Huize Holding Limited (HUIZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Huize's Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded, and a webcast replay will be available on 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 Lo, Huize's Investor Relations Manager. Please go ahead, Kenny.

Thank you, operator. Hello, everyone, and welcome to our fourth quarter and full year 2024 earnings conference call. Our financial and operational results were released earlier today and are currently available on both our IR website and GlobeNewswire services. 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. Ron Tam. Mr. Ma will start the call by providing an overview of the company's performance and operational highlights, followed by Mr. Tam, who will go over our financial results for the fourth quarter and full year of 2024, before we open up the call for questions. I will now turn the call over to Mr. Ma.

[Interpreted] In 2024, the insurance industry continued to deepen the implementation of unified commissions and fees in reporting and underwriting. The industry entered the [ 2% ] era. Further, China State Council released its 10 measures, which outlined comprehensive regulations for the high-quality development of the industry. In response to these policy directions and market trends, we proactively adjusted our strategic focus and expanded our diversified and customized product offerings. As generative AI accelerates the transformation of the industry, we have implemented a forward-looking AI Plus strategy, transitioning from the application of intelligent tools to a comprehensive restructuring of our service ecosystem. This strategic shift has enhanced the product matching and service efficiency, establishing Huize as the benchmark for the intelligent transformation of the industry. Meanwhile, our accelerated international business development has built a strong second growth engine, fueling high-quality sustainable growth. As a result, in 2024, total revenue increased by 4.5% year-over-year to RMB 1.25 billion, and both gross written premiums, GWP, and first year premiums, FYP, facilitated across our platforms achieved record highs. In 2024, GWP amounted to RMB 6.16 billion, up by 6% year-over-year. Full year FYP reached RMB 3.42 billion, up by 31% year-over-year. In terms of our product mix measured by FYP, whole life premiums contributed RMB 1.84 billion, surging by 76% year-over-year, while long-term health insurance contributed RMB 520 million, up 2% year-over-year. Influenced by the downward adjustment in assumed interest rates, we registered stable growth in savings insurance products, accounting for 68.6% of total FYP, representing a year-over-year increase of 5.5%. Meanwhile, our short-term insurance business recorded robust double-digit growth with premiums up 23% year-over-year to approximately RMB 515 million, further strengthening the diversity of our product portfolio. Driven by profound customer insights and outstanding service capabilities, we remain committed to delivering a premium service experience to high-grade customers. By the end of the fourth quarter, our cumulative number of insurance users further increased to 10.6 million with 380,000 new users added during the quarter. The average age of customers who purchased long-term insurance products in 2024 was 35.1 years old, among which 68.4% were located in higher-tier cities, reflecting our high-quality customer profile. The average FYP policy size for savings products reached approximately RMB 75,000 in 2024, up by 39% year-over-year. By the end of December 2024, 13th month and 25th month persistency ratios for long-term insurance both exceeded 95%, continuing to outperform industry averages. As of the end of the fourth quarter, we maintained strong partnerships with 139 insurance companies, continuing to develop and launch customized products across a diverse range of insurance categories. In 2024, we partnered with Aviva-COFCO to launch Fu Man Jia, a customized participating whole life insurance product that combines protection and investment features, which received widespread market recognition. Additionally, we partnered with Ping An to introduce the upgraded Chang Xiang An No. 2 long-term medical insurance product, which has been continually optimized in 3 key areas, including ease of enrollment, lower deductibles and enhanced value-added services to better meet the growing public demand for high-quality health care protection. In the fourth quarter of 2024, GWP contribution from our customized insurance products accounted for 53.1% of total premiums, reflecting the recognition and confidence in our product development capabilities from both customers and the broader insurance industry. In 2024, the insurance industry accelerated its transformation towards greater intelligence and efficiency. Upholding a long-term commitment to digitalization, we have developed substantial advantages in both product and sales data alongside industry-leading technological innovation capabilities. During the year, we launched an intelligent client services system, combining smart navigation with human-assisted services to provide a 24/7 response mechanism. Additionally, we developed an intelligent assistant for our mid- to high-end medical insurance products to assist our client service personnel with product recommendations, policy interpretation and after-sales support. This system has achieved a 95% accuracy rate in responses and significantly accelerated the development of our intelligent service ecosystem. In Q4, we launched the [ Fengtong ] underwriting risk control engine system, establishing an intelligent, automated and digital underwriting risk control platform to enhance risk management across multiple scenarios and all insurance product types, leveraging Huize's 19 years of operations. Our proprietary [ Fengtong ] system integrates multidimensional internal risk data, including underwriting, claims and fraud detection and connects to high-quality external data sources to build a robust underlying data system. We proprietarily developed a disease classification system and algorithm tagging