ZhongAn Online P & C Insurance Co., Ltd. (6060) Earnings Call Transcript & Summary

Hello, everyone. Welcome, everybody, to attend the ZhongAn Online Interim Results 2023 announcement. [Operator Instructions]. And now I'm going to turn the call over to the Head of the IR. Mr. Lin.

Dear investors, analysts and friends from the media, good afternoon. Welcome, everybody, to attend the ZhongAn Online Interim Results 2023 Announcements. I'm the Head of the IR. Mr. Zhang Lin, who is the one introducing the managements. General Manager, Jiang Xing of ZhongAn Online; CFO and Chief Investment Officer, Li Gaofeng of ZhongAn Online; Executive Vice General Manager; and the Board Secretary, Mr. Ou Yaping and also Wayne Xu, the President of the ZhongAn International. Now I'll give the floor to General Manager, Jiang Xing.

Hello, fellow investors and analysts. Good afternoon. I'm Jiang Xing, General Manager of ZhongAn Online. Thank you very much for attending ZhongAn 2023 Interim Results Conference. And thank you for your continuous attention and support to ZhongAn. 2023, is the 10th anniversary of ZhongAn Founding. For the past 10 years, we have always showed the mission of empowering the Finance business with technologies and providing insurance service with the caring hands. The accumulative total of more than 57.4 billion policies issued servicing more than 500 million users. We adhere to ZhongAn strategy of insurance plus technology insisting on the in-depth integration of technology and insurance in the whole process and assisting in the digital transformation of the global insurance industry. This year, we were listed on the China top 500 companies of 2023, published by Fortune Magazine for the first time and became the own insurance technology company on the list. Next, we would like to share with you on our achievements in the first half of this year. In the first half of 2023, the domestic economy as society fully resumed the normalized operation. So the demand gradually recovered. The company's development showed steady progress achieving GWP of RMB 14.5 billion, a year-on-year growth of 37.5% of which the GWP of our proprietary channels contribution increased by 8.6 percentage points to 30.6%. In terms of the gross return premium, ZhongAn steadily ramped, 9th in the China's P&C insurance industry, further increasing our market share. And also, we are the fastest-growing company among the top 10 P&C insurers in China. This year, the company adopted new accounting standards for the insurance contracts, HKFRS 17, under which insurance revenue amounted to RMB 12.682 billion a year-on-year increase of 23.9% benefiting from our business strategy of sustainable growth with quality. Our underwriting combined ratio was 95.8% in the first half of 2023, and optimizing of 0.7 percentage points compared with the same period last year, and underwriting profit reached RMB 536 million, an increasing of 47.6% year-on-year. In addition, benefiting from the significant improvement in investment income, the company turned to profit in the first half of 2023 achieving a net attributable profit of RMB 221 million. Take a look at the Technology Expo. Benefiting from the recovery of domestic economy and continued digital transformation of the global financial industry, the Technology Expo achieved revenue of RMB 267 million, representing a year-on-year increase of 22%, of which the domestic technology revenue grew at a rate of 25.5%. For the banking business, the ZA Bank, our virtual bank in Hong Kong further improved its financial product metrics and user monetization. In the first half of this year, ZA Bank achieved net income of HKD 152 million, an increase of 13% year-on-year. And next, I would like to share with you the development of our company in the first half of the year by business segments and ecosystems. In terms of health ecosystem, this year marks the eighth year since our launch of the flagship health insurance product, Personal Clinic Policy. Since its launch, the product has gone through a cumulative total of 22 iterations to satisfy the escalating and personalized health needs of the consumers and has continued to gain a strong vitality driving the rapid growth of the RMB 1 million coverage medical insurance industry. Represented by Personal Clinic Policy, reached 51.5% in the first half of the year, represented by the Personal Clinic Policy and 0 deductible version of Personal Clinic Policy, providing the consumers with practical protection through a more flexible product metrics, which was widely welcomed by the consumers. And focusing on multi-level and diversify need of consumers, we have always enriched the product metrics of our health ecosystem and also launched the multi-claim critical Illness insurance product with 267.6% growth in the first half of the year. And also, we innovatively incorporates a full range of healthcare services like online consultation and drug prescript and we had a 52.8% growth in the outpatient insurance products. In the first half of the year, our outpatient emergency insurance claim service has driven the frequency of the service provision and in the first half of year the total claims service exceeded 520,000 times with the average number of services for a single user or consumer reaching 3.5x. In the first half of 2023, the health ecosystem provided the health protection to approximately RMB 12.41 million in short users, realizing total premium of RMB 5,018 million, representing a year-on-year increase of 15.9% and individual paid users of the health ecosystem were approximately RMB 10.26 million, whereas for the catalog premium was approximately RMB 489 representing a year-on-year increase of 8.5%. Next take a look at the digital lifestyle ecosystem. We are actively embracing the development of digital economy and serve the consumers in multidimensional scenarios. In the first half of 2023, the e-commerce economy continued to release dividends and recovered strongly. Our e-commerce business segment continued to expand its network of Internet platforms with the GWP reaching RMB 3,098 million, representing a year-on-year increase of 35.8% of which the premiums for the return insurance grew at a rate of 45.9%. With the rapid recovery of domestic tourism industry in the first half of the year, our travel and tourism business segment also benefited from the industry's recovery. For the GWP of Travel and Tourism business segment reached RMB 1,442 million, repenting a year-over-year increase of 118.1%. So apart from those mature businesses, we are also developing innovative businesses following the trend of new consumption and exploring new growth curves in a digital lifestyle ecosystem. In the first half of 2023, our total tax insurance premium transactions amounted to approximately RMB 200 million, representing a year-on-year growth of nearly 100% and we served more than 620,000 pet owners in the current period and more than 3.8 million of pet owners cumulatively. In addition to protection of pet medical care and accidents, we embedded our services in multi scenarios of pet ecosystem teamed up with nearly 10,000 offline pet hospitals and service organizations to serve the entire life cycle of the pet and launched a variety of innovative interest products such as pet food safety insurance, the pet consignment insurance, the pet anesthesia accidental death insurance, the external insurance for the employees for the pet industry and other innovative products. We also use technology to actively explore and develop innovative products, putting insurance technology to work with a real economy