Ladies and gentlemen, thank you for standing by and welcome to Huize Holding Limited's first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the management's brief remarks, there will be a question-and-answer session. Today's conference call is being recorded and a webcast replay will be available. Please visit Huize's IR website at ir.huize.com under the events and webcasts section. Now I'd like to hand the conference over to your speaker host today, Ms. Harriet Hu, Huize's Investor Relations Director. Please go ahead, Harya.
Thank you, Operator. Hello, everyone, and welcome to our earnings conference call for the first quarter of 2021. Our financial and operating results were released earlier today and are currently available on our IR website and the newswire. Before we continue, I would like to refer you to the safe harbor statement in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained in our earnings release and filings with the SEC. Joining us today are our founder and CEO, Mr. Cunjun Ma, COO, Mr. Li Jiang, co-CFO, Mr. Minghan Xiao and co-CFO, Mr. Ronald Tam. Mr. Ma will start the call by providing an overview of the company's performance and operational highlights for the fourth quarter of 2021.
Mr. Tam will then provide details on the financial results for the period before we open up the call for questions. I will now turn the call over to Mr. Ma.
[Foreign Language]
Hello, everyone. Thank you all for joining Huize's first quarter 2021 earnings conference call. In the first quarter, China's insurance market has maintained steady growth, driven by continuous improvement in the pandemic situation in China, visible strength for the life and health insurance sector, and the increasing market demand caused by the transition between old and new statutory definitions of critical illness. According to data released by the CBIRC, the insurance industry achieved insurance premium income of CNY 1.8 trillion in the first quarter, an increase of 5.5 percentage points from the same period last year. Among them, the health insurance segment increased by 15.1% year-over-year to CNY 306.6 billion. With the backdrop of strong industry fundamentals, Huize continues to strengthen its core capabilities, accelerate its digital transformation and capture greater market share.
Total GWP facilitated on our platform increased by 1.3x year-over-year to RMB 1.4 billion, while total operating revenues nearly doubled to RMB 730 million, both achieving record 40 highs.
[Foreign Language]
Huize has been making steady progress on our long-term insurance strategy. As part of our commitment to providing the first long-term insurance policy for younger generations, we chose to focus on offering a long-term health insurance policy with a higher threshold for online sales. This strategy is driven by three main factors. First, the payment terms for a critical illness insurance policy can often be as long as 20 or even 30 years. The longer the user stays on our platform, the longer our service and interaction period is, making it easier to establish trust and increase user stickiness. Second, as younger users age and enter into more mature life stages, new insurance needs will emerge. For example, when they start a family, they will naturally consider coverage for their children, such as critical illness insurance and education savings insurance.
Serving users' evolving needs and generating repeat purchase opportunities are the core of Huize's operations in creating long-term user value. Third, a long-term relationship allows us to obtain more user data from their sales, underwriting, and claims attributes to generate more accurate user profiles. These deep insights on user needs, preferences, and purchasing behaviors enable us to create higher growth insurance products, while also providing us a foundation in presenting advert selections.
[Foreign Language]
Next, I would like to share a few key indicators that highlight the value of our insurance user base. First, our user profile. As of the quarter end, the cumulative number of insurance clients reached 7 million, and the cumulative number of insurance lines was approximately 558.4 million. Among insurance clients who purchased long-term insurance products in the first quarter, 73.2% were from higher tier cities, and their average age was 32.7 years old, demonstrating strong insurance awareness. The second indicator is our average ticket size. In the first quarter, the average first year premium for long-term policies distributed was around RMB 4,580. The third indicator is our persistency ratio. Starting from the second quarter of last year, persistency ratios for long-term life and health insurance in the 13th and 25th month have maintained at about 94% for four consecutive quarters.
Ultimately, we believe that the long-term insurance business is a competition for user quality instead of user traffic. Our advantages in customer targeting as well as our business positioning and differentiation in the industries are demonstrated through our user insurance consumption capacities and the average quality of our user profiles.
[Foreign Language]
From a product perspective, the new statutory definitions of critical illness brought both challenges and opportunities to the critical illness insurance market. Leveraging our years of experience and continuous improvement in product customization capabilities, we upgraded our products soon after the revised definitions went into effect and ensured the continuity of our quality product supply. In April, we held our first online product launch conference, sharing with thousands the highlights of a suite of eight new customized products launched in the first quarter. For example, [Foreign Language] endowment life insurance is yet another innovation in our savings product customization. Different from traditional whole life insurance, this product includes both base plans and maturity plans, providing protection as well as saving function in a single insurance policy.
