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AIFU Inc.

AIFU Inc.AIFU财报

Nasdaq · Financials

What changed in AIFU Inc.'s 20-F — 2022 vs 2023

Top changes in AIFU Inc.'s 2023 20-F

685 paragraphs added · 556 removed · 439 edited across 5 sections

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

174 edited+73 added−23 removed396 unchanged
If our shareholders who are PRC residents, or our PRC employees who are granted or exercise stock options, fail to make any required registrations or filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.
If our shareholders who are PRC residents, or our PRC employees who are granted or exercise stock options, fail to make any required registrations or filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.
Our PRC counsel is of the view that there is a relatively low likelihood that we and the consolidated VIEs will be subject to the cybersecurity review by the CAC for a future offering of our securities to foreign investors, given that: (i) we and the consolidated VIEs have not been recognized as critical information infrastructure operators; (ii) data processed in our and the consolidated VIEs’ business do not have an impact or potential impact on national security; and (iii) the Cybersecurity Review Measures require operators of online platforms that hold personal information of more than one million users to file a cybersecurity review with the Cybersecurity Review Office when they go public abroad.
Our PRC legal counsel is of the view that there is a relatively low likelihood that we and the consolidated VIEs will be subject to the cybersecurity review by the CAC for a future offering of our securities to foreign investors, given that: (i) we and the consolidated VIEs have not been recognized as critical information infrastructure operators; (ii) data processed in our and the consolidated VIEs’ business do not have an impact or potential impact on national security; and (iii) the Cybersecurity Review Measures require operators of online platforms that hold personal information of more than one million users to file a cybersecurity review with the Cybersecurity Review Office when they go public abroad.
Domestic individuals, which include any directors, supervisors, senior managerial personnel or other employees of a domestic company who are PRC citizens (including citizens of Hong Kong, Macau and Taiwan) or foreign individuals who consecutively reside in the territory of PRC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through the domestic companies they serve, collectively entrust a domestic agency to handle issues like foreign exchange registration, account opening, funds transfer and remittance, and entrust an overseas institution to handle issues like an exercise of options, purchasing and sale of related stocks or equity, and funds transfer.
Domestic individuals, which include any directors, supervisors, senior managerial personnel or other employees of a domestic company who are PRC citizens (including citizens of Hong Kong SAR, Macau and Taiwan) or foreign individuals who consecutively reside in the territory of PRC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through the domestic companies they serve, collectively entrust a domestic agency to handle issues like foreign exchange registration, account opening, funds transfer and remittance, and entrust an overseas institution to handle issues like an exercise of options, purchasing and sale of related stocks or equity, and funds transfer.
However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections, which could cause investors and potential investors in the ADSs to lose confidence in the audit procedures and reported financial information and the quality of our financial statements.
However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong SAR, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections, which could cause investors and potential investors in the ADSs to lose confidence in the audit procedures and reported financial information and the quality of our financial statements.
If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong SAR and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong SAR and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year.
Organizational Structure.” In the opinion of the Company’s legal counsel, (i) the ownership structure relating to the consolidated VIEs of the Company is in compliance with PRC laws and regulations; (ii) the contractual arrangements with the consolidated VIEs and the individual shareholders are legal, valid and binding obligation of such party, and enforceable against such party in accordance with their respective terms; and (iii) the execution, delivery and performance of the consolidated VIEs and its shareholders do not result in any violation of the provisions of the articles of association and business licenses of the consolidated VIEs, and any violation of any current PRC laws and regulations.
Organizational Structure.” In the opinion of the Company’s PRC legal counsel, (i) the ownership structure relating to the consolidated VIEs of the Company is in compliance with existing PRC laws and regulations; (ii) the contractual arrangements with the consolidated VIEs and the individual shareholders are legal, valid and binding obligation of such party, and enforceable against such party in accordance with their respective terms; and (iii) the execution, delivery and performance of the consolidated VIEs and its shareholders do not result in any violation of the provisions of the articles of association and business licenses of the consolidated VIEs, and any violation of any current PRC laws and regulations.
In addition, rules and regulations in China can change quickly with little advance notice, therefore, our assertions and beliefs of the risks imposed by the Chinese legal and regulatory system cannot be certain.” We rely on contractual arrangements to conduct a small part of our China operations, which may not be as effective in providing operational control as direct ownership.
In addition, rules and regulations in China can change quickly with little advance notice, therefore, our assertions and beliefs of the risks imposed by the Chinese legal and regulatory system cannot be certain.” - 34 - We rely on contractual arrangements to conduct a small part of our China operations, which may not be as effective in providing operational control as direct ownership.
Moreover, the filing of such a legal action may discourage potential entrepreneurial agents from leaving their employers or principals, thus reducing the number of entrepreneurial agents we can recruit and potentially harming our growth prospects. - 20 - If we are required to write down goodwill and investment in affiliates, our financial condition and results may be materially and adversely affected.
Moreover, the filing of such a legal action may discourage potential entrepreneurial agents from leaving their employers or principals, thus reducing the number of entrepreneurial agents we can recruit and potentially harming our growth prospects. If we are required to write down goodwill and investment in affiliates, our financial condition and results may be materially and adversely affected.
Significant accounting estimates reflected in our consolidated financial statements included estimates of allowance for doubtful receivables and estimates associated with equity-method investment impairment assessments. Actual results could differ from those estimates, which could negatively affect our stock price. Any significant failure in our information technology systems could have a material adverse effect on our business and profitability.
Significant accounting estimates reflected in our consolidated financial statements included estimates of allowance for doubtful receivables and estimates associated with equity-method investment impairment assessments. Actual results could differ from those estimates, which could negatively affect our stock price. - 25 - Any significant failure in our information technology systems could have a material adverse effect on our business and profitability.
For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the global financial markets have experienced significant disruptions between 2008 and 2009, and the United States, Europe and other economies have experienced periods of recessions.
For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. - 39 - In addition, the global financial markets have experienced significant disruptions between 2008 and 2009, and the United States, Europe and other economies have experienced periods of recessions.
On December 15, 2022, the PCAOB announced that it has secured complete access to inspect and investigate completely PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong. The PCAOB also vacated its previous determinations issued in December 2021. Therefore, our auditor is currently able to be fully inspected and investigated by the PCAOB.
On December 15, 2022, the PCAOB announced that it has secured complete access to inspect and investigate completely PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong SAR. The PCAOB also vacated its previous determinations issued in December 2021. Therefore, our auditor is currently able to be fully inspected and investigated by the PCAOB.
Additionally, on December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law, which, among others, amended the HFCA Act to reduce the number of consecutive years an issuer can be identified as a Commission-Identified Issuer before the SEC must impose an initial trading prohibition on the issuer’s securities from three years to two.
On December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law, which, among others, amended the HFCA Act to reduce the number of consecutive years an issuer can be identified as a Commission-Identified Issuer before the SEC must impose an initial trading prohibition on the issuer’s securities from three years to two.
If any disputes arise between any of our senior executives or key personnel and us, we cannot assure you of the extent to which any of these agreements may be enforced. Salesperson and employee misconduct is difficult to detect and deter and could harm our reputation or lead to regulatory sanctions or litigation costs.
If any disputes arise between any of our senior executives or key personnel and us, we cannot assure you of the extent to which any of these agreements may be enforced. - 23 - Salesperson and employee misconduct is difficult to detect and deter and could harm our reputation or lead to regulatory sanctions or litigation costs.
Business Overview—Regulation—Regulations on Foreign Exchange—Foreign Exchange Registration of Offshore Investment by PRC Residents.” We have requested our beneficial owners who to our knowledge are PRC residents to make the necessary applications, filings and amendments as required under SAFE Circular 37 and other related rules.
Business Overview—Regulation—Regulations on Foreign Exchange—Foreign Exchange Registration of Offshore Investment by PRC Residents.” - 41 - We have requested our beneficial owners who to our knowledge are PRC residents to make the necessary applications, filings and amendments as required under SAFE Circular 37 and other related rules.
On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and Ministry of Finance, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely, consistent with U.S. law.
On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and Ministry of Finance, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong SAR completely, consistent with U.S. law.
GAAP. If we are unable to claim our right to control the assets of the consolidated VIEs, the ADSs may decline in value or become worthless. - 25 - The PRC government has significant authority to exert influence on the China operations of an offshore holding company, such as us.
GAAP. If we are unable to claim our right to control the assets of the consolidated VIEs, the ADSs may decline in value or become worthless. The PRC government has significant authority to exert influence on the China operations of an offshore holding company, such as us.
The share repurchase plans could increase the volatility of the trading price of the ADSs and may be suspended or terminated at any time. Furthermore, share repurchases could diminish our cash reserves. - 41 - Holders of our ADSs may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.
The share repurchase plans could increase the volatility of the trading price of the ADSs and may be suspended or terminated at any time. Furthermore, share repurchases could diminish our cash reserves. Holders of our ADSs may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.
Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our reported earnings, and may adversely affect the price of our ADSs. Certain PRC regulations could also make it more difficult for us to pursue growth through acquisitions.
Conversely, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our reported earnings, and may adversely affect the price of our ADSs. - 42 - Certain PRC regulations could also make it more difficult for us to pursue growth through acquisitions.
In addition, the general increase in misconduct in the industry could potentially harm the reputation of the industry and have an adverse impact on our business. - 19 - Our investments in certain financial products may not yield the benefits we anticipate or incur financial loss, which could adversely affect our cash position.
In addition, the general increase in misconduct in the industry could potentially harm the reputation of the industry and have an adverse impact on our business. Our investments in certain financial products may not yield the benefits we anticipate or incur financial loss, which could adversely affect our cash position.
On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms.
On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong SAR from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms.
Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with our consolidated VIEs, Xinbao Investment and Fanhua RONS Technologies, and their shareholders to conduct a small part of our China operations, which may not be as effective in providing operational control as direct ownership, and these contractual arrangements have not been tested in a court of law.” - 1 - The following diagram illustrates the corporate structure of us and the consolidated VIEs, including the names, places of incorporation and the proportion of ownership interests in our and the consolidated VIEs’ significant subsidiaries and their respective subsidiaries as of March 31, 2023: The diagram above omits the names of subsidiaries that are immaterial individually and in the aggregate.
Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with our consolidated VIEs, Xinbao Investment and Fanhua RONS Technologies, and their shareholders to conduct a small part of our China operations, which may not be as effective in providing operational control as direct ownership, and these contractual arrangements have not been tested in a court of law.” - 1 - The following diagram illustrates the corporate structure of us and the consolidated VIEs, including the names, places of incorporation and the proportion of ownership interests in our and the consolidated VIEs’ significant subsidiaries and their respective subsidiaries as of March 31, 2024: The diagram above omits the names of subsidiaries that are immaterial individually and in the aggregate.
Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects. - 39 - The trading price of our ADSs may be volatile.
Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects. The trading price of our ADSs may be volatile.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong SAR, including our auditor.
If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected. - 43 - You may have to rely primarily on price appreciation of our ADSs for any return on your investment.
If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected. You may have to rely primarily on price appreciation of our ADSs for any return on your investment.
Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval is obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in mainland China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations. - 32 - The new rules for the filing-based administration of overseas securities offerings and listings by Chinese domestic companies released on February 17, 2023, or New Filing Rules, establish a new filing-based regime to regulate overseas offerings and listings by domestic companies.
Any failure to obtain or delay in obtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval is obtained by us, would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in mainland China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations. - 37 - The new rules for the filing-based administration of overseas securities offerings and listings by Chinese domestic companies released on February 17, 2023, or New Filing Rules, establish a new filing-based regime to regulate overseas offerings and listings by domestic companies.
Such volatility in our share price could subject us to increased risk of securities class action lawsuits or derivative actions. - 23 - Any future class action lawsuit against us, whether or not successful, could harm our reputation and restrict our ability to raise capital.
Such volatility in our share price could subject us to increased risk of securities class action lawsuits or derivative actions. Any future class action lawsuit against us, whether or not successful, could harm our reputation and restrict our ability to raise capital.
Risks Related to Doing Business in China The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future offshore offerings, capital raising activities and aquisitions or other trading arrangements of domestic enterprises conducted by China-based issuers, and also may be required to go through cybersecurity review under the new laws and the draft laws and regulations of mainland China, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing or other regulatory procedures.
Risks Related to Doing Business in China The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future offshore offerings, capital raising activities and acquisitions or other trading arrangements of domestic enterprises conducted by China-based issuers, and also may be required to go through cybersecurity review under the new laws and the draft laws and regulations of mainland China, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing or other regulatory procedures.
On December 2, 2021, the SEC finalized rules implementing the submission and disclosure requirements in the HFCA Act which would go into effect 30 days after publication in the Federal Registrar. In addition, on June 22, 2021, the U.S.
On December 2, 2021, the SEC finalized rules implementing the submission and disclosure requirements in the HFCA Act which would go into effect 30 days after publication in the Federal Registrar. - 43 - In addition, on June 22, 2021, the U.S.
The report sets forth lists identifying the registered public accounting firms headquartered in mainland China and Hong Kong, respectively, that the PCAOB was unable to inspect or investigate completely, and our auditor, Deloitte, was on such lists.
The report sets forth lists identifying the registered public accounting firms headquartered in mainland China and Hong Kong SAR, respectively, that the PCAOB was unable to inspect or investigate completely, and our auditor, Deloitte, was on such lists.
Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our listed securities. - 33 - Uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us, significantly limit or completely hinder our ability to offer or continue to offer our ADSs, cause significant disruption to our and the consolidated VIE’s business operations, and severely damage our and the consolidated VIEs’ reputation, which would materially and adversely affect our and the consolidated VIEs’ financial condition and results of operations and cause our ADSs to significantly decline in value or become worthless.
Any uncertainties or negative publicity regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our listed securities. - 38 - Uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us, significantly limit or completely hinder our ability to offer or continue to offer our ADSs, cause significant disruption to our and the consolidated VIE’s business operations, and severely damage our and the consolidated VIEs’ reputation, which would materially and adversely affect our and the consolidated VIEs’ financial condition and results of operations and cause our ADSs to significantly decline in value or become worthless.
On October 12, 2021, the CBIRC promulgated the Notice on Further Regulation of Matters Relating to the Internet Life Insurance Business of Insurance Institutions, which, among others, raised the qualification requirements for insurance companies and insurance intermediaries to engage in Internet life insurance business nationwide, limited products that could be sold on the Internet nationwide to accident, health, term life, 10-year (or longer) traditional life, and 10-year (or longer) annuities and capped the preset expense ratio to be no higher than 35% for one-year life insurance and first year preset expense ratio no higher than 60% with average expense ratio no higher than 25% for over-one-year life insurance.
On October 12, 2021, the CBIRC, the predecessor of the NFRA, promulgated the Notice on Further Regulation of Matters Relating to the Internet Life Insurance Business of Insurance Institutions, which, among others, raised the qualification requirements for insurance companies and insurance intermediaries to engage in Internet life insurance business nationwide, limited products that could be sold on the Internet nationwide to accident, health, term life, 10-year (or longer) traditional life, and 10-year (or longer) annuities and capped the preset expense ratio to be no higher than 35% for one-year life insurance and first year preset expense ratio no higher than 60% with average expense ratio no higher than 25% for over-one-year life insurance.
As our online insurance business operated through Baowang is subject to this regulation, the disruption in internet life insurance product supply and the cap on expense ratio have adversely impacted and may continue to impact Baowang which contributed to 5.0% of our total net revenues in 2022. - 15 - Any future change in regulatory requirements may make our products less attractive to consumers or disrupt product supply, and our business results of operations could fluctuate significantly and be adversely affected.
As our online insurance business operated through Baowang is subject to this regulation, the disruption in internet life insurance product supply and the cap on expense ratio have adversely impacted and may continue to impact Baowang which contributed to 5.0% of our total net revenues in 2022. - 19 - Any future change in regulatory requirements may make our products less attractive to consumers or disrupt product supply, and our business results of operations could fluctuate significantly and be adversely affected.
Because we believe we were a PFIC for the taxable year ended December 31, 2022 (and 2017 and prior years), United States Holders (as defined in “Item 10. Additional Information — E.
Because we believe we were a PFIC for the taxable year ended December 31, 2023 (and December 31, 2022, December 31, 2017 and prior years), United States Holders (as defined in “Item 10. Additional Information — E.
On July 10, 2017, the CIRC, the predecessor of CBIRC, promulgated the Interim Measures on Retrospective Management of Insurance Sales Behaviors, effective November 1, 2017 which required (1) ancillary insurance agencies to take video and audio-recording, or double-recording for the sales of all insurance products that they facilitate and (2) other insurance distribution channels to take double-recording for the sales of investment-linked insurance products and for the sale of life insurance products with a payment period of more than one year to the elderly of over 60 years old.
On July 10, 2017, the CIRC promulgated the Interim Measures on Retrospective Management of Insurance Sales Behaviors, effective November 1, 2017 which required (1) ancillary insurance agencies to take video and audio-recording, or double-recording for the sales of all insurance products that they facilitate and (2) other insurance distribution channels to take double-recording for the sales of investment-linked insurance products and for the sale of life insurance products with a payment period of more than one year to the elderly of over 60 years old.
Even though we currently do not require any such dividends, loans or advances from our PRC subsidiaries and the consolidated VIEs for working capital and other funding purposes, we may in the future require additional cash resources from our PRC subsidiaries and the consolidated VIEs due to changes in business conditions, to fund future acquisitions and developments, or merely pay dividends to or distributions to our shareholders. - 3 - Financial Information Related to the VIEs The following tables set forth the summary consolidated balance sheets data as of December 31, 2022 of the Parent, our wholly-owned foreign subsidiary (“WOFEs”), or Fanhua Group Company and Fanlian Investment, that are the primary beneficiaries of the VIEs under accounting principles generally accepted in the United States, or U.S.
Even though we currently do not require any such dividends, loans or advances from our PRC subsidiaries and the consolidated VIEs for working capital and other funding purposes, we may in the future require additional cash resources from our PRC subsidiaries and the consolidated VIEs due to changes in business conditions, to fund future acquisitions and developments, or merely pay dividends to or distributions to our shareholders. - 6 - Financial Information Related to the VIEs The following tables set forth the summary consolidated balance sheets data as of December 31, 2022 and 2023 of the Parent, our wholly-owned foreign subsidiary (“WOFEs”), or Fanhua Group Company and Fanlian Investment, that are the primary beneficiaries of the VIEs under accounting principles generally accepted in the United States, or U.S.
Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings. - 42 - Holders of our restricted ADSs may be subject to limitations on transfer of their ADSs. Restricted ADSs are transferable on the books of the depositary.
Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings. Holders of our restricted ADSs may be subject to limitations on transfer of their ADSs. Restricted ADSs are transferable on the books of the depositary.
If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. - 31 - On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of its capital contribution in foreign currency into RMB.
If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business. - 36 - On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of its capital contribution in foreign currency into RMB.
If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we and the consolidated VIE will take all reasonable measures and actions to comply and minimize the adverse effect of such laws on us. - 27 - We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we and the consolidated VIEs can fully or timely comply with such laws.
If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we and the consolidated VIE will take all reasonable measures and actions to comply and minimize the adverse effect of such laws on us. - 32 - We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that we and the consolidated VIEs can fully or timely comply with such laws.
The failure to comply with these laws and regulations may delay, or possibly prevent, us to conduct business, accept foreign investments, or listing overseas. - 26 - The occurrence of any of these events may materially and adversely affect our and the consolidated VIEs’ business and prospects and may result in a material change in our and the consolidated VIEs’ operations and/or the value of our ADSs or could significantly limit or completely hinder our and the consolidated VIEs’ ability to offer or continue to offer securities to investors.
The failure to comply with these laws and regulations may delay, or possibly prevent, us to conduct business, accept foreign investments, or listing overseas. - 31 - The occurrence of any of these events may materially and adversely affect our and the consolidated VIEs’ business and prospects and may result in a material change in our and the consolidated VIEs’ operations and/or the value of our ADSs or could significantly limit or completely hinder our and the consolidated VIEs’ ability to offer or continue to offer securities to investors.
On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. Therefore, our auditor is currently able to be fully inspected and investigated by the PCAOB.
On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong SAR from the list of jurisdictions where it was unable to inspect or investigate completely registered public accounting firms. Therefore, our auditor is currently able to be fully inspected and investigated by the PCAOB.
Our consolidated net income may be materially and adversely affected by the occurrence of any of the foregoing. - 30 - PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans to our PRC subsidiaries or making additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Our consolidated net income may be materially and adversely affected by the occurrence of any of the foregoing. - 35 - PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans to our PRC subsidiaries or making additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Based on the market price of our ADSs, the value of our assets, and the composition of our income and assets, we believe that we were a passive foreign investment company, or PFIC, for United States federal income tax purposes for our taxable year ended December 31, 2022, however there can be no assurance to this regard..
Based on the market price of our ADSs, the value of our assets, and the composition of our income and assets, we believe that we were a passive foreign investment company, or PFIC, for United States federal income tax purposes for our taxable year ended December 31, 2023, however there can be no assurance to this regard.
Business Overview—Regulation.” In addition, under the relevant PRC regulations, such as the Provisions on the Supervision and Administration of Insurance Agents issued on November 12, 2020 and Provisions on the Supervision of Insurance Claims Adjusting Firms issued by the CBIRC in February 2018, an insurance agency or claims adjusting firm that retains a personnel who has not been registered with the IIRIS through the insurance agency or claims adjusting firm to engage in insurance intermediary activities may be subject to rectification request, warning and fines up to RMB10,000 per intermediary by the CBIRC.
Business Overview—Regulation.” In addition, under the relevant PRC regulations, such as the Provisions on the Supervision and Administration of Insurance Agents issued on November 12, 2020 and Provisions on the Supervision of Insurance Claims Adjusting Firms issued by the CBIRC in February 2018, an insurance agency or claims adjusting firm that retains a personnel who has not been registered with the IIRIS through the insurance agency or claims adjusting firm to engage in insurance intermediary activities may be subject to rectification request, warning and fines up to RMB30,000 per intermediary by the NFRA.
All of our personnel who engage in insurance agency and claims adjusting activities are required under relevant PRC regulations to be registered with the CBIRC’s Insurance Intermediary Regulatory Information System, or the IIRIS, through the insurance company or insurance intermediary company to which he or she belongs. See “Item 4. Information on the Company—B.
All of our personnel who engage in insurance agency and claims adjusting activities are required under relevant PRC regulations to be registered with the NFRA’s Insurance Intermediary Regulatory Information System, or the IIRIS, through the insurance company or insurance intermediary company to which he or she belongs. See “Item 4. Information on the Company—B.
All of our personnel engaging in insurance agency, or claims adjusting activities are required under relevant PRC regulations to register with the CBIRC’s Insurance Intermediaries Regulatory Information System. If our sales personnel fail to finish practice registration, our business may be materially and adversely affected.
All of our personnel engaging in insurance agency, or claims adjusting activities are required under relevant PRC regulations to register with the NFRA’s Insurance Intermediaries Regulatory Information System. If our sales personnel fail to finish practice registration, our business may be materially and adversely affected.
If a substantial portion of our sales force were found to have not been properly registered with the IIRIS, our business may be adversely affected. Moreover, we may be subject to fines and other administrative proceedings for the failure by our sales agents or sales representatives to register with the CBIRC.
If a substantial portion of our sales force were found to have not been properly registered with the IIRIS, our business may be adversely affected. Moreover, we may be subject to fines and other administrative proceedings for the failure by our sales agents or sales representatives to register with the NFRA.
In addition, after a domestic company has offered and listed securities in an overseas markets, it is required to file a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary or mandatory delisting.
In addition, after a domestic company has offered and listed securities in an overseas market, it is required to file a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary or mandatory delisting.
The success of our strategies may depend on a number of factors, many of which are beyond our control, including but not limited to: ● the effectiveness of our marketing campaigns to build brand recognition among consumers and our ability to attract and retain customers; ● the acceptance of third-party e-commerce platforms as an effective channel for underwriters to distribute their insurance products; ● the acceptance of Lan Zhanggui, RONS DOP, Fanhua RONS Guanjia as effective tools by sales agents; ● public concerns over security of e-commerce transactions, privacy and confidentiality of information; - 12 - ● increased competition from insurance companies which directly sell insurance products through their own websites, call centers, portal websites which provide insurance product information and links to insurance companies’ websites, and other professional insurance intermediary companies which may launch independent websites in the future; ● increased competition from third-party insurance technology companies; ● further improvement in our information technology system designed to facilitate smoother online transactions; and ● further development and changes in applicable rules and regulations which may increase our operating costs and expenses, impede the execution of our business plan or change the competitive landscape.
The success of our strategies may depend on a number of factors, many of which are beyond our control, including but not limited to: ● the effectiveness of our marketing campaigns to build brand recognition among consumers and our ability to attract and retain customers; - 16 - ● the acceptance of third-party e-commerce platforms as an effective channel for underwriters to distribute their insurance products; ● the acceptance of FA App, RONS DOP, Fanhua RONS Guanjia as effective tools by sales agents; ● public concerns over security of e-commerce transactions, privacy and confidentiality of information; ● increased competition from insurance companies which directly sell insurance products through their own websites, call centers, portal websites which provide insurance product information and links to insurance companies’ websites, and other professional insurance intermediary companies which may launch independent websites in the future; ● increased competition from third-party insurance technology companies; ● further improvement in our information technology system designed to facilitate smoother online transactions; and ● further development and changes in applicable rules and regulations which may increase our operating costs and expenses, impede the execution of our business plan or change the competitive landscape.