and give it back to the community to create public welfare value. We have designed exclusive insurance products in segments such as household property, cyber security for safety, Gig Economy of duty and telecoms antifraud and are actively embracing the development of digital economy. And In the first half of 2023, digital lifestyle ecosystem realize the GWP of RMB 5,836 million, an increase of 52.8% year-on-year. Next, take a look at the consumer finance. So we've been having a very stable and solid growth for the Domestic economy and the Consumer Finance Industry has accordingly seen some recovery with our consumer finance ecosystem GWP amounting to RMB 2,787 million in the first half of this year, representing a year-on-year increase of 52%. Our consumer finance ecosystem has always adhered to the strategy of a steady and proven development and firmly implementing strict risk control standard and dynamically adjusted the risk of a cushion in the conjunction with the study of the macroeconomy and environment. So we had also experienced the cycles during the pandemic phase and accumulated experience, so we had a stable growth of our business, which actually show the ability of risk control and operations back then. And then taking a look at the auto ecosystem, which achieved actually, a very good growth even if the base number is actually quite small. And we were heavily investing into this particular business segment, because the market potential is huge. In the first half of 2023, the GWP of the auto ecosystem experienced the high growth with the increase of 54.3%, realizing the GWP of RMB 822 million. We actively embraced the new energy auto insurance opportunities and also the policy benefits providing auto insurance products and services to new energy vehicle owners for more than 20 brands, bringing new momentum to the overall auto insurance growth. In the first half of the year, the total premiums of the new energy auto insurers underwritten by ZhongAn in the first half of this year, growing by more than 228.7% year-on-year. We wish that we are going to bring more auto insurance to online and bring more differentiated product and services. So this is going to continuously becoming our strategies, so that the auto ecosystem is going to be developing on a better track. In 2023, we are actively driving the deepening of ZhongAn's branding and also proprietary channels, covering Bilibili, Douyin, Kuaishou, Xiaohongshu and other mainstream short video and live streaming and social media platforms. And the total number of followers omnichannel-wise is more than 25 million. Talking on the brand concept of ZhongAn in the first half of the year, whenever that they created the " Break Through and Forge Ahead, Boss!" with the IP, which is a micro documentary series created [indiscernible] helped us spread a small and micro-sized shops, while bringing more production to shops through ZhongAn's product. And this has exceeded 20 million broadcast across the network by the end of the first half of the year, and brand marketing has also won all kinds of different awards. From the financial perspective of the proprietary channel, the GWP of proprietary channel reached RMB 4.4 billion in the first half of this year, representing a year-on-year growth of 90.6% and number of paid users increased by 24.8% to 6.18 million and premium per capita reached RMB 712, up 52.7% from the same period in 2022. In addition, through our multiproduct service metrics, we are able to better interact with the consumers in our own ecosystem, so the user stickiness and also the monetization improved from the standpoint of renewal rate, multi policyholders and number of policies per capita, et cetera. Next, I would like to share some of the colors on our InsurTech area. We are laying out our cutting-edge technology segments such as artificial intelligence to reshape all cons of our insurance strategy chain through technology. Especially ChatGPT and other relevant industries are developing very fast in 2023. And based on solid participation -- participation in AI over the past decade, this year, we released the very first AIGC application White Paper in the domestic insurance industry, combining more than 30 specific application scenarios of AIGC technology in the field of insurance at the same time we released the first AIGC application map in the insurance industry at 2023 World Conference of Artificial Intelligence, showcasing the innovative application, practice and exploration of AI plus insurance. Artificial intelligence is used internally to improve efficiency in all aspects of our business from products to marketing to risk control and daily operations. In addition, this year, we further launched the ZhongAn AIGC middle platform, Lingxi and the first batch of insurance vertical AIGC application, which have created intelligence content creation platform EasyCreation as well as the upgraded version of AI. CWisdom operation analysis platform with a dialogue-generating AI, such that better leverage AIGC for external and internal empowerment. In the first half of 2023, our Technology Exports business continue to develop the domestic and overseas markets and assisted the digital transformation process of the global financial industry. We signed up a total 35 new insurance industry chain customers in the first half of the year, achieving revenue of RMB 267 million, a year-on-year increase of 23%. As of 30th of June of 2023, our technology export business had serviced a total of more than 750 customers. In the first half of the year, ZhongAn technology continued to make a significant breakthrough in the area of P&C life insurance interest industry data platform and also insurance mobile marketing and continues to maintain record growth of our insurance technology business. Our technology export business achieved revenue of RMB 150 million in the first half of the year, representing a year-over-year increase of 35.5%. In terms of business growth, in 2023, we signed up a 14 clients and provided to integrate user management platform plus operations, plus services, helping clients including Guomin insurance at Lian Life to build 1-stop digital insurance marketing platform. In terms of the business production series, the new generation of P&C insurance core system of joint technology made has been put online and used by a number of P&C insurance companies in China this year and a field of data, we have cooperated with a number of life insurance companies to carry out data mid platform and data intelligence and provide customers with services such as data planning, data governance and construction of the data mid platform. In terms of the new digital infrastructure this year, ZhongAn's [indiscernible] R&D operation and maintenance integration platform was elected as 1 of the ZA features [indiscernible] high-quality digital transformation products and services of 2023. In addition, to the consolidation of original foundation in the insurance industry, our technology product set signed the new contracts with a total of 8 customers from the banking and securities industry this year. So in the future, ZhongAn technology will continue to help consumers and customers the financial industry in their digital transformation. And also at the same time, accumulate the wealth of cross-vertical general experience to further broaden our customer base. With that, this concludes my presentation. And next, I would like to turn the call over to Wayne, President of ZhongAn International. To give introduction about the development of our international first half of 2023.

