Good News on Listing | Frost & Sullivan Assists Zhongmiao Holdings (Qingdao) Holdings Co., Ltd. to Successfully List on the Hong Kong Stock Exchange (1471.HK)

Zhongmiao Holdings (Qingdao) Co., Ltd. (hereinafter referred to as 'Zhongmiao Holdings') successfully listed on the stock market on August 6, 2024. The company plans to issue 35,300,000 shares, of which 31,770,000 shares will be international offerings and 3,530,000 shares will be Hong Kong offerings. The issue price per share is HK$7, raising a net amount of approximately HK$196 million.

During this Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing the writing of relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important chapters), helping the issuer communicate with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.

The company is a leading provider of insurance agency services and solutions with significant growth potential;

The company has built an ecosystem centered around the concept of 'co-creation and win-win', connecting a large number of insurance companies, insurance agents, strategic channel partners, and insurance users, and has established stable cooperative relationships with 70 insurance companies;

Since its establishment in 2017, the company has developed an online platform to enhance the user experience of insurance customers and provide comprehensive service support for insurance agents.

The company offers a rich variety of products for corporate and individual insurance customers;

The company has an experienced management team.

Insurance is a contract represented by an insurance policy, where the policyholder receives financial protection or reimbursement for losses caused by specific accidents or risks. Insurance companies provide financial protection or reimbursement to policyholders in exchange for premiums. Insurance was initially designed to provide safe and reliable protection; with the development of the industry, it has become a protection mechanism, a basic means of risk management in the market economy, and an important pillar of financial and social security systems. Insurance funds are an important source of capital in financial markets. Insurance is not only a safety net for the social security system but also an important pillar of it. By collecting premiums, insurance companies accumulate a large amount of funds that can be used to invest in financial markets and provide financial support for other economic sectors. In addition, insurance can make up for the deficiencies of the social security system and provide individuals with a higher level of protection.

Products can be divided into two main categories: (i) life insurance; and (ii) property and casualty insurance.

Life insurance provides comprehensive coverage, protecting individuals against longevity, health issues, and various life events, including death, disability, illness, old age, and accidents that may occur throughout the policy period. In addition, if the policyholder survives to a specified time, they will also receive insurance benefits. Life and health insurance can be further divided into life and annuity insurance (such as whole life insurance, term life insurance, annuity insurance, etc.), health insurance (such as critical illness insurance, medical insurance, etc.), and accident insurance (such as travel accident insurance, tourism insurance, etc.). According to the terms of the insurance contract, property and accident insurance cover losses and damages caused by natural disasters or accidents to the insured property and related interests. Property and accident insurance mainly includes property loss insurance (such as corporate property insurance, household property insurance, etc.), liability insurance (such as employer liability insurance, product liability insurance, etc.), and credit insurance. In addition, automobile insurance is one of the most representative types of property and accident insurance. Automobile insurance covers the vehicle itself, third-party liability, and vehicle passengers, including compensation for personal injury or property damage caused by natural disasters or accidents.

Original insurance is a type of insurance where the insurance company directly bears the liability for compensating for damages in case of the insured's insurance risks.

China's original insurance premiums have experienced relatively slow growth in recent years, mainly due to the impact of the COVID-19 pandemic. In 2020, signs of the pandemic began to emerge, and the growth rate of the life insurance industry slowed from a year-on-year increase of 13.8% in 2019 to 7.5% in 2020. Similarly, the growth rate of the property and casualty insurance industry also slowed from a year-on-year increase of 8.2% in 2019 to 2.4% in 2020. This trend continued into 2021, with a slowdown in the life insurance industry. Life insurance premiums dropped from RMB 3,332.9 billion in 2020 to RMB 3,322.9 billion in 2021, a year-on-year decrease of -0.3%. Similarly, the property and casualty insurance industry also experienced a slowdown, with property and casualty insurance premiums dropping from RMB 1,192.9 billion in 2020 to RMB 1,167.1 billion in 2021, a year-on-year decrease of -2.2%. The decline in the insurance industry can be attributed to the elastic demand for insurance products under pandemic conditions. Considering the voluntary nature of purchasing life insurance, individuals and families may prioritize immediate financial needs, leading to suspension or reduction of insurance payments. The decline in the property and casualty insurance industry was mainly driven by the decline in the auto insurance industry. In 2020, auto insurance accounted for 69.1% of the property and casualty insurance industry, but due to reduced travel demand, it accounted for 66.6% in 2021.

However, as the impact of the pandemic subsided and society returned to normal, the insurance industry in China showed a positive growth trend in 2022 and 2023. In 2023, the original insurance premium income in China reached 5.1 trillion yuan, with a compound annual growth rate of 4.7% since 2019. In 2023, the premium income from life insurance and property and accident insurance in China was 3.8 trillion yuan and 1.4 trillion yuan respectively.

