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July 4, 2019
Cunjun Ma
Chief Executive Officer
Huize Holding Ltd
5/F, Building 3-4
Shenzhen Animation Park, Yuehai Road, Nanhai Avenue
Nanshan District, Shenzhen 518052
People's Republic of China
Re: Huize Holding Ltd
Draft Registration Statement on Form F-1
Submitted June 6, 2019
CIK No. 0001778982
Dear Mr. Ma:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information and
either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
Draft Registration Statement on Form F-1 submitted June 6, 2019
Prospectus Summary, page 1
1. We note your disclosure that industry and market data contained in the
prospectus is
quoted from the Oliver Wyman report that you commissioned. Please
provide us with a
copy of the report marked to identify support for the relevant
statements in the prospectus.
2. Please revise the Summary to explain each defined term at first use. In
particular, we note
that the terms "insurance partners", "insurance clients", "GWP",
"independent platform",
and "long-term insurance product" are necessary to understand your
business model and
therefore require explanation prior to pages 6 and 7.
Cunjun Ma
FirstName LastNameCunjun Ma
Huize Holding Ltd
Comapany NameHuize Holding Ltd
July 4, 2019
July 4, 2019 Page 2
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FirstName LastName
Overview, page 1
3. Please revise the opening paragraphs of the Overview section to
describe clearly your
business and revenue model. These paragraphs should identify your role
as an insurance
intermediary, clarify that you do not bear underwriting risks, and
highlight that you are
compensated primarily through brokerage revenues paid by your
"insurance partners."
Context should be provided so that readers can readily understand the
terms "client base"
and "our products."
4. Please refer to the second paragraph of the Overview and revise to
provide additional
context for the two figures you present. In this regard, it is not
clear from the disclosures
on page 1 and 6 whether, and if so how, these two figures cover your
property & casualty
insurance business. With a view to possible disclosure, please also
tell us why
the "insured" figure is so much larger than the "clients" figure and
whether this same
dynamic exists across the life, health, and property & casualty
markets.
5. With reference to your disclosures on pages 82 and 116, please revise
the third paragraph
of the Overview to highlight the relative importance of long-term
health insurance product
sales to your business in 2018 and also provide a brief discussion of
critical illness
insurance products.
6. Revise the fourth paragraph of the Overview to quantify the number of
years you have
been operating as an insurance intermediary.
7. Please revise the second full paragraph on page 2 to identify the
client services that you
provide to insurance clients.
Our Challenges, page 3
8. Please balance your Summary presentation by adding a new sub-heading
highlighting
risks factors impacting your business. In particular, we note that
your Summary should
address the developing regulatory framework, as cited on pages 14 and
132, and your non-
compliance, or potential non-compliance, with numerous regulatory
requirements, as cited
on pages 14-16, 18, 22, 24-26, and 44.
Corporate History and Structure, page 4
9. With reference to pages 33 and 35, please revise the Summary to
explain briefly the
reasons for the VIE structure and its significance to shareholders.
Also, revise the graphic
on page 7 to identify the following entities: (i) Registrant, (ii)
WFOF and (iii) VIE.
Implications of Being an Emerging Growth Company, page 5
10. Please supplementally provide us with copies of all written
communications, as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your behalf,
Cunjun Ma
FirstName LastNameCunjun Ma
Huize Holding Ltd
Comapany NameHuize Holding Ltd
July 4, 2019
July 4, 2019 Page 3
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FirstName LastName
present to potential investors in reliance on Section 5(d) of the
Securities Act, whether or
not they retain copies of the communications.
Conventions that Apply to this Prospectus, page 6
11. We refer to the first paragraph on page 7. Tell us why your disclosure
only takes into
consideration your operations in mainland China and whether the
operating matrix outside
of mainland China is material to an understanding of your business.
We depend on our cooperation with our insurer partners..., page 18
12. We note that your risk factor disclosure highlights risks relating to
the concentration of
40% of your 2018 revenues in your two largest insurer partners. Please
revise to identify
these two partners. Alternatively, tell us why this information is not
material to
understanding the risk and also identify these partners in your
response.