Thank you, Simon. Now I will be responsible for talking about the performance of ZhongAn International in the first half of 2023. In the first half of 2023, ZhongAn International continued to develop the overseas market and assisted the digital transformation process of customers in a number of industries around the world. First of all, ZA Tech has been breaking new ground in both domestic and overseas markets, setting a new benchmark for global InsurTech. To date, we are present in Japan, Singapore, Thailand, Malaysia, Vietnam and other Asian markets. And this year, we also made new breakthroughs in European markets. ZA Tech has a unique range of cloud-native monitorization, [ noco loco ] digital solution, including insurance core system, distribution system, customer data platform and AI solutions, which provides the digital infrastructure to support all types of insurance business models across all insurance product lines and across the end-to-end insurance business value chain. ZA Tech clients can be divided into acute categories, insurance companies and Internet platforms. For insurance companies, our next-generation distributed insurance core system Graphene can assist the insurers in connecting with various eco partners locate and launching the fragmented and scenario-based insurance protection products adapted to the local environment. For insurance companies in the early stage of digital transformation, we provide nano lightweight SaaS insurance core system to help customers building a low-cost claim to launch core system over digital insurance products and help them take small steps of [ claim ] there and rapid iteration in the process of digital transformation. For Internet platform clients, we provide Fusion the low-code insurance distribution solution to assist Internet platforms to provide more value-added services to their C clients and improving the efficiency of traffic monetization. In addition to strengthening our existing customer base, we have made significant breakthroughs in overseas export business in both Southeast Asia and Europe. We have entered into a relationship -- a regional partnership with the Home Credit and largest local customer finance platform in Southeast Asian, who buy Fusion and insurance distributor solution with embedded insurance products in 2 markets, which is Indonesia and Vietnam. We have also cross sell and upsell, the Home Credit partners to provide income, a leading local property and casualty insurance company with Nano, a lightweight SaaS insurance core system, further expanding our business, the possibilities in Southeast Asia. And also, in terms of core system, we leverage the technology advantages of Graphene's claim and module to assist the Prudential Insurance Thailand, micro claims module to go live. This enhanced a prudent insurance micro plans service capability and also help us to validate the visibility of the functional modules single-selling format, opening up new space for ZA Tech in overseas market. In July with the cloud manager the traditional insurance core system replacement track, exporting our core system product Graphene to one of the largest insurance groups in the Central and Eastern European market helping them to realize the seamless support from end-to-end functionality of traditional motor insurance in this 5 European markets with a Graphene -- [ graphication ] and go live. This lack of insurance core system replacement project is a major milestone of ZA Tech's development, and we will continue to reiterate the cloud-based legacy insurance core baseline and explore a huge market opportunity for the global insurance core system replacement. And also as a very important part of [indiscernible] ZA Bank has also continued its rapid development in the Hong Kong market this year. As the first virtual bank to officially open an first to obtain an insurance agents organization license and as first to obtain a securities trading license from the SMC in Hong Kong, ZA Bank in 2023 continues to develop the path of building Hong Kong's 1-step financial service platform and providing retail customers and SMEs with which can be an inclusive financial services. In order to further promote the concept of financial inclusion and assisted the transformation of Hong Kong's banking industry into the financial technology, ZA Bank officially launched the Express Online company accounting opening, which is onboarding the service on 1 of April 2023 to provide local SME customers with extreme fast account opening experience to help the client and seizing market opportunities. Due to this function, customers can complete the application for account opening as fast as 6 minutes and open accounting as fast as 2 hours. By now, ZA Bank has become 1 of the most feature-rich virtual banks in Hong Kong market creating a one-stop integrated financial service platform to a fully digitized operating model for mobile phones providing users with 24-hour digital banking services, such as deposits, loans, transfer consumption, foreign exchange, insurance, investment and corporate banking. In our retail business, we are building on our traditional banking products and services by innovating the experience of enhancing user preference and activity. As of 30th of June 2023, ZA Bank has close to 700,000 retail customers with a penetration rate of 10% of the population aged 18 and above in Hong Kong. The Zhong investment business was officially launched in August of last year, providing users with hundreds of fund products, which are welcomed by users as of 30th of June of 2023, the asset managed the scale of retail users reached HKD 537 million. As of 30th of June of 2023, ZA Bank has a deposit balance of approximately HKD 10.7 billion and a loan balance of approximately HKD 4.9 billion with the bank net interest margin rising to 1.87%. During the reporting period, benefiting from interest rate high cycle and a continuous improvement of our product metrics, ZA Bank's monetization ability also improve significantly recording a net revenue of approximately HKD 152 million, at the same time, we focus on the quality of our business and enhance our operational efficiency with the bank's net loss ratio narrowing by approximately 60 percentage points to 131.8% compared to 191.6% for the same period in 2022. Looking ahead, ZhongAn's International will continue to leverage the synergetic effect of the brand to further upgrade user experience and create more values for users featured into our financial experience. We will continue to help Hong Kong developing fintech building a financial center with a global financial influence and promote financial inclusion. Next, I would like to give the floor to Gaofeng to share with you the financial performance of the interim results 2023.

