Fanhua, Inc. (NASDAQ:FANH) Q3 2021 Earnings Conference Call November 23, 2021 8:00 PM ET

Company Participants

Chunlin Wang - Chairman & CEO
Oasis Qiu - IR Manager

Conference Call Participants

Xue Yuan Wang - CICC

Operator

Thank you for standing by for Fanhua's Third Quarter 2021 Earnings Conference Call. [Operator Instructions]. For your information, this conference call is now being broadcasted live over the internet. Webcast replay will be available within 3 hours after the conference is finished.

Please visit Fanhua's IR website at ir.fanhuaholdings.com under the Events and Webcast section. Today's conference is being recorded. If you have any objections, you may now disconnect this time. I would now like to turn the meeting over to your host for today's conference, Ms. Oasis Qiu, Fanhua's Investor Relations Manager. Thank you. Please go ahead.

Oasis Qiu

Good morning. Welcome to our Third Quarter 2021 Earnings Conference Call. The earnings results were released earlier today and are available on our IR website as well as on Newswire.

Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated.

Such risks and uncertainties include, but not limited to, those outlined in our filings with the SEC Commission, including our registration statement on Form 20-F. We do not undertake any obligation to update this forward-looking information except as required under applicable law.

Joining us today are our Chief Executive Officer, Mr. Chunlin Wang; Chief Financial Officer; Mr. Peng Ge; and Board Secretary, Lily Li. Mr. Wang will provide a review of our financial and operational highlights for the third quarter of 2021. There will be a Q&A session after the prepared remarks. Now I will turn the call over to Mr. Wang.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Thank you for participating in today's earnings call. First off, market assessment. Despite a steadying recovery in the Chinese economy, economic recovery across industries have remained unbalanced due to COVID-19 uncertainties and macroeconomic control measures. Due to concerns over macroeconomic uncertainties, consumer confidence has not yet recovered fully, especially for products such as life insurance that are not considered to be eminently needed. As a result, the life insurance industry is still struggling to bounce back in a short time span.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Second, the notice on further regulating the accident life insurance business of insurance institutions referred to as the new regulation issued by China Banking and Insurance Regulatory Commission, or CBIRC, on October 22, has become a trending topic in the industry.

The rationale behind the new regulation is to refocus on offline insurance distribution and strengthen compliance. Insurance and brokers with a large number of offline sales outlets are set to benefit from the new regulatory change and usher in broader developing opportunity.

Chunlin Wang

[Foreign Language]

Oasis Qiu

It is well proven that Fanhua is correct in carrying out the strategy of professionalism -- professionalization, digitalization and open platform, and in advancing the development model with positioning of catering to the demand of 400 million middle-class families for family asset allocation services. We will thus unswervingly continue down this path with an all-out effort.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Second, Fanhua's performance in the third quarter of 2021 met expectations. China's life insurance industry witnessed a continued fall in total insurance growth written premiums, or GWP, in the third quarter of 2021 with a negative growth of 1.9% year-over-year. Amid deep industrial adjustment, Fanhua managed to record RMB 2.7 billion worth of total GWP in the third quarter of 2021, representing a growth of 8.9% year-over-year with operating income reaching RMB 28.2 million higher than expectation.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Total life insurance GWP in the industry suffered a negative growth of 0.1% year-over-year in the first 9 months of 2021. Despite this, Fanhua registered RMB 8.4 billion in total insurance premiums during the same period, a higher-than-industry growth of 13.7% year-over-year and RMB 219.6 million in total operating income, meeting nearly 75% of the target for 2021.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Third, Fanhua's strategy of professionalization, digitalization and open platform went well underway in the third quarter of 2021. We saw encouraging progress in professionalization. We have approved the establishment of 22 Yuntong, or literally translated as cloud phoenix tree, branches or business units among which Shenyang business unit and Chongqing Number One business unit were already opened for business at the end of October. By the end of October, we have recruited 180 Yuntong advisers and over 40 Yuntong financial planners.

