Ladies and gentlemen, thank you for standing by and welcome to the Huize Holding Limited Third Quarter 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. Kenny Lou, Huize's Investor Relations Manager. Please go ahead..

Thank you, operator. Hello, everyone, and welcome to our earnings conference call for the third quarter of 2023. Our financial and operating results were released earlier today and are currently available on both our IR website and 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 measure today, which are more partly 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 operating highlights for the first quarter of 2023. And Mr.

Jiang 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..

Hello, everyone, and thank you for joining Huize's third quarter 2023 earnings conference call. In the third quarter of 2023, the macro economy gradually recovered. With economic activities showing signs of improvement. However, international relationship challenges persisted and capital markets erratically experienced fluctuations.

The insurance industry continues to depend products for co-adjustment and transformation. The assets of insurance companies were primarily affected by the continuous impact of the stock market downturn, declining interest rates, and ongoing impairment losses, resulting an adverse impact to overall industry investment income.

In the first three quarters, the net profit of the life insurance industry generally shows a year-on-year downward trend. The market cap is experiencing ups and downs but is on a long-term positive path towards recovery.

Amid these external uncertainties, we focus on leveraging our competitive edge in product innovation, omnichannel distribution customer acquisition capabilities, and high-quality customer profile and reported another set of solid results.

In the third quarter, total gross recent premium, or GWP, facilitated on our platform reached RMB1.25 billion, and we recorded total revenues of RMB290 million. Our GAAP net profit increased 43% sequentially to RMB20.17 million, and we achieved our fourth consecutive quarter of non-GAAP net profit with RMB18.49 million in the third quarter.

In terms of product mix, we continue to leverage our diversified product offering and solid omnichannel distribution capabilities. First-year premiums or FYP facilitated on our platform reached RMB640 million in the third quarter. Across the first nine months of 2023, while FYP has increased by 54% year-over-year to RMB2.2 billion.

The FYP of our long-term health products increased by 8% year-over-year to approximately RMB100 million in the first quarter. Our savings products maintained strong growth momentum during the quarter.

With the FYP of our annuity products tripling year-over-year to RMB120 million, we are seeing a strong snowball effect as a result of our strategic focus on long-term insurance products and the high stickiness of our users, our renewal premiums in Q3 reached RMB600 million, up 7% year-over-year and 25% sequentially, generating steady cash flow to support our resilient business performance.

Moreover, the GWP contribution of long-term insurance products was 90.9%, marking the 16th consecutive quarter where this further has exceeded 90%. Meanwhile, the continued recovery of the domestic economy boosted demand for short-term health, P&C, and accident insurance products in the third quarter.

As a result, the FYP of our short-term insurance products increased by 50% year-over-year to RMB110 million. As of the end of the third quarter, our cumulative number of insurance clients reached 9.12 million, representing an additional 223,000 new customers. Our clients who purchase long-term insurance in the third quarter.

67.5% were from higher-tier cities and the average age was 33.9 years old, reflecting our focus on young, loyal, and high-quality customers. In terms of FYP, the average take side of long-term insurance products was approximately RMB4,600. While the average take size of savings products was approximately RMB50,000, up by 23% year-over-year.

As of the end of August, our cumulative persistency ratios for long-term insurance in the 13th and 25th months remained at industry-high levels of more than 95%. As of the end of the third quarter, we have cooperated with 121 insurer partners.

Meanwhile, we continue to co-develop various cost-effective and high-quality customized insurance products with our insurance partners. Since September, we have launched Xiao Tao Qi No.2, a customized child critical illness insurance product and Guardian Critical Care No.6, a customized multiple-benefit critical Illness insurance product.

We also partnered with China Pacific Life Insurance to jointly launch Jin Man Yi Zu, premium and increasing whole life insurance products. With the increasing with the increasing retirement planning awareness of the millennials.

We recently launched two annuity products, Dajia Hui Xuan, and Jin Man Yi Zu No.5 to have younger customers develop sustainable long-term wealth management and retirement plans.