The laws and regulations applicable to us are evolving and may change rapidly, which could change the competitive environment of our industry significantly and cause us to lose some or all of our competitive advantages. In recent years, the CBIRC and its predecessor have increasingly tightened regulations and supervision of the Chinese insurance market.
The laws and regulations applicable to us are evolving and may change rapidly, which could change the competitive environment of our industry significantly and cause us to lose some or all of our competitive advantages. In recent years, the NFRA and its predecessor have increasingly tightened regulations and supervision of the Chinese insurance market.
Our management performs impairment assessments annually and we did not recognize any impairment loss between 2016 and 2022. Under current accounting standards, if we determine that goodwill is impaired, we will be required to write down the value of such assets and recognize corresponding impairment charges.
Our management performs impairment assessments annually and we did not recognize any impairment loss between 2016 and 2023. Under current accounting standards, if we determine that goodwill is impaired, we will be required to write down the value of such assets and recognize corresponding impairment charges.
The individual shareholders of Xinbao Investment and Fanhua RONS Technologies, our consolidated VIEs, may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition. As of March 31, 2023, Mr. Peng Ge, held 100% of the equity interests in Fanhua RONS Technologies and Mr.
The individual shareholders of Xinbao Investment and Fanhua RONS Technologies, our consolidated VIEs, may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition. As of March 31, 2024, Mr. Peng Ge, held 100% of the equity interests in Fanhua RONS Technologies and Mr.
In addition, the CBIRC may from time to time make inquiries and conduct examinations concerning our compliance with PRC laws and regulations. These administrative proceedings have in the past resulted in administrative sanctions, including fines, which have not been material to us.
In addition, the NFRA may from time to time make inquiries and conduct examinations concerning our compliance with PRC laws and regulations. These administrative proceedings have in the past resulted in administrative sanctions, including fines, which have not been material to us.
In March 2023, the CBIRC issued a Notice to Self-check and Rectify Irregularities in Internet-based Marketing and Publicity by Insurance Institutions and Insurance Sales Personnel, requiring all insurance institutions and sales personnel to self-check and rectify irregular marketing activities on the internet starting from April 3, 2023.
For example, in March 2023, the CBIRC issued a Notice to Self-check and Rectify Irregularities in Internet-based Marketing and Publicity by Insurance Institutions and Insurance Sales Personnel, requiring all insurance institutions and sales personnel to self-check and rectify irregular marketing activities on the internet starting from April 3, 2023.
Incumbent companies have until the end of 2021 to comply with the new regulations. Subsequently, many insurance companies which could not meet the qualification requirements have stopped selling life insurance products online before Jan 1, 2022.
Incumbent companies have until the end of 2021 to comply with the new regulations. Subsequently, many insurance companies which could not meet the qualification requirements have stopped selling life insurance products online before January 1, 2022.
If an acquired company can not be operated at the same profitability level as our existing operations, the acquisition would have a negative impact on our operating margin. Our inability to successfully integrate an acquired entity or its failure to perform to our expectations may materially and adversely affect our business, prospects, results of operations and financial condition.
If an acquired company cannot be operated at the same profitability level as our existing operations, the acquisition would have a negative impact on our operating margin. Our inability to successfully integrate an acquired entity or its failure to perform to our expectations may materially and adversely affect our business, prospects, results of operations and financial condition.
Although we have not had any material violations to date, we cannot assure you that our operations will always comply with the interpretation and enforcement of the laws and regulations implemented by the CBIRC.
Although we have not had any material violations to date, we cannot assure you that our operations will always comply with the interpretation and enforcement of the laws and regulations implemented by the NFRA.
On December 7, 2020, the CBIRC promulgated the Measures for the Supervision of the Internet Insurance Business, or the Measures, which became effective on February 1, 2021 and replaces the Interim Measures for the Regulation of Internet Insurance Business.
On December 7, 2020, the NFRA’s predecessor, the CBIRC promulgated the Measures for the Supervision of the Internet Insurance Business, or the Measures, which became effective on February 1, 2021 and replaces the Interim Measures for the Regulation of Internet Insurance Business.
The notice requires that the capital of a foreign-invested company settled in RMB converted from foreign currencies shall be used only for purposes within the business scope as approved by the authorities in charge of foreign investment or by other government authorities and as registered with the State Administration for Industry and Commerce and, unless set forth in the business scope or in other regulations, may not be used for equity investments within the PRC.
The notice requires that the capital of a foreign-invested company settled in RMB converted from foreign currencies shall be used only for purposes within the business scope as approved by the authorities in charge of foreign investment or by other government authorities and as registered with the State Administration for Market Regulation or its predecessor the State Administration for Industry and Commerce and, unless set forth in the business scope or in other regulations, may not be used for equity investments within the PRC.
C. Reasons for the Offer and Use of Proceeds Not Applicable. - 10 - D. Risk Factors Risks Related to Our Business and Industry We may not be successful in implementing our new strategic initiatives, which may have an adverse impact on our business and financial results.
Capitalization and Indebtedness Not Applicable. C. Reasons for the Offer and Use of Proceeds Not Applicable. D. Risk Factors Risks Related to Our Business and Industry We may not be successful in implementing our new strategic initiatives, which may have an adverse impact on our business and financial results.
GAAP (the “Primary Beneficiaries of VIEs”), our other subsidiaries and the consolidated VIEs and their subsidiaries, and the summary of the consolidated statement of income and cash flows for the year ended December 31, 2022. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
GAAP (the “Primary Beneficiaries of VIEs”), our other subsidiaries and the consolidated VIEs and their subsidiaries, and the summary of the consolidated statement of income and cash flows for the years ended December 31, 2022 and 2023. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
Even if the direct impact of COVID-19 gradually recedes, the pandemic will have a lingering, long-term effect on business activities and consumption behavior. There is no assurance that we will be able to adjust our business operations to adapt to these changes and the increasingly complex environment in which we operate.
Although the direct impact of COVID-19 gradually recedes, the pandemic may have a lingering, long-term effect on business activities and consumption behavior. There is no assurance that we will be able to adjust our business operations to adapt to these changes and the increasingly complex environment in which we operate.
Our directly-held PRC subsidiaries were allowed to incur a total of HK300 million (US$38.2 million) in foreign debts as of March 31, 2023. If we were to provide loans to our directly-held PRC subsidiaries in excess of the above amount, we would have to apply to the relevant government authorities for an increase in their permitted total investment amounts.
Our directly-held PRC subsidiaries were allowed to incur a total of HK300 million (US$38.3 million) in foreign debts as of March 31, 2024. If we were to provide loans to our directly-held PRC subsidiaries in excess of the above amount, we would have to apply to the relevant government authorities for an increase in their permitted total investment amounts.
We operate our online insurance distribution business through Baowang (www.baoxian.com), which accounted for 5.0% of our total net revenues in 2022. Shenzhen Baowang previously owned the domain name of Baowang and held a Value-added Telecommunication Business Operation Permit for ICP services, or ICP license.
We operate our online insurance distribution business through Baowang (www.baoxian.com), which accounted for 4.0% of our total net revenues in 2023. Shenzhen Baowang previously owned the domain name of Baowang and held a Value-added Telecommunication Business Operation Permit for ICP services, or ICP license.
In July 2015, ten government agencies including the People’s Bank of China, the Ministry of Finance and CIRC promulgated a guidance letter on how to promote the healthy growth of internet financial services, which set forth the principles of supervision based on the rule of law, the appropriate level of regulation, proper categorization, cooperation among different government agencies and promoting innovation.
In July 2015, ten government agencies including the People’s Bank of China, the Ministry of Finance and the China Insurance Regulatory Commission or the CIRC, the predecessor of the NFRA, promulgated a guidance letter on how to promote the healthy growth of internet financial services, which set forth the principles of supervision based on the rule of law, the appropriate level of regulation, proper categorization, cooperation among different government agencies and promoting innovation.
There are also legal or other obstacles to seeking access to funds in a foreign country. - 44 - There is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, although a judgment obtained in the federal or state courts of the United States courts will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment: (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine, or a penalty, and (d) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.
There is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, although a judgment obtained in the federal or state courts of the United States courts will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment: (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine, or a penalty, and (d) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.
If the Contractual Arrangements that establish the structure for operating our and the consolidated VIEs’ business in the PRC are found to be in violation of any existing or any PRC laws or regulations in the future, or the PRC government finds that we, or the consolidated VIEs fails to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the MIIT, MOFCOM and STA, would have broad discretion in dealing with such violations, including: ● revoking the business and operating licenses; ● discontinuing or restricting the operations; ● imposing fines or confiscating any of the income from us and the consolidated VIEs that they deem to have been obtained through illegal operations; ● requiring us to restructure our and the consolidated VIEs’ operations in such a way as to compel us to establish new entities, re-apply for the necessary licenses or relocate our and the consolidated VIEs’ business, staff and assets; ● imposing additional conditions or requirements with which we and the consolidated VIEs may not be able to comply; ● restricting or prohibiting the use of proceeds from the initial public offering or other financing activities to finance our and the consolidated VIEs’ business and operations in the PRC; or ● taking other regulatory or enforcement actions that could be harmful to our and the consolidated VIEs’ business.
If the Contractual Arrangements that establish the structure for operating our and the consolidated VIEs’ business in the PRC are found to be in violation of any existing or any PRC laws or regulations in the future, or the PRC government finds that we, or the consolidated VIEs fails to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the MIIT, MOFCOM and STA, would have broad discretion in dealing with such violations, including: ● revoking the business and operating licenses; ● discontinuing or restricting the operations; ● imposing fines or confiscating any of the income from us and the consolidated VIEs that they deem to have been obtained through illegal operations; ● requiring us to restructure our and the consolidated VIEs’ operations in such a way as to compel us to establish new entities, re-apply for the necessary licenses or relocate our and the consolidated VIEs’ business, staff and assets; ● imposing additional conditions or requirements with which we and the consolidated VIEs may not be able to comply; ● restricting or prohibiting the use of proceeds from the initial public offering or other financing activities to finance our and the consolidated VIEs’ business and operations in the PRC; or ● taking other regulatory or enforcement actions that could be harmful to our and the consolidated VIEs’ business. - 30 - Any of these actions could cause significant disruption or result in a material change to our and the consolidated VIEs’ business operations, and may materially and adversely affect our and the consolidated VIEs’ business, financial condition and results of operations.
In addition, rules and regulations in China can change quickly with little advance notice, therefore, our assertions and beliefs of the risks imposed by the Chinese legal and regulatory system cannot be certain. ● Our global income or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse effect on our results of operations. ● We rely principally on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business. ● PRC regulations relating to the establishment of offshore special purpose companies by PRC residents and employee stock options granted by overseas-listed companies may increase our administrative burden, restrict our overseas and cross-border investment activity, or otherwise adversely affect us.
In addition, rules and regulations in China can change quickly with little advance notice, therefore, our assertions and beliefs of the risks imposed by the Chinese legal and regulatory system cannot be certain; ● A downturn in the Chinese or global economy could have a material adverse effect on our business; ● Governmental control of currency conversion may affect the value of your investment; ● The PRC Enterprise Income Tax Law may increase the enterprise income tax rate applicable to some of our PRC subsidiaries, which could have a material adverse effect on our result of operations; ● Our global income or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse effect on our results of operations; ● We rely principally on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business; and ● PRC regulations relating to the establishment of offshore special purpose companies by PRC residents and employee stock options granted by overseas-listed companies may increase our administrative burden, restrict our overseas and cross-border investment activity, or otherwise adversely affect us.
On May 26, 2022, we have been conclusively identified by the Commission as a Commission-Identified Issuer under the Holding Foreign Company Accountable Act, or the HFCA Act.
On May 26, 2022, we were conclusively identified by the Commission as a Commission-Identified Issuer under the Holding Foreign Company Accountable Act, or the HFCA Act.
The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
If we fail to meet the new listing standards specified in the HFCA Act, we could face possible delisting from the Nasdaq, cessation of trading in the “over-the-counter” market, deregistration from the Commission and/or other risks, which may materially and adversely affect, or effectively terminate, our ADSs trading in the United States. A. [Reserved] B. Capitalization and Indebtedness Not Applicable.
If we fail to meet the new listing standards specified in the HFCA Act, we could face possible delisting from the Nasdaq, cessation of trading in the “over-the-counter” market, deregistration from the Commission and/or other risks, which may materially and adversely affect, or effectively terminate, our ADSs trading in the United States.
PR Rules, if we are regarded as a resident enterprise, the dividends we receive from our PRC subsidiaries will be exempt from the EIT. If, however, we are not regarded as a resident enterprise, our PRC subsidiaries will be required to pay a 5% or 10% withholding tax, as the case may be, for any dividends they pay to us.
If, however, we are not regarded as a resident enterprise, our PRC subsidiaries will be required to pay a 5% or 10% withholding tax, as the case may be, for any dividends they pay to us.
These reserves are not distributable as cash dividends. As of December 31, 2022, the aggregate undistributed earnings of the Group’s subsidiaries and VIEs in the PRC that are available for distribution were RMB1.4 billion (US$202.9 million).
These reserves are not distributable as cash dividends. As of December 31, 2023, the aggregate undistributed earnings of the Group’s subsidiaries and VIEs in the PRC that are available for distribution were RMB1.7 billion (US$234.4 million).
We believe we were also a PFIC for 2017 and prior years. In addition, we believe that it is likely that one or more of our subsidiaries were also PFICs for such years.
We believe we were also a PFIC for our taxable years ended December 31, 2022, December 31, 2017 and prior years. In addition, we believe that it is likely that one or more of our subsidiaries were also PFICs for such years.
Our financial statements contained in this annual report on Form 20-F for the fiscal year ended December 31, 2022 have been audited by Deloitte, an independent registered public accounting firm that is headquartered in Mainland China and is on such lists.
Our financial statements contained in this annual report on Form 20-F for the fiscal year ended December 31, 2023 have been audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, or Deloitte, an independent registered public accounting firm that is headquartered in Mainland China and is on such lists.
We may be unsuccessful in identifying suitable acquisition candidates, completing acquisitions, integrating acquired companies or the acquired companies may not perform to our expectations,, which could adversely affect our growth. Our growth strategy partially includes the acquisition of other insurance intermediaries.
We may be unsuccessful in identifying suitable acquisition candidates, completing acquisitions, integrating acquired companies or the acquired companies may not perform to our expectations, which could adversely affect our growth. Our growth strategy includes selective acquisition.
For the year ended December 31, 2022 Parent Consolidated VIEs and their subsidiaries WOFEs Other subsidiaries Eliminating adjustments Consolidated total (RMB in thousands) Cash flows from operating activities: 7,339 3,822 (12,794 ) 139,385 — 137,752 Net cash (used in) provided by transactions with external parties 7,339 98,715 (12,794 ) 44,492 — 137,752 Net cash (used in) provided by transactions with internal companies — (94,893 ) — 94,893 — — Cash flows from investing activities: 227,321 (16,214 ) (34,333 ) (1,006,158 ) 701,822 (127,562 ) Net cash provided by (used in) transactions with external parties 917,101 (16,214 ) (34,333 ) (994,116 ) — (127,562 ) Net cash provided by (used in) transactions with internal companies (689,780 ) — — (12,042 ) 701,822 — Cash flows from financing activities: (321,712 ) 43,032 (52,476 ) 1,012,607 (701,822 ) (20,371 ) Net cash used in transactions with external parties (321,712 ) — — 301,341 — (20,371 ) Net cash provided by (used in) transactions with internal companies — 43,032 (52,476 ) 711,266 (701,822 ) — - 6 - For the year ended December 31, 2021 Parent Consolidated VIE and its subsidiaries WOFEs Other subsidiaries Eliminating adjustments Consolidated total (RMB in thousands) Cash flows from operating activities: (784 ) 32,674 (7,013 ) 101,321 — 126,198 Net cash (used in) provided by transactions with external parties (784 ) 48,923 (7,013 ) 85,072 — 126,198 Net cash (used in) provided by transactions with internal companies — (16,249 ) — 16,249 — — Cash flows from investing activities: 201,339 (73,430 ) (283,323 ) 261,650 344,163 450,399 Net cash provided by (used in) transactions with external parties 43,757 — (283,323 ) 689,965 — 450,399 Net cash provided by (used in) transactions with internal companies 157,582 (73,430 ) — (428,315 ) 344,163 — Cash flows from financing activities: (242,518 ) — 501,745 (175,362 ) (344,163 ) (260,298 ) Net cash used in transactions with external parties (242,518 ) — — (17,780 ) — (260,298 ) Net cash provided by (used in) transactions with internal companies — — 501,745 (157,582 ) (344,163 ) — Filing Procedures Required from the PRC Authorities for Offering Securities to Foreign Investors Under applicable laws of mainland China, we and our mainland China subsidiaries may be required to complete certain filing procedures with the China Securities Regulatory Commission, or the CSRC, in connection with future offering and listing in an overseas market, including our follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities.
For the year ended December 31, 2023 Parent Consolidated VIEs and their subsidiaries WOFEs Other subsidiaries Eliminating adjustments Consolidated total (RMB in thousands) Cash flows from operating activities: (36,520 ) (52,983 ) 6,620 184,670 — 101,787 Net cash (used in) provided by transactions with external parties (36,520 ) 3,754 6,620 127,933 — 101,787 Net cash (used in) provided by transactions with internal companies — (56,737 ) — 56,737 — — Cash flows from investing activities: 20,092 (20,095 ) 384,002 (177,970 ) (451,849 ) (245,820 ) Net cash provided by (used in) transactions with external parties 30,097 (20,095 ) 384,002 (639,824 ) — (245,820 ) Net cash provided by (used in) transactions with internal companies (10,005 ) — — 461,854 (451,849 ) — Cash flows from financing activities: (29,044 ) 39,359 (502,207 ) 137,731 451,849 97,688 Net cash used in transactions with external parties (29,044 ) — — 126,732 — 97,688 Net cash provided by (used in) transactions with internal companies — 39,359 (502,207 ) 10,999 451,849 — - 10 - For the year ended December 31, 2022 Parent Consolidated VIEs and their subsidiaries WOFEs Other subsidiaries Eliminating adjustments Consolidated total (RMB in thousands) Cash flows from operating activities: 7,339 3,822 (12,794 ) 139,385 — 137,752 Net cash (used in) provided by transactions with external parties 7,339 98,715 (12,794 ) 44,492 — 137,752 Net cash (used in) provided by transactions with internal companies — (94,893 ) — 94,893 — — Cash flows from investing activities: 227,321 (16,214 ) (34,333 ) (1,006,158 ) 701,822 (127,562 ) Net cash provided by (used in) transactions with external parties 917,101 (16,214 ) (34,333 ) (994,116 ) — (127,562 ) Net cash provided by (used in) transactions with internal companies (689,780 ) — — (12,042 ) 701,822 — Cash flows from financing activities: (321,712 ) 43,032 (52,476 ) 1,012,607 (701,822 ) (20,371 ) Net cash used in transactions with external parties (321,712 ) — — 301,341 — (20,371 ) Net cash provided by (used in) transactions with internal companies — 43,032 (52,476 ) 711,266 (701,822 ) — For the year ended December 31, 2021 Parent Consolidated VIE and its subsidiaries WOFEs Other subsidiaries Eliminating adjustments Consolidated total (RMB in thousands) Cash flows from operating activities: (784 ) 32,674 (7,013 ) 101,321 — 126,198 Net cash (used in) provided by transactions with external parties (784 ) 48,923 (7,013 ) 85,072 — 126,198 Net cash (used in) provided by transactions with internal companies — (16,249 ) — 16,249 — — Cash flows from investing activities: 201,339 (73,430 ) (283,323 ) 261,650 344,163 450,399 Net cash provided by (used in) transactions with external parties 43,757 — (283,323 ) 689,965 — 450,399 Net cash provided by (used in) transactions with internal companies 157,582 (73,430 ) — (428,315 ) 344,163 — Cash flows from financing activities: (242,518 ) — 501,745 (175,362 ) (344,163 ) (260,298 ) Net cash used in transactions with external parties (242,518 ) — — (17,780 ) — (260,298 ) Net cash provided by (used in) transactions with internal companies — — 501,745 (157,582 ) (344,163 ) — - 11 - Filing Procedures Required from the PRC Authorities for Offering Securities to Foreign Investors Under applicable laws of mainland China, we and our mainland China subsidiaries may be required to complete certain filing procedures with the China Securities Regulatory Commission, or the CSRC, in connection with future offering and listing in an overseas market, including our follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities.
Accordingly, until such time as the PCAOB issues any new determination, we are at no risk of having our securities subject to a trading prohibition under the HFCA Act. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions.
Accordingly, until such time as the PCAOB issues any new determination, our securities are not subject to a trading prohibition under the HFCA Act. Each year, the PCAOB determines whether it can inspect and investigate completely audit firms in mainland China and Hong Kong SAR, among other jurisdictions.
Accordingly, until such time as the PCAOB issues any new determination, we are at no risk of having our securities subject to a trading prohibition under the HFCA Act. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions.
Accordingly, until such time as the PCAOB issues any new determination, our securities are not subject to a trading prohibition under the HFCA Act. Each year, the PCAOB determines whether it can inspect and investigate completely audit firms in mainland China and Hong Kong SAR, among other jurisdictions.
Our commission and fee revenue are subject to both quarterly and annual fluctuations as a result of the seasonality of our business, the timing of policy renewals and the net effect of new and lost business.
Quarterly and annual variations in our commission and fee revenue may unexpectedly impact our results of operations. Our commission and fee revenue are subject to both quarterly and annual fluctuations as a result of the seasonality of our business, the timing of policy renewals and the net effect of new and lost business.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

116 edited+87 added−41 removed191 unchanged
The name of an insurance broker shall include the words “insurance brokerage.” An insurance brokerage must register the information of its affiliated insurance brokerage practitioners with the IISIS. One person can only be registered with the IISIS through one insurance brokerage.
The name of an insurance broker shall include the words “insurance broker/brokerage.” An insurance broker must register the information of its affiliated insurance brokerage practitioners with the IISIS. One person can only be registered with the IISIS through one insurance broker.
According to the No. 7 Notice, domestic individuals, which include any directors, supervisors, senior managerial personnel or other employees of a domestic company who are Chinese citizens (including citizens of Hong Kong, Macau and Taiwan) or foreign individuals who consecutively reside in the territory of PRC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through the domestic companies they serve, collectively entrust a domestic agency to handle issues such as foreign exchange registration, account opening, funds transfer and remittance, and entrust an overseas institution to handle issues such as exercise of options, purchasing and sale of related stocks or equity, and funds transfer.
According to the No. 7 Notice, domestic individuals, which include any directors, supervisors, senior managerial personnel or other employees of a domestic company who are Chinese citizens (including citizens of Hong Kong SAR, Macau and Taiwan) or foreign individuals who consecutively reside in the territory of PRC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through the domestic companies they serve, collectively entrust a domestic agency to handle issues such as foreign exchange registration, account opening, funds transfer and remittance, and entrust an overseas institution to handle issues such as exercise of options, purchasing and sale of related stocks or equity, and funds transfer.
Content Related to Insurance Industry in the Closer Economic Partnership Arrangements Under CEPA Supplement IV signed in June and July 2007 and CEPA Supplement VIII signed in December 2011, local insurance agencies in Hong Kong and Macau are allowed to set up wholly-owned insurance agency companies and conduct insurance intermediary businesses in Guangdong Province (including Shenzhen) on a pilot basis if they fulfill the following criteria: ● The applicant must have operated an insurance brokerage businesses in Hong Kong and Macau for over 10 years; ● The applicant’s average annual revenue of insurance brokerage business for the past three years before application must not be less than HKD500,000 and the total assets as at the end of the year before application must not be less than HKD500,000; - 62 - ● Within three years before application, there has been no serious misconduct or record of disciplinary action; and ● The applicant must have set up a representative office in mainland China for over one year Regulations on Internet Insurance The principal regulation governing the operation of internet insurance business is the Measures for the Supervision of the Internet Insurance Business, or the Measures, promulgated on December 7, 2020 and effective on February 1, 2021, replacing the Interim Measures for the Supervision of the Internet Insurance Business, or the Interim Measures, issued on July 22, 2015 and effective on October 1, 2015.
Content Related to Insurance Industry in the Closer Economic Partnership Arrangements Under CEPA Supplement IV signed in June and July 2007 and CEPA Supplement VIII signed in December 2011, local insurance agencies in Hong Kong SAR and Macau are allowed to set up wholly-owned insurance agency companies and conduct insurance intermediary businesses in Guangdong Province (including Shenzhen) on a pilot basis if they fulfill the following criteria: ● The applicant must have operated an insurance brokerage businesses in Hong Kong SAR and Macau for over 10 years; ● The applicant’s average annual revenue of insurance brokerage business for the past three years before application must not be less than HKD500,000 and the total assets as at the end of the year before application must not be less than HKD500,000; ● Within three years before application, there has been no serious misconduct or record of disciplinary action; and ● The applicant must have set up a representative office in mainland China for over one year Regulations on Internet Insurance The principal regulation governing the operation of internet insurance business is the Measures for the Supervision of the Internet Insurance Business, or the Measures, promulgated on December 7, 2020 and effective on February 1, 2021, replacing the Interim Measures for the Supervision of the Internet Insurance Business, or the Interim Measures, issued on July 22, 2015 and effective on October 1, 2015.
