in the country as well as the increasing adoption of online purchases of insurance products are key target customers, which is represented by a new generation of young mass affluent consumers from the high-tier cities in China.

From a product perspective, our key focus in critical illness products particularly co-developed products with our insurer partners, continue to drive a large part of the GWP growth in the long-term health segment of the business. With total GWP contribution of RMB 589 million in the quarter, which is up 61% year-over-year. Mr.

Ma earlier mentioned Darwin 3 earlier in his prepared remarks, which we co-developed together with Sinatay Life Insurance was the best-selling critical illness product during the quarter.

And we continue to see a strong momentum being carried into the new year for Q1 of 2021, ahead of the transition to the new critical illness definition regime for the overall industry.

In addition to critical illness, we have also successfully ramped up distribution of savings insurance products, including annuities as well as whole life insurance during the quarter, which amounted to a first year GWP of RMB 228 million during the quarter, as we capitalize on the seasonally strong market demand for savings insurance products, during the year-end and pre-Chinese New Year period.

Our efforts in broadening our product portfolio also reflects our continuing focus in providing our customers with additional products along the life cycles which, in turn, helps create better engagement with our users and obviously drive higher customer lifetime value for the platform.

Overall, total GWP facilitated during the quarter totaled RMB 1 billion, of which RMB 613 million was trust fee premiums, which is up 40% year-over-year and RMB 433.5 million in renewal premiums, which is up 1.1x year-over-year.

Here, I would like to highlight the continued strong renewal metrics, which again demonstrates the high-quality clients that our platform is able to acquire through our multichannel marketing strategies. And we continue to see very robust persistencies during the quarter, with 13 and 26 months persistency ratios being maintained at about 94%.

Now turning to our revenue line. Total operating revenues for the Q4 was RMB 388.1 million, again, a record quarterly high, which was up by 50.3% year-over-year and outperformed our guidance previously given to the market in our Q3 results.

The increase in revenue was primarily driven by the increase in brokerage income due to the 63% increase in total GWP facilitated in the quarter. Cost of revenue for Q4 increased to RMB 291.2 million, primarily due to increased service fees paid to our user traffic channel partners.

Selling expenses for the quarter increased by 15.7% year-over-year to RMB 71.5 million, which was primarily attributable to an increase in advertising and marketing spend in the quarter, which increased by 43% year-over-year.

And here, you can see that we proactively increased marketing spend during the quarter to capitalize on the significant market demand for critical illness products in the period. G&A expenses for the quarter increased by 8.1% year-over-year to RMB 37.3 million.

This increase was primarily attributable to the increase in G&A salaries and professional service expenses, and offset by a decrease in share-based compensation expenses.

R&D expenses for the quarter grew by 33.9% year-over-year to RMB 15.8 million as we continue to invest in AI applications for our platform and increasing R&D and data analytics headcount. During the fourth quarter, we have recorded a GAAP net loss of RMB 27 million. We continue to maintain robust liquidity and a strong financial position.

And at the quarter end, we had a combined balance of cash and cash equivalents of approximately USD 62 million. Now with regards to our outlook for the first quarter of the year, as we have touched briefly upon earlier, we invested quite heavily in marketing spend in the last quarter.

And we have also undertaken incentive campaigns with our channel partners in a bid to capture a disproportionate market share during Q4 in light of the significant market demand for the old definition critical illness products. And we are now seeing such strong demand building over in the first quarter of the new year.

And as a result, we are now on track to achieve yet another record quarter for total operating revenues. As for our formal Q1 guidance for revenues, we currently expect total operating revenues for Q1 to be in the range of RMB 650 million to RMB 700 million, which represents at a low end over 1.6x growth year-over-year.

This forecast reflects the company’s current and preliminary views on the market and operational conditions, which are obviously a subject to change caused by various uncertainties, including those related to the ongoing COVID-19 pandemic. With that, this concludes our prepared remarks for today, and we will now open up the call to Q&A.

Thank you, operator..

[Operator Instructions] Your first question comes from the line of Michelle Ma of Citigroup..

[Foreign Language] My first question was about the new critical illness product and the new definition of critical illness.

And how the prices of new products compared to the old version? Is it still very competitive? And how are the overall sales in February? And the second question is about some new regulations, which will be implemented this year and the next year on February 1, May 1 and January 1 next year.