Thank you, Wayne. Next, I will be introducing the company's overall financial performance for the first half of the year. ZhongAn has adopted Hong Kong IFRS 17 insurance contracts in placements of the 4 from this year and related financial data for same period 2022 has been retrospectively adjusted. First of all, I'd like to introduce you the insurance revenue under the new standard in the first half of 2023. ZhongAn achieved insurance revenue of RMB 12.682 billion, a year-on-year increase of 23.9%. And next, I will be giving you an overview of the growth of the insurance revenue by ecosystem for the first half of the year. In terms of Health Ecosystem, we have [indiscernible] to original intention of being the national health insurance for 100 million people insisting on strategic direction of medical plus and [indiscernible] plus insurance constructed a 1-stop medical insurance service platform and system and maintaining a stable growth by continuously enriching our product metrics and improving our service capabilities in our health, ecosystem has demonstrated a high degree of resilience and insurance revenue increased by 5.9 percentage points to RMB 3,968 million compared with the same period last year. In terms of digital lifestyle ecosystem, domestic economy resumed it's normalized operation, we saw a significant recovery of the e-commerce and travel market, which drove the sales of e-commerce insurance products and travel insurance products within the ecosystem to improve. Meanwhile, any of the products like pet insurance, loan insurance and health insurance continue to grow at a higher rate and digital lifestyle ecosystem insurance revenue in first half of the year increased by 42.5% year-on-year to RMB 5,701 million. In the first half of the year, as the domestic economy recovered, revenue from the consumer finance ecosystem, revenue or I mean the insurance revenue amounted to RMB 2,318 million, an increasing of 17% on a year-on-year basis under the new accounting standard. And lastly, on the motor insurance, benefiting from the cover of traffic and travel this year and increasing the insurance revenue in the first half would be amounting to RMB 695 million, a year-on-year increase of 35.9%, which was higher than the growth rate of the original premiums. In the first half of 2023, the underwriting business grew at a high quality and then the sequential underwriting profit, our underwriting combined ratio was 95.8% under the new accounting standard, an improvement of 0.7 percentage points in the same period last year. In terms of health ecosystem, the underwriting combined ratio was 92.5% in the first half of the year, an improvement of 3.8 percentage points compared with the same period last year. In the first half of the year, we planned for window recovery traffic monetization and increase the investment in marketing consumer acquisition, and the corresponding expense ratio increased by 13.3 percentage points to 54.5% and loss ratio decreased by 17.1 percent points year-on-year to 38% due to the changes in product [ matures ] and further application of the core environment. And in terms of our digital life cycle system, we focused on the establishment of proprietary channels you can see that we have actually maintained a stable combined ratio and also in terms of the motor insurance, the claims ratio -- I mean, the loss ratio increased by 2.1 percentage points to 59.1%, due to the resumption of the traffic travel in the first half of the year. Expense rate improved by 2.8 percentage points to 38.2%. And the underwriting combined ratio improved marginally by 0.5 percentage points. And then let's have a recap of the Performance Investments segment. In the first half of 2023, the global macro environment was volatile and domestic and international capital markets were complex. The domestic bond market were certainly strong. While the stock market was markedly differentiated by industry and based of the challenging market environments, the company has always maintained a strategic elimination managed tactical allocation flexibly under the leadership of our strategic allocation adhere to the prudent and cautious investment philosophy, strengthen the risk management and control. As of the 30th of June of 2023, we have our domestic insurance fund that amounted to approximately RMB 36,231 million of which 73% were fixed income investment and credit bonds dominating the domestic bond investments, of which 99% were externally related AA -- rated AA and above handing investment to equities and equity funds accounted to a total of 8%. In the first half of the year, the investment income of interest funds improved significantly high over the last year, and the total investment income increasing to RMB 723 million from RMB 110 million in the same period last year, and analyze total investment return improving to 4% from 0.6% in the same period last year, mainly from the improvement in gains and losses on changes in the fair value, while the annualized net income return remained stable at 2.2%. Let's take a look at the overall key financial performance of the company. The underwriting business has achieved and sustained profitability with continued improvement and other segments have also seen a narrowing of loss ratios in addition of company's overall balance sheet in robust with a total asset of RMB 49.2 billion as of June 30 of 2023, representing an increase of approximately 3.3% compared with the same period in 2022 and comprehensive solvency ratio level maintained an adequate level. And this year, we have also continued to receive the Baa1 principal rating from Moody's ratings and positive outlooks, online be a resilience of our operations. In 2023, the 10 years of our establishments, will also continue to stick on mission of empowering in finance business with technology and provide insurance service with a caring hand, we shall not forget our original attention and market at new high level. Thank you. This is the end of the presentation. And now I would like to have a Q&A.

