AIFU Q4 2022 Earnings Call Transcript

Thank you for standing by for Fanhua Inc.'s Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. All lines have been placed on mute to prevent background noise. After the management's prepared remarks, there will be a question-and-answer session. Please follow the instructions given at the time if you would like to ask a question. For your information, the conference call is now being broadcasted live over the Internet. Webcast replay will be available within three hours after the conference is finished. Please visit Fanhua Inc.'s IR website at ir.fanhuaholdings.com under the Events and Webcast section. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ms. Oasis Qiu, Fanhua Inc.'s Investor Relations Manager. Good morning. Welcome to our Fourth Quarter and Fiscal year 2022 Earnings Conference Call. The earnings results were released earlier today and are available on our IR website, as well as on Newswire. Before we continue, please know that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The accuracy of this statement may be impacted by a number of business risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but not limited to those outlined in our filings with the SEC, including our registration statement on Form 20-F. We do not undertake any obligation to update this forward-looking information, except as required under applicable law. Joining us today are our Chairman and Chief Executive Officer, Mr. Yinan Hu, Chairman Mr. Peng Ge, Chief Financial Officer, Mr. Lichong Liu, and Board Secretary, Lily Li. Mr. Liu will provide a review of our financial and operating highlights in the fourth quarter and fiscal year 2022. There will be a Q&A session after the prepared remarks. Now we turn the call over to Mr. Liu. Good morning and good evening. Thank you for joining today's conference call. Over the past few years, China's insurance industry has been undergoing ongoing transformation in the life insurance distribution. While the traditional pyramid structure of life insurance sales force is deconstructing, life insurance sales teams are transforming to become more distinctly professional, specialized, and elite, and are structured in a more flattened, small, dispersed, and personalized manner. A large number of scattered individual insurance sales organizations and independent agents are in great need of the support of a third-party public professional platform to ensure continuous professional growth and sustained competitiveness. We believe that while individual life insurance sales organizations will become more fragmented, support platforms will be more concentrated to enable cost efficiency and high quality business growth. The competition in the life insurance sales market will ultimately come down to the competition amongst platforms driven by digital technology and artificial intelligence. Fanhua initiated the strategy of professionalization, career-based development, digitalization, and open platform starting from the second half of 2020, dedicated to transforming from a traditional insurance distributor into a digital technology-based platform company, empowering the industry. After more than two years of transition and investments, Fanhua has largely finished the construction of our open platform, which has brought encouraging results. One, we have established a professional empowerment system to fulfill agents' needs for professional and career development. 帮助代理人实现专业技能提升，推动队伍成长，成长为保险产品专家、家庭资产配置专家和养老传承专家. 2022 年累计 3F 结训人数超过 26,000 人. 此外，推出 3A 培训认证，涵盖招募技能培训、职业规划技能培训和团队经营技能培训，推动队伍的组织发展和持续职业化发展. We have established Triple F, representing Family Office Consultant, Fanhua Retirement Planner and Fanhua Policy Custodian training programs to help agents improve professional skills and help them transform from focused experts from on insurance products to broader experts on family-based asset allocation, and then expanding to experts on elderly care and legacy management. In 2022, a total of more than 26,000 agents have attended these training programs. In addition, we've also rolled out 3A training programs focusing on cultivating sales supervisors ability in recruitment, career development, and team management, thus supporting agents continuous career progression and the sustained development of our sales force as a whole. 二、构建信托加保险、康养加保险和保单托管加保险三条生产线，通过场景化服务营销激活人力，提升客户体验，切实将培训成果和服务资源转化为生产力。 