Chunlin Wang

[Foreign Language]

Oasis Qiu

We completed the target of building 10,000 digital entrepreneurial teams well ahead of schedule. We had expected to accomplish this target by November 30. But as of November 23, we already built over 12,000 teams. Currently, we are at the stage of operating WeCom-based online chat groups for digital entrepreneurial teams to drive conversion.

Chunlin Wang

[Foreign Language]

Oasis Qiu

We are also encouraged by remarkable results from our product customization strategy. As of late, Fanhua together with insurers and reinsurers has co-launched 12 exclusive customized products, including Huabai Number One [ph], Huading Number One, Huacheng Guardian Number One, Huaxao Number One [ph] and [indiscernible].

These customized products sold online and/or offline range from whole life, term life insurance, critical illness and annuity to million-yuan medical insurance, providing all-around diversified choices to meet customers' demand for health care, pension, financial legacy management and so on. The customization strategy also enables us to establish closer bonds and expand mutual reliance with our insurance company partners. In the third quarter of 2021, customized products are expected to contribute over 30% to our total new policy sales.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Fourth, business outlook for the fourth quarter of 2021. Looking ahead to the fourth quarter of 2021, we see both challenges and opportunities. Fanhua will remain focused on the execution of our growth strategy and get prepared for the jump-start sales campaign 2022 to achieve our full year target for 2021 while winning a good start for 2022.

Chunlin Wang

[Foreign Language]

Oasis Qiu

For the jump-start sales campaign 2022, our management and operation teams at all levels have made through -- made thorough preparations.

Chunlin Wang

[Foreign Language]

Oasis Qiu

One, sales force geared up. More than 12,000 digital entrepreneurial teams, all the financial planners in Yuntong business units, approximately 60 channel partners of our cloud service division and Baowang, have all been mobilized to join the upcoming year opening sales campaign.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Abundant product supply. A total of 11 Fanhua exclusive and customized products will be available for the campaign. These products include offline and online popular products, each with outstanding advantages. It is estimated that 70% of the business during the campaign will come from Fanhua's customized products.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Strong operational support. We have established a 4-level digital operation system from the group to city level and started empowering digital entrepreneurial teams and Yuntong teams through digital tools, including Fanhua WeCom, RONS DOP or Digital Operating Platform, Rons Guanjia, et cetera, supported by various targeted training programs. Kick-off meetings at different levels are also ready to go, including live streaming of the kick-off conference which will be graced by a few distinguished guests and is expected to attract over 100,000 audiences.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Together with our insurance company partners, we would jointly roll out unprecedented sales incentive programs, including but not limited to, 12 levels of prices and tickets to a summit that we intend to host in Macau for top sellers.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Operating income is expected to hit RMB 80 million for the fourth quarter of 2021 and RMB 300 million for 2021.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Fifth, the dividend plan for the second quarter of 2020 -- for the fourth quarter -- for the third quarter of 2021. The quarterly dividend for the third quarter of 2021 is $0.15 per ADS. The dividend is payable on or around December 22, 2021 to shareholders of record on December 8, 2021.

Chunlin Wang

[Foreign Language]

Oasis Qiu

Thank you. Now I would like to take your questions with Mr. Ge and Ms. Lee. Operator, we are ready for the questions.

Question-and-Answer Session

Operator

[Operator Instructions]. And our first question comes from the line of Xue Yuan Wang from CICC.

Xue Yuan Wang

I have two questions. First, could you please introduce more about the productivity of top sellers and new hired brokers? And second, company mentioned that they tighten up online insurance might benefit offline brokerage intermediates. Have we seen any change of product suppliers of our company since small- and medium-sized insurance companies are forced to reduce the supply of long-term insurance? And could you provide more details about the influence, the expected influence on FYP and the commission rate?

Oasis Qiu

To get back to you on the first question, at the end of the third quarter, our registered sales agents amounted to about 300,000. And in the third quarter, performing agents amounted about 60,000, of which about the number of agents -- performing agents for life insurance is about 17,000. And in the first 9 months of 2021, the performing agents for life insurance amounted to about 50,000 in total.

As for the productivity of top sellers who are defined as those who will have contributed over 10,000 APE on a 20-year basis, their average -- the monthly average of APE contributed by these top sellers were about 26,000 on a monthly basis in the third quarter.

As for our sales force, our current strategies are focused on our existing sales force plus additional contribution by our digital teams as well as Yuntong sales force. As for our 16 teams, we are establishing digital entrepreneurial teams to attract elite sales agents to join Fanhua. And we are leveraging on the WeCom-based online chat groups model to expand our sales organization. And this strategy has been quite effective as we can see in the third quarter results. And we expect that this digital entrepreneurial plan will help attract more top agents to join Fanhua in 2022.

On professionalization strategy, we have made good progress on this part. Our Yuntong plan has established a good reputation in the industry. And as far as we know, a lot of top sales people in the industry are thinking to join Fanhua. And we have done quite a lot of interviews in the past couple of months. And the person that we have interviewed are of -- have good qualities which are basically in line with our expectations.

And we expect our Yuntong teams will join the jump-start service campaign, which will be a good opportunity for us to vindicate the actual results of this Yuntong plan. And on the basis of this, we will further optimize our professionalization strategy, and we continue to push forward this plan going forward.

And the second question regarding the new regulation on online life insurance distribution. We have done a lot of studies and interpretations on this new regulation. We believe that the nature of this new regulation is to refocus on offline distribution and we focus on financial compliance. And we believe that these new policies, new regulation will provide a lot of good opportunities for insurance companies and insurance intermediaries with a larger geographical reach and a larger number of sales outlets.

As for those insurance company with limited network -- offline network coverage, in the past, they have mainly drive their business through online distribution channel. And after this new regulation, a lot of them will be compelled to return to offline distribution and the demand for intermediary channels will be a lot higher. And for example, as far as we know, some of the insurance companies with limited offline sales coverage has decided to restructure their internet business unit into a unit that focus more on cooperation with independent insurance agency channel.

Therefore, we believe that insurance companies with limited coverage will strengthen cooperation with independent insurance intermediaries with a larger geographical reach and step up cooperation in terms of innovation on product customization, in services, business operations as well as marketing strategies.

Fanhua will also proactively approach insurance companies to adapt to these new changes and hopefully help the -- help Fanhua and insurance company to pursue further business development. Thank you.

Operator

And your next question comes from the line of Alan Peng [ph] from Morgan Stanley.

Unidentified Analyst

This is Alan [ph] from Morgan Stanley. I just have one quick question. We see that the CBIRC bureaus and Hunan in Beijing in the past couple of days have issued refresh regulations on the insurance intermediaries, particularly in Hunan. The regulators aim to limit the development of the so-called MGA, the managing general agency, model within its jurisdiction. I just want to hear what management has to comment on this latest development.

Oasis Qiu

Thank you for the questions. We have also noticed the new policies issued by the Hunan CBIRC bureau. And we believe that this new policy provides us more opportunities than challenges. And it's, in general, more positive for Fanhua. As I mentioned, our sales force consists of our existing sales organization, digital teams as well as Yuntong teams, which will form the backbone for our business development.

As for the internet business for the MGA business model, these are somewhat new practices in the industry. And for Fanhua, we have done some attempts in launching this in this new area. But the business as a percentage of the total business is still quite limited. Therefore, the impact for us will be quite limited as well. While the restriction on these new practices will be quite positive for us in general.

And due to this regulation changes, a lot of companies who -- which need to adopt this MGA model or operate Internet insurance sales, I think there will be opportunities for us to consolidate their sales teams or their customers. As of today, we have about 800 sales outlets. We would take advantage of this sales network and adopt a proactive approach to pursue cooperation with these companies or to consolidate the resources that -- from this company to provide further business development. Thank you.

Operator

[Operator Instructions]. There are no further questions at this time. Speakers, you may continue.

Oasis Qiu

Thank you for participating in today's conference call. If you have any follow-up questions, please feel free to contact us. Thank you.

Operator

Thank you. And that does conclude our conference for today. Thank you for participating. You may all now disconnect.