Insurance Brokers' IPO Surge: Monetization Opportunities and Stock Price Challenges

Several new types of insurance intermediaries are flocking to go public overseas. Driven by capital, they face the challenge of stock price breaks, and it remains to be seen whether insurance intermediaries can continue to impress investors with their tech stories.

This year, insurance intermediaries, which have been relatively quiet, are becoming the protagonists of overseas listings.

On July 22, according to the official website of the Hong Kong Stock Exchange, Zhongmiao Innovative Technology (Qingdao) Co., Ltd. (hereinafter referred to as "Zhongmiao Chuangke") has passed the mainboard listing hearing, with CITIC Securities and Ping An Capital (Hong Kong) as the joint sponsors for the listing.

Advertisement

Not long ago, the China Securities Regulatory Commission disclosed the "Notice of Record for Overseas Issuance and Listing" for Iyunbao Technology Ltd. (Aiyunbao Technology Co., Ltd.), which is positioned as "an insurance technology service platform focusing on empowering insurance practitioners." Aiyunbao plans to issue no more than 43.892 million common shares and list on the NASDAQ Stock Market or the New York Stock Exchange in the United States.

According to incomplete statistics, since the beginning of the year, seven insurance intermediary institutions have either gone public or are planning to go public. In March and April of this year, Youjia Insurance (UBXG) and Zhibao Technology (ZBAO) have successively landed on NASDAQ. In addition, Yishengxin Technology Co., Ltd. (hereinafter referred to as "Yishengxin Technology") and Yuanbao Co., Ltd. (hereinafter referred to as "Yuanbao Technology") have all applied for overseas listings, as shown in the figure below:

According to an analysis by an investor in insurance technology, the aforementioned ten insurance intermediary institutions all belong to new types of insurance intermediaries, with technology as their foundation. Insurance intermediary companies that have gone public in recent years, especially this wave this year, were mostly established around 2015. The drive for capital realization is one of the important reasons for the listing tide. Generally, venture capital will exit around five to seven years, and most of these companies have been established for more than seven years.

In terms of exit methods, if the invested projects are successfully listed or acquired, venture capital may choose to exit after the lock-up period expires. This timing may vary depending on the specific circumstances of the project, but it usually occurs within three to five years after the investment. If the project's operational situation is not good, venture capital may choose to continue holding or propose an extension to the LP (Limited Partner), thus extending the exit time.

According to the report "A Decade of Review and Outlook of Chinese Insurance Technology," insurance technology investment and financing have been very active over the past decade. From 2013 to the end of 2022, the number of investment transactions in the insurance technology field reached more than 1,300, involving more than 400 investment targets, with hot tracks mainly in auto insurance, insurance sales, and health insurance.According to data from Huayi Xin Capital, in the first half of 2024, a total of 29 Chinese concept stocks successfully went public in the United States, with 24 IPOs (Initial Public Offerings) raising a cumulative amount of approximately $1.95 billion.

An attorney specializing in U.S. stock listings analyzed that the current timing is not very favorable for companies in some sectors. Of course, for U.S. listing projects, the improvement of the international capital market and the overall economic environment are the core factors affecting the window period for going public in the United States.

"Going public may be a choice that has to be made. Currently, the insurance intermediary industry is undergoing a transformation period. Under the 'unification of reporting and conduct,' the commission rate for products in professional intermediary channels has significantly decreased, and the premium income from intermediary channels is also declining. Insurance intermediaries are also experiencing devaluation of licenses and a cold market for equity transactions," said the founder of an insurance intermediary institution.

Since Pan-China Insurance went public on NASDAQ in 2007, the path to listing for domestic insurance intermediaries has been fraught with twists and turns. Among them, Jiangtai Insurance Brokerage's attempt to go public on the A-share market ended in failure. At its peak, more than 30 insurance intermediary institutions were listed on the New Third Board, and currently, more than half have been delisted.

"After going public, it's just the starting point of new challenges," lamented the founder of an insurance intermediary institution currently in the queue for listing.

In line for listing: monetization opportunity

At the beginning of 2015, China's internet insurance industry began to develop rapidly, and third-party insurance technology service providers also began to emerge in large numbers.

According to the "2016 Internet Insurance Industry Development Report" released by the China Insurance行业协会, the internet insurance industry made rapid progress in 2015, with a significant increase in operating entities and a rapid increase in revenue scale, while the industry concentration remained high.

In 2015, China's internet insurance premium income was 223.396 billion yuan, a year-on-year increase of 160%. According to the analysis of Zhou Yanli, then Vice Chairman of the China Insurance Regulatory Commission, "From the perspective of innovation and development, China's internet insurance has experienced the internet insurance 1.0 stage centered on channel innovation, the internet insurance 2.0 stage centered on product innovation, and is entering the internet insurance 3.0 stage centered on business model innovation."