Risk Factors—Risks Related to Doing Business in China—Our global income or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse effect on our results of operations.” - 70 - PRC Business Tax and VAT Taxpayers providing taxable services in China are required to pay a business tax at a normal tax rate of 5% of their revenues, unless otherwise provided.
Risk Factors—Risks Related to Doing Business in China—Our global income or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse effect on our results of operations.” PRC Business Tax and VAT Taxpayers providing taxable services in China are required to pay a business tax at a normal tax rate of 5% of their revenues, unless otherwise provided.
We may also face regulatory uncertainties that could restrict our ability to adopt additional equity compensation plans for our directors and employees and other parties under PRC law.” SAFE Regulations on Employee Share Options On December 25, 2006, the PBOC promulgated the “Measures for the Administration of Individual Foreign Exchange,” and on January 5, 2007, the SAFE further promulgated the implementation rules on those measures.
We may also face regulatory uncertainties that could restrict our ability to adopt additional equity compensation plans for our directors and employees and other parties under PRC law.” - 73 - SAFE Regulations on Employee Share Options On December 25, 2006, the PBOC promulgated the “Measures for the Administration of Individual Foreign Exchange,” and on January 5, 2007, the SAFE further promulgated the implementation rules on those measures.
Pursuant to the Avoidance of Double Taxation Arrangement, which became effective on January 1, 2007, which was subsequently amended on January 30, 2008, May 27, 2010, April 1, 2015 and July 19, 2019, dividends from our PRC subsidiaries paid to us through our Hong Kong wholly-owned subsidiary CNinsure Holdings Ltd. are subject to a withholding tax at a rate of 5%.
Pursuant to the Avoidance of Double Taxation Arrangement, which became effective on January 1, 2007, which was subsequently amended on January 30, 2008, May 27, 2010, April 1, 2015 and July 19, 2019, dividends from our PRC subsidiaries paid to us through our Hong Kong SAR wholly-owned subsidiary CNinsure Holdings Ltd. are subject to a withholding tax at a rate of 5%.
We have been further advised by our PRC counsel that if the PRC government finds that the agreements establishing the structure for operating our online operations do not comply with PRC government restrictions on foreign investment in the internet industry, we could be subject to severe penalties including being prohibited from continuing operations. See “Item 3. Key Information—D.
We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements establishing the structure for operating our online operations do not comply with PRC government restrictions on foreign investment in the internet industry, we could be subject to severe penalties including being prohibited from continuing operations. See “Item 3. Key Information—D.
There are uncertainties with respect to the interpretation and implementation of these data security laws and regulations, so our data-related measures may be subject to additional compliance requirements and regulatory burdens, and we may be required to make further adjustments to our business practices to comply with the interpretation and implementation of such laws. - 67 - Regulations on Dividend Distribution Before January 1, 2020, the principal regulations governing dividend distributions of wholly foreign-owned companies include: ● Wholly Foreign-Owned Enterprise Law (1986), as amended pursuant to the Decision of the Standing Committee of the National People’s Congress on Revising the Wholly Foreign-Owned Enterprise Law promulgated on October 31, 2000 and The Decision of the Standing Committee of the National People’s Congress on Revising the “Law of the People’s Republic of China on Foreign-invested Enterprises” which promulgated on September 3,2016 and took effect on October 1, 2016; and ● Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended pursuant to the Decision of the State Council on Amending the Rules for the Implementation of the Law on Foreign-Owned Enterprises promulgated by the State Council on April 12, 2001 and the Decision of the State Council on Amending the Rules for the Implementation of the Law of the People’s Republic of China on Foreign-capital Enterprises which took effect as of the promulgation date of March 1, 2014.
There are uncertainties with respect to the interpretation and implementation of these data security laws and regulations, so our data-related measures may be subject to additional compliance requirements and regulatory burdens, and we may be required to make further adjustments to our business practices to comply with the interpretation and implementation of such laws. - 76 - Regulations on Dividend Distribution Before January 1, 2020, the principal regulations governing dividend distributions of wholly foreign-owned companies include: ● Wholly Foreign-Owned Enterprise Law (1986), as amended pursuant to the Decision of the Standing Committee of the National People’s Congress on Revising the Wholly Foreign-Owned Enterprise Law promulgated on October 31, 2000 and The Decision of the Standing Committee of the National People’s Congress on Revising the “Law of the People’s Republic of China on Foreign-invested Enterprises” which promulgated on September 3,2016 and took effect on October 1, 2016; and ● Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended pursuant to the Decision of the State Council on Amending the Rules for the Implementation of the Law on Foreign-Owned Enterprises promulgated by the State Council on April 12, 2001 and the Decision of the State Council on Amending the Rules for the Implementation of the Law of the People’s Republic of China on Foreign-capital Enterprises which took effect as of the promulgation date of March 1, 2014.
In exchange, Xinbao and its subsidiaries agree to pay a quarterly fee calculated primarily based on a percentage of their revenues, which is currently waved until further written notice by Fanhua Group Company. Each of these agreements has a term of one year and will be automatically renewed for one-year term. Consulting and Service Agreement .
In exchange, Xinbao and its subsidiaries agree to pay a quarterly fee calculated primarily based on a percentage of their revenues, which is currently waved until further written notice by Fanhua Group Company. Each of these agreements has a term of one year and will be automatically renewed for one-year term. - 83 - Consulting and Service Agreement .
With increasing consolidation expected in the insurance intermediary sector in the coming years, we expect competition within this sector to intensify. ● Insurance companies. The distribution of individual life insurance products in China historically has been dominated by insurance companies, which usually use both in-house sales forces and exclusive sales agents to distribute their own products.
With increasing consolidation expected in the insurance intermediary sector in the coming years, we expect competition within this sector to intensify. - 59 - ● Insurance companies. The distribution of individual life insurance products in China historically has been dominated by insurance companies, which usually use both in-house sales forces and exclusive sales agents to distribute their own products.
In order to foster the awareness of compliance among all employees and establish a sustainable and effective compliance mechanism, Fanhua Group Company issued a compliance accountability policy Fanhua Insurance Sales Group Compliance Accountability System which sets forth the responsibilities for keeping in compliance with relevant laws and regulations by staff at various levels and the accountability for non-compliance.
In order to foster the awareness of compliance among all employees and establish a sustainable and effective compliance mechanism, Fanhua Group Company issued a compliance accountability policy named Fanhua Insurance Sales Group Compliance Accountability System which sets forth the responsibilities for keeping in compliance with relevant laws and regulations by staff at various levels and the accountability for non-compliance.
The senior managers of a professional insurance agency must meet specific qualification requirements in educational background and relevant industry working experience set forth in the PSAIA. - 58 - An insurance agent shall perform sales practicing register with the CRIBC’s Insurance Intermediaries Regulatory Information System for its individual insurance agent or sales practitioner.
The senior managers of a professional insurance agency must meet specific qualification requirements in educational background and relevant industry working experience set forth in the PSAIA. An insurance agent shall perform sales practicing register with the CRIBC’s Insurance Intermediaries Regulatory Information System for its individual insurance agent or sales practitioner.
In July 2018, CNinsure Holdings Ltd. was determined by Hong Kong Taxation Bureau to be a Hong Kong resident enterprise and completed the application and filing process for enjoying the tax treaty in PRC Taxation Bureau therefore we have applied 5% withholding tax rate for the dividends paid by our PRC subsidiaries since then.
In July 2018, CNinsure Holdings Ltd. was determined by Hong Kong SAR Taxation Bureau to be a Hong Kong SAR resident enterprise and completed the application and filing process for enjoying the tax treaty in PRC Taxation Bureau therefore we have applied 5% withholding tax rate for the dividends paid by our PRC subsidiaries since then.
It is available in mobile application and WeChat official account versions and accessible through Fanhua WeCom. - 47 - ● Fanhua RONS Assistant Digital Operating Platform, or RONS DOP — it is a digital marketing platform that we launched in June 2021 for our agents, aiming at empowering them in customer acquisition and relationship maintenance.
It is available in mobile application and WeChat official account versions and accessible through Fanhua WeCom. ● Fanhua RONS Assistant Digital Operating Platform, or RONS DOP — it is a digital marketing platform that we launched in June 2021 for our agents, aiming at empowering them in customer acquisition and relationship maintenance.
In the course of providing claims adjusting services, we also can appraise the residual value of the insured property and offer suggestions on the disposal of such property. Upon appointment by the insurance company, we handle the actual disposal of the insured property through auction, discounted sale, lease or other means. ● Loading and Unloading Supervision.
In the course of providing claims adjusting services, we also can appraise the residual value of the insured property and offer suggestions on the disposal of such property. Upon appointment by the insurance company, we handle the actual disposal of the insured property through auction, discounted sale, lease or other means. - 55 - ● Loading and Unloading Supervision.
The 2002 Insurance Law allowed insurance companies to set their own policy terms and premium rates, subject to the approval of, or a filing with, the CIRC. 2009 Amendments to the Insurance Law The 2002 Insurance Law was amended again in 2009 and the amended insurance law, which we refer to as the 2009 Insurance Law, became effective on October 1, 2009.
The 2002 Insurance Law allowed insurance companies to set their own policy terms and premium rates, subject to the approval of, or a filing with, the CIRC. - 62 - 2009 Amendments to the Insurance Law The 2002 Insurance Law was amended again in 2009 and the amended insurance law, which we refer to as the 2009 Insurance Law, became effective on October 1, 2009.
However, an insurance company shall also engage professionals, and establish an actuarial reporting system and a compliance reporting system as before. - 56 - 2015 Amendments to the Insurance Law The 2014 Insurance Law was amended again in 2015 and the amended insurance law, which we refer to as the 2015 Insurance Law, became effective on April 24, 2015.
However, an insurance company shall also engage professionals, and establish an actuarial reporting system and a compliance reporting system as before. 2015 Amendments to the Insurance Law The 2014 Insurance Law was amended again in 2015 and the amended insurance law, which we refer to as the 2015 Insurance Law, became effective on April 24, 2015.
Upon final conclusion of the case, we prepare and submit a detailed report to the insurance company setting forth details of the accident, cause of the loss, details of the loss, adjustment and determination of loss, an indemnity proposal and, where appropriate, a request for payment. ● Disposal of Residual Value.
Upon conclusion of the case, we prepare and submit a detailed report to the insurance company setting forth details of the accident, cause of the loss, details of the loss, adjustment and determination of loss, an indemnity proposal and, where appropriate, a request for payment. ● Disposal of Residual Value.
The 2009 Insurance Law added a variety of clauses such as incontestable clause, abstained and estoppels clause, common disaster clause and amending immunity clause, claims-settlement prescription clause, reasons for claims rejection and contract modification clause. ● Strengthening supervision on the qualification of the shareholders of the insurance companies and setting forth specific qualification requirements for the major shareholders, directors, supervisors and senior managers of insurance companies. ● Expanding the business scope of insurers and further relaxing restriction on the use of fund by insurers. ● Strengthening supervision on solvency of insurers with stricter measures. ● Tightening regulations governing the administration of insurance intermediary companies, especially those relating to behaviors of insurance agents.
The 2009 Insurance Law added a variety of clauses such as incontestable clause, abstained and estoppel clause, common disaster clause and amending immunity clause, claims-settlement prescription clause, reasons for claims rejection and contract modification clause. ● Strengthening supervision on the qualification of the shareholders of the insurance companies and setting forth specific qualification requirements for the major shareholders, directors, supervisors and senior managers of insurance companies. ● Expanding the business scope of insurers and further relaxing restriction on the use of fund by insurers. ● Strengthening supervision on solvency of insurers with stricter measures. ● Tightening regulations governing the administration of insurance intermediary companies, especially those relating to behaviors of insurance agents.
In addition, the beneficiary designated in the annuity contract will receive guaranteed benefits upon the death of the insured during the coverage period. In return, the purchaser of the annuity products makes periodic payments of premiums during a pre-determined accumulation period. ● Individual Term Life Insurance.
In addition, the beneficiary designated in the annuity contract will receive guaranteed benefits upon the death of the insured during the coverage period. In return, the purchaser of the annuity products makes periodic payments of premiums during a pre-determined accumulation period. - 53 - ● Individual Term Life Insurance.
The 1995 Insurance Law classified insurance between property, casualty, liability and credit insurance businesses, on the one hand, and life, accident and health insurance businesses on the other, and prohibited insurance companies from engaging in both types of businesses. ● Regulation of market conduct by participants.
The 1995 Insurance Law classified insurance between property, casualty, liability and credit insurance businesses, on the one hand, and life, accident and health insurance businesses on the other, and prohibited insurance companies from engaging in both types of businesses. - 61 - ● Regulation of market conduct by participants.
The major amendments to the 1995 Insurance Law include: ● Authorizing the CIRC to be the insurance supervisory and regulatory body nationwide. The 2002 Insurance Law expressly grants the CIRC the authority to supervise and administer the insurance industry nationwide. - 55 - ● Expanding the permitted scope of business of property and casualty insurers.
The major amendments to the 1995 Insurance Law include: ● Authorizing the CIRC to be the insurance supervisory and regulatory body nationwide. The 2002 Insurance Law expressly grants the CIRC the authority to supervise and administer the insurance industry nationwide. ● Expanding the permitted scope of business of property and casualty insurers.
If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish part of our interests in Xinbao Investment and Fanhua RONS Technologies or forfeit our rights under the contractual arrangements.” To date we have not encountered any interference or encumbrance from the PRC government on account of operating our business through these agreements.
If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish part of our interests in Xinbao Investment and Fanhua RONS Technologies or forfeit our rights under the contractual arrangements.” To date we have not encountered any interference or encumbrance from the PRC government on account of operating our business through these agreements. - 84 - D.
An insurance brokerage may conduct the following insurance brokering businesses: ● making insurance proposals, selecting insurance companies and handling the insurance application procedures for the insurance applicants; ● assisting the insured or the beneficiary to claim compensation; ● reinsurance brokering business; ● providing consulting services to clients with respect to disaster and damage prevention, risk assessment and risk management; and ● other business activities approved by the CIRC.
An insurance broker may conduct the following insurance brokering businesses: ● making insurance proposals, selecting insurance companies and handling the insurance application procedures for the insurance applicants; ● assisting the insured or the beneficiary to claim compensation; ● reinsurance brokering business; ● providing consulting services to clients with respect to disaster and damage prevention, risk assessment and risk management; and ● other business activities approved by the CIRC.
The terms of the Fanlian Loan are similar to those of the Fanhua Group Company Loans described above. - 73 - Equity Pledge Agreement. Xinbao Investment. Mr. Shuangping Jiang entered into an equity pledge agreement on December 6, 2021, pledging his equity interest in Xinbao Investment to Fanhua Group Company to secure his obligations under the loan agreement. Mr.
The terms of the Fanlian Loan are similar to those of the Fanhua Group Company Loans described above. - 82 - Equity Pledge Agreement. Xinbao Investment. Mr. Shuangping Jiang entered into an equity pledge agreement on December 6, 2021, pledging his equity interest in Xinbao Investment to Fanhua Group Company to secure his obligations under the loan agreement. Mr.
The following diagram illustrates the corporate structure of us and the consolidated VIEs, including the names, places of incorporation and the proportion of ownership interests in our and the consolidated VIEs’ significant subsidiaries and their respective subsidiaries as of March 31, 2023: The diagram above omits the names of subsidiaries that are immaterial individually and in the aggregate.
The following diagram illustrates the corporate structure of us and the consolidated VIEs, including the names, places of incorporation and the proportion of ownership interests in our and the consolidated VIEs’ significant subsidiaries and their respective subsidiaries as of March 31, 2024: The diagram above omits the names of subsidiaries that are immaterial individually and in the aggregate.
It provides agents with various educational content in the form of daily news, articles, posters, videos which can be circulated to potential customers through social media, aiming at enhancing customers’ insurance awareness and deepening their understanding of insurance products. It also enables agents to gain better insights into customer needs through behavior tracking and automated tagging.
It also provides our sales professionals with various educational content in the form of daily news, articles, posters, videos which can be circulated to potential customers through social media, aiming at enhancing customers’ insurance awareness and deepening their understanding of insurance products. It also enables agents to gain better insights into customer needs through behavior tracking and automated tagging.
Personnel of an insurance brokerage and its branches who engage in any of the insurance brokering businesses described above must comply with the qualification requirements prescribed by the CIRC. The senior managers of an insurance brokerage must meet specific qualification requirements set forth in the POSAIB.
Personnel of an insurance broker and its branches who engage in any of the insurance brokering businesses described above must comply with the qualification requirements prescribed by the CIRC. The senior managers of an insurance broker must meet specific qualification requirements set forth in the POSAIB.
Personnel of an insurance agency or insurance brokerage engaging in the sales of insurance products must meet the qualification requirements set by the CIRC and obtain a qualification certificate issued by the CIRC.
Personnel of an insurance agency or insurance broker engaging in the sales of insurance products must meet the qualification requirements set by the CIRC and obtain a qualification certificate issued by the CIRC.
To protect our intellectual property, we rely on a combination of trademark, copyright and trade secret laws as well as confidentiality agreements with our employees, sales agents, contractors and others. As of March 31, 2023, we had 87 registered trademarks in China, including our corporate logo. Our main website is www.fanhuaholdings.com .
To protect our intellectual property, we rely on a combination of trademark, copyright and trade secret laws as well as confidentiality agreements with our employees, sales agents, contractors and others. As of March 31, 2024, we had 80 registered trademarks in China, including our corporate logo. Our main website is www.fanhuaholdings.com .
It also puts forth the process of reporting potential risks when identified to take further actions. The Compliance Department of the Fanhua Group Comany lead the efforts to monitor and coordinate the implementation of the Compliance Accountability Policy while our functional departments and subsidiaries holds the primary responsibility for risk control and compliance of our business operations.
It also puts forth the process of reporting potential risks when identified to take further actions. The Compliance Department of the Fanhua Group Company leads the efforts to monitor and coordinate the implementation of the Compliance Accountability Policy while our functional departments and subsidiaries holds the primary responsibility for risk control and compliance of our business operations.
A partnership firm must file its business record with the CIRC. - 60 - An insurance claims adjusting firm must meet certain requirements in order to engage in claims adjustment business which include, among others, i) its shareholders or its partners must meet the requirements mentioned above and its capital contribution must be self-owned, actual and lawful and must not be non-self-owned capital in various forms such as bank loan; and ii) it must have adequate working capital to support its day-to-day operation and risk undertaking in accordance with its business development plan.
An insurance claims adjusting firm must meet certain requirements in order to engage in claims adjustment business which include, among others, i) its shareholders or its partners must meet the requirements mentioned above and its capital contribution must be self-owned, actual and lawful and must not be non-self-owned capital in various forms such as bank loan; and ii) it must have adequate working capital to support its day-to-day operation and risk undertaking in accordance with its business development plan.
The platform is accessible through WeChat public account and Fanhua’s Lan Zhanggui and WeCom. ● Fanhua RONS Guanjia –– it is a customer service platform that we launched in June 2021 to directly connect with our customers, through which they can access various insurance services including policy inquiry, policy custody, asset custody, risk assessment, and claims settlement assistance.
The platform is accessible through WeChat public account and Fanhua’s FA App and WeCom. - 52 - ● Fanhua RONS Guanjia –– it is a customer service platform that we launched in June 2021 to directly connect with our customers, through which they can access various insurance services including policy inquiry, policy custody, asset custody, risk assessment, and claims settlement assistance.
An insurance brokerage may take any of the following forms: (i) a limited liability company; or (ii) a joint stock limited company.
An insurance broker may take any of the following forms: (i) a limited liability company; or (ii) a joint stock limited company.
Customers We sell life and health insurance products including critical illness, annuity insurance, whole life insurance and term life insurance and endowment insurance primarily to individual customers as well as property and casualty insurance products including individual accident insurance, homeowner insurance products, liability insurance and travel insurance.
Customers We sell life and health insurance products including critical illness, annuity insurance, whole life insurance and term life insurance and endowment insurance as well as non-life insurance products including individual accident insurance, homeowner insurance products, liability insurance and travel insurance primarily to individual customers.
According to the 2009 Insurance Law, the minimum registered capital required to establish an insurance agency or insurance brokerage as a company must comply with the PRC Company Law. The registered capital or the capital contribution of insurance agencies or insurance brokerages must be paid-up capital in cash.
According to the 2009 Insurance Law, the minimum registered capital required to establish an insurance agency or insurance broker as a company must comply with the PRC Company Law. The registered capital or the capital contribution of insurance agencies or insurance brokers must be paid-up capital in cash.
The 2009 Insurance Law also sets forth some specific qualification requirements for insurance agency and brokerage practitioners. The senior managers of insurance agencies or insurance brokerages must meet specific qualification requirements, and their appointments are subject to approval of the CIRC.
The 2009 Insurance Law also sets forth some specific qualification requirements for insurance agency and broker practitioners. The senior managers of insurance agencies or insurance brokers must meet specific qualification requirements, and their appointments are subject to approval of the CIRC.
For the provision of claims adjusting services, we also had business relationship with 104 insurance companies, and 286 other institutions including third party insurance intermediaries, logistics companies, construction companies and marine and cargo companies as of March 31, 2023. Competition A number of industry players are involved in the distribution of insurance products in the PRC.
For the provision of claims adjusting services, we also had business relationship with 110 insurance companies, and 283 other institutions including third party insurance intermediaries, logistics companies, construction companies and marine and cargo companies as of March 31, 2024. Competition A number of industry players are involved in the distribution of insurance products in the PRC.
Life and Health Insurance Products Our life and health insurance business accounted for 80.4% of our net revenues in 2022. We expect the sale of life insurance products to be the major source of our revenue in the next several years. The life and health insurance products we distribute can be broadly classified into the categories set forth below.
Life and Health Insurance Products Our life and health insurance business accounted for 81.1% of our net revenues in 2023. We expect the sale of life insurance products to be the major source of our revenue in the next several years. The life and health insurance products we distribute can be broadly classified into the categories set forth below.
Professional insurance agencies shall, within 5 days from the date of occurrence of any of the following circumstances, report to the CBIRC through the supervision information system and make public disclosure: (i) change of name, domicile or business address; (ii) change of shareholders, registered capital or the form of organization; (iii) change of name or capital contribution of a shareholder; (iv) amendments to the articles of association; (v) equity investment in, or establishment of offshore insurance institutions or non-operating institutions; (vi) division, merger, dissolution, or termination of insurance agency business activities of branches; (vii) change of the principal person-in-charge of a sub-branch; (viii) administrative punishment, civil punishment or pending investigation of suspected illegal crime; or (ix) other reportable events prescribed by the insurance regulatory body under the State Council.
To operate outside of its registration place, a nationwide professional insurance agency shall set up local provincial branches first before setting up additional sub-branches and sales offices. - 66 - Professional insurance agencies shall, within 5 days from the date of occurrence of any of the following circumstances, report to the CBIRC through the supervision information system and make public disclosure: (i) change of name, domicile or business address; (ii) change of shareholders, registered capital or the form of organization; (iii) change of name or capital contribution of a shareholder; (iv) amendments to the articles of association; (v) equity investment in, or establishment of offshore insurance institutions or non-operating institutions; (vi) division, merger, dissolution, or termination of insurance agency business activities of branches; (vii) change of the principal person-in-charge of a sub-branch; (viii) administrative punishment, civil punishment or pending investigation of suspected illegal crime; or (ix) other reportable events prescribed by the insurance regulatory body under the State Council.
We primarily provided claims adjusting services to Ping An, China Pacific, Ant Insurance Agency Co., Ltd., Shanghai Nuanwa Technology Co., Ltd., an affiliate of Zhong An and China Life Property and Casualty Insurance Co. Ltd in 2022.
We primarily provided claims adjusting services to Ping An, China Pacific, Shanghai Nuanwa Technology Co., Ltd., an affiliate of Zhong An, Ping An Health Insurance Co., Ltd., China Life Property and Casualty Insurance Co. Ltd. in 2023.
For the distribution of insurance products, we had outstanding contracts with 43 life insurance companies, 9 health and pension insurance companies and 21 property and casualty insurance companies, most of which were signed at the corporate headquarter level as of March 31, 2023.
For the distribution of insurance products, we had outstanding contracts with 51 life insurance companies, 9 health and pension insurance companies and 25 property and casualty insurance companies, most of which were signed at the corporate headquarter level as of March 31, 2024.
According to the Overseas Listing Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) the total assets, net assets, revenues or profits of the domestic operating entity of the issuer in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) the senior managers in charge of business operation and management of the issuer are mostly Chinese citizens or have domicile in China, and its main places of business are located in China or main business activities are conducted in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity, which shall, as the filing entity, fulfil the due filing and reporting obligations with the CSRC, and where an issuer makes an application for listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted.
According to the Overseas Listing Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) the total assets, net assets, revenues or profits of the domestic operating entity of the issuer in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) the senior managers in charge of business operation and management of the issuer are mostly Chinese citizens or have domicile in China, and its main places of business are located in China or main business activities are conducted in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity, which shall, as the filing entity, fulfil the due filing and reporting obligations with the CSRC, and where an issuer makes an application for listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted. - 77 - Simultaneously, the CSRC issued the Notice on the Administrative Arrangements for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that the domestic companies that have already been listed overseas on or before the effective date of the Overseas Listing Trial Measures (i.e., March 31, 2023) shall be deemed as existing issuers, or the Existing Issuers.
