Ladies and gentlemen, thank you for standing by and welcome to Huize Holding Limited Third Quarter 2021 Earnings Conference Call. At this time all participants are in listen-only mode. After 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 Event and Webcast section. I would now like to hand the conference over to your speaker host, 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 third quarter of 2021. 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 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.

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 third quarter of 2021. 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 for joining Huize's third quarter 2021 earnings conference call.

The lingering effects from the ongoing pandemic, challenging macroeconomic environment and weakness in consumer confidence has continued to impact the growth momentum in insurance product demand and consumption throughout the industry in the third quarter.

We have proactively adjusted our business strategy accordingly in response to the difficult industry dynamics and have benefited from our digitally driven business model, consistent product innovation and ability to acquire and service a high quality user base via our omnichannel distribution platform.

Despite the overall weak operating environment in our industry, we continued to deliver solid results in the third quarter.

Total gross written premiums facilitated on our platform increased by 24% year-over-year to RMB966 million while total revenue was RMB315 million in the third quarter reflecting steady improvement in our business and validation of our execution strategy.

[Foreign Language] As we continue to grow our user base, our users' profiles remain young with a high lifetime value and strong stickiness. In the third quarter, roughly 65.6% of our long-term insurance customers were from higher tier cities with an average age of 35.2 years old.

We have proactively adjusted our business strategy to increase the contribution from savings products and our overall average ticket size.

In terms of first year premiums, the average ticket size of our long-term insurance product increased by 74.6% to RMB 6,684 in the third quarter while the average ticket size of our savings product increased from RMB 25,000 in the second quarter to RMB 35,000 in the third quarter.

The repeat purchase rate of our long-term insurance product and saving product was 28.4% and 29% in the third quarter respectively. As of August, our persistency ratios for long-term life and health insurance in the 13th and 25th month have sustained at about 95% for 11 months consecutively.

[Foreign Language] Now turning to our product mix, the contribution from our long-term insurance product was 94% of total GWP in the third quarter, consecutively above 90% over the last eight quarters. The GWP for co-developed insurance products accounted for 49.2% of total GWP in the third quarter, which helped sustain our growth momentum.

In the third quarter, first year premium amounted to RMB 511 million, up 42.7% year-over-year. This accounted for 52.9% of total GWP, up 6.9 percentage points year-over-year and highlights the quality of growth in our business through a diversifying product mix.

Against the sluggish market demand for protection products, we strategically focused on growing our savings insurance business and launched new customers products such as Sinatay Premier [ph], which was well received by the market.

As such, first year premium for long-term life products and annuity products increased significantly to RMB 341 million in the third quarter demonstrating our strength and capabilities in designing and selling customized long-term insurance products to extend our services for the entire user life cycle.

Moreover, we believe the successful development of savings product line will enrich the product offerings on our open platform as well.

[Foreign Language] Apart from our operating performance for the quarter, I would like to share with you the future vision of Huize’s strategy for our products and our open platform strategy to provide our users with more diversified and personalized products and services online and offline.

At the end of the third quarter, we have cooperated with 102 insurer partners and have accelerated the development of our offline operation subject to the new entry requirement for the operation of online savings insurance business. Low to medium insurers are likely to focus more on developing protection products online.

And as a result, the supply of health insurance and term life insurance products is expected to increase next year. We will co-develop more innovative and cost-effective products with our insurer partners to stimulate market demand for protection products.

Meanwhile, in response to the regulatory change on online savings insurance business, we will target to co-develop online savings insurance products with leading insurer partners with value-added services such as retirement communities and we will improve our service capabilities to facilitate the online and offline operation simultaneously in response to the high-end insurance needs of our users.

Our continued investment and expansion in our offline branch coverage enables our company to sell both online only insurance products and mid-to-high end products via offline channels compliances. [Foreign Language] Huize’s open platform was officially launched into a trial run three months ago.

This upgrade should bring about more flexibility for our business model as we export the real value of our digital platform to the industry. We have initially completed the first phase of system development by opening up the business process and management platform to insurer partners as merchants.

To-date Aegon Life, Aviva-COFCO Life Insurance and Generali China Life Insurance have successfully signed up as merchants on our open platform. We have also introduced a differentiated service for our users that features an account manager, financial planner and settlement manager jointly providing insurance planning services.