At the point when internet insurance entered the 3.0 era, it was also the time when these listed or拟上市 insurance intermediary institutions began to sprout. According to incomplete statistics, in 2016, there were more than 200 insurance technology companies in operation, which have been divided into four types: 2A (agents), 2B (businesses), 2C (consumers), and 2G (regulatory agencies) based on the service objects. Their businesses involve multiple sub-fields such as comprehensive insurance, health insurance, auto insurance, insurance IT, marketing, and claims.According to incomplete statistics from 01 Think Tank, since 2015, the total amount of equity financing in domestic insurance technology has steadily exceeded 1 billion yuan, and in 2019 and 2020, it even exceeded 4 billion yuan. In the first quarter of 2021, the disclosed financing amount reached 1.87 billion yuan, a year-on-year increase of 167%. Among them, more than 10 companies have received financing support of over 100 million yuan, including HuiZe (HUIZ.US) and Shuidiao Company (WDH.US), which went public in the United States before.

According to the analysis of the above insurance technology investors, the patience of capital is not unlimited. For the optimal path to exit, everyone will strive to compete. Of course, after nearly a decade of development, it is also possible to distinguish whether a company and its business have potential.

In addition, some insiders close to the above-mentioned companies about to go public believe that some companies have signed a gambling agreement when introducing investors. The reason is that if the startup company cannot go public within a certain period, the company needs to invest a large amount of funds to repurchase shares. The so-called gambling agreement refers to this.

Shenzhen Shouhui Technology Group Co., Ltd. (hereinafter referred to as "Shouhui Technology") and Beijing Yuanxin Huibao Technology Co., Ltd. (hereinafter referred to as "Yuanxin Technology") are popular main characters and representatives on the listing track.

Shouhui Technology is the parent company of Xiaoyusan Insurance Brokerage. On January 12 this year, Shouhui Technology submitted an IPO application to the Hong Kong Stock Exchange, with CICC and Huatai International as its joint sponsors. The prospectus shows that Shouhui Technology is an online life insurance intermediary service provider in China, mainly providing long-term life insurance products through three major online platforms: Xiaoyusan, Kacha Insurance, and Niubao 100.

The vast majority of Shouhui Technology's revenue comes from "insurance transaction services," which is to charge a commission for selling insurance company insurance products to insurance customers. This is also a microcosm of the profit model of most of these listed new insurance intermediaries.

Shouhui Technology stated in the prospectus that since the company's revenue from selling insurance products to insurance customers is based on the premiums and commission rates set by the insurance companies, any decrease in these commission rates or any increase in the commission expenses or channel promotion expenses paid by the company may have an adverse effect on the company's operating performance.

At present, Shouhui Technology's Hong Kong stock prospectus has expired for six months, but it is understood that Shouhui Technology may resubmit the application. Another company that is also targeting a listing on the Hong Kong Stock Exchange is Yuanxin Technology. Its listing journey has been twists and turns. After submitting its application to the Hong Kong Stock Exchange for the first time in October 2021, Yuanxin Technology has submitted its application five times in succession and finally passed the Hong Kong Stock Exchange listing hearing in February this year.

Yuanxin Technology is another example among new insurance intermediaries.In May 2021, Waterdrop Company went public, positioning itself as an ecosystem platform for insurance and health service technology platforms. According to the first-year premium (FYP) revenue in 2020, Waterdrop had become the largest independent insurance technology platform in China. This "beneficial story" of the insurance intermediary has also become the goal for many health insurance service platforms.

Around 2021, a large number of companies and capital rushed into the health insurance track. The large financing events in that year included: Insurance Geek obtained a $25 million Series C financing, Nuanwa Technology obtained a hundred million yuan in Series A financing, etc. Not only that, in terms of financing frequency, some institutions are not weak, such as Yuanxin Huibao completed three rounds of financing in two years, Magnesium Xin Health completed five rounds of financing in three years, Miao Health completed four rounds of financing in four years... The financing pace of Series C and Series D has also allowed these institutions to start the journey of chasing dreams of going public.

Precedent: Prudent Pricing

Waterdrop Company officially landed on the New York Stock Exchange in the United States, which is only five years since its establishment and only three weeks since it submitted its prospectus. On the day of the listing ceremony in Beijing, relying on the connection with the New York Stock Exchange, the participants watched the Waterdrop "cloud listing" together. The listing ceremony was held at the Wangjing Hyatt Hotel not far from the headquarters of Waterdrop. Tencent Investment, Boyu Capital, Gaorong Capital, IDG and other venture capital institutions gathered, and Ren Quan, He Youjun and other people across the capital and entertainment industries also attended, making it very lively.

Contrary to the liveliness of that night, the stock price of Waterdrop Company did not rise sharply on the first day, but fell by nearly 20%. Tightening regulation, profit model, and intensified market competition have all made Waterdrop still face many controversies. Since the second half of 2021, Waterdrop has reduced marketing and market expenses on the cost side, which has allowed the company's losses to narrow.

From the perspective of stock price, at that time, the stock issue price of Waterdrop Company at the time of listing was $12, and as of July 18, its latest stock price was less than one-tenth of the listing price. Waterdrop is not an exception, Huize and Panhua Insurance have all experienced a sharp drop in stock prices from the issue price to the current stock price, and have been maintained in the single digits for a long time. The two insurance intermediary institutions that landed on Nasdaq this year, Zhibao Technology and Youjia Insurance, have also continued to encounter price fluctuations.