[Operator Instructions] The first question is from Michael Li from Bank of America.

I'm from Bank of America. Two questions. First 1 is about technology. We know ZhongAn is a leading insurer tech company in China and has a lot of important technology export. So recently, everybody is talking about AI. So the question is any placement of AI and layout, how do you think that AI is going to change the insurance industry? Second question is for the ZA Bank. We have witnessed the quick development of ZA Bank in the past 2 years in Hong Kong. So I would like to ask you that for the digital bank compared with the traditional bank, what are the differences. And also, what about the different strategies implemented by ZA Bank?

Thank you, Michael, for your question. First, I'd like to answer the question about AI. Since our founding, we've been investing a lot in the R&D of AI. We are not like Baidu or Alibaba, which is a company that's developing the fundamental and underlying technologies, but we are more focusing on the combination and application of AI with insurance, and reshaping the values of the value chain of the insurance industry. This is the key focus. Since this year, based on our experience and also technological know-how of AI, we have actually published a very first AIGC Application White Paper in -- first in an insurance industry. Also in terms of 30 different scenarios of applications and also the application points. In this White Paper, there is a sorting out and also a sharing of use cases. And also on the World Artificial Intelligence conference, we have also announced the very first application map of AIGC for the insurance industry, showcasing the practice and exploration of ZhongAn Online for AI plus insurance. This includes the 6 dimensions of product design and innovation, marketing and business development, the underwriting and claim, customer service, the wisdom and intelligent officing and R&D management and covering 80 different scenarios of AIGC covering the P&C and life and agents and proprietary channels and other information channels as well. So from an internal perspective, we are able to enhance our efficiency and innovation by using AI. And externally, we have been launching the AIGC mid-platform, Lingxi. And also the very first AIGC application and content creation platform, EasyCreation. And also the CWisdom the operational analysis platform that has been updated already with the ability of the dialogue generation AI. And we are more adapted to the AIGC capabilities, so your institutional users are able to be embedded with this professional knowledge bank and realize the application of AIGC in the different verticals. Looking towards the future, we are looking forward the deeper connection of AI and the insurance industry and providing better user experience. And I do believe that when time passes by, we are able to have more and more scenarios that are able to be more matured with the application of AIGC, which is pretty much under our expectations. And with regards to the ZA Bank, I'd like to give the floor to Wayne.

