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Following Zhongmiao Chuangke, Xiaoyusan Insurance Brokerage (hereinafter referred to as "Xiaoyusan")'s parent company Shouhui Group Co., Ltd. (hereinafter referred to as "Shouhui Group") submitted its application for listing on the Hong Kong Main Board for the second time. The joint sponsors are CICC (601995.SH) and Huatai International.

At this time, less than a month had passed since the materials submitted by Shouhui Group for the first time expired.

The second attempt to list on the main board in a tight period of time shows that it is determined to succeed in the IPO.

In 2015, Guangyao, Xu Han and Han Liwei founded Shenzhen Muchenglin Technology Co., Ltd. (later renamed "Shenzhen Shouhui") in Shenzhen, with Xu Han as chairman, Guangyao as CEO and Han Liwei as CTO.

Later, Shenzhen Shouhui went through angel round to C round of financing, and its shareholders included top domestic investment institutions such as Sequoia China, Matrix Partners, Gopher Asset Management, Tasly Capital, and Xintian Venture Capital.

When the company was booming, Xu Han and Guangyao had some disagreements. Although both parties finally said that they had "reconciled as before", Xu Han still withdrew from the company in 2020 and Guangyao took over as chairman of the board.

The core entity of Shouhui Group is Shenzhen Shouhui, and the products distributed are mainly life insurance.

From 2021 to the first five months of 2024, this part of revenue was RMB 1.548 billion, RMB 806 million, RMB 1.634 billion and RMB 603 million respectively.

However, the profitability performance has always been poor. The adjusted net profit in the above reporting period was -204 million yuan, 131 million yuan, -356 million yuan and -52 million yuan, with a total loss of 481 million yuan.

With the deepening transformation of sales channels in recent years, insurance intermediaries have been significantly differentiated, presenting a "world of ice and fire".

On the one hand, there are constant calls for "de-intermediation" in the insurance industry. In addition, after the "integration of reporting and banking" was extended to the agency channel, commission rates continued to decline, many listed intermediaries withdrew from the New Third Board, and intermediary equity sales markets were frequently cold.

On the other hand, there has been a rare surge in overseas IPOs among insurance intermediaries with technological attributes.

In July, "iYunbao" received the registration notice for overseas issuance and listing, and Zhongmiao Chuangke passed the listing hearing of the main board of the Hong Kong Stock Exchange; within this year, another 7 companies intend to go for overseas IPO.

Although it has entered the capital market, Shouhui Group still faces many problems.

If it wants to achieve long-term profitability, Shouhui Group must face the "triple test" of overall reduction in industry agency fees, intensified competition among intermediary agencies and excessively high promotion costs.

Continuous reduction in rates

Shouhui Group's revenue is mainly generated through Xiaoyusan, Kachabao and Niubao100, and the distribution methods of the three are direct distribution, agent distribution and partner distribution respectively.

From 2021 to the first five months of 2024, its revenue was RMB 1.548 billion, RMB 806 million, RMB 1.634 billion and RMB 603 million respectively.

Strict regulatory control over commission rates has a significant impact on this part of revenue. The year-on-year decline in revenue in 2022 and the first five months of 2024 are related to this.

The prospectus disclosed that the decline in revenue in 2022 was caused by new regulations on Internet life insurance products and restricted marketing and business development due to the epidemic.

In October 2021, the regulator issued the "Notice on Further Standardizing Insurance Institutions' Internet Personal Insurance Business", which clarified the commission rate, requiring that the commission for products with a term of one year or less be less than 35%; the first-year commission for products with a term of more than one year be less than 60%; and the average commission be less than 25%.

After the policy was released, a total of 95 distribution products of Shouhui Group were affected in 2022, and the total first-year premium involved dropped directly from 1.806 billion yuan in 2021 to 244 million yuan.

"Some customers reduced their transaction amounts due to the notice, resulting in a decrease in the number of Internet life insurance products we distributed," said Shouhui Group.