Meanwhile, the new definition critical illness product Darwin 5 Glory provides allowance for specific drugs such as targeted cancer medications and immunotherapy drugs. Moreover, it provides additional coverage for malignant tumors. The insured clients can receive up to three payments with 40% of the amount insured, each subjecting to a one-year waiting period, helping clients break the limit of mandatory three years waiting periods aided by most of the products in the market. Furthermore, additional coverage for mild, moderate, and severe ailments is optional, which offers more flexibility. In the long term, we believe there is still room for greater demand for critical illness protection, and we will continue to explore and develop children's critical illness insurance products, multiple claims products for impaired life, and other innovative products with value-added services.
[Foreign Language]
In terms of digital transformation, during the quarter, we acquired authoritative certificates and qualifications in technology and R&D, including the Information Security Management System certification, the Information Technology Service Management System certification, and our R&D center has successfully achieved CMMI Maturity Level 3 certification. Such recognitions signify Huize's sound R&D capabilities and our high standards of information security. We will continue to develop and optimize our technologies in order to provide users with quality products and efficient and safe services.
[Foreign Language]
Regarding our online-to-offline strategy, we have established a service team in Shenzhen and put into trial operation during the quarter. Target users were selected based on multidimensional user data accumulated on our platform, driven by refined user portrait mining and analysis capabilities. Our offline team initiated contacts with local users who have made purchases on our platform and demonstrating stronger insurance demand and higher potential to convert. By offering differentiated products such as family health insurance coverage and endowment insurance, we are laying the foundation for solving the last mile problem of high-end product conversion by connecting online traffic with premium offline services.
[Foreign Language]
With the official implementation of the Regulation of Internet Insurance Business in China, the online insurance industry is expected to thrive in a more sustainable and healthy environment. Maintaining compliance and strong corporate governance has always been an important aspect of Huize management. As the industry enters a phase of fast and healthy development, Huize will continue to focus on users, polish our core capabilities, improve operational efficiency, and provide users with more diversified and personalized products and services through both online and offline channels. Moreover, we will seize the opportunity presented by the accelerating digital transformation of the insurance industry, empower upstream and downstream partners and the whole insurance ecosystem with data and technology, develop more mature insurance technology solutions, and strive to achieve sustainable development and high-quality growth going forward.
[Foreign Language]
This concludes my prepared remarks for today. I will now turn the call over to our CFO, Mr. Ronald Tam. He will provide an overview of our key financial highlights for the quarter.
Thank you, Harriet Hu, hi everyone. We're very pleased to report another record quarter for Q1 in terms of both total GWP facilitated on the platform, as well as our total operating revenue. For the first quarter, total GWP amounted to CNY 1.4 billion, representing a very strong 123% year-over-year. In particular, first year premiums or FYP accounted for CNY 889.8 million of the CNY 1.4 billion total, or approximately 64% of total GWP, which represents 226% growth year-over-year.
The strong operating performance in FYP, on one hand is the result of industry factors, particularly with respect to the transition of critical illness definition from old to new regime during the period, which really culminated in a spike in customer demand in the month of January, as well as the traditional seasonal strength in the auspicious good start of kai men hong period in the first quarter for the industry. On the other hand, strong growth in FYP can also be attributed to our more aggressive marketing spend during the quarter in terms of both customer acquisition and service fee paid to our channel partners. In order to really capture a disproportionate market share vis-a-vis the competition, and given our focus on acquiring high-quality long-term insurance customers, we believe the quarterly results have shown that we are successful so far.
In terms of renewal business, renewal premiums accounted for CNY 504 million, or 36% of the CNY 1.4 billion total GWP, representing a year-over-year increase of 57%. As Ma had touched on earlier, we are very proud to report consistently strong persistency metrics, maintaining about 94% plus for 13th and 25th month persistency during the past quarter. We believe that high persistency is very critical as we continue to drive efforts to increase the lifetime value of our customers, which we have demonstrated by our increased distribution of savings insurance products during the quarter. In the first quarter, approximately 18.6% of our FYP was contributed from long-term life and annuity product distribution. We have been able to generate repeat purchases from our existing users for savings products, with about 39% of accumulated savings product customers having purchased one or more policies before on our platform.