technology to accurately identify high-value insured individuals and high-concentration risk. By incorporating external data such as fraud indicators, credit risk, occupations, and place of residence, we achieved more comprehensive risk assessment capabilities and significantly enhanced underwriting precision. Meanwhile, we customized risk control rules and modules according to the specific characteristics of different insurance products, enabling the flexible application of risk control rules and models to provide customized risk management solutions. These have been successfully implemented in various products, including Guardian Critical Care, Little Bee and Chang Xiang An. Our verification engine with automated rules has reduced underwriting time to just 1.01 seconds per case on average, drastically improving operational efficiency. Since its launch, the [ Fengtong ] system has maintained a positive controllable risk identification rate of between 2% and 30% across different product categories. Key products saw a monthly claims reduction of 7% and health insurance products cumulatively reduced claims exposure by over RMB 300 million. Overall, the system has achieved a claims ratio below the industry average. These outcomes have significantly strengthened business quality, ensured a seamless user experience and created a positive cycle between risk management capabilities and business growth. Backed by our exceptional technological strength, robust business capabilities and extensive expertise in the Chinese market, we made significant and rapid strides in our international expansion in 2024. Our international brand, Poni Insurtech, successfully completed the acquisition of Vietnam's leading digital insurtech platform, Global Care. In Q4, Global Care achieved a 32% sequential increase in total policies issued, with revenue growing 33% sequentially. As a strategic shareholder, Poni Insurtech has begun to undertake a comprehensive technology and business empowerment at Global Care. In October 2024, we launched GlobalCare.vn, a health insurance comparison platform integrated into the [ GCL ] app, offering Vietnamese consumers a high-quality, transparent and user-friendly insurance purchasing experience. Vietnam is a pivotal component of our international strategy and representing a significant strategic milestone in our long-term Asian -- ASEAN expansion strategy. Looking ahead, we plan to bring the AI agent model to core Southeast Asian markets, including Vietnam, accelerating the localization and implementation of Huize's proven intelligent service model from China. This will further enhance insurance service efficiency and user experience in these markets. We believe the success and insights gained from our Vietnam operations in 2024 will strongly support our further expansion into Singapore and the Philippines in 2025 and other Southeast Asian markets in the longer term, helping us to achieve our target of 30% international business revenue contribution by 2026. In February 2025, amid rapid advancements in China's AI large language models, we fully integrated DeepSeek into the Huize app. This milestone enables seamless AI-driven interactions throughout the entire insurance purchasing journey from consultation to policy issuance. We are among the first organizations in the insurance sector to deeply embed the AI model into consumer-facing services and to establish an around-the-clock intelligent insurance service model. By introducing the AI agent model, our AI-powered app now delivers 24/7 personalized insurance advisory support, giving customers always-on intelligent service at their fingertips. This innovation significantly optimizes the purchase process and holistically improves the user experience. In the first month since its launch, the AI-powered Huize app achieved breakthrough results. Customer acquisition effectiveness significantly improved with an activation rate exceeding 40%. New user self-purchase rates and premium conversion efficiency also showed improvements. Combining our natural language processing capabilities with the comprehensive insurance knowledge base from Huize, our intelligent recommendation system, Right Pick, precisely matches customers with suitable insurance products, further improving sales conversion rates. Additionally, the AI model's real-time interaction capabilities ensure timely responses to customer inquiries. In the first month after the app's launch, the daily average number of users served exceeded 40,000, delivering a more convenient and efficient insurance service experience for our customers. Looking ahead to 2025, our focus will be on developing an intelligent needs assessment system for user needs, precisely matching user profiles with product recommendations, further enhancing conversion rates and setting a new benchmark for high-quality digital development within the industry. In 2024, we demonstrated strong resilience amid industry shifts by leveraging profound market insights and product innovation to adapt our strategies with agility and achieve rapid high-quality growth in our international business. Looking ahead to 2025, we will deepen collaborations with insurance partners and develop more innovative customized products tailored to evolving market demands. By harnessing cutting-edge AI technologies like DeepSeek, we aim to further enhance service efficiency and elevate customers' experiences, while continually pursuing breakthroughs in product design and risk management to reinforce our leading market position. Meanwhile, we will capture international market opportunities and expand our footprint in Southeast Asian markets. Through these initiatives, we aim to enhance our brand influence and build a more resilient innovation-driven international business framework. Ultimately, we are committed to reinforcing our competitive position in the international market and delivering sustainable long-term value for customers, shareholders and partners. This concludes my prepared remarks for today. I will now turn the call to our CFO, Mr. Ron Tam, who will provide an overview of our key financial highlights for the fourth quarter.

