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

Good afternoon. Welcome to ZhongAn Insurance interim reports. [Operator Instructions] And this meeting will be recorded. [ Zhang Lin ], please host today's meeting.

Dear, investors, analysts, good afternoon. Welcome to ZhongAn Online's 2026 interim results presentation. I am Zhang Lin. Please allow me to introduce to you the management today. The GM and CEO, Jiang Xing; TGM and Chief Investment Officer, Li Gaofeng; TGM and Secretary, Wang Min of the Board; and Mr. Xu Wayne. So Mr. Jiang Xing, please?

Dear, investors, analysts, good afternoon. I am Jiang Xing, General Manager. Thank you for joining us at ZhongAn's 2026 Interim Results Presentation. I also want to express our gratitude for your continued interest and support for ZhongAn. We remain steadfast in our core mission technology-driven finance and to reward insurance. our business scale continues to grow in '25. Our ranking on the Fortune China 500 list improved further to number 400. Our prudent operating performance and solid capital position, tough earned recognition from reputable agencies with Moody's upgrading our financial strength rating to A3. At the same time, we have deeply integrated sustainable development into our corporate strategy, actively putting into practice, the principles of inclusive in green insurance to reach more customers and populations in need, achieving synergetic growth across commercial value and social responsibility. On the AI front, we continue to promote the One AI strategy. at the foundational level, we leverage massive policyholder data and insurance-focused multimodal Copra with [indiscernible] Lingxi middle AI platform, providing engineering level management and control. In the first half of the AI, the year, the token consumption exceeded CNY 34 trillion. And last year, it was just CNY 3 trillion. So this speed is actually driving the evolution of the product, covering our product and also the underwriting, the claims to compliance and operational analysis. Through AI we can improve our quality and help us deliver better services to users. Next I will provide an overview of our overall operating performance for the first half of '26. In the first half of the year, we achieved gross written premiums of CNY 16.558 billion, roughly flat compared with the same period. On the new accounting standard, insurance service revenue reached CNY 16.989 billion, representing a yearly increase of 12.9% and returning to our strategy of quality-driven growth. Our combined operating ratio for the first half stood at 95.5%, improving by a few percent compared to last year, and underwriting profit grew by 17.8%, up to CNY 773 million. Total investment income from insurance assets amounted to CNY 1.596 billion, up to 150% year-on-year. In summary, for the first half of '26, we achieved net profit attributable to owners of the parent of CNY 1.55 billion, representing a year-on-year increase of 132.2%. Our Hong Kong Virtual Bank, ZA Bank recorded net revenue of CNY 478 million, up to 26.6%. And a net profit of CNY 71 million roughly 1.5x the level of the same period last year, demonstrating the continued release of profitability from our digital banking operations. Then let me introduce to you the channels and branding. They are our British users. We maintain an omnichannel approach to user acquisition and were to build brand mindshare across all touch points. And our user operation. We continue to optimize the experience on our proprietary online platforms, providing users with [indiscernible] insurance service of the end of June. The number of new insured acquired through our proprietary channels reached 36 million with an average of 1.7 policies per user and the policy renewal rate remaining at a high healthy level of 88%. Our focus goes beyond customer acquisition. We place greater emphasis on customer retention and deep engagement, building lasting trust in ZhongAn and communicating our brand promise, protecting every kind of life. Beyond online operations, we also deeply got involved in scenario-based brand building in the health and fitness space, we have made significant inroads into the event-based scenarios. Over the past period, we provide insurance covering 250 mass participation sporting events, covering 3 million participants and staff and exposures with total brand impressions exceeding 100 million. Through our brand campaign Love Sports [indiscernible], will bring insurance production into live -- active lifestyle scenarios while helping our users lead healthier lives. Next, please allow me to introduce to you the progress. First, healthy life. So the premium increased to CNY 3.406 billion, and the average premium reached [ 650 ]? So we built multilayer matrix. The 2 core brands realized the accurate coverage of the group. So in the [ Suning ] we expect the revenue of CNY 3.406 billion. And the premium continued to grow by 60%. So with our high-end 2026 version of product, we got very good feedback for the coverage of the 2 products, including the 1 million level of major disease and critical illness policies and mid- to high-end medical insurance, we are meeting the differentiated needs of the users. Alongside with our personal health insurance offerings, our group and insurance business achieved a major breakthrough, becoming a new growth engine for the health ecosystem. Relying on the AI infrastructure. In the first half of the year, our business grew by more than 57.5%. And the growth is worth noticing in the future. And in terms of the health insurance. On the service end, we continue to leverage the AI continues to refine the integrated insurance plus healthcare service loop with consolidated food process services, including the health management, extending the insurance coverage from post-claim compositions to end-to-end health production while enhancing the user experience through all touch points. And in the digital life, I would like to emphasize on the key innovative business line, pet insurance. In the first half of the '26, the GWP reached CNY 691 million, representing a growth of 22.7%, maintaining steady growth. During the first half, we served over 1.61 million pet owners with service penetration continue to rise. On the product front, we centered around our pet insurance brand, [ Zhong Yan Bao ]. We have built a comprehensive production metrics covering pet, medical care, critical earners, accidental injuries and cancer production for senior pets. We collaborate with more than 18,000 pet hospitals off-line, supported by a dedicated care consumer service offering appointment scheduling, referral coordination direct claims settlement, pet health, consolidation and guidance. Notably, we have launched the country's first carat insurance product, expanding our coverage into the exotic Pet segment and uncovering new opportunities in the niche market. And on the service capability front, AI has been deeply embedded throughout the entire pet insurance workflow, enabling us to serve millions of pad users at scale while seamlessly integrating the insurance and health care services into an integrated insurance plus service offering. Within the digital life ecosystem, while maintaining a steady performance of our core user with -- in our core e-commerce and travel business, we continue to roll out product and service innovations. And capitalized on the growth momentum on low altitude economy, our GWP in this segment achieved 27% year-end increase. In addition, our operations covering SME production home property insurance Prisma's narrow-based coverage and accident production for sports scenarios have been growing across multiple fronts, consistently meeting the risk production needs of our groups. Next, let's take a look at the auto ecosystem. So in our auto ecosystem, we continue to build a strong foundation for the independent growth -- business growth in the first half. We reached CNY 1.54 billion, up by 4.2%. We continue to capture the tailwinds of the booming new energy vehicle industry in the first half. The NAV insurance [indiscernible] by 105.7%. The overall percentage of the NAV insurance is up to 36.5%. And then the -- we remain focused on the private passenger car segment, which accounted for 83.5% of the total auto GWP, delivering solid auto insurance margins. So we also used AI and other technologies across the entire automotive industry service chain. Through AI-powered video claims processing, we have reengineered claim service efficiency and enhance user experience, further consolidating ZhongAn's competitive edge in the Internet auto insurance space -- and finally, in our consumer finance ecosystem. In light of a challenging external environment, we have proactively scaled back business volume and outstanding loan balances in the first half, GWP in the consumer finance ecosystem decreased to RMB 560 million, down by 79.2% year-on-year. while outstanding loan balances have been consistently reduced from CNY 22.9 billion at the end of last year to CNY 8.5 billion. And at the same time, we have managed operational risks effectively with overall risks having been materially mitigated. The consumer finance ecosystem continues to contribute underwriting profits in the first half. And that concludes the key business update for ZhongAn Insurance for the first half of '26. So now I would like to invite Wayne to share an update on ZA Bank's development in '26.

