Fanhua Inc. (FANH) Q3 2020 Earnings Call Transcript

Laveta Brigham

Image source: The Motley Fool. Fanhua Inc. (NASDAQ:FANH)Q3 2020 Earnings CallNov 25, 2020, 8:00 p.m. ET Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks: Operator Thank you for standing by for Fanhua’s Third Quarter 2020 Earnings Conference Call. [Operator Instructions] For your information, this conference call is now being webcasted […]

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Image source: The Motley Fool.

Fanhua Inc. (NASDAQ:FANH)
Q3 2020 Earnings Call
Nov 25, 2020, 8:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Thank you for standing by for Fanhua’s Third Quarter 2020 Earnings Conference Call. [Operator Instructions]

For your information, this conference call is now being webcasted live over the Internet. Webcast replay will be available within three hours after the conference is finished. Please visit Fanhua’s IR website at under the Events & Webcasts 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. Please go ahead.

Oasis QiuInvestor Relations Manager

Good morning. Thank you. Good morning. Welcome to our third quarter 2020 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 United States 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 statement on Form 20-F. We do not undertake any obligation to update this forward-looking information as required under applicable law.

Joining us today are our Chief Executive Officer, Mr. Chunlin Wang; Chief Financial Officer, Mr. Peng Ge. Mr. Wang will provide a review of financial and operating highlights in the third quarter 2020. There will be a Q&A session after the prepared remarks.

Now, I will turn the call over to Mr. Wang.

[Foreign Speech]

Chunlin WangChief Executive Officer & Chairman

[Foreign Speech] Thank you for joining us on today’s conference call. Here with me, we have our Chief Financial Officer, Mr. Peng Ge. We will begin today’s call with an overview of our third quarter 2020 financial and operational results and share with you an update on our recent strategic initiatives. Mr. Ge and I will take your questions after the report.

[Foreign Speech] Part one, financial results in the third quarter of 2020. I would like to start with a brief review of our third quarter financial results.

[Foreign Speech] In the third quarter of 2020, Fanhua’s life insurance business grew 15.5% year-on-year in gross written premiums to RMB2.4 billion, outpacing the industry growth rate. Renewal premiums exceeded RMB1.8 billion, while first year premiums reached RMB582.7 million and annualized premiums equivalent reached RMB333.5 million. New business growth was below our previous expectation, mainly due to the following factors.

[Foreign Speech] There — one, there has been an adverse impact on the — of the pandemic on customers’ purchasing power and consumption sentiment. Second, our agency expansion plan was put on hold due to the pandemic and, as a result, cannot bring incremental growth as previously expected. Third, in recent years, insurance agents’ average income has dropped below socio average level in China, and the gap is still widening, thus, posing considerable difficulties on agent recruitment and resulting in low agent retention rate across the industry. Fourth, as 2020 is the last year of the three-year financial rectification initiative in China, small- and medium-sized insurance companies lacked incentives on product innovation. In contrast, major insurance companies have taken more aggressive product strategies, overshadowing the competitiveness of the products offered by small- and medium-sized insurance companies.

[Foreign Speech] Part two, the strategy of developing a professional sales force, digital capability and open platform. Next, I would like to discuss our strategy of developing a professional sales force, digital capability and open platform.

[Foreign Speech] We believe that key for any professional insurance intermediary to remain competitive and stay on the right course lies in the professional level of its sales force, while digital technology provides essential support to the success in building a professional sales organization by optimizing the use of private customer data.

[Foreign Speech] Meanwhile, Fanhua intends to open our technology, product contracts, mid-office and back-office service capability to the industry. By sharing the leading technology and product offerings with the market, Fanhua hopes to assist all market participants to improve their efficiency and lower cost, thus, promoting the common development of the Company and the industry.

[Foreign Speech] Therefore, Fanhua is implementing the strategy of developing a professional sales force, digital capability and open platform with key initiatives as follows.

[Foreign Speech] One, establish a business division for professionalization for the purpose of implementing Wintong [Phonetic] plan. Key components of the plan goes as follows.

