Executive Summary / Key Takeaways

• AIFU Inc. is undergoing a profound transformation from a traditional sales-focused insurance intermediary to a technology-driven, platform-centric financial services provider, strategically positioning itself to capitalize on China's evolving regulatory landscape and industry consolidation.
• While the first half of 2025 saw significant revenue declines and an operating loss, primarily due to weakened consumer confidence, reduced commission levels from new regulatory policies, and the divestment of non-core businesses, this period also marked a strategic streamlining of operations.
• The company's core investment thesis is underpinned by its advanced digital empowerment system and open platform strategy, which have historically driven agent productivity, improved operational efficiency, and are expected to attract smaller intermediaries seeking technological and compliance support.
• AIFU is actively pursuing international expansion, notably through joint ventures in Hong Kong, aiming to export its advanced technology and capitalize on underserved broker markets in Asia, alongside a strategic M&A approach focused on technology and quality assets.
• Investors should monitor the pace of regulatory implementation, the effectiveness of AIFU's platform adoption by third-party brokers, and the successful integration of its international and M&A initiatives as key indicators of its long-term growth and profitability.

A Strategic Pivot Amidst Industry Transformation

AIFU Inc., a prominent financial services platform headquartered in Guangzhou, China, is in the midst of a significant strategic evolution. Founded in 1998 by Mr. Yinan Hu, the company has grown from its roots in insurance agency and claims adjusting to now champion a vision of becoming a globally leading, technology-driven financial services platform. This transformation is particularly critical as China's insurance market shifts from a mass agent model to one demanding greater professionalism and technological sophistication, driven by an aging population and increasing demand for comprehensive financial planning.

The broader industry landscape is characterized by declining returns on traditional financial products, making insurance offerings with guaranteed returns, such as those capped at 3%, increasingly attractive as savings vehicles. Concurrently, regulatory changes, including the alignment of reported and actual expenses and commission caps, are reshaping the competitive environment. These changes, while presenting short-term headwinds, are expected to accelerate market consolidation, favoring well-resourced and technologically advanced intermediaries. AIFU's strategic response, encapsulated in its "Professionalization, Specialization, Digitalization, and Open Platform" framework, positions it to emerge as a key beneficiary of this industry-wide realignment.

In the competitive arena, AIFU operates alongside formidable players such as Ping An Insurance , China Life Insurance (LFC), and AIA Group . While these larger, diversified rivals boast extensive networks and robust financial performance, AIFU distinguishes itself through specialized expertise in claims adjusting and consulting, coupled with a private-sector agility that allows for quicker strategic shifts. AIFU's lower debt-to-equity ratio of 0.08, compared to Ping An's 1.50, China Life's 0.10, and AIA's 0.34, indicates a less leveraged balance sheet, providing greater financial flexibility.

However, AIFU's operating profit margin of -24.10% on a trailing twelve-month basis lags significantly behind its larger competitors, highlighting the operational challenges it faces. This underscores the imperative for AIFU to leverage its technological edge and strategic focus to enhance profitability and market share.

Technological Leadership: The Engine of AIFU's Transformation

At the heart of AIFU's strategic pivot is its commitment to technological differentiation. The company has developed an industry-leading digital empowerment system, encompassing five major systems for operational support, management empowerment, professional growth, customer management, customer service, and transaction support. This proprietary technology is designed to enhance efficiency and deliver personalized solutions to clients.

The tangible benefits of this technological investment are evident in several key metrics. Agents who frequently utilize AIFU's digital system demonstrate a productivity that is 1.6 times higher than those who do not. This efficiency gain has contributed to a significant reduction in the company's operating expense ratio, which decreased from 29.4% to 25.7% in 2023 and further to 25.9% in the first quarter of 2023, despite substantial quarterly investments of approximately RMB20 million in IT. Furthermore, AIFU's digital focus has improved business quality, with its 13-month persistency ratio reaching an industry-leading 95.1% and its 25-month persistency ratio at 88.3% in the second quarter of 2023.

AIFU's R&D initiatives are centered on integrating artificial intelligence into its sales and service processes. This includes AI-enabled digital avatars, intelligent recommendation systems, and insurance AI systems, which empower agents with intelligent management tools and the ability to create digital content for platforms like TikTok or Douyin with speed and flexibility. The company's digital tenant system, launched in late October 2023, is a critical component of its open platform strategy, aiming to provide essential mid-end and back-end support to smaller intermediaries, thereby lowering their fixed costs related to IT, compliance, and training. This technological infrastructure is a significant competitive moat, particularly in markets like Hong Kong, where the broker technology segment remains underdeveloped and largely paper-based, placing AIFU's capabilities "10 years ahead" of the local market. This technological advantage is expected to drive AIFU's market positioning and long-term growth by enabling cost efficiencies, superior service delivery, and the ability to attract and integrate third-party brokers onto its platform.

Performance and Strategic Realignment: A Tale of Two Halves

AIFU's financial performance in 2023 showcased the initial success of its strategic transformation. The company achieved RMB16.4 billion in total insurance premiums, representing a 28.7% year-on-year growth, significantly outpacing the overall industry. First-year premiums (FYP) grew by 30.3% year-on-year to RMB3.8 billion. This strong top-line growth translated into robust profitability, with operating income reaching RMB195.8 million, an increase of 16.1% year-on-year, and net income attributable to shareholders surging by 179.7% to RMB280.4 million. The open platform strategy proved to be a key growth driver, accounting for over 30% of total new business in 2023 and contributing RMB550 million in first-year premium in the second quarter of 2023 alone.