Thank you. Let me now walk you through the bank's business landscape. For ZA Bank as the first digital bank to commenced operations in Hong Kong. After 6 years of development, ZA Bank has integrated 6 core financial capabilities, deposits, transfers, loans, card spending, investment and insurance into a single app delivering a truly one-stop digital banking service experience that fully addresses customers' comprehensive financial needs built upon this full service foundation, our investment business is the second growth engine that we are strategically building. Looking back at our product evolution, we started with mutual funds and gradually expanded into ForEx, U.S. equities, cryptocurrencies and Hong Kong stocks. We completed the closed loop of our investment, for example, we started the HK IPO subscription services, providing one-stop support for the Hong Kong stock IPO applications. In April, we enable direct HKD subscription of USD denominated funds, lowering the barrier of customers to allocate USD assets. In June, we launched the cross-boundary Wealth Management Connect becoming the first digital bank in Hong Kong to offer the Southbound Connect services. In the first half, and our investment customer assets under management grew by 155.4% year-on-year, demonstrating very strong momentum. Going forward, we will continue to enrich our investment product suite and [indiscernible] customer AUM drive sustained growth in noninterest income, such as brokerage commissions and fees build a long-term sustainable growth engine. In terms of the finance, ZA Bank also remained strong. At the end of June '26, the total asset reached HKD 26.819 billion, up by 7.9%. And for the net margin -- net revenue, it reached CNY 578 million, up by 26.6%. And as for the net fee and commission income reached CNY 375 million, up by 25.9% and net service and fees was CNY 123 million, up 75.7%, representing first growth. And then in terms of net interest margin, we improved from 2.38% to 2.9% with an increase of 61 demonstrating continued optimization of pricing capability in the current interest rate environment. In terms of profitability, we realized a net profit of CNY 71 million roughly 1.5x that of last year and net margin improved from 10.8% to 12.2%, continuously releasing the profitability. Since its launch in 2020, ZA Bank has completed the full cycle from 0 to 1 and from losses to profitability. Today's results validate the sustainability of the digital banking profit model in the Hong Kong market. Now I would like to invite Gaofeng to walk us through the financial review.