We strive to provide comprehensive protection for our clients and their families through a broad range of product offerings, including insurance products for children and as well as various long-term life insurance products and health insurance products. In the To-A segment, we continue to empower insurance agents with innovative technologies.

During the period, we upgraded our relink system with new functions providing automated opportunity identification and alert. How can business consultants assist insurance agents more effectively and efficiently? The upgraded relink system is currently able to identify 31 business scenarios and 108 types of business opportunities.

In the third quarter, FYP facilitated by the To-A business reached RMB89.65 million, up by 38% year-over-year. In the first nine months of 2023, the FYP facilitated by the To-A business amounted to RMB 320 million, surpassing the total FYP facilitated by this segment in the whole year of 2022.

In the To-C segment, we remained committed to our customer-centric approach and continued to provide high-quality and effective services that meet our customers' diversified needs across various insurance segments.

In the third quarter, we continued to hold various brand promotions and customer engagement activities aimed at attracting new users, activating existing users, and engaging high-light time value users. We successfully reached more than 50,000 users through these effects and achieved more than 30,000 sales conversions.

In the third quarter, we continue to strengthen our user engagement efforts and enhance our upselling capabilities to maximize the lifetime value of our customers. In the third quarter, 38.4% of our long-term insurance product customers will repeat purchases from existing customers.

up 4.7 percentage points year-over-year, reflecting the stickiness of our client base. This high level of customer loyalty has helped stabilize our revenue stream and lower our customer acquisition costs. In the third quarter, our gross profit margin increased by 6 percentage points year-over-year to 35.3%.

Meanwhile, the community's organizational efficiency continued to be optimized, driving a 27% year-on-year decrease in total operating expenses.

In particular, we reduced our general and administrative expenses by 50% year-over-year, resulting in a 5-percentage point decline in the G&A expenses to total revenue ratio, demonstrating overall improvement in our operational efficiency.

Going forward, we will leverage our customer insights to develop a broad range of innovative customized products that satisfy the full spectrum of our customers' needs from health care, accident, and retirement protection to financial and asset planning.

We are committed to fostering a win-win dynamic between insurance companies and insurance customers through our digital products and service platform.

At the same time, we will see the opportunities presented by the industry's digital transformation deepen the application of digital technology in finance and further promote the O2O integration of our insurance service ecosystem. This aims to empower agents and teams with technology facilitating high-quality development within the industry.

This concludes my prepared remarks for today. I will now turn the call to our CFO, Mr. Ronald Tam, who will provide an overview of our key financial highlights for the third quarter..

Number one, Total GWP increased by 32% year-over-year during the first three quarters of 2023, of which first-year premiums and renewal premiums increased by 54% and 16% year-over-year, respectively.

Two, our persistency ratio for long-term life and health insurance remained at an industry-high level as of August, the 13 months and 25 months persistency ratios stood at about 25%. And third, the average ticket size for our long-term savings insurance products increased by 23% year-over-year to about RMB50,000.

These positive metrics continue to reflect a high-quality customer profile and our relentless efforts and success in tapping into the long-term lifetime value potential of our customers. In the third quarter, we sustained our market-leading position in long-term insurance products.

The FYP of our long-term health products increased by 8% year-over-year to RMB104 million, while the FYP of our annuity products more than tripled year-over-year to RMB116 million. We will continue to pursue a balanced product mix between the long-term health and savings categories to satisfy our evolving customer needs.

We remain focused on tightening marketing channel costs and optimizing our organizational structure to improve profit margin and efficiency. As a result, our operating costs in Q3 decreased by 24% year-over-year to RMB189 million.

leading to a strong improvement in the gross margin to 35% as compared to 29% over the same period of last year, primarily driven by increased customer acquisition efficiencies and repurchases by existing customers on our platform.

In Q3, our total operating expenses continued to decrease, falling by 27% year-over-year, and our operating expense ratio improved to 29% in Q3 from 33% in the same period of last year. And our GAAP and non-GAAP net profit figures were approximately RMB20 million and RMB18 million in Q3.