Thank you, Michael, for the question about ZA Bank. As of the first half of this year, ZA Bank has been operating for 3 years and for the past 3 years, we had all kinds of different breakthroughs. In terms of the user scale, as of 30th of June of 2023, it's almost 700,000. So this is equal to the size of the users of medium-sized bank in Hong Kong. If you're talking about product matrix, digital economy or virtual -- I mean virtual bank is no difference versus the traditional bank. And now at the kind of stage, ZA Bank is operating on the same way as the traditional banks, which means that we are able to provide the services and products like deposits, loans, transfer, investment insurance, et cetera. But if you're talking about the operational efficiency and user experience of the bank, digital bank versus traditional bank is very much different. First of all, there is no off-line point of service of digital bank. We provide the 7/24 services through apps, which is going to reduce our fixed cost and also we're going to get more benefits to the users as a platform and provide more products and services with value to money. And second of all, the digital bank is pretty much dependent on the server on the cloud, and we can produce technology to realize the quick go-live and iteration of new products and functions and can really satisfy the pinpoints and demand that are elevated year-by-year of the new generation of users. And also now we have becoming the commercial bank offering the basic services to the Web 3 organizations and also we are becoming actually the transactional and the settlement bank actually using the HashKey Exchange for instance and providing actually the convenience services. From the long run, we are able to better dependent on this particular facility to create a better user stickiness, and also use technology to help us to realize a higher operational efficiency. In the future, our goal is that we want to co-create with the users and also being the user demand driven and also become an integrated financial service platform that is driven by technology and providing all services and products available. Please be staying on tune.

Next question comes from Leon Qi from Daiwa.

I have 2 questions. The first 1 is about the operating channel. We're very glad to see the economy of scale, which is growing. So I would like to understand that do you have a goal of the premium contribution from the proprietary channels? And what about the customer acquisition costs? And also the other parameters like [indiscernible], et cetera, do you have any comparison, especially compared to the proprietary channel with the channels like Douyin and Kuaishou -- do you have any kind of quantifiable analysis. Second question, which is about the consumer finance in the first half of the year, when the combined ratio was quite stable, you had a quick growth. And also, you can see that talking about the macro economy, the kind of consumer credit loans is still quite weak. I would like to understand why you enjoy such a quick growth.

Thank you very much, Leon, for the questions. First, I'm going to answer the question about proprietary channels. In the first half of the year, the proprietary channel premium contribution continue to grow, accounting to about 30% of GWP. And first of all, in the first half of the year, we actually seized the opportunity of the traffic monetization and emphasizing more on investment on marketing and new acquisition of users, and acquiring a lot of new users to finish their underwriting. And also for the existing consumers, we're emphasizing more on the renewal business and cross sales and up sales, so that's how we are able to reduce the overall customer acquisition costs. As I have already introduced that the artificial intelligence technology is able to help us to better lower down the operational costs in the long run. And also, we are going to realize a better operational leverage. And talking about the operation of the same customer, the user acquisition cost of the proprietary channel is actually bigger because of more upfront investment on the insurance education and the mindset building among the consumers of the ZhongAn branch. However, if you are considering the cross-sells that is across ecosystem and also a very stable renewal rate, the long-term value contribution from users to our proprietary channels, the whole economic model is actually much better. Next question is going to be answered by [indiscernible].

Thank you, Leon, for the question. Last year, the consumer finance business was actually in a low base. And also, last year, we were having a kind of a shrinking of this business, but actually, we restructured ourselves in terms of the consumer structure and the product structure and also benefited by the economic recovery of the first half of the year and we focused on those small volume and discrete and short-term scenarios, so we are seeing a lot of growth. But still, in the future, we need to still focus on these scenarios. And also from some of our performance, we can see that the appropriate and also the kind of necessary credit loan as demand is still there. At the current stage, the average duration is 10 months and the user age span is in between 30 and 40, and this is a relatively young customer base and with a stable economic income. In the future, we're going to be prudent in -- or also thinking about our strategies and also empowered by the technology. Also, we are going to maintain a higher quality growth as our fundamental strategy. Also, the underlying asset quality is still quite robust, which is also higher and better than the industrial average. And in the future, we are going to continue servicing even better the consumption demand of our users and also, we are going to have a very stringent control policy in place and develop on a prudent fashion.