Looking ahead, due to the transformation of China's population structure towards an aging society, the increase in disposable income, and the growing demand for insurance in areas such as health insurance, annuities, and retirement plans, it is expected that the insurance industry will experience higher growth. On the other hand, China's collected original insurance premium income is still lagging behind other developed countries. For example, in 2022, China's insurance density (i.e., per capita premium) was $489, far lower than the per capita premiums collected in Japan, France, the United Kingdom, and the United States, accounting for only 18.2% of Japan's ($2,690), 13.7% of France's ($3,578), 10.2% of the United Kingdom's ($4,781), and 5.5% of the United States' ($8,885).

Due to the aforementioned factors, it is expected that the growth rate of insurance company's original insurance premium income will continue to increase. China's original insurance premium income is expected to reach 7.2 trillion yuan in 2028, with a compound annual growth rate of 7.0% starting from 2024. It is estimated that in 2028, the premium income from life insurance and property and accident insurance in China will increase by 5.3 trillion yuan and 1.9 trillion yuan respectively.

Source:National Financial Supervision and Administration CommissionFrost & Sullivan report

Insurance intermediary companies play a crucial role in connecting insurance companies with insurance consumers within the insurance industry. These entities act as intermediaries between insurance companies and users, providing a range of services. Insurance intermediaries distribute insurance products to users, offer insurance consulting, scheme design, and compare insurance products. They assist users with procedures such as application for insurance, claims settlement, and other related matters.

According to the Insurance Law, an insurance agency is an institution authorized by an insurance company to collect commissions from the insurance company and handle insurance business on behalf of the company within its authorized scope. On the other hand, an insurance broker is an institution that facilitates the signing of insurance contracts between policyholders and insurance companies, serving the best interests of the policyholders, while also collecting commissions for their services.

The industrial chain of China's insurance intermediary industry mainly consists of insurance companies, insurance intermediary enterprises, and insurance users.

At the upstream of the insurance intermediary industry, insurance companies directly or through insurance intermediary enterprises provide insurance products to users. Insurance companies can also be divided into life insurance companies and property and casualty insurance companies based on their products.

The middle tier of the insurance intermediary industry is composed of insurance intermediary enterprises. Insurance intermediary enterprises (including insurance agencies and brokers within the group) play a crucial role in the industry, utilizing their unique position to drive industry growth and better serve users. As a link between insurance companies and users, insurance intermediary enterprises provide advice and support to help them choose the right policy to meet their specific needs and budgets. In addition, they also use their industry experience, network, and digital capabilities to assist upstream insurance company partners in promoting, selling, and designing insurance products. Insurance users are the last component of the insurance industry's industrial chain, serving as end-users of insurance products who require financial protection provided by policies. Insurance users can be individual or corporate customers, purchasing policies directly from insurance companies or through intermediary enterprises.

To facilitate the sale of insurance products underwritten by upstream insurance company partners, insurance intermediary enterprises provide insurance products to users through direct and indirect sales through their trained insurance agents and strategic channel partners. Insurance intermediary enterprises provide insurance knowledge, training, and IT support to insurance agents, then communicate with insurance users to understand their needs and recommend suitable insurance products. Users who successfully purchase insurance products will pay commissions to the insurance agents.

Utilizing the network advantages of strategic channel partners, we cover a large number of corporate and household insurance users, expanding the overall user base of insurance intermediary enterprises. When users successfully purchase insurance products, they will pay referral fees to strategic channel partners. In addition, with the advancement of technology, innovative insurance intermediary enterprises are using big data analysis, intelligent recommendations, and other digital tools to recommend suitable existing insurance products based on customers' preferences and choices. By continuously improving their operations and services, insurance intermediary enterprises with strong technical capabilities will help build a comprehensive insurance ecosystem and promote the development of the overall insurance industry.

Cooperating with strategic channel partners is a common industry practice in the Chinese insurance intermediary market. With the network of strategic channel partners, insurance intermediary enterprises can reach out to a large number of corporate and household insurance users, thereby expanding their overall customer base. At the same time, the average referral rate of strategic channel partners is widely distributed and is quite common in the insurance intermediary industry. Such referral fees are usually negotiated by the contracting parties based on specific circumstances, taking into account factors such as insurance product type, market competition intensity, and the contribution of strategic partners.

Source: Frost & Sullivan report

In recent years, China's insurance intermediary industry has experienced continuous growth. Calculated based on underwriting premiums, the market size of China's insurance intermediary industry increased from RMB 540.2 billion in 2019 to about RMB 832.3 billion in 2023, with a compound annual growth rate of 11.4%. Compared with developed countries such as the United States, insurance intermediary companies account for more than 50% of total underwriting premiums, while in China, this proportion is less than 20%. This gap reflects that China's insurance intermediary industry is still in its early stages of development. With the standardized and orderly development of the insurance industry, it is expected that China's insurance intermediary industry will maintain a stable growth trend in the future. It is estimated that by 2028, the underwriting premium scale of China's insurance intermediary industry will reach RMB 1,505.5 billion, with a compound annual growth rate of 12.8% starting from 2024.

Note: The China Insurance Yearbook is published by the China Banking and Insurance Regulatory Commission and is generally updated in the fourth quarter of each year. It contains data on the Chinese insurance industry from previous years. Therefore, the latest issue of the China Insurance Yearbook has not yet included data for 2023.