Cybersecurity reviews focus on assessing the following national security risks factors associated with relevant objects or circumstances: (i) the risk of illegal control, interference or destruction of critical information infrastructure, arising from the purchase and utilization of network products and services; (ii) the harm on the business continuity of critical information infrastructure incurring from a disruption of network products and services supply; (iii) the safety, openness, transparency, diversity of sources of network products and services; the reliability of suppliers; and the risk of supply disruption due to political, diplomatic, trade and other reasons; (iv) the level of compliance with the PRC laws, administrative regulations and ministry rules of the suppliers of network products and services; (v) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or illegally exited the country; (vi) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments and the network information security risk in relation to listing abroad; and (vii) other factors that may harm critical information infrastructure, cyber security and/or data security. - 66 - The Administrative Provisions on the Account Information of Internet Users, which was promulgated by the CAC on June 27, 2022 and became effective on August 1, 2022, sets out guidelines on the administration of the account information of internet users.
Cybersecurity reviews focus on assessing the following national security risks factors associated with relevant objects or circumstances: (i) the risk of illegal control, interference or destruction of critical information infrastructure, arising from the purchase and utilization of network products and services; (ii) the harm on the business continuity of critical information infrastructure incurring from a disruption of network products and services supply; (iii) the safety, openness, transparency, diversity of sources of network products and services; the reliability of suppliers; and the risk of supply disruption due to political, diplomatic, trade and other reasons; (iv) the level of compliance with the PRC laws, administrative regulations and ministry rules of the suppliers of network products and services; (v) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or illegally exited the country; (vi) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments and the network information security risk in relation to listing abroad; and (vii) other factors that may harm critical information infrastructure, cyber security and/or data security.
The equity pledge agreement will expire when the individual shareholder fully performs his obligations under the loan agreement. The equity pledge was recorded on the shareholder’ register of Xinbao Investment, and registered with the relevant local administration of industry and commerce. Fanhua RONS Technologies . Mr.
The equity pledge agreement will expire when the individual shareholder fully performs his obligations under the loan agreement. The equity pledge was recorded on the shareholder’ register of Xinbao Investment, and registered with the relevant local bureaus of the State Administration for Market Regulation. Fanhua RONS Technologies . Mr.
For the year ended December 31, 2022, aggregate revenues derived from these consolidated VIEs amounted to 5.1% of our total consolidated net revenues, based on our corporate structure as of December 31, 2022. As of December 31, 2022, the assets of our consolidated VIEs accounted for an aggregate of 3.3% of our consolidated total assets.
For the year ended December 31, 2023, aggregate revenues derived from these consolidated VIEs amounted to 3.8% of our total consolidated net revenues, based on our corporate structure as of December 31, 2023. As of December 31, 2023, the assets of our consolidated VIEs accounted for an aggregate of 3.4% of our consolidated total assets.
The term “insurance adjustment practitioner” refers to a person retained by an insurance claims adjusting firm to conduct the following activities on behalf of an entruster: i) inspecting, appraising the value of and assessing the risks of the subject matter before and after it is insured; ii) surveying, inspecting, estimating the loss of, adjusting and disposing of the residual value of the insured subject matter after a loss has been incurred; and iii) risk management consulting.
The term of “insurance adjusting firm” refers to an entity and any of its branches which engages in the aforementioned businesses. - 68 - The term “insurance adjustment practitioner” refers to a person retained by an insurance claims adjusting firm to conduct the following activities on behalf of an entruster: i) inspecting, appraising the value of and assessing the risks of the subject matter before and after it is insured; ii) surveying, inspecting, estimating the loss of, adjusting and disposing of the residual value of the insured subject matter after a loss has been incurred; and iii) risk management consulting.
An insurance brokerage shall submit a written report to the CIRC through the IISIS and make public disclosure within five days from the date of occurrence of any of the following matters: (i) change of name, domicile or business premises; (ii) change of shareholders, registered capital or form of organization; (iii) change of names of shareholders or capital contributions; (iv) amendment to the articles of association; (v) equity investment, establishment of offshore insurance-related entities or non-operational organizations; (vi) division, merger and dissolution or termination of insurance brokering business activities of its branches; (vii) change of the primary person in charge of its branches other than provincial branches; (viii) being a subject of administrative or criminal penalties, or under investigation for suspected involvement in any violation of law or a crime; and (x) other reportable events prescribed by the CIRC. - 59 - Insurance brokerage and its practitioners are not allowed to sell non-insurance financial products, except for those products approved by relevant financial regulatory institutions and the insurance brokerage and its practitioners shall obtain relevant qualifications in order to sell non-insurance related financial products that meets regulatory requirements.
An insurance broker shall submit a written report to the CIRC through the IISIS and make public disclosure within five days from the date of occurrence of any of the following matters: (i) change of name, domicile or business premises; (ii) change of shareholders, registered capital or form of organization; (iii) change of names of shareholders or capital contributions; (iv) amendment to the articles of association; (v) equity investment, establishment of offshore insurance-related entities or non-operational organizations; (vi) division, merger and dissolution or termination of insurance brokering business activities of its branches; (vii) change of the primary person in charge of its branches other than provincial branches; (viii) being a subject of administrative or criminal penalties, or under investigation for suspected involvement in any violation of law or a crime; and (x) other reportable events prescribed by the CIRC.
D. Property, Plants and Equipment Our headquarter is located in Guangzhou, China, where we leased approximately 2,828.8 square meters of office space as of December 31, 2022. Office space leased by our subsidiaries and consolidated VIEs, including certain space used and paid by sales teams, was approximately 162,087.9 square meters as of December 31, 2022.
Property, Plants and Equipment Our headquarter is located in Guangzhou, China, where we leased approximately 2,828.8 square meters of office space as of December 31, 2023. Office space leased by our subsidiaries and consolidated VIEs, including certain space used and paid by sales teams, was approximately 131,765.0 square meters as of December 31, 2023.
The CIRC and the CBIRC The CBIRC, which was formed by the merger of China Banking Regulatory Commission (“CBRC”) and CIRC in March, 2018, inherits the authority of CIRC, has extensive authority to supervise insurance companies and insurance intermediaries operating in the PRC, including the power to: ● promulgate regulations applicable to the Chinese insurance industry; ● investigate insurance companies and insurance intermediaries; ● establish investment regulations; ● approve policy terms and premium rates for certain insurance products; ● set the standards for measuring the financial soundness of insurance companies and insurance intermediaries; ● require insurance companies and insurance intermediaries to submit reports concerning their business operations and condition of assets; ● order the suspension of all or part of an insurance company or an insurance intermediary’s business; ● approve the establishment, change and dissolution of an insurance company, an insurance intermediary or their branches; ● review and approve the appointment of senior managers of an insurance company, an insurance intermediary or their branches; and ● punish insurance companies or intermediaries for improper behaviors or misconducts.
Prior approval by the CIRC is no longer required for the divesture or mergers of insurance agencies or brokerage firms, the change of their organizational form, or the establishment or winding-up of a branch by an insurance agency or brokerage firm. - 63 - The CIRC and the CBIRC The CBIRC, which was formed by the merger of China Banking Regulatory Commission (“CBRC”) and CIRC in March, 2018, inherits the authority of CIRC, has extensive authority to supervise insurance companies and insurance intermediaries operating in the PRC, including the power to: ● promulgate regulations applicable to the Chinese insurance industry; ● investigate insurance companies and insurance intermediaries; ● establish investment regulations; ● approve policy terms and premium rates for certain insurance products; ● set the standards for measuring the financial soundness of insurance companies and insurance intermediaries; ● require insurance companies and insurance intermediaries to submit reports concerning their business operations and condition of assets; ● order the suspension of all or part of an insurance company or an insurance intermediary’s business; ● approve the establishment, change and dissolution of an insurance company, an insurance intermediary or their branches; ● review and approve the appointment of senior managers of an insurance company, an insurance intermediary or their branches; and ● punish insurance companies or intermediaries for improper behaviors or misconducts.
Sarbanes-Oxley Act (SOX) of 2002, specifically sections 302 and 404. Accordingly, we have established a comprehensive internal control and risk management structure that enables us to identify and analyze risks early and take appropriate action. The Board of Directors is the highest decision-making body for corporate risk management and is responsible for the effectiveness of overall risk management efforts.
Accordingly, we have established a comprehensive internal control and risk management structure that enables us to identify and analyze risks early and take appropriate action. - 60 - The Board of Directors is the highest decision-making body for corporate risk management and is responsible for the effectiveness of overall risk management efforts.
The cash flows that have occurred between our subsidiaries and our consolidated VIEs are summarized as the following: The cash flows occurred between our subsidiaries and the consolidated VIEs included the following: (1) cash received by the VIEs from our subsidiaries as inter-company advances amounted to RMB43.0 million for the year ended December 31, 2022; and (2) commissions received offset by technology services paid by our subsidiaries to the VIEs amounted to RMB94.9 million for the year ended December 31, 2022.
The cash flows that have occurred between our subsidiaries and our consolidated VIEs are summarized as the following: The cash flows occurred between our subsidiaries and the consolidated VIEs included the following: (1) cash received by the VIEs from our subsidiaries as inter-company advances amounted to RMB39.4 million for the year ended December 31, 2023; and (2) commissions received offset by technology services paid by our subsidiaries to the VIEs amounted to RMB56.7 million for the year ended December 31, 2023.
Content Related to Insurance Industry in the Legal Documents of China’s Accession to the WTO According to the Circular of the CIRC on Distributing the Content Related to Insurance Industry in the Legal Documents of China’s Accession to the World Trade Organization, or WTO, for the life insurance sector, within three years of China’s accession to the WTO on December 11, 2001, geographical restrictions were to be lifted, equity joint venture companies allowed to provide health insurance, group insurance, and pension/annuity services to Chinese citizens and foreign citizens, and for there to be no other restrictions except those on the proportion of foreign investment (no more than 50%) and establishment conditions.
Senior managers of an insurance intermediary service group company must meet specific qualification requirements and appointment of the senior managers of an insurance intermediary service group company is subject to review and approval by the CIRC. - 70 - Content Related to Insurance Industry in the Legal Documents of China’s Accession to the WTO According to the Circular of the CIRC on Distributing the Content Related to Insurance Industry in the Legal Documents of China’s Accession to the World Trade Organization, or WTO, for the life insurance sector, within three years of China’s accession to the WTO on December 11, 2001, geographical restrictions were to be lifted, equity joint venture companies allowed to provide health insurance, group insurance, and pension/annuity services to Chinese citizens and foreign citizens, and for there to be no other restrictions except those on the proportion of foreign investment (no more than 50%) and establishment conditions.
In 2010, we established an insurance brokerage business unit to expand our product offerings from retail to commercial lines. In 2017, we divested our P&C insurance agency operations and our insurance brokerage segment to strategically focus on life insurance distribution.
We commenced life insurance products distribution in 2006 and began to offer claims adjusting services in 2008. In 2010, we established an insurance brokerage business unit to expand our product offerings from retail to commercial lines. In 2017, we divested our P&C insurance agency operations and our insurance brokerage segment to strategically focus on life insurance distribution.
The SAFE and its branches shall supervise, administer and inspect foreign exchange operations related to individuals’ participation in equity incentive plans of companies listed abroad, and may take regulatory measures and impose administrative sanctions on individuals, domestic companies, domestic agencies and banks violating the provisions of the No. 7 Notice. - 65 - We and our employees who have been granted applicable equity awards shall be subject to the No. 7 Notice.
The SAFE and its branches shall supervise, administer and inspect foreign exchange operations related to individuals’ participation in equity incentive plans of companies listed abroad, and may take regulatory measures and impose administrative sanctions on individuals, domestic companies, domestic agencies and banks violating the provisions of the No. 7 Notice.
An insurance adjusting firm may engage in the following businesses: Upon approval of the CIRC, an insurance adjusting firm may engage in the following businesses: ● inspecting, appraising the value of and assessing the risks of the subject matter before and after it is insured; ● surveying, inspecting, estimating the loss of, adjusting and disposing of the insured subject matter after loss has been incurred; ● risk management consulting; and ● other business activities approved by the CIRC.
An insurance adjusting firm may engage in the following businesses: Upon approval of the CIRC, an insurance adjusting firm may engage in the following businesses: ● inspecting, appraising the value of and assessing the risks of the subject matter before and after it is insured; ● surveying, inspecting, estimating the loss of, adjusting and disposing of the insured subject matter after loss has been incurred; ● risk management consulting; and ● other business activities approved by the CIRC. - 69 - The name of an insurance adjusting firm must contain the words “insurance adjusting” and must avoid duplicating names of existing insurance claims adjusting firms.
In order to carry out internet life insurance business, insurers (excluding internet insurance companies) shall meet the following conditions: (i) the comprehensive solvency ratio shall reach 120% and the core solvency ratio shall be no less than 75% for four consecutive quarters; (ii) the comprehensive risk rating shall be Class B or above for four consecutive quarters; (iii) the liability reserve adequacy ratio shall be higher than 100% for four consecutive quarters; (iv) the corporate governance level shall be C (qualified) or above; and (v) other conditions stipulated by the CBIRC.
In order to carry out internet life insurance business, insurers (excluding internet insurance companies) shall meet the following conditions: (i) the comprehensive solvency ratio shall reach 120% and the core solvency ratio shall be no less than 75% for four consecutive quarters; (ii) the comprehensive risk rating shall be Class B or above for four consecutive quarters; (iii) the liability reserve adequacy ratio shall be higher than 100% for four consecutive quarters; (iv) the corporate governance level shall be C (qualified) or above; and (v) other conditions stipulated by the CBIRC. - 72 - Internet life insurance products are limited to accident insurance, health insurance (excluding long-term care insurance), term life insurance, life insurance with a coverage period of more than 10 years (excluding term life insurance), annuity insurance with a coverage period of more than 10 years, and other life insurance products stipulated by the CBIRC.
In return, the insured makes periodic payments of premiums over a pre-determined period, generally ranging from five to 25 years. - 49 - The life insurance products we distributed in 2022 were primarily underwritten by Sinatay, Greatwall, Huaxia, Aeon, and Evergrande.
In return, the insured makes periodic payments of premiums over a pre-determined period, generally ranging from five to 25 years. The life insurance products we distributed in 2023 were primarily underwritten by Sinatay, Aeon Life Insurance Company Limited, or Aeon, Lian, Huaxia, and Aviva-Cofco Insurance Company Limited or Aviva-Cofco.
According to the regulation, the term “insurance intermediary service group company” refers to a professional insurance intermediary company that is established in accordance with applicable laws and regulations and with the approval of the CIRC that exercises sole or shared control of, or is able to exert major influence over, at least two subsidiaries that are professional insurance intermediary companies primarily engaged in the insurance intermediary business. - 61 - An insurance intermediary service group company must have: ● a registered capital of at least RMB100 million; ● no record of material violation by investors of applicable laws and regulations in the previous three years; ● at least five subsidiaries, among which at least two are professional insurance intermediary companies which contribute at least 50% of the total revenues of the group; ● chairman (Executive director) and the senior management with qualifications stipulated by the CIRC; ● perfect governance structure, sound organization, effective risk management and internal control management system; ● business premises and office equipment which are suitable for the development of the businesses; and ● other conditions stipulated by laws, administrative regulations and the CIRC.
An insurance intermediary service group company must have: ● a registered capital of at least RMB100 million; ● no record of material violation by investors of applicable laws and regulations in the previous three years; ● at least five subsidiaries, among which at least two are professional insurance intermediary companies which contribute at least 50% of the total revenues of the group; ● chairman (Executive director) and the senior management with qualifications stipulated by the CIRC; ● perfect governance structure, sound organization, effective risk management and internal control management system; ● business premises and office equipment which are suitable for the development of the businesses; and ● other conditions stipulated by laws, administrative regulations and the CIRC.
The working materials formed within the territory of the PRC by the securities companies and securities service institutions that provide corresponding services for the overseas issuance and listing of domestic enterprises shall be kept within the territory of the PRC, and outbound transfers of such materials shall go through approval procedures in accordance with relevant rules of the State. - 69 - At the time of our initial public offering in October 2007, while the application of the M&A Rule remained unclear, our then PRC counsel at the time, Commerce & Finance Law Offices, had advised us that, based on their understanding of the then PRC laws and regulations as well as the procedures announced on September 21, 2006: ● the CSRC had jurisdiction over our initial public offering; ● the CSRC had not issued any definitive rule or interpretation concerning whether offerings like our initial public offering are subject to the M&A Rule; and ● despite the above, given that we had completed our inbound investment before September 8, 2006, the effective date of the M&A Rule, an application was not required under the M&A Rule to be submitted to the CSRC for its approval of the listing and trading of our ADSs on the Nasdaq Global Market, unless we are clearly required to do so by subsequent rules of the CSRC.
At the time of our initial public offering in October 2007, while the application of the M&A Rule remained unclear, our then PRC legal counsel at the time, Commerce& Finance Law Offices, had advised us that, based on their understanding of the then PRC laws and regulations as well as the procedures announced on September 21, 2006: ● the CSRC had jurisdiction over our initial public offering; ● the CSRC had not issued any definitive rule or interpretation concerning whether offerings like our initial public offering are subject to the M&A Rule; and ● despite the above, given that we had completed our inbound investment before September 8, 2006, the effective date of the M&A Rule, an application was not required under the M&A Rule to be submitted to the CSRC for its approval of the listing and trading of our ADSs on the Nasdaq Global Market, unless we are clearly required to do so by subsequent rules of the CSRC. - 78 - Based on the advice of our PRC legal counsel , we did not seek CSRC’s approval for our initial public offering.
The lock-up will be released in two batches after 2025. - 48 - Segment Information As of December 31, 2022, we operated two segments: (1) the insurance agency segment, which mainly consists of providing agency services for distributing life insurance products and P&C insurance products on behalf of insurance companies, and (2) the claims adjusting segment, which consists of providing pre-underwriting survey services, claims adjusting services, disposal of residual value services, loading and unloading supervision services, and consulting services.
Segment Information As of December 31, 2023, we operated two segments: (1) the insurance agency segment, which mainly consists of providing agency services for distributing life insurance products and non-life insurance products on behalf of insurance companies, and (2) the claims adjusting segment, which consists of providing pre-underwriting survey services, claims adjusting services, disposal of residual value services, loading and unloading supervision services, and consulting services.
We develop digital toolkits to enable more efficient agent and customer engagement which includes the following: ● Lan Zhanggui - an all-in-one insurance sales and service platform that we develop for our sales agents, which allows them to manage their book of insurance business on their fingertips, covering all aspects of the business process from insurance product purchase, team management, agent recruitment, customer engagement, customer service to e-learning.
The major digital tools that we develop for sales professionals are as follows: ● FA App - an all-in-one insurance sales and service platform that we develop for our sales agents, which allows them to manage their book of insurance business on their fingertips, covering all aspects of the business process from insurance product purchase, team management, agent recruitment, customer engagement, customer service to e-learning.
Conversion of RMB for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of the SAFE. - 64 - Under the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises may only buy, sell or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE.
Under the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises may only buy, sell or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE.
When a risk event occurs, functional departments or subsidiaries shall immediately report it to the Compliance Department to open a case for investigation and management.
When a risk event occurs, functional departments or subsidiaries shall immediately report it to the Compliance Department to open a case for investigation and management. The functional departments or subsidiaries shall inspect the progress of risk events and implementation of improvement plans each month, and report progress to the Compliance Department.
Internet-based information service providers shall perform their responsibilities as the administrative subjects of the account information of internet users, have in place professionals and technical capacity appropriate to the scale of services, and establish, improve and strictly implement the authentication of real identity information, verification of account information, security of information content, ecological governance, emergency responses, protection of personal information and other management systems.
Internet-based information service providers shall perform their responsibilities as the administrative subjects of the account information of internet users, have in place professionals and technical capacity appropriate to the scale of services, and establish, improve and strictly implement the authentication of real identity information, verification of account information, security of information content, ecological governance, emergency responses, protection of personal information and other management systems. - 75 - On July 7, 2022, the CAC promulgated the Data Outbound Transfer Security Assessment Measures, or the Security Assessment Measures, which became effective on September 1, 2022.
Property and Casualty Insurance Products Our property and casualty insurance business accounted for 5.0% of our net revenues in 2022, primarily representing insurance products we distributed through Baowang. Our main property and casualty insurance product in terms of net revenues contribution in 2022 is individual accident insurance and indemnity medical insurance which we distribute through Baowang.
Non-Life Insurance Products Our non-life insurance business accounted for 5.2% of our net revenues in 2023, representing insurance products we distributed through Baowang and our brokerage division. Our main non-life insurance product in terms of net revenues contribution in 2023 is individual accident insurance and indemnity medical insurance which we distribute through Baowang.
The fee is currently waved by Fanlian Investment until further written notice by Fanlian Investment. - 74 - Because of our contractual arrangements with Xinbao Investment, Fanhua RONS Technologies and their subsidiaries and their individual nominee shareholders, we are the primary beneficiary of Xinbao Investment and Fanhua RONS Technologies and their subsidiaries and we consolidate them into our consolidated financial statements.
Because of our contractual arrangements with Xinbao Investment, Fanhua RONS Technologies and their subsidiaries and their individual nominee shareholders, we are the primary beneficiary of Xinbao Investment and Fanhua RONS Technologies and their subsidiaries and we consolidate them into our consolidated financial statements.
We offer the following insurance claims adjusting services: ● Pre-underwriting Survey. Before an insurance policy is sold, we conduct a survey of the item to be insured to assess its current value and help our clients determine the insurable value and the amount to be insured.
Before an insurance policy is sold, we conduct a survey of the item to be insured to assess its current value and help our clients determine the insurable value and the amount to be insured. We also help our clients assess the underwriting risk with respect to the item to be insured through surveys, appraisals and analysis. ● Claims Adjusting.
In the Chinese insurance market, local branches of insurance companies generally have the authority to enter into contracts in their own names with insurance intermediaries. Since 2007, we have sought to establish business relationships with insurance companies at the corporate headquarters level in order to leverage the combined sales volumes of all our subsidiaries located in different parts of China.
Since 2007, we have sought to establish business relationships with insurance companies at the corporate headquarters level in order to leverage the combined sales volumes of all our subsidiaries located in different parts of China.
After a series of restructuring transactions, CNinsure Inc. became the ultimate holding company of our group. On December 6, 2016, our shareholders approved the change of our company name from CNinsure Inc. to Fanhua Inc.
In anticipation of our initial public offering, we incorporated CNinsure Inc. in the Cayman Islands in April 2007. After a series of restructuring transactions, CNinsure Inc. became the ultimate holding company of our group. On December 6, 2016, our shareholders approved the change of our company name from CNinsure Inc. to Fanhua Inc.
As of March 31, 2023, eHuzhu had over 1.7 million paying members, assisting 11,862 families to raise over RMB1.3 billion funds to get through tough times. The platform is accessible primarily through its WeChat official account.
As of March 31, 2024, eHuzhu had over 1.5million outstanding paying members, assisting 13,984 families to raise approximately RMB1.4 billion funds to get through tough times. The platform is accessible primarily through its WeChat official account.
The term of “insurance brokerage practitioner” refers to a person affiliated with an insurance broker who drafts insurance application proposals or handles the insurance application formalities for insurance applicants or the insured or assists insurance applicants or the insured in claiming compensation or who provides clients with disaster or loss prevention or risk assessment or management consulting services or engages in reinsurance brokerage, among others.
The term of “insurance brokerage practitioner” refers to a person affiliated with an insurance broker who drafts insurance application proposals or handles the insurance application formalities for insurance applicants or the insured or assists insurance applicants or the insured in claiming compensation or who provides clients with disaster or loss prevention or risk assessment or management consulting services or engages in reinsurance brokerage, among others. - 67 - To engage in insurance brokerage business within the territory of the PRC, an insurance brokerage shall satisfy the requirements prescribed by the CIRC and obtain an insurance brokerage business permit issued by the CIRC, after obtaining a business license.
We also market and sell certain critical illness, term life, accident, short-term health, travel and homeowner insurance products directly to customers through our online platform Baowang (www.baoxian.com). We market and sell insurance claims adjusting services primarily to insurance companies through our in-house professional claims adjustors.
We provide insurance brokerage services to corporate customers through both our in-house brokers and non-affiliated independent brokers. We also market and sell certain critical illness, term life, accident, short-term health, travel and homeowner insurance products directly to customers through our online platform Baowang (www.baoxian.com).
Non-insurance institutions are not allowed to conduct internet insurance business, including but not limited to, providing insurance product consultancy services, providing insurance product comparison, price quotation and price comparison services, designing insurance plans for the insureds and handling insurance application formalities on behalf of the insureds and collecting premiums by proxy.
Non-insurance institutions are not allowed to conduct internet insurance business, including but not limited to, providing insurance product consultancy services, providing insurance product comparison, price quotation and price comparison services, designing insurance plans for the insureds and handling insurance application formalities on behalf of the insureds and collecting premiums by proxy. - 71 - A self-operated internet platform refers to an internet platform established by insurance institutions for conducting insurance business, by which insurance institutions can operate business independently and have full access to the data on the platform.
