ZhongAn Online P & C Insurance Co Ltd

HKEX:6060

Earnings Call Analysis

ZhongAn Grows with Strong First Half 2023 Results

In H1 2023, ZhongAn applies its insurance plus technology strategy to boost the digital transformation globally, reporting substantial growth with a 37.5% year-on-year increase in Gross Written Premiums (GWP) to RMB 14.5 billion. This rise includes a 30.6% contribution from proprietary channels. Strong performance in underwriting lifted profits by 47.6% year-on-year to RMB 536 million with an improved combined ratio of 95.8%. Net profit reached RMB 221 million, overturning the previous loss, due to improved investment income and a 22% increase in technology export business revenue. Health ecosystem saw premiums rise 15.9% year-on-year, while Digital Lifestyle and Consumer Finance GWPs grew by 52.8% and 52% respectively. Auto insurance surged, especially in new energy vehicles with a 228.7% year-on-year growth in premiums. Lastly, ZA Bank, their virtual bank, reported a 13% rise in net income to HKD 152 million with widened banking services.

Celebrating a Decade of Innovative Growth

ZhongAn marks its 10th anniversary with a standout performance, accomplishing significant milestones such as being listed on China's Top 500 companies. Aided by economic recovery, ZhongAn's gross written premium (GWP) soared by 37.5% year-on-year to RMB 14.5 billion with a substantial increase from proprietary channel contributions. The company has also seen a substantial improvement in investment income.

Leveraging Technology for Market Leadership

ZhongAn's tech export business flourished with a 22% year-on-year revenue increase to RMB 267 million. Notably, Hong Kong's ZA Bank demonstrated resilience, reporting a 13% rise in net income to HKD 152 million. The health ecosystem displayed robust growth as well, with a 15.9% spike in total premiums and an 8.5% growth in per capita premiums from individual users.

E-commerce and Travel Revitalize Digital Lifestyle Ecosystem

Buoyed by a strong e-commerce rebound, ZhongAn reported a whopping 52.8% growth in the digital lifestyle ecosystem's GWP. Travel and tourism saw a remarkable 118.1% increase, while innovative businesses doubled in pet insurance, signaling diversification success.

Growth Across Diverse Sectors

The company's consumer finance segment reported a 52% surge in GWP. The auto ecosystem also showed promise with a GWP increase of 54.3%, driven by investment and market potential. The new energy auto insurance notably skyrocketed by more than 228.7% year-on-year.

Enhanced Brand and Proprietary Channel Performance

ZhongAn has built a formidable brand, leveraging platforms like Bilibili and Douyin, achieving over 25 million followers. The GWP for proprietary channels reached RMB 4.4 billion, underlining the strategic execution of brand strengthening initiatives.

Advancing InsurTech Innovation

The company is devoted to shaping the insurance value chain with AI technology, marking the release of the first domestic AIGC Application White Paper in insurance. Technology export contributed to ZhongAn’s overseas expansion, particularly in Japan, Singapore, and the European markets, with revenue from technology exports amounting to RMB 257 million, a 23% increase.

ZA Bank Defies Market Norms

ZA Bank has nearly 700,000 retail customers, with a significant net income of about HKD 152 million, leveraging market dynamics like interest rate hikes to improve its monetization rate.

Robust Investment Strategy

ZhongAn manages RMB 36.23 billion in insurance funds, predominantly in fixed-income investments, and achieved an investment income of RMB 723 million, a stark increase from RMB 110 million in the previous year.

Steady Profitability and Solvency

The company has sustained profitability across its underwriting business with comprehensive solvency ratios maintained at an adequate level, ensuring a robust balance sheet.

Evolving Customer Experience with AI

ZhongAn looks to deepen AI integration within the insurance sector to enhance user experiences, promising more mature application scenarios of AIGC in the future.

Progressive Vision for ZA Bank and Consumer Finance

ZA Bank equates to a medium-sized bank in terms of user scale in Hong Kong, with digital efficiency as a key differentiator. Meanwhile, even amid weak consumer credit loan environments, the Consumer Finance business has thrived due to strategic restructuring and an economy in recovery, focusing on short-term and discrete financing scenarios.

Sustaining Innovation in the Health and Digital Lifestyle Ecosystems

The flagship health insurance product, Personal Clinic Policy, continues to show strong growth, and innovative insurance products in the Digital Lifestyle ecosystem exhibit robust profitability. ZhongAn is actively expanding in areas such as pet insurance and UAVs, contributing to a strong growth rate in these new insurance categories.

Awards Recognizing Technological Achievements

ZhongAn Technology's significant contributions have been acknowledged through industry recognition awards. The company’s focus on tailor-made products and data infrastructure collaboration with life insurance companies positions ZhongAn as a leader in insurance technology export.

Strategic Focus on Quality Growth

Despite uncertainties, ZhongAn is committed to high-quality growth, aligning with corporate expectations and aiming to further enhance management and artificial intelligence applications for cost reduction and greater profitability.

Earnings Call Transcript 2023-Q2

[Operator]

Hello, everyone. Welcome everybody to attend the ZhongAn Online Interim Results 2023 Announcements. I have to remind you that this is the English line for listening-only mode. And after the presentation, we're going to have a Q&A.

And now, I'm going to turn the call over to the Head of the IR, Ms. Zhang Lin.