We may not be able to ensure..., page 18
13. Please revise to clarify your use of the term "affiliated" in this
risk factor.
Use of Proceeds, page 60
14. Please revise to describe the "technology" and "client acquisition"
uses.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Operating costs and expenses, page 82
15. Please revise to describe and quantify the components of the caption
titled "Cost of
revenue", such as service fees and insurance consultants, and explain
the primary factors
underlying changes in each of these component costs for each period
presented.
16. Please describe and quantify for each period presented costs for the
following activities:
(A) development and maintenance of your online insurance product and
service platform,
(B) assistance to your insurance clients in product design, product
selection, underwriting
and claim application/settlement and (C) assistance to your insurance
company partners in
technology support, systems integration and product design/pricing and
the regulatory
approval process. Explain the factors underlying material changes in
each of these
amounts and your reasonably likely expectation for the future trend in
these costs. Revise
your disclosures accordingly.
Critical Accounting Policies
Reorganization, page 88
17. Please address the following regarding the June 2019 reorganization
which you describe
as a "non-substantial merger with no change in the basis of Huiye
Tainze's assets and
Cunjun Ma
FirstName LastNameCunjun Ma
Huize Holding Ltd
Comapany NameHuize Holding Ltd
July 4, 2019
July 4, 2019 Page 4
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FirstName LastName
liabilities" and have presented the reorganization retroactively, as
if the Company had
existed in its current corporate form at January 1, 2017:
Please provide an analysis that more clearly explains your
accounting treatment for the
June 2019 reorganization.
Tell us the basis for your accounting treatment, referring us to the
specific technical
guidance upon which you relied.
Explain the similarity in shareholding structures referenced on page
69, whereby
shareholders of Shenzhen Huiye Tianze Investment Holding Co. Ltd
or Huiye Tainze
include "PRC holding entities of our shareholders, holding shares
in Huiye Tianze in a
shareholding structure substantially identical to their respective
shareholding in our
company."
Confirm that your shareholders are also the shareholders in your VIE
that appear to
hold a 72.44% controlling interest and explain the factors that
you considered in
determining that this ownership structure complied with existing
and emerging PRC
laws.
Explain why the number of Series A, Series B, Series B+ and Series
B++ redeemable
common shares that were outstanding at December 31, 2018 and 2017
equaled the
corresponding number of Series A, Series B, Series B+ and Series
B++ preferred
shares issued on June 6, 2019. Explain the relationship between
these separate security
issuances.
Explain the differences between the number of shares issued on pages
II-1 and II-2
and the corresponding number of shares issued on June 6, 2019
discussed on page 88.
Revenue Recognition
Consulting services, page 89
18. Please address the following regarding your consulting service
revenues:
You state that for both your risk consulting and insurance
consulting services you
determined that is the insured party is the customer. Clarify
whether you only provide
these consulting services to individuals who ultimately purchase an
insurance policy
through your brokerage business.
Revise this section, as well as your business section and revenue
recognition footnotes
to more clearly identify the nature of the consulting services you
provide.
o Clearly differentiate your risk consulting services versus your
insurance consulting
services.
o Clearly differentiate the activities you perform for and
benefits received by the
insured customer for your consulting services versus the
services and advice you
provide under a broker relationship.
o Clarify the extent to which the insured parties to whom you
provide consulting
services tend to purchase the same type of policies as
individuals who use you as a
broker without consulting services. Alternatively, if the
policies purchased by
customers of your consulting business are more customized
and/or complex,
Cunjun Ma
FirstName LastNameCunjun Ma
Huize Holding Ltd
Comapany NameHuize Holding Ltd
July 4, 2019
Page 5
July 4, 2019 Page 5
FirstName LastName
disclose that fact and explain the differences.
Explain how brokerage commissions are processed once you receive
the total
"contract price." In this regard, you state that "of the total
contract price received, the
amount equal to the premium of the insurance product ...is
recorded as insurance
premium payable, while the remaining is recorded as revenue for
the consulting
service."
Explain the extent to which the pricing of the insurance product
differs for those on
which you provide consulting services compared to insured products
on which you
provide no consulting service.
Explain how you determine the value and price of your consulting
services.