Online Mutual Aid Platform In line with our commitment to be socially responsible, in 2014, we launched an online mutual aid platform called eHuzhu (www.ehuzhu.com). The platform provides people with access to alternative risk-protection programs at more affordable costs, especially for the lower-income group. eHuzhu primarily offers programs that provide mutual aid for cancer and accidental death.
The platform provides people with access to alternative risk-protection programs at more affordable costs, especially for the lower-income group. eHuzhu primarily offers programs that provide mutual aid for cancer and accidental death.
Acquisitions On January 3, 2023, we entered into definitive agreements with the existing shareholders of Zhongrong Smart Finance Information Technology Co., Ltd. (“Zhongrong”), a leading managing general agency for life insurance distribution in China, to acquire 57.73% of the equity interests of Zhongrong.
Acquisitions and Disposals in 2023 (a) Acquisition of Zhongrong On January 3, 2023, we entered into definitive agreements (“Share Purchase Agreement”) with the existing shareholders of Zhongrong Smart Finance Information Technology Co., Ltd. (“Zhongrong”), to acquire 57.73% of the equity interests of Zhongrong.
The Measures also specifies requirements on disclosure of information such as information regarding insurance products sold on the internet, the qualification of the insurance institutions operating the internet insurance business, contact methods for local support and compliant provides guidelines for the operations of the insurance institutions that engage in internet insurance business. - 63 - Regulation on Internet Life Insurance The Notice on Further Regulation of Matters Relating to the Internet Life Insurance Business of Insurance Institutions, or the Notice, was issued on October 12, 2021, effective immediately.
The Measures also specifies requirements on disclosure of information such as information regarding insurance products sold on the internet, the qualification of the insurance institutions operating the internet insurance business, contact methods for local support and compliant provides guidelines for the operations of the insurance institutions that engage in internet insurance business.
Operating Results—Factors Affecting Our Results of Operations—Seasonality.” Distribution and Service Network and Marketing We have an offline distribution and service network that, as of March 31, 2023, consisted of one insurance sales and service group, nine insurance agencies including two with national operating licenses, and two insurance brokerage firms, two claims adjusting firms, with 124,682 registered independent sales agents, and 2,063 in-house claims adjustors.
Operating Results—Factors Affecting Our Results of Operations—Seasonality.” Distribution and Service Network and Marketing We have an offline distribution and service network that, as of March 31, 2024, consisted of one insurance sales and service group, eight insurance agencies, two insurance brokerage firms and two claims adjusting firms in mainland China and two insurance intermediary companies in Hong Kong SAR, with 81,171 registered independent sales agents, and 2,310 in-house claims adjustors.
In 2001, we formed China United Financial Services Holdings Limited, or China United Financial Services, a British Virgin Islands company, as the offshore holding company of our PRC subsidiaries.
In 2001, we formed China United Financial Services Holdings Limited, or China United Financial Services, a British Virgin Islands company, as the offshore holding company of our PRC subsidiaries. In June 2004, CISG Holdings Ltd., or CISG Holdings was incorporated in British Virgin Islands and became our holding company through share exchanges with China United Financial Services.
Insurance activities undertaken within the PRC are primarily governed by the Insurance Law and the related rules and regulations. Initial Development of Regulatory Framework The Chinese Insurance Law was enacted in 1995. The original insurance law, which we refer to as the 1995 Insurance Law, provided the initial framework for regulating the domestic insurance industry.
Initial Development of Regulatory Framework The Chinese Insurance Law was enacted in 1995. The original insurance law, which we refer to as the 1995 Insurance Law, provided the initial framework for regulating the domestic insurance industry.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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On-going accumulation of historical renewal data and experiences represents the growth of our confidence for making a reasonable estimate without a significant subsequent reversal in revenue recognized. ● Estimating variability for each variable renewal consideration: For each of the variable renewal commissions, there is only one underlying variability (i.e., the renewal rates for each of the subsequent years of the policy period which is contingent on policyholders’ renewal).
On-going accumulation of historical renewal data and experiences represents the growth of our confidence for making a reasonable estimate without a significant subsequent reversal in revenue recognized. - 104 - ● Estimating variability for each variable renewal consideration: For each of the variable renewal commissions, there is only one underlying variability (i.e., the renewal rates for each of the subsequent years of the policy period which is contingent on policyholders’ renewal).
These undistributed earnings are considered to be indefinitely reinvested, and will be subject to PRC dividend withholding taxes upon distribution. - 90 - C. Research and Development, Patents and Licenses, etc. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.” D.
These undistributed earnings are considered to be indefinitely reinvested, and will be subject to PRC dividend withholding taxes upon distribution. C. Research and Development, Patents and Licenses, etc. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.” D.
On March 21, 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered profits tax rates regime. The Bill was signed into law on March 28, 2018 and was gazetted on the following day.
On March 21, 2018, the Hong Kong SAR Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered profits tax rates regime. The Bill was signed into law on March 28, 2018 and was gazetted on the following day.
The Cayman Islands, the British Virgin Islands and Hong Kong Under the current laws of the Cayman Islands and the British Virgin Islands, we and our subsidiaries incorporated in the British Virgin Islands are not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholding tax in those jurisdictions.
The Cayman Islands, the British Virgin Islands and Hong Kong SAR Under the current laws of the Cayman Islands and the British Virgin Islands, we and our subsidiaries incorporated in the British Virgin Islands are not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholding tax in those jurisdictions.
Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2022 to December 31, 2022 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2023 to December 31, 2023 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
Under the two-tiered profits tax rates regime, the first 2 million Hong Kong Dollar of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million will be taxed at 16.5%.
Under the two-tiered profits tax rates regime, the first 2 million Hong Kong SAR Dollar of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million will be taxed at 16.5%.
Shanghai Fanhua Teamhead Insurance Surveyors & Loss Adjustors Co., Ltd., enjoyed a preferential tax rate of 20% with a 87.5% reduction on its annual taxable income for the portion not exceeding RMB1 million and a 50% reduction for the portion between RMB1 million to RMB3 million from January 1 2020 to December 31, 2021, and enjoyed a preferential tax rate of 20% with a 87.5% reduction on its annual taxable income for the portion not exceeding RMB1 million and a 75% reduction for the portion between RMB1 million to RMB3 million for the fiscal year of 2022.
Shanghai Fanhua Teamhead Insurance Surveyors & Loss Adjustors Co., Ltd., enjoyed a preferential tax rate of 20% with a 87.5% reduction on its annual taxable income for the portion not exceeding RMB1 million and a 50% reduction for the portion between RMB1 million to RMB3 million from January 1 2020 to December 31, 2021, enjoyed a preferential tax rate of 20% with a 87.5% reduction on its annual taxable income for the portion not exceeding RMB1 million and a 75% reduction for the portion between RMB1 million to RMB3 million for the fiscal year of 2022, and enjoyed a preferential tax rate of 20% with a 75% reduction on their annual taxable income for the fiscal year of 2023.
All entities and individuals who pay consumption tax, VAT and business tax are also required to pay education surcharge at a rate of 3%, and local education surcharges at a rate of 2%, of the amount of VAT, business tax and consumption tax actually paid. - 84 - Results of Operations The following table sets forth our net revenues, operating costs and expenses and income from operations by reportable segments for the periods indicated.
All entities and individuals who pay consumption tax, VAT and business tax are also required to pay education surcharge at a rate of 3%, and local education surcharges at a rate of 2%, of the amount of VAT, business tax and consumption tax actually paid. - 96 - Results of Operations The following table sets forth our net revenues, operating costs and expenses and income from operations by reportable segments for the periods indicated.
Operating Costs and Expenses Our operating costs and expenses consist of costs incurred in connection with the distribution of insurance products and the provision of claims adjusting services, selling expenses and general and administrative expenses.
Operating Costs and Expenses Our operating costs and expenses primarily consist of costs incurred in connection with the distribution of insurance products and the provision of claims adjusting services, selling expenses and general and administrative expenses.
These property and casualty insurance policies we distribute are typically for a one-year term, with a single premium payable at the beginning of the term. As a result, the insured has to purchase new policies through us every year. Accordingly, we receive a single commission or fee for each property and casualty policy we distribute.
These non-life insurance policies we distribute are typically for a one-year term, with a single premium payable at the beginning of the term. As a result, the insured has to purchase new policies through us every year. Accordingly, we receive a single commission or fee for each property and casualty policy we distribute.
We estimate that our cash commitments including our capital expenditures will increase substantially in the following two or three years as we pursue selective acquisitions of quality insurance intermediaries companies in combination of stock payments and cash to accelerate the expansion of our open platform and we increase investments to enhance the professional skills of our existing sales force through training and digital empowerment, maintain and upgrade our IT infrastructure and digital platforms and enhance digital operation capabilities.
We estimate that our cash commitments including our cash requirements will increase substantially in the following two or three years as we pursue selective acquisitions of quality insurance intermediaries companies in combination of stock payments and cash to accelerate the expansion of our open platform and we increase investments to enhance the professional skills of our existing sales force through training and digital empowerment, maintain and upgrade our IT infrastructure and digital platforms and enhance digital operation capabilities.
Accordingly, Shenzhen Baowang E-commerce Co., Ltd., the wholly-owned subsidiary of one of the VIEs enjoyed a preferential tax rate of 20% with a 75% reduction on their annual taxable income from January 1, 2019 to December 31, 2022.
Accordingly, Shenzhen Baowang E-commerce Co., Ltd., the wholly-owned subsidiary of one of the VIEs enjoyed a preferential tax rate of 20% with a 75% reduction on their annual taxable income from January 1, 2019 to December 31, 2023.
Other than the contractual obligations and commercial commitments discussed above, we did not have any other material long-term debt obligations, operating lease obligations, purchase obligations or other material long-term liabilities as of December 31, 2022.
Other than the contractual obligations and commercial commitments discussed above, we did not have any other material long-term debt obligations, operating lease obligations, purchase obligations or other material long-term liabilities as of December 31, 2023.
Premium rate levels and commission and fee rates can change based on the prevailing economic conditions, competitive and regulatory landscape, and other factors that affect insurance companies.
Premium rate levels and commission and fee rates can change based on the prevailing economic conditions, competitive and regulatory landscape, interest rate environment and other factors that affect insurance companies.
The provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 8.25% for the years ended December 31, 2021 and 2022. Payment of dividends is not subject to withholding tax in Hong Kong.
The provision for current income taxes of the subsidiaries operating in Hong Kong SAR has been calculated by applying the current rate of taxation of 8.25% for the years ended December 31, 2022 and 2023. Payment of dividends is not subject to withholding tax in Hong Kong SAR.
For discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this annual report on Form 20-F, refer to “Item 5. Operating and Financial Review and Prospects” found in our Form 20-F for the year ended December 31, 2021, that was filed with the Securities and Exchange Commission on April 29, 2022. A.
For discussion of 2022 items and year-over-year comparisons between 2022 and 2021 that are not included in this annual report on Form 20-F, refer to “Item 5. Operating and Financial Review and Prospects” found in our Form 20-F for the year ended December 31, 2022, that was filed with the Securities and Exchange Commission on April 25, 2023. A.
Its tax holiday expired in 2021. - 83 - Pursuant to the Circular on Issues Regarding Tax-related Preferential Policies for Further Implementation of Western Development Strategy jointly issued by the State Ministry of Finance, General Administration of Customs, China and State Administration for Taxation, enterprises located in the western China regions that fall into the encouraged industries are entitled to 15% EIT preferential tax treatment from January 1, 2011 to December 31, 2020.
Pursuant to the Circular on Issues Regarding Tax-related Preferential Policies for Further Implementation of Western Development Strategy jointly issued by the State Ministry of Finance, General Administration of Customs, China and State Administration for Taxation, enterprises located in the western China regions that fall into the encouraged industries are entitled to 15% EIT preferential tax treatment from January 1, 2011 to December 31, 2020.
Net revenues from the insurance agency segment decreased from 2021 to 2022 in both absolute amount and as a percentage of our total net revenues. Net revenues generated from distribution of long-term life and health insurance products have become our primary source of revenue. We began distributing individual life and health insurance products in 2006.
Net revenues from the insurance agency segment increased from 2022 to 2023 in both absolute amount and as a percentage of our total net revenues. Net revenues generated from distribution of long-term life and health insurance products have become our primary source of revenue. We began distributing individual life and health insurance products in 2006.
For Shenzhen Huazhong, 2017 was the first profit-making year and accordingly it has made a 12.5% tax provision for its profits for the years ended December 31, 2021.
For Shenzhen Huazhong, 2017 was the first profit-making year and accordingly it has made a 12.5% tax provision for its profits for the years ended December 31, 2021. Its tax holiday expired in 2021.
(“Tibet Zhuli”), our wholly-owned subsidiary, was entitled to a preferential tax rate of 9% for the period from 2015 to 2020, and 15% for 2021 as it was established with approval in Tibet, PRC, before January 1, 2018. Tibet Zhuli was not entitled to the tax holiday in 2022.
(“Tibet Zhuli”), our wholly-owned subsidiary, was entitled to a preferential tax rate of 9% for the period from 2015 to 2020, and 15% for 2021 as it was established with approval in Tibet, PRC, before January 1, 2018.
Shenzhen Fanhua Training Co., Ltd. a subsidiary of our claims adjusting segment, enjoy a preferential tax rate of 20% with 75% on their annual taxable income from January 1, 2019 to December 31, 2020 and an 87.5% reduction on their annual taxable income from January 1, 2021 to December 31, 2022.
Shenzhen Fanhua Training Co., Ltd. a subsidiary of our claims adjusting segment, enjoy a preferential tax rate of 20% with 75% on their annual taxable income from January 1, 2019 to December 31, 2020 , an 87.5% reduction on their annual taxable income from January 1, 2021 to December 31, 2022 and a 75% reduction on their annual taxable income for the fiscal year of 2023.
Pursuant to the Circular on Inclusive Tax Relief Policies for Small Low-Profit Enterprises (“SLPEs”), or Circular [2019] No. 13, jointly issued by the State Ministry of Finance and State Administration for Taxation in January 2019, an SLPE is entitled to a preferential tax rate of 20% with a 75% reduction on its annual taxable income for the portion not exceeding RMB1 million and a 50% reduction for the portion between RMB1 million to RMB3 million.
Tibet Zhuli was not entitled to the tax holiday in 2022 and 2023. - 95 - Pursuant to the Circular on Inclusive Tax Relief Policies for Small Low-Profit Enterprises (“SLPEs”), or Circular [2019] No. 13, jointly issued by the State Ministry of Finance and State Administration for Taxation in January 2019, an SLPE is entitled to a preferential tax rate of 20% with a 75% reduction on its annual taxable income for the portion not exceeding RMB1 million and a 50% reduction for the portion between RMB1 million to RMB3 million.
Further to the Circular [2019] No. 13, Announcement on Preferential Tax Policies for SLPEs and Individually-owned Businesses (“IOBs”) was jointly issued by the State Ministry of Finance and State Administration for Taxation in April 2021, which provides SLPEs and IOBs an additional 50% reduction on annual taxable income for the portion not exceeding RMB1 million.
Further to the Circular [2019] No. 13, Announcement on Preferential Tax Policies for SLPEs and Individually-owned Businesses was jointly issued by the State Ministry of Finance and State Administration for Taxation in April 2021, which provides SLPEs an 12.5% reduction on annual taxable income for the portion not exceeding RMB1 million.
For services provided in connection with other property and casualty insurance, our fees are calculated as a percentage of the recovered amount from insurance companies plus travel expenses. We typically receive payment for these fees on a semi-annual or annual basis.
For services provided in connection with other non-life, our fees are calculated as a percentage of the recovered amount from insurance companies plus travel expenses. We typically receive payment for these fees on a semi-annual or annual basis.
The fluctuation of the exchange rate between the RMB and U.S. dollar and HK dollar resulted in a foreign currency translation gain of RMB3.7 million (US$0.5 million) in 2022, when we translated our financial assets from U.S. dollar and HK dollar into RMB. We have not hedged exposures to exchange fluctuations using any hedging instruments. See “Item 3. Key Information—D.
The fluctuation of the exchange rate between the RMB and U.S. dollar and HK dollar resulted in a foreign currency translation gain of RMB2.2 million (US$0.3 million) in 2023, when we translated our financial assets from U.S. dollar and HK dollar into RMB. We have not hedged exposures to exchange fluctuations using any hedging instruments. See “Item 3. Key Information—D.
Our principal uses of cash have been to fund dividend distribution, maintenance and development of online and digital platforms including Lan Zhanggui, Baoxian.com, eHuzhu, Fanhua RONS DOP, Fanhua RONS Guanjia, Fanhua WeCom, investment to digitalize our mid-office and back-office functions, establishment of new branches and sales outlets, working capital requirements, automobiles and office equipment purchases, office renovation and rental deposits.
Our principal uses of cash have been to fund dividend distribution, maintenance and development of online and digital platforms including FA App, Baoxian.com, eHuzhu, Fanhua RONS DOP, Fanhua RONS Guanjia, Fanhua Policy Escrow System and Fanhua WeCom, investment to digitalize our mid-office and back-office functions, establishment of new branches and sales outlets, working capital requirements, automobiles and office equipment purchases, office renovation and rental deposits.
We expect to require cash to fund our ongoing business needs, particularly acquisitions of quality insurance intermediary companies which we expect to fund in stock payment and cash to a lesser degree, further expansion of our distribution and service network with the focus on developing a more professional sales force in major cities and the development of digital capabilities.
We expect to require cash to fund our ongoing business needs, particularly acquisitions of complementary business including quality insurance intermediary companies which we expect to fund in stock payment and cash to a lesser degree, further expansion of our distribution and service network in China with the focus on developing a more professional sales force in major cities, the development of digital capabilities and expand our market presence in international markets.
Furthermore, the EIT Law that took effect on January 1, 2008 has eliminated the exemption of EIT on dividends derived by foreign investors from foreign-invested enterprises and imposes on foreign-invested enterprises an obligation to withhold tax on dividends distributed by such foreign-invested enterprises. As of December 31, 2022, our restricted net asset was RMB1,461.2 million (US$211.9 million).
Furthermore, the EIT Law that took effect on January 1, 2008 has eliminated the exemption of EIT on dividends derived by foreign investors from foreign-invested enterprises and imposes on foreign-invested enterprises an obligation to withhold tax on dividends distributed by such foreign-invested enterprises. As of December 31, 2023, our restricted net asset was RMB1,510.1 million (US$212.7 million).
This amount is composed of the registered equity of our PRC subsidiaries and the statutory reserves described above. Our ability to pay dividends primarily depends upon dividends paid by our subsidiaries. As of December 31, 2022, we had aggregate undistributed earnings of approximately RMB1,399.7 million (US$202.9 million) that were available for distribution.
This amount is composed of the registered equity of our PRC subsidiaries and the statutory reserves described above. Our ability to pay dividends primarily depends upon dividends paid by our subsidiaries. As of December 31, 2023, we had aggregate undistributed earnings of approximately RMB1,664.4 million (US$234.4 million) that were available for distribution.
Accordingly, the constraint applied to the total estimated renewal commissions we expect to receive for all sold long-term life insurance products decreased from 86% as of December 31, 2021 to 69% as of December 31, 2022. - 92 - ● Ongoing reassessment of the estimated constrained values : We continue to reassess the estimated constrained values at the end of each reporting period on a quarterly basis, including continuing to review and evaluate the reasonableness of the applied assumptions by comparing the original estimated constrained values with the actual renewal commissions collected to monitor and determine whether any changes to the assumptions are needed.
Accordingly, the constraints applied to Zhongrong’s and Zhongji’s total estimated renewal commissions we expect to receive for all sold long-term life insurance products are 12% and 35%, respectively, as of December 31, 2023. ● Ongoing reassessment of the estimated constrained values : We continue to reassess the estimated constrained values at the end of each reporting period on a quarterly basis, including continuing to review and evaluate the reasonableness of the applied assumptions by comparing the original estimated constrained values with the actual renewal commissions collected to monitor and determine whether any changes to the assumptions are needed.
The exchange rate between U.S. dollar and RMB has declined from an average of RMB8.2264 per U.S. dollar in July 2005 to RMB6.8972 per U.S. dollar in December 2022.
The exchange rate between U.S. dollar and RMB has declined from an average of RMB8.2264 per U.S. dollar in July 2005 to RMB7.0812 per U.S. dollar in December 2023.
The selection of critical accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements.
Some of our accounting policies require a higher degree of judgment than others in their application. - 103 - The selection of critical accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements.
Claims Adjusting Segment The fees we receive for our claims adjusting services are calculated based on the types of insurance products involved. For services provided in connection with property and casualty insurance (other than marine cargo insurance and automobile insurance), our fees are calculated as a percentage of the recovered amount from insurance companies plus travel expenses.
For services provided in connection with property and casualty insurance (other than marine cargo insurance and automobile insurance), our fees are calculated as a percentage of the recovered amount from insurance companies plus travel expenses.
Net Income Attributable to the Company’s Shareholders As a result of the foregoing factors, our net income attributable to our shareholders decreased by 60.0% from RMB251.0 million in 2021 to RMB100.3 million (US$14.5 million) in 2022. Foreign Currency We have foreign currency bank deposits which are primarily denominated in U.S. dollars.
Net Income Attributable to the Company’s Shareholders As a result of the foregoing factors, our net income attributable to our shareholders increased by 179.7% from RMB100.3 million in 2022 to RMB280.5 million (US$39.5 million) in 2023. Foreign Currency We have foreign currency bank deposits which are primarily denominated in U.S. dollars.
Investing Activities Net cash used in investing activities for the year ended December 31, 2022 was RMB127.6 million (US$18.5 million), primarily attributable to cash used to purchase short-term investment products of RMB2,550.3 million (US$369.8 million), prepayment for purchase of short-term investments of RMB540.0 million (US$78.3 million), cash lent to third parties of RMB205.8 million(US$29.8 million), purchase of property, plant and equipment of RMB77.7 million (US$11.3 million) and payment for business acquisition of RMB21.6 million(US$3.1 million), offset by proceeds from the disposal of short-term investments of RMB3,239.6 million (US$469.7 million) that matured and repayment of loan receivables from a third party of RMB24.5 million(US$3.6 million).
Investing Activities Net cash used in investing activities for the year ended December 31, 2023 was RMB234.3 million (US$33.0 million), primarily attributable to cash used to purchase short-term investment products of RMB4,399.9 million (US$619.7 million), purchase of long-term investments of RMB135.5 million (US$19.1 million), cash lent to third parties of RMB160.0 million(US$22.5 million), purchase of property, plant and equipment of RMB13.0 million (US$1.8 million) and disposal of subsidiaries, net of cash disposed of RMB2.4 million(US$0.3 million), offset by proceeds from the disposal of short-term investments of RMB4,226.0 million (US$595.2 million) that matured, repayment of loan receivables from a third party of RMB229.0 million(US$32.3 million) and cash acquired from business acquisitions of RMB18.5 million(US$2.6 million). - 101 - Net cash used in investing activities for the year ended December 31, 2022 was RMB127.6 million (US$18.5 million), primarily attributable to cash used to purchase short-term investment products of RMB2,550.3 million (US$369.8 million), prepayment for purchase of short-term investments of RMB540.0 million (US$78.3 million), cash lent to third parties of RMB205.8 million(US$29.8 million), purchase of property, plant and equipment of RMB77.7 million (US$11.3 million) and payment for business acquisition of RMB21.6 million(US$3.1 million), offset by proceeds from the disposal of short-term investments of RMB3,239.6 million (US$469.7 million) that matured and repayment of loan receivables from a third party of RMB24.5 million(US$3.6 million).
The share of income and impairment of affiliates included (i) an other-than-temporary impairment loss of RMB78.3 million (US$11.3 million) on investment in CNFinance, reflecting a write-down to the fair value of the investment as measured by its closing market price on March 31, 2022, compared to the impairment loss of RMB29.3 million in 2021, and (ii) share of income from CNFinance of RMB11.3million (US$1.6 million) for 2022, compared to share of income from CNFinance of RMB12.0 million in 2021. - 87 - Net Income Attributable to the Non-controlling Interests The net loss attributable to the non-controlling interests was RMB14.5 million (US$2.1 million) in 2022, as compared to the net income attributable to the non-controlling interests of RMB9.0 million in 2021, primarily due to the decrease in profits from our subsidiaries operating claims adjusting business in which we currently own 44.7% equity interests.
The share of income of affiliates, net of impairment in 2022 included (i) an other-than-temporary impairment loss of RMB78.3 million on investment in CNFinance, reflecting a write-down to the fair value of the investment as measured by its closing market price on March 31, 2022, and (ii) share of income from CNFinance of RMB11.3million (US$1.6 million) for 2022. - 99 - Net Income Attributable to the Non-controlling Interests The net income attributable to the non-controlling interests was RMB8.6 million (US$1.2 million) in 2023, as compared to the net loss attributable to the non-controlling interests of RMB14.5 million in 2022, primarily due to (i) the increase in profits from our subsidiaries operating claims adjusting business in which we currently own 44.7% equity interests; and (ii) profit from Zhongrong Smart Finance Information Technology Co., Ltd. and Jilin Zhongji Shi’An Insurance Agency Co., Ltd, the newly acquired subsidiaries in 2023.