Leveraging on our various service resources and technology and the targeted trainings, we have put in place three product lines. First, trust service plus insurance. Second, health and elderly care service plus insurance. Third, insurance policy custodian service plus insurance, which are in their essence an insurance as a service model to drive agent activity and significantly improve customer experience, leading to better productivity and performance. 三、落地 3R，AR、SR、FR 营销模式，结合内外部专家库资源，通过团队协作方式弥补个体专业技能的不足，帮助代理人更好地服务客户，提高成交率。 We understand that it takes time for agents to achieve professional progression. We implemented a Triple R marketing model which assembles a team of internal and external experts to support agents throughout all the key steps of their engagement with customers as necessary to make sure that our customers will be able to enjoy consistent, high-quality professional services and drive better conversion rates. 二、泛华对接全市场保险产品和全市场的优质保险金信托、健康的养老、财富管理等高端服务资源，使得代理人可以拓宽服务范围，帮助代理人成为客户的终身专业顾问。 Two, we have pooled a wide range of insurance products as well as quality insurance trust, health care and senior care and wealth management service resources, so as to enable our agents to broaden their service scope to offer a complete set of products and services to their customers by matching customers evolving needs throughout their entire life cycle. 三、基本完成数字化平台搭建。自上市以来，泛华投入数亿元资金打造了行业领先的科技系统，包括蓝掌柜 3.0，可支持全流程的交易。DOP 数字运营平台、企微、保单托管系统、双录系统、泛华学院、管家工作台等，全方位赋能代理人。泛华推出的数字租户系统，可支持将平台功能模块化，按用户需求组合个性化的前端运营 APP，充分满足向行业开放泛华的基础设施平台，赋能行业的需要 Three, we have largely finished the construction of the infrastructure of our digital platform. Since our IPO, we have invested several hundreds of million RMB in building leading insurance technologies and digital tools, including 蓝掌柜 version 3.0, which enables full insurance transaction processing. Our digital operation platform, Fanhua Enterprise WeChat, our insurance policy custodian system, our double recording system, and our Fanhua Online Academy, and Fanhua's insurance service butler workstation, empowering our agents in managing their book of business. We have also rolled out a digital tenant system which modularizes the features on our digital platform, enabling us to offer a customized standalone front-end application to each institutional users according to their respective business needs, which allows us to open our platform to the industry in a highly efficient way. 随着泛华赋能平台建设工作的落地，泛华多项核心经营指标实现质的突破。泛华赋能平台对代理人的专业化和职业化发展的支持作用持续得到验证。2022 年，尽管总出单人力下降，泛华各层级人力产能全线提升，GU 人力贡献占比进一步提高，其中十万 P 人力连续三个季度同比增长，全年 GU 贡献占比从去年百分之四十五提升至五十六。榕树开放平台与第三方渠道合作模式已趋成熟，并已实现盈利。截至 2022 年末，泛华榕树开放平台链接超过一百三十家 B 端渠道，实现新单保费规模二点五亿元，同比增长近六倍。 With the implementation of the open platform strategy, we have seen significant growth across multiple operating metrics, fully demonstrating the platform's powerful support for agents in their professional and career development. With our strategy of developing top-performing agents, we've seen a decrease in total performing agents and a growth of productivity among remaining agents, and in particular, continued increase of contribution from high-performing agents. The number of the hundred thousand premium agents has increased year-over-year for three consecutive quarters with their contribution of our new business in 2022, increasing to 56%, up from 45% last year. At the same time, we are also encouraged by the significant progress of our affiliated Fanhua RONG Open Platform division, which has achieved profitability one year into operation as its business model gets more mature. As of the end of 2022, Fanhua RONG Open Platform has connected with over 130 institutional clients, facilitating over RMB 250 million first-year premiums during the year, representing a growth of 6x from 2021. As such, despite challenges from the surge of COVID-19 cases in late 2022, we delivered approximately RMB 3.6 billion in total gross written premiums or GWP in the fourth quarter of 2022, up by 11.7% year-over-year, of which first year premiums or FYP grew by 19.6% year-over-year. Operating income came in at RMB 84.9 million, far ahead our guidance, while non-GAAP net income attributable to our shareholders grew by 76.1% year-over-year to RMB 70.9 million. For 2022, total GWP facilitated by Fanhua grew by 10.3% year-over-year to RMB 12.9 billion, of which FYP reached RMB 2.9 billion, up by 3.5% year-over-year. Excluding the impact of the transition towards new critical illness definition framework, which created a high base in January 2022, our FYP grew by approximately 20.1% year-over-year. Operating income for 2022 reached RMB 168 million. With this, we believe that it's high time to open up platforms to the industry. We announced our open platform strategy in the fourth