The "integration of newspapers and banks" implemented from August 2023 also had a negative impact on Shouhui Group's revenue.

"Reporting and operating in one" emphasizes that the pricing assumptions used by insurance companies in product approval or filing materials must be consistent with the actual business process, aiming to eliminate the chaos of interest transfer through intermediary channels and strictly control commission rates.

Under strict supervision, insurance companies have lowered their premiums when signing new contracts with channels.

In the first five months of 2024, Shouhui Group's revenue decreased by 7.8% compared with the same period last year, and the first-year premium of its products dropped from 1.041 billion yuan to 840 million yuan.

The prospectus explained that “insurance companies have made prudent adjustments in response to changes in industry policies (especially the integration of bank insurance channels)”.

Shouhui Group said that although regulators have not yet introduced "reporting and banking integration" for intermediary institutions, some insurance companies have lowered their commission rates to control the risk of insurance companies' actual operating costs exceeding expectations.

In the future, the trend of reducing agency fees will continue.

First, regulators have publicly stated that the trend of strict control over channel rates will remain unchanged; second, with performance under pressure on the investment side, insurance companies will inevitably continue to reduce intermediate costs based on the principle of asset-liability matching.

This is not optimistic for Shouhui Group, whose trading business accounts for 99% of its total revenue.

In addition, there are risks arising from the increasing level of insurance technology, which brings about an "crowding out effect" on the intermediary ecosystem.

In its prospectus, Shouhui Group pointed out that once digital platforms and online sales channels are sufficiently developed, insurance companies can directly reach their customer base at low cost, use self-built online platforms to achieve "de-intermediation", further weaken intermediary institutions and dilute intermediate costs.

Under this trend, how to weaken the negative impact of the reduction in agency fees through business structure adjustments is the first challenge that Shouhui Group needs to face.

Intensified industry competition

The “cake” is shrinking, and the infighting among insurance intermediaries is intensifying.

Among the three types of sales channels, individual insurance, bank insurance, and agency, different insurance companies have different focuses.

But as far as agency channels are concerned, it is often difficult for intermediary companies to build a moat.

First, the products sold by intermediaries are homogeneous.

As the guaranteed interest rates and additional fees are strictly regulated, there is little differentiation between the life insurance products sold by different companies.

In the eyes of policyholders who value the cost-effectiveness of products, there is no essential difference in the channel or institution through which the product is subscribed. The policyholder may purchase product A from company A and then immediately purchase product B from company B.

This also leads to many intermediary companies experiencing high growth in early-stage revenue, but low customer retention rates and difficulty in achieving secondary development, resulting in weak performance growth in the later stages.

In order to increase customer retention rate, Shouhui Group prefers long-term products in its product selection strategy.

"The products we sell are mainly long-term life insurance," Shouhui Group said in its prospectus. "Its nature and service cycle enable us to establish and strengthen long-term relationships with insurance customers, thereby generating continuous income."

Since 2017, Shouhui Group has distributed customized products for which it has participated in drafting liability clauses and owns brand IP, hoping to increase market awareness of the company's brand and accumulate influence.

"We sign exclusive agreements with insurance companies for most of our customized products, and have exclusive distribution rights after meeting performance requirements," said Shouhui Group. "During the customization process, we identify and clarify the needs of target insurance customers, conduct competitive negotiations with insurance companies and reinsurance companies, and ultimately select partner companies to distribute customized products."

Currently, the first-year premium of customized products accounts for 63.3%, 52.5%, 59.0% and 57.1% of the first-year premium of distributed products in the first five months from 2021 to 2024 respectively.

But exclusive customization can also be imitated.

Given that the terms of insurance products are relatively transparent, competitors are likely to copy similar products after Shouhui Group’s customized products are released.

Shouhui Group also admitted, "If we are unable to quickly upgrade our products to meet market demand, we may not be able to maintain our competitive advantage, and our business and operating results will be negatively affected."