In terms of issuance scale, the insurance intermediary institutions that are about to go public are not as confident as the predecessors. According to the founder of the above insurance intermediary institutions, "Although we are very optimistic about the prospects of going public, we remain cautious about the current price."

Looking back at the documents submitted by Waterdrop Company before its listing, the determined issue price range at that time was $10 to $12 per ADS (American Depositary Shares), with a plan to issue 30 million ADS, and the IPO underwriters had an over-allotment option of 4.5 million ADS. The company planned to raise about $400 million, with a valuation of more than $5 billion. In 2020, when Huize Insurance planned to go public on the US Nasdaq, it planned to issue 4.65 million American depositary receipts (ADS), with each depositary receipt representing 20 ordinary shares, and the issue price was between $9.4 and $11.4, with an expected fundraising amount of no more than $53.01 million (about 370 million yuan).

In fact, going public is just a new beginning. Whether it is driven by capital or swept by the internet, it is no longer important. What is important is how the business is and where the future is. In the long run, after all kinds of added halos fade away, the company's sustained growth power is the core of market recognition.The Chinese intermediary market experienced a leapfrog growth from 2018 to 2022, with the market size increasing from 482.8 billion yuan to 812.5 billion yuan, at a compound annual growth rate of 13.9%. Following the rapid growth and resonating with the transformation of the life insurance industry, the intermediary sector has also begun to evolve from an extensive growth model towards a more standardized and professional development.

External challenges have been frequent, with stricter regulation and narrowing profit margins for institutions, leading to a continuous cooling of the insurance intermediary equity market. Recently, the latest project information disclosed by the Beijing Property Exchange showed that 12.384 million shares (accounting for 5.76% of the total share capital) of Jiangtai Insurance Brokers were once again listed for transfer, with Sinochem Capital initiating the transfer at a base price of 504.03 million yuan. This marks the third time this year that Sinochem Capital has listed for transfer its shares in Jiangtai Insurance Brokers. In addition to Jiangtai Insurance Brokers, several insurance intermediary equities have also faced frequent unsold auctions this year.

The implementation of "unified reporting and execution" in intermediary channels has strongly promoted the industry to eliminate false growth and improve quality, also presenting insurance intermediaries with the dilemma of negative premium growth. After "unified reporting and execution," the commission level of insurance intermediary channels has "significantly decreased." Luo Yanjun, Director of the Life Insurance Department of the Financial Regulatory General Bureau, also recently stated in an exclusive media interview that, from the execution effect of "unified reporting and execution," the average commission level of related channels across the industry has decreased by 30% compared to before.

In 2021, the "Notice on Further Regulating the Internet Life Insurance Business of Insurance Institutions" stipulated regulations for online provision of internet life insurance products, prohibiting insurance institutions (including insurance companies and insurance intermediary institutions) from providing internet life insurance products that do not meet the relevant requirements, thereby raising industry standards.

Relevant policies have also impacted insurance intermediaries. For example, during the reporting period from 2021 to 2022 and the first three quarters of 2023, the operating income of Shouhui Technology was 1.548 billion yuan, 806 million yuan, and 1.337 billion yuan, respectively. The operating income in 2022 decreased by 47.9% year-on-year, with Shouhui Technology attributing the decline to the notice issued in October 2021 and the impact of the pandemic.

Amidst the pains of transformation, intermediary institutions are also actively seeking new development paths to adapt to the new business environment. Reducing costs and increasing efficiency, diversifying business, and international layout are all part of the exploration of new paths.

HuiZe previously announced that it will officially acquire Global Care Consulting, a Vietnamese insurance technology company. This acquisition marks HuiZe's entry into the second international market and accelerates the mission of its international brand, Poni Insurtech, to build a pan-Asian digital insurance distribution platform. In the first-quarter financial report, HuiZe also disclosed its vigorous expansion into the Hong Kong market. HuiZe's founder and CEO, Ma Cunjun, stated that HuiZe will continue to diversify its revenue sources by expanding its business in Hong Kong and exploring opportunities in emerging Southeast Asian markets, where it can replicate HuiZe's proven business model.

In February of this year, Fanhua also announced a $500 million investment from the Singaporean consortium, HuaDe Group. According to the strategic investment framework agreement, HuaDe Group will help Fanhua achieve international expansion by establishing offices in Singapore, Vietnam, Europe, the United States, and Hong Kong.

ShuiDiao Company is also increasing its investment in the Hong Kong market. In January 2023, ShuiDiao Company renamed its licensed insurance brokerage in Hong Kong, "HuaBo Financial Services," to "ShuiDiao Finance (Hong Kong)." In August, the ShuiDiao Financial Services Hong Kong office was officially put into use. As early as 2018, ShuiDiao's mutual aid platform, ShuiDiao Mutual Aid, along with institutions such as FeiTongFanXiang Fund and BIB (Blockchain Investment Bank), jointly made a strategic investment in the Singaporean local mobile payment application SpherePay. In the same year, ShuiDiao also launched the international version of Deeda in Singapore.