[Zhang Lin, Head of IR]

Dear investors, analysts, and friends from the media, good afternoon. Welcome everybody to attend the ZhongAn Online interim results 2023 announcement. I'm the Head of the IR, Ms. Zhang Lin. First of all, introducing the managements. General Manager, Jiang Xing of ZhongAn Online; CFO and Chief Investment Officer, Li Gaofeng of ZhongAn Online; Executive Vice General Manager and the Board Secretary, Mr. Ou Yaping; and also Wayne Xu, the President of ZhongAn International.

Now, I'll give the floor to General Manager, Jiang Xing.

[Jiang Xing, General Manager]

Hello, fellow investors and analysts. Good afternoon. I'm Jiang Xing, General Manager of ZhongAn Online. Thank you very much for attending ZhongAn 2023 interim results conference, and thank you for your continuous attention and support to ZhongAn.

2023 is the 10th anniversary of ZhongAn's founding. For the past 10 years, we have always showed the mission of empowering the finance business with technologies and providing insurance service with a caring hands. The accumulative total of more than 57.4 billion policies issued servicing more than 500 million users.

We adhere to dual engine strategy of insurance plus technology insisting on the in-depth integration of technology and insurance in the whole process, and assisting in the digital transformation of the global insurance industry. This year, we were listed on the China Top 500 companies of 2023 published by Fortune Magazine for the first time and became the only insurance technology company on the list.

Next, we would like to share with you on our achievements in the first half of this year. In the first half of 2023, the domestic economy and society fully resumed the normalized operation, so that the demand gradually recovered. The company's development showed steady progress achieving GWP of RMB14.5 billion, a year-on-year growth of 37.5%, of which the GWP of proprietary channels contribution increased by 8.6 percentage points to 30.6%.

In terms of the gross return premium, ZhongAn steadily ramped, ninth in the China's P&C insurance industry, further increasing our market share. And also, we are the fastest-growing company and one of Top 10 P&C insurers in China.

This year, the company adopted a new accounting standard for the insurance contracts HKFRS-17, on which insurance revenue amounted to RMB12.682 billion, a year-on-year increase of 23.8%, benefiting from our business strategy of sustainable growth with quality. Our underwriting combined ratio was 95.8% in the first half of 2023, and optimizing of 0.7 percentage points compared with the same period last year. And underwriting profit reached RMB536 million, an increasing of 47.6% year-on-year.

In addition, benefiting from the significant improvement in investment income, the Company returned to profit in the first half of 2023, achieving a net attributable profit of RMB221 million. Take a look at the technology export. Benefiting from the recovery of domestic economy and continued digital transformation of the global financial industry, the technology export business achieved revenue of RMB267 million with lending a year-on-year increase of 22% of which the domestic technology revenue grew at a rate of 35.5%.

For the banking business, the ZA Bank, our virtual bank in Hong Kong, further improved this financial product matrix and user monetization. In the first half of this year, ZA Bank achieved net income of HKD152 million, an increase of 13% year-on-year. And that's -- I would like to share with you the development of our company in the first half of the year by business segments and ecosystems.

In terms of the Health ecosystem, this year marks the eighth year since our launch of the flagship health insurance product Personal Clinic Policy. Since its launch, the product has gone through a cumulative total of 22 iterations to satisfy the escalating and personalized health needs of the consumers and has continued to gain a strong vitality, driving the rapid growth of the RMB1 million coverage medical insurance industry, represented by Personal Clinic Policy reached 51.5% in the first half of the year, representing by the Personal Clinic Policy and zero deductible version of Personal Clinic Policy of providing consumers with practical protection through a more flexible product matrix, which was widely welcomed by the consumers.

And focusing on the multi-level and diversified needs of consumers, we have always enriched the product matrix of our Health ecosystem and also launched the multi-claim critical illness insurance product with 267.6% growth in the first half of the year. And also, we innovatively incorporated a full range of healthcare services like online consultation and drug purchasing.

And we had 52.8% growth in the outpatient insurance products. In the first half of the year, our outpatient and emergency insurance claims service has driven the frequency of their service provision. And the first half of the year, the total claims service exceeded 520,000 times with the average number of services for a single user or consumer reaching 3.5 times.

In the first half of 2023, the health ecosystem provided to help protection to approximately RMB12.41 million in short users, realizing a total premium of RMB5,018 million, representing a year-on-year increase of 15.9%, and individual paid users of the health ecosystem were approximately RMB10.26 million whereas the per capita premium was approximately RMB489, representing a year-on-year increase of 8.5%.

Let's take a look at the Digital Lifestyle ecosystem. We are actively embracing the development of the digital economy and served the consumers in multidimensional scenarios. In the first half of 2023, the e-commerce economy continued to release dividends and recovered strongly. Our e-commerce business segment continued to expand its network of Internet platforms with the GWP reaching RMB3,098 million, representing a year-on-year increase of 35.8% of which the premiums for the return insurance grew at a rate of 45.9%.

With the rapid recovery of the domestic tourism industry in the first half of the year, our Travel and Tourism business segment also benefited from the industry's recovery. With the GWP of Travel and Tourism business segment reaching RMB1,442 million, representing a year-on-year increase of 118.1%.

So apart from those mature businesses, we are also developing innovative businesses, following the trend of new consumption and exploring new growth curves in the Digital Lifestyle ecosystem. In the first half of 2023, our total past insurance premium transactions amounted to approximately RMB200 million, representing a year-on-year growth of nearly 100%. And we served more than 620,000 pet owners in the current period and more than RMB3.8 million pet owners cumulatively.