Share-based Compensation, page 90
19. Once you have an estimated offering price range, please explain to us
the reasons for any
differences between recent valuations of your ordinary shares leading
up to the planned
offering and the midpoint of the estimated offering price range. This
information will help
facilitate our review of your accounting for equity issuances,
including stock
compensation and beneficial conversion features.
Our Industry, page 96
20. With reference to your disclosures on pages 3 and 99, please revise
the Industry section to
identify and explain the PRC government policies and ongoing
healthcare reform efforts
that have boosted demand for long-term health and long-term life
policies.
Business
Our Strategies
Deepen our cooperative relationships with insurer partners, page 108
21. Please expand your disclosure to discuss the anticipated investment
and timeframe
applicable to your plan to optimize transaction processes, including
system integration, in-
force policy administration, intelligent underwriting and claims
settlement. Discuss, as
applicable, the compliance efforts and costs necessary to meet
regulatory requirements.
Our Insurer Partners, page 115
22. Please revise to expand your discussion of the agreements governing
your cooperative
arrangements with insurer partners. Discuss, as applicable, the scope
of services you
typically provide, the respective rights and obligations of the
parties, financial terms,
indemnification provisions, and term and termination provisions.
Our product offerings, page 116
23. Please revise the table to also include 2017 data. In addition, we
note that throughout the
prospectus you present other measures, including operating revenues
(page 79) and gross
Cunjun Ma
Huize Holding Ltd
July 4, 2019
Page 6
written premiums (pages 82 and 105) to highlight annual product sales
and growth by
product category. Please consider adding these two measures to the
table to provide a
more comprehensive presentation of your product offerings.
24. Please revise to disclose the insured partners who underwrite the
long-term health
insurance products that you discuss on pages 116 and 117. In this
regard, we note that
you disclose this information for the short-term health and life
insurance products
discussed on page 117.
Branding, Marketing and Sales, page 119
25. Your MD&A disclosure on page 78 indicates that fees to user traffic
channels constituted
the largest component of your operating costs and expenses. In
addition, your risk factor
disclosure on page 22 discusses two different business models (CPS and
API) employed
by these user traffic channels and highlights regulatory risks related
to your past and
current cooperation with these channels. Given the importance of these
user channels to
your business operations, please revise your Business discussion to
provide a more
detailed discussion of user traffic channels, including the business
models and fee
structures employed, as well as the applicable regulatory environment.
26. Please revise to expand your discussion of product branding. In this
regard, please revise
to discuss the extent to which the products you sell are direct and/or
co-branded. Also tell
us, and revise as applicable, to clarify whether your tailor-made
insurance products are
also co-branded. Also, revise your Summary disclosure to discuss
briefly product
branding, and if material, co-branding.
Risk Management and Internal Control, page 121
27. We note your statement that you have adopted policies and procedures
to ensure rigorous
risk management and internal controls, as well as your reference to
exceptional risk
management on page 123. Please disclose the basis for these
disclosures. In this regard,
we note that you do not discuss the oversight or resources committed
to compliance with
these policies and procedures and you cite numerous examples of
non-compliance in your
risk factor disclosures.
Intelligent Underwriting, page 122
28. Please revise to clarify whether it is the insured or the insurer who
makes underwriting
related queries to your client service representatives. Please also
disclose the basis for
FirstName LastNameCunjun your rigorous and effective underwriting process is
key to managing
your stated belief that Ma
Comapany NameHuize Holding Ltd Discuss, as applicable, whether claims data,
profitability
risks for your insurer partners.
July 4, metrics for 6
2019 Page your insurer partners, or other quantitative measures support
the statement.
FirstName LastName
Cunjun Ma
FirstName LastNameCunjun Ma
Huize Holding Ltd
Comapany NameHuize Holding Ltd
July 4, 2019
Page 7
July 4, 2019 Page 7
FirstName LastName
Taxation
People's Republic of China Taxation, page 174
29. Based on the disclosure in this section and the Exhibit Index, it is
unclear whether
Commerce & Finance Law Offices is providing a "short" or a "long form"
opinion and
which of the "certain" PRC tax matters are covered by that opinion.