As of the end of the quarter, we continue to maintain strong liquidity as our combined balance of cash and cash equivalents increased to RMB258 million, and we have continued to repurchase shares from the open market under our share repurchase program.

And as of the end of the September quarter, we have repurchased an aggregate of approximately 1.4 million ADSs to date, which continue to demonstrate our management's confidence in the business model and long-term growth prospects.

Moving forward, we will continue to deepen the financial applications of generative AI striving to enhance our product innovation and upselling capabilities. We'll further strengthen the integration of our online to offline ecosystem and empower our agents to acquire high-quality customers and engage with clients more efficiently and effectively.

We will also continue to drive improvements in operating efficiency and optimize resource allocations across the business.

We remain committed to expanding our market share and solidifying our position as a top-tier digital insurance product and service platform in the home market in China as we strive to enhance shareholder value and achieve sustainable business growth.

We are also investing in growth opportunities in the international market with the Hong Kong operations now up and running and gaining good momentum, having launched our first ever customized whole life insurance product earlier in August with China Pacific Life Insurance, Hong Kong with an innovative product feature that facilitates underwriting Hong Kong and retirement in the Mainland.

We are now working to expand into other attractive markets in the ASEAN region, and we are currently targeting to generate double-digit percentage of our Group's revenues from our international markets within the next 12 months. And with that, we'll now open up the call to questions. Thanks, and over to you, operator..

Our first question will come from CoCo Gong of Morgan Stanley. Please go ahead..

Thank you, so much for taking my question. Congratulations on a very good performance. for the third quarter of 2023 in a very challenging environment. I have two questions today, if I may.

So, the first one would be about some of the regulation changes in China, especially on the broker channel as well as some recent regulations on short-term health insurance.

So how does the management perceive this change impact on our overall business? That just a little bit of an insight on maybe sort of the product mix change or product innovation or anything related would be much appreciated.

And the second question would be about the critical Illness demand because we've talked about launching like the new Critical Illness product.

But how are you seeing the sort of marginal changes in terms of the Critical Illness demand, given the savings demand is very significant, but are we seeing any positive changes for the Critical Illness or protection type of product demand recently. Thank you very much..

Thanks, CoCo. It's Ron here. So, two questions from you. The first one relating regulatory changes and how is that impacting the overall business. I think that's a very bad question, and it's very topical right now. I think the multiple fronts of the business is being impacted by the recent regular changes.

I think the most evident one would be the cessation of 3.5% products, and that has led to a somewhat downturn in the overall market I think across the board, we have seen FYP numbers coming down quite a bit. among the top-tier companies as well as, I think, the market channel checks.

But I think slowly, we have seen that the demand recovery has commenced starting after the October 1 holidays after the National Day holidays. I think we are seeing some momentum being regained into November.

But I think that we are still a bit short of where we were for a normal month notwithstanding any special changes in the product structure that is driven by the regulatory changes. So, in terms of product mix, I think we are seeing some channels or market demand for participating products. I think we're seeing some trends there.

We do believe that policing products could be very interesting in the new environment where it provides a relatively lower fixed guaranteed return with -- on top of that, more of a variable return kind of profile to consumers.

I think consumers still in strong demand for good savings products that would deliver good returns over the long term, and with more of a protected kind of structure. So, I think participating products could gain momentum, particularly in the new year. That's point number one.

I think we're also seeing good demand from consumers on retirement and annuities products. And with that, we have already launched at least two annuity products in the recent quarter. As we have -- I mentioned in the opening remarks with two insurance companies targeting different segments of the population.

So, I think we are continuing to drive product innovation to capitalize on the changing customer preferences subject to the regulated changes that is already in place. The increase in some assured products still are interesting.

I think that provides a guarantee close to 3% kind of IRR, which should continue to be what we see by the overall market when the decline risk environment is expected to continue in the near to medium term.