In addition to protection of pet medical care and accidents, we embedded our services in multi-scenarios of pet ecosystem teamed up with nearly 10,000 offline pet hospitals and service organizations to serve the entire life cycle of the pets, and launched a variety of innovative insurance products such as pet food safety insurance, the pet consignment insurance, the pet anesthesia accidental death insurance, the external insurance to the employees in the pet industry and other innovative products.

We also use technology to actively explore and develop innovative products, putting insurance technology to work with the real economy and give it back to the community, two, three other welfare values. We have designed exclusive insurance products in segments such as household property, cyber security for safety, gig economy of beauty and telecoms anti-fraud and are actively embracing the development of digital economy. In the first half of 2023, Digital Lifestyle ecosystem realized the GWP of RMB5,836 million, an increase of 52.8% year-on-year.

Next, take a look at the Consumer Finance. So we've been having a very stable and solid growth for the domestic economy and the Consumer Finance industry has accordingly seen some recovery. With our Consumer Finance ecosystem, GWP amounting to RMB2,787 million in the first half of this year, representing a year-on-year increase of 52%.

Our Consumer Finance ecosystem has always adhered to the strategy of a steady and prudent development and firmly implemented strict risk control standards and dynamically adjusted the risk buffer cushion in the conjunction with the study of the macroeconomy and environment. So we had also experienced the cycles during the pandemic phase and accumulated experience. So we had a stable growth of our business, where it's actually shown the ability of risk control and operations back then.

And then, taking a look at the Auto ecosystem, which achieved actually a very good growth even if the base number is actually quite small. And we were heavily investing into this particular business segment because the market potential is huge.

In the first half of 2023, the GWP of the Auto ecosystem experienced the higher growth with the increase of 54.3%, realizing the GWP of RMB180 million and RMB22 million. We actively embraced the new energy auto insurance opportunities and also the policy benefits, providing Auto insurance products and services to new energy vehicle owners for more than 20 brands bringing new momentum to the overall Auto insurance growth.

In the first half of the year, the total premiums of the new energy auto insurance underwritten by ZhongAn in the first half of this year growing by more than 228.7% year-on-year. We wish that we are going to bring more Auto insurance to online and bring more differentiated products and services. So this is going to continuously becoming our strategies, so that the Auto ecosystem is going to be developing on a better track.

In 2023, we are actively driving the deepening of ZhongAn's branding and also proprietary channels, covering Bilibili, Douyin, Kuaishou, Xiaohongshu and other mainstream short video and live streaming and social media platforms. And the total number of followers only a channel-wise, is more than 25 million.

Focusing on the brand concept of ZhongAn in the first half of the year, whenever they created the Break Through and Forge Ahead Boss IP, which is the micro-documentary series created independently helped us to spread small and micro-sized shops while bringing more production to shops through ZhongAn's products. And this has exceeded 20 million broadcast across the network by the end of the first half of the year and brand marketing has also won all kinds of different awards.

From the financial perspective of the proprietary channel, the GWP of the proprietary channel reached RMB4.4 billion in the first half of this year, representing a year-on-year growth of 90.6%, number of paid users increased by 24.8% to 6.18 million, and premium per capita reached RMB712, up 52.7% from the same period in 2022.

In addition, through our multi-product service matrix, we are able to better interact with the consumers in our own ecosystem. So the duties -- the user stickiness and also the monetization improved from the standpoint of renewal rate, multi policyholders, and number of policies per capita et cetera.

Next, I would like to share some of the colors on our InsurTech area. We are laying out our cutting-edge technology segments such as artificial intelligence to reshape all parts of our insurance value chain through technology, especially ChatGPT and other relevant industries are developing very fast in 2023.

And based on solid participation in AI over the past decade, this year we released the very first AIGC Application White Paper in the domestic insurance industry combining more than 30 specific application scenarios of AIGC technology in the field of insurance. At the same time, we released the first AIGC application map in the insurance industry at the 2023 World Conference of Artificial Intelligence showcasing the innovative application practice and exploration of AI + insurance.

Artificial Intelligence is used internally to improve efficiency in all the aspects of our business from products to marketing to risk control and JV operations. In addition, this year, we further launched the ZhongAn AIGC middle platform, Lingxi, and the first batch of insurance vertical AIGC application which have created intelligence content creation platform, EasyCreation, as well as the upgraded version of AI, CWisdom, operation analysis platform will dialog generating AI such as better leverage AIGC for external and internal empowerment.

In the first half of 2023, our technology export business continued to develop the domestic and overseas markets and assisted the digital transformation process of the global financial industry. We signed up a total of 35 new insurance industry chain customers in the first half of the year achieving revenue of RMB257 million, an year-on-year increase of 23%. As of 30th June of 2023, our technology export business had serviced a total of more than 750 customers.

In the first half of the year, ZhongAn Technology continued to make a significant breakthrough in the area of P&C Life Insurance interest -- industry data platform and in also insurance mobile marketing and continues to maintain record growth of our insurance technology business. Our technology export business achieved revenue of RMB150 million in the first half of the year, representing a year-on-year increase of 35.5%.

In terms of business growth, in 2023, we signed up 14 clients and provided integrated user management platform plus operations, plus services, helping clients including Guomin insurance at Lian Life to build one-stop digital insurance marketing platform.

In terms of the business production series, the new generation of P&C Insurance core system of ZhongAn Technology, Mate, has been put online and used by a number of P&C Insurance companies in China this year. In the field of data, we have cooperated with a number of life insurance companies to carry out data mid-platform and data intelligence and provide customers with services such as data planning, data governance, and construction of the data mid-platform.