Thank you, Mr. Ma and Kenny. Good evening, everyone, in Hong Kong, Asia, and good morning for those in the Americas. I realize it's been a very long opening remarks, so I'll be brief here on the result highlights. So despite the challenging macroeconomic and regulatory environment overall in 2024, I think we have delivered a very resilient performance with both total GWP and FYP facilitated on our platform reaching record highs of RMB 6.2 billion and RMB 3.4 billion, respectively. Our total revenue has increased 4.5% year-over-year and achieving our second consecutive year of non-GAAP profitability. We have achieved this by leveraging our efficient omnichannel distribution network, which integrates both online and offline channels, focusing on acquiring high-quality customers, offering innovative high-value products and deploying our proprietary AI solutions throughout the ecosystem. More importantly, we have also made significant progress in our international expansion strategy, which will help act as a key growth driver for our long-term sustainable development going forward. Over the course of 2024, we continue to strategically prioritize long-term insurance products in China, which have accounted for over 90% of our GWP for the past 5 years. Our omnichannel distribution network and sophisticated AI tools are significantly enhancing our customer acquisition and engagement capabilities. We have acquired approximately 380,000 new customers during the fourth quarter, increasing our total customer base to date of 10.6 million. Repeat purchases for our long-term insurance products have increased by 3.3 percentage points to 40.2% in 2024, which underscores our ability to capture and capitalize on the LTV potential of our high-quality customer base through both upselling and cross-selling. Our open platform architecture continues to empower our internal financial advisers and also external independent financial advisers, IFAs, with total FYP from our 2A business increasing by 17% to RMB 415 million in 2024. I would also like to highlight several key achievements that drove our solid performance throughout the year. Our 13th and 25th month persistencies have reached a stable 95% over the year. Average ticket size for long-term savings products have surged by 39% to over RMB 75,000 and premiums facilitated from our short-term health and P&C products also increased by 23% to RMB 548 million in 2024. In terms of our liquidity position, our financial position remains very strong and robust with a combined balance of cash and cash equivalents of RMB 233 million or $32 million as of the end of 2024. In terms of our international expansion, Poni Insurtech, our international arm, continues to serve as the cornerstone of our growth strategy and delivered exceptional results in 2024. Total revenue of our international businesses has grown to RMB 228.7 million in 2024, with international revenue contribution reaching 18% for the year-ended 2024, which is on track in achieving our stated 30% target by 2026. In Vietnam, we continue to make meaningful strides in integrating the local operations with the broader expertise and capabilities of the Huize Group. Following the completion of the acquisition in Q3, our Vietnam business has achieved an impressive sequential growth with gross written premiums increasing by 29% sequentially and revenue by 33%. Global Care has launched a customized family accident insurance product, which was codeveloped with the Military Insurance Corporation, one of the leading P&C insurers in Vietnam. In addition, we are making steady progress toward expanding into Singapore and the Philippines markets with entry planned within the next 12 months. This will further diversify our revenue streams and create new growth drivers to enhance long-term shareholder value creation. Notably, on the AI front, we are among the earliest in China's insurtech space to deeply integrate DeepSeek's model in February 2025. We deployed inside our mobile app for Huize. This enables us to deliver real-time customized and data-driven recommendations to our customers, which will strengthen customer acquisition and engagement capabilities for distribution partners and IFAs going forward. This also provides a very scalable model for technological foundation to accelerate our international expansion. In summary, we believe we are ideally positioned to capitalize on the opportunities which is created by China's evolving industry landscape, which is poised for healthy and long-term sustainable growth across the entire value chain. Through Poni Insurtech, we will leverage our proven business model refined in China and advanced proprietary AI solutions to tap into the tremendous growth opportunities across Southeast Asia and the rest of the world, particularly in the young middle class demographic. We are confident that our cutting-edge technology and targeted market penetration strategy will solidify our position as Asia's leading insurance technology platform, connecting consumers, carriers and distribution partners digitally and efficiently through our data-driven and AI-powered solutions. And with that, we'll now open up the call to questions. Thank you very much, and over to you, operator.