The open platform will allow us to truly meet the needs of users through individual access to online insurance products launched by insurers directly. At the same time, we will provide efficient offline professional services through our local branches.

In future, we will further improve our store including precision traffic sharing, operational solution customization and user life cycle management to empower the digitalization of our partners such as insurance companies, intermediaries and independent agents across all scenarios and improve the efficiencies to match demand with supply.

[Foreign Language] We believe the new regulatory measures will bring about new headwinds to the online insurance market in the short-term. Correspondingly, we will accelerate the launch of our open platform and extend our offline layout thereby creating value for our users with a full range of insurance products across all scenarios.

We are also beginning to explore our digital and technology capabilities that we have developed in-house to external customers such as insurance companies and aim to empower the digitalization upgrade of the industry throughout the value chain and generate new revenue streams in the form of technical service income.

At the same time, we will actively implement a cost reduction and operating efficiency enhancement strategy by integrating resources, optimizing organizational processes and implementing other measures to improve our growth. We strive to strike a balance between scaling the business and managing our operating costs.

In the long run, we believe Huize as a platform with proven technologies, operational experience and service capabilities will ultimately benefit from the healthy and sustainable development of the industry. [Foreign Language] This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr.

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

Thank you, Mr. Ma and Harriet. Good evening, everyone. For the purpose of this call, I think I would like to quickly just recap and summarize a few key highlights and takeaways from this quarter’s operating results. And for the financial line items discussions, I would like to kindly refer the audience to our uploaded earnings release for full details.

Overall, I think we are very pleased to deliver a set of robust operating performance in light of the very challenging macroeconomic and industry environment and obviously amidst the ongoing tightening regulatory regime for the online insurance industry.

For the quarter we were still able to achieve strong double-digit growth in FYP of 42.7%, which is attributable to our very early anticipation of expected weakness in market demand for traditional protection type insurance products.

And so since the second quarter of this year, we have strategically focused our management resources in scaling up the distribution of savings insurance products to more than compensate for the shortfall in long-term critical illness products demand in the market.

Our strong growth in savings product FYP as we have demonstrated since the second quarter is a direct result of the customer insights that is provided to ourselves by the platform’s data analytics and the agility of our platform business model to adapt and respond to changes in the market and industry dynamics.

And more importantly, it is also a result of the successful product co-development and marketing of long-term endowment life insurance and annuity products with our insurer partners in a relatively accelerated time frame, which again itself is a testament to our product development capability, our deep engagement and our strong relationship with our insurance partners.

Another highlight with respect to our strong growth in savings insurance products this quarter is that it continues to reflect the quality of both our customer acquisition capabilities via our omni-channel distribution platform as well as our existing user base.

As mentioned in the opening remarks, the average ticket size of long-term insurance products that we have facilitated in the third quarter reflect the high quality and young customer demographic with average FYP per policy of RMB6,684 in the quarter representing a substantial increase of 74.7% quarter-over-quarter.

In addition, repeat purchases accounted for approximately 29% of savings insurance product’s FYP, which again reflects the high lifetime value potential of our platform’s 7 million plus user base as we continue to deepen our engagement with our users to encourage cross selling and up-selling opportunities by leveraging on the proprietary data insights that we have accumulated from interactions with our platform over the user’s life cycle.

Another highlight with respect to the LTP potential of our user base is the continued strong performance in persistency metrics for our long-term life and health insurance policyholders with persistency metrics in the 13th and 25th month being maintained at about 95% as mentioned earlier.

Such strong persistency performance will continue to enable us to work closely with our insurer partners to come up with new iterations of long-term life and health insurance products, particularly under the new regulatory regime where the regulators are highly focused on the technological, operational and customer service capabilities and above all, most importantly a strong track record of strict regulatory compliance by insurance companies and their platform intermediaries partners such as ourselves.

As a result of the foregoing operational strategies, operating revenue rebounded from the seasonally weak second quarter and increased by 44.1% quarter-on-quarter.

We are continuing to see very strong momentum in our savings insurance product business going into the fourth quarter, which again greatly complements to our FYP and top line performance and is becoming an increasingly important contributor to diversification in our overall revenue and product portfolio.

And accordingly, we are making an upward adjustment to our full year 2021 revenue guidance from our previously stated RMB1.7 billion to RMB1.9 billion to RMB2 billion, which represents a year-over-year increase of 56% to 64% versus last year.