Next question is Qingqing Mao from CICC.

So congrats on the wonderful performance. I have 2 questions, which are related to the new businesses. ZhongAn is always raining with the surprises in those innovative areas. The first 1 is about the health insurance. So for the 0 deductible health insurance product is selling very well. I would like to understand that whether it is going to be the major driving force and apart from the RMB 1 million medical insurance, any other potentials. And second question is about the innovative business of digital lifestyle ecosystem. Can you share with us more about this business. And what types of insurance are able to actually develop on a much more potential basis or help you develop the ZhongAn business in the future?

Thank you for the questions. First, let me answer the first question. For the health insurance, this is actually the most important ecosystems that we are focusing on for a very long time. We had maintained a very stable growth in the first half of the year. And also the number of users and premium per capita are increasing. As I have already introduced the blockbuster product, the million-RMB medical insurance represented by Personal Clinic Policy, still maintain a very robust momentum and the growth rate of the million-RMB medical insurance product increased by 50% in the first half of the year, with which the 0 deductible version had an increased rate of 148%. So that you can see that we have ceased the protection needs of the users and also using technology to lower down the threshold. And apart from this series, we are also focusing on the next blockbuster product. So with the more inclusive pricing and more flexible product metrics, the critical illness insurance products realized a 268% growth rate in the first half of the year, GWP of a nearly RMB 800 million and also combined with the Internet hospitals, and healthcare, the outpatient and emergency insurance products experienced a growth rate of 53%. So we cannot have this particular momentum of new product development without our user insights and also the user service. In the future, we are going to be optimistic about the overall healthcare industry's development in China. And we believe that still there are a huge unmet healthcare need and we are able to precautiously and also actively explore more opportunities for innovations. In terms of digital lifestyle ecosystem, which is your second question, I believe that the overall growth in the first half of the year was still passed especially, when the economy was recovered, and when the pandemic control was over -- compared with the same period last year, this year, we have also seized the opportunity of dividend growth of short video platform and live streaming, et cetera. And also, you can see that the travel business is still recovering and tourism as well. So innovative businesses are also trying to satisfy more needs of the users. Now we have the insurance, for instance, the pet insurance, broke screen insurance, [indiscernible] et cetera. And also we activate [indiscernible] Blue Ocean insurance types such as home insurance and corporate insurance and also in the smaller areas. So we want to make more innovations in product design and pricing, so the growth rate of all types of insurance is very fast, like pet insurance, which has the growth rate of over 100% over the past 2 years, and also the UAV insurance and also the home property insurance and [indiscernible] insurance and e-commerce and also some of the riding and hiking, kind of insurance also maintained a notable growth rate. Also, we set up the ZhongAn's open platform, which is also aimed at innovation and incredible market oriented to actively see corporation in more scenarios. And also we are actively laying out some of the opportunities and innovation in the area of green economy and sustainability. So overall speaking, any of that businesses is still having a very good profitability because of the unique product metrics and product feature and also the quick iterations and also the risk control strategies in place. This is pretty much my answer.

Next, we are going to have the next question, Michelle Ma from Citi.

As you have already mentioned, some of your innovative businesses, but still I have another 2. First 1 is about the pet insurance because we have witnessed the pet insurance developed from scratch and also doubled the business in terms of the premium this year. I would like to get more information about the pet insurance. How do you think about the developments now and how do you expect the 3 to 5 years growth rate of the pet insurance. Also comparing with the major competitors, for example, Continental, what is actually a major competitive landscape or competitive edge of your pet insurance product. Could you actually share with us more on those questions. Second question is about the technology exports. You shared a lot of colors on the overseas market. And also, you mentioned that something about the digital economy of China, which is recovering very well. So I'm curious to know that what kinds of products are you exporting to China market or to be more specific, what are the names of the products? And what about the customer profile? And also, how do you expect the growth rate for the next 3 years?

Thank you, Michelle, for the questions. Let me share with you the answers on the pet insurance, as I was already said, that in 2023, the GWP of the pet insurance grew by almost 100% and total premium transaction volume is reaching almost RMB 200 million. So in terms of market scale and market share, we are the leader, no doubtedly. So not only we are covering the pet insurance in the pet industry, but also we are covering the whole ecosystem of the pet industry. With multiple durations, we are now covering the accidental health insurance of pet and also the health management of the pet as well. So in terms of the scenarios, we're also trying to develop new areas like the pet, travel and full security and full safety. And also, we work with the Royal Canin to actually also develop the [ corona illness ] management insurance for the prescribed tables. And also, in China, we really believe that this is a huge and also a new market and Blue Ocean. According to the industrial data by 2026, the total size of the pet industry is going to reach RMB 537.6 billion, with which the healthcare related to the pet is going to have a market scale of RMB 135.6 billion. And the 5-year CAGR between 2021 and '26 will be 20%, and this is going to be the fastest. The last -- about a week, we had the Asian pets show and exhibition. And I was also there. So it was really popular. So you can see that the overall market of the pet industry is booming. Recently, we are going to publish the White Paper for the pet insurance industry together with the [indiscernible] and sharing our insights and analysis towards the pet industry. So dear investors and analysts, you can actually contact our IR team to get the further information about this White Paper of pet insurance industry. Next question will be answered by [indiscernible].