[Operator Instructions] We will now take our first question from the line of Qingqing Mao from CICC.

[Foreign Language] I have 2 questions. My first question is about the commission caps regulation. I think it has been in place for almost 1 year. Has the one-off impact of this regulation already subsided? And has market competition improved since its implementation? My second question is on AI. Could you please elaborate on the specific ways in which AI technology can improve your operations? And what can we expect in terms of the financial outcome?

Okay. Thank you, Qingqing, for joining us again and for continued support over the years. So your question is on 2 sides. The first one on the regulatory commission caps and the effect of that on the brokerage channels. I think the answer is the regulations have been rolled out and officially implemented over the course of the year. And I think that the whole industry has now migrated into the so-called new normal. Ever since September 1 of last year, all the new products that have been launched by the insurance companies have already incorporated the new commission structure. So the short answer is, yes, I think the impact has been felt, and I think it's already fully reflected in our financial results for the Q4 and also for the rest of the industry and our peers that are also listed in the public markets. I think that similar results have been felt through across the industry. In terms of the regulatory impact itself on the brokerage channels and agencies, that's already been felt. We would like to note that for the regulatory implementation on the Thai agency channel, this has not yet been implemented, and we are expecting this to be effective sometime towards maybe the middle to later part of this year. And with that expectation, we do believe that it could be incrementally positive for the brokerage and agencies channels, including ourselves, given that right now, the regulatory framework has not been fully implemented across all different channels. So again, the fourth quarter results have fully reflected the new regulatory environment for our business models and as well as for the rest of the industry. In terms of the competitive landscape, we would like to comment that very likely with the implementation of the commission caps, market share is likely to be more consolidated among the top-tier players, including ourselves, and maybe some of the listed peers. And as a result, we do believe that the competitive dynamics would become relatively more -- in terms of long-term perspective, more healthy and more sustainable and very likely that the market share will be increasingly consolidated and concentrated among the top-tier players. So I guess that's the first question. And I think that for Huize, I think that we have a natural advantage when smaller players exit the market. And while our market share is concentrated in top players because we have a very flat hierarchy and much lower nimble cost base compared to maybe, in particular, the traditional brokers that's operating in the market for a long time, we do have a very natural cost structure advantage, particularly with respect to customer acquisition. We've always been relying on the platform model, the open platform model to acquire customers rather than an agent-led model. That's number one. And number 2, I think the AI evolution and the actual deployment of AI technology across our different business scenarios on our platform has also accelerated that advantage towards the online operators or digital players like ourselves. So on AI technology, I think that Mr. Ma has actually shared a lot of details on how AI tech is being implemented across our operations. I think that in terms of the financial outcome, if you will, right? So what would that translate into our financial results? I think very likely that over the course of next few years, you'll see that the biggest contribution from AI is that the fixed cost base could be much more nimble. And I think the efficiency can be much more amplified. Basically, with less human resources investment, we can then support much scalable operations. So meaning that operating leverage will likely increase by multifold, scalable business growth without the need of deploying a lot more human resources to support, for example, the conversion of customers or especially in the customer service front. I think that AI can resolve or deal with 95% of the customer inquiries and services that's required on a normal course business. And I think that the AI agent would be a key anchor for us going forward in terms of further investments into improving customer journey and using and utilizing AI as a major tool, a scalable tool to acquire customers at large. So that is something that we have already launched through the DeepSeek integration in February. We're seeing some initial encouraging results. And I think over the course of the next few quarters, we'll be happily sharing additional milestones as we achieve them. So hopefully, that answers your questions, Qingqing.

