Shouhui Pushes For Protective IPO As Risk Factors Multiply

The online insurance broker is looking to build a capital buffer as commission fees shrink and policy providers increasingly sell directly to customers 

Key Takeaways：

• Shouhui's revenue fell 15% to 1.39 billion yuan in 2024, hit by weaker demand for life assurance
• The company ranks as China's second-biggest online insurance broker for long-term life policies, but with a market share of just 7.3%

Insurance can be a risky business these days in China, with disruptive technologies and web-based sales threatening to overturn standard practices and sideline service providers.

As an online broker specializing in life and health insurance, Shouhui Group Ltd. has found itself on the winning side of the fintech revolution, but it runs the risk of losing out in the long run, under pressure from shifting business models, a slowing economy and a regulatory squeeze.

Major Chinese insurance companies are now rolling out their own online sales platforms, cutting out middlemen such as Shouhui, which would otherwise broker a range of products.  

Aiming to fill its war chest for the battles to come, Shouhui has been engaged in a persistent effort to obtain a share listing on the Hong Kong Stock Exchange. It tried twice last year, without success, but filed its papers again just a month after the previous application lapsed, with CICC and Huatai International as joint sponsors.

Founded in 2015, the company acts as an intermediary for life and health insurance sales across three platforms. Via the Xiaoyusan channel, customers can buy policies directly. Insurance is provided through agents on Kachabao, and Shouhui works with business partners such as media outlets, brokerages and agents via a third platform, Niubao 100. Niubao accounts for 62.8% of Shouhui's transaction revenue, followed by 21.3% from Xiaoyusan and 15.9% from Kachabao.

Commission fees paid by insurers, calculated as a percentage of policy premiums, are the broker's main source of revenue. It collaborates with more than 110 insurance companies, including over 70% of China's life insurance firms, according to the IPO documents. 

The prospectus describes Shouhui as China's second-biggest online insurance intermediary in terms of gross premiums for long-term life and health insurance,  with a 7.3% market share in 2023. But its presence is dwarfed by a market leader that commands 45.5% of the market, according to the study by Frost & Sullivan.

Fees under pressure

The insurance broker's earnings record is bumpy. Revenues came in at 1.55 billion yuan ($214.26 million) in 2021 but sank to 810 million yuan a year later before jumping again to 1.63 billion yuan in 2023. The bottom line registered a 200 million yuan loss in 2021, swinging to a 130 million yuan profit in 2022 and back to a loss of nearly 360 million yuan in 2023. For 2024, revenue fell 15.13% from a year earlier to 1.39 billion yuan while the net loss narrowed to just below 140 million yuan.

The company blamed the red ink on lower book values of financial instruments, generating losses of around 580 million yuan in 2023 and 350 million yuan last year. Adjusted profit for 2024 excluding the book-value impact fell 4.34% to 240 million yuan from a year earler, mostly due to a 52% drop in life insurance revenue to 470 million yuan.

The plunge in life insurance income was blamed on China's economic slowdown and the knock-on effects of falling interest rates, while a state-mandated cap on insurance commission fees was also a factor.

Responding to new rules, insurers cut the commission rates they pay to intermediary platforms, pushing Shouhui's average first-year fee for long-term life insurance policies down to 21.5% in 2024 from 31.7% in 2023.

A reliance on a handful of clients is also a worry, as Shouhui derives 70% of its revenue from its top five customers, according to the listing documents. Losing any one of those anchor clients would inflict a heavy toll, on top of the other financial and regulatory pressures.

Cutting out the intermediary

However, the biggest threat comes from the growing pace of disintermediation in the industry. Shouhui notes bluntly in its IPO paperwork that fintech advances and online insurance products are allowing insurers to rely less on brokers, as they instead seek direct links with customers. A growing number of traditional insurance companies have set up their own platforms to sell products straight into the market. Shouhui hopes to use the IPO proceeds to expand its sales network to protect or develop its slice of the rapidly changing market. 

Another listing incentive could be a rule that would bar existing investors from cashing out of the company until Sept. 30, 2025 or for 18 months from the initial IPO filing. That block would remain in place for around six months from now. Core investors include the likes of HongShan Yucheng and Shenzhen Albatross Venture Capital after five financing rounds that leave the company valued at around 1.2 billion yuan.

Shouhui certainly faces plenty of challenges. Even if the company succeeds in its IPO ambitions at the third attempt, the road ahead is likely to be rocky.