Fanhua Inc. (FANH) Q1 2022 Earnings Call Transcript

Fanhua Inc. (FANH 3.85%)
Q1 2022 Earnings Call
May 26, 2022, 9:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

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 irfanhuaholdings.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 -- Investor Relations Manager

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 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, 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. Liu will provide a review of our financial 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.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

Good morning and good evening. Thank you for joining us today on the conference call.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

Since the beginning of 2022, the omicron of COVID-19 variant has been fueling outbreaks in provinces, including Shanghai, Guangdong, Shandong, Jilin, Hebei, and Zhejiang, dealing a severe blow to offline activities and training of our team. 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 Shenzhen and Shanghai, Fanhua's claims adjusting business almost ground to a halt, recording a loss in the first quarter.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

The COVID resurgences and economic uncertainties to some extent restrained the relief of customer demand 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 factor, 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, defining the industry's downward trend.

Fanhua's 13-month persistent ratio still remains above 91%, while most insurers saw deterioration in their persistency ratios, manifesting the high quality of our business and the stability of our main sales force and operating income reached RMB 20.6 million, meeting our expectations.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

Despite mounting external challenges, we have continued to execute on our professionalism -- professionalization, career-based digitalization, and open platform strategy and made steady progress in the following key initiatives.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

One, achieving cost reductions and efficiency improvement. We've 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 Yuntong initiatives, our general and administrative expenses decreased by 17.2% year over year.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

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 10 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 despite those who have facilitated over 100,000 first year premiums 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 policy, contributing more than RMB 32 million of first year premiums in aggregate or RMB 600,000 of first year premiums per policy.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

Three, 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 FRP, with a focus on courses and whole life insurance and annuity products and authorizing FRP lectures. 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 enhanced 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.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

Fourth, recruiting high-performing elites. For existing sales force, we have been carrying out the Huacai plan for recruiting industry lead 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 RMB 45 million of first year premiums in the first quarter of 2022, representing a strong power for Fanhua's business growth. For the Yuntong business unit, 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 RMB 15 million of first year premiums with per capita productivity of about RMB 40,000.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

Five, finalizing the preparation for the launch of Lan Zhanggui APP Version 3.0 on May 20, 2022. We have worked to upgrade Lan Zhanggui from an insurance transaction-focused platform to a one-stop digital operation platform, making trading and services smarter, smoother, and more convenience.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

Six, working on establishing standard operating procedures featuring the 3R, i.e., Account Responsibility, Solution Responsibility, and Fulfill Responsibility marketing model of platform supported teamwork to enable our agents to provide more professional and all-around services to their clients.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

Seven, accelerating market development of our open platform strategy. In the first quarter of 2022, first year premiums facilitated on Fanhua's RONS open platform reached about RMB 40 million, up by 62.3% quarter over quarter, and have shown an ever-stronger momentum month by month.

Lichong Liu -- Chief Operating Officer

[Foreign language]

Unknown speaker

We still face tremendous challenges in the second quarter of 2022. COVID-19 continues to adversely affect the offline activities of our sales agents. Meanwhile, the regulatory requirement for a 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.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

Hello, everyone. This is Yinan Hu. And now I would like to announce the dividend plan for 2022.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

Fanhua announced on May 26, 2022, that it will distribute 4.71 CN Finance ordinary share to the holder of each 20 Fanhua ordinary shares.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

This is also equivalent to 0.2355 CN Finance ADS for every one ADS of the company held.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

The dividend is payable on or around June 28, 2022, to shareholders of record on June 9, 2022.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

Based on the market value of CN Finance as of May 26, 2022, the value of the stock 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.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

This concludes our presentation. And now the floor will open for your questions.

Oasis Qiu -- Investor Relations Manager

Hello, Dave, we are ready for questions. 

Questions & Answers:

Operator

Thank you. [Operator instructions] Please stand by while we compile the Q&A roster. I show our first question comes from the line of Zixian Wang from CICC. Please go ahead. 

Unknown speaker

[Foreign language] The first question is about the saving product. So, could you share us with the Q1 numbers and the future of local saving products, as well as the commission rate that we give to the agent and collect from the interest 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 APE, revenue, or operating revenue? That's all my question. Thanks.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

I think your question can be divided into three small questions. For the first part, which is the sales of our savings product in the first quarter of this year. Compared to the same period last year, the first year premium of our savings product is flattish year over year. However, the percentage as of total amount of first premium is actually higher than the previous quarter and the previous year, mainly due to the high base in the first quarter of last year due to the strong sales of critical illness products prior to the transition to the new critical illness definition framework.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

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 legacy management. So, we believe that the growth momentum of savings products will continue in the coming four quarters.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

As for the commission rate for the savings products, for insurance intermediaries, our commissions or commission income consists of those first year commission and renewal commissions. And there are two basic characteristics of savings products, which is large -- the per policy amount is large, while the renewal terms are relatively short. So, the total amount of commissions is actually lower -- has actually declined.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

Since last year, we have observed that the conversion rate between first year premium and APE is actually declining. And the conversion rate has dropped to roughly 30%. And so, we are trying to 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.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

As for the full year guidance, we are actually faced a lot of our external macro environment uncertainties, which makes this difficult to give an accurate position of the business outlook going forward. Particularly, we -- 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 this 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 -- we can have a better idea of our future outlook.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

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 -- Investor Relations Manager

All right. Zixian, do you have another question? 

Unknown speaker

[Foreign language] And so they drafted up their 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 -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

The draft measures, I think the purpose is to curb the e-regularities in the industry and to promote a healthy development in the longer term of the insurance industries, so we totally welcome the implementation of these measures. And it also aligns 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 both the consumers and insurance companies and all the other participants in the value chain. So, a reasonable or healthy interest spread between different parts of the value trend is helpful for a sustainable development of the industry.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

We totally object the idea to compete for market share by increasing the commission rate. Instead, we believe that we should provide better services to customers and offer better products so to compete to get market share. And we also observe 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 because of the productivity increase. So -- and all our initiatives, the results also showing this continued trend.

Yinan Hu -- Chief Executive Officer and Chairman

[Foreign language]

Unknown speaker

Thank you.

[Foreign language]

Oasis Qiu -- Investor Relations Manager

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 -- Investor Relations Manager

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

Operator

[Operator signoff]

Duration: 35 minutes

Call participants:

Oasis Qiu -- Investor Relations Manager

Lichong Liu -- Chief Operating Officer

Unknown speaker

Yinan Hu -- Chief Executive Officer and Chairman

More FANH analysis

All earnings call transcripts