Thank you both for the detailed business reviews and summaries. Now let me walk you through the company's overall financial performance for the first half of '26 in the first half, we proactively adjusted our product mix. Domestic P&C GWP remained stable at CNY 16.55 billion, down by 0.6%. The active adjustment didn't impact our overall business scale, laying a solid foundation for that quality growth going forward. And then in terms of the ecosystem, starting with health driven by both individual insurance and including the personal clinic policy and [indiscernible]. Actually, the GW reached CNY 6.7 billion, up 7%. For digital life ecosystem, July grew significantly by 24.7%, mainly due to the pet insurance and other innovative products up to CNY 7.73 billion. And in auto ecosystem, the GWP reached CNY 1.541 billion, up by 4.2%. And in the first half of the year, we also actively pressed down scale back our GP of the consumer finance ecosystem down to CNY 560 million [indiscernible] by 79%. And with the new principle of HKFS 17, the service income went from CNY 15.041 billion up by 12.9% to CNY 16.989 billion. And then for the health ecosystem, premium went up by 16.6% and Digital Life went up by 31.7% auto, up by 26.7% and consumer finance down by 46.5%. And benefiting from the consistent strategy of quality-driven sustainable growth, our combined operating ratio under the HKFRS 17 further improved by 0.1 percentage up to 95.5% and the overall loss ratio was 56.9%. The COR was 38.6%. And then if we take a look at the health ecosystem, the loss ratio was 43.9%, up by 1.4% compared to 25%. And then for the Digital Life, the comprehensive cost ratio optimized by 0.7% to 99.2%. And the loss ratio and also the expense ratios change was due to the structural change. And then for the auto ecosystem, the COR was 93.3%, and the primarily, it was reflecting the normal structural changes and such as the NAV insurance and composer third-party motor insurance account for the growing share. And finally, the consumer finance ecosystem COR was 95.6%, with the loss ratio trending upward a bit due to the external environmental factors affecting the underlying asset quality. We have still maintained robust risk control and the consumer finance ecosystem continued to contribute underwriting profits. Now let's take a look at the investment. The first half of FY '26 companies, domestic insurance investment income achieved a substantial growth with total investment reaching the RMB 1.569 billion compared to the CNY 639 million in '25, up by 150%. The annualized return on investment was up from 3.3% to 7.8%. And actually, the net investment yield increased from 2.1% to 4%. And then in terms of the asset allocation as of June, the domestic insurance investment assets stood at RMB 41.48 billion. And we would maintain a fixed income plus allocation strategy. And the equity and equity funds raised rose from 9% at the end of '25 to 13% in June '26. And we realized the simultaneous growth in investment income and asset appreciation. In the first half of '26 our insurance business continued in sand development with insurance service revenue, achieving steady growth in both underwriting and overall insurance segment profit continuing to improve. And for the technology segment return to profitability, ZA Bank profits were further unlocked. As a result, the net profit attributable went from CNY 668 million to CNY 1.55 billion, up by 132.2%. And in terms of the capital, as of June, the company's comprehensive solvency margin ratio stood at 287.7%. And its core solvency margin ratio at 279.3%. We realized quarter-on-quarter growth in both mainly is from the change of the registered capital. We further consolidated our capital and looking ahead, we will remain true to our original aspiration of technology-driven insurance. We'll continue to deepen technology empowerment, we final products and services and precisely match the evolving and increasing diverse production needs of our users. Going forward, we'll continue to pursue the operation and high-quality development. And finally, on behalf of the management team, I would like to express our gratitude to users as well as our appreciation to the investors and analysts. So then we will start the Q&A.

[Operator Instructions] So then from [indiscernible], please.