We anticipate funding our future capital expenditures primarily with net cash flows from financing and operating activities. Our operating lease obligations consist of undiscounted minimum lease payment included in the measurement of operating lease liabilities under the lease agreements for our office premises.
We anticipate funding our future capital expenditures primarily with net cash flows from financing and operating activities. Our operating lease obligations consist of undiscounted minimum lease payment included in the measurement of operating lease liabilities under the lease agreements for our office premises. Our leasing expense was RMB114.6 million, RMB98.8 million and RMB82.6(US$11.6 million) in 2021, 2022 and 2023, respectively.
We believe this growth will be driven by a number of factors including stronger demand for traditional life and health insurance products as a result of the aging population and the Chinese consumers’ increasing awareness of the benefits of insurance. - 80 - Net revenues generated from distribution of property and casualty insurance products increased from 2021 to 2022 in absolute amounts of our net revenues, primarily due to the contribution from a newly acquired brokerage firm.
We believe this growth will be driven by a number of factors including stronger demand for traditional life and health insurance products as a result of the aging population and the Chinese consumers’ increasing awareness of the benefits of insurance as well as improved productivity of our sales professionals as the Company focuses more resources on recruiting, retaining and training elite sales agents. - 90 - Net revenues generated from distribution of non-life products increased from 2022 to 2023 in absolute amounts of our net revenues, primarily due to the contribution from a newly acquired brokerage firm in the second half of 2022.
Net revenues generated from distribution of life and health insurance products decreased from 2021 to 2022, both in absolute amounts and as a percentage of our net revenues primarily due to the impact of COVID-19.
Net revenues generated from distribution of life and health insurance products increased from 2022 to 2023, both in absolute amounts and as a percentage of our net revenues.
Successful implementation of our professionalization, digitalization and open platform strategy In late 2020, we launched new strategic initiatives to upgrade our sales organization by developing high-caliber, productive and professional insurance advisor teams in economically developed cities in China.
These initiatives are anticipated to increase the number of performing agents and improve their productivity, consequently boosting our financial performance in the coming years. - 87 - Successful implementation of our professionalization, digitalization and open platform strategy In late 2020, we launched new strategic initiatives to upgrade our sales organization by developing high-caliber, productive and professional insurance advisor teams in economically developed cities in China.
Simultaneously, our board of directors approved the grant of options to purchase an aggregate of 4,000,000 ordinary shares to independent directors pursuant to the 2022 Share Incentive Plan (the “2022 Option 1”). Accordingly, we recognized share-based compensation expenses of RMB461,000 in 2022.
Simultaneously, our board of directors approved the grant of options to purchase an aggregate of 4,000,000 ordinary shares to independent directors pursuant to the 2022 Share Incentive Plan (the “2022 Option 1”). In February 2023, our board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares to certain top agents.
If our subsidiaries or consolidated VIEs incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. Our wholly-owned subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations.
Our wholly-owned subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations.
Net cash generated from investing activities for the year ended December 31, 2021 was RMB450.4 million, primarily attributable to proceeds from the disposal of short-term investments of RMB8,646.5 million that matured offset by cash used to purchase short-term investment products of RMB8,184.4 million and purchase of property, plant and equipment of RMB30.8 million. - 89 - Financing Activities Net cash used in financing activities was RMB20.4 million (US$3.0 million) for the year ended December 31, 2022, attributable to settlement of dividend payable payments totaling RMB52.1 million (US$7.5 million), partially offset by proceeds from bank and other borrowings of RMB35.7million(US$5.2 million).
Net cash used in financing activities was RMB20.4 million (US$3.0 million) for the year ended December 31, 2022, attributable to settlement of dividend payable payments totaling RMB52.1 million (US$7.5 million), partially offset by proceeds from bank and other borrowings of RMB35.7 million (US$5.2 million).
Similarly, as competition intensifies and the insurance market becomes more mature in China, we expect that more insurance companies will choose to outsource claims adjusting functions to professional service providers such as our affiliated claims adjusting firms while they focus on the core aspects of their business, including product development and asset and risk management.
Similarly, as competition intensifies and the insurance market becomes more mature in China, we expect that more insurance companies will choose to outsource claims adjusting functions to professional service providers such as our affiliated claims adjusting firms while they focus on the core aspects of their business, including product development and asset and risk management. - 86 - Premium rate levels and commission and fee rates Because the commissions and fees we receive from insurance companies for the distribution of insurance products are generally calculated as a percentage of premiums paid by our customers to the insurance companies, our revenue and results of operations are affected by premium rate levels and commission and fee rates.
As of December 31, 2021 and 2022, total outstanding of balance short-term loans amounted to nil and RMB35,679, respectively, which consisted of RMB denominated borrowings made by the Company’s subsidiaries from financial institutions in mainland China and were repayable within one year. Holding Company Structure We are a holding company with no material operations of our own.
As of December 31, 2022 and 2023, total outstanding of balance short-term loans amounted to RMB35.7 million and RMB164.3 million (US$23.1 million), respectively, which consisted of RMB denominated borrowings made by the Company’s subsidiaries from financial institutions in mainland China and were repayable within one year.
Among these top five of our insurance company partners, Sinatay accounted for 19.6% of our total net revenues in 2022. As a result, any significant changes to our business relationship with the important insurance company partners could have a material impact on our revenue and profit.
As a result, any significant changes to our business relationship with the important insurance company partners could have a material impact on our revenue and profit.
If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer. - 88 - The following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31, 2021 2022 RMB RMB US$ (in thousands) Net cash generated from operating activities 126,198 137,752 19,972 Net cash generated from (used in) investing activities 450,399 (127,562 ) (18,495 ) Net cash used in from financing activities (260,298 ) (20,371 ) (2,954 ) Net increase (decrease) in cash and cash equivalents and restricted cash 316,299 (10,181 ) (1,477 ) Cash and cash equivalents and restricted cash at the beginning of the year 350,098 656,522 95,187 Cash and cash equivalents and restricted cash at the end of the year 656,522 648,211 93,981 Operating Activities Net cash generated from operating activities amounted to RMB137.8million (US$20.0 million) for the year ended December 31, 2022, primarily attributable to (i) a net income of RMB85.7 million (US$12.4 million), (ii) adjustments of depreciation expense of RMB19.5 million (US$2.8 million), non-cash operating lease expense of RMB90.4 million (US$13.1 million), provision for allowance for credit losses on financial assets of RMB30.7 million (US$4.5 million), share of income of affiliates, net of impairment of RMB69.6 million (US$10.1 million) and investment income of RMB10.9 million (US$1.6 million), which were non-cash items and, (iii) increases of contract assets of RMB204.2 million (US$29.6 million), accrued commissions of RMB127.6 million (US$18.5 million) and accounts payable of RMB22.1 million (US$3.2 million), offset by decrease of other current asset of RMB8.6 million (US$1.3 million), other receivables of RMB37.3 million (US$5.4 million) insurance premium payables of RMB7.4 million (US$1.1 million) related to property and casualty insurance business contributed by channel vendors of Baowang, other payables and accrued expenses of RMB16.3million (US$2.4 million), accrued payroll of RMB15.8 million (US$2.3 million), other tax liability of RMB36.6 million (US$5.3 million) and lease liability of RMB88.6 million (US$12.8 million).
Net cash generated from operating activities amounted to RMB137.8million (US$20.0 million) for the year ended December 31, 2022, primarily attributable to (i) a net income of RMB85.7 million (US$12.4 million), (ii) adjustments of depreciation expense of RMB19.5 million (US$2.8 million), non-cash operating lease expense of RMB90.4 million (US$13.1 million), provision for allowance for credit losses on financial assets of RMB30.7 million (US$4.5 million), share of income of affiliates, net of impairment of RMB69.6 million (US$10.1 million) and investment income of RMB10.9 million (US$1.6 million), which were non-cash items and, (iii) increases of contract assets of RMB204.2 million (US$29.6 million), accrued commissions of RMB127.6 million (US$18.5 million) and accounts payable of RMB22.1 million (US$3.2 million), offset by decrease of other current asset of RMB8.6 million (US$1.3 million), other receivables of RMB37.3 million (US$5.4 million) insurance premium payables of RMB7.4 million (US$1.1 million) related to non-life business contributed by channel vendors of Baowang, other payables and accrued expenses of RMB16.3million (US$2.4 million), accrued payroll of RMB15.8 million (US$2.3 million), other tax liability of RMB36.6 million (US$5.3 million) and lease liability of RMB88.6 million (US$12.8 million).
Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates.
When estimating the variable consideration, we use the expected value method based on accumulated historical data and experiences.
When estimating the variable consideration, we use the expected value method based on accumulated historical data and experiences. We also consider constraints when determining the estimated variable consideration, which we refer to as “estimated constrained values”.
This competition has led to a gradual increase in the commission and fee rates offered to insurance intermediaries, and such an increase has had a positive impact on our results of operations.
As a result of a significant increase in the number of insurance companies and the existing insurance companies’ expansion into new geographic markets, there has been a gradual increase in the commission and fee rates offered to insurance intermediaries, and such an increase has had a positive impact on our results of operations.
In 2021 and 2022, we generated net revenues of RMB3,271.1 million (US$513.3 million) and RMB2,781.6 million (US$403.3 million), respectively.
In 2022 and 2023, we generated net revenues of RMB2,781.6 million and RMB3,198.4 million (US$450.5 million), respectively.
We derive our revenue primarily from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance companies. Accordingly, industry-wide premium growth will have a positive impact on us.
Regulatory Changes: Regulatory shifts in China and other relevant jurisdictions significantly impact our business strategies, operations, and compliance requirements; 4. Industry-wide premium growth: We derive our revenue primarily from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the insurance companies.
Any downturn in the Chinese insurance industry, whether caused by a general slowdown of the PRC economy or otherwise, may adversely affect our financial condition and results of operations. - 76 - The Extent to Which Insurance Companies in the PRC Outsource the Distribution of their Products and Claims Adjusting Functions Historically, insurance companies in the PRC have relied primarily on their exclusive individual sales agents and direct sales force to sell their products.
The extent to which insurance companies in the PRC outsource the distribution of their products and claims adjusting functions Historically, insurance companies in the PRC have relied primarily on their exclusive individual sales agents and direct sales force to sell their products.
We expect our net revenues to be derived from distribution of property and casualty insurance products to remain stable in 2022. We began providing claims adjusting services in 2008. Net revenues from our claims adjusting segment decreased from 2021 to 2022, primarily due to the impact of COVID-19.
We expect our net revenues derived from distribution of non-life products to remain stable in 2024. We began providing claims adjusting services in 2008. Net revenues from our claims adjusting segment increased from 2022 to 2023, primarily due to business recovery after the pandemic.
Share of Income of Affiliates, net of Impairment Our share of income of affiliates, net of impairment was a loss of RMB69.6 million(US$10.1 million) for 2022, as compared to the share of income of affiliates, net of impairment of a loss of RMB20.6 million in 2021.
The effective tax rate for 2023 was 17.0% compared with 20.9% in 2022. Share of Income of Affiliates, net of Impairment Our share of income of affiliates, net of impairment was a loss of RMB1.3 million (US$0.2 million) for 2023, as compared to the share of income of affiliates, net of impairment of a loss of RMB69.6 million in 2022.
As of December 31, 2022, we had RMB567.5 million (US$82.3 million) in cash and cash equivalents, and RMB347.8 million (US$50.4 million) in short-term investments.
As of December 31, 2023, we had RMB521.5 million (US$73.5 million) in cash and cash equivalents, and RMB928.3 million (US$103.7 million) in short-term investments.
As we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority, such liabilities are excluded from the contractual obligations discussed above.
The majority of our operating lease commitments are related to our office lease agreements in China. We had uncertain tax liabilities of RMB34.4 million (US$4.8 million) for 2023. As we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority, such liabilities are excluded from the contractual obligations discussed above.
On August 12, 2022, our board of directors adopted a new share incentive plan under which we have reserved 161,143,768 ordinary shares for issuance, which was approximately 15% of our outstanding ordinary shares as of June 30, 2022.
We expect that our general and administrative expenses will decrease in absolute amount as a result of efficiency improvement and cost-savings brought by the Company’s digitization and technological investment. - 92 - Share-based compensation expenses On August 12, 2022, our board of directors adopted a new share incentive plan under which we have reserved 161,143,768 ordinary shares for issuance, which was approximately 15% of our outstanding ordinary shares as of June 30, 2022.
Our operating costs decreased from 2021 to 2022, which was in line with the decrease in revenue during the same period. We rely mainly on individual sales agents and to a much lesser degree, on Baoxian.com for the distributions of insurance products. For claims adjusting services, we rely mainly on our in-house claims adjustors.
Our operating costs increased from 2022 to 2023, which was in line with the increase in revenue during the same period. We rely mainly on our registered sales agents and to a much lesser degree, on Baoxian.com, as well as non-affiliated channel partners who used our open platform solutions, for the distribution of insurance products.
We conduct our operations through our subsidiaries and our consolidated VIEs, Xinbao Investment, Fanhua RONS Technologies and their affiliates in China. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries and service fees paid by our consolidated VIEs.
As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries and service fees paid by our consolidated VIEs. If our subsidiaries or consolidated VIEs incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
Year Ended December 31, 2021 2022 RMB % RMB US$ % (in thousands except percentages) Total net revenues 3,271,114 100.0 2,781,614 403,296 100.0 Operating costs (2,115,167 ) (64.7 ) (1,795,603 ) (260,338 ) (64.6 ) Selling expenses (306,463 ) (9.4 ) (272,706 ) (39,539 ) (9.8 ) General and administrative expenses (547,579 ) (16.7 ) (544,630 ) (78,964 ) (19.6 ) Total operating costs and expenses (2,969,209 ) (90.8 ) (2,612,939 ) (378,841 ) (94.0 ) Operating Costs We incur costs primarily in connection with the distributions of insurance products and the provision of claims adjusting services.
Year Ended December 31, 2022 2023 RMB % RMB US$ % (in thousands except percentages) Total net revenues 2,781,614 100.0 3,198,389 450,484 100.0 Operating costs (1,795,603 ) (64.6 ) (2,145,416 ) (302,176 ) (67.1 ) Selling expenses (272,706） (9.8 ) (250,223 ) (35,243 ) (7.8 ) General and administrative expenses (544,630） (19.6 ) (606,925 ) (85,484 ) (19.0 ) Total operating costs and expenses (2,612,939 ) (94.0 ) (3,002,564 ) (422,903 ) (93.9 ) Operating Costs We incur costs primarily in connection with the distributions of insurance products and the provision of insurance brokerage and claims adjusting services.
Operating loss incurred by the headquarters increased by 18.2% from RMB108.4million in 2021 to RMB128.1 million (US$18.6million) in 2022, mainly due to increased expenditures for the execution of the Professionalization, Digitalization and Open Platform strategy. Other Income Investment Income. Investment income represents income received from short-term investments in interbank deposits.
Operating loss incurred by the headquarters increased by 26.1% from RMB128.1million in 2022 to RMB161.6 million (US$22.8 million) in 2023, mainly due to increased expenditures for the execution of the Professionalization, Digitalization and Open Platform strategy. Other Income Gains from fair value change .
We incurred capital expenditures of RMB15.3 million, RMB30.8 million and RMB77.7 million (US$11.3 million) for the years ended December 31, 2020, 2021 and 2022, respectively. Our capital expenditures have been used primarily to construct our IT infrastructure and online platforms, and to purchase automobiles and office equipment for newly-established sales outlets.
Our capital expenditures have been used primarily to construct our IT infrastructure and online platforms, and to purchase automobiles and office equipment for newly-established sales outlets.
We anticipate that our operating costs as a percentage of our total net revenues to remain stable. - 81 - Selling Expenses Our selling expenses primarily consist of: ● salaries and employment benefits for employees who work in back office below the provincial management level; ● office rental, telecommunications and office supply expenses incurred in connection with sales activities; and ● advertising and marketing expenses.
Operating costs incurred as a percentage of net revenues increased from 2022 to 2023, primarily due to the slower growth of our renewal life insurance business which typically has higher gross margin than new business and the decrease in higher-margin volume-based commission from new life insurance business We anticipate that our operating costs as a percentage of our total net revenues to increase as we intend to leverage the opportunities brought by upcoming regulatory changes to consolidate the market and grab more market shares in 2024. - 91 - Selling Expenses Our selling expenses primarily consist of: ● salaries and employment benefits for employees who work in back office below the provincial management level; ● office rental, telecommunications and office supply expenses incurred in connection with sales activities; and ● advertising and marketing expenses.
Seasonality Our quarterly results of operations are affected by seasonal variations caused by business mix, insurance companies’ business practices and consumer demand.
We expect revenues from our claims adjusting business as a percentage of our total net revenues to remain stable over the next few years. 1 Seasonality Our quarterly results of operations are affected by seasonal variations caused by business mix, insurance companies’ business practices and consumer demand.
We derive net revenues from the following sources: ● Insurance agency segment : commissions paid by insurance companies for the distribution of (i) life and health insurance products, and (ii) commoditized property and casualty products sold through Baoxian.com, which accounted for 86.0% and 85.4% of our net revenues for 2021 and 2022, respectively; ● Claims adjusting segment : commissions and fees primarily paid by the insurance companies for the provision of claims adjusting services, which accounted for 14.0% and 14.6% of our net revenues for 2021 and 2022, respectively; The following table sets forth our total net revenues earned from each of our reporting segments both in absolute amounts and as percentages of total net revenues, for the periods indicated: Year Ended December 31, 2021 2022 RMB % RMB US$ % (in thousands except percentages) Agency 2,811,936 86.0 2,376,851 344,611 85.4 Life insurance business 2,679,720 81.9 2,237,312 324,380 80.4 P&C insurance business 132,216 4.1 139,539 20,231 5.0 Claims adjusting 459,178 14.0 404,763 58,685 14.6 Total net revenues 3,271,114 100.0 2,781,614 403,296 100.0 Insurance agency segment primarily covers distribution of life and health insurance products and property and casualty insurance products to individuals.
The following table sets forth our total net revenues earned from each of our reporting segments, both in absolute amounts and as percentages of total net revenues, for the periods indicated: Year Ended December 31, 2022 2023 RMB % RMB US$ % (in thousands except percentages) Agency 2,376,851 85.4 2,760,448 388,801 86.3 Life insurance business 2,237,312 80.4 2,593,803 365,330 81.1 Non-life insurance business (previously categorized as P&C insurance business) 139,539 5.0 166,645 23,471 5.2 Claims adjusting 404,763 14.6 437,941 61,683 13.7 Total net revenues 2,781,614 100.0 3,198,389 450,484 100.0 Insurance agency segment primarily covers distribution of life and health insurance products and non-life insurance products to individuals and to a lesser extent commercial line of property insurance products to corporate clients.
Insurance Agency Segment Our largest segment by revenue, the insurance agency segment, provides a broad range of life and health and property and casualty insurance products to individual customers. Most individual life and health insurance policies we distribute require periodic payment of premiums, typically annually, during a pre-determined payment period, generally ranging from three to 25 years.
As revenues derived from our insurance brokerage business accounted for less than 6% of our total net revenues in 2023, those revenues were also recorded as non-life agency revenues. Most individual life and health insurance policies we distribute require periodic payment of premiums, typically annually, during a pre-determined payment period, generally ranging from three to 25 years.
Net cash used in financing activities was RMB260.3 million for the year ended December 31, 2021, attributable to dividend payments totaling RMB242.5 million. Material cash requirements Our material cash requirements as of December 31, 2022 and any subsequent interim period primarily include our capital expenditures, operating lease obligations and tax liabilities.
Material cash requirements Our material cash requirements as of December 31, 2023 and any subsequent interim period primarily include our capital expenditures, operating lease obligations and tax liabilities. We incurred capital expenditures of RMB30.8 million, RMB77.7 million and RMB13.0 million (US$1.8 million) for the years ended December 31, 2021, 2022 and 2023, respectively.
Operating Results Factors Affecting Our Results of Operations As an insurance intermediary in China, our financial condition and results of operations are affected by a variety of factors, including: ● business relationship with important insurance company partners; ● total premium payments to Chinese insurance companies; ● the extent to which insurance companies in the PRC outsource the distribution of their products and claims adjusting functions; ● premium rate levels and commission and fee rates; ● the size and productivity of our sales force; ● commission rates for individual sales agents; ● product and service mix; ● share-based compensation expenses; ● seasonality; and ● Impact on our business and financial results due to the COVID-19 pandemic; ● Successful implementation of our professionalization, digitalization and open platform strategy Business Relationship with Important Insurance Company Partners We derive significant revenue from our important insurance company partners.
Competitive Environment: The competitive landscape in China poses challenges and opportunities, driving us to continuously enhance our technological capabilities and service differentiation to maintain our market position and achieve sustained growth. - 85 - While our business is influenced by general factors affecting our industry, our operating results are more directly affected by the following company-specific factors: ● business relationship with important insurance company partners; ● the extent to which insurance companies in the PRC outsource the distribution of their products and claims adjusting functions; ● premium rate levels and commission and fee rates; ● the quality and productivity of our sales force; ● successful implementation of our professionalization, digitalization and open platform strategy; ● commission rates for individual sales agents; ● product and service mix; and ● seasonality.
Compensation—Share Incentives—2022 Share Incentive Plan.” We expect share-based compensation expenses to be a significant component of our operating expenses in the near future. - 82 - Taxation We and each of our subsidiaries file separate income tax returns.
Compensation—Share Incentives—2022 Share Incentive Plan.” We expect share-based compensation expenses to be a significant component of our operating expenses in the near future. Discussion of Certain Balance Sheet Items The following table sets forth certain selected consolidated balance sheets data as of December 31, 2022 and 2023.
The property and casualty insurance policies we distribute primarily consist of individual accident insurance, indemnity medical insurance, travel insurance, and homeowner insurance that we distribute through Baoxian.com. Because the insurance products that we distribute through Baoxian.com are mostly underwritten by property and casualty insurance companies, we classify them as property and casualty insurance products.
The non-life insurance policies we distribute primarily consist of individual accident insurance, indemnity medical insurance, travel insurance, and homeowner insurance that we distribute through Baoxian.com and commercial property insurance, liability insurance, cargo insurance, construction and erection insurance that we offer through our insurance brokerage firm.
Our general and administrative expenses decreased by 0.5% from RMB547.6 million in 2021 to RMB544.6 million (US$79.0 million) in 2022, primarily due to the cost savings from office expenses, partially offset by increased headcount in our IT center Income from Operations As a result of the foregoing factors, we recorded an operating income of RMB168.7 million (US$24.5 million) for 2022, decreased by 44.1% from RMB301.9 million in 2021. ● Income from operations for our agency insurance segment decreased by 21.6% from RMB393.5 million in 2021 to RMB308.7 million (US$44.8 million) in 2022, which was primarily due to the decrease of life insurance business. ● Operations loss for our claims adjusting segment was RMB11.9 million (US$1.7million) in 2022, as compared to operating income of RMB16.8 million in 2021. ● Other loss from operations represented operating loss incurred by the headquarters, which was not allocated to each business segment.
Operating Costs and Expenses Operating costs and expenses increased by 14.9% from RMB2,612.9 million in 2022 to RMB3,002.6 million (US$422.9 million) for 2023. ● Operating costs and expenses for our insurance agency segment increased by 17.1% from RMB2,068.2 million in 2022 to RMB2,422.4 million (US$341.2 million) in 2023, mainly dut to the increase in insurance revenue generated from the agency business and expenses incurred by the acquired business which was consolidated since the first quarter of 2023. ● Operating costs and expenses for our claims adjusting segment increased by 0.5% from RMB416.6 million in 2022 to RMB418.6 million (US$59.0 million) in 2023, largely in line with the increase in revenue for the claims adjusting business. - 98 - Income from Operations As a result of the foregoing factors, we recorded an operating income of RMB195.8 million (US$27.6 million) for 2023, increased by 16.1% from RMB168.7 million in 2022. ● Income from operations for our agency insurance segment increased by 9.5% from RMB308.7 million in 2022 to RMB338.1 million (US$47.6 million) in 2023, which was primarily due to the increase of revenue and operating expenses saving from personnel optimization and decrease in the number of sales outles. ● Operations income for our claims adjusting segment was RMB19.4 million (US$2.7million) in 2023, as compared to operating loss of RMB11.9 million in 2022. ● Other loss from operations represented operating loss incurred by the headquarters, which was not allocated to each business segment.
In recent years, as the result of our efforts to streamline our sales force with more focus on better performing sales agents as well as the adverse impact of the COVID-19 on the sales activities of our sales agents, the size of our sales force has decreased substantially which had adversely affected our financial results.
In recent years, efforts to optimize our operations and the adverse impact of COVID-19 on sales activities had led to a substantial decrease in the size of our sales force, adversely affecting our financial results in the short term.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may result in an adverse impact on our business and financial results. - 79 - Key Performance Indicators As of December 31, 2021 and 2022, we operated two segments: (1) the insurance agency segment, which mainly consisted of providing agency services for distributing life insurance products and P&C insurance products on behalf of insurance companies, and (2) the claims adjusting segment, which consists of providing pre-underwriting survey services, claims adjusting services, disposal of residual value services, loading and unloading supervision services, and consulting services.