In terms of the new digital infrastructure, this year, ZhongAn's DevCube R&D operation and maintenance integration platform was selected as one of the CAICT's Panorama of High-Quality Digital Transformation Products and Services of 2023.

In addition to the consolidation operational foundation in the insurance industry, our technology products have signed the new contracts with a total of eight customers from banking and securities industry this year. So in the future, ZhongAn Technology will continue to help consumers and customers in the financial industry in their digital transformation and also at the same time accumulate the wealth of cross-vertical general experience to further broaden our customer base.

With that, this concludes my presentation. And next, I would like to turn the call over to Wayne, President of ZhongAn International about the development of our International in the first half of 2023.

[Wayne Xu, President, ZhongAn International]

Thank you, Simon.

Now, I will be responsible for talking about the performance of the ZhongAn International in the first half of 2023. In the first half of 2023, ZhongAn International continued to develop the overseas markets and assisted in the digital transformation process of customers in a number of industries around the world.

The ZA Tech has been breaking new ground in both domestic and overseas markets setting a new benchmark for global InsurTech. To date, we are present in Japan, Singapore, Thailand, Malaysia, Vietnam and other Asian markets. And this year, we also made new breakthroughs in European markets.

The ZA Tech has a unique range of cloud-native modularization, no-code, low-code digital solution, including insurance core system, distribution system, customer data platform and AI solutions, which provides the digital infrastructure to support all kinds of insurance business models across all insurance product lines and across the end-to-end insurance business value chain.

ZA Tech clients can be divided into two categories; insurance companies and Internet platforms. For insurance companies, our next-generation distributed insurance core system, Graphene, can assist the insurers in connecting with various eco partners locally and launching the fragmented and scenario-based insurance protection products adapted to the local environment.

For insurance companies in the early stage of digital transformation, we provide Nano, a lightweight SaaS insurance core system to help customers building a low-cost fast to launch core system for digital insurance products and help them take small steps of trial-and-error and rapid deterioration in the process of digital transformation.

For Internet platform clients, we provide Fusion, a low-coding insurance distribution solution to assist Internet platforms to provide more value-added services to their C-end clients and improving the efficiency of traffic monetization.

In addition to strengthening our existing customer base, we have made significant breakthroughs in overseas export business in both Southeast Asia and Europe. We have entered into a relationship -- a regional partnership with the Home Credit, the largest local customer -- finance platform in Southeast Asia and provide Fusion and insurance distributor solutions within better insurance products in two markets, which is Indonesia and Vietnam.

We have also cross-sell and up-sell the Home Credit partners to provide income, a leading local property and casualty insurance company with Nano, a lightweight SaaS insurance core system further expanding our business possibilities in Southeast Asia.

And also, in terms of core system, we leverage the technology advantages of Graphene's claim and module to assist Prudential Insurance Thailand micro claims module to go like. This in constant prudent insurance micro claims service capability and also help us to validate the feasibility of the functional modules single selling format opening up new space for ZA Tech in overseas market.

In July, we successfully entered the traditional insurance core system replacement track exporting our core system, Graphene, to one of the largest insurance groups in Central and Eastern European market helping them to realize the seamless support from end-to-end functionality of traditional motor insurance in this wide European market with replication and go live. This leg of pay insurance core system replacement project is a major milestone of the ZA Tech's development. And we will continue to iterate the cloud-based legacy insurance core baseline and explore the huge market opportunity for the global insurance core system replacement.

And also, as a very important part of our overseas layout, ZA Bank has also continued its development in Hong Kong market this year. It's the first virtual bank to officially open and the first to obtain an insurance agents organization license and the first to obtain the security's trading license from the SFC in Hong Kong. ZA Bank in 2023 continues to develop the path of building Hong Kong's multi-financial service platform and providing retail customers and SMEs with rich convenient and inclusive financial services.

And in order to further promote the concept of financial inclusion and assist the transformation of Hong Kong's banking industry into the financial technology, ZA Bank officially launched the express online company accounting opening, which is on-boarding the service on 1st of April 2023 to provide local SME customers with extreme fast account opening experience to help the clients increasing market opportunities.

Through this function, customers can complete the application for account opening as fast as six minutes and open an account in as fast as two hours. By now, ZA Bank has become one of the most feature-rich virtual banks in Hong Kong market creating a one-stop integrated financial service platform through a fully-digitized operating model for mobile phones, providing users with 24-hour digital banking services such as deposits, withdrawals, transfer consumption, foreign exchange, insurance investment, and corporate banking.

In our Retail business, we are building on our traditional banking products and services by innovating the experience of enhancing user preference and activity. As of 30th of June of 2023, the ZA Bank has close to 700,000 retail customers with a penetration rate of 10% of the population aged 18 and above in Hong Kong.

The sum investment business was officially launched in August of last year, providing users with hundreds of fund products, which are well welcomed by users. As of 30th of June of 2023, Vietnam managed the scale of retail users reached HKD537 million. As of 30th of June of 2023, Vietnam has a deposit balance of approximately HKD7.7 billion, and a loan balance of approximately HKD4.9 billion, and the bank net interest margin rising to 1.87%.

During the reporting period benefiting from the interest rate hike cycle and the continuous improvement of our product matrix, ZA Bank's monetization rate also improved significantly recording a net revenue of approximately HKD152 million. At the same time, we focused on the quality of our business and enhance our operational efficiency with the bank's net loss ratio narrowing by approximately 60% points to 131.8% compared to 191.6% for the same period in 2022.