[Foreign Speech] In 2021, on top of our existing sales force, 25 of our existing provincial-level platform companies will each establish a direct business unit at the provincial headquarter, which will be dedicated to forming a professionalized insurance advisor team by attracting elite sales agents, i.e., the Wintong financial advisor team.

[Foreign Speech] Two, in 2021, Fanhua intends to introduce top insurance managerial talent firm insurance companies to help establish more than 10 new branches in economically developed cities for developing and operating Wintong financial advisor team.

[Foreign Speech] Key profiles of professional Wintong financial advisors are full-time insurance advisors, many born post-1990s, of high caliber and high productivity, with current annual income not less than RMB100,000. The Company plans to recruit 5,000 professional Wintong financial advisors in 2021.

[Foreign Speech] Two, establish socio-technology company for implementing the digital strategy. We will integrate our data inventory and operation platforms to connect isolated data islands inside the Sales [Phonetic] Group. We will carry our intelligent digital operation to improve customer satisfaction and loyalty and enable customers’ self-service transaction. We have also established online marketing center and call center to facilitate online transactions and upper selling. For customers requiring off-line services, they will be routed to off-line insurance advisors. In addition, digital operation tools for insurance advisors will be provided to insurance advisors to enable them to provide better customer service to provide traffic operations.

[Foreign Speech] Three, develop cloud service business division for implementing the Fonex [Phonetic] plan and advancing platform openness. Starting with capital incubation. The open platform will export technology, product contracts, mid-office and back-office operation capability and after-sales service capability to the market. In 2021, the Company plans to introduce more than 50 platform partners, including insurance technology companies, professional and ancillary insurance agencies, insurance key opinion leaders and third-party wealth management companies.

[Foreign Speech] Four, as our existing organization will continue to serve as our solid business base, the Company also plans to upgrade the professional skills of our existing 400,000 agents and improve their productivity through digital empowerment and enhanced specialized operations.

[Foreign Speech] Five, last but not least, develop a young and specialized management team. We are happy to welcome a few new members joining us into our management team. We recently promoted the General Manager of our Hunan branch to be the President of our wholly owned insurance sales operation, Fanhua Insurance Sales Group. And the General Manager of Hubei branch to be the Vice President of Fanhua Insurance Sales Group. A former sales manager from a major insurance group in charge of its intermediary business has joined Fanhua to serve as the President of our cloud service business division. In addition, we have retained the formal head of the online and telemarketing business unit of a foreign JV in insurance company to build our digital marketing center in Wuhan.

[Foreign Speech] Part three, expectations. While the immediate future remains challenging for the industry, we anticipate year-on-year growth in the first year — first quarter of next year and significant incremental growth contributed by our new strategy in the second half of 2021. We are confident in our ability to retain Company’s position as a leader in the professional insurance intermediary sector over the long run.

[Foreign Speech] This concludes my presentation. Now, the floor will open for your questions.

Oasis QiuInvestor Relations Manager

Hi, Rushi [Phonetic], we’re ready for questions. Thank you.

Questions and Answers:


Thank you. [Operator Instructions] The first question we have is from the line of Xue, Yuan from CICC. Your line is now open.

Yuan XueCICC — Analyst

[Foreign Speech] There are two questions from Xue, Yuan. The first question is regarding the opening year’s — the year-opening sales strategy for Fanhua. How are we prepared for that year opening sales?

And the second question is actually regarding a common issue that’s faced by the overall industry. It seems that protection-oriented products have encountered huge difficulties in sales. When do you expect the recovery will happen?

Chunlin WangChief Executive Officer & Chairman

[Foreign Speech] For the year opening sales in 2021, it’s actually the first time that we attached a special attention to year opening sales in the past decade. So we want to make sure that we are fully prepared for this, and we have also a little bit high expectation for the year opening results. So, we set up a special team, a special task force in charge of the year opening sales preparation.

[Foreign Speech] We believe that the year opening sales will produce very good results in 2021, and we’ll also — some good starting point for our work in 2021. We believe that the year opening sales will help stabilize the team better and help enhance their confidence, as well as to further enhance our leading position in the industry.