On the other hand as mentioned earlier in the opening remarks, starting from the fourth quarter of this year we are also actively implementing a group-wide organizational structure optimization program to further improve our cost structure and operating efficiencies.

We are expecting to deliver cost savings over the next few quarters particularly in our fixed cost base in a bid to accelerate an improvement in our bottom line performance. In terms of our financial position, we continue to maintain a strong liquidity position with a combined cash and cash equivalent balance of approximately $60 million.

Our outlook reflects the company’s current views on the market and operational conditions, which are subject to changes as a result of various market uncertainties including those related to the ongoing pandemic both globally and in China. And with that, this concludes our prepared remarks for today. We will now open up the call to Q&A.

Thank you, operator..

Certainly [Operator Instructions] Thank you. Your first question comes from the line of Michelle Ma from Citi. Please go ahead..

[Foreign Language] My first question is regarding to the upcoming Internet life insurance regulation where we will see a lot of moving parts regarding to products available, insurance institution partners we can work together.

So from your perspective, how does industry landscape change and how is the market position of Huize? And the second question is more about the expense control exercise we mentioned previously. So could you give us any color on the headcount for next year, any guidance? Thank you..

[Foreign Language].

Thank you, Mr. Ma. Let me translate here very quickly for the audience. So the question is relating to the impact of the recently announced regulatory changes to the online life insurance market and how that would affect our business and also the expected cost control measures or any relevant guidance that we can give to the market.

So the response was that obviously the regulatory changes will have a very meaningful impact on the overall industry, ourselves being included. But we obviously have been operating in the insurance industry for 15 years and insurance itself is a heavily regulated business.

And the fact that now the rules and regulations are relatively set in place with very clear regulatory framework for the industry participants, it's actually a very beneficial development for industry players to be able to focus the long-term sustainable development of business models going forward rather than being constantly on the outlook for any new potential changes to the regulations.

So the answer is it's quite good to have a very clear pathway to deal with the regulatory changes and now it's pretty much set in place and therefore, we are able to focus our business in the near and middle term going forward.

And then with respect to the Internet insurance product itself, the upside of this regulatory change recently is that protection products are now being made clear that it's very conducive to online insurance companies to market with a very clear pathway for us to operate.

And Huize, having ourselves being a long-term participant in this particular sub-segment of the market.

For example since 2015, we have been very focused on co-developing critical illness product which itself is a very much necessity protection product nowadays with respect to the middle income groups in China where insurance awareness is becoming more and more prevalent as the type of customers that we operate in with average age of 35 years old is now getting more and more confident and knowledgeable about insurance protection.

And therefore although in the regulatory changes, the commission rates offered to the industry players may be somewhat negatively affected; but in the long-term it should mean that consumers will become more and more receptive and also accelerate the online consumption of protection products such as critical illness, long-term health products as well as term-life insurance products, which we have already been having quite some success in the last few years with insurance partners as well.

And going on the third part of the reply, we believe that now that again with the regulatory regime being more set in place for the industry going forward, we can now more focus our resources deployment internally with respect to how to build the business going forward merging our online/offline operations.

And therefore, going into next few quarters as we have alluded to in our opening remarks, that we will be able to optimize our organizational structure and therefore, there will be certain headcount optimization in next few quarters, which we'll obviously be disclosing to the market as we release our next few quarters of results.

Michelle, hope that answers the question..

Yes..

Thank you. Your next question comes from the line of Zeyu Yao from CICC. Please go ahead..

[Foreign Language] So first, I want to ask in detail about the new regulation.

So will it be negative impact for our cooperating insurance companies and especially for the saving type business? And next, what is the process of acquiring the offline brokerage company and what are the online and offline strategies for the company in the future? Thanks..

Thanks for your question. So two questions, the first one relating to the impact on the supply side for I guess online savings insurance products as we move into the new regulatory regime starting from next year.

I think the short answer here is that we have been cooperating with over 100 insurance companies in the past and therefore we are able to co-develop new savings products with issuance partners who are qualified obviously under new regulatory regime with respect to their, for example, core solvency ratios and other metrics that are required now under the new regulations.

So I think that we will be actively looking to cooperate with partners who are qualified under the new rules.