I'm from [indiscernible]. Congratulations on the outstanding performance from the underwriting to the investment from insurance to banking the performance had been great overall. We have 2 questions. One is for the health insurance. We saw that in health insurance, ZhongAn has been making proactive explorations. So Mr. Jiang talked about the service infrastructure, I think that's an important method to build the edge. So please share a bit more on the service infrastructure of health insurance. Second question is for the Hong Kong Bank. I'm very happy to see that ZA Bank has gone from [indiscernible]. So I would like to know a bit more about the planning and the target, the next step forward.

So let me answer the health insurance. So for health insurance, we always think that the insurance doesn't stay at claims. It needs to cover the whole recovery process. So for our health insurance investment, it's about building the insurance plus health care plus the health management. So I would like to further share a bit more. First, for the demography coverage breakthrough. We extended from health to the chronic patients from traditional health insurance for the traditional insurance, it didn't include the chronic patients. But then for our new products, it's designed for that gap, the overall premium continued to grow. And that validated the direction of the rider demand. And for the chronic disease patients covered, it's not just about that single innovation. And actually, it's about the support of the pricing power as well on ZhongAn and that is thanks to our core insights and know-how that we accumulated throughout the years. And second, it's about our value added -- the added value provided by our service. So for our [indiscernible] in that product, we included the recovery cost of more than 16 different illness in our coverage. And at the same time, we broke through the line of the diagnosis and outpatient. And now we're also promoting the other products covering the diagnosis and the post treatment. Finally we want to talk a bit about our 2 product, which is making a lot of progress. We saw that the health care need is reflected on the IB side with employers covering their employees. So we actually accumulated a lot of scenarios and service networks and AI capabilities. And we actually migrated that to the enterprise health care insurances -- we mentioned that in the first half of the year, we increased by 57.5%, and that becomes our fastest-growing segment. So I think it not only reflected our progress. It is actually an important carrier of the scenario because for enterprises, people tend to congregate there and it actually has the advantage of having more data. So it's better for intervention, and it's better for risk management on the crowd. So in the future, we will continue to promote the product innovation and continue our infrastructure building. And on the service end, we want to improve our capability to cover the recovery phase so that in health care, health management recovery, we can evolve towards a comprehensive platform covering all that.

Thank you for your attention on ZA Bank. So actually, the bank is positioned as the one-stop service provider for the finance management, so in looking into the future, we will continue to improve that platform and provide more comprehensive professional and robust banking and investment services to our customers and provide long-term value, and if you look at the first half of '26, you can see that in terms of user scale growing. At the same time, we're promoting the new products and new functions. And we have launched the HK IPO subscription service and also the HKD directly to the U.S. equities we used our matrix, and we are improving the engagement of the users to improve our order profitability. And actually, we also started the cross-border investment Connect, which is the first digital bank in Hong Kong for us. So that reflected our continuous effort. So then in the wealth management part with the Hong Kong equity and U.S. equity and cryptocurrency. Based on that, we want to expand to more portfolios categories and try to build the close loop for the funding of the users. So then we can increase our AUM and also the revenue and contribute even more for that. Thank you for your question.

Next from Morgan Stanley, Rick Zhao.

I have 2 questions. On the investment and we saw that in the first half of the year, the growth has been very good, 1.3x. And for the return of investment is 1.5x. So can you have a breakdown for us on the investment, especially the Percentage of the equity assets and so on. And then I want to ask about the auto because in the last 4 years, it has been our growth driver. And we saw that the premium growth rate was slowing down to 4% in the first half of this year. But can you give us an outlook for the next half of the year or the next 2 to 3 years in terms of the growth rate? And is there any other things to look forward to in terms of the expansion of the business?

Okay, let me answer the investment. The investment was performing quite healthily. And our total asset was CNY 41 billion. And our return was CNY 1.5 billion up by 150%. So the annualized return was 7%. So is that better than average? And then for our equities actually is higher than the average of the industry by 1%, and we are relatively high in terms of the proportion of equities and equity funds. So we will keep that to 8% to 8.5%. We won't further enlarge. And in Q3, for the equity and equity funds investment, we will try to tighten a bit -- in the future, we will try to take into account the macro environment and try to actively change our position. But when the market is in correction phase, we want to allocate high-quality assets. And when the valuation is still high, we will try to tighten up our exposure. So we will focus more on the lower yield fixed income. And then in terms of matching the debt with our asset and then we want to see robust strategy.