With respect to critical illness products, I think on that, we have also publicly disclosed that we have around 8% year-over-year growth on the long-term health segment, which is primarily from critical illness products. So, it's a slow recovery. But then we also are driving product innovation in this respect.

We have launched different types of critical illness for different segments of the consumer base for example, the child critical illness products that we have launched. So, I think we will continue to tackle a resumption of or recovery of consumer demand through delivery of high-value customized products.

So that will be the answer to your first question. With respect to your second question, I think also addressed it just now on the partial illness demand. So hopefully, those are good answers to your questions. CoCo..

Yes. Thank you, very much..

The next question comes from Zeyu Yao of CICC. Please go ahead..

My question is, I like to our product strategy. with the launch many unusual products, vale. So, under your observation, we're too popular products. And by the way, how is the sales of MCB products, could you share some more details. Thank you..

Thank you Zeyu Yao. So, first question on each of the more popular products these days. I think we're seeing real-time data in our systems. I think that the top two or top three categories are probably -- I think number one will be more towards retirement annuities. And these are the customized products that we have launched together with our partners.

I think that is gaining the best momentum in the third quarter. We also -- as I mentioned to Coco's question just now, I think we are seeing good demand as well in participating products. So, this is something a bit new, I think, some of our new trends. So, this will be the second category.

And I think with respect to MCB products, -- we have launched a new product in August. So, I think it still takes time for us to really jump up our channels and push sales. But I think we're getting a decent market feedback on this innovative product, which enables Hong Kong residents or no privileges as to retirement in the Mainland.

I think this is a very innovative product structure. And I think that given time, -- but for the product to run, I think that we will be achieving pretty good sales on this. With respect to MCB I think. We are also gaining momentum there because of our brand equity in the Mainland China.

And I think -- we're also getting a good attention from incoming travelers.

And so, with respect to product mix there, I think mostly, I think as we have seen in other companies or other operators in the Hong Kong market, the strongest demand is probably still for savings products that is underwritten by Hong Kong or international insurance companies with brand name. So, I think that's my answer to your second question..

[Operator Instructions]. Our next question comes from Amy Chan of Citi. Please go ahead..

Hi. Congratulations on another possible quarter. And I have two questions here. The first one would be on guidance for next year. You touched a bit on the trend of product mix in the third quarter. And I wonder if you could share more color about your product strategy in 2024.

And also, what's your outlook in terms of brokerage income as well as on the earnings side? And the second question is that we see that -- the company has made enormous assets on containing operating costs through all fronts. And we see that effectively, the operating cost-to-income ratio has come down.

I'm wondering if the management has a target for this ratio. Thank you..

Okay. Thank you, Amy. So, with respect to your first question on guidance. Right now, we have not refreshed our guidance for the next year. I think we'll be giving guidance when we are coming up with the fourth quarter results next year. I think we are still looking to strategize on the overall strategy for next year. So, it's a bit early to tell now.

in product mix, I think we can share a little bit more insights. I think in the new year, we're more likely to cooperate with larger-sized insurance companies. with respect to savings-related products in particular and we can also explore cooperation with [indiscernible] and joint venture companies that are involved in the savings category.

And in particular, with respect to participating products, I think that we would very likely will be rolling out a customized product in that segment. Second, I think we still have a very strong focus on retirement and annuities products with additional service tied to the insurance policies.

So, I think that's something that is in strong demand, and we can -- we are also able to drive differentiating product innovations in this to set ourselves apart from the competition. So, I think those two will be our strong focus for next year in terms of product strategy.

And on the cost side, I think it's always going to be top of our mind in terms of driving additional efficiencies across the business, across the organizational structure. So, I think that we'll continue to drive costs down. And I think there's always a further room to improve in that regard.

Maybe we have already done quite substantial cost-cutting already year-to-date. But then I think that's something that we will continue to be very focused on. Maybe we can squeeze out another few percentage points there. But we will continue to work hard on that to drive probability for the business..

[Operator Instructions]. Seeing no further questions at this time. I'll now turn the call back to Kenny Lou for any 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..

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect..