Fanhua Inc. (NASDAQ:FANH) Q1 2021 Earnings Conference Call May 27, 2021 9:00 PM ET

Company Participants

Oasis Qiu - Manager of Investor Relations
Chunlin Wang - Chairman & Chief Executive Officer

Conference Call Participants

Operator

Thank you for standing by for Fanhua's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. All lines have been placed on mute to prevent background noise. After the management's prepared remarks, there will be a question-and-answer session. Please follow the instructions given at the time if you'd like to ask a question. For your information, this conference is now being broadcast live over the internet. Webcast replay will be available within three hours after the conference is finished. Please visit the Fanhua's IR website at ir.fanhuaholdings.com or the event and webcast section. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over the host for today's conference Ms. Oasis Qiu, Fanhua's Investor Relations Manager.

Oasis Qiu

Good morning. Welcome to our first 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 know that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995. The accuracy of the 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, including our registration statements on Form 20F. 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 Lee. Mr. Wang will provide a review of our financial and operational highlights in the first quarter of 2021. There will be a Q&A session after the prepare remarks.

Now, I'd turn the call over to Mr. Wang.

Chunlin Wang

[Foreign Language]

For the first quarter 2021, we're going to get the estimate with solid results. For the first quarter of 2021, with estimate RMB3.1 billion total gross income of 27.9% year-over-year, which first quarter associate premium grew by 57% year-over-year to RMB892.7 million. As equity [ph] remains strong with 13 months persistency ratio at over 91%. As a result of the stellar growth in life insurance business, our net revenues which RMB1.1 billion representing a growth of 51.5% year-over-year and operating income of RMB144.4 million at 133.8% from a year ago. Net income attributable to shareholders were RMB138.4 million, up 222% year-over-year.

[Foreign Language]

China's life insurance industry remains gloomy as it undergoes the reform and transformation, which pose both challenges and opportunities. There has been a fundamental change in customer demand in the past six years since the life insurance pricing liberation with the rapid growth in a number of self-agents in China and the emergence of the internet channel, the penetration rate of health insurance products in China have been relatively high. The popularity of government-backed medical insurance in recent years has also saw a large portion of demand for health insurance products and the road is upside potential for commercial long-term health insurance in China.

[Foreign Language]

On the other hand, there's the huge potential in the market sentiment of investment and savings type insurance products. China's middleclass population now stands at 400 million. As investment and savings insurance products constitute an indispensable component in middleclass family asset allocation with the continued expansion of the middleclass population, there will be explosive demand for this type of insurance products. The biggest opportunity lies in how one can stimulate and meet this implicit demand.

[Foreign Language]

Secondly, there have been fundamental change in insurance agents' organization. The traditional organization in pyramid structure can no longer meet customers' evolving demand, which leads to a sharp contraction in traditional insurance sales organizations and shortage of qualified talent in recent years. The professionalization of insurance sales organization has become an imperative.

[Foreign Language]

Digital capability is now a prerequisite to compete and thrive in the long term. Digital transformation reaches outside of business operations and customer demand insights to targeted marketing, customer experience optimization, operating efficiency improvements, and operating cost savings.

[Foreign Language]

Thirdly, with fast professionalization, digitalization, and open platform strategy, we're well positioned to capture market opportunities. We're making steady progress in rolling out our very strategic initiatives as scheduled.

[Foreign Language]

Firstly, professionalization strategy. As of date, we have approved the reception of nine income branches; the income which is distribution related as crowd industry is the high-end brand that we established specifically for our professional elite functions. We expect two of the functions will be ready for operation by July.

[Foreign Language]

Digitalization strategies, our digital marketing center has so far recruited around 100 service representatives, which will be dedicated to providing intelligence services to our customers and facilitating entire marketing transactions. In addition, we started to roll out some of our enterprise reachout application and launched some of our world digital assistant application on a trial basis in Hubei province, which we believe will provide more efficient way for our agents to engage with their prospective customers.

[Foreign Language]

Thirdly, our open-platform strategy leveraging on our well proven advantages in technology and bargaining power with insurance companies, we will continue to open our platform to all qualified market participants. As of today, we have established partnership with 16 channel partners as we are in the process of facilitating system connection and testing this process approximately 1.5 million on the facilitated through this channel partners in the first quarter.

[Foreign Language]

Hopefully, for the outlook in the second quarter in 2021. For the second quarter of 2021, amid persistent headwinds and a difficult year-on-year comparison to 2020 Q2 post COVID-19 boost, China's life insurance industry is widely expected to experience negative growth in new business. Against this backdrop, expect our total GWP facilitated to reveal approximately RMB2.6 billion from the balance in the year-over-year growth of 6.7%. After considering incremental expenditures required for implementing the new strategy, we expect our operating income will be no less than RMB50 million.

For the second half of 2021, we will continue to step up investment in advocating on our new strategy, while ensuring the achievement of no less than RMB300 million operating income for the full year 2021.

This concludes my presentation. Now before the open for your questions.

[Foreign Language]

This concludes my presentation. Now, we open for your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question today comes in line of Ying Ma [ph] from CICC. Please go ahead.

Unidentified Analyst

[Foreign Language]

Thanks for management, essential management. First of all, congrats for the exciting results. We have seen some negative effects caused by the [indiscernible] of critical units definition among peers. When do you think this effect will fade away?

Chunlin Wang

[Foreign Language]

To transition from the old critical illness definition from work, from the old one to the new one, is a bit event for the industry overall and also have caused a huge impact. Before the suspension of the old critical illness products in February the first, there has been strong sales in critical illness products in January.

[Foreign Language]

There has been a particular characteristic in the Chinese life insurance market, which is that every time before a suspension of a product, there will be a strong sales followed by a low down for a period of time. This time, it has no exceptions and in addition to that, we believe that initiation rate for critical illness products is relatively high in China. As of date, there has been 300 million outstanding critical illness policies in China. Apart from that, recently, the government has rolled out some short-term medical insurance products, which is more affordable and this type of product has also become quite popular among consumers, which in certain ways also absorb some of the demand for critical illness products.

[Foreign Language]

In order to for the critical illness product to fully recover, I think, it will require a lot of innovation and customization of products in order to boost customer demand and create opportunities for upselling. But we believe that critical illness may not be the main driver for the growth of the life insurance industry in the longer term.

[Foreign Language]

We believe that product innovation and customization will be the main trend in the future. In April, actually, we cooperated with Eon to customize our -- custom design a product -- critical illness product, which is called [indiscernible] number one. And as of today, we have sold RMB20 million in terms of new first year premiums, which is much higher than the total premiums sold by Synatai [ph] in the same period according to our visit to Synatai [ph] recently.

[Foreign Language]

For the longer term, no matter Fanhua already onboard in insurance [ph] market. In order to attend rapid growth, it's important to focus on savings, investment type of products. This is also the key part that we're focused on in terms of building up our offline sales capability and digital capability.

[Foreign Language]

Right now, there are 400 million middleclass population in China and this population has strong potential demand for saving type of product. So, it's our job to stimulate this implicit demand. Thank you.

Operator

[Operator Instructions] I see that we have no further questions on the line today. Now I can go back for closing remarks.

Oasis Qiu

Thank you for participating in today's call. If there any further questions, please feel free to contact us. Thank you.

Operator

Ladies and gentlemen, that concludes our conference for today. We thank you all for your participation. You may now disconnect.