quarter and initiated several acquisitions, including a leading MGA company, Zhongrong Huijin, and two regional leading companies to accelerate the expansion of our open platform. Looking ahead to 2023, with the reopening of China's post-pandemic, steady recovery in China's economy growth and resumed consumers' confidence in spending will certainly provide a more favorable environment for deepening the transformation and drive the development of the insurance industry. In the meantime, it becomes more evident that independent insurance intermediaries are playing a more important role as customers demand and product offerings getting increasingly more diversified, which will continue to drive the professionalization, personalization, and fragmentation of life insurance sales organizations as Fanhua is well fit from such evolving trends. 围绕提升市场占有率的经营目标, Fanhua 将继续聚焦于 1, 加强现有队伍的专业化、职业化建设. 2, 加大数字运营投入. 3 加快并购扩张. 公司 2023 的经营目标是实现新单保费经营利润均不低于 50% 的同比增长. As we accelerate the execution of our strategic transformation in 2023, we aim to gain more market share by focusing on the following initiatives. One, enhancing efforts on the professionalization and career-based development of our sales force. Two, increasing investments in enhancing digital operations capabilities. Three, speeding up strategic acquisitions. Our target is to achieve no less than 50% year-over-year growth in both life insurance first year premiums and operating income in 2023. 下面我们将回答大家的问题. This concludes my presentation. Now the floor will be open for your questions. Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile a Q&A roster. Our first question comes from the line of Yu Zhang of CICC. Please proceed with your question. 感谢管理层给我这个提问的机会，也恭喜这个公司 4 季度取得一个稳定的这个业务成果。这边呢，我有 2 个问题可能想请教一下。第 1 个问题是关于这个如何展望我国这个保险经纪行业的，也想请管理层再进一步跟我们探讨一下，如何看待这个行业现在的一个竞争格局，未来这个竞争格局呢会如何演绎？您认为这个 Fanhua 呢未来会处于一个在这个竞争格局里面会处于一个怎样的位置？第 2 个问题呢，就是我们之前其实也宣布了这个开放平台战略，就是未来这个收购推进的节奏大概是一个怎样子的情况，收购呢预计将如何赋能我们现在的这样子的一个业务呢？基于此，我们如何展望就公司未来 3 年的一个收入增速和利润的一个水平。我这边简单的翻译一下。 I have two questions, the first one is maybe about the outlook for insurance agent and brokerage industry in China. Could you share us some more color on the industry's current competitive landscape? How will it change in the future? Will this market be more concentrated? Or maybe we will see increased competition. What do you think of Fanhua's position as in this whole landscape? The second question is related to the open platform strategy. We've already seen a few acquisitions in the last few months. Could you give us some more details on the pace of your future acquisitions, and how will this strategy contribute income and earnings in the next three years? Thanks. 嗯，好的，谢谢。我来回答这个问题。我是呃，董事长兼 CEO 胡一楠。 Thank you for the questions. Our Chairman and CEO, Mr. Yinan Hu, will take the question. 嗯，呃，关于第一个问题，如何展望我国经济保险经纪行业，呃，我这里就主要谈寿险经纪行业这个这一块的这个目前的也竞争的格局，以及未来这个格局如何演绎。呃，我认为就是目前基本的结论是目前的竞争正在发生质的变化。 Well, with regard to the first question as to the competitive landscape in the insurance intermediary sector in China, I will talk about, my view on the competitive landscape and how it evolves, in the life insurance, intermediary sector in particular. My basic conclusion is that, we are seeing that competitive landscape is undergoing a fundamental change. 呃，质的变化主要反映在两个方面，一方面是销售组织，呃，这个精英化、个性化和分散化、扁平化。呃，那么在这个经纪公司，那么正在这个呃，呃，提升它的这个平台，赋能平台的建设，走向这个数字化和人工智能。 This change is reflected in two fronts. First, with regard to the sales organization, we are continuously seeing that they are becoming more elite based and more personalized, fragmented, and also organized in a more flattened manner. The major insurance brokers are also ram it up their efforts to building up operating the supporting platforms, driven by digital technologies and AI technology. 呃，在此之前，呃，我们认为这个经纪行业呃，几乎都是销售为主，呃，是一家典型的销售公司。 The general perceptions on insurance brokers, are that they are, sales distributors, they are insurance distributors. 