The principal operational metrics we analyze are outlined in the table below: Key Components of Our Results of Operations 2022 2023 (RMB) (RMB) Million Million Gross Written Premiums facilitated 12,778.5 16,444.6 First year premiums 2,926.4 3,812.7 Renewal premiums 9,852.1 12,631.9 - 89 - Key Components of Our Results of Operations As of December 31, 2022 and 2023, we operated two segments: (1) the insurance agency segment, which mainly consisted of providing agency services for distributing life insurance products and non-life insurance products on behalf of insurance companies, and (2) the claims adjusting segment, which consists of providing pre-underwriting survey services, claims adjusting services, disposal of residual value services, loading and unloading supervision services, and consulting services.
In general, we can negotiate for better rates as an incentive for generating a larger volume of business. Since China’s entry into the WTO in December 2001, competition among insurance companies has intensified as a result of a significant increase in the number of insurance companies and the existing insurance companies’ expansion into new geographic markets.
In general, we can negotiate for better rates as an incentive for generating a larger volume of business.
However, we have embarked on a series of strategic initiatives to professionalize our sales force and recruit more productive agents, which we expect to bring positive results on the number of our performing agents and their productivity and as a result have positive impact on our financial performance within the next few years. - 77 - Commission Rates for Individual Sales Agents A large component of our operating costs is commissions paid to our individual sales agents.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may result in an adverse impact on our business and financial results. Commission rates for individual sales agents A large component of our operating costs is commissions paid to our individual sales agents.
We expect revenues from our claims adjusting business as a percentage of our total net revenues to remain stable over the next few years. - 78 - Share-based Compensation Expenses Our historical results of operations have been affected by the share-based compensation expenses incurred. See “Item 5. Operating and Financial Review and Prospects—A.
We expect revenues from our non-life business as a percentage of our total net revenues to remain stable over the next few years. - 88 - Claims Adjusting Segment The fees we receive for our claims adjusting services are calculated based on the types of insurance products involved.
Net revenues generated from the P&C insurance business accounted for 5.0% of our total net revenues in 2022. ● Net revenues from our claims adjusting segment decreased by 11.8% from RMB459.2 million in 2021 to RMB404.8 million (US$58.7 million) for 2022.
Revenues for the non-life insurance business were mainly derived from commissions generated for internet-based insurance products sold on Baowang, including medical insurance, accident insurance, travel insurance and homeowner insurance products. and to a lesser extent from commissions and services fees from the provision of insurance brokerage services for commercial line of insurance products Net revenues generated from the non-life insurance business accounted for 5.2% of our total net revenues in 2023. ● Net revenues from our claims adjusting segment increased by 8.2% from RMB404.8 million in 2022 to RMB437.9 million (US$61.7 million) for 2023.
For the Year Ended December 31, 2021 2021 to 2022 Percentage Change 2022 RMB % RMB US$ (in thousands except percentages) Consolidated Statement of Income Data Net revenues: Agency 2,811,936 (15.5 ) 2,376,851 344,611 Life insurance business 2,679,720 (16.5 ) 2,237,312 324,380 P&C insurance business 132,216 5.5 139,539 20,231 Claims adjusting 459,178 (11.9 ) 404,763 58,685 Total net revenues 3,271,114 (15.0 ) 2,781,614 403,296 Operating costs and expenses: Operating costs: Agency (1,835,825 ) (16.8 ) (1,527,572 ) (221,477 ) Life insurance business (1,742,640 ) (17.6 ) (1,436,606 ) (208,288 ) P&C insurance business (93,185 ) (2.4 ) (90,966 ) (13,189 ) Claims adjusting (279,342 ) (4.0 ) (268,031 ) (38,861 ) Total operating costs (2,115,167 ) (15.1 ) (1,795,603 ) (260,338 ) Selling expenses (306,463 ) (11.0 ) (272,706 ) (39,539 ) General and administrative expenses (547,579 ) (0.5 ) (544,630 ) (78,964 ) Total operating costs and expenses (2,969,209 ) (12.0 ) (2,612,939 ) (378,841 ) Income from operations Insurance agency 393,492 (21.5 ) 308,657 44,751 Claims adjusting 16,829 N/A (11,856 ) (1,720 ) Other (108,416 ) 18.6 (128,126 ) (18,576 ) Income from operations 301,905 (44.1 ) 168,675 24,455 Other income, net: Investment income 32,898 (45.9 ) 17,809 2,582 Interest income 2,971 360.2 13,674 1,983 Others, net 33,314 N/A (3,823 ) (554 ) Income from operations before income taxes and share of income and impairment of affiliates, net 371,088 (47.1 ) 196,335 28,466 Income tax expense (90,574 ) (54.7 ) (41,016 ) (5,947 ) Share of income and impairment of affiliates, net (20,573 ) 238.3 (69,596 ) (10,090 ) Net income 259,941 (67.0 ) 85,723 12,429 Less: Net income attributable to the noncontrolling interests 8,952 N/A (14,549 ) (2,109 ) Net income attributable to the Company’s shareholders 250,989 (60.0 ) 100,272 14,538 - 85 - Year ended December 31, 2022 Compared to Year Ended December 31, 2021 Net Revenues Our total net revenues decreased by 15.0% from RMB3, 271.1 million in 2021 to RMB2,781.6 million (US$403.3 million) in 2022. ● Net revenues from our insurance agency segment decreased by 15.5% from RMB2,811.9 million in 2021 to RMB2,376.8 million (US$344.6 million) in 2022.
For the Year Ended December 31, 2022 2022 to 2023 Percentage Change 2023 RMB % RMB US$ (in thousand except percentage) Consolidated Statement of Income Data Net revenues: Agency 2,376,851 16.1 2,760,448 388,801 Life insurance business 2,237,312 15.9 2,593,803 365,330 Non-life insurance business 139,539 19.4 166,645 23,471 Claims adjusting 404,763 8.2 437,941 61,683 Total net revenues 2,781,614 15.0 3,198,389 450,484 Operating costs and expenses: Agency (2,068,194 ) 17.1 (2,422,386 ) (341,187 ) Claims adjusting (416,619 ) 0.5 (418,589 ) (58,958 ) Other (128,126 ) 26.1 (161,589 ) (22,758 ) Total operating costs and expenses (2,612,939 ) 14.9 (3,002,564 ) (422,903 ) Income from operations Insurance agency 308,657 9.5 338,062 47,614 Claims adjusting (11,856 ) N/A 19,352 2,725 Other (128,126 ) 26.1 (161,589 ) (22.758 ) Income from operations 168,675 16.1 195,825 27,581 Other income, net: Gains (loss) from fair value change － N/A 102,867 14,489 Investment income 17,809 175.8 49,106 6,917 Interest income, net 13,674 (58.4 ) 5,690 801 Others, net (3,823 ) (4.0 ) (3,670 ) (517 ) Income from operations before income taxes and share of income and impairment of affiliates, net 196,335 78.2 349,818 49,271 Income tax expense (41,016 ) 44.8 (59,402 ) (8,367 ) Share of income and impairment of affiliates, net (69,596 ) (98.1 ) (1,317 ) (185 ) Net income 85,723 237.2 289,099 40,719 Less: Net income attributable to the noncontrolling interests (14,549 ) N/A 8,622 1,215 Net income attributable to the Company’s shareholders 100,272 179.7 280,477 39,504 - 97 - Year ended December 31, 2023 Compared to Year Ended December 31, 2022 Net Revenues Our total net revenues increased by 15.0% from RMB2,781.6 million in 2022 to RMB3,198.3 million (US$450.5 million) in 2023.
In 2022, total life insurance GWP increased by 10.2% year-over-year to RMB12,409.0 million, of which FYP increased by 2.0% year-over-year to RMB 2,556.9 million and renewal premiums increased by 12.6% year-over-year to RMB9,852.1 million.
In 2023, total life insurance GWP increased by 29.8% year-over-year to RMB16,110.0 million, of which FYP grew by 36.0% year-over-year to RMB3,478.1 million while renewal premiums increased by 28.2% year-over-year to RMB12,631.9million. Net revenues generated from our life insurance business accounted for 81.1% of our total net revenues in 2023.

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Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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The financial reporting and disclosure committee is responsible for, among other things: ● reviewing and, as necessary, helping revise our controls and procedures that are designed to ensure that: (i) information required to be disclosed by us to the SEC and other information that our company publicly discloses is recorded, processed, summarized and reported accurately and on a timely basis; and (ii) information is accumulated and communicated to management, including the Senior Officers, as appropriate to allow timely decisions regarding such reporting and disclosure (collectively, the “Reporting and Disclosure Controls and Procedures”); ● assisting in documenting and monitoring the integrity and effectiveness of our Reporting and Disclosure Controls and Procedures; and ● reviewing the Company’s: (i) periodic and current reports, proxy statements, information statements, registration statements and any other information filed with or furnished to the SEC; (ii) press releases containing financial information, earnings guidance, information about material acquisitions or dispositions or other information material to the Company’s securityholders; (iii) correspondence broadly disseminated to securityholders; (iv) other relevant communications or presentations (collectively, the “Reporting and Disclosure Statements”); and (v) unusual and complex transactions, new accounting standard adoption and disclosure, new SEC reporting requirements.
The financial reporting and disclosure committee is responsible for, among other things: ● reviewing and, as necessary, helping revise our controls and procedures that are designed to ensure that: (i) information required to be disclosed by us to the SEC and other information that our company publicly discloses is recorded, processed, summarized and reported accurately and on a timely basis; and (ii) information is accumulated and communicated to management, including the Senior Officers, as appropriate to allow timely decisions regarding such reporting and disclosure (collectively, the “Reporting and Disclosure Controls and Procedures”); - 112 - ● assisting in documenting and monitoring the integrity and effectiveness of our Reporting and Disclosure Controls and Procedures; and ● reviewing the Company’s: (i) periodic and current reports, proxy statements, information statements, registration statements and any other information filed with or furnished to the SEC; (ii) press releases containing financial information, earnings guidance, information about material acquisitions or dispositions or other information material to the Company’s securityholders; (iii) correspondence broadly disseminated to securityholders; (iv) other relevant communications or presentations (collectively, the “Reporting and Disclosure Statements”); and (v) unusual and complex transactions, new accounting standard adoption and disclosure, new SEC reporting requirements.
Professor Yin received his master’s and PhD degrees in finance from Southwestern University of Finance and Economics in China. Employment Agreements Each of our executive officers has entered into an employment agreement with us. Under these agreements, each of our executive officers is employed for a specified time period.
Professor Yin received his master’s and PhD degrees in finance from Southwestern University of Finance and Economics in China. - 107 - Employment Agreements Each of our executive officers has entered into an employment agreement with us. Under these agreements, each of our executive officers is employed for a specified time period.
Specifically, each executive officer has agreed not to, while employed by us and for one year following the termination or expiration of the employment agreement, (i) approach our clients, customers or contacts or other persons or entities introduced to the executive officer for the purpose of doing business with such person or entities, and will not interfere with the business relationship between us and such persons and/or entities; (ii) assume employment with or provide services as a director for any of our competitors, or engage, whether as principal, partner or otherwise, in any business which is in direct or indirect competition with our business; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us at the date of the executive officer’s termination, or in the year preceding such termination. - 95 - B.
Specifically, each executive officer has agreed not to, while employed by us and for one year following the termination or expiration of the employment agreement, (i) approach our clients, customers or contacts or other persons or entities introduced to the executive officer for the purpose of doing business with such person or entities, and will not interfere with the business relationship between us and such persons and/or entities; (ii) assume employment with or provide services as a director for any of our competitors, or engage, whether as principal, partner or otherwise, in any business which is in direct or indirect competition with our business; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us at the date of the executive officer’s termination, or in the year preceding such termination.
To maintain training standards, we evaluate our lecturers and present awards for outstanding performance on an annual basis. - 102 - E. Share Ownership We currently do not have specific stock ownership requirements for our CEO and other members of our management.
To maintain training standards, we evaluate our lecturers and present awards for outstanding performance on an annual basis. E. Share Ownership We currently do not have specific stock ownership requirements for our CEO and other members of our management.
Board Practices Board of Directors Our board of directors consists of six directors. Under our currently effective amended and restated memorandum and articles of association, a director is not required to hold any shares in our company by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement in which he is materially interested.
Board Practices Board of Directors Our board of directors consists of seven directors. Under our currently effective amended and restated memorandum and articles of association, a director is not required to hold any shares in our company by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement in which he is materially interested.
In 2022, our corporate governance and nominating committee held meetings or passed resolutions by unanimous written consent twice. Financial Reporting and Disclosure Committee. Our financial reporting and disclosure committee consists of Peng Ge (chairman), Allen Lueth, and two of our non-executive employees including our financial controller and our internal legal counsel.
In 2023, our corporate governance and nominating committee held meetings or passed resolutions by unanimous written consent twice. Financial Reporting and Disclosure Committee. Our financial reporting and disclosure committee consists of Peng Ge (chairman), Allen Lueth, and two of our non-executive employees including our financial controller and our internal legal counsel.
Various courses were delivered by a large team of internal lecturers which include the Group’s senior management, department heads and senior employees with deep experience in various areas of our operations and external courses to acquaint them with our business and unlease their potential.
Various courses were delivered by a large team of internal lecturers which include the Group’s senior management, department heads and senior employees with deep experience in various areas of our operations and external courses to acquaint them with our business and unleash their potential.
Additionally, shareholder approval will be specifically required to increase the number of shares available for issuance under the 2022 Share Incentive Plan or to extend the term of an option beyond ten years.
Additionally, shareholder approval will be specifically required to increase the number of shares available for issuance under the 2022 and 2023 Share Incentive Plan or to extend the term of an option beyond ten years.
In 2022, our financial reporting and disclosure committee held meetings by unanimous written consent twice. - 100 - Duties of Directors Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they consider in good faith to be in our best interests.
In 2023, our financial reporting and disclosure committee held meetings by unanimous written consent twice. Duties of Directors Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they consider in good faith to be in our best interests.
Yinan Hu is our co-founder and has been our chairman of the board of directors and chief executive officer since December 2021 and has been our director since our inception in 1998. He is currently a member of the board of directors of Puyi Inc., which is a public company listed in the U.S.
Yinan Hu is our co-founder and has been our chairman of the board of directors and chief executive officer since December 2021 and has been our director since our inception in 1998. He is currently a member of the board of directors of HPH, which is a public company listed in the U.S.
For the sale of each life insurance policy with a single premium payment schedule or property and casualty insurance policy, we pay the sales agent who has generated the sale a single commission based on a percentage of the commission and fee we receive from insurance companies for the sale of that policy.
For the sale of each life insurance policy with a single premium payment schedule or non-life policy, we pay the sales agent who has generated the sale a single commission based on a percentage of the commission and fee we receive from insurance companies for the sale of that policy.
The audit committee is responsible for, among other things: ● selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; ● reviewing with the independent auditors any audit problems or difficulties and management’s response; ● reviewing and approving all proposed related-party transactions; ● discussing the annual audited financial statements with management and the independent auditors; ● reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; ● annually reviewing and reassessing the adequacy of our audit committee charter; ● meeting separately and periodically with management, the independent auditors and the internal auditor; and ● reporting regularly to the full board of directors.
The audit committee is responsible for, among other things: ● selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; ● reviewing with the independent auditors any audit problems or difficulties and management’s response; ● reviewing and approving all proposed related-party transactions; ● discussing the annual audited financial statements with management and the independent auditors; ● reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; ● annually reviewing and reassessing the adequacy of our audit committee charter; ● overseeing the implementation of the Company’s Cybersecurity Policy and reviewing and approving the relevant disclosure ● meeting separately and periodically with management, the independent auditors and the internal auditor; and ● reporting regularly to the full board of directors.
There is no age limit requirement for directors. The Board conducts self-assessment of its performance annually in compliance with corporate governance requirements, which encompasses the directors’ involvement in business operations, the effectiveness of board oversight, board composition, board culture, management of major issues, and processes of board operation.
There is no age limit requirement for directors. - 110 - The Board conducts self-assessment of its performance annually in compliance with corporate governance requirements, which encompasses the directors’ involvement in business operations, the effectiveness of board oversight, board composition, board culture, management of major issues, and processes of board operation. Following the resignation of Mr.
Earlier, he served with Coopers & Lybrand as an auditor. Mr. Lueth obtained his certificate as a certified public accountant in 1991 and a certified management accountant in 1994. Mr. Lueth received his bachelor of science in accounting degree from the University of Minnesota and an MBA degree from the J.L. Kellogg School of Management. Dr.
Earlier, he served with Coopers & Lybrand as an auditor. Mr. Lueth obtained his certificate as a certified public accountant in 1991 and a certified management accountant in 1994. Mr. Lueth received his bachelor of science in accounting degree from the University of Minnesota and an MBA degree from the Kellogg School of Management at Northwestern University. Dr.
We need employees well-equipped with professional knowledge to support our frontline sales agents and provide our clients with best quality of services. To maximize their performance and professional growth, we provide ample training opportunities through our well-established training platform e-learning system and “Fanhua Academy” available through Lan Zhanggui.
We need employees well-equipped with professional knowledge to support our frontline sales agents and provide our clients with best quality of services. To maximize their performance and professional growth, we provide ample training opportunities through our well-established training platform e-learning system and “Fanhua Academy” available through FA App.
From September 2019 to February 2021 Mr. Lueth served as the president and chief financial officer of International Institute of Education Group, a company mainly engaged in language education in the PRC. From 2017 to 2019 and 2010 to 2017, Mr.
Lueth served as the president and chief financial officer of International Institute of Education Group, a company mainly engaged in language education in the PRC. From 2017 to 2019 and 2010 to 2017, Mr.
Plan Administration . The compensation committee of our board of directors, or a committee designated by the compensation committee, will administer the 2022 Share Incentive Plan. However, awards made to our independent directors must be approved by the entire board of directors.
Plan Administration . The compensation committee of our board of directors, or a committee designated by the compensation committee, will administer the 2022 and 2023 Share Incentive Plans. However, awards made to our independent directors must be approved by the entire board of directors.
Our board of directors may at any time amend, suspend or terminate the 2022 Share Incentive Plan. Amendments to the 2022 Share Incentive Plan are subject to shareholder approval to the extent required by law, or stock exchange rules or regulations.
Our board of directors may at any time amend, suspend or terminate the 2022 and 2023 Share Incentive Plans. Amendments to the 2022 and 2023 Share Incentive Plans are subject to shareholder approval to the extent required by law, or stock exchange rules or regulations.
Prior to that, he served in different senior leadership roles in the financial regulatory authorities, including head of the PBOC Guangdong Branch and chief of State Administration of Foreign Exchange, Guangdong Branch and assistant governor of the PBOC. - 94 - Mr. Stephen Markscheid has been our independent director since August 2007. Mr.
Prior to that, he served in different senior leadership roles in the financial regulatory authorities, including head of the PBOC Guangdong Branch and chief of State Administration of Foreign Exchange, Guangdong Branch and assistant governor of the PBOC. Mr. Allen Lueth has been our independent director since August 2007. Mr.
The types of awards we may grant under our 2022 Share Incentive Plan include the following: ● options to purchase our ordinary shares; ● restricted shares, which represent non-transferable ordinary shares, that may be subject to forfeiture, restrictions on transferability and other restrictions; and ● restricted share units, which represent the right to receive our ordinary shares at a specified date in the future, which may be subject to forfeiture. - 96 - Awards may be designated in the form of ADSs instead of ordinary shares.
The types of awards we may grant under our 2022 Share Incentive Plan and 2023 Share Incentive Plan include the following: ● options to purchase our ordinary shares; ● restricted shares, which represent non-transferable ordinary shares, that may be subject to forfeiture, restrictions on transferability and other restrictions; and ● restricted share units, which represent the right to receive our ordinary shares at a specified date in the future, which may be subject to forfeiture.
In 2022, our audit committee held meetings or passed resolutions by unanimous written consent four times. Compensation Committee . Our compensation committee consists of Stephen Markscheid (chairman), Allen Lueth and Yunxiang Tang, all of whom satisfy the “independence” requirements of Rule 5605 of the Nasdaq Listing Rules.
In 2023, our audit committee held meetings or passed resolutions by unanimous written consent five times. - 111 - Compensation Committee . Our compensation committee consists of Yunxiang Tang (chairman) and Allen Lueth, all of whom satisfy the “independence” requirements of Rule 5605 of the Nasdaq Listing Rules.
The compensation committee is responsible for, among other things: ● reviewing and recommending to the board with respect to the total compensation package for our chief executive officer; ● approving and overseeing the total compensation package for our executives other than the chief executive officer; ● reviewing and making recommendations to the board with respect to the compensation of our directors; and ● reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans. - 99 - In 2022, our compensation committee held meetings or passed resolutions by unanimous written consent twice.
The compensation committee is responsible for, among other things: ● reviewing and recommending to the board with respect to the total compensation package for our chief executive officer; ● approving and overseeing the total compensation package for our executives other than the chief executive officer; ● reviewing and making recommendations to the board with respect to the compensation of our directors; and ● reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.
The outstanding awards will accelerate upon occurrence of a change-of-control corporate transaction where the successor entity does not assume our outstanding awards under the 2007 Share Incentive Plan.
The outstanding awards will accelerate upon occurrence of a change-of-control corporate transaction where the successor entity does not assume our outstanding awards under the 2022 and 2023 Share Incentive Plans.
Compensation In 2022, the aggregate cash compensation, including reimbursement of expenses, to our executive officers which include executive directors was approximately RMB4.9 million (US$0.7 million), and the aggregate cash compensation to our non-executive directors was approximately RMB1.8 million (US$0.3 million).
B. Compensation In 2023, the aggregate cash compensation, including reimbursement of expenses, to our executive officers which include executive directors was approximately RMB4.9 million (US$0.9 million), and the aggregate cash compensation to our non-executive directors was approximately RMB2.0 million (US$0.3 million).
The following table sets forth information with respect to the beneficial ownership of our shares, as of March 31, 2023, by: ● each of our current directors and executive officers; and ● each person known to us to own beneficially more than 5% of our shares. As of March 31, 2023, there were 1,157,463,924 ordinary shares outstanding.
The following table sets forth information with respect to the beneficial ownership of our shares, as of March 31, 2024, by: ● each of our current directors and executive officers; and ● each person known to us to own beneficially more than 5% of our shares. - 115 - As of March 31, 2024, there were 1,134,108,474 ordinary shares outstanding excluding treasury shares.
The members of the board consisted of industry professionals with insurance and financial backgrounds including one independent director who has worked in financial risk assessment. The membership of our Board currently does not include women.
The members of the board consisted of industry professionals with insurance and financial backgrounds including one independent director who has worked in financial risk assessment.
Ge was a financial manager at a subsidiary of China National Native Produce and Animal By-Products Import & Export Corporation. Mr. Ge received his bachelor’s degree in international accounting and his MBA degree from the University of International Business and Economics in China. Mr.
Ge was a financial manager at a subsidiary of China National Native Produce and Animal By-Products Import & Export Corporation. Mr. Ge received his bachelor’s degree in international accounting and his MBA degree from the University of International Business and Economics in China. Mr. Ben Lin has been our director and chief strategy officer since July 2023. Mr.
If we designate an award in the form of ADSs, the number of shares issuable under the 2007 Share Incentive Plan will be adjusted to reflect the ratio of ADSs to ordinary shares. Eligibility .
Awards may be designated in the form of ADSs instead of ordinary shares. If we designate an award in the form of ADSs, the number of shares issuable under the 2022 and 2023 Share Incentive Plans will be adjusted to reflect the ratio of ADSs to ordinary shares. Eligibility .
In addition, our independent directors held executive sessions without the presence of non-independent directors or members of management twice during 2022. We have no specific policy with respect to director attendance at our annual general meetings of shareholders. We have a diverse board consisting of members from a wide variety of backgrounds, expertise, skills, and experiences.
In addition, our independent directors held executive sessions without the presence of non-independent directors or members of management twice during 2023 . We have no specific policy with respect to director attendance at our annual general meetings of shareholders.
On February 6, 2023, our board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares to certain top agents who have met the requirements for Million Dollar Round Table Membership, pursuant to the 2022 Share Incentive Plan (the “2022 Option 2”). The exercise price of these options is US$0.05 per ordinary share.
As of March 31, 2024, options to purchase 1,760,000 ordinary shares related to 2022 Option 1 have been vested. - 108 - On February 6, 2023, our board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares to certain top agents who have met the requirements for Million Dollar Round Table Membership, pursuant to the 2022 Share Incentive Plan (the “2022 Option 2”).
Directors and Senior Management.” Board Diversity Board Diversity Matrix (As of March 31, 2023) Country of Principal Executive Offices: China Foreign Private Issuer Yes Disclosure Prohibited Under Home Country Law No Total Number of Directors 6 Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 0 6 - - Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction - LGBTQ+ - Did Not Disclose Demographic Background - D.
Board Diversity Matrix (As of March 31, 2024) Country of Principal Executive Offices: China Foreign Private Issuer Yes Disclosure Prohibited Under Home Country Law No Total Number of Directors 7 Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 0 7 - - Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction - LGBTQ+ - Did Not Disclose Demographic Background - - 113 - We have a diverse board consisting of members from a wide variety of backgrounds, expertise, skills, and experiences.
For our traditional sales force, our life insurance sales agents are typically organized into sales teams with a multilevel hierarchy, typically with five layers. A life insurance sales agent not only receives a commission for the insurance policies that he or she sells, but also a commission for insurance policies sold by agents under his or her management.
A life insurance sales agent not only receives a commission for the insurance policies that he or she sells, but also a commission for insurance policies sold by agents under his or her management.