What are the biggest challenges management see to be comply with these new regulations?.

Thank you, Michelle. It’s Ron here. Let me take the questions for the team. So the first question regarding the new critical illness product. I think it’s very early to say, given that we have just launched the new Darwin #5 literally today, so results are still yet to be seen.

But we believe that the new product, obviously, we would like to say that given that this is another intuition of the product. And again, this time, we are working with Sinatay Life Insurance. We believe that the new products should be able to drive sales, probably in the second half of this year.

And for any new product to be coming online, it would require a period of marketing and education for the insurance clients at large through our direct channels and also through our -- through the marketing channels. So I think it’s still very early days to tell.

But we are obviously very confident that the new definition product would also be very well received by the market. So the strong numbers that we have previewed for Q1 is mainly coming from the old definition product, which we -- early in the prepared remarks.

We commented that the slower demand coming from Q4 into Q1, especially given the deadline of January 31 for both of the products in the market, we see a significant demand in that month of January. So that’s really the answer to the first question.

And to the second question regarding regulatory changes, I would say that given where we are in the industry as 1 of the leading operators, we are in very constant dialogue with the regulators.

And in actual fact, we are 1 of the consultative members on the Board of the relevant regulatory bodies in terms of coming up the dropping of the relevant policies or the new regulatory measures. And so to that effect, I think that we are already anticipating such changes.

And I think most of the regulatory changes focused on making sure that the sales process of insurance products are done in the compliant way. And for example, they’re now requiring that all conversation or all interactions with customers could be tracked and to be provided on to the client on an as required basis.

And to that effect, we are very proud to say that we have already an online system that would be able to achieve this requirement so that clients can request for any records of conversations they have with our consultants.

To the other point on the regulatory changes, for example, they are now requesting or setting some certain requirements for insurance companies itself to meet in order that they can provide insurance products online. For example, core solvency ratio, requirements, credit rating requirements for 4 consecutive quarters.

And these requirements or these new measures will come into effect in the new year, next year. And I think that the regulators are given adequate time for the industry participants, both on the insurance company side as well as the insurance brokerages like ourselves, to adapt to the new changes.

And for the insurance companies, I think that they were very likely to undertake matches to strengthen the capital basis, strengthen the balance sheet in advance for these new measures to come into effect. So overall, I think that the industry is hoping with the changes.

And I think as 1 of the leading players in the market, we are very well positioned to manage these changes. That’s the answer to the second question..

Your next question comes from the line of Joey Yang of CLSA..

[Foreign Language] So my first question is about the products. So we understood that the Darwin #5 officially launched today. And we also understood that with AI platform that sells out the products that are not customized.

So could management help us understand the difference between the 2 types of products, which 1 could offer us a better profit margin? And is there a preference between the 2 types of products? So my second question is about the take rate in 4Q. We noticed that there was a slight decrease in 4Q compared with previous quarters.

And at the same time, we also see that the structure of the premium -- the first year premium actually accounted for like 60% of the 4Q premium.

So I was wondering what’s the driver of the decreasing take rate in 4Q? Is it because of selling of more short-term insurance products? And my last question is related to the off-line services centers, as Mr. Ma has mentioned, I would like to ask about the latest progress of this offline services development.

And also about what’s the selling point or was our -- we obtain to attract the talented -- the talent employee to our offline servicing centers?.

[Foreign Language] Thank you, Joey. Thanks for following us and for your questions. Why don’t I take the questions on behalf of the team again.

So the first question is really about the product mix of our GWP and whether we have any preference towards customized or co-developed products versus the standard product that we can take off the shelf like other brokers. I think the clear answer here is that, first of all, I think that we always come from the customers perspective.

The first, which for is the best suitable product for their circumstances. And I think typically, when users come to our platform, they’re being attracted by the very good valuable money, critical illness product that we are codeveloping with our insurance company partners.

And therefore, the answer to this question naturally would be that we have a slight preference towards the customized or co-developed products that we co-manufacture with like Sinatay and the likes of Huize Med Health, because oftentimes, these products represent the best value for money products currently available at any given point in time in the marketplace.

And so naturally, customers will prefer to inquire about these products.