However, the first half of 2025 presented a starkly different picture, reflecting the challenging industry headwinds and the impact of strategic divestitures. Total net revenues for the first half of 2025 decreased by 67% to RMB297.4 million (US$41.5 million) from RMB901.1 million in the corresponding period of 2024. This decline was primarily attributed to prolonged weakness in consumer confidence, which exerted broad-based pressure on insurance demand, and a significant reduction in commission levels following the implementation of new policy alignments in the insurance agency/broker channel since late March 2024. The non-life insurance business also saw a 59.1% decrease in net revenues due to the divestiture of Baowang, an online insurance distribution platform, in December 2024.

The impact on profitability was substantial, with AIFU recording an operating loss of RMB7.8 million (US$1.1 million) for the first half of 2025, a significant reversal from an operating income of RMB52.2 million in the prior-year period. The net loss attributable to shareholders reached RMB465.7 million (US$65.0 million), compared to a net income of RMB6.6 million in the first half of 2024. A major contributor to this loss was an impairment of other receivables amounting to RMB486.3 million (US$67.9 million), primarily related to credit loss allowances for loans provided to third parties. In response to these challenges, AIFU streamlined its operations, reducing its sales outlets from 539 in June 2024 to 360 in June 2025, focusing on profitable branches and closing underperforming ones. As of June 30, 2025, the company maintained a cash and short-term investments balance of RMB621.1 million (US$86.7 million), supplemented by a $31.6 million non-brokered private placement announced in July 2025, reinforcing its financial flexibility.

Strategic Outlook and Growth Pillars

AIFU's management views the current industry landscape, despite its challenges, as an "excellent opportunity for market consolidation and expansion." The company's long-term vision is to transform into an infrastructure platform provider for the entire industry, aiming for 60% of its revenues to be generated from platform services in the future.

For 2024 and beyond, AIFU is focused on several key strategic pillars:

• Professionalization of Sales Team: The company aims to increase its market share by growing the number of high-quality agents, particularly Million Dollar Round Table (MDRT) members, and enhancing their capabilities to serve high-net-worth clients. This includes training 3,000 external candidates as Family Office Consultants (FOCs) and implementing a "full license holder plan" for agents.
• Expansion of Service Ecosystem: AIFU is broadening its offerings beyond traditional insurance to include trust services, family office consultancy, healthcare, elderly care, education solutions, and overseas asset allocation, catering to the diverse needs of its target clientele.
• Acceleration of Open Platform Strategy: Regulatory changes, particularly the anticipated commission caps, are expected to accelerate the adoption of AIFU's open platform by smaller intermediaries. The company aims to migrate 100 institutional customers to its digital tenant system in 2023, providing them with products, digital operation tools, professional training, and capital support.
• Global Expansion and M&A: AIFU is steadily advancing its internationalization strategy, with Hong Kong serving as a cornerstone. The company established two joint ventures with Asia Insurance in October 2023, with AIFU holding a 60% controlling interest, focusing on exporting its advanced life insurance distribution technology to the Asia Pacific region. Operations in Hong Kong commenced in early February 2024, and the company is exploring expansion into Macau and Singapore. AIFU's M&A strategy is centered on acquiring high-quality assets that offer technological empowerment, prioritizing quality over quantity.
• Capital Allocation: To support these growth initiatives and capitalize on consolidation opportunities, AIFU has temporarily suspended its dividend policy, reserving capital for M&A and overseas expansion.

Risks and Challenges

Despite its ambitious strategic roadmap, AIFU faces several pertinent risks. The most immediate challenge stems from the evolving regulatory environment in China, particularly the uncertainty surrounding the timing and extent of commission caps in the independent intermediary channel. Industry consensus suggests commission rates for similar products could decrease by 30% to 40%, which would severely impact the business of independent insurance brokers, including AIFU. While AIFU believes it is prepared for these changes, the short-term financial pain is undeniable, as evidenced by the H1 2025 results.

Macroeconomic conditions in China, characterized by weak consumer confidence and a declining risk appetite among investors, continue to exert pressure on insurance demand. The transition from guaranteed to non-guaranteed products also carries the risk of "miss selling," which management believes can only be mitigated through a highly professionalized salesforce. Furthermore, AIFU's reliance on its open platform strategy for future growth means that the successful adoption by third-party brokers and the effective integration of acquired entities are critical. Competition from larger, technologically advanced players like Ping An (PNGAY) and AIA (AAGIY), who are also investing heavily in digital transformation, remains a constant threat to AIFU's market share and profitability.

Conclusion

AIFU Inc. is at a pivotal juncture, undergoing a strategic transformation to become a technology-driven, platform-centric financial services provider. While the first half of 2025 presented significant financial headwinds, marked by revenue declines and an operating loss, these challenges are largely attributable to a dynamic regulatory environment and strategic divestitures aimed at streamlining operations. The company's robust performance in 2023, driven by its digitalization and open platform initiatives, underscores the potential of its long-term strategy.

AIFU's competitive advantage lies in its advanced digital empowerment system, which enhances agent productivity and operational efficiency, and its proactive international expansion into underserved markets like Hong Kong. The company's commitment to M&A focused on technological empowerment and its vision to become an industry infrastructure provider position it to capitalize on the anticipated market consolidation. Investors should recognize AIFU's strategic agility and technological leadership as key drivers for future value creation, while closely monitoring the impact of regulatory changes and the successful execution of its platform and global expansion initiatives.