Looking ahead, ZhongAn International will continue to leverage the synergetic effect of the brand to further upgrade user experience and create more value for our users dig into a financial experience. We will continue to help Hong Kong to develop a Fintech building a financial center with a global financial influence and promote financial inclusion.

And next, I would like to give the floor to Gaofeng to share with you the financial performance of the interim results 2023.

[Li Gaofeng, CFO and CIO]

Thank you, Wayne.

Next, I'll be introducing the company's overall financial performance for the first half of the year. ZhongAn has adopted Hong Kong IFRS-17 insurance contracts in placements of the core from this year and related financial data for the same period '22 has been retrospectively adjusted.

First of all, I'd like to introduce you the insurance service revenue under the new standard in the first half of 2023. ZhongAn achieved the insurance revenue of RMB12.682 billion, a year-on-year increase of 23.9%. And next, I will be giving you an overview of the growth of insurance revenue by ecosystems for the first half of the year.

In terms of Health ecosystem, we have long adhered to our original intention of being the national health insurance for one million people -- 100 million people insisting our strategic direction of medical plus, pharmaceutical plus insurance, constructed a one-stop medical insurance service platform and system and maintaining a stable growth by continuously enriching our product matrix and improving our service capabilities. And our health ecosystem has demonstrated a high-degree of resilience. And insurance revenue increased by 5.9% to RMB2,968 million compared with the same period last year.

In terms of Digital Lifestyle ecosystem, the domestic economy resumed its normalized operation. We saw a significant recovery of the e-commerce and travel markets, which drove the sales of e-commerce insurance products and travel insurance products within the ecosystem to improve. Meanwhile, innovative products like pet insurance, drone insurance, and health interest continued to grow at a higher rate. And Digital Lifestyle ecosystem insurance revenue in first half of the year increased by 42.5% year-on-year to RMB5,701 million.

In the first half of the year, as the domestic economy recovered, revenue from the Consumer Finance ecosystem revenue or, I mean the insurance revenue amounted to RMB2,318, an increasing of 17% on a year-on-year basis under the new accounting standards.

Lastly, on the Motor insurance, benefiting from recovery of traffic and travel this year and increasing the insurance revenue in the first half of the year amounting to RMB695 million year-on-year increase of 35.9%, which was higher than the growth rate of the original premiums.

In the first half of 2023, the underwriting business grew at a high quality and diverse sequential underwriting profit. ROI and combined ratio was 95.8% under the new accounting standards, an improvement of 0.7 percentage points in the same period last year. In terms of Health ecosystem, the underwriting combined ratio was 92.5% in the first half of the year, an improvement of 3.8 percentage points compared with the same period last year.

In the first half of the year, for example, the window for the recovery traffic monetization and increased investment in marketing and seamless acquisition and the corresponding expense ratio increased by 13.3 percentage points to 54.5% and loss ratio decreased by 17.1 percentage points year-on-year to 38% due to the changes in part of interest and modification of the core environment.

And in terms of Digital Lifestyle ecosystem, we focused on the establishment proprietary channels. You can see that we have actually maintained a stable combined ratio. And also in terms of the Motor insurance the claims ratio, or I mean, the loss ratio increased by 2.1% points to 59.1% due to the resumption of the traffic -- travel in the first half of the year. Expense rate improved by 2.8 percentage points to 38.2%, and the underwriting combined ratio improved marginally by 0.5 percentage points.

In the left hand, the recap of the Performance Investment segment. In the first half of 2023, the global was volatile and domestic and international capital markets were complex. The domestic bond markets were certainly strong, while the stock market was markedly differentiated by industry in face of the challenging market environment.

The company has always maintained its strategic determination and managed tactical asset allocation flexibly under the leadership of strategic allocation here to the prudent and cautious investment philosophy, strengthen the risk management and controls.

As of June 30 of June of 2023, we have our domestic insurance funds that can managed approximately RMB36,231 million, of which 73% were fixed income investments and credit bonds dominating the domestic on investments of which 9% were externally related AA -- rated AA and above, and industrial to equities and equity funds accounting to a total of 8%.

In the first half of the year, the investment income of insurance funds improved significantly with the last year and the total investment income increasing to RMB723 million from RMB110 million in the same period last year, and then total investment return improving to 4% from 0.6% in the same period last year. Mainly from the improvement in gains and losses on changes in the fair value, while the annualized net income return remained stable at 2.2%.

Let's take a look at the overall key financial performance of the company. The underwriting business has achieved sustained profitability with continued improvement and other segments have also seen a narrowing of loss ratios. In addition of company's overall balance sheet and robust, with the total assets of RMB49.2 million as of June 30 of 2022, representing an increase of approximately 3.3% compared with the same period in 2022. And comprehensive solvency ratio level maintained an adequate level. And this year we have also continued to receive the BA1 and principal rating from Moody's ratings and positive outlooks underlying the resilience of operations.

In 2023, the 10th year of our establishment, we also continue to stick on the mission of empowering the finance business with technology and providing insurance services that we carry. We shall not forget our original intention, and market of new higher level. Thank you.

This is the end of the presentation, and now I would like to have a Q&A.

[Operator]

[Operator Instructions] The first question is from Michael Lee from Bank of America.

[Michael Lee, Bank of America]

Thank you very much for this opportunity. I am from Bank of America. Two questions. First one is about technology. We know ZhongAn is a leading insurtech company in China, and has a lot of important technology export. So recently, everybody is talking about AI. So the question is, any placement of AI and layout? How do you think that AI is going to change the insurance industry? Second question is for the ZA Bank. We have witnessed a quick development of ZA Bank in the past two years in Hong Kong. So, I would like to ask you that for a digital bank compared with the traditional bank, what are the differences? And also, what about the different strategies implemented by ZA Bank?