In terms of product mix, in the first quarter, as mentioned earlier, due to market industry factors as well as our proactive marketing strategies to capture market share, our GWP for long-term health insurance increased by 123% year-over-year to CNY 1.1 billion. During the quarter, GWP for long-term life and health insurance accounted for approximately 96.9% of total GWP. GWP for co-developed products with our insurance company partners were approximately CNY 850 million, accounting for 51% of total GWP distributed and representing an increase of 10 percentage points from the same period of last year, which continues to reflect our increasing engagement with our upstream industry partners. Among them, the most relevant product, Darwin number 3, which is one of the best-selling critical illness insurance products online, which we developed with Sinatay Life Insurance, contributed treasury premium of approximately CNY 320 million this quarter.
Now turning to our revenue. Total operating revenue for Q1 was CNY 735 million, again, a record quarterly high, which was up by 196% year-over-year and outperformed our guidance previously given to the market in our previous earnings call. The increase in revenue was primarily driven by the increase in brokerage income due to the 133% increase in total GWP facilitated during the quarter. Cost of revenue for Q1 increased to CNY 567 million, primarily on the back of increased sales fees paid to our channel partners, as we had mentioned earlier. Selling expenses for the quarter increased by 45.4% year-over-year to CNY 77 million, which was primarily attributable to an increase in advertising marketing spend during the quarter, which increased by almost 1x year-over-year as we again drastically increased spend during the quarter to capitalize on the significant market opportunity and demand for critical illness products.
The increase in selling expenses is also attributable to increased sales and marketing headcount year-over-year. G&A expenses for the quarter increased by 38.4% year-over-year to CNY 64.1 million. This increase was primarily attributable to increased rental expenses due to office expansion, as well as an increase in G&A salaries and foreign benefits, which was offset by a decrease in share-based compensation expenses year-over-year. R&D expenses for the quarter grew by 58.4% to CNY 18.8 million, which is mainly driven by our continued investment in overall R&D and data analytics headcount. For the quarter, we have recorded a GAAP net profit of CNY 28.5 million. If we exclude share-based compensation, non-GAAP profit was CNY 38.7 million. We continue to maintain robust liquidity and a relatively strong financial position as of today, with a combined balance of cash and cash equivalents of approximately $76 million.
Turning to our Q2 guidance, we currently expect total operating revenue for Q2 to be in the range of RMB 230 million to 250 million. We note that it is essentially flat to last year as we observed that market demand for critical illness products has been largely absorbed in advance during the Q1 period. Q2 is a traditionally slow quarter for China's insurance industry. Taken together with Q1, the guidance represents a first half revenue growth of 1x year-over-year versus the same half of last year. This forecast reflects the company's current and preliminary views on the market conditions and operating conditions, which is subject to change caused by various uncertainties, which includes the ongoing COVID-19 pandemic globally. With that, this concludes our prepared remarks for the day. We will now open up the call to Q&A. Thank you.
Operator, we can start Q&A session now.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. When asking your question, please state your question in Chinese first, then immediately repeat your question in English for the convenience of everyone in the call. Your first question comes from the line of Huang Shang Security. Back to your question. Okay. I will translate the question into English. From Huang Shang is asking that the company's activity for the first quarter is very good, and he wanted to know how much of the GWP was coming from repurchased clients and how much from new customers. Also, he want to know what's the company's following customer acquisition strategy.
Also, he wants to know if there are any available data regarding the repurchase rates that the company can share.
Okay. It's Ron here. Let me address his question for the team. I think that in terms of the repeat purchasers, we're definitely increasing our efforts in maintaining existing customers' engagement and also trying to increase lifetime values with these customers. I think that I just mentioned in our prepared remarks that around 39% of our savings products are coming from repeat purchasers. We also shared that around 19% of the FYP for the first quarter comes from savings-related products. With those two numbers, you can basically have an idea roughly that 11% of the customers are repeat purchasers. I think this number is still relatively low, and definitely there's a lot of upside and room for growth in this area.