Driven by effective policies supporting local economies and labor markets, China's per capita disposable income increased from RMB 30,700 in 2019 to RMB 39,200 in 2023, with a compound annual growth rate of 6.3%. It is worth noting that the middle-income group accounts for about 30% of China's total population. The middle-income group has a stronger awareness and ability to pay for insurance compared to other users, and they have higher requirements for compensation and variety of insurance products. Therefore, they have a stronger demand for other insurance products such as health, accident, and pension insurance, which supports the development of the insurance intermediary industry. In addition, with the improvement of wealth levels and increased risk preferences, people's attitude towards insurance products has shifted from passive consumption to active consumption, further stimulating the market scale of insurance products and the growth of the insurance intermediary industry. Against this backdrop, China's insurance density (per capita premium) reached $489 in 2022, but it is still lower than that of other developed countries in the world, such as $8,885 in the United States, $4,781 in the United Kingdom, and $2,690 in Japan. Moreover, China's insurance penetration (i.e., the proportion of total premiums to GDP) is only 3.9%, far lower than the 11.6% in the United States, 10.5% in the United Kingdom, and 8.2% in Japan. The low insurance penetration and density reflect the broad development space of China's insurance industry.

In addition, with the slowdown in population growth, China has officially entered an aging society. In 2023, the population aged 65 and above exceeded 216 million, accounting for 15.4% of China's total population. Against the backdrop of aging, more and more families begin to focus on risk avoidance and pension security planning, providing broad development space for insurance products and related insurance intermediary services. To address the situation where elderly people are not familiar with the purchase process and product selection, insurance companies continuously expand their sales channel network, combining intermediary sales models to effectively reach people with insurance needs. At the same time, insurance companies continuously design and promote innovative insurance products such as annuity insurance, long-term care insurance, and disability insurance according to market demand. These not only provide protection plans for families in need but also optimize the product structure of insurance companies, promoting the sustainable development of the insurance and insurance intermediary industries.

With the introduction of policies such as the 'Guiding Opinions of the China Banking and Insurance Regulatory Commission on Promoting the High-Quality Development of the Banking and Insurance Industries', the government has proposed to build a new system for the insurance intermediary market focusing on technology, capabilities, and talent. Improving service quality, reducing costs, and strengthening business management involve the adoption of emerging technologies such as AI, big data, cloud computing, blockchain, and biometric identification. The state encourages mobile internet services and internet finance platforms while strengthening cybersecurity capabilities. Insurance intermediary institutions are increasingly using online platforms for promotion and service delivery, cooperating with industry partners, and employing insurance technology for precise marketing and customer interaction, aiming to provide insurance solutions, improve service quality and efficiency, and establish flexible relationships with customers. This initiative aims to build a sustainable and high-quality industry that can adapt to market changes and provide exceptional services.

In addition, the 'Administrative Measures for Insurance Sales Behaviors' require comprehensive chain supervision of insurance intermediary enterprises' sales activities, from pre-sale to in-sale and post-sale. To achieve institutional reform, an innovative regulatory system oriented towards the entire insurance intermediary industry needs to be established to ensure the orderly and healthy development of insurance intermediary enterprises. On the other hand, policies such as the 'Notice on Strengthening the Management of Insurance Intermediary Channel Business' and the 'Notice of the General Office of the China Banking and Insurance Regulatory Commission on Issuing the Regulatory Measures for the Informatization Work of Insurance Intermediary Institutions' optimize insurance intermediary channels by establishing clear qualification, business, and file management systems with defined rights and responsibilities. They strengthen the management of insurance companies cooperating with intermediary channels, pay attention to compliance and internal audit within the insurance intermediary industry, and improve the informatization work and management level of insurance intermediary enterprises.

With the implementation of these policies, related regulations, and provisions, the requirements for the personnel and internal management systems of insurance intermediary enterprises in China's insurance intermediary industry have been further enhanced. The above supervision has accelerated the elimination of unqualified insurance intermediary enterprises and laid a solid foundation for the sustainable development of the insurance intermediary industry.

The widespread use of the internet has changed the way insurance intermediary companies interact with their users and opened up new opportunities for providing insurance services. By the end of 2023, there were 1.092 billion internet users in China, with an internet penetration rate of 77.5%. One benefit of the increasing internet penetration in China is the improved accessibility of insurance services. With the popularization of online platforms, insurance users can now conveniently compare various insurance products and services, thereby promoting the increasing popularity of insurance products. In addition, the increasing internet penetration has improved the efficiency and speed of insurance services. Insurance intermediary companies can now process insurance applications and claims more quickly, reducing the time and effort required for users to obtain insurance. This improvement helps enhance the overall user experience and make insurance products more attractive to potential users. Moreover, the internet provides new ways for insurance intermediary companies to connect with users through digital marketing and advertising. Insurance intermediary companies can use online platforms and social media channels to attract a wider user base and promote their insurance products and services to more audiences. Therefore, the increase in popularity helps improve consumers' awareness and acceptance of insurance products.