[Jiang Xing, General Manager]

Thank you, Michael, for your question. First, I would like to answer the question about AI. Since our founding, we've been investing a lot in the R&D of AI. We are not like Baidu or Alibaba, which is a company that's developing the fundamentals and underlying technologies, but we are more focusing on the combination and application of AI with insurance and reshaping the values of the value chain of the insurance industry. This is the key focus. Since this year, based on our experience and also technology know-how of AI, we have actually published a very diverse AIGC Application Whitepaper in the insurance industry. And also in terms of 30 different scenarios of applications and also the application plants.

In this White Paper, there is a sorting now and also a sharing of use cases. And also on the World Artificial Intelligence Conference, we have also announced a very first application map of AIGC for the insurance industry, showcasing the practice and exploration of ZhongAn Online for AI + Insurance. This includes the six dimensions of product design and innovation, marketing and business development, the underwriting claim, customer service, the wisdom and intelligent officing and R&D management recovering 80 different scenarios of AIGC covering the P&C and Life and agents and proprietary channels and other information channels as well.

So from an internal perspective, we are able to enhance our efficiency and innovation by using AI, and externally we have been launching the AIGC mid-platform, Lingxi, and also the very first AIGC application content creation platform, Jizhi creation and also the fewest the operational analysis platform that has been updated already with the ability of the dialog generation AI, and we are more adapted to AIGC capabilities. So, institutional users are able to be embedded with this professional knowledge Bank and realize the application of AIGC in the different verticals.

Looking towards the future, we are looking forward the deeper connection of AI and insurance industry and providing better user experience. And I do believe that when time passes by, we are able to have more and more scenarios that are able to be more matured with the application of AIGC, which is pretty much under our expectations.

And with regards to the ZA bank, I'd like to give the floor to Wayne. Thank you.

[Wayne Xu, President, ZhongAn International]

Thank you, Michael, for the question about the ZA Bank. As of the first half of this year, ZA Bank has been opening for three years and for the past three years we had all kinds of different breakthroughs. In terms of the user scale as of 30th June of 2023, it's almost 700,000. So this is equal to the size of the users of medium-sized bank in Hong Kong. If you're talking about product matrix, digital economy or virtual -- I mean, virtual bank is no difference versus the traditional bank. And now at the time of stage, the ZA Bank is operating on a same way as the traditional bank, which means that we are able to provide the services and products like deposits, loans, transfer, investment insurance et cetera.

But if you're talking about the operational efficiency and the user experience of the bank, digital bank versus the traditional bank is very much different. First of all, there is no offline point of service of digital bank. We provide the 7/24 services through apps, which is going to reduce our fixed cost and also give more benefits to the users as a platform and provide more products and services with the dips of money.

And second of all, the digital bank is pretty much dependent on the server on the cloud and we cannot use technology to realize the quick go-live and iteration of new products and functions and can really satisfy the pinpoint demand that are elevated year-by-year of the new generation of users. And also now, we have becoming the commercial bank offering the basic services to the Web3 organizations and also we are becoming actually the transactional and the settlement bank actually using the hash key exchange, for instance, and providing actually at the convenience services.

From a long run, we are able to better dependent on this particular facility to create a better user stickiness, and also use technology to help us to realize a higher operational efficiency. In the future, our goal is that we want to co-create with the users and also being the user demand-driven and also become an integrated financial services platform that is driven by technology and planning for services and products available. Please be staying on to. Thank you.

[Michael Lee, Bank of America]

Thank you.

[Operator]

Next question comes from Leon Qi from Daiwa. Liam, please.

[Leon Qi, Daiwa]

Thank you. This is Liam from Daiwa. I have two questions. The first one is about the operating channels. We are very glad to see the economy of scale, which is growing. So I would like to understand that, do you have a goal of the bring contribution from the proprietary channels? And what about the customer acquisition costs? And also the other parameters like IGV et cetera. Do you have any comparison, especially compared the proprietary channel with the channels like Douyin and Kuaishou? Do you have any kind of quantifiable analysis?

Second question was just about the Consumer Finance. In the first half of the year -- the -- when the combined ratio was quite stable, you had a quick growth, and also you can see that I'm talking about the macro economy, the kind of consumer credit loans is still quite weak. I would like to understand that, why you enjoy such a quick growth?

[Jiang Xing, General Manager]

Thank you very much, Liam, for the questions. First I'm going to answer the question about proprietary channels. In the first half of the year, the Proprietary Channel premium contribution continued to grow accounting to about 30% of GWP. And first of all, in the first half of the year, we actually see the opportunity of traffic monetization and emphasizing more on the investments, on marketing and new acquisition of users and acquiring a lot of new users to finish their underwriting. And also for existing consumers, we emphasizing more on the renewal business and cross-sales in our sales. So that's how we are able to reduce the overall customer acquisition costs.

As I have already introduced that the Artificial Intelligence technology is able to help us to better lower down the operational costs in the long run and also we are going to realize a better operational leverage. And talking about the operation of the same customer, the user acquisition cost of the proprietary channel is actually bigger because of more upfront investment on the insurance education and the mindset building among the consumers of the ZhongAn branch. However, if you are considering the cross-sales of various cost ecosystem and also a very stable renewal rates, the long-term value contribution from users dropped channels, the whole economic model is actually much better.