I think we have mentioned before to the market for the last three years or so, this has been ramped up and scaled up. Most of the efforts that we've been spending are obviously towards acquiring new customers in the market. With the established base of customers that we have and the data insights that we have into our existing customers, we are definitely going to increase engagement and drive long-term values and lifetime value to the customers that we have through more precise data analytics. That's why also we've been investing heavily on the R&D aspect to making sure that our platform can efficiently screen and empower our agents, our consultants to pursue these repeat purchase customers. As mentioned before, with the online-to-offline strategy, this is also a very critical piece or starting point for us to acquire LTVs on the platform.
I think that right now the initiative is still very much in the trial phase. We have now established a trial team in Shenzhen to really scale up the business. I think that we'll be happy to share more detailed metrics with the market when we have reached more critical mass. Hope that answers the question. Thank you.
Okay. Thank you, Ronald.
Yes.
Your next question comes from the line of Edwin Liu of CLSA to ask your question.
Thank you. My question is related to the new regulation for the internet insurance sales which is expected to be implemented in January next year. Within the rule, there are some requirements in terms of pricing and also expense ratio. I just wonder what kind of corresponding measures has been planned in advance. Thank you.
Great. Thanks, Edwin, for joining the call. I think a very quick response to the regulatory questions is that we are obviously in constant dialogue with both regulator sides, as well as, more importantly, our industry partners. With respect to the insurance companies, I think right now this new rule, which you just mentioned, is actually still in consultative phase, although there's a likelihood of being passed through and being enacted or effective next year.
I think what we try to do as a platform is that, first of all, complying operation is key, and I guess in terms of our own internal systems upgrade and so forth, we are quite confident that we can be able to be ready when certain rules are coming to effect. With respect to the industry pricing, et cetera, I think this is still a bit fluid at this stage. I think the industry as a whole has still time to reach some consensus, but I think the critical aspect for Huize is that we have very strong relationships with our insurance company partners, as we have demonstrated through our years of track record in terms of customizing products with our strategic partners.
Therefore, in terms of product design, pricing, and structure, I think that we are very well positioned to manage and cope with the changes that should be brought about by the regulatory changes.
Great. Thank you.
Thank you, Edwin.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. When asking the question, please state your question in Chinese first, then immediately repeat your question in English for the convenience of everyone in the call. Your next question comes from the line of Qingqing Mao of CICC to ask your question.
Thanks for taking my question. It's Qingqing Mao from CICC. My first question is, we have seen some negative effects caused by the change of critical illness definition. When do you think this effect would fade away? My second question is, how do you expect the trend of profitability, considering the increasing marketing expenses?
Okay. Thanks, Qingqing Mao. Again, thanks for joining the call. I guess two questions here. The first relating to the CI products in the market. I think that the first quarter has seen a significant spike in demand for the old definition products in the marketplace. I think a lot of the industry participants, including ourselves, have tried to really proactively capture market share during the period. That's reflected in the upward trend in the cost side of things. I think that also brings us a lot of good quality customers during the period. I think the effort works very well for the long-term business of the company.
I think for the new definition products to really come on stream and scale up sales in the market, I think that we probably need to wait until the later part of this quarter, when the products have now been marketed for a more longer period of time and being more well understood by the market and by the consumers. I think that probably we'll see more recovery in critical illness product distribution in the month of June, and into the third quarter of the year. I think that's the first question. In terms of the second question on our view on profitability, I think that you can see in the first quarter with the strong revenue growth, and that also demonstrates the platform scalability in terms of both our 2C and 2B business.
We have been able to achieve such a significant growth in a single quarter without really increasing a lot of investments in our headcount and so forth. It demonstrates the scalability and also the operating leverage of the business. We have also shown that we have been profitable this quarter. Going forward, the next few quarters, I think that definitely Q2 will be a very slow quarter, as you can see from our guidance. Q2 is likely not going to be profitable. I think that going forward, we will see how market dynamics would evolve, and I think that for us, we'll be balancing growth and profitability as a major objective of the rest of the year.
Okay, thanks.
Thank you.
Your next question comes from the line of Ehsernta Fu from Citigroup. Please ask your question.