Thank you, Michelle, for the questions. This year, we have seized the opportunity of the recovery of the software and technology service industry. And the first half of the ZhongAn Technology has achieved a revenue of almost RMB 150 million, an increase of 26% on a year-on-year basis, coming back or exceeding the same period level of 2021. And also last year, in the first half of last year, the newly signed contract value exceeded RMB 200 million and the growth rate exceeded 100%. So this is going to be really helpful for us to maintain a high and rapid growth momentum. And this year, ZhongAn Technology has launched more and more products that are tailor-made for the customers need and deeply understanding the users' demand and for instance, the new generation P&C insurance core system [indiscernible] has been used by multiple P&C companies in China and also with the iterations of our products, and driven by [indiscernible] as a core system, we are going to further optimize and also perfect the interest product matrix and further cover both business scenarios and use cases and really provide the InsurTech products to customers in a more efficient and safer and more intelligent way. Also in terms of the data infrastructure, we have been working with a lot of different life insurance companies to develop the collaboration on data mid-platform establishment and intelligent governance. So we are providing the capabilities and also the services like the data planning, the data governance and data mid-platform establishments. And also based on our big data experience, we're also providing AI services to other life insurance companies. And also empowering the digital transformation of the Life and P&C insurance companies. And also this year, China started to implement the IFRS 17 and with this implementation of new accounting standards, this is bringing changes to the insurance industry, which is related to the contracts and risk assessment and the financial reports. So, ZhongAn Insurance in the past has been focusing on the developing on the proprietary platform that is integrating everything that is like a compliant with the new accounting standard for over 1.5 years. And also for the past years, we have been focusing on the accumulation of massive data and computing and also facilitating ZhongAn in realizing the compliance requirements and auditing requirements in a higher efficient way. And also, we have our proprietary R&D system of I 17 and this has been officially exported and also signed the official contracts with the customers. So you can see that, this is actually the reflection of our achievements. So, yes, and also ZhongAn Technology has been gaining the excellence awards of the PWC Financial Technology 50 Award, and this is also a very good recognition of our achievements and also efforts. In the future, we are going to actively explore the technology export of the financial industry and seize the opportunity and also further digitize an upgrade.

Due to the limit of time, we are going to have the very last question. Rick from Morgan Stanley.

I have 2 questions. The first 1 is about the combined ratio. As we can see that the combined ratio of 5.8%, so quite good. And also comparing the same period, you had a great improvement in Q1. Under the solvency ratio, you had a pressure, but in Q2, pretty good and better. So I like to understand the kind of overall understanding of your underwriting profit and also the premium growth. And second is about profitability. So I'd like to understand that whether that guideline is pretty much confident to be realized? And what are the profitability is meeting your expectations? And also any impact to the ZhongAn International, when there is a ad issuance of the [indiscernible], all right finally in capital. Thank you.

I would like to actually realize or answer the question about the underwriting profit and also the green premium growth. So in 2023 and in the first half of the year, we had a lot of uncertainties internally and externally. So on against that scenario, however, we have implemented the high-quality growth as a strategy, both the premium growth and profit so that we are meeting our expectations set up in the beginning of the year. For the second half of the year, we're going to laser focus on the high-quality growth further and [ incomes are intensified ] management level activities and using artificial intelligence to further reduce the overall cost and maintain the underwriting profitability. Second question about international. So ZhongAn International is including the ZhongAn Bank and also to [ attract ] there is focusing on a technology export and also the life business of Hong Kong. According to the financial data, our ZA Bank, while increasing the revenue, the net loss volume and net loss ratio actually continue to be improved. And also, while talking about this particular announcement of the holding increased by [indiscernible] this is also showing the long-term view or possible view of the company to ZhongAn International. And also by the accounting standards by -- after this transaction, ZhongAn International is not going to be a subsidiary of ZhongAn anymore. And ZhongAn Online accounting standards to the ZhongAn International is going to be changed from the cost-oriented method to equity method, and also on 14th of August, we have already finished the settlement for the first batch. And also for details, you are able to contact the IR team for further information. Due to a limit of time, we're going to close this announcement. And on behalf of ZhongAn Online, I would like to thank all the participants for joining. Thank you very much.

Thank you, everyone. You may disconnect.