Let's ask a question, there's going to be answered by Wayne.

[Wayne Xu, President, ZhongAn International]

Thank you, Liam for the question. Last year the Consumer Finance business was actually in a low base and also last year we were having kind of shrinking of this business, but actually we restructured ourselves in terms of the consumer structure and the product structure and also benefited by the economic recovery of the first half of the year and we focus on those and more volume and discrete and short-term scenarios. So we are seeing a lot of growth. But still in the future, we need to still focus on these scenarios. And also from some of our performance, we can see that the appropriate and also the kind of necessary credit loan as demand is still there.

At the current stage, the average duration is 10 months and the user eight band is in between 30 and 40. And this is relatively young customer base and with a stable income. In the future, we're going to do prudent in also thinking about strategies and also empowered by the technology. Also, we are going to maintain a higher quality growth as our fundamental strategy also the underlying asset quality is still quite robust. So -- which is also higher and better than the industrial average.

And in the future, we are going to continue servicing even better, the consumption demands of our users and also we are going to have a very stringent control policy in place and develop on the prudent fashion. Thank you.

[Operator]

Next question is Qingqing Mao from CICC, please.

[Qingqing Mao, CICC]

Thank you for this opportunity. This is Martin Xing from CICC. So congrats on the wonderful performance. I have two questions, which are related to the new businesses. As ZhongAn is always branding with the surprises in those innovative areas, the first one is about the Health insurance. So with the zero deductible health insurance product is selling very well, I would like to understand that whether it is going to be the major driving force and apart from the RMB1 million medical insurance, any other potentials? And second question is about the innovative business of Digital Lifestyle ecosystem. Can you share with us more about this business? And what types of pet insurance are able to actually develop on a much more potential basis or help to develop ZhongAn business in the future?

[Jiang Xing, General Manager]

Thank you for the questions. First let me answer the first question. For the health insurance that this is actually the most important ecosystem that we are focusing on for a very long time, we had maintained a very stable growth in the first half of the year and also the number of users and premium of capita are increasing.

As I have already introduced the blockbuster product RMB1 million medical insurance represented by Personal Clinic Policy still maintain a very robust momentum. And the growth rate of the RMB 1 million medical insurance product increased by 50% in the first half of the year with which the zero dividend deductible -- zero deductible version had an increased rate of 148%. So that you can see that we have seized protection needs of the users and also using technology to lower down the thresholds.

And apart from this series, we are also focusing on the next blockbuster products. So with a more inclusive pricing and more flexible product matrix, the critical illness insurance product realized the 268% growth rate in the first half of the year. GWP of nearly RMB800 million and also combined with Internet hospitals and healthcare, the outpatient and emergency insurance products experienced the growth rate of 53%. So, we cannot have this particular momentum of new product development without our user insights and also the user service.

In the future, we are going to be optimistic about the overall healthcare industry development in China. And we believe that still there are huge unmet healthcare needs we are able to precautious and also actively explore more opportunities for innovation.

In terms of Digital Lifestyle ecosystem, which is your second question, I believe that the overall growth in the first half of the year was still fast, especially when the economy was recovered and when the dynamic control was over compared with the same period last year. This year we have also seized the opportunity of the dividend growth offshore video platform and livestreaming et cetera.

And also you are going to see that the travel business is still recovering and tourism as well. So innovative businesses are also trying to satisfy more needs of the users. Now we have the insurance for instance, the pet insurance, screening insurance, drone insurance etcetera, and also we activate the other insurance types such as home insurance and corporate interest and also in the smaller areas.

So we want to make more innovations in product design and pricing. So, the crop data of all types of bancassurance is very fast like pet insurance, which has the growth rate of over 100%, over the past two years, and also the UAV insurance and also the home property insurance and beauty and LNG insurance and the ecommerce scenarios and also some of the writing and hiking kind of insurance also maintain a notable growth rates.

Also, we set up the open platform, which is also at innovation an incredible market oriented to actively seek cooperation and more scenarios and also we are actively laying out some of the opportunities and innovations in the area of green economy and sustainability. So overall speaking, in innovative businesses there is still having a very good profitability because of the unique product matrix and product feature, and also the quick iterations and also the risk control strategies in place. This is pretty much my answer. Thank you.

[Operator]

Thank you very much. Next, we are going to have the next question from Michelle from Citi. Please.

[Michelle Ma, Citi]

Thank you for taking my question. I'm from Citi. My name is Michelle. As you have already mentioned some of your innovative businesses, but still, I have another two. First one is about the pet insurance, because we have witnessed the pet insurance developed from scratch and also doubled the business in terms of the premium this year. I'd like to get more information about the pet insurance. How do you think about the development now and how do you expect the three years to five years growth rate of the pet insurance? Also comparing with the major competitor, for example continental, what is actually a major competitive landscape or competitive edge of your pet insurance products? Could you actually share with us more on those questions?

Second question is about the technology export. You shared a lot of colors on the overseas market. And also you mentioned that something about the digital economy of China, which is recovering very well. So I'm curious to know that what kinds of products are you exporting to China market? Or to be more specific, what are the names of the products and what about the customer profile? And also, how do you expect the growth rate for the next three years?

[Jiang Xing, General Manager]

Thank you, Michelle, for the questions. Let me share with you the answers on the pet insurance. As I was already said that in 2023, the GWP of the pet insurance grew by almost 100% and total premium transaction volume reaching almost RMB200 million. So in terms of market scale and market share, we are the leader, no doubtedly. So not only we are covering that pet insurance in the pet industry, but also we are covering the whole ecosystem of the pet industry with multiple iterations we are now covering the accidental health insurance of pets and also the health management of the pets as well.