And I think from our perspective, as a corporate, we do prefer co-developed products given that we will be able to cultivate and deepen our relationships with our upstream insurance partners, deepening engage with them would, therefore, lead to better economy of arrangements for us down the road.

For example, Darwin #5 is the second time that we have worked with Sinatay, and therefore, we will be looking to receive better treatment from the insurance company partners.

And I think also the way that we can demonstrate to the overall industry as to our high persistencies, we give a lot of comfort to our insurer partners to partner with us in future versions of the products. And so therefore, I think that’s the overall answer to your first question. And the second question regarding the take rate.

I think the explanation to this is really the particular product mix as it pertains to first year premiums in the fourth quarter. I think in the fourth quarter, we have done 21% of our first year premium fee in annuities. And we also additionally achieved 16% of our first year premiums in whole life insurance.

This is an entirely new product segment that we’ve entered in the fourth quarter. And so combined, that is 37% of the first year premiums in the quarter.

And typically, as I think the market and investors have come to understand the annuities typically carry the lower commission rate for the first year premium compared to the likes of critical illness or long-term life. And therefore, it’s really the product mix being a bit slanted towards annuities in the fourth quarter.

In the fourth quarter and the pre-Chinese New Year period in the industry, there is the so-called time and home which is denominated in China and both insurance companies push savings related insurance products during the time. And therefore, as a brokerage company in the core, we’re naturally also aligned with the market development that we set.

And therefore, there’s a higher contribution from annuity and savings-related products in the fourth quarter, leading to a slightly lower overtake rate. So it’s a product mix factor coming into play. So for the third question regarding the plan for going offline, I think I can make a few remarks here, and maybe the team would like to add on to this.

I think the plan for us is to really roll out the offline presence in this new year. Last year, we mentioned about this, but then due to COVID, we were pulling back the plans. But this year, given how we are seeing strong momentum for the last 2 quarters going into the new year. I think we’re much more confident in pushing this initiative.

And then a few factors I’d like to point out here. One is that the offline presence will enable us to have better interaction and better engagement with our existing user base. We have 6.8 million users right now. And obviously, we have proprietary in-house data at these users. And if we can just achieve the top 10% of this user base.

And then ranking those in terms of our data, we can really have a list of high-value customers to approach. And with these offline service centers, we are able to reach out to the customers. In the first phase, I think we were very focused on the first tier cities and for the first phase of the initiative.

I think we’re looking at Shanghai and Shenzhen, and probably hiring less than 100 people to really speed this new initiative. And I think for the hiring side of things, we are looking to attract professional talent from the marketplace.

I think the value proposition that creates and that can pull back to this -- these consultants would be that, one, they can leverage on our online business leads to be routed to the respective offline centers, and therefore, they can use this list, and make use of this list to capture new customers.

And also they can leverage on our internal user database, which I just mentioned earlier, to cultivate repeat purchases or increasing life time values for the platform. And so we’re expecting these new consultants to be delivering higher-value products to our customers and more differentiated services as well..

Your next question comes from the line of Brian Li of AMTD Group..

[Foreign Language] I have noticed that you just had RMB 100 million on the account payable on your balance sheet.

So could you please give more color on this item?.

Sure. Thanks, Brian, and thanks for joining the call today. I think the simple answer to this is the strong month of December that we have experienced as a business. And therefore, a lot of the business has generated this account payable balance at the end of the year. So it really had to do at the strong month of December from a business perspective..

Your next question comes from the line of Jan Oli of [indiscernible] Securities..

[Foreign Language] So my first question is about the M&A, mentioned by Mr. Ma just now. This year -- this current year, your company are going to acquire 1 more M&A deals? And my question about what’s the potential target? So my second question is still about the offline service center.

So what are the main functions of those offline service center?.

Okay. Thank you. It’s Ron here. Let me take the first question and maybe for the second question, [Foreign Language]. Okay. So first question about the M&A targets. I think we are prioritizing our investment targets, I think, in 3 major brackets.

I think the first major bracket would be possibly some of the existing channel partners that we are working with for the past 3 years. I think some of those could be interesting collaborations from a capital perspective for us to better integrate into these distribution and marketing channels. So that’s 1 area.

Second area is similar online or even offline brokerages. This will be very synergistic to our core business. For online, brokerage would be a horizontal expansion for us and to capture better market share.