A majority of these sales agents are independent sales agents who are not our employees and are only compensated by commissions. We have contractual relationships with these sales agents. Our insurance advisors are our employees and are compensated by both base salaries and commissions. We primarily distribute life insurance policies with a periodic premium payment schedule.
Our insurance advisors are our employees and are compensated by both base salaries and commissions. We primarily distribute life insurance policies with a periodic premium payment schedule.
(1) Percentage of beneficial ownership of each director and executive officer is based on 1,157,463,924 ordinary shares outstanding as of March 31, 2023. (2) Includes (i) 10,041,200 ordinary shares in the form of ADSs directly held by Mr.
(1) Percentage of beneficial ownership of each director and executive officer is based on 1,134,108,474 ordinary shares outstanding as of March 31, 2024. (2) This includes 10,041,200 ordinary shares in the form of ADSs directly held by Mr. Hu and excludes Mr. Hu’s indirect ownership of the Company through HPH.
As of March 31, 2023, all of the options under 2007 Share Incentive Plan had been exercised or forfeited, of which options to purchase 35,806,518 ordinary shares were cash exercised and collectively held by two employee shareholding vehicles on behalf of employees who beneficially own the shares. 2022 Share Incentive Plan On August 12, 2022, our board of directors adopted a share incentive plan under which we have reserved 161,143,768 ordinary shares for issuance, which was approximately 15% of our outstanding ordinary shares as of June 30, 2022.
As of March 31, 2024, all of the options under 2007 Share Incentive Plan had been exercised or forfeited. 2022 Share Incentive Plan On August 12, 2022, our board of directors adopted a share incentive plan under which we have reserved 161,143,768 ordinary shares for issuance, which was approximately 15% of our outstanding ordinary shares as of June 30, 2022 (“2022 Share Incentive Plan”).
Unless terminated earlier, the 2022 Share Incentive Plan will expire and no further awards may be granted after the tenth anniversary of the shareholder approval of the 2007 Share Incentive Plan. - 97 - As of March 31, 2023, options to purchase 17,680,000 ordinary shares of the Company were outstanding.
Unless terminated earlier, the 2022 and 2023 Share Incentive Plan will expire and no further awards may be granted after the tenth anniversary of the shareholder approval of the 2007 Share Incentive Plan.
Directors and Executive Officers Age Position/Title Yinan Hu 57 Chief Executive Officer and Chairman of the Board of Directors Peng Ge 51 Chief Financial Officer and Director Lichong Liu 50 Chief Operating Officer and Vice President Jun Li 49 Chief Digital Officer and Vice President Yunxiang Tang 77 Independent Director Stephen Markscheid 69 Independent Director Allen Warren Lueth 54 Independent Director Mengbo Yin 67 Independent Director - 93 - Mr.
Directors and Executive Officers Age Position/Title Chin Hua Peh 76 Chairman of the Board of the Directors Yinan Hu 58 Chief Executive Officer and Vice-Chairman of the Board of Directors Peng Ge 52 Chief Financial Officer and Director Bin Chuang Lin 41 Chief Strategy Officer and Director Lichong Liu 51 Chief Operating Officer and Vice President Jun Li 50 Chief Digital Officer and Vice President Yunxiang Tang 78 Independent Director Allen Warren Lueth 55 Independent Director Mengbo Yin 68 Independent Director Mr.
With the data insight gained through digital technologies, agents will be categorized into different levels based on various criteria including their qualification, capabilities and productivity and targeted training courses will be provided to help improve their professional skills and productivity. We believe in our employees’ potential and provide training and development opportunities intended to maximize their performance and professional growth.
As part of our efforts to professionalize our sales force, we will allocate more resources to enhance training. With the data insight gained through digital technologies, agents will be categorized into different levels based on various criteria including their qualification, capabilities and productivity and targeted training courses will be provided to help improve their professional skills and productivity.
Corporate Governance and Nominating Committee . Our corporate governance and nominating committee consists of Mengbo Yin (chairman), Allen Lueth and Stephen Markscheid, all of whom satisfy the “independence” requirements of Rule 5605 of the Nasdaq Listing Rules.
In 2023, our compensation committee held meetings or passed resolutions by unanimous written consent twice. Corporate Governance and Nominating Committee. Our corporate governance and nominating committee consists of Mengbo Yin (chairman) and Allen Lueth, all of whom satisfy the “independence” requirements of Rule 5605 of the Nasdaq Listing Rules.
Each committee’s members and functions are described below. Audit Committee . Our audit committee consists of Allen Lueth (chairman), Stephen Markscheid and Mengbo Yin, all of whom satisfy the “independence” requirements of Rule 5605 of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act of 1934.
Our audit committee consists of Allen Lueth (chairman), Yunxiang Tang and Mengbo Yin, all of whom satisfy the “independence” requirements of Rule 5605 of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act of 1934. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company.
The options are scheduled to vest over a two-year period starting from March 31, 2024, subject to the achievement of certain key performance indicators by the option holders and their continued service with us. The following paragraphs describe the principal terms of 2022 Share Incentive Plan as currently in effect. Types of Awards .
The exercise price of these options is US$0.05 per ordinary share. The options are scheduled to vest over a two-year period starting from March 31, 2024, subject to the achievement of certain key performance indicators by the option holders and their continued service with us.
Ordinary Shares Beneficially Owned(1) Number % Directors and Executive Officers: Yinan Hu(2) 210,400,770 18.2 % Peng Ge(3) 53,562,260 4.6 % Lichong Liu(4) 23,119,600 2.0 % Jun Li * * Stephen Markscheid * * Allen Warren Lueth * * Mengbo Yin * * All Directors and Executive Officers as a Group 290,305,670 25.1 % Principal Shareholders: Sea Synergy Limited(5) 189,698,110 16.4 % * Less than 1% of our total outstanding ordinary shares. † Except for our independent directors, the business address of our directors and executive officers is c/o 60/F, Pearl River Tower, No. 15 West Zhujiang Road, Guangzhou, Guangdong 510623, People’s Republic of China.
Ordinary Shares Beneficially Owned(1) Number % Directors and Executive Officers: Chin Hua Peh * * Yinan Hu(2) * * Peng Ge(3) * * Ben Lin * * Lichong Liu(4) * * Jun Li * * Yunxiang Tang * * Allen Warren Lueth * * Mengbo Yin * * All Directors and Executive Officers as a Group 13,244,480 1.2 % Principal Shareholders: Highest Performances Holdings Inc.(5) 568,226,628 50.1 % * Less than 1% of our total outstanding ordinary shares. † Except for our independent directors, the business address of our directors and executive officers is c/o 60/F, Pearl River Tower, No. 15 West Zhujiang Road, Guangzhou, Guangdong 510623, People’s Republic of China.
Employees Employees, Sales Agents and Training We had 4,926, 5,785 and 5,328 employees as of December 31, 2020, 2021 and 2022, respectively. We consider our relations with our employees to be good.
We will continue our search for a suitable candidate in order to increase the diversity of our board. D. Employees Employees, Sales Agents and Training We had 5,785, 5,328 and 4,664 employees as of December 31, 2020, 2021 and 2023, respectively. We consider our relations with our employees to be good.
Lueth is currently a member of the board of directors of Greatview Aseptic Packaging Company Limited, a company listed in Hong Kong. Since February 2021, Mr. Lueth has served as CEO of Great Leap Brewery, a company engaged in the brewing and selling of beer in the PRC through third-party sales and its restaurants.
From February 2021 to March 2024, Mr. Lueth served as CEO of Great Leap Brewery, a company engaged in the brewing and selling of beer in the PRC through third-party sales and its restaurants. From September 2019 to February 2021 Mr.
For the existing sales agents, we offer on-the-job training courses that aim to enhance their sales skills and knowledge of various insurance products and develop skills to build and manage their own sales teams. Online training courses are also available on Lan Zhanggui and Fanhua RONS Livestreaming Platform, which enable sales agents to attend the courses anytime anywhere.
For new sales agents, we offer orientation courses that are designed to familiarize them with corporate culture, insurance products, and sales skills. For the existing sales agents, we offer on-the-job training courses that aim to enhance their sales skills and knowledge of various insurance products and develop skills to build and manage their own sales teams.
Awards granted under our 2022 Share Incentive Plan will be evidenced by an award agreement that will set forth the terms, conditions and limitations for each award. In addition, in the case of options, the award agreement may also specify whether the option constitutes an ISO or a non-qualifying share option. Acceleration of Awards upon Corporate Transactions .
In addition, in the case of options, the award agreement may also specify whether the option constitutes an ISO or a non-qualifying share option. - 109 - Acceleration of Awards upon Corporate Transactions .
The number of beneficial owners of our ADSs in the United States is likely much larger than the number of record holders of our ordinary shares in the United States. - 103 -
Morgan, the depositary for our ADS program, is our only record holder in the United States, holding approximately 58.11% of our total outstanding ordinary shares. The number of beneficial owners of our ADSs in the United States is likely much larger than the number of record holders of our ordinary shares in the United States. - 116 - F.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. As of March 31, 2023, J.P. Morgan Chase Bank, N.A., or J.P. Morgan, the depositary for our ADS program, is our only record holder in the United States, holding approximately 57.3% of our total outstanding ordinary shares.
Except for the pending potential investment from White Group, we are not aware of any other arrangement that may, at a subsequent date, result in a change of control of our company. As of March 31, 2024, J.P. Morgan Chase Bank, N.A., or J.P.
The following table sets forth the number of our employees by function as of December 31, 2022: Number of Employees % of Total Management 583 11.1 Administrative staff 2,308 44.1 Financial and accounting staff 197 3.8 Professional claims adjustors 1,950 37.2 Information technology staff 200 3.8 Total 5,238 100.0 - 101 - The following table sets forth the number of our employees by gender as of December 31, 2022: Female Male Management 170 413 Other staff 1,911 2,744 Total 2,081 3,157 The following table sets forth the number of our employees by age as of December 31, 2022: Persons % of Total 1,765 33.7 30-40 years old 2,568 49.0 > 40 years old 905 17.3 Total 5,238 100.0 As of December 31, 2020, 2021 and 2022, we had 362,580, 284,053 and 141,088 registered sales agents respectively.
The following table sets forth the number of our employees by function as of December 31, 2023: Number of Employees % of Total Management 512 11.0 Administrative staff 1,497 32.1 Financial and accounting staff 173 3.7 Professional claims adjustors 2,287 49.0 Information technology staff 195 4.2 Total 4,664 100.0 The following table sets forth the number of our employees by gender as of December 31, 2023: Female Male Management 149 364 Other staff 1,522 2629 Total 1,671 2993 The following table sets forth the number of our employees by age as of December 31, 2023: Persons % of Total 1,669 35.8 30-50 years old 2,794 59.9 > 50 years old 201 4.3 Total 4,664 100.0 - 114 - As of December 31, 2021, 2022 and 2023, we had 284,053, 141,088 and 87,851 registered sales agents respectively.
Name Options Outstanding Exercise Price (Per Ordinary Share)( US$) Grant Date Expiration Date Yunxiang Tang 1,600,000 0.2305 August 12, 2022 August 12, 2032 Stephen Markscheid 800,000 0.2305 August 12, 2022 August 12, 2032 Allen Warren Lueth 800,000 0.2305 August 12, 2022 August 12, 2032 Mengbo Yin 800,000 0.2305 August 12, 2022 August 12, 2032 Other individuals as a group 13,680,000 0.05 February 6, 2023 February 6, 2033 C.
Name Options Outstanding Exercise Price (Per Ordinary Share)(US$) Grant Date Expiration Date Yunxiang Tang 1,600,000 0.2305 August 12, 2022 August 12, 2032 Allen Warren Lueth 800,000 0.2305 August 12, 2022 August 12, 2032 Mengbo Yin 800,000 0.2305 August 12, 2022 August 12, 2032 Former director 800,000 0.2305 August 12, 2022 August 12, 2032 Other individuals as a group 11,300,000 0.05 February 6, 2023 February 6, 2033 2024 Share Option Grants On February 2, 2024, share options were granted to certain employees of the Company and top agents to purchase 5,799,925 ADSs of HPH as a supplement of salary and benefit packages.
Lichong Liu has been our chief operating officer since March 2022 and has served as chairman of Fanhua Group Company since January 2022. Mr.
He graduated from Macquarie University Sydney with a Master of Commerce degree and was an Associate of the Institute of Actuaries Australia. - 106 - Mr. Lichong Liu has been our chief operating officer since March 2022 and has served as chairman of Fanhua Group Company since January 2022. Mr.
The following table summarizes, as of March 31, 2023, the outstanding options that we granted to our directors and to other individuals as a group.
As of March 31, 2024, options to purchase 15,300,000 ordinary shares of the Company were outstanding and an aggregate of 536,990 RSUs in ADSs have been issued and outstanding. The following table summarizes, as of March 31, 2024, the outstanding options that we granted to our directors and to other individuals as a group.
Ge directly holds 12.7% of the equity interests of Kingsford Resources. (4) Includes (i) 22,787,600 ordinary share held through Kingsford Resources; and (ii) 332,000 ordinary shares in the form of ADSs directly held by Mr. Liu. Mr. Liu directly holds 58.1% of the equity interests of Kingsford Resources.
Ge holds 12.7% of the equity interests of Better Rise. (4) Includes 467,280 ordinary share in the form of ADSs directly held by Mr. Liu and excludes Mr. Liu’s indirect ownership of the Company through HPH which is 5.3% held by Kingsford Resources. Kingsford Resources is wholly-owned by Better Rise which is 58.1% held by Mr. Lichong Liu.
But we are in the process of actively seeking female directors to refresh the composition of our Board, and adding new independent members to further strengthen the Board’s expertise and skill set and to introduce fresh perspectives. - 98 - Committees of the Board of Directors We have established four committees under the board of directors: the audit committee, the compensation committee, the corporate governance and nominating committee and financial reporting and disclosure committee and have adopted a charter for each of the committees.
Committees of the Board of Directors We have established four committees under the board of directors: the audit committee, the compensation committee, the corporate governance and nominating committee and financial reporting and disclosure committee and have adopted a charter for each of the committees. Each committee’s members and functions are described below. Audit Committee .
We have also established an open source lecturer platform which allows insurance veterans to upload self-developed courses and viewable on fee basis. As part of our efforts to professionalize our sales force, we will allocate more resources to enhance training.
Online training courses are also available on FA App and Fanhua RONS Livestreaming Platform, which enable sales agents to attend the courses anytime anywhere. We have also established an open-source lecturer platform which allows insurance veterans to upload self-developed courses and viewable on fee basis.
Therefore, we place a strong emphasis on training our sales force. We provide training to both new sales agents and existing sales agents, on a monthly or quarterly basis, both offline and online. For new sales agents, we offer orientation courses that are designed to familiarize them with corporate culture, insurance products, and sales skills.
Our sales agents, in-house sales representatives and claims adjustors are valuable to us and are instrumental in helping us build and maintain long-term relationships with our customers. Therefore, we place a strong emphasis on training our sales force. We provide training to both new sales agents and existing sales agents, on a monthly or quarterly basis, both offline and online.
Removed
Markscheid is managing partner of Aerion Capital, a family office. He is a member of the board of directors of Jinko Solar, Inc., UGE Inc., Monterey Capital Acquisition, and Four Leaf Acquisition, which are public companies listed in U.S. and Kingwisoft Technology Group Limited, a public company listed in Hong Kong.
Added
Chin Hua Peh has served as our chairman of the board since February 2024. Mr. Peh founded the Singapore White Group Pte. Ltd., or White Group, in 2005 and is the current Executive Chairman and President of White Group, as well as the Chairman of the US Investment Fund Group.
Removed
He is also a trustee emeritus of Princeton-in-Asia, a nonprofit social service organization affiliated with Princeton University. He was a member of the board of directors of a number of other listed companies, including TKK Symphony Acquisition Corporation (currently named Glory Star New Media Group Holdings Limited), Ener-Core, Inc., China Ming Yang Wind Power Group and ChinaCast Education Corporation.
Added
He was formerly Managing Director of the Shinglee Book Holdings, the founder and Executive Chairman of Dragonland Group, a listed company on the main board of Singapore, and the Vice Chairman of TFC Bank Holdings in the United States and the Chairman of NTUC Seacare Holding Ltd. He was a former Member of Parliament in Singapore for 13 years (1988-2001).
Removed
He acted as a director and interim chief executive officer and chief financial officer of Fellazo Inc. in 2020. From 2014 to 2017, he was a partner of Wilton Partners, a Shanghai-based boutique investment bank. From 2007 to 2011, he was the chief executive officer of Synergenz BioScience, Inc., a genomics company based in Hong Kong. Prior to that, Mr.
Added
He had actively contributed to Singapore’s social and political service for 29 years and was awarded National Day Public Service Medal for his commendable efforts in public service. Mr. Peh graduated with an Executive Masters in Business Administration from the National University of Singapore. Mr.
Removed
Markscheid was the chief executive officer of HuaMei Capital Company, Inc., a Sino-U.S. investment advisory firm from 2006 to 2007. From 1998 to 2006, Mr. Markscheid worked for GE Capital. During his time with GE Capital, he led GE Capital’s business development activities in China and Asia Pacific, primarily acquisitions and direct investments. Prior to joining GE, Mr.
Added
Lin was our Co-chairman from July 2023 to February 2024. Before joining Fanhua, Mr. Lin was Vice President and Investment Analyst at Capital Group based in Hong Kong SAR from 2016 to 2023. Ben’s research and investment responsibility included the Asia Pacific Insurance Sector, Industrial and Consumer Goods. Prior to that, he was a Managing Director with Morgan Stanley Asia.
Removed
Markscheid worked with the Boston Consulting Group throughout Asia from 1994 to 1997. Prior to that, Mr. Markscheid had been a commercial banker for ten years in London, Chicago, New York, Hong Kong and Beijing with Chase Manhattan Bank and First National Bank of Chicago. Prior to that, he worked with the US-China Business Council in Washington D.C. and Beijing.
Added
From 2009 to 2014, he was the Head of Asia Pacific Insurance Research and was consistently ranked as a top analyst in the region. In 2015, Mr. Lin became the Head of China Internet Research.
Removed
Mr. Markscheid received his bachelor’s degree in East Asian studies from Princeton University, a master’s degree in international affairs and economics from the School of Advanced International Studies at Johns Hopkins University, and an MBA degree from Columbia University. Mr. Allen Lueth has been our independent director since August 2007. Mr.
Added
Before Morgan Stanley, he was an Executive Director with Nomura Securities Hong Kong SAR and was the Head of Asia Pacific Insurance Research from 2007 to 2009. Mr. Lin started his career in 2005 with Credit Suisse Sydney covering the Australian Insurance and Diversified Financials sector and moved to Hong Kong SAR in a similar role in 2007.
Removed
In compliance with Rule 5605 of the Nasdaq Listing Rules, a majority of our directors and all of the committee members of our board of directors are independent directors. During 2022, our board of directors met in person or passed resolutions by unanimous written consent six times.
Added
Lueth is currently a member of the board of directors of Greatview Aseptic Packaging Company Limited, a company listed in Hong Kong. Since March 2024, Mr. Lueth has been serving as a chief operating officer of Wellington College China, an educational institution primarily engaged in providing education services in the PRC and the United States of America.
Removed
The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company.
Added
As of March 31, 2024, options to purchase 11,300,000 ordinary shares related to 2022 Option 2 were outstanding. Restricted Share Units On August 16, 2023, our board of directors approved the grant of 536,990 restricted share units in the form of ADS (“RSUs”) to Ben Lin, our chief strategy officer.
Removed
As to our Yuntong branches, our insurance advisors are organized in two layers consisting of one senior financial advisor leading several junior financial advisors. Our sales agents, in-house sales representatives and claims adjustors are valuable to us and are instrumental in helping us build and maintain long-term relationships with our customers.
Added
The RSUs are scheduled to vest over a five-year period starting from June 30, 2024, subject to his continued service with us. 2023 Share Incentive Plan On February 20, 2024, our board of directors adopted a share incentive plan under which we have reserved 113,423,618 ordinary shares for issuance, which was approximately 10% of our outstanding ordinary shares as of December 31, 2023 (“2023 Share Incentive Plan”).
Removed
To ensure that new employees integrate into our culture and their daily work, we provide a robust new-hire experience, as well as extensive ongoing training for existing employees to acquaint them with our business.
Added
As of March 31, 2024, no options or RSUs have been granted under 2023 Share Incentive Plan. The following paragraphs describe the principal terms of the Share Incentive Plans as currently in effect. Types of Awards .
Removed
We require all of our employees to complete courses in key regulatory areas, such as insider trading and anti-money laundering compliance, and we offer professional development opportunities through training sessions and cross-departmental workshops, resulting in over 140,000 completed courses and workshops and approximately 134,000 development hours for our employees.
Added
Awards granted under our 2022 and 2023 Share Incentive Plans will be evidenced by an award agreement that will set forth the terms, conditions and limitations for each award.
Removed
In addition, we have mentorship programs that pair newer employees with more experienced professionals, giving mentees access to experience, expertise, and guidance. Finally, to help employees determine the next steps in their careers, we have a Career Growth Portal that provides employees with tools, resources, training courses and assessments as they chart their career paths.
Added
Pursuant to the share incentive program, the exercise price of these options is US$0.001 per HPH’s ADS. The options are scheduled to vest over a one-year period starting from March 1, 2025, subject to the achievement of certain key performance indicators by the option holders and their continued service with the Company. C.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Pursuant to the framework agreement, starting from January 2021, Puyi Enterprise has been providing referral and marketing services of our insurance products to their clients when their clients have such needs while our agents will be responsible for handling the purchasing procedures and other services.
(ii) Pursuant to the framework agreement, starting from 2021, Puyi Enterprise has been providing referral and marketing services of our insurance products to their clients when their clients have such needs while our agents will be responsible for handling the purchasing procedures and other services.
On December 28, 2020, we entered into a framework strategic partnership agreement, or the Agreement, with Puyi Enterprise Management Advisory Co., Ltd., or Puyi Enterprise, an affiliate of Puyi Inc., pursuant to which, both parties, on the basis of full compliance with relevant regulatory and legal requirements, will share customer and channel resources and explore collaboration opportunities on the provision of value-added asset management services to Chinese households, by leveraging both parties’ respective strength in insurance and financial services.
Related Party Transactions Transactions with HPH (i) On December 28, 2020, we entered into a framework strategic partnership agreement, or the Agreement, with Puyi Enterprise Management Advisory Co., Ltd., or Puyi Enterprise, an affiliate of HPH, pursuant to which, both parties, on the basis of full compliance with relevant regulatory and legal requirements, will share customer and channel resources and explore collaboration opportunities on the provision of value-added asset management services to Chinese households, by leveraging both parties’ respective strength in insurance and financial services.
Directors and Senior Management—Employment Agreements” for a description of the employment agreements we have entered into with our senior executive officers. Share Options Please refer to “Item 6. Directors, Senior Management and Employees—B. Compensation.” C. Interests of Experts and Counsel Not applicable.
Upon completion of the transactions, Fanhua ceased to directly hold any equity interest in HPH. Employment Agreements See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Employment Agreements” for a description of the employment agreements we have entered into with our senior executive officers. Share Options Please refer to “Item 6. Directors, Senior Management and Employees—B. Compensation.” C.
Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” B. Related Party Transactions Proposed Going Private Transaction On December 16, 2021, our board of directors received a preliminary non-binding proposal letter from a consortium led by Mr.
Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” B.
In 2022, we incurred a total of RMB13.5 million commission cost and RMB7.0 million training cost to Puyi Enterprise and the balance of accounts payable as of December 31, 2022 was RMB5.0 million. Employment Agreements See “Item 6. Directors, Senior Management and Employees—A.
In 2023, we incurred a total of RMB1.5 million commission cost to Puyi Enterprise and the balance of accounts payable as of December 31, 2023 was nil. (iii) In order to diversify our services and product offerings, we started to provide referral services of publicly-raised and privately-raised fund products provided by HPH’s business partners.
Removed
Yinan Hu, our founder, chairman and CEO, proposing to acquire all of the outstanding ordinary shares of the Company not already owned by the consortium for $9.8 per ADS, or $0.49 per ordinary share in a going private transaction. On December 19, 2022, Mr. Hu withdrew the preliminary non-binding going private proposal, effective immediately. Transactions with Puyi Inc.
Added
When our clients have needs for fund products, we referred HPH’s financial advisors to them and HPH’s financial advisors will be responsible for providing product information and handling purchasing procedures. In 2023, we incurred RMB0.5 million referral service fee from HPH and the balance of account receivable as of December 31, 2023 was nil.
Added
(iv) On March 7, 2022, we entered into an agreement with Puyi Consulting, pursuant to which Puyi Consulting provided training services and customer salon support services to our agents. In 2023, we incurred RMB3.2 million services expenses to Puyi Consulting and the balance of other payable as of December 31, 2023 was nil.
Added
In December 2023, we transferred all of our 4.46% equity interests in HPH, or 4,033,600 ordinary shares of HPH, back to HPH. Concurrently, our wholly-owned subsidiary acquired 15.41% equity interests in Puyi Fund, a wholly-owned subsidiary of HPH, in exchange of the aforementioned 4,033,600 ordinary shares of HPH acquired by HPH and an additional cash consideration of approximately RMB10.5 million.

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