So, in terms of the scenarios, we're also trying to develop new areas like the pet, travel and food security and food safety. And also, we work with the Royal Payment to actually also develop the account owners management insurance for the prescribed staples. And also in China, we really believe that this is a huge and also a new market and a blue ocean.

According to the Industrial data, by 2026, the total size of the pet industry is going to reach RMB537.6 billion with which to healthcare related to pets is point you have the markets there of RMB135.6 billion and the five-year CAGR between 20.1 and 26, would be 20%, and this is going to be the fastest.

For the last week we had The Asian Pets show and exhibition and ZhongAn was also there, so it was a really popular. So you can see that the overall market of the pet industry is booming. Recently we are going to publish the White Paper for the pet insurance industry together with the [indiscernible] and sharing our insights and analysis towards the pet industry. So, dear investors and analysts, you can actually contact our IR team together further information about this White Paper of pet insurance pet industry

Next question will be answered by Wayne.

[Wayne Xu, President, ZhongAn International]

Thank you, Michelle, for the questions. So this year we have seized the opportunity of the recovery of the software and technology service industry. In the first half of the ZhongAn Technology has achieved the revenue of almost RMB150 million, an increase of 36% on year-on-year basis coming back or exceeding the same period level of 2021. And also last year -- in the first half of last year, the newly signed contract value exceeded RMB200 million and the growth rate exceeded 100%.

So this is going to be really helpful for us to maintain a high and rapid growth momentum. And this year, ZhongAn technology has launched more and more products that are tailor-made for the customers' needs and deeply understanding the users demand, for instance, the new generation P&C insurance core system made has been used by multiple P&C companies in China. And also with the iterations of our products and driven by mix as a core system, we are going to further optimize and also perfect the insurance product matrix. And further, cover both the scenarios and use cases really provide the insure tech products to customers in a more efficient and safer and more intelligent way.

Also in terms of the data infrastructure, we have been working with a lot of different life insurance companies to develop the collaboration on data mid-platform establishment and intelligent governance. So we are providing the capabilities and also the services like data planning, that data governance and data mid-platform establishment. And also based on big data experience, we're also providing AI thesis to health and life insurance companies.

And also, empowering the digital transformation of the Life and P&C insurance companies. And also this year, China started to implement the IFRS-17 with this implementation of new accounting standards. This is bringing changes to the insurance industry, which is related to the contracts and risk assessment and the financial reports.

So ZhongAn Insurance in the past has been focusing on developing on the proprietary platform that is integrating everything that is like a client with the new accounting standard for over 1.5 years. And also for the past years, we have been focusing on the accumulation of massive data and computing and also facilitating ZhongAn in realizing the compliance of requirements and auditing requirements and a higher efficient way. And also we have our proprietary R&D system of I-17 and this has been officially exported and also signed the official contracts with the customers.

So you can see that this is actually a reflection of our achievements. But yes, and also ZhongAn Technology has been gaining the Excellence Awards of the PWC Financial Technology Safety Award. And this is also a very good recognition of our achievements and also efforts. And in the future, we're going to actively explore the technology export of the financial industry and seize the opportunity and also further digitize and upgrade.

[Operator]

Due to the limit of time, we're going to have the very last question. Rick from Morgan Stanley. Rick, please.

[Rick Xu, Morgan Stanley]

Thank you, management. This is Rick from Morgan Stanley. I have two questions, the first one is about the combined ratio. As we can see that the combined ratio 5.8% is so quite good and also compared with the same period you had a grade improvement in Q1. Under this solvency ratio, you had a pressure, but in Q2, pretty good and better. So I would like to understand the kind of overall understanding of your underwriting profit and also the premium growth. And second is about profitability. So I would like to understand that what are that guideline is pretty much confident to be realized and what are the profitability is meeting your expectations? And also, any impact to the ZhongAn International when there is any issuance of the best off.

[Jiang Xing, General Manager]

Thank you. I'd like to actually realize or answer the question about the underwriting profit and also the premium growth. So in 2023, in the first half of the year, we had a lot of uncertainties internally and externally. So against that scenario, however, we have implemented the high-quality growth as a strategy for the premium growth and profit. So that we are meeting our expectations set up and picking up the year.

For the second half of the year, we're going to laser-focused on the high-quality growth further and enhance our intensive management level and capabilities are using artificial intelligence to further reduce the overall cost and maintain the underwriting profitability.

Second question about international, so ZhongAn International including the ZhongAn Bank and also ZA Tech that is focusing on technology export and also the life business of Hong Kong. According to the financial data, our ZA Bank, while increasing the revenue, the net loss of volume and net loss ratio actually continued to be improved. And also while we're talking about this particular announcement of the holding increased by standard link code, this is also showing the long-term view or positive view of the company to ZhongAn International, and also by the accounting standards.

After this transaction, ZhongAn International is not going to be a subsidiary of ZhongAn anymore. And ZhongAn Online accounting standard to the ZhongAn International is going to be changed from the cost-oriented method to equity method. And also on 14th of August, we have already finished the settlement for the first batch, and also for details you are able to contact the IR team for further information.

[Jiang Xing, General Manager]

Due to limit of time, we're going to close this announcement. And on behalf of on ZhongAn Online, I would like to thank all the participants of joining. Thank you very much.

[Operator]

Thank you, everyone. You may disconnect.