Second, the threshold for distribution channels is relatively low.

Shouhui Group pointed out that both Internet companies and traditional insurance companies entering the Internet insurance market may compete fiercely with the company.

"Internet companies have a large amount of data and strong technology development capabilities, and may develop insurance business to compete with us in a short period of time." Shouhui Group said, "There are also a number of traditional insurance companies entering the Internet insurance service market, which have offline resources and the potential to convert insurance customers online."

Once traditional leading institutions enter the Internet insurance market, Shouhui Group will face more intense competition.

Shouhui Group believes that it has three competitive advantages: first, it ranks eighth in the domestic life insurance intermediary market; second, based on the total long-term life insurance premiums in 2023, the company is the second largest online insurance intermediary in China; third, since the launch of the company's customized product Super Mary critical illness insurance series, the number of distributed policies has ranked among the top four among similar products of online life insurance intermediaries.

The above are more of first-mover advantages based on scale. However, after taking the lead, how to rely on resource advantages to build a more competitive moat may be the second test that Shouhui Group needs to face.

High promotion costs

Among direct sales, agent distribution and cooperative distribution businesses, cooperative distribution contributes the main revenue of Shouhui Group.

From 2021 to the first five months of 2024, the proportion of revenue from this channel in total revenue has always remained above 60%.

The business that accounts for the largest proportion of revenue also has the lowest gross profit margin.

Compared with direct sales and agent distribution businesses with gross profit margins of approximately 80% and 30% respectively, the gross profit margin of cooperative distribution channels has been around 20% for many years.

This part of the business specifically includes self-media traffic channels including media, advertising companies, and KOLs.

High-quality self-media brings in real traffic and revenue, but it is also highly tied to promotion fees.

Shouhui Group pointed out that the reason for the low gross profit in this area is that its partners are commercial organizations and have higher requirements for commissions.

From 2021 to the first five months of 2024, channel promotion fees of 332 million yuan, 150 million yuan, 503 million yuan and 165 million yuan were paid to self-media respectively, accounting for 30.6%, 28.6%, 46.5% and 43.5% of the operating costs in the same period.

"We plan to sign an annual framework agreement with KOLs who can bring high-quality traffic and increase the scale of traffic acquisition through effective advertising." Shouhui Group said, "Offline, we plan to actively track and incentivize partners with good product sales performance to encourage them to bring us more business."

But this also determines the higher dependence on this part of the channels.

As Shouhui Group said, "If we fail to maintain stable relationships with our partners, our business, operating results, financial condition and business prospects may be materially and adversely affected."

The financial result of high promotion costs is huge accumulated losses.

From 2021 to the first five months of 2024, Shouhui Group's cumulative losses reached 481 million yuan.

It is difficult to predict how long the "promotion fees" can be kept high under this situation.

Perhaps due to performance pressure, Shouhui Group is also investing prudently and managing costs.

Shouhui Group wrote in its prospectus, "We plan to carefully select influential self-media traffic channels and further optimize our customer acquisition methods."

The prospectus shows that the gross profit margin of the cooperative channels in the first five months of 2024 has increased to 23.1% from 14.6% in the same period last year.

Shouhui Group stated that the change was mainly due to changes in the allocation of promotion expenses and product structure starting from the second half of 2023.

"The company factors profitability into the establishment of new partnerships with business partners and the evaluation of existing relationships," Shouhui said. "Niubao 100's revenue contribution from long-term medical and other insurance products with higher gross margins, as well as long-term critical illness insurance products, has also increased."

However, the gross profit margin of the self-media channels in which Shouhui Group has invested a large amount of promotion expenses has not exceeded 20%, and is only 19.3%.

As an insurance technology company, boosting performance through investment promotion may be a temporary solution, but it is unlikely to become a core advantage.

How to adjust the business model and invest funds in channels with higher operating efficiency, while empowering the core business through technology and building a real "moat", may be the third test facing Shouhui Group.