[Foreign Speech] The good results from year opening sales were also from a good foundation for our execution of the new strategies in 2021.

[Foreign Speech] And the second question regarding to the difficulty in the sales of protection-oriented products, actually, in our view, it’s not that these type of products are difficult to sell. But on the contrary, it’s because insurance companies have put more emphasis on the sales of whole life insurance products because these type of products are easy to understand and also have higher ticket size. So, usually, the sales teams and sales agents like these type of products.

[Foreign Speech] But having said that, with the issuance of the new definition on critical illness, which is expected to take effect in 2021, so before the new regulation take in effect in January, we expect that the critical illness products may also have opportunity to experience an explosive growth.

[Foreign Speech] Based on the new definition on critical illness, it seems that new products designed based on the new regulation seems less favorable than the old products.

[Foreign Speech] Which is reflected in narrower insurance coverage.

[Foreign Speech] Thank you.

Yuan XueCICC — Analyst

[Foreign Speech] Thank you.


Thank you. [Operator Instructions] The next question we have is from the line of Alan Zhang [Phonetic] from Morgan Stanley. Your line is now open.

Alan ZhangMorgan Stanley — Analyst

[Foreign Speech] There are two questions from Alan. The first question is regarding to the revenue model with regard to our cloud service plan, things we’re going to establish more closer cooperation with some third parties under this cloud service plan.

And the second question is regarding to our dividend guidance for 2021.

Chunlin WangChief Executive Officer & Chairman

[Foreign Speech] I would like to answer the first question regarding to cloud service plan. We have attached great importance to this plan actually. In the past two years, we have made a lot of preparation, and actually, we have done some trial — some pilot project this year, which produced 20 million APE as a result. So, we expect to further expand this plan to wider market players this year and next year.

[Foreign Speech] Currently, our new business gross margin is about 25%. So, on top of this — maintaining this gross margin, we’re going to execute on our cloud service plan.

[Foreign Speech] Recently, a senior manager who used to be in charge of the intermediary insurance business in Taikang Life joined Fanhua, who will be in charge of our cloud service operations. He has huge experience, extensive experience in insurance intermediary sector and have a good understanding of the products and services in the insurance intermediary sectors as well. And he has also — have former experience in signing contracts with at least 400 to 500 small- and medium-sized insurance intermediaries and technology platforms, as well as key opinion leaders.

[Foreign Speech] Among this 500 potential business partners, we’re going to put them into several categories and among which, for the most potential business partner, we’re going to establish cooperation through equity investment.

[Foreign Speech] For equity investment, I think the arrangement will be, we may invest a minority interest at the beginning and then if they can produce very good results, we will further increase our shareholdings.

[Foreign Speech] So through the born [Phonetic] of equity investment, we believe that it will be easier for us to establish a mutual trust relationship. And then we will open our resources or shared resources with these business partners, including our technology capability, our product offerings, as well as our off-line service capability in order to help them to improve their efficiency and reduce costs, as well as achieve profitability at an earlier time.

[Foreign Speech] So, they will be able to have access to our technology platform, as well as unified product contracts.

[Foreign Speech] So, the revenue model in terms of the revenue structure, as well as margin structure may vary case-by-case. We will report to the market as necessary.

[Foreign Speech] For our guidance for dividends in 2021, we would like to continue the dividend policies, but of course, we need to submit our proposal to the Board for their approval.

[Foreign Speech] Thank you.


Thank you. We don’t have any further question at this time. [Operator Instructions] And we don’t have any further questions at this time. I’ll now pass the conference back to Ms. Oasis Qiu for closing remarks.

Oasis QiuInvestor Relations Manager

Thank you, Rushi. Thank you for joining today’s conference call. If you have any further questions, please feel free to contact us. Thank you.


[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

Oasis QiuInvestor Relations Manager

Chunlin WangChief Executive Officer & Chairman

Yuan XueCICC — Analyst

Alan ZhangMorgan Stanley — Analyst

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