我们认为在接下来的市场的演变过程中, 大的这种销售组织会解体, 或者说纯粹定义自己是销售型的公司的销售型的这种经纪公司, 我们认为, 也会解体. What we are seeing that in the future, the big sales organizations will become fully forward pilots. As we've seen that they are becoming more elite-based and fragmented. To maintain their professional growth, as well as sustained career development, they will require the support from a supporting platform. We believe that insurance intermediate company will transform themselves to become platforms. The major insurance broker companies will transform into digital technology based supporting platforms. On the other hand, the sales-focused insurance intermediate companies or this more sized sales organizations, including independent studios or independent agents, will join the supporting platforms to enable their sustained career development and professional growth in a cost-efficient way. The state are encouraging the digitalization of all industries, and how the insurance industry is going to transform themselves digitally, for the thousands of small-sized and medium-sized sales organizations, including agencies and brokers, it's not realistic for all of them to invest heavily to digitalize their operation. The competition in the future will comes down to the competition among platforms driven by digital technologies, digitally enabled analytic capabilities and AI technology. What we can foresee in the future is that one or two big support platforms driven by digital algorithm, AI technology, to support the operations of thousands of different-sized sales entities. Second question regards to our open platform strategy. Back in 18 years ago, we have pushed forward the idea of of our business model, which is the back office support platform plus entrepreneurial and ship development. This open platform strategy is basically based on upon our strategy of professionalization and digitalization. The key of this open platform or the core of this open platform is to able to empower the participants on these platforms. Otherwise, if this platform can only provide product offerings without empowerment, it is nothing but just a transaction supporting platform. The precondition for roll out this open platform strategy is to ensure that we have the capabilities to support professional growth and sustained career development of sales agents and sales organizations. The precondition for us to execute the acquisitions is that we will be able to support these acquired entities in terms of driving substantial business growth and help them to reduce their operating costs, especially the investment in IT technology costs. We will be able to save them of the investment in mid and up and back-office investments. If we can't see the possibility that we are able to help them drive business growth and reduce operating costs, we will not do the acquisition. Currently, we have announced three acquisitions, and there are 10 in the pipeline in close discussion. For the next two years, we expect to invest in or acquire majority interest in 20-30 regional leading insurance intermediary companies. For 2023, our target is to acquire 10 insurance intermediary companies, contributing no less than 100, sorry, contributing no less than $1 billion first year premiums. How, as to how to empower these acquired entities or the payers who join our platforms. After all, not all of these sales entities want to be acquired, and they want to remain independent. For that, we are going to launch our digital tenant systems to the industry soon, and which will enable these sales entities and independent sales team to join our platforms directly. As for how we empower these participants or the users of our platforms, there will be four aspects. Firstly, we will offer them product, a full sets of product and service offerings. Secondly, we will offer them professional empowerment systems, including our manage resources in terms of the trust services, healthcare services, and elderly care services, as well as our insurance policy custodian system. Thirdly, we'll provide them with digital tools, including our double recording system, digital operating platform. Fourthly, we'll also provide them with SaaS service, which or license our insurance intermediate companies are required to be equipped with information system by the CBIRC. This participants or these users of our platform will be able to install our core business systems and information systems directly without having to invest heavily in building up their own information system. Mm. Uh, My targets for the next three years in terms of revenue growth and profitability is that I'm hoping, my own target is that we can grow our life insurance first-year premium, and operating profits by 50% on CAGR basis. Thank you. As a reminder to ask the question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. One moment please. At this time, I would now like to turn back to Oasis Qiu for closing remarks. Thank you for joining us on today's conference call. If you have any follow-up questions, please feel free to contact us. Thank you. Have a good day. This concludes today's conference call. Thank Thank you for participating. You may now disconnect.

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