For offline will be a complementary business strategy for online business so that we can accelerate the treatment of an online to offline business model. So I think those 2 could be the key focus for us. And the third area could be other insure tech platforms.

Platforms have innovative technologies in the business processes, whether it be the front end, and just AR customer service or the middle to back-end where they have very strong technologies in terms of customer service and online support, and also underwriting and claims product and so forth.

So I think this will be the major M&A target areas for us to be looking at..

[Foreign Language].

[Foreign Language] Thank you. That’s Mr. Ma commenting on the second question, and I’d like to translate here for the team. So the second question relating to the key strategy for the offline centers plant that we just mentioned.

I think we’re echoing the points that we have made earlier, I think we are really trying to leverage on the core online platform that Huize has did over the last 15 years to more efficiently serve differentiated high-value customers for existing use of Huize.

Because given we have the internal data on all our customers, we are able to extract a segment of a high-value customers for us to initially focus at serving higher-value products to this products as well as customer segment.

And given that we’re still in the initial testing phase or rolling out pace of this business plan, I think we would like the market to give us time, and we will be keeping the Investor Days updated in our subsequent calls as to the progress of this new offline business plan..

[Operator Instructions] Your next question comes from the line of C.C. Wang [ph] of Independence Investment..

[Foreign Language] Hello, can you hear me?.

Yes..

Okay. Thank you. [Foreign Language] We understand that Huize leverage itself to tap into new users and meeting customers. But since that with the brand itself as online insurance aggregator, it’s not well-known to end users till now.

Do you have anything to enhance the brand agreement to our holding? So Huize has achieved a record high financial performance, and although there was a surge of price before the recent downturn. But I think that Huize still remain a low profile to overseas investors. For example, comparing to a U.S.

company eliminate a similar insurance tech company that it has only CNY 60,000 revenue. Its market cap is already like CNY 50 billion.

Does Huize have any plan to lease up investors awareness and exposure to adjust the cap estimation?.

Thank you. It’s Ron here. I’ll take these questions for the team. And for the first question on our overall brand recognition in the market, I think we have been around for 15 years.

And I think that the proud thing that we like to say about our company is that we have built on very limited capital support over the years before the IPO, on a very stringent budget, we have been able to build up this platform to where it is today. And we have been very stringy on spending on our brand advertising or marketing in the consumer space.

And therefore, I think that the business model that we have devised and the way that we can leverage on social media channels as our partners has really scaled the business to where it is today and has enabled us to achieve ultimately a listing in the U.S. market. I think this itself is a very big achievement.

So we -- obviously, there’s still a lot of work to be done, and we recognize that we can do a lot more on the branding side. And in the new year of 2021, I think we are now earmarking more and more funds in terms of really building up a bigger brand presence in the consumer market as well as the capital markets.

So that’s the answer to the first question. And for the second question, I think that the reason why, I guess, we have been a bit under the radar over the last year has a couple of external factors at the play as well.

I think when we relisted, we were very much hit by the unfortunate timing of COVID-19 at this outbreak, and we were actually the first Chinese IPO to get done after COVID broke out in January of last year. And subsequently, various things has happened as well. For example, the scandals surrounding Luckin Coffee in the U.S.

market has led to a confidence crisis in the over smaller capital on Chinese ADRs in the U.S. and then the ongoing U.S.-China trade frictions has also led to a slightly depressed market sentiment towards Chinese stocks.

But then you have seen that in the last 1 to 2 months, you can see the liquidity of the stock of the company has improved significantly.

And I think we have to thank the overall market for recognizing the work that we have been doing at the company and the financial performance has also been leading to more and more investors being on board with our story, I guess. And we have also been doing a lot of investor out which work over the last 6 to 8 months.

And we are in constant investor dialogue with a very prominent and reputable institutional investors in the marketplace.

So I think that the overall recognition in the capital markets have been improving, and we will be doing a lot more this coming year in terms of Investor Relations, investor outreach, hopefully, we can bring the stock to a higher level and also to create a much better liquidity for the investors..

As there are no further questions at this time, I’d like to hand the conference back to our management for closing remarks..

Okay. Thank you very much, everyone, for joining this call, and appreciate the strong participation, and we look forward to the next call for the second quarter -- first quarter of 2021. Thank you very much..

Thank you for joining us today. Thank you..

Thank you..

Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may now all disconnect..