Okay. Thank you. The first question that we have is, we would like to understand the impact of the shutdown of mutual aid platforms on Huize's business, whether we have been actively sourcing new customers and converting old mutual aid members into our clients. On the other hand, we want to know if there has been any impact from the continuous rise of point of sale, which is the increase of medical insurance. We also want to know if you can give us some guidance on the second half of the year, just because, obviously, this is just the first quarter that you've been operating. Thank you.
Okay. Thank you, Ehsernta. I guess you had three questions there. The first question about O2O, I guess that's the question. Obviously, we have seen that the market players have been shutting down various mutual aid platforms or mutual aid programs. I think overall, this is a very realistic reflection of the healthy and long-term sustainable development of the industry. I think the regulators are taking a stand on this aspect. I think overall, it should mean that the competition for traffic or users may be alleviated a little bit. I guess for Huize, we have been very laser-focused on the long-term insurance product segments in the marketplace. I think most of these platforms, the targeted customers or the user profile may not be exactly what we are looking for as a core strategy.
I think the impact may be relatively limited in terms of the business due to our strategy. That's the first question. The second question on cleaning by and the impact on this new government initiative. I think overall, it should be very encouraging in terms of promoting the general population's insurance awareness and the propensity to procure protection for themselves and their family. Again, I think that the target audience here with this directive is really people who are maybe of more of an advanced age or people who are not the standard kind of clientele for the commercial insurance or the medical reimbursement insurance customers. I think that with this new policy from the government, it might affect more with respect to the platforms that are more focused on short-term insurance products, the medical insurance products, like the reimbursing products.
For ourselves, we are more, again, on the critical illness side, on the long-term life and health side. I think that this may not necessarily have a great impact on our business. Again, we are very focused on targeting the higher-tier cities customers, people who are relatively young of age with higher income levels and relatively better education backgrounds, and who would desire a high-quality, sustainable protection policy for their own and for their families. With regards to the third question on guidance, I think that the Q2 guidance is a reflection of reality. I think we are seeing weakness in the market, not just ourselves that are possible. Particularly with respect to the incumbents, the top five insurance incumbents in the country are facing some headwinds during this quarter.
I think this really has to do with the so-called critical illness absorption of demand in the first quarter. I think Q2 and Q1 as a whole, taken together, again, I think it's still a very strong year-over-year revenue growth of almost 101%. I think for the second half of the year, we still sticking to our company's practice of giving quarterly guidance. I think that we will wait until the next quarter to give further indication on the rest of the year. Thank you.
Okay. Thank you, Ron.
Your next question comes from the line of Jian Li of Huatai. Please ask your question.
I just have one question. Can the management share some views about the competition landscape, i.e., comparing Huize with these traditional insurers and other online platforms? Thanks.
Okay. Thank you. I think the question on the comparative differentiation of Huize versus our other competing platforms or I guess the more traditional offline focuses. I think first of all, I think that we are very focused on utilizing technology and data to help make everything more efficient, which is our genesis of the business model from 15 years ago. I think that we have really solved some of the pain points in the marketplace, including providing customers with a more comprehensive suite of products through the platform, providing them with the tools to compare and contrast products to get the best value for money products for themselves, and the most suitable products for themselves.
I think the challenges that are being faced by the traditional industry players are with respect to maybe some of the aging agent force, and maybe more of a homogeneous product offering to the consumers. I guess we differentiate by staying from the customer's perspective, allowing to get the best insurance product for their own needs. I guess the other differentiating factor, which is very critical, is the user base that we have. We have now 7 million users on our platform, accumulated on our platform. Most of these customers are very young, with the average age of 32.7 years. Most important of all, 73% of these clients are coming from the higher tier cities in China. I think that with respect to our product strategy, we have always been targeting relatively higher ticket size.
We have disclosed this now that the average ticket size for a long-term policy is RMB 4,500, which also reflects the quality of the user base that we are able to generate and to acquire through our online marketing channels. We have also been able to deliver consistent persistency ratios, at 94%, I think that is maybe probably the top quartile in the marketplace, and also giving our insurance company partners with additional confidence in working with us together to develop more innovative and more super products for the market.
Thank you.
Your last question comes from the line of Halsey Wu of AMPD Group. Please ask your question.
As there are no questions, I'd like to hand the conference back to the management for any closing remarks.
Hi, thank you for joining us today, and we look forward to seeing you next time. Thank you.
This concludes today's conference call. Thank you.