And with respect to maybe the existing suppliers of savings insurance products that we have been working with, I think the model here could be moving towards the offline context where we are still able to leverage on our online platform to generate leads and acquire customers from our omnichannel distribution capabilities and be able to route customers for consultations and also for the settlement through our offline branch network.

So I think that's really the genesis of our online and offline business model as we have been building up over the last few quarters and we have been actively deploying capital as well as investments in this area.

I think that also answers the question with respect to the second question, which is the online/offline business concept, which again I think that we are always going to utilize our online platform as a front to service customers. Customers come to our platform for product information, for comparisons, for consultations.

Huize has always been operating on more of a passive marketing model where we provide content. We also work with third-party partners to educate the market as a whole on insurance products. And for customers who are interested in having consultation, they will be able to request for a one-on-one discussion with our consultants.

And therefore, it's always been more of a passive approach and this also fits into the regulatory requirement for online insurance distribution as you can understand from reading the regulatory regime documents..

Can we move to the next question, sir?.

Yes, please..

Thank you. Your next question comes from the line of Xinqi Liu from Guotai Junan Securities. Please go ahead..

[Foreign Language] Congratulations on the company's achievement for the last three quarter.

And this year is particularly a year for the industry to operate the business and to look forward and how can we assess the risks of the business next year? And will the situation be better or worse? And can you talk about the planning of the offline points of the business development? My second question is about I think the key concern of the investor is the stock price and it's obviously undervalued.

And is there any plan to buyback? I'm not sure if there is enough cash reserves for the buyback. Thank you..

Thank you for your question. So for your first part about our outlook for next year. I think we would be honest to say that the next few quarters for the whole industry will be an adaptation period or transition period.

But again because of our long-term engagement in the industry and for our continued success in innovating our business model, our nimbleness in kind of adapting to regulatory changes since all these regulatory changes have been happening in the last few years, we will still be able to maintain our business growth as well over this challenging periods of time.

So I think that what we would say is we are cautiously optimistic. I think that again as Mr.

Ma alluded to earlier in his response, now that the regulatory framework is clear, I think that most players in the market would not be able to focus the business development and able to spend the investment dollars wisely in things that would be productive rather than trying to anticipate various scenarios and therefore in a resource allocation perspective, some may go into less productive investment areas.

So I think in that respect, I think that we are cautiously optimistic because of the fact that we have been operating for 15 years because we've been investing in the platforms business, we have been investing in our technology stack. We have incurred over RMB 100 million over last two years.

And therefore, we are now proud to say that throughout the online business scenarios from the front end to the back end, we have very well mature technological tools that not only we are enabling our in-house consultants to serve the customers, but now we also already beginning to export this digital capabilities to outside insurance companies' customers.

There are few leading insurance companies that have already procured these tools from our platform in the past quarter. And as we scale up further on this new technology service income revenue stream, we'll be happy to provide a breakdown to the market as we scale up in volume.

With respect to the offline operations, again I think that our view on the online/offline model has always been leveraging on our strength on the online side, benefit from the user base perspective, from an online service capabilities perspective.

We are able to extract wealth and customer labelings on the user set and therefore plugging this relatively higher value customers into the offline context, we are then able to connect this so-called higher value customers with higher value products offline in a compliant way.

And so for the next year, I think that we have started from Tier 1 cities in the last few quarters. We are going to expand further into more of a nationwide coverage. So we are looking at close to 20 to 30 offline branch network locations in the next 12 months. So the second question on share price performance.

I think that this is obviously a combination of many factors. As many investors are well aware of the challenges facing China ADRs in the last two quarters from a combination of regulatory pressures on different industries, from the ongoing U.S. China political dynamics and also from just overall the resurgence of COVID and et cetera.

I think that the company has already given an announcement earlier that management has set in place a management buyback program, which will have a period of six months. And so we will be continuing to execute on that management buyback program as the time fits and also in more of a regulatory compliant way.

The company itself, we currently do not have plans to repurchase shares on the company's balance sheet. We believe that the capital on the balance sheet is better reserved for business development and to cope with the regulatory changes as we go into the next few quarters..

Okay, thank you Ron..

Thank you. That was our last question due to time constraint. I will hand it back to Harriet for any closing remarks now. Thank you..

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

Thank you. Thank you for participating. You may all disconnect now. Thank you..