We will now take our next question from the line of Amy Chen from Citi.

[Foreign Language] So I have 2 questions. The first one is regarding the trend of operating expenses in the fourth quarter. We noted that actually both selling expenses and G&A expenses saw significant year-over-year growth in the fourth quarter last year. I wanted to ask what's the main rationale behind this trend? And the second question is regarding the gross profit margin as well as the net profit guidance for the year of 2025. We noted that actually after the rationalization of commission in the broker channel, the gross profit margin actually was compressed to around 30% in the year of 2024. I'm wondering if we would likely see some margin improvement going ahead to the year of 2025, given our investment in AI and the potential improvement in efficiency?

So 3 questions. I think the first one, let me address that first. So there is some sequential growth on some of the expense accounts. I think that one of the main reasons to do that is we actually implemented some further restructuring in Q4 in terms of our personnel head count in the fourth quarter. So that has led to some onetime -- one-off costs associated with that exercise. And we do have made some further AI investments in Q4. So that has led to some modest increase in the expense items. So I think over the course of 2025, I think one of the key focus for us, obviously, to further utilize and deploy AI throughout the whole business operations on all fronts, on the front end, on the mid-office and back office. I think there's a lot of room for us to further drive cost savings and efficiency in the mid- to back office in the tune of double-digit percentage. So AI definitely would be leveraged and deployed at large in terms of not just customer acquisition and customer service, but also on the normal course business operations. So I would note that in Q4, those are relatively one-off trends. So in 2025, I think that we are still targeting to drive a year-over-year decrease in the operating expense ratios across the 3 key line items there. In terms of gross margin trends, I think, yes, you do note that correctly that there has been some depression in gross margins over the course of the last few quarters. But I do note that in Q4 of this year -- or 2024, our group gross margin has actually recovered to around 34.7%. So I think that our outlook for 2025 is definitely to maintain at least that kind of the low to mid-30 range gross margins. And ideally, the investments that we're making on the AI front would drive further gross margin improvement and expansion, particularly on the customer acquisition front, because that hopefully would drive more scalable direct 2C customer acquisitions at low cost. So I think, hopefully, the gross margin line can improve further. And in terms of the guidance for 2025, we do guide towards a profitable full year of 2025, and we are targeting mid-single-digit kind of net profit margin for now. I think that the earnings growth will also be driven by our continued business momentum in the international revenue front. Obviously, I'm referring to the large contribution right now from our Hong Kong business. And also, we would be further deploying investments into the 2 new Southeast Asian markets that we mentioned just now in the call and also investment will be made in AI. So overall, I think 2025, we're looking at a profitable year and looking at a reasonable mid-single-digit type of profit margin -- net profit margin.

We have reached the end of the question-and-answer session. And with that, I'll now turn the conference back to Mr. Kenny Lo for closing comments.

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.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]