Fanhua [FANH] Conference call transcript for 2022 q1
2022-05-26 23:24:06
Fiscal: 2022 q1
Operator: Thank you for standing by for Fanhua's First Quarter 2022 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 that time if you would like to ask a question. For your information, this conference call is now being broadcasted live over the Internet. Webcast replay will be available within three 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 disconnect at 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.
Oasis Qiu: Good morning. Welcome to our first quarter 2022 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 online in our filings with the SEC, including our registration statement on Form 20-F. We do not undertake any obligation to update this forward-looking information, except as required under the applicable law. Joining us today, are our Chairman and Chief Executive Officer, Mr. Yinan Hu; Chief Financial Officer, Mr. Peng Ge; Chief Operating Officer, Mr. Lichong Liu; and Chief Digital Officer, Mr. Jun Li. Mr. Hu will provide a review of our financials and operational highlights in the first quarter of 2022. There will be a Q&A session after the prepared remarks. Now, I will turn the call over to Mr. Liu.
Yinan Hu: Good morning and good evening. Thank you for joining us today on conference call. Since the beginning of 2022, the omicron COVID-19 variant has been fueling outbreaks in provinces including Shanghai, Guangdong, Shandong, Jilin, Hubei and Zhejiang dealing a severe blow to offline activities and trainings of our teams. In the first quarter of 2022, one third of the training programs and customer activities were canceled and in most COVID stricken areas such as Zhejiang and Shanghai, Fanhua’s claims adjusting business almost ground to a halt, recording a loss in the first quarter. The COVID resurgences and economic uncertainties to some extent restrained the release of consumer demands for insurance. Along with the high base effect resulted from the transition to the new critical illness definition framework in the first quarter of 2021, the gross written premiums, or GWP of the life insurance industry in China fell by 3.1% year-over-year. Against this backdrop Fanhua’s first-year premiums of life insurance dropped in the first quarter of 2022. However, the GWP of our life insurance business still managed to grow by 10.1% year-over-year defying the industry's downward trend. Fanhua’s 13-month persistence ratio still remain above 91%, while most insurers saw deterioration in their persistency ratios manifesting the high quality of our business and stability of our main sales force. And operating income reached RMB20.6 million meeting our expectations. Despite mounting external challenges, we have continued to execute on our Professionalization, Career-based, Digitalization and Open Platform’ strategy and made steady progress in the following key initiatives. One, achieving cost reductions and efficiency improvements. We have been able to strictly control costs by optimizing staffing, closing low performing institutions and downsizing inefficient outlets, as well as improving average efficiency of our employees by optimizing the workflow in our daily operations. In the first quarter of 2022, excluding the increase in investments in our digitalization and initiatives, our general and administrative expenses decreased by 17.2% year-over-year. Two, further enhancing our capabilities to offer referral of insurance trust and family trust services to mid-to-high net worth clients. In the first quarter, we have hosted about 1500 Family Office Consultants or FOC training sessions, which focus on educating our sales agents on all round knowledge related to insurance trust and family trust and completed relevant certification programs for over 1,500 elite sales agents as define – those who have facilitated over 100,000 first year premium annually. We have also organized over 20 customer engagement activities targeting at high net worth customers as a result of which facilitated such customers to set up insurance trust accounts covering 50 large ticket insurance policies contributing more than RMB32 million of first year premiums in aggregate or RMB600,000 of first year premiums per policy. Improving the professional skills of our sales teams in the first quarter, apart from offering FOC training and certification programs, we have also finished establishing the course framework for family retirement planners or FPR is focus on courses in whole life insurance and annuity products and authorizing FRP lecturers. Relevant training and certification programs are expected to roll out across the country in the second quarter. For the second half of 2022, we also plan to start training and certification programs for policy managers, focusing on helping agents to develop the ability to offer policy custody services and enhance knowledge on protection type products, including critical illness products. So, as to enable agents to transform from experts on insurance products to experts on family based asset allocation and then to experts on elderly care and legacy management. Four, recruiting high performing elites, for existing sales force, we have been carrying out the plan for recruiting industry elite entrepreneurs together with their own sales teams. Over 500 elites, as well as their teams have become part of Fanhua since 2021 and contributed approximately RMB45 million of first year premiums in the first quarter of 2022, representing a strong power for Fanhua’s business growth. For the Yuntong business units, the recruitment of Yuntong advisors and financial planners has gone smoothly, despite high standards and performance requirements we applied. As of the end of the first quarter, we had over 410 Yuntong advisors and financial planners, contributing approximately RMB15 million of first year premiums with per capita productivity of about RMB40,000. Five, finalizing the preparation for the launch of Lanzhanggui APP version 3.0, on May 20, 2022. We have worked to upgrade Lanzhanggui from an insurance transaction focused platform to a one stop digital operation platform, making trading and services smarter, smoother, and more convenient. Six, working on establishing standard operating procedures featuring a three R i.e. account responsibility, solution responsibility, and fulfill responsibility marketing model, a platform supported teamwork to enable our agents to provide more professional and all around services to their clients. Seven, accelerating, marketing, develop – market development of our open platform status strategy. In the first quarter of 2022, first year premiums facilitated on Fanhua’s RONS open platform reached about RMB40 million up by 62.3% quarter-over-quarter and have shown an ever stronger momentum month by month. We still face tremendous challenges in the second quarter of 2022. COVID-19 continues to adversely affect the outline activities of sales agents. Meanwhile, the regulatory requirement for double recording is set to be implemented in Hebei Province and other areas starting from June expected to temporarily impact the whole industry across the Board, including Fanhua. Despite these headwinds, the management team is so confident in making operating profit in the second quarter of 2022. Hello everyone. This is Yinan Hu, and now I would like to announce the dividend plan for 2022. Fanhua announced on May 26, 2022, that it will distribute – this distribute 4.71 CNFinance ordinary shares to the order of each 20 Fanhua ordinary shares. This is also equivalent to 0.2355 CNFinance ADS for every one ADS of the company held. The dividend is payable on or around June 28, 2022 to shareholders of record on June 9, 2022. Based on the market value of CNFinance as of May 26, 2022, the value of the stocks dividend amounts to approximately $31.4 million equivalent to $0.58 per Fanhua ADS, close to the total amount of the cash dividends that we paid in 2021. This concludes our presentation, and now the floor will open for your questions. Hello, David, we’re ready for questions.