Please refer to Staff
Legal Bulletin No. 19, Part III and note that we may have comment once
Exhibit 8.2 is
filed and the scope of the opinion clarified.
Notes to Consolidated Financial Statements
2. Summary of significant accounting policies
(a) Basis of presentation, page F-12
30. You have identified yourself as an emerging growth company as defined
by the Securities
Act. Please expand your disclosure to include an explicit statement of
your decision to
elect or not elect use of the extended transition period for complying
with new or revised
financial accounting standards. Expand the risk factor discussion on
page 56 accordingly.
(b) Basis of consolidation, page F-14
31. Please explain the following statements that appear to conflict with
the dividend
restrictions described in Note 24, and reconcile any apparent
inconsistencies:
Under the contractual arrangements with the VIE, the Company "can
have assets
transferred out of the VIE and VIE's subsidiaries."
There is no asset of the VIE that can only be used to settle
obligations of the VIE and
VIE's subsidiaries, except for registered capital of the VIE and
their subsidiaries,
amounting to RMB328,737 thousand at December 31, 2018 and 2017.
Explain how this amount of registered capital was determined and how
it relates to assets
and liabilities of Huiye Tianze, disclosed on page F-13.
Cunjun Ma
FirstName LastNameCunjun Ma
Huize Holding Ltd
Comapany NameHuize Holding Ltd
July 4, 2019
July 4, 2019 Page 8
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(w) Revenue recognition, page F-22
32. Please provide an accounting analysis that supports your adoption of
ASU 2014-09,
including a description of performance obligations identified in the
contract, the
composition of the transaction price, your basis for allocating the
transaction price to
performance obligations, and the factors you considered in
establishing revenue
recognition to be either at a point in time or over time. Please
address the following in
your response as well as your revised disclosure, referring to the
specific guidance of ASU
2014-09 on which you relied:
Explain your consideration of whether loyalty programs, as discussed
on pages 88-89,
represent performance obligations or variable consideration under
the new guidance.
Describe and quantify the terms governing annual service contracts
with your
insurance company partners and your process for determining the
existence of
associated performance obligations under the new guidance.
Describe and quantify the terms governing your risk consulting and
insurance
consulting services to the insured, including how the "total
contract price" and the
"premium of the insurance product as agreed with the insurance
company" are
determined. Explain your process for determining the existence of
associated
performance obligations under the new guidance.
Describe any other adjustments to revenues or payments to customers
and how you
considered them as part of your adoption.
Explain your consideration of how costs associated with obtaining
and fulfilling the
annual service contract with your insurance company partners and
costs associated
with risk consulting and insurance consulting services provided to
your insurance
clients should be recognized under the new guidance.
Describe and quantify the extent to which the adoption of the new
guidance altered the
timing of revenue recognition as determined under the prior
guidance for each of your
major revenue streams.
(x) Cost of revenue, page F-23
33. Please revise to explain the terms governing "service fee paid to user
traffic channels for
successful sales" and confirm whether these fees constitute your total
"channel cost."` In
addition, clarify your statement that "channel cost is recognized when
insurer obtains
control of the insurance brokerage service, which is consistent with
the revenue
recognition." In particular, explain the process and timing for
establishing insurer control
of the insurance brokerage service.
Cunjun Ma
FirstName LastNameCunjun Ma
Huize Holding Ltd
Comapany NameHuize Holding Ltd
July 4, 2019
July 4, 2019 Page 9
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FirstName LastName
General
34. Please ensure that all graphics are legible, including in the Industry
section, and provide
us proofs of all graphics, visual, or photographic information you
will provide in the
printed prospectus prior to its use, for example in a preliminary
prospectus. Please note
that we may have comments regarding this material.
You may contact Franklin Wyman at 202-551-3660 or Kevin Vaughn,
Accounting
Branch Chief, at 202-551-3494 if you have questions regarding comments on the
financial
statements and related matters. Please contact Christine Westbrook at
202-551-5019 or Joseph
McCann at 202-551-6262 with any other questions.
Sincerely,
Division of
Corporation Finance
Office of
Healthcare & Insurance