Operator: Thank you. I show our first question comes from the line of from CICC. Please go ahead.
Unidentified Analyst: And the first question is about the saving product. So could you share us with the Q1 numbers and the future outlook of saving products as well as the commission rate that we give to the agents and collect from the insurance company? So it may help us to estimate the brokerage income. And the next question is, do we have full year guidance in terms of like IP revenue or operating revenue? And that's all my question, thanks.
Yinan Hu: I think your question can be divided into three small questions. For the first part, which is the sales of our savings products in the first quarter of this year compared to the same period last year, the first year premium of our savings products is flattish year-over-year. However the percentage of the total amount of first year premium is actually higher than the previous quarter and the previous year managing to the high base in the first quarter of last year, due to the top sales of critical illness products prior to the transition to the new critical illness definition framework. As for the changes in market demand we are observing a trend in customer demand transiting from the critical illness to products that can cater to their needs for elderly care and efficacy management. So we believe that the gross momentum of saving products will continue in the coming four quarters. As for the commission rate for the savings products for insurance and annuity our commission income consists of those first commission and renewal commission. And there are two basic characteristics of savings products, which is large, the policy amount is large, while the renewal terms are relatively short. So the total amount of commissions is actually lower – is actually declined. Since last year, we have observed that the conversion rate between firstly premium and APE is actually declining and the conversion rate has dropped to roughly 30%. And so, we are trying, making efforts to improve the conversion rate by means of improving our product structure, as well as the weight of selling to extend the renewal periods or renewal terms of the product that we sell to improve – so that to improve the conversion ratio. As for the full year guidance, we are actually face a lot of external macro environment uncertainties, which makes us difficult to give very accurate position of the business outlook going forward, particularly – due to the COVID-19, we don't know the impact, the magnitude of the impact on our business yet. And right now, so far, we haven't seen any signs of these in terms of the COVID-19 impact, particularly in the second and the third tier cities where the COVID-19 control measures, the restriction measures is relatively stricter than the first tier cities. We hope that by the second quarter, we can have a better idea of our future outlook. However, internally on our operational wise, we are actually seeing sequential improvement in our operating matches particularly the continued improvement in the productivity of high performing agents. Thank you.
Oasis Qiu: All right Mr. Jiang, do you have another question?
Unidentified Analyst: Oasis Qiu: Sure go ahead.
Unidentified Analyst: And so they draft up a new sales regulation, limited the commission rate and also mentioned to restart the exam for agents. So can we evaluate the influence of this new policy to our sales force and the future commission income? Thanks.
Yinan Hu: The job measures, I think the purpose is to curve the irregularities in the industry and to promote a healthy development in the longer term of the insurance industries. We totally welcome the implementation of this measures and it's also aligned with our business philosophy since we are here for the long-term. And we believe that the new measures will be helpful to protect the interest of those with the consumers and insurance companies and all the other participants in the value trends. So a reasonable or healthy interest spread between, different part of the value trend is helpful and helpful or sustainable development of the industry. We totally object the idea to compete for market share by increase the commission rate. Instead we believe that, we should provide better services to customers and offer better products so to compete to get market shares. And we also observed that from our own statistics, that our high performing agents actually have increased their commission income, not because of the increase in commission ratio, but instead of, because of the productivity increase. So and all our initiatives, the results also showing discontinue trend. Thank you.
Peng Ge: Oasis Qiu: Hi, Dave.
Operator: Thank you. I show no further questions in the queue at this time. I'd like to turn the call back over to you, Ms. Qiu for closing remarks.
Oasis Qiu: Thank you for participating in today's conference call. If you have any further questions, please feel free to contact us. Thank you.
Operator: This concludes today's conference call. Thank you for attending. You may now disconnect.
